Exhibit 10.9
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EXECUTION COPY
MERGER AGREEMENT
by and among
APPNET SYSTEMS, INC.,
(Buyer)
APPNET SIGMA6, INC.,
(Newco)
SIGMA6, INC.,
(Sigma6)
and
THE SHAREHOLDERS OF SIGMA6
(collectively, Sellers)
Dated as of February 25, 1999
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TABLE OF CONTENTS
Page
1. Definitions..............................................................1
2. The Merger...............................................................8
(a) The Merger...........................................................8
(b) Effective Time of the Merger.........................................9
(c) Articles of Incorporation............................................9
(d) Bylaws...............................................................9
(e) Directors and Officers of Surviving Corporation......................9
(f) Effect of the Merger.................................................9
(g) Conversion of Shares................................................10
(h) Purchase Price......................................................10
(i) Earned Payout Amount...............................................11
(j) Net Worth Adjustment...............................................12
(k) [Reserved]..........................................................12
(l) The Closing........................................................12
(m) Deliveries at the Closing...........................................13
(n) Shareholders' Representative........................................13
(o) Escrow Arrangements.................................................14
3. Representations and Warranties Concerning the Transaction...............14
(a) Representations and Warranties of each Seller.......................14
(i) Authorization of Transaction.....................................15
(ii) Noncontravention................................................15
(iii) Broker's Fees..................................................15
(iv) Investment......................................................16
(v) Sigma6 Shares....................................................16
(b) Representations and Warranties of the Buyer and Newco...............16
(i) Organization of the Buyer and Newco..............................16
(ii) Authorization of Transaction....................................16
(iii) Noncontravention...............................................17
(iv) Brokers' Fees...................................................17
(v) Investment.......................................................17
4. Representations and Warranties Concerning Selling Corporation............17
(a) Organization, Qualification, and Corporate Power....................18
(b) Capitalization......................................................18
(c) Noncontravention....................................................19
(d) Subsidiaries........................................................19
(e) Financial Statements................................................19
(f) Events Subsequent to September 30, 1998.............................20
(g) Undisclosed Liabilities.............................................22
(h) Tax Matters.........................................................23
(i) Tangible Assets.....................................................24
(j) Owned Real Property.................................................24
(k) Intellectual Property...............................................24
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(l) Real Property Leases................................................26
(m) Contracts...........................................................27
(n) Notes and Accounts Receivable.......................................28
(o) Powers of Attorney..................................................28
(p) Insurance...........................................................28
(q) Litigation..........................................................29
(r) Employees...........................................................29
(s) Employee Benefits...................................................30
(t) Guaranties..........................................................31
(u) Environment, Health, and Safety.....................................32
(v) Legal Compliance....................................................32
(w) Certain Business Relationships with Buyer...........................33
(x) Brokers' Fees.......................................................34
5. Pre-Closing Covenants...................................................34
(a) General.............................................................34
(b) Notices and Consents................................................34
(c) Operation of Business...............................................34
(d) Preservation of Business............................................34
(e) Access..............................................................34
(f) Notice of Developments; Delivery of Disclosure Schedules............35
(g) Exclusivity.........................................................35
(h) Cancellation of Options, Bonus Programs and Phantom Stock Plans.....35
6. Additional Agreements and Covenants.....................................36
(a) Sale of Delphi Automotive Systems Receivable at Closing.............36
(b) General.............................................................36
(c) Litigation Support..................................................36
(d) Transition..........................................................36
(e) Confidentiality.....................................................37
(f) Termination of Bank Facilities; Release of Guaranties...............37
(g) Monitoring Information..............................................37
(h) Landlords' Consents.................................................37
(i) Additional Tax Matters..............................................38
(j) Covenant Not to Compete............................................38
(k) Reorganization Intent..............................................38
(l) Conduct During Earned Payout Periods................................38
(m) Harmony House Relationship..........................................39
(n) Employee Benefits...................................................39
7. Conditions to Obligations to Close......................................40
(a) Conditions to Obligation of the Buyer...............................40
(b) Conditions to Obligations of the Sellers............................43
8. Remedies for Breaches of This Agreement.................................45
(a) Survival............................................................45
(b) Indemnification Provisions for Benefit of the Buyer.................45
(c) Matters Involving Third Parties.....................................47
(d) Exclusive Remedy....................................................48
(e) Payment; General Right of Offset....................................48
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(f) Other Indemnification Provisions....................................48
(h) Arbitration with Respect to Certain Indemnification Matters.........48
9. Termination.............................................................49
(a) Termination of Agreement............................................49
(b) Effect of Termination...............................................50
10. Miscellaneous..........................................................50
(a) [Reserved]..........................................................50
(b) Press Releases and Announcements....................................50
(c) No Third-Party Beneficiaries........................................50
(d) Entire Agreement....................................................50
(e) Succession and Assignment...........................................51
(f) Facsimile/Counterparts..............................................51
(g) Descriptive Headings................................................51
(h) Notices.............................................................51
(i) Governing Law......................................................52
(j) Amendments and Waivers.............................................53
(k) Severability........................................................53
(l) Expenses...........................................................53
(m) Construction........................................................53
(n) Incorporation of Exhibits, Annexes, and Schedules...................53
(o) Specific Performance................................................54
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LIST OF EXHIBITS, ANNEXES AND SCHEDULES
EXHIBITS
Exhibit A Form of Escrow Agreement
Exhibit B Financial Statements
Exhibit C Joinder to Stockholders Agreement
Exhibit D Form of Equity Subscription Agreement
Exhibit E Form of Senior Management Agreement
Exhibit F Joinder to the Registration Agreement
Exhibit G Form of Opinion of Sellers' Legal Counsel
Exhibit H Form of Option Cancellation Agreement
ANNEXES AND TABLES
Annex I Determination of Earned Payout Amount
Annex II Exceptions to Representations and Warranties of Sellers
Annex III Exceptions to Representations and Warranties of Buyer
Annex IV List of Key Employees
SCHEDULES
Allocation Schedule
Sellers' and Sigma6's Disclosure Schedule
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MERGER AGREEMENT
This MERGER AGREEMENT ("Agreement") is entered into as of the 25th
day of February, 1999, by and among APPNET SYSTEMS, INC., a Delaware corporation
(the "Buyer"), APPNET SIGMA6, INC., a Michigan corporation and wholly owned
subsidiary of Buyer ("Newco"), SIGMA6, INC., a Michigan corporation ("Sigma6"),
and THE SHAREHOLDERS OF SIGMA6 LISTED ON THE SIGNATURE PAGE HEREOF
(collectively, the "Sellers"). The Buyer, Newco and the Sellers are referred to
herein individually as a "Party" and collectively as the "Parties." Sigma6 and
Newco are sometimes referred to herein as the "Constituent Corporations." If the
context so requires, references herein to Sigma6 shall mean the Surviving
Corporation (as hereinafter defined) for periods after the Closing Date.
The Sellers in the aggregate own all of the outstanding capital
stock of Sigma6.
This Agreement contemplates a transaction in which Sigma6 will merge
with and into Newco, with Newco being the surviving corporation, and the shares
of capital stock of Sigma6 being converted into the right to receive the
Purchase Price (as hereinafter identified), and the Parties intend such merger
transaction to be a tax-free reorganization under Section 368 of the Code (as
defined) and intend this Agreement to be a "plan of reorganization" within the
meaning of the regulations promulgated under such section of the Code.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
1. Definitions.
"AA" shall mean Xxxxxx Xxxxxxxx, L.L.P.
"AA Determination" shall have the meaning set forth in Section
2(j) below.
"Adjusted EBITDA of Sigma6" shall mean the adjusted earnings
before interest, taxes and depreciation and amortization of Sigma6 as determined
in accordance with GAAP on the accrual basis of accounting during the Earned
Payout Period as determined by Annex I attached hereto.
"Adverse Consequences" means all damages from complaints,
actions, suits, proceedings, hearings, investigations, claims, demands,
judgments, orders, decrees, stipulations, injunctions, damages, dues, penalties,
fines, costs, amounts paid in settlement, liabilities, obligations, taxes,
liens, losses, expenses, and fees, including all reasonable attorneys' fees and
court costs.
"Affiliate" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act of 1934, as amended.
"Affiliated Group" means any affiliated group within the
meaning of Code Sec. 1504 (or any similar group defined under a similar
provision of state, local or foreign law).
"Basis" means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction that a person similarly
situated would reasonably believe would result for any specified consequence.
"Buyer" has the meaning set forth in the preface above.
"Buyer Common Stock" means the Buyer's Common Stock, par value
$.0005 per share.
"Buyer's Shares" means the shares of Buyer Common Stock which
are issued to the Sellers pursuant to this Agreement.
"Cash Portion of the Purchase Price" has the meaning set forth
in Section 2(h) below.
"Cash Portion of the Earnout" has the meaning set forth in
Section 2(i) below.
"Closing" has the meaning set forth in Section 2(l) below.
"Closing Date" has the meaning set forth in Section 2(l)
below.
"Closing Determination" has the meaning set forth in Section
2(j) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means all confidential information
and trade secrets of Sigma6 including, without limitation, the identity, lists
or descriptions of any customers, referral sources or organizations; financial
statements, cost reports or other financial information; contract proposals, or
bidding information; business plans and training and operations methods and
manuals; personnel records; fee structure; and management systems, policies or
procedures, including related forms and manuals; provided, that the Confidential
Information shall not include information to the extent such information (i) was
or becomes known to and available for use by the public other than as a result
of the act or omission of the receiving party which act or omission is a breach
of the confidentiality provision contained in Section 6(e) of this Agreement,
(ii) was or becomes available to the receiving party on a non-confidential basis
from a source other than the Buyer or its advisors without breach of this
Agreement provided that such source is not known to such receiving party to be
bound by a confidentiality agreement or otherwise prohibited from transmitting
the information to receiving party by a contractual, legal or fiduciary
obligation known to such receiving party, (iii) was within receiving party's
possession prior to its being furnished to such receiving party by or on behalf
of Buyer without breach of this Agreement, provided that, to the receiving
party's Knowledge, the source of such
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information was not bound by a confidentiality agreement with Buyer or Sigma6 or
otherwise prohibited from transmitting the information to the receiving party by
a contractual, legal or fiduciary obligation, or (iv) which is required to be
and actually is disclosed by operation of law.
"Constituent Corporations" has the meaning set forth in the
preface above.
"Controlled Group of Corporations" has the meaning set forth
in Code Sec. 1563.
"Customer Contract or Agreement" means any agreement to which
Sigma6 is bound whereby Sigma6 provides marketing, strategy, hosting,
programming, creative or project management services and/or related consulting
services in Sigma6's Business to a third party during the 1998 fiscal year of
Sigma6.
"Deferred Intercompany Transaction" has the meaning set forth
in Treas. Reg. ss.1.1502-13.
"Delphi Receivable" has the meaning set forth in Section 6(a)
below.
"Disclosure Schedule" has the meaning set forth in Section 4
below.
"E-Commerce Services" has the meaning set forth in Section
6(m) below.
"Earned Payout Amount" has the meaning set forth in Section
2(i) below.
"Earned Payout Period" means the period from January 1, 1999
through December 31, 1999.
"Earnout Shares" has the meaning set forth in Section 2(i).
"Effective Time" has the meaning set forth in Section 2(a)
below.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or
Material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in
ERISA Sec. 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in
ERISA Sec. 3(1).
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"Equitable Exceptions" shall have the meaning set forth in
Section 3(a)(i) below.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Escrow Agent" means Michigan National Bank.
"Escrow Agreement" means the Escrow Agreement to be executed
by and among the Sellers, Buyer and the Escrow Agent in the form of Exhibit A.
"Escrow Period" has the meaning specified in Section 2(o).
"Escrow Sum" has the meaning specified in Section 2(o).
"Extremely Hazardous Substance" has the meaning set forth in
Sec. 302 of the Emergency Planning and Community Right-to-Know Act of 1986, as
amended.
"Fair Market Value" has the meaning set forth in Section
2(h)(ii).
"Fiduciary" has the meaning set forth in ERISA Sec. 3(21).
"Financial Statements" has the meaning set forth in Section
4(e) below.
"Funded Indebtedness" means all (i) indebtedness of Sigma6 for
borrowed money or other interest-bearing indebtedness; (ii) capital lease
obligations of Sigma6 other than the leases set forth on Schedule 1.1; (iii)
other than as specifically set forth on Schedule 1.1, obligations of Sigma6 to
pay the deferred purchase or acquisition price for goods or services, other than
obligations under operating leases that are not past due and other than trade
accounts payable or accrued expenses in the Ordinary Course of Business on no
more than 90 day payment terms; (iv) indebtedness of others guaranteed by Sigma6
or indebtedness of others secured by an encumbrance on Sigma6's property, in
either case excluding the existence of potential contractual indemnities made by
Sigma6 in the Ordinary Course of Business (but not any claims therefor) and the
real property leases set forth on Section 4(l) of the Disclosure Schedule; (v)
indebtedness of Sigma6 under extended credit terms of more than 60 days from
vendors provided to Sigma6; and (vi) transaction costs of Sigma6 and/or Sellers
associated with this Agreement or the transactions contemplated hereby that are
paid by Sigma6.
"GAAP" means generally accepted accounting principles,
consistently applied, as in effect from time to time.
"Gross Revenues" means the gross revenue of Sigma6 as normally
calculated on the Financial Statements as calculated in accordance with GAAP on
the accrual basis of accounting.
"Indemnified Party" has the meaning set forth in Section 8(d)
below.
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"Indemnifying Party" has the meaning set forth in Section 8(d)
below.
"Initial Public Offering" shall mean the first underwritten
public offering of Buyer Common Stock, pursuant to an effective registration
statement under the Securities Act, with net proceeds to Buyer of not less than
$10 million.
"Intellectual Property" means all (a) trademarks, service
marks, trade dress, logos, trade names, and corporate names and registrations
and applications for registration thereof, (b) copyrights and registrations and
applications for registration thereof, (c) computer software, data, and
documentation, (d) trade secrets and confidential business information
(including formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial, marketing, and business data, pricing and cost
information, business and marketing plans, and customer and supplier lists and
information, (e) other proprietary rights, and (f) copies and tangible
embodiments thereof (in whatever form or medium).
"Interim Period" has the meaning set forth in Section 7(a)
below.
"Harmony House" has the meaning set forth in Section 6(m)
below.
"Harmony House Online" has the meaning set forth in Section
6(m) below.
"Key Employees" has the meaning set forth in Section 7(a)
below.
"Knowledge" means (a) with respect to each Seller, information
which is known by such Seller or which a prudent person in the position of the
Seller would reasonably be deemed to know and (b) with respect to Newco, Buyer
or Sigma6, knowledge after due inquiry of the officers of such Party and the
employees of such party with responsibility for the matters in question.
"Liability" means any liability, debt, obligation, amount or
sum due (whether known or unknown, whether absolute or contingent, whether
liquidated or unliquidated, and whether due or to become due) including any
liability for Taxes, but excluding the existence of potential contractual
indemnities made by Sigma6 which are in the Ordinary Course of Business (but not
any claims therefor).
"Material" has the meaning set forth in Section 4 below.
"MBCA" has the meaning set forth in Section 2(a) below.
"Merger" has the meaning set forth in Section 2(a) below.
"Merger Documents" has the meaning set forth in Section 2(b)
below.
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"Minimum Net Worth" has the meaning set forth in Section 2(j)
below.
"Most Recent Balance Sheet" means the balance sheet contained
within the Most Recent Financial Statements.
"Most Recent Financial Statements" means the Financial
Statements for and as of the Most Recent Fiscal Year End.
"Most Recent Fiscal Year End" has the meaning set forth in
Section 4(e) below.
"Multiemployer Plan" has the meaning set forth in ERISA Sec.
3(37).
