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ASSET PURCHASE AGREEMENT
BY AND AMONG
5B TECHNOLOGIES CORPORATION,
KNOWLEDGE ACQUISITION CORPORATION,
KNOWLEDGE STRATEGIES GROUP INC.,
XXXXXXX XXXXXX,
XXXXXXX XXXXXXX
AND
XXXXXXX XXXXXXXX
DATED JULY 30, 2001
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TABLE OF CONTENTS
Page
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ARTICLE I Definitions [more to be added].....................................1
1.1 Definitions................................................1
ARTICLE II Sale and Purchase.................................................7
2.1 Sale and Purchase of Acquired Assets.......................7
2.2 Excluded Assets............................................8
2.3 Assumption of Liabilities..................................8
2.4 Information and Records....................................9
ARTICLE III Consideration...................................................10
3.1 Payment of Purchase Price.................................10
3.2 Additional Consideration..................................10
3.3 Use of Consideration......................................10
3.4 Allocation of the Purchase Price..........................10
ARTICLE IV Closing..........................................................11
4.1 Closing...................................................11
4.2 Seller at Closing.........................................11
4.3 Buyer at Closing..........................................12
4.4 Further Assurances........................................12
ARTICLE V Representations and Warranties of the Sellers.....................13
5.1 Organization, Standing and Qualification;
Subsidiaries.............................................13
5.2 Authority.................................................14
5.3 Capitalization; Equity Interest...........................14
5.4 Consents and Approvals; No Violation......................14
5.5 Books and Records.........................................15
5.6 Financial Statements; Certain Financial Information[;
EBIT]....................................................15
5.7 Absence of Undisclosed Liabilities........................16
5.8 Absence of Certain Changes or Events......................17
5.9 Real Property.............................................18
5.10 Leases....................................................18
5.11 Title to Acquired Assets..................................19
5.12 Intellectual Property Rights..............................19
5.13 Contracts.................................................22
5.14 Litigation................................................23
5.15 Insurance.................................................23
5.16 Employee Benefit Plans....................................23
5.17 Tax Matters...............................................25
5.18 Environmental Matters.....................................27
5.19 Labor Relations; Employees................................28
5.20 Compliance with Law.......................................30
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5.21 Government Permits........................................30
5.22 Bank Accounts; Powers-of-Attorney.........................31
5.23 Brokers or Finders........................................31
5.24 Transactions with Affiliates..............................31
5.25 Customers and Suppliers...................................31
5.26 Accounts Receivable and Payables..........................32
5.27 Guarantees................................................32
5.28 Common Activities.........................................32
5.29 Disclosure................................................33
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT...............34
6.1 Organization, Standing and Qualification..................34
6.2 Authority.................................................34
6.3 Capitalization............................................35
6.4 Validity; Issuance of Shares..............................35
6.5 Consents and Approvals; No Violation......................35
6.6 Brokers or Finders........................................36
6.7 Public Reports............................................36
6.8 Disclosure................................................36
ARTICLE VII COVENANTS.......................................................36
7.1 Conduct of Business.......................................36
7.2 Access to Information.....................................38
7.3 Best Efforts..............................................38
7.4 No Solicitation by the Sellers............................39
7.5 Fees and Expenses.........................................39
7.6 Books and Records.........................................40
7.7 Compliance with Laws, Orders and Contracts...............40
7.8 Certain Activities between Signing and Closing............40
7.9 Expenditures..............................................40
7.10 Notification of Certain Matters...........................40
ARTICLE VIII CLOSING CONDITIONS.............................................41
8.1 Conditions Precedent to Obligations of Parent and
the Buyer................................................41
8.2 Conditions Precedent to Obligations of the Sellers........43
ARTICLE IX INDEMNIFICATION AND SURVIVAL.....................................44
9.1 Indemnification...........................................44
9.2 Survival Periods..........................................47
9.3 Cancellation of Shares....................................47
ARTICLE X TERMINATION.......................................................48
ARTICLE XI General..........................................................48
11.1 Expenses..................................................48
11.2 Notices...................................................49
11.3 Entire Agreement; Headings; Counterparts..................49
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11.4 Amendment; Waiver.........................................49
11.5 Severability..............................................50
11.6 Parties in Interest; Assignment...........................50
11.7 Applicable Law............................................50
11.8 Publicity.................................................51
11.9 Bulk Sales Compliance.....................................51
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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement dated as of the 30th day of July, 2001
(this "Agreement"), by and among Knowledge Acquisition Corporation, a New York
corporation, having its principal offices at 000 Xxxxxxxxx Xxxxxxxxx, Xxxxxxxx,
Xxx Xxxx 00000 (the "Buyer"), 5B Technologies Corporation, a Delaware
corporation, having its principal offices at 000 Xxxxxxxxx Xxxxxxxxx, Xxxxxxxx,
Xxx Xxxx 00000 ("Parent"), Knowledge Strategies Group Inc., a New York
corporation, having its principal offices at 000 Xxxxxxxx, Xxxxx 000, Xxx Xxxx,
XX 00000 ("KSG"), Xxxxxxx Xxxxxx, an individual residing at __________________
("Xxxxxx"), Xxxxxxx Xxxxxxx, an individual residing at ____________________
("Xxxxxxx"), Xxxxxxx Xxxxxxxx, an individual residing at
_______________________ ("Xxxxxxxx," and together with Xxxxxx and Xxxxxxx,
collectively, the "Principals"). KSG and the Principals are collectively
referred to in this Agreement as the "Sellers."
W I T N E S S E T H:
WHEREAS, the Principals own all of the issued and outstanding equity
capital of KSG;
WHEREAS, the Sellers are the owners of the Acquired Assets (as defined
below);
WHEREAS, the Buyer is a wholly-owned subsidiary of the Parent;
WHEREAS, the Sellers wish to sell to the Buyer, and the Buyer wishes
to purchase from the Sellers, the Acquired Assets upon the terms and subject to
the exclusions and conditions set forth in this Agreement; and
WHEREAS, as a condition precedent for the Buyer and Parent to
consummate the transactions contemplated hereby, the Bank (as defined herein)
has agreed to enter into an amendment (the "Credit Agreement Amendment") to
that certain Credit Agreement dated May 24, 2001, between the Bank and 5B
Technologies Group, Inc. (the "Credit Agreement"), in form and substance
satisfactory to Parent and the Bank.
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The following terms shall have the following meanings
for the purposes of this Agreement:
"Acquired Assets" shall have the meaning provided in Section 2.1.
"Acquisition Proposal" shall have the meaning provided in Section 7.4.
"Affiliate" shall mean, with respect to any specified Person, any
other Person which, directly or indirectly, owns or controls, is under common
ownership or control with, or is owned or controlled by, such specified Person.
For purposes of this definition "controls," "is controlled by" and "under
common control with" means the possession of the power to direct or cause the
direction of the management and policies of a specified Person through the
ownership of voting securities or otherwise.
"Agreement" shall mean this Purchase Agreement, including all exhibits
and schedules hereto, as it may be amended from time to time in accordance with
its terms.
"Asset Acquisition Statement" shall have the meaning provided in
Section 3.4.
"Assignment and Assumption Agreement" shall mean that certain the
Assignment and Assumption Agreement, dated the Closing Date, between the Buyer
and the Sellers, in form and substance reasonably satisfying to the Buyer and
the Sellers, the form of which is attached hereto as Exhibit F.
"Assumed Contracts" shall have the meaning provided in Section 2.1(f).
"Assumed Liabilities" shall have the meaning provided in Section 2.3.
"Audited Financials" shall have the meaning provided in Section
5.6(a).
"Bank" shall have the meaning provided in Section 3.3.
"Bank Consent" shall mean the Bank Consent, dated the Closing Date,
between KSG and the Bank with respect to the Bank's consent to the transactions
contemplated under this Agreement.
"Xxxx of Sale" shall mean the xxxx of sale, dated the Closing Date,
between the Buyer and the Sellers, in form and substance reasonably satisfying
to the Buyer and the Sellers, the form of which is attached hereto as Exhibit
A.
"Books and Records" shall have the meaning provided in Section 8.1(m).
"Business" shall mean the business of KSG as currently conducted.
"Business Combination" shall have the meaning provided in Section 7.4.
"Buyer Parties" shall have the meaning provided in Section 9.1(a).
"Buyer" shall have the meaning provided in the preamble to this
Agreement.
"Buyer Disclosure Schedule" shall have the meaning provided in Section
6.5(a).
"Xxxxxxx" shall have the meaning provided in the preamble to this
Agreement.
"CBC Loan Agreement" shall mean that certain Credit Agreement dated as
of December 15, 1999 between KSG and the Bank.
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"Claim Notice" shall have the meaning provided in Section 9.1(c)(i).
"Closing" shall have the meaning provided in Section 4.1.
"Closing Date" shall have the meaning provided in Section 4.1.
"Code" means the Internal Revenue Code of 1986, as amended, modified
or supplemented from time to time.
"Common Control Entity" shall be defined in accordance with Section
414(b) or (c) of the Code.
"Common Stock" shall mean the common stock, $.04 par value per share,
of Parent.
"Confidential Information" shall mean the proprietary and confidential
information of either party, including, without limitation, all information,
know-how, marketing and development plans, techniques and materials, client
names and other information related to clients, price lists, pricing policies
and financial information, and methods of production, vendor agreements, use,
operation and application: (i) which are not generally known to the public; and
(ii) in which such Person has rights.
"Confidentiality Agreements" shall mean the Non-Compete/
Confidentiality and Trade Secret/Invention Agreement to be executed by certain
employees of KSG as of the Closing Date, the form of which is attached hereto
as Exhibit D.
"Consulting Agreements" shall mean the consulting agreements between
the Buyer and Xxxxxx and the Buyer and Xxxxxxx to be executed at the Closing,
in form and substance satisfactory to the parties thereto, the form of which is
attached hereto as Exhibit B.
"Contaminant" shall have the meaning provided in Section 5.18(a).
"Contracts" shall have the meaning provided in Section 5.13.
"Core Software Products" shall have the meaning provided in Section
5.12(a)(i).
"Credit Agreement" shall have the meaning provided in the preamble to
this Agreement.
"Credit Agreement Amendment" shall have the meaning provided in the
preamble to this Agreement.
"Dispute Period" shall have the meaning provided in Section 9.1(c)(i).
"DOL" shall mean the Department of Labor, as provided in Section
5.12(d).
"Environmental Laws" shall have the meaning provided in Section
5.18(a).
"ERISA" shall have the meaning provided in Section 5.16(b).
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"ERISA Affiliate" shall have the meaning provided in Section 5.16(a).
"Excluded Assets" shall have the meaning provided in Section 2.2.
"Expiration Date" shall have the meaning provided in Section 9.2(a).
"Financial Statements" shall have the meaning provided in Section
5.6(a).
"GAAP" means U.S. generally accepted accounting principles,
consistently applied.
"Governmental Permits" shall have the meaning provided in Section
5.21.
"Xxxxxx" shall have the meaning provided in the preamble to this
Agreement.
"Income Taxes" means any federal, state, local, or foreign income, or
franchise Tax and in each instance any interest, penalties, or additions to tax
attributable to such Tax.
"Indebtedness" shall have the meaning provided in Section 5.7.
"Indemnified Party" shall have the meaning provided in Section 9.1(c).
"Indemnifying Party" shall have the meaning provided in Section
9.1(c)(i).
"Indemnity Notice" shall have the meaning provided in Section
9.1(c)(v).
"Intellectual Property Rights" shall have the meaning provided in
Section 5.12.
"Interim Balance Sheet" shall have the meaning provided in Section
5.6(a).
"Interim Balance Sheet Date" shall have the meaning provided in
Section 5.6(a).
"Interim Financial Statements" shall have the meaning provided in
Section 5.6(a).
"Inventory" shall have the meaning provided in Section 2.1(c).
"IRS" shall have the meaning provided in Section 5.16(b).
"KSG" shall have the meaning provided in the preamble to this
Agreement.
"KSG Common Stock" shall have the meaning provided in Section 5.3(a).
"Laws" shall have the meaning provided in Section 5.20.
"Leased Real Property" shall have the meaning provided in Section
5.10(a).
"Lien" shall mean any mortgage, lien, charge, restriction, pledge,
security interest, option, lease or sublease, claim, right of any third party,
easement, encroachment or
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encumbrance of any kind or any agreement or arrangement, whether oral or
written, having similar effect.
"Loss" shall mean any and all losses, liabilities, fines, judgments,
claims, damages, settlement payments, actions or causes of action, Liens, costs
and expenses (including reasonable attorneys' fees).
"Material Adverse Effect" shall have the meaning provided in Section
5.8(b).
"Office Action" shall mean any official action by the United States
Patent and Trademark Office reporting that a particular trademark or service
xxxx application is not entitled to federal registration for any reason and
advising of the reasons therefor and of any formal requirements or objections
with respect thereto.
"Order" shall have the meaning provided in Section 5.4.
"Parent" shall have the meaning provided in the preamble to this
Agreement.
"Parent's SEC Reports" shall have the meaning provided in Section 6.7.
"Person" shall mean any individual, corporation, proprietorship, firm,
partnership, limited liability company, limited partnership, trust, association
or other entity.
"Plan" shall have the meaning provided in Section 5.16(a).
"Preferred Stock" shall mean shares of Series C Convertible Preferred
Stock, par value $.01 per share, of Parent, in a sufficient amount to
satisfying the outstanding amounts under the CBC Loan Agreement.
"Prepaid Expenses" shall have the meaning provided in Section 2.1(d).
"Principals" shall have the meaning provided in the preamble to this
Agreement.
"Proceeding" shall have the meaning provided in Section 5.14.
"Purchase Price" shall have the meaning provided in Section 3.1.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement, dated the Closing Date, with respect to the shares of Common Stock
underlying the Preferred Stock, in form and substance reasonably satisfactory
to Parent and the Bank, the form of which is attached hereto as Exhibit B.
"Related Agreements" shall mean any contract or agreement which is or
is to be entered into at the Closing or otherwise pursuant to this Agreement,
including, without limitation, the Xxxx of Sale, the Consulting Agreements,
Confidentiality Agreements, Registration Rights Agreement and any assignments
of any of the foregoing. The Related Agreements executed by a specified Person
shall be referred to as "such Person's Related Agreements," "its Related
Agreements" or another similar expression.
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"Release" shall have the meaning provided in Section 5.18(a).
"Release Agreement" shall mean the Release Agreement, dated the
Closing Date, between the Sellers and the Bank, releasing all security
interests and Liens of the Bank with respect to the Acquired Assets, in form
and substance reasonably satisfactory to the Sellers and the Bank.
"Representatives" shall have the meaning provided in Section 7.2.
"Resolution Period" shall have the meaning provided in Section
9.1(c)(iv).
"Retained Liabilities" shall have the meaning provided in Section
2.3(b).
"Return" means any report, return, statement, estimate, declaration,
form, or other information required to be supplied to a taxing authority in
connection with Taxes.
"Sellers" shall have the meaning provided in the preamble to this
Agreement.
"Sellers Parties" shall have the meaning provided in Section 9.1(b).
"Sellers' Disclosure Schedule" shall have the meaning provided in
Article V.
"Shares" shall mean 150,000 shares of Common Stock.
"Software Products" shall have the meaning provided in Section
5.12(a)(i).
"Tax" or "Taxes" means taxes of any kind, levies or other like
assessments, customs, duties, imposts, charges or, including, without
limitation, income, gross receipts, ad valorem, value added, excise, real or
personal property, asset, sales, use, license, payroll, transaction, capital,
net worth and franchise taxes, estimated taxes, withholding, employment, social
security, workers compensation, utility, severance, production, unemployment
compensation, occupation, premium, windfall profits, transfer and gains taxes
or other governmental taxes imposed or payable to the United States, or any
state, county, local, or foreign government or subdivision or agency thereof,
and in each instance such term shall include any interest, penalties, or
additions to tax attributable to any such Tax. "Indebtedness" shall have the
meaning provided in Section 5.7.
"Third Party Claim" shall have the meaning provided in Section
9.1(c)(i).
"Trademarks" shall have the meaning provided in Section 2.1(a).
"Trademark Assignment" means the trademark assignment between the
Buyer and the Sellers, the form of which is attached hereto as Exhibit C.
"WARN Act" shall have the meaning provided in Section 5.19(c).
