Exhibit 10.16
EXECUTION COPY
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AGREEMENT AND PLAN OF MERGER
DATED AS OF JANUARY 19, 2000
AMONG
OPUS360 CORPORATION,
ITHORITY CORPORATION
AND
THE OTHER PARTIES HERETO
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TABLE OF CONTENTS
Page
Article I THE MERGER...........................................................1
1.1 The Merger...........................................................1
1.2 Effective Time of the Merger.........................................2
1.3 Effect of the Merger.................................................2
1.4 Charter; By-Laws; Officers and Directors of Surviving Corporation....2
1.5 Authorization of the Merger Documents................................2
1.6 Tax-Free Reorganization..............................................3
1.7 Taking of Necessary Action; Further Assurances.......................3
1.8 The Closing..........................................................3
Article II EFFECT ON SHARES, WARRANTS AND OPTIONS..............................3
2.1 Effect of the Merger on Capital Stock................................3
2.2 Delivery of Closing Amount; Exchange of Certificates.................7
2.3 Delivery of Deferred Amount..........................................8
2.4 Escrow; Merger Share Reserved Shares.................................8
2.5 Additional Shares....................................................8
2.6 Fractional Shares....................................................9
2.7 No Further Ownership.................................................9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
INDEMNIFYING SELLERS..............................................10
3.1 Organization; Good Standing; Qualification and Power................10
3.2 Authorization.......................................................10
3.3 Non-contravention...................................................11
3.4 Capitalization of the Company.......................................11
3.5 Equity Investments..................................................12
3.6 Bankruptcy, Etc.....................................................12
3.7 Financial Statements................................................12
3.8 Events Subsequent to the Balance Sheet..............................13
3.9 Liabilities.........................................................14
3.10 Legal Compliance....................................................14
3.11 Title to Properties.................................................14
3.12 Tax Matters.........................................................16
3.13 Intellectual Property...............................................17
3.14 Contracts and Commitments...........................................18
3.15 Insurance...........................................................20
3.16 Litigation..........................................................20
3.17 Employees...........................................................20
3.18 Employee Benefits...................................................21
3.19 Environment and Safety..............................................23
3.20 Related Party Transactions..........................................23
3.21 Directors and Officers..............................................23
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3.22 Offering Exemption..................................................23
3.23 Accounts and Notes Receivable.......................................24
3.24 Brokers.............................................................24
3.25 Disclosure..........................................................24
3.26 Year 2000...........................................................24
Article IV REPRESENTATIONS AND WARRANTIES OF THE INDEMNIFYING SELLERS.........25
4.1 Title to the Merger Shares..........................................25
4.2 Authority; Noncontravention.........................................25
4.3 Legal Compliance....................................................26
4.4 Brokers.............................................................26
4.5 Registration Rights.................................................27
4.6 No Security Interests...............................................27
4.7 Compliance with Applicable Laws.....................................27
4.8 Experience..........................................................27
4.9 Investment..........................................................28
4.10 Rule 144............................................................28
4.11 No Public Market....................................................28
4.12 Legend on Stock Certificates........................................28
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION SUB........29
5.1 Organization; Good Standing; Qualification and Power................29
5.2 Authorization.......................................................29
5.3 Non-contravention...................................................30
5.4 Capitalization of Parent............................................30
5.5 Capitalization of Acquisition Sub...................................31
5.6 Subsidiaries........................................................31
5.7 Financial Statements................................................32
5.8 Events Subsequent to the Balance Sheet..............................32
5.9 Offering Exemption..................................................32
5.10 Brokers.............................................................32
5.11 Litigation..........................................................32
ARTICLE VI COVENANTS..........................................................33
6.1 Conduct Pending Closing.............................................33
6.2 Efforts to Consummate...............................................34
6.3 Exclusivity.........................................................34
6.4 Notice of Prospective Breach........................................35
6.5 Access to Records and Properties of the Acquired Companies..........35
6.6 Release by Sellers..................................................35
ARTICLE VII CLOSING CONDITIONS................................................36
7.1 Conditions to Each Party's Obligations to Effect the Merger.........36
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7.2 Conditions to Obligations of Parent and Acquisition Sub.............36
7.3 Conditions to Obligations of the Company and the Sellers............39
ARTICLE VIII TERMINATION; EFFECT OF TERMINATION...............................40
8.1 Termination.........................................................40
8.2 Effect of Termination...............................................41
ARTICLE IX ADDITIONAL AGREEMENTS OF THE INDEMNIFYING SELLERS..................41
9.1 Sellers' Representative.............................................41
9.2 Lock-Up Agreement...................................................43
9.3 Stockholders' Agreement.............................................43
9.4 Non-Competition; Non-Solicitation...................................43
9.5 Confidentiality.....................................................44
9.6 Public Announcements................................................45
9.7 Cooperation Regarding Tax Filings...................................46
9.8 Customer Relations..................................................46
ARTICLE X INDEMNIFICATION.....................................................46
10.1 Indemnification Generally; Etc......................................46
10.2 Assertion of Claims Tax Claims......................................48
10.3 Notice and Defense of Third Party Claims............................49
10.4 Forfeiture of Shares................................................51
10.5 Survival of Certain Indemnification Claims..........................52
10.6 Losses Net of Insurance, etc........................................52
10.7 Taxable Periods.....................................................53
Article XI MISCELLANEOUS......................................................53
11.1 Transaction Expenses and Taxes......................................53
11.2 No Third Party Beneficiaries........................................54
11.3 Entire Agreement....................................................54
11.4 Successors and Assigns..............................................54
11.5 Counterparts........................................................54
11.6 Notices.............................................................54
11.7 Governing Law.......................................................56
11.8 Amendments and Waivers..............................................56
11.9 Incorporation of Schedules and Exhibits.............................56
11.10 Construction........................................................56
11.11 Interpretation......................................................56
11.12 Independence of Covenants and Representations and Warranties........57
11.13 Remedies............................................................57
11.14 Severability........................................................57
11.15 Waiver of Jury Trial................................................57
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Annexes
Annex I - Definitions
Annex II - Additional Shares
Schedules
Schedule I - Company Common Stock and Consideration to be Exchanged
Schedule II - Integration Test
Schedule 3.3 - Noncontravention
Schedule 3.4 - Agreements Relating to Capital Stock of Company
Schedule 3.5 - Equity Investments
Schedule 3.7 - Company Financial Statements
Schedule 3.8 - Events Subsequent to the Balance Sheet
Schedule 3.10 - Permits
Schedule 3.11 - Title to Properties
Schedule 3.12(a) - Tax Matters
Schedule 3.12(b) - Tax Matters Exceptions
Schedule 3.13(a) - Intellectual Property
Schedule 3.13(b) - Infringement of Intellectual Property
Schedule 3.13(c) - Intellectual Property Filings
Schedule 3.14(a) - Contracts and Commitments
Schedule 3.14(b) Defaults
Schedule 3.15(a) - Insurance Policies
Schedule 3.15(b) - Payment of Premiums
Schedule 3.16 - Company Litigation
Schedule 3.17 - Related Employee Matters
Schedule 3.18 - Employee Benefit Plans
Schedule 3.20 - Related Party Transactions
Schedule 3.21 - Directors and Officers
Schedule 3.23 - Accounts and Notes Receivable
Schedule 3.24 - Company Brokers
Schedule 5.3 - Parent Noncontravention
Schedule 5.4 - Capitalization of Parent
Schedule 5.6 - Subsidiaries
Schedule 5.7 - Parent Financial Statements
Schedule 5.10 - Parent Brokers
Schedule 5.11 - Parent Litigation
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Exhibits
Exhibit A - Form of Certificate of Merger
Exhibit B - Form of Opinion of Company Counsel
Exhibit C - Form of Escrow Agreement
Exhibit D - Form of Employment Agreement
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EXECUTION COPY
AGREEMENT AND PLAN OF
MERGER, dated as of January 19, 2000
among OPUS360 CORPORATION, a
Delaware corporation ("Parent"),
ITHORITY ACQUISITION CORP., a
Delaware corporation and wholly
owned subsidiary of Parent
("Acquisition Sub"), ITHORITY
CORPORATION, a California
corporation (the "Company"), and
those other Persons named on the
signature page attached hereto
(each, an "Indemnifying Seller" and
collectively, the " Indemnifying
Sellers").
The Company and Parent have determined to engage in a business
combination transaction on the terms set forth herein. The respective boards of
directors of the Company and Parent have approved and deemed it advisable and in
the best interests of their respective shareholders to consummate the
transactions contemplated by this Agreement and Plan of Merger (this
"Agreement") and the short form agreement of merger in substantially the form of
Exhibit A attached hereto (the "Certificate of Merger"), pursuant to which the
businesses of the Company and Parent would be combined by means of a proposed
merger (the "Merger") of Acquisition Sub with and into the Company in accordance
with, and subject to, the terms and conditions of this Agreement, the
Certificate of Merger and the California General Corporation Law (the
"California Statute"). As a result of the Merger the Company will become a
wholly-owned subsidiary of Parent. It is the intention of the parties to this
Agreement that the Merger shall qualify as a "reorganization" within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
for federal income tax purposes. Capitalized terms used but not defined herein
have the meanings set forth in Annex I hereto.
NOW THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger.
In accordance with, and subject to, the provisions of this Agreement, the
Certificate of Merger and the California Statute, Acquisition Sub shall be
merged with and into the Company, which, at and after the Effective Time, shall
be and is hereinafter sometimes referred to as the "Surviving Corporation."
Acquisition Sub and the Company are hereinafter sometimes collectively referred
to as the "Constituent Corporations."
1.2 Effective Time of the Merger.
The Merger shall become effective upon the filing by the Surviving
Corporation of the Certificate of Merger with the Secretary of State of the
State of California. The Certificate of Merger shall be executed and delivered
in the manner provided under the California Statute. The time when the Merger
shall become effective is referred to herein as the "Effective Time."
1.3 Effect of the Merger.
Except as specifically set forth herein or in the Certificate of Merger,
at the Effective Time, the identity, existence, corporate organization,
purposes, powers, objects, franchises, privileges, rights, immunities,
restrictions, debts, liabilities and duties (collectively, the "Corporate
Rights") of the Company shall continue in effect and be unimpaired by the
Merger, and the Corporate Rights of Acquisition Sub shall be merged with and
into the Company, which shall, as the Surviving Corporation, be fully vested
therewith. At the Effective Time, the separate existence and corporate
organization of Acquisition Sub shall cease, and Acquisition Sub shall be merged
with and into the Surviving Corporation.
1.4 Charter; By-Laws; Officers and Directors of Surviving Corporation.
From and after the Effective Time, (a) the certificate of incorporation of
the Company shall be amended and restated in its entirety as determined by
Parent and Acquisition Sub and, as so amended, such certificate of incorporation
shall be the certificate of incorporation of the Surviving Corporation until
altered, amended or repealed as provided in the California Statute; (b) the
By-laws of Acquisition Sub shall become the By-laws of the Surviving
Corporation, unless and until altered, amended or repealed as provided in the
California Statute, the Surviving Corporation's certificate of incorporation or
such By-laws; and (c) the officers and directors of Acquisition Sub shall become
the officers and directors of the Surviving Corporation, respectively, unless
and until removed or until their respective terms of office shall have expired
in accordance with the California Statute or the Surviving Corporation's
certificate of incorporation or By-laws, as applicable.
1.5 Authorization of the Merger Documents.
(a) Simultaneously with, or prior to, the execution and delivery of
this Agreement, the Sellers, being the holders of all of the shares of the
capital stock of the Company, shall execute a written consent in lieu of a
meeting, and Parent, as the sole shareholder of Acquisition Sub, shall execute a
written consent in lieu of a meeting, each of which written consents shall
include resolutions approving and adopting the Merger, this Agreement, the
Related Documents and the consummation of the transactions contemplated hereby,
in each case as required by the California Statute.
(b) The Company shall take, and the Sellers shall cause the Company
to take, as promptly as practicable, all such other actions as may be necessary
or advisable under the California Statute and any other applicable Law or
regulation in connection with the Merger, this Agreement or the Related
Documents. The Company shall prepare and distribute any written
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notice or other materials relating to the shareholder action contemplated by
Section 1.5(a) required to be delivered pursuant to the Company's certificate of
incorporation or By-laws, the California Statute or any other Federal or state
Law applicable to the Merger, this Agreement, the Related Documents or such
shareholder action (collectively, the "Seller Materials"); provided, however,
that Parent, Acquisition Sub and their counsel shall have a reasonable
opportunity to review all Seller Materials, which shall be reasonably
satisfactory in form and substance to Parent, Acquisition Sub and their counsel.
1.6 Tax-Free Reorganization.
(a) For Federal income tax purposes, the parties intend that the
Merger be treated as a tax-free reorganization within the meaning of Section
368(a)(1)(A) of the Code, by reason of Section 368(a)(2)(E) of the Code. The
parties shall not take a position on any tax return inconsistent with this
Section 1.6.
(b) None of the parties hereto shall take any action or fail to take
any action that would prevent the Merger from qualifying as a tax-free
reorganization under Section 368(a) of the Code, either before or after the
consummation of the Merger.
1.7 Taking of Necessary Action; Further Assurances.
Prior to the Effective Time, and subject to the terms and conditions
contained in this Agreement, the parties hereto shall take or cause to be taken
all such actions as may be necessary or appropriate in order to effectuate, as
expeditiously as reasonably practicable, the Merger.
1.8 The Closing.
The closing (the "Closing") of the transactions contemplated by this
Agreement shall take place at the offices of X'Xxxxxxxx Graev & Karabell, LLP,
00 Xxxxxxxxxxx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000 on a date (the "Closing Date") to
be mutually agreed upon by the parties, which date shall be no later than the
fifth Business Day after all of the conditions set forth in Article VIII have
been satisfied or waived (other than those conditions which by their terms are
intended to be satisfied at the Closing). On the Closing Date, the Surviving
Corporation shall file the Certificate of Merger with the Secretary of State of
the State of California pursuant to Section 1.2 hereof.
ARTICLE II
EFFECT ON SHARES, WARRANTS AND OPTIONS
2.1 Effect of the Merger on Capital Stock.
(a) The following terms used in this Agreement shall have the
following respective meanings:
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"Accrued Bonus Amount" means the aggregate amount of all accrued but
unpaid bonus amounts due to employees of the Company as of the Closing Date,
which amount equals $52,333.63.
"Additional Shares" means that number of shares of Parent Common
Stock determined by dividing (x) an amount equal to $4,000,000 by (y) the Parent
Additional Share Price.
"Cash Consideration" means the sum of the Closing Amount and the
Deferred Amount.
"Closing Amount" means $250,000.
"Closing Shares" means that number of shares of Parent Common Stock
determined by dividing (i) an amount equal to $2,000,000 by (ii) the Parent
Initial Share Price.
"Deferred Amount" means $250,000.
"Deferred Payment" means an amount equal to the Deferred Amount less
the Accrued Bonus Amount.
"Merger Consideration" means the Cash Consideration and the Stock
Consideration.
"Merger Share Additional Shares" means the Additional Shares less
the Nonconsenting Share Additional Shares.
"Merger Share Number" means the Share Number less the Nonconsenting
Share Number.
"Merger Share Reserved Shares" means the Reserved Shares less the
Nonconsenting Share Reserved Shares.
"Merger Shares" means the Shares beneficially owned by the
Indemnifying Sellers.
"Nonconsenting Seller" means any Seller not a party to this
Agreement.
"Nonconsenting Share Additional Shares" means the Per Nonconsenting
Share Additional Shares times the Nonconsenting Share Number.
"Nonconsenting Share Number" means the number of Nonconsenting
Shares plus the number of shares of Company Common Stock issuable upon exercise
of the Options and Warrants held by Nonconsenting Sellers.
"Nonconsenting Share Reserved Shares" means the Per Nonconsenting
Share Reserved Shares times the Nonconsenting Share Number.
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"Nonconsenting Shares" means the Shares beneficially owned by any
Nonconsenting Seller.
"Options" means the options to purchase shares of Company Common
Stock under the Company's 1998 Stock Plan that are outstanding immediately prior
to the Effective Time.
"Parent Additional Share Price" as of the Escrow Release Date, means
the value of a share of Parent Common Stock determined in accordance with the
following: (i) if the Parent Common Stock is then listed on the NASDAQ Stock
Market, the average closing price per share of Parent Common Stock as reported
by the NASDAQ Stock Market for the ten trading days immediately preceding the
Escrow Release Date or, if there have been no sales on any such day, the average
of the highest bid and lowest asked prices as reported by the NASDAQ Stock
Market at the end of such day; or (ii) if the Parent Common Stock is not then
listed on the NASDAQ Stock Market, the fair market value of a share of Parent
Common Stock as determined by the Board of Directors of Parent in good faith at
such time.
"Parent Initial Share Price" of a share of Parent Common Stock means
$350,000,000 divided by the number of shares of Parent Common Stock outstanding
on a Fully Diluted Basis immediately prior to the Effective Time, using the
treasury method of accounting.
"Per Merger Share Additional Shares" means a number of shares of
Parent Common Stock equal to (i) the number of Additional Shares less the
Nonconsenting Share Additional Shares divided by (ii) the Merger Share Number.
"Per Merger Share Reserved Shares" means a number of shares of
Parent Common Stock equal to the number of Merger Share Reserved Shares divided
by the Merger Share Number.
"Per Nonconsenting Share Additional Shares" means a number of shares
of Parent Common Stock equal to the number of Additional Shares divided by the
Share Number.
"Per Nonconsenting Share Reserved Shares" means a number of shares
of Parent Common Stock equal to the number of Reserved Shares divided by the
Share Number.
"Per Share Closing Amount" means an amount in cash equal to the
quotient obtained by dividing Closing Amount by the Share Number, rounded to the
nearest $.0001.
Per Share Closing Shares" means a number of shares of Parent Common
Stock equal to the number of Closing Shares divided by the Share Number.
"Reserved Shares" means that number of shares of Parent Common Stock
determined by dividing an amount equal to $1,500,000 by the Parent Initial Share
Price.
"Share Number" means the number of Shares plus the number of shares
of Company Common Stock issuable upon exercise of the Options and Warrants.
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"Shares" means the shares of Company Common Stock that are issued
and outstanding immediately prior to the Effective Time that are owned by any
Person other than the Company.
"Stock Consideration" means the Closing Shares, the Reserved Shares
and the Additional Shares.
"Warrants" means the warrants to purchase shares of Company Common
Stock that are outstanding immediately prior to the Effective Time.
