EXHIBIT 1
SHARE PURCHASE AGREEMENT
This Share Purchase Agreement is made and entered into on May 14, 2001
(this "AGREEMENT"), among Seneca Investments LLC, a Delaware limited liability
company ("PARENT"), E-Services Investments Agency Sub LLC, a Delaware limited
liability company and a wholly owned subsidiary of Parent ("PURCHASER"), and the
Persons designated as Stockholders on the signature pages hereto (collectively,
the "STOCKHOLDERS").
RECITALS
A. The Stockholders desire to sell to Purchaser, and Purchaser desires
to purchase and accept from the Stockholders, all of the shares of common stock
of XXXXXX.XXX Ltd. a Delaware corporation (the "COMPANY"), owned by the
Stockholders (collectively, the "PURCHASED SHARES") on the terms and subject to
the conditions of this Agreement; and
B. Parent, Purchaser and the Stockholders desire that the foregoing
transaction be completed on such terms and subject to such conditions and wish
to make certain representations, warranties and covenants in connection
therewith.
NOW, THEREFORE, the parties hereto agree as follows:
I. PURCHASE AND SALE OF THE PURCHASED SHARES
1.1. PURCHASE AND SALE. On the terms and subject to the conditions of
this Agreement, at the Closing, each Stockholder will sell, assign, transfer and
deliver to Purchaser, and Purchaser will purchase and accept from each
Stockholder, that number of Purchased Shares set forth opposite such
Stockholder's name on SCHEDULE 1.1. All certificates representing the Purchased
Shares being sold by a Stockholder will be duly endorsed by such Stockholder,
with all necessary transfer tax stamps acquired at such Stockholder's expense
affixed.
1.2. PURCHASE PRICE. Parent will cause Purchaser to pay to the
Stockholders in accordance with the percentages set forth on SCHEDULE 1.1 the
purchase price (the "PURCHASE PRICE") for the Purchased Shares to be purchased
and sold at the Closing, calculated and paid as follows:
(a) CLOSING PAYMENT. At the Closing, an amount equal to the product of
(i) $10.0 million and (ii) a fraction, the numerator of which is the aggregate
number of Purchased Shares as of the Closing Date (after giving effect to any
amendments to this Agreement contemplated by the last sentence of Section 6.6)
and the denominator of which is 10,600,000 (the aggregate amount of such
payment, "CP").
(b) FIRST INTERIM PAYMENT AND DIVIDEND PARTICIPATION. Within ten
calendar days after the date of consummation of a Transaction (the "TRANSACTION
CLOSING"), if
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applicable, a first interim payment in an amount equal to (such amount, the
"TRANSACTION FIP") (i) the product of (A) $5.0 million and (B) a fraction, the
numerator of which is the aggregate number of Purchased Shares as of the Closing
Date (after giving effect to any amendments to this Agreement contemplated by
the last sentence of Section 6.6) and the denominator of which is 10,600,000),
less (ii) the amount of any payment to Stockholders pursuant to the next
sentence. During the period ending on the earlier of Transaction Closing and the
24-month anniversary of the Closing Date, within ten calendar days after the
payment by the Company of any cash dividend in respect of its common stock, an
amount equal to the Relevant % of each such cash dividend, such amount(s) not to
exceed in the aggregate the Transaction FIP. (The amounts payable under the two
preceding sentences are referred to herein as "FIP".) Without limiting the
generality or effect of any other provision hereof, each Stockholder
acknowledges that, while Parent has submitted to the Company a proposal for a
Transaction substantially simultaneously herewith (the "5-14-01 PROPOSAL"), and
as of the time of execution of this Agreement Parent has a good faith intention
to pursue the 5-14-01 Proposal, Parent and Purchaser do not have the right to
effect a Transaction and will have no liability to any Stockholder if they do
not do so.
(c) SECOND INTERIM PAYMENT. Within ten calendar days after the Annual
Determination for calendar year 2002 and any adjustments thereto have become
binding on the parties as herein provided, a second interim payment in an amount
equal to 100% of 2002 PBT ("SIP").
(d) THIRD INTERIM PAYMENT. Within ten calendar days after the Annual
Determination for calendar year 2003 and any adjustments thereto have become
binding on the parties as herein provided, a third interim payment in an amount
equal to 50% of 2003 PBT ("TIP").
(e) FOURTH INTERIM PAYMENT. Within ten calendar days after the Annual
Determination for the calendar year 2004 and any adjustments thereto have become
binding on the parties as herein provided, a fourth interim payment ("IP-4") in
an amount calculated as follows:
IP-4 = RELEVANT % X 2003 NET INCOME + 2004 NET INCOME X 12
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MINUS (CP + SIP + TIP)
Notwithstanding the foregoing, in no event will IP-4 be less than the product of
(i) $5.0 million and (ii) a fraction, the numerator of which is the aggregate
number of Purchased Shares as of the Closing Date (after giving effect to any
amendments to this Agreement contemplated by the last sentence of Section 6.6)
and the denominator of which is 10,600,000), if 2004 Net Income is more than
$16.0 million.
(f) FIFTH INTERIM PAYMENT. Within ten calendar days after the Annual
Determination for the calendar year 2005 and any adjustments thereto have become
binding on the parties as herein provided, a fifth interim payment ("IP-5") in
an amount calculated as follows:
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IP-5 = RELEVANT % X 2003 NET INCOME + 2004 NET INCOME + 2005 NET INCOME X 12
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MINUS (CP + SIP + TIP + IP-4)
(g) SIXTH INTERIM PAYMENT. Within ten calendar days after the Annual
Determination for the calendar year 2006 and any adjustments thereto have become
binding on the parties as herein provided, a sixth interim payment ("IP-6") in
an amount calculated as follows:
IP-6 = RELEVANT % X 2003 NET INCOME + 2004 NET INCOME + 2005 NET
INCOME + 2006 NET INCOME X M
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MINUS (CP + SIP + TIP + IP-4 + IP-5)
(h) NON-REFUNDABILITY OF INTERIM PAYMENTS. Any payments made to the
Stockholders pursuant to SECTIONS 1.2(A), (B), (C), (D), (E), (F) or (G) will be
nonrefundable and, to the extent SIP, TIP, IP-4, IP-5 or IP-6 are negative
numbers, no amounts are required to be paid by any party under this Agreement
with respect to such payment.
1.3. CERTAIN DEFINITIONS. For purposes of this Agreement, the following
terms will have the meanings indicated below:
(a) The term "NET INCOME" means PBT after provision for federal, state
and local income taxes for such period determined in accordance with GAAP.