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ARTICLE II
SALE AND PURCHASE
2.1 Sale and Purchase of Acquired Assets. Subject to the terms and
conditions of this Agreement, at the Closing, the Sellers shall sell, transfer,
assign, convey and deliver to the Buyer, and the Buyer shall purchase, acquire
and take assignment and delivery of all right, title and interest in, to and
under the following assets owned by the Sellers (all of the assets sold,
assigned, transferred and delivered to the Buyer hereunder being referred to
collectively herein as the "Acquired Assets" and are set forth on Schedule 2.1
attached hereto):
(a) all of the following intangible assets which are owned by the
Sellers and used in connection with the operation of or relating to the
Business throughout the world: (a) registered and unregistered trademarks and
service marks (including common law rights) and applications for trademark and
service xxxx registrations, in each case which are related to the Business; (b)
trade names related to the Business (all assets in subparagraph (a) and (b)
which shall include those items identified on Schedule A hereto, collectively
referred to as the "Trademarks"); (c) registered and unregistered copyrights
and applications for copyright registrations related to the Business; (d)
proprietary concept information, including, without limitation, business and
marketing plans, marketing materials (including without limitation, brochures,
folders, special event planning guides and collateral materials) a reproducible
copy of the Sellers' web page, advertising concepts, designs and slogans, in
each case which are related to the Business, including audio and video and
other production products utilized to create any of the foregoing; and (e) all
enhancements, improvements and derivative works of each of the foregoing, in
each case, which are used in connection with the Business;
(b) all machinery, fixtures, equipment, vehicles, transportation and
storage facilities, furniture, tools, stores, spare parts and other tangible
personal property utilized in the Business owned by the Sellers and the
Sellers' rights in any of the foregoing items leased or licensed by the Sellers
and used in the Business;
(c) all inventory (including raw materials, work-in-process, and
finished goods), and supplies (including office, packaging, shop and other
supplies) on hand and used in connection with the Business (the "Inventory");
(d) all items of pre-paid expenses relating to the Business, if any
("Pre-paid Expenses");
(e) all licenses with respect to patents, inventions, trade secrets,
trademarks, technology, know-how, specifications, designs, drawings, processes,
quality control data, and other technical and proprietary information relating
to the Business;
(f) the Sellers' rights and interests in and to (subject to the
Buyer's assumption of the obligations thereunder arising on and after the
Closing) all contracts, sales orders, purchase orders, equipment leases,
personal property leases, licenses, forward commitments for supplies or
materials and other contracts, arrangements and agreements, whether written or
oral, which were entered into in the ordinary course of business with
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customers, suppliers, sales representatives, distributors, agents, lessors,
lessees, licensors, licensees, consignors, consignees and other third parties,
including, without limitation, all Contracts listed on Schedule 5.13 hereto,
all of which relate to the Acquired Assets and the operation of the Business
(the "Assumed Contracts");
(g) the Sellers' rights, to the extent assignable, under all third
party warranties and guarantees, whether express or implied, as they relate to
the Business;
(h) all claims, rights, setoffs and credits of Seller relating to the
Assumed Contracts or the Acquired Assets;
(i) all separately maintained (as well as relevant portions of those
which are not separately maintained) books, records and files relating to the
ownership, occupancy, use or operation of, the Business or the Acquired Assets,
including, without limitation, customer lists, vendor lists, catalogs and
accounting and tax records;
(j) all licenses, approvals, registrations, authorizations and permits
pertaining to the ownership, occupancy, use or operation of the Business or the
Acquired Assets; and
(k) all accounts receivables (whether or not invoiced) with respect to
goods sold or services rendered within the 90 day period prior to the Interim
Balance Sheet Date.
2.2 Excluded Assets. Notwithstanding anything to the contrary set
forth in this Agreement, there shall be excluded from the Acquired Assets (the
"Excluded Assets"): (i) any cash (including cash equivalents and securities) of
the Sellers on hand or on deposit as of the Closing Date; (ii) any accounts
receivable due, owing, accrued or payable to the Sellers (whether or not
invoiced) with respect to goods sold or services rendered during the period up
to the Closing Date which accounts receivable are in excess of 90 days past due
and are set forth on Schedule 2.2 hereto; (iii) any computer software used to
provide sales, payroll, accounting or other administrative services to KSG;
(iv) the benefit of any of KSG's insurance coverages or policies on and after
the Closing Date and (v) any and all assets of the Sellers not utilized in or
relating to the Business.
2.3 Assumption of Liabilities.
(a) On and after the Closing Date, the Buyer shall assume, and agrees
and undertakes to pay, perform and discharge, as and when due, each of the
obligations, responsibilities, liabilities and debts with respect to the
Business (other than Retained Liabilities) which are specifically described in
Schedule 2.3 hereto (all of which are hereinafter referred to collectively as
the "Assumed Liabilities").
(b) Notwithstanding anything to the contrary contained herein, Assumed
Liabilities shall not include any of the following, all of which shall be
retained by the Sellers and are hereinafter referred to as "Retained
Liabilities":
(i) legal, accounting, brokerage, finder's fee, taxes or other
expenses incurred by the Sellers in connection with this Agreement or
the consummation of the transactions contemplated hereby;
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(ii) liabilities or obligations incurred by the Sellers after
the Closing;
(iii) any obligations or liability relating to any litigation,
actions, grievances, arbitrations, suits, proceedings, investigations
or claims arising out of or relating to any of the Sellers'
activities or any of the Sellers' operation of the Business or
ownership or use of the Acquired Assets prior to the Closing Date or
any dispute, the material elements of which accrued prior to the
Closing, whether or not listed on any Schedule hereto;
(iv) any liability for any foreign, federal, state or local
taxes accrued to (or which should have been accrued pursuant to GAAP)
or incurred by any of the Sellers prior to the Closing, or as a
consequence of the transactions contemplated hereby;
(v) all liabilities to employees of KSG with respect to any
claims, whether contingent or otherwise, relating to labor relations
and compliance with fair employment practices prior to the Closing or
any salary, bonuses, commissions, benefits or other amounts payable
from, or contributions to, any benefit plans or arrangements,
payments of insurance premiums or other compensation matters for or
with respect to the period prior to the Closing Date;
(vi) all liabilities, costs or obligations under or which relate
to or are associated with any employee benefit plans or arrangements,
including the Employee Plans sponsored by any of the Sellers or a
Common Control Entity (as determined under Section 414(b) or (c) of
the Code) either before or after the Closing;
(vii) all liabilities to the extent they are associated with or
relate to any of the Excluded Assets, whether arising from events
occurring prior to or after the Closing Date;
(viii) all liabilities or obligations to any Affiliates of
Sellers arising prior to or after the Closing Date;
(ix) all liabilities for severance obligations, if any, to any
employee of KSG who does not become an employee of the Buyer;
(x) all accounts payable for goods and services, including
customer and third party credits, trade accounts payable and accrued
expenses and other debts or sums due, owing, accrued or payable with
respect to any of the Sellers' activities and the operation of the
Business prior to the Closing Date, except those accounts payable
specifically assumed by the Buyer as set forth in Schedule 2.3
hereto; and
(xi) any liabilities or obligations of the Sellers or relating
to the Business or the Acquired Assets not expressly assumed by the
Buyer as set forth in Schedule 2.3 hereto.
2.4 Information and Records. Following the Closing, the Sellers shall
also provide to the Buyer, copies of, or access to, all technical information,
Confidential Information, price lists, marketing information, sales records,
customer lists, documents related to the Business and the
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Acquired Assets, agreements with vendors, suppliers and manufacturers and any
other entities which do business with the Sellers with respect to the Business,
and any other business records of the Sellers that would be useful to the
Buyer.
ARTICLE III
CONSIDERATION
3.1 Payment of Purchase Price. At the Closing, in consideration for
the Acquired Assets, the Buyer shall (i) issue the Preferred Stock to KSG, and
(ii) issue the Shares to KSG collectively, the "Purchase Price").
3.2 Additional Consideration. Subsequent to the Closing Date, KSG
shall be entitled to receive a percentage of the profit (which for purposes of
this Section 3.2 shall mean revenue less all employment related costs
(including, without limitation, salaries, commissions, consulting fees,
payroll taxes, benefits and travel and entertainment expenses) and less an
administrative charge of $25,000 per month) from KSG's customers existing on
the Closing Date who become customers of the Buyer thereafter and any new
customers of the Buyer procured by the Principals, equal to (a) 15% during the
period commencing from the Closing Date and ending on the first anniversary of
the Closing Date, and (b) 10% during the period commencing from the first
anniversary of the Closing Date and ending on the second anniversary of the
Closing Date, as such profit amount shall be determined by the Buyer's
independent auditors; provided, however, that the Buyer shall not be required
to pay any such profit participation to KSG in the event that at any time
during such two year period (or such shorter period pursuant to the term of the
Consulting Agreements) (i) any of Hollen, Carlson, Xxxxxxxx or Xxxxxx Xxxxxxx,
for any reason, has not performed services on behalf of the Company pursuant to
their respective Consulting Agreements, (ii) there has been a default or breach
under this Agreement, the Consulting Agreements or the Related Agreements, that
has not been cured within 30 days thereof or is not curable, or (iii) the Buyer
or Parent has submitted a notice of claim with respect to the indemnification
obligations pursuant to Article IX and such indemnification obligations have
not been satisfied within 30 days of submission of such notice of claim.
Payments to KSG pursuant to this Section 3.2 shall be made quarterly in arrears
within 60 days following the end of each quarter.
3.3 Use of Consideration. The Sellers hereby covenant and agree that
they shall (i) immediately upon receipt of the Preferred Stock on the Closing
Date, assign all of such shares of Preferred Stock to Connecticut Bank of
Commerce (the "Bank") in full satisfaction of all amounts due and owing under
the CBC Loan Agreement, and the Sellers shall concurrently therewith obtain
from the Bank the Release Agreement with respect to release of all Liens and
security interests on the assets of the Sellers, including, without limitation,
the Acquired Assets, and (ii) immediately upon receipt of any proceeds pursuant
to Section 3.2, repay all Indebtedness and other payables validly owing (and
not contested) by KSG until same have been paid in full.
3.4 Allocation of the Purchase Price. Prior to the Closing Date, the
parties will mutually agree upon the fair market value of the Acquired Assets
in order to establish a Purchase Price allocation for all foreign, federal,
state and local tax purposes and shall set forth such
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allocation on Schedule 3.4 to be delivered prior to the Closing. The Purchase
Price for the Acquired Assets, consisting of the Purchase Price under Section
3.1 and the Assumed Liabilities under Section 2.3(a), shall be allocated in
accordance with Section 1060 of the Code. Neither party will voluntarily take a
position inconsistent therewith upon examination of any such tax return or
report, in any refund claim, in any litigation or otherwise with respect to
such tax returns. Each party agrees to prepare and timely file Internal Revenue
Service Form 8594 ("Asset Acquisition Statement") detailing the agreed upon
allocation and any supplemental filing, if necessary, upon determination of any
adjustment to the Purchase Price hereunder, to cooperate in every reasonable
way with the other party in the preparation of such form(s) and to furnish the
other party with a copy of such form(s) prepared in draft within a reasonable
period before the due date for filing.
ARTICLE IV
CLOSING
4.1 Closing. The closing of the transactions contemplated hereby (the
"Closing") shall be held at the offices of the Buyer or its counsel, or at such
other place as the parties may agree upon, at 10:00 a.m., E.S.T., on the next
business day following the date the conditions to Closing are satisfied or
waived, or as may be mutually agreed upon by the parties (the "Closing Date").
4.2 Sellers at Closing. At the Closing, the Sellers shall deliver to
the Buyer:
(a) all of the Acquired Assets;
(b) a xxxx of sale duly executed by the Sellers in the form of Exhibit
A, attached hereto;
(c) the following agreements duly executed by the Sellers: the
Consulting Agreements, the Confidentiality Agreements, the Registration Rights
Agreement and the Release Agreement, each in form and substance satisfactory to
the parties thereto, and in substantially the forms attached as Xxxxxxxx X, X0,
X0, X0, X0, X and E, respectively;
(d) an incumbency and specimen signature certificate with respect to
each of the officers of KSG executing this Agreement, the other agreements
required to be delivered pursuant to Sections 4.2(c) and (e) hereof and any
other documents, agreements, instruments and certificates delivered hereunder,
on behalf of KSG;
(e) an Assignment and Assumption Agreement duly executed by the
Sellers in the form of Exhibit F attached hereto;
(f) the certificates required to be delivered pursuant to Section
8.1(e) hereof;
(g) consent to assignment of all Intellectual Property Rights and any
other Contracts requiring consent in connection with consummation of the
transactions contemplated by this Agreement;
11
(h) an estoppel certificate or other evidence of satisfaction with
respect to the CBC Loan Agreement;
(i) all authorizations necessary for ownership, use and operation of
the Business and the Acquired Assets; and
(j) all such other documents, agreements, instruments, consents or
certificates required to be delivered to Buyer under the provisions of this
Agreement or as Buyer may deem reasonably necessary or appropriate to effect,
evidence or facilitate the transactions contemplated by this Agreement and vest
in Buyer good and marketable title to the Acquired Assets.
4.3 Buyer at Closing. At the Closing, Buyer shall:
(a) deliver the Purchase Price, which shall contain appropriate
restrictive legends, and the Registration Rights Agreement;
(b) deliver to KSG an Assignment and Assumption Agreement duly
executed by the Buyer in the form of Exhibit F attached hereto;
(c) deliver to the Sellers the following agreements duly executed by
the Buyer: the Consulting Agreements and the Confidentiality Agreements; and
(d) deliver to the Sellers all such documents, agreements, instruments
or certificates required to be delivered to the Sellers under the provisions of
this Agreement or as the Sellers may deem reasonably necessary or appropriate
to effect, evidence or facilitate the transactions contemplated by this
Agreement.
4.4 Further Assurances.
(a) From time to time, each of the Sellers shall, subject to the
provisions of this Agreement, execute and deliver such other good and
sufficient instruments of sale, transfer, conveyance and assignment as the
Buyer may reasonably request in order to sell, convey, transfer and assign to
the Buyer, or to vest in the Buyer good and marketable title to the Acquired
Assets, or otherwise to carry out the purposes and intent of this Agreement
(including, without limitation, all Exhibits hereto). From time to time the
Buyer shall, at its expense, execute and deliver such instruments and documents
as the Sellers may reasonably request to cause the Buyer to assume the Assumed
Liabilities or otherwise carry out the purposes and intent of this Agreement.
(b) The Buyer, each of the Sellers and their respective Affiliates
will cooperate with each other in connection with any audit by the Internal
Revenue Service or any other taxing authority (including, without limitation,
foreign, federal, state or local authorities) of any tax return or report in
connection with the Acquired Assets or the Business (including the use,
operation, or ownership thereof), the transferred employees or the sale of the
Acquired Assets hereunder. The party responsible for the applicable tax
liability shall have the sole right, at its sole expense, to conduct any audit
or any other proceeding before any such taxing authority, to prepare and file
any amended tax return, claim for refund or Tax Court petition, to prosecute
any such claim and to select counsel, to engage in litigation and to consent to
any
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settlement in connection therewith with respect to any taxes for any such
period, and the other party will execute and deliver, or cause to be executed
and delivered, to the responsible party or its designees, all instruments
(including, without limitation, powers of attorney) reasonably requested by the
responsible party in order to implement the provisions of this Section 4.4(b).
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Except as otherwise set forth in the Sellers' disclosure schedule
delivered to the Buyer and Parent concurrently with the parties' execution of
this Agreement (the "Sellers' Disclosure Schedule"), which statements contained
in the Sellers' Disclosure Schedule shall also be deemed to be representations
and warranties made and given by the Sellers under this Article V of this
Agreement, each of the Sellers hereby jointly and severally represents and
warrants to each of the Buyer and Parent as follows:
5.1 Organization, Standing and Qualification; Subsidiaries.
(a) KSG and each of its subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate or other power and authority to
own, lease and operate its properties and to carry on its business as it is now
being conducted. KSG and each of its subsidiaries is duly qualified or licensed
to do business and in good standing in each jurisdiction in which its property
is owned, leased or operated or the nature of the Business conducted by it
makes such qualification or licensing necessary. Section 5.1 of the Sellers'
Disclosure Schedule lists all lines of business constituting the Business, the
names (registered or otherwise) in which KSG does business, the complete and
correct list of all of the Principals' Affiliates and KSG's subsidiaries and
their respective jurisdictions of incorporation or organization (such list to
include the ownership structure of each entity and the jurisdiction in which
each entity is doing business and whether each is qualified or licensed to do
business in such jurisdiction), and the names and titles of all officers and
directors of KSG. KSG has delivered to the Buyer or its counsel complete and
correct copies of its and each of its subsidiaries' certificate of
incorporation and bylaws, as currently in effect.
(b) All the outstanding shares of capital stock of, or other equity
interests in, each of KSG's subsidiaries have been validly issued and are fully
paid and non-assessable and are owned directly or indirectly by KSG, free and
clear of all Liens and security interests of any kind or nature whatsoever and
free of any other restriction (including any restriction on the right to vote,
sell or otherwise dispose of such capital stock or other ownership interests),
except for restrictions imposed by applicable securities laws, and no other
person or entity has any rights of any nature to acquire any securities of any
of such subsidiaries. Neither KSG nor any of its subsidiaries directly or
indirectly owns any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any corporation, partnership, joint
venture or other business association or entity.
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5.2 Authority. Each of the Sellers has all requisite corporate or
other power and authority to enter into this Agreement and the Related
Agreements and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and the Related Agreements and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of the Sellers. This Agreement
has been duly executed and delivered by each of the Sellers and the Related
Agreements, when executed and delivered by each of the Sellers, will constitute
legal, valid and binding obligations of each of the Sellers, enforceable
against each of the Sellers in accordance with its respective terms, except to
the extent enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforceability
of creditors' rights in general and subject to general principles of equity
(regardless of whether enforceability is considered in a proceeding in equity
or at law).
5.3 Capitalization; Equity Interest.
(a) The authorized capital stock of KSG as of the date hereof
consists, and as of the Closing Date will consist, of 26,000,000 shares of
Class A Common Stock and 4,000,000 shares of Class B Common Stock, par value
$.001 per share (the "KSG Common Stock"). As of the date hereof, 12,400,000
shares of KSG's Class A Common Stock are issued and outstanding and no shares
of KSG's Class B Common Stock are issued and outstanding. Except as set forth
in Section 5.3(a) of the Seller's Disclosure Schedule, there are no other
securities of KSG issued or outstanding or options and warrants granted on or
prior to the date hereof, no shares of KSG's Common Stock are held in KSG's
treasury and there are no other shares of capital stock of KSG authorized,
issued or outstanding. All outstanding shares of KSG's capital stock are duly
authorized, validly issued, fully paid and non-assessable and free of Liens and
preemptive rights.