(b) The manner and basis of converting, exchanging or canceling the
shares of capital stock of each of the Constituent Corporations into or for cash
(or the contingent right to receive cash) or securities of the Surviving
Corporation shall be as follows:
(i) each share of common stock, $.01 par value, of Acquisition
Sub issued and outstanding immediately prior to the Effective Time shall
be converted into one share of common stock, $.01 par value, of the
Surviving Corporation;
(ii) each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time and owned directly or indirectly
by the Company (whether as treasury stock or otherwise) shall, by virtue
of the Merger and without any action on the part of the holder thereof, be
canceled and no consideration shall be delivered in exchange therefor;
(iii) each Merger Share shall, by virtue of the Merger and
without any action on the part of the holder thereof, cease to be
outstanding and be converted into (A) the right to receive, at the
Effective Time, the Per Share Closing Amount; (B) the right to receive, at
the Effective Time, the Per Share Closing Shares; (C) the right to
receive, pursuant to Section 2.3 hereof an amount equal to the Deferred
Payment divided by the Share Number; (D) the right to receive, subject to
the terms and conditions of this Agreement and the Escrow Agreement, the
Per Merger Share Reserved Shares, if any; and (E) the right to receive,
subject to the terms and conditions of this Agreement, the Per Merger
Share Additional Shares, if any;
(iv) each Nonconsenting Share shall, by virtue of the Merger
and without any action on the part of the holder thereof, cease to be
outstanding and be converted into (A) the right to receive, at the
Effective Time, the Per Share Closing Amount; (B) the right to receive, at
the Effective Time, the Per Share Closing Shares; (C) the right to
receive, pursuant to Section 2.3 hereof an amount equal to the Deferred
Payment divided by the Share Number; (D) the right to receive at the
Effective Time, subject to the terms and conditions of this Agreement, the
Per Nonconsenting Share Reserved Shares; and (E) the right to receive,
subject to the terms and conditions of this Agreement, the Per
Nonconsenting Share Additional Shares;
(v) each Option shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into (A) the right
to receive, at the Effective
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Time, an amount in cash equal to (1) the Per Share Closing Amount per
share of Company Common Stock issuable upon the exercise of such Option
less (2) the exercise price for each such share, which exercise price will
be deducted from the amount of Closing Amount otherwise payable to the
holder thereof; (B) the right to receive, the Per Share Closing Shares per
share of Company Common Stock issuable upon the exercise of such Option;
(C) the right to receive, pursuant to Section 2.3 hereof, an amount in
cash equal to the Deferred Payment divided by the Share Number per share
of Company Common Stock issuable upon the exercise of such Option; (D) the
right to receive, subject to the terms and conditions of this Agreement
and the Escrow Agreement, the Per Merger Share Reserved Shares, if any; or
the Per Nonconsenting Share Reserved Shares, as applicable, per share of
Company Common Stock issuable upon the exercise of such Option and (E) the
right to receive, subject to the terms and conditions of this Agreement,
the Per Merger Share Additional Shares, if any, or the Per Nonconsenting
Share Additional Shares, as applicable, per share of Company Common Stock
issuable upon the exercise of such Option; and
(vi) each Warrant shall, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into (A) the
right to receive, at the Effective Time, an amount in cash equal to (1)
the Per Share Closing Amount per share of Company Common Stock issuable
upon the exercise of such Warrant less (2) the exercise price for each
such share, which exercise price will be deducted from the amount of
Closing Amount otherwise payable to the holder thereof; (B) the right to
receive, the Per Share Closing Shares per share of Company Common Stock
issuable upon the exercise of such Warrant; (C) the right to receive,
pursuant to Section 2.3 hereof, an amount in cash equal to the Deferred
Payment divided by the Share Number per share of Company Common Stock
issuable upon the exercise of such Warrant; (D) the right to receive,
subject to the terms and conditions of this Agreement and the Escrow
Agreement, the Per Merger Share Reserved Shares, if any, or the Per
Nonconsenting Share Reserved Shares, as applicable, per share of Company
Common Stock issuable upon the exercise of such Warrant; and (E) the right
to receive, subject to the terms and conditions of this Agreement, the Per
Merger Share Additional Shares, if any, or the Per Nonconsenting Share
Additional Shares, as applicable, per share of Company Common Stock
issuable upon the exercise of such Warrant.
2.2 Delivery of Closing Amount; Exchange of Certificates.
At the Effective Time, upon surrender by each Seller to the Surviving
Corporation of the certificate(s) which, immediately prior to the Effective
Time, represented Shares and Options and Warrants, Parent shall deliver to each
such Seller in exchange therefor (a) an amount equal to the Closing Amount due
such Seller; (b) a certificate representing the number of Closing Shares due
such Seller; (c) if such Seller is a Nonconsenting Seller, a certificate
representing the number of Nonconsenting Share Reserved Shares due such Seller;
and (d) pursuant to the provisions of Section 2.6, cash in lieu of fractional
shares which such Seller would otherwise have the right to receive; provided
that the Sellers' Representative may direct Parent to deliver a portion of the
Closing Amount to certain third parties for fees, expenses, costs or other
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obligations arising out of or in connection with the transactions contemplated
in this Agreement. Until surrendered as contemplated by this Section 2.2 and the
Certificate of Merger, each certificate representing Shares and each Option and
Warrant shall be deemed, at and after the Effective Time, to represent only the
right to receive upon such surrender cash and shares of Parent Common Stock as
contemplated by this Article II, the Certificate of Merger and the California
Statute.
2.3 Delivery of Deferred Amount.
(a) Within five Business Days after the earlier to occur of (i) the
date on which the integration results described on Schedule II attached hereto
are attained and (ii) the date that is 120 days after the Closing Date
(regardless of whether the above-referenced integration has been completed),
Parent shall pay the Sellers in the aggregate an amount equal to the Deferred
Payment in accordance with Section 2.1(b), rounded to the nearest $.0001.
(b) Subject to the further provisions of this Section 2.3, the
Indemnifying Sellers hereby instruct Parent to pay the accrued Bonus Amount to
Xxxxxxx Xxxxxx, and, within two Business Days after the Effective Time, Parent
shall pay the Accrued Bonus Amount in accordance with such instructions;
provided, however, that Parent shall deduct from such payment the applicable
amount of withholding for income and employment Tax purposes (which amounts
shall be paid to the Company to be applied to such Taxes for the benefit of the
employees receiving such payments). The payment of the Accrued Bonus Amount by
the Parent pursuant to the foregoing sentence shall be treated as (i) a payment
on behalf of the Sellers to the Company and (ii) a payment by the Company of
bonuses payable.
2.4 Escrow; Merger Share Reserved Shares.
(a) Prior to the Closing, Parent and Acquisition Sub shall appoint
an entity reasonably acceptable to the Sellers' Representative to act as escrow
agent (the "Escrow Agent") pursuant to the Escrow Agreement in connection with
the Merger and the other transactions contemplated hereby. At the Closing,
Parent will deliver to the Escrow Agent a certificate or certificates
representing the Merger Share Reserved Shares.
(b) The Escrow Agreement shall provide that the Escrow Agent will
deliver certificates representing the Merger Share Reserved Shares to Parent or
the Sellers' Representative (on behalf of the Indemnifying Sellers) in
accordance with the terms and conditions set forth therein, provided that, any
Indemnifying Seller entitled to receive fractional shares shall, upon
distribution of the Merger Share Reserved Shares at the Escrow Release Date,
receive cash in lieu thereof pursuant to the provisions of Section 2.6.
2.5 Additional Shares.
(a) On the Escrow Release Date, Parent shall deliver to the Sellers'
Representative (i) certificates registered in the names of the Nonconsenting
Sellers as set forth on Schedule I in accordance with their respective
Percentage Interests, representing in the aggregate the Nonconsenting Share
Additional Shares and (ii) pursuant to the provisions of Section 2.6,
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cash in lieu of fractional shares which each such Nonconsenting Seller would
otherwise have the right to receive.
(b) On the Escrow Release Date, Parent shall also deliver to the
Sellers' Representative (i) certificates registered in the names of the
Indemnifying Sellers as set forth on Schedule I in accordance with their
respective Proportionate Percentages, representing in the aggregate the Merger
Share Additional Shares remaining after deduction of any Merger Share Additional
Shares (and/or shares of Parent Common Stock derived from or issued in respect
of the Merger Share Additional Shares) that have been forfeited pursuant to
Section 10.4 and (ii) pursuant to the provisions of Section 2.6, cash in lieu of
fractional shares which each such Indemnifying Seller would otherwise have the
right to receive.
(c) The Sellers' Representative shall deliver the foregoing
consideration to the Sellers in accordance with the terms of this Agreement.
2.6 Fractional Shares.
Notwithstanding any other provision of this Agreement, no
certificates or scrip representing fractional shares of Parent Common Stock
shall be issued to any Seller and such fractional shares shall not entitle the
owner thereof to vote or to any other rights of a holder of Parent Common Stock.
A holder of Company Common Stock who would otherwise have been entitled to a
fractional share of Parent Common Stock shall be entitled to receive a cash
payment in lieu of such fractional share in an amount equal to the product of
such fraction multiplied by the Parent Initial Share Price or the Parent
Additional Share Price, as applicable.
2.7 No Further Ownership.
(a) Until surrendered as contemplated by Section 2.2, each
certificate representing shares of Company Common Stock and each Option and
Warrant shall be deemed, at and after the Effective Time, to represent only the
right to receive upon such surrender cash and Parent Common Stock as
contemplated by this Article II, the Certificate of Merger and the California
Statute.
(b) No dividends or other distributions declared or made after the
Effective Time with respect to shares of Parent Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to such shares and no cash payment in lieu of
fractional shares shall be paid to any such holder until the holder of record of
such Certificate shall surrender such Certificate. Subject to the effect of
unclaimed property, escheat and other applicable Laws, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, (i) at the time of such surrender, the amount of any
cash payable in lieu of a fractional share of Parent Common Stock to which such
holder is entitled and the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to shares of
Parent Common Stock issued to the holder on the Closing Date; and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment
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date subsequent to surrender payable with respect to such whole shares of Parent
Common Stock held by the holder as of the applicable record date.
(c) The Merger Consideration paid in respect of the surrender of
Options, Warrants and certificates representing shares of Company Common Stock
in accordance with the provisions of this Article II and the Certificate of
Merger shall be deemed to have been paid in full satisfaction of all rights
pertaining to such Options, Warrants and shares of Company Common Stock. From
and after the Effective Time the stock transfer books of the Company shall be
closed and no transfer of any capital stock thereof shall thereafter be made.
If, after the Effective Time, Warrants or certificates for the Company Common
Stock are presented to the Company, they shall be canceled and exchanged for
certificates representing the appropriate number of Shares of Parent Common
Stock as provided herein.
(d) Parent shall not be liable to any person for such shares or
funds delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE INDEMNIFYING SELLERS
As a material inducement to Parent and Acquisition Sub to enter into
and perform their obligations under this Agreement, the Company and the
Indemnifying Sellers jointly and severally, represent and warrant, to Parent and
Acquisition Sub as follows:
3.1 Organization; Good Standing; Qualification and Power.
The Company is duly organized, validly existing and in good standing under
the Laws of its jurisdiction of formation, has all requisite power to own, lease
and operate its Assets and to carry on its business as presently being
conducted, and is qualified to do business and is in good standing in every
jurisdiction in which the failure to so qualify or be in good standing has had
or could reasonably be expected to have a Material Adverse Effect on the
Company. The Company has delivered to Parent true and complete copies of the
Fundamental Documents of the Company as in effect on the date hereof.
3.2 Authorization.
(a) The Company has all requisite power and authority to execute and
deliver this Agreement and each Related Document to which it is a party and any
and all instruments necessary or appropriate in order to effectuate fully the
terms and conditions of this Agreement and each such Related Document and all
related transactions and to perform its obligations hereunder and thereunder.
This Agreement and each Related Document to which the Company is a party (i) has
been duly authorized by all necessary action (corporate or otherwise) on the
part of the Company and its shareholders; (ii) has been duly executed and
delivered by the Company; and (iii) constitutes the valid and legally binding
obligation of the Company, as the case may be, enforceable in accordance with
its terms and conditions, except as enforceability thereof may be
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limited by any applicable bankruptcy, reorganization, insolvency or other Laws
affecting creditors' rights generally or by general principles of equity.
(b) The Merger has been duly authorized by all requisite action of
the Company's Board and shareholders. As of the Closing, the Company Common
Stock will be validly issued and outstanding, will be fully paid and
nonassessable, with no personal liability attaching to the ownership thereof,
free and clear of any Liens whatsoever and with no restrictions on the voting
rights thereof and other incidents of record and beneficial ownership pertaining
thereto, in each case other than pursuant to this Agreement or the Related
Documents.
3.3 Non-contravention.
Except as set forth on Schedule 3.3, the execution, delivery and
performance by the Company of this Agreement and the Related Documents to which
it is a party, the consummation of the transactions contemplated hereby and
thereby and compliance with the provisions hereof and thereof, including the
Merger, do not and will not, (a) violate any Law to which the Company or any of
its Assets is subject; (b) violate any provision of the Fundamental Documents of
the Company; (c) conflict with, result in a breach of, constitute a default
under (with or without notice or lapse of time, or both), result in the
acceleration of, create in any party the right to accelerate, terminate, modify
or cancel, or require any notice under any contract to which the Company is a
party or by which any of the Assets of the Company is bound; or (d) result in
the imposition of any Lien upon any of the Assets of the Company. Other than
state "blue sky" securities filings, the Company has not been and is not
required to give any notice to, make any filing with, or obtain any
authorization, consent or approval of any Governmental Entity or any other
Person for the valid authorization, issuance and delivery of the Company Common
Stock, this Agreement or any Related Document.
3.4 Capitalization of the Company.
(a) Immediately prior to the Effective Time, the authorized capital
stock of the Company consists of 20,000,000 shares of the Company's Common
Stock, of which 7,958,227 shares are issued and outstanding, fully paid and
nonassessable. The Company does not have any treasury shares.
(b) Except as contemplated hereby or by the Related Documents or as
otherwise set forth on Schedule 3.4, there are, and immediately after
consummation of the Closing there will be, no (i) outstanding warrants, options,
agreements, convertible securities or other commitments or instruments pursuant
to which the Company is or may become obligated to issue or sell any shares of
its capital stock or other securities or (ii) preemptive or similar rights to
purchase or otherwise acquire shares of the capital stock or other securities of
the Company pursuant to any provision of Law, the Company's Fundamental
Documents or any contract to which the Company, or to the best Knowledge of the
Company, any shareholder thereof is a party; and, except as contemplated by this
Agreement or the Related Documents or as otherwise set forth on Schedule 3.4,
there is, and, immediately after the consummation of the Closing there will be,
no Lien with respect to the sale or voting of shares of capital stock or
securities of the Company (whether outstanding or issuable).
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(c) Schedule 3.4 sets forth a complete list of all holders of the
Company Common Stock, the Options and the Warrants, the names of such holders,
the number of shares of Company Common Stock owned by such holders or issuable
under such Option or Warrant and the exercise price thereof.
(d) All shares of the capital stock and other securities issued by
the Company have been issued in transactions in accordance with applicable Laws
governing the sale and purchase of securities.
3.5 Equity Investments.
The Company does not have any Subsidiaries. Except as set forth on
Schedule 3.5, the Company does not own, directly or indirectly, any capital
stock, partnership interest or joint venture interest in, or any security issued
by, any other Person. Schedule 3.5 sets forth the amount and description of any
capital stock, partnership interest or joint venture interest held by the
Company.
3.6 Bankruptcy, Etc.
The Company is not involved in any Proceeding by or against the Company as
a debtor before any Governmental Entity under Title 11 of the United States Code
or any other insolvency or debtors' relief act, whether state or Federal, or for
the appointment of a trustee, receiver, liquidation, assignee, sequestrator or
other similar official for any part of the property of the Company.
3.7 Financial Statements.
(a) Schedule 3.7 contains the following financial statements
(collectively, the "Financial Statements"):
(i) the unaudited balance sheet of the Company as of November
30, 1999 (the "Interim Balance Sheet") and the related unaudited statement
of income for the 11-month period then ended (collectively, the "Interim
Financial Statements"); and
(ii) the unaudited balance sheet of the Company as of December
31, 1998 (the "Latest Balance Sheet"), including the related statement of
income for the calendar year then ended.
(b) Except as set forth on Schedule 3.7, each of the Financial
Statements (i) has been prepared in accordance with the books and records of the
Company (which are true and complete in all material respects); (ii) fairly
presents the financial condition and results of operations which it purports to
present as of the dates thereof and for the periods indicated thereon (except,
with respect to the Interim Financial Statements, for the lack of footnotes and
for year end adjustments which will not be material individually or in the
aggregate); and (iii) has been prepared in accordance with GAAP consistently
applied throughout the periods covered thereby, subject, in the case of the
Interim Financial Statements, to the lack of footnotes and
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other presentation items. Since the date of the Latest Balance Sheet, except as
required by applicable Law or GAAP, there has been no change in any accounting
principle, procedure or practice followed by the Company or in the method of
applying any such principle, procedure or practice. Except as set forth on
Schedule 3.7, the Company has no outstanding Funded Indebtedness.
3.8 Events Subsequent to the Balance Sheet.
Since the date of the Interim Balance Sheet, the Company has operated its
business in the ordinary course consistent with past practice, and the Company
has not suffered any Material Adverse Change. Since that date, except as set
forth on Schedule 3.8:
(a) the Company has not sold, leased, transferred or assigned any
Asset, other than inventory in the ordinary course of business, consistent with
past practice;
(b) no Person has accelerated, terminated, modified or canceled any
contract (or series of related contracts) involving more than $25,000 to which
the Company is a party or by which the Company is bound and, to the best
Knowledge of the Company, no Person has notified the Company that it intends to
take any such action;
(c) the Company has not experienced any material damage, destruction
or loss (whether or not covered by insurance) to any of its respective material
Assets;
(d) the Company has not paid any dividends, made any redemptions of
or distributions in respect of the capital stock of the Company;
(e) the Company has not paid any fee, interest, dividend, royalty or
any other payment of any kind to any Affiliate thereof, other than the payment
to the officers and directors of the Company of their current salaries (if any);
(f) the Company has not increased the compensation of any employee,
officer or director of the Company or made any contributions to any Plan other
than in the ordinary course of business;
(g) the Company has not incurred any indebtedness or any increase in
the amount payable by the Company under any credit or loan agreement to which
the Company is a party;
(h) no Person has accelerated any Funded Indebtedness and no party
has made any payment in respect of Funded Indebtedness prior to the date such
payment is due and payable;
(i) the Company has not incurred any single capital expenditure in
excess of $10,000 and the Company has not incurred capital expenditures in the
aggregate in excess of $50,000; and
(j) the Company has not committed to do any of the foregoing.
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3.9 Liabilities.
The Company does not have any liability or obligation, absolute or
contingent (individually or in the aggregate), including, without limitation,
any Tax liability due and payable, which is not reflected on the Interim Balance
Sheets, other than liabilities and obligations incurred after the date of the
Interim Balance Sheets that would not be required to be reflected on financial
statements prepared in accordance with GAAP. There were no "loss contingencies"
(as such term is used in Statement of Financial Accounting Standards No. 5
issued by the Financial Accounting Standards Board in March 1975) that were not
adequately provided for on the Interim Balance Sheets.
3.10 Legal Compliance.
Except as set forth on Schedule 3.10, the Company has complied with, and
the business of the Company is being conducted in material compliance with, all
applicable Laws, Orders and Permits, and no Proceeding is pending or, to the
best Knowledge of the Company, threatened, against the Company alleging any
failure to so comply. Schedule 3.10 sets forth a list of all Permits under which
the Company is operating or bound. The Company has furnished to Parent true and
complete copies of such Permits. Such Permits (a) constitute all Permits used or
required in the conduct of the business of the Company as presently conducted;
(b) are in full force and effect; (c) have not been violated in any material
respect; and (d) are not subject to any pending or, to the best Knowledge of the
Company, threatened Proceeding seeking their revocation or limitation.
3.11 Title to Properties.
(a) Except as set forth on Schedule 3.11, (i) the Company owns good
and marketable title, free and clear of all Liens (other than Permitted Liens),
to all of the Assets owned by it; and (ii) the Company is not obligated under
any contract, or subject to any restriction, that presently has, has had, or
reasonably could be expected to have a Material Adverse Effect on the Company.
Except as set forth on Schedule 3.11, the Company owns or leases under valid
leases all facilities, machinery, equipment and other Assets necessary for the
conduct of its business as conducted as of the date hereof and as of the date of
the Interim Balance Sheet which Assets are set forth on Schedule 3.11.
(b) Schedule 3.11 contains a list and brief description of all of
the owned real property of the Company (the "Owned Property") and all real
property leased by the Company pursuant to one or more leases (the "Leased
Property"), and sets forth the names of the lessor and the lessee and the basic
terms thereof. The Owned Property and the Leased Property (together, the "Real
Property") constitute all real property used or occupied by the Company in
connection with the business of the Company.
(c) With respect to the Real Property, except as set forth on
Schedule 3.11: (i) no portion thereof is subject to any pending condemnation,
fire, health, safety, building, environmental, hazardous substances, pollution
control, zoning or other land use regulatory Proceedings or Proceeding by any
public or quasi-public authority and, to the Knowledge of the
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Company, there is no threatened condemnation or Proceeding with respect thereto;
(ii) the physical condition thereof is sufficient to permit the continued
conduct of the business as presently conducted subject to the provision of usual
and customary maintenance and repair performed in the ordinary course with
respect to similar properties of like age and construction; (iii) there are no
contracts, written or oral, to which the Company or any of its Affiliates is a
party, granting to any party or parties except the Company the right of use or
occupancy of any portion of the parcels of the Real Property; (iv) there are no
parties in possession of the Real Property except the Company; and (v) no notice
of any increase in the assessed valuation of the Real Property and no notice of
any contemplated special assessment has been received by the Company and, to the
Knowledge of the Company, there is no threatened increase in assessed valuation
or threatened special assessment pertaining to any of the Real Property nor has
the Company received any written notice of a violation or claimed violation of
any Law.