"Net Worth of Sigma6" means the total assets of Sigma6 less
the total liabilities of Sigma6 (other than Funded Indebtedness) including any
costs of conversion from a cash basis to an accrual method of accounting,
determined in accordance with GAAP and on the accrual method of accounting. In
calculating the total assets of Sigma6, no Material increase in the intangible
assets of Sigma6 since December 31, 1997 shall be included in calculating the
Net Worth of Sigma6 without the written consent of Buyer; provided, however,
that for purposes of calculating Net Worth of Sigma6 under this Agreement, total
assets shall include $130,443 of capitalized software costs which were written
off in December, 1998 and provided, further, that for the purposes of
calculating the Net Worth of Sigma6, any liabilities satisfied by indemnity
payments actually made by Sellers to Buyer shall not be included as liabilities
of Sigma6.
"Net Service Revenues" means the Gross Revenues of Sigma6 for
any period less (i) all bad debt expense for such period; and (ii) any revenues
from the sale of any assets of Sigma6 during such period outside the Ordinary
Course of Business.
"Newco" has the meaning set forth in the preface above.
"Ordinary Course of Business" means the ordinary course of
business consistent with custom and practice prior to the Closing Date
(including with respect to quantity and frequency).
"Option Cancellation Agreement" has the meaning set forth in
Section 7(a) herein.
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Prohibited Transaction" has the meaning set forth in ERISA
Sec. 406 and Code Sec. 4975.
"Purchase Price" has the meaning set forth in Section 2(h)
below.
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"Registration Agreement" means that certain Registration
Agreement dated June 29, 1998 by and among Buyer and the stockholders of Buyer.
"Reportable Event" has the meaning set forth in ERISA Sec.
4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Interest" means any mortgage, pledge, security
interest, encumbrance, charge, or other lien, other than (a) mechanic's,
materialmen's and similar liens, (b) liens for Taxes not yet due and payable (or
for Taxes that the taxpayer is contesting in good faith through appropriate
proceedings), (c) liens arising under workers' compensation, unemployment
insurance, social security, retirement, and similar legislation, (d) liens
arising in connection with sales of foreign receivables, (e) liens on goods in
transit incurred pursuant to documentary letters of credit, (f) purchase money
liens and liens securing rental payments under lease arrangements, (g) other
liens arising in the Ordinary Course of Business and not incurred in connection
with the borrowing of money and (h) rights of vendors, suppliers and customers
in the Ordinary Course of Business, provided such rights are not in connection
with the borrowing of money.
"Sellers" has the meaning set forth in the preface above.
"Sellers' Representative" has the meaning set forth in the
Section 2(n) below.
"Sigma6" has the meaning set forth in the preface above.
"Sigma6's Business" means the business of providing internet
or intranet integration and design support or project services to, writing
custom software for, and implementing related consulting services for, business
customers.
"Sigma6 Common Shares" means all outstanding shares of the
common stock, no par value per share, of Sigma6.
"Sigma6 IP" has the meaning set forth in Section 4(k) below.
"Sigma6 Optionholders" means the holders, if any, of options
for the purchase of Sigma6 Common Shares listed on the Allocation Schedule
hereto.
"Sigma6 Options" means all the agreements, if any, between
Sigma6 and those persons listed on the Allocation Schedule hereto related to the
issuance of Sigma6 Common Shares.
"Sigma6 Preferred Shares" means all outstanding shares of the
preferred stock, no par value per share, of Sigma6.
"Sigma6 Shares" means collectively, the Sigma6 Shares and
Sigma6 Preferred Shares.
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"Stock Portion of the Earnout" has the meaning set forth in
Section 2(i) below.
"Stock Portion of the Purchase Price" has the meaning set
forth in Section 2(h) below.
"Stockholders Agreement" means that certain Stockholders
Agreement dated June 29, 1998 by and among Buyer and the stockholders of Buyer.
"Stub Period Financial Statements" means the Financial
Statements for and as of the Stub Period End.
"Stub Period Balance Sheet" means the balance sheet included
in the Stub Period Financial Statements.
"Stub Period End" has the meaning set forth in Section 4(e)
below.
"Surviving Corporation" has the meaning set forth in Section
2(a) below.
"Subsidiary" means any corporation with respect to which
another specified corporation has the power to vote or direct the voting of
sufficient securities to elect a majority of the directors.
"Tax" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental, customs duties, capital
stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated
tax, or other tax of any kind whatsoever, including any interest, penalty or
addition thereto.
"Tax Return" means any federal, foreign, state and local
governmental tax return, declaration, report, claim for refund, or information
return or statement relating to Taxes, including any schedule or attachment
thereto, and including any amendment thereof.
"Updated Disclosure Schedule" has the meaning set forth in
Section 3(a) below.
2. The Merger.
(a) The Merger. At the Effective Time (as defined below),
Sigma6 shall be merged with and into Newco (the "Merger") and the separate
existence of Sigma6 shall thereupon cease, and the name of Newco, as the
surviving corporation in the Merger (the "Surviving Corporation"), shall by
virtue of the Merger be changed to "Sigma6, Inc."; provided, that such name is
available in Michigan, and the Surviving Corporation shall operate as "Sigma6,
Inc." in the State of Michigan. The Merger shall have the effects set forth in
the Michigan Business Corporation Act (the "MBCA").
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(b) Effective Time of the Merger. As soon as practicable after
the satisfaction or waiver of the conditions hereinafter set forth, the parties
hereto will file with the Secretary of State of the State of Michigan a
certificate or articles of merger or ownership and other documents (the "Merger
Documents"), in such respective forms as required by, and executed in accordance
with, the relevant provisions of the MBCA in order to effect the Merger. The
Merger shall become effective at such time as the Merger Documents shall have
been accepted for filing with the Secretary of State of the State of Michigan or
such other times and dates as the parties shall agree should be specified in the
Merger Documents (the "Effective Time").
(c) Articles of Incorporation. The Articles of Incorporation
of Newco in effect at the time of the Merger shall be the Articles of
Incorporation of the Surviving Corporation, until thereafter amended as provided
thereunder and in the MBCA.
(d) Bylaws. The Bylaws of Newco in effect at the time of the
Merger shall be the Bylaws of the Surviving Corporation until altered, amended
or repealed, as provided thereunder and in the Articles of Incorporation and the
MBCA.
(e) Directors and Officers of Surviving Corporation.
(i) The directors of Newco at the Effective Time which
shall be Xxx Xxxxx, Xxxxxx Xxxxxxxx, Xxxxx Xxxxxx and Xxxx Xxxxx
shall be the directors of the Surviving Corporation and shall hold
office from the Effective Time until their respective successors are
duly elected or appointed and qualify in the manner provided in the
Articles of Incorporation and Bylaws of the Surviving Corporation,
or as otherwise provided by law.
(ii) The officers of Newco at the Effective Time shall
be the officers of the Surviving Corporation and shall hold office
from the Effective Time until their respective successors are duly
elected or appointed and qualify in the manner provided in the
Articles of Incorporation and Bylaws of the Surviving Corporation,
or as otherwise provided by law.
(f) Effect of the Merger. The Merger shall have the effects
set forth in the MBCA. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the properties, rights, privileges,
powers and franchise of the Constituent Corporations shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Constituent
Corporations shall become the debts, liabilities and duties of the Surviving
Corporation. The purpose of the Surviving Corporation shall be the purposes of
Sigma6 immediately prior to the Merger. The total number of shares which the
Surviving Corporation is authorized to issue shall be 1,000 shares of Common
Stock, no par value per share.
(g) Conversion of Shares. At the Effective Time, by virtue of
the Merger and without any action on the part of the Sellers:
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(i) Each Sigma6 Share issued and outstanding immediately
prior to the Effective Time (other than Sigma6 Shares as to which
the holders thereof shall have properly exercised appraisal rights
under the MBCA, if any) shall be converted into the right to receive
in cash and Buyer's Shares its portion of the Purchase Price (as
hereinafter defined) for Sigma6 Common Shares and Sigma6 Preferred
Shares (as applicable).
(ii) Each Sigma6 Share held in the treasury of Sigma6
immediately prior to the Effective Time shall be canceled and
retired and cease to exist.
(iii) No interest, dividends or other distributions
shall be payable upon the surrender of certificates that represented
Sigma6 Shares at the Effective Time.
(h) Purchase Price. The purchase price for Sigma6 Shares shall
be composed of (i) the Cash Portion of the Purchase Price; (ii) the Stock
Portion of the Purchase Price, and (iii) the Earned Payout Amount. The Buyer
agrees to pay to the Sellers in the aggregate the sum of (i) $1,250,000 (to be
reduced dollar for dollar by (A) the payments made by Sigma6 to cancel the stock
options; (B) the amount of any outstanding Funded Indebtedness; and (C) the Net
Worth adjustment, if any, made pursuant to Section 2(j) below) in cash (the
"Cash Portion of the Purchase Price"); (ii) $1,250,000 in Buyer's Shares,
consisting of an aggregate of 277,778 shares of Buyer Common Stock as set forth
in the Allocation Schedule attached hereto (the "Stock Portion of the Purchase
Price"); and (iii) the Earned Payout Amount as determined pursuant to Section
2(i) below, in exchange for the Sigma6 Shares to be purchased by Buyer pursuant
to the terms hereof. $250,000 of the Cash Portion of the Purchase Price will be
paid in cash by wire transfer of funds to the Escrow Agent to be held in escrow
pursuant to Section 2(o) for satisfaction of Sellers' indemnification
obligations specified in Article VIII. The balance of the Cash Portion of the
Purchase Price shall be paid by Buyer to Sellers at the Closing by delivery of
cash by wire transfer of funds in the amounts set forth on the Allocation
Schedule. The Stock Portion of the Purchase Price shall be issued by Buyer to
Sellers at the Closing by the delivery of Buyer's Shares in the amounts set
forth on the Allocation Schedule next to such Seller's name. Each acquirer of
Buyer's Shares shall enter into an equity subscription agreement in the form
attached hereto as Exhibit D. The sum of the Cash Portion of the Purchase Price,
the Stock Portion of the Purchase Price, and the Earned Payout Amount shall be
referred to as the "Purchase Price." Each of (i) the Cash Portion of the
Purchase Price and (ii) the Stock Portion of the Purchase Price shall be
allocated among Sellers in dollar amounts set forth on the Allocation Schedule;
provided, however, that the number of Buyer Shares allocable to each Seller
shall be rounded down to the nearest whole number.
(i) Earned Payout Amount.
(i) In addition to the Cash Portion of the Purchase
Price and the Stock Portion of the Purchase Price, the Buyer agrees
to pay to the Sellers, if earned, an earned payout amount (the
"Earned Payout Amount") equal to the amount
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calculated in accordance with Annex I attached hereto and the tables
attached thereto; provided, however, that in no event will the
Earned Payout Amount exceed $2,800,000. An example of the
calculation is also attached to Annex I.
(ii) The Earned Payout Amount shall be payable in a
combination of (A) cash (the "Cash Portion of the Earnout") and (B)
Buyer's Shares (the "Stock Portion of the Earnout"). The Cash
Portion of the Earnout shall be equal to 50% of the Earned Payout
Amount and the Stock Portion of the Earnout shall be 50% of the
Earned Payout Amount. The aggregate number of Buyer's Shares, if
any, (the "Earnout Shares") to be issued as the Stock Portion of the
Earnout shall be equal to (A) the aggregate value in dollars of the
Stock Portion of the Earnout divided by (B) the Fair Market Value of
the Buyer's Stock as of April 15, 2000. For purposes of this
Agreement, the "Fair Market Value" per share of the Buyer's Shares
as of April 15, 2000 shall be equal to the following: (x) if, but
only if, the Initial Public Offering is not completed on or before
April 14, 2000, the price per share as of the most recent sale or
other exchange (pursuant to a merger or other acquisition) of Buyer
Common Stock or (y) if, but only if, the Initial Public Offering is
completed on or before April 14, 2000, the closing bid price per
share of Buyer Common Stock as listed on the NASDAQ National Market
System or other applicable stock exchange on April 14, 2000.
(iii) The Cash Portion of the Earned Payout Amount, if
any, shall be payable in cash by Buyer to Sellers by wire transfer
or other delivery of immediately available funds to an account or
accounts designated by Sellers on or prior to April 15, 2000. The
Earnout Shares, if any, shall be payable on April 15, 2000 by the
delivery of the certificates representing such shares to Sellers;
provided, that each Seller receiving Sellers' Earnout Shares must
enter into an equity purchase agreement in the form attached hereto
as Exhibit D.
(iv) The Earned Payout Amount shall be determined by AA
in accordance with the terms of this Agreement and Annex I hereto.
(v) The payment of the Earned Payout Amount to (A) a
Seller who is a Key Employee shall be contingent on such Key
Employee's not resigning from employment with the Surviving
Corporation without Good Reason (as defined in the applicable Senior
Management Agreement) or such Key Employee not being terminated by
the Surviving Corporation or Buyer for Cause (as defined in the
applicable Senior Management Agreement) prior to April 15, 2000;
provided that the Buyer has not breached such Key Employee's Senior
Management Agreement; provided, that Buyer has a thirty-day period
to reasonably cure any such breach. Notwithstanding the foregoing,
the payment when due of the Cash Portion of the Earned Payout Amount
is expressly subordinated in liquidation to all obligations from
time to time outstanding under the Buyer's senior revolving credit
facilities with BankBoston, N.A., as amended from time to time, or
any senior credit facilities in replacement thereof.
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(vi) In the event that a Seller is employed by the Buyer
or any of its Affiliates on April 15, 2000, then each such Seller
shall also be entitled to receive a stock option grant exercisable
for the purchase of up to 15,000 shares of Buyer Common Stock (as
adjusted for any stock splits, stock dividends, combinations,
recapitalizations or other similar events). Each of such stock
option grants shall be issued as of April 15, 2000 and will
exercisable over a four-year vesting period from the date of grant
at an exercise price equal to the Fair Market Value of the Buyer
Common Stock as of April 15, 2000. All other terms and conditions of
such stock option agreements shall be subject to the customary terms
and conditions of Buyer's stock option plan then utilized for its
key employees and executives.
(j) Net Worth Adjustment. The Cash Portion of the Purchase
Price shall be adjusted downward on a dollar-for-dollar basis by the amount by
which the Net Worth of Sigma6 is less than $200,000 (the "Minimum Net Worth") as
of the Closing Date. The Net Worth of Sigma6 as of the Closing Date shall
initially be determined prior to the Closing Date by Sigma6 in good faith within
two business days prior to the Closing Date (the "Closing Determination").
Following the Closing Date, the Net Worth of Sigma6 as of the Closing Date shall
be determined by AA in accordance with the terms of this Agreement (at the
expense of the Buyer), which determination (the "AA Determination") shall be
submitted in writing to the Buyer and the Sellers not later than sixty (60) days
after the Closing. Unless the Sellers' Representative on behalf of all Sellers
objects in writing to the AA Determination within ten business days of the
receipt of such determination, the AA Determination shall be final, conclusive
and binding on the Parties. If no objection is made, Sellers shall pay to Buyer
by wire transfer (or by the return to the Buyer, at Sellers' Representative's
option, the equivalent number of shares of Buyer Common Stock (valued at $4.50
per share) equal to) the amount, if any, by which the amount of the AA
Determination is less than the Minimum Net Worth (less any deduction against the
Cash Portion of the Purchase Price as a result of the Closing Determination)
within ten (10) days after the AA Determination.
(k) [Reserved]
(l) The Closing. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Xxxxx &
Xxxxxxx, LLP in Washington, D.C. commencing at 9:00 a.m. local time on the first
business day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby,
or such other date as the Buyer and the Sellers may mutually determine (the
"Closing Date"); provided, however, that the Closing Date shall be no later than
March 5, 1999.
