MATTHEW JOHNSTON
GRANTOR RETAINED ANNUITY TRUST DATED APRIL 23, 2001,
DIANE PRINCE JOHNSTON
GRANTOR RETAINED ANNUITY TRUST DATED APRIL 23, 2001,
MATTHEW AND DIANE JOHNSTON
2001 IRREVOCABLE GIFT TRUST DATED APRIL 23, 2001,
JOHNSTON LIVING TRUST DATED March 27, 2001
and
MATTHEW JOHNSTON, as Seller Representative,
On the Other Hand
Dated as of August 9, 2002
TABLE OF CONTENTS
Page
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ARTICLE I. DEFINITIONS ............................................................................................. 1
1.01. Definitions .................................................................................... 1
1.02. Index of Other Defined Terms ................................................................... 7
ARTICLE II. TRANSFER OF ASSETS ...................................................................................... 8
2.01. Transfer of Assets by Seller ................................................................... 8
2.02. Excluded Assets ................................................................................ 10
2.03. Assumption of Liabilities ...................................................................... 10
2.04. Excluded Liabilities ........................................................................... 10
2.05. Assignment of Contracts and Rights ............................................................. 12
2.06. Closing ........................................................................................ 12
2.07. Earnout ........................................................................................ 14
2.08. Total Consideration Allocation ................................................................. 22
2.09. Tax Gross Up Amount ............................................................................ 22
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER ................................................................ 24
3.01. Corporate Existence and Power .................................................................. 24
3.02. Authorization .................................................................................. 24
3.03. Capital Stock; Subsidiaries .................................................................... 24
3.04. Governmental Authorization ..................................................................... 25
3.05. Non-Contravention .............................................................................. 25
3.06. Financial Statements; Undisclosed Liabilities .................................................. 25
3.07. Absence of Certain Changes ..................................................................... 26
3.08. Properties; Leases; Tangible Assets ............................................................ 27
3.09. Sufficiency of and Title to the Transferred Assets ............................................. 29
3.10. Affiliates ..................................................................................... 29
3.11. Litigation ..................................................................................... 29
3.12. Contracts ...................................................................................... 29
3.13. Permits; Required Consents ..................................................................... 30
3.14. Compliance with Applicable Laws ................................................................ 31
3.15. Employment Agreements; Change in Control; and Employee Benefits ................................ 31
3.16. Labor and Employment Matters ................................................................... 33
3.17. Intellectual Property .......................................................................... 34
3.18. Advisory Fees .................................................................................. 34
3.19. Environmental Compliance ....................................................................... 34
3.20. Insurance ...................................................................................... 35
3.21. Tax Matters .................................................................................... 35
3.22. Clients ........................................................................................ 36
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3.23. Books and Records ........................................................................... 37
3.24. Warranties .................................................................................. 37
3.25. Bank Accounts ............................................................................... 37
3.26. Certain Business Practices .................................................................. 37
3.27. Complete Disclosure ......................................................................... 37
3.28. No Other Representations .................................................................... 38
ARTICLE IV. CERTAIN REPRESENTATIONS AND WARRANTIES OF SELLER PARTIES ............................................ 38
4.01. Understanding that Shares will Be Issued without Registration ............................... 38
4.02. Accredited Investor ......................................................................... 38
4.03. Receipt of Information; Access to Information ............................................... 39
4.04. Authority Relative to this Agreement ........................................................ 39
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER .................................................. 40
5.01. Corporate Existence and Power ............................................................... 40
5.02. Corporate Authorization ..................................................................... 40
5.03. Governmental Authorization .................................................................. 40
5.04. Non-Contravention ........................................................................... 40
5.05. Parent SEC Filings; No Material Adverse Effect .............................................. 40
5.06. No Other Representations .................................................................... 41
ARTICLE VI. COVENANTS OF SELLER ................................................................................. 41
6.01. Compliance with Terms of Required Contractual Consents ...................................... 41
6.02. Confidentiality ............................................................................. 41
6.03. Change of Name .............................................................................. 42
6.04. Administration of Accounts .................................................................. 42
6.05. Specific Performance ........................................................................ 42
6.06. Taxes ....................................................................................... 42
ARTICLE VII. COVENANTS OF BUYER AND PARENT ....................................................................... 43
7.01. Confidentiality ............................................................................. 43
7.02. Specific Performance ........................................................................ 43
7.03. Pre-paid Rent ............................................................................... 44
ARTICLE VIII. COVENANTS OF ALL PARTIES ............................................................................ 44
8.01. Further Assurances .......................................................................... 44
8.02. Certain Filings ............................................................................. 44
8.03. Public Announcements ........................................................................ 44
8.04. Specific Performance ........................................................................ 44
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ARTICLE IX. INDEMNIFICATION ..................................................................................... 45
9.01. Seller Parties' Agreement to Indemnify ..................................................... 45
9.02. Parent's and Buyer's Agreement to Indemnify ................................................ 46
9.03. Survival of Representations, Warranties and Covenants ...................................... 47
9.04. Claims for Indemnification ................................................................. 48
9.05. Defense of Claims .......................................................................... 48
9.06. Limitations on Remedies .................................................................... 49
9.07. Nature of Payments ......................................................................... 49
9.08. Right of Set-Off ........................................................................... 49
9.09. Appointment of the Seller Representative ................................................... 49
9.10. Deductibles, Caps and Set-Off Rights ....................................................... 50
ARTICLE X. MISCELLANEOUS ....................................................................................... 50
10.01. Notices .................................................................................... 50
10.02. Amendments; No Waivers ..................................................................... 52
10.03. Expenses ................................................................................... 52
10.04. Successors and Assigns ..................................................................... 52
10.05. Governing Law .............................................................................. 52
10.06. Counterparts; Effectiveness ................................................................ 53
10.07. Entire Agreement ........................................................................... 53
10.08. Captions ................................................................................... 53
10.09. Severability ............................................................................... 53
10.10. Construction ............................................................................... 53
10.11. Arbitration ................................................................................ 53
10.12. Cumulative Remedies ........................................................................ 54
10.13. Third Party Beneficiaries .................................................................. 54
10.14. Knowledge .................................................................................. 54
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EXHIBITS
EXHIBIT A Financial Statements
EXHIBIT B Form of Employment Agreement with Jeffrey Evans
EXHIBIT C Form of Opinion of Counsel to Seller and Shareholders
EXHIBIT D Form of Opinion of Counsel to Buyer and Parent
EXHIBIT E Form of Noncompetition and Nonsolicitation Agreement
EXHIBIT F Form of Guaranty
EXHIBIT G Form of Escrow Agreement
EXHIBIT H Form of Employment Agreement with Matthew Johnston
SCHEDULES
Schedule 2.02 Excluded Assets
Schedule 3.01 Qualifications to do Business
Schedule 3.03 Ownership Table and Related Agreements
Schedule 3.05 Non-Contravention
Schedule 3.06(b) Financial Statements
Schedule 3.06(c) Undisclosed Liabilities
Schedule 3.07(a) Absence of Certain Changes
Schedule 3.08(a) Encumbrances on Property
Schedule 3.08(d) Leases
Schedule 3.08(e) Detractions on Real Property
Schedule 3.08(f) Regulatory Proceedings
Schedule 3.10 Affiliates
Schedule 3.11 Litigation
Schedule 3.12(a) Scheduled Contracts
Schedule 3.12(b) Limitations on Enforceability of Contracts
Schedule 3.12(c) Significant Clients
Schedule 3.13(a) Permits
Schedule 3.13(b) Required Consents
Schedule 3.14 Compliance with Applicable Laws
Schedule 3.15(a) Employment Agreements
Schedule 3.15(b) Benefit Plans
Schedule 3.15(c) Employee Pension Benefit Plans
Schedule 3.16(a) Labor and Employment Matters
Schedule 3.16(b) Labor Disputes
Schedule 3.17(a) Intellectual Property Rights
Schedule 3.17(b) Actions Affecting Intellectual Property
Schedule 3.17(c) Ownership of Intellectual Property Rights
Schedule 3.19(a) Environmental Permits
Schedule 3.19(b) Compliance with Environmental Laws
Schedule 3.19(c) Continuing Compliance with Environmental Laws
Schedule 3.20 Insurance Policies
Schedule 3.21 Tax Matters
Schedule 3.22 Clients
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Schedule 3.24 Warranties
Schedule 3.25 Bank Accounts
Schedule 5.04 Non-Contravention
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ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of August 9,
2002, is by and among Hall, Kinion & Associates, Inc., a Delaware corporation
("Parent") and OnStaff Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Parent ("Buyer"), on the one hand, and OnStaff, a
California corporation ("Seller"), Jeffrey A. Evans, an individual ("Evans"),
Matthew Johnston Grantor Retained Annuity Trust dated 4/23/01 (the "Matt Annuity
Trust"), Diane Prince Johnston Grantor Retained Annuity Trust dated 4/23/01 (the
"Diane Annuity Trust"), Matthew and Diane Johnston 2001 Irrevocable Gift Trust
dated 4/23/01 (the "Gift Trust"), Johnston Living Trust dated 3/27/01 (the
"Living Trust," and collectively, with Evans, the Matt Annuity Trust, the Diane
Annuity Trust and the Gift Trust, the "Shareholders" and individually, a
"Shareholder"), and Matthew Johnston, as a representative of the Seller (the
"Seller Representative") and the Shareholders (collectively, the "Seller
Parties"), on the other hand.
R E C I T A L S
A. WHEREAS, Seller is engaged in the business of sourcing and
delivering human capital and providing temporary staff and personnel; and
B. WHEREAS, Seller desires to sell and transfer to Buyer substantially
all of its assets (other than the Excluded Assets, as defined below) in
consideration of Buyer's obligations hereunder.
A G R E E M E N T
NOW, THEREFORE, in consideration of the premises, and the mutual
representations, warranties, covenants and agreements hereinafter set forth, the
parties hereto agree as follows.
ARTICLE I.
DEFINITIONS
1.01. Definitions. The following terms, as used herein, have the
following meanings:
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with such other Person, through the ownership of all or part of any Person.
"Ancillary Agreements" means the Escrow Agreement, the Noncompetition
and Nonsolicitation Agreements, the Evans Employment Agreement, the Johnston
Employment Agreement, the Bill of Sale, the Assignment and Assumption Agreement
and the Registration Rights Agreement.
"Applicable Law" means, with respect to any Person, any domestic or
foreign, federal, state or local statute, law, ordinance, policy, guidance,
rule, administrative interpretation,
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regulation, order, writ, injunction, directive, judgment, decree or other
requirement of any Governmental Authority (including any Environmental Law)
applicable to such Person or any of its Affiliates or Plan Affiliates or any of
their respective properties, assets, officers, directors, employees, consultants
or agents (in connection with such officer's, director's, employee's,
consultant's or agent's activities on behalf of such Person or any of its
Affiliates or Plan Affiliates).
"Assignment and Assumption Agreement" means that certain Assignment
and Assumption Agreement dated the date hereof by and between Seller and Buyer.
"Associate" or "Associated With" means, when used to indicate a
relationship with any Person, (a) any other Person of which such Person is an
officer or partner or is, directly or indirectly, the beneficial owner of ten
percent (10%) or more of any class of equity securities issued by such other
Person, (b) any trust or other estate in which such Person has a substantial
beneficial interest or as to which such Person serves as trustee or in a similar
fiduciary capacity, and (c) any relative or spouse of such Person, or any
relative of such spouse who has the same home as such Person or who is a
director or officer of such Person or any Affiliate thereof.
"Benefit Arrangement" means any benefit arrangement that is not an
Employee Benefit Plan, including, without limitation, (i) each employment or
consulting agreement, (ii) each arrangement providing for insurance coverage or
workers' compensation benefits, (iii) each incentive bonus or deferred bonus
arrangement, (iv) each arrangement providing termination allowance, severance or
similar benefits, (v) each equity compensation plan, (vi) each deferred
compensation plan and (vii) each compensation policy and practice maintained by
Seller or any ERISA Affiliate of Seller covering the employees, former
employees, directors and former directors of Seller and the beneficiaries of any
of them.
"Benefit Plan" means an Employee Benefit Plan or Benefit Arrangement.
"Bill of Sale" means that certain Bill of Sale dated the date hereof
executed by Seller.
"Business" means the business as currently conducted by Seller.
"Business Day" means a day other than a Saturday, Sunday or other day
on which commercial banks in San Francisco, California are authorized or
required by law to close.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended, as set forth in Section 4980B of the Code and part of Title I
of ERISA.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contracts" means all contracts, agreements, options, leases,
licenses, sales and accepted purchase orders, commitments and other instruments
of any kind, whether written or oral, to which Seller is a party on the Closing
Date, including the Scheduled Contracts.
"Damages" means all demands, claims, actions or causes of action,
assessments, losses, damages, costs, expenses, liabilities, judgments, awards,
fines, sanctions, penalties,
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charges and amounts paid in settlement (net of insurance proceeds actually
received), including (i) interest on cash disbursements in respect of any of the
foregoing at the Reference Rate in effect from time to time, compounded
quarterly, from the date each such cash disbursement is made until the Person
incurring the same shall have been indemnified in respect thereof and (ii)
reasonable costs, fees and expenses of attorneys, accountants and other agents
of such Person.
"Debt" means any indebtedness of Seller, whether or not contingent, in
respect of borrowed money or evidenced by bonds, notes, debentures or other
similar instruments or letters of credit (or reimbursement agreements in respect
thereof) or banker's acceptances or representing capitalized lease obligations
or the balance deferred and unpaid of the purchase price of any property, except
any such balance that constitutes an accrued expense or account payable, if and
to the extent any of the foregoing indebtedness (other than letters of credit)
would appear as a Liability upon a balance sheet of Seller prepared in
accordance with GAAP, as well as all indebtedness of others secured by a Lien on
any asset of Seller (whether or not such indebtedness is assumed by Seller) and,
to the extent not otherwise included, any guaranty by Seller of any indebtedness
of any other Person.
"Employee Benefit Plan" means any employee benefit plan, as defined in
Section 3(3) of ERISA, that is sponsored by or contributed to Seller or any
ERISA Affiliate thereof covering employees or former employees of Seller.
"Employee Pension Benefit Plan" means any employee pension benefit
plan, as defined in Section 3(2) of ERISA, that is subject to Title IV of ERISA,
other than a Multiemployer Plan.
"Environmental Laws" means all Applicable Laws relating to Hazardous
Substances, toxic torts, occupational health and safety, or the environment,
including without limitation, the Resource Conservation and Recovery Act
("RCRA"), the Comprehensive Environmental Response Compensation and Liability
Act ("CERCLA"), the Clean Air Act, the Water Pollution Control Act, the Safe
Drinking Water Act, and the Toxic Substances Control Act ("TSCA"), and any
requirements promulgated pursuant to these Applicable Laws or any analogous
foreign, state or local Applicable Laws.
"Environmental Liabilities" means all Liabilities of a Person (whether
such Liabilities are owed by such Person to Governmental Authorities, third
parties, or otherwise) whether currently in existence or arising hereafter which
arise under or relate to any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" of any Person means any other Person that, together
with such Person as of the relevant measuring date under ERISA, was or is
required to be treated as a single employer under Section 414 of the Code.
"Escrow Agent" means Comerica Bank - California.
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"Escrow Agreement" means the Escrow Agreement dated as of the Closing
Date by and among Buyer, Seller and the Escrow Agent.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fiscal Year" means a twelve month period commencing on January 1 of
each calendar year.
"GAAP" means generally accepted accounting principles in the United
States as in effect on the date hereof and applied on a consistent basis.
"Governmental Authority" means any foreign, domestic, federal,
territorial, state or local governmental authority, quasi-governmental
authority, instrumentality, court, government or self-regulatory organization,
commission, tribunal or organization or any regulatory, administrative or other
agency, or any political or other subdivision, department or branch of any of
the foregoing.
"Group Health Plan" means any group health plan, as defined in Section
5000(b)(1) of the Code.
"Hazardous Substance" means any substance or material: (i) the
presence of which requires investigation or remediation under any Applicable
Law; or (ii) that is defined as a "hazardous waste" or "hazardous substance"
under any Applicable Law; or (iii) that is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic or mutagenic or otherwise
hazardous and is regulated by any Governmental Authority having or asserting
jurisdiction over Seller; or (iv) the presence of which causes a nuisance,
trespass or other tortious condition; (v) the presence of which poses a hazard
to the health or safety of Persons; or (vi) without limitation, that contains
gasoline, diesel fuel or other petroleum hydrocarbons, polychlorinated biphenols
(PCBs) or asbestos.
"Indemnifying Party" means: (1) with respect to any Buyer Indemnitee
asserting a claim under Sections 9.01 or 10.11, Seller Parties; and (2) with
respect to any Seller Indemnitee asserting a claim under Sections 9.02 or 10.11,
Buyer and Parent.
"Indemnitee" means: (1) each of Parent, Buyer and their respective
Affiliates with respect to any claim for which a Seller Party is an Indemnifying
Party under Sections 9.01 or 10.11; and (2) Seller and its respective Affiliates
with respect to claims for which Parent or Buyer is an Indemnifying Party under
Sections 9.02 or 10.11.
"IRS" means the Internal Revenue Service.
"Liability" means, with respect to any Person, any liability or
obligation of such Person of any kind, character or description, whether known
or unknown, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, secured or unsecured, joint or several, due or to become due,
vested or unvested, executory, determined, determinable or otherwise and whether
or not the same is required to be accrued on the financial statements of such
Person or is disclosed on any schedule to this Agreement.
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"Lien" means, with respect to any asset, any mortgage, title defect or
objection, lien, pledge, charge, security interest, hypothecation, restriction,
encumbrance or charge of any kind in respect of such asset.
"Material Adverse Effect" means a change in, or effect on, the
operations, affairs, prospects, financial condition, results of operations,
assets, Liabilities, reserves or any other aspect of Seller or the Business that
results in a material adverse effect on, or a material adverse change in any of
Seller, the Business or the Transferred Assets.
"Multiemployer Plan" means a multiemployer plan, as defined in Section
3(37) and 4001(a)(3) of ERISA.
"Multiple Employer Plan" means any Employee Benefit Plan sponsored by
more than one employer, within the meanings of Section 4063 or 4064 of ERISA or
Section 413(c) of the Code.
"Parent Common Stock Price" means the average of the closing prices of
a share of Parent Common Stock during the thirty (30) trading days ending on the
date which is two (2) trading days prior to the Closing Date.
"Permitted Liens" means (i) Liens for Taxes or governmental
assessments, charges or claims the payment of which is not yet due, or for Taxes
the validity of which are being contested in good faith by appropriate
proceedings; (ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar Persons and other Liens
imposed by Applicable Law incurred in the ordinary course of business for sums
not yet delinquent or being contested in good faith; (iii) Liens relating to
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security or to
secure the performance of leases, trade contracts or other similar agreements;
(iv) Liens and Encumbrances specifically identified in the 2002 Balance Sheet;
and (v) Liens securing executory obligations under any Lease that constitutes an
"operating lease" under GAAP; provided, however, that, with respect to each of
clauses (i) through (v), to the extent that any such Lien on any Transferred
Asset arose prior to the Closing Date and relates to, or secures the payment of,
a Liability that is required to be accrued for under GAAP, such Lien shall not
be a Permitted Lien unless all Liabilities served thereby have been fully
accrued as Debt on the 2002 Balance Sheet. Notwithstanding the foregoing, no
Lien arising under the Code or ERISA with respect to the operation, termination,
restoration or funding of any Benefit Plan sponsored by, maintained by or
contributed to by Seller or any of its ERISA Affiliates or arising in connection
with any excise tax or penalty tax with respect to such Benefit Plan shall be a
Permitted Lien.
"Person" means an individual, corporation, partnership, limited
liability company, association, trust, estate or other entity or organization,
including a Governmental Authority.
"Plan Affiliate" means, with respect to any Person, any employee
benefit plan or arrangement sponsored by, maintained by or contributed to by
such Person, and with respect to any employee benefit plan or arrangement, any
Person sponsoring, maintaining or contributing to such plan or arrangement.
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"Prohibited Transaction" means a transaction that is prohibited under
Section 4975 of the Code or Section 406 of ERISA and not exempt under Section
4975 of the Code or Section 408 of ERISA, respectively.
"Reference Rate" means seven percent (7%) per annum.
"Registration Rights Agreement" means that certain Registration Rights
Agreement between Parent and Seller dated as of the date hereof.
"Related Purchase Agreements" means (i) that certain Asset Purchase
Agreement dated the date hereof by and among Parent and Buyer, on the one hand,
and Healthcare Staffing Resources, Inc. and the Shareholders and the Seller
Representative, on the other hand, and (ii) that certain Asset Purchase
Agreement dated the date hereof by and among Parent and Buyer, on the one hand,
and Boardnetwork.com, Alan Prince, Jeffrey Evans, the Matt Annuity Trust, the
Diane Annuity Trust, the Gift Trust, the Living Trust and the Seller
Representative, on the other hand.
"SEC" means the U.S. Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means, with respect to any Person, (i) any corporation as
to which more than 10% of the outstanding stock having ordinary voting rights or
power (and excluding stock having voting rights only upon the occurrence of a
contingency unless and until such contingency occurs and such rights may be
exercised) is owned or controlled, directly or indirectly, by such Person and/or
by one or more of such Person's Subsidiaries and (ii) any partnership, joint
venture or other similar relationship between such Person (or any Subsidiary
thereof) and any other Person (whether pursuant to a written agreement or
otherwise).
"Tax," including "Taxes," means (A) all taxes imposed of any nature
including federal, state, local or foreign net income tax, alternative or add-on
minimum tax, profits or excess profits tax, franchise tax, gross income,
adjusted gross income or gross receipts tax, employment related tax (including
employee withholding or employer payroll tax, FICA or FUTA), real or personal
property tax or ad valorem tax, sales or use tax, excise tax, stamp tax or duty,
any withholding or back up withholding tax, value added tax, severance tax,
prohibited transaction tax, premiums tax, environmental tax, intangibles tax or
occupation tax, together with any interest or any penalty, addition to tax or
additional amount imposed by any Governmental Authority (domestic or foreign)
responsible for the imposition of any such tax, (B) any Liability for payment of
amounts described in clause (A) whether as a result of transferee liability, of
being a member of an affiliated, consolidated, combined or unitary group for any
period, or otherwise through operation of law, and (C) any liability for the
payment of amounts described in clauses (A) or (B) as a result of any tax
sharing, tax indemnity or tax allocation agreement or any other express or
implied agreement to indemnify any other Person.
"Tax Return" means all returns, reports, forms or other information
required to be filed with respect to any Tax.
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"U.S. Government" means the United States Government, including any
agencies, commissions, branches, instrumentalities and departments thereof.
1.02. Index of Other Defined Terms. In addition to those terms defined
above, the following terms shall have the respective meanings given thereto in
the sections indicated below:
2.01. Transfer of Assets by Seller. Upon the terms and subject to the
conditions of this Agreement and in reliance upon the representations,
warranties and agreements herein set forth, Buyer agrees to purchase from Seller
and Seller agrees to sell or cause to be sold to Buyer at the Closing, free and
clear of all Liens, other than Permitted Liens, all the assets, properties,
rights, licenses, permits, contracts, causes of action, claims, operations and
businesses of Seller of every kind and description as the same shall exist on
the Closing Date (other than the Excluded Assets), wherever located, whether
tangible or intangible, real, personal or mixed, that are owned by, leased by or
in the possession of Seller, whether or not reflected on the books and records
of Seller (the collective assets, properties, rights, licenses, permits,
contracts, causes of action, claims, operations and businesses to be transferred
to Buyer by Seller pursuant hereto are referred to collectively herein as the
"Transferred Assets") and including, without limitation, all right, title and
interest of Seller in, to and under:
(a) all machinery, equipment, furniture, office equipment,
computer equipment (including all hardware and software), communications
equipment, vehicles, storage tanks, spare and replacement parts, fuel and other
tangible property (and interests in any of the foregoing) of Seller
(collectively, the "Equipment");
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(b) all items of inventory notwithstanding how classified in the
financial records of Seller, including all raw materials, work-in-process,
finished goods, supplies, spare parts and samples (collectively, the
"Inventory");
(c) all contracts, agreements, options, leases, licenses, sales
and purchase orders, commitments and other instruments of any kind, whether
written or oral, to which Seller is a party on the Closing Date, including the
Scheduled Contracts (as defined below) (collectively, the "Contracts");
(d) all prepaid deposits, charges and expenses of Seller,
including any such deposits, charges and expenses with respect to ad valorem
taxes, leases and rentals and utilities;
(e) all rights of Seller to insurance proceeds with respect to
claims for Damages to the Transferred Assets occurring prior to the Closing
Date, unless such proceeds reimburse Seller for the previously completed repair
or restoration of such Transferred Assets;
(f) all of Seller's rights, claims, credits, causes of action or
rights of set-off against third parties relating to the Business or the
Transferred Assets, whether liquidated or unliquidated, fixed or contingent,
including claims pursuant to all warranties, representations and guarantees made
by suppliers, manufacturers, contractors and other third parties in connection
with products or services purchased by or furnished to Seller for use in the
Business or affecting any of the Transferred Assets;
(g) all of Seller's licensed products or processes, patents,
copyrights, trademarks, trade names, service marks, service names, designs,
know-how, processes, trade secrets, inventions, and other proprietary data,
including without limitation, all information relating to Seller's clients;
(h) all transferable franchises, licenses, permits or other
authorizations issued or granted by any Governmental Authority that are owned
by, granted to or held or used by Seller, whether or not utilized in the
Business;
(i) to the extent available, all books, records, files and
papers of the Business, whether in hard copy or computer format, including,
without limitation, invoices, sales and promotional literature, manuals and
data, sales and purchase correspondence, lists of present and former suppliers
and customers, personnel and employment records of present and, to the extent
lawful, former employees, documentation developed or used for accounting,
marketing, or any other purpose related to the conduct of the Business at any
time prior to the Closing, and to the extent available, copies of all corporate
minutes and other corporate records of Seller;
(j) all goodwill associated with Seller, the Business or the
Transferred Assets;
(k) except as specifically provided in Section 2.02, all other
assets and properties of Seller which exist on the Closing Date, whether
tangible or intangible, real or personal; and
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(l) all accounts receivable relating to services rendered by
Seller or its employees (and for all purposes of this Agreement, the parties
hereto agree that all the employees of Elegant Lighting shall be considered
employees of Seller) on or after August 5, 2002.
2.02. Excluded Assets. Buyer expressly understands and agrees that the
assets and properties set forth on Schedule 2.02 (the "Excluded Assets") shall
be excluded from the Transferred Assets.
2.03. Assumption of Liabilities. Upon the terms and subject to the
conditions of this Agreement and in reliance upon the representations,
warranties and agreements herein set forth, Buyer agrees, effective at the time
of Closing, to assume, perform and timely pay and discharge the following
Liabilities (subject to the conditions below and excluding the Excluded
Liabilities, the "Assumed Liabilities"):
(i) all Contracts (including Scheduled Contracts);
(ii) all current accounts payable, payroll or accrued expenses
of Seller incurred or accrued in the ordinary course of business on or after
August 5, 2002;
(iii) accrued vacation of Seller's employees;
(iv) severance compensation provided in paragraph 7 under the
Compensation and Benefits section of the Letter of Employment to David
Mossesson, dated January 14, 2002 from Seller, in the mutually agreed amount of
One Hundred Fifty Thousand Dollars ($150,000) in cash; and
(v) all Liabilities arising from and after the Closing which
arise out of or relate in any way to Buyer's ownership or operation of the
Transferred Assets after the Closing;
provided, however, that the assumption by Buyer of the Assumed Liabilities will
be limited as follows: any Liability set forth in subsections (i), (ii), (iii)
and (v) of this Section 2.03 shall constitute an Assumed Liability only to the
extent that it arises out of Seller's normal conduct of the Business.
2.04. Excluded Liabilities. Neither Parent nor Buyer assumes, and
shall not at any time hereafter (including on or after the Closing Date) become
liable for, any Liabilities of Seller, any of its Affiliates or any Plan
Affiliate, other than the Assumed Liabilities (the "Excluded Liabilities"); in
furtherance of and not in limitation of the foregoing, the Excluded Liabilities
shall include, but are not limited to, the following:
(a) any Liability of Seller or any of its Affiliates or Plan
Affiliates of any of the foregoing, whether currently in existence or arising
hereafter, that is not attributable to, or that does not arise out of, Seller's
normal conduct of the Business;
(b) any Liability whether presently in existence or arising
hereafter which is attributable to an Excluded Asset;
10
(c) any Environmental Liability imposed on Seller whether
presently in existence or arising hereafter;
(d) any Liability the existence of which constitutes a breach of
any representation or warranty or covenant hereunder which would be
indemnifiable to Parent and Buyer pursuant to Section 9.01 hereof.;
(e) any Liability whether currently in existence or arising
hereafter relating to fees, commissions or expenses owed to any broker, finder,
investment banker, attorney, accountant or other intermediary, consultant or
advisor employed by any of the Seller Parties or any of its or his Affiliates or
Plan Affiliates in connection with the transactions contemplated hereby or
otherwise;
(f) all Debt (other than current accounts payable or accrued
expenses as set forth in Section 2.03(ii));
(g) any Liability of Seller or any of its shareholders or any of
their Affiliates for any Taxes, including without limitation, (i) any Liability
for any Taxes with respect to the Transferred Assets attributable to any period
prior to the Closing and (ii) any Taxes relating to or arising from Seller's
issuance of its Series B common stock;
(h) any Liability, whether currently in existence or arising
hereafter, owed by Seller to any of its Associates or Affiliates;
(i) any Liability incurred by Seller with respect to any of
Seller's employees or former employees, agents, consultants or independent
contractors, including but not limited to, worker's compensation, severance,
salary, bonuses or other benefits and Liabilities arising pursuant to Seller's
employment agreements with Evans, Thadeus Kaul and David Mossesson (other than
the obligation to pay severance to Mr. Mossesson pursuant to the terms and
conditions of his employment agreement with Seller);
(j) any Liability arising from, arising out of, based on or
relating to any of Seller's Benefit Plans, whether arising before, on or after
the Closing Date;
(k) any Liability for indebtedness of Seller, including without
limitation, any principal, interest or other amount owing in respect of any such
indebtedness;
(l) any negative cash balances, book overdrafts, held checks or
similar liabilities of Seller;
(m) any Liability for payroll or similar Taxes relating to
Seller's arrangement with Elegant Lighting; and
(n) all current accounts payable, payroll or accrued expenses of
Seller, incurred or accrued in the ordinary course of business prior to August
5, 2002.
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2.05. Assignment of Contracts and Rights.
(a) With respect to any Contract and any claim, right or benefit
arising thereunder or resulting therefrom, promptly after the date hereof, to
the extent requested by Buyer, Seller will use its best efforts to obtain the
written consent of the other parties to any such Contract for the assignment
thereof to Buyer or written confirmation from such parties confirming that such
consent is not required in form and substance reasonably satisfactory to Buyer.
(b) If (i) such consent, waiver or confirmation is not obtained
with respect to any such Contract and (ii) Buyer shall elect to consummate the
Closing, Seller and Buyer shall cooperate in an arrangement reasonably
satisfactory to Buyer and Seller under which Buyer would obtain, to the extent
practicable, the claims, rights and benefits and assume the corresponding
obligations thereunder in accordance with this Agreement, including
subcontracting, sub-licensing or sub-leasing to Buyer, or under which Seller
would enforce for the benefit of Buyer, with Buyer assuming Seller's
obligations, any and all claims, rights and benefits of Seller against a third
party thereto. Seller will promptly pay to Buyer when received all monies
received by Seller under any Transferred Asset or any claim, right or benefit
arising thereunder not transferred to Buyer pursuant to this Section 2.05.
2.06. Closing.
(a) The closing (the "Closing") of the transactions contemplated
by this Agreement shall take place at the offices of Gibson, Dunn & Crutcher
LLP, 2029 Century Park East, Los Angeles, California 90067, on the date hereof
(the "Closing Date").
(b) At the Closing, Parent and/or Buyer shall deliver to Seller
the following:
(i) by wire transfer (to a bank account designated by
Seller in writing at least three (3) Business Days prior to the Closing Date),
Fifteen Million Six Hundred Sixty Six Thousand Three Hundred Eighty Nine Dollars
($15,666,389) in immediately available funds; provided, however, that if Evans
and his family does not relocate to, and purchase a home in, Marin County,
California, within 180 days following the Closing, then Seller shall immediately
deliver to Parent by wire transfer (to a bank account designated by Parent in
writing at least three (3) Business Days prior to delivery of the funds by
Seller) Eight Hundred Thousand Dollars ($800,000) in immediately available
funds; and
(ii) one or more stock certificates for an aggregate number
of duly authorized, validly issued, fully-paid and nonassessable shares of
common stock, par value $0.001 per share, of Parent ("Parent Common Stock")
equal to Three Hundred Thirty Four Thousand Two Hundred and One (334,201) (the
"Shares"); provided, however, a certificate representing one-third (1/3) of the
Shares ("Escrowed Shares") registered in the name of Seller shall be delivered
to the Escrow Agent to be held and distributed by the Escrow Agent in accordance
with the Escrow Agreement. Neither Parent nor Buyer shall have any
responsibility for the allocation of the Shares among the Shareholders or other
equityholders of Seller. Seller
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shall deliver to the Escrow Agent stock powers or other assignments of interest
duly executed in blank for the Escrowed Shares.
(c) Buyer shall deliver to Seller such customary instruments of
assumption as may be reasonably requested by Seller to evidence such assumption
of the Assumed Liabilities; provided, however, that no such document shall
expand in any way any of Buyer's obligations to assume anything other than the
Assumed Liabilities.
(d) At the Closing, Seller shall deliver to Parent and/or Buyer:
(i) such bills of sale, certificates of title,
endorsements, consents, assignments and other good and sufficient instruments of
conveyance and assignment of such rights as the parties and their respective
counsel shall deem reasonably necessary or appropriate to vest in Buyer all of
Seller's right, title and interest in, to and under the Transferred Assets;
(ii) a copy of the resolutions of the board of directors of
Seller and a copy of the resolutions of the Shareholders, each authorizing the
execution and delivery of this Agreement and each of the Ancillary Agreements,
and the consummation of the transactions contemplated hereby and thereby, both
certified by the Secretary of Seller;
(iii) a copy of the resolutions of the board of directors of
Seller terminating Seller's Benefit Plans, including Seller's 401(k) plan;
(iv) written releases of any and all Liens on the
Transferred Assets and executed termination statements with respect to any
security interests filed by any creditor of Seller pursuant to the Uniform
Commercial Code;
(v) a signed opinion of counsel to Seller, dated the
Closing Date, in substantially the form attached hereto as Exhibit C;
(vi) all Required Consents for the transactions
contemplated by this Agreement;
(vii) an employment agreement substantially in the form
attached hereto as Exhibit B executed by Jeffrey A. Evans (the "Evans Employment
Agreement");
(viii) an employment agreement substantially in the form
attached hereto as Exhibit H executed by Matthew Johnston (the "Johnston
Employment Agreement");
(ix) terminations of any agreements between any Affiliate
of Seller and Seller, if requested by Parent or Buyer, at no cost;
(x) a Noncompetition and Nonsolicitation Agreement
substantially in the form attached hereto as Exhibit E executed by Diane Prince
Johnston;
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(xi) a fully executed Escrow Agreement substantially in
the form attached hereto as Exhibit G;
(xii) Guaranties in the form attached hereto as Exhibit F
executed by each of Matthew Johnston and Diane Prince Johnston;
(xiii) Agreement executed by Seller and Matthew Johnston
rescinding that certain Executive Deferred Compensation Agreement dated as of
June 28, 2002 by and between Seller and Matthew Johnston;
(xiv) Agreement executed by Seller and Evans rescinding
that certain Executive Deferred Compensation Agreement dated as of June 28, 2002
by and between Seller and Evans;
(xv) Agreements or other documents in form reasonably
satisfactory to Parent evidencing the termination of Seller's employment
agreements with Evans, Thadeus Kaul and David Mossesson;
(xvi) Amendment to the Living Trust; and
(xvii) Agreement with Elegant Lighting in form reasonably
satisfactory to Parent.