(b) The term "PBT" means the consolidated net income (loss) of the
Company before provision for federal, state and local income taxes for such
period, determined in accordance with United States generally accepted
accounting principles consistently applied ("GAAP"), provided that the following
specific rules and adjustments will apply whether or not those rules are
consistent with GAAP (except as specifically stated below) for purposes of
calculating any amount contemplated hereby to be determined by reference to a
financial statement:
(i) neither the proceeds from nor any dividends or refunds
with respect to, nor any increases or decreases in the cash surrender
value of, any life insurance policy under which Purchaser or any
subsidiary thereof is the named beneficiary or otherwise entitled to
recovery will be included as income or revenue, or expense or loss, as
the case may be;
(ii) extraordinary or unusual gains or losses and gains or
losses from the sale of any capital assets will be excluded;
(iii) notwithstanding SECTION 1.3(B)(II), any write-downs or
reserves against assets or liabilities of the Company or any of its
subsidiaries in accordance with GAAP, including without limitation
accounts receivable reserves or write-offs, will be treated as an
expense, except to the extent of Purchase Accounting Reserves
specifically related thereto and except that restructuring charges
recorded or reserves established by the Company prior to the Closing or
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the Transaction Closing will be excluded to the extent of Purchase
Accounting Reserves specifically related thereto;
(iv) the utilization or reversal of Purchase Accounting
Reserves, in each case to the extent consistent with GAAP and
specifically relating to an event or circumstance for which they were
established, will be permitted;
(v) investment income will be excluded and interest income and
expenses will be included, provided, however, that following the
Transaction Closing, (A) whether or not the Company declares or pays
dividends or other distributions to its stockholders (and regardless of
the amount of any such distribution), in all events any interest income
or expense will be calculated as if the Company distributed to its
stockholders on January 1st of each year after 2003 80% of its Net
Income for the immediately preceding year, and (B) interest income or
expense will be calculated as though the Company had an opening balance
of $20.0 million in cash on the date following the Transaction Closing
regardless of the actual amount thereof (and the Company interest
expense and interest income calculations for any period ending after
the Transaction Closing will be adjusted on a pro forma basis to
reflect such $20 million amount as the opening balance on the date
following the Transaction Closing);
(vi) any costs or expenses incurred in preparing or contesting
any Annual Determination will not be treated as an expense; provided,
however, that such preparation costs will only be excluded to the
extent they are not part of Purchaser's normal audit expense;
(vii) the income, expenses, assets and liabilities of any
subsidiary of Purchaser whose results of operations are required to be
consolidated with that of Purchaser under GAAP will be included only in
proportion to Purchaser's direct or indirect ownership in such
subsidiary;
(viii) intercompany management fees, if any, charged by and
dividends paid to Parent or any Affiliate of Parent or to Purchaser and
its subsidiaries will not be treated as an expense;
(ix) charges for services rendered or provided to Purchaser or
any subsidiary thereof by Parent, or one of its Affiliates (each, a
"PARENT COMPANY") and agreed to by Parent and the Stockholder
Representative (other than services covered by SECTION 1.3(B)(VIII)),
or for expenses incurred for insurance and other items purchased on a
group basis, in any such case on substantially the same basis as all
other Parent Companies that are covered thereby, will be treated as
expenses, provided that such charges have written approval of the
Stockholder Representative;
(x) goodwill recorded by Parent or Purchaser, including the
related amortization or impairment and including any amounts that will
be pushed down
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to the Company or any of its subsidiaries, arising out of the
transactions contemplated hereby or the Transaction will be excluded;
(xi) treatment of income, goodwill and acquisition costs,
including financing expenses, arising out of the acquisition of any
company or line of business from or proposed by Parent or Purchaser
will be as agreed to by Parent and the Stockholder Representative;
(xii) except for tax benefits arising from net operating
losses incurred after the Closing Date and to the extent such losses
are actually used to reduce taxes of the Company during the Measuring
Period, tax benefits from net operating losses will be excluded;
(xiii) incremental expenses incurred by the Company to comply
with its obligations under the Securities and Exchange Act of 1934 or
rules of the NASDAQ, or other incremental costs to the extent arising
out of the Company's status as a public company plus up to $200,000 of
incremental internal costs specifically related thereto, will be
excluded; and
(xiv) Indemnifiable Losses of a Purchaser Indemnified Party
which give rise to an indemnity payment pursuant to the indemnification
provisions of Section 5.3 (and ignoring for purposes of this clause
(xiv) the limits set forth in Section 5.2(b)) and which are assumed by
the Stockholders or as to which the Purchaser Indemnified Parties have
been reimbursed (by offset or otherwise), will not be treated as an
expense, and any amount received by any Purchaser Indemnified Party
pursuant thereto will be excluded from the calculation of PBT.
(c) "PURCHASE ACCOUNTING RESERVES" means reserves established by Parent
or Purchaser in accordance with GAAP in connection with the Transaction or the
transactions contemplated hereby.
(d) "M" equals 10 if the Average PBT Margin is less than 12% and 12 if
the Average PBT Margin is 12% or higher.
(e) "AVERAGE PBT MARGIN" equals PBT for the Relevant Period divided by
consolidated Revenues for the Relevant Period; the "RELEVANT PERIOD" means the
years used in calculating IP-6. For purposes of this Agreement, the Average PBT
Margin will be rounded up or down, as the case may be, to the nearest one-tenth
of one percent.
(f) "MEASURING PERIOD" means the calendar year or years included in the
applicable Purchase Price calculation under SECTION 1.2 and, for this purpose,
"2002" means the 12 months ended December 31, 2002, "2003" means the 12 months
ended December 31, 2003, "2004" means the 12 months ended December 31, 2004,
"2005" means the 12 months ended December 31, 2005 and "2006" means the 12
months ended December 31, 2006.
(g) "REVENUES" during each relevant period means revenues reflected on
the consolidated income statement of the Company for that period prepared in
accordance
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with GAAP, as adjusted in accordance with the applicable rules of SECTION 1.3(B)
and finally determined pursuant to SECTION 1.4.
(h) "RELEVANT %" means the quotient obtained by dividing the number of
Purchased Shares (after giving effect to any amendments to this Agreement
contemplated by the last sentence of Section 6.6) by the number of outstanding
shares of common stock of the Company outstanding as of the Closing Date plus
any shares of common stock of the Company issuable pursuant to warrants less
shares of common stock of the Company issued pursuant to exercise of options
outstanding as of March 31, 2001.
(i) "TRANSACTION" means any merger, consolidation or other form of
business acquisition or combination transaction pursuant to which the Company
becomes a direct or indirect wholly owned subsidiary of Parent.
(j) "STOCKHOLDER REPRESENTATIVE" means Xxxx Xxx or, if Xxxx Xxx dies,
becomes legally disabled or is unwilling so to serve, Xxx Xxxxx or, if Xxx Xxxxx
dies, becomes legally disabled or is unwilling so to serve, an individual
selected by a majority in interest of the Stockholders.
1.4. ACCOUNTING PROCEDURES. (a) The parties will use their respective
reasonable best efforts to cause Xxxxxx Xxxxxxxx & Co. or another nationally
recognized independent accounting firm acceptable to Parent and the Stockholders
Representative (the "ACCOUNTANTS"), as soon as practicable after the end of each
of 2002 through 2006, but in any event not later than April 30th of the
following year, to prepare in accordance with GAAP a report containing an
audited consolidated balance sheet of the Company as of the close of business on
December 31st of each such fiscal year, and a related audited consolidated
statement of income of the Company for the 12 months then ended, in each case
together with a statement of the Accountants that states that such report was
prepared in accordance with this Agreement and sets forth the PBT, Net Income
and Average PBT Margin for the period under examination and all adjustments
required to be made to such audited financial statements in order to make the
calculations required under SECTIONS 1.2 AND 1.3 (the "ANNUAL DETERMINATION").
All such determinations will be in accordance with the applicable provisions of
this Agreement.
(b) If Purchaser or the Stockholder Representative does not agree that
an Annual Determination correctly states the applicable PBT, Net Income or
Average PBT Margin, the disputing party will promptly (but not later than 45
calendar days after the delivery of such Annual Determination) give written
notice to the other of its exceptions thereto (in reasonable detail describing
the nature of the disagreement asserted). If Purchaser and the Stockholder
Representative reconcile their differences, the Annual Determination will be
adjusted accordingly and will thereupon become binding, final and conclusive on
all of the parties hereto. If Purchaser and the Stockholder Representative are
unable to reconcile their differences in writing within 20 calendar days after
written notice of exceptions is delivered to the other (the "ANNUAL
DETERMINATION RECONCILIATION PERIOD"), the items in dispute will be submitted to
a mutually acceptable nationally
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recognized accounting firm (the "INDEPENDENT AUDITORS") in the United States
other than the Accountants for final determination and the Annual Determination
will be deemed adjusted in accordance with the determination of the Independent
Auditors and will become binding, final and conclusive on all of the parties
hereto. The Independent Auditors may consider only the items in dispute and will
be instructed by Purchaser and the Stockholder Representative to act within 45
calendar days (or such longer period as Purchaser and the Stockholder
Representative may agree) to resolve all items in dispute. If Purchaser and the
Stockholder Representative do not give notice of any exception within 45
calendar days after the delivery of an Annual Determination or if Purchaser and
the Stockholder Representative give written notification of their acceptance of
an Annual Determination prior to the end of such 45-day period, such Annual
Determination will thereupon become binding, final and conclusive on all the
parties hereto.
(c) In the event the Independent Auditors are for any reason unable or
unwilling to perform the services required of them under this SECTION 1.4, then
Purchaser and the Stockholder Representative will select another nationally
recognized accounting firm in the United States other than such firm or the
Accountants to perform the services to be performed under this SECTION 1.4 by
the Independent Auditors. If Purchaser and the Stockholder Representative fail
to select the Independent Auditors as so required within seven calendar days
after the expiration of the applicable Reconciliation Period or fail to select
another accounting firm within seven calendar days after it is determined that
the Independent Auditors will not perform the services required, either of
Purchaser or the Stockholder Representative may request the American Arbitration
Association in New York, New York (the "AAA") to appoint an independent firm of
certified public accountants to perform the services required under this SECTION
1.4 by the Independent Auditors. For purposes of this SECTION 1.4, the term
"Independent Auditors" includes such other accounting firm chosen in accordance
with the foregoing provisions.
(d) Except as provided in SECTION 1.4(E), one-half of the fees and
expenses of the Independent Auditors and the fees of the AAA will be paid by
Purchaser and one-half of such fees and expenses will be paid by the Stockholder
Representative on behalf of the Stockholders.
(e) The Independent Auditors must determine the party (I.E., Purchaser
or the Stockholder Representative) whose asserted position as to the calculation
of PBT, PBT Margin or Net Income for the period under examination is furthest
from the determination by the Independent Auditors. If Purchaser is the
non-prevailing party and its asserted position was lower by 10% or more (based
on the effect on the total amount of payments at issue) than the determination
made by the Independent Auditors, Purchaser will pay all of the fees and
expenses of the Independent Auditors and the AAA and will reimburse the
Stockholder Representative for its costs and expenses incurred in connection
with this SECTION 1.4. If the Stockholder Representative is the non-prevailing
party and his asserted position was higher by 10% or more (based on the effect
on the total amount of payments at issue) than the determination made by the
Independent Auditors, the Stockholder Representative will pay all of the fees
and expenses of the Independent Auditors and the AAA and will reimburse
Purchaser for its costs and expenses incurred in connection with this SECTION
1.4.
