EXHIBIT 2.1
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STOCK PURCHASE AGREEMENT
BY AND AMONG
EPRESENCE, INC.,
STRATEGIC NETWORK DESIGNS, INC.
AND
THE STOCKHOLDERS OF
STRATEGIC NETWORK DESIGNS, INC.
DATED
MAY 11, 2000
TABLE OF CONTENTS
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Page
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ARTICLE I PURCHASE AND SALE OF THE SND SHARES........................ 5
1.1 Purchase of the SND Shares from the Stockholders............. 5
1.2 Purchase Price............................................... 5
1.3 Adjustments Following Closing................................ 6
1.4 The Closing.................................................. 7
1.5 Further Assurances........................................... 8
ARTICLE II REPRESENTATIONS AND WARRANTIES REGARDING THE SND SHARES.... 8
2.1 Ownership of SND Shares...................................... 8
2.2 Authority.................................................... 9
2.3 Noncontravention............................................. 9
2.4 Investment Representations................................... 9
ARTICLE III REPRESENTATIONS AND WARRANTIES REGARDING SND............... 10
3.1 Organization................................................. 10
3.2 Capitalization............................................... 10
3.3 Authorization................................................ 11
3.4 Noncontravention............................................. 11
3.5 Notices and Consents......................................... 11
3.6 Financial Statements......................................... 11
3.7 Absence of Certain Changes or Events......................... 12
3.8 Intellectual Property........................................ 13
3.9 Year 2000 Compliance......................................... 14
3.10 Real Property............................................... 14
3.11 Leases...................................................... 14
3.12 Personal Property........................................... 15
3.13 Contracts................................................... 15
3.14 Books and Records........................................... 16
3.15 Tax Matters................................................. 16
3.16 Product and Service Warranties.............................. 17
3.17 Customers and Suppliers..................................... 17
3.18 Insurance................................................... 18
3.19 Legal Compliance............................................ 18
3.20 Environmental Matters....................................... 19
3.21 Litigation.................................................. 20
3.22 Confidential Information.................................... 20
3.23 Employees................................................... 20
3.24 Employee Benefits........................................... 20
3.25 Accounts Receivables........................................ 22
3.26 Business Relationships With Affiliates...................... 22
3.27 Brokers..................................................... 22
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3.28 Regulatory Approvals........................................ 23
3.29 Powers of Attorney and Suretyships.......................... 23
3.30 Banking Facilities.......................................... 23
3.31 Indebtedness to and from Officers, Directors and
Stockholders................................................ 23
3.32 Conflicts of Interest....................................... 23
3.33 Termination of Certain Agreements........................... 24
3.34 Disclosure.................................................. 24
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BUYER ................ 24
4.1 Organization................................................. 24
4.2 Capitalization............................................... 24
4.3 Authorization................................................ 24
4.4 Noncontravention............................................. 25
4.5 Buyer SEC Documents.......................................... 25
4.6 Absence of Certain Changes or Events......................... 25
4.7 Disclosure................................................... 25
ARTICLE V POST CLOSING COVENANTS AND AGREEMENTS....................... 26
5.1 SND Stock Options............................................ 26
5.2 Operation of SND Business.................................... 26
5.3 Location of SND Office....................................... 27
5.4 Registration of SND Options.................................. 27
5.5 Section 338(h)(10) Election.................................. 27
The Buyer shall be responsible for filing the Form 8023........... 27
5.6 Tax Returns and Cooperation.................................. 27
5.7 Non-Competition; Non-Solicitation............................ 28
5.8 Reformation.................................................. 29
5.9 Release of Personal Guarantees............................... 29
ARTICLE VI INDEMNIFICATION............................................. 29
6.1 Indemnification by the Stockholders.......................... 29
6.2 Indemnification by the Buyer................................. 30
6.3 Claims for Indemnification................................... 30
6.4 Payment of Indemnification Obligations....................... 32
6.5 Dollar Limitations........................................... 33
6.6 Survival..................................................... 34
6.7 Certain Limitations.......................................... 34
ARTICLE VII DISPUTE RESOLUTION......................................... 34
7.1 General...................................................... 34
7.2 Consent of the Parties....................................... 35
7.3 Arbitration.................................................. 35
ARTICLE VIII REGISTRATION RIGHTS...................................... 36
8.1 Registration of Shares....................................... 36
8.2 Registration Procedures...................................... 36
8.3 Requirements of Registering Stockholders..................... 37
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8.4 Indemnification.............................................. 37
8.5 Assignment of Rights......................................... 37
8.6 No Conflict with Existing Agreements......................... 37
ARTICLE IX DEFINITIONS................................................ 38
ARTICLE X MISCELLANEOUS.............................................. 40
10.1 Expenses.................................................... 40
10.2 Press Releases and Public Disclosure........................ 40
10.3 Prior Agreements............................................ 40
10.4 No Third Party Beneficiaries................................ 40
10.5 Entire Agreement............................................ 40
10.6 Succession and Assignment................................... 40
10.7 Counterparts................................................ 41
10.8 Headings.................................................... 41
10.9 Notices..................................................... 41
10.10 Governing Law.............................................. 42
10.11 Amendments and Waivers..................................... 42
10.12 Severability............................................... 42
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EXHIBITS
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Exhibit A Form of Escrow Agreement
Exhibit B-1 Form of Employment Agreement for Xxxxx Xxxxxx
Exhibit B-2 Form of Employment Agreement for Xxxxxx Xxxxx
Exhibit C Form of Non-Competition/Non-Solicitation Agreement
Exhibit D Form of Opinion of St. Xxxx & Xxxxx, L.L.C.
Exhibit E Form of Opinion of Xxxx and Xxxx LLP
SCHEDULES
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Schedule I List of Stockholders
Schedule II Performance Based Targets
Schedule III Third Party and Governmental Consents Required for Closing
Schedule IV Calculation of SND Consulting Revenue and Gross Margins for the
year ended December 31, 1999
Schedule V Certain Stockholders
Schedule VI Other Stockholders
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STOCK PURCHASE AGREEMENT
This Agreement is entered into as of May 11, 2000 by and among ePresence,
Inc., a Massachusetts corporation (the "Buyer"), Strategic Network Designs,
Inc., a New Jersey corporation ("SND") and the stockholders of SND listed on
Schedule I attached hereto (individually, a "Stockholder" and collectively, the
"Stockholders"). The Buyer, SND and the Stockholders are referred to
collectively herein as the "Parties."
PRELIMINARY STATEMENT
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1. The Stockholders collectively own all of the outstanding shares of the
capital stock of SND, which consists of 1,000,000 shares of Series A common
stock and 155,380 shares of Series B common stock (collectively, the "SND
Shares"), as set forth in more detail on Schedule I attached hereto.
2. The Buyer desires to purchase from the Stockholders, and the
Stockholders desire to sell to the Buyer all of the SND Shares, for the
consideration set forth below, subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the representations, warranties and
covenants herein contained and other good and valuable consideration, the
receipt of which is hereby acknowledged, and with the intent to be bound, the
Parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE SND SHARES
1.1 Purchase of the SND Shares from the Stockholders. Upon and subject to
the terms and conditions of this Agreement, at the closing of the purchase and
sale of the SND Shares contemplated by this Agreement (the "Closing"), each
Stockholder shall sell, transfer, convey, assign and deliver to the Buyer, and
the Buyer shall purchase, acquire and accept from each Stockholder, all of the
SND Shares owned by such Stockholder, as set forth on Schedule I attached
hereto.
1.2 Purchase Price. The purchase price to be paid by the Buyer for the SND
Shares shall be as follows:
(a) At the Closing, the Buyer shall deliver:
(i) To the Stockholders, the sum of Fourteen Million Seven Hundred
Fifteen Thousand One Hundred Eighty Six ($14,715,186) Dollars (the "Cash
Purchase Price"), by wire transfer of immediately available funds to the
designated accounts of each of the Stockholders or by check delivered to the
Stockholders' Representative (net of applicable withholding taxes and
professional fees described on Schedule I attached hereto), in accordance with
the percentages as set forth on Schedule I, attached hereto. Buyer shall
simultaneously
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remit to SND by wire transfer to an account designated by SND the applicable
withholding taxes described on Schedule I attached hereto.
(ii) (A) to SND a payment of Nine Hundred Ten Thousand Eight Hundred
($910,800) Dollars to be applied to the built in gain tax imposed under Section
1374 of the Code (the "Built-in Gain Tax") in accordance with Section 5.6
hereof.
(B) to SND a payment of Three Hundred Seventy Four Thousand
Fourteen ($374,014) Dollars to be applied to the New Jersey Corporate Tax (the
"NJ Tax"), in accordance with Section 5.6 hereof.
(iii) To the Stockholders, 221,713 shares of common stock (the
"Purchase Price Common Stock"), $0.01 par value per share, of the Buyer (the
"Buyer Common Stock") (representing the quotient of Three Million ($3,000,000)
Dollars divided by the average last reported sales price of the Buyer Common
Stock on the Nasdaq National Market during the ten (10) trading days ending two
(2) days prior to the Closing Date), allocated among the Stockholders as set
forth on Schedule I attached hereto.
(iv) To State Street Bank and Trust Company, as escrow agent (the
"Escrow Agent"), the sum of One Million Five Hundred Thousand ($1,500,000)
Dollars, (the "Escrow Amount") to be held in an interest-bearing escrow account
pursuant to the terms of the Escrow Agreement attached hereto as Exhibit A (the
"Escrow Agreement"), for the purpose of securing the indemnification obligations
of the Stockholders set forth in Article VI of this Agreement and satisfying any
purchase price adjustment as set forth in Section 1.3(d) of this Agreement. The
Escrow Amount shall be held and disbursed solely for the purposes and in
accordance with the terms of the Escrow Agreement.
(b) (i) If certain Consulting Revenue Targets (as defined below) and Gross
Margin Targets (as defined below) (collectively, the "Performance Based
Targets") as set forth on Schedule II attached hereto are achieved by the SND
Business Unit (as defined below), the Buyer shall pay to the Stockholders
additional consideration of up to Ten Million ($10,000,000) Dollars pursuant to
Section 1.2(b)(ii) in either cash (the "Contingent Cash Payment") or, in the
sole discretion of the Buyer, subject to the exceptions provided herein, a
combination of cash and shares of Buyer Common Stock (such shares, if any, the
"Contingent Shares") (the Contingent Cash Payment and Contingent Shares
together, the "Contingent Payment"), provided that the aggregate value of the
Contingent Shares issued may not be greater than sixty percent (60%) of the
total Contingent Payment (the "Contingent Shares Limit"). The number of
Contingent Shares to be issued, if any, shall be determined by (i) the Buyer
establishing the dollar value of that portion of the Contingent Payment to be
satisfied by the issuance of Contingent Shares (subject to the Contingent Share
Limit) and (ii) dividing that dollar value by the average last reported sales
price of the Buyer Common Stock on the Nasdaq National Market during the ten
(10) trading days prior to the Contingent Payment Date (as defined in Subsection
(ii) below). If the Buyer's common stock is not listed on the Nasdaq National
Market or the New York Stock Exchange and the Contingent Shares are not eligible
to be traded thereon, notwithstanding anything to the contrary provided herein,
the Buyer shall pay the Contingent Payment in cash. Any Contingent Payment made
pursuant to this Section 1.2(b)
shall be allocated among the Stockholders according to the percentages set forth
on Schedule I attached hereto.
(ii) Not later than thirty days from the first anniversary of the
Closing Date (the "Contingent Payment Date"), the Buyer shall deliver to the
Stockholders' Representative the Buyer's calculation of the Contingent Payment,
including the number of Contingent Shares to be issued, if any, as part of the
Contingent Payment, accompanied by an income statement for the Earnout Period
(as defined in Schedule II attached hereto) supporting such calculation
(together the "Contingent Payment Report") and Buyer shall pay such amount
immediately. The Buyer shall provide to such Stockholders' Representative
information and, if applicable, access to Buyer's representatives, as may be
reasonably required by him to verify the Contingent Payment Report. In the event
that the Stockholders' Representative shall give written notice to the Buyer
within thirty (30) days after receiving the Contingent Payment Report and the
Contingent Payment that the Stockholders' Representative objects to the Buyer's
determination of the amount paid as the Contingent Payment, the Buyer and
Stockholders' Representative shall engage (and each of the Buyer, on the one
hand, and the Stockholders, jointly and severally on the other hand, shall pay
one-half of the expense of such engagement) a "big five" accounting firm that is
mutually acceptable to the Buyer and the Stockholders' Representative to
determine whether any additional Contingent Payment is due. Prior to engaging
such accounting firm, the Buyer and the Stockholders Representative shall use
reasonable best efforts during a period not to exceed thirty (30) days to
resolve the disputes over the calculation of the Contingent Payment. In the
absence of fraud, the determination of such "big five" accounting firm shall be
final and -
(iii) binding on all parties. If no notice is provided by the
Stockholders' Representative within such 30-day period, the Contingent Payment
Report delivered by the Buyer shall be the final determination of the Contingent
Payment. For the avoidance of doubt and in order to assist the parties in the
calculation of the Contingent Payment amount, the Parties have attached as
Schedule IV to this Agreement the calculation of each of SND's Consulting
Revenue and Gross Margin for the year ended December 31, 1999. Buyer and the
Stockholders acknowledge and agree that the calculation of SND's Consulting
Revenue and Gross Margin during the Earnout Period (as defined in Schedule II
attached hereto) shall be calculated in the same manner and on the same basis
consistent with the practice and the methodology used in calculating such
amounts for the period ended December 31, 1999. The additional Contingent
Payment, if any, shall be made not later than fifteen (15) days after the final
determination of the Contingent Payment.
(iv) If there shall occur any reorganization, recapitalization,
consolidation, Change of Control, merger or sale involving the Buyer in which
the Buyer Common Stock is converted into or exchanged for securities, cash or
other property, then, following any such reorganization, recapitalization,
consolidation, merger or sale, the Buyer shall be required to satisfy the
Contingent Payment, if any, solely in cash.
(c) Notwithstanding anything in this Agreement to the contrary, the
Maximum Contingent Payment shall be deemed earned and (except as set forth in
(iv) below) it shall be immediately paid solely in cash upon the occurrence of
any of the following events or circumstances during the Earnout Period (as
defined in Schedule II attached hereto):
(i) the Buyer ceases to directly or indirectly own a majority of the
capital stock of SND;
(ii) the liquidation of dissolution of Buyer;
(iii) the Bankruptcy of Buyer; or
(iv) if either Xxxxxx Xxxxx or Xxxxx X. Xxxxxx is terminated by the
Buyer without cause or if there is a material change in either of their duties
or responsibilities or in their positions as SND Business Unit General Manager
and Vice President of ePresence Solutions unless otherwise mutually agreed
(provided that upon such event the Contingent Payment need not be paid solely in
cash).
(d) For purposes of this Agreement and all ancillary agreements and
documents related to this transaction, the following terms shall have the
following definitions:
(i) "Bankruptcy" shall mean:
(A) Buyer or its successor in interest makes an assignment for
the benefit of creditors or petitions or applies for the appointment of a
liquidator, receiver or custodian (or similar official) of all or any
substantial part of its assets, or Buyer or its successor in interest commences
any proceeding or case relating to it under the bankruptcy code or any other
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt or
similar law of any jurisdiction, or takes any action to authorize any of the
foregoing; or
(B) any petition or application of the type described in
subsection (A)(i) is filed or if any such proceeding or case is commenced
against Buyer or its successor in interest and is not dismissed within sixty
(60) days, or Buyer or its successor in interest indicates its approval thereof,
consents thereto or acquiesces therein, or an order is entered appointing any
such liquidator or receiver or custodian (or similar official), or adjudicating
Buyer and/or its successor in interest bankrupt or insolvent, or approving a
petition in any such proceeding, or a decree or order for relief is entered in
respect of Buyer of its successor in interest in an insolvency case under the
Bankruptcy Code or any other bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt or similar law of any jurisdiction.