2.07. Earnout.
Upon the achievement of certain milestones set forth below over a
period commencing on December 30, 2002 and ending on December 25, 2005, an
aggregate of up to thirteen million dollars ($13,000,000) in earnout shall be
payable by Buyer to Seller as follows:
(a) Four Million Three Hundred Thirty Three Thousand Three Hundred and
Thirty Four Dollars ($4,333,334) shall be paid by Buyer to Seller on the later
of February 15, 2004 (the "First Statement Date"), or the date of final
resolution of any disputed earnout payment pursuant to the procedures set forth
in this Section 2.07; provided, however, that in the event of any disputed
earnout payment, Seller shall be paid the undisputed amount of such earnout
payment on the First Statement Date and the disputed amount upon the date of
final resolution of the disputed earnout payment (such date, the "First Earnout
Payment Date") if:
(i) the Net Revenues for the First Earnout Period are equal to
or greater than 135% of Base Year Net Revenues;
(ii) the Gross Margin Dollars for the First Earnout Period are
equal to or greater than Twenty Eight Percent (28%) of 135% of Base
Year Net Revenues;
(iii) the Productivity Ratio for the First Earnout Period is equal
to or greater than 2; and
(iv) EBITDA is greater than or equal to Three Million Six Hundred
Thousand Dollars ($3,600,000);
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provided, however, if:
(x) the Net Revenues for the First Earnout Period are equal to
or greater than 117.5% of the Base Year Net Revenues but less than
135% of Base Year Net Revenues;
(y) the Gross Margin Dollars for the First Earnout Period are
equal to or greater than Twenty Eight Percent (28%) of the Net
Revenues for the First Earnout Period;
(z) the Productivity Ratio for the First Earnout Period is equal
to or greater than 2, and
(zz) EBITDA is greater than or equal to Three Million Six Hundred
Thousand Dollars ($3,600,000),
then an amount equal to (A) One Million Dollars ($1,000,000) plus (B)
(a) the percentage of growth of Net Revenues for the First Earnout Period
compared to the Base Year Net Revenues divided by (b) Thirty Five Percent
(35%), multiplied by Three Million Three Hundred Thirty Three Thousand
Three Hundred and Thirty Four Dollars ($3,333,334) shall be paid by Buyer
to Seller on the First Earnout Payment Date;
provided, further, if:
(I) the Net Revenues for the First Earnout Period are equal to
or greater than the Base Year Net Revenues but less than 117.5% of the
Base Year Net Revenues;
(II) both of the criteria set forth in Section 2.07(a)(y) and
(z) are met; and
(III) EBITDA is greater than or equal to Three Million Six
Hundred Thousand Dollars ($3,600,000),
then One Million Dollars ($1,000,000) shall be paid by Buyer to Seller
on the First Earnout Payment Date.
If the Net Revenues for the First Earnout Period are less than the
Base Year Net Revenues, then no earnout payments shall be made by Buyer to
Seller on the First Earnout Payment Date.
(b) Four Million Three Hundred Thirty Three Thousand Three Hundred and
Thirty Three Dollars ($4,333,333) shall be paid by Buyer to Seller on the later
of February 15, 2005 (the "Second Statement Date"), or the date of final
resolution of any disputed earnout payment pursuant to the procedures set forth
in this Section 2.07; provided, however, that in the event of any disputed
earnout payment, Seller shall be paid the undisputed amount of such earnout
payment on the Second Statement Date and the disputed amount upon the date of
final resolution of the disputed earnout payment (such date, the "Second Earnout
Payment Date") if:
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(i) the Net Revenues for the Second Earnout Period are equal to
or greater than 182.25% of Base Year Net Revenues;
(ii) the Gross Margin Dollars for the Second Earnout Period are
equal to or greater than Twenty Eight Percent (28%) of 182.25% of Base
Year Net Revenues;
(iii) the Productivity Ratio for the Second Earnout Period is
equal to or greater than 2; and
(iv) EBITDA is greater than or equal to Three Million Six
Hundred Thousand Dollars ($3,600,000);
provided, however, if:
(x) the Net Revenues for the Second Earnout Period are equal to
or greater than 158.625% of Base Year Net Revenues but less than
182.25% of Base Year Net Revenues;
(y) the Gross Margin Dollars for the Second Earnout Period are
equal to or greater than Twenty Eight Percent (28%) of the Net
Revenues for the Second Earnout Period;
(z) the Productivity Ratio for the First Earnout Period is
equal to or greater than 2; and
(zz) EBITDA is greater than or equal to Three Million Six
Hundred Thousand Dollars ($3,600,000),
then an amount equal to (A) One Million Dollars ($1,000,000) plus (B)
(a) the percentage of growth of Net Revenues for the Second Earnout Period
compared to 135% of Base Year Net Revenues divided by (b) Thirty Five
Percent (35%), multiplied by Three Million Three Hundred Thirty Three
Thousand Three Hundred and Thirty Three Dollars ($3,333,333) shall be paid
by Buyer to Seller on the Second Earnout Payment Date;
provided, further, if:
(I) the Net Revenues for the Second Earnout Period are equal to
or greater than the Base Year Net Revenues but less than 158.625% of
the Base Year Net Revenues;
(II) both of the criteria set forth in Section 2.07(b)(y) and
(z) are met; and
(III) EBITDA is greater than or equal to Three Million Six
Hundred Thousand Dollars ($3,600,000),
then One Million Dollars ($1,000,000) shall be paid by Buyer to Seller
on the Second Earnout Payment Date.
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If the Net Revenues for the Second Earnout Period are less than
the Base Year Net Revenues, then no earnout payments shall be made by
Buyer to Seller on the Second Earnout Payment Date.
(c) Four Million Three Hundred Thirty Three Thousand Three
Hundred and Thirty Three Dollars ($4,333,333) shall be paid by Buyer to Seller
on the later of February 15, 2006 (the "Third Statement Date"), or the date of
final resolution of any disputed earnout payment pursuant to the procedures set
forth in this Section 2.07; provided, however, that in the event of any disputed
earnout payment, Seller shall be paid the undisputed amount of such earnout
payment on the Third Statement Date and the disputed amount upon the date of
final resolution of the disputed earnout payment (such date, the "Third Earnout
Payment Date") if:
(i) the Net Revenues for the Third Earnout Period are
equal to or greater than 246.0375% of Base Year Net Revenues;
(ii) the Gross Margin Dollars for the Third Earnout
Period are equal to or greater than Twenty Eight Percent (28%) of
246.0375% of Base Year Net Revenues;
(iii) the Productivity Ratio for the Third Earnout Period
is equal to or greater than 2; and
(iv) EBITDA is greater than or equal to Three Million Six
Hundred Thousand Dollars ($3,600,000).
provided, however, if:
(x) the Net Revenues for the Third Earnout Period are
equal to or greater than 214.14375 of Base Year Net Revenues but
less than 246.0375% of Base Year Net Revenues;
(y) the Gross Margin Dollars for the Third Earnout
Period are equal to or greater than Twenty Eight Percent (28%) of
the Net Revenues for the Third Earnout Period;
(z) the Productivity Ratio for the Third Earnout Period is
equal to or greater than 2; and
(zz) EBITDA is greater than or equal to Three Million Six
Hundred Thousand Dollars ($3,600,000),
then an amount equal to (A) One Million Dollars ($1,000,000) plus
(B) (a) the percentage of growth of Net Revenues for the Third Earnout
Period compared to 182.25% of Base Year Net Revenues divided by (b)
Thirty Five Percent (35%), multiplied by Three Million Three Hundred
Thirty Three Thousand Three Hundred and Thirty Three Dollars ($3,333,333)
shall be paid by Buyer to Seller on the Third Earnout Payment Date;
17
provided, further, if:
(I) the Net Revenues for the Third Earnout Period are
equal to or greater than the Base Year Net Revenues but less than
214.14375% of Base Year Net Revenues;
(II) both of the criteria set forth in Section 2.07(c)(y)
and (z) are met; and (III) EBITDA is greater than or equal to
Three Million Six Hundred Thousand Dollars ($3,600,000),
then One Million Dollars ($1,000,000) shall be paid by Buyer to
Seller on the Third Earnout Payment Date.
If the Net Revenues for the Third Earnout Period are less than the
Base Year Net Revenues, then no earnout payments shall be made by Buyer
to Seller on the Third Earnout Payment Date.
It is intended that the ability to receive the earnout payments
shall be cumulative. Therefore, if all or any portion of the earnout
payment is not earned for the First Earnout Period, then, at the end of
the Second Earnout Period, any Net Revenue or corresponding, Gross Margin
Dollars or EBITDA from the Second Earnout Period which is above the
target for receiving the earnout payment for such Second Earnout Period
will be added to the Net Revenue or corresponding Gross Margin Dollars or
EBITDA, as applicable, for the First Earnout Period for purposes of
determining whether the earnout payment for the First Earnout Period
would then be earned. If the earnout payment for the First Earnout Period
is then earned, it shall be paid in addition to and in conjunction with
the earnout for the Second Earnout Period. Similarly, if all or any
portion of the earnout payment is not earned for the Second Earnout
Period, then, at the end of the Third Earnout Period, any Net Revenue or
corresponding Gross Margin Dollars or EBITDA from the Third Earnout
Period which is above the target for receiving the earnout payment for
such Third Earnout Period will be added to the Net Revenue or
corresponding Gross Margin Dollars or EBITDA, as applicable, for the
First Earnout Period and/or Second Earnout Period, at the discretion of
Seller's Representative, for purposes of determining whether the earnout
payment for the First Earnout Period and/or Second Earnout would then be
earned. If the earnout payment for the First Earnout Period and/or Second
Earnout Period is then earned, it shall be paid in addition to and in
conjunction with the earnout for the Third Earnout Period.
(d) Promptly after each of the end of the First Earnout Period,
the Second Earnout Period and the Third Earnout Period, Buyer shall send
to the Seller Representative an earnout notice (the "Earnout Notice")
with respect to the applicable earnout period setting forth (i) the
amount of the earnout payment for such applicable period and, taking into
consideration the provisions of the preceding paragraph, whether any
earnout payments for prior earnout periods have been earned, and (ii)
reasonable details with respect to the calculations of the earnout
payments, if any, for such applicable periods. The Seller Representative
or its designee shall have the right to audit all records relied upon by
18
Buyer in the calculations of the earnout payment, including but not
limited to, Buyer's calculations of Cost of Goods Sold, Net Revenue,
Gross Margin Dollars and Productivity Ratio. The audit shall be conducted
by an independent certified public accountant at the expense of Seller
Parties, unless the results of the audit result in an underpayment of 10%
or more of any applicable earnout payment, in which case the cost of the
audit shall be paid by Parent. The Seller Representative shall have
forty-five (45) days to make an objection in writing to Buyer and Parent
to any item in the Earnout Notice, provided that if the Seller
Representative does not object in writing to Buyer and Parent within such
forty-five (45) day period, the Earnout Notice shall automatically be
deemed to be fully accepted by the Seller Representative. If the Seller
Representative objects in writing to any portion of the Earnout Notice
prior to the expiration of the forty-five (45) day period, Parent and/or
Buyer, on the one hand, and the Seller Representative, on the other hand,
shall promptly meet and use their commercial reasonable efforts to reach
agreement on the disputed items or amounts in order to determine the
earnout payment. If the parties are unable to resolve the dispute within
thirty (30) days after Parent's and Buyer's receipt of any written
objection from the Seller Representative, the parties shall retain an
independent party acceptable to Seller Representative and Parent (the
"Earnout Referee") to review this Agreement and the disputed items or
amounts for the purpose of calculating the earnout payment. In making any
such calculation, the Earnout Referee shall consider only those items or
amounts as to which the Seller Representative has disagreed. The Earnout
Referee shall deliver to Buyer, Parent and the Seller Representative, as
promptly as practicable and in no event more than forty-five (45) days
after the date of its appointment, a report setting forth its calculation
of the earnout payment, if any. Such report shall be final and binding
upon Buyer, Parent and the Seller Parties. The cost of such review and
report shall be paid by the non-prevailing party, as determined by the
Earnout Referee.
(e) Notwithstanding anything to the contrary contained in this
Section 2.07, Buyer's and Parent's obligations to pay any earnout
pursuant to this Section 2.07 shall only be to Seller or any entity
(other than a trust) to which Seller assigns the right to receive the
earnout payment, and Seller shall have the responsibility to allocate any
such earnout payment among Seller and the other Sellers under the Related
Purchase Agreements and their respective shareholders and any successor
entities.
(f) For purposes of this Section 2.07,
(i) "Base Year Net Revenues" means the total revenues
for Seller and each Seller under the Related Purchase Agreements
for the twelve months ending August 4, 2002 in accordance with
United States GAAP as reflected on the financial statements of
Seller and each Seller under the Related Purchase Agreements;
(ii) "Costs of Goods Sold" means the total dollars for
payroll for contractor and subcontractor personnel billed out by
the Staffing Entities (as defined below) to its customers, payroll
taxes for such personnel, costs of benefits and insurance
(including workers' compensation insurance and employer's
practices insurance) relating to such personnel and other costs
related to billable employees pursuant
19
to GAAP applied consistently with Parent's past practice. Cost of
Goods Sold shall not include any costs related to the development,
marketing or sale of Staff Q products or services;
(iii) "EBITDA" means the revenues, recognized in
accordance with GAAP applied consistently with Parent's past
practice, from billings for services generated by the Staffing
Entities, excluding the current Information Technology division,
less Costs of Goods Sold and SG&A.
(iv) "First Earnout Period" means the period commencing
on December 30, 2002 and ending on December 28, 2003;
(v) "Gross Margin Dollars" means Net Revenues less Costs
of Goods Sold; (vi) "Net Revenues" means the revenues, recognized
in accordance with GAAP applied consistently with Parent's past
practice, from billings for services generated by Buyer and all
other staffing divisions now existing or hereafter created,
acquired, formed, merged or commenced by Parent or any of its
Affiliates, that report or would report to Jeffrey Evans,
excluding the current Information Technology division (the
"Staffing Entities"), less any related discounts, refunds,
customer disputed billings and accounts receivable uncollected for
180 days (but not including any uncollected accounts receivable
for 180 days otherwise reserved as bad debt for purposes of
calculating SGA). For purposes herein, divisions that report or
would report to Evans are all divisions listed as reporting to
Evans on Exhibit "A" to Evans' Employment Agreement, whether or
not Evans is employed by Parent or Buyer. However, during the
earnout period, and while Evans remains employed by Parent, Parent
may request that Evans consent in writing to the exclusion of all
or a portion of such revenues from that business unit, which
consent shall be in Evans' sole and absolute discretion. Any
business unit so excluded shall not be considered a Staffing
Entity for purposes of this Section 2.07. Notwithstanding the
above, Net Revenues shall not include any revenues derived from
the sale or license of Staff Q products or services. Further,
notwithstanding the above, neither Parent nor Buyer may sell or
assign, in whole or in part, any of the staffing divisions whose
assets were purchased in accordance with this Agreement without
the prior written consent of Seller's Representative in his sole
and absolute discretion;
(vii) "Productivity Ratio" means Gross Margin Dollars
divided by the total selling, general and administrative labor
costs, including without limitation, the payroll costs, payroll
taxes, benefit costs, insurance costs, and normal business
expenses and other related costs pursuant to GAAP applied
consistently with Parent's past practice, for sales, sales
support, sales management and other administrative personnel of
Buyer and the Staffing Entities at the branch office level, and
managerial personnel below the CEO line;
20
(viii) "Second Earnout Period" means the period commencing
on December 29, 2003 and ending on December 26, 2004; and
(ix) "SG&A" means selling, general and administrative
expenses of the Staffing Entities calculated in accordance with
GAAP applied consistently with Parent's past practice, but
excluding depreciation and amortization expenses, plus Parent's
corporate operating expenses (including an agreed annual amount of
corporate general and administrative expenses equal to $1,930,000
as reflected on Exhibit I); provided, further, that SG&A shall be
calculated without regard to any reduction in expenses due to
synergies following the closing.
(x) "Third Earnout Period" means the period commencing
on December 27, 2004 and ending on December 25, 2005.
In the event that any of the earnout payments are not paid when
due, (i) Parent shall pay to Seller a ten percent (10%) late charge on
the amount owed and (ii) all unpaid amounts shall accrue interest at the
rate of ten percent (10%) until paid in full. In the event that any
undisputed earnout payments are not paid within 90 days of when due the
Noncompetition and Nonsolicitation Agreement and all non-competition and
non-solicitation provisions contained in Jeffrey Evans' Employment
Agreement and Matthew Johnston's Employment Agreement shall immediately
terminate and be of no further force and effect.
(g)(i) The parties intend that Buyer and the Staffing
Entities shall have a reasonable opportunity to operate profitably, to
expand, and to achieve the earnout payments hereunder. Accordingly,
during the First Earnout Period, the Second Earnout Period and the Third
Earnout Period (collectively, the "Earnout Period"), Parent shall make
commercially reasonable efforts to provide capital and other resources to
Buyer and the Staffing Entities for such purposes. Additionally, Parent
will not unreasonably (in the context of its historical practice)
withhold capital or other resources from Buyer or the Staffing Entities.
Capital and operating budgets shall be established each year in
accordance with the normal practices of Parent, in consultation with
management of Buyer and the Staffing Entities, subject to approval of the
Board of Directors. Parent agrees that it will fund the working capital
requirements of approved capital and operating budgets; provided,
however, that Buyer acknowledges that market conditions are subject to
change and that it is Parent's current policy to review and modify
budgets and relating funding commitments periodically to reflect such
changes. Any such review or modification of operating or capital budgets
will be conducted in a manner consistent with the frequency and processes
used by Parent with its other existing business units. Notwithstanding
the above, Parent agrees that Buyer and the Staffing Entities may spend
up to 1% of Net Revenues on marketing and advertising per year and up to
$50,000 per year on capital expenditures, without further approval of
Parent's Board of Directors.
(ii) During the Earnout Period, Parent shall accurately
maintain separate books and records for Buyer and the Staffing Entities
so as to render a determination of Net Revenue, Gross Margin Dollars,
Productivity Ratio and EBITDA (collectively, the "Financial Figures")
practicable.
21
(iii) For Financial Figure purposes and except as
otherwise provided herein, any transactions between Buyer or any of the
Staffing Entities and Parent or any of Parent's Affiliates shall be on an
arms-length basis and any allocation, charge or fee in transactions
between Buyer or any of the Staffing Entities and Parent or any of
Parent's Affiliates shall not be less favorable to Buyer or the Staffing
Entities than any comparable arrangement for a like basket of goods
and/or services between unrelated third parties in the industry.
(h) Each of the Seller Parties hereby acknowledge and
agree to abide by and be bound by any actions taken by Evans or the Seller
Representative even if such actions may adversely affect the payment of any
earnout to any of the Seller Parties.
2.08. Total Consideration Allocation. The parties agree to
allocate the consideration paid for the Transferred Assets under this Agreement
among the Transferred Assets in accordance with Section 1060 of the Code as
mutually agreed to by the parties within one hundred and eighty (180) days after
the Closing. If Buyer and Seller are unable to agree, the final allocation of
such consideration among the Transferred Assets shall be determined by an
independent party mutually agreed to by Parent and the Seller Representative
(the "Selected Firm") and the Selected Firm's determination of the allocation
shall be final and binding upon the parties hereto for purposes of this
Agreement. Buyer and Seller and the shareholders of Seller shall use such
mutually agreed-to allocations in preparing any filings required pursuant to
Section 1060 of the Code or any similar provisions of state or local law, shall
report the tax consequences of the transactions contemplated by this Agreement
in a manner consistent with such allocations on all relevant tax returns and
shall not take any position inconsistent therewith.
2.09. Tax Gross Up Amount. For the purposes of neutralizing the
income and franchise tax impact on the Shareholders of structuring the
transactions contemplated by this Agreement and the Related Purchase Agreements
as a sale of Sellers' (for purposes of this Section 2.09, Sellers shall be
defined to be the Seller pursuant to this Agreement and the Seller under each of
the Related Purchase Agreements) assets as opposed to a sale of their capital
stock held by Shareholders, in addition to the amounts described in Section
2.06, Parent and/or Buyer shall pay an amount in cash (the "Tax Gross Up
Amount") mutually agreed upon by the parties as set forth in this Section 2.09
to be equal to the excess of (i) the amount of federal, state and local income
taxes incurred by the Shareholders (for purposes of this Section 2.09,
Shareholders shall be defined to be the Shareholders pursuant to this Agreement
and the Shareholders under each of the Related Purchase Agreements) and the
franchise taxes incurred by the Sellers as a result of the sale (the "Asset
Sale") of the Transferred Assets hereunder and under the Related Purchase
Agreements (taking into account the deduction allowed for state and local taxes
paid or payable, the benefit to the Shareholders of any suspended losses
available to carry forward to offset gain on the Asset Sale and any other tax
benefits accruing to the Shareholders as a result of structuring the transaction
contemplated by this Agreement and the Related Purchase Agreements as an asset
sale) over (ii) the amount of federal, state and local income taxes that would
have been incurred by Shareholders (and franchise taxes that would have been
incurred by Sellers, if any) had the Shareholders sold all of their capital
stock in Sellers to Buyer for the amount of consideration otherwise provided in
this Agreement (the "Deemed Stock Sale"). Notwithstanding anything to the
contrary in this Agreement, the maximum amount of the Tax Gross Up Amount
payable by Parent and/or Buyer hereunder shall equal One Million One
22
Hundred Thousand Dollars ($1,100,000). The Tax Gross Up Amount shall be payable
as follows:
(a) On the Closing Date, Buyer shall deliver by wire
transfer (to a bank account designated by Seller in writing at least three (3)
Business Days prior to the Closing Date), Six Hundred Thousand Dollars
($600,000) in immediately available funds (the "Closing Date Gross Up Amount");
and
(b) On the Closing Date, Buyer shall deliver, by wire
transfer (to a bank account designated by the Escrow Agent in writing at least
three (3) Business Days prior to the Closing Date), Five Hundred Thousand
Dollars ($500,000) to the Escrow Agent to be held and distributed in accordance
with the Escrow Agreement. The Escrow Agreement will require the Escrow Agent to
distribute to the Seller Representative upon the joint instruction of Buyer and
Seller Representative, that portion of the Tax Gross Up Amount (if any) in
excess of the Closing Date Gross Up Amount, after final determination of the Tax
Gross Up Amount in accordance with this paragraph. On the date that is sixty
(60) days before the filing date of any income or franchise tax return required
to be filed with respect to the Asset Sale or any income or franchise tax
liability resulting therefrom, the Seller Representative shall deliver to Buyer
a written explanation in reasonable detail setting forth Sellers' calculation of
the Tax Gross Up Amount, and including copies of drafts of the applicable
federal, state and local income tax returns of Sellers and Shareholders on which
the applicable income or franchise tax liability will be reported. The Seller
Representative shall also deliver to Buyer, or make available to Buyer for
inspection, copies of all federal state and local income and franchise tax
returns of Sellers and Shareholders for the years beginning from the inception
of each Seller. Buyer shall have thirty (30) days after such delivery in which
to provide to the Seller Representative a written explanation in reasonable
detail of Buyer's objection to such calculation of the Tax Gross Up Amount. If
Buyer and the Seller Representative are unable to agree on the Tax Gross Up
Amount within twenty (20) days after Buyer delivers such notice of objection,
the Tax Gross Up Amount shall be determined by an independent third party
selected by the mutual agreement of Buyer and the Seller Representative, and
such third party's determination of the Tax Gross Up Amount shall be final and
binding upon the parties hereto for purposes of this Agreement. For
clarification purposes, the parties agree that the Tax Gross Up Amount is
intended to compensate the Shareholders for additional income tax liability
arising out of recapture and the allocation of the consideration to the sale of
ordinary, rather than capital, assets, and for the franchise taxes payable by
the Sellers as a result of the Asset Sale, and that the Tax Gross Up Amount
shall include only such incremental taxes. If the Tax Gross Up Amount, as
finally determined as set forth above, exceeds the Closing Date Gross Up Amount
(such excess, if any, shall be referred to herein as the "Additional Tax Gross
Up Amount"), Buyer and Seller Representative shall instruct the Escrow Agent to
pay to the Seller Representative the amount of the Additional Tax Gross Up
Amount, and to distribute to Buyer any funds remaining in the escrow account
relating to the Tax Gross Up Amount. If the Tax Gross Up Amount, as finally
determined as set forth above, is less than the Closing Date Gross Up Amount,
Seller shall immediately pay to Parent by wire transfer in immediately available
funds the amount of such difference. Notwithstanding the foregoing, in the event
that the Seller Parties do not file their tax returns by the applicable due date
(including any extensions), Seller Parties shall be deemed to have agreed that
the Tax Gross Up Amount does not exceed the Closing Date Gross Up Amount, and
Buyer shall have the right
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to deliver a unilateral instruction to the Escrow Agent to distribute all
amounts remaining in the escrow related to the Tax Gross Up Amount to the Buyer.
(c) Neither Parent nor Buyer shall have any
responsibility for the allocation of the Tax Gross Up Amount among the
Shareholders or other equityholders of Sellers. The parties agree that the Tax
Gross-Up Amount paid hereunder shall be deemed to be part of the purchase price
payable for the Transferred Assets hereunder and under the Related Purchase
Agreements and any amounts paid out of the escrow as Additional Tax Gross Up
Amounts shall be deemed to be an adjustment to the purchase price. The parties
further agree that all Tax Returns of Sellers and the Shareholders shall be
prepared in a manner consistent with the computations that form the basis for
the calculation of the Tax Gross Up Amount, and further agree not to take any
position inconsistent with such calculations. Notwithstanding anything to the
contrary contained in this Section 2.09, the parties further agree that neither
Buyer or Parent shall be liable for any late filing fees or penalties relating
to any late filing of any tax return by any of the Seller Parties, and the
calculation of the Tax Gross Up Amount pursuant to this Section 2.09 shall not
include such late filing fees or penalties.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF SELLER
As an inducement to Buyer to enter into this Agreement and to
consummate the transactions contemplated herein, Seller represents and warrants,
as of the date of this Agreement and as of the Closing Date, to Buyer as
follows:
3.01. Corporate Existence and Power. Seller is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of California, and has all corporate power and all governmental licenses,
governmental authorizations, governmental consents and governmental approvals
required to carry on the Business as now conducted and to own and operate the
Transferred Assets as now owned and operated. Seller is not required to be
qualified to conduct business in any jurisdiction other than: (a) the
jurisdictions set forth in Schedule 3.01, in which jurisdictions Seller is duly
qualified to do business and in good standing, and (b) such jurisdictions where
the failure to be so qualified, whether singly or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
3.02. Authorization. The execution, delivery and performance by
Seller of this Agreement and the consummation by Seller of the transactions
contemplated hereby are within Seller's corporate powers and have been duly
authorized by all necessary corporate action on the part of Seller. This
Agreement has been duly and validly executed by Seller and constitutes the
legal, valid and binding agreement of Seller, enforceable against it in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally and subject to general principles of equity.
3.03. Capital Stock; Subsidiaries.
(a) The entire authorized capital stock of Seller
consists of 10,000 shares, no par value, of common stock (the "Seller Common
Stock"), of which 143.896 shares of
24
Seller Common Stock are issued and outstanding. The Shareholders are the sole
owners of all of the outstanding capital stock of the Seller, and their
respective ownership of the Seller Common Stock are set forth on Schedule 3.03.
Except as set forth on Schedule 3.03, there are no outstanding obligations,
options, warrants, convertible securities, phantom stock, stock appreciation
rights or other rights, agreements, arrangements or commitments of any kind
relating to the capital stock of Seller or obligating Seller to issue or sell
any shares of capital stock of, or any other interest in, Seller. Except as set
forth on Schedule 3.03, there are no outstanding contractual obligations of
Seller to repurchase, redeem or otherwise acquire any shares of Seller Common
Stock or to provide funds to, or make any investment (in the form of a loan,
capital contribution or otherwise) in, any other Person. Except as set forth on
Schedule 3.03, there are no voting trusts, shareholder agreements, proxies or
other agreements or understandings in effect with respect to the voting or
transfer of any of the Seller Common Stock.
(b) Seller has no Subsidiaries.
3.04. Governmental Authorization. The execution, delivery and
performance by the Seller Parties of this Agreement require no action by,
consent or approval of, or filing with, any Governmental Authority. To the best
knowledge of Seller, there are no facts relating to the identity or
circumstances of Seller that would prevent or materially delay obtaining any of
the Required Consents.
3.05. Non-Contravention. Except as set forth on Schedule 3.05,
the execution, delivery and performance by the Seller Parties of this Agreement
does not and will not (a) contravene or conflict with the Articles of
Incorporation or Bylaws of Seller, true and correct copies of which have been
delivered to the Buyer by Seller; (b) assuming receipt of the Required Consents
and compliance with the matters referred to in Section 3.04 hereof, contravene
or conflict with or constitute a violation of any provision of any Applicable
Law binding upon or applicable to Seller, the Business or any of the Transferred
Assets; or (c) result in the creation or imposition of any Lien on any of the
Transferred Assets, other than Permitted Liens.
(a) Attached hereto as Exhibit A are true and complete
copies of (i) the balance sheets and related statements of operations and
retained earnings for Seller for the years ended December 31, 2001, 2000 and
1999, in each case prepared by Frankel, Lodgen, Lacher, Golditch, Sardi & Howard
and (ii) the balance sheet and related statements of income and cash flow for
Seller for the year ended December 31, 2001 prepared by Seller in accordance
with GAAP (collectively, (i) and (ii) the "Annual Statements"), and the balance
sheets and related statements of operations for the five (5) months ended May
31, 2002 (collectively, the "Interim Statements" and, together with the Annual
Statements, the "Financial Statements"). The May 31, 2002 balance sheet is
referred to herein as the "2002 Balance Sheet."
(b) Except as set forth on Schedule 3.06(b), each of the
Financial Statements (i) has been prepared based on the books and records of
Seller in accordance with GAAP and Seller's normal accounting practices,
consistent with past practice and with each other, and present fairly the
financial condition, results of operations of Seller as of the dates
25
indicated or for the periods indicated; (ii) contains and reflects all necessary
adjustments, accruals, provisions and allowances for a fair presentation of its
financial condition and the results of its operations for the periods covered by
such financial statement; (iii) to the extent applicable, contains and reflects
adequate provisions for all reasonably anticipated liabilities for all Taxes,
federal, state, local or foreign, with respect to the periods then ended and all
prior periods; and (iv) with respect to contracts and commitments for the sale
of goods or the provision of services by Seller, contains and reflects adequate
reserves for all reasonably anticipated losses and costs and expenses in excess
of expected receipts.
(c) Except as set forth on Schedule 3.06(c), there are
no Liabilities of Seller other than: (i) any Liability accrued as a Liability on
the 2002 Balance Sheet; (ii) Liabilities specifically disclosed and expressly
identified as such in the schedules to this Agreement; and (iii) Liabilities
incurred since the date of the 2002 Balance Sheet in Seller's ordinary course of
business consistent with past practice.
3.07. Absence of Certain Changes. Except as set forth on Schedule
3.07, since the date of the 2002 Balance Sheet, the Business has been conducted
in the ordinary course consistent with past practice, and there has not been:
(a) to Seller's best knowledge, any event, occurrence,
state of circumstances or facts or change in Seller, the Transferred Assets or
the Business that has had or that may be reasonably expected to have, either
alone or together, a Material Adverse Effect;
(b) to Seller's best knowledge, (i) any change in any
Liability of Seller reflected in the 2002 Balance Sheet or that should be
reflected as a Liability on the 2002 Balance Sheet that has had or may be
reasonably expected to have a Material Adverse Effect or (ii) any incurrence,
assumption or guarantee of any indebtedness for borrowed money by Seller in
connection with the Business, any of the Transferred Assets or otherwise;
(c) any (i) payments by Seller in respect of Debt of
Seller or in satisfaction of any Liabilities of Seller related to the Business,
other than in the ordinary course of business consistent with past practice, or
the guarantee by Seller of the Debt of any other Person; or (ii) creation,
assumption or sufferance of the existence of (whether by action or omission) any
Lien on any Transferred Asset, other than Permitted Liens;
(d) any commitment made, or any Contract entered into,
by Seller (including the acquisition or disposition of any Transferred Assets),
or any waiver, amendment, termination or cancellation of any Contract by Seller,
or any relinquishment of any rights thereunder by Seller, or of any other right
or debt owed to Seller, other than in each such case actions taken in the
ordinary course of business consistent with past practice;
(e) any (i) grant of any severance, continuation or
termination pay to any director, officer, stockholder or employee of Seller or
any Associate of any of the foregoing, (ii) entering into of any employment,
deferred compensation or other similar agreement (or any amendment to any such
existing agreement) with any director, officer, stockholder or employee of
Seller or any Associate of any of the foregoing, (iii) increase in benefits
payable or potentially payable under any severance, continuation or termination
pay policies or employment
26
agreements with any director, officer, stockholder or employee of Seller or any
Associate of any of the foregoing, (iv) increase in compensation, bonus or other
benefits payable or potentially payable to directors, officers, stockholders or
employees of Seller or any Associate of any of the foregoing, (v) change in the
terms of any bonus, pension, insurance, health or other Benefit Plan of Seller,
or (vi) representation of Seller to any employee or former employee of any of
the foregoing that Buyer would assume, continue to maintain or implement any
Benefit Plan after the Closing Date;
(f) any loan to or guarantee or assumption of any loan
or obligation on behalf of any stockholder, director, officer or employee of
Seller or to any Associate of Seller, except reasonable travel advances and
expenses occurring in the ordinary course of business consistent with past
practice;
(g) any change by Seller in its accounting principles,
methods or practices or in the manner it keeps its books and records or any
change by Seller of its current practices with regards to sales, receivables,
payables or accrued expenses, other than those changes resulting from Deloitte &
Touche LLP's audit of Seller's financial statements;
(h) any distribution, dividend, bonus or other payment
by Seller to any officer, director, stockholder or Affiliate of Seller
(collectively, "Distributions");
(i) the entering into of any Contract or other
arrangement between Seller and any officer, director, stockholder or Affiliate
of Seller;
(j) any (i) single capital expenditure or commitment in
excess of Fifteen Thousand Dollars ($15,000) for additions to property, plant,
equipment or intangible capital assets, (ii) capital expenditures or commitments
in an aggregate amount in excess of Thirty Thousand Dollars ($30,000) for
additions to property, plant, equipment or intangible capital assets or capital
expenditures, (iii) sale, assignment, transfer, lease or other disposition of or
agreement to sell, assign, transfer, lease or otherwise dispose of any asset or
property having a value of Ten Thousand Dollars ($10,000) in the aggregate;
(k) to Seller's best knowledge, any labor dispute or any
activity or proceeding by a labor union or representative thereof to organize
any employees of Seller, who were not subject to a collective bargaining
agreement at the date of the 2002 Balance Sheet, or any lockouts, strikes,
slowdowns, work stoppages or threats thereof by or with respect to any such
employees; or
(l) any payment, discharge or satisfaction of any
Liabilities of Seller, other than payments, discharges or satisfactions in the
ordinary course of business consistent with past practice.
3.08. Properties; Leases; Tangible Assets.
(a) Seller has good and valid title to or, in the case
of leased properties or properties held under license, good and valid leasehold
or license interests in, all of its properties, including all such properties
(real, personal or mixed, tangible or intangible (including the Intellectual
Property Rights)) reflected on the 2002 Balance Sheet. Except as
27
disclosed in Schedule 3.08(a), Seller holds title to each such property and
asset free and clear of all Liens, adverse claims or any other rights of others
or other adverse interests of any kind, including leases, chattel mortgages,
conditional sales contracts, collateral security arrangements and other title or
interest retention arrangements (collectively, "Encumbrances"), except Permitted
Liens.
(b) All material tangible properties and assets (other
than inventory) included in the Transferred Assets are in reasonably serviceable
operating condition and repair and are adequate for the uses to which they are
put, and no material properties or assets necessary for the conduct of the
Business in substantially the same manner as the Business has heretofore been
conducted are in need of replacement, maintenance or repair, except for routine
replacement, maintenance and repair.
(c) Seller owns no real property.
(d) Schedule 3.08(d) sets forth all personal property
leases to which Seller is a party or by which it is bound and that are necessary
for the conduct of the Business in substantially the same manner as the Business
has heretofore been conducted and all real property leases (such Schedule
3.08(d) describing separately those leases relating to real property (the
"Leased Real Property") and those leases relating to personal property and
indicating where appropriate those leases that have been recorded for tax,
protection of title or interest, or other purposes) entered into by Seller (the
"Leases"). With respect to the Leases, there exist no material defaults by
Seller or, to the best knowledge of Seller, any default or threatened default by
any third party thereunder, that has affected or could reasonably be expected to
affect the rights and privileges thereunder of Seller or result in any Liability
of Seller. Except as disclosed in Schedule 3.08(d), each Lease is a legal, valid
and binding obligation of Seller, and, to the best knowledge of Seller, each
other party thereto, enforceable against each such party thereto in accordance
with its terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
and subject to general principles of equity. Except as provided in Schedule
3.08(d), the transfer of the Transferred Assets contemplated by this Agreement
will not result in any default, penalty or modification to any Lease, nor will
any consents thereto be required.
(e) Except as disclosed in Schedule 3.08(e), (i) to
Seller's best knowledge, the current use and operation of all Leased Real
Property is in compliance with all Applicable Laws (including, without
limitation, laws relating to parking, zoning and land use) and public and
private covenants and restrictions, (ii) Seller has not received written notice
of non-compliance with any Applicable Laws and (iii) to Seller's best knowledge,
the utilities, access and parking for each such Leased Real Property are
adequate for the current use and operation of each such Leased Real Property.
(f) Except as disclosed in Schedule 3.08(f), to Seller's
best knowledge, there are no zoning, building code, occupancy restriction or
other land-use regulation proceedings or, to the best knowledge of Seller, any
proposed change in any Applicable Laws, which could detrimentally affect the use
or operation of any Leased Real Property, nor has Seller received any written
notice of any special assessment proceedings affecting the Leased Real Property,
or applied for any change to the zoning or land use status of the Leased Real
Property.
