EXECUTION COPY
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STOCK PURCHASE AGREEMENT
by and among
CENDANT CORPORATION,
CENDANT MEMBERSHIP SERVICES, INC.
and
XXXXX X.X.
Dated as of November 19, 1998
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TABLE OF CONTENTS
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ARTICLE I
SALE OF STOCK
Section 1.1. Purchase and Sale ................................................................ 1
Section 1.2. Post-Closing Purchase Price Adjustment ........................................... 1
Section 1.3. Post-Closing 1998 EBITDA and Net Income Payments ................................. 5
Section 1.4. 1999 Net Sales Adjustment ........................................................ 9
Section 1.5. Adjustment Issues ................................................................ 12
Section 1.6. Time and Place of Closing ........................................................ 13
Section 1.7. Deliveries by the Seller ......................................................... 13
Section 1.8. Deliveries by the Buyer .......................................................... 13
Section 1.9. Use of the Seller's Name and Logo ................................................ 14
Section 1.10. Books and Records of the Company ................................................. 14
Section 1.11. Preservation of Records .......................................................... 14
Section 1.12. Termination of Intercompany Relationships ........................................ 15
Section 1.13. Intercompany Accounts; Guaranties ................................................ 15
Section 1.14. Optional Restructuring .......................................................... 15
Section 1.15. Assumption of Liabilities ....................................................... 17
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
Section 2.1. Organization; Etc. ............................................................... 18
Section 2.2. Authority Relative to this Agreement ............................................. 18
Section 2.3. Capitalization; Ownership of Shares .............................................. 18
Section 2.4. Consents and Approvals; No Violations ............................................ 19
Section 2.5. Financial Statements ............................................................. 20
Section 2.6. Absence of Undisclosed Liabilities ............................................... 21
Section 2.7. Absence of Certain Changes ...................................................... 21
Section 2.8. Litigation ....................................................................... 21
Section 2.9. Compliance with Law .............................................................. 22
Section 2.10. Employee Benefit Plans ........................................................... 22
Section 2.11. Labor Relations .................................................................. 25
Section 2.12. Taxes ............................................................................ 25
Section 2.13. Material Contracts ............................................................... 26
Section 2.14. Real Property .................................................................... 27
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Section 2.15. Environmental .................................................................... 28
Section 2.16. Intellectual Property ............................................................ 30
Section 2.17. Year 2000 Compliance ............................................................. 32
Section 2.18. Brokers; Finders and Fees ........................................................ 32
Section 2.19. Assets ........................................................................... 32
Section 2.20. Insurance ....................................................................... 33
Section 2.21. Product Warranty ................................................................ 33
Section 2.21. Transactions with Affiliates ..................................................... 33
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
Section 3.1. Organization; Etc. ............................................................... 34
Section 3.2. Authority Relative to this Agreement ............................................. 34
Section 3.3. Consents and Approvals; No Violations ............................................ 34
Section 3.4. Acquisition of Shares for Investment; Ability to Evaluate and Bear Risk .......... 34
Section 3.5. Availability of Funds ............................................................ 35
Section 3.6. Litigation ....................................................................... 35
Section 3.7. Seller's Liability ............................................................... 35
Section 3.8. Brokers; Finders and Fees ........................................................ 35
ARTICLE IV
COVENANTS OF THE PARTIES
Section 4.1. Conduct of Business of the Company ............................................... 35
Section 4.2. Access to Information for the Buyer .............................................. 37
Section 4.3. Consents; Cooperation ........................................................... 37
Section 4.4. No Solicitation .................................................................. 38
Section 4.5. Reasonable Efforts ............................................................... 38
Section 4.6. Notice of Developments ........................................................... 38
Section 4.7. Public Announcements ............................................................. 38
Section 4.8. Tax Matters ...................................................................... 39
Section 4.9. Employees; Employee Benefits ..................................................... 49
Section 4.10. Indemnification of Directors and Officers ........................................ 51
Section 4.11. Non-Competition; Non-Solicitation ................................................ 51
Section 4.12. Further Assurances ............................................................... 52
Section 4.13. Current Information .............................................................. 52
Section 4.14. Confidential Information ......................................................... 52
Section 4.15. Year 2000 Compliance ............................................................. 53
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ARTICLE V
CONDITIONS TO CONSUMMATION OF THE STOCK PURCHASE
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Section 5.1. Conditions to Each Party's Obligations to Consummate the Stock Purchase .......... 53
Section 5.2. Further Conditions to the Seller's Obligations ................................... 53
Section 5.3. Further Conditions to the Buyer's Obligations .................................... 54
ARTICLE VI
TERMINATION AND ABANDONMENT
Section 6.1. Termination ...................................................................... 55
Section 6.2 Procedure for, and Effect of Termination ......................................... 55
ARTICLE VII
SURVIVAL AND INDEMNIFICATION
Section 7.1. Survival Periods ................................................................. 56
Section 7.2. Seller's Agreement to Indemnify .................................................. 56
Section 7.3. The Buyer's Agreement to Indemnify ............................................... 58
Section 7.4 Third Party Indemnification ...................................................... 59
Section 7.5. Insurance ........................................................................ 61
Section 7.6. No Duplication; Sole Remedy ...................................................... 62
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 8.1. Amendment and Modification ....................................................... 62
Section 8.2. Entire Agreement; Assignment ..................................................... 62
Section 8.3. Severability ..................................................................... 62
Section 8.4. Notices .......................................................................... 62
Section 8.5. Governing Law; Jurisdiction ...................................................... 64
Section 8.6. Descriptive Headings ............................................................ 64
Section 8.7. Counterparts .................................................................... 64
Section 8.8. Fees and Expenses ................................................................ 64
Section 8.9 No Right of Offset/Setoff ........................................................ 65
Section 8.10. Interpretation ................................................................... 65
Section 8.11. No Third Party Beneficiaries ..................................................... 65
Section 8.12. No Waivers ...................................................................... 65
Section 8.13. Specific Performance ............................................................. 65
Section 8.14. Currency ......................................................................... 66
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of November 19, 1998 (this
"Agreement"), by and among Cendant Corporation, a Delaware corporation
("Cendant"), Cendant Membership Services, Inc., a Delaware corporation and
wholly owned subsidiary of Cendant ("CMS" and, together with Cendant, the
"Seller"), and Xxxxx X.X., a societe anonyme organized under the laws of France
(the "Buyer").
WHEREAS, CMS owns all of the outstanding shares of capital stock
of Cendant Software Corporation, a Delaware corporation (the "Company"); and
WHEREAS, the Seller desires to sell to the Buyer, and the Buyer
desires to purchase from the Seller, 10 shares (the "Shares") of common stock,
par value $.01 per share (the "Common Stock"), representing all of the issued
and outstanding shares of the Company, upon the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements contained herein, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
SALE OF STOCK
Section 1.1. Purchase and Sale. Upon the terms and subject to the
conditions of this Agreement, at the Closing (as hereinafter defined), CMS will
sell, convey, assign, transfer and deliver to the Buyer, and Cendant shall
cause CMS to sell, convey, assign, transfer and deliver to the Buyer, and the
Buyer will purchase, acquire and accept from CMS the Shares free and clear of
all Liens (as hereinafter defined), in consideration for which, at the Closing,
the Buyer will pay to the Seller an amount equal to Eight Hundred Million
Dollars ($800,000,000) in cash, by wire transfer of immediately available funds
to an account or accounts designated by the Seller prior to the Closing (the
"Closing Date Cash Payment"). The Closing Date Cash Payment shall be subject to
adjustment as set forth in Section 1.2. Subject to satisfaction of the
conditions specified in Sections 1.3 and 1.4, the Buyer shall be obligated to
make certain additional payments to the Seller in accordance with the terms of
such Sections. The transactions contemplated by this Section 1.1 are sometimes
herein referred to as the "Stock Purchase."
Section 1.2. Post-Closing Purchase Price Adjustment. (a) As
promptly as practicable, but no later than 90 days after the Closing Date (as
hereinafter defined), the Seller will cause to be prepared and delivered to the
Buyer (i) the consolidated balance sheet of the Company as of December 31, 1998
(the "Closing Balance Sheet") and the related consolidated statements of income
(with related footnotes, the "1998 Income Statement", all
of which, notwithstanding the foregoing shall be delivered no later than March
31, 1999 for purposes of Section 1.3), changes in stockholders' equity and cash
flows of the Company for the year then ended (collectively, the "Closing
Financials"), prepared in accordance with the Applicable Accounting Principles
(as hereinafter defined) accompanied by the draft opinion of Deloitte & Touche
LLP, independent auditors for the Seller, (ii) if the Closing Date shall not
have occurred by December 31, 1998, the consolidated balance sheet of the
Company as of the Closing Date, the related audited statements of income (the
"Stub Period Income Statement"), changes in stockholders' equity and cash flows
of the Company (collectively, the "Stub Period Financials"), accompanied by the
draft opinion of Deloitte & Touche LLP, for the period commencing January 1,
1999 and ending on the Closing Date (the "Stub Period"), which Stub Period
Financials shall be prepared in accordance with the Applicable Accounting
Principles; and (iii) a certificate of the chief financial officer or chief
accounting officer of Seller, setting forth the "Closing Equity" (as
hereinafter defined), the amount of consolidated net income (loss) of the
Company for the Stub Period (the "Stub Period Income (Loss)"), and the amount
of any adjustment to the Closing Date Cash Payment pursuant to this Section
1.2, together with supporting calculations (the "Adjustment Certificate").
Deloitte & Touche LLP shall perform all audit procedures and processes on the
Closing Financials and the Stub Period Financials necessary to sign and deliver
an auditor's report thereon, and the Closing Financials and the Stub Period
Financials shall be accompanied by the draft auditor's report thereon from the
Seller's accountants to the effect that (x) the Closing Financials present
fairly the consolidated financial position, results of operations and cash
flows of the Company as of the close of business on December 31, 1998 (and for
the year then ended) and (y) if applicable, the Stub Period Financials present
fairly the consolidated financial position, results of operations and cash
flows of the Company as of the close of business on the Closing Date (and for
the Stub Period), in accordance with the Applicable Accounting Principles. The
Buyer shall have 90 days from the date on which the latest of the Closing
Financials, the Stub Period Financials and the Adjustment Certificate are
delivered to it to review such documents (the "Review Period"). The parties
hereto and their respective accountants shall be provided with customary access
(of the nature and extent provided Buyer's accountants in connection with their
review of the Annual Financial Statements) to the work papers of the Seller's
accountants (subject to Buyer's entry into a customary waiver and
indemnification agreement with Seller's accountants) in connection with the
preparation and review of the Closing Financials and the Stub Period
Financials, if applicable. If the Buyer disagrees in any respect with any item
or amount shown or reflected in the Closing Financials, the Stub Period
Financials or the Adjustment Certificate or with the calculation of the Closing
Equity or the Stub Period Income (Loss) or the proposed adjustment to the
Closing Date Cash Payment pursuant to this Section 1.2, the Buyer may, on or
prior to the last day of the Review Period, deliver a written notice to the
Seller setting forth, in reasonable detail, each disputed item or amount and
the basis for the Buyer's disagreement therewith (the "Dispute Notice"). If no
Dispute Notice is received by the Seller on or prior to the last day of the
Review Period, then the Closing Financials, the Stub Period Financials and the
Adjustment Certificate shall be deemed accepted by the Buyer.
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(b) For 30 days after the Seller's receipt of a Dispute Notice,
the parties shall endeavor in good faith to resolve by mutual agreement all
matters in the Dispute Notice. In the event the parties are unable to resolve
by mutual agreement, any matter in the Dispute Notice within such 30-day
period, the Buyer and the Seller hereby agree that they shall engage
PriceWaterhouseCoopers LLC as the "Accountant" (if PriceWaterhouseCoopers LLC
is unable or unwilling to serve as the Accountant, the parties' respective
financial advisors shall, within 15 days of the end of such 30-day period,
agree on an alternate independent accounting firm), in respect of this Section
1.2. The Accountant shall conduct such review of the Closing Financials, the
Stub Period Financials, if applicable, any related work papers of the Seller's
accountants, the Adjustment Certificate and the Dispute Notice, and any
supporting documentation as the Accountant in its sole discretion deems
necessary, and the Accountant shall conduct such hearings or hear such
presentations by the parties or obtain such other information as the Accountant
in its sole discretion deems necessary.
(c) The Accountant shall, as promptly as practicable and in no
event later than 45 days following the date of its retention, deliver to the
Seller and the Buyer a report (the "Adjustment Report") in which the Accountant
shall, after reviewing disputed items set forth in the Dispute Notice,
determine what adjustments, if any, should be made to the Closing Financials
and/or the Stub Period Financials in order for each to comply with the
Applicable Accounting Principles and this Section 1.2 and shall determine the
appropriate Closing Equity and Stub Period Income (Loss) on that basis. The
Adjustment Report shall set forth, in reasonable detail, the Accountant's
determination with respect to each of the disputed items or amounts specified
in the Dispute Notice, and the revisions, if any, to be made to the Closing
Financials and/or the Stub Period Financials, the Adjustment Certificate, the
Closing Equity and Stub Period Income (Loss), together with supporting
calculations. All fees and expenses relating to this work of the Accountant
shall be borne equally by the Buyer and the Seller. The Adjustment Report shall
be final and binding upon the Buyer and the Seller, shall be deemed a final
arbitration award that is binding on each of the Buyer and the Seller, and no
party shall seek further recourse to courts, other arbitral tribunals or
otherwise.
(d) The Closing Date Cash Payment shall be reduced by the amount,
if any, by which the Closing Equity is less than the Closing Target Equity (as
hereinafter defined) or increased by the amount, if any, by which the Closing
Equity exceeds the Closing Target Equity. Interest shall be paid on the amount
of adjustment to be made pursuant to this paragraph (d) at the Applicable Rate,
as provided below. The "Closing Target Equity" shall equal $344.7 million,
increased by the amount of the Stub Period Income if positive, or $344.7
million decreased by the amount of the Stub Period Loss if negative. "Closing
Equity" shall mean, as calculated in accordance with the Applicable Accounting
Principles, on a consolidated basis for the Company and its Subsidiaries, total
assets minus total liabilities immediately prior to the Closing. For the
purposes of calculating Closing Equity, the parties agree: (i) not to propose
any extraordinary writeoffs or impairments of goodwill, intangibles or licenses
other than those writeoffs or impairments of goodwill, intangibles or licenses
already presented in the Closing Financials prepared by the Seller; (ii) to
exclude all
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Retained Liabilities assumed by the Seller and any funding provided by the
Seller with respect thereto; (iii) to reflect that all intercompany assets and
liabilities owed to or from the Seller and its affiliates (other than the
Company and its Subsidiaries) are converted into equity; (iv) to exclude any
purchase accounting implications related to the transactions contemplated in
this Agreement; provided, however, that if the Closing Equity exceeds the
Closing Target Equity, the liabilities, reserves and/or accruals attributable
to the Option Amendments and/or the Bonus Pool (as hereinafter defined) (the
"Option/Bonus Liability") which in the absence of clause (ii) above would have
been deducted from Closing Equity will, notwithstanding such clause (ii), be
deducted from Closing Equity, provided that the amount of the Option/Bonus
Liability shall not reduce Closing Equity below Closing Target Equity.
(e) Within five business days following Seller's delivery of the
Closing Financials, the Buyer or the Seller, as applicable, shall pay to the
other party 50% of the amount which would properly be payable pursuant to the
first sentence of paragraph (d) if the Closing Financials and the Adjustment
Certificate were to be deemed accepted by the Buyer, with interest on such
amount at the Applicable Rate from the Closing Date through the date of
payment. Any such payment shall be made by wire transfer of immediately
available funds to an account or accounts designated by the Buyer or the
Seller, as the case may be, prior to the applicable payment date.
(f) Effective upon the end of the Review Period (if a timely
Dispute Notice is not delivered), or upon the resolution of all matters set
forth in the Dispute Notice by mutual agreement of the parties or by the
issuance of the Adjustment Report (if a timely Dispute Notice is delivered),
(i) if an additional payment is owing by the party which made payment pursuant
to paragraph (e) above to obtain the result provided for in the first two
sentences of paragraph (d), such party shall make the payment, with interest on
such amount at the Applicable Rate from the Closing Date until the date such
payment is made, by wire transfer of immediately available funds to an account
or accounts designated by the Buyer or the Seller, as the case may be, prior to
the applicable payment date and (ii) if the payment made pursuant to paragraph
(e) exceeded the amount necessary to obtain the result provided for in the
first sentence of paragraph (d) or if the party making payment pursuant to
paragraph (e) should not have made any payment and/or should have instead been
the recipient of a payment, in each case in order to obtain the result provided
for in the first sentence of paragraph (d), the party which had previously been
paid pursuant to paragraph (e) shall make payment to the other party in an
amount such that the result provided for in the first sentence of paragraph (d)
is achieved, with interest on such amount payable hereunder at the Applicable
Rate from the Closing Date to the date of the payment made under this paragraph
(f).
(g) Any interest payable pursuant to Section 1.2(e) or (f) shall
be paid at the following rates: from the Closing Date through the 90th day
following the Closing, 3-month London Interbank Offered Rate as published by
Bloomberg as in effect at the close of
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business on the Closing Date ("LIBOR") plus 60 basis points; from the 91st day
following the Closing Date through the 120th day following the Closing Date,
7.5% per annum; and from and after the 121st day following the Closing Date, at
10% per annum, and such rate as in effect from time to time shall be the
"Applicable Rate" for purposes of this Section 1.2; provided, however, that the
counting of days following the Closing Date shall be suspended during such time
as the party benefiting from the increase in interest rate shall not be in
compliance with the provisions and deadlines contained in this Section 1.2.
Section 1.3. Post-Closing 1998 EBITDA and Net Income Payments .
(a) As promptly as practicable, but no later than March 31, 1999, the Seller
will cause to be prepared and delivered to the Buyer a certificate of the chief
financial officer or chief accounting officer of the Seller, setting forth the
Adjusted 1998 EBITDA (as hereinafter defined) and the 1998 Net Income, together
with supporting calculations (the "EBITDA Adjustment Certificate") based upon
the 1998 Income Statement. The 1998 Income Statement and the EBITDA Adjustment
Certificate shall be accompanied by the draft auditor's report thereon from the
Seller's accountants to the effect that the 1998 Income Statement and the
EBITDA Adjustment Certificate present fairly the consolidated results of
operations, the 1998 Net Income and the Adjusted 1998 EBITDA of the Company for
the year ended December 31, 1998 (without giving effect to the sale and
purchase of the Shares or any subsequent transaction contemplated hereby) in
accordance with the Applicable Accounting Principles. The Buyer shall have 90
days from the date on which the 1998 Income Statement and the EBITDA Adjustment
Certificate are delivered to it to review such documents (the "EBITDA Review
Period"). In furtherance of the foregoing, the Buyer shall cause the Company
and each of the Company's Subsidiaries to give the Seller and its authorized
representatives reasonable access to all books, records, personnel, offices and
other facilities and properties of the Company, the Subsidiaries (as
hereinafter defined) of the Company and the Company's accountants as the Seller
may require in order to prepare the 1998 Income Statement and the EBITDA
Adjustment Certificate; provided, however, that any such access shall be
conducted in such a manner as not to interfere unreasonably with the operation
of the business of the Buyer, the Company or any Subsidiary of the Company. If
the Buyer disagrees in any respect with any item or amount shown or reflected
in the 1998 Income Statement or the EBITDA Adjustment Certificate or with the
calculation of the 1998 Net Income or the Adjusted 1998 EBITDA, the Buyer may,
on or prior to the last day of the EBITDA Review Period, deliver a written
notice to the Seller setting forth in reasonable detail each disputed item or
amount and the basis for the Buyer's disagreement therewith (the "EBITDA
Dispute Notice"). If no EBITDA Dispute Notice is received by the Seller on or
prior to the last day of the EBITDA Review Period, then the 1998 Income
Statement and the EBITDA Adjustment Certificate shall be deemed accepted by the
Buyer.
(b) For 30 days after the Seller's receipt of an EBITDA Dispute
Notice, the parties shall endeavor in good faith to resolve by mutual agreement
all matters in the EBITDA Dispute Notice. In the event that the parties are
unable to resolve by mutual agreement any matter in the EBITDA Dispute Notice
within such 30-day period, the Buyer
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and the Seller hereby agree that they shall engage the Accountant in respect of
Section 1.3. The Accountant shall conduct such review of the 1998 Income
Statement, any related work papers of the Seller's accountants, the EBITDA
Adjustment Certificate and the EBITDA Dispute Notice, and any supporting
documentation as the Accountant in its sole discretion deems necessary, and the
Accountant shall conduct such hearings or hear such presentations by the
parties or obtain such other information as the Accountant in its sole
discretion deems necessary.