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1.5. EXAMINATION OF BOOKS AND RECORDS. The parties will use their
respective reasonable best efforts to make available to all parties during
normal business hours upon reasonable advance notice all books and records,
including accountants' work papers, relevant to the calculations required under
SECTION 1.3.
1.6. PAYMENT OF THE PURCHASE PRICE. Payment of each component of the
Purchase Price will be made by Purchaser by wire transfer of immediately
available funds in accordance with SECTION 1.2. Each of the Purchase Price
payments set forth in SECTIONS 1.2(B), (C), (D), (E), (F) and (G) will be deemed
to include imputed interest, to the extent required by the Internal Revenue Code
of 1986, as amended (the "CODE").
II. REPRESENTATIONS AND WARRANTIES
2.1. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each
Stockholder severally and not jointly hereby represents and warrants to Parent
and Purchaser as follows (except that each Stockholder represents and warrants
in Sections 2.1.1, 2.1.2, 2.1.3, 2.1.4, 2.1.5 and 2.1.6 only as to itself,
himself or herself as a Stockholder and not as to other Stockholders and, for
Stockholders that are legal entities, any settlor, beneficiary or owner):
2.1.1. ORGANIZATION, EXECUTION AND EFFECT OF AGREEMENT. (a) Such
Stockholder (i) is an individual that has the full legal right and capacity to
execute and deliver this Agreement and the other documents to be delivered at
the Closing hereunder (the "TRANSACTION DOCUMENTS") to which such Stockholder is
a party and to perform the transactions contemplated hereby and thereby by him
or her or (ii) is a corporation, limited liability company or trust that (A) is
duly organized, validly existing and in good standing under the Laws of its
jurisdiction of incorporation or formation, (B) is duly qualified or licensed to
do business and is in good standing as a foreign corporation or limited
liability company in each jurisdiction in which the character of the properties
owned or leased by it or the nature of its business makes such qualification
necessary, except for such of the foregoing in which the failure to be so
qualified or in good standing would not, individually or in the aggregate,
reasonably be expected to have or result in a material adverse effect on the
business, financial condition, results of operations or prospects of the
business of such Stockholder, (C) has the requisite power and authority to
execute and deliver this Agreement and the Transaction Documents to which it is
a party and to perform the transactions contemplated hereby and thereby to be
performed by it, and (D) has duly taken all necessary action required to be
taken under applicable Law for the due authorization of the execution and
delivery by such Stockholder of this Agreement and the Transaction Documents to
which it is a party and the performance by it of the transactions contemplated
hereby or thereby.
(b) This Agreement has been, and the Transaction Documents to which
such Stockholder is a party will be, duly and validly executed and delivered by
such Stockholder and, assuming the due execution and delivery of this Agreement
by Purchaser and Parent, and assuming the due execution and delivery of the
Transaction Documents by the other parties thereto, constitutes a legal, valid
and binding obligation of such Stockholder, enforceable against such Stockholder
in accordance with its terms.
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2.1.2. OWNERSHIP. Such Stockholder is the true and lawful owner of
record, and has the sole voting power and sole dispositive power over, the
Purchased Shares set forth opposite his, her or its name on SCHEDULE 1.1. Except
as set forth on SCHEDULE 1.1, the delivery of the certificates representing the
Purchased Shares being sold by such Stockholder will transfer to Purchaser good
and valid title to such Purchased Shares, free of any liens, security interests
or other encumbrances, claims or voting or other restrictions (collectively,
"LIENS") of any kind adverse to Parent or Purchaser.
2.1.3. NO OPTIONS. Except as set forth in SCHEDULE 1.1, there are no
outstanding subscriptions, options, rights (including phantom stock rights),
warrants, calls, commitments, understandings, arrangements, plans or other
agreements of any kind affecting such Stockholder's Purchased Shares.
2.1.4. NO RESTRICTIONS. (a) There is no suit, action, claim,
investigation or inquiry by any court, tribunal, arbitrator, authority, agency,
commission, official or other instrumentality of the United States, any foreign
country or any domestic or foreign state, county, city or other political
subdivision ("GOVERNMENTAL AUTHORITY"), and no legal, administrative or
arbitration proceeding pending or, to such Stockholder's Knowledge, threatened
against such Stockholder or any of his, her or its Purchased Shares, with
respect to the execution, delivery and performance of this Agreement or any
Transaction Document or the transactions contemplated hereby or thereby or any
other agreement entered into by such Stockholder in connection with the
transactions contemplated hereby or thereby.
(b) The execution and delivery by such Stockholder of this Agreement
and the Transaction Documents to which it is a party do not, and the performance
by such Stockholder of the transactions contemplated hereby and thereby to be
performed by it will not, conflict with, or result in any material violation of,
or constitute a material default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation or
acceleration of any material obligation or the loss of a material benefit or the
incurrence of a material liability under, (i) any provision of the certificate
of incorporation or bylaws or comparable governing documents of the Company, any
of its subsidiaries or such Stockholder, if applicable, or (ii) to the Knowledge
of Stockholder, any material permit or approval ("PERMIT"), if any, issued to
the Company, any of its subsidiaries or such Stockholder, under any statute,
law, rule, regulation or ordinance (collectively, "LAWS") or any judgment,
decree, order, writ, permit or license (collectively, "ORDERS") relating to such
Stockholder, except, in the case of such of the foregoing as apply to the
Company or any of its subsidiaries, but not Stockholder, for those as could not
reasonably be expected to have a Material Adverse Effect.
(c) Except as set forth on SCHEDULE 1.1, the execution, delivery and
performance by such Stockholder of his, her or its obligations under this
Agreement and the Transaction Documents to which it is a party and the
consummation of the transactions contemplated hereby and thereby will not (i)
result in the violation by such Stockholder or, to the Knowledge of Stockholder,
the Company or any of its subsidiaries, of any Law or Order applicable only to
it or any of his, her or its Purchased Shares or (ii) conflict
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with, result in any violation or breach of, constitute (with or without notice
or lapse of time or both) a default under, or require such Stockholder, or, to
the Knowledge of Stockholder, the Company or any of its subsidiaries, to obtain
any consent, approval or action of, make any filing with or give any notice to,
or result in or give to any Person any right of payment or reimbursement,
termination, cancellation, modification or acceleration of, or result in the
creation or imposition of any Lien upon such Stockholder's Purchased Shares,
under any of the terms, conditions or provisions of any agreement, commitment,
lease, license, evidence of indebtedness, mortgage, indenture, security
agreement, instrument, note, bond, franchise, permit, concession or other
instrument, obligation or agreement of any kind (collectively, "CONTRACTS") to
which such Stockholder or, to the Knowledge of Stockholder, the Company or any
of its subsidiaries, is a party or by which such Stockholder or any of his, her
or its assets or properties are bound, except in the case of any of the
foregoing as applicable to the Company or any of its subsidiaries, but not the
Stockholder, for such of the foregoing as could not be reasonably expected to
have or result in a Material Adverse Effect.
2.1.5. APPROVALS AND CONSENTS. Except for the filing of a pre-merger
notification report by the Company under the Xxxx-Xxxxx-Xxxxxx Antritrust
Improvements Act of 1976, as amended, and the rules and regulations thereunder
(the "HSR ACT"), no material consent, approval or action of, filing with or
notice to any Governmental Authority or Person is necessary or required under
any of the terms, conditions or provisions of any Law or Order or any Contract
to which such Stockholder is a party or his, her or its Purchased Shares are
bound for the execution and delivery of this Agreement and any Transaction
Documents by such Stockholder, the performance by such Stockholder of his, her
or its obligations hereunder or thereunder or the consummation by such
Stockholder of the transactions contemplated hereby or thereby.
2.1.6. CONTRACTS. Except as described on SCHEDULE 2.1.6 or in any
report or other filing made by the Company with the Securities and Exchange
Commission (the "SEC") prior to the date hereof, such Stockholder is not party
to any Contract with, and does not have any claim or right against the Company
or any of its subsidiaries, other than rights to payment of salary and welfare
benefits in the ordinary course of business.