(d) All components of all buildings, structures and other
improvements included within the properties listed on Schedule 3.11
(collectively, the "Company Properties"), including but not limited to the roofs
and structural elements thereof and the heating, ventilation, air conditioning,
plumbing, electrical, mechanical, sewer, waste water, storm water, paving and
parking equipment, systems and facility included therein, and other material
items of tangible property and assets included in the Company Properties are in
good operating condition and repair, subject to normal wear and maintenance, are
usable in the regular and ordinary course of business and conform in all
material respects to all applicable building, subdivision, zoning, environmental
and other Laws relating to their construction, use and operation.
(e) All water, sewer, gas, electric, telephone and drainage
facilities, and all other utilities required by any applicable law or by the
current use and operation of the Real Property are installed to the property
lines of the Real Property, are connected pursuant to valid permits to municipal
or public utility services or proper drainage facilities, are fully operable and
are adequate to service the Real Property as currently used.
(f) All licenses, permits, certificates, easements and rights of
way, including proof of dedication, required from all Governmental Entities
having jurisdiction over the Real Property for the use and operation of the Real
Property as currently used and to ensure vehicular and pedestrian ingress to and
egress from the Real Property have been obtained.
(g) No portion of the Real Property has suffered any material damage
by fire or other casualty which has not heretofore been repaired.
(h) There are (i) no material physical or mechanical defects in any
of the Real Property, including, without limitation, the structural portions of
the Real Property and the plumbing, heating, air conditioning, electrical,
mechanical, life safety and other systems therein, and all such items are in
good operating condition and repair, reasonable wear and tear excepted; (ii) no
unsatisfied requests for any repairs, restorations or improvements to the Real
Property from any Person, including, without limitation, any Governmental
Entity; and (iii) no ongoing material repairs to the Real Property being made by
or on behalf of the Company, except as set forth in Schedule 3.11.
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3.12 Tax Matters.
(a) Except as specifically set forth on Schedule 3.12(a), the
Company and each other corporation included in any consolidated, combined,
unitary or otherwise affiliated group for the purpose of filing tax returns or
reports (each, a "Tax Return"), within the meaning of Section 1504 of the Code
or similar provision of state, local or foreign law, of which the Company is or
ever has been a member, (i) has timely paid all Taxes required to be paid by it
through the date hereof (including any Taxes shown due on any Tax Return); and
(ii) has timely filed or caused to be filed in a timely manner (within any
applicable extension periods) all Tax Returns required to be filed by it with
the appropriate Governmental Entities in all jurisdictions in which such Tax
Returns are required to be filed, and all such Tax Returns are true and complete
in all material respects.
(b) Except as set forth in Schedule 3.12(b),
(i) no Liens (other than Permitted Liens) have been filed and
the Company has not been notified by the Internal Revenue Service or any
other taxing authority that any issues have been raised (and are currently
pending) by the Internal Revenue Service or any other taxing authority in
connection with any Tax Return of the Company, and no waivers of statutes
of limitations have been given or requested with respect to the Company;
(ii) there are no pending Tax audits of any Tax Returns of the
Company;
(iii) no unresolved deficiencies or additions to Taxes have
been proposed, asserted or assessed against the Company or any member of
any consolidated, combined unitary or otherwise affiliated group of which
the Company ever was or is a member;
(iv) the Company has made full and adequate provision on the
Latest Balance Sheet and the Interim Financial Statements for all material
Taxes payable by it for all periods prior to the date of the Latest
Balance Sheet and the Interim Financial Statements, respectively;
(v) there is no audit, examination, deficiency, or refund
litigation pending with respect to any Taxes and, during the past three
years, no Government Authority has given written notice of the
commencement of any audit, examination or deficiency litigation, with
respect to any Taxes;
(vi) (A) no person has made with respect to the Company, or
with respect to any property held by any of the Company, any consent under
Section 341 of the Code, (B) no material amount of property of the Company
is "tax exempt property" within the meaning of Section 168(h) of the Code,
(C) no material amount of assets of the Company are subject to a lease
under Section 7701(h) of the Code, and (D) the Company is not a party to
any material lease made pursuant to Section 168(f)(8) of the Internal
Revenue Code of 1954, as amended and in effect prior to the date of
enactment of the Tax Equity and Fiscal Responsibility Act of 1982;
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(vii) immediately following the Merger, the Company will not
have any material amount of income or gain that has been deferred under
Treasury Regulation Section 1.1502-13, or any material excess loss account
in another Retained Company under Treasury Regulation Section 1.1502-19;
and
(viii) the Company has complied in all material respects with
all applicable Laws relating to the collection or withholding of Taxes
(such as sales Taxes or withholding of Taxes from the wages of employees)
and the Company has not been and is not liable for any Taxes for failure
to comply with such Laws;
(ix) the Company is not and has not been a party to any Tax
sharing, Tax indemnity or similar agreement;
(x) the Company has not incurred any obligation to make (or,
possibly make) any payments that (A) will be non-deductible under, or
would otherwise constitute a "parachute payment" within the meaning of,
Section 280G of the Code (or any corresponding provision of state, local
or foreign income Tax law); or (B) are or may be subject to the imposition
of an excise tax under Section 4999 of the Code; and
(xi) the Company has not agreed to and is not required to make
any adjustments or changes to its accounting methods pursuant to Section
481 of the Code, and the Internal Revenue Service has not proposed any
such adjustments or changes in the accounting methods of the Company.
3.13 Intellectual Property.
(a) Schedule 3.13(a) identifies (i) all Intellectual Property used
by the Company in connection with the business of the Company; (ii) each
license, agreement or other permission which the Company has granted to any
Person with respect to any Intellectual Property used by the Company in
connection with their respective businesses; and (iii) each item of Intellectual
Property that any Person owns and that the Company uses in connection with its
business pursuant to license, sublicense, agreement or permission ("Licensed
Intellectual Property").
(b) Except as specifically set forth on Schedule 3.13(b), as of the
date hereof and as of the Closing:
(i) the Company has not infringed upon or misappropriated any
Intellectual Property rights of third parties, and the Company has not
received any charge, complaint, claim, demand or notice alleging any such
infringement or misappropriation;
(ii) the Company has the right to use, sell, license and
dispose of, and has the right to bring actions for the infringement of,
and, where necessary, has made timely and proper application for the
registration and patenting of all Intellectual Property (other than the
Licensed Intellectual Property) necessary or required for the conduct of
their business as currently conducted and as proposed to be conducted and
such rights to use,
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sell, license, dispose of and bring actions are exclusive with respect to
such Intellectual Property;
(iii) the Company has the right to use all Licensed
Intellectual Property necessary or required for the conduct of its
business as currently conducted and proposed to be conducted;
(iv) there are no royalties, honoraria, fees or other payments
payable by the Company to any Person by reason of the ownership, use,
license, sale or disposition of the Intellectual Property, other than in
connection with Licensed Intellectual Property;
(v) no activity, service or procedure currently conducted or
proposed to be conducted by the Company violates or will violate any
agreement governing the use of Licensed Intellectual Property;
(vi) the Company has taken reasonable and practicable steps
(including, without limitation, entering into confidentiality and
nondisclosure agreements with all officers, directors and employees of and
consultants to the Company with access to or Knowledge of the Intellectual
Property) designed to safeguard and maintain the secrecy and
confidentiality of, and its proprietary rights in, all Intellectual
Property; and
(vii) the Company has not sent to any third party or otherwise
communicated to another Person in the past five years any charge,
complaint, claim, demand or notice asserting infringement or
misappropriation of, or other conflict with, any Intellectual Property
right of the Company by such other Person or any acts of unfair
competition by such other Person, nor to the best Knowledge of the Company
is any such infringement, misappropriation, conflict or act of unfair
competition occurring or threatened.
(c) Schedule 3.13(c) contains a true and complete list of all
applications and filings made or taken pursuant to Federal, state, local and
foreign Laws by the Company to perfect or protect its interest in the
Intellectual Property, including, without limitation, all patents, patent
applications, trademarks, trademark applications, service marks and servicemark
applications.
3.14 Contracts and Commitments.
(a) Except as set forth on Schedule 3.14(a), the Company is not a
party to any written or oral:
(i) contract for the employment of any officer, individual
employee, or other Person on a full-time, part-time, consulting or other
basis;
(ii) contract relating to Funded Indebtedness or to the
mortgaging, pledging or otherwise placing a Lien on any Asset or group of
Assets of the Company;
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(iii) contract involving the sale of the accounts receivable
of the Company to any other Person at a discount;
(iv) Guaranty;
(v) contract with respect to the lending or investing of
funds;
(vi) contract under which the Company is the lessee of or the
holder or operator of any real or personal property owned by any other
Person;
(vii) contract under which the Company is the lessor of or
permits any third Person to hold or operate any real or personal property
owned or controlled by the Company;
(viii) assignment, license, indemnification or agreement with
respect to any form of intangible property, including, without limitation,
any Intellectual Property or confidential information;
(ix) contract or group of related contracts with the same
Person for the sale of assets or services which generate in excess of
$100,000 in revenues in any 12-month period;
(x) contract which prohibits the Company from freely engaging
in business anywhere in the world;
(xi) contract relating to the purchase, distribution,
marketing or sales of the Company's or any other Person's products (other
than purchase and sales orders entered into in the ordinary course of
business consistent with past practices and the performance of which by
the parties thereto is reasonably expected to be substantially completed
within 30 days of the execution thereof);
(xii) contract with any Affiliate; or
(xiii) other contract material to the business of the Company.
(b) Except as specifically disclosed in Schedule 3.14(b), the
Company has performed in all material respects all obligations required to be
performed by it and is not in default under or in breach of nor in receipt of
any claim of default or breach under any such contract to which it is a party or
by which any of its Assets may be bound; and to the Company's Knowledge no event
has occurred which with the passage of time or the giving of notice or both
would result in such a default or breach under any such contract. To the
Company's Knowledge, no other party to any contract to which the Company is a
party or by which its Assets may be bound is in default under or in breach of
such contract and no event has occurred which with the passage of time or giving
of notice or both would result in a default or breach under any such contract.
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(c) There has been made available to Parent (i) a true and complete
copy of each of the contracts listed on Schedule 3.14(a), together with all
amendments, waivers or other changes thereto; and (ii) a complete description of
all oral contracts to which the Company is a party or by which any of their
Assets may be bound.
3.15 Insurance.
(a) Schedule 3.15(a) contains a true and complete list of all
policies of liability, theft, fidelity, life, fire, product liability, workmen's
compensation, health and other forms of insurance held by the Company and/or
known by the Company to be held by any Seller for the benefit of the Company
(specifying the insurer, amount of coverage, type of insurance, policy number
and any pending claims thereunder). The Company has maintained such insurance
coverage at all times during the course of the operation of the business, and
such insurance coverage has been maintained on an occurrence basis. The Company
is insured against all risks usually insured against by Persons conducting
similar businesses and operating similar properties in the localities where the
business is conducted and the properties of the Company are located, under
policies of such types and in such amounts as are customarily carried by such
Persons.
(b) Except as set forth on Schedule 3.15(b), with respect to each
policy of insurance listed on Schedule 3.15(a), (i) all premiums with respect
thereto are currently paid and are not subject to adjustment, and no Person is
in default in any respect with respect to its obligations under such policy, and
no basis exists that would give any insurer under any such policy the right to
cancel or unilaterally reduce or limit the stated coverages contained in such
policy; (ii) there are no outstanding claims currently pending under such policy
that could be expected to cause an increase in the insurance rates of the
Company, and no facts or circumstances exist that might reasonably be expected
to relieve the insurer under such policy of its obligations to satisfy in full
any claim thereunder; and (iii) the Company has not received any notice that
such policy has been or shall be canceled or terminated or will not be renewed
on substantially the same terms as are now in effect or the premium on such
policy shall be materially increased on the renewal thereof.
3.16 Litigation.
Except as set forth on Schedule 3.16, (i) there is no Proceeding pending
or, to the best Knowledge of the Company, threatened by or against, or affecting
the Assets of, the Company (or any of its predecessors); and (ii) the Company is
not bound by any Order. Schedule 3.16 sets forth all Proceedings involving the
Company.
3.17 Employees.
(a) Except as set forth on Schedule 3.17, the Company has complied in all
respects with all Laws relating to the hiring of employees, the retention of
independent contractors and the employment of labor, including provisions
thereof relating to wages, hours, equal opportunity, collective bargaining and
the payment of social security and other Taxes. The Company does not have
Knowledge of any labor relations problems being experienced by it
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(including, without limitation, any union organization activities, threatened or
actual strikes or work stoppages or material grievances).
(b) Except as set forth on Schedule 3.17, (i) the Company is not
delinquent in payments to any of its employees for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed by
them to date or amounts required to be reimbursed to such employees and upon any
termination of the employment of any such employees; (ii) there is no unfair
labor practice complaint against the Company or pending before the National
Labor Relations Board or any other Governmental Entity; (iii) there is no labor
strike, material dispute, slowdown or stoppage actually pending or, to the best
Knowledge of the Company, threatened against or involving the Company; (iv) no
labor union currently represents the employees of the Company; and (v) to the
best Knowledge of the Company, no labor union has taken any action with respect
to organizing the employees of the Company. The Company is not a party to or
bound by any collective bargaining agreement or union contract.
3.18 Employee Benefits.
(a) Schedule 3.18 contains a true, complete and correct list of all
Employee Benefit Plans (collectively, the "Plans") (i) that cover any employees,
contract employees or former employees of the Company or any spouses, family
members or beneficiaries thereof (A) that are maintained, sponsored or
contributed to by the Company; or (B) with respect to which the Company is
obligated to contribute or has any actual or potential Liability; or (ii) with
respect to which the Company has any actual or potential Liability or obligation
on account of the maintenance or sponsorship thereof or contribution thereto by
any present or former ERISA Affiliate of the Company.
(b) Administration and Compliance. Except as set forth on Schedule
3.18, with respect to each Employee Plan (to the extent applicable):
(i) such Employee Plan has been established, maintained,
operated and administered in accordance with its terms and in compliance
in all material respects with ERISA, the Code, and other applicable Laws
(including with respect to reporting and disclosure);
(ii) all required, declared or discretionary (in accordance
with historical practices) payments, premiums, contributions,
reimbursements or accruals for all periods ending prior to or as of the
date hereof have been made or properly accrued on the Latest Balance
Sheet, or with respect to accruals properly made after the date of the
Latest Balance Sheet, on the books and records of the Company and all
amounts withheld from employees have been timely deposited into the
appropriate trust or account;
(iii) there is no unfunded actual or potential Liability
relating to such Employee Plan which is not reflected on the Latest
Balance Sheet, or with respect to accruals properly made after the date of
the Latest Balance Sheet, on the books and records of the Company;
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(iv) Neither the Company nor any of its respective ERISA
Affiliates or any other "disqualified person" or "party in interest" (as
such terms are defined in Section 4975 of the Code and Section 3(14) of
ERISA, respectively) with respect to such Plan, have breached the
fiduciary rules of ERISA or engaged in a prohibited transaction that could
subject any of the foregoing Persons to any tax or penalty imposed under
Section 4975 of the Code of Section 502(i), (j) or (l) of ERISA;
(v) no Proceedings (other than routine claims for benefits)
are pending or, to the Knowledge of the Company, threatened against or
relating to any Plan or any fiduciary thereof, and there is, to the
Knowledge of the Company, no basis for any such Proceeding against any
Plan;
(vi) such Plan, if intended to be "qualified," within the
meaning of Section 401(a) of the Code, has been determined by the Internal
Revenue Service to be so qualified and the related trusts are exempt from
Tax under Section 501(a) of the Code, and nothing has occurred that has or
could reasonably be expected to adversely affect such qualification or
exemption;
(vii) except as may be required under Laws of general
application, such Plan does not obligate the Company to provide any
employee or former employee, or their spouses, family members or
beneficiaries, any post-employment or post-retirement health or life
insurance, accident or other "welfare-type" benefits;
(viii) if such Plan is a "group health plan" within the
meaning of Section 5000 of the Code, such Plan has been maintained in
compliance with Section 4980B of the Code and Title I, Subtitle B, Part 6
of ERISA and no tax payable on account of Section 4980B of the Code has
been or is expected to be incurred;
(ix) the Company has never maintained or been obligated to
contribute to a Multi-employer Plan (as defined in Section 3(37) of
ERISA), a Multiple Employer Plan (as defined in Section 413 of the Code)
or a Defined Benefit Pension Plan (as defined in Section 3(35) of ERISA);
(x) all reporting and disclosure obligations imposed under
ERISA and the Code have been satisfied with respect to each Plan; and
(xi) no benefit payable or which becomes payable by the
Company or any ERISA Affiliate thereof pursuant to any Plan shall
constitute an "excess parachute payment," within the meaning of Section
280G of the Code, which is or may be subject to the imposition of an
excise tax under Section 4999 of the Code or which would not be deductible
by reason of Section 280G of the Code.
(c) Parent has been provided with true and complete copies, to the
extent applicable, of all documents pursuant to which such Plan is maintained
and administered, the two most recent annual reports (Form 5500 and attachments)
and financial statements therefor, all governmental rulings, determinations, and
opinions (and pending requests therefor), and, if such
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Plan provides post-employment or post-retirement health and life insurance,
accident or other "welfare-type" benefits, the most recent valuation of the
present and future obligations under such Plan; and the foregoing documents
accurately reflect all of the terms of such Plan (including, without limitation,
any agreement or provision which would limit the ability of the Company to make
any prospective amendments or terminate such Plan).
3.19 Environment and Safety.
The Company has complied in all respects with, and is in compliance with,
all Environmental and Safety Requirements, and there are no Proceedings pending
or, to the best Knowledge of the Company, threatened against the Company
alleging any failure to so comply or involving any of its past operations or any
real property currently used by the Company. The Company has not received any
written or oral notice or report with respect to it or its facilities regarding
any (i) actual or alleged violation of Environmental and Safety Requirements; or
(ii) actual or potential Liability arising under Environmental Safety
Requirements, including, without limitation, any investigatory, remedial or
corrective obligation. The Company has not expressly assumed or undertaken any
Liability of any other Person under any Environmental and Safety Requirements.
The Company has not treated, stored, disposed of, arranged for or permitted the
disposal of, transported, handled or released any substance, or owned or
operated any real property in a manner that has given rise to Liabilities
pursuant CERCLA, SWDA or any other Environmental and Safety Requirement,
including any Liability for response costs, corrective action costs, personal
injury, property damage, natural resources damage or attorney fees, or any
investigative, corrective or remedial obligations.
3.20 Related Party Transactions.
Except as set forth on Schedule 3.20, and except for compensation to
regular employees of the Company, no current or former Affiliate of the Company,
is now, or has been during the last five fiscal years, (i) a party to any
transaction or contract with the Company; (ii) indebted to the Company; or (iii)
the direct or indirect owner of an interest in any Person which is a present or
potential competitor, supplier or customer of the Company (other than
non-affiliated holdings in publicly held companies), nor does any such Person
receive income from any source other than the Company which should properly
accrue to the Company. Except as set forth on Schedule 3.20, no current or
former Affiliate of the Company or any Associate thereof is a guarantor or
otherwise liable for any Liability (including indebtedness) of the Company.
3.21 Directors and Officers.
Schedule 3.21 lists all of the current directors and officers of the
Company, their accrued 1999 compensation through the date hereof, their current
compensation levels and the dates on which they assumed their respective
offices.
3.22 Offering Exemption.
The offering, sale and issuance of the Merger Shares was exempt from
registration under the Securities Act and under applicable state securities and
"blue sky" laws. The Company has
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made all requisite filings and has taken or will take all action necessary to be
taken to comply with such state securities or "blue sky" laws.
3.23 Accounts and Notes Receivable.
All the accounts receivable and notes receivable owing to the Company as
of the date hereof constitute, and as of the Closing shall constitute, valid and
enforceable claims arising from bona fide transactions in the ordinary course of
business, and there are no known or asserted claims, refusals to pay or other
rights of set-off against any thereof. Except as set forth on Schedule 3.23, (i)
all accounts and notes receivable are good and collectible in the ordinary
course of business consistent with past practice at the aggregate recorded
amounts thereof; (ii) no account debtor or note debtor is delinquent for
payments in excess of $20,000 and for more than 90 days; and (iii) no account
debtor or note debtor has refused or, to the Knowledge of the Company,
threatened to refuse to pay its obligations to the Company for any reason, or
has otherwise made a claim of set-off or similar claim; and (iv) no account
debtor or note debtor is insolvent or bankrupt.