(b) Except as set forth in Section 5.3(a), there are no: (i) shares of
capital stock of KSG authorized, issued or outstanding, (ii) securities
convertible into or exchangeable or exercisable for, or any options, warrants,
calls, puts, subscriptions or other rights (preemptive or otherwise) to
acquire, directly or indirectly, any shares of capital stock of KSG or its
subsidiaries, (iii) agreements or contractual commitments, whether written or
oral, relating to the capital stock of KSG or its subsidiaries or obligating
KSG or its subsidiaries to issue, sell, repurchase, redeem or otherwise acquire
any shares of capital stock of KSG or its subsidiaries or any such securities,
options, warrants, calls, puts, subscriptions or other rights, (iv) Liens
relating to any capital stock of KSG or its subsidiaries, (v) rights or
contractual commitments of KSG or its subsidiaries (whether written or oral)
that give any Person any right to reserve or exercise any benefits or rights
similar to any rights enjoyed by or accruing to the Principals or (vi) rights
or contractual commitments of KSG or its subsidiaries (whether written or oral)
to provide funds to or make any investment in any other Person.
5.4 Consents and Approvals; No Violation. Neither the execution and
delivery of this Agreement or the Related Agreements, nor the consummation of
the transactions contemplated hereby or thereby nor compliance by the Sellers
with any of the provisions hereof or thereof will (i) conflict with or result
in a breach of the certificate of incorporation, bylaws or other constitutive
documents of KSG or any of its subsidiaries, (ii) conflict with or result (with
or without notice or lapse of time or both) in a default (or give rise to any
right of reimbursement, termination, cancellation, modification or
acceleration) under any of the provisions of any note,
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bond, lease, mortgage, indenture, license, franchise, permit agreement or other
instrument or obligation to which any of the Sellers or any of their respective
subsidiaries is a party, or by which any of the Sellers or any of their
respective subsidiaries or their respective properties or assets may be bound
or affected, except for such conflict, breach or default as to which requisite
waivers or consents are described in Section 5.4 of the Sellers' Disclosure
Schedule and are required to be obtained prior to Closing, (iii) violate any
Law, statute, rule or regulation or order, writ, injunction, judgment or decree
(each, an "Order") applicable to any of the Sellers or any of its subsidiaries
or their respective properties or assets or (iv) result in the creation or
imposition of any Lien upon any property or assets used or held in connection
with the Business. Except as set forth in Section 5.4 of the Sellers'
Disclosure Schedule, no consent or approval by, or any notification of or
filing with, or other action of any Person (governmental or private) is
required in connection with the execution, delivery and performance by the
Sellers of this Agreement or any Related Agreement. There is no Proceeding
pending or, to the knowledge of the Sellers, threatened against the Sellers or
any of their respective assets or properties that seeks to prevent the
consummation of the transactions contemplated herein or in any Related
Agreement.
5.5 Books and Records. The minute books and other similar records of
KSG and each of its subsidiaries made available to the Buyer prior to the
execution of this Agreement contain a true, correct and complete record of all
actions taken at all meetings and by all written consents in lieu of meetings
of the shareholders, the board of directors and committees of the board of
directors of KSG and each of its subsidiaries. The stock transfer ledger and
other similar records of KSG and each of its subsidiaries made available to the
Buyer prior to the execution of this Agreement accurately reflect all record
transfers prior to the execution of this Agreement in the capital stock of KSG
and each of its subsidiaries. No Books and Records of KSG and each of its
subsidiaries have been recorded, stored, maintained, operated or are otherwise
wholly or partly dependent upon or held by any means (including any electronic,
mechanical or photographic process, whether computerized or not) which
(including all means or access thereto and therefrom) are not under the
exclusive ownership and direct control of KSG and each of its subsidiaries.
"Books and Records" means, collectively, all files, documents, instruments,
papers, books and records relating to the business or the condition of a
company, including financial statements, tax returns and related work papers
and letters from accountants, budgets, pricing guidelines, ledgers, journals,
deeds, title policies, minute books, stock certificates and books, corporate
seals, stock transfer ledgers, contracts, licenses, customer lists, computer
files and programs, retrieval programs, operating data and plans and
environmental studies and plans.
5.6 Financial Statements; Certain Financial Information.
(a) KSG has previously delivered to the Buyer true and complete copies
of the following financial statements: (i) the unaudited consolidated balance
sheet of KSG and its subsidiaries as of June 30, 2001 and the related unaudited
statements of operations and cash flows of KSG for the six months then ended
(such balance sheet as of June 30, 2001 (the "Interim Balance Sheet Date") is
referred to herein as the "Interim Balance Sheet" and all of the financial
statement described in this clause (i) are referred to as the "Interim
Financial Statements"); and (ii) the audited consolidated balance sheets of KSG
and its subsidiaries for the fiscal years ended December 31, 1998, December 31,
1999 and December 31, 2000 and the related audited statements of operations and
cash flows of KSG and its subsidiaries for the fiscal
15
years then ended (except with respect to fiscal 2000 which have been reviewed
by KSG's independent accountants), certified by KSG's independent certified
public accountants (the "Audited Financials") (such financial statements
described in clauses (i) and (ii) and any notes thereto are hereinafter
collectively referred to as the "Financial Statements"). Each of the balance
sheets included in the Financial Statements is true, complete and correct, and
each of the balance sheets included in the Financial Statements presents fairly
the financial position of KSG and its subsidiaries as of the respective date of
such balance sheet, in each case in accordance with GAAP, subject, in the case
of the Interim Balance Sheet, to year-end adjustments and the absence of notes.
Each of the statements of operations and cash flows included in the Financial
Statements is true, complete and correct, and each of the statements of
operations and cash flows included in the Financial Statements presents fairly
the results of operations of KSG and its subsidiaries for the periods set forth
therein, in each case in accordance with GAAP, subject, in the case of the
Interim Balance Sheet, to year-end adjustments and the absence of notes. The
Financial Statements were compiled from the Books and Records regularly
maintained by management and used to prepare financial statements of KSG and
its subsidiaries in accordance with the principles stated therein. The Sellers
have maintained the Books and Records in a manner sufficient to permit the
preparation of the Financial Statements in accordance with GAAP. The Books and
Records fairly reflect the income, expenses, assets and liabilities of KSG and
its subsidiaries and provide a fair and accurate basis for the preparation of
the Financial Statements.
(b) All reserves established by KSG and its subsidiaries are reflected
on the Interim Balance Sheet and are adequate and are stated in accordance with
GAAP, including reserves for bad debt, vacation, sick leave and similar paid
leave. There are no loss contingencies that are required to be accrued by
Statement of Financial Accounting Standard No. 5 of the Financial Accounting
Standards Board which are not provided for on such Interim Balance Sheet.
5.7 Absence of Undisclosed Liabilities. Except as set forth on Section
5.7 of the Sellers' Disclosure Schedule, KSG and each of its subsidiaries do
not have, and as a result of the transactions contemplated herein will not
have, any Indebtedness (as defined below), liabilities or obligations of any
nature (whether known or unknown, absolute, accrued, fixed, contingent,
liquidated, unliquidated or otherwise, and whether due or to become due),
except for the Indebtedness, liabilities and obligations (i) reflected on the
Interim Balance Sheet (including the notes thereto); or (ii) incurred in the
ordinary course of business consistent with past practice since the date of the
Interim Balance Sheet and which do not exceed $5,000 individually or $10,000 in
the aggregate. Notwithstanding the foregoing, on the Closing Date, (i) KSG and
each of its subsidiaries will have no pension liabilities and no contingent
liabilities required to be reported in accordance with GAAP, including as a
result of the transactions contemplated herein; (ii) any related party
receivables of KSG and each of its subsidiaries will have been collected; and
(iii) KSG and each of its subsidiaries will have no related party payables
(accrued or unaccrued, contingent or fixed), except as set forth in Section 5.7
of the Sellers' Disclosure Schedule. "Indebtedness" means all obligations of
KSG or any of its subsidiaries as of any date, (i) for borrowed money,
including such indebtedness payable to any stockholder, (ii) evidenced by
notes, bonds, debentures or similar instruments, (iii) for which interest
charges are customarily paid, (iv) under conditional sale or other title
retention agreements relating to property or assets purchased by KSG or any of
its subsidiaries, (v) issued or assumed as the
16
deferred purchase price of property or services (other than trade accounts
payable and accrued obligations incurred in the ordinary course of business
consistent with past practice), (vi) under capital leases, (vii) in respect of
interest rate protection agreements, foreign currency exchange agreements or
other interest or exchange rate hedging arrangements, (viii) as an account
party in respect of letters of credit and bankers' acceptances, (ix) with
respect to the issuance of preferred stock, (x) with respect to Indebtedness of
others secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien on property owned or
acquired by KSG or any of its subsidiaries, (xi) in the nature of guarantees of
Indebtedness of others, (xii) with respect to any warrants and (xiii) with
respect to any negative cash balances, and other such similar amounts in each
case, as of such date, including accrued interest, premiums and penalties upon
prepayment as of such date; provided, however, that Indebtedness does not
include accounts payable of KSG or any of its subsidiaries and other operating
expenses (such as payroll) incurred by KSG or any of its subsidiaries in the
ordinary course of business consistent with past practice and, in either case,
does not, individually or in the aggregate, exceed $10,000 except as set forth
on the Interim Financial Statements.
5.8 Absence of Certain Changes or Events. Except as set forth in
Section 5.8 of the Sellers' Disclosure Schedule, since December 31, 2000,
neither KSG nor any of its subsidiaries has:
(a) made any material change in its business or operations or in the
manner of conducting its business;
(b) suffered any event, violation or other matter that would have a
material adverse effect on the Business, condition (financial or otherwise),
assets, liabilities, operations, properties or prospects of the Sellers (a
"Material Adverse Effect"), and no fact or condition exists that would
reasonably be expected to cause a Material Adverse Effect in the future;
(c) suffered any material casualty loss (whether or not insured) or
condemnation or other taking;
(d) other than in the ordinary course of business, entered into any
employment or consulting contract or commitment (whether oral or written) or
compensation arrangement or employee benefit plan, or changed or committed to
change (including any change pursuant to any bonus, pension, profit-sharing or
other plan, commitment, policy or arrangement) the compensation payable or to
become payable to any of its officers, directors, employees, agents or
consultants, or made any pension, retirement, profit-sharing, bonus or other
employee welfare or benefit payment or contribution;
(e) declared, paid or made, or set aside for payment or making, any
dividend or other distribution in respect of its common stock or other capital
stock or securities, or directly or indirectly redeemed, purchased or otherwise
acquired any of its common stock or other capital stock or securities, or
combined or subdivided or in any way changed any of the terms or provisions of
its common stock or other capital stock or securities;
(f) paid, loaned or advanced any amount to or in respect of, or sold,
transferred or leased any property or assets (real, personal or mixed, tangible
or intangible) to, or
17
entered into, amended or waived any rights under any transactions, agreements
or arrangements with or for the benefit of, any of its stockholders or any of
their respective Affiliates, associates or family members or any of its
officers or directors or any Affiliate or associate of its officers or
directors;
(g) made or proposed any change in any accounting or tax principles,
practices or methods, including its accounts payable or accounts receivable
practices and terms (including reserves), except for such changes which are
both (x) required by GAAP or by Law and (y) set forth in Section 5.8(g) of the
Sellers' Disclosure Schedule;
(h) incurred any liability (whether known or unknown, absolute,
accrued, fixed, contingent, liquidated, unliquidated or otherwise, and whether
due or to become due), except for current liabilities reflected on the Interim
Balance Sheet or incurred after the date of the Interim Balance Sheet in the
ordinary course of business consistent with past practice and not exceeding
$5,000 individually or $10,000 in the aggregate;
(i) canceled or waived rights with respect to any debts or other
obligations owed to or claims held by the Sellers (including the settlement of
any claims or litigation or other Proceeding);
(j) accelerated or delayed collection of notes or accounts receivable
generated by the Business in advance of or beyond their regular due dates or
the dates when the same otherwise would have been collected;
(k) terminated or amended or suffered the termination or amendment of
any Contract pursuant to which KSG or any of its subsidiaries would receive
from any Person or pay to any Person more than $5,000 in any calendar year or
disposed of or permitted to lapse any item of Intellectual Property Rights;
(l) made any capital expenditures or commitments for additions to
property, plant or equipment constituting capital assets in excess of $5,000
(or $10,000 in the aggregate);
(m) incurred any Indebtedness; and
(n) agreed, whether in writing or otherwise, to take any action
described in this Section 5.8 or any action which, if taken after the date of
this Agreement without the Buyer's consent, would constitute a breach under
this Agreement.
5.9 Real Property. Neither KSG nor any of its subsidiaries have ever
owned, nor will own as of the Closing Date, any real property or any option to
acquire any real property.
5.10 Leases.
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(a) All leases of real property as to which KSG or any of its
subsidiaries is the lessee or sublessee (the "Leased Real Property"), or
personal property as to which KSG or any of its subsidiaries is the lessee or
sublessee, are listed in Section 5.10 of the Sellers' Disclosure Schedule
(true, correct and complete copies of which have been delivered to the Buyer).
All such leases are in full force and effect, are enforceable against KSG or
its subsidiaries and the other parties thereto and have not been modified or
amended, except as set forth in Section 5.10 of the Sellers' Disclosure
Schedule. There exists no default by KSG or any of its subsidiaries under any
of such leases or, to the knowledge of the Sellers, by any other party thereto,
nor any event which, with the giving of notice or the passage of time or both,
would constitute an event of default by KSG or any of its subsidiaries or any
other party thereunder.
(b) There are no leases of real or personal property leased or subleased
for the use or benefit of any Person other than KSG or any of its subsidiaries
to which KSG or any of its subsidiaries is a party.
5.11 Title to Acquired Assets. KSG and each of its subsidiaries has
good, valid and marketable title to all of the Acquired Assets and the assets
shown on the Interim Balance Sheet or acquired since the date of the Interim
Balance Sheet, except for assets sold in the ordinary course of business
consistent with past practice since the date of the Interim Balance Sheet not
exceeding $5,000 individually or $10,000 in the aggregate. Except as set forth
in Section 5.11 of the Sellers' Disclosure Schedule, the Acquired Assets are
free and clear of any Lien. The Acquired Assets are in good operating
condition, subject to ordinary wear and tear, and constitute all of the assets,
interests and rights held for use or used in connection with the Business and
constitute all those necessary to operate the Business as it is currently
conducted and in accordance with recent historical practice. All items of
personal property with a book value in excess of $5,000 are listed in Section
5.11 of Sellers' Disclosure Schedule.
5.12 Intellectual Property Rights.
(a) KSG and each of its subsidiaries is the exclusive owner of all
right, title and interest in and to each of the following that are used or
licensed in the Business as currently conducted and are included in the
Acquired Assets:
(i) except as set forth in Section 5.12(a)(i) of the Sellers'
Disclosure Schedule, and except for commercially available computer
software programs, all computer programs, databases and associated
system and user documentation (the "Software Products");
(ii) all copyrights and copyright registrations owned by the
Sellers and any of their subsidiaries and Affiliates, including,
without limitation, all copyrights and copyright registrations owned
by the Sellers and any of their subsidiaries and Affiliates listed in
Section 5.12(a)(ii) of the Sellers' Disclosure Schedule and all
copyrights and copyright registrations in and to the Software
Products or otherwise related to or used in the Business;
(iii) all patentable inventions, patents and patent applications
owned by the Sellers, including, without limitation, all inventions,
patents and patent applications
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owned by the Sellers and any of their subsidiaries and Affiliates
listed in Section 5.12(a)(iii) of the Sellers' Disclosure Schedule
and all patentable inventions, patents and patent applications
relating to or embodied in the Software Products or otherwise related
to or used in the Business;
(iv) all Internet domain names and registrations, trademarks,
service marks and trade names, and the applications to register any
of them in federal, state or foreign jurisdictions, including,
without limitation, all Internet domain names and registrations,
trademarks, service marks and trade names, and the applications to
register any of them in federal, state or foreign jurisdictions owned
by the Sellers and any of their subsidiaries and Affiliates listed in
Section 5.12(a)(iv) of Sellers' Disclosure Schedule and all Internet
domain names and registrations, trademarks, service marks and trade
names, and the applications to register any of them in federal, state
or foreign jurisdictions now used or contemplated to be used in
connection with the Software Products or otherwise related to or used
in the Business; and
(v) except for such trade secrets as may be contained in the
third-party software programs listed in Section 5.12(a)(i) of the
Sellers' Disclosure Schedule, all trade secrets and other proprietary
rights, including those applicable to any of the Software Products,
necessary or useful for the operation of the Business as currently
conducted.
These items referred to in subparagraphs (i) through (v) of this Section
5.12(a) are herein referred to collectively as the "Intellectual Property
Rights."
(b) Section 5.12(b) of the Sellers' Disclosure Schedule sets forth a
list of all licenses and similar agreements between any of the Sellers and any
of their subsidiaries and Affiliates, on the one hand, and third parties, on
the other hand, under which any of the Sellers and any of their subsidiaries
and Affiliates are granted rights to make, use, sell, reproduce, distribute,
manufacture, prepare derivative works based upon, perform or display publicly,
or license items embodying the patent, copyright, trade secret, trademark or
other proprietary rights of such third parties for use in the Business. None of
the Sellers and any of their subsidiaries and Affiliates is, nor as a result of
the execution and delivery of this Agreement or any Related Agreement or the
performance of its obligations hereunder or thereunder will be, in violation of
or lose any rights pursuant to any license or similar agreement described in
Section 5.12(b) of the Sellers' Disclosure Schedule. Except as set forth in
Section 5.12(b) of the Sellers' Disclosure Schedule, no Person is entitled to
any royalty, fee or other payment with respect to any such agreement or any
Intellectual Property Rights.