28
(g) Seller has obtained all licenses, permits,
approvals, easements and rights of way (and all such items are currently in full
force and effect) required from any Governmental Authority having jurisdiction
over each Leased Real Property or from private parties for the current use and
operation of each Leased Real Property, other than those the absence of which
would not affect the use or operation of such Leased Real Property in the manner
currently used or operated by Seller.
3.09. Sufficiency of and Title to the Transferred Assets. Upon
consummation of the transactions contemplated by this Agreement, Seller will
have sold, assigned, transferred and conveyed to Buyer, free and clear of all
Liens or Encumbrances, other than Permitted Liens, good and marketable title to
or other right to use all of the Transferred Assets, which constitute all of the
properties and assets now held or employed by Seller in connection with the
Business and necessary for the conduct of the Business, other than the Excluded
Assets.
3.10. Affiliates. Except as set forth in Schedule 3.10, none of
(i) Seller, (ii) to the best knowledge of Seller, any stockholder of Seller or
any Affiliate of any such stockholder or any Associate of any such stockholder
or Affiliate or (iii) any officer or director of Seller (or any immediate family
member of any such officer or director):
(a) now has or is or at any time subsequent to June 30,
2002 had, either directly or indirectly, an equity or debt interest in any
Person which furnishes or sells, or during such period furnished or sold,
services or products to Seller, or purchases, or during such period purchased,
from Seller any goods or services, or otherwise does, or during such period did,
business with Seller; provided, however, that no Person identified in clauses
(i), (ii) or (iii) of this Section 3.10 shall be deemed to have such an interest
solely by virtue of the ownership of less than one percent (1%) of the
outstanding voting stock or debt securities of any publicly-held company, the
stock or debt securities of which are traded on a national stock exchange or
quoted on the National Association of Securities Dealers Automated Quotation
System; or
(b) was a party to any contract, commitment or agreement
to which Seller is, or during such period was, a party or under which any of
them is or was obligated or bound or to which any of their properties may be or
may have been subject.
3.11. Litigation. Except as disclosed in Schedule 3.11, (i) there
are no actions, suits, claims, hearings, arbitrations, proceedings (public or
private) or governmental investigations that have been brought by or against any
Governmental Authority or any other Person (collectively, "Proceedings") pending
or, to the best knowledge of Seller, threatened, against or by Seller, the
Business or any of the Transferred Assets or which seek to enjoin or rescind the
transactions contemplated by this Agreement; and (ii) there are no existing
orders, judgments or decrees of any Governmental Authority naming Seller as an
affected party or otherwise affecting any of the Transferred Assets or the
Business.
3.12. Contracts.
(a) Schedule 3.12(a) sets forth a complete list of all
existing contracts, commitments and obligations (whether written or oral) of
Seller and the Business that are
29
material to Seller, including without limitation, the following (collectively
with the Leases and the Employment Agreements, the "Scheduled Contracts"):
(i) each agreement or arrangement of Seller that
requires the payment or incurrence of Liabilities, or the rendering of services,
by Seller, subsequent to the date of this Agreement, of more than Ten Thousand
Dollars ($10,000);
(ii) all Contracts relating to, or evidences of,
or guarantees of, or providing security for, Debt or the deferred purchase price
of property (whether incurred, assumed, guaranteed or secured by any asset);
(iii) all license, sale, distribution, commission,
marketing, agent, franchise, technical assistance or similar agreements relating
to or providing for the marketing and/or sale of the products or services to
which Seller is a party or by it is otherwise bound;
(iv) all acquisition, partnership, joint venture,
teaming arrangements or other similar Contracts, arrangements or agreements
entered into by the Company since its incorporation; and (v) each agreement,
arrangement, contract, commitment or obligation of Seller restricting or
otherwise affecting the ability of Seller to compete in the Business or
otherwise in any jurisdiction.
(b) Seller has made true and correct copies of all such
Scheduled Contracts available to Buyer. To the best knowledge of Seller, no
notice of material default arising under any Scheduled Contract has been
delivered to or by Seller. Except as disclosed in Schedule 3.12(b), each
Scheduled Contract is a legal, valid and binding obligation of Seller and each
other party thereto, enforceable against each such party thereto in accordance
with its terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
and subject to general principles of equity, and neither Seller nor, to Seller's
best knowledge, the other party thereto is in default thereunder. Except as
provided in Schedule 3.12(b), the transfer of the Transferred Assets
contemplated by this Agreement will not result in any default, penalty or
modification to any Scheduled Contract.
(c) Schedule 3.12(c) sets forth a list (by name, address
and Persons to contact) of the twelve (12) largest (determined by aggregation of
revenues generated from such Persons by all of Seller's and its Affiliates'
offices) clients of Seller for the six quarters ended June 30, 2002, together
with the approximate dollar amount of services provided to such Persons during
said period and a summary description of the services provided.
3.13. Permits; Required Consents.
(a) To Seller's best knowledge, Schedule 3.13(a) sets
forth all approvals, authorizations, certificates, consents, licenses, orders
and permits and other similar authorizations of all Governmental Authorities
(and all other Persons) necessary for the operation of the Transferred Assets or
the Business in substantially the same manner as currently operated or affecting
or relating in any way to the Business (the "Permits").
30
(b) Schedule 3.13(b) lists (i) each governmental or
other registration, filing, application, notice, transfer, consent, approval,
order, qualification and waiver known by Seller to be required under Applicable
Law to be obtained by Seller by virtue of the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby to avoid
the loss of any Permit or otherwise (each, a "Required Governmental Approval"),
and (ii) each Scheduled Contract with respect to which the consent of the other
party or parties thereto must be obtained by Seller by virtue of the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby to avoid the invalidity of such Scheduled Contract, the
termination thereof, a breach or default thereunder or any other change or
modification to the terms thereof (each, a "Required Contractual Consent" and,
together with the Required Governmental Approvals, the "Required Consents").
3.14. Compliance with Applicable Laws. Except as set forth in
Schedule 3.14, Seller has not violated or infringed, nor is it in violation or
infringement of, any material Applicable Law or any order, writ, injunction or
decree of any Governmental Authority.
3.15. Employment Agreements; Change in Control; and Employee
Benefits.
(a) Except as set forth on Schedule 3.15(a), there are
no employment, consulting, severance pay, continuation pay, termination pay or
indemnification agreements or other similar agreements of any nature whatsoever
(collectively, "Employment Agreements") between Seller, on the one hand, and any
current or former stockholder, officer, director, employee or Affiliate of
Seller or any consultant or agent of Seller, on the other hand, that are
currently in effect. Except as set forth on Schedule 3.15(a), there are no
Employment Agreements or any other similar agreements to which Seller is a party
under which the transactions contemplated by this Agreement (i) will require any
payment by Seller, Buyer, or any consent or waiver from any stockholder,
officer, director, employee or Affiliate of Seller, any of their respective
Associates or any consultant or agent of Seller or Buyer or (ii) will result in
any change in the nature of any rights of any stockholder, officer, director,
employee or Affiliate of Seller, or any of their respective Associates or any
consultant or agent of Seller under any such Employment Agreement or other
similar agreement.
(b) Schedule 3.15(b) sets forth all Benefit Plans of
Seller. Seller has made true and correct copies of all governing instruments and
related agreements pertaining to such Benefit Plans available to Buyer,
including, in the case of any Benefit Plan not set forth in writing, a written
description thereof.
(c) Except as set forth on Schedule 3.15(c), neither
Seller nor any of its ERISA Affiliates sponsors or, within the last five (5)
years has sponsored, maintained, contributed to, or incurred an obligation to
contribute to, any Employee Pension Benefit Plan.
(d) Neither Seller nor any of its ERISA Affiliates
sponsors or has ever sponsored, maintained, contributed to, or incurred an
obligation to contribute to any Multiemployer Plan or to a Multiple Employer
Plan.
(e) No individual shall accrue or receive additional
benefits, service or accelerated rights to payments of benefits under any
Benefit Plan, including the right to receive
31
any parachute payment, as defined in Section 280G of the Code, or become
entitled to severance, termination allowance or similar payments as a direct
result of the transactions contemplated by this Agreement.
(f) No Employee Benefit Plan has participated in,
engaged in or been a party to any non-exempt Prohibited Transaction, and neither
Seller nor any of its ERISA Affiliates has had asserted against it any claim for
taxes under Chapter 43 of Subtitle D of the Code and Section 5000 of the Code,
or for penalties under ERISA Section 502(c), (i) or (l), with respect to any
Employee Benefit Plan nor, to the best knowledge of Seller, is there a basis for
any such claim. No officer, director or employee of Seller has committed a
material breach of any responsibility or obligation imposed upon fiduciaries by
Title I of ERISA with respect to any Employee Benefit Plan.
(g) Other than routine claims for benefits, there is no
claim pending or, to the best knowledge of Seller, threatened, involving any
Benefit Plan by any Person against such plan, Seller, or any of its ERISA
Affiliates. There is no pending or, to the best knowledge of Seller, threatened,
proceeding involving any Employee Benefit Plan before the IRS, the United States
Department of Labor or any other Governmental Authority.
(h) There is no violation of any reporting or disclosure
requirement imposed by ERISA or the Code with respect to any Benefit Plan that
could have a Material Adverse Effect.
(i) Each Benefit Plan has at all times prior hereto been
maintained in all material respects, by its terms and in operation, in
accordance with ERISA and the Code. In accordance with Applicable Law, each
Benefit Plan can be amended or terminated at any time, without consent from any
other party and without liability other than for benefits accrued as of the date
of such amendment or termination. Seller and its ERISA Affiliates have made full
and timely payment of all amounts required to be contributed under the terms of
each Benefit Plan and Applicable Law or required to be paid as expenses under
such Benefit Plan, and Seller and its ERISA Affiliates shall continue to do so
through the Closing.
(j) With respect to any Group Health Plans maintained by
Seller or its ERISA Affiliates, whether or not for the benefit of Seller's
employees, Seller and its ERISA Affiliates have complied in all material
respects with the provisions of Part 6 of Title I of ERISA and Sections 4980B,
9801 and 9802 of the Code. Seller is not obligated to provide health care
benefits of any kind to its retired employees pursuant to any Employee Benefit
Plan, including without limitation, any Group Health Plan, or pursuant to any
agreement or understanding, other than as required by Applicable Law.
(k) Seller has made available to the Buyer a copy of (i)
the three (3) most recently filed Federal Form 5500 series and accountant's
opinion, if applicable, for each Employee Benefit Plan, (ii) the most recent IRS
determination letter obtained with respect to each Benefit Plan intended to be
qualified under Section 401(a) of the Code or exempt under Section 501(a) of the
Code and (iii) the most recently prepared financial statements of each Benefit
Plan.
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(l) Each Benefit Plan intended to be qualified under
Section 401(a) of the Code has been determined to be so qualified by the IRS.
Each trust established in connection with any Benefit Plan which is intended to
be exempt from Federal income taxation under Section 501(a) of the Code has been
determined to be so exempt by the IRS. Since the date of each most recent
determination referred to in this Section 3.15(l), no event has occurred and no
condition or circumstance has existed that has adversely affected, or is likely
to adversely affect, the qualified status of any Benefit Plan.
3.16. Labor and Employment Matters.
(a) Except as set forth on Schedule 3.16(a), no
collective bargaining agreement exists that is binding on Seller and, except as
described on Schedule 3.16(a), no petition has been filed or proceedings
instituted by an employee or group of employees with any labor relations board
seeking recognition of a bargaining representative. Schedule 3.16(a) describes
any organizational effort that, to the best knowledge of Seller, is currently
being made or threatened or has been made since January 1, 2001 by or on behalf
of any labor union to organize any employees of Seller.
(b) Except as set forth on Schedule 3.16(b), (i) there
is no labor strike, slow down or stoppage pending or, to the best knowledge of
Seller, threatened, against or directly affecting Seller; (ii) no grievance or
arbitration proceeding arising out of or under any collective bargaining
agreement is pending and no claims therefor exist; and (iii) neither Seller nor
any of its respective Affiliates has received any notice or has any knowledge of
any threatened labor or employment dispute, controversy or grievance or any
other unfair labor practice proceeding or breach of contract claim or action
with respect to claims of, or obligations to, any employee or group of employees
of Seller.
(c) If required under the Workers Adjustment and
Retraining Notification Act or other applicable state law regulating plant
closing or mass layoffs, Seller and its Affiliates have timely caused there to
be filed or distributed, as appropriate, all required filings and notices with
respect to employment losses occurring through the Closing Date.
(d) Seller and its Affiliates have complied and are
currently complying, in respect of all employees of Seller and its Affiliates,
with all Applicable Laws respecting employment and employment practices and the
protection of the health and safety of employees, from whatever source such law
may be derived, including, without limitation, statutes, ordinances, laws,
rules, regulations, policies, standards, judicial or administrative precedents,
judgments, orders, decrees, awards, citations, licenses, official
interpretations and guidelines ("Labor Laws"), except for such instances which
would not, in the aggregate, result in a Material Adverse Effect.
(e) All individuals who are performing or have performed
services for Seller or any of its Affiliates and who are or were classified by
Seller or any of its Affiliates as "independent contractors" qualify for such
classification under Section 530 of the Revenue Act of 1978 or Section 1706 of
the Tax Reform Act of 1986, as applicable, except for such instances which would
not, in the aggregate, result in a Material Adverse Effect.
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3.17. Intellectual Property.
(a) Schedule 3.17(a) sets forth a complete and correct
list of each patent, patent application and docketed invention, trademark, trade
name, trademark or trade name registration or application, copyright or
copyright registration or application for copyright registration, servicemark,
brand mark or brand name or any pending application related thereto, or any
trade secret, proprietary know-how, programs or processes or any similar rights,
and each license or licensing agreement for any of the foregoing relating to any
Transferred Asset or the Business or held by Seller (the "Intellectual
Property").
(b) Except as disclosed in Schedule 3.17(b), Seller has
not during the three years preceding the date of this Agreement been a party to
any Proceeding, nor to the best knowledge of Seller is any Proceeding
threatened, in any case, as to which there is a reasonable possibility of a
determination adverse to Seller, that involved or may involve a claim of
infringement brought by any Person (including any Governmental Authority) with
respect to the Intellectual Property. Except as disclosed in Schedule 3.17(b),
the Seller's use of the Intellectual Property is not subject to any outstanding
order, judgment, decree, stipulation or agreement restricting the use thereof by
Seller, or restricting the licensing thereof by Seller to any Person. Except as
disclosed in Schedule 3.17(b), to Seller's best knowledge, the current use of
such Intellectual Property by Seller does not conflict with, infringe upon or
violate any patent, patent license, patent application, trademark, tradename,
trademark or tradename registration, copyright, copyright registration, service
mark, brand mark or brand name or any pending application relating thereto, or
any trade secret, know-how, programs or processes, or any similar rights, of any
Person.
(c) Except as set forth in Schedule 3.17(c), Seller
either owns the entire right, title and interest in, to and under, or has
acquired an express license to use or, in connection with the acquisition of
Equipment or Inventory, has acquired an implied license to use, any and all
patents, trademarks, tradenames, brand names and copyrights which are material
to the conduct of the Business in the manner that the Business has heretofore
been conducted. No other inventions, processes, computer programs, know-how,
formulae, trade secrets, patents, chip designs, mask works, trademarks, trade
names, brand names, copyrights, licenses or applications for any of the
foregoing are reasonably necessary for the unimpaired continued operation of the
Business in the manner that the Business has heretofore been conducted.
3.18. Advisory Fees. Except for Barrington Associates, there is
no investment banker, broker, finder or other intermediary or advisor that has
been retained by or is authorized to act on behalf of Seller, who is entitled to
any fee, commission or reimbursement of expenses from Seller, Buyer or any of
their respective Affiliates or Associates upon consummation of the transactions
contemplated by this Agreement or otherwise.
3.19. Environmental Compliance.
(a) Except as disclosed in Schedule 3.19(a), Seller has
obtained all approvals, authorizations, certificates, consents, licenses, orders
and permits or other similar authorizations of all Governmental Authorities, or
from any other Person, that are required under any Environmental Law. Schedule
3.19(a) sets forth all material permits, licenses and other
34
authorizations issued under any Environmental Law relating to Seller, the
Business or the Transferred Assets.
(b) Except as disclosed in Schedule 3.19(b), Seller is
in compliance with all terms and conditions of all Permits of all Governmental
Authorities (and all other Persons) required under all Environmental Laws that
are used in the Business or that relate to Seller or the Transferred Assets.
Seller is also in compliance in all material respects with all other
limitations, restrictions, conditions, standards, requirements, schedules and
timetables required or imposed under all Environmental Laws.
(c) Except as set forth in Schedule 3.19(c), there are
no past or present events, conditions, circumstances, incidents, actions or
omissions imposed on Seller relating to or in any way affecting Seller, the
Business or the Transferred Assets that violate, or may violate after the
Closing, any Environmental Law, or that may give rise to any Environmental
Liability, or otherwise form the basis of any claim, action, demand, suit,
Proceeding, hearing, study or investigation (i) under any Environmental Law,
(ii) based on or related to the manufacture, processing, distribution, use,
treatment, storage (including without limitation underground storage tanks),
disposal, transport or handling, or the emission, discharge, release or
threatened release of any Hazardous Substance or (iii) resulting from exposure
to workplace hazards.
(d) Seller has delivered to Buyer all environmental
documents, studies and reports in its possession or under its control relating
to: (i) any facilities or real property ever owned, operated or leased by
Seller; or (ii) any Environmental Liability of Seller or the Business.
3.20. Insurance. Schedule 3.20 sets forth a complete and correct
list of all insurance policies of any kind currently in force or in force at any
time subsequent to December 31, 2000 with respect to the Business (the
"Insurance Policies"), including all "occurrence based" liability policies
regardless of the periods to which they relate. Schedule 3.20 also sets forth
for each such Insurance Policy the type of coverage, the name of the insureds,
the insurer, the premium, the expiration date, the period to which it relates,
the deductibles and loss retention amounts and the amounts of coverage.
3.21. Tax Matters.
Except as set forth on Schedule 3.21:
(a) Seller has duly and timely filed all Tax Returns
required to be filed with respect to the Transferred Assets, and such Tax
Returns are complete and accurate and correctly reflect the Tax liability
required to be reported thereon. Such Tax Returns do not contain (and were not
required to contain in order to avoid the imposition of a penalty) a disclosure
statement under Section 6662 of the Code (or any predecessor provision or
comparable provision of state, local or foreign law).
(b) Seller and the shareholders of Seller have timely
paid all Taxes that have become due and payable with respect to the Transferred
Assets prior to the Closing Date, and have adequately provided in the Financial
Statements for all Taxes accrued through the date of such Financial Statements
that were not yet due and payable as of the date thereof; all Taxes of Seller
accrued with respect to the Transferred Assets following the end of the most
35
recent period covered by the Financial Statements have been accrued in the
ordinary course of business of Seller. Seller has not taken any action not in
accordance with past practice that would have the effect of deferring a measure
of Tax with respect to the Transferred Assets (including but not limited to
income, sales, gross receipts or payroll) from a period (or portion thereof)
ending on or prior to the Closing to a period (or portion thereof) beginning
after the Closing; and no election has been made with respect to Taxes of Seller
in any Tax Return that has not been provided to Buyer.
(c) No claim for assessment or collection of Taxes with
respect to the Transferred Assets has been or is presently being asserted
against Seller or its shareholders; no rationale underlying a claim for Taxes
with respect to the Transferred Assets has been asserted previously by any
taxing authority that reasonably could be expected to be asserted in any other
period; and Seller is not a party to any action, proceeding, audit or
investigation by any taxing authority nor does Seller have knowledge of any such
threatened action, proceeding, audit or investigation.
(d) There are no Taxes of Seller or the shareholders of
Seller or deficiencies in Taxes or claims for Taxes against Seller or the
shareholders of Seller for any taxable period that could become a liability of,
or which could be assessed or collected against Buyer as a result of or after
the transfer of assets contemplated by this Agreement.
(e) The Transferred Assets are subject to no Liens for
Taxes other than Liens for current Taxes not yet due and payable on the
Transferred Assets or which are being contested in good faith.
(f) All amounts that are required to be collected or
withheld by Seller, or with respect to Taxes of Seller or the shareholders of
Seller, have been duly collected or withheld and all such amounts that are
required to be remitted to any taxing authority have been duly remitted.
(g) None of the Transferred Assets is property that is
required to be treated as owned by any other Person pursuant to the "safe harbor
lease" provisions of former Section 168(f)(8) of the Code and in effect
immediately prior to the enactment of the Tax Reform Act of 1986 and none of the
Transferred Assets is "tax exempt use property" within the meaning of Section
168(h) of the Code.
(h) Seller is not a party to or bound by any obligation
under any Tax sharing, Tax allocation, Tax indemnity or similar agreement or
arrangement.
(i) At all times during Seller's existence through the
Closing Date, Seller has been and will be an "S corporation," as such term is
defined in Section 1361(a)(1) of the Code (and comparable provisions of state,
local or foreign law), and neither Seller nor any of its shareholders has taken
any action that would cause, or would result in, the termination of such S
corporation status. None of the income or gain of Seller recognized prior to or
in connection with the Closing has been or will be subject to Section 1374 or
1375 of the Code.
3.22. Clients. Schedule 3.22 sets forth (i) the ten (10) largest
clients by gross revenues to Seller during the last fiscal year (the
"Significant Clients"). Since December 31,
36
2001, no Significant Client has: (a) stopped or expressly stated its intention
to stop doing business with Seller, (b) reduced or expressly stated its
intention to materially reduce, its business with Seller or (c) changed or
expressly stated its intention to change, materially the terms and conditions on
which it is prepared to do business with Seller. No Significant Client has given
Seller notice or expressly stated that, as a result of the transactions
contemplated by this Agreement, it will: (x) not do business with Seller (y)
reduce substantially its business with Seller, or (z) change the terms and
conditions on which it is prepared to do business with Seller. Seller has no
knowledge of any facts, conditions or events that would give rise to a material
claim by Seller against any of its Significant Clients or any material claim by
a Significant Client against Seller.
3.23. Books and Records. Seller has maintained books and records
which, in reasonable detail, accurately and fairly reflect all material
transactions entered into by Seller or to which Seller is a party. Seller has
not engaged in any transaction, maintained any bank account or used any
corporate funds, except for transactions, bank accounts and funds which have
been and are reflected in its normally maintained books and records.
3.24. Warranties. Schedule 3.24 sets forth a summary of the
material terms of all unexpired service warranties and guarantees given by
Seller to any client. Except as described on Schedule 3.24, (i) no claims are
pending or, to Seller's best knowledge, are threatened under the service
warranties of Seller thereof, and (ii) to Seller's best knowledge, there exists
no event or circumstance which after notice or the passage of time on both,
could create or result in liabilities or obligations under any of the service
warranties of Seller.
3.25. Bank Accounts. Schedule 3.25 sets forth a true and complete
list of all bank accounts, safe deposit boxes and lock boxes of Seller,
including the names in which such accounts or boxes are held and identification
of all Persons authorized to draw thereon or have access thereto.
3.26. Certain Business Practices. To the extent applicable to
Seller and its officers, directors, employees and representatives, Seller and
its officers, directors, employees and representatives have complied in all
material respects with the U.S. Foreign Corrupt Practices Act or any similar
such law in any foreign jurisdiction. Neither Seller nor any of its officers,
directors, employees or representatives has, directly or indirectly, used funds
or other assets (regardless of form or description of such payment) of Seller,
or made any promise or undertaking in such regard, for any illegal payments to
or for the benefit of any Person, to secure favorable treatment of a contract or
the Business or for the establishment or maintenance of a secret or unrecorded
fund; and there have been no false or fictitious entries made in the books or
records of Seller relating to any such illegal payment or secret or unrecorded
fund.
3.27. Complete Disclosure. No representation or warranty by the
Seller in this Agreement, and no exhibit, schedule, statement, certificate, or
other writing furnished to the Buyer, Parent or its advisors pursuant to this
Agreement or the Ancillary Agreements to which it is a party, contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained herein and therein not
misleading.
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3.28. No Other Representations. Seller shall not be deemed to
have made to Parent and Buyer any representation or warranty other than as made
by Seller in this Article III.
ARTICLE IV.
CERTAIN REPRESENTATIONS AND WARRANTIES OF SELLER PARTIES
As an inducement to Buyer to enter into this Agreement and to
consummate the transactions contemplated herein, each of the Seller Parties,
jointly and severally, hereby represents and warrants, as of the date of this
Agreement and as of the Closing Date, to Buyer as follows:
4.01. Understanding that Shares will Be Issued without
Registration. Each of the Seller Parties understands that the Shares will be
issued without registration under the Securities Act, in reliance upon
exemptions from registration under the Securities Act including, without
limitation, the safe harbor provided by Regulation D promulgated under Section
4(2) of the Securities Act. Each of the Seller Parties further understands that
such exemptions depend in part upon, and such shares will be issued in reliance
on, the representations and warranties made by the Seller Parties in this
Article IV.
(a) Each of the Seller Parties will acquire the Shares
for their own respective accounts for investment purposes only and not with a
view to resale or other distribution thereof, in whole or in part; and none of
the Seller Parties will assign, sell, hypothecate or otherwise transfer the
Shares unless (i)(a) a registration statement is in effect under the Securities
Act with respect to such Shares or (b) an applicable exemption from registration
is available and a written opinion of counsel acceptable to Buyer is obtained to
the effect that no such registration is required pursuant to the application of
such exemption (except that no opinion of counsel shall be necessary if the sale
is made in a routine transaction under Rule 144 promulgated under the Securities
Act), and (ii) they have complied with all applicable holding periods imposed by
the Securities Act (and the regulations thereunder) and this Agreement.
(b) Each of the Seller Parties acknowledges, agrees and
is aware that: (i) no United States federal or state or any foreign agency has
passed upon the accuracy, validity or completeness of this Agreement or made any
finding or determination as to the fairness of an investment in the Shares; (ii)
there may be restrictions on the transferability of the Shares; (iii) the Shares
have not been registered under the Securities Act or under the securities laws
of any other jurisdiction; (iv) an offer or sale of any of the Shares by any of
the Seller Parties in the absence of registration under the Securities Act will
require the availability of an exemption thereunder; and (v) a restrictive
legend is or shall be placed on the certificates representing the Shares and a
notation shall be made in the appropriate records of Parent indicating that the
Shares are subject to restrictions on transfer.
4.02. Accredited Investor. Each of the Seller Parties qualifies
as an "accredited investor" within the meaning of Rule 501 under the Securities
Act.
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4.03. Receipt of Information; Access to Information. Each of the
Seller Parties acknowledges that he, she or it:
(a) has been furnished with the Certificate of
Incorporation and Bylaws of Parent, the Parent SEC Reports and any documents
that may have been made available upon its, his or her request (collectively,
the "Other Documents"), and are capable of understanding and evaluating the
risks of acquiring the Shares;
(b) has been given the opportunity to ask questions of,
and receive answers from, Buyer and/or Parent and their respective officers
concerning the terms and conditions of the acquisition of the Shares and other
matters pertaining to an investment in the Shares, has been given the
opportunity to obtain such additional information necessary to evaluate the
merits and risks of acquiring the Shares to the extent Buyer or Parent possesses
such information, and has received all documents and information that each of
them has requested relating to an investment in the Shares;
(c) has not relied upon any representations or other
information (whether oral or written) from Buyer or Parent or their respective
directors, officers or Affiliates, or from any other Persons, other than the
representations of Buyer and Parent made in this Agreement and the Other
Documents;
(d) is familiar with the nature of and risks attendant
to investments in the business of Parent and securities in general and has
carefully considered and has, to the extent he, she or it believes such
discussion necessary, discussed with his, her or its respective professional
legal, financial and tax advisers the suitability of an investment in the Shares
for his, her or its respective financial and tax situations and has determined
that the Shares are a suitable investment for him, her or it; and
(e) has made, and is solely responsible for making, his,
her or its respective own independent evaluations of the economic and other
risks involved in his, her or its respective investments in the Shares and his,
her or its own respective independent decisions to make such investments.
4.04. Authority Relative to this Agreement. Each of the Seller
Parties has all requisite legal right, power and authority to execute and
deliver this Agreement and the Ancillary Agreements to which they are
signatories and to perform their respective obligations hereunder and thereunder
and to consummate the transactions contemplated hereby and thereby. This
Agreement has been, and the Ancillary Agreements to which the Seller Parties are
signatories will be, duly and validly executed and delivered by the Seller
Parties and, assuming that this Agreement constitutes, and the Ancillary
Agreements to which they are signatories will constitute when signed, the legal,
valid and binding obligations of the other parties hereto and thereto, each such
agreement constitutes or will constitute the legal, valid and binding obligation
of the Seller Parties, as the case may be, enforceable in accordance with its
terms subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws (including court decisions) and
doctrines affecting the rights of creditors generally and general equitable
principles.
39
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER
As an inducement to Seller to enter into this Agreement and to
consummate the transactions contemplated herein, each of Parent and Buyer
hereby, jointly and severally, represents and warrants to each of the Seller
Parties as follows:
5.01. Corporate Existence and Power. Parent and Buyer are
corporations duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, and Parent and Buyer have all corporate power to
enter into this Agreement and consummate the transactions contemplated hereby.
Each of Parent and Buyer is duly qualified to do business as a foreign
corporation in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification necessary
to carry on its business as now conducted, except for those jurisdictions where
in the aggregate the failure to be so qualified is not, and is not reasonably
expected to become, material.
5.02. Corporate Authorization. The execution, delivery and
performance by Parent and Buyer of this Agreement and the consummation by Parent
and Buyer of the transactions contemplated hereby are within the corporate
powers of Parent and Buyer and have been duly authorized by all necessary
corporate action on the part of Parent and Buyer. This Agreement constitutes the
legal, valid and binding agreement of Parent and Buyer, enforceable in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally and subject to general principles of equity.
5.03. Governmental Authorization. The execution, delivery and
performance by Parent and Buyer of this Agreement require no action by, consent
or approval of, or filing with, any Governmental Authority other than any
actions, consents, approvals or filings otherwise expressly referred to in this
Agreement.
5.04. Non-Contravention. The execution, delivery and performance
by Parent and Buyer of this Agreement does not (a) contravene or conflict with
the Certificate of Incorporation or Bylaws of Parent or Buyer, (b) except as set
forth on Schedule 5.04, contravene or constitute a material default under any
agreement to which Parent or Buyer is a party or (c) assuming compliance with
the matters referred to in Section 5.03, contravene or conflict with or
constitute a violation of any provision of any Applicable Law binding upon or
applicable to Parent or Buyer.
5.05. Parent SEC Filings; No Material Adverse Effect.
(a) Parent has filed all forms, reports and documents
required to be filed with the SEC since January 1, 2001, and has heretofore
delivered or made available to the Seller Parties, in the form filed with the
SEC, (i) its Annual Report on Form 10-K for the fiscal year ended December 30,
2001, (ii) its Quarterly Reports on Form 10-Q for the periods ended March 31,
2002, and (iii) all proxy statements relating to Parent's meetings of
stockholders (whether annual or special) held since January 1, 2001, (iv) all
Forms 8-K filed by Parent with
40
the SEC since January 1, 2001, (v) all other reports or registration statements
filed by Parent with the SEC since January 1, 2001, and (vi) all amendments and
supplements to all such reports and registration statements filed by Parent with
the SEC since January 1, 2001 (collectively, the "Parent SEC Reports"). The
Parent SEC Reports were prepared in substantial compliance as to form with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
did not at the time they were filed contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(b) Since January 1, 2002, there has been no Material
Adverse Effect on Parent or its Subsidiaries, taken as a whole, and since the
date of Parent's last filing with the SEC, no event has occurred which would
require any filing by Parent with the SEC regarding any such event.
5.06. No Other Representations. Neither Parent nor Buyer shall be
deemed to have made to any of the Seller Parties any representation or warranty
other than as made by Parent and Buyer in this Article V.
ARTICLE VI.
COVENANTS OF SELLER
Seller hereby agrees that:
6.01. Compliance with Terms of Required Contractual Consents. On
and after the Closing Date, Seller shall comply at its own expense with all
conditions and requirements applicable to it set forth in each Required
Contractual Consent to the extent necessary such that all Required Contractual
Consents will remain effective and enforceable against the Persons giving such
Required Contractual Consents, assuming continued compliance with the terms
thereof by Buyer.
6.02. Confidentiality. Seller will, and will cause its respective
employees, officers, directors, shareholders, outside advisors, agents,
Affiliates and representatives to, treat any data and information obtained with
respect to Buyer or any of its Affiliates from any representative, officer,
director, or employee of Buyer, or from any books or records of Buyer in
connection with this Agreement, confidentially and with commercially reasonable
care and discretion, and will not disclose any such information to third
parties; provided, however, that the foregoing shall not apply to (i)
information in the public domain or that becomes public through disclosure by
any party other than Seller or its Affiliates or representatives, so long as
such information is not made public by such other party in breach of a
confidentiality obligation, (ii) information that may be required to be
disclosed by Applicable Law provided Seller immediately gives Buyer notice of
any request or demand for such confidential information upon receipt of such
request or demand along with a copy of any written correspondence, pleading or
other communication concerning the request or demand, (iii) any information that
is disclosed by Seller or its respective Affiliates, on a confidential basis, to
any of their respective agents, accountants or attorneys in correction with or
related to the consummation of the transactions contemplated hereby; or (iv)
information required to be disclosed to obtain any Required
41
Consents. Each of the parties to this Agreement agree to be responsible for the
breach of any obligation of confidentiality under this Agreement by and of their
agents, accountants, attorneys and any prospective lenders or investors.
6.03. Change of Name. Seller will amend its articles of
incorporation within ten (10) Business Days of the Closing Date so as to change
its corporate name to a name dissimilar to the name by which the Business as
conducted by Seller is known and will file as promptly as practicable, but in
any event within sixty (60) days after the Closing, in all jurisdictions in
which it is qualified to do business, any documents necessary to reflect such
change in its corporate name or to terminate its qualification therein. At the
request of Buyer, Seller shall consent to Buyer adopting a name that is similar
or identical to Seller's name at the Closing.
6.04. Administration of Accounts. All payments and reimbursements
made in the ordinary course by any third party in the name of or to Seller or
any Affiliate of Seller in connection with or arising out of the Transferred
Assets, the Business or the Assumed Liabilities after the Closing Date shall be
held by Seller or such Affiliate in trust for the benefit of Buyer and,
immediately upon receipt by Seller or any such Affiliate of any such payment or
reimbursement, Seller shall pay, or cause to be paid, over to Buyer the amount
of such payment or reimbursement without right of set off.
6.05. Specific Performance. The parties hereto recognize and
agree that in the event of a breach by Seller of this Article VI, money damages
would not be an adequate remedy to Buyer or its Affiliates for such breach and,
even if money damages were adequate, it would be impossible to ascertain or
measure with any degree of accuracy the damages sustained by Buyer or its
Affiliates therefrom. Accordingly, if there should be a breach or threatened
breach by Seller of the provisions of this Article VI, Buyer and its Affiliates
shall be entitled to seek an injunction restraining Seller from any breach
without showing or proving actual damage sustained by Buyer or its Affiliates,
as the case may be. Nothing in the preceding sentence shall limit or otherwise
affect any remedies that Buyer may otherwise have under Applicable Law.
6.06. Taxes.
(a) Each party hereof shall (i) provide the other
parties hereof with such assistance as may reasonably be requested in connection
with the preparation of any Tax Return with respect to the Transferred Assets
and the conduct of any audit or other examination by any taxing authority or in
connection with judicial or administrative proceedings relating to any liability
for Taxes with respect to the Transferred Assets and (ii) retain and provide the
other parties hereof with all records or other information that may be relevant
to the preparation of any Tax Returns with respect to the Transferred Assets, or
the conduct of any audit or examination, or other Tax Proceeding with respect to
the Transferred Assets. The parties shall retain all relevant documents,
including prior year's Tax Returns, supporting work schedules and other records
or information that may be relevant to such returns as required by Applicable
Law.
(b) Seller shall provide Buyer with all tax clearance
certificates or similar documents that may be required by any state or local
taxing authority in order to relieve Buyer of any obligations to withhold any
portion of the consideration paid for the Transferred Assets hereunder.
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(c) All sales, value added, use, transfer, registration,
stamp and similar Taxes imposed in connection with the sale of the Transferred
Assets shall be borne by Buyer.
(d) Pursuant to Section 1445(b)(2) of the Code, Seller
shall furnish Buyer an affidavit, stating under penalty of perjury the Seller's
United States taxpayer identification number and that the Seller is not a
foreign person.
6.07. COBRA. Seller shall offer COBRA continuation coverage to
all "M & A qualified beneficiaries" (as such term is defined in Treasury
Regulation section 54.4980B-9, Q&A 4) affected by the asset purchase described
in this Agreement, and Seller shall maintain a Group Health Plan to provide such
COBRA coverage during the entire period of coverage mandated by COBRA for such M
& A qualified beneficiaries.
ARTICLE VII.