3.24 Brokers.
Schedule 3.24 sets forth a true and complete list of each agent, broker,
investment banker, Person or firm who or which has acted on behalf, or under the
authority, of the Company (or its predecessors) or any of its shareholders or
will be entitled to any fee or commission directly or indirectly from the
Company or any of its shareholders. Parent will not have and from and after the
Closing, the Company will not have any Liability or obligation to any such
agents, brokers, investment bankers Persons or Firms in connection with any of
the transactions contemplated hereby.
3.25 Disclosure.
Neither this Agreement nor any of the Schedules or Exhibits, any of the
Related Documents nor any other written material, when viewed separately or
together, delivered to Parent or any of its directors, officers, partners,
employees, representatives or agents contains any untrue statement of a material
fact or omits a material fact necessary to make the statements contained herein
or therein, in light of the circumstances in which they were made, not
misleading as of the date hereof.
3.26 Year 2000.
All of the products, devices and programs developed and, to the best
knowledge of the Company, used by the Company are designed to be used prior to,
during and after the calendar year 2000 A.D., and such products, devices and
programs will operate during each such time period without error relating to
date data and date-dependent data, specifically including any error relating to,
or the program of, date data which represents or references different centuries
or more than one century, other than such errors which have not had nor could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company. Other than any of the following which has not had
nor could reasonably be expected to have a
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Material Adverse Effect, individually or in the aggregate, on the Company,
without limiting the generality of the foregoing:
(a) each such product, device or program will not abnormally end or
provide invalid or incorrect results as a result of date data, specifically
including date data which represents or references different centuries or more
than one century; and
(b) each such product, device or program has been designed to ensure
Year 2000 compatibility, including, but not limited to, date data century
recognition, calculations which accommodate same century and multi-century
formulas and date values and date data interface values that reflect the
century.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE INDEMNIFYING SELLERS
As a material inducement to Parent and Acquisition Sub to enter into
and perform their obligations under this Agreement, each Indemnifying Seller,
severally (as to himself only), represents and warrants to Parent and
Acquisition Sub as follows:
4.1 Title to the Merger Shares.
Such Indemnifying Seller is the lawful owner, of record and beneficially,
of those shares of Company Common Stock set forth opposite its name on Annex II
and has good and marketable title to such shares, free and clear of any Liens
whatsoever and with no restriction on the voting rights and other incidents of
record and beneficial ownership pertaining thereto. Except for this Agreement or
as set forth on Schedule 3.4, there are no agreements or understandings between
such Indemnifying Seller and any other Seller or any other Person with respect
to the acquisition, disposition or voting of or any other matters pertaining to
any of the capital stock of the Company. Such Indemnifying Seller acquired his
or its shares of capital stock of the Company in one or more transactions exempt
from registration under the Securities Act, and in compliance with applicable
state securities laws. Except as set forth on Schedule 3.4, such Indemnifying
Seller has no right whatsoever to receive or acquire any additional shares of
capital stock of the Company.
4.2 Authority; Noncontravention.
(a) If such Indemnifying Seller is a natural Person, such
Indemnifying Seller has full and absolute legal right, capacity, power and
authority to enter into this Agreement and the this Agreement and the Related
Documents to which he is a party.
(b) If such Indemnifying Seller is not a natural Person, such
Indemnifying Seller is duly organized, validly existing and in good standing
under the Laws of the state of its formation and has all requisite power and
authority (whether corporate or otherwise) to own, lease and operate its
properties and assets and to carry on its business as now being conducted. Such
Indemnifying Seller has all requisite power and authority (whether corporate or
otherwise) to enter into this Agreement and the Related Documents to which it is
a party, to perform its
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obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. Such Indemnifying Seller has not conducted its
business under any fictitious or other names. Parent has been furnished with
true, complete and correct copies of such Seller's Fundamental Documents, in
each case as amended to and in effect on the date hereof.
(c) This Agreement and the Related Documents to which such
Indemnifying Seller is a party are the valid and binding obligations of such
Indemnifying Seller, enforceable against such Indemnifying Seller in accordance
with their respective terms, subject to (i) applicable bankruptcy, insolvency,
moratorium and other similar laws affecting creditors' rights generally; and
(ii) general principles of equity, including without limitation, the doctrines
of good faith, fair dealing, unconscionability, reasonableness and materiality
and the discretion of courts in granting equitable remedies, including, without
limitation, specific performance.
(d) Neither the execution, delivery and performance of this
Agreement or the Related Documents to which such Indemnifying Seller is a party
nor the consummation of the transactions contemplated hereby and thereby nor
compliance by such Indemnifying Seller with any of the provisions hereof or
thereof will (i) conflict with or result in a breach of the certificate or
articles of incorporation, the by-laws or similar organizational documents of
such Indemnifying Seller (if any); (ii) conflict with, or result in any
violations of, or cause a default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, amendment, cancellation or
acceleration of any obligations contained in or the loss of any material benefit
under, any term, condition or provision of any contract to which such
Indemnifying Seller is a party, or by which such Indemnifying Seller or any of
its properties may be bound; or (iii) violate any Law applicable to such
Indemnifying Seller or any of its properties, which conflict or violation would
prevent the consummation of the transactions contemplated by this Agreement or
any of the Related Documents to which such Indemnifying Seller is a party or
result in an Encumbrance on or against any assets, rights or properties of the
Company or on or against any capital stock of the Company or give rise to any
claim against such Indemnifying Seller, the Company, Parent, Acquisition Sub or
any their respective Affiliates.
4.3 Legal Compliance.
No consent, approval, Permit, Order, notification or authorization of, or
any exemption from or registration, declaration or filing with, any Governmental
Entity or any third Person is required in connection with the execution,
delivery and performance by such Indemnifying Seller of this Agreement or any
Related Document to which he or it is or will be a party or the consummation by
such Indemnifying Seller of the transactions contemplated hereby or thereby.
4.4 Brokers.
After the Closing, neither Parent nor the Company will be required to pay
any fee or commission to any agent, broker, investment banker, or other Person
as a result of the transactions contemplated hereby.
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4.5 Registration Rights.
Immediately following the Closing, except as contemplated by the Related
Documents, no Person has any right to cause the Company to effect the
registration under the Securities Act of any securities (including debt
securities) of the Company owned by such Indemnifying Seller.
4.6 No Security Interests.
Except as contemplated by this Agreement or the Related Documents, there
are, and immediately after consummation of the Closing there will be, no
outstanding warrants, options, agreements, convertible securities or other
commitments or instruments pursuant to which such Indemnifying Seller is or may
become obligated to sell any shares of Company Common Stock or any Parent Common
Stock. There is, and, immediately after the consummation of the Closing there
will be, no Lien or any right of first refusal, right of first offer, proxy,
voting trust, voting agreement or other arrangement or agreement with respect to
the sale or voting of or otherwise relating to any share of Company Common Stock
or Parent Common Stock (whether outstanding or issuable).
4.7 Compliance with Applicable Laws
All shares of the capital stock and other securities being transferred by
such Indemnifying Seller have been issued in transactions in accordance with
applicable Laws governing the sale and purchase of securities.
4.8 Experience.
(a) Such Indemnifying Seller understands that none of the shares of
Parent Common Stock transferred in the Merger will be registered or qualified
under the Securities Act, or any applicable state securities laws. Such shares
must be held indefinitely unless a subsequent disposition thereof is registered
or qualified under the Securities Act or is exempt from such registration or
qualification. Such Indemnifying Seller understands that there is no public
market for the Parent Common Stock and that the transferability thereof is
restricted.
(b) Such Indemnifying Seller (i) has been furnished with or has had
access to the information that such Indemnifying Seller has requested from
Parent; (ii) has had an opportunity to discuss with management of Parent the
intended business and financial affairs of Parent; and (iii) has generally such
knowledge and experience in business and financial matters so as to enable such
Indemnifying Seller to understand and evaluate the risks of and form an
investment decision with respect to the matters set forth in this Agreement.
Without limiting the foregoing, such Indemnifying Seller has reviewed and
understands this Agreement and the Related Documents.
(c) Such Indemnifying Seller does not need liquidity in its
investment in the Parent Common Stock and is able to bear the economic risk of
its investment and the complete loss of all of such investment. Such
Indemnifying Seller recognizes that an investment in Parent
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involves certain risks, and has taken full cognizance of, and understands all
of, the risk factors related to its execution and delivery of this Agreement.
4.9 Investment.
Such Indemnifying Seller is acquiring the shares of Parent Common Stock
for investment for his or its own account, not as a nominee or agent, and not
with the view to, or for resale in connection with, any distribution of any part
thereof. Such Indemnifying Seller understands that the shares of Parent Common
Stock to be acquired have not been registered under the Securities Act or
applicable state and other securities laws by reason of a specific exemption
from the registration provisions of the Securities Act and applicable state and
other securities laws, the availability of which depends upon, among other
things, the bona fide nature of the investment intent and the accuracy of
Indemnifying Sellers' representations as expressed herein.
4.10 Rule 144.
Such Indemnifying Seller acknowledges and understands that he or it must
bear the economic risk of the ownership of the Parent Common Stock for an
indefinite period of time because the shares of Parent Common Stock must be held
indefinitely unless subsequently registered under the Securities Act and
applicable state and other securities laws or unless an exemption from such
registration is available. Such Indemnifying Seller also understands that there
are contractual restrictions contained in this Agreement and the Related
Documents which affect the transferability of the Parent Common Stock. Such
Indemnifying Seller understands that any transfer agent of Parent will issue
stop-transfer instructions with respect to the Parent Common Stock unless any
transfer thereof is subsequently registered under the Securities Act and
applicable state and other securities laws or unless an exemption from such
registration is available.
4.11 No Public Market.
Such Indemnifying Seller understands that no public market now exists for
the Parent Common Stock and that there is no assurance that a public market will
ever exist for such stock.
4.12 Legend on Stock Certificates.
Such Indemnifying Seller understands that each certificate representing
shares of Parent Common Stock shall bear a legend containing the following words
(in addition to any other legend required by law or applicable agreement):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE RESOLD UNLESS REGISTERED PURSUANT THERETO OR AN EXEMPTION
FROM REGISTRATION IS AVAILABLE.
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THE SALE, TRANSFER, ASSIGNMENT, PLEDGE OR ENCUMBRANCE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF A STOCKHOLDERS' AGREEMENT DATED AS OF
DECEMBER 24, 1998, AS AMENDED, AMONG OPUS360 CORPORATION AND
CERTAIN HOLDERS OF THE OUTSTANDING CAPITAL STOCK OF SUCH
CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST
BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS
CERTIFICATE TO THE SECRETARY OF SUCH CORPORATION."
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
PARENT AND ACQUISITION SUB
As a material inducement to the Company to enter into and perform
its obligations under this Agreement, Parent and Acquisition Sub represent and
warrant to the Sellers as of the date hereof, as follows:
5.1 Organization; Good Standing; Qualification and Power.
Parent and Acquisition Sub are duly organized, validly existing and in
good standing under the Laws of their jurisdiction of formation, have all
requisite power to own, lease and operate their Assets and to carry on their
business as presently being conducted, and are qualified to do business and are
in good standing in every jurisdiction in which the failure to so qualify or be
in good standing would have a Material Adverse Effect. Parent and Acquisition
Sub have made available to the Company true and complete copies of their
Fundamental Documents as in effect on the date hereof.
5.2 Authorization.
(a) Parent and Acquisition Sub have all requisite power and
authority to execute and deliver this Agreement, each Related Document to which
they are a party and any and all instruments necessary or appropriate in order
to effectuate fully the terms and conditions of this Agreement and each such
Related Document and all related transactions and to perform their obligations
under this Agreement and each such Related Document. This Agreement and each
Related Document to which Parent or Acquisition Sub is a party has been duly
authorized by all necessary action (corporate or otherwise) on the part of
Parent or Acquisition Sub, and this Agreement and each Related Document to which
Parent or Acquisition Sub is a party has been duly executed and delivered by
Parent or Acquisition Sub, and constitutes the valid and legally binding
obligation of Parent or Acquisition Sub enforceable in accordance with its terms
and conditions, except as enforceability thereof may be limited by any
applicable bankruptcy, reorganization, insolvency or other Laws affecting
creditors' rights generally or by general principles of equity.
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(b) The authorization, issuance, sale and delivery of the Closing
Shares, the Reserved Shares and the Additional Shares and the Merger have been
duly authorized by all requisite action of the Board of Directors of Parent and
Acquisition Sub. As of the Closing, the Closing Shares and the Reserved Shares
will be, and upon issuance in accordance with the terms of this Agreement the
Additional Shares will be, validly issued and outstanding, fully paid and
nonassessable, with no personal liability attaching to the ownership thereof,
free and clear of any Liens whatsoever and with no restrictions on the voting
rights thereof and other incidents of record and beneficial ownership pertaining
thereto, in each case other than pursuant to this Agreement and the Related
Documents.
5.3 Non-contravention.
Except as set forth on Schedule 5.3, the execution, delivery and
performance by Parent and Acquisition Sub of this Agreement and the Related
Documents to which they are a party, the consummation of the transactions
contemplated hereby thereby and compliance with the provisions hereof thereof,
including the issuance, sale and delivery of the Stock Consideration do not and
will not, (a) violate any Law to which Parent or Acquisition Sub or any of their
respective Assets is subject; (b) violate any provision of the Fundamental
Documents of Parent or Acquisition Sub; (c) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify or cancel, or require any
notice under any contract to which Parent or Acquisition Sub is a party or by
which any of the Assets of Parent or Acquisition Sub are bound; or (d) result in
the imposition of any Lien upon any of the Assets of Parent or Acquisition Sub.
Other than state blue sky securities filings, neither Parent nor Acquisition Sub
has been or is required to give any notice to, make any filing with, or obtain
any authorization, consent or approval of any Governmental Entity or any other
Person for the valid authorization, issuance and delivery of this Agreement or
the Related Documents.
5.4 Capitalization of Parent.
(a) Immediately prior to consummation of the Closing, the total
number of shares of all classes of stock which Parent has authority to issue is
70,000,000 consisting of:
(i) 45,000,000 shares of Common Stock, par value $.001 per
share, (A) 8,082,417 of which are issued and outstanding, fully paid and
nonassessable; (B) 8,284,000 of which are reserved for issuance upon
conversion of the Series A Convertible Preferred Stock; (C) 8,676,790 of
which are reserved for issuance upon conversion of the Series B
Convertible Preferred Stock; (D) 4,100,000 of which are reserved for
issuance pursuant to Parent's 1998 Stock Option Plan, and (E) 370,365 of
which are reserved for issuance pursuant to outstanding warrants.
(ii) 25,000,000 shares of Preferred Stock, par value $.001 per
share, consisting of (A) 8,400,000 shares of Series A Convertible
Preferred Stock, of which 8,284,000 are issued and outstanding, fully paid
and nonassessable; (B) 8,7000,000 shares of Series B Convertible Preferred
Stock, of which 8,676,790 shares are issued and outstanding, fully paid
and nonassesable; and (C) 7,900,000 shares of Preferred Stock are
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reserved for issuance in the discretion of the Board of Directors of
Parent, none of which are issued and outstanding.
(b) Except as contemplated by this Agreement and the Related
Documents or otherwise set forth on Schedule 5.4, there are no (i) outstanding
warrants, options, agreements, convertible securities or other commitments or
instruments pursuant to which Parent is or may become obligated to issue or sell
any shares of its capital stock or other securities (other than shares which are
reserved for issuance as set forth in Section 5.4(a); or (ii) preemptive or
similar rights to purchase or otherwise acquire shares of the capital stock or
other securities of Parent pursuant to any provision of Law, such Person's
Fundamental Documents or any contract to which such Person, or to the best
Knowledge of Parent, any shareholder thereof is a party; and, except as
contemplated by this Agreement and the Related Documents or as otherwise set
forth on Schedule 5.4, there is no Lien with respect to the sale or voting of
shares of capital stock or securities of Parent (whether outstanding or
issuable).
(c) All shares of the capital stock and other securities issued by
Parent have been issued in transactions in accordance with applicable Laws
governing the sale and purchase of securities.
5.5 Capitalization of Acquisition Sub.
(a) Immediately upon consummation of the Closing the total number of
shares of all classes of stock which Acquisition Sub has authority to issue is
1,000 shares of common stock, par value $.01 per share, 100 of which are issued
and outstanding, fully paid and nonassessable.
(b) Except as contemplated by this Agreement and the Related
Documents, immediately after consummation of the Closing there will be, no (i)
outstanding warrants, options, agreements, convertible securities or other
commitments or instruments pursuant to which Acquisition Sub is or may become
obligated to issue or sell any shares of its capital stock or other securities;
or (ii) preemptive or similar rights to purchase or otherwise acquire shares of
the capital stock or other securities of Acquisition Sub pursuant to any
provision of Law, such Person's Fundamental Documents or any contract to which
such Person, or to the best Knowledge of Acquisition Sub, any shareholder
thereof is a party; except as contemplated by this Agreement and the Related
Documents, there is, and, immediately after the consummation of the Closing
there will be, no Lien with respect to the sale or voting of shares of capital
or securities of Acquisition Sub (whether outstanding or issuable).
(c) All shares of the capital stock and other securities issued by
Acquisition Sub have been issued in transactions in accordance with applicable
Laws governing the sale and purchase of securities.
5.6 Subsidiaries.
Except for Acquisition Sub and as set forth on Schedule 5.6, Parent does
not have any Subsidiaries. Acquisition Sub does not have any Subsidiaries.
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5.7 Financial Statements.
(a) Schedule 5.7 contains the unaudited consolidated balance sheet
of Parent as of September 30, 1999 (the "Parent Balance Sheet"), and the related
unaudited consolidated statements of income and cash flow for the nine-month
period then ended (collectively, the "Parent Financial Statements").
(b) Each of the Parent Financial Statements (i) has been prepared in
accordance with the books and records of Parent (which are true and complete in
all material respects); (ii) fairly presents the financial condition and results
of operations which it purports to present as of the dates thereof and for the
periods indicated thereon (except, for the lack of footnotes and for year end
adjustments); and (iii) has been prepared in accordance with GAAP consistently
applied throughout the periods covered thereby, subject to the lack of footnotes
and other presentation items. Since the date of the Parent Balance Sheet, except
as required by applicable Law or GAAP, as of the date hereof, there has been no
change in any accounting principle, procedure or practice followed by Parent or
in the method of applying any such principle, procedure or practice.
5.8 Events Subsequent to the Balance Sheet.
Since the date of the Parent Balance Sheet, Parent has operated its
business in the ordinary course consistent with past practice, and, as of the
date hereof, Parent has not suffered any Material Adverse Change.
5.9 Offering Exemption.
Based in part upon and assuming the accuracy of the representations of the
Sellers in Article IV, the offering, sale and issuance of the Stock
Consideration has been, is, and will be, exempt from registration under the
Securities Act, and such offering, sale and issuance is also exempt from
registration under applicable state securities and "blue sky" laws. Parent has
made all requisite filings and has taken or will take all action necessary to be
taken to comply with such state securities or "blue sky" laws.
5.10 Brokers.
Schedule 5.10 sets forth a true and complete list of each agent, broker,
investment banker, Person or firm who or which has acted on behalf, or under the
authority, of Parent (or its predecessors) or any of its shareholders or will be
entitled to any fee or commission directly or indirectly from the Company or any
of its shareholders or Parent in connection with any of the transactions
contemplated hereby.
5.11 Litigation.
Except as set forth on Schedule 5.11, (i) there is no Proceeding pending
or, to the best Knowledge of the Parent, threatened by or against, or affecting
the Assets of, the Parent or any of its Subsidiaries; and (ii) the Parent is not
bound by any Order.