(c) Section 5.12(c) of the Sellers' Disclosure Schedule sets forth a
list of all agreements under which the Sellers and any of their subsidiaries
and Affiliates have granted rights to third parties under the Intellectual
Property Rights. Except as set forth in Section 5.12(c) of the Sellers'
Disclosure Schedule, all such rights granted have been and are non-exclusive.
True, correct and complete copies of all such agreements have been delivered to
the Buyer.
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(d) No claims with respect to any Intellectual Property Right have
been asserted or, to the knowledge of any of the Sellers, are threatened by any
Person, nor do any of the Sellers know of any valid grounds for any bona fide
claims against the use by the Sellers and any of their subsidiaries and
Affiliates of any Intellectual Property Rights. All Internet domain names
granted and issued patents listed in Section 5.12(a)(iii) of the Sellers'
Disclosure Schedule, all trademarks, trade names and service marks and all
applications to register the same listed in Section 5.12(a)(iv) of the Sellers'
Disclosure Schedule, and all copyrights and copyrights registrations listed in
Section 5.12(a)(ii) of the Sellers' Disclosure Schedule are valid, enforceable
and subsisting. As of the date hereof, there has not been and there is not any
unauthorized use, infringement or misappropriation of any of the Intellectual
Property Rights by any third party, employee, consultant or former employee or
consultant of any of the Sellers or any of their subsidiaries and Affiliates.
(e) No Intellectual Property Rights are subject to any Order
restricting in any manner the use or licensing thereof by the Sellers or any of
their subsidiaries and Affiliates. None of the Sellers or any of their
subsidiaries and Affiliates has entered into any agreement to indemnify any
other Person against any charge of infringement of any third party intellectual
property rights. Neither the Sellers nor any of their subsidiaries or
Affiliates have entered into any agreement granting any third party the right
to bring infringement actions or otherwise to enforce rights with respect to
any Intellectual Property Rights. KSG has the exclusive right to file,
prosecute and maintain all applications and registrations with respect to the
Intellectual Property Rights.
(f) Each of the Software Products set forth in Section 5.12(a)(i) of
the Sellers' Disclosure Schedule is the most recent version of such Software
Product. Except as set forth in Section 5.12(f) of the Sellers' Disclosure
Schedule, each of the Software Products set forth in Section 5.12(f) of the
Sellers' Disclosure Schedule (the "Core Software Products") conforms
substantially to the functional and operational specifications set forth in the
respective user manuals and other documentation for such Core Software Product.
KSG owns and has possession of all such technical documentation and software
tools (including, by way of example and not limitation, all source code,
compilers, system documentation, statements of principles of operation and
schematics, as applicable) for each of such Core Software Products as are
necessary and sufficient for the continued effective use, further development
and maintenance of the latest version of each such Core Software Product. The
current status of such conformity is set forth in brackets immediately
following the name and version number of each such Core Software Product in
Section 5.12(f) of the Sellers' Disclosure Schedule.
(g) Except as set forth in Section 5.12(g) of the Sellers' Disclosure
Schedule, there are no restrictions on the direct or indirect transfer of any
Contract, or any interest therein, held by any of the Sellers or any of their
subsidiaries or Affiliates in respect of the Intellectual Property Rights or
the Software Products. The Sellers have delivered to the Buyer prior to the
date hereof documentation with respect to any invention, process, design,
computer program or other know-how or trade secret included in the Intellectual
Property Rights, which documentation is accurate in all material respects and
reasonably sufficient in detail and content to identify and explain such
invention, process, design, computer program or other know-how or trade secret
and to facilitate its full and proper use without reliance on the special
knowledge of
21
any Person. Each of the Sellers has taken the necessary security and other
measures to protect the secrecy, confidentiality and value of its trade secrets
and other Intellectual Property Rights.
(h) No former or present employee, consultant, officer or director of
the Sellers or any of their subsidiaries or Affiliates holds any right, title
or interest, directly or indirectly, in whole or in part, in or to any
Intellectual Property Rights.
(i) The Intellectual Property Rights are sufficient and adequate for
KSG to carry on the Business as presently constituted.
5.13 Contracts. Section 5.13 of the Sellers' Disclosure Schedule
contains a true and complete list of all written and oral (and a brief
description of such oral agreements) material contracts, agreements and other
instruments (collectively, "Contracts") to which any of the Sellers is a party
(i) relating to Indebtedness or guaranty of performance or warranty of products
or services, (ii) of duration of six months or more from the date hereof and
not cancelable by any of the Sellers without material penalty on 30 days' or
less notice, (iii) relating to commitments in excess of $5,000, (iv) relating
to the employment or compensation of any director, officer, employee,
consultant or other agent of any of the Sellers, (v) relating to the sale or
other disposition of any assets, properties or rights, (vi) relating to the
lease or similar arrangement of any machinery, equipment, motor vehicles,
furniture, fixture or similar property, (vii) to which any federal, state or
local governmental agency or authority is a party, (viii) between any of the
Sellers and any KSG stockholder or Affiliate of any KSG stockholder, (ix) that
restricts the operation of any of the Sellers anywhere in the world, (x)
pursuant to which any of the Sellers is or may be obligated to make payments,
contingent or otherwise, on account of or arising out of prior acquisitions or
sales of businesses, assets or stock of other Persons, (xi) providing for the
license to the Sellers by third parties of rights to use software or other
technology or providing for the performance of development services by or for
any third party; or (xii) that is otherwise material to the Business or entered
into other than in the ordinary course of business consistent with past
practice. None of the Sellers is in default under any such Contract, and there
has been no event that with the giving of notice or the passage of time, or
both, would constitute such a default or, to the knowledge of the Sellers, any
default, or event that with the giving of notice or the passage of time, or
both, would constitute such a default, by any other party thereto, existing
with respect to any such Contract except for such defaults which, in the
aggregate, would result in loss or liability to KSG of no more than $5,000, and
none of the Sellers intends, and has not received notice that any party to any
such Contract intends, to terminate, amend, not renew or cancel any such
Contract. Each of the Contracts listed in Section 5.13 of the Sellers'
Disclosure Schedule is in full force and effect and constitutes a legal, valid
and binding obligation of the Sellers and, to the Sellers' knowledge, the other
parties thereto, enforceable in accordance with its terms. The Sellers have
delivered to the Buyer true and complete copies of all written Contracts
described in Section 5.13 of the Sellers' Disclosure Schedule. KSG is not
currently obligated to pay or liable for any amounts under any of the
Contracts, nor are the Sellers aware of any facts or circumstances that could
result in any claim under any Contract with respect to periods ending on or
before the date of this Agreement, in each instance, for which an accrual on
the Sellers Financial Statements is or would have been required under GAAP and
has not been made.
22
5.14 Litigation. Except as set forth in Section 5.14 of the Sellers'
Disclosure Schedule, there are no, nor have there been for the five years prior
to the date of this Agreement any, (i) investigations pending or, to the
knowledge of the Sellers, threatened affecting or potentially affecting the
Sellers or any of their subsidiaries or Affiliates or the Business, (ii)
actions, causes of action, claims, suits, proceedings, arbitrations, mediations
or other alternative dispute resolution procedures, orders, writs, injunctions
or decrees (each, a "Proceeding") entered against, involving, pending or, to
the knowledge of the Sellers, threatened against any of the Sellers or any of
their subsidiaries or Affiliates or, in each case affecting or potentially
affecting the operations of the Sellers or any of their subsidiaries or
Affiliates, the Business, assets, properties or prospects of the Sellers or any
of their subsidiaries or Affiliates or the Business, at law or in equity, or
before or by any governmental entity, and (iii) existing or prior facts,
circumstances or conditions that could reasonably form the basis for a
Proceeding against any of the Sellers or any of their subsidiaries or
Affiliates that would affect or potentially affect the operations of KSG, the
Business, assets, properties or prospects of the Sellers or any of their
subsidiaries or Affiliate or the Business. None of the Sellers or any of their
subsidiaries or Affiliates is in default with respect to any Order of any
governmental entity. The Sellers have delivered to the Buyer accurate and
complete copies of all documentation relating to each Proceeding.
5.15 Insurance. All insurance policies relating to the Business are in
full force and effect and shall remain in full force and effect through the
Closing Date and thereafter (until the scheduled expiration date). With respect
to all policies, all premiums currently payable or previously due have been
paid, and no notice of cancellation or termination has been received by the
Sellers with respect to any such policy. All such policies are sufficient for
compliance with all requirements of law and of all Contracts to which any of
the Sellers is a party or otherwise bound and are valid, outstanding,
enforceable and, to the knowledge of the Sellers, collectible policies and
provide insurance coverage that is adequate and customary for businesses of
similar size and type. Complete and accurate copies of all such policies and
related documentation have previously been delivered to the Buyer.
5.16 Employee Benefit Plans.
(a) Except as set forth in Section 5.16 of the Sellers' Disclosure
Schedule, neither the Sellers nor any ERISA Affiliate (as defined below)
maintains or contributes to, has ever maintained or contributed to, or has or
has ever incurred any liability (whether or not contingent) with respect to any
employee benefit plan or any collective bargaining agreement or any bonus,
pension, profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, stock appreciation
right, retirement, vacation, severance, disability, death benefit,
hospitalization, medical, worker's compensation, disability, supplementary
unemployment benefits, or other plan, arrangement or understanding (whether or
not legally binding), or any employment, severance, termination or any similar
agreement (each, a "Plan"). "ERISA Affiliate" means (i) any corporation which
at any time on or before the Closing Date is or was a member of the same
controlled group of corporations (within the meaning of Section 414(b) of the
Code) as the Sellers; (ii) any partnership, trade or business (whether or not
incorporated) which at any time on or before the Closing Date is or was under
common control (within the meaning of Section 414(c) of the Code) with the
Sellers; and (iii) any entity which at any time on or before the Closing Date
is or was a member of the same
23
affiliated service group (within the meaning of Section 414(m) of the Code) as
either the Sellers, any corporation described in clause (i) or any partnership,
trade or business described in clause (ii).
(b) Section 5.16 of the Sellers' Disclosure Schedule contains a list
and a brief, general description of each Plan. The Sellers have delivered to
the Buyer true and complete copies of (A) each Plan, (B) the summary plan
description, if any, for each Plan, (C) the latest annual report, if any, which
has been filed with the Internal Revenue Service (the "IRS") for each Plan, (D)
the most recent IRS determination letter for each Plan that is a pension plan
(as defined in Section 3(2) of ERISA) intended to be qualified under Code
Section 401(a) and (E) copies of reports for the three most recent Plan years
showing compliance with discrimination rules under those of Code Sections
401(a), 401(k), 401(m), 419, 419A, 505, 501(c)(9), 105(h), 125 or 129
applicable to such Plan. Each Plan intended to be tax qualified under Sections
401(a) and 501(a) of the Code has been determined by the IRS to be tax
qualified under Sections 401(a) and 501(a) of the Code, and, no amendment to or
failure to amend any such Plan and, no other circumstance or event has occurred
that adversely affects its tax qualified status. There has been no prohibited
transaction within the meaning of Section 4975 of the Code and Section 406 of
Title I of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), with respect to any Plan. None of the Sellers have any commitment,
whether or not legally binding, to create any additional employee benefit plan
(as defined in Section 3(3) of ERISA) or to change the terms of any existing
Plan.
(c) Neither the Sellers nor any ERISA Affiliate has ever maintained an
employee benefit plan (as defined in Section 3(3) of ERISA) subject to the
provisions of Section 412 of the Code, Part 3 of Subtitle B of Title I of ERISA
or Title IV of ERISA.
(d) There are no Proceedings by any Plan participant, Plan beneficiary
or any representative thereof, (other than routine claims for benefits)
pending, or, to the knowledge of the Sellers, threatened, and no facts or
circumstances exist which could give rise to any Proceeding. The Sellers have
timely satisfied all funding, compliance and reporting requirements for all
Plans. No event or condition exists or is reasonably expected to occur in
connection with the administration of any Plan that would either (i) subject
the Buyer, Parent or any of their Affiliates to any liability, contingent or
otherwise to the IRS, the Department of Labor ("DOL") or the Pension Benefit
Guarantee Corporation (other than any liability for premiums payments to the
Pension Benefit Guarantee Corporation) or (ii) cause the imposition of any lien
on the assets of the Buyer, Parent, or any of their Affiliates under the Code
or ERISA. No Plan is the subject of any pending application for administrative
relief under any voluntary compliance program or closing agreement program of
the IRS or the DOL. With respect to each Plan, the Sellers have timely paid all
contributions (including employee salary reduction contributions) and all
insurance premiums that have become due, and any such expense accrued but not
yet due has been properly reflected in the Financial Statements. Each Plan has
been operated in accordance with its terms and complies in all material
respects with all applicable Laws.
(e) No Plan provides or is required to provide, now or in the future,
health, medical, dental, accident, disability, death or survivor benefits to or
in respect of any individual beyond termination of employment except to the
extent required under any state insurance Law
24
or under Part 6 of Subtitle B of Title I of ERISA and under Section 4980(B) of
the Code (COBRA benefits). Except to the extent of such COBRA benefits, no Plan
covers any individual other than an employee of KSG or dependents of employees
under health and child care Plans disclosed to the Buyer.
(f) Except as set forth in Section 5.16 of the Sellers' Disclosure
Schedule, the consummation of the transactions contemplated by this Agreement
and the Related Agreements will not (A) entitle any Person providing or that
has provided services at anytime to the Sellers to severance pay or termination
benefits for which the Buyer, Parent or any of their Affiliates may become
liable, (B) solely as a result of their consummation, increase or accelerate
any amount due under any Plan, require assets to be set aside or other forms of
security to be provided with respect to any liability under any Plan, or result
in any "parachute payment" (within the meaning of Code Section 280G) under any
Plan or (C) except as and to the extent accrued or reserved for on the Interim
Balance Sheet, obligate the Sellers or any of their Affiliates to pay or
otherwise be liable for any compensation (including options, warrants, rights
and similar instruments), vacation days, pension contribution or other benefits
to any such Person for periods before the Closing Date or for personnel whom
KSG does not actually employ.
5.17 Tax Matters.
(a) Except as set forth in Section 5.17 of the Sellers' Disclosure
Schedule, all federal, state, local and foreign tax returns and tax reports
required to be filed by the Sellers and any of their subsidiaries on or prior
to the Closing Date (giving effect to any valid requests for extension that
have been, or will be, validly filed and granted) have been or will be filed on
a timely basis with the appropriate governmental agencies in all jurisdictions
in which such returns and reports are required to be filed. All such returns
and reports are and will be true, correct and complete in all material respects
and disclose all taxes required to be paid by the Sellers and any of their
subsidiaries. Except as set forth in Section 5.17 of the Sellers' Disclosure
Schedule, all federal, state, local and foreign income, profits, franchise,
sales, use, occupation, property, excise, employment and other taxes (including
interest, penalties and withholdings of tax) due from and payable by the
Sellers and any of their subsidiaries with respect to periods through the
Closing Date have been or will be fully paid on a timely basis or will be
adequately reserved for on the Interim Balance Sheet. Each of the Sellers and
any of their subsidiaries is not currently the beneficiary of any extension of
time within which to file any tax return. There are no Liens for taxes upon the
assets of the Sellers or any of their subsidiaries or Affiliates except for
statutory liens for current taxes not yet due.
(b) No claim has ever been made by an authority in a jurisdiction
where each of the Sellers or any of their subsidiaries or Affiliates does not
file tax returns that it is or may be subject to taxation by that jurisdiction,
and each of the Sellers or any of their subsidiaries or Affiliates has not
received any notice or request for information from any such authority.
(c) No issues have been raised with the Sellers or any of their
subsidiaries or Affiliates by the IRS or any other taxing authority in
connection with any tax return or report filed by the Sellers or any of their
subsidiaries or Affiliates relating to the Sellers or any of their subsidiaries
or Affiliates, and there are no issues which, either individually or in the
aggregate, could reasonably result in any liability for tax obligations of the
Sellers or any of their
25
subsidiaries or Affiliates relating to periods ending on or before the Closing
Date in excess of the accrued liability for taxes shown on the Interim Balance
Sheet. No waivers or extensions of statutes of limitations have been given or
requested with respect to the Sellers or any of their subsidiaries or
Affiliates. Except as set forth in Section 5.17(c) of the Sellers' Disclosure
Schedule, none of the Sellers or any of their subsidiaries or Affiliates has
been, or have received notice that any of the Sellers or any of their
subsidiaries or Affiliates may be, subject to an audit by any federal, state,
local or foreign tax authority.
(d) No material differences exist between the amounts of the book
basis and tax basis of assets that are not accounted for by an accrual on the
books of KSG for income tax purposes. The Sellers will not be required to
recognize for income tax purposes in a taxable year beginning on or after the
Closing Date any amount of income or gain which it would have been required to
recognize under the accrual method of accounting for tax purposes in a tax
period ending on or before the Closing Date as a result of the installment
method of accounting, the completed contract method of accounting, the cash
method of accounting or a change in method of accounting.
(e) All transactions or methods of accounting that could give rise to
an understatement of federal income tax (within the meaning of Section 6661 of
the Code for tax returns filed on or before December 31, 1990, and within the
meaning of Section 6662 of the Code for tax returns filed after December 31,
1990) have been adequately disclosed on the tax return in accordance with
Section 6661(b)(2)(B) of the Code for tax returns filed on or prior to December
31, 1990, and in accordance with Section 6662(d)(2)(B) of the Code for tax
returns filed after December 31, 1990.
(f) None of the Sellers or any of their subsidiaries or Affiliates is
or has been a United States real property holding company (as defined in
Section 897(2) of the Code) during the applicable period specified in Section
897(c)(1)(11) of the Code.