(ii) "Change of Control" shall mean the occurrence of any of the
following:
(A) the Buyer consolidates with, or merges with or into, another
person (other than a director or indirect wholly-owned subsidiary) or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets or the assets of the Buyer and its subsidiaries
taken as a whole to any person, or any person consolidates with, or merges with,
or into, the Buyer, in any such event pursuant to a transaction in which the
outstanding voting stock of the Buyer is converted into or exchanged for cash,
securities or other property, other than any such transaction where the
outstanding voting stock of Buyer is converted into or exchange for voting stock
of the surviving or transferring corporation and the beneficial owners of the
voting stock of Buyer immediately prior to such transaction owned,
directly or indirectly, not less than a majority of the voting stock of the
surviving or transferring corporation immediately after such transaction, or
(B) the Buyer, either individually or in conjunction with one or
more subsidiaries, sells, assigns, conveys, transfers, leases or otherwise
disposes of, or its subsidiaries sell, assign, convey, transfer, lease or
otherwise dispose of, all or substantially all of the properties and assets of
the Buyer and its subsidiaries, taken as a whole (either in one transaction or a
series of related transactions), including capital stock of the subsidiaries, to
any person.
(iii) "Consulting Revenue Targets" and "Gross Margin Targets" shall
each have the respective meaning ascribed to them on Schedule II, attached
hereto. (iv) "Material Adverse Effect" shall mean a material adverse effect on
SND or its business, results of operations, financial condition, assets or
liabilities.
(v) The "SND Business Unit" shall mean all of the business conducted
by SND as of the Closing, and conducted after the Closing by the Buyer, but
excluding entities and businesses acquired by the Buyer after the Closing,
unless the Buyer and the Stockholders' Representative (as defined below)
mutually agree by written consent to include such an entity or business acquired
by the Buyer.
(vi) "Stockholders' Representative" means Xxxxxx Xxxxx (or, after his
resignation, his duly appointed replacement, as determined by Stockholders who
held not less than a majority of SND's capital stock immediately prior to the
Closing), who is hereby designated by each of the Stockholders to serve as the
representative of the Stockholders with respect to the matters expressly set
forth in this Agreement to be performed by the Stockholders' Representative.
Each of the Stockholders, by execution of this Agreement, hereby irrevocably
appoints the Stockholders' Representative as the agent, proxy and attorney-in-
fact for such Stockholder for the following purposes: (a) to consummate the
transactions contemplated herein, (b) to pay such Stockholder's expenses
incurred in connection with the negotiation and performance of this Agreement,
(c) to disburse any funds received hereunder to such Stockholder and each other
Stockholder, (d) to execute and deliver on behalf of all Stockholders the cross-
receipt referred to in Section 1.4(b)(viii), the Escrow Agreement attached
hereto as Exhibit A and such further instruments as the Buyer may reasonably
request to consummate the transactions contemplated hereby and (e) to negotiate,
settle, compromise and otherwise handle all disputes under this Agreement and
the Escrow Agreement, and to resolve any issues that might arise with respect to
the Contingent Payment, purchase price adjustments pursuant to Section 1.3(d)
and all claims for indemnification made by the Buyer. Each of the Stockholders
hereby agrees that (x) the Buyer may rely conclusively on the instructions and
decisions made by the Stockholders' Representative, (y) all actions and
decisions of the Stockholders' Representative shall be binding and conclusive on
and among the Stockholders and (z) no Stockholder shall bring any claim against
the Buyer or any of its directors, officers, employees or affiliates that is
based directly or indirectly on actions taken by the Stockholders'
Representative under or relating to this Agreement or the Escrow Agreement
referred to herein. Each of the Stockholders agrees that such agency and proxy
are coupled with an interest, are therefore
irrevocable without the consent of the Stockholders' Representative and shall
survive the death, incapacity or bankruptcy of any Stockholder.
1.3 Adjustments Following Closing.
(a) As promptly as possible following the Closing Date, SND shall
cause Amper, Politziner & Xxxxxx P.A. (the "SND Accountants") to conduct an
audit of the books and records of SND as of the business day immediately
preceding the Closing Date. Not later than sixty (60) days after the Closing
Date, SND shall cause the SND Accountants to deliver an audited balance sheet of
SND as of such date (the "Initial Final Closing Balance Sheet") to the Buyer and
its accountants. The Initial Final Closing Balance Sheet shall be prepared in
accordance with generally accepted accounting principles applied consistently
with SND's past practice and be accompanied by an unqualified opinion of the SND
Accountants.
(b) The Initial Final Closing Balance Sheet shall be binding upon the
Buyer and the Stockholders, unless the Buyer gives written notice to the
Stockholders' Representative, within forty-five (45) days after receipt of the
Initial Final Closing Balance Sheet, of disagreement with any of the values or
amounts shown on the Initial Final Closing Balance Sheet, specifying as to each
such item in reasonable detail, the nature and extent of such disagreement (the
"Dispute Notice"). If the Buyer and the Stockholders' Representative are unable
to resolve any such disagreement within forty-five (45) days after the date of
the Dispute Notice, the disagreement shall be submitted to arbitration with a
mutually agreed-upon "big five" independent certified public accounting firm
serving as arbitrator. Any decision of the arbitrator shall be binding on all
parties absent fraud. If as a result of the resolution of any dispute by
agreement or by arbitration pursuant to this Section 1.3, any amount shown in
the Initial Final Closing Balance Sheet is determined to be erroneous, such
erroneous amount shall be deleted from the Initial Final Closing Balance Sheet
and the correct amount shall be inserted in lieu thereof. The Initial Final
Closing Balance Sheet, as so corrected, shall constitute the final closing
balance sheet (the "Final Closing Balance Sheet") for purposes of this
Agreement.
(c) The Buyer, on the one hand, and the Stockholders, jointly and
severally on the other hand, shall each pay one-half of the fees and
disbursements of the SND Accountants and the arbitrator contemplated by Section
1.3(b).
(d) Based on the Final Closing Balance Sheet, to the extent SND's
Working Capital (as defined below) at the Closing Date is less than zero, the
Cash Purchase Price paid by the Buyer for the purchase of SND Shares shall be
reduced by that amount. For purposes of this Agreement, "Working Capital" means
total current assets (including unbilled accounts receivable), less total
current liabilities (but excluding payments for (i) the estimated Built-in Gains
Tax, (ii) the NJ Tax and (iii) withholding taxes set forth on Schedule I
attached hereto). In the event the adjustment provided in the foregoing sentence
results in a reduction in the purchase price under Section 1.2(a) paid by the
Buyer, the Stockholders' Representative shall pay to the Buyer on behalf of the
Stockholders, in cash, by wire transfer of immediately available funds to an
account designated by the Buyer, the amount by which the purchase price is so
reduced within fourteen (14) days of (i) the expiration of the forty-five (45)
day period after receipt of the Initial Final
Closing Balance Sheet, within which the Buyer must provide the Dispute Notice,
if any, or (ii) the final resolution of any dispute in connection with the
determination of the Final Closing Balance Sheet, and the Stockholders shall
promptly reimburse the Stockholders' Representative for such amount in
proportion to the percentages set forth on Schedule I attached hereto. To the
extent that any Stockholder does not timely satisfy its allocated portion of
such obligation, the Buyer in its sole discretion may elect to satisfy such
payment obligation from either or both, as the need may be, the Escrow Amount
and through offset against the Contingent Payments as permitted herein.
1.4 The Closing.
(a) The execution and delivery by the Parties of this Agreement shall
take place simultaneously with the Closing. The Closing shall take place at the
offices of Xxxx and Xxxx LLP in Boston, Massachusetts, commencing at 9:00 a.m.,
local time, on May 11, 2000, or, if all of the conditions to the obligations of
the Parties to consummate the transactions contemplated hereby have not been
satisfied or waived by such date, on such mutually agreeable later date as soon
as practicable after the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(the "Closing Date").
(b) Closing Deliverables; Conditions to Closing. At the Closing, the
responsible party shall deliver the following documents and satisfy the
following conditions to Closing:
(i) each Stockholder shall deliver to the Buyer one or more
certificates evidencing all of the SND Shares owned by such Stockholder, duly
endorsed in blank or with stock powers duly executed by the Stockholder;
(ii) the Buyer shall deliver (A) the Cash Purchase Price to the
bank account referenced in Section 1.2(a)(i), and (B) the portion of the
Purchase Price Common to each Stockholder as set forth opposite such
Stockholder's name on Schedule I attached hereto;
(iii) the Buyer, the Escrow Agent and the Stockholders'
Representative shall execute and deliver the Escrow Agreement in the form
attached hereto as Exhibit A;
(iv) the Buyer and each of Xxxxx Xxxxxx and Xxxxxx Xxxxx shall
execute and deliver an Employment Agreement in the form attached hereto as
Exhibit B-1 and Exhibit B-2, respectively;
(v) SND shall deliver the Non-Competition/Non-Solicitation
Agreements in the form attached hereto as Exhibit C;
(vi) St. Xxxx & Xxxxx, L.L.C. shall deliver to the Buyer an
opinion with respect to the matters set forth in Exhibit C attached hereto,
addressed to the Buyer and dated as of the Closing Date;
(vii) Xxxx and Xxxx LLP shall deliver to the Stockholders an
opinion with respect to the matters set forth in Exhibit D attached hereto,
addressed to the Stockholders and dated the Closing Date;
(viii) the Buyer and the Stockholders' Representative (on behalf
of the Stockholders) shall execute and deliver a cross-receipt evidencing the
purchase and sale of the SND Shares referred to above;
(ix) the Stockholders and SND shall deliver to the Buyer all
third party and governmental consents, as set forth on Schedule III attached
hereto;
(x) SND shall deliver to the Buyer a certificate from the
Secretary of State of the State of New Jersey as to the good standing, due
incorporation, legal existence and payment of all franchise taxes of SND;
(xi) SND shall deliver to the Buyer copies of resolutions of the
board of directors and the Stockholders authorizing the execution, delivery and
performance by SND and the Stockholders of this Agreement and all transactions
contemplated herein, including a resolution regarding the full accelerated
vesting of the Series B common stock one day prior to the Closing Date;
(xii) SND shall deliver to the Buyer a copy of the resolutions of
the board of directors regarding the recipients and numbers of SND Stock Options
issued immediately before closing;
(xiii) SND shall deliver to the Buyer evidence of satisfaction of
all long-term debt; and
(xiv) Buyer shall deliver the Escrow Amount to the Escrow Agent.
1.5 Further Assurances. At any time and from time to time after the
Closing, at the reasonable request of the Buyer and without further
consideration, the Stockholders shall promptly execute and deliver such
instruments of sale, transfer, conveyance, assignment and confirmation, and take
all such other action as the Buyer may reasonably request, more effectively to
transfer, convey and assign to the Buyer, and to confirm the Buyer's title to,
all of the SND Shares, to put the Buyer through its ownership of the SND Shares
in actual possession and operating control of the assets (including without
limitation the original corporate minute books of SND and all corporate seals),
properties and business of SND, and to carry out the purpose and intent of this
Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES REGARDING THE SND SHARES
Each of the Stockholders severally represents and warrants to the Buyer as
follows:
2.1 Ownership of SND Shares. Each Stockholder has good and marketable
title, free and clear of any and all Security Interests (as defined below), to
all of the SND Shares listed on Schedule I attached hereto as being owned by him
and does not own or have any rights to acquire any other SND Shares. Each
Stockholder has the full right, power and authority to sell, transfer, convey,
assign and deliver to the Buyer at the Closing the SND Shares owned by him and,
upon consummation of the purchase and sale contemplated hereby, the Buyer will
acquire
from him good and marketable title to such SND Shares, free and clear of all
Security Interests, other than those created or arising by reason of any action
of the Buyer. For purposes of this Agreement, "Security Interest" means any
mortgage, pledge, security interest, encumbrance, charge, lien, contractual
restriction or covenant, option or other adverse claim (whether arising by
contract or by operation of law).
2.2 Authority. Each Stockholder has all requisite power and authority to
execute and deliver this Agreement and to perform his or its obligations
hereunder. This Agreement has been duly and validly executed and delivered by
him, and constitutes a valid and binding obligation of him, enforceable against
him in accordance with its terms.
2.3 Noncontravention. Neither the execution and delivery of this Agreement
by such Stockholder, nor the consummation by him of the transactions
contemplated hereby, will (a) conflict with, result in a breach of, constitute a
default under, or require any notice, consent or waiver under, any agreement or
instrument to which such Stockholder is a party or by which such Stockholder is
bound, (b) result in the imposition of any Security Interest upon the SND Shares
owned by him, or (c) violate any law, rule, regulation, order, writ, injunction
or decree applicable to such Stockholder or to the SND Shares owned by such
Stockholder.
2.4 Investment Representations.
(a) Such Stockholder is acquiring the Purchase Price Common Stock and
the Contingent Shares, if any, (collectively, the "Purchase Price Securities"),
to be issued to such Stockholder pursuant to this Agreement for his or its own
account for investment only, and not with a view to, or for sale in connection
with, any distribution of such shares in violation of the Securities Act of
1933, as amended (the "Securities Act"), or any rule or regulation under the
Securities Act.
(b) Such Stockholder has had adequate opportunity to obtain from
representatives of the Buyer such information, in addition to the
representations set forth in the Agreement, as is necessary to evaluate the
merits and risks of such Stockholder's acquisition of the Purchase Price
Securities.
(c) Such Stockholder has sufficient experience in business, financial
and investment matters to be able to evaluate the risks involved in the
acquisition of the Purchase Price Securities and to make an informed investment
decision with respect to such acquisition.
(d) Such Stockholder understands that the Purchase Price Securities
have not been registered under the Securities Act and are "restricted
securities" within the meaning of Rule 144 under the Securities Act; and that
until such shares are so registered, the Purchase Price Securities cannot be
sold, transferred or otherwise disposed of unless they are subsequently
registered under the Securities Act or an exemption from registration is then
available.
(e) Such Stockholder agrees and understands that until the Purchase
Price Securities are sold under an effective registration statement pursuant to
Article VIII or sold pursuant to Rule 144 under the Securities Act, a legend
substantially in the following form may be placed on the certificate
representing the Purchase Price Securities to be issued to the Stockholder:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be sold,
transferred or otherwise disposed of in the absence of an effective
registration statement under such Act or an opinion of counsel
satisfactory to the corporation to the effect that such registration
is not required."
(f) Each of the Stockholders represents that he, she or it (i) is an
"accredited investor" within the meaning of Rule 501(a) under the Securities Act
or (ii) has utilized a purchaser representative in accordance with Regulation D
under the Securities Act.
ARTICLE III
REPRESENTATIONS AND WARRANTIES REGARDING SND
SND and each of Xxxxx Xxxxxx, Xxxxxx Xxxxx and the other Stockholders
listed on Schedule VI attached hereto, jointly and severally, represents and
warrants to the Buyer that the statements contained in this Article III are true
and correct as of the date of this Agreement, except as set forth in the
disclosure schedule provided by SND to, and accepted by, the Buyer (the
"Disclosure Schedule"). The Disclosure Schedule shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Article
III.
3.1 Organization. SND is a corporation duly organized, validly existing and
in good standing under the laws of the State of New Jersey, and has all
requisite power and authority to own its properties and to carry on its business
as now being conducted to execute and deliver this Agreement and the agreements
contemplated herein, and to consummate the transactions contemplated hereby and
thereby. True, correct and complete copies of the Certificate of Incorporation
and Bylaws of SND, as amended to date, have been previously delivered to the
Buyer, are complete and correct, and no amendments have been made thereto or
have been authorized since the date thereof. SND does not have any subsidiaries,
nor directly or indirectly own any equity interest, partnership or similar
interest in any other corporation, partnership, joint venture or other entity.
SND is duly qualified to do business and is in good standing in all
jurisdictions in which its ownership of property or character of its business
requires such qualification, except where the failure to so qualify would not
have a Material Adverse Effect. Section 3.1 of the Disclosure Schedule sets
forth a true, correct and complete list of such foreign jurisdictions.