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ARTICLE VI
COVENANTS
6.1 Conduct Pending Closing.
From and after the date hereof until the Closing or the earlier
termination of this Agreement pursuant to Article VIII, except as otherwise
consented to in writing by Parent and Acquisition Sub, the Company shall, and
the Indemnifying Sellers shall cause the Company to:
(a) conduct its business substantially as presently conducted and
only in the ordinary course consistent with past practice;
(b) not form any Subsidiary;
(c) not sell, lease, license or otherwise dispose of any material
assets, except sales of inventories or other assets in the ordinary course of
business;
(d) use commercially reasonable efforts to (i) maintain its
business, assets, relations with present employees, customers, suppliers,
partners, licensees and operations as an ongoing business and preserve its
goodwill, in accordance with past custom and practice; and (ii) to satisfy each
of the closing conditions set forth in Article VII;
(e) not issue or sell any capital stock or issue or sell any
securities convertible into, exercisable or exchangeable for or options or
warrants to purchase or rights to subscribe for, any capital stock;
(f) not declare or pay a distribution on any capital stock, not
change the number of authorized shares of its capital stock or reclassify,
combine, split, subdivide or redeem or otherwise repurchase any of its capital
stock, or issue, deliver, pledge or encumber any additional capital stock or
other securities equivalent to or exchangeable for capital stock or enter into
any contract or arrangement to do any of the foregoing;
(g) not incur any Funded Indebtedness or issue any securities
evidencing any Funded Indebtedness;
(h) not enter into, or amend, alter, modify, supplement, restate or
waive any material terms or conditions of, any material contract, agreement or
arrangement;
(i) not enter into any employment or termination agreement or effect
any increase in the rate or terms of compensation payable or to become payable
to directors, officers, employees, partners and Persons having business
relations with the Company, or increase the rate or terms of any bonus, pension
or other Employee Plan covering any Person;
(j) not knowingly create or suffer to exist any Encumbrance on any
of its assets or properties;
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(k) not change its accounting principles or policies;
(l) not make any Tax election or compromise or settle any Tax
Liability;
(m) not delay or postpone the payment of accounts payable and other
obligations and liabilities or accelerate the collection of accounts receivable,
other than in the ordinary course of business consistent with historical and
customary practice;
(n) not amend any of its Fundamental Documents;
(o) not enter into any transaction other than in the ordinary course
of business, or any transaction which is not at arms-length with unaffiliated
third Persons;
(p) not take or omit to take any action which would result in the
representations and warranties contained in this Agreement and the Related
Documents being untrue on the Closing Date, other than such action as shall have
been previously agreed to in writing by the parties hereto;
(q) maintain in good standing all Permits held by it on a timely
basis;
(r) continue the historic and customary maintenance capital
expenditure levels of the Company;
(s) not make any capital expenditures for improvements or upgrades;
and
(t) not agree or otherwise commit to take any of the actions set
forth above.
6.2 Efforts to Consummate.
Subject to the terms and conditions of this Agreement, each party shall
use commercially reasonable efforts to take or cause to be taken all actions and
do or cause to be done all things required under all applicable Laws, in order
to consummate the transactions contemplated hereby.
6.3 Exclusivity.
(a) From and after the date hereof until the earlier of the Closing
or the termination of this Agreement pursuant to Article VIII, no Indemnifying
Seller shall, and the Indemnifying Sellers shall cause the Company not to,
directly or indirectly; (i) take any action to solicit or initiate any
Acquisition Proposal; (ii) continue, initiate or engage in negotiations or
discussions relating to an Acquisition Proposal with, or disclose or provide any
non-public information or Confidential Information to, any Person other than
Parent and Acquisition Sub and their respective representatives; or (iii) enter
into any written or oral agreement or understanding with any Person (other than
Parent or Acquisition Sub) regarding an Acquisition Proposal. If any
Indemnifying Seller or the Company receives any unsolicited offer or proposal to
enter into negotiations relating to any Acquisition Proposal, the Sellers'
Representative shall
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promptly notify Parent and Acquisition Sub of such offer or proposal and the
general economic terms of such offer or proposal and shall furnish a copy of any
written offer or proposal thereto.
(b) The parties recognize and acknowledge that a breach of this
Section 6.3 will cause irreparable and material loss and damage to the
non-breaching party as to which it will not have an adequate remedy at law or in
equity. Accordingly, each party acknowledges and agrees that the issuance of an
injunction or other equitable remedy is an appropriate remedy for any such
breach.
6.4 Notice of Prospective Breach.
Each party shall immediately notify the other parties in writing upon the
occurrence, or failure to occur, of any event, which occurrence or failure to
occur would be reasonably likely to cause any representation or warranty of such
party that is contained in this Agreement or any Related Document to be untrue
or inaccurate in any material respect at any time from the date of this
Agreement to the Closing as if such representation and warranty were made at
such time.
6.5 Access to Records and Properties of the Acquired Companies.
Subject to the terms of the Nondisclosure Agreement dated as of March 8,
1999 (the "Nondisclosure Agreement"), between Parent and the Company, from and
after the date hereof until the earlier of the Closing or the termination of
this Agreement pursuant to Article VIII, the Company shall, and the Indemnifying
Sellers shall cause the Company to, afford, (a) to Parent, Acquisition Sub and
their prospective sources of financing and Affiliates and each of their
respective authorized representatives, including accountants, consultants and
attorneys, free and full access at all reasonable times to the assets, business,
facilities, properties, books, records (including tax returns filed and in
preparation), customers, consultants, and key employees of or relating to the
Company in order that Parent shall have the full opportunity to make such
investigation as it shall reasonably desire to make of the affairs of the
Company, and the Indemnifying Sellers shall cause the Company to cooperate fully
in connection therewith; and (b) to the respective independent certified public
accountants of Parent, free and full access at all reasonable times to the
records of the accountants of the Company. The investigation contemplated by
this Section 6.5 shall not affect or otherwise diminish or obviate in any
respect any of the representations and warranties or the indemnification rights
of the Parent Indemnified Persons contained in this Agreement. The parties
hereto agree to use their reasonable efforts to minimize any disruption to any
other party's business in connection with the conduct of the due diligence
process contemplated herein.
1.6 Release by Sellers.
Upon receipt by each Indemnifying Seller of the consideration to be
received by such Indemnifying Seller pursuant to Section 2.2, each such
Indemnifying Seller hereby agrees that (without any further action on the part
of such Indemnifying Seller) the Company (for the benefit of the Surviving
Corporation, the Parent and their respective Subsidiaries, Affiliates, divisions
and predecessors and each of their respective successors and assigns
(collectively, the "Released Persons")) shall be irrevocably released and
forever discharged of and from all manner of
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actions, causes of action, suits, debts, sums of money, controversies,
omissions, promises, damages, liabilities, judgments, claims and demands
whatsoever, in law or in equity which against the Released Persons such
Indemnifying Seller ever had, now has or which such Indemnifying Seller
hereafter can, shall or may have in such Indemnifying Seller's capacity as a
shareholder or former shareholder of the Company(the "Released Claims"), whether
known or unknown, for, upon or by reason of any matter or cause arising at any
time on or prior to the Closing Date; provided, however, that the Released
Claims shall exclude, and the foregoing release shall be inapplicable with
respect to, any matter arising under this Agreement, the Related Documents or
the transactions contemplated hereby or thereby. Each Indemnifying Seller
specifically represents and warrants to the Released Persons that such
Indemnifying Seller has not assigned any such Released Claim.
ARTICLE VII
CLOSING CONDITIONS
7.1 Conditions to Each Party's Obligations to Effect the Merger.
The respective obligations of each party to effect the Merger and the
related transactions herein are subject to the satisfaction prior to or at the
Closing Date of the following conditions unless waived (to the extent such
conditions can be waived) by the Company and the Sellers' Representative, on the
one hand, and Parent and Acquisition Sub, on the other hand.
(a) Approvals. The authorizations, consents, Orders or approvals of,
or declarations or filings with, or expiration of waiting periods of any
Governmental Entity required to consummate the transactions contemplated hereby
shall have been obtained or made.
(b) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other Order issued by any court or
Governmental Entity of competent jurisdiction nor other legal restraint or
prohibition preventing the consummation of the transactions contemplated hereby
shall be in effect.
(c) Actions and Statutes. No Proceeding shall have been taken or
threatened, and no Law or Order shall have been enacted, promulgated or issued
or deemed applicable to the transactions contemplated by this Agreement or the
Related Documents by any Governmental Entity that would (i) make the
consummation of the transactions contemplated hereby or thereby illegal or
substantially delay the consummation of any material aspect of the transactions
contemplated hereby or thereby; (ii) compel the Company, the Surviving
Corporation or Parent to dispose of or hold separate all or a material portion
of the business of the Company or Parent as a result of the consummation of the
transactions contemplated hereby or thereby; or (iii) render any party unable to
consummate the transactions contemplated hereby or thereby.
7.2 Conditions to Obligations of Parent and Acquisition Sub.
The obligations of Parent and Acquisition Sub to consummate the Merger and
the related transactions herein are subject to the satisfaction prior to or at
the Closing of the following
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conditions unless waived (to the extent such conditions can be waived) by Parent
and Acquisition Sub:
(a) Accuracy of Representations and Warranties. All representations
and warranties made by the Company and the Sellers in this Agreement and the
Related Documents shall be true and correct in all material respects (except for
such representations and warranties which are qualified by their terms by a
reference to materiality, which representations and warranties as so qualified
shall be true in all respects) at and as of the Effective Time with the same
effect as if such representations and warranties had been made at and as of the
Effective Time.
(b) Performance of Obligations of the Company and the Sellers. The
Company and the Indemnifying Sellers shall have performed in all material
respects all obligations and covenants required to have been performed by them
under this Agreement and the Related Documents prior to or as of the Effective
Time.
(c) Opinion of Counsel for the Company and the Sellers. Parent and
Acquisition Sub shall have received an opinion of Fenwick & West, counsel for
the Company and the Sellers, dated the Closing Date, in substantially the form
of Exhibit B attached hereto.
(d) Consents and Approvals. Parent and Acquisition Sub shall have
received duly executed copies of all consents and approvals required for or in
connection with the execution and delivery by the Company and the Indemnifying
Sellers of this Agreement and each of the Related Documents to which any of them
may be a party, and the consummation of the transactions contemplated hereby and
thereby, and the continued conduct of the business as previously conducted, in
form and substance reasonably satisfactory to Parent and Acquisition Sub and
their counsel.
(e) Absence of Material Adverse Change. Since the Latest Balance
Sheet Date, there shall have been no Material Adverse Change with respect to the
Company.
(f) Related Documents. Each of the following documents (each, a
"Related Document") shall have been executed and delivered by the parties
thereto and the transactions contemplated thereby to be completed at or prior to
the Closing substantially consummated or effected, as the case may be, in
accordance with the terms thereof:
(i) Escrow Agreement. The Escrow Agreement shall have been
executed and delivered by the Indemnifying Sellers, the Sellers'
Representative and the Escrow Agent;
(ii) Employment Agreements. Each of Xxxxxx Xxxxxxxxx, III,
Xxxxxx Xxxxxxx, Xxxxxxx Xxxxxxx and Xxxxxxx Xxxxxx shall have executed and
delivered an employment agreement (each, an "Employment Agreement"), in
substantially the form attached hereto as Exhibit D;
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(iii) FIRPTA Certificate. Parent shall have been furnished
with a true and accurate certificate from the Company based on Treasury
Regulation Section 1.1445-2(c), certifying that the Company Common Stock
is not a U.S. real property interest (within the meaning of Section 897 of
the Code).
(g) Closing Certificates. Each of the following certificates shall
have been executed and/or delivered, as the case may be, by the Person who or
which is the subject thereof:
(i) a certificate of the President or Secretary of the
Company, dated as of the Closing Date, certifying (A) that true and
complete copies of the Fundamental Documents of the Company as in effect
on the Closing Date are attached thereto; (B) as to the incumbency and
genuineness of the signatures of each Person executing this Agreement and
the Related Documents on behalf of the Company; (C) the genuineness of the
resolutions (attached thereto) of the board of directors or similar
governing body of the Company authorizing the execution, delivery and
performance of this Agreement and the Related Documents and the
consummation of the transactions contemplated hereby and thereby and of
the Sellers approving the Merger;
(ii) certificates of the secretaries of state of the states
(or other applicable office) in which the Company is organized and
qualified to do business, dated no more than five days prior to the
Closing Date, certifying as to the good standing and non-delinquent
franchise tax status of the Company;
(iii) a certificate signed by the President of the Company,
dated as of the Closing Date, certifying as to (A) the accuracy of the
representations and warranties of the Company contained herein, as
contemplated by Section 7.2(a); (B) the performance of the covenants of
the Company contained herein, as contemplated by Section 7.2(b); and (C)
that there has been no material adverse change with respect to the
Company, as contemplated by Section 7.2(e); and
(iv) a certificate signed by the Sellers' Representative,
dated as of the Closing Date, certifying to the best of his knowledge on
behalf of each Indemnifying Seller, as to (A) the accuracy of the
representations and warranties of the Indemnifying Sellers contained
herein, as contemplated by Section 7.2(a); and (B) the performance of the
covenants of the Indemnifying Sellers contained herein, as contemplated by
Section 7.2(b).
(h) Parent and Acquisition Sub shall have received evidence of the
Company's submission of the Statement by Domestic Stock Corporation for filing
with the Secretary of State of California.
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7.3 Conditions to Obligations of the Company and the Sellers.
The obligations of the Company to consummate the Closing and the related
transactions herein are subject to the satisfaction of the following additional
conditions unless waived (to the extent such conditions can be waived) by the
Company and the Sellers' Representative:
(a) Accuracy of Representations and Warranties. All representations
and warranties made by Parent and Acquisition Sub in this Agreement and the
Related Documents shall be true and correct in all material respects (except for
such representations and warranties which are qualified by their terms by a
reference to materiality, which representations and warranties as so qualified
shall be true in all respects) at and as of the Effective Time with the same
effect as if such representations and warranties had been made at and as of the
Effective Time.
(b) Performance of Obligations of Parent and Acquisition Sub. Parent
and Acquisition Sub shall each have performed in all material respects all
obligations and covenants required to have been performed by them under this
Agreement and the Related Documents prior to or as of the Effective Time.
(c) Consents and Approvals. The Sellers' Representative shall have
received duly executed copies of all consents and approvals required for or in
connection with the execution and delivery by Parent and Acquisition Sub of this
Agreement and each of the Related Documents to which either of them may be a
party and the consummation of the transactions contemplated hereby and thereby,
in form and substance reasonably satisfactory to the Sellers' Representative and
its counsel.
(d) Related Documents. Each of the Related Documents shall have been
executed and/or delivered by the parties thereto (other than the Indemnifying
Sellers and the Company) and the transactions contemplated thereby to be
completed at or prior to the Effective Time shall have been substantially
consummated or effected, as the case may be, in accordance with the terms
thereof.
(e) Closing Certificates. Each of the following certificates shall
have been executed and/or delivered to the Sellers' Representative, as the case
may be, by the Person who or which is the subject thereof:
(i) a certificate of the President or Secretary of Parent and
Acquisition Sub, dated as of the Closing Date, certifying (A) that true
and complete copies of the Fundamental Documents of Parent and Acquisition
Sub as in effect on the Closing Date are attached thereto; (B) as to the
incumbency and genuineness of the signatures of each officer of such
Person executing this Agreement and the Related Documents on behalf of
Parent and Acquisition Sub; and (C) the genuineness of the resolutions
(attached thereto) of the board of directors or similar governing body of
Parent and Acquisition Sub authorizing the execution, delivery and
performance of this Agreement and the Related Documents to which Parent
and Acquisition Sub are a party and the consummation of the
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transactions contemplated hereby and thereby and of Parent, as sole
shareholder of Acquisition Sub, approving the Merger;
(ii) certificates dated no more than five days prior to the
Closing Date of the secretaries of state of the states in which Parent and
Acquisition Sub are organized, certifying as to the good standing and
non-delinquent franchise tax status of Parent and Acquisition Sub; and
(iii) a certificate signed by a principal executive officer of
Parent and Acquisition Sub, dated as of the Closing Date, certifying as to
(A) the accuracy of the representations and warranties of Parent and
Acquisition Sub contained herein, as contemplated by Section 7.3(a); and
(B) the performance of the covenants of Parent and Acquisition Sub
contained herein, as contemplated in Section 7.3(b).
ARTICLE VIII
TERMINATION; EFFECT OF TERMINATION
8.1 Termination.
This Agreement may be terminated at any time prior to the consummation of
the Closing by:
(a) the mutual written consent of Parent and the Sellers'
Representative; or
(b) Parent in the event of a breach by the Company or any
Indemnifying Seller of any representation, warranty, covenant or other agreement
contained in this Agreement which is material; or
(c) the Sellers' Representative, in the event of a breach by Parent
or Acquisition Sub of any representation, warranty, covenant or other agreement
contained in this Agreement which is material; or
(d) Parent or the Sellers' Representative, if the conditions set
forth in Section 7.1 shall not have been (or cannot be) satisfied or waived by
January 31, 2000;
(e) Parent or Acquisition Sub, if the conditions set forth in
Section 7.2 shall not have been (or cannot be) satisfied or waived by January
31, 2000; or
(f) the Sellers' Representative, if the conditions set forth in
Section 7.3 shall not have been (or cannot be) satisfied or waived by January
31, 2000; or
(g) Parent, Acquisition Sub, the Company or the Sellers'
Representative, if any permanent injunction or other Order of a court or other
competent authority preventing the Closing shall have become final and
nonappealable;
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provided, however, that none of the Company, the Sellers' Representative, Parent
nor Acquisition Sub shall be entitled to terminate this Agreement pursuant to
Section 8.1(d), (e) or (f) if such party's intentional breach (or, with respect
to the Sellers' Representative, any Seller's intentional breach) of this
Agreement has prevented the satisfaction of a condition. Any termination
pursuant to the foregoing provisions of this Section 8.1 (other than a
termination pursuant to Section 8.1(a)) shall be effected by written notice from
the party or parties so terminating to the other parties hereto, which notice
shall specify the subsection of this Section 8.1 pursuant to which this
Agreement is being terminated.
8.2 Effect of Termination.
In the event of the termination of this Agreement as provided in Section
8.1, this Agreement shall be of no further force or effect, except for Sections
9.1, 9.6, Article XI and this Section 8.2, each of which shall survive the
termination of this Agreement; provided, however, that if this Agreement is
terminated other than pursuant to Section 8.1(a), the Liability of any party for
any intentional, willful or knowing breach by such party of the representations,
warranties, covenants or agreements of such party contained herein occurring
prior to the termination of this Agreement shall survive the termination of this
Agreement and, in addition, in the event of any action for breach of contract in
the event of a termination of this Agreement, the prevailing party shall be
reimbursed by the other party to the action for reasonable attorneys' fees and
expenses relating to such action.
ARTICLE IX
ADDITIONAL AGREEMENTS OF THE INDEMNIFYING SELLERS
9.1 Sellers' Representative.
The Indemnifying Sellers agree among themselves (without prejudice to or
affecting in any way the rights provided in this Agreement or otherwise to
Parent or Acquisition Sub) as follows:
(a) Appointment. The Indemnifying Sellers, for themselves and their
personal representatives and other successors, hereby constitute and appoint
Xxxxxx Xxxxxxxxx, III, as their agent (the "Sellers' Representative"), with full
power and authority, except as otherwise expressly provided in this Agreement,
in the name of and for and on behalf of the Sellers, to take all action required
or permitted under this Agreement and the Escrow Agreement (including, without
limitation, (i) to give and receive all accounting, reports, notices, waivers
and consents, (ii) to terminate this Agreement as provided in Article VIII,
(iii) to receive notices of any claims relating to the indemnification in
Article X, (iv) to elect and, if elected, to assume control of the defense of
any such claims (including the retention of counsel) and to reach an agreement
with respect to or settle any proceeding relating to such claims, (v) to
authorize the Escrow Agent to deliver to Parent any certificates representing
shares of Parent Common Stock required to be forfeited by the Indemnifying
Sellers in payment or settlement of claims pursuant to Article X hereof in
accordance with the terms of the Escrow Agreement (including endorsing such
stock certificate or executing stock powers to effect such forfeiture), and (vi)
to take any and all actions on behalf of the Indemnifying Sellers from time to
time as the Sellers' Representative
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may deem necessary or desirable to fulfill the interests and purposes of this
Section 9.1) and to act for such Indemnifying Seller and in such Indemnifying
Seller's name, place and stead as fully to all intents and purposes as such
Indemnifying Seller could do in person. Each of the Indemnifying Sellers further
acknowledges and agrees that upon execution of this Agreement, any delivery by
the Sellers' Representative of any waiver, amendment, agreement, opinion,
certificate or any other document executed by the Sellers' Representative
pursuant to this Section 9.1, such Indemnifying Seller shall be bound by such
document as fully as if such Indemnifying Seller had executed and delivered such
document. In the event of the death, physical or mental incapacity or
resignation of the Sellers' Representative appointed on the date hereof or any
successor Sellers' Representative, the Indemnifying Sellers shall promptly
appoint a substitute or substitutes and shall advise Parent thereof. The
authority conferred under this Section 9.1 is an agency coupled with an interest
and all authority conferred hereby is irrevocable and not subject to termination
by the Indemnifying Sellers or by operation of Law, whether by the death or
incapacity of any Indemnifying Seller, the termination of any trust or estate or
the occurrence of any other event. If any Indemnifying Seller should die or
become incapacitated, if any trust or estate should terminate or if any other
such event should occur, any action taken by the Sellers' Representative
pursuant to this Section 9.1 shall be as valid as if such death or incapacity,
termination or other event had not occurred, regardless of whether or not the
Sellers' Representative, the Company, Parent or Acquisition Sub shall have
received notice of such death, incapacity, termination or other event.