(c) The Accountant shall, as promptly as practicable and in no
event later than 45 days following the date of its retention, deliver to the
Seller and the Buyer a report (the "EBITDA Adjustment Report") in which the
Accountant shall, after considering all matters set forth in the EBITDA Dispute
Notice, determine what adjustments, if any, should be made to the 1998 Income
Statement in order for it to comply with the Applicable Accounting Principles
and this Section 1.3 and shall determine the appropriate Adjusted 1998 EBITDA
and 1998 Net Income on that basis. The EBITDA Adjustment Report shall set
forth, in reasonable detail, the Accountant's determination with respect to
each of the disputed items or amounts specified in the EBITDA Dispute Notice,
and the revisions, if any, to be made to the 1998 Income Statement, the EBITDA
Adjustment Certificate and the Adjusted 1998 EBITDA and 1998 Net Income,
together with supporting calculations. All fees and expenses relating to this
work of the Accountant shall be borne equally by the Buyer and the Seller. The
EBITDA Adjustment Report shall be final and binding upon the Buyer and the
Seller, shall be deemed a final arbitration award that is binding on each of
the Buyer and the Seller, and no party shall seek further recourse to courts,
other arbitral tribunals or otherwise.
(d) Buyer shall make an additional payment in accordance with
paragraphs (f) and (g) of this Section 1.3 to the Seller of $100 million if
Adjusted 1998 EBITDA, as finally determined pursuant to this Section 1.3, is
equal to or greater than $60 million; if Adjusted 1998 EBITDA, as finally
determined pursuant to this Section 1.3, is $50 million or less, the Buyer
shall not make an additional payment to the Seller in respect of Adjusted 0000
XXXXXX; if Adjusted 1998 EBITDA, as finally determined pursuant to this Section
1.3, is more than $50 million but less than $60 million, the Buyer shall make
an additional payment to the Seller in respect of Adjusted 1998 EBITDA as set
forth below; accordingly, the following table sets forth the agreement of the
parties with respect to such potential additional payment:
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ADJUSTED 1998 EBITDA AMOUNT PAYABLE
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$ 60 million or more $ 100 million
$ 55 million $ 50 million
$ 50 million or less $ 0.00
The additional payment in respect of amounts of Adjusted 1998 EBITDA between
those specified above shall be determined by linear interpolation. The amount
of any additional payment to be made pursuant to this paragraph (d) shall bear
interest at the Applicable Rate, as provided below.
(e) The Buyer shall also make an additional payment to the Seller
of an amount equal to 1998 Net Income, if a positive amount, in accordance with
paragraphs (f) and (g) of this Section 1.3. Interest shall be paid on the
additional payment made pursuant to this paragraph (e) at the Applicable Rate,
as provided below.
(f) Within five business days following the Seller's delivery of
the 1998 Income Statement and EBITDA Adjustment Certificate and the amounts of
Adjusted 1998 EBITDA and 1998 Net Income derived therefrom, the Buyer shall pay
to the Seller 50% of the amount which would properly be payable pursuant to the
first two sentences of paragraph (d) and the first sentence of paragraph (e) if
the 1998 Income Statement and EBITDA Adjustment Certificate and the amounts of
Adjusted 1998 EBITDA and 1998 Net Income derived therefrom, were to be deemed
accepted by the Buyer, with interest on such amount at the Applicable Rate from
the Closing Date through the date of payment. Any such payment shall be made by
wire transfer of immediately available funds to an account or accounts
designated by the Buyer or the Seller, as the case may be, prior to the
applicable payment date.
(g) Effective upon the end of the EBITDA Review Period (if a
timely EBITDA Dispute Notice is not delivered), or upon the resolution of all
matters set forth in the EBITDA Dispute Notice by mutual agreement of the
parties or by the issuance of the EBITDA Adjustment Report (if a timely EBITDA
Dispute Notice is delivered), (i) if an additional payment is owing by the
Buyer to obtain the results provided for in the first two sentences of
paragraph (d) and the first sentence of paragraph (e), the Buyer shall make the
payment, with interest on such amount at the Applicable Rate from the Closing
Date through the date of payment, by wire transfer of immediately available
funds to an account or accounts designated by the Seller prior to the
applicable payment date or (ii) if the payment made pursuant to paragraph (f)
exceeded the amount necessary to obtain the result provided for in the first
sentence of paragraph (d) and the first sentence of paragraph (e) or if the
Buyer should not have made any payment, in each case in order to obtain the
result provided for in the first two sentences of paragraph (d) and the first
sentence of paragraph (e), the Seller shall make payment to the Buyer in an
amount such that the result provided for in the first two
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sentences of paragraph (d) and the first sentence of paragraph (e) is achieved,
with interest thereon at the Applicable Rate from the Closing Date to the date
of payment made under this paragraph (g).
(h) Any interest payable pursuant to Section 1.3 (e), (f) or (g)
shall be paid at the following rates: from the Closing Date through March 31,
1999, 3-month LIBOR plus 60 basis points; from April 1, 1999 through April 30,
1999, 7.5% per annum; and from and after May 1, 1999, at 10% per annum, and
such rate as is in effect from time to time shall be the "Applicable Rate" for
the purposes of this Section 1.3; provided, however, that the counting of days
following the Closing Date shall be suspended during such time as the party
benefiting from the increase in interest rate shall not be in compliance with
the provisions and deadlines contained herein.
(i) "EBITDA" shall mean for the relevant period, in accordance
with the Applicable Accounting Principles, net sales minus cost of goods sold
and operating expenses (i.e., product development, marketing, selling, general
and administrative), provided, however, that in no event shall there be any
deduction in respect of Option Amendments and the Bonus Pool. EBITDA shall be
calculated before depreciation of fixed assets, amortization of goodwill,
intangibles and licenses, extraordinary writeoffs or impairments of goodwill,
intangibles and licenses, interest income, interest expense and taxes on
income, and will exclude all other Non-Operating Income and Expenses (as
defined in the Applicable Accounting Principles).
(j) "1998 EBITDA"shall mean EBITDA for the year ending
December 31, 1998.
(k) "Adjusted 1998 EBITDA" shall mean 1998 EBITDA minus (i) the
effects of reversing into 1998 income reserves included in the 1997 Balance
Sheet, other than the $1.3 million previously disclosed to the Buyer and (ii)
the amount by which 1998 Product Development Costs (as defined in the
Applicable Accounting Principles) are less than $126 million.
(l) "1998 Net Income" shall mean, for the year ended December 31,
1998, in accordance with the Applicable Accounting Principles, the consolidated
net income of the Company, but excluding the effects of (i) any purchase
accounting implications related to the transaction contemplated in the Stock
Purchase Agreement, (ii) all extraordinary gains or losses, (iii) the
accounting implications of Option Amendments and the Bonus Pool and (iv) the
effects of reversing into 1998 income reserves included in the 1997 Balance
Sheet, other than the $ 1.3 million previously disclosed to the Buyer. 1998 Net
Income shall be calculated assuming a 38% tax rate is applied to taxable income
and assuming the management fee equals $12.1 million.
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(m) During the period following the Closing Date, the Buyer shall
cause the business of the Company to be operated in the ordinary course and
shall not take any action to increase the level of returns and price protection
in respect of transactions occurring in 1998 that would not otherwise be taken,
but for the existence of the additional payment provisions of Sections 1.2 and
1.3 and the opportunity of minimizing or eliminating any payment to the Seller
pursuant to said Sections (provided, however, that the Buyer shall not be
prevented by this paragraph (m) from operating the business of the Company and
Subsidiaries in accordance with the prudent business judgment of the Buyer to
enhance the growth and profitable development of the Company's business, taking
into account the Buyer's obligations under Sections 1.2 and 1.3).
Section 1.4. 1999 Net Sales Adjustment. (a) As promptly as
practicable, but no later than March 31, 2000, the Buyer will cause to be
prepared and delivered to Seller (i) the consolidated income statement of the
Company for the year ended December 31, 1999 (the "1999 Income Statement"),
which shall be prepared in accordance with the Applicable Accounting
Principles; and (ii) a certificate of the chief financial officer or chief
accounting officer of the Buyer, setting forth the Adjusted 1999 Net Sales (as
hereinafter defined), together with supporting calculations (the "1999 Net
Sales Adjustment Certificate"). The 1999 Income Statement and the 1999 Net
Sales Adjustment Certificate shall be accompanied by the auditor's report
thereon from the Buyer's accountants to the effect that the Adjusted 1999 Net
Sales Adjustment Certificate presents fairly the Adjusted 1999 Net Sales. The
Seller shall have 45 days from the date on which the 1999 Income Statement and
the 1999 Net Sales Adjustment Certificate are delivered to it to review such
documents (the "1999 Net Sales Review Period"). The parties hereto and their
respective accountants shall be provided with customary access (of the nature
and extent provided Buyer's accountants in connection with their review of the
Closing Financials) to the work papers of the Buyer's accountants (subject to
Seller's entry into a customary waiver and indemnification agreement with
Buyer's accountants) in connection with the preparation and review of the 1999
Income Statement. In furtherance of the foregoing, the Buyer shall cause the
Company and each of the Company's Subsidiaries to give the Seller and its
authorized representatives reasonable access to all books, records, personnel,
offices and other facilities and properties of the Company, the Subsidiaries
and the Company's accountants as the Seller may require in order to review the
1999 Net Sales Adjustment Certificate; provided, however, that any such access
shall be conducted in such a manner as not to interfere unreasonably with the
operation of the business of the Buyer, the Company or any Subsidiary of the
Company. If the Seller disagrees in any respect (except with respect to matters
concerning the Applicable Accounting Principles) with the 1999 Net Sales
Adjustment Certificate or with the calculation of the Adjusted 1999 Net Sales,
the Seller may, on or prior to the last day of the 1999 Net Sales Review
Period, deliver a notice to the Buyer setting forth each disputed item or
amount and the basis for the Seller's disagreement therewith (the "1999 Net
Sales Dispute Notice"). If no 1999 Net Sales Dispute Notice is received by the
Buyer on or prior to the last day of the 1999 Net Sales Review Period, then the
1999 Income Statement and the 1999 Net Sales Adjustment Certificate shall be
deemed accepted by the Seller.
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(b) For 30 days after the Seller's receipt of a 1999 Net Sales
Dispute Notice, the Buyer and the Seller shall endeavor in good faith to
resolve by mutual agreement all matters set forth in the 1999 Net Sales Dispute
Notice. In the event that the parties are unable to resolve by mutual agreement
any matter in the 1999 Net Sales Dispute Notice, the Seller and the Buyer
hereby agree that they shall engage the Accountant in respect of Section 1.4.
The Accountant shall conduct such review of the 1999 Income Statement, any
related work papers of the Buyer's accountants, the 1999 Net Sales Adjustment
Certificate and the 1999 Net Sales Dispute Notice, and any supporting
documentation as the Accountant in its sole discretion deems necessary, and the
Accountant shall conduct such hearings or hear such presentations by the
parties or obtain such other information as the Accountant in its sole
discretion deems necessary.
(c) The Accountant shall, as promptly as practicable and in no
event later than 45 days following the date of its retention, deliver to the
Seller and the Buyer a report (the "1999 Net Sales Adjustment Report") in which
the Accountant shall, after considering all matters set forth in the 1999 Net
Sales Dispute Notice, determine the appropriate Adjusted 1999 Net Sales in
accordance with the Applicable Accounting Principles and this Section 1.4. The
1999 Net Sales Adjustment Report shall set forth, in reasonable detail, the
Accountant's determination with respect to each of the disputed items or
amounts specified in the 1999 Net Sales Dispute Notice, and the revisions, if
any, to be made to the 1999 Net Sales Adjustment Certificate and the Adjusted
1999 Net Sales, together with supporting calculations. All fees and expenses
relating to this work of the Accountant shall be borne equally by the Buyer and
the Seller. The 1999 Net Sales Adjustment Report shall be final and binding
upon the Buyer and the Seller, shall be deemed a final arbitration award that
is binding on each of the Buyer and the Seller and no party shall seek further
recourse to courts other arbitral tribunals or otherwise.
(d) Buyer shall make an additional payment to the Seller of $85
million if Adjusted 1999 Net Sales, as finally determined pursuant to this
Section 1.4, is equal to or greater than $800 million; if Adjusted 1999 Net
Sales, as finally determined pursuant to this Section 1.4, is $700 million or
less, the Buyer shall not make an additional payment to the Seller in respect
of Adjusted 1999 Net Sales; if Adjusted 1999 Net Sales, as finally determined
pursuant to this Section 1.4, is more than $700 million but less than $800
million, the Buyer shall make an additional payment to the Seller in respect of
Adjusted 1999 Net Sales determined as set forth below; accordingly, the
following table sets forth the agreement of the parties with respect to such
potential additional payment:
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ADJUSTED 1999
NET SALES AMOUNT PAYABLE
--------- --------------
$ 800 million or more $ 85 million
$ 750 million $ 42.5 million
$ 700 million or less $ 0.00
The additional payment in respect of amounts of Adjusted 1999 Net Sales between
those specified above shall be determined by linear interpolation.
(e) "1999 Gross Sales" shall mean, for the year ended December
31, 1999, in accordance with the Applicable Accounting Principles, the total
consolidated 1999 gross revenues of the Company for all products, license or
similar fees and services, including without limitation revenues from existing
and future products under development, owned, licensed, distributed or
otherwise generated by the business, assets or operations of the Company or any
of its Subsidiaries, excluding the effect of any post-closing acquisitions.
"Adjusted 1999 Net Sales" shall mean 1999 Gross Sales reduced by
estimated amounts for price protection, returns, rebates related solely to
total sales of the Company in 1999 (such amounts to be calculated in accordance
with the Applicable Accounting Principles). If following the Closing, the
Company or any of its Subsidiaries sells a product bundled with a product of
the Buyer or any of its affiliates (other than the Company and its Subsidiaries
(the "non-Company Product")), then the revenue included in the calculation of
Adjusted 1999 Net Sales will be that portion of the bundled revenue
corresponding to the retail price of the Company product as compared to the
retail price of the non-Company Product. To the extent any asset or business
disposition is completed following the Closing but before December 31, 1999,
Adjusted 1999 Net Sales shall be increased by (x) 153% multiplied by (y) the
net sales of such disposed assets or businesses as forecasted in the 1999
Consumer Sales Forecast attached as Exhibit 1.4(e) for the remaining quarters
of 1999 or portions thereof, calculated on a pro rata basis for the applicable
partial quarter, during which such disposed asset or business is not included
in the Company's consolidated Adjusted 1999 Net Sales.
(f) During the year ending December 31, 1999, the Seller shall
cause (prior to the Closing) and the Buyer shall cause (from and after the
Closing) the business of the Company to be operated in the ordinary course and
shall not take any action to reduce the 1999 Net Sales for the purpose of
reducing the likelihood or amount of any payment to the Seller to this Section
1.4, provided, however, that this Section shall not prevent the business from
being operated in accordance with the prudent business judgment of the Seller
(prior to the Closing) and the Buyer (from and after the Closing) to enhance
the growth and profitable development of the Company's business, taking into
account the Buyer's obligations under
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this Section 1.4. Buyer represents that as of the date hereof, Buyer has no
current plans or intentions to close down any of the Company's product lines.
Section 1.5. Adjustment Issues. (a) Neither the Seller nor the
Buyer shall raise any dispute under any of the adjustment or additional payment
mechanisms set forth in Sections 1.2, 1.3 and 1.4 premised upon the application
of accounting principles inconsistent with explicit provisions of the
Applicable Accounting Principles.
(b) The Accountant shall not have the power, in the process of
preparing the respective adjustment reports called for in Sections 1.2, 1.3 and
1.4, to consider or otherwise seek to resolve issues or disputes that either
(i) were not properly raised in a dispute notice delivered within the
applicable review period or (ii) were resolved by mutual agreement of the Buyer
and the Seller after prior timely delivery of a dispute notice.
(c) A physical inventory shall be taken as of January 31, 1999
and rolled back to December 31, 1998 by the auditor for the Seller (to be
coordinated with and observed by the auditor for the Buyer) in connection with
the preparation of the Closing Financials and Stub Period Financials.
(d) To the extent that the accounting treatment of a given
transaction for the periods subsequent to December 31, 1997 is not specifically
covered by the Applicable Accounting Principles, the transaction should be
treated in accordance with the U.S. GAAP as applied consistently with the
accounting policies, practices and methods used to prepare the Annual Financial
Statements.
(e) With respect to an unresolved dispute between the Buyer and
the Seller as to the amounts of the Sales Return Reserve and Price Protection
Reserves at December 31, 1998, the Buyer and the Seller agree that the
Accountant engaged to arbitrate the dispute will be instructed and required to
use the following methodology to determine the amount of those balances at
December 31, 1998.
All returns authorized prior to January 1, 1999 and processed
after December 31, 1998 are deemed to be returns of products shipped prior to
December 31, 1998. All returns authorized and processed after December 31, 1998
are deemed first to be a return of product shipped subsequent to December 31,
1998 and prior to the date of the returns authorization and second to product
shipped prior to January 1, 1999.
All price protection credits authorized after December 31, 1998
are deemed, to the extent of quantities price protected to first be a reduction
to the price of quantities of product shipped subsequent to December 31, 1998
and prior to the date of the price protection authorization and second to be a
reduction of the price of quantities of product shipped prior to January 1,
1999.
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This methodology will be applied on a customer basis by title and
this principle will also be applied to the Stub Period Financials.
This clause (e) shall apply mutatis mutandis to disputes with
respect to Adjusted 1999 Net Sales.
(f) Attached hereto as Exhibit 1.5(f) are the "Applicable
Accounting Principles."
Section 1.6. Time and Place of the Closing. Upon the terms and
subject to the conditions of this Agreement, the closing of the transactions
contemplated by this Agreement (the "Closing") will take place at the offices
of Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP, New York, New York, at 9:00 a.m.
(local time) on the later to occur of (i) the third business day following the
date on which all of the conditions to each party's obligations hereunder have
been satisfied or waived, (ii) December 31, 1998, or at such other date, place
or time as the parties may agree. The date on which the Closing occurs and the
transactions contemplated hereby become effective is referred to herein as the
"Closing Date."
Section 1.7. Deliveries by the Seller. Subject to the terms and
conditions hereof, at the Closing, the Seller will deliver the following to the
Buyer:
(a) A certificate or certificates representing the Shares,
accompanied by stock powers duly endorsed in blank or accompanied by duly
executed instruments of transfer and with all necessary stock transfer and
other documentary stamps attached;
(b) The resignations of all members of the Board of Directors of
the Company, and all officers of the Company and its Subsidiaries, who are
Cendant employees;
(c) The Assumption of Liabilities (as hereinafter defined);
(d) A certificate of non-foreign status as provided in Treasury
Regulation Section 1.1445-2(b); and
(e) All other documents, instruments and writings required to be
delivered by the Seller at or prior to the Closing Date pursuant to this
Agreement.
Section 1.8. Deliveries by the Buyer. Subject to the terms and
conditions hereof, at the Closing, the Buyer will deliver the following to the
Seller:
(a) The Closing Date Cash Payment, in immediately available
funds, in the manner set forth in Section 1.1 hereof; and
(b) All other documents, instruments and writings required to be
delivered by the Buyer at or prior to the Closing Date pursuant to this
Agreement.
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Section 1.9. Use of the Seller's Name and Logo. It is expressly
agreed that the Buyer is not purchasing, acquiring or otherwise obtaining any
right, title or interest in the name "Cendant Software Corporation," or any
trade names, trademarks, identifying logos or service marks related thereto or
employing the word "Cendant" or any part or variation of any of the foregoing
or any confusingly similar trade name, trademark or logo (collectively, the
"Seller's Trademarks and Logos"); provided, however, that the Buyer may, on a
royalty-free basis, use the Seller's Trademarks and Logos and any trade names,
trademarks, servicemarks owned or licensed by Cendant and its affiliates and
used in the business conducted by the Company and its affiliates, (i) (A)
currently existing on stationery, shipping materials, business cards, invoices,
and other general office materials and (B) currently existing on
software-related instruction materials, sales and marketing flyers and
brochures and software packaging, until such time as such inventory existing on
the Closing Date is sold, removed from distribution for sale or destroyed in
the ordinary course of business and (ii) for three months following the Closing
Date, in general advertisements and corporate public relations materials, for
the exclusive purpose of identifying the company as having been formerly owned
by the Seller. The Buyer agrees that, except as set forth in this Section 1.9,
neither it nor any of its affiliates shall make any use of the Seller's
Trademarks and Logos from and after the Closing Date. The Buyer may, on a
royalty free basis, use (for the purposes used at the Closing Date) the
Seller's Trademarks and Logos as such may be contained (as at the Closing Date)
in the software (including, without limitation, the source code and object
code) sold, licensed or distributed by the Company. The Buyer further agrees
that following the Closing it will use its commercially reasonable efforts to
terminate as soon as practicable its use of the Seller's Trademarks and Logos
as such may be contained in software sold by the Company.
Section 1.10. Books and Records of the Company. The Seller agrees
to deliver to the Buyer or the Company at Closing all books and records of the
Company and its Subsidiaries, including, but not limited to, correspondence,
memoranda, books of account, personnel, payroll records and original documents
relating to the ownership or leasing of real property and the like, except for
the Tax Returns (as hereinafter defined) relating to the Company and its
Subsidiaries. As used in this Agreement, a "Subsidiary" of any person means
another person, an amount of the voting securities, other voting ownership or
voting partnership or membership interests of which is sufficient to elect at
least a majority of its board of directors or other governing body (or, if
there are no such voting interests, 50% or more of the equity interests of
which) is owned or controlled directly or indirectly by such person.