COVENANTS OF BUYER AND PARENT
7.01. Confidentiality.
Parent and Buyer will, and will cause their respective
employees, officers, directors, shareholders, outside advisors, agents,
Affiliates and representatives to, treat any agreements, data and information
obtained with respect to Seller from any representative, officer, director or
employee of Seller, or from any books or records of Seller in connection with
this Agreement, confidentially and with commercially reasonable care and
discretion, and will not disclose any such information to third parties;
provided, however, that the foregoing shall not apply to (i) information in the
public domain or that becomes public through disclosure by any party other than
Parent, Buyer or their respective Affiliates or representatives, so long as such
other party is not in breach of a confidentiality obligation, (ii) information
that may be required to be disclosed by Applicable Law, provided Parent or Buyer
promptly gives Seller notice of any request or demand for such confidential
information upon receipt of such request or demand, along with a copy of any
written correspondence, pleading or other communication concerning the request
or demand, (iii) information required to be disclosed to obtain any Required
Consents, (iv) any information that is disclosed by Parent or Buyer or their
respective Affiliates, on a confidential basis, to any of their respective
agents, accountants, attorneys or financial advisors or (v) any information that
is disclosed by Parent or Buyer after the Closing shall have occurred. The
parties to this Agreement agree to be responsible for the breach of any
obligation of confidentiality under this Agreement by and of their agents,
accountants, attorneys and financial advisors.
7.02. Specific Performance. The parties hereto recognize and
agree that in the event of a breach by Parent or Buyer of this Article VII,
money damages would not be an adequate remedy to Seller for such breach and,
even if money damages were adequate, it would be impossible to ascertain or
measure with any degree of accuracy the damages sustained by Seller therefrom.
Accordingly, if there should be a breach or threatened breach by Parent or Buyer
of the provisions of this Article VII, Seller shall be entitled to seek an
injunction restraining Parent and Buyer from any breach without showing or
proving actual damage sustained by Seller. Nothing in the preceding sentence
shall limit or otherwise affect any
43
remedies that Seller may otherwise have under Applicable Law.
7.03. Pre-paid Items. Parent agrees to promptly reimburse Seller
for any rent or license fees (pro rated by the number of days in the applicable
month) paid by Seller prior to the date hereof pursuant to leases relating to
Leased Real Property or an agreement with Monster.com for any period after the
date hereof.
ARTICLE VIII.
COVENANTS OF ALL PARTIES
8.01. Further Assurances. Parent, Buyer and Seller Parties agree
to execute and deliver such other documents, certificates, agreements and other
writings and to take such other actions as may be reasonably necessary or
desirable (including, without limitation, obtaining the Required Consents) in
order to consummate or implement expeditiously the transactions contemplated by
this Agreement, including Seller's receipt of any amounts comprising or payable
in respect of any Transferred Assets and Buyer's receipt of any amounts
comprising or payable in respect of any Excluded Assets. Notwithstanding the
foregoing, no party hereto shall have any obligation to expend any funds or to
incur any other obligation in connection with the consummation of the
transactions contemplated hereby (including, by way of illustration only, any
payment in connection with obtaining the Required Consents) other than normal
out-of-pocket expenses (such as fees and expenses of counsel and accountants)
reasonably necessary to consummate such transactions.
8.02. Certain Filings. The parties hereto shall cooperate with
one another in determining whether any action by or in respect of, or filing
with, any Governmental Authority is required or reasonably appropriate, or any
action, consent, approval or waiver from any party to any Contract is required
or reasonably appropriate, in connection with the consummation of the
transactions contemplated by this Agreement. Subject to the terms and conditions
of this Agreement, in taking such actions or making any such filings, the
parties hereto shall furnish information required in connection therewith and
seek timely to obtain any such actions, consents, approvals or waivers.
8.03. Public Announcements. The parties hereto agree that a
mutually agreed upon press release will be issued upon the execution of this
Agreement. Further, the parties may, on a confidential basis, advise and release
information regarding the existence and content of this Agreement or the
transactions contemplated hereby to their respective Affiliates or any of their
agents, accountants, attorneys and prospective lenders or investors in
connection with or related to the transactions contemplated by this Agreement.
8.04. Specific Performance. The parties hereto recognize and
agree that in the event of a breach by one party hereto of this Article VIII,
money damages would not be an adequate remedy to the other party for such breach
and, even if money damages were adequate, it would be impossible to ascertain or
measure with any degree of accuracy the damages sustained by the non-breaching
party therefrom. Accordingly, if there should be a breach or threatened breach
by one party of provisions of this Article VIII, the non-breaching party shall
be
44
entitled to seek an injunction restraining the breaching party from any breach
without showing or proving actual damage sustained by the non-breaching party.
ARTICLE IX.
INDEMNIFICATION
9.01 Seller Parties' Agreement to Indemnify.
(a) Each of the Seller Parties shall, jointly and
severally, indemnify and hold harmless Parent, Buyer and their respective
Affiliates (collectively, the "Buyer Indemnitees") in respect of any and all
Damages incurred by any Buyer Indemnitee as a result of:
(i) any inaccuracy or misrepresentation in or
breach of any representation, warranty, covenant or agreement made in this
Agreement by any of the Seller Parties;
(ii) any Environmental Liability imposed upon any
of the Seller Parties relating to the Business or Seller, whether presently in
existence or arising hereafter from acts, events, conditions or circumstances
existing or occurring on or before the Closing Date (in the case of this clause
(ii) regardless of whether such Environmental Liability arises out of or
constitutes a breach of any representation, warranty or covenant in this
Agreement made by any of the Seller Parties);
(iii) any Liabilities in connection with the
Proceedings described in Schedule 3.11 hereto;
(iv) any Liabilities for Taxes of Seller or any
shareholder of Seller, or any predecessor in interest or any Affiliate of any of
them with respect to any period, and any Liabilities for Taxes relating to the
Transferred Assets with respect to any pre-Closing tax period (in the case of
this clause (iv), regardless of whether such Liabilities for Taxes arise out of
or constitute a breach of any representation, warranty or covenant in this
Agreement made by Seller at any time);
(v) any Excluded Liabilities;
(vi) acts or omissions of the Seller
Representative (other than Damages arising solely from claims brought by the
Seller Representative on behalf of the Seller Parties after Closing in the
Seller Representative's capacity as agent for the Seller Parties);
(vii) the violation, conflict, breach of or default
under (or omission or commission of any action, condition or event which, after
notice or lapse of time or both, would result in any such violation, conflict or
breach of or default under) any Contract, Permit or law by any of the Seller
Parties prior to the Closing Date;
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(viii) Seller's failure to repay Eight Hundred
Thousand Dollars ($800,000) to Parent upon any breach of the covenant to
relocate Evans and his family to, and purchase a home in, Marin County, CA, as
set forth in Section 2.06(b) hereof;
(ix) the enforcement of this Section 9.01; or
(x) Seller's failure to qualify to transact
business as a foreign corporation in good standing in the States of Georgia,
Louisiana and Virginia.
(b) Seller Parties shall have no obligation under
Section 9.01(a) unless and until the aggregate amount of Damages incurred under
Section 9.01(a) hereof and Section 9.01(a) of each of the Related Purchase
Agreements exceeds Two Hundred Fifty Thousand Dollars ($250,000) (the "Seller
Deductible"), whereupon the Seller Parties shall be liable to indemnify the
Buyer Indemnitees for all amounts of Damages over the Seller Deductible;
provided, however, that Damages incurred by any Buyer Indemnitee as a result of
any misrepresentation, breach or inaccuracy of any representations or warranties
made by any of the Seller Parties relating to Sections 3.02, 3.03(a), 3.09,
3.21, and 4.04 or pursuant to Sections 9.01(a)(v) [Excluded Liabilities] or
9.01(a)(viii) shall not be subject to the Seller Deductible, and the Buyer
Indemnitees shall be indemnified for any and all Damages as a result of any such
misrepresentation, breach or inaccuracy of any such representations or
warranties in such Sections or pursuant to such Sections 9.01(a)(v) [Excluded
Liabilities] or 9.01(a)(viii); provided, further, (A) the maximum liability of
the Seller Parties to indemnify the Buyer Indemnitees under Section 9.01(a)
hereof and Section 9.01(a) of each of the Related Purchase Agreements shall
equal One Million Five Hundred Thousand Dollars ($1,500,000), and (B) none of
the foregoing limit or the Seller Deductible shall apply with respect to any
claim based upon a breach of any of the representations, warranties, covenants,
agreements and obligations set forth in Sections 3.02, 3.03(a), 3.09, 3.21 and
4.04 of this Agreement or pursuant to Sections 9.01(a)(v) [Excluded Liabilities]
or 9.01(a)(viii) or arising out of fraud or willful misrepresentation or
misconduct.
9.02. Parent's and Buyer's Agreement to Indemnify.
(a) Each of Parent and Buyer shall, jointly and
severally, indemnify and hold harmless the Seller Parties (collectively, the
"Seller Indemnitees") in respect of any and all Damages incurred by any Seller
Indemnitee as a result of:
(i) any inaccuracy or misrepresentation in or
breach of any representation, warranty, covenant or agreement made by Parent and
Buyer in this Agreement; and
(ii) any Assumed Liabilities; or
(iii) the enforcement of this Section 9.02.
(b) Neither Parent or Buyer shall have any obligation
under Section 9.02(a) unless and until the aggregate amount of Damages incurred
under Section 9.02(a) hereof and Section 9.02(a) of each of the Related Purchase
Agreements exceeds One Hundred and Fifty Thousand Dollars ($150,000) (the "Buyer
Deductible"), whereupon
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Parent and Buyer shall be liable to indemnify the Seller Indemnitees for all
amounts of Damages over the Buyer Deductible; provided, however, that Damages
incurred by any Buyer Indemnitee as a result of any misrepresentation, breach or
inaccuracy of any representations or warranties made by Parent or Buyer relating
to Section 5.02 or pursuant to Section 9.02(a)(ii) [Assumed Liabilities] or a
claim arising out of fraud or willful misrepresentation or misconduct shall not
be subject to the Buyer Deductible, and the Seller Indemnitees shall be
indemnified for any and all Damages as a result of any such misrepresentation,
breach or inaccuracy of any such representations or warranties in such Section
or pursuant to such Section 9.02(a)(ii) [Assumed Liabilities] or pursuant such
claim arising out of fraud or willful misrepresentation or misconduct.
9.03. Survival of Representations, Warranties and Covenants.
(a) All representations, warranties, covenants,
agreements and obligations of each Indemnifying Party contained in this
Agreement, and all claims of any Buyer Indemnitee or Seller Indemnitee in
respect of any breach of any representation, warranty, covenant, agreement or
obligation of any Indemnifying Party contained in this Agreement shall survive
the Closing and shall expire on the eighteenth month anniversary of the Closing
Date, except that:
(i) covenants or obligations of any of the Seller
Parties, Parent or Buyer which by their terms are to be performed after the
Closing shall survive the Closing and not expire unless otherwise provided in
this Agreement;
(ii) the representations and warranties set forth
in Sections 3.02, 3.03(a), 3.09 and 4.04 of this Agreement and all claims of any
Buyer Indemnitee in respect of any breach of any such representation or warranty
against any of the Seller Parties as Indemnifying Party shall survive the
Closing Date and shall not expire;
(iii) the representations and warranties set forth
in Section 3.21 of this Agreement and all claims of any Buyer Indemnitee in
respect of any breach of any such representation or warranty or in respect of
the Seller Parties' indemnification obligations under Section 9.01(a)(iv) of
this Agreement against any of the Seller Parties as Indemnifying Party shall
survive the Closing Date and shall not expire until thirty (30) days after the
expiration of any applicable statute of limitations, including extensions
thereof;
(iv) the representations and warranties set forth
in Section 3.17 of this Agreement and all claims of any Buyer Indemnitee in
respect of any breach of such representation or warranty against any of the
Seller Parties as Indemnifying Party shall survive the Closing Date and shall
not expire until the third anniversary of the Closing Date; and
(v) all claims of any Buyer Indemnitee against
any of the Seller Parties as an Indemnifying Party in respect of any claim
arising out of fraud or willful misrepresentation or misconduct shall survive
the Closing Date and shall not expire until thirty (30) days after the
expiration of any applicable statute of limitations, including extensions
thereof.
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(b) Notwithstanding anything herein to the contrary,
indemnification for claims for which written notice as provided in Section 9.04
has been given prior to the expiration of the representation, warranty,
covenant, agreement or obligation upon which such claim is based shall not
expire, and claims for indemnification may be pursued, until the final
resolution of such claim in accordance with Section 10.11.
9.04. Claims for Indemnification. If any Indemnitee shall believe
that such Indemnitee is entitled to indemnification pursuant to this Article IX
in respect of any Damages, such Indemnitee shall give the appropriate
Indemnifying Parties prompt written notice thereof. Any such notice shall set
forth in reasonable detail and to the extent then known the basis for such claim
for indemnification. The failure of such Indemnitee to give notice of any claim
for indemnification promptly, but within the periods specified by Section
9.03(a) or (b), as the case may be, shall not adversely affect such Indemnitee's
right to indemnity hereunder except to the extent that such failure adversely
affects the right of the Indemnifying Parties to assert any reasonable defense
to such claim. Each such claim for indemnity shall expressly state that the
Indemnifying Parties shall have only the twenty (20) Business Day period
referred to in the next sentence to dispute or deny such claim. The Indemnifying
Parties shall have twenty (20) Business Days following its receipt of such
notice either (y) to acquiesce in such claim and their respective
responsibilities to indemnify the Indemnitee in respect thereof in accordance
with the terms of this Article IX by giving such Indemnitee written notice of
such acquiescence or (z) to object to the claim by giving such Indemnitee
written notice of the objection. If the Indemnifying Parties do not object
thereto within such twenty (20) Business Day period, such Indemnifying Parties
shall be deemed to have acquiesced in such claim and their respective
responsibilities to indemnify the Indemnitee in respect thereof in accordance
with the terms of this Article IX.
9.05. Defense of Claims. In connection with any claim which may
give rise to indemnity under this Article IX resulting from or arising out of
any claim or Proceeding against an Indemnitee by a Person that is not a party
hereto, the Indemnifying Parties may (unless such Indemnitee elects not to seek
indemnity hereunder for such claim), upon written notice sent at any time to the
relevant Indemnitee, assume the defense of any such claim or Proceeding. If the
Indemnifying Parties assume the defense of any such claim or Proceeding, the
Indemnifying Parties shall select counsel reasonably acceptable to such
Indemnitee to conduct the defense of such claim or Proceeding, shall take all
reasonable steps necessary in the defense or settlement thereof and shall at all
times diligently and promptly pursue the resolution thereof. If the Indemnifying
Parties shall have assumed the defense of any claim or Proceeding in accordance
with this Section 9.05, the Indemnifying Parties shall be authorized to consent
to a settlement of, or the entry of any judgment arising from, any such claim or
Proceeding, without the prior written consent of such Indemnitee; provided,
however, that:
(i) the Indemnifying Parties shall pay or cause to be paid all
amounts arising out of such settlement or judgment either concurrently with the
effectiveness thereof or shall obtain and deliver to such Indemnitees prior to
the execution of such settlement a general release executed by the Person not a
party hereto, which general release shall release such Indemnitee from any
liability in such matter;
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(ii) the Indemnifying Parties shall not be authorized to
encumber any of the assets of any Indemnitee or to agree to any restriction that
would apply to any Indemnitee or to its conduct of business; and
(iii) a condition to any such settlement shall be a complete
release of such Indemnitee and its directors, stockholders, officers, employees,
consultants, agents and their respective Affiliates with respect to such claim.
Such Indemnitee shall be entitled to participate in (but not control) the
defense of any such action, with its own counsel and at its own expense. Each
Indemnitee shall, and shall cause each of its Affiliates, officers, employees,
consultants and agents to, cooperate fully with the Indemnifying Parties in the
defense of any claim or Proceeding being defended by the Indemnifying Parties
pursuant to this Section 9.05. If the Indemnifying Parties do not assume the
defense of any claim or Proceeding resulting therefrom in accordance with the
terms of this Section 9.05, such Indemnitee may defend against such claim or
Proceeding in such manner as it may reasonably deem appropriate, including
settling such claim or Proceeding after giving notice of the same to the
Indemnifying Parties, on such terms as such Indemnitee may reasonably deem
appropriate. If the Indemnifying Parties seek to question the manner in which
such Indemnitee defended such claim or Proceeding or the amount of or nature of
any such settlement, the Indemnifying Parties shall have the burden to prove by
a preponderance of the evidence that such Indemnitee did not defend such claim
or Proceeding in a reasonably prudent manner.
9.06. Limitation on Remedies. The remedies of the Buyer
Indemnitees and Seller Indemnitees under this Article IX shall be their
exclusive remedy for any breach of this Agreement, except that nothing set forth
in this Article IX shall be deemed to prohibit or limit any Buyer Indemnitee's
or Seller Indemnitee's right at any time before, on or after the Closing Date,
to seek injunctive or other equitable relief for the failure of any Indemnifying
Party to perform any covenant or agreement contained herein.
9.07. Nature of Payments. Any payment under this Article IX shall
be treated for tax purposes as an adjustment of the total consideration paid for
the Transferred Assets under this Agreement to the extent such characterization
is proper and permissible under relevant Tax authorities, including court
decisions, statutes, regulations and administrative promulgations.
9.08. Right of Set-Off. Parent or Buyer, after recovery against
the escrow contemplated by the Escrow Agreement, shall have the right to set-off
all or any part of any Damages Buyer or Parent may suffer by notifying the
Seller Representative that Buyer or Parent is reducing the amount of any Earnout
due to any of the Seller Parties; provided, however, Parent's and Buyer's right
to set-off pursuant to this Section 9.08 and Section 9.08 in each of the Related
Purchase Agreements shall not exceed Nine Hundred and Fifty Thousand Dollars
($950,000).
9.09. Appointment of the Seller Representative.
(a) In order to efficiently administer the defense
and/or settlement of any claims for indemnity by a Buyer Indemnitee pursuant to
this Article IX, the Seller Representative is hereby appointed to serve as the
representative of the Seller and the
49
Shareholders. The Seller Representative shall have full power and authority to
make, on behalf of the Seller Parties, all decisions relating to the defense
and/or settlement of any claims for which any Buyer Indemnitee may claim to be
entitled to indemnity pursuant to this Article IX and otherwise to act on behalf
of the Seller Parties in all respects with respect to this Agreement, including,
without limitation, the amendment or termination thereof. All decisions and
actions by the Seller Representative shall be binding upon all of the Seller
Parties, and no Seller Party shall have the right to object to, dissent from,
protest or otherwise contest the same.
(b) Each of the Seller Parties agree that (i) the
provision of this Section 9.09 are independent and severable, are irrevocable
and coupled with an interest and shall be enforceable notwithstanding any rights
or remedies any Seller Party may have in connection with the transactions
contemplated by this Agreement, (ii) the remedy at law for any breach of the
provisions of this Section 9.09 would be inadequate, and (iii) the provisions of
Section 9.01 and this Section 9.09 shall be binding upon the Seller Parties and
the successors and assigns of each of the Seller Parties.
(c) Any notice or communication delivered by Parent or
Buyer to the Seller Representative shall, as between Parent and Buyer, on the
one hand, and the Seller Parties, on the other, be deemed to have been delivered
to all of the Seller Parties. Parent and Buyer shall be entitled to rely
exclusively upon any communication or writings given or executed by the Seller
Representative in connection with any claims for indemnity or set-off and shall
not be liable in any manner whatsoever for any action taken or not taken in
reliance upon the actions taken or not taken or communications or writings given
or executed by the Seller Representative. Parent and Buyer shall be entitled to
disregard any notices or communications given or made by the Seller Parties in
connection with any claims for indemnity or set-off unless given or made through
the Seller Representative.
9.10. Deductibles, Caps and Set-Off Rights. Each of the parties
hereof agree and acknowledge that the Seller Deductible, the Buyer Deductible,
the limitation on liabilities set forth in Section 9.01(b) hereof and the
maximum amount subject to set-off set forth in Section 9.08 hereof shall be
applied against Damages arising under this Agreement and each of the Related
Purchase Agreements. For example, if Buyer or Parent has indemnifiable Damages
(in the circumstances where the Seller Deductible is applicable) pursuant to
this Agreement of One Hundred Thousand Dollars ($100,000) and indemnifiable
Damages of One Hundred Thousand Dollars ($100,000) under each of the Related
Purchase Agreements, then Buyer and Parent shall be deemed to have
indemnification rights under Section 9.01 hereof for Three Hundred Thousand
Dollars ($300,000) less the Seller Deductible in the amount of Two Hundred and
Fifty Thousand Dollars.
ARTICLE X.
MISCELLANEOUS
10.01. Notices. All notices, requests, demands, claims and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given (i) if
personally delivered, when so delivered, (ii) if mailed, two Business Days after
having been sent by registered or certified mail, return receipt
50
requested, postage prepaid and addressed to the intended recipient as set forth
below, (iii) if given by telex or telecopier, once such notice or other
communication is transmitted to the telex or telecopier number specified below
and the appropriate answer back or telephonic confirmation is received, provided
that such notice or other communication is promptly thereafter mailed in
accordance with the provisions of clause (ii) above or (iv) if sent through an
overnight delivery service in circumstances to which such service guarantees
next day delivery, the day following being so sent:
If to Seller:
OnStaff
3400 West Alameda Avenue, Suite 200
Burbank, CA 91505
Attn: Jeffrey Evans
Matthew Johnston
Telecopier No.: (309) 416-9486
with a copy to:
Weinstock, Manion, Reisman, Shore & Neumann
1875 Century Park East, Suite 1500
Los Angeles, CA 90067
Attn: Louis Reisman, Esq.
Telecopier No.: (310) 553-5165
If to Buyer:
Hall, Kinion & Associates, Inc.
2570 North First Street, Suite 400
San Jose, CA 95131-1018
Gibson, Dunn & Crutcher LLP
1530 Page Mill Road
Palo Alto, CA 94304
Attn: Larry Calof, Esq.
Telecopier No.: (650) 849-5333
Any party may give any notice, request, demand, claim or other
communication hereunder using any other means (including ordinary mail or
electronic mail), but no such notice, request, demand, claim or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any party may
change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other parties notice
in the manner herein set forth.
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10.02. Amendments; No Waivers.
(a) Any provision of this Agreement may be amended or waived if, and
only if, such amendment or waiver is in writing and signed, in the case of an
amendment, by all parties hereto, or in the case of a waiver, by the party
against whom the waiver is to be effective.
(b) No waiver by a 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 occurrence. No failure or delay by a party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.
10.03. Expenses. All costs and expenses incurred in connection with this
Agreement and in closing and carrying out the transactions contemplated hereby
shall be paid by the party incurring such cost or expense. Without limiting the
generality of the immediately preceding sentence, the fees, costs and expenses
of the accountants, attorneys and financial advisors (including, without
limitation, Barrington Associates, Weinstock, Manion, Reisman, Shore & Neumann,
and Frankel, Lodgen, Lacher, Golditch, Sardi & Howard) to Seller and its
Affiliates in connection with the preparation or negotiation of, or consummation
of the transactions contemplated by, this Agreement shall be borne by Seller
and/or the Shareholders and none of such fees, costs or expenses shall be paid
or assumed by Buyer. Without limiting the generality of the second immediately
preceding sentence, the fees, costs and expenses of the accountants, attorneys
and financial advisors (including, without limitation, Gibson, Dunn & Crutcher
LLP, Deloitte & Touche LLP and Robert W. Baird & Co.) to Buyer in connection
with the preparation or negotiation of, or consummation of the transactions
contemplated by, this Agreement shall be borne by the Buyer and Parent and none
of such fees, costs or expenses shall be paid by Seller. This section shall
survive any termination of this Agreement.
10.04. 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 hereto may assign either this Agreement or any of
its rights, interests or obligations hereunder without the prior written
approval of each other party, except that Buyer may assign its rights hereunder
to Parent or its other Affiliates without the prior written approval of any of
the Seller Parties, so long as Buyer and Parent remain responsible for
satisfying their respective obligations, liabilities, covenants and agreements
hereunder.
10.05. Governing Law and Forum. This Agreement shall in all respects be
interpreted, construed and governed by and in accordance with the laws of the
State of California, disregarding any conflict of laws provisions which may
require the application of the law of another jurisdiction. In the event that
arbitration is unavailable with respect to any action to enforce or that arises
out of or in any way relates to any of the provisions of this Agreement, or in
the event any action is brought to enforce the provisions of Section 10.11
hereof, such action shall be brought and prosecuted exclusively in a Federal or
state court located in Los
52
Angeles County, California, and the parties hereto hereby consent to the
jurisdiction of any such court and to the service of process by registered mail,
return receipt requested, or by any other manner provided by the laws of such
State.
10.06. Counterparts; Effectiveness. This Agreement may be signed in any
number of counterparts and the signatures delivered by telecopy, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument. This Agreement shall become effective when
each party hereto shall have received a counterpart hereof signed by the other
parties hereto.
10.07. Entire Agreement. This Agreement (including the Schedules and
Exhibits referred to herein which are hereby incorporated by reference and the
other agreements executed simultaneously herewith) constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, understandings and negotiations, both written
and oral, between the parties with respect to the subject matter of this
Agreement, including, without limitation, the letter of intent between Buyer and
Seller dated as of June 26, 2002, as supplemented and amended. Neither this
Agreement nor any provision hereof is intended to confer upon any Person other
than the parties hereto any rights or remedies hereunder. The parties agree and
acknowledge that notwithstanding anything to the contrary in this Agreement,
Seller is not making any representations and warranties that are not expressly
provided in this Agreement.
10.08. Captions. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof. All references to an Article or Section include all subparts thereof.
10.09. Severability. If any provision of this Agreement, or the application
thereof to any Person, place or circumstance, shall be held by an arbitrator or
a court of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this Agreement and such provisions as applied to other Persons,
places and circumstances shall remain in full force and effect only if, after
excluding the portion deemed to be unenforceable, the remaining terms shall
provide for the consummation of the transactions contemplated hereby in
substantially the same manner as originally set forth at the later of the date
this Agreement was executed or last amended.
10.10. Construction. The parties hereto intend that each representation,
warranty and covenant contained herein shall have independent significance. If
any party has breached any representation, warranty or covenant contained herein
in any respect, the fact that there exists another representation, warranty or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) that the party has not breached shall not detract from or
mitigate the fact that the party is in breach of the first representation,
warranty or covenant.
10.11. Arbitration.
(a) Any dispute or difference between or among the parties (such
parties being referred to individually as a "Disputing Party," and, together, as
the "Disputing
53
Parties") arising out of this Agreement or the transactions contemplated hereby
which the parties are unable to resolve themselves shall be submitted to and
resolved by arbitration as herein provided. Any Disputing Party may request the
American Arbitration Association (the "AAA") to designate one arbitrator, who
shall be qualified as an arbitrator under the standards of the AAA, who shall be
a retired or former judge of any appellate or trial court of the State of
California, any United States appellate court or the United States District
Court for any California District, who is, in any such case, not affiliated with
any party in interest to such arbitration, and who has substantial professional
experience with regard to corporate legal matters.
(b) The arbitrator shall consider the dispute at issue in Los
Angeles County, California, at a mutually agreed upon time within sixty (60)
days (or such longer period as may be acceptable to the Disputing Parties or as
directed by the arbitrator) of the designation of the arbitrator. The
arbitration proceeding shall be held in accordance with the rules for commercial
arbitration of the AAA in effect on the date of the initial request by the
Disputing Party, that gave rise to the dispute to be arbitrated (as such rules
are modified by the terms of this Agreement or may be further modified by mutual
agreement of the Disputing Parties) and shall include an opportunity for the
parties to conduct discovery in advance of the proceeding. Notwithstanding the
foregoing, the Disputing Parties shall agree that they will attempt, and they
intend that they and the arbitrator should use its best efforts in that attempt,
to conclude the arbitration proceeding and have a final decision from the
arbitrator within one hundred twenty (120) days from the date of selection of
the arbitrator; provided, however, that the arbitrator shall be entitled to
extend such one hundred twenty (120) day period for a total of two one hundred
twenty (120) day periods. The arbitrator shall deliver a written award with
respect to the dispute to each of the parties, who shall promptly act in
accordance therewith. Each Disputing Party to such arbitration agrees that any
award of the arbitrator shall be final, conclusive and binding and that they
will not contest any action by any other party thereto in accordance with an
award of the arbitrator. It is specifically understood and agreed that any party
may enforce any award rendered pursuant to the arbitration provisions of this
Section 10.11 by bringing suit in any court of competent jurisdiction.
(c) All costs and expenses attributable to the arbitrator shall be
allocated among the parties to the arbitration in such manner as the arbitrator
shall determine to be appropriate under the circumstances.
10.12. Cumulative Remedies. The rights, remedies, powers and privileges
herein provided are cumulative and not exclusive of any rights, remedies, powers
and privileges provided by law.
10.13. Third Party Beneficiaries. Except as specifically provided in
Article IX with respect to indemnification provided to the Indemnitees
identified therein, no provision of this Agreement shall create any third party
beneficiary rights in any Person, including any employee of Buyer or employee or
former employee of Seller or any Affiliate thereof (including any beneficiary or
dependent thereof).
10.14. Knowledge. Whenever used in this Agreement, "to the best knowledge"
of Seller or any variations thereof shall in all cases be understood as
comprising the actual
54
knowledge and belief of Jeffrey A. Evans and Matthew Johnston after reasonable
inquiry of Seller's employees and representatives and reasonable review of
Seller's files, books and records.
55
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
SELLER PARTIES:
ONSTAFF
a California corporation
By: /s/ Jeffrey A. Evans
---------------------------------------
Name: Jeffrey Evans
-------------------------------------
Title: President
------------------------------------
JEFFREY A. EVANS, an individual
/s/ Jeffrey A. Evans
-------------------------------------------
MATTHEW JOHNSTON GRANTOR RETAINED
ANNUITY TRUST DATED 4/23/01
By: /s/ Matthew Johnston
---------------------------------------
Name:______________________________________
DIANE PRINCE JOHNSTON GRANTOR RETAINED
ANNUITY TRUST DATED 4/23/01
By: /s/ Diane Prince Johnston
---------------------------------------
Name:______________________________________
MATTHEW AND DIANE JOHNSTON 2001 IRREVOCABLE
GIFT TRUST DATED 4/23/01
By: /s/ Alan Prince
---------------------------------------
Name:______________________________________
JOHNSTON LIVING TRUST DATED 3/27/01
By: /s/ Diane Prince Johnston
---------------------------------------
Name:______________________________________
SIGNATURE PAGE TO ONSTAFF ASSET PURCHASE AGREEMENT
56
SELLER REPRESENTATIVE:
/s/ Matthew Johnston
-------------------------------------------
Matthew Johnston
By signing below, the undersigned acknowledges that she has read the
foregoing Asset Purchase Agreement, is aware that her spouse has agreed to sell
substantially all of the assets of Seller, and consents to such a sale and
agrees to be bound by the terms of the foregoing Asset Purchase Agreement.
/s/ Laurie Soll
-------------------------------------------
Laurie Soll, spouse of Jeffrey A. Evans
BUYER:
ONSTAFF ACQUISITION CORP.
a Delaware corporation
By: /s/ Martin A. Kropelnicki
---------------------------------------
Name: Martin A. Kropelnicki
--------------------------------------
Title:_____________________________________
PARENT:
HALL, KINION & ASSOCIATES, INC.,
a Delaware corporation
By: /s/ Brenda C. Rhodes
----------------------------------------
Name:______________________________________
Title:_____________________________________
SIGNATURE PAGE TO ONSTAFF ASSET PURCHASE AGREEMENT
57
EXHIBIT 2.2
ASSET PURCHASE AGREEMENT
By and Among
HALL, KINION & ASSOCIATES, INC., and
ONSTAFF ACQUISITION CORP.,
On the One Hand, and
HEALTHCARE STAFFING RESOURCES, INC.,
JEFFREY A. EVANS,
MATTHEW JOHNSTON
GRANTOR RETAINED ANNUITY TRUST DATED APRIL 23, 2001,
DIANE PRINCE JOHNSTON
GRANTOR RETAINED ANNUITY TRUST DATED APRIL 23, 2001,
MATTHEW AND DIANE JOHNSTON
2001 IRREVOCABLE GIFT TRUST DATED APRIL 23, 2001,
JOHNSTON LIVING TRUST DATED March 27, 2001
and
MATTHEW JOHNSTON, as Seller Representative,
On the Other Hand
Dated as of August 9, 2002
TABLE OF CONTENTS
Page
----
ARTICLE I. DEFINITIONS ........................................................ 1
1.01. Definitions ........................................................ 1
1.02. Index of Other Defined Terms ....................................... 7
ARTICLE II. TRANSFER OF ASSETS ................................................ 8
2.01. Transfer of Assets by Seller ....................................... 8
2.02. Excluded Assets .................................................... 10
2.03. Assumption of Liabilities .......................................... 10
2.04. Excluded Liabilities ............................................... 10
2.05. Assignment of Contracts and Rights ................................. 11
2.06. Closing ............................................................ 12
2.07. [Intentionally Omitted] ............................................ 14
2.08. Total Consideration Allocation ..................................... 14
2.09. [Intentionally Omitted] ............................................ 14
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER ......................... 14
3.01. Corporate Existence and Power ...................................... 14
3.02. Authorization ...................................................... 15
3.03. Capital Stock; Subsidiaries ........................................ 15
3.04. Governmental Authorization ......................................... 15
3.05. Non-Contravention .................................................. 15
3.06. Financial Statements; Undisclosed Liabilities ...................... 15
3.07. Absence of Certain Changes ......................................... 16
3.08. Properties; Leases; Tangible Assets ................................ 18
3.09. Sufficiency of and Title to the Transferred Assets ................. 19
3.10. Affiliates ......................................................... 19
3.11. Litigation ......................................................... 20
3.12. Contracts .......................................................... 20
3.13. Permits; Required Consents ......................................... 21
3.14. Compliance with Applicable Laws .................................... 21
3.15. Employment Agreements; Change in Control; and Employee Benefits .... 21
3.16. Labor and Employment Matters ....................................... 23
3.17. Intellectual Property .............................................. 24
3.18. Advisory Fees ...................................................... 25
3.19. Environmental Compliance ........................................... 25
3.20. Insurance .......................................................... 25
3.21. Tax Matters ........................................................ 26
3.22. Clients ............................................................ 27
i
3.23. Books and Records .................................................. 27
3.24. Warranties ......................................................... 27
3.25. Bank Accounts ...................................................... 27
3.26. Certain Business Practices ......................................... 28
3.27. Complete Disclosure ................................................ 28
3.28. No Other Representations ........................................... 28
ARTICLE IV. CERTAIN REPRESENTATIONS AND WARRANTIES OF SELLER PARTIES .......... 28
4.01. Understanding that Shares will Be Issued without Registration ...... 28
4.02. Accredited Investor ................................................ 29
4.03. Receipt of Information; Access to Information ...................... 29
4.04. Authority Relative to this Agreement ............................... 30
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER ................. 30
5.01. Corporate Existence and Power ...................................... 30
5.02. Corporate Authorization ............................................ 30
5.03. Governmental Authorization ......................................... 30
5.04. Non-Contravention .................................................. 31
5.05. Parent SEC Filings; No Material Adverse Effect ..................... 31
5.06. No Other Representations ........................................... 31
ARTICLE VI. COVENANTS OF SELLER ............................................... 31
6.01. Compliance with Terms of Required Contractual Consents ............. 31
6.02. Confidentiality .................................................... 31
6.03. Change of Name ..................................................... 32
6.04. Administration of Accounts ......................................... 32
6.05. Specific Performance ............................................... 32
6.06. Taxes .............................................................. 33
6.07. COBRA .............................................................. 33
ARTICLE VII. COVENANTS OF BUYER AND PARENT .................................... 33
7.01. Confidentiality .................................................... 33
7.02. Specific Performance ............................................... 34
7.03. Pre-paid Rent ...................................................... 34
ARTICLE VIII. COVENANTS OF ALL PARTIES ........................................ 34
8.01. Further Assurances ................................................. 34
8.02. Certain Filings .................................................... 34
8.03. Public Announcements ............................................... 35
8.04. Specific Performance ............................................... 35
ii
ARTICLE IX. INDEMNIFICATION ................................................... 35
9.01. Seller Parties' Agreement to Indemnify ............................. 35
9.02. Parent's and Buyer's Agreement to Indemnify ........................ 36
9.03. Survival of Representations, Warranties and Covenants .............. 37
9.04. Claims for Indemnification ......................................... 38
9.05. Defense of Claims .................................................. 38
9.06. Limitations on Remedies ............................................ 39
9.07. Nature of Payments ................................................. 39
9.08. Right of Set-Off ................................................... 39
9.09. Appointment of the Seller Representative ........................... 40
9.10. Deductibles, Caps and Set-Off Rights ............................... 40
ARTICLE X. MISCELLANEOUS ...................................................... 41
10.01. Notices ........................................................... 41
10.02. Amendments; No Waivers ............................................ 42
10.03. Expenses .......................................................... 42
10.04. Successors and Assigns ............................................ 42
10.05. Governing Law ..................................................... 43
10.06. Counterparts; Effectiveness ....................................... 43
10.07. Entire Agreement .................................................. 43
10.08. Captions .......................................................... 43
10.09. Severability ...................................................... 43
10.10. Construction ...................................................... 43
10.11. Arbitration ....................................................... 44
10.12. Cumulative Remedies ............................................... 45
10.13. Third Party Beneficiaries ......................................... 45
10.14. Knowledge ......................................................... 45
iii
EXHIBITS
EXHIBIT A Financial Statements
EXHIBIT B Form of Employment Agreement with Jeffrey Evans
EXHIBIT C Form of Opinion of Counsel to Seller and Shareholders
EXHIBIT D Form of Opinion of Counsel to Buyer and Parent
EXHIBIT E Form of Noncompetition and Nonsolicitation Agreement
EXHIBIT F Form of Guaranty
EXHIBIT G Form of Escrow Agreement
EXHIBIT H Form of Employment Agreement with Matthew Johnston
SCHEDULES
Schedule 2.02 Excluded Assets
Schedule 3.01 Qualifications to do Business
Schedule 3.03 Ownership Table and Related Agreements
Schedule 3.05 Non-Contravention
Schedule 3.06(b) Financial Statements
Schedule 3.06(c) Undisclosed Liabilities
Schedule 3.07(a) Absence of Certain Changes
Schedule 3.08(a) Encumbrances on Property
Schedule 3.08(d) Leases
Schedule 3.08(e) Detractions on Real Property
Schedule 3.08(f) Regulatory Proceedings
Schedule 3.10 Affiliates
Schedule 3.11 Litigation
Schedule 3.12(a) Scheduled Contracts
Schedule 3.12(b) Limitations on Enforceability of Contracts
Schedule 3.12(c) Significant Clients
Schedule 3.13(a) Permits
Schedule 3.13(b) Required Consents
Schedule 3.14 Compliance with Applicable Laws
Schedule 3.15(a) Employment Agreements
Schedule 3.15(b) Benefit Plans
Schedule 3.15(c) Employee Pension Benefit Plans
Schedule 3.16(a) Labor and Employment Matters
Schedule 3.16(b) Labor Disputes
Schedule 3.17(a) Intellectual Property Rights
Schedule 3.17(b) Actions Affecting Intellectual Property
Schedule 3.17(c) Ownership of Intellectual Property Rights
Schedule 3.19(a) Environmental Permits
Schedule 3.19(b) Compliance with Environmental Laws
Schedule 3.19(c) Continuing Compliance with Environmental Laws
Schedule 3.20 Insurance Policies
Schedule 3.21 Tax Matters
Schedule 3.22 Clients
iv
Schedule 3.24 Warranties
Schedule 3.25 Bank Accounts
Schedule 5.04 Non-Contravention
v
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of August 9,
2002, is by and among Hall, Kinion & Associates, Inc., a Delaware corporation
("Parent") andOnStaff Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary of Parent ("Buyer"), on the one hand, and Healthcare Staffing
Resources, Inc., a California corporation ("Seller"), Jeffrey A. Evans, an
individual ("Evans"), Matthew Johnston Grantor Retained Annuity Trust dated
4/23/01 (the "Matt Annuity Trust"), Diane Prince Johnston Grantor Retained
Annuity Trust dated 4/23/01 (the "Diane Annuity Trust"), Matthew and Diane
Johnston 2001 Irrevocable Gift Trust dated 4/23/01 (the "Gift Trust"), Johnston
Living Trust dated 3/27/01 (the "Living Trust," and collectively, with Evans,
the Matt Annuity Trust, the Diane Annuity Trust and the Gift Trust, the
"Shareholders" and individually, a "Shareholder"), and Matthew Johnston, as a
representative of the Seller (the "Seller Representative") and the Shareholders
(collectively, the "Seller Parties"), on the other hand.