(m) Deliveries at the Closing. At the Closing, (i) the Sellers
will deliver to the Buyer the various certificates, instruments, and documents
referred to in Section 7(a) below, (ii) the Buyer will deliver to the Sellers
(as applicable) the various certificates, instruments, and documents referred to
in Section 7(b) below, (iii) each of the Sellers will deliver to the Buyer stock
certificates representing all of its Sigma6 Shares, endorsed in blank or
accompanied by duly
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executed assignment documents, and (iv) the Sigma6 Optionholders shall each
deliver to the Buyer the Option Cancellation Agreements required by Section 7(a)
below, if applicable.
(n) Sellers' Representative.
(i) In order to administer efficiently (A) the
implementation of the Agreement by the Sellers, (B) the waiver of
any condition to the obligations of the Sellers to consummate the
transactions contemplated hereby, and (C) the settlement of any
dispute with respect to the Agreement, the Sellers hereby designate
Xxxxxxx Xxxx as their representative (the "Sellers'
Representative").
(ii) The Sellers hereby authorize the Sellers'
Representative (A) to take all action necessary in connection with
the implementation of the Agreement on behalf of the Sellers, the
waiver of any condition to the obligations of the Sellers to
consummate the transactions contemplated hereby, or the settlement
of any dispute, (B) to give and receive all notices required to be
given under the Agreement and (C) to take any and all additional
action as is contemplated to be taken by or on behalf of the Sellers
by the terms of this Agreement.
(iii) In the event that the Sellers' Representative
dies, becomes legally incapacitated or resigns from such position,
Xxxxxxx Tiggertt III shall fill such vacancy and shall be deemed to
be the Sellers' Representative for all purposes of this Agreement;
however, no change in the Sellers' Representative shall be effective
until Buyer is given notice of it by the Sellers.
(iv) All decisions and actions by the Sellers'
Representative shall be binding upon all of the Sellers, and no
Seller shall have the right to object, dissent, protest or otherwise
contest the same, in the absence of fraud, gross negligence or
willful misconduct of the Sellers' Representative.
(v) By their execution of this Agreement, the Sellers
agree that: (A) Buyer shall be able to rely conclusively on the
instructions and decisions of the Sellers' Representative as to any
actions required or permitted to be taken by the Sellers or the
Sellers' Representative hereunder, and no party hereunder shall have
any cause of action against Buyer for action taken by Buyer in
reliance upon the instructions or decisions of the Sellers'
Representative; (B) all actions, decisions and instructions of the
Sellers' Representative shall be conclusive and binding upon all of
the Sellers; no Seller shall have any cause of action against Buyer
or Sigma6 for any action taken or omitted to be taken, decision made
or omitted to be made or any instruction given or omitted to be
given by the Sellers' Representative; and no Seller shall have any
cause of action against the Sellers' Representative for any action
taken, decision made or instruction given by the Sellers'
Representative under this Agreement, except for fraud, gross
negligence or willful breach of this Agreement by the Sellers'
Representative; (C) the Sellers' Representative shall be deemed to
fulfill any fiduciary obligation to the Sellers so long as no Seller
is adversely affected by any action or failure to act of the
Sellers' Representative in a
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disproportionate measure compared to any other Seller; (D) remedies
available at law for any breach of the provisions of this Section
2(n) are inadequate; therefore, Buyer shall be entitled to temporary
and permanent injunctive relief without the necessity of proving
damages if Buyer brings an action to enforce the provisions of this
Section 2(n); (E) the provisions of this Section 2(n) are
independent and severable, shall constitute an irrevocable power of
attorney, coupled with an interest and surviving death, granted by
the Sellers to the Sellers' Representative and shall be binding upon
the executors, heirs, legal representatives and successors of each
Seller; and (F) all reasonable fees and expenses incurred by the
Sellers' Representative shall be paid by the Sellers pro rata in
proportion to their percentage interest in Sigma6 at Closing.
(o) Escrow Arrangements. Pursuant to the terms and conditions
of the Escrow Agreement to be entered into among the Sellers, Buyer and the
Escrow Agent, $250,000 of the Cash Portion of the Purchase Price shall be
delivered to the Escrow Agent at Closing in immediately available funds. Such
monies (which is hereinafter referred to as the "Escrow Sum") shall be held
pursuant to the terms of the Escrow Agreement to satisfy the amounts owing by
the Sellers to Buyer pursuant to the indemnification provisions of Article VIII
below. At the conclusion of the period ending on the eighteen month anniversary
of the Closing Date (such period being referred to herein as the "Escrow
Period"), any remaining portion of the Escrow Sum not theretofore paid to Buyer
in accordance with the terms of the Escrow Agreement or subject to a pending
claim under the Escrow Agreement and this Agreement shall be disbursed to the
Sellers. The Sellers and Buyer agree that each will execute and deliver such
reasonable instruments and documents as are furnished by any other party to
enable such furnishing party to receive those portions of the Escrow Sum to
which the furnishing party is entitled under the provisions of the Escrow
Agreement and this Agreement.
3. Representations and Warranties Concerning the Transaction.
(a) Representations and Warranties of each Seller. Each Seller
individually represents and warrants to the Buyer as follows as of the date of
this Agreement and as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
Section 3(a)), except as set forth in Annex II attached hereto: provided,
however, that Annex II may be updated as of the Closing Date ("Updated
Disclosure Schedule") and if accepted by Buyer, the additional matters set forth
therein shall be exceptions hereto except as otherwise set forth in Article VIII
herein and Sellers shall not be liable for matters disclosed on Annex II or the
Updated Disclosure Schedule except as otherwise set forth in Article VIII
herein. Any reference to Annex II or the Disclosure Schedule shall mean as
modified by the Updated Disclosure Schedule.
(i) Authorization of Transaction. The Seller has full
power and authority to execute and deliver this Agreement and the
other agreements and documents executed in connection herewith and
to perform its obligations hereunder and thereunder and this
Agreement and such other agreements and documents have been duly
executed and delivered by the Seller. This Agreement
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and such other agreements and documents constitute the valid and
legally binding obligation of the Seller, enforceable in accordance
with their terms and conditions, except that (A) such enforceability
may be subject to bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other laws, decisions or equitable
principles now or hereafter in effect relating to or affecting the
enforcement of creditors' rights or debtors' obligations generally
or non-competition arrangements, and to general equity principles,
and (B) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and
to the discretion of the court before which any proceeding therefor
may be brought (the terms of clause (A) and (B) are sometimes
collectively referred to as the "Equitable Exceptions"). The Seller
need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions
contemplated by this Agreement (other than as provided for in
Article 2 of this Agreement).
(ii) Noncontravention. Neither the execution and the
delivery of this Agreement by the Seller, nor the consummation of
the transactions contemplated hereby by the Seller, will (A) violate
any statute, regulation, rule, judgment, order, decree, stipulation,
injunction, charge, or other restriction of any government,
governmental agency, or court to which the Seller is subject or (B)
except as set forth in Section 3(a) of the Disclosure Schedule,
conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any part the right to
accelerate, terminate, modify, or cancel, or require any notice
under any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money,
instrument of indebtedness, Security Interest, or other arrangement
to which the Seller is a party or by which it is bound or to which
any of its assets is subject.
(iii) Broker's Fees. Seller has no Liability or
obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this
Agreement for which the Buyer could become liable or obligated.
(iv) Investment. The Seller is not acquiring Buyer's
Shares with a view to or for sale in connection with any
distribution thereof within the meaning of the Securities Act.
(v) Sigma6 Shares. The Seller holds of record and owns
beneficially the number of Sigma6 Common Shares and/or Sigma6
Preferred Shares set forth next to its name in Section 4(b) of the
Disclosure Schedule, and except as set forth in Section 4(b) of the
Disclosure Schedule, such Sigma6 Shares are free and clear of any
restrictions on transfer all of which have been terminated as of or
prior to the Closing Date (other than any restrictions under the
Securities Act and state securities laws), claims, Taxes, Security
Interests, options, warrants, rights,
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contracts, calls, commitments, equities, and demands. Except as set
forth in Section 4(b) of the Disclosure Schedule, the Seller is not
a party to (or has otherwise waived all rights under) any option,
warrant, right, contract, call, put, or other agreement or
commitment providing for the disposition or acquisition of any
capital stock of Sigma6 (other than this Agreement). The Seller is
not a party to (or has otherwise terminated) any voting trust,
proxy, or other agreement or understanding with respect to the
voting of any capital stock of Sigma6.
(vi) Disclosure. The representations and warranties
contained in this Section 3(a) as amended, modified and/or
supplemented by Annex II do not contain any untrue statement of a
fact or omit to state any Material (as defined) fact necessary in
order to make the statements and information contained in this
Section 3(a) not misleading that result in Adverse Consequences.
(b) Representations and Warranties of the Buyer and Newco. The
Buyer and Newco represent and warrant to the Sellers that the statements
contained in this Section 3(b) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 3(b)), except as set forth in Annex III
attached hereto.
(i) Organization of the Buyer and Newco. Each of the
Buyer and Newco is a corporation duly organized, validly existing,
and in good standing under the laws of the jurisdiction of its
incorporation. The Buyer has delivered to Sellers correct and
complete copies of the charter and bylaws of Buyer and Newco (as
amended to date). Neither Buyer nor Newco is in default under or in
violation of its charter or bylaws.
(ii) Authorization of Transaction. Each of the Buyer and
Newco has full power and authority (including full corporate power
and authority) to execute and deliver this Agreement and the other
agreements and documents executed in connection herewith and to
perform its obligations hereunder and thereunder and this Agreement
and such other documents have been duly executed and delivered by
the Buyer and Newco. This Agreement and such other agreements and
documents constitute the valid and legally binding obligation of the
Buyer and Newco, enforceable in accordance with their terms and
conditions except for the Equitable Exceptions. Neither the Buyer
nor Newco needs to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions
contemplated by this Agreement (other than as provided for in
Article 2 of this Agreement).
(iii) Noncontravention. Neither the execution and the
delivery of this Agreement by the Buyer or Newco, nor the
consummation of the transactions contemplated hereby by the Buyer or
Newco, will (A) violate any statute,
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regulation, rule, judgment, order, decree, stipulation, injunction,
charge, or other restriction of any government, governmental agency,
or court to which the Buyer is subject or any provision of its
charter or bylaws or (B) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for
borrowed money, instrument of indebtedness, Security Interest, or
other arrangement to which the Buyer or Newco is a party or by which
it is bound or to which any of its assets is subject and which has a
Material adverse effect on Buyer.
(iv) Brokers' Fees. Neither Newco nor the Buyer has any
Liability or obligation to pay any fees or commissions to any
broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which the Sellers could become
liable or obligated.
(v) Investment. Neither Newco nor the Buyer is acquiring
Sigma6 Shares with a view to or for sale in connection with any
distribution thereof within the meaning of the Securities Act.
4. Representations and Warranties Concerning Sigma6. Sigma6 and the
Sellers jointly and severally represent and warrant to the Buyer that,
subject to the specific qualifications and limitations set forth herein,
the statements contained in this Section 4 are correct and complete as of
the date of this Agreement and will be correct and complete as of the
Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 4),
except as set forth in the Disclosure Schedule delivered by the Sellers to
the Buyer on the date hereof and initialed by the Parties (the "Disclosure
Schedule"). The Disclosure Schedule may be updated one or more times prior
to the Closing Date. Any updated Disclosure Schedule shall be delivered at
or before the Closing. In the event any such updated Disclosure Schedule
indicates any Material adverse change from information previously provided
to the Buyer, Buyer shall be entitled to terminate this Agreement (without
any liability whatsoever to Sigma6) by written notice delivered to Sigma6
following receipt of such updated Disclosure Schedule. An event or matter
that causes any representation or warranty contained in this Section to be
inaccurate, incorrect or false will not be deemed to be "Material," to
have a "Material" change in or in respect of, to have a "Material" adverse
effect or to be "Materially" affected unless the loss that may reasonably
be expected to occur to Sigma6 with respect to such event or matter, when
taken together with all other related losses that may reasonably be
expected to occur to Sigma6 as a result of any such events or matters,
would exceed $20,000 in the aggregate or unless such event or matter
constitutes a criminal violation of law. For purposes of this paragraph,
the word "loss" shall mean any and all direct or indirect payments,
obligations, assessments, losses, losses of income, liabilities, costs and
expenses paid or incurred; provided, however, that losses shall be net of
any insurance proceeds entitled to be received from a nonaffiliated
insurance company on account of such loss (after taking into account any
cost incurred in obtaining such proceeds or any increases in insurance
premiums as a direct result thereof). A Customer Contract or Agreement is
"Material" if during either calendar year 1998
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such Customer Contract or Agreement produced or is expected to produce $50,000
of Gross Revenues. Nothing in the Disclosure Schedule shall be deemed adequate
to disclose an exception to a representation or warranty made herein, however,
unless the Disclosure Schedule identifies the exception with reasonable
particularity and describes the relevant facts in reasonable detail as the
context requires. The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this Section
4.
(a) Organization, Qualification, and Corporate Power. Sigma6
is a corporation duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation. Except as disclosed in
Section 4(a) of the Disclosure Schedule, Sigma6 is duly authorized to conduct
business and is in good standing under the laws of the State of Michigan, which
is the only jurisdiction in which the nature of its businesses or the ownership
or leasing of its properties requires such qualification. Sigma6 has full
corporate power and authority to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it; provided, however, that
for all properties used but not owned by Sigma6, such power and authority are
only to the extent that Sigma6 has the rights to use such properties (which
rights are sufficient to operate its Sigma6's Business). Section 4(a) of the
Disclosure Schedule lists the directors and officers of Sigma6. Sigma6 has
delivered to the Buyer correct and complete copies of the charter and bylaws of
Sigma6 (as amended to date). The minute books containing the records of meetings
and/or resolutions of the stockholders, the board of directors, and any
committees of the board of directors, the stock certificate books and the stock
record books of Sigma6 are correct and complete in all Material respects. Sigma6
is not in default under or in violation of any provision of its charter or
bylaws.
(b) Capitalization. The entire authorized capital stock of
Sigma6 consists of 50,000 shares of common stock, no par value, of which 20,000
are issued and outstanding, none are subject to issuance pursuant to vested
options, none are subject to issuance pursuant to unvested options and none are
reserved for issuance pursuant to future option grants. All of the issued and
outstanding Sigma6 Shares have been duly authorized, are validly issued, fully
paid, and nonassessable, and are held of record by the Sellers except as set
forth in Section 4(b)-1 of the Disclosure Schedule. Except as set forth in
Section 4(b)-2 of the Disclosure Schedule, there are no outstanding or
authorized options, warrants, rights, contracts, calls, puts, rights to
subscribe, conversion rights, or other agreements or commitments to which Sigma6
is a party or which are binding upon Sigma6 providing for the issuance,
disposition, or acquisition of any of its capital stock. Except as set forth in
Section 4(b)-3 of the Disclosure Schedule, there are no outstanding or
authorized stock appreciation, phantom stock, or similar rights with respect to
Sigma6. There are no voting trusts, proxies, or any other agreements or
understandings with respect to the voting of the capital stock of Sigma6.
(c) Noncontravention. Except as disclosed in Section 4(c) of
the Disclosure Schedule and solely as applicable to Sigma6, neither the
execution and the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (i) violate any statute, regulation,
rule, judgment, order, decree, stipulation, injunction, charge, or other
restriction of any government, governmental agency, or court to which Sigma6 is
subject or any provision of the charter or bylaws of Sigma6, except to the
extent any such violation does not or could not result
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in a Material adverse effect on Sigma6, or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest on the property owned or leased by Sigma6, or
other arrangement to which Sigma6 is a party or by which it is bound or to which
any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets). Except as set forth on Section 4(c) of the
Disclosure Schedule, Sigma6 does not need to give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement.
(d) Subsidiaries. Sigma6 has no Subsidiaries.