Section 1.11. Preservation of Records. The Buyer agrees that it
shall preserve and keep all books and records referred to Section 1.10 above in
an accurate and complete fashion for a period of at least three years from the
Closing Date; provided, however, that records relating to Taxes and Tax Returns
shall be kept for the applicable statutory period (including extensions
thereof), if longer than two years. After such period, before the Buyer shall
dispose of any of such books and records, at least 90 calendar days'
-14-
prior written notice to such effect shall be given by the Buyer to the Seller,
and the Seller shall be given an opportunity, at its cost and expense, to
remove and retain all or any part of such books and records as the Seller may
select. During such period, duly authorized representatives of the Seller
shall, upon reasonable notice, have access thereto during normal business hours
to examine, inspect and copy such books and records.
Section 1.12. Termination of Intercompany Relationships. (a)
Except as agreed to in writing by the Seller and the Buyer, at the Closing all
data processing, accounting, insurance, banking, personnel, legal,
communications and other products and services provided to the Company or its
affiliates by the Seller or any affiliate of the Seller or by the Company or
its affiliates to the Seller or any affiliate of the Seller or shared among the
Seller, the Company and their affiliates, including any agreements or
understandings (written or oral) with respect thereto, will terminate.
Promptly after the date hereof, the Buyer and the Seller shall
negotiate in good faith commercial agreements with respect to the sale and
purchase of products and services of the Company and its Subsidiaries, on the
one hand, and Seller and its Subsidiaries (other than the Company and its
Subsidiaries), on the other hand, on terms and conditions mutually satisfactory
to Seller and Buyer in their sole discretion. From and after the Closing until
the first anniversary of the Closing, Buyer shall cause the Company and its
Subsidiaries to sell certain products to Seller and its affiliates (and certain
third parties under currently existing contractual obligations disclosed to
Buyer) on the terms and subject to the conditions set forth in the forms of
agreement attached hereto as Exhibit 1.12(b)-1 and Exhibit 1.12(b)-2.
Section 1.13. Intercompany Accounts; Guaranties. (a) On or prior
to the Closing Date, all intercompany accounts between the Company, on the one
hand, and the Seller and its affiliates, on the other hand, shall be converted
into equity without any payment of funds in connection therewith.
The Buyer shall use its reasonable best efforts to cause itself
or the Company to be substituted in all respects for the Seller, effective as
of the Closing, in respect of all obligations of the Seller under each of the
Guaranties (as hereinafter defined). If the Buyer is unable to effect such a
substitution with respect to any Guaranty after using all reasonable efforts to
do so, the Buyer shall at its option either (i) obtain letters of credit, on
terms and from financial institutions reasonably satisfactory to the Seller,
with respect to the obligations covered by each of the Guaranties for which the
Buyer does not effect such substitution or (ii) indemnify the Seller for its
obligations under the Guaranties as set forth in Section 7.3.
Section 1.14. Optional Restructuring. Notwithstanding anything in
this Agreement to the contrary, the Buyer or its designated affiliate or
affiliates shall have the right, in the Buyer's sole discretion so long as such
exercise shall not delay the Closing Date
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by more than five business days, to purchase immediately prior to the Closing
and after all of the conditions set forth in Article V have been satisfied or
waived, for an amount in cash equal to a pro rata portion (based on relative
fair market values) of the Closing Date Cash Payment to be determined by the
Buyer and Seller in good faith, all of the capital stock of one or more of the
Company's Subsidiaries that are organized under the laws of any country (or any
subdivision thereof) other than the United States (or any subdivision thereof)
(each, a "Foreign Sub"), provided that the amount of any Incremental Tax
Liability (as defined below) not paid to Seller pursuant to this Section 1.14
resulting from the separate sale of such Foreign Subs shall be treated as
Excluded Taxes for purposes of Section 4.8(c). In the event that the Buyer
exercises its right to purchase or cause an affiliate to purchase a Foreign Sub
under the immediately preceding sentence, (i) the entire proceeds of the sale
of such Foreign Sub shall be distributed to CMS after the consummation of such
sale but immediately prior to the Closing, (ii) the Closing Date Cash Payment
shall be reduced dollar-for-dollar by the amount of such distribution to CMS
and (iii) the Seller shall report the sale of the stock of the Foreign Subs in
the Seller's Tax Returns for the taxable period that includes the date upon
which such sale occurs. For purposes of this Agreement, "Incremental Tax
Liability" shall mean, on an After-Tax Basis, the excess, if any, (a) of the
amount of Taxes (including Transfer Taxes) actually incurred by the Seller and
its Subsidiaries as a result of or attributable to (i) the sale of the Shares
and (ii) the sale of the stock of any Foreign Subs that are purchased by the
Buyer or its designated affiliate or affiliates pursuant to this Section 1.14,
over (b) the amount of Taxes that would have been incurred by the Seller and
its Subsidiaries if the Buyer had purchased only the Shares. For purposes of
subclause (a) of the immediately preceding sentence, the amount of the Taxes
shall be determined (x) taking into account the amount of any foreign tax
credits generated (and actually utilized to reduce Taxes) as a result of the
purchase of the stock of any Foreign Subs pursuant to this Section 1.14,
provided, however, that in determining the amount of such credits to be taken
into account to reduce the Incremental Tax Liability, such credits shall equal
the product of (I) the foreign tax credits generated as a result of the
purchase of the stock of the Foreign Subs multiplied by (II) a fraction, the
numerator of which is foreign tax credits that are actually utilized in the
taxable year of such purchase to reduce the Seller's Tax liability and the
denominator of which is the total amount of all foreign tax credits (including
credit carryforwards) available to the Seller in such taxable year; and (y)
taking into account any Taxes incurred as a result of the Subpart F provisions
of the Code, Section 1248 of the Code and the passive foreign investment
company (PFIC) rules, or any other similar applicable U.S. tax rules, including
for this purpose, any such Taxes incurred as a result any activities of the
Buyer, in the period beginning on the Closing Date and ending the last date of
the Company's and each of its Subsidiaries first U.S. taxable year-end
following the Closing. "After Tax Basis" means that, in determining the amount
of the Incremental Tax Liability required to be paid pursuant to this Section
1.14, the amount required to be paid shall be increased ("grossed up") by the
amount necessary to satisfy (x) any Tax liabilities incurred by Seller and its
Subsidiaries solely as a result of the receipt, or right to receive, such
payment and (y) any Tax liabilities incurred by Seller and its Subsidiaries as
a result of payments
-16-
pursuant to clause (x) of this sentence and this clause (y), so that, subject
to the preceding sentence (relating to the exclusion of any tax credits),
Cendant and its Subsidiaries are put in the same net after-Tax economic
position as if the stock of the Foreign Subs had not been purchased separately.
At the Closing Date, the Buyer shall pay in immediately available funds to the
Seller the estimated amount of the Incremental Tax Liability determined
pursuant to this Section 1.14, which amount shall be adjusted, as appropriate,
to reflect the actual Incremental Tax Liability.
Section 1.15. Assumption of Liabilities. At the Closing Cendant
shall execute and deliver to the Buyer an assumption agreement to be reasonably
agreed to by the parties hereto prior to the Closing, pursuant to which Seller
shall agree to pay, perform and discharge when due all liabilities, demands,
claims, actions or causes of action, assessments, losses, damages, costs and
expenses (including, without limitation, reasonable attorneys' fees and
expenses relating thereto) (collectively, the "Liabilities") relating to the
following (the Liabilities listed below being referred to herein collectively
as the "Retained Liabilities"):
(a) Subject to Section 4.8(q), all Liabilities under or relating
to the the Option Amendments and the Bonus Pool, including, without limitation,
the Blizzard Plan (each as hereinafter defined) and the "Incentive Awards"
provided for under Section IV(A)(ii) of the employment Agreement between the
Company and Xxxxxxxxxxx XxXxxx and stock option plans (and related agreements)
of the Seller or any of its Subsidiaries;
(b) All Liabilities other than operating expenses relating to any
amounts due and payable by Cendant or its Subsidiaries (including the Company
or its Subsidiaries) under previous merger or acquisition agreements to which
Cendant or its Subsidiaries (including the Company or its Subsidiaries), or any
of their respective predecessors in interest, was a party;
(c) All Liabilities of Cendant or its Subsidiaries (including the
Company or its Subsidiaries) arising from any action, claim, inquiry, suit,
proceeding or governmental investigation related to or having any connection
with accounting irregularities involving Cendant, any of its affiliates or
predecessors, the financial statements of Cendant, any of its affiliates or
predecessors; and
(d) All indebtedness as of and immediately prior to the Closing
of the Seller or any of its Subsidiaries (including, without limitation, the
Company or any of its Subsidiaries) for borrowed money (except with respect to
the intercompany obligations between the Seller and its Subsidiaries (other
than the Company and its Subsidiaries), on the one hand and the Company and its
Subsidiaries, on the other hand.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller hereby represents and warrants to the Buyer as
follows:
Section 2.1. Organization; Etc. (a) Each of the Company and its
Subsidiaries (i) is duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization, (ii) has all requisite corporate
power and authority and all licenses, permits and authorizations necessary to
own, lease and operate all of its properties and assets and to carry on its
business substantially as it is now being conducted, and (iii) is duly
qualified and in good standing to do business in each jurisdiction in which the
nature of its business or the ownership, operation or leasing of its properties
makes such qualification necessary, except (A) in the case of clause (ii)
above, where the failure to have such licenses, permits and authorizations
would not, individually or in the aggregate, have a Company Material Adverse
Effect (as hereinafter defined); or (B) in the case of clause (iii) above,
where the failure to be so qualified would not, individually or in the
aggregate, have a Company Material Adverse Effect. The Seller has delivered or
made available to the Buyer correct and complete copies of the charter and
bylaws of each of the Company and its Subsidiaries. Section 2.1 of a disclosure
schedule being delivered by the Seller to the Buyer concurrently herewith (the
"Seller Disclosure Schedule") sets forth a complete list of all of the
Company's Subsidiaries and their respective jurisdictions of organization and
capitalization. Except as set forth in Section 2.1 of the Seller Disclosure
Schedule, the Company does not own any equity interest in any corporation or
other entity.
(b) As used in this Agreement, the term "Company Material Adverse
Effect" shall mean a material adverse change in, or effect on, the assets,
business, financial condition, or results of operations of the Company and its
Subsidiaries, taken as a whole.
Section 2.2. Authority Relative to this Agreement. The Seller has
the corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all requisite corporate action on the
part of the Seller. This Agreement has been duly and validly executed and
delivered by the Seller, and assuming this Agreement has been duly authorized,
executed and delivered by the Buyer, constitutes a valid and binding agreement
of the Seller, enforceable against the Seller in accordance with its terms.
Section 2.3. Capitalization; Ownership of Shares. (a) Section
2.3(a) of the Seller Disclosure Schedule sets forth the number of issued and
outstanding shares of capital stock of the Company. The Shares represent all of
the outstanding capital stock in the Company. All of the Shares are validly
issued, fully paid and nonassessable. Except for the
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Shares, there are not, and at the Closing there will not be, any capital stock
or other equity interests in the Company issued or outstanding or any
subscriptions, options, warrants, calls, rights, convertible securities or
other agreements or commitments of any character obligating the Company or any
of its affiliates to issue, transfer or sell any capital stock or other equity
interests in the Company, or any agreements, arrangements, or understandings
granting any person any rights in the Company similar to capital stock or other
equity interests including, without limitation, stock appreciation and profit
participation rights. The Company has not granted any person rights to cause
the registration for sale under the Securities Act of 1933, as amended (the
"Securities Act"), of any securities of the Company or any of its Subsidiaries.
(b) All of the Shares are owned of record and beneficially by the
Seller free and clear of all liens, pledges, charges, claims, security
interests, purchase agreements, options, title defects, restrictions on
transfer or other encumbrances and agreements of any nature whatsoever, whether
consensual, statutory or otherwise (collectively, "Liens"). The consummation of
the Stock Purchase will convey to the Buyer good title to the Shares, free and
clear of all Liens.
(c) Except as set forth in Section 2.3(c) of the Seller
Disclosure Schedule, all of the outstanding shares of capital stock of each of
the Company's Subsidiaries are beneficially owned by the Company, directly or
indirectly, and all such shares are validly issued, fully paid and
nonassessable and are owned by either the Company or one of its Subsidiaries
free and clear of all Liens. Except for the shares of capital stock referred to
in the preceding sentence, there are not, and at the Closing there will not be,
any capital stock or other equity interests in any Subsidiary of the Company
issued or outstanding or any subscriptions, options, warrants, calls, rights,
convertible securities or other agreements or commitments of any character
obligating such Subsidiary or any of its affiliates to issue, transfer or sell
any capital stock or other equity interests, or any agreements, arrangements or
understandings granting any person any rights in the Subsidiary similar to
capital stock or other equity interests including, without limitation, stock
appreciation and profit participation rights. Neither the Company nor any of
its Subsidiaries directly or indirectly owns any capital stock of or other
equity interests in any corporation, partnership or other entity or other
Person except for the Subsidiaries which are set forth in Section 2.3(c) of the
Seller Disclosure Schedule, or as otherwise set forth in said Section 2.3(c).
Section 2.4. Consents and Approvals; No Violations. Except for
applicable requirements of the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended (the "H-S-R Act"), the respective antitrust Laws (as
hereinafter defined), of certain countries in Europe (the "Foreign Antitrust
Laws"), or as set forth in Section 2.4 of the Seller Disclosure Schedule,
neither the execution and delivery of this Agreement by the Seller, nor the
consummation by the Seller or the Company of the transactions contemplated
hereby will (a) conflict with or result in any breach of any provision of the
certificate of incorporation or by-laws or other organizational documents of
the Seller, the Company or any Subsidiary of the
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Company, (b) result in a violation or breach of, or constitute (with or without
due notice or lapse of time or both) a default (or give rise to any right of
termination, modification, cancellation or acceleration or result in the
imposition of any Lien) under, or require any approval or consent under or
create a penalty or increase the obligations of the Company or any Subsidiary
under, any indenture, license, contract, lease, mortgage, deed of trust,
agreement or other instrument or obligation to which the Seller, the Company or
any Subsidiary of the Company is a party or by which any of them or any of
their respective properties or assets are bound or affected, (c) violate or
conflict with or result in the imposition of any Lien as a result of, any
order, writ, injunction, decree, statute, rule or regulation (collectively,
"Laws" and, individually, a "Law") applicable to the Seller, the Company or any
Subsidiary of the Company or any of their respective properties or assets, (d)
require any filing with, or the obtaining of any permit, authorization, consent
or approval of, any governmental or regulatory authority, domestic or foreign,
or (e) require the approval or consent of or notice to any third party, except
in the case of clauses (b), (c), (d) and (e) of this Section 2.4 for any such
violations, breaches, defaults, rights of termination, cancellation or
acceleration or requirements which, individually or in the aggregate, (i) would
not have a Company Material Adverse Effect, (ii) would not adversely affect or
delay the ability of the Seller to consummate the transactions contemplated by
this Agreement, or (iii) do not relate to any of the Contracts (as hereinafter
defined), copies of which have not been delivered to or made available for
review by the Buyer ("Withheld Contracts"), or agreements to which the Company
or any of its Subsidiaries is a party or by which their respective properties
or assets are bound and the existence of which has not been disclosed by the
Company to the Buyer ("Confidential Contracts" and together with the Withheld
Contracts, the "Unfurnished Contracts").
Section 2.5. Financial Statements. (a) Section 2.5(a) of the
Seller Disclosure Schedule contains the audited balance sheet of the Company as
of December 31, 1997 ("1997 Balance Sheet") and the related audited statements
of income, changes in stockholders' equity and cash flows of the Company for
the year then ended, accompanied by the opinions of Deloitte & Touche,
independent auditors for the Seller (collectively the "Annual Financial
Statements"). The Annual Financial Statements present fairly the consolidated
financial condition of the Company and its Subsidiaries as of such date and the
consolidated results of their operations and their consolidated cash flows for
the fiscal year then ended. Section 2.5(a) of the Seller Disclosure Schedule
also contains the unaudited consolidated balance sheet of the Company as of
September 30, 1998 (the "Interim Balance Sheet") and the related unaudited
statements of income for the nine-month period ended on such date
(collectively, with the Interim Balance Sheet, the "Interim Financial
Statements"). The Interim Balance Sheet presents fairly the consolidated
financial condition of the Company and its Subsidiaries as of such date and the
income statement included in the Interim Financial Statements presents fairly
the consolidated results of their operations for the nine-month period then
ended (subject to normal audit adjustments and the other adjustments disclosed
therein).
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(b) The Annual Financial Statements and the Interim Financial
Statements, including the related schedules and notes thereto, have all been
or, as applicable, will be prepared in accordance with U.S. GAAP applied
consistently throughout the periods involved (except (x) as disclosed therein,
(y) for other adjustments disclosed therein which are not, individually or in
the aggregate, material), and (z) in the case of the Interim Financial
Statements, the absence of footnotes).
Section 2.6. Absence of Undisclosed Liabilities. Except (a) for
liabilities and obligations incurred in the ordinary course of business and
consistent with past practice since September 30, 1998, (b) as otherwise
disclosed in Section 2.6 of the Seller Disclosure Schedule, since September 30,
1998 the Company and its Subsidiaries do not have any liabilities or
obligations (whether direct, indirect, accrued, contingent or otherwise, and
whether due or to become due) of the type required by U.S. GAAP to be disclosed
on a balance sheet, which individually or in the aggregate, have or would have
a Company Material Adverse Effect.
Section 2.7. Absence of Certain Changes. Except as set forth in
Section 2.7 of the Seller Disclosure Schedule, since September 30, 1998, (i)
there has not been any circumstance development or event which has had or would
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect; (ii) no Plan (as hereinafter defined), including
without limitation employment, severance and retention agreements, plans,
policies and programs, has been adopted or amended; and (iii) no contract,
agreement, commitment or other instrument or arrangement relating to a "Key
Product" (defined as the items listed on Exhibit 2.7) has been amended,
terminated, renewed or allowed to expire by its terms. Without limiting the
generality of the foregoing, since that date neither the Company nor any of its
Subsidiaries has taken any of the actions referred to in Section 4.1(d), except
as set forth in Section 2.7 of the Seller Disclosure Schedule.
Section 2.8. Litigation. Except as set forth in Section 2.8 of
the Seller Disclosure Schedule, there is no action, claim, suit, proceeding or
governmental investigation pending or, to the knowledge of the Seller,
threatened against the Seller, the Company or any Subsidiary of the Company or
affecting any assets of the Company or its Subsidiaries by or before any court
or governmental or regulatory entity or arbitrator or alternative means of
dispute resolution, which (a) individually or in the aggregate, has or would
have or reasonably be expected to have a Company Material Adverse Effect or (b)
would adversely affect or delay the ability of the Seller to consummate the
transactions contemplated hereby or (c) which if continued or adversely
determined, would adversely affect any of the Key Products.
Section 2.9. Compliance with Law. To the knowledge of the Seller,
the business of the Company and its Subsidiaries and the operation of their
properties is being and has been conducted in compliance with all applicable
Laws, except for any violations which in the aggregate would not have a Company
Material Adverse Effect, and, except as
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set forth in Section 2.9 of the Seller Disclosure Schedule, no action, suit,
proceeding or investigation has been filed or commenced against the Company or
its Subsidiaries alleging a failure to so comply.
Section 2.10. Employee Benefit Plans. (a) Section 2.10(a) of the
Seller Disclosure Schedule sets forth, as of the date of this Agreement, all
deferred compensation, vacation, equity, change of control, employment,
pension, profit-sharing, retirement, bonus, retention bonus, severance and
other employee benefit or fringe benefit plans, programs, policies, practices,
agreements or arrangements, including, without limitation, all employment
agreements and any "employee benefit plan" within the meaning of Section 3(3)
of ERISA, maintained by Seller, the Company or any of its Subsidiaries for the
benefit of the employees and/or former employees of the Company or any of its
Subsidiaries (collectively, the "Affiliate Plans"). Each Affiliate Plan
sponsored, maintained or contributed to, or required to be contributed to, by
the Company or any of its Subsidiaries for the benefit of the employees of the
Company or any of its Subsidiaries, is hereinafter referred to as a "Plan."
Accurate and complete copies of (i) each writing constituting a part of such
Plan including, without limitation, all plan documents, benefit schedules,
trust agreements, and insurance contracts and other funding vehicles, (ii) the
most recent annual report (Form 5500 series) and accompanying schedules, if
any, (iii) the current summary plan description and any modification thereto,
if any (in each case, whether or not required to be furnished under ERISA),
(iv) the most recent annual financial report, if any, (v) the most recent
actuarial report, if any, and (vi) the most recent determination letter from
the IRS, if any, have been made available to the Buyer. Except as specifically
provided to the Buyer, there are no amendments to any Plan that have been
adopted or approved nor has the Company or any of its Subsidiaries undertaken
to make any such amendments or to adopt or approve any new Plan.