(g) The Sellers and each of their subsidiaries and Affiliates have
complied (and until the Closing will comply) with all applicable Laws relating
to the payment and withholding of taxes (including withholding and reporting
requirements under Section 1441 through 1464, 3401 through 3406, 6041 and 6049
of the Code and similar provisions under any other Laws) and, within the time
and in the manner prescribed by Law, has withheld from wages, fees and other
payments and paid over to the proper governmental or regulatory authorities all
amounts required.
(h) None of the Sellers or any of their subsidiaries and Affiliates is
a party to any tax-sharing or tax indemnity agreement or any other agreement of
a similar nature that remains in effect on the Closing Date.
(i) None of the Sellers or any of their subsidiaries or Affiliates is
subject to any liability under Treasury Regulations 1.1502-6 or any comparable
provision of state, local or foreign tax law or regulation.
(j) There are no tax rulings, requests for rulings, closing agreements
or changes of accounting method relating to the Sellers or any of their
subsidiaries or Affiliates that
26
could affect their liability for Taxes for any period after the Closing. No
power of attorney with respect to any matter relating to Taxes of the Sellers
or any of their subsidiaries or Affiliates is currently in force. None of the
Sellers nor any of their subsidiaries and Affiliates has any deferred gain or
loss (i) arising from deferred intercompany transactions (as referred to in
Treasury Regulations Section 1.1502- 13), or (ii) with respect to the stock or
obligations of any other member of the Sellers' affiliated group (as described
in Treasury Regulations Section 1.1502-14). None of the Sellers has filed a
consent under Section 341(f) of the Code or any comparable provision of state
revenue statutes. No property of the Sellers or any of their subsidiaries or
Affiliates is "tax-exempt use property" within the meaning of Section 168(h) of
the Code. None of the Sellers or any of their subsidiaries or Affiliates is a
party to any lease made pursuant to Section 168(f) of the Code. Any amount or
other entitlement that could be received (whether in cash or property or the
vesting of property) as a result of any of the transactions contemplated by
this Agreement or the Related Agreements by any employee, officer or director
of the Sellers or any of their subsidiaries or Affiliates who is a
"disqualified individual" (as such term is defined in proposed Treasury
Regulations Section 1.280G-1) under any Employee Plans or other compensation
arrangement entered into or in effect prior to the Closing would not be
characterized as an "excess parachute payment" or a "parachute payment" (as
such terms are defined in Section 280G(b)(1) of the Code).
(k) None of the Sellers or any of their subsidiaries or Affiliates
file, and has never filed or been included in, a consolidated Return for
federal Income Tax purposes.
(l) For purposes of this Agreement, except as otherwise expressly
provided, unless the context otherwise requires:
"income taxes" means any federal, state, local, or foreign income, or
franchise Tax and in each instance any interest, penalties, or additions to tax
attributable to such Tax;
"return" means any report, return, statement, estimate, declaration,
form, or other information required to be supplied to a taxing authority in
connection with Taxes; and
"tax" or "taxes" means taxes of any kind, levies or other like
assessments, customs, duties, imposts, charges or, including, without
limitation, income, gross receipts, ad valorem, value added, excise, real or
personal property, asset, sales, use, license, payroll, transaction, capital,
net worth and franchise taxes, estimated taxes, withholding, employment, social
security, workers compensation, utility, severance, production, unemployment
compensation, occupation, premium, windfall profits, transfer and gains taxes
or other governmental taxes imposed or payable to the United States, or any
state, county, local, or foreign government or subdivision or agency thereof,
and in each instance such term shall include any interest, penalties, or
additions to tax attributable to any such Tax.
5.18 Environmental Matters.
(a) The operations of the Sellers and each of their subsidiaries and
Affiliates comply with all applicable federal, state, local, and foreign laws,
codes, regulations, requirements, directives, Orders and common law, and all
administrative or judicial interpretations thereof that may be enforced by any
governmental entity, other Person or court,
27
relating to pollution, the protection of human health, the protection of the
environment or the emission, discharge, disposal, storage, transportation,
Release or threatened Release of materials in or into the environment,
including the Occupational Safety and Health Act (collectively, "Environmental
Laws"). "Release" means release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
environment or into or out of any property, including the movement of
Contaminants through or in the air, soil, surface water, groundwater or Leased
Real Property or other property. "Contaminant" means any pollutant contaminant,
chemical or industrial, hazardous or toxic material or waste for which
liability or standards of conduct are imposed under Environmental Laws, and
includes asbestos or asbestos-containing materials, PCBs, and petroleum, oil or
petroleum or oil products or derivatives.
(b) Each of the Sellers and their subsidiaries and Affiliates has
obtained all environmental, health and safety Governmental Permits (as defined
in Section 5.21) necessary for the operation of the Business, and all such
Governmental Permits are in full force and effect and will not be revoked,
suspended or otherwise adversely affected by the consummation of the
transactions contemplated hereby. Each of the Sellers and their subsidiaries
and Affiliates is in compliance with all terms and conditions of such
Governmental Permits.
(c) Each of the Sellers and their subsidiaries and Affiliates is not
subject to any judicial, administrative or other Proceeding, Order or
settlement alleging or addressing a violation of or liability or Indebtedness
under any Environmental Law.
(d) None of the Sellers or their subsidiaries or Affiliates has
received any notice or claim (whether written or oral) to the effect that it is
or may be liable to any governmental entity or any other Person as a result of
the Release or threatened Release of a Contaminant, and, to the knowledge of
the Sellers and their subsidiaries and Affiliates, there are no existing or
prior facts, circumstances or conditions that could reasonably form the basis
for such a notice or claim against the Sellers or their subsidiaries or
Affiliates.
(e) Except as set forth in Section 5.18(e) of the Sellers' Disclosure
Schedule, there have been no environmental investigations, studies, audits,
tests, reviews or other analysis conducted by or on behalf of, or which are in
the possession of, the Sellers or their subsidiaries or Affiliates in relation
to any site or facility now or previously owned, operated or leased by the
Sellers or their subsidiaries or Affiliates which have not been delivered to
the Buyer prior to the execution of this Agreement.
5.19 Labor Relations; Employees.
(a) There is no labor strike, dispute, slowdown, stoppage or lockout
pending, affecting, or, to the knowledge of the Sellers and their subsidiaries
and Affiliates, threatened against the Sellers or their subsidiaries or
Affiliates, and during the last five years there has not been any such action,
and there are no existing or prior facts, circumstances or conditions that are
reasonably likely to lead to such an action. There are no union claims to
represent the employees of any of the Sellers or their subsidiaries or
Affiliates, nor have there been any such claims within the last five years.
There is no written or oral contract, commitment, agreement, understanding or
other arrangement with any labor organization or multi-employer or union
28
benefit or pension fund, or work rules or practices agreed to with any labor
organization or employee association, applicable to employees of any of the
Sellers or their subsidiaries or Affiliates, nor is any of the Sellers or their
subsidiaries or Affiliates a party to or bound by any collective bargaining or
similar agreement. There is, and within the last five years has been, no
representation of the employees of any of the Sellers or their subsidiaries or
Affiliates by any labor organization and, to the knowledge of the Sellers and
their subsidiaries and Affiliates, there are no union organizing activities
among the employees of any of the Sellers or their subsidiaries or Affiliates,
nor does any question concerning representation exist concerning such
employees.
(b) Section 5.19(b) of the Sellers' Disclosure Schedule sets forth all
personnel policies, rules or procedures (whether written or oral) applicable to
employees of the Sellers and their subsidiaries and Affiliates, and the Sellers
have delivered to the Buyer complete and accurate copies of all such written
policies, rules or procedures plus summaries of all oral policies, rules or
procedures. Neither the Sellers nor any of their subsidiaries or Affiliates has
engaged in any unfair labor practices as defined in the National Labor
Relations Act or other applicable Law, ordinance or regulation, and each of the
Sellers and their subsidiaries and Affiliates is and has for the past five
years been in compliance in all material respects with all applicable Laws
respecting employment and employment practices, terms and conditions of
employment, wages, hours of work and occupational safety and health. There is
no unfair labor practice charge or complaint against the Sellers or any of
their subsidiaries or Affiliates pending or, to the knowledge of the Sellers or
any of their subsidiaries or Affiliates, threatened before the National Labor
Relations Board or any similar state or foreign agency, and there are no
existing or prior facts, circumstances or conditions that could reasonably be
expected to form the basis therefor. There is no grievance pending or, to the
knowledge of the Sellers and their subsidiaries and Affiliates, threatened
against any of the Sellers or their subsidiaries or Affiliates arising out of
any collective bargaining agreement or other grievance procedure, and there are
no existing or prior facts, circumstances or conditions that could reasonably
be expected to form the basis therefor. There are no charges with respect to or
relating to any of the Sellers or their subsidiaries or Affiliates pending or,
to the knowledge of the Sellers and their subsidiaries and Affiliates,
threatened before the Equal Employment Opportunity Commission or any other
governmental entity responsible for the prevention of unlawful employment
practices, and there are no existing or prior facts, circumstances or
conditions that could reasonably be expected to form the basis therefor. There
are no workers compensation claims pending, and the Sellers and their
subsidiaries and Affiliates have no knowledge of any such potential claim. The
Sellers and their subsidiaries and Affiliates have not received notice of the
intent of any government entity responsible for the enforcement of labor or
employment Laws to conduct an investigation with respect to or relating to the
Sellers and, to the knowledge of the Sellers and their subsidiaries and
Affiliates, no such investigation is in progress. No complaints, lawsuits or
other Proceedings are pending or, to the knowledge of the Sellers and their
subsidiaries and Affiliates, threatened in any forum by or on behalf of any
present or former employee of any of the Sellers or their subsidiaries or
Affiliates, any applicant for employment or classes of the foregoing alleging
breach of any express or implied contract for employment, any Law governing
employment or the termination thereof or other discriminatory, wrongful or
tortious conduct in connection with any employment relationship.
(c) Since the enactment of the Worker Adjustment and Retraining
Notification Act of 0000 (xxx "XXXX Xxx"), xxxx of the Sellers or their
subsidiaries or
29
Affiliates has effectuated or experienced (i) a "plant closing" (as defined in
the WARN Act) affecting any site of employment or one or more facilities or
operating units within any site of employment or facility used by any of the
Sellers or their subsidiaries or Affiliates; or (ii) a "mass layoff" (as
defined in the WARN Act) affecting any site of employment or facility used by
any of the Sellers or their subsidiaries or Affiliates, nor has any of the
Sellers or their subsidiaries or Affiliates been affected by any transaction or
engaged in layoffs or employment terminations sufficient in number to trigger
application of any similar state or local Law. None of the Sellers' employees
has suffered an "employment loss" (as defined in the WARN Act) at any time
prior to the Closing Date.
(d) Each of the Sellers and their subsidiaries and Affiliates has
complied with all employment verification procedures including proper
completion of Forms I-9 as it relates to all of its current and former
employees. Each of the Sellers and their subsidiaries and Affiliates has
complied with all applicable immigration, visa and work-related laws, codes and
regulations of the United States in general.
5.20 Compliance with Law. Each of the Sellers and their subsidiaries
and Affiliates has complied for the past five years and is presently complying
with all applicable laws (whether statutory or otherwise), rules, regulations,
orders, ordinances, judgments, decrees or other pronouncements having the
effect of any of the foregoing, of all governmental entities having
jurisdiction (collectively, "Laws"), including the Federal Occupational Safety
and Health Act and all Laws relating to the safe conduct of business and
environmental protection and conservation, the Civil Rights Act of 1964 and
Executive Order 11246 concerning equal employment opportunity obligations of
federal contractors and any applicable health, sanitation, fire, safety, labor,
zoning and building laws. The Sellers have not received written notification of
any asserted present or past failure by the Sellers or any of their
subsidiaries or Affiliates to so comply with the Laws and there are no existing
or prior facts, circumstances or conditions that could reasonably be expected
to form the basis for such notification or assertion. The representations of
this Section 5.20 are intended to be in addition to and not as a qualification
of any other Section in this Article V.
5.21 Government Permits. Each of the Sellers and their subsidiaries
and Affiliates owns, holds or possesses all licenses, franchises, permits,
privileges, immunities, approvals and other authorizations from all
governmental entities that are necessary to entitle it to own or lease, operate
and use its assets and to carry on and conduct the Business substantially as
currently conducted (herein collectively called "Governmental Permits"). Such
Governmental Permits are in full force and effect, no violations are or have
been recorded in respect thereof, no Proceeding is pending, or, to the
knowledge of the Sellers and their subsidiaries and Affiliates, threatened, to
revoke or limit any thereof or to affect the rights of the Sellers or any of
their subsidiaries or Affiliates under any thereof. The Sellers and their
subsidiaries and Affiliates do not know of any basis for any such Proceeding,
and none of such Governmental Permits will be revoked, suspended or otherwise
adversely affected by the consummation of the transactions contemplated hereby.
Section 5.21 of the Sellers' Disclosure Schedule sets forth a list and brief
description of each Governmental Permit. Complete and correct copies of all
Governmental Permits have been delivered to the Buyer.
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5.22 Bank Accounts; Powers-of-Attorney. Section 5.22 of the Sellers'
Disclosure Schedule contains a true and complete list of (i) all bank accounts
and safe deposit boxes of KSG and its subsidiaries and all Persons who are
signatories thereunder or who have access thereto and (ii) the names of all
Persons holding general or special powers-of-attorney from the Sellers and a
summary of the terms thereof, true copies of all such powers-of-attorney have
been previously delivered to the Buyer.
5.23 Brokers or Finders. Neither the Buyer, Parent nor any of their
Affiliates will have any obligation to pay any broker's, finder's, investment
banker's, intermediary's, financial advisor's or similar fee in connection with
this Agreement or the Related Agreements or the transactions contemplated
herein or therein by reason of any action taken by or on behalf of the Sellers
or any of their respective subsidiaries or Affiliates.
5.24 Transactions with Affiliates.
(a) Except as set forth in Section 5.24(a) of the Sellers' Disclosure
Schedule, each of KSG and its subsidiaries has no outstanding Indebtedness,
liabilities or obligations of any nature (accrued or unaccrued, contingent or
fixed) for amounts owing to, or notes or accounts receivable from, or leases,
contracts or other commitments or arrangements with or for the benefit of, any
of KSG's stockholders, or any of their respective Affiliates, associates or
family members, or any of KSG's directors, officers or employees or Affiliates
of any of the foregoing.
(b) As of the Closing Date, (i) all Indebtedness, liabilities and
obligations set forth in Section 5.24(a) of the Sellers' Disclosure Schedule
shall have been repaid in cash and in full, (ii) all amounts owing on notes and
all accounts receivable set forth in Section 5.24(a) of the Sellers' Disclosure
Schedule shall have been collected by KSG in cash and in full and (iii) all
leases, contracts and other commitments and arrangements set forth in Section
5.24(a) of the Sellers' Disclosure Schedule shall have been irrevocably
terminated without continuing liability on the part of the Buyer, Parent or
KSG.
(c) Since December 31, 2000, neither KSG nor its subsidiaries has made
any payments, loans or advances of any kind or paid any dividends or
distributions of any kind to or for the benefit of KSG's stockholders or any of
their respective Affiliates, associates or family members.
5.25 Customers and Suppliers. Section 5.25 of the Sellers' Disclosure
Schedule sets forth a true and complete list of the names and addresses of the
ten largest suppliers (and for each such supplier the dollar volume and
percentage of total purchases of similar items from all suppliers of such item)
of products and services to KSG and its subsidiaries and the ten largest
customers (and for each such customer the dollar volume and percentage of total
sales to all customers) of products and services of KSG and its subsidiaries
during the 12 months ended December 31, 1999 and December 31, 2000, indicating
any existing contractual arrangements for continued supply from or to each such
firm. Except as set forth in Section 5.25 of the Sellers' Disclosure Schedule,
there exists no actual or, to the knowledge of the Sellers, threatened
termination, cancellation or limitation of, or any modification or change in,
the business relationship of KSG and its subsidiaries with any customer or
group of customers which
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are listed in Section 5.25 of the Sellers' Disclosure Schedule or which are
otherwise material to the operations of the Business, or with any supplier or
group of suppliers which are listed in Section 5.25 of the Sellers' Disclosure
Schedule or which are otherwise material to the operations of the Business, and
none of the Sellers or any of their subsidiaries or Affiliates has received any
report or other information from any employee, sales representative or other
Person who reports to the Sellers on such matters in the ordinary course of
business regarding the existence of any present or future condition or state of
facts or circumstances involving customers, suppliers or sales representatives
(including the consummation of the transactions contemplated in this Agreement)
that would materially adversely affect the Business or the prospects of KSG or
the Business or prevent the conduct of the Business after the consummation of
the transactions contemplated in this Agreement on substantially the same terms
as the Business has been conducted. The Sellers have delivered to the Buyer
copies of all written Contracts or other arrangements and written summaries of
any oral arrangements with the customers and suppliers listed in Section 5.25
of the Sellers' Disclosure Schedule.
5.26 Accounts Receivable and Payables. The accounts and notes
receivable and all other receivables shown on the Interim Balance Sheet
(subject to reserves for non-collectibility as reflected therein), and all
receivables acquired or generated by KSG and its subsidiaries since June 30,
2001, are bona fide receivables and represent amounts due with respect to
actual, arm's-length transactions entered into in the ordinary course of
business consistent with past practice and, except as set forth in Section 5.26
of the Sellers' Disclosure Schedule, the Sellers are not aware of any facts or
circumstances that would render such amounts uncollectable in excess of the
reserves for such recorded on the Interim Balance Sheet. Such reserves for
non-collectibility have been reflected on the Interim Balance Sheet in
accordance with GAAP and are adequate. No such account has been assigned or
pledged to any other Person, and no defense or set-off or similar right to any
such account has been asserted by the account obligor.