(e) Financial Statements. Attached hereto as Exhibit B are the
following Sigma6 financial statements (collectively the "Financial Statements"):
audited balance sheet and statement of income, changes in stockholder's equity,
and cash flow as of and for the fiscal years ended December 31, 1996 and 1997
(the most recent of such dates to be referred to as the "Most Recent Fiscal Year
End") and an unaudited consolidated balance sheet and statement of income,
changes in stockholder's equity, and cash flow as of and for the fiscal year
ended December 31, 1999 and for the one (1) month period ended January 31, 1999
(the "Stub Period End") for Sigma6. The Financial Statements have been prepared
in accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, are correct and complete, fairly present the financial
condition of Sigma6 as of such dates, and are consistent with the books and
records of Sigma6 (which books and records are correct and complete), subject,
in the case of the Stub Period Financial Statements, to normal adjustments upon
audit.
(f) Events Subsequent to September 30, 1998. Since September
30, 1998, except as set forth on the Disclosure Schedule, there has not been any
Material adverse change in the assets, Liabilities, business, financial
condition, operations, or results of operations, or future prospects of Sigma6,
excluding general economic and general industry conditions. Without limiting the
generality of the foregoing since September 30, 1998, except as set forth on the
Disclosure Schedule:
(i) Sigma6 has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for a
fair consideration in the Ordinary Course of Business;
(ii) Sigma6 has not entered into any contract, lease,
sublease, license or sublicense (or series or related contracts,
leases, subleases, licenses and sublicenses) outside the Ordinary
Course of Business;
(iii) Sigma6 has not accelerated, terminated (except as
otherwise specifically provided for therein), modified, or canceled
any contract, lease, sublease, license or sublicense (or series of
related contracts, leases, subleases, licenses and sublicenses) to
which Sigma6 is a party or by which it is bound other than in the
Ordinary Course of Business;
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(iv) no party has notified Sigma6 of any acceleration,
termination (except as otherwise specifically provided for therein),
modification (except as otherwise specifically provided for therein)
or cancellation of any outstanding Customer Contract or any other
contract, agreement, lease, sublease, license or sublicense (or
series of related contracts, leases, subleases, licenses and
sublicenses), other than in the Ordinary Course of Business;
(v) Sigma6 has not imposed any Security Interest upon
any of its Material assets, tangible or intangible that has not been
released on or prior to the Closing Date;
(vi) Except as set forth in Section 4(f) - (vi) of the
Disclosure Schedule, Sigma6 has not made any capital expenditure (or
series of related capital expenditures) involving more than $20,000
in the aggregate, or outside the Ordinary Course of Business;
(vii) Sigma6 has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of any other
person (or series of related capital investments, loans, and
acquisitions) involving more than $15,000 in the aggregate;
(viii) Sigma6 has not created, incurred, assumed, or
guaranteed any indebtedness (including capitalized lease
obligations) involving more than $15,000 individually or in the
aggregate or outside the Ordinary Course of Business;
(ix) Sigma6 has not delayed or postponed (beyond its
normal practice) the payment of any accounts payable and other
Liabilities or made any changes in any accounting methods or
procedures not required by GAAP;
(x) Sigma6 has not canceled, compromised, waived, or
released any right or claim (or series of related rights and claims)
either involving more than $10,000 or outside the Ordinary Course of
Business;
(xi) Sigma6 has not granted any license or sublicense of
any rights under or with respect to any Sigma6 IP or any other
Intellectual Property licensed by Sigma6 (as licensee) except any
such license or sublicense as was granted in the Ordinary Course of
Business or any other agreements set forth in Section 4(k) of the
Disclosure Schedule;
(xii) there has been no change made or authorized in the
charter or bylaws of Sigma6, other than in connection with this
Agreement and the transactions contemplated hereby;
(xiii) except as set forth in Section 4(f) - (xiii) of
the Disclosure Schedule, Sigma6 has not issued, sold, or otherwise
disposed of any of its capital stock, or granted any options,
warrants, or other rights to purchase or obtain
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(including upon conversion or exercise) any of its capital stock
that exist and are effective at any time after the Closing;
(xiv) except as set forth in Section 4(f) - (xiv) of the
Disclosure Schedule, Sigma6 has not declared, set aside, or paid any
dividend or distribution with respect to its capital stock nor
redeemed, purchased, or otherwise acquired any of its capital stock;
(xv) Sigma6 has not made any consulting or other payment
to the Sellers other than in the Ordinary Course of Business;
(xvi) Sigma6 has not experienced any damage, destruction
or loss involving more than $15,000 (whether or not covered by
insurance) to its property;
(xvii) Sigma6 has not made any loan to, or entered into
any other transaction with, any of its officers, directors or
employees (who are not Sellers) outside the Ordinary Course of
Business giving rise to any claim or right on its part against the
person or on the part of the person against it;
(xviii) Sigma6 has not made any loan to, or entered into
any other transaction with, any of the Sellers other than in the
Ordinary Course of Business giving rise to any claim or right on its
part against the person or on the part of such person against it;
(xix) Sigma6 has not entered into any employment
contract or collective bargaining agreement, written or oral, or
modified in any material respect the terms of any existing such
contract or agreement with any of its full-time staff employees
other than in the Ordinary Course of Business;
(xx) Sigma6 has not granted an increase outside the
Ordinary Course of Business in the base compensation of any of its
directors, officers, and employees (other than the Sellers);
(xxi) Sigma6 has not granted an increase in the base
compensation, nor has Sigma6 made any payments or promises or
commitments to pay to any of the Sellers to make any other payments
(other than salary and reimbursement of customary expenses) to any
of the Sellers, including without limitation bonuses other than in
the Ordinary Course of Business;
(xxii) Sigma6 has not adopted any (A) bonus, (B)
profit-sharing, (C) incentive compensation, (D) pension, (E)
retirement, (F) medical, hospitalization, life, or other insurance,
(G) severance, or (H) other plan, contract or commitment for any of
its directors, officers, and employees, or modified or terminated
any existing such plan, contract or commitment other than renewals
of insurance policies in the Ordinary Course of Business;
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(xxiii) Sigma6 has not made any other change in
employment terms for any of its directors, officers, and full-time
staff employees other than in the Ordinary Course of Business;
(xxiv) Sigma6 has not made or pledged to make any
Material charitable or other capital contribution outside the
Ordinary Course of Business;
(xxv) except as set forth in Section 4(f) of the
Disclosure Schedule, there has not been any other occurrence, event,
incident, action, failure to act, or transaction outside the
Ordinary Course of Business involving Sigma6 involving more than
$5,000 individually or in the aggregate; and
(xxvi) except as set forth in Section 4(f) of the
Disclosure Schedule, Sigma6 has not entered into any agreement
committing to any of the foregoing.
(g) Undisclosed Liabilities. Except as set forth on Section
4(g) of the Disclosure Schedule hereto, Sigma6 does not have any Liability (and
there is no Basis for any present or future charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand against Sigma6 giving rise
to any Liability, including, without limitation, Liability under the Fair Labor
Standards Act of 1938, as amended and the rules and regulations promulgated
thereunder) which is individually in excess of $15,000, except for (i)
Liabilities set forth on the face of the Stub Period End Balance Sheet, (ii)
Liabilities described on Schedule 4(g) of the Disclosure Schedule and (iii)
Liabilities which have arisen after the Stub Period End in the Ordinary Course
of Business (none of which relates to any breach of contract, breach of
warranty, tort, infringement, or violation of law or arose out of any charge,
complaint, action, suit, proceedings, hearing, investigation, claim, or demand).
(h) Tax Matters. Except as set forth on Section 4(h) of the
Disclosure Schedule,
(i) Sigma6 has filed all Tax Returns that it was
required to file. All such Tax Returns were correct and complete in
all respects. All Taxes owed by Sigma6 (whether or not shown on any
Tax Return) based on operations through the Stub Period End have
been paid or accrued on the Stub Period End Balance Sheet. Sigma6
currently is not the beneficiary of any extension of time within
which to file any Tax Return. No claim has ever been made by any
taxing authority in a jurisdiction where Sigma6 does not file Tax
Returns that it is or may be subject to taxation by that
jurisdiction. There are no Security Interests on any of the assets
of Sigma6 that arose in connection with any failure (or alleged
failure) to pay any Tax, other than for Taxes that are not yet due
which have been accrued for since the Most Recent Fiscal Year End.
(ii) Sigma6 has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing
to any employee, creditor, independent contractor, or other third
party and Sigma6 has properly reflected the status of all employees
and independent contractors in connection
-22-
therewith as required by applicable Tax law and the Fair Labor
Standards Act of 1938, as amended, and the rules and regulations
promulgated thereunder.
(iii) Neither Sellers nor any of the officers of Sigma6
have received, nor do any of them have any Basis to expect to
receive, any notice that any taxing authority intends to assess any
additional Taxes for any period for which Tax Returns have been
filed. There is no dispute or claim concerning any Tax Liability of
Sigma6 either (A) claimed or raised by any authority in writing or
(B) as to which the Sellers or the officers of Sigma6 or employees
responsible for Tax matters of Sigma6 have Knowledge based upon
personal contact with any agent of such authority. Section 4(h) of
the Disclosure Schedule lists all federal, state, local, and foreign
income Tax Returns filed with respect to Sigma6 for taxable periods
ended on or after December 31, 1990, indicates those Tax Returns
that have been audited, and indicates those Tax Returns that
currently are the subject of audit. Sigma6 has delivered to the
Buyer correct and complete copies of all federal income Tax Returns
filed, examination reports received, and statements of deficiencies
assessed against or agreed to, by Sigma6 since December 31, 1990.
(iv) Sigma6 has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to
a Tax assessment or deficiency.
(v) Sigma6 has not filed a consent under Code Sec.
341(f) concerning collapsible corporations. Sigma6 has not made any
payments, is not obligated to make any payments, nor is a party to
any agreement that under certain circumstances could obligate it to
make any payments that will not be deductible to Sigma6 under Code
Sec. 280G. Sigma6 has not been a United States real property holding
corporation within the meaning of Code Sec. 897(c)(2) during the
applicable period specified in Code Sec. 897(c)(1)(A)(ii). Sigma6
has disclosed on its federal income Tax Returns all positions taken
therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Code Sec. 6662. Sigma6 is
not a party to any Tax allocation or sharing agreement. Sigma6 has
never been (nor has any Liability for unpaid Taxes because it once
was) a member of an Affiliated Group filing a consolidated federal
income Tax Return and has never incurred any Liability for the Taxes
of any Person under Treas. Reg.ss.1.1502-6 (or any similar provision
of state, local, or foreign law), as a transferee or successor, by
contract, or otherwise, during any part of any consolidated return
year within any part of which consolidated return year also was a
member of the Affiliated Group.
(vi) Section 4(h) of the Disclosure Schedule sets forth
the following information with respect to Sigma6 as of the most
recent practicable date (as well as on an estimated pro forma basis
as of the Closing giving effect to the consummation of the
transactions contemplated hereby): (A) the amount of any net
operating loss, net capital loss, unused investment or other credit,
unused foreign
-23-
tax, or excess charitable contribution allocable to Sigma6; and (B)
the amount of any deferred gain or loss allocable to Sigma6 arising
out of any Deferred Intercompany Transaction.
(vii) The unpaid Taxes of Sigma6 through the Stub Period
End do not exceed the reserve for Tax Liability set forth on the
face of the Stub Period Balance Sheet.
(i) Tangible Assets. Sigma6 owns or leases substantially all
tangible assets necessary for the conduct of Sigma6's Business as presently
conducted and as presently proposed to be conducted. Each such tangible asset is
free from Material defects (patent or latent), has been maintained in accordance
with normal industry practice, is in good operating condition and repair
(subject to normal wear and tear), and is suitable for the purposes for which it
presently is used.
(j) Owned Real Property. Sigma6 does not own nor does it have
any interest in any real property or improvements thereon (other than the leases
disclosed in Section 4(l) of the Disclosure Schedule, and the leasehold
improvements relating to the same) nor does Sigma6 have any options, agreements
or contracts under which it has the right or obligation to acquire any interest
in any real property or improvements (other than as disclosed in Section 4(l) of
the Disclosure Schedule)
(k) Intellectual Property.
(i) Attached hereto as Section 4(k) of the Disclosure
Schedule is a list and brief description of all Intellectual
Property owned or utilized by Sigma6. Sigma6 has furnished Buyer
with copies of all license agreements to which Sigma6 is a party,
either as licenser or licensee, with respect to any Intellectual
Property. Except as set forth on Section 4(k) of the Disclosure
Schedule or as specfically excluded under this Section 4(k), Sigma6
has good title to or the right to use all the Intellectual Property
and all inventions, processes, designs, formulae, trade secrets and
know-how necessary for the conduct of Sigma6's Business, in its
business as presently conducted or currently proposed to be
conducted without the payment of any royalty or similar payment.
Furthermore, Sigma6 is not infringing on any Intellectual Property
right of others; provided, however, that the foregoing
representation related to infringement (A) shall not apply to
generally commercially available Intellectual Property which is
licensed by Sigma6 for its own use and (B) shall only apply to
infringement which individually or in the aggregate results in a
Material Adverse Effect to Sigma6. In addition, none of Sellers nor
Sigma6 has Knowledge of any infringement by others of any such
rights owned by Sigma6, except as set forth in Section 4(k) of the
Disclosure Schedule.
(ii) All licenses set forth on Section 4(k) of the
Disclosure Schedule are valid and binding obligations of Sigma6, and
to the Knowledge of the Sellers and Sigma6, of the other parties
thereto, and enforceable against
-24-
Sigma6, and to the Knowledge of the Sellers and Sigma6, the other
parties thereto in accordance with their respective terms, except
for the Equitable Exceptions. Sigma6 owns and possesses all right,
title and interest in and to, or has the right to use pursuant to a
valid license without infringement by Sigma6, all Intellectual
Property utilized in the operation of the business of Sigma6.
(iii) All personnel, including employees, agents,
consultants, and contractors, who have contributed to or
participated in the conception and development of any Intellectual
Property owned by Sigma6 (the "Sigma6 IP") have executed the
nondisclosure agreements listed on Section 4(k) of the Disclosure
Schedule and either (1) have been party to a written agreement with
Sigma6 that on its face has accorded Sigma6 full, effective,
exclusive and original ownership of all Sigma6 IP, or (2) have
executed appropriate instruments of assignment in favor of Sigma6 as
assignee that have conveyed to Sigma6 full, effective, and exclusive
ownership of all Sigma6 IP.
(iv) Sigma6 has also delivered to the Buyer correct and
complete samples or copies of all trademarks, service marks, trade
names, copyrights, patents, registrations and, as relate to the
foregoing, applications, licenses, agreements, and permissions (as
amended to date) owned or licensed by Sigma6 (as licensee), and have
made available to the Buyer correct and complete copies of all other
written documentation evidencing ownership and prosecution (if
applicable) of each such item. With respect to each item of Sigma6
IP used in, or otherwise necessary for the conduct of, the business
of Sigma6 as heretofore conducted: (A) Sigma6 possesses all right,
title, and interest in and to such item of Intellectual Property;
(B) the item is not subject to any outstanding judgment, order,
decree, stipulation, injunction, or charge; (C) no charge,
complaint, action, suit, proceeding, hearing, investigation, claim,
or demand is pending or, to the Knowledge of the Sellers and Sigma6,
is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and (D) Sigma6 has
not agreed to indemnify any person or entity for or
-25-
against any interference, infringement, misappropriation, or other
conflict with respect to the item.
(v) None of the computer software, computer firmware,
computer hardware (whether general or special purpose), and other
similar or related items of automated, computerized, and/or software
system(s) that are used or relied on by Sigma6 in the conduct of
Sigma6's Business will in any Material respect malfunction, cease to
function, generate incorrect data, or produce incorrect results when
processing, providing, and/or receiving (i) date-related data into
and between the 1900's and the year 2001 and (ii) date-related data
in connection with any valid date in the 1900's and the years 2000
and 2001.