(b) No Plan is subject to Title IV or Section 312 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or Section 412 or
4971 of the Internal Revenue Code of 1986, as amended (the "Code"). Except as
set forth in Section 2.10(b) of the Seller Disclosure Schedules neither the
Company nor any of its Subsidiaries is a participant in any "multiemployer
plan" within the meaning of Section 3(37) of ERISA ( a "Multiemployer Plan") or
a plan that has two or more contributing sponsors at least two of whom are not
under common control, within the meaning of Section 4063 of ERISA (a "Multiple
Employer Plan"). None of the Company and its Subsidiaries nor any of their
respective ERISA Affiliates has (i) at any time during the last six years,
contributed to or been obligated to contribute to any Multiemployer Plan or
Multiple Employer Plan or (ii) incurred any liability to a Multiemployer Plan
as a result of a complete or partial withdrawal from such Multiemployer Plan,
as those terms are defined in Part I of Subtitle E of Title IV of ERISA, that
has not been satisfied in full. No withdrawal liability has been incurred by or
asserted against the Seller, the Company or any of its Subsidiaries with
respect to any multiemployer plan. For purposes of this Section 2.10, "ERISA
Affiliate" means, with respect to any entity, trade or business, any other
entity, trade or business that is a member of
-22-
a group described in Section 414(b), (c), (m) or (o) of the Code or Section
4001(b)(1) of ERISA that includes the first entity, trade or business, or that
is a member of the same "controlled group" as the first entity, trade or
business pursuant to Section 4001(a)(14) of ERISA.
(c) The Internal Revenue Service has issued a favorable
determination letter for each Plan sponsored or maintained by the Company or
any of its Subsidiaries that is intended to be a "qualified plan" within the
meaning of Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code") and each related trust, such determination letter has not been revoked
and there are no existing circumstances nor, except as set forth in Section
2.10(c) of the Seller Disclosure Schedule, have any events occurred that could
adversely affect the qualified status of any such qualified plan or related
trust. No Plan is intended to meet the requirements of Code Section 501(c)(9).
There is not now, nor do any circumstances exist with respect to any Affiliate
Plan that could reasonably be expected to give rise to, any requirement for the
posting of security with respect to a Plan or the imposition of any lien on the
assets of the Company or any of its Subsidiaries under ERISA or the Code.
Except as would not have a Company Material Adverse Effect, each of the Plans
has been administered and operated in accordance with its terms and all
applicable Laws.
(d) All contributions required to be made to any Plan by
applicable law or regulation or by any plan document or other contractual
undertaking, and all premiums due or payable with respect to insurance policies
funding any Plan, for any period through the date hereof have been timely made
or paid in full or, to the extent not required to be made or paid on or before
the date hereof, have been fully reflected on the Annual Financial Statements
and the Interim Financial Statements. Each Plan that is an employee welfare
benefit plan under Section 3(1) of ERISA is either (i) funded through an
insurance company contract and is not a "welfare benefit fund" with the meaning
of Section 419 of the Code or (ii) unfunded.
(e) There does not now exist, nor do any circumstances exist that
could reasonably be expected to result in, any Controlled Group Liability that
would be a liability of the Company or any of its Subsidiaries following the
Closing. Without limiting the generality of the foregoing, neither the Company
nor any of its Subsidiaries, nor any of their respective ERISA Affiliates, has
engaged in any transaction described in Section 4069 or Section 4204 or 4212 of
ERISA. For purposes of this Section 2.10, "Controlled Group Liability" means
any and all liabilities (i) under Title IV of ERISA, (ii) under section 302 of
ERISA, (iii) under sections 412 and 4971 of the Code, (iv) as a result of a
failure to comply with the continuation coverage requirements of section 601 et
seq. of ERISA and section 4980B of the Code, and (v) under corresponding or
similar provisions of foreign laws or regulations, other than such liabilities
that arise solely out of, or relate solely to, the Plans.
(f) Except as set forth in Section 2.10(f) of the Seller
Disclosure Schedule, the Company and its Subsidiaries have no liability for
life, health, medical or other welfare
-23-
benefits to former employees or beneficiaries or dependents thereof, except for
health continuation coverage as required by Section 4980B of the Code or Part 6
of Title I of ERISA. There has been no communication to employees by the
Company or any of its Subsidiaries which could reasonably be interpreted to
promise or guarantee such employees retiree health or life insurance or other
retiree death benefits on a permanent basis.
(g) Except as disclosed in Section 2.10(g) of the Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (either alone or in
conjunction with any other event) result in, cause the accelerated vesting or
delivery of, or increase the amount or value of, any payment or benefit to any
employee, officer or director of the Company or any of its Subsidiaries.
Without limiting the generality of the foregoing, no amount paid or payable by
the Company or any of its Subsidiaries in connection with the transactions
contemplated hereby (either solely as a result thereof or as a result of such
transactions in conjunction with any other event) will be an "excess parachute
payment" within the meaning of Section 280G of the Code.
(h) None of the Company, its Subsidiaries nor any other person,
including any fiduciary, has engaged in any nonexempt "prohibited transaction"
(as defined in Section 4975 of the Code or Section 406 of ERISA), breach of
fiduciary duty or other violation of Title I of ERISA or other applicable law
or regulations, in each case which could subject any of the Plans sponsored or
maintained by the Company or any of its Subsidiaries or related trusts, the
Company or any of its Subsidiaries or any person that the Company or any of its
Subsidiaries has any obligation to indemnify, to any material liability,
including without limitation any tax imposed under Section 4975 of the Code or
Section 502 of ERISA. Except as set forth in Section 2.10(h) of the Seller
Disclosure Schedule, there are no pending or threatened claims (other than
claims for benefits in the ordinary course), lawsuits or arbitrations which
have been asserted or instituted, and no circumstances exist which could
reasonably be expected to give rise to a claim or lawsuit, in each case which
could reasonably be expected to result in any material liability on the part of
any of the Plans sponsored or maintained by the Company or any of its
Subsidiaries or related trusts, the Company or any of its Subsidiaries or any
person that the Company or any of its Subsidiaries has any obligation to
indemnify.
(i) All Plans subject to the laws of any jurisdiction outside of
the United States (i) have been maintained in accordance with all applicable
requirements, (ii) if they are intended to qualify for special tax treatment
meet all requirements for such treatment, and (iii) if they are intended to be
funded and/or book-reserved are fully funded and/or book reserved, as
appropriate, based upon reasonable actuarial assumptions.
(j) For purposes of this Section 2.10, the term "employee" shall
be considered to include individuals rendering personal services to the Company
as independent contractors.
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Section 2.11. Labor Relations. Except as set forth in Section
2.11 of the Seller Disclosure Schedule, (a) the Company and each of its
Subsidiaries is, and has at all times been, in compliance with all applicable
Laws respecting employment and employment practices, terms and conditions of
employment and collective bargaining agreements, wages, hours of work and
occupational safety and health, and is not engaged in any unfair labor
practices as defined in the National Labor Relations Act or other applicable
Law, except where the failure to comply would not reasonably be expected to
cause a Company Material Adverse Effect; (b) there is no labor strike,
slowdown, stoppage or lockout actually pending, or, to the knowledge of the
Company, threatened against or affecting the Company or any of its
Subsidiaries; (c) neither the Company nor any of its Subsidiaries is a party to
or bound by any collective bargaining or similar agreement with any labor
organization; and (d) to the knowledge of the Seller, no labor organization or
group of employees of the Company or any of its Subsidiaries has made a pending
demand for recognition or certification, and there are no representation or
certification proceedings or petitions seeking a representation proceeding
presently pending or threatened to be brought or filed, with the National Labor
Relations Board or any other labor relations tribunal or authority.
Section 2.12. Taxes. Except as would not have a Company Material
Adverse Effect or as set forth on Section 2.12 of the Seller Disclosure
Schedule,
(a) The Company and each of its Subsidiaries (i) has filed (or
there has been filed on its behalf) with the appropriate taxing authorities all
Tax Returns (as hereinafter defined) required to be filed, and all such Tax
Returns are true and correct and (ii) has paid all Taxes (as hereinafter
defined) due and payable;
(b) There are no outstanding waivers in writing or comparable
consents regarding the application of any statute of limitations in respect of
Taxes of the Company or any of its Subsidiaries;
(c) There is no action, suit, investigation, audit, claim or
assessment pending or proposed in writing with respect to Taxes of the Company
or any of its Subsidiaries;
(d) There are no Liens for Taxes upon the assets of the Company
or any of its Subsidiaries, except for Liens relating to current Taxes not yet
due and payable or Liens for Taxes being contested in good faith by appropriate
proceedings and for which reserves have been established in accordance with
U.S. GAAP;
(e) The liability for Taxes (excluding any deferred taxes
established to reflect timing differences between book and tax income) set
forth on the face of the Interim Balance Sheet (rather than in any notes
thereto) is sufficient for the payment of all unpaid Taxes, whether or not
disputed, that are accrued or applicable for the period ended September 30,
1998, and for all years and periods ended prior thereto;
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(f) All deficiencies asserted as a result of any examinations by
the Internal Revenue Service or any other taxing authority have been paid,
fully settled or adequately provided for in the Interim Balance Sheet;
(g) Neither the Company nor any of its Subsidiaries has filed a
consent to the application of Section 341(f) of the Code;
(h) Neither the Company nor any of its Subsidiaries is a party to
any Tax sharing, allocation or indemnification agreement or arrangement; and
(i) The Company and each of its Subsidiaries have made all
estimated income Tax deposits and all other required Tax payments or deposits
(including withholding Taxes).
Section 2.13. Material Contracts. (a) Except with respect to
Confidential Contracts, Section 2.13(a) sets forth a list of all (i) employment
agreements with senior executives of the Company or where the Company's
aggregate payment liability in the event of a "not for cause" termination of
the employee exceeds $500,000; (ii) leases for Leased Real Property (as
hereinafter defined) relating to key development centers where more than 100
employees are located; (iii) any brand license agreement relating to a Key
Product; (iv) any content license agreement relating to significant content in
a Key Product; (v) foreign distribution agreements resulting in annual payments
to the Company in excess of $5 million; (vi) affirmative non-competition
agreements limiting the rights of the Company to conduct any software business;
(vii) contracts relating to Key Products pursuant to which the Company grants a
right of first refusal or first negotiation or similar right; (viii)
partnership or joint venture agreements; (ix) agreements for the acquisition,
sale or lease of material properties or assets of the Company or its
Subsidiaries (by merger, purchase or sale of assets or stock or otherwise)
entered into since January 1, 1995 where the total value of the consideration
paid by the Company exceeded, or is expected to exceed, $1 million; (x)
contracts or agreements with any governmental or regulatory entity pursuant to
which the Company has received, or is reasonably expected to receive in 1998
aggregate consideration in excess of $5 million; (xi) contracts, the default or
termination of which would reasonably be expected to result in a Company
Material Adverse Effect; or (xii) all commitments and agreements to enter into
any of the foregoing (collectively, the items referred to in clauses (i)
through (xii), the "Contracts"). Other than the Contracts, there are no other
contracts, agreements, commitments and other instruments and arrangements to
which the Company or any of its or their properties or assets are bound that
are (x) material to the business, properties or assets of the Company and its
Subsidiaries taken as a whole and (y) not Confidential Contracts. Other than
the Unfurnished Contracts, the Company has made available to the Buyer true,
correct and complete copies of all Contracts.
(b) Except as set forth in Section 2.13(b) of the Seller
Disclosure Schedule: (i) there is no default under any Contract or Confidential
Contract by the Company or any of its Subsidiaries or, to the knowledge of the
Seller or the Company or their Subsidiaries, by
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any other party thereto, and no event has occurred that with the lapse of time
or the giving of notice or both would constitute a default thereunder by the
Company or any of its Subsidiaries, or to the knowledge of the Seller or the
Company or their Subsidiaries, any other party, in any such case in which such
default or event could, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect; and (ii) to the knowledge
of the Seller, no party to any such Contract or Confidential Contract has
repudiated any provision thereof, given notice to the Company of or made a
claim against the Company or any of its Subsidiaries with respect to any breach
or default thereunder, in any such case in which such breach or default could,
individually or in the aggregate, (iii) each Contract is valid, binding,
enforceable (except that (a) such enforcement may be subject to any bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or other laws, now
or hereafter in effect, relating to or limiting creditors' rights generally and
(b) enforcement of such contract may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be
brought) and in full force and effect reasonably be expected to have a Company
Material Adverse Effect.
(c) Section 2.13(c) of the Seller Disclosure Schedule sets forth
a complete and accurate list of all material guaranties and guaranty
obligations of Seller relating to obligations of the Company (the
"Guarantees"). The Seller has delivered to the Buyer true, correct and complete
copies of the Guaranties. Except as set forth in Section 2.13(c) of the Seller
Disclosure Schedule: (i) there is no default under any Guaranty, and no event
has occurred that with the lapse of time or the giving of notice or both would
constitute a default thereunder, and (ii) no beneficiary of any such Guaranty
has given notice of or made a claim with respect to any breach or default
thereunder.
Section 2.14. Real Property. (a) Section 2.14 of the Seller
Disclosure Schedule sets forth a list of all real property and interests in
real property owned in fee by the Company or its Subsidiaries (the "Owned Real
Property"). Section 2.14 of the Seller Disclosure Schedule also sets forth a
list of all real property leased, subleased or otherwise occupied by the
Company or its Subsidiaries (the "Leased Real Property"). The Owned Real
Property and the Leased Real Property shall be hereinafter collectively
referred to as the "Real Property".
The Company or one of its Subsidiaries, holds good and marketable
title to the Owned Real Property and has valid leasehold interests in the
Leased Real Property, free and clear of any Liens, except for the Permitted
Encumbrances (as hereinafter defined). As used herein, the term "Permitted
Encumbrances" means (i) liens for taxes not yet due and payable or which are
being contested in good faith and by appropriate proceedings; (ii) carriers',
warehousemen's, mechanics', materialmen's, repairmen's or other like liens
arising in the ordinary course of business which are each less than $100,000 in
amount and which are being contested in good faith and by appropriate
proceedings; (iii) easements, rights-of-way, encroachments, restrictions,
conditions and other similar encumbrances incurred or suffered in the ordinary
course of business; and (iv) other nonmaterial title defects or Liens.
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Section 2.15. Environmental. (a) As used in this Agreement, the
following terms shall have the following meanings:
(i) "Contamination" shall mean the presence of any
Hazardous Substance on, in, at, under or within the Real Property, or the
Release of any Hazardous Substance on, in, at, under, within, from or to the
Real Property.
(ii) "Environmental Laws" shall mean, collectively, the
following laws and regulations, as in effect on the Closing Date:
(1) the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, 42 U.S.C. Section
9601 et seq.;
(2) the Hazardous Materials Transportation Act, as amended,
49 U.S.C. Section 1802 et seq.;
(3) the Resources Conservation and Recovery Act of 1976, 42
U.S.C. Section 6901 et seq.;
(4) the Toxic Substances Control Act of 1976, as amended, 15
U.S.C. Section 2601 et seq.;
(5) the Federal Water Pollution Control Act, 33 U.S.C.
Section 1251 et seq.;
(6) the Clean Air Act, 42 U.S.C. Section 7401 et seq.;
(7) the Superfund Amendments and Reauthorization Act of 1986,
Public Law 99-499, 000 Xxxx. 0000;
(8) the National Environmental Policy Act of 1969, 42 U.S.C.
Section 4321;
(9) the Safe Drinking Water Act, 42 U.S.C. Section 300F et
seq.;
(10) all regulations promulgated in connection with any of the
foregoing;
(11) Environmental Protection Agency regulations pertaining to
Asbestos (including, without limitation, 40 C.F.R. Part
61, Subpart M);
(12) Occupational Safety and Health Administration regulations
pertaining to Asbestos (including, without limitation, 29
C.F.R. Sections 1910.1001 and 1926.58); and
(13) any and all other Federal, State, local and foreign laws
and regulations relating to toxic or hazardous
substances, now existing.
-28-
(iii) "Hazardous Substances" shall mean any toxic or
hazardous wastes, materials or substances, including without limitation,
asbestos, asbestos-containing materials, radon gas, urea formaldehyde foam
insulation, polychlorinated biphenyls, petroleum products and by-product
substances, defined as "hazardous substances" or "toxic substances" in any
Environmental Law. "Hazardous Substances" shall also mean any oil or petroleum
or chemical liquids or solid, liquid or gaseous products or hazardous waste,
the discharge, spillage, uncontrolled loss, seepage or filtration of which
constitutes a violation of any Environmental Law.
(iv) "Release" shall mean the intentional or
unintentional spilling, leaking, disposing, discharging, emitting, depositing,
injecting, leaching, escaping, or any other release or threatened release as
defined in any Environmental Law, of any Hazardous Substance.
(b) Except as set forth on Schedule 2.15 of the Seller Disclosure
Schedule:
(i) the operations of the Company and its Subsidiaries,
and the Real Property itself, have at all times, and do presently, comply with
all applicable Environmental Laws;
(ii) the Company and its Subsidiaries have obtained or
caused to be obtained all material environmental, health and safety permits
necessary for the operations of the Company, the Subsidiaries and the Real
Property, in compliance with all Environmental Laws, and all such permits are
in good standing;
(iii) neither the Company, its Subsidiaries nor the
Company's operations are subject to any order from or agreement with any
governmental authority or private party respecting a Release;
(iv) with respect to the Real Property and the Company's
and its Subsidiaries operations, there are no judicial, administrative or other
actions, suits or proceedings, pending or, to the Seller's or the Company (or
their respective Subsidiaries) knowledge and belief, threatened, alleging a
violation of any Environmental Law;
(v) to the Seller's or the Company's (or their respective
Subsidiaries') knowledge, none of the Company's nor its Subsidiaries, present
or past operations is the subject of any investigation by any governmental
authority evaluating whether any remedial action is needed to respond to a
Release or threatened Release;
(vi) neither the Company nor any of the Subsidiaries has
filed or received any notice under any applicable statute, regulation or other
governmental requirement reporting a Release, nor has the Seller filed or
received any such notice with respect to the Company, any of the Subsidiaries
or the Real Property;
-29-
(vii) there is not now, nor to the Seller's knowledge has
there ever been, on, in, at, under or within the Real Property (A) any
underground storage tanks or surface impoundments, other than in compliance
with applicable Environmental Laws, or (B) any Contamination, nor, to the
Company's knowledge, has there been or is there now any migration from
neighboring properties to the Real Property, of any Hazardous Substances, and
neither the Seller, the Company nor any of the Subsidiaries has received any
notice from any governmental authority, or from any tenant or other occupant of
the Real Property or any other person whomsoever, of any of the matters
described in this subsection (viii);
(viii) neither the Company nor any of the Subsidiaries
has any actual or, to the Company's knowledge and belief, liability in
connection with any Release or threatened Release on, in, at, under, within,
from or to the Real Property;
(ix) none of the Real Property is subject to any lien or
security interest in favor of any governmental entity or other party for (A)
liability under any Environmental Laws, or (B) damages arising from or costs
incurred by such governmental entity in response to a Release or threatened
Release or any Contamination; and
(x) the Seller has heretofore made available to Buyer
true and complete copies of all reports, surveys or evaluations of or with
respect to the environmental condition of the Real Property (including Phase I
and Phase II reports, completed within the past three years), which are in the
Company's (or its Subsidiaries) possession or were produced at the request of
or on behalf of the Company or its Subsidiaries and which were prepared during
the Company's or its Subsidiaries' ownership of the Real Property or are
otherwise in the Company's or any of its Subsidiaries' possession.
Section 2.16. Intellectual Property. (a) Except for the Seller's
Trademarks and Logos and as set forth in Section 2.16(a) of the Seller
Disclosure Schedule, the Company or one of its Subsidiaries has, or will as of
the Closing have, such ownership of or such rights by license or other
agreement to use all patents and patent applications, trade secrets, trademarks
and service marks, trademark and service xxxx registrations and applications,
trade names, logos, copyrights, copyright registrations and applications,
computer software programs as are necessary to permit the Company and its
Subsidiaries to conduct their business as currently conducted (collectively,
the "Intellectual Property"), except where the failure to have such ownership,
license or right to use would not, individually or in the aggregate, have a
Company Material Adverse Effect.
(b) The conduct of the business and the ownership and license of
the assets of the Company and its Subsidiaries, as currently conducted, owned
or licensed with respect to any of the Key Products, will not create or trigger
any Liability under or as a result of the Unfurnished Contracts, other than in
the ordinary course of business of the Company and its Subsidiaries.