3.2 Capitalization. The authorized capital stock of SND consists of
2,000,000 shares of common stock, no par value, of which 1,000,000 shares are
designated as Series A Common Stock and 1,000,000 shares are designated as
Series B Common Stock (collectively, the "SND Common Stock"); 1,000,000 shares
of the Series A Common Stock are issued and outstanding and 155,380 shares of
Series B Common Stock are issued and outstanding as of the date of this
Agreement; all outstanding shares are held of record and beneficially by the
Stockholders as set forth on Schedule I attached hereto. None of the shares of
SND Common Stock are held in the treasury of SND. All of the outstanding SND
Shares are duly authorized, validly issued, fully paid and nonassessable and
were issued without violation of any preemptive rights. There are no outstanding
or authorized options, warrants, rights, agreements, obligations or commitments
to which SND is a party or which are binding upon SND providing for the
issuance, disposition or
acquisition, contingent or otherwise, of any of its capital stock, or any
other securities exercisable therefore or convertible thereto. There are no
outstanding or authorized options, warrants, rights, agreements, obligations or
commitments to which SND is a party or which are binding upon SND providing for
the issuance, disposition or acquisition, contingent or otherwise, of any of its
capital stock, or any other securities exercisable therefore or convertible
thereinto. There are no outstanding or authorized stock appreciation, phantom
stock or similar rights with respect to SND. There are no agreements, voting
trusts, proxies or understandings with respect to the voting, or registration
under the Securities Act of any capital stock of SND. All of the issued and
outstanding SND Shares were issued in compliance with applicable federal and
state securities laws.
3.3 Authorization. The execution and delivery by SND of this Agreement, and
the consummation by SND of the transactions contemplated hereby, have been duly
authorized by all necessary corporate action on the part of SND. This Agreement
constitutes a valid and binding obligation of SND, enforceable against SND in
accordance with its terms.
3.4 Noncontravention. The purchase and sale of the SND Shares contemplated
by this Agreement will not, with or without the giving of notice or the passage
of time or both, (a) violate the provisions of any law, rule or regulation
applicable to SND; (b) violate the provisions of the Certificate of
Incorporation or Bylaws of SND; (c) violate any judgment, decree, order or award
of any court, governmental body or arbitrator applicable to SND; (d) conflict
with, result in the breach or termination of, constitute a default under, or
cause the creation of any Security Interest upon SND's assets pursuant to, any
Contract (as defined in Section 3.13(a)) or Permit (as defined in Section 3.19)
of SND; or (e) cause any acceleration under, or cause the creation of, any
Security Interest upon the assets or properties of SND pursuant to any
indenture, mortgage, deed of trust or other instrument or agreement to which SND
is a party or by which SND or any of its properties may be bound.
3.5 Notices and Consents. Section 3.5 of the Disclosure Schedule sets forth
a true, correct and complete list of each notice, consent, approval, waiver,
authorization, novation or amendment required to be obtained prior to or as a
result of the consummation of the purchase and sale of SND Shares contemplated
by this Agreement.
3.6 Financial Statements.
(a) SND has previously delivered to the Buyer its audited financial
statements as of and for the year ended December 31, 1999 and 1998 and its
unaudited financial statements as of and for the quarter ended March 31, 2000.
Such financial statements (i) have been prepared in accordance with United
States generally accepted accounting principles ("GAAP") applied on a consistent
basis throughout the periods covered thereby, (ii) fairly present, as of the
dates and for the periods indicated, the financial position and the results of
operations of SND, (iii) are consistent with the books and records of SND, and
(iv) with respect to the audited financial statements, are certified without
qualification by the SND Accountants.
(b) SND has no liability or obligation, secured or unsecured, whether
accrued, absolute, contingent, unasserted or otherwise, other than (i) the
liabilities shown on SND's audited balance sheet as of December 31, 1999 or the
unaudited balance sheet as of Xxxxx 00, 0000
(xxx "Xxxxxxx Xxxxxx"), (xx) liabilities incurred in the ordinary course of
business since December 31, 1999 or March 31, 1999, as applicable. The amounts
shown as accrued for income tax in the financial statements as of December 31,
1999 and March 31, 2000 are sufficient for the payment of all accrued and unpaid
federal, state and local income taxes, interest, penalties, assessments or
deficiencies applicable to SND, whether disputed or not, for the applicable
period then ended.
3.7 Absence of Certain Changes or Events. Since December 31, 1999 (the date
of the last audited financial statement received by SND):
(a) there has been no matter resulting in a Material Adverse Effect and
there has not occurred, nor is there any threatened occurrence of, any event or
development which could reasonably be expected to have a Material Adverse
Effect.
(b) SND has not entered into any transaction which is not in the usual
and ordinary course of its business. Without limiting the generality of the
foregoing, SND has not:
(i) incurred any material obligation or liability for borrowed
money;
(ii) discharged or satisfied any lien or encumbrance or paid any
obligation or liability other than current liabilities reflected in the Balance
Sheet;
(iii) mortgaged, pledged or subjected to lien, charge or other
encumbrance any of its properties or assets;
(iv) sold or purchased, assigned or transferred any of its tangible
assets or cancelled any debts or claims, except for inventory sold in the
ordinary course of business;
(v) made any material amendment to or termination of any Contract
or done any act or omitted to do any act which would cause the breach of any
Contract;
(vi) suffered any losses of personal property, whether insured or
uninsured, in excess of Five Thousand ($5,000) Dollars in the aggregate, or
waived any rights of any value;
(vii) authorized any declaration or payment of dividends by SND, or
paid any such dividends, or authorized any transfer of assets of any kind
whatsoever by SND to any of its stockholders with respect to any shares of its
capital stock;
(viii) received notice of any litigation or warranty claim;
(ix) made any material change in the terms, status or funding
condition of any Employee Benefit Plan, as defined in Section 3.24 hereof;
(x) engaged any new employee for a salary and bonus in excess of
One Hundred Thousand ($100,000) Dollars per annum;
(xi) made, or committed to make, any changes in the compensation
payable to any officer, director, employee or agent of SND, or any bonus payment
or similar arrangements made to or with any of such officers, directors,
employees or agents in excess of Fifteen Thousand ($15,000) Dollars per annum;
(xii) incurred any capital expenditure in excess of Fifteen
Thousand ($15,000) Dollars in any instance or Twenty Five Thousand ($25,000)
Dollars in the aggregate; or
(xiii) made any material alteration in the manner of keeping the
books, accounts or records of SND, or in the accounting practices therein
reflected including, without limitation, regarding revenue recognition.
3.8 Intellectual Property.
(a) SND owns or has the right to use all Intellectual Property (as
defined below) necessary for the operation of its business as presently
conducted (the "SND Intellectual Property"). Each item of SND Intellectual
Property will be owned or available for use by SND on identical terms and
conditions immediately following the Closing. SND has taken all reasonable
measures to protect the proprietary nature of each item of SND Intellectual
Property, and to maintain in confidence all trade secrets and confidential
information, that it owns or uses. Section 3.8(a) of the Disclosure Schedule
sets forth a true, correct and complete list of all SND Intellectual Property
that is owned by SND. No other person or entity has any rights to any of the
owned SND Intellectual Property, except pursuant to agreements and licenses
specified in Section 3.8(c) of the Disclosure Schedule, and, to the knowledge of
the Stockholders and SND, no person or entity is infringing, violating or
misappropriating any SND Intellectual Property. No owned SND Intellectual
Property is subject to any Security Interest. SND has made available to the
Buyer correct and complete copies of all written documentation evidencing
ownership or licensing of, and any claims or disputes relating to, each item of
SND Intellectual Property (other than off-the-shelf software programs licensed
by SND pursuant to "shrink-wrap" licenses). For purposes of this Agreement,
"Intellectual Property" means all (i) patents and patent applications, (ii)
trademarks, servicemarks, logos, tradenames and registrations, and applications
for registration, thereof, (iii) copyrights and registrations thereof, (iv)
formulas, processes, tools, techniques, technical data, research and development
information or other confidential information used in connection with or
necessary to the business of SND, (v) computer software, data and documentation,
(vi) trade secrets and confidential business information, whether patentable or
unpatentable and whether or not reduced to practice, know-how, manufacturing and
production processes and techniques, research and development information,
copyrightable works, financial, marketing and business data, pricing and cost
information, business and marketing plans and customer and supplier lists and
information, and (vii) other proprietary rights relating to any of the
foregoing.
(b) None of the activities or business presently or previously
conducted by SND infringes or violates, or constitutes a misappropriation of,
any Intellectual Property rights of any other person or entity. Neither SND nor
any Stockholder has received any complaint, claim or notice alleging any such
infringement, violation or misappropriation.
(c) Section 3.8(c) of the Disclosure Schedule is a true, correct and
complete list of each license or other agreement pursuant to which SND has
licensed, distributed or otherwise granted any rights to any third party with
respect to, any of SND Intellectual Property. SND has not agreed to indemnify
any person or entity for or against any infringement, misappropriation, or other
conflict with respect to any item of Intellectual Property that SND owns or
uses.
(d) Section 3.8(d) of the Disclosure Schedule identifies each material
item of SND Intellectual Property that is owned by a party other than SND, and
the license or agreement pursuant to which SND uses it. With respect to each
such item of Intellectual Property, the license or agreement covering such item
is valid and enforceable in accordance with its terms and will continue to be
valid and enforceable after the Closing.
3.9 Year 2000 Compliance.
(a) All internal computer systems that are material to SND's business
and operations are Year 2000 Compliant and SND has experienced no Year 2000-
related problems with its internal systems. All the goods, materials, services,
products, software or other items currently offered for sale or license, under
development or previously sold or licensed by SND, and with respect to which any
of them has any warranty, maintenance, support, upgrade or other obligation or
liability, are Year 2000 Compliant. For purposes of this Agreement, "Year 2000
Compliant" means, with respect to computer and electronic systems, that such
system, when used properly in accordance with its documentation, is capable of
correctly receiving, processing and providing date data within and between the
twentieth and twenty-first centuries; provided that all applications, hardware
and other systems used in conjunction with such system correctly exchange date
data with or provide data to such system.
(b) SND has not received any written claim or demand, nor do the
Stockholders or SND have knowledge of any problem or pending or threatened claim
or demand, asserting any problems associated with the Year 2000.
3.10 Real Property. SND does not own, and has never owned, any real
property.
3.11 Leases. Section 3.11 of the Disclosure Schedule sets forth a true,
correct and complete list as of the date hereof of all leases of real property,
identifying separately each ground lease to which SND is a party (collectively,
the "Leases"). True, correct and complete copies of all Leases and all
amendments, modifications and supplemental agreements thereto, have previously
been delivered by the Stockholders or SND to the Buyer. The Leases are in full
force and effect, are binding and enforceable against each of the parties
thereto in accordance with their respective terms and have not been modified or
amended since the date of delivery to the Buyer. No party to any Lease has sent
written notice to the other claiming that such party is in default thereunder
and that such default remains uncured. There has not occurred any event which
would constitute a material breach of or default by SND or, to the knowledge of
SND, any other party, in the performance of any covenant, agreement or condition
contained in any Lease, nor has there occurred any event which with the passage
of time or the giving of notice or both would constitute such a material breach
or material default. SND is not obligated to pay any leasing or brokerage
commission relating to any Lease and will not have any obligation to pay
any leasing or brokerage commission upon the renewal of any Lease. No
construction, alteration or other leasehold improvement work with respect to any
of the Leases remains to be paid for or to be performed by SND. The financial
statements referred to in Section 3.6 above contain adequate reserves to provide
for the restoration of the property subject to the Leases at the end of the
respective Lease terms, to the extent required by the Leases.
3.12 Personal Property.
(a) Section 3.12(a) of the Disclosure Schedule sets forth (i) a true,
correct and complete list as of the Closing Date of all items of tangible
personal property, including without limitation purchased and capitalized
software, owned by SND as of the date hereof, or not owned by SND but in the
possession of or used in the business of SND (collectively, the "Personal
Property"), other than individual assets with a book value or annual rental
payments of less than Five Thousand ($5,000) Dollars; and (ii) a description of
the owner of, and any agreement relating to the use of, each item of Personal
Property not owned by SND and the circumstances under which such Property is
used. Each item of Personal Property not owned by SND is in such condition that
upon the return of such property to its owner in its present condition at the
end of the relevant lease term or as otherwise contemplated by the applicable
agreement between the respective entity and the owner or lessor thereof, the
obligations of the respective entity to such owner or lessor will be discharged.
(b) SND owns or leases all items of Personal Property necessary for
the conduct of its business as presently conducted by SND. Each such item is
free from defects, has been maintained in accordance with normal industry
practice, is in good operating condition and repair (subject to normal wear and
tear) and is suitable for the purposes for which it presently is used. All such
items are located at SND's facility at 00 Xxxxxx Xxxxxx, Xxxxx, Xxx Xxxxxx
00000-0000.
(c) No item of Personal Property is subject to any Security Interest.
SND has good and marketable title to each item of Personal Property. No officer,
director, Stockholder or employee of SND owns directly or indirectly any of the
Personal Property.
3.13 Contracts.
(a) Section 3.13 of the Disclosure Schedule sets forth a true, correct
and complete list of each of the following contracts, agreements or commitments
(written or oral) to which SND is a party (other than those listed in Section
3.8 of the Disclosure Schedule): (i) any contract, agreement or commitment
providing for the payment or receipt by SND of an amount in excess of Ten
Thousand ($10,000) Dollars per year which is not terminable by SND without
penalty on sixty (60) days or less notice; (ii) any contract, agreement or
commitment concerning ownership of ideas or inventions or work-for-hire; (iii)
any contract, agreement or commitment with any current or former stockholders,
officers, directors or employees of or consultants to SND, except employee-at-
will arrangements; (iv) any partnership or joint venture agreement; (v) any
lease or sublease of real estate; (vi) any agreement for the borrowing of money
or guarantee of indebtedness; (vii) any agreement with a customer or others
under which SND has granted exclusive rights or "most favored nation" pricing
terms; (viii) any agreement containing a non-compete covenant or non-
solicitation obligation; (ix) any agreement relating to the
acquisition or disposition of assets outside the ordinary course of business
having a value of more than Five Thousand ($5,000) Dollars individually or in
the aggregate; (x) any pledge or title retention agreement; (xi) any collective
bargaining agreements; and (xii) any other material agreements (collectively,
together with the agreements and licenses listed in Sections 3.8 and 3.17 of the
Disclosure Schedule, the "Contracts").
(b) SND has previously delivered to the Buyer a complete and accurate
copy of each Contract. Each Contract is a valid and binding agreement between
SND and the other party or parties thereto, and will continue to be so
immediately following the Closing; no defaults or breaches exist under any of
the Contracts on the part of SND or, to the knowledge of SND, any other party
thereto, and none will arise as a result of the purchase and sale of SND Shares
contemplated by this Agreement, that would give rise to a right to terminate
such Contract on the part of the other party.
(c) SND has no written or oral contracts which are expected to be
performed at, or to result in, a loss.
3.14 Books and Records. The corporate minute books, financial, tax and
accounting records and other business records of SND are accurate and complete
in all material respects and have been maintained and retained in accordance
with good business practice and in accordance with all applicable procedures
required by laws and regulations.
3.15 Tax Matters.
(a) SND has filed on a timely basis all federal, state, local and
foreign Tax (as defined below) returns that were required to be filed, all of
which returns were accurate and complete in all material respects. SND has paid
on a timely basis all Taxes which have become due and withheld and has remitted
on a timely basis any Taxes required to be withheld by it. The unpaid Taxes of
SND for tax periods through the Closing Date do not exceed the accruals and
reserves for Taxes set forth on the Final Closing Balance Sheet of SND. No
unsatisfied deficiencies have been asserted or assessed against SND as a result
of any audit by the Internal Revenue Service or any state or local taxing
authority, and no examination or audit by any such authority is currently in
progress or, to the knowledge of SND, threatened.