(b) Reliance by Sellers' Representative. The Sellers' Representative
shall be entitled to rely, and shall be fully protected in relying, upon any
statements furnished to it by any Indemnifying Seller or the Company, or any
other evidence deemed by the Sellers' Representative to be reliable, and the
Sellers' Representative shall be entitled to act on the advice of counsel
selected by it. The Sellers' Representative shall be fully justified in failing
or refusing to take any action under this Agreement unless it shall have
received such advice or concurrence of the Indemnifying Sellers as it deems
appropriate or it shall have been expressly indemnified to its satisfaction by
the Indemnifying Sellers severally according to their respective Proportionate
Percentages against any and all Liability and expense that the Sellers'
Representative may incur by reason of taking or continuing to take any such
action. The Sellers' Representative shall in all cases be fully protected in
acting, or refraining from acting, under this Agreement in accordance with a
request of Indemnifying Sellers whose aggregate Proportionate Percentages equal
or exceed 51%, and such request, and any action taken or failure to act pursuant
thereto, shall be binding upon all of the Indemnifying Sellers.
(c) Expenses of Sellers' Representative. The Sellers' Representative
shall be entitled to retain counsel and to incur such expenses (including
litigation expenses) as the Sellers' Representative deems to be necessary or
appropriate in connection with its performance of its obligations under this
Agreement, and all such fees and expenses (including reasonable attorneys' fees)
incurred by the Sellers' Representative shall be borne by the Indemnifying
Sellers severally according to their respective Proportionate Percentages.
(d) Indemnification. The Indemnifying Sellers hereby agree severally
to indemnify the Sellers' Representative (in his capacity as such) ratably
according to their
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respective Proportionate Percentages against, and to hold the Sellers'
Representative (in his capacity as such) harmless from, any and all Liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of whatever kind which may at any time be imposed
upon, incurred by or asserted against the Sellers' Representative in such
capacity in any way relating to or arising out of his action or failure to take
action pursuant to this Agreement or in connection herewith or therewith in such
capacity; provided, however, that no Indemnifying Seller shall be liable for the
payment of any portion of such Liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
solely from the gross negligence or willful misconduct of the Sellers'
Representative. The agreements in this Section 9.1(d) shall survive termination
of this Agreement.
9.2 Lock-Up Agreement.
If Parent at any time shall register shares of Parent Common Stock under
the Securities Act for sale to the public, the Indemnifying Sellers shall not
sell publicly, make any short sale of, grant any option for the purchase of, or
otherwise dispose publicly of, any capital stock of Parent (other than those
shares of Common Stock included in such registration) without the prior written
consent of Parent, for a period designated by Parent in writing to the
Indemnifying Sellers, which period shall begin not more than 10 days prior to
the effectiveness of the registration statement pursuant to which such public
offering shall be made and shall not last more than 180 days after the effective
date of such registration statement.
9.3 Stockholders' Agreement.
Each Indemnifying Seller by his or its execution of this Agreement agrees
that as of the Effective Time such Indemnifying Seller shall be bound by and
comply with the terms and provisions of the Stockholders' Agreement, as an
Outside Shareholder (as such term is defined therein), as if such Seller were a
signatory thereto.
9.4 Non-Competition; Non-Solicitation.
(a) Each of the Indemnifying Sellers acknowledges (i) the
competitive nature of the Company's business, (ii) that, in the course of such
Indemnifying Seller's service as a director, officer and employee of the
Company, such Indemnifying Seller has become familiar with the Company's trade
secrets and other confidential information of the Company and/or its business
and (iii) that such Indemnifying Seller's services to the Company have been of a
special, unique and extraordinary value to the Company. Accordingly, in
consideration of the promises contained herein and the consideration received by
the Indemnifying Sellers in connection with the consummation of the transactions
contemplated hereby, and in order to induce Parent and Acquisition Sub to enter
into this Agreement, each Indemnifying Seller hereby agrees that during the
period beginning on the Closing Date and ending on the third anniversary thereof
(the "Non-Compete Period"), such Indemnifying Seller shall not in any manner,
directly or indirectly, as an employee, employer, consultant, agent, principal,
partner, manager, stockholder, officer, director, or in any other individual or
representative capacity, engage in, promote or become financially interested in
any business that develops software products or operates an internet site that
(i)
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assists third-party companies with procurement and management of human resources
within such companies' organizations, (ii) creates a person-to-person or
business-to-business marketplace for procurement of human resources, or (iii)
provides content, back-end services and job-bidding functionality targeted for
use by and among independent professionals, including consultants and expert
advisors (i.e. a bidding system, reputation system and directory or buyer/seller
matching system), in those places where the Company, Parent or any of its
subsidiaries are doing business as of the Closing Date or Parent, the Company
and/or any of such subsidiaries has invested substantial expense in anticipation
of conducting (or commencing to conduct) any portion of its business in such
area. Notwithstanding the foregoing, in the event that Xxxxxxx Xxxxxx'x
employment with Parent or any subsidiary of Parent is terminated prior to the
second anniversary of the Closing Date, then the Non-Compete Period with respect
to Xxxxxxx Xxxxxx shall terminate on the first anniversary of such termination.
Anything to the contrary contained herein notwithstanding, any Indemnifying
Seller may own, in the aggregate, less than 1% of the issued and outstanding
capital stock of any publicly traded company.
(b) Each of the Indemnifying Sellers agrees that, for a period of
three years following the Closing Date, such Indemnifying Seller will not
directly or indirectly through another Person (i) solicit any of the employees
of Parent or the Surviving Corporation to leave their employ; (ii) hire any
individual who was an employee of Parent or the Surviving Corporation or any of
their Affiliates until six months after such individual's employment
relationship has been terminated; or (iii) induce any customer, supplier or
licensee with a business relationship with Parent or the Surviving Corporation
to cease doing business with Parent or the Surviving Corporation, as the case
may be.
(c) If, at the time of enforcement of this Section 9.4, a court
holds that the restrictions stated herein are unreasonable under the
circumstances then existing, the parties hereto agree that the maximum period,
scope or geographical area reasonable under such circumstances shall be
substituted for the stated period, scope or area. Because each Indemnifying
Seller's services are unique and because each Indemnifying Seller has access to
confidential information and work product, the parties hereto agree that money
damages would be an inadequate remedy for any breach of this Section 9.4.
Therefore, in the event of a breach or threatened breach of this Section 9.4,
the Company or its successors or assigns may, in addition to other rights and
remedies existing in their favor, apply to any court of competent jurisdiction
for specific performance and/or injunctive or other relief in order to enforce,
or prevent any violations of, the provisions of this Section 9.4 (without
posting a bond or other security). Each of the several covenants and agreements
in this Section 9.4 are severable, separate and distinct, and the invalidity or
unenforceability of any one covenant or agreement shall not in any way limit or
adversely affect the enforceability of any of the other covenants or agreements
contained herein.
9.5 Confidentiality.
(a) At any time after the date hereof, none of the Indemnifying
Sellers will disclose or use at any time, any Confidential Information of which
such Indemnifying Seller is or becomes aware, whether or not such information is
developed by such Indemnifying Seller,
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except to the extent that such disclosure or use is related to and required by
such Indemnifying Seller (i) in the performance in good faith of duties assigned
to such Indemnifying Seller by Parent; (ii) in the performance of duties or the
exercise of rights in good faith as an employee, officer, director or
shareholder of Parent or any Affiliate; or (iii) in the performance of duties or
exercise of rights under any agreement with Parent or any Affiliate. Each of the
Indemnifying Sellers will take all appropriate steps to safeguard Confidential
Information and to protect it against disclosure, misuse, espionage, loss and
theft.
(b) As used in this Agreement, the term "Confidential Information"
means information that is not generally known or available to the public and
that is used, developed or obtained by Parent in connection with its business,
including but not limited to (i) information, observations and data obtained by
any Indemnifying Seller while employed by Parent (including those obtained prior
to the date of this Agreement) concerning the business or affairs of Parent;
(ii) products or services; (iii) fees, costs and pricing structures; (iv)
designs; (v) analyses; (vi) drawings, photographs and reports; (vii) computer
software, including operating systems, applications and program listings; (viii)
flow charts, manuals and documentation; (ix) data bases; (x) accounting and
business methods; (xi) inventions, devices, new developments, methods and
processes, whether patentable or unpatentable and whether or not reduced to
practice; (xii) customers and clients and customer or client lists; (xiii) other
copyrightable works; (xiv) all production methods, processes, technology and
trade secrets; and (xv) all similar and related information in whatever form.
(c) Notwithstanding the provisions of this Agreement to the
contrary, the Indemnifying Sellers shall have no liability to Parent for
disclosure of Confidential Information if the Confidential Information:
(i) is known to the receiving party at the time of disclosure
of such Confidential Information other than as the result of a breach of
this Section by any Indemnifying Seller;
(ii) becomes publicly known or is disclosed by Parent other
than as the result of a breach of this Section by any Indemnifying Seller;
(iii) is received by any Indemnifying Seller after the date of
this Agreement from a third party that is not under an obligation of
confidentiality to Parent; or
(iv) is required to be disclosed by law, court order, or
similar compulsion or in connection with any legal proceeding, provided
that such disclosure shall be limited to the extent so required and,
except to the extent prohibited by law, such Indemnifying Seller shall
give Parent notice of its intent to so disclose such Confidential
Information and shall reasonably cooperate with Parent in seeking suitable
confidentiality protections.
9.6 Public Announcements.
Parent and the Indemnifying Sellers agree that, except (a) as otherwise
required by Law or Order; and (b) for disclosure to its respective directors,
officers, employees, financial advisors,
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potential financing sources, legal counsel, independent certified public
accountants or other agents, advisors or representatives on a need-to-know basis
and with whom such party has a confidential relationship, they will not issue
any reports, statements or releases, in each case pertaining to this Agreement
or any Related Document to which any of them is a party or the transactions
contemplated hereby or thereby, without the prior written consent of the other
parties hereto, which consent shall not be unreasonably withheld or delayed.
9.7 Cooperation Regarding Tax Filings.
After the Closing, Parent, the Company and the Sellers' Representative (on
behalf of the Indemnifying Sellers) shall act in good faith and cooperate with
one another for the purpose of filing all Tax Returns and reports required to be
filed by any of them.
9.8 Customer Relations.
The Indemnifying Sellers will devote their reasonable best efforts to
assist Parent and the Company in maintaining the customer relationships of the
Company.
ARTICLE X
INDEMNIFICATION
10.1 Indemnification Generally; Etc.
(a) Subject to the further terms of this Article X, the Seller
Indemnifying Persons shall jointly and severally (with the right to seek
contribution (including without limitation attorneys fees and legal costs) from
the other Seller Indemnifying Persons in accordance with their respective
Proportionate Percentages) indemnify the Parent Indemnified Persons for, and
hold them harmless from and against, any and all Parent Losses arising from or
in connection with any of the following:
(i) the untruth, inaccuracy or breach of any representation or
warranty of the Company and/or any Indemnifying Seller contained in
Article III or in any certificate delivered by the Company, the Sellers'
Representative or any Seller delivered in connection herewith at or before
the Effective Time (or any facts or circumstances constituting any such
untruth, inaccuracy or breach); or
(ii) the breach of any agreement or covenant of the Company
contained in this Agreement or the Escrow Agreement; or
(iii) any claim against any Parent Indemnified Person by any
of the Sellers (other than the Indemnifying Sellers) regarding the action
or inaction of the Indemnifying Sellers in connection with the approval of
the Merger by the Indemnifying Sellers or asserting any rights as a
shareholder or former shareholder of the Company or the Surviving
Corporation (other than the rights expressly provided in this Agreement);
or
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(iv) the failure of the Company to obtain a permit to do
business in the City of San Francisco; or
(v) the failure of the Company to pay on a timely basis wages
and salaries due to its employees and consultants; or
(vi) the failure of the Company to obtain workers'
compensation insurance; or
(vii) any Pre-Closing Taxes.
(b) Subject to the further terms of this Article X, the Seller
Indemnifying Persons agree, severally only, to indemnify the Parent Indemnified
Persons for, and hold them harmless from and against, any and all Parent Losses
arising from or in connection with any of the following:
(i) the untruth, inaccuracy or breach of any representation or
warranty of such Indemnifying Seller contained in Article IV ; or
(ii) the breach of any agreement or covenant of such
Indemnifying Seller contained in this Agreement or the Escrow Agreement.
(c) The Seller Indemnifying Persons shall not be required to
indemnify the Parent Indemnified Persons, and shall not have any liability:
(i) under Section 10.1(a)(i) or (ii) unless the aggregate
amount of all Parent Losses for which the Seller Indemnifying Persons
would, but for this clause (i), be liable exceeds on a cumulative basis an
amount equal to $50,000, provided that once such amount is surpassed, the
Seller Indemnifying Persons shall be liable for the full amount of such
Parent Losses;
(ii) under Section 10.1(a) and (b) in excess of $7,500,000.
(d) Subject to the further terms of this Article X, the Parent
Indemnifying Persons agree, jointly and severally, to indemnify the Seller
Indemnified Persons for, and hold them harmless from and against, any and all
Seller Losses arising from or in connection with any of the following:
(i) the untruth, inaccuracy or breach of any representation or
warranty of Parent and Acquisition Sub contained in Article V or any
certificate delivered by Parent and Acquisition Sub in connection herewith
at or before the Effective Time (or any facts or circumstances
constituting any such untruth, inaccuracy or breach); or
(ii) the breach of any agreement or covenant of Parent and
Acquisition Sub contained in this Agreement or the Escrow Agreement.
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(e) No Indemnifying Seller shall be required to indemnify any Parent
Indemnified Person, and shall not have any liability under Sections 10.1(a) and
(b) in excess of the aggregate value (as determined in this Agreement) of the
shares of Parent Common Stock received by such Indemnifying Seller under this
Agreement. In furtherance of the foregoing, in the event that any shares of
Parent Common Stock held by an Indemnifying Seller are repurchased by Parent or
its designee pursuant to the Employment Agreement between Parent and such
Indemnifying Seller, then the number of shares of Parent Common Stock so
repurchased shall be deemed to reduce the aggregate number of shares of Parent
Common Stock received by such Indemnifying Seller under this Agreement, and such
Indemnifying Seller shall only be liable for indemnification to the extent of
the remaining shares held by him.
(f) Each of Parent, the Surviving Corporation and Acquisition Sub
acknowledges that its sole and exclusive remedy with respect to the subject
matter of this Agreement shall be pursuant to the indemnification provisions set
forth in this Article X, provided that nothing contained herein shall limit any
claim based on fraud. Notwithstanding the foregoing, nothing contained in this
Section 10.1 shall prevent any party hereto from seeking and obtaining, as and
to the extent permitted by applicable law, specific performance by any other
party hereto of any of such party's obligations under this Agreement or
injunctive relief against such other party's activities in breach of this
Agreement (including, without limitation, the obligations set forth in Section
9.4 hereof).
10.2 Assertion of Claims Tax Claims.
(a) No claim (other than a claim relating to Taxes, which shall be
governed by the provisions of Section 10.2(b)) shall be brought under Section
10.1 unless the Indemnified Persons, or any of them, at any time prior to the
applicable Survival Date (as defined in Section 10.5), give the Indemnifying
Persons (a) written notice of the existence of any such claim, specifying the
nature and basis of such claim and the amount thereof, to the extent known; and
(b) written notice pursuant to Section 10.3 of any Third Party Claim (as defined
below), the existence of which might give rise to such a claim. Upon the giving
of such written notice as aforesaid, the Indemnified Persons, or any of them,
shall have the right to commence legal proceedings subsequent to the respective
Survival Date for the enforcement of such Persons' rights under Section 10.1.
(b) (i) If a claim relating to Taxes shall be made by any Government
Entity, which, if successful, might result in an indemnity payment to any of the
Parent Indemnified Persons, pursuant to Section 10.110.1(a), Parent shall
reasonably promptly notify the Sellers' Representative of such claim (a "Tax
Claim"); provided, however, that the failure to give such notice shall not
effect the indemnification provided hereunder except to the extent the
Indemnifying Seller has actually been prejudiced as a result of such failure.
(ii) With respect to any Tax Claim relating to taxes based on
net or gross income ("Income Taxes") and relating to a taxable period
ending on or prior to the Closing Date or to any other taxable period in
which the Company filed any federal income Tax Return or a combined,
consolidated or unitary Tax Return for state, local or
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foreign purposes, or any Tax Claim relating to any Tax (other than an
Income Tax) that is a Tax for the taxable period prior to the Effective
Time, the Sellers' Representative shall control all proceedings and may
make all decisions in connection with such Tax Claim (including selection
of counsel) and, without limiting the foregoing, may in its sole
discretion pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with any Government Entity with
respect thereto, and may, in its sole discretion, either pay the Tax
claimed and xxx for a refund where applicable law permits such refund
suits or contest the Tax Claim in any permissible manner. Notwithstanding
the foregoing, the Sellers' Representative shall not settle any Tax Claim
without the prior written consent of Parent, which consent shall not be
unreasonably withheld. Furthermore, Parent, and counsel of its own
choosing, shall have the right to participate fully in all aspects of the
prosecution or defense of such Tax Claim, and the Sellers' Representative
shall inform Parent, reasonably promptly in advance, of the date, time and
place of all administrative or judicial meetings conferences, hearings and
other proceedings relating to such Tax Claim and shall provide to Parent
all information document requests and responses, proposed notices of
deficiency, notices of deficiencies revenue agents' reports, protests,
petitions and any other documents relating to such Tax Claim promptly upon
receipt from, or in advance of submission to (as the case may be), the
relevant Government Entity. Parent shall be entitled to have its
representatives attend and participate in any such administrative or
judicial meeting, conference, hearing or other proceeding. Before taking
any action with respect to the conduct of any such Tax Claim (including,
but not limited to, the submission of any protects, petitions or responses
to information document requests), the Sellers' Representative shall first
consult with Parent in good faith about such action.
(iii) Except as otherwise provided in the preceding paragraph,
Parent shall control all proceedings with respect to any Tax Claim
relating to Taxes of the Company.
(iv) Parent, on the one hand, and the Indemnifying Sellers, on
the other hand, shall cooperate in contesting any Tax Claim, which
cooperation shall include the retention and (upon request) the provision
to the requesting party of records and information which are reasonably
relevant to such Tax Claim, and making employees available on a mutually
convenient basis to provide additional information or explanation of any
material provided hereunder or to testify at proceedings relating to such
Tax Claim.
10.3 Notice and Defense of Third Party Claims.
The obligations and liabilities of an Indemnifying Person with respect to
Losses resulting from the assertion of liability by third parties (other than a
claim relating to Taxes, which shall be governed by the provisions of Section
10.2(b)) (each, a "Third Party Claim") shall be subject to the following terms
and conditions:
(a) The Indemnified Persons shall promptly give written notice to
the Indemnifying Persons of any Third Party Claim which might give rise to any
Loss by the
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Indemnified Persons, stating the nature and basis of such Third Party Claim, and
the amount thereof to the extent known; provided, however, that no delay on the
part of the Indemnified Persons in notifying any Indemnifying Persons shall
relieve the Indemnifying Persons from any liability or obligation hereunder
unless (and then solely to the extent) the Indemnifying Person thereby is
prejudiced by the delay. Such notice shall be accompanied by copies of all
relevant documentation with respect to such Third Party Claim, including any
summons, complaint or other pleading which may have been served, any written
demand or any other document or instrument.
(b) If the Indemnifying Persons shall acknowledge in a writing
delivered to the Indemnified Persons that such Third Party Claim is properly
subject to their indemnification obligations hereunder, then the Indemnifying
Persons shall have the right to assume the defense of any Third Party Claim at
their own expense and by their own counsel, which counsel shall be reasonably
satisfactory to the Indemnified Persons; provided, however, that the
Indemnifying Persons shall not have the right to assume the defense of any Third
Party Claim, notwithstanding the giving of such written acknowledgment, if (i)
the Indemnified Persons shall have been advised by counsel that there are one or
more legal or equitable defenses available to them which are different from or
in addition to those available to the Indemnifying Persons, and, in the
reasonable opinion of the Indemnified Persons, counsel for the Indemnifying
Persons could not adequately represent the interests of the Indemnified Persons
because such interests could be in conflict with those of the Indemnifying
Persons; (ii) such action or proceeding involves, or could have a material
effect on, any material matter beyond the scope of the indemnification
obligation of the Indemnifying Persons; or (iii) the Indemnifying Persons shall
not have assumed the defense of the Third Party Claim in a timely fashion.