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(c) To the knowledge of the Seller, the conduct of the business
of the Company and its Subsidiaries as currently conducted does not infringe
upon the proprietary rights of any third party and there are no present or to
the knowledge of the Seller, threatened infringements of the Intellectual
Property by any third party, except, in either case, for such infringements
which would not, individually or in the aggregate, have a Company Material
Adverse Effect. Except for the Seller's Trademarks and Logos and as set forth
in Section 2.16(c) of the Seller Disclosure Schedule, there are no pending or,
to the knowledge of Seller, threatened proceedings or litigation or other
adverse claims by any person against the use by the Company or any of its
Subsidiaries of any Intellectual Property that is owned by the Company or one
of its Subsidiaries or, are there any pending or to the knowledge of the
Seller, threatened proceedings or litigation or other adverse claims noticed by
any person against the use by the Company or any of its Subsidiaries of any
Intellectual Property that is licensed to the Company or any of its
Subsidiaries. The Company takes reasonable industry standard measures to
attempt to minimize piracy of its products, including cooperating with industry
anti-piracy groups, assisting governmental agencies in investigation and
prosecution of suspected pirates, working directly with Internet Service
Providers and Internet home page portals in removing illegal download sites on
the Internet and, more recently, implementing certain technological solutions
to make illegal copying more difficult.
(d) Section 2.16(d) of the Seller Disclosure Schedule (the "IP
Schedule") lists all trademark and service xxxx registrations and applications,
patents and patent applications, and copyright registrations and applications
of the Company and its Subsidiaries (collectively, and together with
unregistered copyrights of the Company and its Subsidiaries "IP Rights"). All
IP Rights are owned or co-owned by the Company or a Subsidiary (subject to
recordation or registration of assignment, as applicable). Section 2.13(a) of
the Seller Disclosure Schedule lists Contracts which include licenses, pursuant
to which the Company or its Subsidiaries has the right to use the Intellectual
Property owned by third parties ("Licensed Rights"). Except as set forth in
Section 2.16(d) of the Seller Disclosure Schedule or unless the lack, failure,
action or state of facts in question, individually or in the aggregate, would
not have a Company Material Adverse Effect and does not relate to any of the
Key Products: the Company or its Subsidiary (A) owns or co-owns each of the IP
Rights set forth in the IP Schedule, (B) has the right to use each of the
Licensed Rights, (C) has not, in any Unfurnished Contract that relates to Key
Products, granted to any other person any interest in any IP Rights or Licensed
Rights, as licensee or otherwise (other than nonexclusive licenses), and (D)
there are no Liens, restrictions or reversionary rights that restrict any such
IP Rights and neither of the Company nor any of its Subsidiaries nor any
predecessor in interests thereof has granted any other person any Liens,
restrictions or reversionary rights that restrict any Licensed Rights other
than those which exist in the instruments in which the Licensed Rights were
granted.
Section 2.17. Year 2000 Compliance. Except as set forth in
Section 2.17 of the Seller Disclosure Schedule, all software, whether embedded
or otherwise, used in the internal operations of the Company or its
Subsidiaries as currently conducted is Year 2000
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Compliant (as hereinafter defined) or is reasonably expected to be Year 2000
Compliant by September 30, 1999. The Company and its Subsidiaries are
undertaking all reasonable efforts to determine whether any supplier with whom
the Company or its Subsidiaries has a material relationship has software that
is not Year 2000 Compliant, as well as to determine contingency plans. The
Company has initiated the implementation of a plan to make all material
software sold by the Company or its Subsidiaries Year 2000 Compliant. The
Company's plan consists of four phases: (i) identification of all software
which is not Year 2000 Compliant (the "identification phase"); (ii) assessment
of such software to determine the appropriate method of making such software
Year 2000 Compliant (the "assessment phase"); (iii) implementing the corrective
measures (the "implementation phase"); and (iv) testing and maintaining system
compliance (the "testing phase"). As used in this Agreement, "Year 2000
Compliant," with respect to software, shall mean that it has the ability to
consistently and accurately handle date information before, on and after
January 1, 2000 without a material loss of functionality, including but not
limited to accepting date input, providing date output, performing calculations
on dates or portions of dates and comparing, sequencing, storing and displaying
dates (including all leap year considerations).
Section 2.18. Brokers; Finders and Fees. Except for Credit Suisse
First Boston Corporation, whose fees will be paid by the Seller, neither the
Seller nor the Company or any of its affiliates has employed any investment
banker, broker or finder or incurred any liability for any investment banking
fees, brokerage fees, commissions or finders' fees in connection with this
Agreement or the transactions contemplated hereby.
Section 2.19. Assets. (a) The Company and its Subsidiaries have
good and marketable title to, or a valid leasehold interest in or right to use,
the properties and assets used by them, or shown on the Interim Financial
Statements or acquired after the date thereof, free and clear of all Liens,
except for properties and assets disposed of in the ordinary course of business
consistent with past practices.
(b) Neither the Seller nor its Subsidiaries (excluding the
Company and its Subsidiaries) owns, leases or licenses any of the buildings,
machinery, equipment or other tangible or intangible assets used in the
businesses of the Company and its Subsidiaries as currently conducted.
Section 2.20. Insurance. Each of the Company and its Subsidiaries
is covered by valid and currently effective insurance policies issued in favor
of the Seller and/or the Company and its Subsidiaries that are customary and
appropriate under the circumstances. All such policies are in full force and
effect, all premiums due thereon have been paid and the Seller, the Company,
and its Subsidiaries have complied with the provisions of such policies (except
for failures to be in full force and effect, to pay premiums and to comply
which, individually or in the aggregate, would not have a Company Material
Adverse Effect).
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Section 2.21. Product Warranty. Except to the extent not Year
2000 Compliant, each product manufactured, sold, leased, or delivered by any of
the Company and its Subsidiaries has been in conformity with all applicable
contractual commitments and all warranties, and none of the Company and its
Subsidiaries has any liability for replacement or repair thereof or other
damages in connection therewith, subject only to the reserve for product
warranty claims set forth on the face of the Interim Financial Statements as
adjusted for the passage of time through the Closing Date in accordance with
the past custom and practice of the Company and its Subsidiaries. No product
manufactured, sold, leased, or delivered by any of the Company and its
Subsidiaries is subject to any guaranty, warranty, or other indemnity beyond
the applicable standard terms and conditions of sale or lease.
Section 2.22. Transactions with Affiliates. Except as set forth
in Section 2.22 of the Seller Disclosure Schedule, none of the Company or any
of its Subsidiaries has any outstanding contract, agreement or other
arrangement with the Seller or any of its affiliates or provides or receives
goods or services to or from the Seller or any of its affiliates or (b) has
engaged in any transaction outside the ordinary course of business consistent
with past practice with the Seller or its affiliates (other than the Company or
its Subsidiaries and affiliates) since January 1, 1998.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Seller as
follows:
Organization; Etc. The Buyer is a societe anonyme duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization.
Section 3.2. Authority Relative to this Agreement. The Buyer has
the corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all requisite corporate action on the
part of the Buyer. This Agreement has been duly and validly executed and
delivered by the Buyer and, assuming this Agreement has been duly authorized,
executed and delivered by the Seller, constitutes a valid and binding agreement
of the Buyer, enforceable against the Buyer in accordance with its terms.
Section 3.3. Consents and Approvals; No Violations. Except for
applicable requirements of the H-S-R Act or the respective Foreign Antitrust
Laws, neither the execution and delivery of this Agreement by the Buyer nor the
consummation by the Buyer of the transactions contemplated hereby will (a)
conflict with or result in any breach of any provision of the certificate of
incorporation or by-laws or other organizational documents of
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the Buyer, (b) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, modification, cancellation or acceleration or result in
the imposition of any Lien) under, or require any approval or consent under,
any indenture, license, contract, lease, mortgage, deed of trust, agreement or
other instrument or obligation to which the Buyer or any of its subsidiaries is
a party or by which any of them or any of their respective properties or assets
may be bound or affected, (c) violate or conflict with or result in the
imposition of any Lien as a result of, any order, writ, injunction, decree or
Laws applicable to the Buyer, any of its subsidiaries or any of their
respective properties or assets, or (d) require any filing with, or the
obtaining of any permit, authorization, consent or approval of, any
governmental or regulatory authority, domestic or foreign, except in the case
of clauses (b), (c), and (d) of this Section 3.3 for any such violations,
breaches, defaults, rights of termination, cancellation or acceleration or
requirements which, individually or in the aggregate, would not have a Buyer
Material Adverse Effect (as hereinafter defined). As used in this Agreement,
the term "Buyer Material Adverse Effect" shall mean an event, change or
circumstance which would adversely affect the ability of the Buyer to
consummate the transactions contemplated hereby.
Section 3.4. Acquisition of Shares for Investment; Ability to
Evaluate and Bear Risk. (a) The Buyer is acquiring the Shares for investment
and not with a view toward, or for sale in connection with, any distribution
thereof, nor with any present intention of distributing or selling such Shares.
The Buyer agrees that the Shares may not be sold, transferred, offered for
sale, pledged, hypothecated or otherwise disposed of without registration under
the Securities Act and any applicable state securities Laws, except pursuant to
an exemption from such registration under such Act and such Laws.
(b) The Buyer (i) is able to bear the economic risk of holding
the Shares for an indefinite period, (ii) can afford to suffer the complete
loss of its investment in the Shares, and (iii) has knowledge and experience in
financial and business matters such that it is capable of evaluating the risks
of the investment in the Shares.
Section 3.5. Availability of Funds. The Buyer currently has
sufficient immediately available funds in cash or cash equivalents or available
lines of credit and will at the Closing have sufficient immediately available
funds, in cash, to pay the Purchase Price and to pay any other amounts payable
pursuant to this Agreement and to effect the transactions contemplated hereby.
In connection with the foregoing, the parent holding company of the Buyer is
delivering herewith the "comfort" letter set forth in Exhibit 3.5 hereto.
Section 3.6. Litigation. There is no (and there is no valid basis
for any) claim, action, claim, suit, proceeding or, to the knowledge of the
Buyer, governmental investigation pending or, to the knowledge of the Buyer,
threatened against the Buyer or any of its subsidiaries or affecting any assets
of the Buyer or its Subsidiaries by or before any
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court or governmental or regulatory authority which, individually or in the
aggregate, would have or reasonably be expected to have a Buyer Material
Adverse Effect.
Section 3.7. Seller's Liability. In entering into this Agreement,
the Buyer acknowledges that none of the Seller, the Company, any Subsidiary of
the Company or any of their respective directors, officers, shareholders,
employees, affiliates, controlling persons, agents, advisors or representatives
makes or has made any representation or warranty, either express or implied, as
to the accuracy or completeness of any of the information provided or made
available to the Buyer or its directors, officers, employees, affiliates,
controlling persons, agents or representatives.
Section 3.8. Brokers; Finders and Fees. Except for Rothschild
Inc., Rothschild & Cie Banque and Broadview International Ltd., whose fees will
be paid by the Buyer, neither the Buyer nor any of its affiliates has employed
any investment banker, broker or finder or incurred any liability for any
investment banking, financial advisory or brokerage fees, commissions or
finders'
ARTICLE IV
COVENANTS OF THE PARTIES
Conduct of Business of the Company. During the period from the
date of this Agreement to the Closing Date, except for this Agreement and the
transactions contemplated hereby or consented to by the Buyer in writing, the
Seller shall cause the Company and each Subsidiary thereof:
(a) to conduct their business and operations in the ordinary
course consistent with past practice;
(b) to use its reasonable efforts to preserve intact their
current business organization, keep available the services of their current
officers, employees and agents and maintain their relations and goodwill with
suppliers, customers, landlords, creditors, employees, agents, and others with
whom they maintain business relationships; and
(c) not to (i) sell, license or dispose of any of its material
properties or assets, including, without limitation, any properties or assets
used to produce or a part of any Key Products, except (A) to a Subsidiary of
the Company or (B) in the ordinary course of business for consideration of up
to $1,000,000; (ii) make any loans, advances (other than advances in the
ordinary course of business or advances to the Seller in accordance with the
Seller's normal cash management policies) or capital contributions to, or
investments in, any other person, other than contributions made to a Subsidiary
of the Company; (iii) terminate or materially amend any of its Contracts; (iv)
enter into any new Contract or take any action or fail to take any action
either to renew or not renew any Contract except as permitted in the proviso
contained in clause (viii) of this Section 4.1(c); (v) enter into, extend or
amend any
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agreement regarding compensation, benefits, severance and/or the terms and
conditions of employment or service or similar agreement with, or increase in
any manner the compensation and/or benefits of any of the officers or other
employees of, or other service provider to, the Company or any of the Company's
Subsidiaries, except for such increases with respect to employees other than
officers and directors of the Company as are granted in the ordinary course of
business in accordance with its customary practices (which shall include normal
periodic performance reviews and related compensation and benefit increases);
(vi) adopt, grant, extend or increase the rate or terms of any bonus,
insurance, pension or other employee benefit plan, payment or arrangement made
to, for or with any such officers or employees of, or other service provider
to, the Company or any of the Company's Subsidiaries, except (A) increases
required by any applicable Law, (B) the adoption of "change in control"
severance agreements and bonus plans as set forth in Section 4.1 of the Seller
Disclosure Schedule, substantially in the form previously provided to the
Buyer, (C) amendments to existing options to purchase the common stock of the
Seller ("Seller Options") and grants of new Seller Options, as set forth in
Section 4.1 of the Seller Disclosure Schedule, and (D) any other benefits
payable in any form by the Seller; (vii) make any change in any of its present
accounting methods and practices, except as required by changes in U.S. GAAP;
and other than in compliance with the Applicable Acconting Policies; (viii)
take any action that would not otherwise be taken, but for the existence of the
additional payment provisions of Sections 1.2, 1.3 and 1.4 and the opportunity
of increasing the likelihood or amount of any payment to the Seller pursuant to
Section 1.2, 1.3 or 1.4 (provided, however, that the Seller shall not be
prevented by this clause (viii) from operating the business of the Company and
its Subsidiaries in accordance with the prudent business judgment of the Seller
to enhance the growth and profitable development of the Company's business,
taking into account the Buyer's obligations under Sections 1.2, 1.3 and 1.4);
(ix) license any intellectual property rights to or from any third party
pursuant to any arrangement including aggregate payments thereunder in excess
of $2 million or involving on-line, Internet or console products; (x) make or
authorize any capital expenditures in excess of $2 million in the aggregate
(other than in connection with the matters covered by Section 4.15); (xi)
settle or compromise any material Tax liability; (xii) incur any indebtedness
for borrowed money other than from the Seller, issue any debt securities or
assume, guarantee or endorse the obligations of any other persons other than in
the ordinary course, or mortgage or encumber any of their respective rights,
properties or assets; (xiii) amend its respective certificate or articles of
incorporation or by-laws or comparable organizational documents, except as set
forth in Section 4.1 of the Seller Disclosure Schedule; or (xiv) take, or agree
to take, any of the foregoing actions.
Section 4.2. Access to Information for the Buyer. (a) Except with
respect to the Unfurnished Contracts, from the date of this Agreement to the
Closing, the Seller will cause the Company and each of the Company's
Subsidiaries to (i) give the Buyer and its authorized representatives
reasonable access to all books, records, personnel, offices and other
facilities and properties of the Company and its Subsidiaries and the Company's
and its Subsidiaries' accountants, (ii) permit the Buyer and its authorized
representatives to make
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such copies and inspections thereof as the Buyer may reasonably request and
(iii) cause the officers of the Company and the Company's Subsidiaries to
furnish the Buyer and its authorized representatives with such financial and
operating data and other information with respect to the business and
properties of the Company and the Company's Subsidiaries as the Buyer and its
authorized representatives may from time to time reasonably request; provided,
however, that any such access shall be conducted at the Buyer's expense, at
reasonable times, so as not to interfere unreasonably with the operation of the
business of the Seller, the Company or any Subsidiary of the Company.
(b) All such information and access shall be subject to the terms
and conditions of the letter agreement (the "Confidentiality Agreement"),
between the Buyer and the Seller, dated September 14, 1998. Notwithstanding
anything to the contrary contained in this Agreement, none of the Company, any
Company Subsidiary, the Seller or any affiliate of the Seller shall have any
obligation to make available or provide to the Buyer or its representatives a
copy of any consolidated, combined or unitary Tax Return filed by the Seller,
or any of its affiliates or predecessors, or any related materials.
Section 4.3. Consents; Cooperation. Each of the Seller and the
Buyer shall cooperate, and use its reasonable efforts, to make all filings and
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and other third parties
necessary to consummate the transactions contemplated by this Agreement,
including, without limitation, under the H-S-R Act and the respective Foreign
Antitrust Laws. Each of the Seller and the Buyer shall use its best efforts to
make all necessary filings with governmental authorities contemplated by the
preceding sentence no later than December 15, 1998.
Section 4.4. No Solicitation. Neither the Seller nor any of its
affiliates, or any officers, directors, employees, stockholders, affiliates,
agents or representatives of the Seller or any of its affiliates will, directly
or indirectly, solicit, initiate or encourage the submission of any proposal or
offer from any person other than the Buyer or its directors, officers,
employees, or other affiliates or representatives, enter into or continue any
discussions or negotiations with, or provide any information to, any person
other than the Buyer or its directors, officers, employees or other affiliates
or representatives, relating to any (i) merger, consolidation or other business
combination involving any material part of the Company or any of its
Subsidiaries, (ii) restructuring, recapitalization or liquidation of the
Company or any of its Subsidiaries, or (iii) acquisition or disposition of any
material assets of the Company or any of its Subsidiaries or any of its
securities (any such proposal or offer being hereinafter referred to as an
"Acquisition Proposal"). The Seller will immediately cease and cause to be
terminated any activities, discussions or negotiations conducted prior to the
date of this Agreement with any parties other than the Buyer with respect to
any of the foregoing and shall not waive or amend any provision of any
confidentiality agreement which shall have been entered into with any party
other than the Buyer.
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Section 4.5. Reasonable Efforts. Each of the Seller and the Buyer
shall cooperate, and use its reasonable efforts to take, or cause to be taken,
all action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable Laws and regulations to consummate the transactions
contemplated by this Agreement no later than January 31, 1999 or as soon
thereafter as practicable.
Section 4.6. Notice of Developments. Each of the Seller and the
Buyer will give prompt written notice to the other of any material adverse
development causing a breach of any of its own representations and warranties
in Articles II and III above. No disclosure by either the Seller or the Buyer
pursuant to this Section 4.6, however, shall be deemed to amend or supplement
the Seller Disclosure Schedule or the Buyer Disclosure Schedule or to prevent
or cure any misrepresentation, breach of warranty, or breach of covenant.
Section 4.7. Public Announcements. Prior to the Closing, except
as otherwise agreed to by the parties, the parties shall not issue any report,
statement or press release or otherwise make any public statements with respect
to this Agreement and the transactions contemplated hereby, except as in the
reasonable judgment of the party may be required by applicable law in which
case the parties will use their best efforts to reach mutual agreement as to
the language of any such report, statement or press release. Upon the Closing,
the Seller and the Buyer will consult with each other with respect to the
issuance of a joint report, statement or press release with respect to this
Agreement and the transactions contemplated hereby.
Section 4.8. Tax Matters. (a) Tax Treatment. The Seller and the
Buyer hereby agree that an election under Section 338 of the Code (or any
similar provision of the law of any state or other taxing jurisdiction) will
not be made with respect to the Company or any of its Subsidiaries (whether
foreign or domestic) in connection with the transactions contemplated by this
Agreement and that for purposes of all Tax Returns and other applicable
filings, the Buyer and the Seller will report the Stock Purchase as a purchase
and sale, respectively, of the Shares of the Company, and the purchase, if any,
of one or more of the Foreign Subs pursuant to Section 1.14 as a purchase and
sale, respectively, of the shares of such Foreign Subs.
(b) Tax Returns. Subject to Sections 4.8(b)(vii), 4.8(f) and
4.8(q):
(i) The Seller shall file or cause to be filed when due all
Tax Returns that are required to be filed by or with respect to the Company and
each Subsidiary for taxable years or periods ending on or before the Closing
Date and the Seller shall remit (or cause to be remitted), subject to Section
4.8(c)(i) below, any Taxes due in respect of such Tax Returns.
(ii) The Buyer shall file or cause to be filed when due all
Tax Returns that are required to be filed by or with respect to the Company and
each Subsidiary
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for taxable years or periods ending after the Closing Date and the Buyer shall
remit (or cause to be remitted) any Taxes due in respect of such Tax Returns.
(iii) Any Tax Return required to be filed by the Buyer
relating to any taxable year or period beginning on or before and ending after
the Closing Date (the "Straddle Period") shall be submitted (with copies of any
relevant schedules, work papers and other documentation then available) to the
Seller for the Seller's approval not less than 30 days prior to the due date
for the filing of such Tax Return, which approval shall not be unreasonably
withheld. The Seller shall have the option of providing to the Buyer, at any
time at least 15 days prior to the Due Date, written instructions as to how the
Seller wants any, or all, of the items reflected on such Tax Return for which
the Seller has acknowledged responsibility under Section 4.8(c)(i) in writing.
The Buyer shall, in preparing such return, cause the items for which the Seller
has acknowledged responsibility under Section 4.8(c)(i) in writing to be
reflected in accordance with the Seller's instructions (unless, in the opinion
of nationally recognized tax counsel to the Buyer, complying with the Seller's
instructions would likely subject the Buyer to any criminal or civil penalty
under applicable federal, state, local or foreign laws) and, in the absence of
having received such instructions, in accordance with past practice, if any, to
the extent permissible under applicable law.