(b) SND is not and has never been a member of a group of corporations
with which it has filed (or been required to file) consolidated, combined or
unitary Tax returns. SND has delivered to the Buyer complete and accurate copies
of all federal, state and local income and property Tax returns, examination
reports and statements of deficiencies assessed against or agreed to by SND
since December 31, 1996. No examination or audit of any Tax return of SND by any
governmental entity is currently in progress or, to the knowledge of SND,
threatened. SND has not waived any statute of limitations with respect to Taxes
or agreed to an extension of time with respect to a Tax assessment or
deficiency. SND (i) is not a "consenting corporation" within the meaning of
Section 341(f) of the Internal Revenue Code of 1986, as amended (the "Code"),
and none of the assets of SND are subject to an election under Section 341(f) of
the Code; (ii) has not been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(l)(A)(ii) of the Code; (iii) has no actual or
potential liability for any Taxes of any person or entity under
Treasury Regulation Section 1.1502-6 (or any similar provision of federal,
state, local or foreign law), or as a transferee or successor, by contract, or
otherwise; and (iv) is not and has not been required to make a basis reduction
pursuant to Treasury Regulation Section 1.1502-20(b) or Treasury Regulation
Section 1.337(d)-2(b). SND has not been informed by any jurisdiction that the
jurisdiction believes that SND was required to file any Tax return that was not
filed. None of the assets of SND is property that is required to be treated as
being owned by any other person pursuant to the provisions of former Section
168(f)(8) of the Code. None of the assets of SND is "tax-exempt use property"
within the meaning of Section 168(h) of the Code. None of the assets of SND
directly or indirectly secures any debt the interest on which is tax exempt
under Section 103(a) of the Code. SND has not undergone a change in its method
of accounting resulting in an adjustment to its taxable income pursuant to
Section 481(a) of the Code. No state or federal net operating loss of SND
determined as of the Closing Date is subject to limitation on its use pursuant
to Section 382 of the Code or comparable provisions of state law as a result of
any "ownership change" within the meaning of Section 382(g) of the Code
occurring prior to the Closing Date.
(c) At all times since its incorporation, for federal income tax
purposes, SND has validly been treated as an "S corporation" within the meaning
of Section 1361(a) of the Code and has validly been treated in a similar manner
for purposes of the income tax laws of all states in which it has been subject
to taxation. SND has not at any time had any "net unrealized built-in gain"
within the meaning of Section 1374(d) of the Code that would give rise to
taxation pursuant to Section 1374 of the Code (or comparable provisions of state
law) if all of the assets of SND were disposed of as of the end of the day
immediately preceding the Closing Date at their respective fair market values.
(d) "Taxes" means all taxes, charges, fees and similar assessments
(including without limitation those relating to income, receipts, excise, real
property, personal property, sales, use, transfer, withholding, employment,
payroll, franchises and value added, and customs and import duties and fees)
imposed by the United States of America or any state, local or foreign
government, or any agency thereof, including any interest, fines or penalties
with respect thereto.
3.16 Product and Service Warranties. There are no claims, or to the
knowledge of SND and/or the Stockholders, no threatened claims, including,
without limitation, warranty claims or product liability claims arising out of
or related to SND's reselling of products and services in its prior business as
a value added reseller, other than as set forth in Section 3.16 of the
Disclosure Schedule. No product or service provided by SND, is subject to any
guaranty, warranty, right of return, refund or credit or other indemnity beyond
the applicable standard warranty terms which are set forth in Section 3.16 of
the Disclosure Schedule.
3.17 Customers and Suppliers.
(a) Section 3.17(a) of the Disclosure Schedule sets forth a true,
correct and complete list of the names of each customer of SND which accounts
for more than 5% of the net sales of SND in the year ended December 31, 1999
(each, a "Significant Customer"). Work performed for the Significant Customers
is on a project basis and upon completion, there is no commitment from such
Significant Customers to continue to purchase products or services.
Other than the cessation of work for the customers solely as a result of the
completion of existing projects, no Significant Customer has indicated to SND
that it will stop or decrease purchasing products or services from SND in the
future or that it wishes to return or receive a refund for any products
previously purchased from SND.
(b) Section 3.17(b) of the Disclosure Schedule sets forth a true,
correct and complete list of each supplier that is the sole supplier of any
significant product to SND, and lists the names of each of the suppliers of SND
which accounted for a dollar volume of purchases by SND in excess of Twenty Five
Thousand ($25,000) Dollars in the year ended December 31, 1999 (each, a
"Significant Supplier"). No Significant Supplier has indicated within the past
year that it will stop, or decrease the rate of, supplying products to SND. SND
is not more than sixty (60) days in arrears in any trade accounts payable or
other payments owing to any supplier.
3.18 Insurance.
(a) Section 3.18 of the Disclosure Schedule sets forth a true, correct
and complete list of all fire, theft, casualty, general liability, workers
compensation, business interruption, environmental impairment, product
liability, automobile and other insurance policies maintained on the lives of
any of their employees, specifying the type of coverage, the amount of coverage,
the premium, the insurer and the expiration date of each such policy
(collectively, the "Insurance Policies") and all claims made under such
Insurance Policies since January 1, 1998. True, correct and complete copies of
all Insurance Policies have been previously delivered by the Stockholders or SND
to the Buyer. The Insurance Policies are in full force and effect. All premiums
due on the Insurance Policies or renewals thereof have been paid, and there is
no default under the Insurance Policies. SND has not received any notice or
other communication from any issuer of the Insurance Policies since January 1,
1998 canceling or materially amending any of the Insurance Policies, materially
increasing any deductibles or retained amounts thereunder, or materially
increasing the annual or other premiums payable thereunder, and, to the
knowledge of the Stockholder and SND, no such cancellation, amendment or
increase of deductibles, retainages or premiums is threatened. SND has no
outstanding claims or any dispute with any insurance carrier regarding claims,
settlements or premiums and SND has not failed to give any notice or present any
claim under any Insurance Policy in due and timely fashion. There are no
outstanding requirements or recommendations by any issuer of the Insurance
Policies or by any Board of Fire Underwriters or other similar body exercising
similar functions or by any governmental authority exercising similar functions
which requires or recommends any changes in the conduct of the business of, or
any repairs or other work to be done on or with respect to any of the properties
or assets of, SND.
(b) No product liability, professional liability or similar claim has
ever been made against SND.
3.19 Legal Compliance. SND possesses all permits, licenses, registrations,
certificates, orders, approvals, franchises, variances and similar rights issued
by or obtained from any governmental, regulatory or administrative authority or
agency, or any other third party, that are required to conduct the business of
SND as currently conducted, and to own and operate its business, each of which
is listed in Section 3.19 of the Disclosure Schedule (collectively, the
"Permits"). SND, and the conduct and operations of SND's business, are, and have
been, in
compliance with, and SND has not received any notices of violation with respect
to, each applicable law (including rules, regulations, ordinances and codes
thereunder) of any federal, state, local or foreign government or governmental
entity (including without limitation any relating to employment or employment
discrimination, sexual harassment, public and employee health and safety,
environmental protection, hazardous waste or applicable building, zoning and
other laws or corrupt practices).
3.20 Environmental Matters.
(a) The operations of SND have complied with all applicable
Environmental Laws (as defined below) and there is no pending or, to the
knowledge of SND and the Stockholders, threatened administrative, civil or
criminal litigation, notice of violation, formal or informal administrative
proceeding, or investigation, inquiry or information request by any other party,
including any governmental entity, relating to any Environmental Law involving
or relating to SND or any predecessor business or company acquired by SND or any
present or former Affiliate. "Environmental Law" means any federal, state or
local law, statute, rule or regulation or the common law relating to the
environment or occupational health and safety, including without limitation any
statute, regulation or order pertaining to (i) treatment, storage, disposal,
generation and transportation of industrial, toxic or hazardous substances or
solid or hazardous waste; (ii) air, water and noise pollution; (iii) groundwater
and soil contamination; (iv) the release or threatened release into the
environment of industrial, toxic or hazardous substances, or solid or hazardous
waste, including without limitation emissions, discharges, injections, spills,
escapes or dumping of pollutants, contaminants or chemicals; (v) the protection
of wild life, marine sanctuaries and wetlands, including without limitation all
endangered and threatened species; (vi) storage tanks, vessels and containers;
(vii) underground and other storage tanks or vessels, abandoned, disposed or
discarded barrels, containers and other closed receptacles; (viii) health and
safety of employees and other persons; and (ix) manufacture, processing, use,
distribution, treatment, storage, disposal, transportation or handling of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or oil or petroleum products or solid or hazardous waste. For purposes of this
Agreement, the terms "release," "environment," "contaminant," "pollutant,"
"petroleum," (including petroleum-containing products and petroleum fractions),
and "hazardous substances" shall have the same meanings as they do in the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended. For purposes of this Agreement, the terms "waste," "solid waste,"
"pollutant," "contaminant," and "chemical" shall have the meanings set forth in
the Resource Conservation and Recovery Act, as amended. For purposes of this
Agreement, the term "toxic material" shall have the meaning set forth in the
Toxic Substances Control Act.
(b) No wastes, hazardous substances, pollutants or contaminants have
been transported, stored or disposed of by SND in a way that violated any
Environmental Law, or in a way that has, or could give rise to a claim of
liability against SND, or against the Buyer if the Closing occurs.
(c) No liens have arisen under or pursuant to any Environmental Law on
any real property or facility owned, operated or controlled by SND, [because of
the actions or inactions of SND] and no action has been taken by any
governmental entity or, is contemplated, threatened or in process, that [as a
result of SND's operations could reasonably be expected to]
subject any such property or facility to such a lien, in connection with the
presence of any material regulated by an Environmental Law.
(d) Neither SND nor any stockholder is aware of any environmental
reports, investigations or audits relating to premises currently or previously
owned or operated by SND.
3.21 Litigation. (a) There is no action, suit or proceeding to which SND is
a party (either as a plaintiff or defendant) pending or, threatened before any
court or governmental agency, authority, body or arbitrator and there is no
basis for any such action, suit or proceeding; (b) neither SND, nor any officer,
director or employee has been permanently or temporarily enjoined by any order,
judgment or decree of any court or any governmental agency, authority or body
from engaging in or continuing any conduct or practice in connection with the
business, assets, or properties of SND; and (c) there is not in existence on the
date hereof any order, judgment or decree of any court, tribunal or agency
enjoining or requiring SND to take any action of any kind with respect to its
business, assets or properties.
3.22 Confidential Information. SND has not disclosed any information of a
proprietary or confidential nature relating to its business, products,
technology or financial condition to any person or entity, except (a) in the
ordinary course of business, pursuant to non-disclosure agreements to which SND
is a party, (b) pursuant to non-disclosure agreements to which SND is a party
regarding transactions outside the ordinary course of business, (c) to the legal
and financial advisors of SND and its stockholders, and (d) to the Buyer and its
legal and financial advisors.
3.23 Employees. Section 3.23 of the Disclosure Schedule sets forth a true,
correct and complete list of all present employees, officers and directors of
SND, together with their job titles and salaries. Since December 31, 1998, each
present and past employee, officers and directors of SND has been, and all
current officers, directors and employees are, bound by SND's standard
confidentiality agreement, a copy of which is attached as Section 3.23 of the
Disclosure Schedule. The failure of any officer, director or employee to sign
such an agreement prior to December 31, 1998 will not have a Material Adverse
Effect. No employees of SND are represented by any labor union or subject to
any collective bargaining agreement, nor is SND aware of any unionization or
organizational effort pending or contemplated.
3.24 Employee Benefits.
(a) Section 3.24 of the Disclosure Schedule contains a true, correct
and complete list of all Employee Benefit Plans (as defined below) maintained,
or contributed to, by SND or any ERISA Affiliate (as defined below). For
purposes of this Agreement, "Employee Benefit Plan" means any "employee pension
benefit plan" (as defined in Section 2(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), any "employee welfare benefit plan"
(as defined in Section 2(1) of ERISA), and any other written or oral plan,
agreement or arrangement involving direct or indirect compensation, including
without limitation insurance coverage, severance benefits, disability benefits,
deferred compensation, bonuses, stock options, stock purchase, phantom stock,
stock appreciation or other forms of incentive compensation or post-retirement
compensation. For purposes of this Agreement, "ERISA Affiliate" means any entity
which is or at any applicable time was a member of (i) a
controlled group of corporations (as defined in Section 414(b) of Code), (ii) a
group of trades or businesses under common control (as defined in Section 414(c)
of the Code), or (iii) an affiliated service group (as defined under Section
414(m) of the Code or the regulations under Section 414(o) of the Code), any of
which includes SND. Complete and accurate copies of (i) all Employee Benefit
Plans which have been reduced to writing, (ii) written summaries of all
unwritten Employee Benefit Plans, (iii) all related trust agreements, insurance
contracts and summary plan descriptions, and (iv) all annual reports filed on
IRS Form 5500, 5500C or 5500R for each Employee Benefit Plan since inception of
the Plan, have been delivered to the Buyer. Each Employee Benefit Plan has been
administered in accordance with its terms and SND and each ERISA Affiliate have
met their obligations with respect to such Employee Benefit Plan and have made
all required contributions thereto. SND and all Employee Benefit Plans are in
compliance with the currently applicable provisions of ERISA and the Code and
the regulations thereunder.
(b) There are no known investigations by any governmental entity,
termination proceedings or other claims (except claims for benefits payable in
the normal operation of the Employee Benefit Plans and proceedings with respect
to qualified domestic relations orders), suits or proceedings against or
involving any Employee Benefit Plan or asserting any rights or claims to
benefits under any Employee Benefit Plan that could give rise to any liability.
(c) All the Employee Benefit Plans that are intended to be qualified
under Section 401(a) of the Code have received determination letters from the
Internal Revenue Service to the effect that such Employee Benefit Plans are
qualified and the plans and the trusts related thereto are exempt from federal
income taxes under Sections 401(a) and 501(a), respectively, of the Code, no
such determination letter has been revoked and revocation has not been
threatened, and no such Employee Benefit Plan has been amended since the date of
its most recent determination letter or application therefor.
(d) Neither SND nor any ERISA Affiliate has ever maintained an
Employee Benefit Plan subject to Section 412 of the Code or Title IV of ERISA.
(e) At no time has SND or any ERISA Affiliate been obligated to
contribute to any "multiemployer plan" (as defined in Section 4001(a)(3) of
ERISA).
(f) There are no unfunded obligations under any Employee Benefit Plan
providing benefits after termination or employment to any employee of SND (or to
any beneficiary of any such employee), including but not limited to retiree
health coverage and deferred compensation, but excluding continuation of health
coverage required to be continued under Section 4980B of the Code or other
applicable law and insurance conversion privileges under state law.
(g) No act or omission has occurred and no condition exists with
respect to any Employee Benefit Plan maintained by SND or any ERISA Affiliate
that would subject SND or any ERISA Affiliate to (i) any fine, penalty, tax or
liability of any kind imposed under ERISA or the Code or (ii) any contractual
indemnification or contribution obligation protecting any fiduciary, insurer or
service provider with respect to any Employee Benefit Plan.
(h) No Employee Benefit Plan is funded by, associated with, or related
to a "voluntary employee's beneficiary association" within the meaning of
Section 501(c)(9) of the Code.
(i) No Employee Benefit Plan, plan documentation or agreement, summary
plan description or other written communication distributed generally to
employees by its terms prohibits SND from amending or terminating any such
Employee Benefit Plan with respect to the accrual of future benefits.
(j) Section 3.24 of the Disclosure Schedule discloses each: (i)
agreement with any director, executive officer or other key employee of SND (A)
the benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving SND of the nature of any
of the transactions contemplated by this Agreement, (B) providing any term of
employment or compensation guarantee or (C) providing severance benefits or
other benefits after the termination of employment of such director, executive
officer or key employee; (ii) agreement, plan or arrangement under which any
person may receive payments from SND that may be subject to the tax imposed by
Section 4999 of the Code or included in the determination of such person's
"parachute payment" under Section 280G of the Code; and (iii) agreement or plan
binding SND, including without limitation any stock option plan, stock
appreciation right plan, restricted stock plan, stock purchase plan, severance
benefit plan, or any Employee Benefit Plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
(k) No Employee Benefit Plan has assets which include securities issued by
SND.