5.27 Guarantees.
(a) Except as set forth in Section 5.27(a) of the Sellers' Disclosure
Schedule, none of the Indebtedness, liabilities or obligations of KSG or any of
its subsidiaries is guaranteed by KSG stockholders or their respective
Affiliates, associates or family members or by any of KSG'S officers, directors
or employees or Affiliates of any of the foregoing.
(b) Except as set forth on Section 5.27(b) of the Sellers' Disclosure
Schedule, none of KSG or any of its subsidiaries is a guarantor or co-obligor
of any Indebtedness, liability or obligation of any KSG stockholder or any KSG
stockholder's Affiliates, associates or family members or of KSG's officers,
directors or employees or Affiliates of any of the foregoing.
5.28 Common Activities. In the conduct of the Business, the assets of
KSG and its subsidiaries have not been commingled with those of any Affiliate
or associate of KSG, and KSG and its subsidiaries have not engaged in any joint
activities with regard to the purchase or sale of products or services, failed
to maintain appropriate distinction between the Business and assets and
property of KSG and its subsidiaries and those of any other Person or engaged
in any other acts or omitted to take any other action which could reasonably be
expected to form the basis for any claim or assertion that KSG or any of its
subsidiaries or its property or assets were responsible for any Indebtedness,
liability or obligation of any other Person.
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5.29 Disclosure. The representations and warranties by the Sellers in
this Agreement and the Related Agreement and the statements contained in the
Sellers' Disclosure Schedule or any other schedules, certificates, documents,
exhibits and agreements referred to herein or otherwise furnished or to be
furnished by the Sellers to the Buyer or Parent pursuant to this Agreement and
the Related Agreements or in connection with the transactions contemplated
hereby or thereby do not and will not contain any untrue statement of a
material fact and do not and will not omit to state any material fact necessary
to make the statements herein or therein not misleading. The Sellers have
delivered to the Buyer or its counsel true and complete copies of all material
certificates, exhibits, schedules, agreements or documents and has notified the
Buyer or its counsel of all events, facts, circumstances, violations or other
matters that to the best of their knowledge after due inquiry may have a
Material Adverse Effect on the Business, transactions contemplated in this
Agreement or the Related Agreements, or the business or operations of the Buyer
or Parent subsequent to the consummation of the transactions contemplated
hereby.
5.30 Investment Representations. Each of the Sellers acknowledges,
represents and warrants that:
(a) the Shares and the shares of Preferred Stock are being acquired
for the account of KSG and not with a view to, or for sale in connection with,
the distribution thereof, nor with any present intention of distributing or
selling any of such Shares and shares of Preferred Stock;
(b) they have been advised that the Shares and shares of Preferred
Stock have not been registered under the Securities Act on the ground that no
distribution or public offering of the Shares and shares of Preferred Stock are
to be effected, and in this connection Parent is relying in part on their
representations set forth in this Section;
(c) the Sellers have sufficient available financial resources to
provide adequately for their current needs and can bear the economic risk of
the complete loss of their investment in the Shares and shares of Preferred
Stock without materially affecting their financial condition.
(d) the transfer of the Shares and shares of Preferred Stock has not
been registered under the Securities Act, and the Shares must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available and the Company is under no
obligation to register the Shares and shares of Preferred Stock; and
(e) they understand that the Shares are restricted securities within
the meaning of Rule 144 promulgated under the Securities Act; that the
exemption form registration under Rule 144 will not be available unless (i) a
public trading market then exists for the common stock of the Company, (ii)
adequate information concerning the Company is then available to the public,
and (iii) other terms and conditions of Rule 144 or any exemption therefrom are
complied with
(e) Parent has provided the Sellers with the opportunity to meet and
confer with representatives of Parent regarding all aspects of its business and
has afforded the Sellers
33
the opportunity to obtain additional information concerning the Company and has
answered all questions to the satisfaction of the Sellers.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT
The Buyer and Parent represent and warrant to the Sellers as follows:
6.1 Organization, Standing and Qualification. Parent is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware and has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
Parent is duly qualified or licensed to do business and in good standing in
each jurisdiction in which its property is owned, leased or operated or the
nature of its business makes such qualification or licensing necessary, except
where the failure to be so duly qualified or licensed and in good standing
would not in the aggregate have a material adverse effect on Parent. The buyer
is a corporation duly organized, validly existing and in good standing under
the laws of New York. The Buyer has not engaged in any business (other than in
connection with this Agreement and the transactions contemplated hereby) since
the date of its incorporation.
6.2 Authority.
(a) Parent has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby.
Parent has all requisite corporate power and authority to enter into the
Related Agreements to which it is a party, and to consummate the transactions
contemplated thereby. The execution and delivery of this Agreement and the
Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Parent. This Agreement has been duly
executed and delivered by Parent. This Agreement does, and, when executed and
delivered by Parent, the Related Agreements to which it is a party will,
constitute legal, valid and binding obligations of Parent, enforceable against
Parent in accordance with its respective terms, except to the extent
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforceability of creditors'
rights in general and subject to general principles of equity (regardless of
whether enforceability is considered in a proceeding in equity or at law).
(b) The Buyer has all requisite corporate power and authority to enter
into this Agreement and the Related Agreements to which it is a party and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Related Agreements to which it is a party
and the consummation of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action on the part of the
Buyer. This Agreement has been duly executed and delivered by the Buyer. This
Agreement does, and, when executed and delivered by the Buyer, the Related
Agreements to which it is a party will, constitute legal, valid and binding
obligations of the Buyer, enforceable against the Buyer in
34
accordance with its terms, except to the extent enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforceability of creditors' rights in general and subject to
general principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law).
6.3 Capitalization. The authorized capital stock of Parent consists of
22,500,000 shares consisting of 17,500,000 shares of common stock and 5,000,000
shares of preferred stock. As of the date hereof, 2,198,565 shares of Common
Stock are issued and outstanding, 1,012,500 shares of Common Stock are reserved
for issuance pursuant to options granted or to be granted under Parent's stock
option plans, 24,500 shares of Common Stock are held in treasury, 893,333
shares are reserved for issuance pursuant to outstanding warrants to purchase
Common Stock, 2,046,722 shares of Common Stock are reserved for issuance
pursuant to outstanding shares of convertible preferred stock (of which 3,500
are designated Series A 6% Convertible Preferred Stock, which were converted
into 3,500 shares of Series B 6% Convertible Preferred Stock), and there are no
other shares of capital stock of Parent authorized, issued or outstanding,
except as otherwise set forth in this Agreement and the transactions
contemplated hereby or as otherwise set forth in the Parent's SEC Reports.
6.4 Validity; Issuance of Shares. The Shares of Common Stock and
Preferred Stock being issued as part of the Purchase Price have been duly
authorized and, when issued in accordance with this Agreement, will be validly
issued, fully paid and non-assessable.
6.5 Consents and Approvals; No Violation.
(a) Neither the execution and delivery of this Agreement or the
Related Agreements, nor the consummation of the transactions contemplated
hereby or thereby, nor compliance by Parent with any of the provisions hereof
or thereof will (i) conflict with or result in a breach of the certificate of
incorporation or by-laws or other constitutive documents of Parent, (ii)
conflict with or result (with or without notice or lapse of time or both) in a
default (or give rise to any right of reimbursement, termination, cancellation,
modification or acceleration) under any of the provisions of any material note,
bond, lease, mortgage, indenture, license, franchise, permit agreement or other
instrument or obligation to which Parent is a party, or by which Parent or its
properties or assets may be bound or affected, except for such conflict, breach
or default as to which requisite waivers or consents are described in Section
6.5 of the disclosure schedule delivered to the Sellers prior to the date of
this Agreement (the "Buyer Disclosure Schedule") and are required to be
obtained prior to Closing or would otherwise not have a Material Adverse Effect
on Parent, or (iii) violate any Law or Order applicable to Parent or its
properties or assets; or (iv) result in the creation or imposition of any
material Lien upon any property or assets used in Parent's business. Except as
set forth in Section 6.5 of the Buyer Disclosure Schedule, no consent or
approval by, or any notification of or filing with, or other action of any
Person (governmental or private) that has not been obtained is required in
connection with the execution, delivery and performance by Parent of this
Agreement or the Related Agreements. There is no Proceeding pending or, to the
knowledge of Parent, threatened against Parent or the Buyer that seeks to
prevent the consummation of the transactions contemplated herein or in any
Related Agreement to which Parent is a party.
35
(b) Neither the execution and delivery of this Agreement or any of the
Related Agreements to which it is a party, nor the consummation of the
transactions contemplated hereby or thereby nor compliance by the Buyer with
any of the provisions hereof or thereof will (i) conflict with or result in a
breach of the certificate of incorporation or by-laws or other constitutive
documents of the Buyer or (ii) violate any Law or Order applicable to the Buyer
or the properties or assets of the Buyer that would prevent or materially
impair the consummation of the transactions contemplated hereby or thereby.
6.6 Brokers or Finders. Neither Parent nor the Buyer will have any
obligation to pay any broker's, finder's, investment banker's, intermediary's,
financial advisor's or similar fee in connection with this Agreement or the
transactions contemplated herein by reason of any action taken by or on behalf
of Parent or the Buyer.
6.7 Public Reports. Parent has and, as of the Closing Date will have,
filed all required forms, reports and documents with the SEC since July 1, 2000
(collectively, the "Parent's SEC Reports") all of which have and shall have
complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act, and Parent is current in all of its
required filings under the Exchange Act.
6.8 Disclosure. The representations and warranties by Parent in this
Agreement and the Related Agreements and the statements contained in the Buyer
Disclosure Schedule or any other schedules, certificates, documents, exhibits
and agreements referred to herein or otherwise furnished or to be furnished by
Parent to the Sellers pursuant to this Agreement or in connection with the
transactions contemplated hereby do not and will not contain any untrue
statement of a material fact and do not and will not omit to state any material
fact necessary to make the statements herein or therein not misleading.
ARTICLE VII
COVENANTS
7.1 Conduct of Business.
(a) From the date hereof until the Closing Date, except as otherwise
consented to by Parent in writing, the Sellers shall operate KSG, its
subsidiaries and the Business only in the ordinary course of business
consistent with past practice.
(b) Without limiting the generality of the foregoing, (i) the Sellers
shall use all reasonable efforts to preserve intact in all material respects
KSG's and its subsidiaries' present business organization and reputation and to
preserve its relationships with employees, creditors, customers and suppliers
and others having significant business relationships with KSG and its
subsidiaries, (ii) the Sellers shall not, without the prior written consent of
Parent, directly or indirectly, cause or permit any state of affairs, action or
omission described in clauses (a) through (n) of Section 5.8, and (iii) the
Sellers shall not take, or agree to commit to take, any action that would make
any representation or warranty of the Sellers contained herein or in any
Related Agreement inaccurate in any material respect at, or as of any time
prior to, the Closing Date.
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(c) From the date hereof and until the Closing Date, except as
expressly contemplated by this Agreement or in any Related Agreement or
expressly consented to by an instrument in writing signed by Parent, the
Principals shall cause KSG and each of its subsidiaries to: (i) conduct its
business and operations only in the ordinary course, consistent with past
practice, (ii) maintain and preserve its personal, real and intangible
properties in good repair, order and condition, (iii) preserve its business
operations and organizations intact, (iv) use commercially reasonable efforts
to keep available the services of its current employees, (v) not grant any
increase in the rate or terms of compensation payable, or become payable to any
of its directors, officers or employees, (vii) not adopt, amend or grant any
increase in the rate or terms of any company benefit plan, (viii) not enter
into any agreement or make any other commitment or incur any Indebtedness
involving an amount in excess of $10,000, (ix) not redeem, purchase, sell,
transfer, issue, convert, exchange or otherwise acquire any of its share
capital or authorize or effect any stock split, recapitalization, dividend or
distribution, (x) not issue any share capital, options, warrants or other
securities convertible or exchangeable for any share capital or other
securities of KSG or any of its subsidiaries, (xi) not take any action or enter
into any agreement or arrangement that would have the effect, or would be
reasonably likely to have the effect, of causing (A) any representation or
warranty contained herein to be or become untrue, (B) a breach of this
Agreement or any Related Agreement or any covenant contained herein or therein,
or (C) the failure or inability to satisfy any condition set forth in Article
VIII, (xii) not permit any other change in the capital structure of KSG or any
of its subsidiaries, (xiii) not permit the sale, transfer, assignment, lease,
license, exchange, or disposition of assets or rights (including, without
limitation, intellectual property rights) of, (xiv) not purchase or acquire any
ownership interest in any Person, company or business, whether effected as a
merger, a purchase, a joint venture, an acquisition of assets or a purchase,
pooling or acquisition of capital stock or otherwise, (xv) not enter into any
agreement involving, or consummate, any merger, sale, consolidation or any
other business combination, or any reorganization, recapitalization,
reclassification, spin-off, liquidation, extraordinary dividend, split-up,
distribution to shareholders or combination of the securities of KSG or any of
its subsidiaries, (xvi) not (w) dissolve or liquidate, or adopt any plan of
dissolution or liquidation, (x) consent to or commence any suit, proceeding,
petition or other action or the filing of a petition (A) under any law relating
to bankruptcy, insolvency or reorganization or seeking reorganization,
arrangement, adjustment, winding up, or other relief with respect to it, or (B)
seeking appointment of a receiver, trustee or custodian for it or all or any
substantial part of its assets, (y) allow any assignment for the benefit of
creditors, or (z) permit the admission in writing of its inability to pay its
debts generally as they become due, (xvii) not amend, alter or repeal its
articles of incorporation or other constituent documents, (xviii) not create
any new subsidiary or enter into any new business, (xix) not enter into any
transaction providing for the leasing or purchase of any interest in real
property, (xx) not enter into or amend, modify, extend or terminate any
agreements or arrangements with any Principal or any of their Affiliates or
enter into any transaction in which any Principal or any of their Affiliates
has an indirect or direct economic interest, (xxi) not institute or settle any
litigation, arbitration, proceeding, dispute or claim (including any tax claim
or audit adjustment), (xxii) not grant any power of attorney, (xxiii) not grant
any Lien on any of its property, (xxiv) not enter into, extend or modify any
agreement, contract or arrangement which (a) contains a material restriction on
its ability to conduct business, or (b) can be modified, amended or terminated
by the other party by its terms upon an assignment or change of control or
ownership or a specific individual ceasing to be employed or associated with
KSG or any of
37
its subsidiaries, or which requires payment upon occurrence of any of the
foregoing, (xxv) not issue or sell any interest or participation in its
profits, losses, assets, properties, capital or business, (xxvi) not enter
into, or modify or amend, any employment, consulting, union or similar
agreement, (xxvii) not make any loan or guaranty any obligation of any Person,
(xxviii) not permit the payment of any Indebtedness to any Person (other than
payments under equipment leases and unaffiliated third party trade payables in
the ordinary course of business and currently existing credit agreements with
financial institutions), (xxix) not enter into, extend or modify any Contract,
agreement, or arrangement, (xxx) not change its name or trading name(s), (xxxi)
not violate any law, rule or regulation to which it is subject, or (xxxii) not
agree or commit to do any of the foregoing.
7.2 Access to Information. The Sellers shall (i) give Parent and its
officers, directors, employees, agents, counsel, accountants, financial
advisors, existing lenders, consultants and other representatives
(collectively, "Representatives") reasonable access, upon reasonable prior
notice, to all officers and accountants of KSG and its subsidiaries and
Affiliates and to all Books and Records, offices and other facilities and
properties utilized by KSG and its subsidiaries and Affiliates in connection
with the Business and all information relating to KSG and its subsidiaries and
Affiliates, the Business and the properties, assets, Contracts, financial
condition, results of operations and prospects of KSG and its subsidiaries and
Affiliates as Parent or its Representatives may reasonably request, (ii) permit
Parent and its Representatives to make such inspections thereof and, with the
prior consent of KSG (which shall not be unreasonably withheld), interview such
personnel, customers and vendors of KSG and its subsidiaries and Affiliates
during normal business hours as Parent or its Representatives may reasonably
request, (iii) cause KSG's officers and auditors to furnish Parent and its
Representatives with such financial and operating data and other information
with respect to the items set forth in clause (i) as Parent or its
Representatives may from time to time reasonably request, and cause the
auditors to deliver their work papers related to such information if Parent or
its Representatives shall so request, and (iv) at Parent's or its
Representatives' reasonable request, cause KSG's officers to compile
information that has not been compiled for another purpose.
7.3 Best Efforts.
(a) Upon the terms and subject to the conditions of this Agreement,
each of the parties hereto agrees to use its best efforts to take, or cause to
be taken, all actions, and to do, or cause to be done, all things necessary,
proper or advisable under applicable Laws and regulations to consummate and
make effective the transactions contemplated in this Agreement as promptly as
practicable, including (i) the preparation and filing of any forms,
registrations and notices required to be filed to consummate the transactions
contemplated in this Agreement and the taking of such actions as are necessary
to obtain any requisite approvals, consents, Orders, exemptions or waivers by
any third party or governmental entity and (ii) the satisfaction of all
conditions to Closing. Each party shall promptly consult with the other with
respect to, provide any necessary information not subject to legal privilege
with respect to and, except as otherwise not permitted by Law, provide the
other (or its Representatives) copies of, all filings made by such party with
any governmental entity or any other information supplied by such party to a
governmental entity in connection with this Agreement and the transactions
contemplated by this Agreement or as otherwise reasonably requested.