RECITALS
A. WHEREAS, Seller is engaged i n the business of sourcing and
delivering human capital and providing temporary staff and personnel; and
B. WHEREAS, Seller desires to sell and transfer to Buyer
substantially all of its assets (other than the Excluded Assets, as defined
below) in consideration of Buyer's obligations hereunder.
AGREEMENT
NOW, THEREFORE, in consideration of the premises, and the mutual
representations, warranties, covenants and agreements hereinafter set forth, the
parties hereto agree as follows.
ARTICLE I.
DEFINITIONS
1.01. Definitions. The following terms, as used herein, have the
following meanings:
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with such other Person, through the ownership of all or part of any Person.
"Ancillary Agreements" means the Escrow Agreement, the Noncompetition
and Nonsolicitation Agreements, the Evans Employment Agreement, the Johnston
Employment Agreement, the Bill of Sale, the Assignment and Assumption Agreement
and the Registration Rights Agreement.
"Applicable Law" means, with respect to any Person, any domestic or
foreign, federal, state or local statute, law, ordinance, policy, guidance,
rule, administrative interpretation,
1
regulation, order, writ, injunction, directive, judgment, decree or other
requirement of any Governmental Authority (including any Environmental Law)
applicable to such Person or any of its Affiliates or Plan Affiliates or any of
their respective properties, assets, officers, directors, employees, consultants
or agents (in connection with such officer's, director's, employee's,
consultant's or agent's activities on behalf of such Person or any of its
Affiliates or Plan Affiliates).
"Assignment and Assumption Agreement" means that certain Assignment and
Assumption Agreement dated the date hereof by and between Seller and Buyer.
"Associate" or "Associated With" means, when used to indicate a
relationship with any Person, (a) any other Person of which such Person is an
officer or partner or is, directly or indirectly, the beneficial owner of ten
percent (10%) or more of any class of equity securities issued by such other
Person, (b) any trust or other estate in which such Person has a substantial
beneficial interest or as to which such Person serves as trustee or in a similar
fiduciary capacity, and (c) any relative or spouse of such Person, or any
relative of such spouse who has the same home as such Person or who is a
director or officer of such Person or any Affiliate thereof.
"Benefit Arrangement" means any benefit arrangement that is not an
Employee Benefit Plan, including, without limitation, (i) each employment or
consulting agreement, (ii) each arrangement providing for insurance coverage or
workers' compensation benefits, (iii) each incentive bonus or deferred bonus
arrangement, (iv) each arrangement providing termination allowance, severance or
similar benefits, (v) each equity compensation plan, (vi) each deferred
compensation plan and (vii) each compensation policy and practice maintained by
Seller or any ERISA Affiliate of Seller covering the employees, former
employees, directors and former directors of Seller and the beneficiaries of any
of them.
"Benefit Plan" means an Employee Benefit Plan or Benefit Arrangement.
"Bill of Sale" means that certain Bill of Sale dated the date hereof
executed by Seller.
"Business" means the business as currently conducted by Seller.
"Business Day" means a day other than a Saturday, Sunday or other day
on which commercial banks in San Francisco, California are authorized or
required by law to close.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended, as set forth in Section 4980B of the Code and part of Title I
of ERISA.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contracts" means all contracts, agreements, options, leases, licenses,
sales and accepted purchase orders, commitments and other instruments of any
kind, whether written or oral, to which Seller is a party on the Closing Date,
including the Scheduled Contracts.
"Damages" means all demands, claims, actions or causes of action,
assessments, losses, damages, costs, expenses, liabilities, judgments, awards,
fines, sanctions, penalties,
2
charges and amounts paid in settlement (net of insurance proceeds actually
received), including (i) interest on cash disbursements in respect of any of the
foregoing at the Reference Rate in effect from time to time, compounded
quarterly, from the date each such cash disbursement is made until the Person
incurring the same shall have been indemnified in respect thereof and (ii)
reasonable costs, fees and expenses of attorneys, accountants and other agents
of such Person.
"Debt" means any indebtedness of Seller, whether or not contingent, in
respect of borrowed money or evidenced by bonds, notes, debentures or other
similar instruments or letters of credit (or reimbursement agreements in respect
thereof) or banker's acceptances or representing capitalized lease obligations
or the balance deferred and unpaid of the purchase price of any property, except
any such balance that constitutes an accrued expense or account payable, if and
to the extent any of the foregoing indebtedness (other than letters of credit)
would appear as a Liability upon a balance sheet of Seller prepared in
accordance with GAAP, as well as all indebtedness of others secured by a Lien on
any asset of Seller (whether or not such indebtedness is assumed by Seller) and,
to the extent not otherwise included, any guaranty by Seller of any indebtedness
of any other Person.
"Employee Benefit Plan" means any employee benefit plan, as defined in
Section 3(3) of ERISA, that is sponsored by or contributed to Seller or any
ERISA Affiliate thereof covering employees or former employees of Seller.
"Employee Pension Benefit Plan" means any employee pension benefit
plan, as defined in Section 3(2) of ERISA, that is subject to Title IV of ERISA,
other than a Multiemployer Plan.
"Environmental Laws" means all Applicable Laws relating to Hazardous
Substances, toxic torts, occupational health and safety, or the environment,
including without limitation, the Resource Conservation and Recovery Act
("RCRA"), the Comprehensive Environmental Response Compensation and Liability
Act ("CERCLA"), the Clean Air Act, the Water Pollution Control Act, the Safe
Drinking Water Act, and the Toxic Substances Control Act ("TSCA"), and any
requirements promulgated pursuant to these Applicable Laws or any analogous
foreign, state or local Applicable Laws.
"Environmental Liabilities" means all Liabilities of a Person (whether
such Liabilities are owed by such Person to Governmental Authorities, third
parties, or otherwise) whether currently in existence or arising hereafter which
arise under or relate to any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" of any Person means any other Person that, together
with such Person as of the relevant measuring date under ERISA, was or is
required to be treated as a single employer under Section 414 of the Code.
"Escrow Agent" means Comerica Bank - California.
3
"Escrow Agreement" means the Escrow Agreement dated as of the Closing
Date by and among Buyer, Seller and the Escrow Agent.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fiscal Year" means a twelve month period commencing on January 1 of
each calendar year.
"GAAP" means generally accepted accounting principles in the United
States as in effect on the date hereof and applied on a consistent basis.
"Governmental Authority" means any foreign, domestic, federal,
territorial, state or local governmental authority, quasi-governmental
authority, instrumentality, court, government or self-regulatory organization,
commission, tribunal or organization or any regulatory, administrative or other
agency, or any political or other subdivision, department or branch of any of
the foregoing.
"Group Health Plan" means any group health plan, as defined in Section
5000(b)(1) of the Code.
"Hazardous Substance" means any substance or material: (i) the presence
of which requires investigation or remediation under any Applicable Law; or (ii)
that is defined as a "hazardous waste" or "hazardous substance" under any
Applicable Law; or (iii) that is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic or mutagenic or otherwise hazardous and is
regulated by any Governmental Authority having or asserting jurisdiction over
Seller; or (iv) the presence of which causes a nuisance, trespass or other
tortious condition; (v) the presence of which poses a hazard to the health or
safety of Persons; or (vi) without limitation, that contains gasoline, diesel
fuel or other petroleum hydrocarbons, polychlorinated biphenols (PCBs) or
asbestos.
"Indemnifying Party" means: (1) with respect to any Buyer Indemnitee
asserting a claim under Sections 9.01 or 10.11, Seller Parties; and (2) with
respect to any Seller Indemnitee asserting a claim under Sections 9.02 or 10.11,
Buyer and Parent.
"Indemnitee" means: (1) each of Parent, Buyer and their respective
Affiliates with respect to any claim for which a Seller Party is an Indemnifying
Party under Sections 9.01 or 10.11; and (2) Seller and its respective Affiliates
with respect to claims for which Parent or Buyer is an Indemnifying Party under
Sections 9.02 or 10.11.
"IRS" means the Internal Revenue Service.
"Liability" means, with respect to any Person, any liability or
obligation of such Person of any kind, character or description, whether known
or unknown, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, secured or unsecured, joint or several, due or to become due,
vested or unvested, executory, determined, determinable or otherwise and whether
or not the same is required to be accrued on the financial statements of such
Person or is disclosed on any schedule to this Agreement.
4
"Lien" means, with respect to any asset, any mortgage, title defect or
objection, lien, pledge, charge, security interest, hypothecation, restriction,
encumbrance or charge of any kind in respect of such asset.
"Material Adverse Effect" means a change in, or effect on, the
operations, affairs, prospects, financial condition, results of operations,
assets, Liabilities, reserves or any other aspect of Seller or the Business that
results in a material adverse effect on, or a material adverse change in any of
Seller, the Business or the Transferred Assets.
"Multiemployer Plan" means a multiemployer plan, as defined in Section
3(37) and 4001(a)(3) of ERISA.
"Multiple Employer Plan" means any Employee Benefit Plan sponsored by
more than one employer, within the meanings of Section 4063 or 4064 of ERISA or
Section 413(c) of the Code.
"Parent Common Stock Price" means the average of the closing prices of
a share of Parent Common Stock during the thirty (30) trading days ending on the
date which is two (2) trading days prior to the Closing Date.
"Permitted Liens" means (i) Liens for Taxes or governmental
assessments, charges or claims the payment of which is not yet due, or for Taxes
the validity of which are being contested in good faith by appropriate
proceedings; (ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar Persons and other Liens
imposed by Applicable Law incurred in the ordinary course of business for sums
not yet delinquent or being contested in good faith; (iii) Liens relating to
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security or to
secure the performance of leases, trade contracts or other similar agreements;
(iv) Liens and Encumbrances specifically identified in the 2002 Balance Sheet;
and (v) Liens securing executory obligations under any Lease that constitutes an
"operating lease" under GAAP; provided, however, that, with respect to each of
clauses (i) through (v), to the extent that any such Lien on any Transferred
Asset arose prior to the Closing Date and relates to, or secures the payment of,
a Liability that is required to be accrued for under GAAP, such Lien shall not
be a Permitted Lien unless all Liabilities served thereby have been fully
accrued as Debt on the 2002 Balance Sheet. Notwithstanding the foregoing, no
Lien arising under the Code or ERISA with respect to the operation, termination,
restoration or funding of any Benefit Plan sponsored by, maintained by or
contributed to by Seller or any of its ERISA Affiliates or arising in connection
with any excise tax or penalty tax with respect to such Benefit Plan shall be a
Permitted Lien.
"Person" means an individual, corporation, partnership, limited
liability company, association, trust, estate or other entity or organization,
including a Governmental Authority.
"Plan Affiliate" means, with respect to any Person, any employee
benefit plan or arrangement sponsored by, maintained by or contributed to by
such Person, and with respect to any employee benefit plan or arrangement, any
Person sponsoring, maintaining or contributing to such plan or arrangement.
5
"Prohibited Transaction" means a transaction that is prohibited under
Section 4975 of the Code or Section 406 of ERISA and not exempt under Section
4975 of the Code or Section 408 of ERISA, respectively.
"Reference Rate" means seven percent (7%) per annum.
"Registration Rights Agreement" means that certain Registration Rights
Agreement between Parent and Seller dated as of the date hereof.
"Related Purchase Agreements" means (i) that certain Asset Purchase
Agreement dated the date hereof by and among Parent and Buyer, on the one hand,
and OnStaff and the Shareholders and the Seller Representative, on the other
hand, and (ii) that certain Asset Purchase Agreement dated the date hereof by
and among Parent and Buyer, on the one hand, and Boardnetwork.com, Alan Prince,
Jeffrey Evans, the Matt Annuity Trust, the Diane Annuity Trust, the Gift Trust,
the Living Trust and the Seller Representative, on the other hand.
"SEC" means the U.S. Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means, with respect to any Person, (i) any corporation as
to which more than 10% of the outstanding stock having ordinary voting rights or
power (and excluding stock having voting rights only upon the occurrence of a
contingency unless and until such contingency occurs and such rights may be
exercised) is owned or controlled, directly or indirectly, by such Person and/or
by one or more of such Person's Subsidiaries and (ii) any partnership, joint
venture or other similar relationship between such Person (or any Subsidiary
thereof) and any other Person (whether pursuant to a written agreement or
otherwise).
"Tax," including "Taxes," means (A) all taxes imposed of any nature
including federal, state, local or foreign net income tax, alternative or add-on
minimum tax, profits or excess profits tax, franchise tax, gross income,
adjusted gross income or gross receipts tax, employment related tax (including
employee withholding or employer payroll tax, FICA or FUTA), real or personal
property tax or ad valorem tax, sales or use tax, excise tax, stamp tax or duty,
any withholding or back up withholding tax, value added tax, severance tax,
prohibited transaction tax, premiums tax, environmental tax, intangibles tax or
occupation tax, together with any interest or any penalty, addition to tax or
additional amount imposed by any Governmental Authority (domestic or foreign)
responsible for the imposition of any such tax, (B) any Liability for payment of
amounts described in clause (A) whether as a result of transferee liability, of
being a member of an affiliated, consolidated, combined or unitary group for any
period, or otherwise through operation of law, and (C) any liability for the
payment of amounts described in clauses (A) or (B) as a result of any tax
sharing, tax indemnity or tax allocation agreement or any other express or
implied agreement to indemnify any other Person.
"Tax Return" means all returns, reports, forms or other information
required to be filed with respect to any Tax.
"U.S. Government" means the United States Government, including any
agencies, commissions, branches, instrumentalities and departments thereof.
6
1.02. Index of Other Defined Terms. In addition to those terms defined
above, the following terms shall have the respective meanings given thereto in
the sections indicated below:
2.01. Transfer of Assets by Seller. Upon the terms and subject to the
conditions of this Agreement and in reliance upon the representations,
warranties and agreements herein set forth, Buyer agrees to purchase from Seller
and Seller agrees to sell or cause to be sold to Buyer at the Closing, free and
clear of all Liens, other than Permitted Liens, all the assets, properties,
rights, licenses, permits, contracts, causes of action, claims, operations and
businesses of Seller of every kind and description as the same shall exist on
the Closing Date (other than the Excluded Assets), wherever located, whether
tangible or intangible, real, personal or mixed, that are owned by, leased by or
in the possession of Seller, whether or not reflected on the books and records
of Seller (the collective assets, properties, rights, licenses, permits,
contracts, causes of action, claims, operations and businesses to be transferred
to Buyer by Seller pursuant hereto are referred to collectively herein as the
"Transferred Assets") and including, without limitation, all right, title and
interest of Seller in, to and under:
(a) all machinery, equipment, furniture, office equipment,
computer equipment (including all hardware and software), communications
equipment, vehicles, storage tanks, spare and replacement parts, fuel and other
tangible property (and interests in any of the foregoing) of Seller
(collectively, the "Equipment");
(b) all items of inventory notwithstanding how classified in the
financial records of Seller, including all raw materials, work-in-process,
finished goods, supplies, spare parts and samples (collectively, the
"Inventory");
8
(c) all contracts, agreements, options, leases, licenses, sales and
purchase orders, commitments and other instruments of any kind, whether written
or oral, to which Seller is a party on the Closing Date, including the Scheduled
Contracts (as defined below) (collectively, the "Contracts");
(d) all prepaid deposits, charges and expenses of Seller, including
any such deposits, charges and expenses with respect to ad valorem taxes, leases
and rentals and utilities;
(e) all rights of Seller to insurance proceeds with respect to claims
for Damages to the Transferred Assets occurring prior to the Closing Date,
unless such proceeds reimburse Seller for the previously completed repair or
restoration of such Transferred Assets;
(f) all of Seller's rights, claims, credits, causes of action or
rights of set-off against third parties relating to the Business or the
Transferred Assets, whether liquidated or unliquidated, fixed or contingent,
including claims pursuant to all warranties, representations and guarantees made
by suppliers, manufacturers, contractors and other third parties in connection
with products or services purchased by or furnished to Seller for use in the
Business or affecting any of the Transferred Assets;
(g) all of Seller's licensed products or processes, patents,
copyrights, trademarks, trade names, service marks, service names, designs,
know-how, processes, trade secrets, inventions, and other proprietary data,
including without limitation, all information relating to Seller's clients;
(h) all transferable franchises, licenses, permits or other
authorizations issued or granted by any Governmental Authority that are owned
by, granted to or held or used by Seller, whether or not utilized in the
Business;
(i) to the extent available, all books, records, files and papers of
the Business, whether in hard copy or computer format, including, without
limitation, invoices, sales and promotional literature, manuals and data, sales
and purchase correspondence, lists of present and former suppliers and
customers, personnel and employment records of present and, to the extent
lawful, former employees, documentation developed or used for accounting,
marketing, or any other purpose related to the conduct of the Business at any
time prior to the Closing, and to the extent available, copies of all corporate
minutes and other corporate records of Seller;
(j) all goodwill associated with Seller, the Business or the
Transferred Assets;
(k) except as specifically provided in Section 2.02, all other assets
and properties of Seller which exist on the Closing Date, whether tangible or
intangible, real or personal; and
(l) all accounts receivable relating to services rendered by Seller or
its employees (and for all purposes of this Agreement, the parties hereto agree
that all the employees of Elegant Lighting shall be considered employees of
Seller) on or after August 5, 2002.
9
2.02. Excluded Assets. Buyer expressly understands and agrees that the
assets and properties set forth on Schedule 2.02 (the "Excluded Assets") shall
be excluded from the Transferred Assets.
2.03. Assumption of Liabilities. Upon the terms and subject to the
conditions of this Agreement and in reliance upon the representations,
warranties and agreements herein set forth, Buyer agrees, effective at the time
of Closing, to assume, perform and timely pay and discharge the following
Liabilities (subject to the conditions below and excluding the Excluded
Liabilities, the "Assumed Liabilities"):
(i) all Contracts (including Scheduled Contracts);
(ii) all current accounts payable, payroll or accrued expenses of
Seller incurred or accrued in the ordinary course of business on or after August
5, 2002;
(iii) accrued vacation of Seller's employees;
(iv) severance compensation provided in paragraph 7 under the
Compensation and Benefits section of the Letter of Employment to David
Mossesson, dated January 14, 2002 from Seller, in the mutually agreed amount of
One Hundred Fifty Thousand Dollars ($150,000) in cash; and
(v) all Liabilities arising from and after the Closing which arise
out of or relate in any way to Buyer's ownership or operation of the Transferred
Assets after the Closing;
provided, however, that the assumption by Buyer of the Assumed Liabilities will
be limited as follows: any Liability set forth in subsections (i), (ii), (iii)
and (v) of this Section 2.03 shall constitute an Assumed Liability only to the
extent that it arises out of Seller's normal conduct of the Business.
2.04. Excluded Liabilities. Neither Parent nor Buyer assumes, and shall not
at any time hereafter (including on or after the Closing Date) become liable
for, any Liabilities of Seller, any of its Affiliates or any Plan Affiliate,
other than the Assumed Liabilities (the "Excluded Liabilities"); in furtherance
of and not in limitation of the foregoing, the Excluded Liabilities shall
include, but are not limited to, the following:
(a) any Liability of Seller or any of its Affiliates or Plan
Affiliates of any of the foregoing, whether currently in existence or arising
hereafter, that is not attributable to, or that does not arise out of, Seller's
normal conduct of the Business;
(b) any Liability whether presently in existence or arising hereafter
which is attributable to an Excluded Asset;
(c) any Environmental Liability imposed on Seller whether presently in
existence or arising hereafter;
10
(d) any Liability the existence of which constitutes a breach of any
representation or warranty or covenant hereunder which would be indemnifiable to
Parent and Buyer pursuant to Section 9.01 hereof.;
(e) any Liability whether currently in existence or arising hereafter
relating to fees, commissions or expenses owed to any broker, finder, investment
banker, attorney, accountant or other intermediary, consultant or advisor
employed by any of the Seller Parties or any of its or his Affiliates or Plan
Affiliates in connection with the transactions contemplated hereby or otherwise;
(f) all Debt (other than current accounts payable or accrued expenses
as set forth in Section 2.03(ii));
(g) any Liability of Seller or any of its shareholders or any of their
Affiliates for any Taxes, including without limitation, (i) any Liability for
any Taxes with respect to the Transferred Assets attributable to any period
prior to the Closing and (ii) any Taxes relating to or arising from Seller's
issuance of its Series B common stock;
(h) any Liability, whether currently in existence or arising
hereafter, owed by Seller to any of its Associates or Affiliates;
(i) any Liability incurred by Seller with respect to any of Seller's
employees or former employees, agents, consultants or independent contractors,
including but not limited to, worker's compensation, severance, salary, bonuses
or other benefits and Liabilities arising pursuant to Seller's employment
agreements with Evans, Thadeus Kaul and David Mossesson (other than the
obligation to pay severance to Mr. Mossesson pursuant to the terms and
conditions of his employment agreement with Seller);
(j) any Liability arising from, arising out of, based on or relating
to any of Seller's Benefit Plans, whether arising before, on or after the
Closing Date;
(k) any Liability for indebtedness of Seller, including without
limitation, any principal, interest or other amount owing in respect of any such
indebtedness;
(l) any negative cash balances, book overdrafts, held checks or
similar liabilities of Seller;
(m) any Liability for payroll or similar Taxes relating to Seller's
arrangement with Elegant Lighting; and
(n) all current accounts payable, payroll or accrued expenses of
Seller, incurred or accrued in the ordinary course of business prior to August
5, 2002.
2.05. Assignment of Contracts and Rights.
(a) With respect to any Contract and any claim, right or benefit
arising thereunder or resulting therefrom, promptly after the date hereof, to
the extent requested by Buyer, Seller will use its best efforts to obtain the
written consent of the other parties to any such
11
Contract for the assignment thereof to Buyer or written confirmation from such
parties confirming that such consent is not required in form and substance
reasonably satisfactory to Buyer.
(b) If (i) such consent, waiver or confirmation is not obtained with
respect to any such Contract and (ii) Buyer shall elect to consummate the
Closing, Seller and Buyer shall cooperate in an arrangement reasonably
satisfactory to Buyer and Seller under which Buyer would obtain, to the extent
practicable, the claims, rights and benefits and assume the corresponding
obligations thereunder in accordance with this Agreement, including
subcontracting, sub-licensing or sub-leasing to Buyer, or under which Seller
would enforce for the benefit of Buyer, with Buyer assuming Seller's
obligations, any and all claims, rights and benefits of Seller against a third
party thereto. Seller will promptly pay to Buyer when received all monies
received by Seller under any Transferred Asset or any claim, right or benefit
arising thereunder not transferred to Buyer pursuant to this Section 2.05.
2.06. Closing.
(a) The closing (the "Closing") of the transactions contemplated by
this Agreement shall take place at the offices of Gibson, Dunn & Crutcher LLP,
2029 Century Park East, Los Angeles, California 90067, on the date hereof (the
"Closing Date").
(b) At the Closing, Parent and/or Buyer shall deliver to Seller the
following:
(i) by wire transfer (to a bank account designated by Seller in
writing at least three (3) Business Days prior to the Closing Date), One Million
Seventy Four Thousand Three Hundred Forty One Dollars ($1,074,341) in
immediately available funds; and
(ii) one or more stock certificates for an aggregate number of
duly authorized, validly issued, fully-paid and nonassessable shares of common
stock, par value $0.001 per share, of Parent ("Parent Common Stock") equal to
Twenty Four Thousand One Hundred Fifty Two (24,152) (the "Shares"); provided,
however, a certificate representing one-third (1/3) of the Shares ("Escrowed
Shares") registered in the name of Seller shall be delivered to the Escrow Agent
to be held and distributed by the Escrow Agent in accordance with the Escrow
Agreement. Neither Parent nor Buyer shall have any responsibility for the
allocation of the Shares among the Shareholders or other equityholders of
Seller. Seller shall deliver to the Escrow Agent stock powers or other
assignments of interest duly executed in blank for the Escrowed Shares.
(c) Buyer shall deliver to Seller such customary instruments of
assumption as may be reasonably requested by Seller to evidence such assumption
of the Assumed Liabilities; provided, however, that no such document shall
expand in any way any of Buyer's obligations to assume anything other than the
Assumed Liabilities.
(d) At the Closing, Seller shall deliver to Parent and/or Buyer:
(i) such bills of sale, certificates of title, endorsements,
consents, assignments and other good and sufficient instruments of conveyance
and assignment
12
of such rights as the parties and their respective counsel shall deem reasonably
necessary or appropriate to vest in Buyer all of Seller's right, title and
interest in, to and under the Transferred Assets;
(ii) a copy of the resolutions of the board of directors of
Seller and a copy of the resolutions of the Shareholders, each authorizing the
execution and delivery of this Agreement and each of the Ancillary Agreements,
and the consummation of the transactions contemplated hereby and thereby, both
certified by the Secretary of Seller;
(iii) a copy of the resolutions of the board of directors of
Seller terminating Seller's Benefit Plans, including Seller's 401(k) plan;
(iv) written releases of any and all Liens on the Transferred
Assets and executed termination statements with respect to any security
interests filed by any creditor of Seller pursuant to the Uniform Commercial
Code;
(v) a signed opinion of counsel to Seller, dated the Closing
Date, in substantially the form attached hereto as Exhibit C;
(vi) all Required Consents for the transactions contemplated by
this Agreement;
(vii) an employment agreement substantially in the form attached
hereto as Exhibit B executed by Jeffrey A. Evans (the "Evans Employment
Agreement");
(viii) an employment agreement substantially in the form attached
hereto as Exhibit H executed by Matthew Johnston (the "Johnston Employment
Agreement");
(ix) terminations of any agreements between any Affiliate of
Seller and Seller, if requested by Parent or Buyer, at no cost;
(x) a Noncompetition and Nonsolicitation Agreement
substantially in the form attached hereto as Exhibit E executed by Diane Prince
Johnston;
(xi) a fully executed Escrow Agreement substantially in the form
attached hereto as Exhibit G;
(xii) Guaranties in the form attached hereto as Exhibit F
executed by each of Matthew Johnston and Diane Prince Johnston;
(xiii) Agreement executed by Seller and Matthew Johnston
rescinding that certain Executive Deferred Compensation Agreement dated as of
June 28, 2002 by and between Seller and Matthew Johnston;
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(xiv) Agreement executed by Seller and Evans rescinding that
certain Executive Deferred Compensation Agreement dated as of June 28, 2002 by
and between Seller and Evans;
(xv) Agreements or other documents in form reasonably
satisfactory to Parent evidencing the termination of Seller's employment
agreements with Evans, Thadeus Kaul and David Mossesson;
(xvi) Amendment to the Living Trust; and
(xvii) Agreement with Elegant Lighting in form reasonably
satisfactory to Parent.
2.07. [Intentionally Omitted].
2.08. Total Consideration Allocation. The parties agree to allocate the
consideration paid for the Transferred Assets under this Agreement among the
Transferred Assets in accordance with Section 1060 of the Code as mutually
agreed to by the parties within one hundred and eighty (180) days after the
Closing. If Buyer and Seller are unable to agree, the final allocation of such
consideration among the Transferred Assets shall be determined by an independent
party mutually agreed to by Parent and the Seller Representative (the "Selected
Firm") and the Selected Firm's determination of the allocation shall be final
and binding upon the parties hereto for purposes of this Agreement. Buyer and
Seller and the shareholders of Seller shall use such mutually agreed-to
allocations in preparing any filings required pursuant to Section 1060 of the
Code or any similar provisions of state or local law, shall report the tax
consequences of the transactions contemplated by this Agreement in a manner
consistent with such allocations on all relevant tax returns and shall not take
any position inconsistent therewith.
2.09. [Intentionally Omitted]
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF SELLER
As an inducement to Buyer to enter into this Agreement and to consummate
the transactions contemplated herein, Seller represents and warrants, as of the
date of this Agreement and as of the Closing Date, to Buyer as follows:
3.01. Corporate Existence and Power. Seller is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of California, and has all corporate power and all governmental licenses,
governmental authorizations, governmental consents and governmental approvals
required to carry on the Business as now conducted and to own and operate the
Transferred Assets as now owned and operated. Seller is not required to be
qualified to conduct business in any jurisdiction other than: (a) the
jurisdictions set forth in Schedule 3.01, in which jurisdictions Seller is duly
qualified to do business and in good standing, and (b) such jurisdictions where
the failure to be so qualified, whether singly or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
14
3.02. Authorization. The execution, delivery and performance by Seller of
this Agreement and the consummation by Seller of the transactions contemplated
hereby are within Seller's corporate powers and have been duly authorized by all
necessary corporate action on the part of Seller. This Agreement has been duly
and validly executed by Seller and constitutes the legal, valid and binding
agreement of Seller, enforceable against it in accordance with its terms, except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and subject to
general principles of equity.
3.03. Capital Stock; Subsidiaries.
(a) The entire authorized capital stock of Seller consists of 10,000
shares, no par value, of common stock (the "Seller Common Stock"), of which
143.896 shares of Seller Common Stock are issued and outstanding. The
Shareholders are the sole owners of all of the outstanding capital stock of the
Seller, and their respective ownership of the Seller Common Stock are set forth
on Schedule 3.03. Except as set forth on Schedule 3.03, there are no outstanding
obligations, options, warrants, convertible securities, phantom stock, stock
appreciation rights or other rights, agreements, arrangements or commitments of
any kind relating to the capital stock of Seller or obligating Seller to issue
or sell any shares of capital stock of, or any other interest in, Seller. Except
as set forth on Schedule 3.03, there are no outstanding contractual obligations
of Seller to repurchase, redeem or otherwise acquire any shares of Seller Common
Stock or to provide funds to, or make any investment (in the form of a loan,
capital contribution or otherwise) in, any other Person. Except as set forth on
Schedule 3.03, there are no voting trusts, shareholder agreements, proxies or
other agreements or understandings in effect with respect to the voting or
transfer of any of the Seller Common Stock.
(b) Seller has no Subsidiaries.
3.04. Governmental Authorization. The execution, delivery and performance
by the Seller Parties of this Agreement require no action by, consent or
approval of, or filing with, any Governmental Authority. To the best knowledge
of Seller, there are no facts relating to the identity or circumstances of
Seller that would prevent or materially delay obtaining any of the Required
Consents.
3.05. Non-Contravention. Except as set forth on Schedule 3.05, the
execution, delivery and performance by the Seller Parties of this Agreement does
not and will not (a) contravene or conflict with the Articles of Incorporation
or Bylaws of Seller, true and correct copies of which have been delivered to the
Buyer by Seller; (b) assuming receipt of the Required Consents and compliance
with the matters referred to in Section 3.04 hereof, contravene or conflict with
or constitute a violation of any provision of any Applicable Law binding upon or
applicable to Seller, the Business or any of the Transferred Assets; or (c)
result in the creation or imposition of any Lien on any of the Transferred
Assets, other than Permitted Liens.
(a) Attached hereto as Exhibit A are true and complete copies of (i)
the balance sheets and related statements of operations and retained earnings
for Seller for the
15
years ended December 31, 2001, 2000 and 1999, in each case prepared by Frankel,
Lodgen, Lacher, Golditch, Sardi & Howard and (ii) the balance sheet and related
statements of income and cash flow for Seller for the year ended December 31,
2001 prepared by Seller in accordance with GAAP (collectively, (i) and (ii) the
"Annual Statements"), and the balance sheets and related statements of
operations for the five (5) months ended May 31, 2002 (collectively, the
"Interim Statements" and, together with the Annual Statements, the "Financial
Statements"). The May 31, 2002 balance sheet is referred to herein as the "2002
Balance Sheet."
(b) Except as set forth on Schedule 3.06(b), each of the Financial
Statements (i) has been prepared based on the books and records of Seller in
accordance with GAAP and Seller's normal accounting practices, consistent with
past practice and with each other, and present fairly the financial condition,
results of operations of Seller as of the dates indicated or for the periods
indicated; (ii) contains and reflects all necessary adjustments, accruals,
provisions and allowances for a fair presentation of its financial condition and
the results of its operations for the periods covered by such financial
statement; (iii) to the extent applicable, contains and reflects adequate
provisions for all reasonably anticipated liabilities for all Taxes, federal,
state, local or foreign, with respect to the periods then ended and all prior
periods; and (iv) with respect to contracts and commitments for the sale of
goods or the provision of services by Seller, contains and reflects adequate
reserves for all reasonably anticipated losses and costs and expenses in excess
of expected receipts.
(c) Except as set forth on Schedule 3.06(c), there are no
Liabilities of Seller other than: (i) any Liability accrued as a Liability on
the 2002 Balance Sheet; (ii) Liabilities specifically disclosed and expressly
identified as such in the schedules to this Agreement; and (iii) Liabilities
incurred since the date of the 2002 Balance Sheet in Seller's ordinary course of
business consistent with past practice.