(l) Real Property Leases. Section 4(l) of the Disclosure
Schedule lists and describes briefly all real property leased or subleased to
Sigma6. Sigma6 has delivered to the Buyer correct and complete copies of the
leases and subleases listed in Section 4(l) of the Disclosure Schedule (as
amended to date). With respect to each lease and sublease listed in Section 4(l)
of the Disclosure Schedule:
(i) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect, subject to the Equitable
Exceptions;
(ii) the lease or sublease will continue to be legal,
valid, binding, enforceable, and in full force and effect on
identical terms immediately following the Closing;
(iii) Sigma6 is not and, to the Knowledge of the Sellers
and Sigma6, no other party to the lease or sublease is in breach or
default, and no event has occurred which, with notice or lapse of
time, would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(iv) Sigma6 has not, and to the Knowledge of the Sellers
and Sigma6 no other party to the lease or sublease has, repudiated
any provision thereof;
(v) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease;
(vi) Sigma6 has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold; and
(vii) all facilities leased or subleased thereunder have
received all approvals of governmental authorities (including
licenses and permits) required in connection with the operation
thereof and have been operated and maintained in accordance with
applicable laws, rules, and regulations.
-26-
(m) Contracts. Section 4(m) of the Disclosure Schedule lists
the following contracts, agreements, Customer Contracts or Agreements and other
written arrangements to which Sigma6 is a party:
(i) any written agreement (or group of related written
agreements) for the lease of personal property from or to third
parties providing for lease payments in excess of $15,000 per annum;
(ii) other than as referenced in paragraph (i)
immediately preceding, any written agreement (or group of related
written agreements) for the furnishing or receipt of services which
Sigma6 reasonably projects will involve more than the sum of $30,000
per annum or $50,000 over the life of such agreement;
(iii) any written agreement concerning a partnership or
joint venture;
(iv) any written agreement (or group of related written
agreements) under which it has created, incurred, assumed, or
guaranteed (or may create, incur, assume, or guarantee) indebtedness
(including lease obligations) involving more than $15,000 or under
which it has imposed (or may impose) a Security Interest on any of
its assets, tangible or intangible;
(v) any written arrangement requiring confidentiality or
noncompetition other than agreements with customers, employees,
licensors, vendors or subcontractors in the Ordinary Course of
Business;
(vi) any written arrangement with any of its directors,
officers, or employees, or any of its Affiliates other than standard
contracts for service as employees or subcontractors in the Ordinary
Course of Business; and
(vii) any other written arrangement (or group of related
written arrangements) either involving more than $25,000 per annum
or not entered into in the Ordinary Course of Business.
Sigma6 has delivered to the Buyer a correct and complete copy of
each written arrangement listed in Section 4(m) of the Disclosure Schedule (as
amended to date). With respect to each written arrangement so listed: (A) the
written arrangement is legal, valid, binding, enforceable against Sigma6 and, to
Sigma6 and Seller's Knowledge, the other parties thereto and in full force and
effect, subject to the Equitable Exceptions; (B) except as set forth in Section
4(m) of the Disclosure Schedule, the written arrangement will continue to be
legal, valid, binding, enforceable and in full force and effect on identical
terms immediately following the Closing, subject to the Equitable Exceptions and
if Newco performs thereunder and does not breach such agreement after the
Closing Date, (C) Sigma6 is not, nor to the Knowledge of the Sellers and Sigma6
is any other party, in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default or except in the
Ordinary Course of Business
-27-
permit termination, modification, or acceleration, under the written
arrangement; and (D) Sigma6 has not, nor to the Knowledge of the Sellers and
Sigma6 has any other party, repudiated any provision of the written arrangement.
Sigma6 is not a party to any oral contract, agreement, or other arrangement
which, if reduced to written form, would be required to be listed in Section
4(m) of the Disclosure Schedule under the terms of this Section 4(m). No
unfilled Customer Contract or Agreement obligating Sigma6 to perform services
will result in a Material loss to Sigma6 upon completion of performance. Except
as set forth in Section 4(m) of the Disclosure Schedule, Sigma6 has not been
notified that any of its customers intends either to dispute charges under or to
terminate early a Material Customer Contract or Agreement.
(n) Notes and Accounts Receivable. All notes and accounts
receivable of Sigma6 are reflected properly on its books and records, are valid
receivables and are subject to no setoffs or counterclaims, are presently
current and collectible, and will be collected in accordance with their terms at
their recorded amounts, subject only to the reserve for bad debts set forth on
the face of the Stub Period Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of Sigma6.
(o) Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of Sigma6.
(p) Insurance. Section 4(p) of the Disclosure Schedule sets
forth the following information with respect to each insurance policy (including
policies providing property, casualty, liability, and workers' compensation
coverage and bond and surety arrangements) to which Sigma6 has been a party, a
named insured, or otherwise the beneficiary of coverage at any time within the
past two (2) years:
(i) the name address and telephone number of the agent;
(ii) the name of the insurer, the name of the
policyholder, and the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope and amount (including a description of
how deductibles and ceilings are calculated and operate) of
coverage; and
(v) a description of any retroactive premium adjustments
or other loss sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal,
valid, binding, and enforceable against Sigma6 and, to Sigma6 and Seller's
Knowledge, the insurer, and in full force and effect; (B) the policy will
continue to be legal, valid, binding, and enforceable against Sigma6 and, to
Sigma6 and Seller's Knowledge, the insurer, and in full force and effect on
identical terms immediately following the Closing Date if Buyer performs
thereunder and does not fail to
-28-
pay premiums under such policy when due; (C) Sigma6 is not in breach or default
(including with respect to the payment of premiums or the giving of notices),
and no event has occurred which, with notice or the lapse of time, would
constitute such a breach or default or permit termination, modification, or
acceleration under the policy; and (D) Sigma6 has not and to the Knowledge of
the Sellers and Sigma6, no other party to the policy has repudiated any
provision thereof. Sigma6 has been covered during the past three years by
insurance in scope and amount customary and reasonable for the businesses in
which it has engaged during the aforementioned period. Except as set forth in
Section 4(p) of the Disclosure Schedule, Sigma6 currently has no and has never
had any self-insurance arrangements.
(q) Litigation. Section 4(q) of the Disclosure Schedule sets
forth each instance in which Sigma6 (i) is subject to any unsatisfied judgment,
order, decree, stipulation, injunction, or charge or (ii) is a party or, to the
Knowledge of the Sellers and Sigma6, is threatened to be made a party to any
charge, complaint, action, suit, proceeding, hearing, or investigation of or in
any court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator. Except as specifically
described on Section 4(q) of the Disclosure Schedule, no matter listed thereon
could reasonably be expected, individually, to result in a Material adverse
effect to Sigma6. Neither the Sellers nor any of the directors or the officers
(or employees with responsibility for litigation matters) of Sigma6 has any
Basis that any such charge, complaint, action, suit, proceeding, hearing, or
investigation may be brought or threatened against Sigma6.
(r) Employees. To Seller's Knowledge without inquiry, no
non-clerical employee or any full-time group of employees has any plans to
terminate employment with Sigma6. Sigma6 is not a party to or bound by any
collective bargaining agreement, nor has it experienced any strikes, grievances,
claims of unfair labor practices, or other collective bargaining disputes.
Sigma6 has not committed any unfair labor practice. There are no organizational
efforts presently being made or, to the Knowledge of the Sellers and Sigma6,
threatened by or on behalf of any labor union with respect to employees of
Sigma6.
(s) Employee Benefits. Section 4(s) of the Disclosure Schedule
lists all Employee Benefit Plans that Sigma6 maintains or to which Sigma6
contributes for the benefit of any current or former employee of Sigma6.
(i) Each Employee Benefit Plan (and each related trust
or insurance contract) complies in form and in operation in all
respects with the applicable requirements of ERISA and the Code.
(ii) All required reports and descriptions, if any,
(including Form 5500 Annual Reports, Summary Annual Reports,
PBGC-1's and Summary Plan Descriptions) have been filed or
distributed appropriately with respect to each Employee Benefit
Plan. The requirements of Part 6 of Subtitle B of Title I of ERISA
and of Code Sec. 4980B have been met with respect to each Employee
Welfare Benefit Plan.
-29-
(iii) All contributions (including all employer
contributions and employee salary reduction contributions) which are
due have been paid to each Employee Pension Benefit Plan and all
contributions for any period ending on or before the Closing Date
which are not yet due have been paid to each Employee Pension
Benefit Plan or accrued in accordance with the past custom and
practice of Sigma6. All premiums or other payments which are due for
all periods ending on or before the Closing Date have been paid with
respect to each Employee Welfare Benefit Plan.
(iv) Each Employee Benefit Plan which is an Employee
Pension Benefit Plan meets the requirements of a "qualified plan"
under Code Sec. 401(a) and has received a currently valid and
favorable determination letter from the Internal Revenue Service or
is entitled to rely on a determination letter issued to a sponsoring
organization, and that nothing has occurred since the receipt of
such letter that would affect the tax qualified status of each such
Employee Pension Benefit Plan.
(v) The market value of assets under each Employee
Pension Benefit Plan (other than any Multiemployer Plan) equals or
exceeds the present value of Liabilities thereunder (determined on
an accumulated benefit obligation basis) as of the last day of the
most recent plan year. No Employee Pension Benefit Plan (other than
any Multiemployer Plan) has been completely or partially terminated
or been the subject of a Reportable Event as to which notices would
be required to be filed with the PBGC. No proceeding by the PBGC to
terminate any Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been instituted or, to the Knowledge of the
Sellers and Sigma6, threatened.
(vi) There have been no Prohibited Transactions with
respect to any Employee Benefit Plan. No Fiduciary has any Liability
for breach of fiduciary duty or any other failure to act or comply
in connection with the administration or investment of the assets of
any Employee Benefit Plans. No charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand with respect to
the administration or the investment of the assets of any Employee
Benefit Plan (other than routine claims for benefits) is pending or,
to the Knowledge of the Sellers and Sigma6, threatened. Neither the
Sellers nor Sigma6 has any Basis for any such charge, complaint,
action, suit, proceeding, hearing, investigation, claim, or demand.
(vii) Sigma6 has delivered to the Buyer correct and
complete copies of (A) the plan documents and summary plan
descriptions, (B) the most recent determination letter received from
the Internal Revenue Service, (C) the most recent Form 5500 Annual
Report, and (D) all related trust agreements, insurance contracts,
and other funding agreements which implement each Employee Benefit
Plan.
-30-
(viii) Sigma6 does not contribute to, has never
contributed to, nor ever has been required to contribute to any
Multiemployer Plan or has any Liability (including withdrawal
Liability) under any Multiemployer Plan.
(ix) Sigma6 has not incurred, and neither the Sellers
nor any of the directors or the officers (or employees with
responsibility for litigation matters) of Sigma6 has any reason to
expect that Sigma6 will incur, any Liability to the PBGC (other than
PBGC premium payments) or otherwise under Title IV of ERISA
(including any withdrawal Liability) or under the Code with respect
to any Employee Pension Benefit Plan that Sigma6 and the Controlled
Group of Corporations which includes Sigma6 maintains or ever has
maintained or to which any of them contributes, ever has
contributed, or ever has been required to contribute.
(x) Sigma6 does not maintain, nor has it ever maintained
or contributed to, or ever has been required to contribute to any
Employee Welfare Benefit Plan providing health, accident, or life
insurance benefits to former employees, their spouses, or their
dependents (other than in accordance with Code Sec. 4980B).
(t) Guaranties. Except as set forth on Section 4(t) of the
Disclosure Schedule, Sigma6 is not a guarantor nor is it otherwise liable for
any Liability or obligation (including indebtedness) of any other person other
than such potential liabilities to which Sigma6 is subject based on the acts or
omissions of its employees, subcontractors and other agents performing services
for Sigma6 in the Ordinary Course of Business (of which there are no claims for
actual liability therefor).
(u) Environment, Health, and Safety.
(i) Sigma6 and its Affiliates have complied in all
Material respects with all laws (including rules and regulations
thereunder) of federal, state, local, and foreign governments (and
all agencies thereof) concerning the environment, public health and
safety, and employee health and safety, and no charge, complaint,
action, suit, proceeding, hearing, investigation, claim, demand, or
notice has been filed or commenced against any of them alleging any
failure to comply with any such law or regulation.
(ii) Sigma6 has no Liability (and there is no Basis for
any present or future charge, complaint, action, suit, proceeding,
hearing, investigation, claim, or demand against Sigma6 giving rise
to any Liability) under the Occupational Safety and Health Act, as
amended, or any other law (or rule or regulation thereunder) of any
federal, state, local, or foreign government (or agency thereof)
concerning employee health and safety.
(iii) Sigma6 does not have any Material Liability (and
Sigma6 has not exposed any employee to any substance or condition
that could form the
-31-
Basis for any present or future charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand (under the
common law or pursuant to statute) against Sigma6 giving rise to any
Liability) for any illness of or personal injury to any employee.
(iv) Sigma6 has obtained and been in compliance in all
Material respects with all of the terms and conditions of all
permits, licenses, and other authorizations which are required
under, and has complied in all Material respects with all other
limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are
contained in, all federal, state, local, and foreign laws (including
rules, regulations, codes, plans, judgments, orders, decrees,
stipulations, injunctions, and charges thereunder) relating to
public health and safety, worker health and safety, and pollution or
protection of the environment, including laws relating to emissions,
discharge, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes into ambient air, surface water, ground water, or lands or
otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes.
(v) Legal Compliance. Except as it would not, individually or
in the aggregate, have a Material adverse effect:
(i) Sigma6 has complied with all laws (including rules
and regulations thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), including, without
limitation, the Fair Labor Standards Act of 1938, as amended, and
the rules and regulations promulgated thereunder. No charge,
complaint, action, suit, proceeding, hearing, investigation, claim,
demand, or notice has been filed or commenced against Sigma6 which
is currently pending and alleges any failure to comply with any such
law or regulation.
(ii) Sigma6 has complied with all applicable laws
(including rules and regulations thereunder) relating to the
employment of labor (including but not limited to the engagement of
independent contractors under the Fair Labor Standards Act of 1938,
as amended, and the rules and regulations promulgated thereunder),
employee civil rights, hiring of engaging non-United States
citizens, and equal employment opportunities.
(iii) Sigma6 has not violated in any respect or received
a notice or charge asserting any violation of the Xxxxxxx Act, the
Xxxxxxx Act, the Xxxxxxxx-Xxxxxx Act, or the Federal Trade Act, each
as amended.
(iv) Sigma6 has not:
(A) made or agreed to make any contribution,
payment, or gift of funds or property to any governmental
official, employee, or agent
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where either the contribution, payment, or gift or the purpose
thereof was illegal under the laws of any federal, state,
local, or foreign jurisdiction;
(B) established or maintained any unrecorded fund
or asset for any purpose, or made any false entries on any
books or records for any reason; or
(C) made or agreed to make any contribution, or
reimbursed any political gift or contribution made by any
other person, to any candidate for federal, state, local, or
foreign public office in excess of $500.
(v) Sigma6 has filed in a timely manner all reports,
documents, and other materials it was required to file (and the
information contained therein was correct and complete in all
respects) under all applicable laws (including rules and regulations
thereunder).
(vi) Sigma6 has possession of all records and documents
it was required to retain under all applicable laws (including rules
and regulations thereunder).
(w) Certain Business Relationships with Sigma6. Except as set
forth in Section 4(w) of the Disclosure Schedule, neither the Sellers nor its
Affiliates has been involved in any business arrangement or relationship with
Sigma6 within the past twelve (12) months other than service relationships in
the Ordinary Course of Business, and neither the Sellers nor its Affiliates owns
any Material property or right, tangible or intangible, which is used in
Sigma6's Business.