38
(b) Each party hereto shall promptly inform the other of any
communication from any governmental entity regarding any of the transactions
contemplated by this Agreement. If any party or Affiliate thereof receives a
request for additional information or documentary material from any such
governmental entity with respect to the transactions contemplated by this
Agreement, then such party will endeavor in good faith to make, or cause to be
made, as soon as reasonably practicable and after consultation with the other
party(ies), an appropriate response in compliance with such request.
(c) Notwithstanding the foregoing, nothing in this Agreement shall be
deemed to require Parent, the Buyer or any of their Affiliates to enter into
any agreement with any governmental entity or to consent to any Order requiring
any of them to hold, separate or divest, or to restrict the dominion or control
of any of them over, any of their respective assets, properties or businesses
or to submit to the laws and regulations of such governmental entity or qualify
to do business or submit to process in any other jurisdiction.
7.4 No Solicitation by the Sellers. The Sellers shall, and shall cause
KSG to, immediately cease any existing discussions or negotiations with any
third parties conducted prior to the date hereof with respect to any Business
Combination (as defined below). For a period from the date hereof to the
Closing Date, the Sellers shall not, and the Sellers shall cause KSG and their
respective Affiliates and Representatives not to, directly or indirectly, take
any action to (i) initiate, assist, solicit, receive, negotiate, encourage or
accept any offer or inquiry from any Person with respect to a Business
Combination or engage in any Business Combination, (ii) reach any agreement or
understanding (whether or not such agreement or understanding is absolute,
revocable, contingent or conditional) for, or otherwise attempt to consummate,
any Business Combination or (iii) furnish or cause to be furnished any
information with respect to the Sellers or KSG to any Person (other than as
expressly provided in Section 7.2 of this Agreement) who the Sellers or KSG or
any of their respective Affiliates or Representatives knows or has reason to
believe is in the process of considering any Business Combination. If the
Sellers or KSG or any of their respective Affiliates or Representatives
receives from any Person any offer, inquiry or informational request referred
to above (an "Acquisition Proposal"), the Sellers will, or will cause KSG or
such Affiliate or Representative to, promptly advise such Person, by written
notice, of the terms of this Section 7.4 and promptly, orally and in writing,
advise Parent of such offer, inquiry or informational request. "Business
Combination" means any merger, consolidation or combination to which the
Sellers or KSG or any of its subsidiaries or any of their respective Affiliates
is a party, any sale, dividend, split or other disposition of the capital stock
of or other equity interest in KSG or any of its subsidiaries or any of their
respective Affiliates or any sale, dividend or other disposition of any of the
assets and properties of the Sellers, KSG or any of its subsidiaries or any of
their respective Affiliates, other than in the ordinary course of business and
the transactions contemplated herein.
7.5 Fees and Expenses. Parent and the Buyer, on the one hand, and the
Sellers, on the other hand, shall pay their own fees, costs and expenses
incurred in connection with the preparation and negotiation of this Agreement
and the transactions contemplated herein, including the performance of such
party's obligations hereunder (including, but not limited to, the fees and
disbursements of counsel and advisors).
39
7.6 Books and Records. KSG and its subsidiaries shall maintain all
Books and Records in the regular and customary manner as such Books and Records
have been maintained consistent with past practices.
7.7 Compliance with Laws, Orders and Contracts. KSG and its
subsidiaries shall comply in all material respects with all Laws, Orders and
Contracts applicable to the Business or to KSG and its subsidiaries and,
promptly following receipt thereof, give Parent copies of any notice received
from any governmental entity or other Person alleging any violation of any such
Law, Order or Contract.
7.8 Certain Activities between Signing and Closing.
(a) From the date hereof until the Closing, except as required by Law,
without the prior written consent of Parent, none of the Sellers or their
respective subsidiaries and Affiliates shall make or change any tax election,
change any annual tax accounting period, adopt or change any method of tax
accounting, file any amended tax return, enter into any closing agreement,
settle any material tax claim or assessment, surrender any right to claim a tax
refund, consent to any extension or waiver of the limitations period applicable
to any tax claim or assessment or take or omit to take any other action, if any
such other action or omission would have the effect of increasing the tax
liability or decreasing any tax benefit or tax refund or similar matter of KSG,
Parent or the Buyer as a result of the transactions contemplated herein.
(b) All tax returns with respect to the Sellers or their respective
subsidiaries and Affiliates (i) shall, to the extent required to be filed on or
before the Closing Date (taking into account any valid extensions), be filed by
the Sellers or their respective subsidiaries and Affiliates when due in
accordance with all applicable Laws and (ii) shall, as of the time of filing,
correctly reflect in all material respects the facts regarding the income,
business, assets, operations, activities and status of the Sellers and their
respective subsidiaries and Affiliates and any other information required to be
shown therein.
(c) From the date hereof until the Closing, without the prior written
consent of Parent, none of the Sellers, KSG or their respective subsidiaries
and Affiliates shall amend or adopt any Plan, except as required by Law.
7.9 Expenditures. KSG and each of its subsidiaries agrees that it will
not make any capital expenditure in excess of $5,000 (or $10,000 in the
aggregate) or engage in any extraordinary corporate or business transactions,
including, but not limited to, stock splits, dividends, repurchases or
recapitalizations, without the express written approval of Parent.
7.10 Notification of Certain Matters. Each of the Sellers, KSG and
their respective subsidiaries and Affiliates agrees that it will not take any
action which would cause or constitute a material breach, or would, if it had
been taken prior to the date hereof, have caused or constituted a material
breach, of any of the representations and warranties set forth in Article V
hereof or in any of the Related Agreements. From the date hereof until the
Closing Date, the Sellers shall have a continuing obligation to give detailed
notice thereof to Parent and to update or supplement any information provided
herein in the event of, or promptly after the occurrence of, or promptly after
obtaining knowledge of the occurrence of or the impending or threatened
40
occurrence of, any fact, circumstance or event which would cause or constitute
or be reasonably likely to cause or constitute a Material Adverse Effect with
regard to the Sellers, KSG and their respective subsidiaries and Affiliates,
the Business or a breach of any of the representations and warranties set forth
in Article V hereof or in any of the Related Agreements. The Sellers shall use
their best efforts to prevent or promptly remedy such breach. The Sellers'
compliance with this Section 7.10 shall not limit or otherwise affect the
remedies available hereunder to Parent, including, but not limited to Parent's
right to terminate this Agreement notwithstanding any remedy of any breach
hereunder and Parent's rights under Article IX hereunder.
ARTICLE VIII
CLOSING CONDITIONS
8.1 Conditions Precedent to Obligations of Parent and the Buyer. The
obligation of Parent and the Buyer under this Agreement to consummate the
purchase of the Acquired Assets on the Closing Date shall be subject to the
satisfaction, at or prior to the Closing Date, of all of the following
conditions, any one or more of which may be waived by the Parent and the Buyer
in their sole discretion:
(a) Warranties Accurate. The representations and warranties of the
Sellers contained in this Agreement and the Related Agreements which are
qualified as to materiality shall be true and correct in all respects, and
those not so qualified shall be true and correct in all material respects, as
of the date of this Agreement and as of the Closing Date with the same force
and effect as though made on and as of the Closing Date.
(b) Performance by the Sellers. The Sellers shall have performed and
complied in all material respects with all covenants and agreements required to
be performed or complied with by the Sellers hereunder or in the Related
Agreements on or prior to the Closing Date.
(c) Consents. All consents, approvals, filings and notices required in
connection with the sale and transfer of the Acquired Assets and the Closing
(including, but not limited to, those set forth on Schedules 5.4 and 6.5 and
the Bank Consent shall have been duly obtained, made or given and shall be in
full force and effect, without the imposition upon Parent or the Buyer of any
material condition, restriction or required undertaking.
(d) No Legal Prohibition. No suit, action, investigation, inquiry or
other proceeding by any Governmental Entity or other person shall have been
instituted or threatened which arises out of or relates to this Agreement, the
Related Agreements or the transactions contemplated hereby or thereby; and no
injunction, order, decree or judgment shall have been issued and be in effect
or threatened to be issued by any Governmental Entity of competent
jurisdiction, and no statute, rule or regulation shall have been enacted or
promulgated by any Governmental Entity and be in effect, which in each case
restrains or prohibits the consummation of the sale of the Acquired Assets or
otherwise results in a Material Adverse Effect on the Business, Parent or the
Buyer.
41
(e) Certificate. Parent and Buyer shall have received (i) a
certificate, dated the Closing Date, signed by an officer of KSG to the effect
that the conditions set forth in Sections 8.1(a), (b) and (c) have been
satisfied and (ii) a certificate, dated the Closing Date, signed by the
secretary of KSG certifying to the Certificate of Incorporation, by-laws and
resolutions of KSG and its shareholders.
(f) No Material Adverse Change. No material adverse change shall have
occurred in the business, earnings, operations, assets, liabilities, condition
(financial or otherwise) of KSG, its subsidiaries, the Business or any of the
Acquired Assets and no other event, loss, damage, condition or state of facts
of any kind shall exist which has a Material Adverse Effect, or can reasonably
be expected to have a Material Adverse Effect, on Parent, the Buyer, KSG, its
subsidiaries, the Business or any of the Acquired Assets.
(g) Shareholder Approval. Each of the shareholders of KSG and any
other Person necessary in order to transfer the Acquired Assets shall have
approved and adopted this Agreement and the transactions contemplated by this
Agreement and all requisite resolutions and consents shall have been adopted
and delivered to Parent and the Buyer.
(h) Other Documents. The Sellers shall execute and deliver the Related
Agreements in conformity with the forms attached hereto.
(i) Additional Documents, etc. There shall have been delivered to
Parent and the Buyer each other agreement, document, certificate and other
items as is reasonably necessary to effectuate the transactions contemplated
hereby.
(j) Payment of Bank Loan. Simultaneously with the Closing, all amounts
owed by the Sellers and their respective subsidiaries and Affiliates under the
CBC Loan Agreement shall have been paid in full and all security interests held
by the Bank covering any of the Acquired Assets or otherwise affecting the
Business, shall have been released unconditionally.
(k) Transfer Taxes. The Sellers shall pay all required transfer taxes,
stamp duties and similar assessments and taxes in connection with the sale and
transfer of the Shares and the Preferred Stock as contemplated herein, if any.
(l) Due Diligence. Parent and the Buyer shall not have discovered or
otherwise become aware of any circumstance, event or fact during the course of
its due diligence investigation or otherwise prior to the Closing Date that
would, in its sole determination, likely result in a material change to or
breach of any of the representations or warranties, covenants or agreements
contained herein or in any of the Related Agreements. In addition to, and not
in limitation of, the foregoing, Parent and the Buyer shall have satisfactorily
completed its review of the Sellers' Disclosure Schedules, which determination
shall be made in the sole and absolute discretion of Parent and the Buyer.
(m) Books and Records. All files, documents, instruments, papers,
books and records relating to the Business or the Acquired Assets including
financial statements, tax returns and related work papers and letters from
accountants, budgets, pricing guidelines, ledgers, journals, deeds, title
policies, minute books, stock certificates and books, corporate seals, stock
42
transfer ledgers, contracts, licenses, customer lists, computer files and
programs, retrieval programs, operating data and plans and environmental
studies and plans (collectively, the "Books and Records") shall be delivered to
Parent or the Buyer on or prior to the Closing Date.
(n) Change of Corporate Names. Concurrently with the Closing (or, if
necessary, no more than one Business Day thereafter), the Sellers shall change
the name of KSG and its subsidiaries and Affiliates to a name that does not
include any of the words "Knowledge Strategies Group" or any similar or
derivative words or initials thereof or any trademarks, tradenames or service
marks with respect thereto and shall not use any of such words or marks in any
manner, including, without limitation, in connection with advertising,
corporate names, business names, promotional and sales materials, web sites,
domain names, or any publication of any kind.
(o) Credit Agreement Amendment. Concurrently with the Closing, Parent
and the Bank shall have executed the Credit Agreement Amendment.
(p) Allocation Schedule. The Sellers and the Buyer shall have
delivered the schedule as contemplated pursuant to Section 3.4.
8.2 Conditions Precedent to Obligations of the Sellers. The
obligations of the Sellers under this Agreement to consummate the sale and
transfer of the Acquired Assets on the Closing Date shall be subject to the
satisfaction, at or prior to the Closing Date, of all of the following
conditions, any one or more of which may be waived by the Sellers in their sole
discretion:
(a) Performance by Purchaser. Parent and the Buyer shall have
performed and complied in all material respects with all covenants and
agreements required to be performed or complied with by Parent and the Buyer
hereunder on or prior to the Closing Date.
(b) Consents. All Consents set forth on Schedule 6.5 shall have been
duly obtained, made or given and shall be in full force and effect.
(c) No Legal Prohibition. No suit, action, investigation, inquiry or
other proceeding by any Governmental Entity or other person shall have been
instituted or threatened which arises out of or relates to this Agreement, the
Related Agreements or the transactions contemplated hereby or thereby and no
injunction, order, decree or judgment shall have been issued and be in effect
or threatened to be issued by any Governmental Entity of competent
jurisdiction, and no statute, rule or regulation shall have been enacted or
promulgated by any Governmental Entity and be in effect, which in each case
restrains or prohibits the consummation of the sale of the Acquired Assets.
(d) Other Documents. Parent and the Buyer shall execute and deliver
the agreements to which it is a party which are described in Section 4.3.
43
ARTICLE IX
INDEMNIFICATION AND SURVIVAL
9.1 Indemnification.
(a) The Sellers shall jointly and severally indemnify the Buyer,
Parent and their respective officers, directors, stockholders, employees,
agents and Affiliates (the "Buyer Parties") and hold each of them harmless from
and against any Loss suffered, incurred or sustained by any of them or to which
any of them becomes subject, resulting from, arising out of or relating to (i)
any inaccuracy in or breach of, or any alleged inaccuracy in or alleged breach
of, any representation or warranty or failure to perform any covenant or
agreement to be performed on or before the Closing Date on the part of the
Sellers contained in this Agreement or the Related Agreements; (ii) any
intentional tort, including without limitation, fraud (including fraud in the
inducement), willful misconduct or bad faith by the Sellers or any executive
officer, director, stockholder or employee of the Sellers in connection with
this Agreement, the Related Agreements or the transactions contemplated hereby
or thereby; (iii) the assertion against the Parent, the Buyer, the Business or
the Acquired Assets, of any liability or obligation of the Sellers or their
respective subsidiaries or Affiliates or relating to the Sellers' operations,
businesses or other activities of any kind or nature prior to the Closing Date
that have not been expressly assumed by Parent or the Buyer under this
Agreement; and (iv) any and all actions, suits, Proceedings, demands,
judgments, costs and legal and reasonable other expenses incident to any of the
matters referred to in clauses (i), (ii) and (iii) of this Section 9.1(a).
Once it is determined there is such an indemnifiable event, the amount of the
Loss shall be determined without giving effect to any "Material Adverse Effect"
qualification or any other materiality, dollar limit or similar qualification
contained in the representation, warranty, covenant or agreement.
(b) Each of Parent and the Buyer hereby indemnifies and holds harmless
the Sellers and their officers, directors, stockholders, agents and Affiliates
(the "Sellers Parties") from and against any Loss suffered, incurred or
sustained by any of them or to which any of them becomes subject, resulting
from, arising out of or relating to (i) any inaccuracy in or breach of, or any
alleged inaccuracy or alleged breach of any representation or warranty or
failure to perform any covenant or agreement to be performed on or before the
Closing Date on the part of the Buyer or Parent contained in this Agreement or
the Related Agreements to which the Buyer or Parent is a party; (ii) any
intentional tort, including without limitation, fraud (including fraud in the
inducement), willful misconduct or bad faith by any of the Buyer Parties in
connection with this Agreement, the Related Agreements or the transactions
contemplated hereby or thereby; and (iii) any and all actions, suits,
Proceedings, demands, judgments, costs and legal and reasonable other expenses
incident to any of the matters referred to in clauses (i) and (ii) of this
Section 9.1(b). Once it is determined there is such an indemnifiable event, the
amount of the Loss shall be determined without giving effect to any "Material
Adverse Effect" qualification or any other materiality, dollar limit or similar
qualification contained in the representation, warranty, covenant or agreement.
(c) All claims for indemnification by any party seeking indemnity
under this Agreement (an "Indemnified Party") will be asserted and resolved as
follows:
44
(i) In the event any claim or demand, in respect of which an
Indemnified Party might seek indemnity under this Agreement, is asserted
against or sought to be collected from such Indemnified Party by a Person
other than a Buyer Party or a Sellers Party or any of their respective
Affiliates (a "Third Party Claim"), the Indemnified Party shall deliver a
notice (a "Claim Notice") with reasonable promptness to the party from
whom the Indemnified Party is seeking indemnification (the "Indemnifying
Party"), which Claim Notice shall provide reasonable detail relating to
such Third Party Claim, including the amount of Loss claimed, to the
extent known. If the Indemnified Party fails to provide the Claim Notice
with reasonable promptness after the Indemnified Party receives notice of
such Third Party Claim, the Indemnifying Party shall not be obligated to
indemnify the Indemnified Party with respect to such Third Party Claim
only to the extent that the Indemnifying Party demonstrates that its
ability to defend such Third Party Claim has been irreparably prejudiced
by such failure of the Indemnified Party. The Indemnifying Party shall
notify the Indemnified Party as soon as practicable within the Dispute
Period (defined below) whether the Indemnifying Party disputes its
liability to the Indemnified Party, and whether the Indemnifying Party
desires, at its sole cost and expense, to defend the Indemnified Party
against such Third Party Claim. "Dispute Period" means the period ending
30 days following receipt by an Indemnifying Party of either a Claim
Notice or an Indemnity Notice (as hereinafter defined).