(iv) The Seller shall pay the Buyer the Taxes for which the
Seller is liable pursuant to Section 4.8(c)(i)(B) but which are payable with
any Tax Return to be filed by the Buyer with respect to any Straddle Period
upon the written request of the Buyer, setting forth in detail the computation
of the amount owed, no later than 2 days prior to the due date (including
extensions requested and obtained) of any such Tax Return.
(v) Within 120 days after the Closing Date, the Buyer shall
cause the Company and each of its Subsidiaries to prepare and provide to the
Seller a package of Tax information materials, including, without limitation,
schedules and work papers (the "Tax Package") required by the Seller to enable
the Seller to prepare and file all Tax Returns required to be prepared and
filed by it pursuant to Section 4.8(b)(i). The Tax Package shall be prepared in
good faith in a manner consistent with past practice.
(vi) The Seller may, in its sole and absolute discretion,
amend any Tax Return filed or required to be filed for any taxable years or
periods ending on or before the Closing Date; provided, however, that any such
amendment which may reasonably be expected to result in increased Tax liability
for the Company, its Subsidiaries or the Buyer for any Straddle Period or for
any taxable year or period beginning after the Closing Date shall require the
consent of the Buyer, which consent may be withheld in the sole discretion of
the Buyer; provided, further, that to the extent the Seller agrees to indemnify
the Buyer for the amount of such increased Tax liability (as mutually agreed by
the parties or as otherwise determined pursuant to Section 4.8(i)), the Seller
may amend any such Tax Returns.
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(vii) Notwithstanding anything to the contrary contained in
this Section 4.8(b), the Seller shall file or cause to be filed any Forms 5471
with respect to any of the Foreign Subs owned (immediately prior to the Closing
and prior to any purchase of such subsidiaries pursuant to Section 1.14)
directly or indirectly by the Company that are required to be filed for any
taxable period that ends on or before, or that includes, the Closing Date.
(c) Indemnification.
(i) The Seller shall indemnify and hold the Buyer and the
Buyer's Subsidiaries and affiliates after the Closing (including the Company
and its Subsidiaries) harmless from and against the following (net of the
amount of any Tax Benefit actually realized by the Buyer or the Company as a
result of the payment or accrual of any of the following):
(A) Any liability for Taxes imposed on the Company and
its Subsidiaries as members of the "affiliated group"
(within the meaning of Section 1504(a) of the Code) of which
Cendant (or any predecessor or successor) is the common
parent that arises under Treasury Regulation Section
1.1502-6(a) or comparable provisions of foreign, state or
local law,
(B) any liability for Taxes imposed on the Company or
any of its Subsidiaries, or for which the Company or any of
its Subsidiaries may otherwise be liable, for any taxable
year or period that ends on or before the Closing Date and,
with respect to any Straddle Period, the portion of such
Straddle Period deemed to end on and include the Closing
Date,
(C) Any Transfer Taxes for which the Seller is liable
pursuant to Section 4.9(f) hereof, and
(D) Notwithstanding anything to the contrary in this
Section 4.8, any liability for Taxes for any taxable period
incurred as a result of a breach of the Seller's obligations
under Section 4.8(q)(i);
provided, however, that the Seller shall not be liable for and shall not
indemnify the Buyer (and its Subsidiaries and affiliates) for (I) any Taxes
taken into account in determining the Closing Equity, after giving effect to
the resolution (in accordance with Section 1.2) of all matters set forth in a
Dispute Notice; (II) any liability for Taxes resulting from transactions or
actions taken by the Company or any of its Subsidiaries on the Closing Date
that are properly allocable to the portion of the Closing Date after the
Closing except for transactions or actions undertaken in the ordinary course of
business; (III) any Taxes that result from an actual or deemed election under
Section 338 of the Code (or any similar provisions of state law or the law of
any other taxing jurisdiction) with respect to the Company or any of its
Subsidiaries (whether foreign or domestic) in connection any of the
transactions contemplated by this Agreement; and (IV) the amount of any
Incremental Tax Liability not
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paid by Buyer to Seller pursuant to Section 1.14. (Taxes described in this
proviso referred to hereinafter as "Excluded Taxes".)
(ii) The Buyer shall indemnify and hold the Seller and the
Seller's Subsidiaries and affiliates harmless from and against the following
(net of the amount of any Tax Benefit actually realized by the Seller as a
result of the payment or accrual of any of the following):
(A) Taxes imposed on the Company or any Subsidiary for
any taxable year or period that begins after the Closing
Date and, with respect to any Straddle Period, the portion
of such Straddle Period beginning after the Closing Date;
(B) Excluded Taxes; and
(C) Notwithstanding anything to the contrary contained
in this Section 4.8, any liability for Taxes for any taxable
period incurred as a result of a breach of Buyer's or the
Company's obligations under Section 4.8(q)(ii).
(d) Computation of Tax Liabilities.
(i) To the extent permitted or required by law or administrative
practice of any taxing authority, (A) the taxable year of the Company or any of
its Subsidiaries which includes the Closing Date shall be treated as closing on
(and including) the Closing Date and, notwithstanding the foregoing, (B) all
transactions not in the ordinary course of business occurring after the Closing
shall be reported on Buyer's consolidated United States federal income Tax
Return to the extent permitted by Treasury Regulation Section
1.1502-76(b)(1)(ii)(B) and shall be similarly reported on other Tax Returns of
the Buyer or its affiliates to the extent permitted by law. For purposes of
Section 4.8(c)(i) and (c)(ii), where it is necessary to apportion between the
Seller and the Buyer the Tax liability of an entity for a Straddle Period
(which is not treated under the immediately preceding sentence as closing on
the Closing Date), such liability shall be apportioned between the period
deemed to end at the close of the Closing Date, subject to Sections
4.8(c)(i)(D)(II) and 4.8(d)(i)(B), and the period deemed to begin at the
beginning of the day following the Closing Date on the basis of an interim
closing of the books, except that Taxes (such as real property Taxes) imposed
on a periodic basis shall be allocated on a daily basis.
(ii) In determining the Seller's liability for Taxes pursuant to
this Agreement, the Seller shall be credited with the amount of estimated Taxes
previously paid by or on behalf of the Company and its Subsidiaries. To the
extent that the Seller's liability for Taxes for a taxable year or period is
less than the amount of estimated income Taxes previously paid by or on behalf
of the Company or any of its Subsidiaries with respect to all or a portion of
such taxable year or period, the Buyer shall pay the Seller the difference
within 2 days of filing the Tax Return relating to such income Taxes.
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(e) Contest Provisions.
(i) Each of the Buyer, on the one hand, and the Seller, on
the other hand (the "Recipient"), shall notify the chief tax officer of the
other party in writing within 15 days of receipt by the Recipient of written
notice of any pending or threatened audits, notice of deficiency, proposed
adjustment, assessment, examination or other administrative or court
proceeding, suit, dispute or other claim (a "Tax Claim") which could affect the
liability for Taxes of such other party. If the Recipient fails to give such
prompt notice to the other party it shall not be entitled to indemnification
for any Taxes arising in connection with such Tax Claim if and to the extent
that such failure to give notice materially and adversely affects the other
party's right to participate in the Tax Claim.
(ii) The Seller shall have the sole right to represent the
Company and each of its Subsidiary's interests in any Tax Claim relating to
taxable periods ending on or before the Closing Date and to employ counsel of
its choice at its expense. In the case of a Straddle Period, the Seller shall
be entitled to participate at its expense in any part of a Tax Claim relating
to Taxes attributable to the portion of such Straddle Period deemed to end on
or before the Closing Date and, with the written consent of the Buyer, which
consent may be withheld in the sole discretion of the Buyer at the Seller's
sole expense, may assume the control of such entire Tax Claim. None of the
Buyer, any of its affiliates, the Company or any of its Subsidiaries may settle
or otherwise dispose of any Tax Claim for which the Seller may have a liability
under this Agreement without the prior written consent of the Seller, which
consent may be withheld in the sole discretion of the Seller, unless the Buyer
fully indemnifies the Seller in writing with respect to such liability in a
manner satisfactory to the Seller.
(f) Transfer Taxes. All excise, sales, use, transfer
(including real property transfer or gains), stamp, documentary, filing,
recordation and other similar taxes, together with any interest, additions or
penalties with respect thereto and any interest in respect of such additions or
penalties, resulting directly from the sale and transfer by the Seller to the
Buyer of the Shares (the "Transfer Taxes"), shall be borne by the Seller.
Notwithstanding Section 4.8(b) of this Agreement, which shall not apply to Tax
Returns relating to Transfer Taxes, any Tax Returns that must be filed in
connection with Transfer Taxes shall be prepared and filed when due by the
party primarily or customarily responsible under the applicable local law for
filing such Tax Returns, and such party will use its reasonable efforts to
provide such Tax Returns to the other party at least 10 days prior to the Due
Date for such Tax Returns.
(g) Refunds.
(i) Any Tax refund (including any interest in respect
thereof) received by the Buyer or the Company or any of its Subsidiaries, and
any amounts credited against Tax to which the Buyer or the Company or any of
its Subsidiaries become entitled
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(including by way of any amended Tax Returns), that relate to any taxable
period, or portion thereof, ending on or before the Closing Date (other than a
refund or credit arising from the carryback to such period of any net operating
loss or capital loss arising in a taxable year or period, or portion thereof,
beginning after the Closing Date) shall be for the account of the Seller, and
the Buyer shall pay over to the Seller any such refund or the amount of any
such credit within 15 days after receipt or entitlement thereto, respectively.
In addition, to the extent that a claim for refund or a proceeding results in a
payment, credit or other adjustment against Tax by a taxing authority to the
Buyer or the Company or any of its Subsidiaries of any amount taken into
account in determining the Closing Equity after giving effect to the resolution
(in accordance with Section 1.2) of all matters set forth in a Dispute Notice,
the Buyer shall pay such amount to the Seller within 15 days after receipt or
entitlement thereto. The Buyer shall pay the Seller interest at the rate
prescribed under Section 6621(a)(1) of the Code, compounded daily, on any
amount not paid when due under this Section 4.8(g). For purposes of this
Section 4.8(g), where it is necessary to apportion a refund or credit between
the Buyer and the Seller for a Straddle Period, such refund or credit shall be
apportioned between the period deemed to end at the close of the Closing Date,
and the period deemed to begin at the beginning of the day following the
Closing Date on the basis of an interim closing of the books, except that
refunds or credits of Taxes (such as real property Taxes) imposed on a periodic
basis shall be allocated on a daily basis.
(ii) Buyer shall cooperate, and cause the Company and its
Subsidiaries to cooperate, in obtaining any refund that the Seller reasonably
believes should be available, including without limitation, through filing a
Form 1139 or other appropriate form with the applicable taxing authorities.
(h) Certain Post-Closing Settlement Payments.
(i) If the examination of any Federal, state, local or other Tax
Return of the Seller for any taxable period ending on or before the Closing
Date shall result (by settlement or otherwise) in any adjustment which permits
the Buyer or the Company or any of its Subsidiaries to increase deductions,
losses or tax credits or decrease the income, gains or recapture of tax credits
which would otherwise (but for such adjustments) have been reported or taken
into account (including by way of any increase in basis) by the Buyer or the
Company or its Subsidiaries for one or more periods ending after the Closing
Date, the Seller will notify the Buyer and provide it with adequate information
so that the Buyer can reflect on its or the Company's Tax Returns such
increases in deductions, losses or tax credits or decreases in income, gains or
recapture of tax credits. The Buyer shall pay to the Seller, the amount of any
resulting Tax Benefits (as defined and calculated below) when, as and if such
Tax Benefits are actually realized by a reduction of Tax otherwise due.
(ii) If the examination of any Federal, state, local or other Tax
Return of the Buyer or the Company or any of its Subsidiaries for any taxable
period ending after the Closing Date shall result (by settlement or otherwise)
in any adjustment which
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permits the Seller to increase deductions, losses or tax credits or decrease
the income, gains or recapture of tax credits which would otherwise (but for
such adjustments) have been reported or taken into account (including by way of
any increase in basis) by the Seller for one or more periods ending on or
before the Closing Date, the Buyer will notify the Seller and provide it with
adequate information so that the Seller can reflect on its Tax Returns such
increases in deductions, losses or tax credits or decreases in income, gains or
recapture of tax credits. The Seller shall pay to the Buyer, the amount of any
resulting Tax Benefits (as defined and calculated below) when, as and if such
Tax Benefits are actually realized by a reduction of Tax otherwise due.
(iii) Upon (A) the exercise of a Seller Option by an employee or
former employee of the Company or any of its Subsidiaries and the payment of
cash or other property by the Seller (or its designated agent) to the holder of
the Seller Option or (B) the payment by Seller of any amount with respect to
any employee retention Liabilities, as described in Section 1.15(a) or the
Retention Plan, the Buyer shall pay or shall cause the Company to pay to the
Seller the amount of any Tax Benefit attributable to any payment described in
this Section 4.8(h)(iii) when, as and if such Tax Benefits are actually
realized by a reduction of Tax otherwise due.
(iv) For purposes of this Agreement, "Tax Benefits" shall mean
the reduction in Taxes from any increased deductions, losses, or credits or
decreases in income, gains or recapture of tax credits. The Tax Benefit with
respect to any payments made pursuant to the Blizzard Plan shall be net of the
tax cost incurred by the Company with respect to the earnings of the escrow
account from which such payments are made.
(v) The Buyer agrees to use its reasonable best efforts to
realize the Tax Benefits described in clauses (i), (ii) and (iii) of this
Section 4.8(h), as promptly as practicable consistent with applicable law.
(vi) For purposes of any "Tax Benefit" actually realized
determined under Section 4.8(h)(iv): (A) No later than 45 days after the filing
of a Tax Return for any taxable period that includes a date upon which (x) any
Seller Option or Additional Option was exercised; (y) any payment was made or
accrued with respect to or in connection with any employee retention
liabilities, as described in Section 1.15(a), or the Bonus Pool; or (z) any
amount was paid or accrued by the Buyer or the Company in respect of a claim
for which the Seller is required to indemnify the Buyer or the Company, as the
case may be, pursuant to this Agreement, the Buyer shall provide to the Seller
a detailed statement ("Tax Benefit Statement") specifying the amount, if any,
of any Tax Benefit that was actually realized by the Buyer or the Company for
such tax period. To the extent that any deductions or other tax items that
could give rise to a tax reduction or savings do not result in the actual
realization of such a tax reduction or savings in the year described in the
previous sentence, this subsection (vi) shall apply to each subsequent taxable
period of the Buyer or the Company, as the case may be, until either such tax
savings are actually realized (resulting in a Tax Benefit)
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or the losses or other carryforwards to which such deductions or other tax
items gave rise expire unused. For each relevant taxable period, the Seller
shall be provided with full access to the non-proprietary work papers and other
materials and information of the Buyer's and the Company's accountants in
connection with the review of the Tax Benefit Statement. If the Seller
disagrees in any respect with the Buyer's computation of the amount of the Tax
Benefit actually realized, the Seller may, on or prior to 45 days after the
receipt of the Tax Benefit Statement from the Buyer, deliver a notice to the
Buyer or the Company setting forth in reasonable detail the basis for the
Seller's disagreement therewith ("Tax Benefit Dispute Notice"). If no Tax
Benefit Dispute Notice is received by the Buyer or the Company on or prior to
the 45th day after Seller's receipt of the Tax Benefit Statement from the
Buyer, the Tax Benefit Statement shall be deemed accepted by the Seller.
(B) Within 15 days after the Buyer's receipt of a Tax Benefit Dispute
Notice, unless the matter in the Tax Benefit Dispute Notice have otherwise been
resolved by mutual agreement of the parties, the Buyer and the Seller shall
jointly select a nationally-recognized independent certified public accountant
(the "Tax Benefit Accountant"); provided, however, if the Buyer and the Seller
are unable to agree upon the Tax Benefit Accountant within such 15-day period,
then the Buyer and the Seller shall each select a nationally-recognized
independent certified public accountant with shall then jointly choose the Tax
Benefit Accountant within 15 days thereafter. The Tax Benefit Accountant shall
conduct such review of the work papers and such other materials and
information, and the Tax Benefit Dispute Notice, and any supporting
documentation as the Tax Benefit Accountant in its sole discretion deems
necessary, and the Tax Benefit Accountant shall conduct such hearings or hear
such presentations by the parties or obtain such other information as the Tax
Benefit Accountant in its sole discretion deems necessary.
(C) The Tax Benefit Accountant shall, as promptly as practicable and
in no event later than 45 days following the date of its retention, deliver to
the Seller and the Buyer a report (the "Tax Benefit Report") in which the Tax
Benefit Accountant shall, after reviewing disputed items set forth in the Tax
Benefit Dispute Notice, determine what adjustments, if any, should be made to
the amount of the Tax Benefit. The Tax Benefit Report shall set forth, in
reasonable detail, the Tax Benefit Accountant's determination with respect to
the disputed items or amounts specified in the Tax Benefit Dispute Notice, and
the revisions, if any, to be made to the amount of the Tax Benefit, together
with supporting calculations. All fees and expenses relating to this work of
the Tax Benefit Accountant shall be borne equally by the Buyer and the Seller.
The Tax Benefit Report shall be final and binding upon the Buyer and the
Seller, shall be deemed a final arbitration award that is binding on each of
the Buyer and the Seller, and no party shall seek further recourse to courts,
other arbitral tribunals or otherwise. The amount, if any, of the Tax Benefit
set forth in the Tax Benefit Report shall, in accordance with the provisions of
clauses (i), (ii) and (iii) of this Section 4.8(h), be paid to the Seller in
immediately available funds no later than five days after delivery of the Tax
Benefit Report to Buyer.
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(i) Resolution of All Tax-Related Disputes. Subject to Section
4.8(h)(vi), in the event that the Seller and the Buyer cannot agree on the
calculation of any amount relating to Taxes or the interpretation or
application of any provision of this Agreement relating to Taxes, such dispute
shall be resolved by a nationally recognized accounting firm mutually
acceptable to each of the Seller and the Buyer, whose decision shall be final
and binding upon all persons involved and whose fees and expenses shall be
shared equally by the Seller and the Buyer.
(j) Post-Closing Actions Which Affect Seller's Liability for
Taxes.
(i) The Buyer shall not permit the Company or any of its
Subsidiaries to take any action on the Closing Date which could increase the
Seller's liability for Taxes (including any liability of the Seller to
indemnify the Buyer for Taxes pursuant to this Agreement) by more than a de
minimus amount.
(ii) None of the Buyer or any affiliate of the Buyer shall
(or shall cause or permit the Company or any of its Subsidiaries to) amend,
refile or otherwise modify any Tax Return relating in whole or in part to the
Company or any of its Subsidiaries with respect to any taxable year or period
ending on or before the Closing Date (or with respect to any Straddle Period)
without the prior written consent of the Seller, which consent may be withheld
in the sole discretion of the Seller.
(k) Termination of Existing Tax Sharing Agreements. Any and all
existing Tax sharing agreements or arrangements, written or unwritten, binding
the Company or its Subsidiaries, shall be terminated as of the Closing.
(l) Conflicts. In the event of a conflict between the provisions
of Section 4.8 and Article VII, Section 4.8 shall govern and control.
(m) Assistance and Cooperation. After the Closing Date, each of
the Seller and the Buyer shall (and shall cause their respective affiliates
to):
(i) timely sign and deliver such certificates or forms as
may be necessary or appropriate to establish an exemption from (or otherwise
reduce), or file Tax Returns or other reports with respect to Transfer Taxes;
(ii) assist the other party in preparing any Tax Returns
which such other party is responsible for preparing and filing in accordance
with Section 4.8(b);
(iii) cooperate fully in preparing for any audits of, or
disputes with taxing authorities regarding, any Tax Returns of the Company and
each Subsidiary;
(iv) make available to the other and to any taxing authority
as reasonably requested in connection with any Tax Return described in Section
4.8(b) or any
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proceeding described in Section 4.8(e), all information relating to any Taxes
or Tax Returns of the Company and each of its Subsidiaries; and
(v) furnish the other with copies of all correspondence
received from any taxing authority in connection with any Tax audit or
information request with respect to any such taxable period.
Notwithstanding the foregoing or any other provision in this Agreement, neither
the Buyer nor any of its affiliates shall have the right to receive or obtain
any information relating to Taxes of the Seller, any of its affiliates, or any
of its predecessors other than information relating solely to the Company or
any of its Subsidiaries (including, without limitation, any schedules or
attachments to a consolidated, combined or unitary Tax Return that includes the
Seller or other affiliates of the Seller if such schedule or attachment relates
solely to the Company or any of its Subsidiaries).
(n) Adjustment to Purchase Price. For all United States federal,
state and local and foreign Tax purposes, any payment by the Buyer or the
Seller under this Agreement shall be treated as an adjustment to the
consideration paid by the Buyer for the Shares.