(x) Brokers' Fees. Sigma6 does not have any Liability or
obligation to pay any fees or commissions to any broker, finder, or similar
representative with respect to the transactions contemplated by this Agreement.
5. Pre-Closing Covenants. The Parties agree as follows with respect
to the period between the execution of this Agreement and the Closing or the
earlier termination of this Agreement.
(a) General. Each of the Parties will use its reasonable
efforts to take all action and to do all things necessary, proper, or advisable
to consummate and make effective the transactions contemplated by this Agreement
(including satisfying the closing conditions set forth in Section 7 below).
(b) Notices and Consents. Each of the Parties will (and the
Sellers will cause Sigma6 to) give any notices to third parties, and will use
best efforts to obtain third party consents, that the other Party may reasonably
request in connection with matters disclosed or required to be disclosed in the
Disclosure Schedule. Each of the Parties will take any additional action (and
the Sellers will cause Sigma6 to take any additional action) that may be
necessary,
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proper, or advisable in connection with any other notices to, filings with, and
authorizations, consents, and approvals of governments, governmental agencies,
and third parties that he, she or it may be required to give, make, or obtain.
(c) Operation of Business. Except as contemplated hereby, or
as may be incidental to or in furtherance of the transactions contemplated
hereby, or as may have been set forth herein or in the Disclosure Schedule,
neither Party will (and Sellers will not cause or permit Sigma6 to) engage in
any practice, take any action, embark on any course of inaction, or enter into
any transaction outside the Ordinary Course of Business.
(d) Preservation of Business. Except as contemplated hereby,
or as may be incidental to or in furtherance of the transactions contemplated
hereby, or as may have been set forth herein or in the Disclosure Schedule,
Sigma6 will (and the Sellers will cause Sigma6 to) use reasonable commercial
efforts to keep its business and properties substantially intact, including its
present operations, physical facilities, working conditions, and relationships
with lessors, licensers, suppliers, customers, and employees.
(e) Access.
(i) Only in the event that neither Buyer or Sellers
exercised its right to terminate this Agreement as provided in
Section 9 herein, each Party will permit (and the Sellers will cause
Sigma6 to permit) representatives of the other Party to have access
at reasonable times, and in a manner so as not to interfere with the
normal business operations of such Party, to the headquarters of
such Party and to all books, records, contracts, Tax records, and
documents of or pertaining to such Party; provided, however, that
Buyer shall direct all requests for information and material only
through Sellers' Representative, unless otherwise agreed to by Buyer
and Seller's Representative in writing.
(ii) Buyer shall proceed to arrange with the Sellers a
mutually agreeable time and place at which Buyer may conduct
interviews with key employees and/or customers of Sigma6 mutually
agreed to by Buyer and the Sellers' Representative.
(f) Notice of Developments. Each Party will give prompt
written notice to the other Party of any Material development affecting the
assets, Liabilities, business, financial condition, operations, results of
operations, or future prospects of such Party. Each Party will give prompt
written notice to the others of any Material development affecting the ability
of the Parties to consummate the transactions contemplated by this Agreement.
Except for the right of Sigma6 to update any Disclosure Schedule as provided in
Section 4 hereof, no disclosure by any Sellers or Sigma6 pursuant to this
Section 5(f) shall be deemed to amend or supplement Annex II or the Disclosure
Schedule or to prevent or cure any misrepresentation, breach of warranty, and/or
breach of covenant.
(g) Exclusivity. Until termination or consummation as provided
for herein, Sigma6 and the Sellers will not (i) solicit, initiate, or encourage
the submission of any
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proposal or offer from any person relating to any (A) liquidation, dissolution,
or recapitalization, (B) merger or consolidation, (C) acquisition or purchase of
securities or assets, or (D) similar transaction or business combination
involving Sigma6 or (ii) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any person to do or seek
any of the foregoing. The Sellers will notify the Buyer immediately if any
person makes any proposal, offer, inquiry, or contact with respect to any of the
foregoing.
(h) Cancellation and Exchange of Options, Bonus Programs and
Phantom Stock Plans. Sigma6 shall have provided for the cancellation, at or
prior to the Closing, of all Sigma6 Options, stock option plans, deferred bonus
programs or phantom equity plans. The amounts payable for the cancellation of
the Sigma6 Options will be paid by Sellers and at no cost to Sigma6 or Buyer,
or, if paid by Sigma6, such payments will be a reduction of the Cash Portion of
the Purchase Price pursuant to Section 2(h). In conjunction with the
cancellation of such programs, all eligible employees who have not executed new
employment agreements shall have signed cancellation agreements which include
provisions that each employee will not, for a period of one year from the date
of Closing or one year from the termination of his or her employment with his or
her employer (i.e., Sigma6) whichever period is longer: (i) service or solicit
any customers of his or her employer, or (ii) solicit for employment any
employee of his or her employer.
6. Additional Agreements and Covenants. The Parties further covenant
and agree as follows:
(a) Sale of Delphi Automotive Systems Receivable to Sellers at
Closing. The parties hereto agree that Sellers shall have the right to purchase
from Sigma6 the accounts receivable due from Delphi Automotive Systems (the
"Delphi Receiveable") in the aggregate amount of $250,000.00 simultaneous with
the Closing. In the event of such purchase, the parties hereto further agree
that (i) Sigma6 will utilize the funds received from the Sellers from the sale
of the Delphi Receivable to pay down any Funded Indebtedness then existing on
the Closing Date which has not been paid; (ii) the Sellers shall be the sole
owner of the Delphi Receivable and (iii) upon receipt by Sigma6 of any sums in
payment of the Delphi Receivable, such payments shall be held in trust and
delivered to Sellers' Representative properly endorsed.
(b) General. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request, all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification for such cost and
expense under Section 8 below). The Sellers and Sigma6 acknowledge and agree
that from and after the Closing the Buyer will be entitled to possession of all
documents, books, records, agreements, and financial data of any sort relating
to Sigma6; provided that Sellers may retain any copies of the foregoing as shall
be necessary to comply with applicable tax and other laws, regulations and
ordinances.
(c) Litigation Support. In the event and for so long as any
Party actively is contesting or defending against any charge, complaint, action,
suit, proceeding, hearing,
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investigation, claim, or demand in connection with (i) any transaction
contemplated under this Agreement or (ii) any fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction on or prior to the Closing Date involving
Sigma6, each of the other Parties will cooperate with him or it and his, her or
its counsel in the contest or defense, make available their personnel, and
provide such testimony and access to their books and records as shall be
necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party (unless the contesting or defending
Party is entitled to indemnification therefor under Section 8 below).
(d) Transition. The Sellers will not take any action that
primarily is designed or intended to have the effect of discouraging any lessor,
licenser, customer, supplier, or other business associate of Sigma6 from
maintaining the same business relationships with Sigma6 after the Closing for a
period of twenty-four (24) months thereafter as it maintained with Sigma6 prior
to the Closing. The Sellers will refer all customer inquiries relating to
Sigma6's Business to the Buyer and/or Sigma6 from and after the Closing for a
period of twenty-four (24) months thereafter.
(e) Confidentiality. The Sellers will treat and hold as such
all of the Confidential Information, refrain from using any of the Confidential
Information except in connection with this Agreement for a period of three (3)
years from the Closing Date, and except as otherwise permitted hereunder or as
may be required by law, deliver promptly to the Buyer or destroy, at the
reasonable request and option of the Buyer, all tangible embodiments (and all
copies) of the Confidential Information which are in its possession. In the
event that the Sellers are requested or required (by request for information or
documents in any legal proceeding, interrogatory, subpoena, civil investigative
demand, or similar legal process) to disclose any Confidential Information, the
Sellers will notify the Buyer promptly of the request or requirement so that the
Buyer may seek an appropriate protective order or waive compliance with the
provisions of this Section 6(e). If, in the absence of a protective order or the
receipt of a waiver hereunder, the Sellers are compelled to disclose any
Confidential Information or else stand liable for contempt, then Sellers may
disclose the Confidential Information; provided, however, that the Sellers shall
use their reasonable efforts to cooperate with Buyer to obtain, at the
reasonable request of the Buyer, an order or other assurance that confidential
treatment will be accorded to such portion of the Confidential Information
required to be disclosed as the Buyer shall reasonably designate.
(f) Termination of Bank Facilities; Release of Guaranties.
Sellers shall take all reasonable best efforts necessary to (i) retire all of
Sigma6's outstanding bank indebtedness and (ii) fully, completely and
unconditionally release and/or substitute Buyer or Sigma6 at or prior to Closing
as guarantor for the Sellers on all leases of Sigma6 or other guarantees.
(g) Monitoring Information. Prior to the Closing, each Party
shall deliver such information to the other Party as may reasonably be requested
by Buyer, Sigma6 or Sellers.
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(h) Landlords' Consents. On or before the Closing Date,
Sellers shall cause Sigma6 to obtain from its landlords (to the extent required
under the pertinent premises lease) written consent to the assignment of all
leases being assumed by Buyer, which assignments are deemed to have resulted
from the transactions contemplated by this Agreement.
(i) Additional Tax Matters. Buyer and Sellers recognize that
each of them will need access, from time to time, after the Closing Date, to
certain accounting and Tax records and information held by the Buyer and/or
Sigma6 to the extent such records and information pertain to events occurring on
or prior to the Closing Date; therefore, Buyer agrees to cause Sigma6 to (A) use
its best efforts to properly retain and maintain such records for a period of
six (6) years from the date the Tax Returns for the year in which the Closing
occurs are filed or until the expiration of the statute of limitations as may be
extended by law from time to time that applies to the Tax Return in question
(i.e., including Tax Returns for years preceding the year in which the Closing
occurs), whichever is later, and (B) allow the Sellers and their agents and
representatives at times and dates mutually acceptable to the Parties, to
inspect, review and make copies of such records as such other party may deem
necessary or appropriate from time to time, such activities to be conducted
during normal business hours and at the other Party's expense.
(j) Covenant Not to Compete. For a period of four (4) years
from and after the Closing Date, the Sellers will not, directly or indirectly,
as principal, agent, trustee or through the agency of any corporation,
partnership, association or agent or agency, (i) own, manage, control,
participate in, consult with, render services for, or in any manner engage in
any activity or business competing with the Business in the United States of
America and Canada, (ii) service or solicit any of Sigma6's Business from any
customer of Sigma6, (iii) request or advise any customer of Sigma6 to withdraw,
curtail or cancel such customer's business with Sigma6, or (iv) solicit for
employment any person employed by Sigma6 at any time within the 180 day period
immediately preceding such solicitation; provided, however, that no owner of
less than five percent (5%) of the outstanding stock of any publicly traded
corporation shall be deemed to engage solely by reason thereof in any of its
businesses and provided, further, that the Harmony House Online relationship as
specifically described in Section 6(m) shall not be a violation of this covenant
not to compete (provided that the Sellers comply with the provisions of Section
6(m)). For purposes of this Agreement, the Parties have agreed to allocate
$50,000 of the aggregate Purchase Price to the covenant not to compete contained
in this Section 6(j).
(k) Reorganization Intent. The Parties agree that the Merger
is intended to be a tax-free reorganization under Section 368 of the Code, and
this Agreement is intended to be a "plan of reorganization" within the meaning
of the regulations promulgated under such section of the Code. None of the
Parties has taken, shall take or fail to take any action that would jeopardize
the qualification of the Merger as such a tax-free reorganization (other than
actions contemplated by this Agreement or as may be otherwise legally required).
(l) Conduct During Earned Payout Period. Sellers acknowledge
and agree that, during the Earned Payout Period, Buyer shall be entitled to
oversee the operation and management of Sigma6's Business, including the setting
of goals and review of budgets and performance. The Sellers further agree,
during the Earned Payout Period, not to allow Sigma6 to
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cut staff, capital expenditures and general and administrative expenses or take
other actions that are not consistent with Sigma6's prior practices and/or
prudent business practices, and Sellers agree not and not to allow Sigma6 to
engage in any activity in order to increase current year profits of the business
of Sigma6 at the expense of the longer term growth of the business of Sigma6.
During the Earned Payout Period, the Buyer agrees that it will not (i)
unreasonably require that the business of Sigma6 be operated substantially
different as it was prior to the Merger except in so far as the prior practices
of Sigma6 were imprudent or unreasonable or its productivity efficiency and
profitability can be improved and increased through economies of scale, Buyer's
experience or otherwise; (ii) unreasonably change (A) the prices charged for
Sigma6's services, (B) the level of compensation of Sigma6's full-time corporate
employees or (C) the level Sigma6's general and administrative expenses, unless
the prior business practices were unreasonable or imprudent and/or unless the
changes are reasonably necessary to support the growth of Sigma6's Business.
(m) Harmony House Relationship. The Sellers shall have the
option to participate with Harmony House Inc. ("Harmony House") in a limited
partnership, called Harmony House Online, L.P. ("Harmony House Online");
provided, however, that all E-Commerce Services provided to Harmony House Online
or any Affiliate thereof shall be provided by the Buyer or its Affiliates
pursuant to an arms-length agreement; and provided, further that, except in his
capacity as an employee of Buyer or its Affiliate, the sole relationship between
any Seller and Harmony House shall be his ownership interest therein pursuant to
the terms of this Agreement (e.g. there shall be no consulting or other services
provided by any Seller to Harmony House). "E-Commerce Services" shall mean all
web site design and development, software development, e-commerce transaction
processing and all site hosting. In the event that (i) an exclusive services
contract between Harmony House Online and the Buyer for the provision of
E-Commerce Services to Harmony House Online (A) is not executed within a
reasonable time after the formation of Harmony House Online, or (B) is
terminated or (ii) any E-Commerce Services are provided to Harmony House Online
by a party other than the Buyer or its Affiliates, then the Sellers'
participation in any manner with Harmony House Online shall be discontinued (and
all Sellers shall immediately withdraw their interests or shall cause their
Affiliates to withdraw their interests in Harmony House Online) unless Buyer
agrees to allow continued participation of Sellers by its express written
consent.
(n) Employee Benefits.
(i) Immediately following the Closing Date, the
employees of Sigma6, during such time as their employment with
Buyer, Newco and/or their affiliates is continued, shall be eligible
to participate in Buyer's Employee Benefit Plans on the same terms
and conditions as similarly situated employees of the Buyer are
eligible to participate therein. Buyer shall cause Buyer's Benefit
Plans to recognize prior service of a Sigma6 employee with Sigma6 to
the extent recognized under the corresponding Seller Benefit Plans
prior to the Closing as service with Buyer and its affiliates for
purposes of (i) any Buyer Employee Benefit Plan that is not an
Employee Pension Benefit Plan for purposes of any waiting period and
eligibility requirements and (ii) any Buyer Benefit Plan that is an
Employee Pension
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Benefit Plan, for purposes of eligibility (including eligibility for
early retirement benefits) and vesting (but not benefit accrual)
thereunder.
(ii) Newco or Buyer shall, from and after the Closing
Date, provide continuation coverage under Part 6 of Subtitle B of
Title I of ERISA and Code Section 4980B for those covered employees
of Sigma6 with respect to whom, on or prior to the Closing Date, a
"qualifying event" (as defined in ERISA Section 603 and Code Section
4980B(f)(3)) has occurred, and shall meet all continuing obligations
thereunder.