3.25 Accounts Receivables. SND has delivered to the Buyer a true, correct
and complete list of all accounts receivable as of May 10, 2000, including an
aging thereof. All accounts receivable of SND arose out of the performance of
services in the ordinary course of business and are collectible in the face
value thereof within one hundred twenty (120) days of the date of invoice, using
normal collection procedures, net of (i) the reserve for doubtful accounts
(which reserve is adequate and was calculated in accordance with GAAP,
consistently applied) plus (ii) $100,000.
3.26 Business Relationships With Affiliates. No officer, director or
stockholder of SND (a) owns any property or right, tangible or intangible, which
is used in, or was developed for the purpose of use in, the business of SND, (b)
has any claim or cause of action against SND, or (c) has any other business
relationship with SND, other than in his capacity as an officer, director,
stockholder or employee.
3.27 Brokers. No financial advisor was utilized by SND in connection with
the transactions contemplated hereby, other than Updata Capital, Inc., and no
fee is owed to any financial advisor, other than Updata Capital, Inc., in
connection with the transactions contemplated hereby.
3.28 Regulatory Approvals. All consents, approvals, authorizations or other
requirements prescribed by any law, rule or regulation which must be obtained or
satisfied by SND and which are necessary for the execution and delivery by the
Stockholders and SND of this Agreement or any documents to be executed and
delivered by the Stockholders or SND in connection herewith are set forth in
Section 3.28 of the Disclosure Schedule and have been, or prior to the Closing
Date will be, obtained and satisfied.
3.29 Powers of Attorney and Suretyships. Except as set forth in Section
3.29 of the Disclosure Schedule, SND does not have any general or special powers
of attorney outstanding (whether as grantor or grantee thereof) or has any
obligation or liability (whether actual, accrued, accruing, continent or
otherwise) as guarantor, surety, co-signer, endorser, co-maker, indemnitor or
otherwise in respect of the obligation of any person, corporation, partnership,
joint venture, association, organization or other entity, except as endorser or
make of checks or letter of credit, respectively, endorsed or made in the
ordinary course of business.
3.30 Banking/Credit Facilities. SND has no credit facilities or debts
outstanding thereunder other than those set forth in the Disclosure Schedule.
Set forth in Section 3.30 of the Disclosure Schedule is a true, correct and
complete list of:
(a) each bank, savings and loan or similar financial institution in
which SND has an account or safety deposit box and the numbers of the accounts
or safety deposit boxes maintained by SND thereat; and
(b) the names of all persons authorized to draw on each such account
or to have access to any such safety deposit box facility, together with a
description of the authority (and conditions thereof, if any) of each such
person with respect thereto.
3.31 Indebtedness to and from Officers, Directors and Stockholders. Except
as set forth in Section 3.31 of the Disclosure Schedule, SND is not indebted,
directly or indirectly, to any person who is an officer, director, stockholder
or affiliate (as defined in the Securities Act of 1933 and the rules and
regulations thereunder ("Affiliate") in any amount whatsoever other than for
current salaries for services rendered or reimbursable business expenses, all of
which have been reflected in the current financial statements, and no such
officer, director, stockholder or Affiliate is indebted to SND except for
advances made to employees of SND in the ordinary course of business to meet
reimbursable business expenses anticipated to be incurred by such obligor.
3.32 Conflicts of Interest. Except as set forth in Section 3.32 of the
Disclosure Schedule, no officer, director or Stockholder, nor, to the best
knowledge of the Stockholders, any Affiliate, now has or within the last two (2)
years had, either directly or indirectly:
(a) Except as the holder of not more than 1% of the outstanding stock
of a publicly-held company, an equity or debt interest in any corporation,
partnership, joint venture, association, organization or other person or entity
which furnishes or sells or during such period furnished or sold services or
products to SND or purchases or during such period purchased from SND any goods
or services, or otherwise during such period did business with SND; or
(b) a beneficial interest in any contract, commitment or agreement to
which SND is or was a party or under which any of them is or was obligated or
bound or to which any of their respective properties may be or may have been
subject, other than stock options and other contracts, commitments or agreements
between SND and such persons in their capacities as employees, officers or
directors of SND.
3.33 Termination of Certain Agreements. All stockholder agreements between
and/or among the Stockholders, or SND and any Stockholder, shall terminate
concurrently with the Closing.
3.34 Disclosure. No representation or warranty by SND contained in this
Agreement, the Exhibits and Schedules attached hereto and no statement contained
in the Disclosure Schedule or any other document, certificate or other
instrument delivered or to be delivered at the Closing by or on behalf of SND
pursuant to this Agreement, contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary, in
light of the circumstances under which it was or will be made, in order to make
the statements herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to each Stockholder as follows:
4.1 Organization. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts, and has all requisite power and authority to own its properties
and carry on its business as it is currently being conducted. The Buyer has all
requisite power and authority to execute and deliver this Agreement and to
perform its obligations hereunder.
4.2 Capitalization. The authorized capital stock of the Buyer consists of
100,000,000 shares of Buyer Common Stock, $0.01 par value, of which 23,352,143
shares were issued and outstanding as of May 11, 2000 and 1,000,000 shares of
preferred stock, $0.01 par value, of which 263,158 shares have been designated
Series A Convertible Preferred, 65,790 shares have been designated Series B
Convertible Preferred and 65,790 shares have been designated Series C
Convertible Preferred. The 263,158 shares of Series A Convertible Preferred were
issued and outstanding until June 1999 when the shares automatically converted
into 2,631,580 shares of common stock, and no Series B or Series C Convertible
Preferred are issued and outstanding. All of the issued and outstanding shares
of Buyer Common Stock and the Series A Convertible Preferred are duly
authorized, validly issued, fully paid, nonassessable and free of all preemptive
rights. All of the Purchase Price Common and Contingent Shares, if any, will
be, when issued in accordance with this Agreement, duly authorized, validly
issued, fully paid, nonassessable, free of all preemptive rights.
4.3 Authorization. The execution and delivery by the Buyer of this
Agreement, and the consummation by the Buyer of the transactions contemplated
hereby, have been duly authorized by all necessary corporate action on the part
of the Buyer. This Agreement
constitutes a valid and binding obligation of the Buyer, enforceable against the
Buyer in accordance with its terms.
4.4 Noncontravention. The execution and delivery by the Buyer of this
Agreement and the consummation by the Buyer of the transactions contemplated
hereby will not, with or without the giving of notice or the passage of time or
both, (a) violate the provisions of any law, rule or regulation applicable to
the Buyer (b) violate the provisions of the Articles of Organization or By-laws
of the Buyer; (c) violate any judgment, decree, order or award of any court,
governmental body or arbitrator applicable to the Buyer; or (d) conflict with,
result in the breach or termination of, or constitute a default under, or
require any notice, consent or waiver under, any agreement or instrument to
which the Buyer is a party or by which the Buyer or any of its assets is bound.
4.5 Buyer SEC Documents. Buyer has delivered to the Stockholders a true and
complete copy of each report, schedule, registration statement and definitive
Proxy Statement filed by Buyer with the Securities and Exchange Commission
("SEC") under the Securities Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act") since January 1, 2000 (the "Buyer SEC Documents"),
which are all of the documents that Buyer was required to file with the SEC
since such date. As of their respective dates, the Buyer SEC Documents complied
in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Buyer SEC Documents, and none of the Buyer SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein, or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. As of their respective dates, the financial statements of Buyer
included in the Buyer SEC Documents complied as to form in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto and were in accordance with the
books and records of Buyer and its subsidiaries, which are complete and accurate
in all material respects and which have been maintained in accordance with
generally accepted accounting principles.
4.6 Absence of Certain Changes or Events. Since January 1, 2000, the Buyer
and its subsidiaries have not incurred any material liability, except in the
ordinary course of their business consistent with their past practices or as
disclosed in the Buyer SEC Documents, nor has there been any change on
threatened damage, in the condition of Buyer or any of its subsidiaries which
has had, or is reasonably likely to have, a material adverse financial effect on
Buyer or any of its subsidiaries.
4.7 Disclosure. No representation or warranty of Buyer contained in this
Agreement, the Exhibits and Schedules attached hereto and no statement contained
in any other document, certificate or other instrument delivered or to be
delivered at the Closing, by or on behalf of the Buyer pursuant to this
Agreement, contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary, in light of the
circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading.
ARTICLE V
POST CLOSING COVENANTS AND AGREEMENTS
5.1 SND Stock Options. At the Closing Date, each issued and outstanding
stock option to acquire any shares of the capital stock of SND, whether or not
then exercisable ("SND Stock Option"), shall be deemed cancelled and substituted
with an option (a "Buyer Option") to acquire shares of Buyer Common Stock, as
set forth in the applicable SND resolution of its board of directors provided to
Buyer. Such cancellation and substitution shall comply in all respects with and
shall be performed in accordance with the methodology prescribed by the
provisions of Section 424(a) of the Internal Revenue Code of 1986, as amended,
and the regulations thereunder, and each Buyer Option shall provide the option
holder with the rights and benefits that are no less favorable to him than were
provided under the SND Stock Option for which it is substituted. It is intended
that the foregoing cancellation and substitution shall be undertaken in a manner
which will not constitute a "modification" (within the meaning of Section 424 of
the Code and applicable regulations) of any SND Stock Option which constitutes
an incentive stock option within the meaning of Section 422 of the Code.
Notwithstanding the foregoing, the Buyer shall issue 20,000 incentive stock
options to each of Xxxxx Xxxxxx and Xxxxxx Xxxxx under its stock incentive plan,
having a term of ten years, vesting in equal annual increments over three years
and having an exercise price of $10.65 per share (the Closing price of the Buyer
Common Stock as of May 10, 2000).
5.2 Operation of SND Business. (a) The Buyer will operate SND as a separate
business unit during the Earnout Period (as defined in Schedule II attached
hereto). During such period the SND Business Unit shall continue to be operated
consistently with its historical practices (since January 1, 1999) unless the
Stockholders' Representative and the Buyer's Designee mutually agree otherwise,
and for purposes of determining the amount of the Contingent Payment, account
for Consulting Revenue (as defined in Schedule II) and Cost of Goods Sold (as
defined in Schedule II) as set forth in Schedule II attached hereto.
(b) Without limiting the provisions of subsection (a) above, Buyer
shall operate SND in good faith so as to facilitate the Stockholders' ability to
maximize the Consulting Revenue and Gross Margin (as defined in Schedule II) of
the SND Business Unit during the Earnout Period. Regarding any contracts and
engagements with annual revenues equal to or greater than One hundred thousand
dollars ($100,000), the Stockholders' Representative in conjunction with Buyer's
designee shall mutually determine such contracts and engagements to enter into
on behalf of the SND Business Unit during the Earnout Period. In the event that
Buyer's designee and the Stockholders' Representative are not able to mutually
agree regarding any such contract or engagement and the SND Business Unit enters
into any such consulting contract or engagement (hereinafter "Other Services
Revenue ") the revenue from such Other Services Revenue shall be included in the
calculation of the Consulting Revenue, and the margin from such Other Services
Revenue shall be included in the calculation of the Gross Margin at fifty-two
percent (52%)for purposes of the determination of the Contingent Payment. To
effectuate this provision, a determination of the expected gross profit margin
for a contract or engagement under Other Services Revenue shall be made by the
Buyer and the Stockholders' Representative and a credit solely for purposes of
the calculation of the Contingent Payment shall be given against Cost of Goods
Sold in an amount equal to the difference between the
expected gross profit margin and 52% times the Other Services Revenue received
for that contract or engagement. Buyer shall make available to the SND Business
Unit funding for capital expenditures consistent with its business operations.
5.3 Location of SND Office. During the Earnout Period, Buyer shall maintain
SND's principal office in Clark, New Jersey.
5.4 Registration of SND Options. Not later than the date any such option
first vests, the Buyer shall file an appropriate post-effective amendment to a
Registration Statement on Form S-8 in order to include within such Registration
Statement the stock option plan of SND in existence at the Closing Date and all
SND Stock Options issued and outstanding under such plan as of the Closing Date.
5.5 Section 338(h)(10) Election. Each Stockholder and the Buyer will join
in making, and will take any and all action necessary to effect, a timely and
irrevocable election under Section 338(h)(10) of the Code (and the Treasury
Regulations and administrative pronouncements thereunder) and any comparable
provision of state, local, or foreign Tax law (collectively a "Section
338(h)(10) Election"). Each Stockholder and the Buyer shall file all Tax returns
in a manner consistent with the Section 338(h)(10) Election, and will not take
any position contrary thereto. At the Closing, the Stockholders will deliver to
the Buyer two properly executed (by each Stockholder) and completed copies of
Internal Revenue Service Form 8023 with respect to SND (collectively, the "Form
8023") and, as applicable, two properly executed and completed copies of any
analogous forms required pursuant to state, local, or foreign tax law. At least
ten (10) days prior to the Closing Date, the Buyer will provide the
Stockholders' Representative with the information regarding the Buyer necessary
to enable the Stockholders to complete the Form 8023. The Buyer and the
Stockholders' Representative will jointly determine the Line 9/11 Information.
The Stockholders' Representative will provide the Buyer with any information
regarding the Stockholders as is necessary to determine the Line 9/11
Information. The Buyer will provide to the Stockholders' Representative a copy
of the Line 9/11 Information, and shall include the parties allocation of the
Purchase Price, which shall be allocated to the assets of SND for tax purposes
as follows:
(i) First, among the tangible assets acquired in accordance with
their then fair market value, which the parties agree is the net book value
thereof on the Closing Date; and
(ii) Next, to "Section 197 Intangibles" (as defined in Section 197
of the Code) other than to a covenant not to compete, which the parties agree
shall have an allocated value of $25,000.
The Buyer shall be responsible for filing the Form 8023.
5.6 Tax Returns and Cooperation.
(a) The Stockholders' Representative shall prepare or cause to be
prepared all income Tax returns or reports for SND that must be filed in respect
to any short taxable period ended on or before the Closing Date and each such
Tax return shall be prepared in a manner consistent with SND's past practice.
The Stockholders' Representative shall permit the Buyer to
review and comment on each such Tax return described in the preceding sentence.
The Buyer shall file or cause to be filed each such Tax return. The Buyer shall
pay or cause to be paid to the appropriate taxing authority any Taxes imposed on
SND in respect of such returns. Pursuant to Section 1.2(a)(ii) and (iii), the
Stockholders have deposited with SND from the proceeds of the Purchase Price,
$910,800 as an estimate of the Built-in Gain Tax and $374,014 as an estimate of
the NJ Tax. If either such tax is greater than the applicable estimate, the
Stockholders shall pay to the Buyer on or before the due date for the tax return
an amount equal to the Built-in Gain Tax in excess of $910,800 or an amount
equal to the NJ Tax in excess of $374,014, as the case may be. If such estimate
is greater than the actual Built-in Gain Tax and/or the NJ Tax, such excess
shall be promptly paid to the Shareholders in proportion to their ownership in
SND as set forth on Schedule I attached hereto. The Stockholders shall pay all
Taxes imposed on them individually as S corporation shareholders pursuant to
Section 1366 of the Code and any analogous provision of state or local law. The
Buyer shall prepare or cause to be prepared and file all other Tax returns
required to be filed after the Closing Date, and shall pay all Taxes shown
thereon or otherwise imposed on or payable by SND after the Closing Date
attributable to the operations of SND following the Closing.
(b) The Buyer and the Stockholders shall cooperate fully, as and to
the extent reasonably requested by the other party, in connection with the
filing of Tax returns pursuant to this Section 5.2 and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include signing
any Tax return, amended Tax returns, claims or other documents necessary to
settle any Tax controversy, the retention and (upon the other party's request)
the provision of records and information which are reasonably relevant to any
such audit, litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and explanation of
any material provided hereunder. Each of the Buyer and the Stockholders agrees
that it will, and, in the case of the Buyer, that it will cause SND to, retain
all books and records with respect to Tax matters pertinent to SND relating to
any taxable period beginning before the Closing Date until the expiration of the
statute of limitations (and, to the extent notified by the other party, any
extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority.