2.1.7. FINANCIAL STATEMENTS AND NO MATERIAL ADVERSE CHANGES. (a) The
following financial statements (the "HISTORICAL FINANCIAL STATEMENTS") are
contained in the reports or other filings made by the Company with the SEC,
including for this purpose the Company's Form 10-Q with respect to the quarter
ending March 31, 2001 (the "COMPANY FILED SEC DOCUMENTS"): (i) the audited
consolidated balance sheets of the Company and its subsidiaries as at December
31, 2000 and the related audited consolidated statements of income,
stockholders' equity and cash flows for the fiscal years then ended, as reported
on by Xxxxxx Xxxxxxxx & Co., and (ii) when filed, the unaudited consolidated
balance sheet and the related unaudited consolidated statement of income,
stockholders' equity and cash flows for the three months ended March 31, 2001
(the "BALANCE SHEET DATE"). The Historical Financial Statements have been
prepared in accordance with GAAP, applied on a consistent basis, throughout the
periods indicated. Each of the consolidated balance sheets included in the
Historical Financial Statements fairly presents, in all material respects, the
financial condition of
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the Company and its subsidiaries at the respective date thereof, and reflects
all claims against and all debts and liabilities of the Company and its
subsidiaries, fixed or contingent, as at the respective date thereof, required
to be shown thereon under GAAP, and the related statements of income,
stockholders' equity and cash flows fairly present the results of operations for
the respective periods indicated (subject, in the case of unaudited financial
statements, to normal recurring year-end audit adjustments and the absence of
footnotes). Except as described in the Company Filed SEC Documents, since the
Balance Sheet Date or as publicly disclosed by the Company prior to or on the
date hereof, there has been no material adverse change in the business,
financial condition, results of operations or prospects of the Company and its
subsidiaries, taken as a whole.
2.1.8. REPORTS; UNDISCLOSED LIABILITIES. To the Knowledge of
Stockholder, (a) the Company has filed all required Company Filed SEC Documents
with the SEC, (b) as of their respective dates, the Company Filed SEC Documents
complied in all material respects with the requirements of the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT") and the rules and regulations of the SEC promulgated thereunder
applicable to such Company Filed SEC Documents, and none of the Company Filed
SEC Documents when filed contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, (c) the financial statements of the Company
included in the Company Filed SEC Documents comply as to form, as of their
respective dates of filing with the SEC, in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with GAAP
(except, in the case of unaudited statements, as permitted by Form 10-Q of the
SEC) applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present in all material respects the
consolidated financial position of the Company and its consolidated subsidiaries
as of the dates thereof and the consolidated statement of earnings, cash flows
and stockholders' equity for the periods then ended (subject, in the case of
unaudited statements, to normal recurring year-end audit adjustments), and (d)
except as reflected in financial statements or in the notes thereto included in
the Company Filed SEC Documents, neither the Company nor any of its subsidiaries
has any liabilities or obligations of any nature which, individually or in the
aggregate, could reasonably be expected to have or result in a Material Adverse
Effect.
2.2. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND PARENT. Each of
Purchaser and Parent represents and warrants to the Stockholders as follows:
2.2.1. ORGANIZATION, AUTHORIZATION AND EFFECT OF AGREEMENT. (a) Each of
Parent and Purchaser is a limited liability company duly organized, validly
existing and in good standing under the Laws of the jurisdiction of its
formation and is duly qualified or licensed to do business and is in good
standing as a foreign limited liability company in each jurisdiction in which
the character of the properties owned or leased by it or the nature of its
business makes such qualification necessary, except for such of the foregoing in
which the failure to be so qualified or in good standing would not,
11
individually or in the aggregate, reasonably be expected to have or result in a
material adverse effect on the business, financial condition, results of
operations or prospects of the business of Parent or Purchaser, as the case may
be.
(b) Each of Parent and Purchaser has the requisite power and authority
to execute and deliver this Agreement and the Transaction Documents to which it
is a party and to perform the transactions contemplated hereby and thereby to be
performed by it. All necessary action required to be taken under applicable Law
has been duly taken for the due authorization of the execution and delivery by
Parent and Purchaser of this Agreement and the Transaction Documents to which
each of them is a party and the performance by Parent and Purchaser of the
transactions contemplated hereby or thereby. This Agreement has been, and each
of the Transaction Documents to which the Parent or Purchaser is a party will
be, duly and validly executed and delivered by each of Parent and Purchaser and,
assuming the due execution and delivery of this Agreement by and each
Stockholder, and the due execution and delivery of the Transaction Documents by
the other parties thereto, constitutes a valid and binding obligation of each of
Parent and Purchaser, enforceable against each of them in accordance with its
terms.
2.2.2. NO RESTRICTIONS. The execution and delivery of this Agreement
and the Transaction Documents by each of Parent and Purchaser does not, and the
performance by Parent and Purchaser of the transactions contemplated hereby or
thereby to be performed by each of them will not, conflict with or result in any
material violation of, or constitute a material default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any material obligation or the loss of a
material benefit or incurrence of a material liability under, any provision of
any operating agreement, certificate of incorporation or bylaws or comparable
governing documents of Parent and Purchaser, or any Contract or Permit
applicable to Parent or Purchaser.
2.2.3. APPROVALS AND CONSENTS. Except for the filing of a pre-merger
notification report by Purchaser under the HSR Act, no consent, approval or
action of, filing with or notice to any Governmental Authority or Person is
necessary or required under any of the terms, conditions or provisions of any
Law or Order or any Contract to which Parent or Purchaser is a party for the
execution and delivery of this Agreement and any Transaction Documents by Parent
or Purchaser, the performance by Parent or Purchaser of its obligations
hereunder or thereunder or the consummation by Parent or Purchaser of the
transactions contemplated hereby and thereby.
2.2.4. OWNERSHIP OF COMPANY SHARES; PARENT SEC FILINGS. As of the date
of this Agreement, Parent is the beneficial owner of 19,928,278 shares of common
stock of the Company. The Schedule 13D filed by Parent with the SEC on May 14,
2001 was true and correct in all material respects when filed, provided,
however, that neither Parent nor Purchaser makes any representation or warranty
as to the number of outstanding shares of common stock of the Company or the
number of shares of common stock of the Company issuable upon exercise of
outstanding options or warrants or any percentage derived therefrom.
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2.2.5. CERTAIN ADDITIONAL MATTERS. Substantially simultaneously with
the execution and delivery of this Agreement, Parent submitted the 5-14-01
Proposal to the Company.
III. COVENANTS
3.1. PRESS RELEASES. Between the date hereof and the Closing Date, no
party will issue or cause the publication of any press release or similar public
announcement with respect to this Agreement or any Transaction Document or the
transactions contemplated hereby or thereby without the prior consent of Parent
(in the case of the Stockholders) or the Stockholder Representative (in the case
of Purchaser and Parent), which consent will not be unreasonably withheld,
delayed or conditioned; provided, however, that nothing herein will prohibit any
party from issuing or causing publication of any such press release or public
announcement to the extent that such party determines such action to be required
by Law or the rules of the NASDAQ or any national stock exchange applicable to
it or its Affiliates, in which event the party making such determination will,
if practicable in the circumstances, use reasonable best efforts to allow the
other parties reasonable time to comment on such press release or public
announcement in advance of its issuance.
3.2. REGULATORY FILINGS. (a) The parties will file or cause to be filed
as promptly as practicable with the United States Federal Trade Commission and
the United States Department of Justice any supplemental information that may be
requested pursuant to the HSR Act. If applicable to the consummation of the
transactions contemplated by this Agreement, Purchaser and Parent will each make
such filings and use their respective reasonable best efforts to obtain all
Permits required by Law. The Stockholders will use their respective reasonable
best efforts to cause the Company to make such filings and use their respective
reasonable best efforts to obtain the governmental approvals referred to in
SECTION 2.1.5, and Purchaser and Parent will each make such filings and use
their respective reasonable best efforts to obtain the governmental approvals
referred to in SECTION 2.2.3. All filings referred to in this SECTION 3.2(A)
will comply in all material respects with the requirements of the respective
Laws pursuant to which they are made.
(b) Without limiting the generality or effect of SECTION 3.2(A), each
of the parties will (i) use their respective reasonable best efforts to comply
as expeditiously as possible with all lawful requests of Governmental
Authorities for additional information and documents pursuant to the HSR Act,
(ii) not (A) extend any waiting period under the HSR Act or (B) enter into any
agreement with any Governmental Authority not to consummate the transactions
contemplated by this Agreement or any Transaction Document, except with the
prior consent of the Stockholder Representative, in the case of Parent and
Purchaser, or Parent, in the case of any Stockholder or the Company, and (iii)
cooperate with each other and use their respective reasonable best efforts to
cause the lifting or removal of any temporary restraining order, preliminary
injunction or other judicial or administrative order which may be entered into
in connection with the transactions contemplated by this Agreement.
Notwithstanding the foregoing or any other provision of this Agreement, in no
event will Parent or Purchaser or any of their
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Affiliates be required to divest, hold separate or otherwise limit, or enter
into any agreement to divest, hold separate or otherwise limit, any of their
respective assets or businesses or any portion of the business of the Company.