7. Conditions to Obligations to Close.
(a) Conditions to Obligation of the Buyer. The obligation of
the Buyer to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction or waiver of the following
conditions:
(i) the representations and warranties set forth in
Section 3(a) and Section 4 above shall be true and correct in all
Material respects at and as of the Closing Date;
(ii) the Sellers shall have performed and complied with
all of their covenants hereunder in all Material respects through
the Closing;
(iii) Sigma6 will have procured all third party consents
and given all notices required in connection with this Agreement and
the transactions contemplated hereby, including without limitation
all action necessary in connection with and/or the receipt of any
notices to, filings with, and authorizations, consents and approvals
of governments, governmental agencies, and third parties as set
forth herein or in the Disclosure Schedule including any Filing
required under the Xxxx-Xxxxx-Xxxxxx Act;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction wherein
an unfavorable judgment, order, decree, stipulation, injunction, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of the Buyer to own,
operate, or control Sigma6 Shares or Sigma6 (and no such judgment,
order, decree, stipulation, injunction, or charge shall be in
effect);
(v) The Sellers and Sigma6 shall have delivered to the
Buyer a certificate (without qualification as to knowledge or
Materiality or otherwise) to the effect that each of the conditions
specified above in Section 7(a)(i)-(iv) is satisfied in all
respects;
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(vi) the acquisition by the Buyer of Sigma6 Shares shall
represent one hundred percent (100%) of the issued and outstanding
capital stock of Sigma6 and all of such Sigma6 Shares shall be free
and clear of any Security Interests or other liens, claims or
encumbrances of any nature whatsoever;
(vii) the Sellers shall have purchased any personal use
assets (e.g., automobiles) from Sigma6 at a purchase price equal to
the greater of (A) the net book value of such assets as of the
Closing or (B) the outstanding indebtedness (including, without
limitation all Funded Indebtedness) secured by such assets;
provided, however, that personal use assets under this paragraph
shall not include cellular telephones or pagers purchased by Sigma6
for use by its officers and employees;
(viii) the Buyer shall have received from Sellers an
executed Escrow Agreement in the form and substance set forth as
Exhibit A attached hereto;
(ix) the Buyer shall have received from each Seller an
executed joinder to the Stockholders Agreement in the form and
substance set forth as Exhibit C attached hereto;
(x) the Buyer and Sigma6 shall have received from each
of the Key Employees listed on Annex IV (the "Key Employees") an
executed employment agreement in the form and substance attached
hereto as Exhibit E; provided, however, the Buyer, in its sole
discretion, may add to or subtract from the list of those employees
it determines to be or not to be Key Employees on Annex IV and thus
the Buyer shall determine who shall deliver employment agreements in
the form of Exhibit E;
(xi) the Buyer shall have received from each Seller an
executed joinder to the Registration Agreement in the form and
substance set forth as Exhibit F attached hereto;
(xii) the Buyer shall have received the resignations,
effective as of the Closing, of each director of Sigma6 prior to the
Closing and the termination in full without liability of any
consulting or management agreements with Columbia Capital or its
Affiliates;
(xiii) the Buyer shall be satisfied that the Net Worth
of Sigma6 as of the Closing Date equaled or exceeded $200,000 or an
appropriate adjustment shall have been made to the Purchase Price as
provided in Section 2(j);
(xiv) the Buyer shall be satisfied that the Net Service
Revenues of Sigma6 during the fiscal year ending December 31, 1997
equaled or exceeded $1,400,000 and during the twelve month period
ended on the Stub Period End (such period being referred to as the
"Interim Period") equaled or exceeded $1,600,000;
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(xv) the Buyer shall be satisfied that the Adjusted
EBITDA of Sigma6 (A) during the fiscal year ended December 31, 1997
equaled or exceeded $300,000 or 21% of Net Service Revenues for such
fiscal year, and (B) during the Interim Period equaled or exceeded
$0;
(xvi) the Buyer shall be satisfied in its sole
discretion with the results of its continuing legal, financial and
business due diligence investigations of Sigma6, all of which shall
be final and completed to Buyer's satisfaction prior to Closing;
(xvii) no Material adverse change shall have occurred in
Sigma6's Business or its future prospects;
(xviii) Sellers shall have caused Sigma6 to cancel each
outstanding phantom stock, deferred bonus or option plan, if any,
and all outstanding Sigma6 Options shall have been canceled pursuant
to the Option Cancellation Agreement in the form of Exhibit H hereto
(individually, a "Option Cancellation Agreement" and collectively
the "Option Cancellation Agreements"), and the cost of such
cancellation, if any, shall be borne by Sellers or if such cost is
borne by Sigma6, such amount will reduce the Cash Portion of the
Purchase Price pursuant to Section 2(h);
(xix) Sellers shall have caused each party receiving
Buyer's Shares under this Agreement to execute an Equity
Subscription Agreement in the form of Exhibit D hereto;
(xx) all liens and Security Interests securing debts of
Sigma6 which have been paid in full prior to or at the Closing shall
have been fully released of record to the reasonable satisfaction of
the Buyer and all Uniform Commercial Code financing statements
covering such debts shall have been terminated;
(xxi) no unsatisfied liens for the failure to pay Taxes
of any nature whatsoever shall exist against Sigma6, or against or
in any way affecting any Sigma6 Share;
(xxii) the Sellers shall and Sigma6 shall have caused
all of Sigma6's stockholders, officers, directors and/or employees
to, have repaid in full all debts and other obligations, if any,
owed to Sigma6, and the Sellers shall have caused all Funded
Indebtedness to be paid off prior to the Closing Date;
(xxiii) the Buyer shall have received from Sigma6 the
Financial Statements;
(xxiv) all appropriate corporate and shareholder
authorizations of Sigma6 shall have been obtained;
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(xxv) since December 31, 1997, Sigma6 shall have made no
dividend, consulting or other payment to the Sellers, except as set
forth on Section 4(m) of the Disclosure Schedule and bonuses as set
forth on Section 4(m) of the Disclosure Schedule;
(xxvi) except as set forth on the Disclosure Schedule,
since December 31, 1997, Sigma6 shall not have transferred,
conveyed, disposed of and/or sold any of its Material assets, except
in the Ordinary Course of Business;
(xxvii) all Intellectual Property created or developed
by any Seller and any other current employee of Sigma6 that has been
used historically by Sigma6 or is being used currently by Sigma6
(other than "work for hire" which has been developed by Sigma6 for a
customer and continues to be used by Sigma6 in the performance of
continuing services for that customer) shall be one hundred percent
(100%) owned by Sigma6 as of the Closing Date;
(xxviii) the Buyer and Newco shall have received from
the Sellers and Sigma6 an opinion of counsel in the form and
substance set forth as Exhibit G hereto; and
(xxix) at least ninety-five percent (95%) of all
shareholders of Sigma6 shall have agreed to participate in the
Merger without any dissenter's rights exercised.
The Buyer may waive any condition specified in this Section 7(a) if
it executes a writing so stating at or prior to the Closing.
(b) Conditions to Obligations of the Sellers. The obligations
of the Sellers to consummate the transactions to be performed by them in
connection with the Closing is subject to satisfaction or waiver of the
following conditions:
(i) the representations and warranties set forth in
Section 3(b) above shall be true and correct in all Material
respects at and as of the Closing Date;
(ii) the Buyer shall have performed and complied with
all of its covenants hereunder in all Material respects through the
Closing;
(iii) Buyer will have procured all third party consents
needed by Buyer and given all notices required in connection with
this Agreement and the transactions contemplated hereby, including
without limitation all action necessary in connection with and/or
the receipt of any notices to, filings with, and authorizations,
consents and approvals of governments, governmental agencies, and
third parties as set forth herein or in the Disclosure Schedule
including any filing required under the Xxxx-Xxxxx-Xxxxxx Act;
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(iv) no action, suit or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction wherein
an unfavorable judgment, order, decree, stipulation, injunction, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement or (B) cause any of the transactions
contemplated by this Agreement to be rescinded following
consummation (and no such judgment, order, decree, stipulation,
injunction, or charge shall be in effect);
(v) the Buyer shall have delivered to the Sellers a
certificate (without qualification as to knowledge or Materiality or
otherwise) to the effect that each of the conditions specified above
in Section 7(b)(i)-(iii) is satisfied in all respects;
(vi) Sellers shall have received from the Buyer an
executed Escrow Agreement in the form and substance set forth as
Exhibit A attached hereto;
(vii) each Seller shall have received from the Buyer an
executed joinder to the Stockholders Agreement in the form and
substance set forth as Exhibit C attached hereto;
(viii) the Buyer shall execute and deliver an Equity
Subscription Agreement in the form of Exhibit D hereto, with each of
the Sellers acquiring Buyer Shares;
(ix) the Key Employees shall have received from the
Buyer an executed employment agreement, in the form and substance
attached hereto as Exhibit E; provided, however, the Buyer, in its
sole discretion, may add to or subtract from the list of those
employees it determines to be or not to be Key Employees on Annex IV
and thus the Buyer shall determine who shall receive employment
agreements in the form of Exhibit E;
(x) each Seller shall have received from the Buyer an
executed joinder to the Registration Agreement in the form and
substance set forth as Exhibit F attached hereto;
(xi) all actions to be taken by the Buyer in connection
with consummation of the transactions contemplated hereby will be
reasonably satisfactory in form and substance to the Sellers.
The Sellers' Representative may waive any condition specified in
this Section 7(b) if they execute a writing so stating at or prior to the
Closing.
8. Remedies for Breaches of This Agreement.
(a) Survival. All of the representations and warranties of the
Sellers contained in Section 4 above (other than the representations and
warranties of the Sellers contained
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in Section 4(h) above) shall survive the Closing hereunder (unless the Buyer
knew of any misrepresentation or breach of warranty at the time of the Closing
pursuant to a writing provided by Sigma6 or Seller) and continue in full force
and effect for a period of three (3) years thereafter. The other
representations, warranties, and covenants of the Parties contained in this
Agreement (including the representations and warranties of the Sellers contained
in Section 4(h) above) shall survive the Closing (unless the damaged Party knew
of any misrepresentation or breach of warranty or covenant pursuant to a writing
provided by the other Party at the time of the Closing) and continue in full
force and effect for the applicable statute of limitations period thereafter,
except as otherwise provided elsewhere in this Agreement.
(b) Indemnification Provisions for Benefit of the Buyer.
(i) In the event Sigma6 or the Sellers, as applicable,
breach any of their representations, warranties, agreements, and
covenants contained herein, (other than a breach by a Seller of
his/her individual representations and warranties, which are
addressed in Section (8)(b)(ii) below) and provided that the
particular representation, warranty, agreement, or covenant survives
the Closing and that the Buyer makes a written claim for
indemnification against the Sellers pursuant to Section 10(h) below
within the applicable survival period, then the Sellers agree to
jointly and severally indemnify the Buyer from and against the
entirety of any Adverse Consequences the Buyer may suffer through
and after the date of the claim for indemnification (including any
Adverse Consequences the Buyer may suffer after the end of the
applicable survival period resulting from, arising out of, relating
to, in the nature of, or caused by the breach; provided, however,
that the Sellers shall not have any obligation to indemnify the
Buyer from and against any Adverse Consequences resulting from,
arising out of, relating to, in the nature of, or caused by the
breach of any representation or warranty or covenant of Sellers in
this Agreement (i) until the Buyer has suffered aggregate losses by
reason of all such breaches in excess of a $15,000 threshold (at
which point the Sellers will be obligated to indemnify the Buyer
from and against all such aggregate indemnifiable losses relating
back to the first dollar) or (ii) in excess of the Purchase Price
(after which point Sellers shall have no obligation to indemnify
Buyer from and against further such Adverse Consequences); provided,
further, however, that the limitations set forth (a) in (i) and (ii)
above specifically shall not apply to the liability of Sellers with
respect to Adverse Consequences resulting from or attributable to
intentional fraud or any willful misconduct by the Sellers and (b)
in (i) above specifically shall not apply to the liability of
Sellers with respect to any breaches of the representations and
warranties contained in Section 4(g), Section 4(h) and Section 4(n)
hereof. Notwithstanding the foregoing, the liability of each Seller
shall, in all events, be limited to the portion of the Purchase
Price actually received by such Seller (other than the breach by a
Seller of his/her individual representations and warranties in
Section 3(a)).
(ii) In the event any Seller breaches any of its
representations and warranties, contained in Section 3(a) herein,
and provided that the particular
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representation, warranty, or covenant survives the Closing and that
the Buyer makes a written claim for indemnification against such
Seller pursuant to Section 10(h) below within the applicable
survival period, then, such Seller agrees to indemnify the Buyer
from and against the entirety of any Adverse Consequences the Buyer
may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Buyer may
suffer after the end of the applicable survival period) resulting
from, arising out of, relating to, in the nature of, or caused by
the breach.
(iii) The Sellers agree to indemnify the Buyer from and
against the entirety of any Adverse Consequences the Buyer may
suffer resulting from, arising out of, relating to, in the nature
of, or caused by any Liability of Sigma6 arising under
Reg.ss.1.1502-6 (because Sigma6 once was a member of an Affiliated
Group during any part of any consolidated return year within any
part of which consolidated return year any corporation other than
Sigma6 also was a member of the Affiliated Group). The Sellers agree
to indemnify the Buyer from and against the entirety of any transfer
Taxes which may become due and owing by reason of the transactions
contemplated by this Agreement.
(iv) The Sellers shall indemnify the Buyer from and
against the entirety of all Tax Liability created from and the
conversion by Sigma6 to the accrual basis of tax accounting from the
cash basis of tax accounting to the extent such Taxes are in excess
of the reserve, if any, for such Tax Liability used to determine the
Net Worth of Sigma6.
(v) The Sellers agree to indemnify the Buyer from and
against (A) the entirety of any brokerage fees or investment banking
commissions due by Sellers or Sigma6 by reason of the transactions
contemplated by this Agreement and (B) any Adverse Consequences the
Buyer may suffer resulting from, arising out of, relating to, in the
nature of, or caused by any Liability of Sigma6 (to the extent such
Liability is not otherwise included or reserved for on the balance
sheet of Sigma6 used to determine the Net Worth adjustment) incurred
in connection with (i) any obligation of Sigma6 to Agis Global
Internet Services ("Agis") in connection with any dispute between
Sigma6 and Agis which has not been completely resolved prior to the
Closing Date, (ii) any obligation of Sigma6 to Ameritech in
connection with disputed fees in existence as of the Closing Date,
(iii) the nonpayment of any license fees described on Section 4(g)
of the Disclosure Schedule, (iv) any portion of the receivable by
Cherub (as referenced in the Disclosure Schedule) which is not
collected by Sigma6, or (v) any payments made by Cortex or Buyer to
the Seller named Xxxx Xxxxxxxx in connection with the guarantee of
such Seller's automobile lease.
(vi) The Sellers agree to indemnify Buyer from and
against the entirety of any Adverse Consequences the Buyer or its
affiliates may suffer resulting from, arising out of, relating to,
in the nature of, or caused by any Liability
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related to Harmony House Online, except those Liabilities for which
Buyer would be liable in the Ordinary Course of Business and are
specifically assumed by Buyer (or its affiliates) under contracts to
provide E-Commerce Services to Harmony House Online.
(vii) The Parties shall make appropriate adjustments for
tax benefits in determining the liability of the Sellers under this
Section 8.