(ii) If the Indemnifying Party notifies the Indemnified Party within
the Dispute Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to this
Section 9.1, then the Indemnifying Party shall have the right to defend,
with counsel reasonably satisfactory to the Indemnified Party, at the sole
cost and expense of the Indemnifying Party, such Third Party Claim by all
appropriate proceedings, which proceedings must be vigorously and
diligently prosecuted by the Indemnifying Party to a final conclusion or
may be settled at the discretion of the Indemnifying Party; provided,
however, that the Indemnifying Party shall not be permitted to effect any
settlement without the written consent (which shall not be unreasonably
withheld) of the Indemnified Party unless (A) the sole relief provided in
connection with such settlement is monetary damages that are paid in full
by the Indemnifying Party, (B) such settlement involves no finding or
admission of any wrongdoing, violation or breach by any Indemnified Party
of any right of any other Person or any Laws, Contracts or Governmental
Permits, and (C) such settlement has no effect on any other claims that
may be made against or liabilities of any Indemnified Party. The
Indemnifying Party shall have full control of such defense and
proceedings, including any compromise or settlement thereof (except as
provided in the preceding sentence); provided, however, that the
Indemnified Party may, at its sole cost and expense, at any time prior to
the Indemnifying Party's delivery of the notice referred to in the first
sentence of this clause (ii), file any motion, answer or other pleadings
or take any other action that the Indemnified Party reasonably believes to
be necessary or appropriate to protect its interests; and provided
further, that if requested by the Indemnifying Party, the Indemnified
Party shall, at the sole cost and expense of the Indemnifying Party,
provide reasonable cooperation to the Indemnifying Party in contesting any
Third Party Claim that the Indemnifying Party elects to contest. The
Indemnified Party may participate in, but not control, any defense or
settlement of any Third Party Claim
45
controlled by the Indemnifying Party pursuant to this clause (ii) and,
except as provided in the first sentence of this clause (ii) and the
preceding sentence, the Indemnified Party will bear its own costs and
expenses with respect to such participation. Notwithstanding the
foregoing, the Indemnified Party may take over the control of the defense
or settlement of a Third Party Claim at any time if it irrevocably waives
its right to indemnity with respect to such Third Party Claim.
(iii) If the Indemnifying Party fails to notify the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend
the Third Party Claim pursuant to Section 9.1(c)(ii) or if the
Indemnifying Party gives such notice but fails to prosecute vigorously and
diligently or settle the Third Party Claim (in each case in accordance
with Section 9.1(c)(ii) above), or if the Indemnifying Party fails to give
any notice whatsoever within the Dispute Period, then the Indemnified
Party will have the right to defend, at the sole cost and expense of the
Indemnifying Party, the Third Party Claim by all appropriate proceedings,
which proceedings will be prosecuted by the Indemnified Party in a
reasonable manner and in good faith or will be settled at the discretion
of the Indemnified Party (with the consent of the Indemnifying Party,
which consent will not be unreasonably withheld). Subject to the
immediately preceding sentence, the Indemnified Party will have full
control of such defense and proceedings, including any compromise or
settlement thereof; provided, however, that if requested by the
Indemnified Party, the Indemnifying Party will, at the sole cost and
expense of the Indemnifying Party, provide reasonable cooperation to the
Indemnified Party and its counsel in contesting any Third Party Claim
which the Indemnified Party is contesting. The Indemnifying Party may
participate in, but not control, any defense or settlement controlled by
the Indemnified Party pursuant to this clause (iii), and the Indemnifying
Party will bear its own costs and expenses with respect to such
participation.
(iv) If the Indemnifying Party notifies the Indemnified Party that it
does not dispute its liability to the Indemnified Party with respect to a
Third Party Claim or fails to notify the Indemnified Party within the
Dispute Period whether the Indemnifying Party disputes its liability to
the Indemnified Party with respect to such Third Party Claim, the Loss in
the amount specified in the Claim Notice will be conclusively deemed a
liability of the Indemnifying Party, and the Indemnifying Party shall pay
the amount of such Loss to the Indemnified Party on demand. If the
Indemnifying Party has timely disputed its liability with respect to such
claim, the Indemnifying Party and Indemnified Party will proceed in good
faith to negotiate a resolution of such dispute, and if not resolved
through negotiations within the Resolution Period, such dispute shall be
resolved by litigation in a court of competent jurisdiction. "Resolution
Period" means the period ending 30 days following expiration of the
Dispute Period.
(v) In the event any Indemnified Party should have a claim under this
Agreement against any Indemnifying Party that does not involve a Third
Party Claim, the Indemnified Party shall deliver a notice (an "Indemnity
Notice") with reasonable promptness to the Indemnifying Party, which
Indemnity Notice shall provide reasonable detail relating to such claim,
including the amount of Loss claimed, to the extent known. If the
Indemnified Party fails to provide the Indemnity Notice with reasonable
46
promptness, the Indemnifying Party shall not be obligated to indemnify the
Indemnified Party with respect to such claim only to the extent that an
Indemnifying Party demonstrates that it has been irreparably prejudiced by
such failure of the Indemnified Party. If the Indemnifying Party notifies
the Indemnified Party that it does not dispute the claim described in such
Indemnity Notice or fails to notify the Indemnified Party within the
Dispute Period whether the Indemnifying Party disputes the claim described
in such Indemnity Notice, the Loss in the amount specified in the
Indemnity Notice will be conclusively deemed a liability of the
Indemnifying Party, and the Indemnifying Party shall pay the amount of
such Loss to the Indemnified Party on demand. If the Indemnifying Party
has timely disputed its liability with respect to such claim, the
Indemnifying Party and the Indemnified Party will proceed in good faith to
negotiate a resolution of such dispute, and if not resolved through
negotiations within the Resolution Period, such dispute shall be resolved
by litigation in a court of competent jurisdiction.
(d) Any indemnity payment, including any payments made through
cancellation of the Shares as set forth in Section 9.3 will be treated for tax
purposes as an adjustment to the Purchase Price.
9.2 Survival Periods.
(a) All representations and warranties of the Sellers contained in
this Agreement, the Sellers' Disclosure Schedule, the Related Agreements or any
certificate or document delivered in connection herewith or therewith shall
survive the Closing and shall remain in full force and effect for 24 months
after the Closing Date (such 24-month anniversary to the Closing Date being
referred to as the "Expiration Date") and shall apply beyond such 24 month
period with respect to claims asserted in writing within such 24 month period;
provided, however, that those representations and warranties which relate to
taxes, benefit plans, environmental liabilities and Intellectual Property
Rights shall survive until 90 days beyond all applicable statutes of
limitations have expired. Except as otherwise provided, the covenants and
agreements of the parties hereto shall survive the Closing. Rights of an
Indemnified Party to indemnification shall not be limited or affected in any
way by any pre-Closing investigation by such Indemnified Party or by such
Indemnified Party's actual knowledge of any inaccuracy of the representations
and warranties.
(b) All representations and warranties of Parent and the Buyer
contained in this Agreement, the Buyer Disclosure Schedule, the Related
Agreements or any certificate or document delivered in connection herewith or
therewith shall survive the Closing and shall remain in full force and effect
for a period of twelve months after the Closing Date and any claims in respect
thereof, whether made by the Sellers or any current or former holder of the
capital stock of KSG or any of its subsidiaries, shall be limited to an amount
in the aggregate not in excess of $150,000.
9.3 Cancellation of Shares. The parties hereto acknowledge that the
Shares of the Buyer Common Stock representing a portion of the Purchase Price
are subject to cancellation by Parent (without any additional action on the
part of the holders of such Shares) in connection with any claims by any Buyer
Party with respect to the indemnification obligations of the Sellers hereunder.
The value of such Shares with respect to payment of any indemnity obligation
shall
47
be based on the fair market value of such Shares as of the Closing Date.
Notwithstanding the foregoing, cancellation of such Shares as provided for
hereunder shall not relieve the Sellers of their indemnification obligations
and any Buyer Party may enforce its rights and seek all remedies available to
it in lieu of or in addition to those set forth in this Section 9.3.
ARTICLE X
TERMINATION
10.1 This Agreement may be terminated, and the transactions
contemplated herein may be abandoned:
(a) any time before the Closing, by mutual written agreement of the
parties hereto;
(b) any time before the Closing, by Parent and the Buyer, on the one
hand, or the Sellers, on the other hand, in the event of a material breach
hereof or under the Related Agreements or the inability to satisfy any of the
conditions of Article VIII on or prior to the Closing Date by any
non-terminating party; or
(c) any time after August 31, 2001, by Parent and the Buyer upon
notification to the Sellers if the Closing shall not have occurred on or before
such date and such failure to consummate is not caused by a breach of this
Agreement by Parent or the Buyer.
10.2 If this Agreement is validly terminated pursuant to Section 10.1,
this Agreement will forthwith become null and void, and there will be no
liability or obligation on the part of any party (or any of their respective
officers, directors, employees, partners, agents or other representatives or
Affiliates), except as provided in the next succeeding sentence and except that
the provisions of Articles IX and XI will continue to apply following any such
termination. Notwithstanding any other provision in this Agreement to the
contrary, upon termination of this Agreement pursuant to Section 10.1, the
Sellers and each of their respective subsidiaries and Affiliates will remain
liable to the Buyer Parties for any misrepresentation or breach of this
Agreement or any Related Agreement by any such person, and Parent and the Buyer
will remain liable to the Sellers Parties for any misrepresentation or breach
of this Agreement by Parent and the Buyer, and the Buyer Parties, on the one
hand, or the Sellers Parties, on the other hand, may seek such remedies,
including damages and fees of attorneys, against the other with respect to any
such misrepresentation or breach as are provided in this Agreement or the
Related Agreements or as are otherwise available at law or in equity.
ARTICLE XI
GENERAL
11.1 Expenses. Except as otherwise provided by this Agreement, each
party shall bear and pay its own expenses incurred in connection with the
transactions referred to in this Agreement.
48
11.2 Notices. Any notices required or permitted to be sent to a party
hereunder shall be delivered personally or mailed, certified mail, return
receipt requested, delivered by overnight courier service, or by telecopy to
the following addresses, or such other address as such party hereto designates
by written notice given to the other party, and shall be deemed to have been
delivered five business days after mailing, if mailed, or four business days
after delivery to the courier, if delivered by overnight courier services or if
by telecopy, on the date set forth on the confirmation:
If to any
of the Sellers to: c/o Knowledge Strategies Group, Inc.
000 Xxxxxxxx, Xxx. 000
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxxxx
Facsimile No.: (000) 000-0000
copy to:
----------------------------------
----------------------------------
----------------------------------
----------------------------------
If to Parent or
the Buyer to: x/x 0X Xxxxxxxxxxxx Xxxxxxxxxxx
000 Xxxxxxxxx Xxxxxxxxx
Xxxxxxxx, XX 00000
Attention: Xxxxx Xxxxxxx, CEO and President
Facsimile No.: (000) 000-0000
copy to: Proskauer Rose LLP
0000 Xxxxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxxxx, Esq.
Facsimile No.: (000) 000-0000
11.3 Entire Agreement; Headings; Counterparts. This Agreement
constitutes the entire understanding and agreement between the parties with
respect to the transactions contemplated herein, and supersedes any and all
prior or contemporaneous, oral or written, communications with respect to the
subject matter hereof, all of which are merged herein. The section headings
contained herein shall in no way limit, extend, or interpret the scope or
language of this Agreement or of any particular section and are intended only
for convenience of reference. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, without necessity of
production of the others. Such counterparts may be delivered to the other
parties hereto by facsimile and such delivery shall be deemed a delivery of an
executed original.
11.4 Amendment; Waiver. This Agreement cannot be modified, amended or
in any way altered except by written document executed by each of the parties
hereto. No waiver of any provision of this Agreement, or of any rights or
obligations of any party hereunder, shall be
49
effective unless in writing and executed by the party waiving compliance, and
such waiver shall be effective only in the specific instance, and for the
specific purpose, stated in such writing. No waiver of any breach of, or
default under, any provision of this Agreement shall be deemed a waiver of any
other provision, or of any subsequent breach or default of the same provision,
of this Agreement.
11.5 Severability. If any provision of this Agreement is determined to
be invalid or unenforceable, that provision shall be deemed stricken and the
remainder of the Agreement shall continue in full force and effect, insofar as
it remains a workable instrument to accomplish the intent and purposes of the
parties. The parties further agree to replace the severed provision with the
provision that will come closest to reflecting the intention of the parties
underlying the severed provision but that will be valid, legal and enforceable.
11.6 Parties in Interest; Assignment. This Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their
respective successors and assigns; provided, however, that neither party may
assign by operation of law or otherwise to any third party, any right or
obligation set forth in this Agreement without the prior written consent of the
other party. Nothing in this Agreement, express or implied, is intended to
confer upon any person other than the parties hereto any rights or remedies
under or by reason of this Agreement.
11.7 Applicable Law.
(a) This Agreement and the performance of the parties hereunder shall
be governed and construed in accordance with the substantive laws of the State
of New York without giving effect to the principles of conflicts of law
thereof.
(b) For the purpose of the serving of legal documents in relation to
litigation and arbitration, the parties choose domicile at the addresses
mentioned in Section 11.2.
(c) ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY OF THE PARTIES WITH
RESPECT TO THIS AGREEMENT OR ANY RELATED AGREEMENT, MAY BE BROUGHT IN ANY STATE
OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK AND BY
EXECUTION AND DELIVERY OF THIS AGREEMENT THE PARTIES ACCEPT FOR ITSELF AND IN
CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREE TO BE BOUND BY ANY
JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT AND ANY RELATED
AGREEMENT. THE PARTIES DESIGNATE AND APPOINT CSC NETWORKS/PRENTICE HALL LEGAL
AND FINANCIAL SERVICES AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY
THEM IRREVOCABLY AGREEING IN WRITING TO SERVE, AS THEIR AGENT TO RECEIVE ON
THEIR BEHALF, SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT,
SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY THEM TO BE EFFECTIVE AND BINDING
SERVICE IN EVERY RESPECT. A COPY OF SUCH PROCESS SO SERVED SHALL BE MAILED BY
REGISTERED MAIL TO THE PARTIES AT THEIR ADDRESS PROVIDED IN SECTION 11.2,
EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL
SUCH COPY
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SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY
A PARTY REFUSES TO ACCEPT SERVICE, SUCH PARTY HEREBY AGREE THAT SERVICE UPON IT
BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE
RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
(d) EACH OF THE PARTIES HEREBY WAIVES, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO,
IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, ANY RELATED AGREEMENT, OR
THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF.
NOTWITHSTANDING ANYTHING CONTAINED IN THIS AGREEMENT TO THE CONTRARY, NO CLAIM
MAY BE MADE BY ANY OF THE SELLERS AGAINST PARENT OR THE BUYER FOR ANY LOST
PROFITS OR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES IN RESPECT OF ANY
BREACH OR WRONGFUL CONDUCT (OTHER THAN WILLFUL MISCONDUCT CONSTITUTING ACTUAL
FRAUD) IN CONNECTION WITH, ARISING OUT OF OR IN ANY WAY RELATED TO THE
TRANSACTIONS CONTEMPLATED HEREUNDER OR UNDER ANY RELATED AGREEMENT OR ANY ACT,
OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH; EACH OF THE PARTIES HEREBY
WAIVES, RELEASES AND AGREES NOT TO XXX UPON ANY SUCH CLAIM FOR ANY SUCH
DAMAGES. EACH OF THE SELLERS AGREES THAT THIS SECTION IS A SPECIFIC AND
MATERIAL ASPECT OF THIS AGREEMENT AND ACKNOWLEDGE THAT PARENT AND THE BUYER
WOULD NOT ENTER INTO THIS AGREEMENT IF THIS SECTION WERE NOT PART OF THIS
AGREEMENT.
11.8 Publicity. The financial and business terms of this Agreement or
the Related Agreements shall not be disclosed to any third party or the public
without the prior written consent of the other party; provided, however, that
either party may disclose such information as required by law (including
applicable securities laws), the rules of any applicable stock exchange, or
court order or as necessary to enforce the terms of this Agreement. The
foregoing shall not prohibit either party from disclosing this Agreement or its
contents to its attorneys, accountants or other advisors.
11.9 Bulk Sales Compliance. The Buyer hereby waives compliance by the
Sellers with the provisions of any applicable Bulk Sales Law of any state, in
consideration whereof the Sellers agree to pay and discharge when due all
claims of creditors which could be asserted against the Buyer or Parent by
reason of noncompliance to the extent that such liabilities are not assumed by
the Buyer or Parent under this Agreement and to indemnify and hold Parent and
the Buyer Parties harmless from and against any such claims pursuant to Article
IX hereof.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
5B TECHNOLOGIES CORPORATION
By: /s/ Xxxxx Xxxxxxx
----------------------------------
Name: Xxxxx Xxxxxxx
Title: Chief Executive Officer and President
KNOWLEDGE ACQUISITION CORPORATION
By: /s/ Xxxxx Xxxxxxx
----------------------------------
Name: Xxxxx Xxxxxxx
Title: President
KNOWLEDGE STRATEGIES GROUP INC.
By: /s/ Xxxxxxx Xxxxxxx
----------------------------------
Name: Xxxxxxx Xxxxxxx
Title:
/s/ Xxxxxxx Xxxxxx
----------------------------------
XXXXXXX XXXXXX
/s/ Xxxxxxx Xxxxxxx
----------------------------------
XXXXXXX XXXXXXX
/s/ Xxxxxxx Xxxxxxxx
----------------------------------
XXXXXX XXXXXXXX
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