3.07. Absence of Certain Changes. Except as set forth on Schedule 3.07,
since the date of the 2002 Balance Sheet, the Business has been conducted in the
ordinary course consistent with past practice, and there has not been:
(a) to Seller's best knowledge, any event, occurrence, state of
circumstances or facts or change in Seller, the Transferred Assets or the
Business that has had or that may be reasonably expected to have, either alone
or together, a Material Adverse Effect;
(b) to Seller's best knowledge, (i) any change in any Liability of
Seller reflected in the 2002 Balance Sheet or that should be reflected as a
Liability on the 2002 Balance Sheet that has had or may be reasonably expected
to have a Material Adverse Effect or (ii) any incurrence, assumption or
guarantee of any indebtedness for borrowed money by Seller in connection with
the Business, any of the Transferred Assets or otherwise;
(c) any (i) payments by Seller in respect of Debt of Seller or in
satisfaction of any Liabilities of Seller related to the Business, other than in
the ordinary course of business consistent with past practice, or the guarantee
by Seller of the Debt of any other Person; or (ii) creation, assumption or
sufferance of the existence of (whether by action or omission) any Lien on any
Transferred Asset, other than Permitted Liens;
16
(d) any commitment made, or any Contract entered into, by Seller
(including the acquisition or disposition of any Transferred Assets), or any
waiver, amendment, termination or cancellation of any Contract by Seller, or any
relinquishment of any rights thereunder by Seller, or of any other right or debt
owed to Seller, other than in each such case actions taken in the ordinary
course of business consistent with past practice;
(e) any (i) grant of any severance, continuation or termination
pay to any director, officer, stockholder or employee of Seller or any Associate
of any of the foregoing, (ii) entering into of any employment, deferred
compensation or other similar agreement (or any amendment to any such existing
agreement) with any director, officer, stockholder or employee of Seller or any
Associate of any of the foregoing, (iii) increase in benefits payable or
potentially payable under any severance, continuation or termination pay
policies or employment agreements with any director, officer, stockholder or
employee of Seller or any Associate of any of the foregoing, (iv) increase in
compensation, bonus or other benefits payable or potentially payable to
directors, officers, stockholders or employees of Seller or any Associate of any
of the foregoing, (v) change in the terms of any bonus, pension, insurance,
health or other Benefit Plan of Seller, or (vi) representation of Seller to any
employee or former employee of any of the foregoing that Buyer would assume,
continue to maintain or implement any Benefit Plan after the Closing Date;
(f) any loan to or guarantee or assumption of any loan or
obligation on behalf of any stockholder, director, officer or employee of Seller
or to any Associate of Seller, except reasonable travel advances and expenses
occurring in the ordinary course of business consistent with past practice;
(g) any change by Seller in its accounting principles, methods or
practices or in the manner it keeps its books and records or any change by
Seller of its current practices with regards to sales, receivables, payables or
accrued expenses, other than those changes resulting from Deloitte & Touche
LLP's audit of Seller's financial statements;
(h) any distribution, dividend, bonus or other payment by Seller
to any officer, director, stockholder or Affiliate of Seller (collectively,
"Distributions");
(i) the entering into of any Contract or other arrangement between
Seller and any officer, director, stockholder or Affiliate of Seller;
(j) any (i) single capital expenditure or commitment in excess of
Fifteen Thousand Dollars ($15,000) for additions to property, plant, equipment
or intangible capital assets, (ii) capital expenditures or commitments in an
aggregate amount in excess of Thirty Thousand Dollars ($30,000) for additions to
property, plant, equipment or intangible capital assets or capital expenditures,
(iii) sale, assignment, transfer, lease or other disposition of or agreement to
sell, assign, transfer, lease or otherwise dispose of any asset or property
having a value of Ten Thousand Dollars ($10,000) in the aggregate;
(k) to Seller's best knowledge, any labor dispute or any activity
or proceeding by a labor union or representative thereof to organize any
employees of Seller, who were not subject to a collective bargaining agreement
at the date of the 2002 Balance Sheet, or
17
any lockouts, strikes, slowdowns, work stoppages or threats thereof by or with
respect to any such employees; or
(l) any payment, discharge or satisfaction of any Liabilities of
Seller, other than payments, discharges or satisfactions in the ordinary course
of business consistent with past practice.
3.08. Properties; Leases; Tangible Assets.
(a) Seller has good and valid title to or, in the case of leased
properties or properties held under license, good and valid leasehold or license
interests in, all of its properties, including all such properties (real,
personal or mixed, tangible or intangible (including the Intellectual Property
Rights)) reflected on the 2002 Balance Sheet. Except as disclosed in Schedule
3.08(a), Seller holds title to each such property and asset free and clear of
all Liens, adverse claims or any other rights of others or other adverse
interests of any kind, including leases, chattel mortgages, conditional sales
contracts, collateral security arrangements and other title or interest
retention arrangements (collectively, "Encumbrances"), except Permitted Liens.
(b) All material tangible properties and assets (other than
inventory) included in the Transferred Assets are in reasonably serviceable
operating condition and repair and are adequate for the uses to which they are
put, and no material properties or assets necessary for the conduct of the
Business in substantially the same manner as the Business has heretofore been
conducted are in need of replacement, maintenance or repair, except for routine
replacement, maintenance and repair.
(c) Seller owns no real property.
(d) Schedule 3.08(d) sets forth all personal property leases to
which Seller is a party or by which it is bound and that are necessary for the
conduct of the Business in substantially the same manner as the Business has
heretofore been conducted and all real property leases (such Schedule 3.08(d)
describing separately those leases relating to real property (the "Leased Real
Property") and those leases relating to personal property and indicating where
appropriate those leases that have been recorded for tax, protection of title or
interest, or other purposes) entered into by Seller (the "Leases"). With respect
to the Leases, there exist no material defaults by Seller or, to the best
knowledge of Seller, any default or threatened default by any third party
thereunder, that has affected or could reasonably be expected to affect the
rights and privileges thereunder of Seller or result in any Liability of Seller.
Except as disclosed in Schedule 3.08(d), each Lease is a legal, valid and
binding obligation of Seller, and, to the best knowledge of Seller, each other
party thereto, enforceable against each such party thereto in accordance with
its terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
and subject to general principles of equity. Except as provided in Schedule
3.08(d), the transfer of the Transferred Assets contemplated by this Agreement
will not result in any default, penalty or modification to any Lease, nor will
any consents thereto be required.
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(e) Except as disclosed in Schedule 3.08(e), (i) to Seller's best
knowledge, the current use and operation of all Leased Real Property is in
compliance with all Applicable Laws (including, without limitation, laws
relating to parking, zoning and land use) and public and private covenants and
restrictions, (ii) Seller has not received written notice of non-compliance with
any Applicable Laws and (iii) to Seller's best knowledge, the utilities, access
and parking for each such Leased Real Property are adequate for the current use
and operation of each such Leased Real Property.
(f) Except as disclosed in Schedule 3.08(f), to Seller's best
knowledge, there are no zoning, building code, occupancy restriction or other
land-use regulation proceedings or, to the best knowledge of Seller, any
proposed change in any Applicable Laws, which could detrimentally affect the use
or operation of any Leased Real Property, nor has Seller received any written
notice of any special assessment proceedings affecting the Leased Real Property,
or applied for any change to the zoning or land use status of the Leased Real
Property.
(g) Seller has obtained all licenses, permits, approvals,
easements and rights of way (and all such items are currently in full force and
effect) required from any Governmental Authority having jurisdiction over each
Leased Real Property or from private parties for the current use and operation
of each Leased Real Property, other than those the absence of which would not
affect the use or operation of such Leased Real Property in the manner currently
used or operated by Seller.
3.09. Sufficiency of and Title to the Transferred Assets. Upon
consummation of the transactions contemplated by this Agreement, Seller will
have sold, assigned, transferred and conveyed to Buyer, free and clear of all
Liens or Encumbrances, other than Permitted Liens, good and marketable title to
or other right to use all of the Transferred Assets, which constitute all of the
properties and assets now held or employed by Seller in connection with the
Business and necessary for the conduct of the Business, other than the Excluded
Assets.
3.10. Affiliates. Except as set forth in Schedule 3.10, none of (i)
Seller, (ii) to the best knowledge of Seller, any stockholder of Seller or any
Affiliate of any such stockholder or any Associate of any such stockholder or
Affiliate or (iii) any officer or director of Seller (or any immediate family
member of any such officer or director):
(a) now has or is or at any time subsequent to June 30, 2002 had,
either directly or indirectly, an equity or debt interest in any Person which
furnishes or sells, or during such period furnished or sold, services or
products to Seller, or purchases, or during such period purchased, from Seller
any goods or services, or otherwise does, or during such period did, business
with Seller; provided, however, that no Person identified in clauses (i), (ii)
or (iii) of this Section 3.10 shall be deemed to have such an interest solely by
virtue of the ownership of less than one percent (1%) of the outstanding voting
stock or debt securities of any publicly-held company, the stock or debt
securities of which are traded on a national stock exchange or quoted on the
National Association of Securities Dealers Automated Quotation System; or
19
(b) was a party to any contract, commitment or agreement to which
Seller is, or during such period was, a party or under which any of them is or
was obligated or bound or to which any of their properties may be or may have
been subject.
3.11. Litigation. Except as disclosed in Schedule 3.11, (i) there are no
actions, suits, claims, hearings, arbitrations, proceedings (public or private)
or governmental investigations that have been brought by or against any
Governmental Authority or any other Person (collectively, "Proceedings") pending
or, to the best knowledge of Seller, threatened, against or by Seller, the
Business or any of the Transferred Assets or which seek to enjoin or rescind the
transactions contemplated by this Agreement; and (ii) there are no existing
orders, judgments or decrees of any Governmental Authority naming Seller as an
affected party or otherwise affecting any of the Transferred Assets or the
Business.
3.12. Contracts.
(a) Schedule 3.12(a) sets forth a complete list of all existing
contracts, commitments and obligations (whether written or oral) of Seller and
the Business that are material to Seller, including without limitation, the
following (collectively with the Leases and the Employment Agreements, the
"Scheduled Contracts"):
(i) each agreement or arrangement of Seller that requires
the payment or incurrence of Liabilities, or the rendering of services, by
Seller, subsequent to the date of this Agreement, of more than Ten Thousand
Dollars ($10,000);
(ii) all Contracts relating to, or evidences of, or
guarantees of, or providing security for, Debt or the deferred purchase price of
property (whether incurred, assumed, guaranteed or secured by any asset);
(iii) all license, sale, distribution, commission, marketing,
agent, franchise, technical assistance or similar agreements relating to or
providing for the marketing and/or sale of the products or services to which
Seller is a party or by it is otherwise bound;
(iv) all acquisition, partnership, joint venture, teaming
arrangements or other similar Contracts, arrangements or agreements entered into
by the Company since its incorporation; and
(v) each agreement, arrangement, contract, commitment or
obligation of Seller restricting or otherwise affecting the ability of Seller to
compete in the Business or otherwise in any jurisdiction.
(b) Seller has made true and correct copies of all such Scheduled
Contracts available to Buyer. To the best knowledge of Seller, no notice of
material default arising under any Scheduled Contract has been delivered to or
by Seller. Except as disclosed in Schedule 3.12(b), each Scheduled Contract is a
legal, valid and binding obligation of Seller and each other party thereto,
enforceable against each such party thereto in accordance with its terms, except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and subject to
general principles of equity, and neither Seller nor, to Seller's best
knowledge, the other party thereto is in default thereunder.
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Except as provided in Schedule 3.12(b), the transfer of the Transferred Assets
contemplated by this Agreement will not result in any default, penalty or
modification to any Scheduled Contract.
(c) Schedule 3.12(c) sets forth a list (by name, address and
Persons to contact) of the twelve (12) largest (determined by aggregation of
revenues generated from such Persons by all of Seller's and its Affiliates'
offices) clients of Seller for the six quarters ended June 30, 2002, together
with the approximate dollar amount of services provided to such Persons during
said period and a summary description of the services provided.
3.13. Permits; Required Consents.
(a) To Seller's best knowledge, Schedule 3.13(a) sets forth all
approvals, authorizations, certificates, consents, licenses, orders and permits
and other similar authorizations of all Governmental Authorities (and all other
Persons) necessary for the operation of the Transferred Assets or the Business
in substantially the same manner as currently operated or affecting or relating
in any way to the Business (the "Permits").
(b) Schedule 3.13(b) lists (i) each governmental or other
registration, filing, application, notice, transfer, consent, approval, order,
qualification and waiver known by Seller to be required under Applicable Law to
be obtained by Seller by virtue of the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby to avoid the loss of
any Permit or otherwise (each, a "Required Governmental Approval"), and (ii)
each Scheduled Contract with respect to which the consent of the other party or
parties thereto must be obtained by Seller by virtue of the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby to avoid the invalidity of such Scheduled Contract, the termination
thereof, a breach or default thereunder or any other change or modification to
the terms thereof (each, a "Required Contractual Consent" and, together with the
Required Governmental Approvals, the "Required Consents").
3.14. Compliance with Applicable Laws. Except as set forth in Schedule
3.14, Seller has not violated or infringed, nor is it in violation or
infringement of, any material Applicable Law or any order, writ, injunction or
decree of any Governmental Authority.
3.15. Employment Agreements; Change in Control; and Employee Benefits.
(a) Except as set forth on Schedule 3.15(a), there are no
employment, consulting, severance pay, continuation pay, termination pay or
indemnification agreements or other similar agreements of any nature whatsoever
(collectively, "Employment Agreements") between Seller, on the one hand, and any
current or former stockholder, officer, director, employee or Affiliate of
Seller or any consultant or agent of Seller, on the other hand, that are
currently in effect. Except as set forth on Schedule 3.15(a), there are no
Employment Agreements or any other similar agreements to which Seller is a party
under which the transactions contemplated by this Agreement (i) will require any
payment by Seller, Buyer, or any consent or waiver from any stockholder,
officer, director, employee or Affiliate of Seller, any of their respective
Associates or any consultant or agent of Seller or Buyer or (ii) will result in
any change in the nature of any rights of any stockholder, officer, director,
employee or
21
Affiliate of Seller, or any of their respective Associates or any consultant or
agent of Seller under any such Employment Agreement or other similar agreement.
(b) Schedule 3.15(b) sets forth all Benefit Plans of Seller.
Seller has made true and correct copies of all governing instruments and related
agreements pertaining to such Benefit Plans available to Buyer, including, in
the case of any Benefit Plan not set forth in writing, a written description
thereof.
(c) Except as set forth on Schedule 3.15(c), neither Seller nor
any of its ERISA Affiliates sponsors or, within the last five (5) years has
sponsored, maintained, contributed to, or incurred an obligation to contribute
to, any Employee Pension Benefit Plan.
(d) Neither Seller nor any of its ERISA Affiliates sponsors or has
ever sponsored, maintained, contributed to, or incurred an obligation to
contribute to any Multiemployer Plan or to a Multiple Employer Plan.
(e) No individual shall accrue or receive additional benefits,
service or accelerated rights to payments of benefits under any Benefit Plan,
including the right to receive any parachute payment, as defined in Section 280G
of the Code, or become entitled to severance, termination allowance or similar
payments as a direct result of the transactions contemplated by this Agreement.
(f) No Employee Benefit Plan has participated in, engaged in or
been a party to any non-exempt Prohibited Transaction, and neither Seller nor
any of its ERISA Affiliates has had asserted against it any claim for taxes
under Chapter 43 of Subtitle D of the Code and Section 5000 of the Code, or for
penalties under ERISA Section 502(c), (i) or (l), with respect to any Employee
Benefit Plan nor, to the best knowledge of Seller, is there a basis for any such
claim. No officer, director or employee of Seller has committed a material
breach of any responsibility or obligation imposed upon fiduciaries by Title I
of ERISA with respect to any Employee Benefit Plan.
(g) Other than routine claims for benefits, there is no claim
pending or, to the best knowledge of Seller, threatened, involving any Benefit
Plan by any Person against such plan, Seller, or any of its ERISA Affiliates.
There is no pending or, to the best knowledge of Seller, threatened, proceeding
involving any Employee Benefit Plan before the IRS, the United States Department
of Labor or any other Governmental Authority.
(h) There is no violation of any reporting or disclosure
requirement imposed by ERISA or the Code with respect to any Benefit Plan that
could have a Material Adverse Effect.
(i) Each Benefit Plan has at all times prior hereto been
maintained in all material respects, by its terms and in operation, in
accordance with ERISA and the Code. In accordance with Applicable Law, each
Benefit Plan can be amended or terminated at any time, without consent from any
other party and without liability other than for benefits accrued as of the date
of such amendment or termination. Seller and its ERISA Affiliates have made full
and timely payment of all amounts required to be contributed under the terms of
each Benefit Plan
22
and Applicable Law or required to be paid as expenses under such Benefit Plan,
and Seller and its ERISA Affiliates shall continue to do so through the Closing.
(j) With respect to any Group Health Plans maintained by Seller or
its ERISA Affiliates, whether or not for the benefit of Seller's employees,
Seller and its ERISA Affiliates have complied in all material respects with the
provisions of Part 6 of Title I of ERISA and Sections 4980B, 9801 and 9802 of
the Code. Seller is not obligated to provide health care benefits of any kind to
its retired employees pursuant to any Employee Benefit Plan, including without
limitation, any Group Health Plan, or pursuant to any agreement or
understanding, other than as required by Applicable Law.
(k) Seller has made available to the Buyer a copy of (i) the three
(3) most recently filed Federal Form 5500 series and accountant's opinion, if
applicable, for each Employee Benefit Plan, (ii) the most recent IRS
determination letter obtained with respect to each Benefit Plan intended to be
qualified under Section 401(a) of the Code or exempt under Section 501(a) of the
Code and (iii) the most recently prepared financial statements of each Benefit
Plan.
(l) Each Benefit Plan intended to be qualified under Section
401(a) of the Code has been determined to be so qualified by the IRS. Each trust
established in connection with any Benefit Plan which is intended to be exempt
from Federal income taxation under Section 501(a) of the Code has been
determined to be so exempt by the IRS. Since the date of each most recent
determination referred to in this Section 3.15(l), no event has occurred and no
condition or circumstance has existed that has adversely affected, or is likely
to adversely affect, the qualified status of any Benefit Plan.
3.16. Labor and Employment Matters.
(a) Except as set forth on Schedule 3.16(a), no collective
bargaining agreement exists that is binding on Seller and, except as described
on Schedule 3.16(a), no petition has been filed or proceedings instituted by an
employee or group of employees with any labor relations board seeking
recognition of a bargaining representative. Schedule 3.16(a) describes any
organizational effort that, to the best knowledge of Seller, is currently being
made or threatened or has been made since January 1, 2001 by or on behalf of any
labor union to organize any employees of Seller.
(b) Except as set forth on Schedule 3.16(b), (i) there is no labor
strike, slow down or stoppage pending or, to the best knowledge of Seller,
threatened, against or directly affecting Seller; (ii) no grievance or
arbitration proceeding arising out of or under any collective bargaining
agreement is pending and no claims therefor exist; and (iii) neither Seller nor
any of its respective Affiliates has received any notice or has any knowledge of
any threatened labor or employment dispute, controversy or grievance or any
other unfair labor practice proceeding or breach of contract claim or action
with respect to claims of, or obligations to, any employee or group of employees
of Seller.
(c) If required under the Workers Adjustment and Retraining
Notification Act or other applicable state law regulating plant closing or mass
layoffs, Seller and
23
its Affiliates have timely caused there to be filed or distributed, as
appropriate, all required filings and notices with respect to employment losses
occurring through the Closing Date.
(d) Seller and its Affiliates have complied and are currently
complying, in respect of all employees of Seller and its Affiliates, with all
Applicable Laws respecting employment and employment practices and the
protection of the health and safety of employees, from whatever source such law
may be derived, including, without limitation, statutes, ordinances, laws,
rules, regulations, policies, standards, judicial or administrative precedents,
judgments, orders, decrees, awards, citations, licenses, official
interpretations and guidelines ("Labor Laws"), except for such instances which
would not, in the aggregate, result in a Material Adverse Effect.
(e) All individuals who are performing or have performed services
for Seller or any of its Affiliates and who are or were classified by Seller or
any of its Affiliates as "independent contractors" qualify for such
classification under Section 530 of the Revenue Act of 1978 or Section 1706 of
the Tax Reform Act of 1986, as applicable, except for such instances which would
not, in the aggregate, result in a Material Adverse Effect.
3.17. Intellectual Property.
(a) Schedule 3.17(a) sets forth a complete and correct list of
each patent, patent application and docketed invention, trademark, trade name,
trademark or trade name registration or application, copyright or copyright
registration or application for copyright registration, servicemark, brand mark
or brand name or any pending application related thereto, or any trade secret,
proprietary know-how, programs or processes or any similar rights, and each
license or licensing agreement for any of the foregoing relating to any
Transferred Asset or the Business or held by Seller (the "Intellectual
Property").
(b) Except as disclosed in Schedule 3.17(b), Seller has not during
the three years preceding the date of this Agreement been a party to any
Proceeding, nor to the best knowledge of Seller is any Proceeding threatened, in
any case, as to which there is a reasonable possibility of a determination
adverse to Seller, that involved or may involve a claim of infringement brought
by any Person (including any Governmental Authority) with respect to the
Intellectual Property. Except as disclosed in Schedule 3.17(b), the Seller's use
of the Intellectual Property is not subject to any outstanding order, judgment,
decree, stipulation or agreement restricting the use thereof by Seller, or
restricting the licensing thereof by Seller to any Person. Except as disclosed
in Schedule 3.17(b), to Seller's best knowledge, the current use of such
Intellectual Property by Seller does not conflict with, infringe upon or violate
any patent, patent license, patent application, trademark, tradename, trademark
or tradename registration, copyright, copyright registration, service mark,
brand mark or brand name or any pending application relating thereto, or any
trade secret, know-how, programs or processes, or any similar rights, of any
Person.
(c) Except as set forth in Schedule 3.17(c), Seller either owns
the entire right, title and interest in, to and under, or has acquired an
express license to use or, in connection with the acquisition of Equipment or
Inventory, has acquired an implied license to use, any and all patents,
trademarks, tradenames, brand names and copyrights which are material
24
to the conduct of the Business in the manner that the Business has heretofore
been conducted. No other inventions, processes, computer programs, know-how,
formulae, trade secrets, patents, chip designs, mask works, trademarks, trade
names, brand names, copyrights, licenses or applications for any of the
foregoing are reasonably necessary for the unimpaired continued operation of the
Business in the manner that the Business has heretofore been conducted.
3.18. Advisory Fees. Except for Barrington Associates, there is no
investment banker, broker, finder or other intermediary or advisor that has been
retained by or is authorized to act on behalf of Seller, who is entitled to any
fee, commission or reimbursement of expenses from Seller, Buyer or any of their
respective Affiliates or Associates upon consummation of the transactions
contemplated by this Agreement or otherwise.
3.19. Environmental Compliance.
(a) Except as disclosed in Schedule 3.19(a), Seller has obtained
all approvals, authorizations, certificates, consents, licenses, orders and
permits or other similar authorizations of all Governmental Authorities, or from
any other Person, that are required under any Environmental Law. Schedule
3.19(a) sets forth all material permits, licenses and other authorizations
issued under any Environmental Law relating to Seller, the Business or the
Transferred Assets.
(b) Except as disclosed in Schedule 3.19(b), Seller is in
compliance with all terms and conditions of all Permits of all Governmental
Authorities (and all other Persons) required under all Environmental Laws that
are used in the Business or that relate to Seller or the Transferred Assets.
Seller is also in compliance in all material respects with all other
limitations, restrictions, conditions, standards, requirements, schedules and
timetables required or imposed under all Environmental Laws.
(c) Except as set forth in Schedule 3.19(c), there are no past or
present events, conditions, circumstances, incidents, actions or omissions
imposed on Seller relating to or in any way affecting Seller, the Business or
the Transferred Assets that violate, or may violate after the Closing, any
Environmental Law, or that may give rise to any Environmental Liability, or
otherwise form the basis of any claim, action, demand, suit, Proceeding,
hearing, study or investigation (i) under any Environmental Law, (ii) based on
or related to the manufacture, processing, distribution, use, treatment, storage
(including without limitation underground storage tanks), disposal, transport or
handling, or the emission, discharge, release or threatened release of any
Hazardous Substance or (iii) resulting from exposure to workplace hazards.
(d) Seller has delivered to Buyer all environmental documents,
studies and reports in its possession or under its control relating to: (i) any
facilities or real property ever owned, operated or leased by Seller; or (ii)
any Environmental Liability of Seller or the Business.
3.20. Insurance. Schedule 3.20 sets forth a complete and correct list of
all insurance policies of any kind currently in force or in force at any time
subsequent to December 31, 2000 with respect to the Business (the "Insurance
Policies"), including all "occurrence based" liability policies regardless of
the periods to which they relate. Schedule 3.20 also sets forth for each such
Insurance Policy the type of coverage, the name of the insureds, the insurer,
the
25
premium, the expiration date, the period to which it relates, the deductibles
and loss retention amounts and the amounts of coverage.
3.21. Tax Matters.
Except as set forth on Schedule 3.21:
(a) Seller has duly and timely filed all Tax Returns required to
be filed with respect to the Transferred Assets, and such Tax Returns are
complete and accurate and correctly reflect the Tax liability required to be
reported thereon. Such Tax Returns do not contain (and were not required to
contain in order to avoid the imposition of a penalty) a disclosure statement
under Section 6662 of the Code (or any predecessor provision or comparable
provision of state, local or foreign law).
(b) Seller and the shareholders of Seller have timely paid all
Taxes that have become due and payable with respect to the Transferred Assets
prior to the Closing Date, and have adequately provided in the Financial
Statements for all Taxes accrued through the date of such Financial Statements
that were not yet due and payable as of the date thereof; all Taxes of Seller
accrued with respect to the Transferred Assets following the end of the most
recent period covered by the Financial Statements have been accrued in the
ordinary course of business of Seller. Seller has not taken any action not in
accordance with past practice that would have the effect of deferring a measure
of Tax with respect to the Transferred Assets (including but not limited to
income, sales, gross receipts or payroll) from a period (or portion thereof)
ending on or prior to the Closing to a period (or portion thereof) beginning
after the Closing; and no election has been made with respect to Taxes of Seller
in any Tax Return that has not been provided to Buyer.
(c) No claim for assessment or collection of Taxes with respect to
the Transferred Assets has been or is presently being asserted against Seller or
its shareholders; no rationale underlying a claim for Taxes with respect to the
Transferred Assets has been asserted previously by any taxing authority that
reasonably could be expected to be asserted in any other period; and Seller is
not a party to any action, proceeding, audit or investigation by any taxing
authority nor does Seller have knowledge of any such threatened action,
proceeding, audit or investigation.
(d) There are no Taxes of Seller or the shareholders of Seller or
deficiencies in Taxes or claims for Taxes against Seller or the shareholders of
Seller for any taxable period that could become a liability of, or which could
be assessed or collected against Buyer as a result of or after the transfer of
assets contemplated by this Agreement.
(e) The Transferred Assets are subject to no Liens for Taxes other
than Liens for current Taxes not yet due and payable on the Transferred Assets
or which are being contested in good faith.
(f) All amounts that are required to be collected or withheld by
Seller, or with respect to Taxes of Seller or the shareholders of Seller, have
been duly collected or withheld and all such amounts that are required to be
remitted to any taxing authority have been duly remitted.
26
(g) None of the Transferred Assets is property that is required to
be treated as owned by any other Person pursuant to the "safe harbor lease"
provisions of former Section 168(f)(8) of the Code and in effect immediately
prior to the enactment of the Tax Reform Act of 1986 and none of the Transferred
Assets is "tax exempt use property" within the meaning of Section 168(h) of the
Code.
(h) Seller is not a party to or bound by any obligation under any
Tax sharing, Tax allocation, Tax indemnity or similar agreement or arrangement.
(i) At all times during Seller's existence through the Closing
Date, Seller has been and will be an "S corporation," as such term is defined in
Section 1361(a)(1) of the Code (and comparable provisions of state, local or
foreign law), and neither Seller nor any of its shareholders has taken any
action that would cause, or would result in, the termination of such S
corporation status. None of the income or gain of Seller recognized prior to or
in connection with the Closing has been or will be subject to Section 1374 or
1375 of the Code.
3.22. Clients. Schedule 3.22 sets forth (i) the ten (10) largest clients
by gross revenues to Seller during the last fiscal year (the "Significant
Clients"). Since December 31, 2001, no Significant Client has: (a) stopped or
expressly stated its intention to stop doing business with Seller, (b) reduced
or expressly stated its intention to materially reduce, its business with Seller
or (c) changed or expressly stated its intention to change, materially the terms
and conditions on which it is prepared to do business with Seller. No
Significant Client has given Seller notice or expressly stated that, as a result
of the transactions contemplated by this Agreement, it will: (x) not do business
with Seller (y) reduce substantially its business with Seller, or (z) change the
terms and conditions on which it is prepared to do business with Seller. Seller
has no knowledge of any facts, conditions or events that would give rise to a
material claim by Seller against any of its Significant Clients or any material
claim by a Significant Client against Seller.
3.23. Books and Records. Seller has maintained books and records which,
in reasonable detail, accurately and fairly reflect all material transactions
entered into by Seller or to which Seller is a party. Seller has not engaged in
any transaction, maintained any bank account or used any corporate funds, except
for transactions, bank accounts and funds which have been and are reflected in
its normally maintained books and records.
3.24. Warranties. Schedule 3.24 sets forth a summary of the material
terms of all unexpired service warranties and guarantees given by Seller to any
client. Except as described on Schedule 3.24, (i) no claims are pending or, to
Seller's best knowledge, are threatened under the service warranties of Seller
thereof, and (ii) to Seller's best knowledge, there exists no event or
circumstance which after notice or the passage of time on both, could create or
result in liabilities or obligations under any of the service warranties of
Seller.
3.25. Bank Accounts. Schedule 3.25 sets forth a true and complete list
of all bank accounts, safe deposit boxes and lock boxes of Seller, including the
names in which such accounts or boxes are held and identification of all Persons
authorized to draw thereon or have access thereto.
27
3.26. Certain Business Practices. To the extent applicable to Seller and
its officers, directors, employees and representatives, Seller and its officers,
directors, employees and representatives have complied in all material respects
with the U.S. Foreign Corrupt Practices Act or any similar such law in any
foreign jurisdiction. Neither Seller nor any of its officers, directors,
employees or representatives has, directly or indirectly, used funds or other
assets (regardless of form or description of such payment) of Seller, or made
any promise or undertaking in such regard, for any illegal payments to or for
the benefit of any Person, to secure favorable treatment of a contract or the
Business or for the establishment or maintenance of a secret or unrecorded fund;
and there have been no false or fictitious entries made in the books or records
of Seller relating to any such illegal payment or secret or unrecorded fund.
3.27. Complete Disclosure. No representation or warranty by the Seller
in this Agreement, and no exhibit, schedule, statement, certificate, or other
writing furnished to the Buyer, Parent or its advisors pursuant to this
Agreement or the Ancillary Agreements to which it is a party, contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained herein and therein not
misleading.
3.28. No Other Representations. Seller shall not be deemed to have made
to Parent and Buyer any representation or warranty other than as made by Seller
in this Article III.
ARTICLE IV.
CERTAIN REPRESENTATIONS AND WARRANTIES OF SELLER PARTIES
As an inducement to Buyer to enter into this Agreement and to consummate
the transactions contemplated herein, each of the Seller Parties, jointly and
severally, hereby represents and warrants, as of the date of this Agreement and
as of the Closing Date, to Buyer as follows:
4.01. Understanding that Shares will Be Issued without Registration.
Each of the Seller Parties understands that the Shares will be issued without
registration under the Securities Act, in reliance upon exemptions from
registration under the Securities Act including, without limitation, the safe
harbor provided by Regulation D promulgated under Section 4(2) of the Securities
Act. Each of the Seller Parties further understands that such exemptions depend
in part upon, and such shares will be issued in reliance on, the representations
and warranties made by the Seller Parties in this Article IV.
(a) Each of the Seller Parties will acquire the Shares for their
own respective accounts for investment purposes only and not with a view to
resale or other distribution thereof, in whole or in part; and none of the
Seller Parties will assign, sell, hypothecate or otherwise transfer the Shares
unless (i)(a) a registration statement is in effect under the Securities Act
with respect to such Shares or (b) an applicable exemption from registration is
available and a written opinion of counsel acceptable to Buyer is obtained to
the effect that no such registration is required pursuant to the application of
such exemption (except that no opinion of counsel shall be necessary if the sale
is made in a routine transaction under Rule 144 promulgated under the Securities
Act), and (ii) they have complied with all applicable
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holding periods imposed by the Securities Act (and the regulations thereunder)
and this Agreement.
(b) Each of the Seller Parties acknowledges, agrees and is aware
that: (i) no United States federal or state or any foreign agency has passed
upon the accuracy, validity or completeness of this Agreement or made any
finding or determination as to the fairness of an investment in the Shares; (ii)
there may be restrictions on the transferability of the Shares; (iii) the Shares
have not been registered under the Securities Act or under the securities laws
of any other jurisdiction; (iv) an offer or sale of any of the Shares by any of
the Seller Parties in the absence of registration under the Securities Act will
require the availability of an exemption thereunder; and (v) a restrictive
legend is or shall be placed on the certificates representing the Shares and a
notation shall be made in the appropriate records of Parent indicating that the
Shares are subject to restrictions on transfer.
4.02. Accredited Investor. Each of the Seller Parties qualifies as an
"accredited investor" within the meaning of Rule 501 under the Securities Act.
4.03. Receipt of Information; Access to Information. Each of the Seller
Parties acknowledges that he, she or it:
(a) has been furnished with the Certificate of Incorporation and
Bylaws of Parent, the Parent SEC Reports and any documents that may have been
made available upon its, his or her request (collectively, the "Other
Documents"), and are capable of understanding and evaluating the risks of
acquiring the Shares;
(b) has been given the opportunity to ask questions of, and
receive answers from, Buyer and/or Parent and their respective officers
concerning the terms and conditions of the acquisition of the Shares and other
matters pertaining to an investment in the Shares, has been given the
opportunity to obtain such additional information necessary to evaluate the
merits and risks of acquiring the Shares to the extent Buyer or Parent possesses
such information, and has received all documents and information that each of
them has requested relating to an investment in the Shares;
(c) has not relied upon any representations or other information
(whether oral or written) from Buyer or Parent or their respective directors,
officers or Affiliates, or from any other Persons, other than the
representations of Buyer and Parent made in this Agreement and the Other
Documents;
(d) is familiar with the nature of and risks attendant to
investments in the business of Parent and securities in general and has
carefully considered and has, to the extent he, she or it believes such
discussion necessary, discussed with his, her or its respective professional
legal, financial and tax advisers the suitability of an investment in the Shares
for his, her or its respective financial and tax situations and has determined
that the Shares are a suitable investment for him, her or it; and
(e) has made, and is solely responsible for making, his, her or
its respective own independent evaluations of the economic and other risks
involved in his, her or
29
its respective investments in the Shares and his, her or its own respective
independent decisions to make such investments.
4.04. Authority Relative to this Agreement. Each of the Seller Parties
has all requisite legal right, power and authority to execute and deliver this
Agreement and the Ancillary Agreements to which they are signatories and to
perform their respective obligations hereunder and thereunder and to consummate
the transactions contemplated hereby and thereby. This Agreement has been, and
the Ancillary Agreements to which the Seller Parties are signatories will be,
duly and validly executed and delivered by the Seller Parties and, assuming that
this Agreement constitutes, and the Ancillary Agreements to which they are
signatories will constitute when signed, the legal, valid and binding
obligations of the other parties hereto and thereto, each such agreement
constitutes or will constitute the legal, valid and binding obligation of the
Seller Parties, as the case may be, enforceable in accordance with its terms
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws (including court decisions) and
doctrines affecting the rights of creditors generally and general equitable
principles.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER
As an inducement to Seller to enter into this Agreement and to
consummate the transactions contemplated herein, each of Parent and Buyer
hereby, jointly and severally, represents and warrants to each of the Seller
Parties as follows:
5.01. Corporate Existence and Power. Parent and Buyer are corporations
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware, and Parent and Buyer have all corporate power to enter into
this Agreement and consummate the transactions contemplated hereby. Each of
Parent and Buyer is duly qualified to do business as a foreign corporation in
each jurisdiction where the character of the property owned or leased by it or
the nature of its activities makes such qualification necessary to carry on its
business as now conducted, except for those jurisdictions where in the aggregate
the failure to be so qualified is not, and is not reasonably expected to become,
material.
5.02. Corporate Authorization. The execution, delivery and performance
by Parent and Buyer of this Agreement and the consummation by Parent and Buyer
of the transactions contemplated hereby are within the corporate powers of
Parent and Buyer and have been duly authorized by all necessary corporate action
on the part of Parent and Buyer. This Agreement constitutes the legal, valid and
binding agreement of Parent and Buyer, enforceable in accordance with its terms,
except as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and subject to
general principles of equity.
5.03. Governmental Authorization. The execution, delivery and
performance by Parent and Buyer of this Agreement require no action by, consent
or approval of, or filing with, any Governmental Authority other than any
actions, consents, approvals or filings otherwise expressly referred to in this
Agreement.
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5.04. Non-Contravention. The execution, delivery and performance by
Parent and Buyer of this Agreement does not (a) contravene or conflict with the
Certificate of Incorporation or Bylaws of Parent or Buyer, (b) except as set
forth on Schedule 5.04, contravene or constitute a material default under any
agreement to which Parent or Buyer is a party or (c) assuming compliance with
the matters referred to in Section 5.03, contravene or conflict with or
constitute a violation of any provision of any Applicable Law binding upon or
applicable to Parent or Buyer.