3.3. INJUNCTIONS. Without limiting the generality or effect of any
provision of SECTION 3.2 or ARTICLE IV, if any Governmental Authority having
jurisdiction over any party issues or otherwise promulgates any injunction,
decree or similar order prior to the Closing that prohibits the consummation of
the transactions contemplated hereby, the parties will use their respective
reasonable best efforts to have such injunction dissolved or otherwise
eliminated as promptly as possible and, prior to or after the Closing, to pursue
the underlying litigation diligently and in good faith.
3.4. SATISFACTION OF CONDITIONS. Without limiting the generality or
effect of any provision of ARTICLE IV, but subject to SECTION 3.2(B), prior to
the Closing, each of the parties hereto will use his, her or its reasonable best
efforts with due diligence and in good faith to satisfy promptly all conditions
required hereby to be satisfied by such party in order to expedite the
consummation of the transactions contemplated hereby.
3.5 CERTAIN COVENANTS. If the Closing occurs, without further action
(a) each Stockholder will comply with all of the provisions of the
non-competition, severance, non-solicitation or other covenants or obligations
to which a Stockholder is a party as of the date hereof or as of the Closing
Date and which protect the interests or rights of the Company or any of its
subsidiaries (collectively, "IP COVENANTS") for the longest of (a) the term of
such IP Covenant, (b) five years from the date hereof, and (c) one year after
the termination of such Stockholder's employment with the Company and its
subsidiaries.
3.6. APPOINTMENT OF STOCKHOLDER REPRESENTATIVE. (a) Each Stockholder
hereby designates, appoints and authorizes the Stockholder Representative to
serve as such Stockholder's exclusive representative and attorney-in-fact to
make any and all decisions, grant or withhold any and all consents and waivers,
give or accept any and all instructions and notices, and take any and all other
actions as are contemplated to be taken by or on behalf of such Stockholder by
the terms of this Agreement or any Transaction Document. The Stockholder
Representative hereby accepts such appointment and agrees to be bound by the
terms of this Agreement.
(b) Any decision or act of the Stockholder Representative will
constitute a decision or act of each and every Stockholder, and will be final,
binding and conclusive upon each and every Stockholder. Parent and Purchaser may
conclusively rely upon any decision or act of the Stockholder Representative as
being the decision or act of each and every Stockholder, and no Stockholder will
have the right to object, dissent, protest or otherwise contest the same.
(c) All fees, costs and expenses paid on behalf of the Stockholders by
the Stockholder Representative will be paid by the Stockholders in accordance
with the percentages set forth on SCHEDULE 1.1.
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(d) Following the Transaction Closing, interest charges for advances,
if any, to the Company by Parent or its Affiliates will not be higher than the
Reference Rate.
3.7. RESTRICTED ACTIVITIES. (a) Subject to the fiduciaries duties of
the parties, if any, during the Measuring Period, except as expressly
contemplated by this Agreement, none of Parent, Purchaser or any of their
Affiliates will, and each of them will cause any entity that becomes an assignee
of the Purchased Shares as permitted hereby not to, cause the Company to take
any of the following actions without the prior written approval of the
Stockholder Representative:
(i) sell, lease or otherwise dispose of a material portion of
the assets or business of the Company or any material subsidiary
thereof through a transaction or series of related transactions;
(ii) enter into any line of business not related to the
business then being conducted by the Company and its subsidiaries;
(iii) acquire the stock, assets or business of another Person;
(iv) change its name;
(v) change any accounting policy, other than to the extent
required by law, rule or regulation;
(vi) amend its certificate of incorporation or other
comparable governing documents or its bylaws;
(vii) engage in any material transaction with Purchaser,
Parent or any of their respective affiliates;
(viii) hire or fire any employee of the Company or any of its
subsidiaries other than the Chief Executive Officer (this covenant will
not apply, however, to changes, if any, made to the composition of the
Company's Board of Directors); or
(ix) effect any transaction (or series of transactions) that
would result in a Change in Control other than the Transaction.
For purposes of this Agreement, a "CHANGE OF CONTROL" means (A) any
consolidation or merger of the Company with or into any other corporation or
corporations in which the holders of the Company's outstanding shares
immediately before such consolidation or merger do not, immediately after such
consolidation or merger, retain stock representing a majority of the voting
power of the surviving corporation of such consolidation or merger or stock
representing a majority of the voting power of a corporation that wholly owns,
directly or indirectly, the surviving corporation of such consolidation or
merger or (B) the sale, transfer or assignment of securities of the Company
representing a majority of the voting power of all the Company's outstanding
15
voting securities by the holders thereof to an acquiring party other than
beneficial owners of stock of Parent (or a subsidiary of such owner) in a single
transaction or series of related transactions.
(b) During the Measuring Period, Purchaser and Parent will, and each of
them will cause any entity that becomes an assignee of the Purchased Shares as
permitted hereby to, vote their shares of common stock (and cause their
Affiliates to vote their shares of common stock) of the Company in favor of the
election of a designee by the Stockholder Representative.
3.8. OPERATION OF THE BUSINESS. Subject to applicable fiduciary duties
of the parties, if any, except (a) for matters publicly disclosed by the Company
on or prior to the date hereof, (b) as expressly contemplated by this Agreement,
or (c) as otherwise consented to by Parent (on behalf of itself and Purchaser)
in writing, prior to the Closing, the Stockholders will not cause the Company or
its subsidiaries to take any action that would result in the Company or its
subsidiaries:
(i) not keeping their respective businesses intact;
(ii) taking or permitting to be taken or doing or suffering to be done
anything other than in the ordinary course of their respective businesses as
presently conducted;
(iii) not carrying on their respective businesses in compliance with
all applicable Laws;
(iv) not keeping intact their respective business organizations;
(v) not preserving and maintaining the goodwill associated with their
respective businesses or their relationships with their respective officers,
employees, clients, suppliers, licensors and others with whom they have a
material relationship; or
(vi) making any material changes in the operation of their respective
businesses.
3.9. INCENTIVE PLAN. If the Transaction Closing occurs, Parent will
cooperate with the Stockholder Representative to establish an equity or other
incentive plan providing for incentives having such terms as are provided in
documentation of such plan reasonably acceptable to Purchaser and Stockholders
Representative, and the parties will cooperate and use reasonable best efforts
to take, or cause to be taken, all appropriate action, and do, or cause to be
done, all things necessary, proper or advisable to establish such incentive
plan, including, if applicable, amending SCHEDULE 1.1 hereto in a manner
reasonably acceptable to Purchaser and the Stockholder Representative to
allocate a portion of the consideration otherwise payable to the Stockholders to
employees of the Company to be designated by the Stockholder Representative
provided, such plan will not result in the reduction or increase of any amount
payable pursuant to Section 1.2.
16
3.10. SUBORDINATION OF LIENS. Subject to Section 4.2.2, if requested by
the holders of the liens described on SCHEDULE 1.1, Parent and Purchaser will
enter into agreements reasonably acceptable to them to subordinate their
interests in the Purchased Shares that are subject to such liens to the holders
of such liens.
IV. THE CLOSING
4.1. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER, PARENT AND THE
STOCKHOLDERS. The obligations of each of Purchaser, Parent and each Stockholder
under this Agreement to consummate the transactions contemplated hereby will be
subject to the satisfaction, at or prior to the Closing, of the following
conditions:
4.1.1. RESTRAINING ACTION. There shall not have been entered a
preliminary or permanent injunction, temporary restraining order or other
judicial or administrative order or decree in any jurisdiction, the effect of
which prohibits the Closing; and
4.1.2. HSR. The waiting period under the HSR Act shall have expired or
been terminated.
4.2. ADDITIONAL CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER AND
PARENT. The obligations of Purchaser and Parent under this Agreement to
consummate the transactions contemplated hereby will be subject to the
satisfaction, at or prior to the Closing, of all of the following conditions,
any one or more of which may be waived at the option of Parent:
4.2.1. NO MATERIAL MISREPRESENTATION OR BREACH. (a) There shall have
been no material breach by any Stockholder in the performance of any of the
covenants herein to be performed by him, her or it in whole or in part prior to
the Closing, (b) the representations and warranties of such Stockholder
contained in this Agreement (i) that are not qualified as to materiality or
material adverse effect shall be true and correct in all material respects and
(ii) that are so qualified shall be true and correct, in each case on the date
hereof and as of the Closing Date as if made anew on the Closing Date, except
for representations or warranties made as of a specified date, which shall be
true and correct in all material respects as of the specified date, and (c) the
Stockholder Representative shall have delivered to Purchaser and Parent a
certificate certifying each of the foregoing, dated as of the Closing Date and
signed by each Stockholder;
4.2.2. SURRENDER AND ISSUANCE OF CERTIFICATES. Each Stockholder shall
have delivered to Purchaser certificates representing his, her or its Purchased
Shares, together with such other documents and instruments, if any, as may be
necessary to permit Purchaser to acquire such Purchased Shares, free and clear
of any and all Liens other than the Liens described on SCHEDULE 1.1 (as to which
the Lien holder shall have consented to the transactions contemplated hereby or
taken other actions necessary for such transfer to be effective, or the number
of Purchased Shares and correspondingly the Relevant % shall have been reduced
to reflect the elimination from this Agreement of the shares of Company common
stock subject to such Liens); and
17
4.2.3. LITIGATION. No action, suit or proceeding shall be pending
against Parent, Purchaser, the Company or any of their respective Affiliates by
or before any Governmental Authority which Parent determines after consultation
with counsel presents a substantive risk of personal liability or expense based
upon this Agreement or the transactions contemplated hereby.