(c) The Stockholders shall control any Tax proceeding related to any
pre-Closing period of SND, and the Buyer shall have the right to participate in
any Tax proceeding related to income Taxes for any pre-Closing period of SND
which may have the effect of increasing the Tax liability of the Buyer, SND or
their Affiliates for any Tax period ending after the Closing, and the
Stockholders shall not settle or compromise any such proceeding without the
Buyer's prior written consent, which consent shall not be unreasonably withheld
or delayed.
5.7 Non-Competition; Non-Solicitation.
(a) For a period of three (3) years after the Closing Date, Xxxxx X.
Xxxxxx and Xxxxxx Xxxxx, severally but not jointly, covenants and agrees that
such Stockholder will not:
(i) directly or indirectly engage in any business or enterprise
(whether as owner, partner, officer, director, employee, consultant, investor,
lender or otherwise, except as the holder of not more than 1% of the outstanding
stock of a publicly-held company) that is
competitive with the Buyer's current business or with SND's current business,
including but not limited to any business or enterprise that develops,
manufactures, markets, or sells any product or service that competes with any
current product or service developed, manufactured, marketed or sold, or planned
to be developed, manufactured, marketed or sold, by the Buyer or SND, or any
subsidiaries of the Buyer or SND;
(ii) directly or indirectly solicit any Person (as that term is
defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended,
and used in Sections 13(d)(3) and 14(d)(2) of such act) that is a Current
Customer (as defined below) of the Buyer or SND for purposes of selling products
or services to such Person that are in competition with the products and
services offered or sold by the Buyer or SND. "Current Customer" shall mean any
Person who utilizes any product or service sold or provided by the Buyer or SND
during such period; any Person who utilized any such product or service within
the previous 12 months;
(iii) employ, either directly or indirectly, any current employee
of the Buyer or SND, and agrees not to solicit, or contact in any manner that
could reasonably be construed as a solicitation, either directly or indirectly,
any employee of the Buyer or SND for the purpose of encouraging such employee to
leave or terminate his or her employment with the Buyer or SND; or
(iv) solicit, either directly or indirectly, a current vendor or
supplier of the Buyer or SND for purposes of encouraging such vendor or supplier
to cease or diminish providing products or services to the Buyer or SND, or to
change adversely the terms under which such vendor or supplier provides such
products or services to the Buyer or SND.
(b) The Stockholders requested by the Buyer prior to Closing shall
enter into a Non-Competition/Non-Solicitation Agreement in the form attached
hereto as Exhibit C.
5.8 Reformation. If any covenant in Section 5.7 of this Agreement is held
to be unreasonable, arbitrary or against public policy, such covenant will be
considered to be divisible with respect to scope, time, and geographic area, and
such lesser scope, time or geographic area, or all of them, as an arbitrator or
a court or competent jurisdiction may determine to be reasonable, not arbitrary,
and not against public policy, will be effective, binding and enforceable
against the applicable Stockholder.
5.9 Release of Personal Guarantees. With respect to any cash collateral or
personal guarantees provided by either Xxxxx Xxxxxx or Xxxxxx Xxxxx to secure
any borrowings by SND from First Union disclosed in the Disclosure Schedule,
Buyer shall obtain release of any cash collateral amounts within ten (10)
business days from the Closing Date and the release of any other guarantees
within thirty (30) days from the Closing Date or cause such borrowings to be
repaid in full.
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification by the Stockholders.
(a) Each Stockholder shall, subject to the provisions of this Article
VI, jointly and severally (subject to Sections 6.4(b) and 6.7 below), indemnify
the Buyer in respect of, and hold the Buyer harmless against, any and all debts,
obligations and other liabilities, monetary damages, fines, fees, penalties,
interest obligations, deficiencies, losses and expenses (including without
limitation amounts paid in settlement, interest, court costs, costs of third
party investigators, fees and expenses of outside attorneys, accountants,
financial advisors and other third party experts, and other third party expenses
of litigation) (collectively, the "Losses") incurred or suffered by the Buyer or
SND in connection with each and all of the following:
(i) any misrepresentation or breach of any representation or
warranty made by the Stockholders or SND pursuant to Article III in this
Agreement (including the Disclosure Schedules);
(ii) any breach of any covenant, obligation or agreement of the
Stockholders or SND contained in this Agreement, provided, however, that any
Losses resulting from a claim relating to a breach by a Stockholder of the
provisions of Section 5.7 shall be recoverable solely as against such breaching
Stockholder;
(iii) any tax liabilities or obligations of SND relating to
periods ending on or before the Closing Date including any taxes related to the
338(h)(10) election (other than the payments contemplated by Section 1.2(a)(ii)
above);
(iv) any tax liabilities arising from or related to the change in
SND's status from a C-corporation to an S-corporation; and
(v) any liabilities or obligations with respect to any past or
present subsidiary of SND.
(b) Each Stockholder shall severally indemnify the Buyer in respect
of, and hold the Buyer harmless against, any and all Losses incurred or suffered
by the Buyer or SND resulting from, relating to or constituting any
misrepresentation or breach of any representation or warranty made by such
Stockholder pursuant to Article II of this Agreement.
6.2 Indemnification by the Buyer. The Buyer shall indemnify each
Stockholder in respect of, and hold it harmless against, any and all Losses
incurred or suffered by such Stockholder resulting from:
(i) any misrepresentation or breach of any representation or
warranty made by the Buyer pursuant to Article IV of this Agreement; and
(ii) any breach of any covenant, obligation or agreement made by
the Buyer contained in this Agreement.
6.3 Claims for Indemnification.
(a) A Party entitled to indemnification under this Article VI (an
"Indemnified Party") shall give prompt written notification (a "Claim Notice")
to the party from whom indemnification is sought (the "Indemnifying Party") of
the claim, and when known, facts
constituting the basis and the amount of such claim (the "Claimed Amount").
In the event of any such claim for indemnification hereunder resulting from or
in connection with any claim, action, suit or proceeding relating to a third
party, the Claim Notice shall be delivered within twenty (20) days after receipt
of such third party's claim and shall specify, if known, the amount or an
estimate of the amount of the liability arising therefrom. If the Indemnified
Party is seeking to enforce such claim pursuant to the Escrow Agreement, the
Indemnified Party shall deliver a copy of the Claim Notice to the Escrow Agent.
The Indemnified Party shall not settle or compromise any claim by a third party
for which it is entitled to indemnification hereunder without the prior written
consent, which shall not be unreasonably withheld or delayed, of the
Indemnifying Party (in the case of the Stockholders, such consent shall be
provided by in the Stockholders' Representative); provided, however, that if
suit shall have been instituted against the Indemnified Party and the
Indemnifying Party shall not have taken control of such suit after notification
thereof as provided in Section 6.3(b) of this Agreement, the Indemnified Party
shall have the right to settle or compromise such claim upon giving notice to
the Indemnifying Party as provided in Section 6.3(b).
(b) Defense by the Indemnifying Party. In connection with any claim
which may give rise to indemnity hereunder resulting from or arising out of any
claim or legal proceeding by a person other than the Indemnified Party, the
Indemnifying Party, at the sole cost and expense of such Indemnifying Party,
may, upon written notice to the Indemnified Party, assume the defense of any
such claim or legal proceeding if the Indemnifying Party acknowledges to the
Indemnified Party in writing the obligation of the Indemnifying Party to
indemnify the Indemnified Party with respect to all elements of such claim. If
the Indemnifying Party assumes the defense of any such claim or legal
proceeding, the Indemnifying Party shall select counsel reasonably acceptable to
the Indemnified Party to conduct the defense of such claims or legal proceedings
and at the sole cost and expense of the Indemnifying Party shall take all steps
necessary in the defense or settlement thereof. The Indemnifying Party shall not
consent to a settlement of, or the entry of any judgment arising from, any such
claim or legal proceeding, without the prior written consent of the Indemnified
Party (which consent shall not be unreasonably withheld or delayed). The
Indemnified Party shall be entitled to participate in (but not control) the
defense of any such action, with its own counsel and at its own expense. If the
Indemnifying Party does not assume the defense of any such claim or litigation
resulting therefrom within thirty (30) days after the date such claim is made:
(i) the Indemnified Party may defend against such claim or litigation in such
manner as it may deem appropriate, including, but not limited to, settling such
claim or litigation, after giving notice of the same to the Indemnifying Party,
on such terms as the Indemnified Party may deem appropriate, and (ii) the
Indemnifying Party shall be entitled to participate in (but not control) the
defense of such action, with its counsel and at its own expense. If the
Indemnifying Party thereafter seeks to question the manner in which the
Indemnified Party defended such third party claim or the amount or nature of any
such settlement, the Indemnifying Party shall have the burden to prove by a
preponderance of the evidence that the Indemnified Party did not defend or
settle such third party claim in a reasonably prudent manner.
(c) Within thirty (30) days after delivery of a Claim Notice, the
Indemnifying Party shall deliver to the Indemnified Party a written response in
which the Indemnifying Party shall either: (i) agree that the Indemnified Party
is entitled to receive all of the Claimed Amount (in which case such response
shall be accompanied by a payment by the Indemnifying Party to
the Indemnified Party of the Claimed Amount, as provided in Section 6.4;
provided that if the Indemnified Party is seeking to enforce such claim pursuant
to the Escrow Agreement, the Indemnifying Party and the Indemnified Party shall
deliver to the Escrow Agent, within three (3) days following the delivery of the
response, a written notice executed by both parties instructing the Escrow Agent
to distribute to the Buyer the Claimed Amounts), (ii) agree that the Indemnified
Party is entitled to receive part, but not all, of the Claimed Amount (the
"Agreed Amount") (in which case such response shall be accompanied by a payment
by the Indemnifying Party to the Indemnified Party of the Agreed Amount, as
provided in Section 6.4; provided that if the Indemnified Party is seeking to
enforce such claim pursuant to the Escrow Agreement, the Indemnifying Party and
the Indemnified Party shall deliver to the Escrow Agent, within three (3) days
following the delivery of the response, a written notice executed by both
parties instructing the Escrow Agent to distribute to the Buyer the Agreed
Amount), or (iii) contest that the Indemnified Party is entitled to receive any
of the Claimed Amount. If the Indemnifying Party in such response contests the
payment of all or part of the Claimed Amount, the Indemnifying Party and the
Indemnified Party shall use good faith efforts to resolve such dispute. If such
dispute is not resolved within thirty (30) days following the delivery by the
Indemnifying Party of such response, the Indemnifying Party and/or the
Indemnified Party shall each have the right to submit such dispute for
resolution in accordance with the procedures set forth in Article VII of this
Agreement.
(d) For purposes of this Section 6.3, with respect to the
Stockholders, any references to the Indemnified Party or the Indemnifying Party
(except provisions relating to an obligation upon the Stockholders to make
payments provided for in this Article VI) shall be deemed to refer to the
Stockholders' Representative. The Stockholders' Representative shall have full
power and authority on behalf of each Stockholder to take any and all actions on
behalf of, execute any and all instruments on behalf of, and execute or waive
any and all rights of, the Stockholders under this Article VI. The Stockholders'
Representative shall have no liability to any Stockholder for any action taken
or omitted on behalf of the Stockholders pursuant to this Article VI.
6.4 Payment of Indemnification Obligations.
(a) Any amount payable by the Buyer pursuant to this Article VI shall
be effected by a wire transfer of immediately available funds in the amount of
any indemnification liability, on or before the seventh (7) day after the final
resolution, by agreement or otherwise, of the applicable indemnification claim.
(b) If any claim for indemnification is made by the Buyer under this
Article VI prior to the expiration of the Escrow Period, (i) the Buyer shall
first apply to the Escrow Agent for reimbursement of such claim against the
Escrow Amount in accordance with the provisions of the Escrow Agreement and (ii)
upon final resolution of such indemnity claims, if such indemnity claims are
resolved and fully settled for an amount greater than the amount held in escrow
or offset against Contingent Payments as provided in paragraph 6.4(c) below (the
"Deficit Amount"), Xxxxx X. Xxxxxx and Xxxxxx Xxxxx jointly and severally, and
Stockholders other than Xxxxx X. Xxxxxx and Xxxxxx Xxxxx severally, shall remit
the Deficit Amount in cash to the Stockholders' Representative who shall
immediately transfer such amounts to the Buyer or to an account designated by
the Buyer. Except for payments from the Escrow Amount or offsets
from Contingent Payments pursuant to (c) below, all indemnification obligations
shall be effected by a wire transfer of immediately available funds on or before
the seventh (7) day after the final resolution by agreement or otherwise.
(c) Notwithstanding anything set forth in this Agreement to the
contrary, any amounts that the Buyer is entitled to for indemnification from the
Stockholders pursuant to this Article VI may, at the option of the Buyer, be
satisfied by setting off all or any portion of such amount against the
Contingent Payment in the amount necessary to satisfy such claim. Any such set-
off by the Buyer shall be subject to the limits of Section 6.7. If the
Stockholders' Representative disputes the Buyer's right to effect such set-off,
the Buyer shall deposit the set-off amount that is being disputed in an escrow
account established with a bank or other third party institution reasonably
acceptable to the Stockholders' Representative, which funds shall be held by
such escrow agent until the dispute is resolved and which shall be funded first
by offset against the Contingent Shares and to the extent of any excess, against
the Contingent Cash Payment. The parties to this Agreement agree to cooperate
with one another in establishing and selecting an escrow agent to act in such
capacity and any such escrow agreements shall be substantially similar to the
Escrow Agreement executed at Closing.
6.5 Dollar Limitations.
(a) The maximum amount payable by the Stockholders under this Article
VI shall be equal to the aggregate amount of cash paid by the Buyer pursuant to
Sections 1.2(a)(i), (ii), (iv) and the Contingent Cash Payment, if any, remitted
by the Buyer to the Stockholders (the "Cap Amount"), except that such maximum
amount shall not be applicable for any claims made for:
(i) breach of the representations and warranties contained in
Sections 2.1, 2.2 and 2.3;
(ii) breach of the representations and warranties contained in
Sections 3.1, 3.2 and 3.3; or
(iii) any fraudulent misrepresentations or fraudulent breach of
any warranty and representation contained in Article II or III hereof.
(b) Notwithstanding anything to the contrary herein, the Indemnifying
Stockholders shall not be liable under this Article VI unless and until the
aggregate Losses for which they would otherwise be liable exceeds Two Hundred
Thousand ($200,000) Dollars (at which point the Indemnifying Stockholders shall
become liable for the aggregate Losses, and not just amounts in excess of Two
Hundred Thousand ($200,000) Dollars), provided, however, that this limitation
shall not apply to:
(i) a claim relating to a breach of the representations and
warranties set forth in Article II or in Sections 3.1, 3.2, 3.3 and 3.15 and
Section 3.13 with respect only to any refund claim under the unsigned Amendment
to the Maintenance and Operational Service Support Agreement between SND and
Bristol Xxxxx Squibb Company dated as of February 1, 1996;
(ii) fraud; or
(iii) a claim pursuant to the indemnity agreements set forth in
Sections 6.1(a)(iii) and (iv).
(c) No Stockholder shall have any claim or any right of contribution
against, or indemnification from, SND with respect to any breach of any of the
representations, warranties, covenants or agreements relating to SND under this
Agreement (including without limitation a claim based upon a breach of a
representation or warranty made by SND to such Stockholder under any agreement
between SND and such Stockholder).
(d) Any and all aggregate Losses for which the Indemnifying
Stockholders are responsible under this Article VI shall be reduced on a dollar-
for-dollar basis by any amount received by the Buyer or SND under any issuance
policy, except Losses as a result of fraud.