5.05. Parent SEC Filings; No Material Adverse Effect.
(a) Parent has filed all forms, reports and documents required to
be filed with the SEC since January 1, 2001, and has heretofore delivered or
made available to the Seller Parties, in the form filed with the SEC, (i) its
Annual Report on Form 10-K for the fiscal year ended December 30, 2001, (ii) its
Quarterly Reports on Form 10-Q for the periods ended March 31, 2002, and (iii)
all proxy statements relating to Parent's meetings of stockholders (whether
annual or special) held since January 1, 2001, (iv) all Forms 8-K filed by
Parent with the SEC since January 1, 2001, (v) all other reports or registration
statements filed by Parent with the SEC since January 1, 2001, and (vi) all
amendments and supplements to all such reports and registration statements filed
by Parent with the SEC since January 1, 2001 (collectively, the "Parent SEC
Reports"). The Parent SEC Reports were prepared in substantial compliance as to
form with the requirements of the Securities Act or the Exchange Act, as the
case may be, and did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(b) Since January 1, 2002, there has been no Material Adverse
Effect on Parent or its Subsidiaries, taken as a whole, and since the date of
Parent's last filing with the SEC, no event has occurred which would require any
filing by Parent with the SEC regarding any such event.
5.06. No Other Representations. Neither Parent nor Buyer shall be deemed
to have made to any of the Seller Parties any representation or warranty other
than as made by Parent and Buyer in this Article V.
ARTICLE VI.
COVENANTS OF SELLER
Seller hereby agrees that:
6.01. Compliance with Terms of Required Contractual Consents. On and
after the Closing Date, Seller shall comply at its own expense with all
conditions and requirements applicable to it set forth in each Required
Contractual Consent to the extent necessary such that all Required Contractual
Consents will remain effective and enforceable against the Persons giving such
Required Contractual Consents, assuming continued compliance with the terms
thereof by Buyer.
6.02. Confidentiality. Seller will, and will cause its respective
employees,
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officers, directors, shareholders, outside advisors, agents, Affiliates and
representatives to, treat any data and information obtained with respect to
Buyer or any of its Affiliates from any representative, officer, director, or
employee of Buyer, or from any books or records of Buyer in connection with this
Agreement, confidentially and with commercially reasonable care and discretion,
and will not disclose any such information to third parties; provided, however,
that the foregoing shall not apply to (i) information in the public domain or
that becomes public through disclosure by any party other than Seller or its
Affiliates or representatives, so long as such information is not made public by
such other party in breach of a confidentiality obligation, (ii) information
that may be required to be disclosed by Applicable Law provided Seller
immediately gives Buyer notice of any request or demand for such confidential
information upon receipt of such request or demand along with a copy of any
written correspondence, pleading or other communication concerning the request
or demand, (iii) any information that is disclosed by Seller or its respective
Affiliates, on a confidential basis, to any of their respective agents,
accountants or attorneys in correction with or related to the consummation of
the transactions contemplated hereby; or (iv) information required to be
disclosed to obtain any Required Consents. Each of the parties to this Agreement
agree to be responsible for the breach of any obligation of confidentiality
under this Agreement by and of their agents, accountants, attorneys and any
prospective lenders or investors.
6.03. Change of Name. Seller will amend its articles of incorporation
within ten (10) Business Days of the Closing Date so as to change its corporate
name to a name dissimilar to the name by which the Business as conducted by
Seller is known and will file as promptly as practicable, but in any event
within sixty (60) days after the Closing, in all jurisdictions in which it is
qualified to do business, any documents necessary to reflect such change in its
corporate name or to terminate its qualification therein. At the request of
Buyer, Seller shall consent to Buyer adopting a name that is similar or
identical to Seller's name at the Closing.
6.04. Administration of Accounts. All payments and reimbursements made
in the ordinary course by any third party in the name of or to Seller or any
Affiliate of Seller in connection with or arising out of the Transferred Assets,
the Business or the Assumed Liabilities after the Closing Date shall be held by
Seller or such Affiliate in trust for the benefit of Buyer and, immediately upon
receipt by Seller or any such Affiliate of any such payment or reimbursement,
Seller shall pay, or cause to be paid, over to Buyer the amount of such payment
or reimbursement without right of set off.
6.05. Specific Performance. The parties hereto recognize and agree that
in the event of a breach by Seller of this Article VI, money damages would not
be an adequate remedy to Buyer or its Affiliates for such breach and, even if
money damages were adequate, it would be impossible to ascertain or measure with
any degree of accuracy the damages sustained by Buyer or its Affiliates
therefrom. Accordingly, if there should be a breach or threatened breach by
Seller of the provisions of this Article VI, Buyer and its Affiliates shall be
entitled to seek an injunction restraining Seller from any breach without
showing or proving actual damage sustained by Buyer or its Affiliates, as the
case may be. Nothing in the preceding sentence shall limit or otherwise affect
any remedies that Buyer may otherwise have under Applicable Law.
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6.06. Taxes.
(a) Each party hereof shall (i) provide the other parties hereof
with such assistance as may reasonably be requested in connection with the
preparation of any Tax Return with respect to the Transferred Assets and the
conduct of any audit or other examination by any taxing authority or in
connection with judicial or administrative proceedings relating to any liability
for Taxes with respect to the Transferred Assets and (ii) retain and provide the
other parties hereof with all records or other information that may be relevant
to the preparation of any Tax Returns with respect to the Transferred Assets, or
the conduct of any audit or examination, or other Tax Proceeding with respect to
the Transferred Assets. The parties shall retain all relevant documents,
including prior year's Tax Returns, supporting work schedules and other records
or information that may be relevant to such returns as required by Applicable
Law.
(b) Seller shall provide Buyer with all tax clearance certificates
or similar documents that may be required by any state or local taxing authority
in order to relieve Buyer of any obligations to withhold any portion of the
consideration paid for the Transferred Assets hereunder.
(c) All sales, value added, use, transfer, registration, stamp and
similar Taxes imposed in connection with the sale of the Transferred Assets
shall be borne by Buyer.
(d) Pursuant to Section 1445(b)(2) of the Code, Seller shall
furnish Buyer an affidavit, stating under penalty of perjury the Seller's United
States taxpayer identification number and that the Seller is not a foreign
person.
6.07. COBRA. Seller shall offer COBRA continuation coverage to all "M &
A qualified beneficiaries" (as such term is defined in Treasury Regulation
section 54.4980B-9, Q&A 4) affected by the asset purchase described in this
Agreement, and Seller shall maintain a Group Health Plan to provide such COBRA
coverage during the entire period of coverage mandated by COBRA for such M & A
qualified beneficiaries.
ARTICLE VII.
COVENANTS OF BUYER AND PARENT
7.01. Confidentiality.
Parent and Buyer will, and will cause their respective employees,
officers, directors, shareholders, outside advisors, agents, Affiliates and
representatives to, treat any agreements, data and information obtained with
respect to Seller from any representative, officer, director or employee of
Seller, or from any books or records of Seller in connection with this
Agreement, confidentially and with commercially reasonable care and discretion,
and will not disclose any such information to third parties; provided, however,
that the foregoing shall not apply to (i) information in the public domain or
that becomes public through disclosure by any party other than Parent, Buyer or
their respective Affiliates or representatives, so long as such other party is
not in breach of a confidentiality obligation, (ii) information that may be
required to be disclosed by Applicable Law, provided Parent or Buyer promptly
gives Seller notice of any request or demand for such confidential information
upon receipt of such request or demand,
33
along with a copy of any written correspondence, pleading or other communication
concerning the request or demand, (iii) information required to be disclosed to
obtain any Required Consents, (iv) any information that is disclosed by Parent
or Buyer or their respective Affiliates, on a confidential basis, to any of
their respective agents, accountants, attorneys or financial advisors or (v) any
information that is disclosed by Parent or Buyer after the Closing shall have
occurred. The parties to this Agreement agree to be responsible for the breach
of any obligation of confidentiality under this Agreement by and of their
agents, accountants, attorneys and financial advisors.
7.02. Specific Performance. The parties hereto recognize and agree that
in the event of a breach by Parent or Buyer of this Article VII, money damages
would not be an adequate remedy to Seller for such breach and, even if money
damages were adequate, it would be impossible to ascertain or measure with any
degree of accuracy the damages sustained by Seller therefrom. Accordingly, if
there should be a breach or threatened breach by Parent or Buyer of the
provisions of this Article VII, Seller shall be entitled to seek an injunction
restraining Parent and Buyer from any breach without showing or proving actual
damage sustained by Seller. Nothing in the preceding sentence shall limit or
otherwise affect any remedies that Seller may otherwise have under Applicable
Law.
7.03. Pre-paid Items. Parent agrees to promptly reimburse Seller for any
rent or license fees (pro rated by the number of days in the applicable month)
paid by Seller prior to the date hereof pursuant to leases relating to Leased
Real Property or an agreement with Monster.com for any period after the date
hereof.
ARTICLE VIII.
COVENANTS OF ALL PARTIES
8.01. Further Assurances. Parent, Buyer and Seller Parties agree to
execute and deliver such other documents, certificates, agreements and other
writings and to take such other actions as may be reasonably necessary or
desirable (including, without limitation, obtaining the Required Consents) in
order to consummate or implement expeditiously the transactions contemplated by
this Agreement, including Seller's receipt of any amounts comprising or payable
in respect of any Transferred Assets and Buyer's receipt of any amounts
comprising or payable in respect of any Excluded Assets. Notwithstanding the
foregoing, no party hereto shall have any obligation to expend any funds or to
incur any other obligation in connection with the consummation of the
transactions contemplated hereby (including, by way of illustration only, any
payment in connection with obtaining the Required Consents) other than normal
out-of-pocket expenses (such as fees and expenses of counsel and accountants)
reasonably necessary to consummate such transactions.
8.02. Certain Filings. The parties hereto shall cooperate with one
another in determining whether any action by or in respect of, or filing with,
any Governmental Authority is required or reasonably appropriate, or any action,
consent, approval or waiver from any party to any Contract is required or
reasonably appropriate, in connection with the consummation of the transactions
contemplated by this Agreement. Subject to the terms and conditions of this
Agreement, in taking such actions or making any such filings, the parties hereto
shall furnish
34
information required in connection therewith and seek timely to obtain any such
actions, consents, approvals or waivers.
8.03. Public Announcements. The parties hereto agree that a mutually
agreed upon press release will be issued upon the execution of this Agreement.
Further, the parties may, on a confidential basis, advise and release
information regarding the existence and content of this Agreement or the
transactions contemplated hereby to their respective Affiliates or any of their
agents, accountants, attorneys and prospective lenders or investors in
connection with or related to the transactions contemplated by this Agreement.
8.04. Specific Performance. The parties hereto recognize and agree that
in the event of a breach by one party hereto of this Article VIII, money damages
would not be an adequate remedy to the other party for such breach and, even if
money damages were adequate, it would be impossible to ascertain or measure with
any degree of accuracy the damages sustained by the non-breaching party
therefrom. Accordingly, if there should be a breach or threatened breach by one
party of provisions of this Article VIII, the non-breaching party shall be
entitled to seek an injunction restraining the breaching party from any breach
without showing or proving actual damage sustained by the non-breaching party.
ARTICLE IX.
INDEMNIFICATION
9.01 Seller Parties' Agreement to Indemnify.
(a) Each of the Seller Parties shall, jointly and severally,
indemnify and hold harmless Parent, Buyer and their respective Affiliates
(collectively, the "Buyer Indemnitees") in respect of any and all Damages
incurred by any Buyer Indemnitee as a result of:
(i) any inaccuracy or misrepresentation in or breach of any
representation, warranty, covenant or agreement made in this Agreement by any of
the Seller Parties;
(ii) any Environmental Liability imposed upon any of the
Seller Parties relating to the Business or Seller, whether presently in
existence or arising hereafter from acts, events, conditions or circumstances
existing or occurring on or before the Closing Date (in the case of this clause
(ii) regardless of whether such Environmental Liability arises out of or
constitutes a breach of any representation, warranty or covenant in this
Agreement made by any of the Seller Parties);
(iii) any Liabilities in connection with the Proceedings
described in Schedule 3.11 hereto;
(iv) any Liabilities for Taxes of Seller or any shareholder
of Seller, or any predecessor in interest or any Affiliate of any of them with
respect to any period, and any Liabilities for Taxes relating to the Transferred
Assets with respect to any pre-Closing tax period (in the case of this clause
(iv), regardless of whether such Liabilities for Taxes arise
35
out of or constitute a breach of any representation, warranty or covenant in
this Agreement made by Seller at any time);
(v) any Excluded Liabilities;
(vi) acts or omissions of the Seller Representative (other
than Damages arising solely from claims brought by the Seller Representative on
behalf of the Seller Parties after Closing in the Seller Representative's
capacity as agent for the Seller Parties);
(vii) the violation, conflict, breach of or default under (or
omission or commission of any action, condition or event which, after notice or
lapse of time or both, would result in any such violation, conflict or breach of
or default under) any Contract, Permit or law by any of the Seller Parties prior
to the Closing Date;
(viii) [Intentionally Omitted];
(ix) the enforcement of this Section 9.01; or
(x) Seller's failure to qualify to transact business as a
foreign corporation in good standing in the States of Georgia, Louisiana and
Virginia.
(b) Seller Parties shall have no obligation under Section 9.01(a)
unless and until the aggregate amount of Damages incurred under Section 9.01(a)
hereof and Section 9.01(a) of each of the Related Purchase Agreements exceeds
Two Hundred Fifty Thousand Dollars ($250,000) (the "Seller Deductible"),
whereupon the Seller Parties shall be liable to indemnify the Buyer Indemnitees
for all amounts of Damages over the Seller Deductible; provided, however, that
Damages incurred by any Buyer Indemnitee as a result of any misrepresentation,
breach or inaccuracy of any representations or warranties made by any of the
Seller Parties relating to Sections 3.02, 3.03(a), 3.09, 3.21, and 4.04 or
pursuant to Sections 9.01(a)(v) [Excluded Liabilities] or 9.01(a)(viii) shall
not be subject to the Seller Deductible, and the Buyer Indemnitees shall be
indemnified for any and all Damages as a result of any such misrepresentation,
breach or inaccuracy of any such representations or warranties in such Sections
or pursuant to such Sections 9.01(a)(v) [Excluded Liabilities] or 9.01(a)(viii);
provided, further, (A) the maximum liability of the Seller Parties to indemnify
the Buyer Indemnitees under Section 9.01(a) hereof and Section 9.01(a) of each
of the Related Purchase Agreements shall equal One Million Five Hundred Thousand
Dollars ($1,500,000), and (B) none of the foregoing limit or the Seller
Deductible shall apply with respect to any claim based upon a breach of any of
the representations, warranties, covenants, agreements and obligations set forth
in Sections 3.02, 3.03(a), 3.09, 3.21 and 4.04 of this Agreement or pursuant to
Sections 9.01(a)(v) [Excluded Liabilities] or 9.01(a)(viii) or arising out of
fraud or willful misrepresentation or misconduct.
9.02. Parent's and Buyer's Agreement to Indemnify.
(a) Each of Parent and Buyer shall, jointly and severally,
indemnify and hold harmless the Seller Parties (collectively, the "Seller
Indemnitees") in respect of any and all Damages incurred by any Seller
Indemnitee as a result of:
36
(i) any inaccuracy or misrepresentation in or breach of any
representation, warranty, covenant or agreement made by Parent and Buyer in this
Agreement; and
(ii) any Assumed Liabilities; or
(iii) the enforcement of this Section 9.02.
(b) Neither Parent or Buyer shall have any obligation under
Section 9.02(a) unless and until the aggregate amount of Damages incurred under
Section 9.02(a) hereof and Section 9.02(a) of each of the Related Purchase
Agreements exceeds One Hundred and Fifty Thousand Dollars ($150,000) (the "Buyer
Deductible"), whereupon Parent and Buyer shall be liable to indemnify the Seller
Indemnitees for all amounts of Damages over the Buyer Deductible; provided,
however, that Damages incurred by any Buyer Indemnitee as a result of any
misrepresentation, breach or inaccuracy of any representations or warranties
made by Parent or Buyer relating to Section 5.02 or pursuant to Section
9.02(a)(ii) [Assumed Liabilities] or a claim arising out of fraud or willful
misrepresentation or misconduct shall not be subject to the Buyer Deductible,
and the Seller Indemnitees shall be indemnified for any and all Damages as a
result of any such misrepresentation, breach or inaccuracy of any such
representations or warranties in such Section or pursuant to such Section
9.02(a)(ii) [Assumed Liabilities] or pursuant such claim arising out of fraud or
willful misrepresentation or misconduct.
9.03. Survival of Representations, Warranties and Covenants.
(a) All representations, warranties, covenants, agreements and
obligations of each Indemnifying Party contained in this Agreement, and all
claims of any Buyer Indemnitee or Seller Indemnitee in respect of any breach of
any representation, warranty, covenant, agreement or obligation of any
Indemnifying Party contained in this Agreement shall survive the Closing and
shall expire on the eighteenth month anniversary of the Closing Date, except
that:
(i) covenants or obligations of any of the Seller Parties,
Parent or Buyer which by their terms are to be performed after the Closing shall
survive the Closing and not expire unless otherwise provided in this Agreement;
(ii) the representations and warranties set forth in Sections
3.02, 3.03(a), 3.09 and 4.04 of this Agreement and all claims of any Buyer
Indemnitee in respect of any breach of any such representation or warranty
against any of the Seller Parties as Indemnifying Party shall survive the
Closing Date and shall not expire;
(iii) the representations and warranties set forth in Section
3.21 of this Agreement and all claims of any Buyer Indemnitee in respect of any
breach of any such representation or warranty or in respect of the Seller
Parties' indemnification obligations under Section 9.01(a)(iv) of this Agreement
against any of the Seller Parties as Indemnifying Party shall survive the
Closing Date and shall not expire until thirty (30) days after the expiration of
any applicable statute of limitations, including extensions thereof;
37
(iv) the representations and warranties set forth in Section
3.17 of this Agreement and all claims of any Buyer Indemnitee in respect of any
breach of such representation or warranty against any of the Seller Parties as
Indemnifying Party shall survive the Closing Date and shall not expire until the
third anniversary of the Closing Date; and
(v) all claims of any Buyer Indemnitee against any of the
Seller Parties as an Indemnifying Party in respect of any claim arising out of
fraud or willful misrepresentation or misconduct shall survive the Closing Date
and shall not expire until thirty (30) days after the expiration of any
applicable statute of limitations, including extensions thereof.
(b) Notwithstanding anything herein to the contrary,
indemnification for claims for which written notice as provided in Section 9.04
has been given prior to the expiration of the representation, warranty,
covenant, agreement or obligation upon which such claim is based shall not
expire, and claims for indemnification may be pursued, until the final
resolution of such claim in accordance with Section 10.11.
9.04. Claims for Indemnification. If any Indemnitee shall believe that
such Indemnitee is entitled to indemnification pursuant to this Article IX in
respect of any Damages, such Indemnitee shall give the appropriate Indemnifying
Parties prompt written notice thereof. Any such notice shall set forth in
reasonable detail and to the extent then known the basis for such claim for
indemnification. The failure of such Indemnitee to give notice of any claim for
indemnification promptly, but within the periods specified by Section 9.03(a) or
(b), as the case may be, shall not adversely affect such Indemnitee's right to
indemnity hereunder except to the extent that such failure adversely affects the
right of the Indemnifying Parties to assert any reasonable defense to such
claim. Each such claim for indemnity shall expressly state that the Indemnifying
Parties shall have only the twenty (20) Business Day period referred to in the
next sentence to dispute or deny such claim. The Indemnifying Parties shall have
twenty (20) Business Days following its receipt of such notice either (y) to
acquiesce in such claim and their respective responsibilities to indemnify the
Indemnitee in respect thereof in accordance with the terms of this Article IX by
giving such Indemnitee written notice of such acquiescence or (z) to object to
the claim by giving such Indemnitee written notice of the objection. If the
Indemnifying Parties do not object thereto within such twenty (20) Business Day
period, such Indemnifying Parties shall be deemed to have acquiesced in such
claim and their respective responsibilities to indemnify the Indemnitee in
respect thereof in accordance with the terms of this Article IX.
9.05. Defense of Claims. In connection with any claim which may give
rise to indemnity under this Article IX resulting from or arising out of any
claim or Proceeding against an Indemnitee by a Person that is not a party
hereto, the Indemnifying Parties may (unless such Indemnitee elects not to seek
indemnity hereunder for such claim), upon written notice sent at any time to the
relevant Indemnitee, assume the defense of any such claim or Proceeding. If the
Indemnifying Parties assume the defense of any such claim or Proceeding, the
Indemnifying Parties shall select counsel reasonably acceptable to such
Indemnitee to conduct the defense of such claim or Proceeding, shall take all
reasonable steps necessary in the defense or settlement thereof and shall at all
times diligently and promptly pursue the resolution thereof. If the Indemnifying
Parties shall have assumed the defense of any claim or Proceeding in accordance
38
with this Section 9.05, the Indemnifying Parties shall be authorized to consent
to a settlement of, or the entry of any judgment arising from, any such claim or
Proceeding, without the prior written consent of such Indemnitee; provided,
however, that:
(i) the Indemnifying Parties shall pay or cause to be paid all amounts
arising out of such settlement or judgment either concurrently with the
effectiveness thereof or shall obtain and deliver to such Indemnitees prior to
the execution of such settlement a general release executed by the Person not a
party hereto, which general release shall release such Indemnitee from any
liability in such matter;
(ii) the Indemnifying Parties shall not be authorized to encumber any
of the assets of any Indemnitee or to agree to any restriction that would apply
to any Indemnitee or to its conduct of business; and
(iii) a condition to any such settlement shall be a complete release of
such Indemnitee and its directors, stockholders, officers, employees,
consultants, agents and their respective Affiliates with respect to such claim.
Such Indemnitee shall be entitled to participate in (but not control) the
defense of any such action, with its own counsel and at its own expense. Each
Indemnitee shall, and shall cause each of its Affiliates, officers, employees,
consultants and agents to, cooperate fully with the Indemnifying Parties in the
defense of any claim or Proceeding being defended by the Indemnifying Parties
pursuant to this Section 9.05. If the Indemnifying Parties do not assume the
defense of any claim or Proceeding resulting therefrom in accordance with the
terms of this Section 9.05, such Indemnitee may defend against such claim or
Proceeding in such manner as it may reasonably deem appropriate, including
settling such claim or Proceeding after giving notice of the same to the
Indemnifying Parties, on such terms as such Indemnitee may reasonably deem
appropriate. If the Indemnifying Parties seek to question the manner in which
such Indemnitee defended such claim or Proceeding or the amount of or nature of
any such settlement, the Indemnifying Parties shall have the burden to prove by
a preponderance of the evidence that such Indemnitee did not defend such claim
or Proceeding in a reasonably prudent manner.
9.06. Limitation on Remedies. The remedies of the Buyer Indemnitees and
Seller Indemnitees under this Article IX shall be their exclusive remedy for any
breach of this Agreement, except that nothing set forth in this Article IX shall
be deemed to prohibit or limit any Buyer Indemnitee's or Seller Indemnitee's
right at any time before, on or after the Closing Date, to seek injunctive or
other equitable relief for the failure of any Indemnifying Party to perform any
covenant or agreement contained herein.
9.07. Nature of Payments. Any payment under this Article IX shall be
treated for tax purposes as an adjustment of the total consideration paid for
the Transferred Assets under this Agreement to the extent such characterization
is proper and permissible under relevant Tax authorities, including court
decisions, statutes, regulations and administrative promulgations.
9.08. Right of Set-Off. Parent or Buyer, after recovery against the
escrow contemplated by the Escrow Agreement, shall have the right to set-off all
or any part of any Damages Buyer or Parent may suffer by notifying the Seller
Representative that Buyer or Parent
39
is reducing the amount of any Earnout due to any of the Seller Parties;
provided, however, Parent's and Buyer's right to set-off pursuant to this
Section 9.08 and Section 9.08 in each of the Related Purchase Agreements shall
not exceed Nine Hundred and Fifty Thousand Dollars ($950,000).
9.09. Appointment of the Seller Representative.
(a) In order to efficiently administer the defense and/or
settlement of any claims for indemnity by a Buyer Indemnitee pursuant to this
Article IX, the Seller Representative is hereby appointed to serve as the
representative of the Seller and the Shareholders. The Seller Representative
shall have full power and authority to make, on behalf of the Seller Parties,
all decisions relating to the defense and/or settlement of any claims for which
any Buyer Indemnitee may claim to be entitled to indemnity pursuant to this
Article IX and otherwise to act on behalf of the Seller Parties in all respects
with respect to this Agreement, including, without limitation, the amendment or
termination thereof. All decisions and actions by the Seller Representative
shall be binding upon all of the Seller Parties, and no Seller Party shall have
the right to object to, dissent from, protest or otherwise contest the same.
(b) Each of the Seller Parties agree that (i) the provision of
this Section 9.09 are independent and severable, are irrevocable and coupled
with an interest and shall be enforceable notwithstanding any rights or remedies
any Seller Party may have in connection with the transactions contemplated by
this Agreement, (ii) the remedy at law for any breach of the provisions of this
Section 9.09 would be inadequate, and (iii) the provisions of Section 9.01 and
this Section 9.09 shall be binding upon the Seller Parties and the successors
and assigns of each of the Seller Parties.
(c) Any notice or communication delivered by Parent or Buyer to
the Seller Representative shall, as between Parent and Buyer, on the one hand,
and the Seller Parties, on the other, be deemed to have been delivered to all of
the Seller Parties. Parent and Buyer shall be entitled to rely exclusively upon
any communication or writings given or executed by the Seller Representative in
connection with any claims for indemnity or set-off and shall not be liable in
any manner whatsoever for any action taken or not taken in reliance upon the
actions taken or not taken or communications or writings given or executed by
the Seller Representative. Parent and Buyer shall be entitled to disregard any
notices or communications given or made by the Seller Parties in connection with
any claims for indemnity or set-off unless given or made through the Seller
Representative.
9.10. Deductibles, Caps and Set-Off Rights. Each of the parties hereof
agree and acknowledge that the Seller Deductible, the Buyer Deductible, the
limitation on liabilities set forth in Section 9.01(b) hereof and the maximum
amount subject to set-off set forth in Section 9.08 hereof shall be applied
against Damages arising under this Agreement and each of the Related Purchase
Agreements. For example, if Buyer or Parent has indemnifiable Damages (in the
circumstances where the Seller Deductible is applicable) pursuant to this
Agreement of One Hundred Thousand Dollars ($100,000) and indemnifiable Damages
of One Hundred Thousand Dollars ($100,000) under each of the Related Purchase
Agreements, then Buyer and Parent shall be deemed to have indemnification rights
under Section 9.01 hereof for Three Hundred
40
Thousand Dollars ($300,000) less the Seller Deductible in the amount of Two
Hundred and Fifty Thousand Dollars.
ARTICLE X.
MISCELLANEOUS
10.01. Notices. All notices, requests, demands, claims and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given (i) if
personally delivered, when so delivered, (ii) if mailed, two Business Days after
having been sent by registered or certified mail, return receipt requested,
postage prepaid and addressed to the intended recipient as set forth below,
(iii) if given by telex or telecopier, once such notice or other communication
is transmitted to the telex or telecopier number specified below and the
appropriate answer back or telephonic confirmation is received, provided that
such notice or other communication is promptly thereafter mailed in accordance
with the provisions of clause (ii) above or (iv) if sent through an overnight
delivery service in circumstances to which such service guarantees next day
delivery, the day following being so sent:
If to Seller:
Healthcare
3400 West Alameda Avenue, Suite 200
Burbank, CA 91505
Attn: Jeffrey Evans
Matthew Johnston
Telecopier No.: (309) 416-9486
with a copy to:
Weinstock, Manion, Reisman, Shore & Neumann
1875 Century Park East, Suite 1500
Los Angeles, CA 90067
Attn: Louis Reisman, Esq.
Telecopier No.: (310) 553-5165
If to Buyer:
Hall, Kinion & Associates, Inc.
2570 North First Street, Suite 400
San Jose, CA 95131-1018
Any party may give any notice, request, demand, claim or other
communication hereunder using any other means (including ordinary mail or
electronic mail), but no such notice, request, demand, claim or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any party may
change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other parties notice
in the manner herein set forth.
10.02. Amendments; No Waivers.
(a) Any provision of this Agreement may be amended or
waived if, and only if, such amendment or waiver is in writing and signed, in
the case of an amendment, by all parties hereto, or in the case of a waiver, by
the party against whom the waiver is to be effective.
(b) No waiver by a 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 occurrence. No failure or delay by a party
in exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.
10.03. Expenses. All costs and expenses incurred in connection
with this Agreement and in closing and carrying out the transactions
contemplated hereby shall be paid by the party incurring such cost or expense.
Without limiting the generality of the immediately preceding sentence, the fees,
costs and expenses of the accountants, attorneys and financial advisors
(including, without limitation, Barrington Associates, Weinstock, Manion,
Reisman, Shore & Neumann, and Frankel, Lodgen, Lacher, Golditch, Sardi & Howard)
to Seller and its Affiliates in connection with the preparation or negotiation
of, or consummation of the transactions contemplated by, this Agreement shall be
borne by Seller and/or the Shareholders and none of such fees, costs or expenses
shall be paid or assumed by Buyer. Without limiting the generality of the second
immediately preceding sentence, the fees, costs and expenses of the accountants,
attorneys and financial advisors (including, without limitation, Gibson, Dunn &
Crutcher LLP, Deloitte & Touche LLP and Robert W. Baird & Co.) to Buyer in
connection with the preparation or negotiation of, or consummation of the
transactions contemplated by, this Agreement shall be borne by the Buyer and
Parent and none of such fees, costs or expenses shall be paid by Seller. This
section shall survive any termination of this Agreement.
10.04. 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 hereto may assign either this
Agreement or any of its rights, interests or obligations hereunder without the
prior written approval of each other party, except that Buyer may assign
42
its rights hereunder to Parent or its other Affiliates without the prior written
approval of any of the Seller Parties, so long as Buyer and Parent remain
responsible for satisfying their respective obligations, liabilities, covenants
and agreements hereunder.
10.05. Governing Law and Forum. This Agreement shall in all
respects be interpreted, construed and governed by and in accordance with the
laws of the State of California, disregarding any conflict of laws provisions
which may require the application of the law of another jurisdiction. In the
event that arbitration is unavailable with respect to any action to enforce or
that arises out of or in any way relates to any of the provisions of this
Agreement, or in the event any action is brought to enforce the provisions of
Section 10.11 hereof, such action shall be brought and prosecuted exclusively in
a Federal or state court located in Los Angeles County, California, and the
parties hereto hereby consent to the jurisdiction of any such court and to the
service of process by registered mail, return receipt requested, or by any other
manner provided by the laws of such State.
10.06. Counterparts; Effectiveness. This Agreement may be signed
in any number of counterparts and the signatures delivered by telecopy, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Agreement shall become effective
when each party hereto shall have received a counterpart hereof signed by the
other parties hereto.
10.07. Entire Agreement. This Agreement (including the Schedules
and Exhibits referred to herein which are hereby incorporated by reference and
the other agreements executed simultaneously herewith) constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, understandings and negotiations, both written
and oral, between the parties with respect to the subject matter of this
Agreement, including, without limitation, the letter of intent between Buyer and
Seller dated as of June 26, 2002, as supplemented and amended. Neither this
Agreement nor any provision hereof is intended to confer upon any Person other
than the parties hereto any rights or remedies hereunder. The parties agree and
acknowledge that notwithstanding anything to the contrary in this Agreement,
Seller is not making any representations and warranties that are not expressly
provided in this Agreement.
10.08. Captions. The captions herein are included for convenience
of reference only and shall be ignored in the construction or interpretation
hereof. All references to an Article or Section include all subparts thereof.
10.09. Severability. If any provision of this Agreement, or the
application thereof to any Person, place or circumstance, shall be held by an
arbitrator or a court of competent jurisdiction to be invalid, unenforceable or
void, the remainder of this Agreement and such provisions as applied to other
Persons, places and circumstances shall remain in full force and effect only if,
after excluding the portion deemed to be unenforceable, the remaining terms
shall provide for the consummation of the transactions contemplated hereby in
substantially the same manner as originally set forth at the later of the date
this Agreement was executed or last amended.
10.10. Construction. The parties hereto intend that each
representation, warranty
43
and covenant contained herein shall have independent significance. If any party
has breached any representation, warranty or covenant contained herein in any
respect, the fact that there exists another representation, warranty or covenant
relating to the same subject matter (regardless of the relative levels of
specificity) that the party has not breached shall not detract from or mitigate
the fact that the party is in breach of the first representation, warranty or
covenant.
10.11. Arbitration.
(a) Any dispute or difference between or among the parties
(such parties being referred to individually as a "Disputing Party," and,
together, as the "Disputing Parties") arising out of this Agreement or the
transactions contemplated hereby which the parties are unable to resolve
themselves shall be submitted to and resolved by arbitration as herein provided.
Any Disputing Party may request the American Arbitration Association (the "AAA")
to designate one arbitrator, who shall be qualified as an arbitrator under the
standards of the AAA, who shall be a retired or former judge of any appellate or
trial court of the State of California, any United States appellate court or the
United States District Court for any California District, who is, in any such
case, not affiliated with any party in interest to such arbitration, and who has
substantial professional experience with regard to corporate legal matters.
(b) The arbitrator shall consider the dispute at issue in
Los Angeles County, California, at a mutually agreed upon time within sixty (60)
days (or such longer period as may be acceptable to the Disputing Parties or as
directed by the arbitrator) of the designation of the arbitrator. The
arbitration proceeding shall be held in accordance with the rules for commercial
arbitration of the AAA in effect on the date of the initial request by the
Disputing Party, that gave rise to the dispute to be arbitrated (as such rules
are modified by the terms of this Agreement or may be further modified by mutual
agreement of the Disputing Parties) and shall include an opportunity for the
parties to conduct discovery in advance of the proceeding. Notwithstanding the
foregoing, the Disputing Parties shall agree that they will attempt, and they
intend that they and the arbitrator should use its best efforts in that attempt,
to conclude the arbitration proceeding and have a final decision from the
arbitrator within one hundred twenty (120) days from the date of selection of
the arbitrator; provided, however, that the arbitrator shall be entitled to
extend such one hundred twenty (120) day period for a total of two one hundred
twenty (120) day periods. The arbitrator shall deliver a written award with
respect to the dispute to each of the parties, who shall promptly act in
accordance therewith. Each Disputing Party to such arbitration agrees that any
award of the arbitrator shall be final, conclusive and binding and that they
will not contest any action by any other party thereto in accordance with an
award of the arbitrator. It is specifically understood and agreed that any party
may enforce any award rendered pursuant to the arbitration provisions of this
Section 10.11 by bringing suit in any court of competent jurisdiction.
(c) All costs and expenses attributable to the arbitrator
shall be allocated among the parties to the arbitration in such manner as the
arbitrator shall determine to be appropriate under the circumstances.
44
10.12. Cumulative Remedies. The rights, remedies, powers and
privileges herein provided are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law.
10.13. Third Party Beneficiaries. Except as specifically provided
in Article IX with respect to indemnification provided to the Indemnitees
identified therein, no provision of this Agreement shall create any third party
beneficiary rights in any Person, including any employee of Buyer or employee or
former employee of Seller or any Affiliate thereof (including any beneficiary or
dependent thereof).
10.14. Knowledge. Whenever used in this Agreement, "to the best
knowledge" of Seller or any variations thereof shall in all cases be understood
as comprising the actual knowledge and belief of Jeffrey A. Evans and Matthew
Johnston after reasonable inquiry of Seller's employees and representatives and
reasonable review of Seller's files, books and records.
45
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
SELLER PARTIES:
HEALTHCARE STAFFING RESOURCES, INC.
a California corporation
By: /s/ Jeffrey A. Evans
---------------------------------
Name: _______________________________
Title: ______________________________
JEFFREY A. EVANS, an individual
/s/ Jeffrey A. Evans
-------------------------------------
MATTHEW JOHNSTON GRANTOR RETAINED
ANNUITY TRUST DATED 4/23/01
By: /s/ Matthew Johnston
---------------------------------
Name: _______________________________
DIANE PRINCE JOHNSTON GRANTOR
RETAINED ANNUITY TRUST DATED 4/23/01
By: /s/ Diane Prince Johnston
---------------------------------
Name: _______________________________
MATTHEW AND DIANE JOHNSTON 2001
IRREVOCABLE GIFT TRUST DATED 4/23/01
By: /s/ Alan Prince
---------------------------------
Name: _______________________________
JOHNSTON LIVING TRUST DATED 3/27/01
By: /s/ Diane Prince Johnston
---------------------------------
Name: _______________________________
SIGNATURE PAGE TO HEALTHCARE STAFFING RESOURCES, INC.
ASSET PURCHASE AGREEMENT
SELLER REPRESENTATIVE:
/s/ Matthew Johnston
-----------------------------------
Matthew Johnston
By signing below, the undersigned acknowledges that she has read
the foregoing Asset Purchase Agreement, is aware that her spouse has agreed to
sell substantially all of the assets of Seller, and consents to such a sale and
agrees to be bound by the terms of the foregoing Asset Purchase Agreement.
/s/ Laurie Soll Evans
---------------------------------------
Laurie Soll, spouse of Jeffrey A. Evans
BUYER:
ONSTAFF ACQUISITION CORP.
a Delaware corporation
By: /s/ Martin A. Kropelnicki
-----------------------------------
Name: Martin A. Kropelnicki
---------------------------------
Title: ________________________________
PARENT:
HALL, KINION & ASSOCIATES, INC.,
a Delaware corporation
By: /s/ Brenda C. Rhodes
-----------------------------------
Name: _________________________________
Title: ________________________________
SIGNATURE PAGE TO HEALTHCARE STAFFING RESOURCES, INC.