(c) If the Indemnifying Persons shall assume the defense of a Third
Party Claim (under circumstances in which the proviso to the first sentence of
Section 10.3(b) is not applicable), the Indemnifying Persons shall not be
responsible for any legal or other defense costs subsequently incurred by the
Indemnified Persons in connection with the defense thereof. If the Indemnifying
Persons do not exercise their right to assume the defense of a Third Party Claim
by giving the written acknowledgment referred to in Section 10.3(b), or are
otherwise restricted from so assuming by the proviso to the first sentence of
Section 10.3(b), the Indemnifying Persons shall nevertheless be entitled to
participate in such defense with their own counsel and at their own expense; and
in any such case, the Indemnified Persons may assume the defense of the Third
Party Claim, with counsel which shall be reasonably satisfactory to the
Indemnifying Persons, and shall act reasonably and in accordance with their good
faith business judgment and shall not effect any settlement without the consent
of the Indemnifying Persons, which consent shall not be unreasonably withheld or
delayed.
(d) If the Indemnifying Persons exercise their right to assume the
defense of a Third Party Claim, (i) the Indemnified Persons shall be entitled to
participate in such defense with their own counsel at their own expense; and
(ii) the Indemnifying Persons shall not make any settlement of any claims
without the written consent of the Indemnified Persons, which consent shall not
be unreasonably withheld or delayed.
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10.4 Forfeiture of Shares.
(a) Any payment in respect of Parent Losses that are subject to
indemnification pursuant to this Article X shall be paid first by releasing to
Parent, without any consideration being paid therefor, from the escrow that
number of Merger Share Reserved Shares having a value equal to the quotient
obtained by dividing (i) the aggregate amount of such Parent Losses by (ii) the
Parent Initial Share Price; provided that such Merger Share Reserved Shares
shall be released from the escrow in accordance with each Indemnifying Seller's
Proportionate Percentage; and provided further that to the extent that there are
no Merger Share Reserved Shares or an insufficient number of Merger Share
Reserved Shares, the Seller Indemnifying Persons shall forfeit, without any
consideration being paid therefor, a number of Merger Share Additional Shares
equal to the quotient obtained by dividing (x) the aggregate amount of the
Parent Losses remaining to be paid by the Seller Indemnifying Persons pursuant
to this Article X (after giving effect to the foregoing) by (y) the Parent
Additional Share Price. Notwithstanding the foregoing, in the event that any
payment in respect of Parent Losses becomes due after all of the Merger Share
Reserved Shares and Merger Share Additional Shares have been delivered to the
Indemnifying Sellers pursuant to the terms of this Agreement and the Escrow
Agreement, the Seller Indemnifying Persons shall forfeit and return to Parent,
without any consideration being paid therefor, that number of shares of Parent
Common Stock (which shares may, in the discretion of any Seller Indemnifying
Person, be unvested as of such time) having an aggregate value equal to the
quotient obtained by dividing (i) the aggregate amount of such Parent Losses by
(ii) the Parent Additional Share Price; provided, however, that, at the election
of any Seller Indemnifying Person, such Seller Indemnifying Person may, in lieu
of forfeiting shares of Parent Common Stock that have vested pursuant to Section
7(a) of the Employment Agreement between such Seller Indemnifying Person and
Parent, pay the amount of his Proportionate Percentage of such Parent Losses in
cash. For purposes of this Section 10.4(a), the number of Merger Share Reserved
Shares and Merger Share Additional Shares shall include all shares of Parent
Common Stock that have been derived from or issued in respect of the Merger
Share Reserved Shares or the Merger Share Additional Shares, as the case may be,
and the Parent Initial Share Price or the Parent Additional Share Price, as
applicable, shall be decreased in proportion to any adjustment of the Merger
Share Reserved Shares or Merger Share Additional Shares pursuant to Parent's
Formation Documents.
(b) Upon the forfeiture of any shares pursuant to the terms of this
Section 10.4, the Sellers' Representative shall cause the Escrow Agent to, or
the Seller Indemnifying Persons shall, deliver to Parent all certificates
representing shares of Parent Common Stock held by the Escrow Agent or the
Seller Indemnifying Persons, as the case may be, and Parent shall thereafter
deliver to the Escrow Agent or the Seller Indemnifying Persons, as applicable, a
new certificate or certificates evidencing the shares represented by such
certificates which are not forfeited, if any. Parent shall have the right,
without further action by any other party, to cancel such forfeited shares on
the books of Parent.
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10.5 Survival of Certain Indemnification Claims.
(a) Subject to the further provisions of this Section 10.5, the
representations and warranties contained in this Agreement or in any certificate
or other writing delivered in connection with this Agreement shall survive the
Closing until the Escrow Release Date (the "General Survival Date"); provided,
however, that (i) the representations and warranties contained in Sections 3.1,
3.2, 3.4, 4.1, 4.2, 4.8, 4.9, 4.10 and 4.11 shall survive indefinitely (the
"Subject Reps"); and (ii) the representations and warranties contained in
Sections, 3.12, 3.18, and 3.19 shall survive the Closing Date until the later of
the General Survival Date and the date that is 60 days following expiration of
the respective statutes of limitations for Third Party Claims applicable to the
matters covered thereby. The covenants and other agreements of the parties
contained in this Agreement shall survive the Closing Date until they are
otherwise terminated by their terms.
(b) For convenience of reference, the date upon which any
representation or warranty contained herein shall terminate, if any, is referred
to herein as the "Survival Date."
(c) From and after the Closing, the Sellers shall have no recourse
to the Company for any breach of any representation, warranty, covenant or
agreement of the Company, Parent or Acquisition Sub set forth in this Agreement
or in any certificate or other writing delivered in connection with this
Agreement.
10.6 Losses Net of Insurance, etc.
The amount of Losses or Taxes for which indemnification is provided
under this Section 10 shall be (i) increased to take account of any net Tax cost
incurred by the indemnified party arising from the receipt or accrual of
indemnity payments hereunder (grossed up for such increase) and (ii) reduced to
take account of any net Tax benefit actually realized by the indemnified party
arising from the deductibility of any such Loss or Tax. In computing the amount
of any such Tax cost or Tax benefit, the indemnified party shall be deemed to
recognize all other items of income, gain, loss, deduction or credit before
recognizing any item arising from the receipt or accrual of any indemnity
payment hereunder or the deductibility of any indemnified Loss. Any
indemnification payment hereunder shall initially be made without regard to this
paragraph and shall be increased or reduced to reflect any such net Tax cost
(including gross-up) or net Tax benefit only after the indemnified party has
actually realized such cost or benefit. For purposes of this Agreement, an
indemnified party shall be deemed to have "actually realized" a net Tax cost or
a net Tax benefit to the extent that, and at such time as, the amount of Taxes
payable by such indemnified party is increased above or reduced below, as the
case may be, the amount of Taxes that such indemnified party would have been
required to pay but for the receipt or accrual of the indemnity payment or the
deductibility of such Loss, as the case may be and such Tax cost or Tax benefit
was realized in the year that such indemnity payment is to be made. The amount
of any increase or reduction hereunder shall be adjusted to reflect any final
determination (which shall include the execution of Form 870-AD or successor
form) with respect to the indemnified party's liability for Taxes and, if
necessary, the Sellers or Parent; as the case may be, shall make payments to the
other to reflect such adjustment. Any
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indemnity payment under this Agreement shall be treated as an adjustment to the
Merger Consideration paid to the Sellers for Tax purposes, unless a final
determination (which shall include the execution of a Form 870-AD or successor
form) with respect to the indemnified party or any of its Affiliate causes any
such payment not to be treated as an adjustment to such consideration for
federal Income Tax purposes.
10.7 Taxable Periods.
(a) In the case of any taxable period that includes but does not end
on the Closing Date (a "Straddle Period"):
(i) real, personal and intangible property Taxes ("Property
Taxes") for the Pre-Closing Tax Period shall be equal to the amount of
such Property Taxes for such entire Straddle Period multiplied by a
fraction, the numerator of which is the number of days during the Straddle
Period that were in the Pre-Closing Tax Period and the denominator of
which is the number of days in the Straddle Period; and
(ii) all Taxes (other than Property Taxes) for the Pre-Closing
Tax Period shall be computed based on an actual closing of the books as if
such taxable period ended as of the close of business on the Closing Date
and, in the case of any Taxes attributable to the ownership of any equity
interest in any partnership or other "flow through" entity, based on an
actual closing of the books as if the taxable period of such partnership
or other "flow through" entity ended as of the close of business on the
Closing Date.
(b) In the case of any taxable period other than a Straddle Period,
all income, deductions, and other items shall be allocated between the
Pre-Closing Tax Period and the Post-Closing Tax Period based on an actual
closing of the books of the Company on the day before the Closing Date, and
shall be deemed to be a Pre-Closing Tax or a Post-Closing Tax, as applicable,
for all purposes of this Agreement.
ARTICLE XI
MISCELLANEOUS
11.1 Transaction Expenses and Taxes.
Each party shall bear its own expenses in connection with the
transactions contemplated by this Agreement and the Related Documents (it being
understood that the Indemnifying Sellers shall pay all fees and expenses of the
Company); provided, however, that Parent shall pay up to an aggregate of $30,000
of the expenses incurred by the Company and the Indemnifying Sellers.
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11.2 No Third Party Beneficiaries.
Except as expressly provided herein, this Agreement shall not confer any
rights or remedies upon any Person other than the parties hereto and their
respective successors and permitted assigns, personal representatives, heirs and
estates, as the case may be.
11.3 Entire Agreement.
This Agreement and the Related Documents constitute the entire agreement
among the parties hereto and supersede any prior understandings, agreements or
representations by or among the parties, written or oral, that may have related
in any way to the subject matter of this Agreement or any Related Document,
including, without limitation, the Acquisition Term Sheet dated as of November
5, 1999 between Parent and the Company.
11.4 Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. No Party
may assign either this Agreement or any of its rights, interests, or obligations
hereunder without the prior written approval of the other parties; provided,
however, that Parent or Acquisition Sub may assign any of its rights under any
of this Agreement or any Related Document to (i) any Affiliate of Parent or
Acquisition Sub; (ii) any Person who shall acquire substantially all of the
assets of such Parent or Acquisition Sub or a majority in voting power of the
capital stock of Acquisition Sub (whether pursuant to a merger, consolidation,
stock sale or otherwise); (iii) any lender of Parent or Acquisition Sub (or any
agent therefor) for security purposes and the assignment thereof by any such
lender or agent to any purchaser in connection with the exercise by any such
lender or agent of all of its rights and remedies as a secured creditor with
respect thereto; and (iv) any Person to whom Parent or Acquisition Sub shall
transfer any shares or Assets in accordance with the terms of this Agreement or
any Related Document.
11.5 Counterparts.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument.
11.6 Notices.
All notices, requests, demands, claims, and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered
personally, telecopied, sent by nationally recognized overnight courier or
mailed by registered or certified mail (return receipt requested), postage
prepaid, to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice):
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If to the Sellers Representative or, prior to the Closing, the
Company, to:
Xx. Xxxxxx Xxxxxxxxx, III
000 Xxxxx Xxxxxx, Xxxxx 00
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
with a copy to:
Fenwick & West LLP
000 Xxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxx XxXxxx, Esq.
If to Parent, Acquisition Sub or, after the Closing, the Company,
to:
Opus360 Corporation
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xx. Xxx X. Xxxxxxxx
with a copy to:
X'Xxxxxxxx Graev & Karabell, LLP
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxx X. Xxxxxx, Esq.
All such notices and other communications shall be deemed to have been given and
received (i) in the case of personal delivery, on the date of such delivery;
(ii) in the case of delivery by telecopy, on the date of such delivery; (iii) in
the case of delivery by nationally recognized overnight courier, on the third
Business Day following dispatch; and (iv) in the case of mailing, on the seventh
Business Day following such mailing.
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11.7 Governing Law.
THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF
LAW OR CONFLICTING PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK, OR ANY
OTHER JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE
STATE OF NEW YORK TO BE APPLIED. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL
LAW OF THE STATE OF NEW YORK WILL CONTROL THE INTERPRETATION AND CONSTRUCTION OF
THIS AGREEMENT, EVEN IF UNDER SUCH JURISDICTION'S CHOICE OF LAW OR CONFLICT OF
LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY
APPLY.
11.8 Amendments and Waivers.
No amendment of any provision of this Agreement shall be valid unless the
same shall be in writing and signed by the Company, the Sellers' Representative
and Parent. No waiver by any Party of any default, misrepresentation, or breach
of warranty or covenant hereunder, whether intentional or not, shall be deemed
to extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
11.9 Incorporation of Schedules and Exhibits.
The Schedules and Exhibits identified in this Agreement are incorporated
herein by reference and made a part hereof.
11.10 Construction.
Where specific language is used to clarify by example a general statement
contained herein, such specific language shall not be deemed to modify, limit or
restrict in any manner the construction of the general statement to which it
relates. The language used in this Agreement shall be deemed to be the language
chosen by the parties to express their mutual intent, and no rule of strict
construction shall be applied against any Party.
11.11 Interpretation.
Accounting terms used but not otherwise defined herein shall have the
meanings given to them under GAAP. As used in this Agreement (including all
Schedules, Exhibits and amendments hereto), the masculine, feminine and neuter
gender and the singular or plural number shall be deemed to include the others
whenever the context so requires. References to Articles and Sections refer to
articles and sections of this Agreement. Similarly, references to Schedules and
Exhibits refer to schedules and exhibits, respectively, attached to this
Agreement. Unless the content requires otherwise, words such as "hereby,"
"herein," "hereinafter," "hereof," "hereto," "hereunder" and words of like
import refer to this Agreement. The article and section
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headings contained in this Agreement are inserted for convenience only and shall
not affect in any way the meaning or interpretation of this Agreement.
11.12 Independence of Covenants and Representations and Warranties.
All covenants hereunder shall be given independent effect so that if a
certain action or condition constitutes a default under a certain covenant, the
fact that such action or condition is permitted by another covenant shall not
affect the occurrence of such default, unless expressly permitted under an
exception to such initial covenant. In addition, all representations and
warranties hereunder shall be given independent effect so that if a particular
representation or warranty proves to be incorrect or is breached, the fact that
another representation or warranty concerning the same or similar subject matter
is correct or is not breached will not affect the incorrectness of or a breach
of a representation and warranty hereunder.
11.13 Remedies.
The parties shall each have and retain all other rights and remedies
existing in their favor at Law or equity, including, without limitation, any
actions for specific performance and/or injunctive or other equitable relief
(including, without limitation, the remedy of rescission) to enforce or prevent
any violations of the provisions of this Agreement.
11.14 Severability.
It is the desire and intent of the parties hereto that the provisions of
this Agreement be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular provision of this Agreement shall be adjudicated
by a court of competent jurisdiction to be invalid, prohibited or unenforceable
for any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so as not to be
invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such
jurisdiction, be so narrowly drawn, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
11.15 Waiver of Jury Trial.
EACH OF THE PARTIES HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OTHER DOCUMENT.
* * * * *
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IN WITNESS WHEREOF, the undersigned have executed this Agreement and
Plan of Merger as of the date first above written.
OPUS360 CORPORATION
By: /s/ Xxxx XxXxxx
--------------------------------------
Name: Xxxx XxXxxx
Title: Sr. VP, CFO
ITHORITY ACQUISITION CORP.
By: /s/ Xxxx XxXxxx
--------------------------------------
Name: Xxxx XxXxxx
Title: Secretary and Treasurer
ITHORITY CORPORATION
By: /s/ Xxxxxx Xxxxxxx
--------------------------------------
Name: Xxxxxx Xxxxxxx
Title: Secretary
INDEMNIFYING SELLERS:
/s/ Xxxxxx X. Xxxxxxxxx, III
------------------------------------------
Xxxxxx X. Xxxxxxxxx, III
/s/ Xxxxxx Xxxxxxx
------------------------------------------
Xxxxxx Xxxxxxx
/s/ Xxxxxxx Xxxxxxx
------------------------------------------
Xxxxxxx Xxxxxxx
/s/ Xxxxxxx Xxxxxx
------------------------------------------
Xxxxxxx Xxxxxx
ANNEX I
Definitions
Capitalized terms used but not defined in the Agreement and Plan of
Merger have the respective meanings assigned to such terms below.
"Acquisition Sub" has the meaning ascribed thereto in the caption.
"Accrued Bonus Amount" has the meaning ascribed thereto in Section
2.1(a).
"Acquisition Proposal" means any offer, proposal or indication of
interest in (i) the direct or indirect acquisition of all or any material part
of the Company; (ii) a merger, consolidation or other business combination
directly or indirectly involving the Company; or (iii) the direct or indirect
acquisition of any capital stock of the Company.
"Additional Shares" has the meaning ascribed thereto in Section
2.1(a).
"Affiliate" means, with respect to any Person, any of (i) a
shareholder holding 5% or more of the capital stock (on a fully diluted basis),
director or officer of such Person; (ii) a spouse, parent, sibling or descendant
of such Person (or a spouse, parent, sibling or descendant of any director or
officer of such Person); and (iii) any other Person that, directly or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, another Person. The term "control" includes, without
limitation, the possession, directly or indirectly, of the power to direct the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"Agreement" has the meaning ascribed thereto in the preamble.
"Assets" means, with respect to any Person, all of the assets,
rights, interests and other properties, real, personal and mixed, tangible and
intangible, owned by such Person.
"Business Day" means any day that is not a Saturday, Sunday or other
day on which banking institutions in New York, New York are not required to be
open.
"California Statute" has the meaning ascribed thereto in the
preamble.
"Cash Consideration" has the meaning ascribed thereto in Section
2.1(a).
"CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended, and the rules and regulations
promulgated thereunder.
"Certificate of Merger" has the meaning ascribed thereto in the
preamble.
"Closing" has the meaning ascribed thereto in Section 1.8.
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"Closing Amount" has the meaning ascribed thereto in Section 2.1(a).
"Closing Date" has the meaning ascribed thereto in Section 1.8.
"Closing Shares" has the meaning ascribed thereto in Section 2.1(a).
"Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"Company" has the meaning ascribed thereto in the caption.
"Company Properties" has the meaning ascribed thereto in Section
3.11(d).
"Confidential Information" has the meaning ascribed thereto in
Section 9.5(b).
"Constituent Corporations" has the meaning ascribed thereto in
Section 1.1.
"Corporate Rights" has the meaning ascribed thereto in Section 1.3.
"Deferred Amount" has the meaning ascribed thereto in Section
2.1(a).
"Deferred Payment" has the meaning ascribed thereto in Section
2.1(a).
"Defined Benefit Pension Plan" has the meaning set forth in Section
3(35) of ERISA.
"Effective Time" has the meaning ascribed thereto in Section 1.2.
"Employee Benefit Plan" means any (i) qualified or non-qualified
Employee Pension Benefit Plan (including any Multiple Employer Plans or
Multi-Employer Plans); (ii) Employee Welfare Benefit Plan; or (iii) employee
benefit, fringe benefit, compensation, incentive, bonus or other plan, program
or arrangement, whether or not subject to ERISA and whether or not funded.
"Employee Welfare Benefit Plan" has the meaning set forth in Section
3(1) of ERISA.
"Employment Agreement" has the meaning ascribed thereto in Section
7.2(f)(ii).
"Environmental and Safety Requirements" means all Laws, Orders,
contractual obligations and all common law concerning public health and safety,
worker health and safety, and pollution or protection of the environment,
including, without limitation, all those relating to the presence, use,
production, generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control or cleanup of any hazardous materials, substances or wastes,
chemical substances or mixtures, pesticides, pollutants, contaminants, toxic
chemicals, petroleum products or byproducts, asbestos, polychlorinated
biphenyls, noise or radiation, including, but not limited to, the SWDA,
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the Clean Air Act, as amended, 42 U.S.C.ss.ss.7401 et seq., the Federal Water
Pollution Control Act, as amended, 33 U.S.C.ss.ss.1251 et seq., the Emergency
Planning and Community Right-to-Know Act, as amended, 42 U.S.C.ss.ss.11001 et
seq., CERCLA, the Hazardous Materials Transportation Uniform Safety Act, as
amended, 49 U.S.C.ss.ss.5101 et seq., the Occupational Safety and Health Act of
1970, as amended, and the rules and regulations promulgated thereunder.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliates" means, with respect to any Person, any other
Person that is a member of a "controlled group of corporations" with, or is
under "common control" with, or is a member of the same "affiliated service
group" with such Person as defined in Section 14(b), or 414(c), or 414(m) or
414(o) of the Code.