(c) Matters Involving Third Parties. If any third party shall
notify any Party (the "Indemnified Party") with respect to any matter which may
give rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this Section 8, then the Indemnified Party shall
notify in writing each Indemnifying Party thereof promptly, which notice shall
describe the matter in reasonable detail, including relevant evidence and
estimated loss; provided, however, that no delay on the part of the Indemnified
Party in notifying any Indemnifying Party shall relieve the Indemnifying Party
from any liability or obligation hereunder unless (and then solely to the
extent) the Indemnifying Party thereby is damaged and materially prejudiced from
adequately defending such claim. In the event any Indemnifying Party notifies
the Indemnified Party within thirty (30) days after the Indemnified Party has
given notice of the matter that the Indemnifying party is assuming the defense
thereof, (A) the Indemnifying Party will defend the Indemnified Party against
the matter with counsel of its choice reasonably satisfactory to the Indemnified
Party, (B) the Indemnified Party may retain separate co-counsel at its sole cost
and expense (except that the Indemnifying Party will be responsible for the fees
and expenses of the separate co-counsel to the extent the Indemnified Party
reasonably concludes that the counsel the Indemnifying Party has selected has a
conflict of interest), (C) the Indemnified Party will not consent to the entry
of any judgment or enter into any settlement or compromise with respect to the
matter without the written consent of the Indemnifying Party (not to be withheld
unreasonably), and (D) the Indemnifying Party will not consent to the entry of
any judgment with respect to the matter, or enter into any settlement or
compromise which does not include a provision whereby the plaintiff or claimant
in the matter releases the Indemnified Party from all Liability with respect
thereto, without the written consent of the Indemnified Party (not to be
withheld unreasonably). In the event no Indemnifying Party notifies in writing
the Indemnified Party within thirty (30) days after the Indemnified Party has
given notice of the matter that the Indemnifying Party is assuming the defense
thereof, however, the Indemnified Party may defend against, or enter into any
settlement with respect to, the matter in any manner it reasonably may deem
appropriate. At any time after commencement of any such action, any Indemnifying
Party may request an Indemnified Party to accept a bona fide offer from the
other Party(ies) to the action for a monetary settlement payable solely by such
Indemnifying Party (which does not burden or restrict the Indemnified Party nor
otherwise prejudice him or her) whereupon such action shall be taken unless the
Indemnified Party determines that the dispute should be continued, the
Indemnifying Party shall be liable for indemnity hereunder only to the extent of
the lesser of (i) the amount of the settlement offer or (ii) the amount for
which the Indemnified Party may be liable with respect to such action. In
addition, the Party controlling the defense of any third party claim shall
deliver, or cause to be delivered, to the other Party copies of all
correspondence, pleadings, motions, briefs, appeals or other written statements
relating to or submitted in connection with the defense of the third party
claim, and
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timely notices of, and the right to participate in (as an observer) any hearing
or other court proceeding relating to the third party claim.
(d) Exclusive Remedy. The Parties acknowledge and agree that
the foregoing indemnification provisions in this Section 8 shall be the
exclusive monetary remedy of the Parties for any breach of the representations,
warranties and covenants of the Parties contained in this Agreement.
(e) Payment; General Right of Offset. The Indemnifying Parties
shall promptly pay to the Indemnified Party in cash the amount of any Adverse
Consequences to which such Indemnified Party becomes entitled by reason of the
provisions of Section 2 or Section 8 of this Agreement. Notwithstanding the
foregoing, in connection with the indemnification of Buyer pursuant to Section
8(b)(i), Section 8(b)(iii), Section 8(b)(iv) or Section 8(b)(v), (i) Buyer shall
have the option (at Buyer's sole discretion) to first seek indemnification
payments through offset against the Escrow Sum after an indemnification claim
has been made therefor, for the amount of any Adverse Consequences or any other
payments to which Buyer becomes entitled by reason of the provisions of this
Agreement and (ii) any one or more of the Sellers shall have the option to
satisfy such Seller's obligation to the Buyer under Section 8(b) by surrendering
to Buyer that portion of the Stock Portion of the Purchase Price required to
fund that obligation (with such surrendered Stock valued at the lesser of (A)
such Stock's then-current fair market value or (B) the value stated in Section
2(h)). Furthermore, and in lieu of receiving a cash payment from the Sellers,
Buyer, in its sole discretion, may after the first anniversary of the Closing
Date elect to offset against any Earned Payout Amount payable to Sellers, after
an indemnification claim has been made therefor, the amount of any Adverse
Consequences or any other payments to which Buyer may become entitled to by
reason of the provisions of this Agreement. In the event that Buyer offsets more
than the amount of any Adverse Consequences (as finally determined), Buyer shall
be responsible to Sellers for such sums which should not have been subject to an
offset, together with interest at the prime rate of Bank Boston, N.A.
(f) Other Indemnification Provisions. Subject in all events to
the time limitations set forth in Section 8(a) and the monetary and other
limitations in Section 8(b) and 8(c), the foregoing indemnification provisions
are in addition to, and not in derogation of, any statutory or common law remedy
any Party may have for breach of representation, warranty, or covenant.
(g) Arbitration with Respect to Certain Indemnification
Matters. THE PARTIES AGREE TO SUBMIT TO ARBITRATION, IN ACCORDANCE WITH THESE
PROVISIONS, ANY DISPUTED CLAIM OR CONTROVERSY ARISING FROM OR RELATED TO THE
ALLEGED BREACH OF THIS AGREEMENT OR ANY DISPUTED INDEMNIFICATION CLAIM MADE
PURSUANT TO THIS SECTION 8. THE PARTIES FURTHER AGREE THAT THE ARBITRATION
PROCESS AGREED UPON HEREIN SHALL BE THE EXCLUSIVE MEANS FOR RESOLVING ALL
DISPUTES MADE SUBJECT TO ARBITRATION HEREIN, BUT THAT NO ARBITRATOR SHALL HAVE
AUTHORITY TO EXPAND THE SCOPE OF THESE ARBITRATION PROVISIONS. ANY ARBITRATION
HEREUNDER SHALL BE CONDUCTED UNDER THE COMMERCIAL ARBITRATION RULES OF THE
AMERICAN ARBITRATION ASSOCIATION (AAA). EITHER PARTY MAY INVOKE ARBITRATION
PROCEDURES
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HEREIN BY WRITTEN NOTICE FOR ARBITRATION CONTAINING A STATEMENT OF THE MATTER TO
BE ARBITRATED. THE PARTIES SHALL THEN HAVE FOURTEEN (14) DAYS IN WHICH THEY MAY
IDENTIFY A MUTUALLY AGREEABLE, NEUTRAL ARBITRATOR. AFTER THE FOURTEEN (14) DAY
PERIOD HAS EXPIRED, THE PARTIES SHALL PREPARE AND SUBMIT TO THE AAA A JOINT
SUBMISSION, WITH EACH PARTY TO CONTRIBUTE HALF OF THE APPROPRIATE ADMINISTRATIVE
FEE. IN THE EVENT THE PARTIES CANNOT AGREE UPON A NEUTRAL ARBITRATOR WITHIN
FOURTEEN (14) DAYS AFTER WRITTEN NOTICE FOR ARBITRATION IS RECEIVED, THEIR JOINT
SUBMISSION TO THE AAA SHALL REQUEST ARBITRATORS WHO ARE PRACTICING ATTORNEYS
WITH PROFESSIONAL EXPERIENCE IN THE FIELD OF CORPORATE LAW, AND THE PARTIES
SHALL ATTEMPT TO SELECT AN ARBITRATOR FROM THE PANEL ACCORDING TO AAA
PROCEDURES. UNLESS OTHERWISE AGREED BY THE PARTIES, THE ARBITRATION HEARING
SHALL TAKE PLACE IN THE WASHINGTON, D.C. METROPOLITAN AREA, AT A PLACE
DESIGNATED BY THE AAA. ALL ARBITRATION PROCEDURES HEREUNDER SHALL BE
CONFIDENTIAL. EACH PARTY SHALL BE RESPONSIBLE FOR ITS COSTS INCURRED IN ANY
ARBITRATION, AND THE ARBITRATOR SHALL NOT HAVE AUTHORITY TO INCLUDE ALL OR ANY
PORTION OF SAID COSTS IN AN AWARD REGARDLESS OF WHICH PARTY PREVAILS. THE
ARBITRATOR MAY INCLUDE EQUITABLE RELIEF. ANY ARBITRATION AWARDED SHALL BE
ACCOMPANIED BY A WRITTEN STATEMENT CONTAINING A SUMMARY OF THE ISSUES IN
CONTROVERSY, A DESCRIPTION OF THE AWARD, AND AN EXPLANATION OF THE REASONS FOR
THE AWARD.
9. Termination.
(a) Termination of Agreement. The Parties may terminate this
Agreement as provided below:
(i) the Buyer and the Sellers may terminate this
Agreement by mutual written consent at any time prior to the
Closing;
(ii) the Buyer may terminate this Agreement by giving
written notice to the Sellers at any time prior to the Closing in
the event the Sellers are in breach of any representation, warranty,
or covenant contained in this Agreement in any Material respect and
such breach has not been cured within ten (10) days of written
notice thereof, and the Sellers may terminate this Agreement by
giving written notice to the Buyer at any time prior to the Closing
in the event the Buyer is in breach of any representation, warranty,
or covenant contained in this Agreement in any Material respect and
such breach has not been cured within ten (10) days of written
notice thereof;
(iii) the Buyer may terminate this Agreement by giving
written notice to the Sellers at any time prior to the Closing if
the Closing shall not have occurred on or before March 5, 1999 by
reason of the failure of any condition precedent under Section 7(a)
hereof (unless the failure results primarily from the Buyer itself
breaching any representation, warranty, or covenant contained in
this Agreement); or
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(iv) the Sellers may terminate this Agreement by giving
written notice to the Buyer at any time prior to the Closing if the
Closing shall not have occurred on or before March 5, 1999 by reason
of the failure of any condition precedent under Section 7(b) hereof
(unless the failure results primarily from the Sellers himself or
itself breaching any representation, warranty, or covenant contained
in this Agreement).
Nothing contained in this Section 9(a) shall alter, affect, modify
or restrict any Parties' rights to rely on and/or seek indemnification for a
breach of any of the representations and warranties and/or conditions or
covenants of any of the Parties contained in this Agreement.
(b) Effect of Termination. If either Buyer or Sellers
terminate this Agreement pursuant to Section 9(a) above, all obligations of the
Parties hereunder shall terminate without any Liability of any Party to any
other Party.
10. Miscellaneous
(a) [Reserved]
(b) Press Releases and Announcements. Except as may be
required by applicable securities laws or stock exchange requirements, no Party
shall issue any press release or public announcement relating to the subject
matter of this Agreement prior to, at or about the Closing without the prior
written approval of the Buyer and the Sellers, which written approval will not
be unreasonably withheld; provided, however, that any Party may make any public
disclosure it believes in good faith is required by law or regulation (in which
case the disclosing Party will advise the other Parties prior to making the
disclosure).
(c) No Third-Party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any person other than the Parties and their
respective successors and permitted assigns.
(d) Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, that may have related in any way to the subject
matter hereof; provided, however, that unless and until the consummation of the
purchase and sale transaction contemplated hereunder occurs, the Confidentiality
Agreement shall remain in full force and effect.
(e) Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of his, her or its rights, interests, or obligations hereunder without the
prior written approval of the Buyer and the Sellers; provided, however, that the
Buyer or Newco may assign (i) any or all of its rights and interests hereunder
to a wholly-owned Subsidiary of Buyer (in any or all of which cases the Buyer
and Newco nonetheless shall remain liable and responsible for the performance of
all of its respective
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obligations hereunder) or (ii) any or all of its rights under Section 8 of the
Agreement to any lender providing debt financing to the Buyer or its Affiliates.
(f) Facsimile/Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument. A facsimile,
telecopy or other reproduction of this Agreement may be executed by one or more
parties hereto, and an executed copy of this Agreement may be delivered by one
or more parties hereto by facsimile or similar instantaneous electronic
transmission device pursuant to which the signature of or on behalf of such
party can be seen, and such execution and delivery shall be considered valid,
binding and effective for all purposes. At the request of any Party hereto, all
parties hereto agree to execute an original of this Agreement as well as any
facsimile, telecopy or other reproduction hereof.
(g) Descriptive Headings. The descriptive section headings
contained in this Agreement are inserted for convenience or reference only and
shall not control or affect in any way the meaning, interpretation, or
construction of any of the provisions of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to Sigma6 or the Sellers:
Xx. Xxxxxxx Xxxx, President
Sigma6, Inc.
0000 Xxxxxxxx Xxxxxx Xxxxx 000
Xxxxxxx, Xxxxxxxx 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
with a copy to:
Couzens, Lansky, Fealk, Ellis, Xxxxxx & Xxxxx, P.C.
00000 Xxxx 00 Xxxx Xxxx, Xxxxx 000
X.X. Xxx 0000
Xxxxxxxxxx Xxxxx, Xxxxxxxx 00000-0000
Attention: Xxxxxx X. Xxxxxx
Tel: 000-000-0000
Fax 000-000-0000
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If to the Buyer:
AppNet Systems, Inc.
0000 Xxxxxxxxx Xxxx., Xxxxx 0000
Xxxxxxxx, XX 00000
Attn: Xxxx Xxxxxxxxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
with a copy to:
Xxxxx & Xxxxxxx L.L.P.
000 Xxxxxxxxxx Xxxxxx, XX
Xxxxxxxxxx, X.X. 00000
Attn: Xxxxxxxxxxx X. Xxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
Any Party may give any notice, request, demand, claim, or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail, or
electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any Party may
change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other parties notice
in the manner herein set forth.
(i) Governing Law. ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY AND INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN WITHOUT GIVING EFFECT TO
ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF
MICHIGAN OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS
OF ANY JURISDICTION OTHER THAN THE STATE OF MICHIGAN.
(j) Amendments and Waivers. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
the Buyer and the Sellers. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(k) Severability. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction. If the final judgment
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of a court of competent jurisdiction declares that any term or provision hereof
is invalid or unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the power to reduce
the scope, duration, or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed.
(l) Expenses. Each of the Parties and Sigma6 will bear his,
her or its own costs and expenses (including legal fees and expenses and
investment banking fees) incurred in connection with this Agreement and the
transactions contemplated hereby. Buyer and Sellers agree that Sigma6's expenses
shall be included as Funded Indebtedness. The Sellers acknowledge and agree that
Sigma6 has not borne or will bear any of the Sellers' costs and expenses
(including any of its legal fees and expenses and investment banking fees) in
connection with this Agreement or any of the transactions contemplated hereby.
(m) Construction. The language used in this Agreement will be
deemed to be the language chosen by the Parties to express their mutual intent,
and no rule of strict construction shall be applied against any Party. Any
reference to any federal, state, local, or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise. The Parties intend that each representation,
warranty, and covenant contained herein shall have independent significance. If
any Party has breached any representation, warranty, or covenant relating to the
same subject matter as any other representation, warranty or covenant
(regardless of the relative levels of specificity) which the Party has not
breached, it shall not detract from or mitigate the fact that the Party is in
breach of the first representation, warranty, or covenant.
(n) Incorporation of Exhibits, Annexes, and Schedules. The
Exhibits, Annexes, and Schedules identified in this Agreement are incorporated
herein by reference and made a part hereof.
(o) Specific Performance. Each of the Parties acknowledges and
agrees that the other Parties would be damaged irreparably in the event any of
the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter, in addition to any other remedy to
which they may be entitled, at law or in equity.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement
as of the date first above written.
BUYER:
APPNET SYSTEMS, INC.
By: /s/ Xxxx Tobaccawala
-------------------------------------
Name: Xxxx Tobaccawala
--------------------------------
Title: Senior Vice President
-------------------------------
NEWCO:
APPNET SIGMA6, INC.
By: /s/ Xxxx Tobaccawala
-------------------------------------
Name: Xxxx Tobaccawala
--------------------------------
Title: Senior Vice President
-------------------------------
Sigma6:
SIGMA6, INC.
By: /s/ Xxxxxxx Xxxx
-------------------------------------
Name: Xxxxxxx Xxxx
Title: President
[SIGNATURES CONTINUED ON NEXT PAGE]
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SELLERS:
/s/ Xxxxxxx Xxxx
---------------------------------------
Xxxxxxx Xxxx
/s/ Xxxxxxx Xxxxxxx III
---------------------------------------
Xxxxxxx Xxxxxxx III
/s/ Xxxxxxx Xxxxxxx
---------------------------------------
Xxxxxxx Xxxxxxx
/s/ Xxxx Xxxxxxxx
---------------------------------------
Xxxx Xxxxxxxx
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