4.3. ADDITIONAL CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
STOCKHOLDERS. The obligations of the Stockholders under this Agreement to
consummate the transactions contemplated hereby will be subject to the
satisfaction, at or prior to the Closing, of all the following conditions, any
one or more of which may be waived by the Stockholder Representative at its
option:
4.3.1. NO MATERIAL MISREPRESENTATION OR BREACH. (a) There shall have
been no material breach by either Purchaser or Parent in the performance of any
of the covenants herein to be performed by either of them in whole or in part
prior to the Closing, (b) the representations and warranties of Parent and
Purchaser contained in this Agreement (i) that are not qualified as to
materiality or material adverse effect shall be true and correct in all material
respects and (ii) that are so qualified (if any) shall be true and correct, in
each case on the date hereof and as of the Closing Date as if made anew on the
Closing Date, except for representations or warranties made as of a specified
date, which shall be true and correct in all material respects as of the
specified date, and (c) an officer of each of Purchaser and Parent shall have
delivered to the Stockholder Representative a certificate certifying each of the
foregoing, dated the Closing Date and signed by one of its officers to the
foregoing effect; and
4.3.2. CLOSING PAYMENT. Purchaser shall have delivered to the
Stockholders the CP in the manner specified in SECTION 1.6.
4.3.3. OPINION. The Stockholders shall have received a written opinion
of Xxxxx, Day, Xxxxxx & Xxxxx, counsel for Parent and Purchaser, in the form
attached hereto as SCHEDULE 4.3.3.
4.3.4. LITIGATION. No action, suit or proceeding shall be pending
against any Stockholder by or before any Governmental Authority which the
Stockholder Representative determines after consultation with counsel presents a
substantive risk of personal liability or expense based upon this Agreement or
the transactions contemplated hereby.
4.4. THE CLOSING. Subject to the fulfillment or waiver of the
conditions precedent specified in SECTIONS 4.1, 4.2 and 4.3, the consummation of
the purchase of the Purchased Shares (the "CLOSING") will take place on the
business day after the conditions set forth in SECTIONS 4.1, 4.2 and 4.3 have
been satisfied or such other date as the parties agree in writing to be the date
of the closing (the "CLOSING DATE"). The Closing will take place at 10:00 a.m.,
Eastern time, at the offices of Xxxxx, Day, Xxxxxx & Xxxxx, 000 Xxxxxxxxx
Xxxxxx, Xxx Xxxx, XX 00000, or by the exchange of documents and instruments by
mail, courier, telecopy and wire transfer to the extent mutually acceptable to
the parties hereto.
18
4.5. TERMINATION. (a) Notwithstanding anything contained in this
Agreement to the contrary, this Agreement may be terminated at any time prior to
the Closing:
(i) By the mutual written consent of Parent and the
Stockholder Representative;
(ii) By either Parent or the Stockholder Representative, if
the Closing shall not have occurred on or before September 30, 2001,
provided, however, that the right to terminate this Agreement pursuant
to this SECTION 4.5(A) will not be available to any party whose breach
of any provision of this Agreement results in the failure of the
Closing to occur by such time;
(iii) By either Parent or the Stockholder Representative if
there shall have been entered a final, nonappealable order or
injunction of any Governmental Authority restraining or prohibiting the
consummation of the transactions contemplated hereby or any material
part thereof;
(iv) By Parent if any Stockholder shall have (i) failed to
perform any obligation or to comply with any agreement or covenant of
such Stockholder under this Agreement or (ii) breached any of its
representations or warranties, in each case such that the condition in
SECTION 4.2.1 would not be satisfied, which failure has not been cured
within ten calendar days of notice from Parent;
(v) By the Stockholder Representative if Parent or Purchaser
shall have (i) failed to perform any obligation or comply with any
agreement or covenant of Parent or Purchaser under this Agreement or
(ii) breached any of its representations or warranties, in each case
such that the condition in SECTION 4.3.1 would not be satisfied, which
failure has not been cured within ten calendar days of notice from such
Stockholders; or
(b) In the event of the termination of this Agreement under this
SECTION 4.5, each party hereto will pay all of its own fees and expenses. There
will be no further liability hereunder on the part of any party hereto if this
Agreement is so terminated, except by reason of a prior breach of any
representation, warranty or covenant contained in this Agreement.
V. SURVIVAL AND INDEMNIFICATION
5.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. (a) Each of
the representations and warranties contained in ARTICLE II will survive the
Closing and remain in full force and effect until the earlier of (i) May 14,
2002 and (ii) the Transaction Closing, provided, however, that the
representations and warranties contained in Sections 2.1.1, 2.1.2, 2.1.3 and
2.2.1 will survive the Closing and remain in full force and effect for the
period of the applicable statute of limitations. Any claim for indemnification
with respect to any of such matters that is not asserted by a notice given as
herein provided specifically identifying the particular breach underlying such
claim and the facts and Indemnifiable Loss relating thereto within such
specified period of survival may not be pursued and is hereby irrevocably
waived.
19
(b) All covenants contained in this Agreement will survive the Closing
and remain in effect indefinitely unless a specified period is otherwise set
forth in this Agreement (in which event such specified period will control).
5.2. DEFINITIONS; LIMITATIONS ON LIABILITY. (a) For purposes of this
Agreement, (i) "INDEMNITY PAYMENT" means any amount of Indemnifiable Losses
required to be paid pursuant to this Agreement, (ii) "INDEMNITEE" means any
Stockholder Indemnified Party or Purchaser Indemnified Party, (iii)
"INDEMNIFYING PARTY" means any Person required to provide indemnification under
this Agreement, (iv) "INDEMNIFIABLE LOSSES" means any and all claims, demands,
actions, suits or proceedings (by any Person, including without limitation any
Governmental Authority), settlements and compromises relating thereto and
reasonable attorneys' fees and expenses in connection therewith, losses,
liabilities, damages, costs and expenses (other than indirect and punitive
damages and other than consequential damages to the extent relating to decreases
in value of the business of the Company and lost profits), and (V) "THIRD PARTY
CLAIM" means any claim, demand, action, suit or proceeding made or brought by
any Person that is not a party to this Agreement or an Affiliate of a party to
this Agreement.
(b) Notwithstanding any other provision hereof, (i) the liability of a
Stockholder under Section 5.3(a)(i) will not exceed the portion of the Purchase
Price paid to him, her or it; (ii) no claim or claims for indemnification
pursuant to Section 5.3(a)(i) may be asserted against a particular Stockholder
unless the amount of the Indemnifiable Losses for which such Stockholder would
otherwise be required to indemnify a Purchaser Indemnified Party exceeds
$500,000 in the aggregate, provided, however, that this Section 5.2(b)(ii) will
not apply to Indemnifiable Losses relating to, resulting from or arising out of
a breach of representation or warranty of such Stockholder under Section 2.1.2,
2.1.2 or 2.1.3, (iii) no claim or claims for indemnification pursuant to Section
5.3(b)(i) may be asserted against Parent or Purchaser unless the amount of the
Indemnifiable Losses for which Parent or Purchaser would otherwise be required
to indemnify a Purchaser Indemnified Party exceeds $500,000 in the aggregate,
provided, however, that this Section 5.2(b)(iii) will not apply to Indemnifiable
Losses relating to, resulting from or arising out of a breach of representation
or warranty of such Stockholder under Section 2.2.1, and (iv) no Stockholder
shall be liable under Section 5.3(a)(i) for any breach of a representation or
warranty in Section 2.1.7 or 2.1.8 except to the extent of his pro-rata share of
Indemnifiable Losses related thereto (determined based on his pro-rata share of
any payments made pursuant to Section 1.2).
(c) Notwithstanding anything to the contrary in this Article V, in no
event will any Indemnified Party have any claim for indemnification under this
Article V for Indemnifiable Losses relating to, resulting from or arising out of
any claims, actions, suits or proceedings by any third parties against any
Stockholder Indemnified Party, Purchaser Indemnified Party or the Company
arising out of this Agreement or the transactions contemplated hereby (except to
the extent relating to, resulting from or arising out of any breach of a
representation, warranty or covenant of the Indemnifying Party other than the
representations and warranties contained in Section 2.1.7 or 2.1.8).