(o) Allocation to Covenant. The Buyer and the Seller agree that
$1 million of the Closing Date Cash Payment will be allocated to the Seller's
covenants contained in Section 4.11 for all United States federal, state and
local income tax purposes, and neither the Buyer nor the Seller will take any
position inconsistent with such allocation.
(p) Certain Definitions. For purposes of this Agreement, "Due
Date" shall mean, with respect to any Tax Return, the date such return is due
to be filed (taking into account any valid extensions requested and obtained);
"Tax" or "Taxes" shall mean taxes (other than those taxes described in Section
4.8(f) hereof) of any kind, levies or other like assessments, customs, duties,
imposts, charges or fees, including, without limitation, income, gross
receipts, ad valorem, value added, excise, real or property, asset, sales, use,
license, payroll, transaction, capital, net worth, withholding, estimated,
social security, utility, workers' compensation, severance, production,
unemployment compensation, occupation, premium, windfall profits, or other
governmental taxes imposed or payable to the United States, or any state,
county, local or foreign government or subdivision or agency thereof, together
with any interest, penalties or additions with respect thereto and any interest
in respect of such additions or penalties; and "Tax Returns" shall mean all
returns, reports, statements, declarations, estimates and forms or other
documents (including any related or supporting information), required to be
filed with respect to any Taxes.
(q) Seller Options; Bonus Pool.
(i) Upon the exercise of any Seller Option and the payment
of cash or other property by Seller (or its designated agent) to the holder of
the Seller Option, the Seller (or its designated agent) shall withhold any pay
over to the Company the amount
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required to be withheld under applicable Law (the "Withholding Taxes"). The
Seller shall also pay to the Company the amount of any FICA or FUTA Tax (or
similar employment Taxes under state of local law) ("Employment Taxes") that is
imposed on the Seller under applicable law with respect to (A) such exercise of
any Seller Options and the payment of cash or other property by the Seller to
the holder of the Seller Option or (B) the payment of any amount with respect
to any employee retention liabilities, as described in Section 1.15(a), or the
Bonus Pool, provided, however, the Seller has received sufficient information
from the Company to enable it to determine the amount of such Employment Taxes.
(ii) Buyer shall cause the Company to pay all Withholding
Taxes and Employment Taxes received from the Seller to the proper governmental
entity. In addition, upon payment by the Company of any amount with respect to
any employee retention Liabilities, as described in Section 1.15(a), or the
Bonus Pool, the Company shall withhold the Withholding Taxes required to be
withheld under applicable Law and pay such Withholding Taxes to the proper
governmental authority. The Buyer shall cause the Company to (A) prepare and
file any Tax Returns required to be filed in connection with Withholding Taxes
and Employment Taxes within the time and manner prescribed by applicable Law
and (B) prepare and provide to persons who exercised such Seller Options or
received payments with respect to any employee retention Liabilities, as
described in Section 1.15(a), or the Bonus Pool, any statement, forms or other
document required to be provided under applicable Law.
(iii) Unless otherwise required by the applicable law, the
parties to this Agreement shall treat, with respect to any payment described in
Section 4.8(q)(i), any amount that is required to be included in the gross
income of the holders of any Seller Option or any employee, as the case may be,
as an amount that may be properly deductible by the Company after the Closing
Date.
Section 4.9. Employees; Employee Benefits. (a) On and after the
Closing, until at least the first anniversary of the Closing, the Buyer shall
cause the Company and its Subsidiaries to provide the employees and former
employees of the Company and its Subsidiaries with salaries and benefit plans,
programs and arrangements no less favorable in the aggregate than those
currently provided as of the date hereof by the Company and its Subsidiaries
(excluding any equity based compensation that employees and former employees
received).
(b) If any employee of the Company or any of its Subsidiaries becomes
a participant in or subject to any employee benefit plan, practice or policy of
the Buyer or any of its affiliates, such employee shall be given credit under
such plan for all service prior to the Closing Date with the Company and its
Subsidiaries or any predecessor employer (to the extent such credit was given
by the Company, such Subsidiary of the Company or such predecessor), for
purposes of the corresponding plan in which such employee participated before
the Closing Date for purposes of determining eligibility and vesting and for
all other
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purposes for which such service is either taken into account or recognized;
provided, however, such service need not be credited for purposes of benefit
accrual nor to the extent it would result in a duplication of benefits.
(c) In the event that any person who is an employee of the Company or
any of its Subsidiaries immediately prior to the Closing (an "Affected
Employee") is discharged by the Company or such Subsidiary on or after the
Closing, then the Buyer shall be responsible for any and all severance costs
for such Affected Employee, including, without limitation, payments owing under
those agreements, plans or arrangements listed in Section 4.9(c) of the Seller
Disclosure Schedule.
(d) The Seller shall take all steps necessary and appropriate so that
all options to purchase shares of the Seller's common stock (each, a "Seller
Option") held by any Affected Employee immediately before the Closing become
fully vested and nonforfeitable no later than the earlier of (i) the one-year
anniversary of the Closing Date or (ii) the date such Affected Employee's
employment with the Company or any of its Subsidiaries is terminated due to job
elimination, and remain exercisable until December 31, 2001 unless such Seller
Option expires sooner pursuant to its terms; provided, that a Seller Option
shall be forfeited, except to the extent otherwise vested and nonforfeitable as
of the date of the termination of employment of the Affected Employee who holds
such Seller Option, if the employment of such Affected Employee by the Company
and its Subsidiaries terminates before the first anniversary of the Closing for
any reason other than as a result of a termination by the Company or a
Subsidiary due to job elimination (all of the foregoing, the "Option
Amendments").
(e) Before the Closing Date, the Seller shall take all steps necessary
and appropriate to cause the Company's Job Discontinuance Severance Pay Plan to
be amended to make clear that any compensation and benefits that become due to
any individual thereunder shall be reduced (but not below zero) by any
severance pay or benefits that such individual becomes entitled to receive
pursuant to any individual employment, severance, retention or similar
agreement or any other plan, program, policy, practice, agreement or
arrangement providing severance pay and/or benefits, and to make clear that
such plan, from and after its adoption, has superseded the Knowledge Adventure,
Inc. Severance Plan in its entirety.
(f) The Seller shall establish a bonus pool (the "Bonus Pool")
incorporating the items and conditions set forth in Section 4.9(f) of the
Seller Disclosure Schedule. There shall be established, and Cendant shall fund,
the Incentive Bonus Plan providing for bonuses to employees of Blizzard
Entertainment and Blizzard North Business Units pursuant to the agreement set
forth in Section 4.9(f) of the Seller Disclosure Schedule (the "Blizzard
Plan"), which shall be considered a part of the Bonus Pool. All payments made
pursuant to the Blizzard Plan shall reduce the payments required to be made
pursuant to the remainder of the Bonus Pool. The Seller shall contribute the
amount that is due at Closing pursuant to the
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Bonus Pool to the Company before the Closing Date, and shall pay all
additional amounts due thereafter pursuant to the Bonus Pool to the Buyer as
and when such amounts become due, and the Buyer in turn shall pay or cause the
Company to pay such amounts to employees when due.
(g) Notwithstanding any other provision of this Agreement or of the
Bonus Pool or Option Amendments, but subject to Section 4.8(q), the Seller
shall remain fully responsible for, and shall indemnify the Buyer and the
Company and its Subsidiaries and hold them harmless from and against, any and
all liabilities under or arising in connection with (i) the Bonus Pool
(including the Blizzard Plan), and (ii) any Plans that are not sponsored or
maintained by the Company or any of its Subsidiaries and any Affiliate Plans
that are not Plans. The indemnity provided pursuant to this Section 4.9(g)
shall be provided pursuant to Section 7.2 hereof, except that the limitations
set forth in clauses (i), (ii) and (iv) of Section 7.2(b) shall not apply.
(h) The parties agree to use their reasonable best efforts to cause
Xxxxx Xxxxx to agree to either (i) the assignment of his employment agreement
with Cendant dated March 24, 1997 (the "Cendant Employment Agreement") to the
Company or (ii) the termination of the Cendant Employment Agreement without
liability to Cendant other than for compensation and benefits accrued through
the Closing. If Xx. Xxxxx (i) becomes an employee of the Company or any of its
affiliates at any time during the one-year period immediately following the
Closing, and (ii) becomes entitled to receive severance pay pursuant to the
Cendant Employment Agreement, then the Buyer shall indemnify Cendant, and hold
it harmless from and against all liabilities for such severance pay. In
addition, the Buyer shall indemnify Cendant, and hold it harmless from and
against all liabilities under the employment agreement among Xxxxxxxx X. Xxxxx,
Cendant and Knowledge Adventure, Inc. dated December 20, 1996. The indemnities
provided pursuant to this Section 4.9(h) shall be provided pursuant to Section
7.3 hereof, except that the limitations set forth in clauses (i) and (ii) of
Section 7.3(b) shall not apply.
Section 4.10. Indemnification of Directors and Officers. Following the
Closing, the Buyer shall cause each of the Company and its Subsidiaries not to
make any changes to its respective certificate of incorporation (or similar
document) or by-laws which would adversely impact the rights of persons who are
currently officers and directors of the Company or the Subsidiary of the
Company, as applicable, to claim indemnification from such entity under the
terms of such certificate of incorporation (or similar document) or by-laws as
in effect on the date hereof for acts taken prior to the Closing. The Buyer
shall pay (to the extent not paid by the Company or any of its Subsidiaries)
any payments required under such indemnification provisions relating to facts
or circumstances occurring prior to the Closing.
Section 4.11. Non-Competition; Non-Solicitation. (a) The Seller
acknowledges and agrees that the purchase of the Shares contemplated by this
Agreement is a
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transaction described in Section 16601 of the California Business and
Professions Code, and that a principal asset of the Company for which the Buyer
is paying the consideration required hereby to the Seller is the goodwill,
trade secrets and confidential information of the Company.
(b) For a period of five years after the Closing Date (the
"Non-Competition Period") (and except as may otherwise be provided in any
distribution or other agreement entered into between the Seller and the Company
or the Buyer after the Closing Date including those referred to in Exhibit
1.12(b)-1 and 1.12(b)-2), neither Cendant nor any of its Subsidiaries (other
than the Company and its Subsidiaries) will develop, manufacture, license or
publish any product or service that competes directly or indirectly with any
Competitive Products (the "Competitive Products"). During such period, neither
Cendant nor any of its Subsidiaries shall establish or use any affiliate for
the purpose of circumventing the covenant contained in this Section 4.11(b).
(c) For a period of three years after the Closing Date, neither
Cendant nor any of its Subsidiaries shall directly or indirectly solicit or
induce any employee of the Company or its Subsidiaries to leave such employment
and become an employee of any person or entity other than the Company or any of
its Subsidiaries; provided, however, that nothing in this Section 4.11(c) shall
prohibit Cendant or its Subsidiaries from employing any person who contacts
them on his or her own subsidiaries (other than the Company and its
Subsidiaries) or as a result of a general solicitation to the public.
(d) "Competitive Products" means educational, entertainment and
personal productivity consumer retail software products and services of the
type currently (or contemplated to be) developed, manufactured, sold, licensed
or distributed by the Company as currently conducted or contemplated to be
conducted but excluding any products related to finance, insurance, tax, travel
and automobiles/transportation and any products sold by the Seller's
Entertainment Publications subsidiary as of the Closing.
Section 4.12. Further Assurances. The Seller and the Buyer agree that,
from time to time, whether before, at or after the Closing Date, each of them
will execute and deliver such further instruments of conveyance and transfer
and take such other action as may be necessary to carry out the purposes and
intents of this Agreement.
Section 4.13. Current Information. During the period from the date of
this Agreement to the Closing, the Seller (i) shall notify the Buyer of (A) any
change in the normal course of business or operations of the Company or any of
its Subsidiaries that would have a Company Material Adverse Effect of which
Seller or its Subsidiaries has knowledge, (B) the making or commencement of any
governmental complaints, investigations or hearings relating to any of the Key
Products, the Company or any of its Subsidiaries of which the Seller or its
Subsidiaries has knowledge (or the receipt by the Seller of any communications
indicating that the same may be contemplated), (C) the institution or threat
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of any material litigation relating to any of the Key Products, the Company or
any Subsidiary of which the Seller or its Subsidiaries has knowledge, and (ii)
shall provide the Buyer with unaudited monthly financial statements of the
Company within 15 days following the end of each month.
Section 4.14. Confidential Information. Immediately after Closing, the
Seller shall (i) deliver to the Buyer or destroy all confidential information
concerning the Company or its Subsidiaries, other than information required by
law to be retained or for the purposes of pending or threatened litigation, and
(ii) request that all third parties which previously indicated interest to the
Seller or its agents in bidding to acquire the Shares (or in effecting some
other change of control transaction involving the Company or any of its
Subsidiaries) return to the Company or destroy any and all confidential
information provided to them by the Seller or its agents (in each such case,
whether or not such confidential information is otherwise subject to a
confidentiality agreement between the Seller and such a third party), or
otherwise obtained by such parties, in connection with the Seller's efforts to
sell the Shares.
Section 4.15. Year 2000 Compliance. On or prior to December 15, 1998,
the Seller shall cause the Company and its Subsidiaries to commence
implementation of a plan in consultation and coordination with the Buyer to
bring the Company's (and its Subsidiaries') financial reporting system into
Year 2000 Compliance.
ARTICLE V
CONDITIONS TO CONSUMMATION OF THE STOCK PURCHASE
Conditions to Each Party's Obligations to Consummate the Stock
Purchase. The respective obligations of each party to consummate the
transactions contemplated hereby is subject to the satisfaction at or prior to
the Closing Date of the following conditions:
(a) No statute, rule, regulation, executive order, decree, or
injunction shall have been enacted, entered, promulgated or enforced by any
court or governmental entity which prohibits the consummation of the Stock
Purchase;
(b) There shall not be any suit, action, investigation, inquiry or
other proceeding instituted, pending or threatened by any governmental or other
regulatory or administrative agency or commission which seeks to enjoin or
otherwise prevent consummation of the transactions contemplated hereby; and
(c) Any waiting periods (and any extensions thereof) applicable to the
transactions contemplated by this Agreement under applicable U.S. or foreign
antitrust or trade regulation Laws, including, without limitation, under the
H-S-R Act and the Foreign Antitrust Laws, shall have expired or been
terminated.
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Section 5.2. Further Conditions to the Seller's Obligations. The
obligation of the Seller to consummate the transactions contemplated hereby are
further subject to satisfaction or waiver of the following conditions:
(a) The representations and warranties of the Buyer contained in this
Agreement shall be true and correct (without giving effect to any "materiality"
or Buyer Material Adverse Effect qualification or exception contained therein)
as of the date hereof and at and as of the Closing Date as though such
representations and warranties were made at and as of such date (except to the
extent expressly made as of an earlier date, in which case, as of such date),
except where the failure of such representations and warranties to be so true
and correct does not have, individually or in the aggregate, a Buyer Material
Adverse Effect.
(b) The Buyer shall have performed and complied in all material
respects with all agreements and obligations required by this Agreement (except
for the covenants set forth in Sections 4.5, 4.6 and 4.13(i)(a)) to be
performed or complied with by it on or prior to the Closing.
(c) The Buyer shall have delivered to the Seller an officer's
certificate to the effect that each of the conditions specified above in
Section 5.2(a) and (b) is satisfied in all respects.
Section 5.3. Further Conditions to the Buyer's Obligations. The
obligation of the Buyer to consummate the transactions contemplated hereby are
further subject to the satisfaction or waiver at or prior to the Closing Date
of the following conditions:
(a) The representations and warranties of the Seller contained in this
Agreement (without giving effect to any "materiality" or Company Material
Adverse Effect qualification or exception contained therein) shall be true and
correct of the date hereof and at and as of the Closing Date as though such
representations and warranties were made at and as of such date (except to the
extent expressly made as of an earlier date, in which case, as of such date),
except where the failure of such representations and warranties to be so true
and correct does not have, individually or in the aggregate, a Company Material
Adverse Effect; provided, however, that the effects of changes that are
generally applicable to the industries in which the Seller and its Subsidiaries
operate or to the United States economy generally shall be excluded from such
determination in assessing compliance with Section 2.7(i) of this Agreement;
(b) The Seller shall have performed and complied in all material
respects with all agreements and obligations required by this Agreement (except
for the covenants set forth in Sections 4.3, 4.5, 4.6, 4.7 and 4.13) to be
performed or complied with by it on or before Closing; and
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(c) The Seller shall have delivered to the Buyer an officer's
certificate to the effect that each of the conditions specified above in
Section 5.3(a) and (b) is satisfied in all respects.
ARTICLE VI
TERMINATION AND ABANDONMENT
Termination. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing Date:
(a) by mutual written consent of the Seller and the Buyer;
(b) by the Seller or the Buyer at any time after January 31, 1999
unless (i) a court of competent jurisdiction has issued an injunction
preventing consummation of the transactions contemplated hereby (and the
parties hereto are attempting to remove such injunction) or (ii) the condition
set forth in Section 5.1(c) has not been satisfied or waived by January 31,
1999 in which event either party may terminate at any time after March 31,
1999; provided that the Closing shall not have occurred other than through the
failure of any party seeking to terminate this Agreement to comply with its
obligations hereunder or due to the failure of such party's representations to
be true and correct by such date; or
(c) by the Seller or the Buyer if the other shall have breached or
failed to perform in any material respect any of its respective
representations, warranties, covenants or other agreements contained in this
Agreement, which breach or failure to perform (i) would give rise to the
failure of a condition set forth in Section 5.2 or 5.3(a) or (b), as
applicable, and (ii) cannot be or has not been cured within 30 days after the
giving of written notice to the Seller or the Buyer, as applicable.
Section 6.2. Procedure for, and Effect of Termination. In the event of
termination of this Agreement and abandonment of the transactions contemplated
hereby by the parties hereto pursuant to Section 6.1 hereof, written notice
thereof shall be given by a party so terminating to the other party and this
Agreement shall forthwith terminate and shall become null and void and of no
further effect, and the transactions contemplated hereby shall be abandoned
without further action by the Seller or the Buyer. If this Agreement is
terminated pursuant to Section 6.1 hereof:
(a) each party shall redeliver or destroy all documents, work papers
and other materials of the other parties relating to the transactions
contemplated hereby, whether so obtained before or after the execution hereof,
to the party furnishing the same, and all confidential information received by
any party hereto with respect to the other party shall be treated in accordance
with the Confidentiality Agreement and Section 4.2(b) hereof;
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(b) all filings, applications and other submissions made pursuant
hereto shall, at the option of the party making such filing, application or
submission, and to the extent practicable, be withdrawn from the agency or
other person to which made; and
(c) there shall be no liability or obligation hereunder on the part of
the Seller or the Buyer or any of their respective directors, officers,
employees, affiliates, controlling persons, agents or representatives except
that the Seller or the Buyer, as the case may be, may have liability to the
other party if the basis of termination is a willful, material breach by the
Seller or the Buyer, as the case may be, of one or more of the provisions of
this Agreement, and except that the obligations provided for in Sections 6.2
and 8.8 hereof shall survive any such termination.
ARTICLE VII
SURVIVAL AND INDEMNIFICATION
Survival Periods. Each of the representations and warranties made by
the parties in this Agreement, including any Schedule hereto or any
certificate, document or other instrument delivered in connection herewith,
shall survive the Closing until the first anniversary of the Closing Date;
except for (i) the representations and warranties contained in Sections 2.10
and 2.15, which shall terminate on the third anniversary of the Closing Date
and (ii) the representations and warranties contained in Sections 2.1, 2.2,
2.3, 2.12, 3.1, 3.2 and 3.4, which shall survive the Closing without limitation
(subject to any applicable statutes of limitations), other than the termination
of this Agreement. The parties agree that no claims or causes of action may be
brought against the Seller or the Buyer based upon, directly or indirectly, any
of the representations, warranties or agreements contained in Articles II and
III hereof after the applicable survival period or, except as provided in
Section 6.2(c) hereof, any termination of this Agreement. This Section 7.1
shall not limit any covenant or agreement of the parties which contemplates
performance after the Closing, including, without limitation, the covenants and
agreements set forth in Sections 4.8, 4.9, 4.10, 4.11, 4.12 and 4.14 hereof.