"Escrow Agent" has the meaning ascribed thereto in Section 2.4.
"Escrow Agreement" means the Escrow and Pledge Agreement being
entered into among Parent, the Sellers' Representative and the Indemnifying
Sellers, in substantially the form attached hereto as Exhibit C.
"Escrow Release Date" means the first anniversary of the Closing
Date or if such day is not a Business Day, the Business Day immediately
following such date.
"Financial Statements" has the meaning ascribed thereto in Section
3.7(a).
"Fully Diluted Basis" means that all convertible securities that
have been converted or exchanged and all options, warrants and other rights to
purchase shares of Parent Common Stock have been exercised.
"Fundamental Documents" means the documents by which any Person
(other than an individual) establishes its legal existence or which govern its
internal affairs. For example, the "Fundamental Documents" of a corporation
would be its charter and by-laws.
"Funded Indebtedness" means the aggregate amount (including the
current portions thereof) of all (i) indebtedness for money borrowed from others
and purchase money indebtedness (other than accounts payable in the ordinary
course); (ii) indebtedness of the type described in clause (i) above guaranteed,
directly or indirectly, in any manner through, or in effect guaranteed, directly
or indirectly, in any manner through an agreement, contingent or otherwise, to
supply funds to, or in any other manner invest in, the debtor, or to purchase
indebtedness, or to purchase and pay for property if not delivered or pay for
services if not performed, primarily for the purpose of enabling the debtor to
make payment of the indebtedness or to assure the owners of the indebtedness
against loss, but excluding endorsements of checks and other instruments in the
ordinary course; (iii) indebtedness of the type described in clause (i) above
secured by the Person upon property owned by a Person, even though a Lien has
not in any manner become liable for the payment of such indebtedness; (iv)
obligations of a Person
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under any lease of any property (whether real, personal or mixed) by such Person
which would, in accordance with GAAP, be required to be accounted for as a
capital lease on the balance sheet of such Person; (v) interest expense accrued
but unpaid, and all prepayment premiums, on or relating to any of such
indebtedness; and (vi) any indebtedness of a Person to any Affiliate thereof.
"GAAP" means United States Generally Accepted Accounting Principles,
consistently applied.
"General Survival Date" has the meaning ascribed thereto in Section
10.5(a).
"Governmental Entity" means any court, administrative agency,
tribunal, department, bureau or commission or other governmental authority or
instrumentality, domestic or foreign, Federal, state or local or any arbitral
body.
"Guaranty" means any obligation, contingent or otherwise, of any
Person guaranteeing or having the economic effect of guaranteeing any Funded
Indebtedness or other obligation of any other Person in any manner, whether
directly or indirectly, including any obligation of such Person, direct or
indirect, (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Funded Indebtedness or other obligation or to purchase (or to
advance or supply funds for the purchase of) any security for the payment of
such Funded Indebtedness or other obligation; (ii) to purchase property,
securities or services for the purpose of assuring the owner of such Funded
Indebtedness or other obligation of the payment hereof; (iii) to purchase or
otherwise pay for merchandise, materials, supplies, services or other property
under an arrangement which provides that payment for such merchandise,
materials, supplies, services or other property shall be made regardless of
whether delivery of such merchandise, materials, supplies, services or other
property is ever made or tendered; or (iv) to maintain the working capital,
equity capital or other financial statement condition of any primary obligor.
"Income Taxes" has the meaning ascribed thereto in Section 10.2(b)
"Indemnified Persons" means and includes the Parent Indemnified
Persons and/or the Seller Indemnified Persons, as the case may be.
"Indemnifying Persons" means and includes the Parent Indemnifying
Persons and/or the Seller Indemnifying Persons, as the case may be.
"Indemnifying Seller" and "Indemnifying Sellers" has the meaning
ascribed thereto in the caption.
"Intellectual Property" means all industrial and intellectual
property, including, without limitation, (i) patents, patent applications,
patent rights, trademarks, trademark applications, copyrights, copyright
applications, know-how, certificates of public convenience and necessity,
franchises, licenses, proprietary processes and formulae, layouts, processes,
inventions and (ii) all proprietary rights pertaining to any product or service
manufactured,
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sold, distributed or marketed, or used, employed or exploited in the
development, manufacture, license, sale, distribution, marketing or maintenance
thereof, and all documentation and media constituting, describing or relating to
the foregoing.
"Interim Balance Sheet" has the meaning ascribed thereto in Section
3.7(a).
"Interim Financial Statements" has the meaning ascribed thereto in
Section 3.7(a).
"Knowledge" of any Person means (i) the actual knowledge of such
Person and (ii) that knowledge which should have been acquired by such Person
after making such due inquiry and exercising such due diligence as a prudent
businessperson would have made or exercised in the management of his or her
business affairs, including due inquiry of those officers, directors, key
employees and professional advisers (including attorneys, accountants and
consultants) of the Person who could reasonably be expected to have actual
knowledge of the matters in question. When used in the case of a Seller, the
term "Knowledge" shall also include the Knowledge of the Seller and the Company.
"Latest Balance Sheet" has the meaning ascribed thereto in Section
3.7(a).
"Law" means any constitution, law, statute, treaty, rule, directive,
requirement or regulation or Order of any Governmental Entity.
"Leased Property" has the meaning ascribed thereto in Section
3.11(b).
"Liability" means any liability or obligation, whether known or
unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued,
liquidated or unliquidated and whether due or to become due, regardless of when
asserted.
"Licensed Intellectual Property" has the meaning ascribed thereto in
Section 3.13(a).
"Losses" means and includes any and all losses, Liabilities, claims,
damages, actions, suits, Proceedings, demands, assessments, judgments, costs or
expenses (including reasonable attorneys', accountants' and other professionals'
fees and expenses), assessments, and Taxes.
"Lien" means any security interest, pledge, bailment (in the nature
of a pledge or for purposes of security), mortgage, deed of trust, the grant of
a power to confess judgment, conditional sale or title retention agreement
(including any lease in the nature thereof), charge, encumbrance, easement,
reservation, restriction, cloud, right of first refusal or first offer, option,
or other similar arrangement or interest in real or personal property.
"Material Adverse Change" means, with respect to any Person, any
material adverse change in the business, operations, assets, condition
(financial or otherwise), operating results, liabilities, or prospects of such
Person or its Subsidiaries, if any, or any material casualty loss or damage to
the assets of such Person, whether or not covered by insurance.
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"Material Adverse Effect" means, with respect to any Person, a
material adverse effect on the business, operations, assets, condition
(financial or otherwise), operating results, liabilities or prospects of such
Person and its Subsidiaries, if any, taken as a whole.
"Merger" has the meaning ascribed thereto in the preamble.
"Merger Consideration" has the meaning ascribed thereto in Section
2.1(a).
"Merger Share Additional Shares" has the meaning ascribed thereto in
Section 2.1(a).
"Merger Share Number" has the meaning ascribed thereto in Section
2.1(a).
"Merger Share Reserved Shares" has the meaning ascribed thereto in
Section 2.1(a).
"Merger Shares" has the meaning ascribed thereto in Section 2.1(a).
"Multi-Employer Plan" has the meaning set forth in Section 3(37) of
ERISA.
"Multiple Employer Plan" has the meaning set forth in Section 413 of
the Code.
"Non-Compete Period" has the meaning ascribed thereto in Section
9.4(a).
"Nonconsenting Seller" has the meaning ascribed thereto in Section
2.1(a).
"Nonconsenting Share Additional Shares" has the meaning ascribed
thereto in Section 2.1(a).
"Nonconsenting Share Number" has the meaning ascribed thereto in
Section 2.1(a).
"Nonconsenting Share Reserved Shares" has the meaning ascribed
thereto in Section 2.1(a).
"Nonconsenting Shares" has the meaning ascribed thereto in Section
2.1(a).
"Nondisclosure Agreement" has the meaning ascribed thereto in
Section 6.5.
"Orders" means judgments, writs, decrees, injunctions, orders,
compliance agreements or settlement agreements of or with any Governmental
Entity or arbitrator.
"Options" has the meaning ascribed thereto in Section 2.1(a).
"Owned Property" has the meaning ascribed thereto in Section
3.11(b).
"Parent" " has the meaning ascribed thereto in the caption.
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"Parent Additional Share Price" has the meaning ascribed thereto in
Section 2.1(a).
"Parent Balance Sheet" has the meaning ascribed thereto in Section
5.7(a).
"Parent Common Stock" means the common stock, $.001 par value, of
Parent.
"Parent Financial Statements" has the meaning ascribed thereto in
Section 5.7(a).
"Parent Indemnified Persons" means and includes (i) before the
Closing, Parent, Acquisition Sub and their respective Affiliates, successors and
assigns, and the respective officers and directors of each of the foregoing and
(ii) after the Closing, Parent, the Company and their respective Affiliates,
successors and assigns, and the respective officers and directors of each of the
foregoing; provided, however, that, after the Closing, any such Person who was,
prior to the Closing, an officer, director, employee, Affiliate, successor or
assign of any of the Company or the Sellers shall not in such capacity, be a
Seller Indemnified Person with respect to a breach of this Agreement or any
Related Document based on facts or circumstances occurring, or actions taken by
such person or entity, at or prior to the Closing.
"Parent Indemnifying Persons" means and includes (i) before the
Closing, Parent and Acquisition Sub and (ii) after the Closing, the Company.
"Parent Initial Share Price" has the meaning ascribed thereto in
Section 2.1(a).
"Parent Losses" means any and all Losses sustained, suffered or
incurred by any Parent Indemnified Person arising from or in connection with any
matter which is the subject of indemnification under Section 10.1(a) or (b).
"Per Merger Share Additional Shares" has the meaning ascribed
thereto in Section 2.1(a).
"Per Merger Share Reserved Shares" has the meaning ascribed thereto
in Section 2.1(a).
"Per Nonconsenting Share Additional Shares" has the meaning ascribed
thereto in Section 2.1(a).
"Per Nonconsenting Share Reserved Shares" has the meaning ascribed
thereto in Section 2.1(a).
"Per Share Closing Amount" has the meaning ascribed thereto in
Section 2.1(a).
"Per Share Closing Shares" has the meaning ascribed thereto in
Section 2.1(a).
"Percentage Interest" means, with respect to any Seller, an amount
(represented by a percentage) determined by taking the number of shares of
Company Common Stock (on a
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Fully Diluted Basis) sold by such Seller and dividing by the total number of
shares of Company Common Stock (on a Fully Diluted Basis) sold by all of the
Sellers.
"Permits" means all permits, licenses, authorizations,
registrations, franchises, approvals, consents, certificates, variances and
similar rights obtained, or required to be obtained, from Governmental Entities.
"Permitted Liens" means (i) Liens for Taxes not yet due and payable
or being contested in good faith by appropriate proceedings and for which there
are adequate reserves on the books of such Person; (ii) workers or unemployment
compensation liens arising in the ordinary course of business; (iii) mechanic's,
materialman's, supplier's, vendor's or similar liens arising in the ordinary
course of business securing amounts that are not delinquent or past due; and
(iv) zoning ordinances, easements and other restrictions of legal record
affecting real property which would be revealed by a survey and would not,
individually or in the aggregate, materially interfere with the value or
usefulness of such real property to the business.
"Person" shall be construed broadly and shall include an individual,
a partnership, a corporation, a limited liability company, an association, a
joint stock company, a trust, a joint venture, an unincorporated organization,
or a Governmental Entity (or any department, agency, or political subdivision
thereof).
"Plans" has the meaning ascribed thereto in Section 3.18(a).
"Post-Closing Tax Period" means all taxable periods beginning after
the Closing Date and the portion beginning on the day after the Closing Date of
any taxable period that includes (but does not begin on) such day.
"Post-Closing Taxes" means all Taxes, including Taxes relating to or
arising under any Tax sharing agreement, Tax indemnity obligation or similar
agreement, arrangement or practice in effect, with respect to the Company
attributable to the Post-Closing Tax Period, including all Taxes accruing under
the principles of Section 10.7 hereof during the Post-Closing Tax Period.
"Pre-Closing Tax Period" means all taxable periods ending on or
before the Closing Date and the portion ending on the Closing Date of any
taxable period that includes (but does not end on) such day.
"Pre-Closing Taxes" means all taxes, including Taxes relating to or
arising under any tax sharing agreement, Tax indemnity obligation or similar
agreement, arrangement or practice in effect, with respect to the Company
attributable to the Pre-Closing Tax Period, including all Taxes accruing under
the principles of Section 10.7 hereof during the Pre-Closing Tax Period.
"Proceeding" means any action, suit, proceeding, complaint, charge,
hearing, inquiry or investigation before or by a Governmental Entity or an
arbitrator.
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"Proportionate Percentage" means, as to any Indemnifying Seller, the
fraction (expressed as a percentage), the numerator of which is equal to the
number of shares of Company Common Stock (on a Fully Diluted Basis) sold by such
Indemnifying Seller and the denominator of which is the total number of shares
of Company Common Stock (on a Fully Diluted Basis) sold by all of the
Indemnifying Sellers.
"Property Taxes" has the meaning ascribed thereto in Section
10.7(a).
"Real Property" has the meaning ascribed thereto in Section 3.11(b).
"Related Documents" has the meaning ascribed thereto in Section
7.2(f).
"Released Claims" has the meaning ascribed thereto in Section 6.7.
"Released Persons" has the meaning ascribed thereto in Section 6.7.
"Reserved Shares" has the meaning ascribed thereto in Section
2.1(a).
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Seller" and "Sellers" means, individually and collectively, the
Persons listed on Schedule I attached hereto.
"Seller Indemnified Persons" means and includes the Indemnifying
Sellers and their respective Affiliates, successors and assigns, heirs and
estates.
"Seller Indemnifying Persons" means and includes the Indemnifying
Sellers and their respective Affiliates, successors and assigns, heirs and
estates.
"Seller Losses" means any and all Losses sustained, suffered or
incurred by any Seller Indemnified Person arising from or in connection with any
matter which is the subject of indemnification under Section 10.1(d).
"Seller Materials" has the meaning ascribed thereto in Section 1.5.
"Sellers' Representative" has the meaning ascribed thereto in
Section 9.1(a).
"Share Number" has the meaning ascribed thereto in Section 2.1(a).
"Shares" has the meaning ascribed thereto in Section 2.1(a).
"Stock Consideration" has the meaning ascribed thereto in Section
2.1(a).
"Stockholders' Agreement" means the Stockholders' Agreement dated as
of December 24, 1998, as amended, among the Company, Parent and the other
parties thereto.
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"Straddle Period" has the meaning ascribed thereto in Section
10.7(a).
"Subject Reps" has the meaning ascribed thereto in Section 10.3(a).
"Subsidiary" of a Person means any corporation, partnership, limited
liability company or other business entity, with respect to which such Person
(or any Subsidiary thereof) has the power to vote or direct the voting of
sufficient securities to elect a majority of the directors.
"Survival Date" has the meaning ascribed thereto in Section 10.3(b).
"Surviving Corporation" has the meaning ascribed thereto in Section
1.1.
"SWDA" means the Solid Waste Disposal Act, as amended, and the rules
and regulations promulgated thereunder.
"Tax" as used in this Agreement, means any of the Taxes, and "Taxes"
means, with respect to any Person, (i) all income taxes (including any tax on or
based upon net income, gross income, income as specially defined, earnings,
profits or selected items of income, earnings or profits) and all gross
receipts, sales, use, ad valorem, transfer, franchise, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property or
windfall profits taxes, alternative or add-on minimum taxes, customs duties and
other taxes, fees, assessments or charges of any kind whatsoever, together with
all interest and penalties, additions to tax and other additional amounts
imposed by any taxing authority (domestic or foreign) on such Person (if any)
and (ii) any liability for the payment of any amount of the type described in
clause (i) above as a result of (A) being a "transferee" (within the meaning of
Section 6901 of the Code or any other applicable Law) of another entity or a
member of an affiliated or combined group, combined, or consolidated group (by
reason of Treasury Regulation ss.1.1.504-6 (or similar provision of state, local
or foreign Law) or (B) a contractual arrangement or otherwise.
"Tax Claim" has the meaning ascribed thereto in Section 10.2(b).
"Tax Return" has the meaning ascribed thereto in Section 3.12(a).
"Third Party Claim" has the meaning ascribed thereto in Section
10.3.
"Warrants" has the meaning ascribed thereto in Section 2.1(a).
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SCHEDULE I
Schedule of Company Common Stock and
Consideration to be Exchanged
Percentage
Interest of
Nonconsenting
Name and Address of Number of Number of Share Additional
Seller Number of Shares Closing Amount Deferred Amount Closing Shares Reserved Shares Shares
------ ---------------- -------------- --------------- -------------- --------------- ------
Xxxxxx X. Xxxxxxxxx, III 2,625,000 $ 78,708.00 $ 58,170.00 47,775.0000 35,831.2500 ----
Xxxxxx Xxxxxxx 2,625,000 78,708.00 58,170 47,775.0000 35,831.2500 ----
Xxxxxxx Xxxxxxx 2,625,000 78,708.00 58,170 47,775.0000 35,831.2500 ----
Xxxxxxx Xxxxxx 802,170 16,030.57 17,776.09 14,599.4940 10,949.6205 ----
Venture Law Group 18,753 562.29 415.57 341.3046 255.9785 7.768%
Xxxxxx Xxxxxx 8,036 240.95 178.08 146.2552 109.6914 3.329%
Xxxxxx Xxxxxxxxx, Xx. 28,219 (1,153.60) 625.33 513.5858 385.1894 11.688%
Xxxxxxx Xxxxxxxx 28,219 (1,153.60) 625.33 513.5858 385.1894 11.688%
Xxxxxxx Xxxxxxx 15,000 299.76 332.40 273.0000 204.7500 6.213%
Xxxx Xxxxxxx 15,000 (300.24) 332.40 273.0000 204.7500 6.213%
Xxxxxx Xxxxxxxx 100,500 (2,011.61) 2,227.08 1,829.1000 1371.8250 41.627%
Xxxxx Xxxxxx 7,700 (539.12) 170.63 140.1400 105.10500 3.189%
Xxxxxx Xxxxxxx 20,000 (1,400.32) 443.20 364.0000 273.0000 8.284%
Proportionate
Percentage of
Merger Share
Name and Address of Additional
Seller Shares
------ ------
Xxxxxx X. Xxxxxxxxx, III 30.252%
Xxxxxx Xxxxxxx 30.252%
Xxxxxxx Xxxxxxx 30.252%
Xxxxxxx Xxxxxx 9.2450%
Venture Law Group ----
Xxxxxx Xxxxxx ----
Xxxxxx Xxxxxxxxx, Xx. ----
Xxxxxxx Xxxxxxxx ----
Xxxxxxx Xxxxxxx ----
Xxxx Xxxxxxx ----
Xxxxxx Xxxxxxxx ----
Xxxxx Xxxxxx ----
Xxxxxx Xxxxxxx ----
SCHEDULE II
Integration Requirements
1. e*Portfolio: Xxxxxxxxx.xxx members will have a single profile within the
system. e*Portfolio will also integrate to Ithority's reputation system
data so users can properly qualify each other. Ithority's reputation
system will be one component of the overall XxxxXxxxx.xxx
reputation/certification system.
2. Authorization system will be merged. Xxxxxxxxx.xxx members will have a
single username/password for logging into the system and accessing the
Ithority functionality.
3. Billing system: Ithority will pass Xxxxxxxxx.xxx billing events for
completed transactions, which will be processed by Xxxxxxxxx.xxx. Ithority
needs to be able to support XxxxXxxxx.xxx's multiple billing scenarios (up
front listing payment, subscription, invoicing, credit card, and account
balance). Account management information will be consolidated into one
single display across all services for XxxxXxxxx.xxx users.
4. The systems will appear as one system through unified design.
5. The Ithority functionality will be accessible through the same overall
Xchange interface, "questions" or "expert advice" should be a type
accessible, browseable, searchable, in the vein of all of the other
Xchange opportunities.