20
(d) None of the limitations set forth in this SECTION 5.2 will apply to
any Indemnifiable Losses incurred by (i) a Purchaser Indemnified Party that
relate, directly or indirectly, to (A) any fraudulent acts committed by any
Stockholder Indemnified Party and (B) the obligations of the Stockholders to pay
certain expenses as set forth herein or (ii) a Stockholder Indemnified Party
that relate, directly or indirectly, to any fraudulent acts committed by any
Purchaser Indemnified Party and (B) the obligations of Parent and Purchaser to
pay certain expenses as set forth herein.
5.3. INDEMNIFICATION. (a) Subject to SECTIONS 5.1, 5.2 and 5.4, each
Stockholder will severally and not jointly indemnify, defend and hold harmless
Parent, Purchaser and their respective Affiliates and their respective
directors, officers, partners, members, managers, employees, agents and
representatives (including without limitation any predecessor or successor to
any of the foregoing) (collectively, the "PURCHASER INDEMNIFIED PARTIES") from
and against any and all Indemnifiable Losses relating to, resulting from or
arising out of:
(i) Any breach by any Stockholder of any of their respective
representations or warranties contained in this Agreement ;
(ii) Any breach by any Stockholder of any covenant of such
Stockholder in this Agreement; and
(iii) Any indebtedness, pledge or lien described on SCHEDULE
1.1 (such indemnity obligation to be solely from the Stockholder whose
shares of Company common stock are affected by such indebtedness,
pledge or lien).
Parent and Purchaser may at their option offset any Indemnifiable Loss payable
by a Stockholder under Section 5.3(a)(iii) against any payment finally
determined pursuant to Section 1.2 to be due to such Stockholder under Section
1.2 and upon such offset such Stockholder's obligation under Section 5.3(a)(iii)
will be deemed satisfied to the extent of the offset. Each Stockholder will
promptly notify Parent of any default or event of default under the terms of the
indebtedness of such Stockholder described on SCHEDULE 1.1 and hereby authorizes
Parent and Purchaser to repay such indebtedness at any time following a default
or event of default thereunder.
(b) Subject to SECTIONS 5.1, 5.2 and 5.4, each of Purchaser and Parent
will jointly and severally indemnify, defend and hold harmless the Stockholders
and their respective Affiliates and their respective directors, officers,
partners, members, managers, employees, agents and representatives (including
without limitation any predecessor or successor to any of the foregoing)
(collectively, the "STOCKHOLDER INDEMNIFIED PARTIES") from and against any and
all Indemnifiable Losses relating to, resulting from or arising out of:
(i) Any breach by Purchaser or Parent of any of the
representations or warranties of Purchaser or Parent contained in this
Agreement; and
(ii) Any breach by Purchaser or Parent of any covenant of
Purchaser or Parent in this Agreement.
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5.4. DEFENSE OF CLAIMS. (a) If any Indemnitee receives notice of the
assertion or commencement of any Third Party Claim against such Indemnitee with
respect to which an Indemnifying Party is obligated to provide indemnification
under this Agreement, the Indemnitee will give such Indemnifying Party
reasonably prompt written notice thereof, but in any event not later than 30
calendar days after receipt of such notice of such Third Party Claim. Such
notice by the Indemnitee will describe the Third Party Claim in reasonable
detail, will include copies of all material written evidence thereof and will
indicate the estimated amount, if reasonably practicable, of the Indemnifiable
Loss that has been or may be sustained by the Indemnitee. The Indemnifying Party
will have the right to participate in or, by giving written notice to the
Indemnitee, to assume, the defense of any Third Party Claim at such Indemnifying
Party's own expense and by such Indemnifying Party's own counsel (reasonably
satisfactory to the Indemnitee), and the Indemnitee will cooperate in good faith
in such defense.
(b) If, within 20 calendar days after giving notice of a Third Party
Claim to an Indemnifying Party pursuant to SECTION 5.4(A), an Indemnitee
receives written notice from the Indemnifying Party that the Indemnifying Party
has elected to assume the defense of such Third Party Claim as provided in the
last sentence of SECTION 5.4(a), the Indemnifying Party will not be liable for
any legal expenses subsequently incurred by the Indemnitee in connection with
the defense thereof; provided, however, that if the Indemnifying Party fails to
take reasonable steps necessary to defend diligently such Third Party Claim
within ten calendar days after receiving written notice from the Indemnitee that
the Indemnitee believes the Indemnifying Party has failed to take such steps,
the Indemnitee may assume its own defense, and the Indemnifying Party will be
liable for all reasonable costs or expenses paid or incurred in connection
therewith. Without the prior written consent of the Indemnitee, the Indemnifying
Party will not enter into any settlement of any Third Party Claim that would
lead to liability or create any financial or other obligation on the part of the
Indemnitee for which the Indemnitee is not entitled to indemnification
hereunder. If a firm offer is made to settle a Third Party Claim without leading
to liability or the creation of a financial or other obligation on the part of
the Indemnitee for which the Indemnitee is not entitled to indemnification
hereunder and the Indemnifying Party desires to accept and agree to such offer,
the Indemnifying Party will give written notice to the Indemnitee to that
effect. If the Indemnitee fails to consent to such firm offer within ten
calendar days after its receipt of such notice, the Indemnitee may continue to
contest or defend such Third Party Claim and, in such event, the maximum
liability of the Indemnifying Party as to such Third Party Claim will not exceed
the amount of such settlement offer.
(c) Any claim by an Indemnitee on account of an Indemnifiable Loss
which does not result from a Third Party Claim (a "DIRECT CLAIM") will be
asserted by giving the Indemnifying Party reasonably prompt written notice
thereof, but in any event not later than 30 calendar days after the Indemnitee
becomes aware of such Direct Claim. Such notice by the Indemnitee will describe
the Direct Claim in reasonable detail, will include copies of all material
written evidence thereof and will indicate the estimated amount, if reasonably
practicable, of the Indemnifiable Loss that has been or may be sustained by the
Indemnitee. The Indemnifying Party will have a period of 30 calendar days within
which to respond in writing to such Direct Claim. If the Indemnifying Party
22
does not so respond within such 30 calendar day period, the Indemnifying Party
will be deemed to have rejected such claim, in which event the Indemnitee will
be free to pursue such remedies as may be available to the Indemnitee on the
terms and subject to the provisions of this Agreement.
(d) A failure to give timely notice or to include any specified
information in any notice as provided in SECTIONS 5.4(A), 5.4(B) or 5.4(C) will
not affect the rights or obligations of any party hereunder except and only to
the extent that, as a result of such failure, any party which was entitled to
receive such notice was deprived of its right to recover any payment under its
applicable insurance coverage or was otherwise prejudiced as a result of such
failure.
(e) If the amount of any Indemnifiable Loss, at any time subsequent to
the making of an Indemnity Payment, is reduced by recovery, settlement or
otherwise under or pursuant to any insurance coverage, or pursuant to any claim,
recovery, settlement, rebate or other payment by or against any other Person,
the amount of such reduction, less any costs, expenses, premiums or taxes
incurred in connection therewith, will promptly be repaid by the Indemnitee to
the Indemnifying Party. Upon making any Indemnity Payment the Indemnifying Party
will, to the extent of such Indemnity Payment, be subrogated to all rights of
the Indemnitee against any third Person in respect of the Indemnifiable Loss to
which the Indemnity Payment relates; provided, however, that (i) the
Indemnifying Party shall then be in compliance with its obligations under this
Agreement in respect of such Indemnifiable Loss and (ii) until the Indemnitee
recovers full payment of its Indemnifiable Loss, any and all claims of the
Indemnifying Party against any such third Person on account of said Indemnity
Payment will be subrogated and subordinated in right of payment to the
Indemnitee's rights against such third Person. Without limiting the generality
or effect of any other provision hereof, each such Indemnitee and Indemnifying
Party will duly execute upon request all instruments reasonably necessary to
evidence and perfect the above-described subrogation and subordination rights.
VI. MISCELLANEOUS PROVISIONS
6.1 NOTICES. All notices and other communications required or permitted
hereunder will be in writing and, unless otherwise provided in this Agreement,
will be deemed to have been duly given when delivered in person or when
dispatched by telegram or electronic facsimile transfer (confirmed in writing by
mail simultaneously dispatched) or one business day after having been dispatched
by a nationally recognized overnight courier service to the appropriate party at
the address specified below or to such other address or addresses as any such
party may from time to time designate as to itself by like notice:
23
If to Parent or Purchaser, to:
Seneca Investments LLC
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile No.: 000-000-0000
Attention: Xxxxxxx X. Xxxxxxx
with a copy to:
Xxxxx, Day, Xxxxxx & Xxxxx
000 Xxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile No.: 000-000-0000
Attention: Xxxx X. Xxxxxx
If to a Stockholder or to the Stockholder Representative, to:
XXXXXX.XXX Ltd.