Section 7.2. Seller's Agreement to Indemnify. (a) Subject to the terms
and conditions set forth herein, from and after the Closing, the Seller shall
indemnify and hold harmless the Buyer and its directors, officers, employees,
affiliates, controlling persons, agents and representatives and their
successors and assigns (collectively, the "Buyer Indemnitees") from and against
all liability, demands, claims, actions or causes of action, assessments,
losses, damages, costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) (collectively, the "Buyer Damages") asserted
against or incurred by any Buyer Indemnitee as a result of or arising out of
(i) a breach of any representation or warranty of the Seller contained in this
Agreement when made or at and as
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of the Closing Date (or at and as of such different date or period specified
for such representation or warranty) as though such representation and warranty
were made at and as of the Closing Date (or such different date or period)
(without giving effect to (x) any "materiality" or Company Material Adverse
Effect qualification or exception therein (other than with respect to the
representations and warranties contained in Sections 2.5(b)(y), 2.13(a), (b)
and (c), 2.14(a)(iv) and 2.15(b)); provided, however, that with respect to a
breach under Section 2.12 hereof, Buyer Damages shall not include any Buyer
damages which result from the Company or any of its Subsidiaries not having Tax
attributes (including, basis in assets, net operating losses or credits) or (y)
any "knowledge" qualification or exception contained in Sections 2.9,
2.15(b)(vii), 2.15(b)(viii), 2.15(b)(ix), the first sentence of Section
2.16(c), and 2.16(f)); (ii) a breach of any covenant or agreement (other than
as contained in Section 4.5, 4.6 and 4.13) on the part of the Seller under this
Agreement; (iii) any of the Retained Liabilities; (iv) any Liability as to
which the Seller has liability or indemnification obligations under Section 4.8
or 4.9.; or (v) any Liability arising out of the matters described in Section
2.10(c) of the Seller Disclosure Schedule.
The Seller's obligation to indemnify the Buyer Indemnitees pursuant to
clause 7.2(a)(i) hereof is subject to the following limitations:
(i) No indemnification shall be made by the Seller unless the
aggregate amount of Buyer Damages exceeds $16 million, each individual
amount of Buyer Damages alleged exceeds $100,000, and, in such event,
indemnification shall be made by the Seller only to the extent that the
aggregate amount of the Buyer Damages exceeds $8 million. It is
acknowledged that the Buyer shall not have the right to indemnification for
individual amounts below $100,000 and that such amounts shall not count
towards the $8 million or $16 million amounts referred to in this Section
7.2(b)(i);
(ii) In no event shall the Seller's aggregate obligation to
indemnify the Buyer Indemnitees exceed $250,000,000;
(iii) No indemnification shall be made with respect to any Buyer
Damages if such Buyer Damages were the subject of the Dispute Notice, if
any, or the EBITDA Dispute Notice, if any, except to the extent such claim
for indemnification is based upon facts or information of which the Buyer
did not have knowledge as of the end of each of the Review Period and the
EBITDA Review Period, respectively;
(iv) Seller shall be obligated to indemnify the Buyer Indemnitees
only for those claims giving rise to Buyer Damages as to which the Buyer
Indemnitees have given the Seller written notice thereof prior to the end
of the applicable survival period (as provided for in Section 7.1). Any
written notice delivered by a Buyer Indemnitee to the Seller with respect
to Buyer Damages shall set forth with as much specificity as is reasonably
practicable the basis of the claim for Buyer Damages and, to the extent
reasonably practicable, a reasonable estimate of the amount thereof.
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(c) The amount of any Buyer Damages shall be reduced by (A) any amount
received by a Buyer Indemnitee with respect thereto under any insurance
coverage or from any other party alleged to be responsible therefor and (B) the
amount of any Tax Benefit actually realized by the Buyer indemnitee relating
thereto. The Buyer Indemnitees shall use reasonable efforts to collect any
amount available under such insurance coverage and from such other party
alleged to have responsibility. If a Buyer Indemnitee receives any amount under
insurance coverage or from such other party with respect to Buyer Damages at
any time subsequent to any indemnification provided by the Seller pursuant to
this Section 7.2, then such Buyer Indemnitee shall promptly reimburse the
Seller, as the case may be, for any payment made or expense incurred by the
Seller in connection with providing such indemnification up to such amount
received by the Buyer Indemnitee.
Section 7.3. The Buyer's Agreement to Indemnify. (a) Subject to the
terms and conditions set forth herein, from and after the Closing, the Buyer
shall indemnify and hold harmless the Seller and its directors, officers,
employees, affiliates, controlling persons, agents and representatives and
their successors and assigns (collectively, the "Seller Indemnitees") from and
against all liability, demands, claims, actions or causes of action,
assessments, losses, damages, costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses) (collectively, "Seller
Damages") asserted against or incurred by any Seller Indemnitee as a result of
or arising out of (i) a breach of any representation or warranty of the Buyer
contained in this Agreement (including any Schedule hereto or any certificate,
document or other instrument delivered in connection herewith), when made or at
and as of the Closing Date (or at and as of such different date or period
specified for such representation or warranty) as though such representation
and warranty were made at and as of the Closing Date (or such different date or
period) (without giving effect to any "materiality", Material Adverse Effect,
or knowledge qualification or exception contained therein); (ii) a breach of
any covenant or agreement on the part of the Buyer under this Agreement; (iii)
matters listed on Section 2.8 of the Seller Disclosure Schedule or other
litigation arising after the Closing and relating to the Company, in which a
Seller Indemnitee is named as a party (except to the extent the Buyer is
indemnified pursuant to Section 7.2 (without regard to the limitations
contained in Sections 7.1 and 7.2(b))); (iv) payments made by Cendant after the
Closing pursuant to the Guaranties relating to liabilities other than those for
which Buyer is indemnified under Section 7.2 (without regard to the limitations
contained in Section 7.2(b)); or (v) the Buyer's use of the Seller's Trademarks
and Logos after the Closing other than as permitted in Section 1.9 or the use
of the Seller's Trademarks and Logos after the Closing by parties other than
the Buyer, which use results from the Buyer's negligence or willful misconduct.
The Buyer's obligation to indemnify the Seller Indemnitees pursuant to
clause Section 7.3(a)(i) hereof is subject to the following limitations:
(i) No indemnification shall be made by the Buyer unless the
aggregate amount of
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Seller Damages exceeds $16 million, each individual amount of Seller
Damages exceeds $100,000, and, in such event, indemnification shall be made
by the Buyer only to the extent that the aggregate amount of Seller Damages
exceeds $8 million. It is acknowledged that the Buyer shall not have the
right to indemnification for individual amounts below $100,000 and that
such amounts shall not count towards the $8 million or $16 million amounts
referred to in this Section 7.3(b)(i);
(ii) In no event shall the Buyer's aggregate obligation to
indemnify the Seller Indemnitees exceed $250,000,000; and
(iii) The Buyer shall be obligated to indemnify the Seller
Indemnitees only for those claims giving rise to Seller Damages as to which
the Seller Indemnitees have given the Buyer written notice thereof prior to
the end of the applicable survival period (as provided for in Section 7.1).
Any written notice delivered by a Seller Indemnitee to the Indemnifying
Party with respect to Seller Damages shall set forth with as much
specificity as is reasonably practicable the basis of the claim for Seller
Damages and, to the extent reasonably practicable, a reasonable estimate of
the amount thereof.
(c) The amount of any Seller Damages shall be reduced by (A) any
amount received by a Seller Indemnitee with respect thereto under any insurance
coverage or from any other party alleged to be responsible therefor and (B) the
amount of any Tax Benefit actually realized by the Seller Indemnitee relating
thereto. The Seller Indemnitees shall use reasonable efforts to collect any
amounts available under such insurance coverage and from such other party
alleged to have responsibility. If a Seller Indemnitee receives any amount
under insurance coverage or from such other party with respect to Seller
Damages at any time subsequent to any indemnification provided by the Buyer
pursuant to this Section 7.3, then such Seller Indemnitee shall promptly
reimburse the Buyer, as the case may be, for any payment made or expense
incurred by the Buyer in connection with providing such indemnification up to
such amount received by the Seller Indemnitee.
Section 7.4. Third Party Indemnification. The obligations of the
Seller to indemnify the Buyer Indemnitees under Section 7.2 hereof with respect
to Buyer Damages and the obligations of the Buyer to indemnify the Seller
Indemnitees under Section 7.3 hereof with respect to Seller Damages, in either
case resulting from the assertion of liability by third parties (each, as the
case may be, a "Claim"), will be subject to the following terms and conditions:
(a) Any party against whom any Claim is asserted will give the
indemnifying party written notice of any such Claim promptly after learning of
such Claim, and the indemnifying party may at its option undertake the defense
thereof by representatives of its own choosing. If the indemnifying party
assumes such defense, the indemnified party shall have the right (but not the
duty) to participate in the defense thereof and to employ counsel,
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at its own expense, separate from the counsel employed by the indemnifying
party. If, however, the indemnified party reasonably determines in its own
judgment that representation by the indemnifying party's counsel of both the
indemnifying party and the indemnified party would present such counsel with a
material conflict of interest, then such indemnified party may employ separate
counsel to represent or defend it in any such claim, action, suit or proceeding
and the indemnifying party shall, pay the reasonable fees and disbursements of
such separate counsel. Failure to give prompt notice of a Claim hereunder shall
not affect the indemnifying party obligations under this Article VII, except to
the extent the indemnifying party is materially prejudiced by such failure to
give prompt notice. If the indemnifying party, within 30 days after notice of
any such Claim, or such shorter period as is reasonably required, fails to
assume the defense of such Claim, the Buyer Indemnitee or the Seller
Indemnitee, as the case may be, against whom such claim has been made will
(upon further notice to the indemnifying party) have the right to undertake the
defense, compromise or settlement of such claim on behalf of and for the
account and risk, and at the expense, of the indemnifying party, subject to the
right of the indemnifying party to assume the defense of such Claim at any time
prior to settlement, compromise or final determination thereof.
(b) Upon execution of this Agreement and delivery of the Seller
Disclosure Schedule, from and after the Closing Date the Seller shall be deemed
to have satisfied the notice requirement of Section 7.4(a) with respect to all
matters set forth in Section 2.8 of the Seller Disclosure Schedule.
(c) Anything in this Section 7.4 to the contrary notwithstanding, the
indemnifying party shall not enter into any settlement or compromise of any
action, suit or proceeding or consent to the entry of any judgment (i) which
does not include as an unconditional term thereof the delivery by the claimant
or plaintiff to the Seller Indemnitee or the Buyer Indemnitee, as the case may
be, of a written release from all liability in respect of such action, suit or
proceeding or (ii) for other than monetary damages to be borne by the
indemnifying party, without the prior written consent of the Seller Indemnitee
or the Buyer Indemnitee, as the case may be, which consent shall not be
unreasonably withheld. The indemnified party will have no liability to any
third party with respect to any settlement or compromise of Claims effected
without its consent.
(d) The indemnifying party and the indemnified party shall cooperate
fully in all aspects of any investigation, defense, pre-trial activities,
trial, compromise, settlement or discharge of any claim in respect of which
indemnity is sought pursuant to this Article VII, including, but not limited
to, by providing the other party with reasonable access to employees and
officers (including as witnesses) and other information.
(e) Notwithstanding the foregoing, if an indemnified party determines
in good faith that there is a reasonable probability that defense of a Claim
may adversely affect it or its affiliates other than as a result of monetary
damages for which it would be entitled to indemnification under this Agreement,
the indemnified party may, by notice to the
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indemnifying party, assume the control of the right to defend, compromise or
settle such Claim, but the indemnifying party will not be bound by any
determination of a Claim so defended or any compromise or settlement effected
without its consent (which may not be unreasonably withheld). In such event, if
an offer of settlement or compromise on terms satisfying paragraph (c) hereof
is received by an indemnifying party with respect to a Claim and such
indemnifying party notifies the related indemnified party in writing of such
indemnifying party's willingness to settle or compromise such Claim on the
basis set forth in such notice and such indemnified party declines to accept
such settlement or compromise, such indemnified party may continue to contest
such Claim, free of any participation by such indemnifying party, at such
indemnified party's sole expense. In such event, the obligations of such
indemnifying party to such indemnified party with respect to such claim shall
be equal to the lesser of (i) the amount of the offer of settlement or
compromise which such indemnified party declined to accept plus the costs and
expenses of such indemnified party prior to the date such indemnifying party
notifies such indemnified party of the offer to settle or compromise and (ii)
the actual out-of-pocket amount such indemnified party is obligated to pay as a
result of such indemnified party's continuing to contest such Claim. An
indemnifying party shall be entitled to recover (by set-off or otherwise) from
an indemnified party any additional expenses incurred by such indemnifying
party as a result of such indemnified party's decision to continue to contest
such Claim. Under the circumstances set forth in this paragraph, if the
indemnifying party seeks to enter into settlement discussions, the indemnified
party shall participate in such discussions.
(f) With respect to any indemnity obligation of the Seller arising
from or relating to a breach of any representation or warranty contained in
Section 2.15 of this Agreement, to the extent such indemnity obligation (1)
relates to a third party claim, the Seller shall have the right to defend,
compromise and settle any and all such third party claims, or (2) relates to
the investigation or remediation of any Contamination or Release, the Seller
shall have the right to take the lead and implement any such investigation or
remediation. The Buyer may, at its own expense, remain involved in the
performance of any such work conducted herein (except to the extent that such
involvement would unreasonably interfere with the performance of the work), and
the Seller shall promptly provide copies to the Buyer of all notices,
correspondence, draft reports and final reports related to such matter.
Section 7.5. Insurance. The indemnifying party shall be subrogated to
the rights of the indemnified party in respect of any insurance relating to
Buyer Damages or Seller Damages, as the case may be, to the extent of any
indemnification payments made hereunder.
Section 7.6. No Duplication; Sole Remedy. (a) Any liability for
indemnification hereunder shall be determined without duplication of recovery
by reason of the state of facts giving rise to such liability constituting a
breach of more than one representation, warranty, covenant or agreement.
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(b) The Buyer's and the Seller's respective rights to indemnification
as provided for in Sections 7.2 and 7.3, as applicable, for a breach of the
other's representations or warranties contained in this Agreement, shall
constitute such party's sole monetary remedy for such a breach and the
breaching party shall have no other liability or damages to the other party
resulting from the breach, except for fraud.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 8.1. Amendment and Modification. This Agreement may be
amended, modified or supplemented at any time by the parties hereto, pursuant
to an instrument in writing signed by all parties.
Section 8.2. Entire Agreement; Assignment. This Agreement (including
the Seller Disclosure Schedule) and the Confidentiality Agreement (a)
constitute the entire agreement between the parties hereto with respect to the
subject matter hereof and supersede other prior agreements and understandings,
both written and oral, between the parties hereto with respect to the subject
matter hereof and (b) shall not be assigned, by operation of law or otherwise,
by a party hereto, without the prior written consent of the other party, except
that the Buyer may assign any of its rights hereunder to any of its
Subsidiaries.
Section 8.3. Severability. The invalidity or unenforceability of any
term or provision of this Agreement in any situation or jurisdiction shall not
affect the validity or enforceability of the other terms or provisions hereof
or the validity or enforceability of the offending term or provision in any
other situation or in any other jurisdiction and the remaining terms and
provisions shall remain in full force and effect, unless doing so would result
in an interpretation of this Agreement which is manifestly unjust.
Section 8.4. Notices. Unless otherwise provided herein, all notices
and other communications hereunder shall be in writing and may be given by any
of the following methods: (a) personal delivery; (b) facsimile transmission;
(c) registered or certified mail, postage prepaid, return receipt requested; or
(d) overnight delivery service. Such notices and communications shall be sent
to the appropriate party at its address or facsimile number given below or at
such other address or facsimile number for such party as shall be specified by
notice given hereunder (and shall be deemed given upon receipt by such party or
upon actual delivery to the appropriate address, or, in case of a facsimile
transmission, upon transmission thereof by the sender and issuance by the
transmitting machine of a confirmation slip that the number of pages
constituting the notice have been transmitted without error; in the case of
notices sent by facsimile transmission, the sender shall contemporaneously mail
a copy of the notice to the addressee at the address provided
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for above, provided however, that such mailing shall in no way alter the time
at which the facsimile notice is deemed received):
(a) if to the Seller, to
Cendant Corporation
0 Xxxxxx Xxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxxx X. Xxxxxxx, Esq.
General Counsel
with a copy to:
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
000 Xxxxx Xxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000-0000
Telecopy: (000) 000-0000
Attention: Xxxxx X. XxXxxxxx, Esq.
(b) if to the Buyer, to
Xxxxx X.X.
00, xxx xx Xxxxxxx
00000 Xxxxx Xxxxx 00 Xxxxxx
Telecopy: + 011 331 53 53 36 07
Attention: Xxxx Xxxxxxx Nabet
with a copy to:
Cabinet Xxxxxx Prat
000 xxx xx Xxxxxxxx Xxxxx Xxxxxx
00000
Xxxxx
Attention: Xxxxx X. Xxxxxx, Esq.
and
Wachtell, Lipton, Xxxxx & Xxxx
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Telecopy: (000) 000-0000
Attention: Xxxxxx X. Xxxx, Esq.
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Section 8.5. Governing Law; Jurisdiction. This Agreement shall be
governed by, enforced under and construed in accordance with the laws of the
State of New York, without giving effect to any choice or conflict of law
provision or rule thereof. Each of the parties hereto hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the State of New York and of the United States of America in each case
located in the County of New York for any litigation arising out of or relating
to this Agreement and the transactions contemplated hereby (and agrees not to
commence any litigation relating thereto except in such courts), and further
agrees that service of any process, summons, notice or document by U.S.
registered mail to its respective address set forth in Section 8.4 shall be
effective service of process for any litigation brought against it in any such
court. Each of the parties hereto hereby irrevocably and unconditionally waives
any objection to the laying of venue of any litigation arising out of this
Agreement or the transactions contemplated hereby in the courts of the State of
New York or of the United States of America in each case located in the County
of New York and hereby further irrevocably and unconditionally waives and
agrees not to plead or claim in any such court that any such litigation brought
in any such court has been brought in an inconvenient forum.
Section 8.6. . The descriptive headings herein are inserted for
convenience of reference only and shall in no way be construed to define,
limit, describe, explain, modify, amplify, or add to the interpretation,
construction or meaning of any provision of, or scope or intent of, this
Agreement nor in any way affect this Agreement.
Section 8.7. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same instrument.
Section 8.8. Fees and Expenses. Whether or not this Agreement and the
transactions contemplated hereby are consummated, and except as otherwise
expressly set forth herein, all costs and expenses (including legal and
financial advisory fees and expenses) incurred in connection with, or in
anticipation of, this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expenses. Each of the Seller, on the one
hand, and the Buyer, on the other hand, shall indemnify and hold harmless the
other party from and against any and all claims or liabilities for financial
advisory and finders' fees incurred by reason of any action taken by such party
or otherwise arising out of the transactions contemplated by this Agreement by
any person claiming to have been engaged by such party.
Section 8.9. No Right of Off-set/Set-off. Neither the Buyer nor the
Seller shall have any right to off-set or set-off any payment due pursuant to
Section 1.3 or 1.4 of this Agreement against any other payment to be made
pursuant to this Agreement or otherwise (including against indemnification
payments). Any attempt by the Buyer or the Seller to claim expressly in writing
a right of off-set or set-off any such payment shall result in the
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automatic forfeiture by the Buyer or the Seller, as the case may be, of any
right to any other payment.
Section 8.10. Interpretation. The phrase "to the knowledge of the
Seller" or any similar phrase shall mean such facts and other information which
are actually known to any executive officer of the Seller or after due inquiry,
to each of the executive officers of the Company listed in Section 8.10 of the
Seller Disclosure Schedule. The phrase "to the knowledge of the Buyer" or any
similar phrase shall mean such facts and other information which are actually
known to any executive of the Buyer. In the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any
provisions of this Agreement.
Section 8.11. No Third Party Beneficiaries. This Agreement is solely
for the benefit of the Seller and its successors and permitted assigns, with
respect to the obligations of the Buyer under this Agreement, and for the
benefit of the Buyer, and its successors and permitted assigns, with respect to
the obligations of Seller, under this Agreement, and this Agreement shall not
be deemed to confer upon or give to any other third party any remedy, claim of
liability or reimbursement, cause of action or other right.
Section 8.12. No Waivers. Except as otherwise expressly provided
herein, no failure to exercise, delay in exercising, or single or partial
exercise of any right, power or remedy by any party, and no course of dealing
between the parties, shall constitute a waiver of any such right, power or
remedy. No waiver by a party of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by
virtue of any prior or subsequent such occurrence. No waiver shall be valid
unless in writing and signed by the party against whom such waiver is sought to
be enforced.
Section 8.13. Specific Performance. The parties hereto agree that if
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached, irreparable damage would
occur, no adequate remedy at law would exist and damages would be difficult to
determine, and that the parties shall be entitled to specific performance of
the terms hereof and immediate injunctive relief, without the necessity of
proving the inadequacy of money damages as a remedy, in addition to any other
remedy at law or equity.
Section 8.14. Currency. All payments to be made hereunder shall be
made in United States dollars.
* * *
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IN WITNESS WHEREOF, each of the undersigned has caused this
Agreement to be duly signed as of the date first above written.
CENDANT CORPORATION
By: /s/ Xxxxxx X. Xxxx
-------------------------------------
Name: Xxxxxx X. Xxxx
Title: Executive Vice President
CENDANT MEMBERSHIP SERVICES, INC.
By: /s/ Xxxxxx X. Xxxx
-------------------------------------
Name: Xxxxxx X. Xxxx
Title: Executive Vice President
XXXXX X.X.
By: /s/ Xxxx Licoys
-------------------------------------
Name: Xxxx Licoys
Title: President
[STOCK PURCHASE AGREEMENT SIGNATURE PAGE]