6.6 Survival. The representations and warranties of the Stockholders and
the Buyer set forth in this Agreement shall survive the Closing and the
consummation of the transactions contemplated hereby and continue until one year
after the Closing Date; except that (i) the representations and warranties
contained in Article II and Sections 3.1, 3.2, 3.3, 3.4, 4.1, 4.2, 4.3 and 4.4
shall survive the Closing and continue without limitation, (ii) the
representations and warranties contained in Sections 3.15, 3.20 and 3.24, and
the agreements in Sections 6.1(a)(iii) and (iv) shall survive the Closing and
continue until the expiration of the applicable statute of limitations, and
(iii) the representations and warranties contained in Sections 3.8 and 3.16
shall survive the Closing and continue for a period of eighteen months from the
Closing Date. Any claims asserted in writing prior to the expiration of the
representation, warranty or agreement that is the basis for such claim, if any,
as provided in this Article VI, shall survive for purposes of such claim until
such claim is finally resolved and is satisfied in full.
6.7 Certain Limitations. The liability of Messrs. Sinha and Xxxxxx under
Section 6.1(a) shall be joint and several and the liability of each such
Stockholder shall be limited to their aggregate pro rata portion of the Cap
Amount based on their aggregate stock ownership as set forth on Schedule I, plus
the pro rata portion of the Cap Amount of each of the Stockholders set forth on
Schedule V. The Stockholders set forth on Schedule V shall have no liability
under Section 6.1(a) and are severally liable under Section 6.1(b) with the
liability of each such Stockholder limited to his or her pro rata portion of the
Cap Amount based on his or her stock ownership as set forth on Schedule I. The
liability of the Stockholders set forth on Schedule VI shall be several with
respect to Sections 6.1(a) and (b) and shall be limited to his or her pro rata
portion of the Cap Amount based on his or her stock ownership as set forth on
Schedule I.
ARTICLE VII
DISPUTE RESOLUTION
7.1 General. In the event that any dispute should arise between the parties
hereto with respect to any matter covered by this Agreement, the parties hereto
shall resolve such dispute in accordance with the procedures set forth in this
Article VII.
7.2 Consent of the Parties. In the event of any dispute between the parties
with respect to any matter covered by this Agreement, other than in connection
with the purchase price adjustment pursuant to Section 1.3 of this Agreement,
the parties shall first use their best efforts to resolve such dispute among
themselves. If the parties are unable to resolve the dispute within sixty (60)
days after the commencement of efforts to resolve the dispute then the parties
shall resolve the dispute pursuant to the procedure set forth in Section 7.3
hereof.
7.3 Arbitration.
(a) Either the Buyer or the Stockholders' Representative may submit
any matter referred to in Section 7.3 hereof to arbitration by notifying the
other party hereto, in writing, of such dispute. Within ten (10) days after
receipt of such notice, the Buyer and the Stockholders' Representative shall
designate in writing one arbitrator to resolve the dispute; provided, that if
the parties hereto cannot agree on an arbitrator within such ten (10) day
period, the arbitrator shall be selected by the American Arbitration
Association. The arbitrator so designated shall not be an employee, consultant,
officer, director or stockholder of any party hereto or any Affiliate of any
party to this Agreement.
(b) Within thirty (30) days after the designation of the arbitrator,
the arbitrator, the Buyer's designee and the Stockholders' Representative shall
meet, at which time the Buyer's designee and the Stockholders' Representative
shall be required to set forth in writing all disputed issues and a proposed
ruling on each such issue.
(c) The arbitrator shall set a date for a hearing, which shall be no
later than thirty (30) days after the submission of written proposals pursuant
to paragraph (b) above, to discuss each of the issues identified by the Buyer
and the Stockholders' Representative. Each such party shall have the right to be
represented by counsel. The arbitration shall be governed by the rules of the
American Arbitration Association.
(d) The arbitrator shall use his best efforts to rule on each disputed
issue within thirty (30) days after the completion of the hearings described in
paragraph (c) above. The determination of the arbitrator as to the resolution of
any dispute shall be binding and conclusive upon all parties hereto. All rulings
of the arbitrator shall be in writing and shall be delivered to the parties
hereto.
(e) Each party in any arbitration shall be responsible for their own
attorneys' fees incurred in connection with the arbitration. The non-prevailing
party shall pay the fees of the arbitrator and the costs and expenses of the
arbitration and the arbitrator shall determine who is the non-prevailing party.
(f) Any arbitration pursuant to this Section 7.3 shall be conducted in
the Commonwealth of Massachusetts. Any arbitration award may be entered in and
enforced by any court having jurisdiction thereover and the parties hereby
consent and commit themselves to the jurisdiction of the courts of the
Commonwealth of Massachusetts and the United States District Court for the
commonwealth of Massachusetts for purposes of the enforcement of any arbitration
award.
ARTICLE VIII
REGISTRATION RIGHTS
8.1 Registration of Shares. The Buyer shall permit each Stockholder to
include in any registration statement filed by the Buyer with the SEC for an
underwritten public offering of any shares of Buyer Common Stock (other than a
registration statement on Form S-4 or S-8 or any successor form, any Purchase
Price Securities held ("Registrable Shares") (any such registration statement in
which Registrable Shares are included shall be considered a "Registration
Statement"), subject to (i) the right of the Buyer to limit the number of
Registrable Shares to be included in such Registration Statement if the managing
underwriter of such offering determines that the inclusion of such shares in
such offering would adversely affect the marketability of such offering and (ii)
the rights of any other person to whom the Buyer has granted or may in the
future grant registration rights. The Buyer shall provide written notice to the
Stockholders' Representative of its intention to file such a registration
statement, and any holder of Registrable Shares intending to include such shares
in such Registration Statement must so notify the Stockholders' Representative,
who must then so notify the Buyer on behalf of such holders, within ten (10)
days of the date of the Buyer's notice. Any holder of Registrable Shares
included in a registration shall agree to be bound by the underwriting agreement
for such offering and the terms and restrictions relating to such offering, as
required by the underwriters. Notwithstanding the foregoing, the Buyer shall not
be required, pursuant to this Section 8.1, to include any Registrable Shares in
a Registration Statement if such Registrable Shares can then be sold pursuant to
Rule 144 under the Securities Act.
8.2 Registration Procedures.
(a) In connection with the filing by the Buyer of a Registration
Statement, the Buyer shall furnish to each Stockholder whose Registrable Shares
are to be included in a Registration Statement pursuant to Section 8.1 (the
"Registering Stockholder") a copy of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act.
(b) If the Buyer has delivered preliminary or final prospectuses to
the Registering Stockholders and after having done so the prospectus is amended
to comply with the requirements of the Securities Act, the Buyer shall promptly
notify the Registering Stockholders and, if requested by the Buyer, the
Registering Stockholders shall immediately cease making offers or sales of
shares under such Registration Statement and return all prospectuses to the
Buyer. The Buyer shall reasonably promptly provide the Registering Stockholders
with revised prospectuses and, following receipt of the revised prospectuses,
the Registering Stockholders shall be free to resume making offers and sales
under such Registration Statement.
(c) The Buyer shall pay the expenses incurred by it in complying with
its obligations under this Article VIII, including all registration and filing
fees, exchange listing fees, fees and expenses of counsel for the Buyer, and
fees and expenses of accountants for the Buyer, but excluding any selling
commissions or underwriting discounts incurred by the Registering Stockholders
in connection with sales under a Registration Statement and any legal or other
fees of the Registering Stockholders.
8.3 Requirements of Registering Stockholders.
(a) The Buyer shall not be required to include any Registrable Shares
in a Registration Statement unless the Registering Stockholder owning such
shares furnishes to the Buyer in writing such information regarding such
Registering Stockholder and the proposed sale of Registrable Shares by such
Registering Stockholder as the Buyer may reasonably request in writing in
connection with the Registration Statement or as shall be required in connection
therewith by the SEC or any state securities law authorities.
(b) Each Registering Stockholder agrees:
(1) to indemnify the Buyer and each of its directors and officers
against, and hold the Buyer and each of its directors and officers harmless
from, any losses, claims, damages, expenses or liabilities (including reasonable
attorneys fees) to which the Buyer or such directors and officers may become
subject by reason of any statement or omission in a Registration Statement made
in reliance upon, or in conformity with, a written statement by such Registering
Stockholder furnished pursuant to this Section 8.3; and
(2) to report to the Buyer sales made pursuant to a Registration
Statement.
8.4 Indemnification. The Buyer agrees to indemnify and hold harmless each
Registering Stockholder against any losses, claims, damages, expenses or
liabilities to which such Registering Stockholder may become subject by reason
of any untrue statement of fact contained in a Registration Statement or any
omission to state therein a fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as such losses,
claims, damages, expenses or liabilities arise out of or are based upon written
information furnished to the Buyer by or on behalf of a Registering Stockholder
for use in such Registration Statement. The Buyer shall have the right to
assume the defense and settlement of any claim or suit for which the Buyer may
be responsible for indemnification under this Section 8.4.
8.5 Assignment of Rights. A Registering Stockholder may not assign any of
its rights under this Article VIII except in connection with the transfer of
some or all of his or her Registrable Shares to a child or spouse, or trust for
their or its benefit or to a general or limited partner or member of any
Stockholder that is a partnership or a limited liability company, provided each
such transferee agrees in a written instrument delivered to the Buyer to be
bound by the provisions of this Article VIII.
8.6 No Conflict with Existing Agreements. The registration rights provided
in this Article VIII are subordinate to the registration rights previously
granted by the Buyer. To the extent any provision of this Article VIII conflicts
or is inconsistent with any registration rights provision in any agreement
previously entered into by the Buyer, the provisions of such previous agreement
shall apply, and the provisions of this agreement shall be deemed to be modified
insofar so as is necessary to not conflict or to be inconsistent with such
previous agreement.
ARTICLE IX
DEFINITIONS
For purposes of this Agreement, each of the following defined terms is
defined in the Section of this Agreement indicated below.
Defined Term Section
------------ -------
150-Day Period 5.5
Accredited Investor 2.4(f)
Affiliate 3.31
Agreed Amount 6.3(c)
Balance Sheets 3.6(b)
Bankruptcy 1.2(d)(i)
Built-in Gain Tax 1.2(a)(ii)
Buyer Introduction
Buyer Common Stock 1.2(a)(iii)
Buyer Option 5.1
Buyer SEC Documents 4.5
Cap Amount 6.5(a)
Cash Purchase Price 1.2(a)(i)
Change of Control 1.2(d)(ii)
Claimed Amount 6.3(a)
Claim Notice 6.3(a)
Closing 1.1
Closing Date 1.4(a)
Code 3.15(b)
Contingent Cash Payment 1.2(b)(i)
Contingent Payment 1.2(b)(i)
Contingent Payment Date 1.2(b)(ii)
Contingent Payment Report 1.2(b)(ii)
Contingent Shares 1.2(b)(i)
Contingent Shares Limit 1.2(b)(i)
Consulting Revenue Targets 1.2(d)(iii)
Contracts 3.13(a)
Current Customer 5.7(a)(ii)
Deficit Amount 6.4(b)
Disclosure Schedule Article III
Dispute Notice 1.3(b)
Employee Benefit Plan 3.24(a)
Environmental Law 3.20(a)
ERISA 3.24(a)
ERISA Affiliate 3.24(a)
Escrow Agent 1.2(a)(iv)
Escrow Agreement 1.2(a)(iv)
Escrow Amount 1.2(a)(iv)
Exchange Act 4.5
Final Closing Balance Sheet 1.3(b)
Initial Final Closing Balance Sheet 1.3(a)
Form 8023 5.5
GAAP 3.6(a)
Gross Margin Targets 1.2(d)(iii)
Indemnified Party 6.3(a)
Indemnifying Party 6.3(a)
Insurance Policies 3.18(a)
Intellectual Property 3.8(a)
Leases 3.11
Line 9/11 Information 5.5
Losses 6.1(a)
Material Adverse Effect 1.2(d)(iv)
NJ Tax 1.2(a)(ii)(B)
Other Services Revenue 5.2(b)
Parties Introduction
Performance Based Targets 1.2(b)(i)
Permits 3.19
Personal Property 3.12(a)
Purchase Price Common Stock 1.2(a)(iii)
Purchase Price Securities 2.4(a)
Registering Stockholder 8.2(a)
Registrable Shares 8.1
Registration Statement 8.1
SEC 4.5
Section 197 Intangibles 5.5(ii)
Section 338(h)(10) Election 5.5
Securities Act 2.4(a)
Security Interest 2.1
Significant Customer 3.17(a)
Significant Supplier 3.17(b)
SND Introduction
SND Accountants 1.3(a)
SND Common Stock 3.2
SND Business Unit 1.2(d)(v)
SND Intellectual Property 3.8(a)
SND Shares Preliminary Statement
SND Stock Option 5.1
Stockholders Introduction
Stockholder's Representative 1.2(d)(vi)
Taxes 3.15(d)
Working Capital 1.3(d)
Year 2000 Compliant 3.9(a)
ARTICLE X
MISCELLANEOUS
10.1 Expenses. Each Party shall bear its own costs and expenses (including
legal, accounting and other professional fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby. The
Stockholders shall pay the costs and expenses of any broker or investment banker
engaged by SND or any Stockholder in connection with this Agreement and the
transactions contemplated hereby, including without limitation, any fees due to
Updata Capital, Inc. The parties hereby expressly agree that any fees due to any
broker or investment banker retained by SND or any Stockholder, including
without limitation, any fees due to Updata Capital, Inc., shall be paid by the
Stockholders according to the percentages listed on Schedule I and shall not be
paid by SND. All transfer taxes shall be paid by the Stockholders.
10.2 Press Releases and Public Disclosure. The Stockholders may not issue
any press release or public announcement relating to the subject matter of this
Agreement without the prior written approval of the Buyer. In the event the
Buyer intends to issue any disclosure regarding this transaction, it shall
provide the Stockholders' Representative a copy of the intended disclosure and
provide such party a reasonable opportunity to comment on such disclosure and in
the Buyer's discretion, include such comments to the extent reasonable.
10.3 Prior Agreements. Each of the Stockholders and SND hereby grants any
consents, waivers or approvals with respect to the consummation of the
transactions covered hereby which may be required under any agreement or
instrument to which such Stockholder or SND may be a party (including without
limitation waivers of restrictions on transfer of the SND Shares or waivers of
purchase rights with respect to the SND Shares). Each Stockholder acknowledges
that effective as of the Closing, it has no right or claim regarding the receipt
of any additional capital stock of SND, and each of Xxxxx Xxxxxx and Xxxxxx
Xxxxx further waive all claims against SND, other than any claim related to the
enforcement of the personal guarantees provided to First Union as described in
Section 5.9 above.
10.4 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
10.5 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 among the Parties, written
or oral, that may have related in any way to the subject matter hereof.
10.6 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. Except as set forth in Section 8.5 hereof, no Party may
assign either this Agreement or any of its rights, interests, or obligations
hereunder without the prior written approval of the other Parties.
Notwithstanding the foregoing, the Buyer may assign its rights and obligations
hereunder to a
subsidiary of the Buyer, provided that the Buyer also remains liable for the
discharge of such obligations.
10.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
10.8 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.9 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly delivered two (2)
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, or one business day after it is sent via a reputable
nationwide overnight courier service, in each case to the intended recipient as
set forth below:
If to the Stockholders:
----------------------
Xxxxxx Xxxxx
c/o Strategic Network Designs, Inc.
00 Xxxxxx Xxxxxx
Xxxxx, Xxx Xxxxxx 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
With a copy to:
--------------
St. Xxxx & Xxxxx, L.L.C.
Attn: Xxxx Xxxxxx, Esq.
Xxx Xxxx Xxxxx Xxxx
Xxxxxx, Xxx Xxxxxx 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
If to the Buyer:
---------------
ePresence, Inc.
000 Xxxxxxxx Xxxx
Xxxxxxxx, Xxxxxxxxxxxxx 00000
Telecopy: (000) 000-0000
Attn: Office of the General Counsel
With a copy to:
--------------
Xxxx X. Xxxxxx, Esq.
Xxxx and Xxxx LLP
00 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Telecopy: (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 party for
whom it is intended. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
10.10 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the
Commonwealth of Massachusetts.