00 Xxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile No.: 000-000-0000
Attention: Xxxx Xxx
with a copy to:
Xxxxx Xxxxxxxx
XXXXXX.XXX Ltd.
00 Xxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile No.: 000-000-0000
and
Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP
0000 Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Telephone No.: 000-000-0000
Facsimile No.: 000-000-0000
Attention: Xxxxxx Xxxxxxxx
6.2. EXPENSES. Except as otherwise expressly provided herein, each of
the parties hereto shall pay his, her or its own expenses relating to the
transactions contemplated by this Agreement and the Transaction Documents,
including without limitation the fees and expenses of his, her or its respective
counsel, financial advisors and accountants.
24
6.3. SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and
inure to the benefit of the parties hereto and their respective successors (and,
in the case of any Stockholder that is an individual, their respective
executors, heirs and legal representatives) and permitted assigns, but will not
be assignable or delegable by any party without the prior written consent of
Parent and Stockholder Representative.
6.4. WAIVER. Either Parent (on behalf of itself and Purchaser) or the
Stockholder Representative (on behalf of himself and the other Stockholders), by
written notice to the other may (a) extend the time for performance of any of
the obligations or other actions of the other under this Agreement, (b) waive
any inaccuracies in the representations or warranties of the other contained in
this Agreement, (c) waive compliance with any of the conditions or covenants of
the other contained in this Agreement, or (d) waive or modify performance of any
of the obligations of the other under this Agreement. Except as provided in the
immediately preceding sentence, no action taken pursuant to this Agreement will
be deemed to constitute a waiver of compliance with any representations,
warranties or covenants contained in this Agreement. Any waiver of any term or
condition will not be construed as a subsequent waiver of the same term or
condition, or a waiver of any other term or condition of this Agreement. No
failure or delay of any party in asserting any of its rights hereunder will
constitute a waiver of any such rights.
6.5. ENTIRE AGREEMENT. This Agreement (including the Schedules and
Exhibits hereto) and the Transaction Documents supersede any other agreement,
whether written or oral, that may have been made or entered into by any party or
any of their respective Affiliates (or by any director, officer or
representative thereof) prior to the date hereof relating to the matters
contemplated hereby. This Agreement (together with the Schedules and Exhibits
hereto) and the Transaction Documents constitute the entire agreement by and
among the parties hereto and there are no agreements or commitments by or among
such parties or their Affiliates except as expressly set forth herein and
therein.
6.6. AMENDMENTS, SUPPLEMENTS, ETC. This Agreement may be amended or
supplemented at any time by additional written agreements as may mutually be
determined by Parent (without the joinder of Purchaser) and the Stockholder
Representative (without the joinder of any other Stockholder) to be necessary,
desirable or expedient to further the purposes of this Agreement or to clarify
the intention of the parties hereto. This Agreement may be amended by the
consent of the Stockholder Representative (without the joinder of any other
Stockholder) and Parent (without the joinder of Purchaser) to permit other
stockholders of the Company to become parties hereto.
6.7. RIGHTS OF THE PARTIES. Except as provided in ARTICLE V or in
SECTION 6.3, nothing expressed or implied in this Agreement is intended or will
be construed to confer upon or give any Person other than the parties hereto and
their respective Affiliates any rights or remedies under or by reason of this
Agreement or any transaction contemplated hereby.
25
6.8. APPLICABLE LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a)
This Agreement and the legal relations among the parties hereto will be governed
by and construed in accordance with the substantive Laws of the State of New
York, without giving effect to the principles of conflict of laws thereof.
(b) Each party hereby irrevocably and unconditionally submits, for
itself and its property, to the exclusive jurisdiction of the New York state
court located in the Borough of Manhattan, City of New York or the United States
District for the Southern District of New York (as applicable, the "NEW YORK
COURT"), and any appellate court from any such court, in any suit, action or
proceeding arising out of or relating to this Agreement or any Transaction
Document, or for recognition or enforcement of any judgment resulting from any
such suit, action or proceeding, and each party hereby irrevocably and
unconditionally agrees that all claims in respect of any such suit, action or
proceeding may be heard and determined in the New York Court.
(c) It will be a condition precedent to each party's right to bring any
such suit, action or proceeding that such suit, action or proceeding, in the
first instance, be brought in the New York Court (unless such suit, action or
proceeding is brought solely to obtain discovery or to enforce a judgment), and
if each such court refuses to accept jurisdiction with respect thereto, such
suit, action or proceeding may be brought in any other court with jurisdiction.
(d) No party may move to (i) transfer any such suit, action or
proceeding from the New York Court to another jurisdiction, (ii) consolidate any
such suit, action or proceeding brought in the New York Court with a suit,
action or proceeding in another jurisdiction unless such motion seeks solely and
exclusively to consolidate such suit, action or proceeding in the New York
Court, or (iii) dismiss any such suit, action or proceeding brought in the New
York Court for the purpose of bringing or defending the same in another
jurisdiction.
(e) Each party hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, (i) any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement in the New York Court,
(ii) the defense of an inconvenient forum to the maintenance of such suit,
action or proceeding in the New York Court, and (iii) the right to object, with
respect to such suit, action or proceeding, that such court does not have
jurisdiction over such party. Each party irrevocably consents to service of
process in any manner permitted by law. Notwithstanding the foregoing, this
SECTION 6.8 will not apply to any suit, action or proceeding by a party seeking
indemnification or contribution pursuant to this Agreement or otherwise in
respect of a suit, action or proceeding against such party by a third party if
such suit, action or proceeding by such party seeking indemnification or
contribution is brought in the same court as the suit, action or proceeding
against such party.
6.9. TITLES AND HEADINGS. Titles and headings to Sections herein are
inserted for convenience of reference only, and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
26
6.10. CERTAIN INTERPRETIVE MATTERS AND DEFINITIONS. (a) Unless the
context otherwise requires, (i) all references to Sections, Schedules or
Exhibits are to Sections, Schedules or Exhibits of or to this Agreement, (ii)
each term defined in this Agreement has the meaning assigned to it, (iii) each
accounting term not otherwise defined in this Agreement has the meaning assigned
to it in accordance with GAAP, (iv) "OR" is disjunctive but not necessarily
exclusive, (v) words in the singular include the plural and VICE VERSA, (vi) the
term "AFFILIATE" has the meanings given to those terms in Rule 12b-2 of
Regulation 12B under the Exchange Act, (vii) all references to "$" or dollar
amounts will be to lawful currency of the United States of America, (viii) "TO
THE KNOWLEDGE" of any Person means, when referring to an individual, the actual
knowledge of such individual, and when referring to any other Person, means the
actual knowledge of such Person's directors and officers, in each case without
undertaking any specific investigation for purposes of making any representation
or warranty in this Agreement, (ix) "PERSON" means an individual, corporation,
partnership, limited liability company, joint venture, association, trust,
unincorporated organization or other entity, (x) "MATERIAL ADVERSE EFFECT" means
any event or circumstance that alone or in conjunction with all other events or
circumstances would reasonably be expected to result in a material adverse
effect on the business of the Company and its subsidiaries or the consolidated
financial condition or results of operations or prospects of the business of the
Company and its subsidiaries, in each case taken as a whole, or that would
prevent or materially delay the consummation of the transactions contemplated by
this Agreement or the performance of the parties hereunder, and (xi) "REFERENCE
RATE" means the interest rate charged from time to time by Omnicom Finance Inc.
to wholly owned subsidiaries of Omnicom Group Inc.
(b) No provision of this Agreement will be interpreted in favor of, or
against, any of the parties hereto by reason of the extent to which any such
party or its counsel participated in the drafting thereof or by reason of the
extent to which any such provision is inconsistent with any prior draft hereof.
6.11. NO STRICT CONSTRUCTION. The language used in this Agreement will
be deemed to be the language chosen by the Stockholders, Parent and Purchaser to
express their mutual intent, and no rule of strict construction will be applied
against any party hereto.
6.12. COUNTERPARTS. This document may be executed in one or more
separate counterparts, each of which, when so executed, will be deemed to be an
original. Such counterparts will together constitute one and the same
instrument. This Agreement may be executed by facsimile signatures.
27
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
SENECA INVESTMENTS LLC
By: /s/ XXXXXXX X. XXXXXXX
-----------------------------------------
Chief Executive Officer
E-SERVICES INVESTMENTS AGENCY SUB LLC
By: Communicade LLC,
its managing member
By: SENECA INVESTMENTS LLC,
its managing member
By: /s/ XXXXXXX X. XXXXXXX
-----------------------------------------
Chief Executive Officer
THE STOCKHOLDERS:
/s/ XXXX XXX
----------------------------------------------
Xxxx Xxx
/s/ XXXX XXXXXXX
----------------------------------------------
Xxxx Xxxxxxx
/s/ XXXXXXX XXXXX
----------------------------------------------
Xxxxxxx Xxxxx
28