10.11 Amendments and Waivers. No amendment of any provision of this
Agreement, or waiver or consent given hereunder, shall be valid unless the same
shall be in writing and signed by the Buyer and Stockholders. 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.
10.12 Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
ePRESENCE, INC.
By: /s/ Xxxxxxx X. Xxxxxxxxx
------------------------
Title: Chief Financial Officer
-----------------------
STRATEGIC NETWORK DESIGNS, INC.
By: /s/ Xxxxx X. Xxxxxx
--------------------
Title: President
---------
STOCKHOLDERS:
/s/ Atif Butt
-------------
Atif Butt
/s/ Xxxxxxx X. Xxxxxx
---------------------
Xxxxxxx Xxxxxx
/s/ Xxxxxxx Xxxxxxxxx
---------------------
Xxxxxxx Xxxxxxxxx
/s/ Xxxxx Xxxxxx
----------------
Xxxxx Xxxxxx
/s/ Sebastian High
------------------
Xxxxxxxxx High
/s/ Xxxx Xxxx
-------------
Xxxx Xxxx
/s/ Xxxxxxx Xxxxxxxx
--------------------
Xxxxxxx Xxxxxxxx
/s/ Xxxxxx Xxxxxx
-----------------
Xxxxxx Xxxxxx
/s/ Xxxxxxxx Xxxxxxx
--------------------
Xxxxxxxx Xxxxxxx
/s/ Xxx Xxxxxx
--------------
Xxx Xxxxxx
/s/ Xxxxx Xxxxxxx
-----------------
Xxxxx Xxxxxxx
/s/ Xxxx Xxxxxxxx
-----------------
Xxxx Xxxxxxxx
/s/ Xxxxxxx Xxxx
----------------
Xxxxxxx Xxxx
/s/ Xxxxx Xxxxxx
----------------
Xxxxx Xxxxxx
/s/ Xxxxx Xxxxxxxxxxx
---------------------
Xxxxx Xxxxxxxxxxx
/s/ Xxxxxx Xxxxx
----------------
Xxxxxx Xxxxx
/s/ Xxxxxxx Xxxxxxxxx
---------------------
Xxxxxxx Xxxxxxxxx
SCHEDULE I
----------
A. Calculation of Net Proceeds
---------------------------
1. Purchase Price Common Stock - 221,713 shares ($3,000,000 divided by
$13.531, representing the average last sales price of the Buyer Common
Stock as reported by the Nasdaq National Market for the ten (10)
trading days preceding the Closing Date)
2. Cash Purchase Price
Gross Cash Proceeds at Closing - $ 17,500,000
Deductions from Cash Proceeds
. Built-in Gains Tax $ 910,800
. Professional Fees $ 683,744.59
. New Jersey Corporate Taxes $ 374,014
-------------
Total Deductions $1,968,558.59
--------------
Net Cash Proceeds $15,531,441.41
----------------
*Subject to confirmation by SND Accountants
B. Allocation of Net Proceeds
--------------------------
Number of No. of Shares
---------------------------- Shares of Percentage of Purchase Allocation of Funding of
SND Stock Ownership In Price Common Net Cash Indemnity Withholding Cash Proceeds
Stockholders Owned SND Stock Proceeds Cash Escrow/1/ Taxes/2/ Received at Closing
----------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Xxxxx Xxxxxx 500,000 43.275805% 95,948 $ 6,721,356.30 ($750,000) -- $ 5,971,356.30
-----------------------------------------------------------------------------------------------------------------------------------
Xxxxxx Xxxxx 500,000 43.275805 95,948 $ 6,721,356.30 (750,000) -- 5,971,356.30
-----------------------------------------------------------------------------------------------------------------------------------
Xxxxxxx Xxxxxxxxx 45,975 3.979210 8,822 618,028.67 -- ($ 297,909) 320,119.67
-----------------------------------------------------------------------------------------------------------------------------------
Xxxxxxx Xxxxxxxx 34,480 2.984300 6,617 463,504.65 -- (224,977) 238,527.65
-----------------------------------------------------------------------------------------------------------------------------------
Xxxxxxx Xxxxxxxxx 16,090 1.392615 3,088 216,293.18 -- (105,548) 110,745.18
-----------------------------------------------------------------------------------------------------------------------------------
Xxxxx Xxxxxx 11,495 .994911 2,206 154,523.86 -- (76,050) 78,473.86
-----------------------------------------------------------------------------------------------------------------------------------
Xxxxxxxxx High 11,495 .994911 2,206 154,523.86 -- (75,839) 78,684.86
-----------------------------------------------------------------------------------------------------------------------------------
Xxxx Xxxxxxxx 11,495 .994911 2,206 154,523.86 -- (76,139) 78,384.86
-----------------------------------------------------------------------------------------------------------------------------------
Xxxxxx Xxxxxx 5,750 .497672 1,103 77,295.64 -- (39,442) 37,853.64
-----------------------------------------------------------------------------------------------------------------------------------
Xxxxxxxx Xxxxxxx 4,600 .398137 883 61,836.42 -- (31,930) 29,906.42
-----------------------------------------------------------------------------------------------------------------------------------
Xxxxxxx Xxxx 4,000 .346206 768 53,770.78 -- (28,043) 25,727.78
-----------------------------------------------------------------------------------------------------------------------------------
Xxxxx Xxxxxxx 3,000 .259655 576 40,328.16 -- (21,301) 19,027.16
-----------------------------------------------------------------------------------------------------------------------------------
Xxxxx Xxxxxxxxxxx 3,000 .259655 576 40,328.16 -- (21,538) 18,790.16
-----------------------------------------------------------------------------------------------------------------------------------
Atif Butt 1,000 .086552 192 13,442.77 -- (8,902) 4,540.77
-----------------------------------------------------------------------------------------------------------------------------------
Xxxxxxx Xxxxxx 1,000 .086552 192 13,442.77 -- (8,640) 4,802.77
-----------------------------------------------------------------------------------------------------------------------------------
Xxxx Xxxx 1,000 .086552 192 13,442.77 -- (8,696) 4,746.77
-----------------------------------------------------------------------------------------------------------------------------------
Xxx Xxxxxx 1,000 .086552 192 13,442.77 -- (8,320) 5,122.77
-----------------------------------------------------------------------------------------------------------------------------------
221,713 $15,531,440.92 $(1,500,000) $(1,033,274)
======= ============== ============
-----------------------------------------------------------------------------------------------------------------------------------
------------
/1/ Deducted by Buyer from Net Cash Proceeds and used to fund the Escrow Amount
pursuant to Section 1.2(a)(iv)of the Agreement.
/2/ Deducted by Buyer from Net Cash Proceeds pursuant to Section 1.2(a)(i) of
the Agreement and remitted to SND to Fund SND's withholding tax obligation
relating to compensation expense for vesting of Class B Non Voting Stock.
SCHEDULE II
-----------
CONSULTING REVENUE - the sum of (i) all revenues generated and delivered by the
SND Business Unit (exclusive of Product Sale Revenue (as defined below)) less
customer discounts and other deductions and adjusted for provision for bad
debts, all recognized or provided for in accordance with the SND Business
Unit's applicable accounting policies and practices which are in accordance with
GAAP and have been consistently applied, plus (ii) an amount equal to the value
of the aggregate services by an employee of the SND Business Unit utilized by
Buyer or any affiliate of Buyer on projects as to which the revenues from such
projects are not paid to the SND Business Unit but are paid to Buyer or such
affiliate, less (iii) an amount equal to the value of the aggregate services by
an employee of the Buyer or any affiliate of Buyer on projects as to which the
revenues from such projects are paid to the SND Business Unit. In addition,
Consulting Revenue denominated in foreign currencies will be translated to U.S.
dollars using weighted average exchange rates in effect during the period of
recognition, in accordance with GAAP.
PRODUCT SALE REVENUE - purchase and resale of third party products.
CONSULTING REVENUE TARGETS - For the twelve consecutive month period commencing
as of the Closing Date and ending on the first anniversary of the Closing Date
(the "Earnout Period"), the minimum Consulting Revenue which the SND Business
Unit must achieve to earn the Minimum Contingent Payment, (assuming the Minimum
Gross Margin Target is also achieved) is Twenty Million ($20,000,000) Dollars
(the "MINIMUM REVENUE TARGET"). The minimum Consulting Revenue which the SND
Business Unit must achieve during the Earnout Period, to earn the Maximum
Contingent Payment (assuming the Maximum Gross Margin Target is also achieved)
is Twenty Two Million Five Hundred Thousand ($22,500,000) Dollars (the "MAXIMUM
REVENUE TARGET"). No Contingent Payment will be made for Consulting Revenue
generated that is lower than the Minimum Revenue Target. Any Consulting Revenue
generated that is greater than the Maximum Revenue Target will be eligible to
receive the Contingent Payment, subject to the gross margin requirements set
forth below, up to the Maximum Contingent Payment as determined under the
following formula:
(achieved Consulting Revenue) - (Maximum Revenue Target) x (achieved Gross
Margin Percentage) x (20%) + (the applicable Contingent Payment derived from the
below Schedule of Contingent Payments for such achieved Gross Margin Percentage
under the Maximum Revenue Target column).
For the avoidance of doubt, (e.g., if the achieved Consulting Revenue was $24.5
million and the achieved Gross Margin on such revenue was 54%, the Contingent
Payment would be $9.02 million as follows: $24.5 million - $22.5 million x 54%
x 20% + $8.8 million) .
COST OF GOODS SOLD - includes, but is not limited to, all costs associated with
the delivery of consulting services, including direct salaries, direct payroll
taxes, direct employee benefits including 401K, contracted services and billable
travel and reasonable entertainment costs determined in accordance with the SND
Business Unit's applicable accounting policies and
practices which are in accordance with GAAP and have been consistently applied;
provided, however, that the Cost of Goods Sold shall exclude (i) any
compensation expense relating to the acceleration of the vesting of the Class B
non-voting common stock immediately prior to the Closing Date, and (ii) the
costs of and expenses relating to any new hires agreed to by Buyer for any new
practice group for a period of ninety days.
CONTINGENT PAYMENT - a Contingent Payment will be made, in accordance with the
Schedule below, not later than thirty days after the first anniversary of the
Closing Date for Consulting Revenue generated during the Earnout Period, which
is equal to or greater than Twenty Million ($20,000,000) Dollars and for which
an average Gross Margin is achieved that is equal to or greater than the Minimum
Gross Margin Target. A Contingent Payment will be made for Consulting Revenue
achieved that is greater than the Maximum Revenue Target, up to the Maximum
Contingent Payment, only if the average Gross Margin achieved is equal to or
greater than the Minimum Gross Margin Target.
GROSS MARGIN - Gross Margin represents Consulting Revenues less Cost of Goods
Sold.
GROSS MARGIN TARGETS -During the Earnout Period, the minimum average Gross
Margin which the SND Business Unit must achieve to earn the Minimum Contingent
Payment, (assuming the Minimum Revenue Target is also achieved) is Fifty Two
Percent (52%) (the "MINIMUM GROSS MARGIN TARGET"). The average Gross Margin
which the SND Business Unit must achieve during the Earnout period, to earn the
Maximum Contingent Payment (assuming the Maximum Revenue Target is also
achieved) is Fifty Seven Percent (57%) (the "MAXIMUM GROSS MARGIN TARGET"). No
Contingent Payment will be made where the Consulting Revenue achieved during the
Earnout Period has an average Gross Margin below the Minimum Gross Margin
Target. Where the Consulting Revenue achieved during the Earnout Period has an
average Gross Margin that is greater than the Maximum Gross Margin Target, the
Contingent Payment will not exceed the Maximum Contingent Payment.
MAXIMUM CONTINGENT PAYMENT - Ten Million ($10,000,000) Dollars, which may be
earned upon achieving the Maximum Revenue Target and the Maximum Gross Margin
Target, or achieving a Gross Revenue above the Maximum Revenue Target at a Gross
Margin which allows for the Maximum Contingent Payment to be made. No
Contingent Payment will be made greater than the Maximum Contingent Payment.
MINIMUM CONTINGENT PAYMENT - Four Million ($4,000,000) Dollars, which may be
earned only upon achieving both the Minimum Revenue Target and the Minimum Gross
Margin Target. No Contingent Payment will be made below the Minimum Contingent
Payment. (The use of the term "minimum" in "Minimum Contingent Payment" merely
indicates the smallest Contingent Payment which may be achieved, provided that
the Minimum Revenue Target and the Minimum Gross Margin Target is achieved, and
in no way is a guarantee of receipt by the former stockholders of SND of any
Contingent Payment).
SCHEDULE OF CONTINGENT PAYMENTS
CONSULTING REVENUE ($MILLION)
Gross Margin % $20 $20.5 $21 $21.5 $22 $22.5
--------------------------------------------------------------------------------------------------------
52% $ 4.00 $ 4.80 $ 5.60 $ 6.40 $ 7.20 $ 8.00
--------------------------------------------------------------------------------------------------------
53% $ 4.20 $ 5.04 $ 5.88 $ 6.72 $ 7.56 $ 8.40
--------------------------------------------------------------------------------------------------------
54% $ 4.40 $ 5.28 $ 6.16 $ 7.04 $ 7.92 $ 8.80
--------------------------------------------------------------------------------------------------------
55% $ 4.60 $ 5.52 $ 6.44 $ 7.36 $ 8.28 $ 9.20
--------------------------------------------------------------------------------------------------------
56% $ 4.80 $ 5.76 $ 6.72 $ 7.68 $ 8.64 $ 9.60
--------------------------------------------------------------------------------------------------------
57% $ 5.00 $ 6.00 $ 7.00 $ 8.00 $ 9.00 $10.00
--------------------------------------------------------------------------------------------------------
* For Consulting Revenue and Gross Margin values that fall between the values
highlighted in the Schedule (assuming a Gross Margin achieved of at least 52%),
a pro-rata Contingent Payment will be made.
SCHEDULE III
------------
First Union National Bank
(30 day waiver of change of control restriction obtained)
SCHEDULE IV
-----------
STRATEGIC NETWORK DESIGNS, INC.
CALCULATION OF GROSS MARGIN
AS OF DECEMBER 31, 1999
YTD 12/31/99
------------
SALES:
Consulting Services $ 8,521,454.05
Outsourcing $ 2,647,487.81
Write-offs [entails adjustments to 1999/current ( 66,658.92)
calendar year invoices only] --------------
NET SALES $11,102,282.94
[excludes Product Revenue-per Consulting
Revenue definition in Schedule II of
Stock Purchase Agreement]
[invoices dated 12-31-98 or prior would be
categorized as bad debt expense within
Operating Expenses]
COST OF SALES:
Direct Salaries of Delivery Personnel $ 3,336,598.12
Direct Payroll taxes of Delivery Personnel $ 239,618.28
Direct Employee Insurance/Benefits $ 131,393.56
of Delivery Personnel
Direct 401(k) Expense of Delivery Personnel $ 67,428.02
Direct Billable/Non-Billable Expenses $ 49,775.37
[Air/Lodging/Meals/Other]
Contracted Services/Subcontractor Expenses $ 1,224,116.49
--------------
TOTAL COST OF SALES $ 5,048,929.84
[excludes Cost of Product - per Cost of
Goods Sold definition in Schedule II of
Stock Purchase Agreement]
--------------
GROSS PROFIT $ 6,053,353.10
--------------
SCHEDULE V
----------
Atif Butt
Xxxxxxx Xxxxxx
Xxxx Xxxx
Xxxxxx Xxxxxx
Xxxxxxxx Xxxxxxx
Xxxxx Xxxxxxx
Xxxxxxx Xxxx
Xxxxx Xxxxxxxxxxx
SCHEDULE VI
-----------
Xxxxxxx Xxxxxxxxx
Xxxxx Xxxxxx
Xxxxxxxxx High
Xxxxxxx Xxxxxxxx
Xxx Xxxxxx
Xxxx Xxxxxxxx
Xxxxxxx Xxxxxxxxx