ASSET PURCHASE AGREEMENT
Exhibit 2.3
ASSET PURCHASE AGREEMENT
By and Among
HALL, KINION & ASSOCIATES, INC., and
ONSTAFF ACQUISITION CORP.,
On the One Hand, and
BOARDNETWORK.COM,
JEFFREY A. EVANS,
MATTHEW JOHNSTON
GRANTOR RETAINED ANNUITY TRUST DATED APRIL 23, 2001,
DIANE PRINCE JOHNSTON
GRANTOR RETAINED ANNUITY TRUST DATED APRIL 23, 2001,
MATTHEW AND DIANE JOHNSTON
2001 IRREVOCABLE GIFT TRUST DATED APRIL 23, 2001,
JOHNSTON LIVING TRUST DATED March 27, 2001,
ALAN PRINCE
and
MATTHEW JOHNSTON, as Seller Representative,
On the Other Hand
Dated as of August 9, 2002
TABLE OF CONTENTS
Page
----
ARTICLE I. DEFINITIONS .......................................................... 1
1.01. Definitions ....................................................... 1
1.02. Index of Other Defined Terms ...................................... 7
ARTICLE II. TRANSFER OF ASSETS .................................................. 8
2.01. Transfer of Assets by Seller ...................................... 8
2.02. Excluded Assets ................................................... 10
2.03. Assumption of Liabilities ......................................... 10
2.04. Excluded Liabilities .............................................. 10
2.05. Assignment of Contracts and Rights ................................ 11
2.06. Closing ........................................................... 12
2.07. [Intentionally Omitted] ........................................... 14
2.08. Total Consideration Allocation .................................... 14
2.09. [Intentionally Omitted] ........................................... 14
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER ........................... 14
3.01. Corporate Existence and Power ..................................... 14
3.02. Authorization ..................................................... 14
3.03. Capital Stock; Subsidiaries ....................................... 15
3.04. Governmental Authorization ........................................ 15
3.05. Non-Contravention ................................................. 15
3.06. Financial Statements; Undisclosed Liabilities ..................... 15
3.07. Absence of Certain Changes ........................................ 16
3.08. Properties; Leases; Tangible Assets ............................... 18
3.09. Sufficiency of and Title to the Transferred Assets ................ 19
3.10. Affiliates ........................................................ 19
3.11. Litigation ........................................................ 19
3.12. Contracts ......................................................... 20
3.13. Permits; Required Consents ........................................ 21
3.14. Compliance with Applicable Laws ................................... 21
3.15. Employment Agreements; Change in Control; and Employee
Benefits ........................................................ 21
3.16. Labor and Employment Matters ...................................... 23
3.17. Intellectual Property ............................................. 24
3.18. Advisory Fees ..................................................... 24
3.19. Environmental Compliance .......................................... 25
3.20. Insurance ......................................................... 25
3.21. Tax Matters ....................................................... 25
3.22. Clients ........................................................... 27
i
3.23. Books and Records ................................................. 27
3.24. Warranties ........................................................ 27
3.25. Bank Accounts ..................................................... 27
3.26. Certain Business Practices ........................................ 27
3.27. Complete Disclosure ............................................... 28
3.28. No Other Representations .......................................... 28
ARTICLE IV. CERTAIN REPRESENTATIONS AND WARRANTIES OF SELLER PARTIES ............. 28
4.01. Understanding that Shares will Be Issued without Registration ..... 28
4.02. Accredited Investor ............................................... 29
4.03. Receipt of Information; Access to Information ..................... 29
4.04. Authority Relative to this Agreement .............................. 29
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER .................... 30
5.01. Corporate Existence and Power ..................................... 30
5.02. Corporate Authorization ........................................... 30
5.03. Governmental Authorization ........................................ 30
5.04. Non-Contravention ................................................. 30
5.05. Parent SEC Filings; No Material Adverse Effect .................... 31
5.06. No Other Representations .......................................... 31
ARTICLE VI. COVENANTS OF SELLER .................................................. 31
6.01. Compliance with Terms of Required Contractual Consents ............ 31
6.02. Confidentiality ................................................... 31
6.03. Change of Name .................................................... 32
6.04. Administration of Accounts ........................................ 32
6.05. Specific Performance .............................................. 32
6.06. Taxes ............................................................. 32
6.07. COBRA ............................................................. 33
ARTICLE VII. COVENANTS OF BUYER AND PARENT ....................................... 33
7.01. Confidentiality ................................................... 33
7.02. Specific Performance .............................................. 34
7.03. Pre-paid Rent ..................................................... 34
ARTICLE VIII. COVENANTS OF ALL PARTIES .......................................... 34
8.01. Further Assurances ................................................ 34
8.02. Certain Filings ................................................... 34
8.03. Public Announcements .............................................. 34
8.04. Specific Performance .............................................. 35
ii
ARTICLE IX. INDEMNIFICATION ................................................... 35
9.01. Seller Parties' Agreement to Indemnify ......................... 35
9.02. Parent's and Buyer's Agreement to Indemnify .................... 36
9.03. Survival of Representations, Warranties and Covenants .......... 37
9.04. Claims for Indemnification ..................................... 38
9.05. Defense of Claims .............................................. 38
9.06. Limitations on Remedies ........................................ 39
9.07. Nature of Payments ............................................. 39
9.08. Right of Set-Off ............................................... 39
9.09. Appointment of the Seller Representative ....................... 40
9.10. Deductibles, Caps and Set-Off Rights ........................... 40
ARTICLE X. MISCELLANEOUS ...................................................... 41
10.01. Notices ........................................................ 41
10.02. Amendments; No Waivers ......................................... 42
10.03. Expenses ....................................................... 42
10.04. Successors and Assigns ......................................... 42
10.05. Governing Law .................................................. 43
10.06. Counterparts; Effectiveness .................................... 43
10.07. Entire Agreement ............................................... 43
10.08. Captions ....................................................... 43
10.09. Severability ................................................... 43
10.10. Construction ................................................... 43
10.11. Arbitration .................................................... 44
10.12. Cumulative Remedies ............................................ 44
10.13. Third Party Beneficiaries ...................................... 45
10.14. Knowledge ...................................................... 45
iii
EXHIBITS
EXHIBIT A Financial Statements
EXHIBIT B Form of Employment Agreement with Jeffrey Evans
EXHIBIT C Form of Opinion of Counsel to Seller and Shareholders
EXHIBIT D Form of Opinion of Counsel to Buyer and Parent
EXHIBIT E Form of Noncompetition and Nonsolicitation Agreement
EXHIBIT F Form of Guaranty
EXHIBIT G Form of Escrow Agreement
EXHIBIT H Form of Employment Agreement with Matthew Johnston
SCHEDULES
Schedule 2.02 Excluded Assets
Schedule 3.01 Qualifications to do Business
Schedule 3.03 Ownership Table and Related Agreements
Schedule 3.05 Non-Contravention
Schedule 3.06(b) Financial Statements
Schedule 3.06(c) Undisclosed Liabilities
Schedule 3.07(a) Absence of Certain Changes
Schedule 3.08(a) Encumbrances on Property
Schedule 3.08(d) Leases
Schedule 3.08(e) Detractions on Real Property
Schedule 3.08(f) Regulatory Proceedings
Schedule 3.10 Affiliates
Schedule 3.11 Litigation
Schedule 3.12(a) Scheduled Contracts
Schedule 3.12(b) Limitations on Enforceability of Contracts
Schedule 3.12(c) Significant Clients
Schedule 3.13(a) Permits
Schedule 3.13(b) Required Consents
Schedule 3.14 Compliance with Applicable Laws
Schedule 3.15(a) Employment Agreements
Schedule 3.15(b) Benefit Plans
Schedule 3.15(c) Employee Pension Benefit Plans
Schedule 3.16(a) Labor and Employment Matters
Schedule 3.16(b) Labor Disputes
Schedule 3.17(a) Intellectual Property Rights
Schedule 3.17(b) Actions Affecting Intellectual Property
Schedule 3.17(c) Ownership of Intellectual Property Rights
Schedule 3.19(a) Environmental Permits
Schedule 3.19(b) Compliance with Environmental Laws
Schedule 3.19(c) Continuing Compliance with Environmental Laws
Schedule 3.20 Insurance Policies
Schedule 3.21 Tax Matters
Schedule 3.22 Clients
iv
Schedule 3.24 Warranties
Schedule 3.25 Bank Accounts
Schedule 5.04 Non-Contravention
v
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of
August 9, 2002, is by and among Hall, Kinion & Associates, Inc., a Delaware
corporation ("Parent") and OnStaff Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Parent ("Buyer"), on the one hand,
andBoardnetwork.com, a California corporation ("Seller"), Jeffrey A. Evans, an
individual ("Evans"), Matthew Johnston Grantor Retained Annuity Trust dated
4/23/01 (the "Matt Annuity Trust"), Diane Prince Johnston Grantor Retained
Annuity Trust dated 4/23/01 (the "Diane Annuity Trust"), Matthew and Diane
Johnston 2001 Irrevocable Gift Trust dated 4/23/01 (the "Gift Trust"), Johnston
Living Trust dated 3/27/01 (the "Living Trust"), Alan Prince ("Prince," and
collectively, with Evans, the Matt Annuity Trust, the Diane Annuity Trust, the
Gift Trust and the Living Trust, the "Shareholders" and individually, a
"Shareholder"), and Matthew Johnston, as a representative of the Seller (the
"Seller Representative") and the Shareholders (collectively, the "Seller
Parties"), on the other hand.
R E C I T A L S
A. WHEREAS, Seller is engaged in the business of sourcing and
delivering human capital and providing temporary staff and personnel; and
B. WHEREAS, Seller desires to sell and transfer to Buyer
substantially all of its assets (other than the Excluded Assets, as defined
below) in consideration of Buyer's obligations hereunder.
A G R E E M E N T
NOW, THEREFORE, in consideration of the premises, and the mutual
representations, warranties, covenants and agreements hereinafter set forth, the
parties hereto agree as follows.
ARTICLE I.
DEFINITIONS
1.01. Definitions. The following terms, as used herein, have the
following meanings:
"Affiliate" means, with respect to any Person, any Person directly
or indirectly controlling, controlled by or under direct or indirect common
control with such other Person, through the ownership of all or part of any
Person.
"Ancillary Agreements" means the Escrow Agreement, the
Noncompetition and Nonsolicitation Agreements, the Evans Employment Agreement,
the Johnston Employment Agreement, the Bill of Sale, the Assignment and
Assumption Agreement and the Registration Rights Agreement.
"Applicable Law" means, with respect to any Person, any domestic
or foreign, federal, state or local statute, law, ordinance, policy, guidance,
rule, administrative interpretation,
1
regulation, order, writ, injunction, directive, judgment, decree or other
requirement of any Governmental Authority (including any Environmental Law)
applicable to such Person or any of its Affiliates or Plan Affiliates or any of
their respective properties, assets, officers, directors, employees, consultants
or agents (in connection with such officer's, director's, employee's,
consultant's or agent's activities on behalf of such Person or any of its
Affiliates or Plan Affiliates).
"Assignment and Assumption Agreement" means that certain
Assignment and Assumption Agreement dated the date hereof by and between Seller
and Buyer.
"Associate" or "Associated With" means, when used to indicate a
relationship with any Person, (a) any other Person of which such Person is an
officer or partner or is, directly or indirectly, the beneficial owner of ten
percent (10%) or more of any class of equity securities issued by such other
Person, (b) any trust or other estate in which such Person has a substantial
beneficial interest or as to which such Person serves as trustee or in a similar
fiduciary capacity, and (c) any relative or spouse of such Person, or any
relative of such spouse who has the same home as such Person or who is a
director or officer of such Person or any Affiliate thereof.
"Benefit Arrangement" means any benefit arrangement that is not an
Employee Benefit Plan, including, without limitation, (i) each employment or
consulting agreement, (ii) each arrangement providing for insurance coverage or
workers' compensation benefits, (iii) each incentive bonus or deferred bonus
arrangement, (iv) each arrangement providing termination allowance, severance or
similar benefits, (v) each equity compensation plan, (vi) each deferred
compensation plan and (vii) each compensation policy and practice maintained by
Seller or any ERISA Affiliate of Seller covering the employees, former
employees, directors and former directors of Seller and the beneficiaries of any
of them.
"Benefit Plan" means an Employee Benefit Plan or Benefit
Arrangement.
"Bill of Sale" means that certain Bill of Sale dated the date
hereof executed by Seller.
"Business" means the business as currently conducted by Seller.
"Business Day" means a day other than a Saturday, Sunday or other
day on which commercial banks in San Francisco, California are authorized or
required by law to close.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended, as set forth in Section 4980B of the Code and part of Title
I of ERISA.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contracts" means all contracts, agreements, options, leases,
licenses, sales and accepted purchase orders, commitments and other instruments
of any kind, whether written or oral, to which Seller is a party on the Closing
Date, including the Scheduled Contracts.
"Damages" means all demands, claims, actions or causes of action,
assessments, losses, damages, costs, expenses, liabilities, judgments, awards,
fines, sanctions, penalties,
2
charges and amounts paid in settlement (net of insurance proceeds actually
received), including (i) interest on cash disbursements in respect of any of the
foregoing at the Reference Rate in effect from time to time, compounded
quarterly, from the date each such cash disbursement is made until the Person
incurring the same shall have been indemnified in respect thereof and (ii)
reasonable costs, fees and expenses of attorneys, accountants and other agents
of such Person.
"Debt" means any indebtedness of Seller, whether or not
contingent, in respect of borrowed money or evidenced by bonds, notes,
debentures or other similar instruments or letters of credit (or reimbursement
agreements in respect thereof) or banker's acceptances or representing
capitalized lease obligations or the balance deferred and unpaid of the purchase
price of any property, except any such balance that constitutes an accrued
expense or account payable, if and to the extent any of the foregoing
indebtedness (other than letters of credit) would appear as a Liability upon a
balance sheet of Seller prepared in accordance with GAAP, as well as all
indebtedness of others secured by a Lien on any asset of Seller (whether or not
such indebtedness is assumed by Seller) and, to the extent not otherwise
included, any guaranty by Seller of any indebtedness of any other Person.
"Employee Benefit Plan" means any employee benefit plan, as
defined in Section 3(3) of ERISA, that is sponsored by or contributed to Seller
or any ERISA Affiliate thereof covering employees or former employees of Seller.
"Employee Pension Benefit Plan" means any employee pension benefit
plan, as defined in Section 3(2) of ERISA, that is subject to Title IV of ERISA,
other than a Multiemployer Plan.
"Environmental Laws" means all Applicable Laws relating to
Hazardous Substances, toxic torts, occupational health and safety, or the
environment, including without limitation, the Resource Conservation and
Recovery Act ("RCRA"), the Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA"), the Clean Air Act, the Water Pollution Control Act,
the Safe Drinking Water Act, and the Toxic Substances Control Act ("TSCA"), and
any requirements promulgated pursuant to these Applicable Laws or any analogous
foreign, state or local Applicable Laws.
"Environmental Liabilities" means all Liabilities of a Person
(whether such Liabilities are owed by such Person to Governmental Authorities,
third parties, or otherwise) whether currently in existence or arising hereafter
which arise under or relate to any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" of any Person means any other Person that,
together with such Person as of the relevant measuring date under ERISA, was or
is required to be treated as a single employer under Section 414 of the Code.
"Escrow Agent" means Comerica Bank - California.
3
"Escrow Agreement" means the Escrow Agreement dated as of the
Closing Date by and among Buyer, Seller and the Escrow Agent.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fiscal Year" means a twelve month period commencing on January 1
of each calendar year.
"GAAP" means generally accepted accounting principles in the
United States as in effect on the date hereof and applied on a consistent basis.
"Governmental Authority" means any foreign, domestic, federal,
territorial, state or local governmental authority, quasi-governmental
authority, instrumentality, court, government or self-regulatory organization,
commission, tribunal or organization or any regulatory, administrative or other
agency, or any political or other subdivision, department or branch of any of
the foregoing.
"Group Health Plan" means any group health plan, as defined in
Section 5000(b)(1) of the Code.
"Hazardous Substance" means any substance or material: (i) the
presence of which requires investigation or remediation under any Applicable
Law; or (ii) that is defined as a "hazardous waste" or "hazardous substance"
under any Applicable Law; or (iii) that is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic or mutagenic or otherwise
hazardous and is regulated by any Governmental Authority having or asserting
jurisdiction over Seller; or (iv) the presence of which causes a nuisance,
trespass or other tortious condition; (v) the presence of which poses a hazard
to the health or safety of Persons; or (vi) without limitation, that contains
gasoline, diesel fuel or other petroleum hydrocarbons, polychlorinated biphenols
(PCBs) or asbestos.
"Indemnifying Party" means: (1) with respect to any Buyer
Indemnitee asserting a claim under Sections 9.01 or 10.11, Seller Parties; and
(2) with respect to any Seller Indemnitee asserting a claim under Sections 9.02
or 10.11, Buyer and Parent.
"Indemnitee" means: (1) each of Parent, Buyer and their respective
Affiliates with respect to any claim for which a Seller Party is an Indemnifying
Party under Sections 9.01 or 10.11; and (2) Seller and its respective Affiliates
with respect to claims for which Parent or Buyer is an Indemnifying Party under
Sections 9.02 or 10.11.
"IRS" means the Internal Revenue Service.
"Liability" means, with respect to any Person, any liability or
obligation of such Person of any kind, character or description, whether known
or unknown, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, secured or unsecured, joint or several, due or to become due,
vested or unvested, executory, determined, determinable or otherwise and whether
or not the same is required to be accrued on the financial statements of such
Person or is disclosed on any schedule to this Agreement.
4
"Lien" means, with respect to any asset, any mortgage, title
defect or objection, lien, pledge, charge, security interest, hypothecation,
restriction, encumbrance or charge of any kind in respect of such asset.
"Material Adverse Effect" means a change in, or effect on, the
operations, affairs, prospects, financial condition, results of operations,
assets, Liabilities, reserves or any other aspect of Seller or the Business that
results in a material adverse effect on, or a material adverse change in any of
Seller, the Business or the Transferred Assets.
"Multiemployer Plan" means a multiemployer plan, as defined in
Section 3(37) and 4001(a)(3) of ERISA.
"Multiple Employer Plan" means any Employee Benefit Plan sponsored
by more than one employer, within the meanings of Section 4063 or 4064 of ERISA
or Section 413(c) of the Code.
"Parent Common Stock Price" means the average of the closing
prices of a share of Parent Common Stock during the thirty (30) trading days
ending on the date which is two (2) trading days prior to the Closing Date.
"Permitted Liens" means (i) Liens for Taxes or governmental
assessments, charges or claims the payment of which is not yet due, or for Taxes
the validity of which are being contested in good faith by appropriate
proceedings; (ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar Persons and other Liens
imposed by Applicable Law incurred in the ordinary course of business for sums
not yet delinquent or being contested in good faith; (iii) Liens relating to
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security or to
secure the performance of leases, trade contracts or other similar agreements;
(iv) Liens and Encumbrances specifically identified in the 2002 Balance Sheet;
and (v) Liens securing executory obligations under any Lease that constitutes an
"operating lease" under GAAP; provided, however, that, with respect to each of
clauses (i) through (v), to the extent that any such Lien on any Transferred
Asset arose prior to the Closing Date and relates to, or secures the payment of,
a Liability that is required to be accrued for under GAAP, such Lien shall not
be a Permitted Lien unless all Liabilities served thereby have been fully
accrued as Debt on the 2002 Balance Sheet. Notwithstanding the foregoing, no
Lien arising under the Code or ERISA with respect to the operation, termination,
restoration or funding of any Benefit Plan sponsored by, maintained by or
contributed to by Seller or any of its ERISA Affiliates or arising in connection
with any excise tax or penalty tax with respect to such Benefit Plan shall be a
Permitted Lien.
"Person" means an individual, corporation, partnership, limited
liability company, association, trust, estate or other entity or organization,
including a Governmental Authority.
"Plan Affiliate" means, with respect to any Person, any employee
benefit plan or arrangement sponsored by, maintained by or contributed to by
such Person, and with respect to any employee benefit plan or arrangement, any
Person sponsoring, maintaining or contributing to such plan or arrangement.
5
"Prohibited Transaction" means a transaction that is prohibited
under Section 4975 of the Code or Section 406 of ERISA and not exempt under
Section 4975 of the Code or Section 408 of ERISA, respectively.
"Reference Rate" means seven percent (7%) per annum.
"Registration Rights Agreement" means that certain Registration
Rights Agreement between Parent and Seller dated as of the date hereof.
"Related Purchase Agreements" means (i) that certain Asset
Purchase Agreement dated the date hereof by and among Parent and Buyer, on the
one hand, and Healthcare Staffing Resources, Inc. and the Shareholders
(excluding Prince) and the Seller Representative, on the other hand, and (ii)
that certain Asset Purchase Agreement dated the date hereof by and among Parent
and Buyer, on the one hand, and OnStaff, and the Shareholders (excluding Prince)
and the Seller Representative, on the other hand.
"SEC" means the U.S. Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means, with respect to any Person, (i) any
corporation as to which more than 10% of the outstanding stock having ordinary
voting rights or power (and excluding stock having voting rights only upon the
occurrence of a contingency unless and until such contingency occurs and such
rights may be exercised) is owned or controlled, directly or indirectly, by such
Person and/or by one or more of such Person's Subsidiaries and (ii) any
partnership, joint venture or other similar relationship between such Person (or
any Subsidiary thereof) and any other Person (whether pursuant to a written
agreement or otherwise).
"Tax," including "Taxes," means (A) all taxes imposed of any
nature including federal, state, local or foreign net income tax, alternative or
add-on minimum tax, profits or excess profits tax, franchise tax, gross income,
adjusted gross income or gross receipts tax, employment related tax (including
employee withholding or employer payroll tax, FICA or FUTA), real or personal
property tax or ad valorem tax, sales or use tax, excise tax, stamp tax or duty,
any withholding or back up withholding tax, value added tax, severance tax,
prohibited transaction tax, premiums tax, environmental tax, intangibles tax or
occupation tax, together with any interest or any penalty, addition to tax or
additional amount imposed by any Governmental Authority (domestic or foreign)
responsible for the imposition of any such tax, (B) any Liability for payment of
amounts described in clause (A) whether as a result of transferee liability, of
being a member of an affiliated, consolidated, combined or unitary group for any
period, or otherwise through operation of law, and (C) any liability for the
payment of amounts described in clauses (A) or (B) as a result of any tax
sharing, tax indemnity or tax allocation agreement or any other express or
implied agreement to indemnify any other Person.
"Tax Return" means all returns, reports, forms or other
information required to be filed with respect to any Tax.
"U.S. Government" means the United States Government, including
any agencies, commissions, branches, instrumentalities and departments thereof.
6
1.02. Index of Other Defined Terms. In addition to those terms
defined above, the following terms shall have the respective meanings given
thereto in the sections indicated below:
2.01. Transfer of Assets by Seller. Upon the terms and subject to
the conditions of this Agreement and in reliance upon the representations,
warranties and agreements herein set forth, Buyer agrees to purchase from Seller
and Seller agrees to sell or cause to be sold to Buyer at the Closing, free and
clear of all Liens, other than Permitted Liens, all the assets, properties,
rights, licenses, permits, contracts, causes of action, claims, operations and
businesses of Seller of every kind and description as the same shall exist on
the Closing Date (other than the Excluded Assets), wherever located, whether
tangible or intangible, real, personal or mixed, that are owned by, leased by or
in the possession of Seller, whether or not reflected on the books and records
of Seller (the collective assets, properties, rights, licenses, permits,
contracts, causes of action, claims, operations and businesses to be transferred
to Buyer by Seller pursuant hereto are referred to collectively herein as the
"Transferred Assets") and including, without limitation, all right, title and
interest of Seller in, to and under:
(a) all machinery, equipment, furniture, office equipment,
computer equipment (including all hardware and software), communications
equipment, vehicles, storage tanks, spare and replacement parts, fuel and other
tangible property (and interests in any of the foregoing) of Seller
(collectively, the "Equipment");
(b) all items of inventory notwithstanding how classified in
the financial records of Seller, including all raw materials, work-in-process,
finished goods, supplies, spare parts and samples (collectively, the
"Inventory");
8
(c) all contracts, agreements, options, leases, licenses,
sales and purchase orders, commitments and other instruments of any kind,
whether written or oral, to which Seller is a party on the Closing Date,
including the Scheduled Contracts (as defined below) (collectively, the
"Contracts");
(d) all prepaid deposits, charges and expenses of Seller,
including any such deposits, charges and expenses with respect to ad valorem
taxes, leases and rentals and utilities;
(e) all rights of Seller to insurance proceeds with respect to
claims for Damages to the Transferred Assets occurring prior to the Closing
Date, unless such proceeds reimburse Seller for the previously completed repair
or restoration of such Transferred Assets;
(f) all of Seller's rights, claims, credits, causes of action
or rights of set-off against third parties relating to the Business or the
Transferred Assets, whether liquidated or unliquidated, fixed or contingent,
including claims pursuant to all warranties, representations and guarantees made
by suppliers, manufacturers, contractors and other third parties in connection
with products or services purchased by or furnished to Seller for use in the
Business or affecting any of the Transferred Assets;
(g) all of Seller's licensed products or processes, patents,
copyrights, trademarks, trade names, service marks, service names, designs,
know-how, processes, trade secrets, inventions, and other proprietary data,
including without limitation, all information relating to Seller's clients;
(h) all transferable franchises, licenses, permits or other
authorizations issued or granted by any Governmental Authority that are owned
by, granted to or held or used by Seller, whether or not utilized in the
Business;
(i) to the extent available, all books, records, files and
papers of the Business, whether in hard copy or computer format, including,
without limitation, invoices, sales and promotional literature, manuals and
data, sales and purchase correspondence, lists of present and former suppliers
and customers, personnel and employment records of present and, to the extent
lawful, former employees, documentation developed or used for accounting,
marketing, or any other purpose related to the conduct of the Business at any
time prior to the Closing, and to the extent available, copies of all corporate
minutes and other corporate records of Seller;
(j) all goodwill associated with Seller, the Business or the
Transferred Assets;
(k) except as specifically provided in Section 2.02, all other
assets and properties of Seller which exist on the Closing Date, whether
tangible or intangible, real or personal; and
(l) all accounts receivable relating to services rendered by
Seller or its employees (and for all purposes of this Agreement, the parties
hereto agree that all the employees of Elegant Lighting shall be considered
employees of Seller) on or after August 5, 2002.
9
2.02. Excluded Assets. Buyer expressly understands and agrees that
the assets and properties set forth on Schedule 2.02 (the "Excluded Assets")
shall be excluded from the Transferred Assets.
2.03. Assumption of Liabilities. Upon the terms and subject to the
conditions of this Agreement and in reliance upon the representations,
warranties and agreements herein set forth, Buyer agrees, effective at the time
of Closing, to assume, perform and timely pay and discharge the following
Liabilities (subject to the conditions below and excluding the Excluded
Liabilities, the "Assumed Liabilities"):
(i) all Contracts (including Scheduled Contracts);
(ii) all current accounts payable, payroll or accrued
expenses of Seller incurred or accrued in the ordinary course of business on or
after August 5, 2002;
(iii) accrued vacation of Seller's employees;
(iv) severance compensation provided in paragraph 7 under
the Compensation and Benefits section of the Letter of Employment to David
Mossesson, dated January 14, 2002 from Seller, in the mutually agreed amount of
One Hundred Fifty Thousand Dollars ($150,000) in cash; and
(v) all Liabilities arising from and after the Closing
which arise out of or relate in any way to Buyer's ownership or operation of the
Transferred Assets after the Closing;
provided, however, that the assumption by Buyer of the Assumed Liabilities will
be limited as follows: any Liability set forth in subsections (i), (ii), (iii)
and (v) of this Section 2.03 shall constitute an Assumed Liability only to the
extent that it arises out of Seller's normal conduct of the Business.
2.04. Excluded Liabilities. Neither Parent nor Buyer assumes, and
shall not at any time hereafter (including on or after the Closing Date) become
liable for, any Liabilities of Seller, any of its Affiliates or any Plan
Affiliate, other than the Assumed Liabilities (the "Excluded Liabilities"); in
furtherance of and not in limitation of the foregoing, the Excluded Liabilities
shall include, but are not limited to, the following:
(a) any Liability of Seller or any of its Affiliates or
Plan Affiliates of any of the foregoing, whether currently in existence or
arising hereafter, that is not attributable to, or that does not arise out of,
Seller's normal conduct of the Business;
(b) any Liability whether presently in existence or
arising hereafter which is attributable to an Excluded Asset;
(c) any Environmental Liability imposed on Seller whether
presently in existence or arising hereafter;
10
(d) any Liability the existence of which constitutes a
breach of any representation or warranty or covenant hereunder which would be
indemnifiable to Parent and Buyer pursuant to Section 9.01 hereof.;
(e) any Liability whether currently in existence or arising
hereafter relating to fees, commissions or expenses owed to any broker, finder,
investment banker, attorney, accountant or other intermediary, consultant or
advisor employed by any of the Seller Parties or any of its or his Affiliates or
Plan Affiliates in connection with the transactions contemplated hereby or
otherwise;
(f) all Debt (other than current accounts payable or accrued
expenses as set forth in Section 2.03(ii));
(g) any Liability of Seller or any of its shareholders or
any of their Affiliates for any Taxes, including without limitation, (i) any
Liability for any Taxes with respect to the Transferred Assets attributable to
any period prior to the Closing and (ii) any Taxes relating to or arising from
Seller's issuance of its Series B common stock;
(h) any Liability, whether currently in existence or arising
hereafter, owed by Seller to any of its Associates or Affiliates;
(i) any Liability incurred by Seller with respect to any of
Seller's employees or former employees, agents, consultants or independent
contractors, including but not limited to, worker's compensation, severance,
salary, bonuses or other benefits and Liabilities arising pursuant to Seller's
employment agreements with Evans, Thadeus Kaul and David Mossesson (other than
the obligation to pay severance to Mr. Mossesson pursuant to the terms and
conditions of his employment agreement with Seller);
(j) any Liability arising from, arising out of, based on or
relating to any of Seller's Benefit Plans, whether arising before, on or after
the Closing Date;
(k) any Liability for indebtedness of Seller, including
without limitation, any principal, interest or other amount owing in respect of
any such indebtedness;
(l) any negative cash balances, book overdrafts, held checks
or similar liabilities of Seller;
(m) any Liability for payroll or similar Taxes relating to
Seller's arrangement with Elegant Lighting; and
(n) all current accounts payable, payroll or accrued
expenses of Seller, incurred or accrued in the ordinary course of business prior
to August 5, 2002.
2.05. Assignment of Contracts and Rights.
(a) With respect to any Contract and any claim, right or
benefit arising thereunder or resulting therefrom, promptly after the date
hereof, to the extent requested by Buyer, Seller will use its best efforts to
obtain the written consent of the other parties to any such
11
Contract for the assignment thereof to Buyer or written confirmation from such
parties confirming that such consent is not required in form and substance
reasonably satisfactory to Buyer.
(b) If (i) such consent, waiver or confirmation is not
obtained with respect to any such Contract and (ii) Buyer shall elect to
consummate the Closing, Seller and Buyer shall cooperate in an arrangement
reasonably satisfactory to Buyer and Seller under which Buyer would obtain, to
the extent practicable, the claims, rights and benefits and assume the
corresponding obligations thereunder in accordance with this Agreement,
including subcontracting, sub-licensing or sub-leasing to Buyer, or under which
Seller would enforce for the benefit of Buyer, with Buyer assuming Seller's
obligations, any and all claims, rights and benefits of Seller against a third
party thereto. Seller will promptly pay to Buyer when received all monies
received by Seller under any Transferred Asset or any claim, right or benefit
arising thereunder not transferred to Buyer pursuant to this Section 2.05.
2.06. Closing.
(a) The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at the offices of Gibson, Dunn &
Crutcher LLP, 2029 Century Park East, Los Angeles, California 90067, on the date
hereof (the "Closing Date").
(b) At the Closing, Parent and/or Buyer shall deliver to
Seller the following:
(i) by wire transfer (to a bank account designated by
Seller in writing at least three (3) Business Days prior to the Closing Date),
Two Hundred Nine Thousand Two Hundred Sixty Nine Dollars ($209,269) in
immediately available funds; and
(ii) one or more stock certificates for an aggregate
number of duly authorized, validly issued, fully-paid and nonassessable shares
of common stock, par value $0.001 per share, of Parent ("Parent Common Stock")
equal to Four Thousand Seven Hundred Four (4,704) (the "Shares"); provided,
however, a certificate representing one-third (1/3) of the Shares ("Escrowed
Shares") registered in the name of Seller shall be delivered to the Escrow Agent
to be held and distributed by the Escrow Agent in accordance with the Escrow
Agreement. Neither Parent nor Buyer shall have any responsibility for the
allocation of the Shares among the Shareholders or other equityholders of
Seller. Seller shall deliver to the Escrow Agent stock powers or other
assignments of interest duly executed in blank for the Escrowed Shares.
(c) Buyer shall deliver to Seller such customary instruments
of assumption as may be reasonably requested by Seller to evidence such
assumption of the Assumed Liabilities; provided, however, that no such document
shall expand in any way any of Buyer's obligations to assume anything other than
the Assumed Liabilities.
(d) At the Closing, Seller shall deliver to Parent and/or
Buyer:
(i) such bills of sale, certificates of title,
endorsements, consents, assignments and other good and sufficient instruments of
conveyance and assignment of such rights as the parties and their respective
counsel shall deem reasonably necessary or
12
appropriate to vest in Buyer all of Seller's right, title and interest in, to
and under the Transferred Assets;
(ii) a copy of the resolutions of the board of
directors of Seller and a copy of the resolutions of the Shareholders, each
authorizing the execution and delivery of this Agreement and each of the
Ancillary Agreements, and the consummation of the transactions contemplated
hereby and thereby, both certified by the Secretary of Seller;
(iii) a copy of the resolutions of the board of
directors of Seller terminating Seller's Benefit Plans, including Seller's
401(k) plan;
(iv) written releases of any and all Liens on the
Transferred Assets and executed termination statements with respect to any
security interests filed by any creditor of Seller pursuant to the Uniform
Commercial Code;
(v) a signed opinion of counsel to Seller, dated the
Closing Date, in substantially the form attached hereto as Exhibit C;
(vi) all Required Consents for the transactions
contemplated by this Agreement;
(vii) an employment agreement substantially in the form
attached hereto as Exhibit B executed by Jeffrey A. Evans (the "Evans Employment
Agreement");
(viii) an employment agreement substantially in the form
attached hereto as Exhibit H executed by Matthew Johnston (the "Johnston
Employment Agreement");
(ix) terminations of any agreements between any
Affiliate of Seller and Seller, if requested by Parent or Buyer, at no cost;
(x) a Noncompetition and Nonsolicitation Agreement
substantially in the form attached hereto as Exhibit E executed by Diane Prince
Johnston;
(xi) a fully executed Escrow Agreement substantially
in the form attached hereto as Exhibit G;
(xii) Guaranties in the form attached hereto as Exhibit
F executed by each of Matthew Johnston and Diane Prince Johnston;
(xiii) Agreement executed by Seller and Matthew Johnston
rescinding that certain Executive Deferred Compensation Agreement dated as of
June 28, 2002 by and between Seller and Matthew Johnston;
(xiv) Agreement executed by Seller and Evans rescinding
that certain Executive Deferred Compensation Agreement dated as of June 28, 2002
by and between Seller and Evans;
13
(xv) Agreements or other documents in form reasonably
satisfactory to Parent evidencing the termination of Seller's employment
agreements with Evans, Thadeus Kaul and David Mossesson;
(xvi) Amendment to the Living Trust; and
(xvii) Agreement with Elegant Lighting in form
reasonably satisfactory to Parent.
2.07. [Intentionally Omitted].
2.08. Total Consideration Allocation. The parties agree to
allocate the consideration paid for the Transferred Assets under this Agreement
among the Transferred Assets in accordance with Section 1060 of the Code as
mutually agreed to by the parties within one hundred and eighty (180) days after
the Closing. If Buyer and Seller are unable to agree, the final allocation of
such consideration among the Transferred Assets shall be determined by an
independent party mutually agreed to by Parent and the Seller Representative
(the "Selected Firm") and the Selected Firm's determination of the allocation
shall be final and binding upon the parties hereto for purposes of this
Agreement. Buyer and Seller and the shareholders of Seller shall use such
mutually agreed-to allocations in preparing any filings required pursuant to
Section 1060 of the Code or any similar provisions of state or local law, shall
report the tax consequences of the transactions contemplated by this Agreement
in a manner consistent with such allocations on all relevant tax returns and
shall not take any position inconsistent therewith.
2.09. [Intentionally Omitted]
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF SELLER
As an inducement to Buyer to enter into this Agreement and to
consummate the transactions contemplated herein, Seller represents and warrants,
as of the date of this Agreement and as of the Closing Date, to Buyer as
follows:
3.01. Corporate Existence and Power. Seller is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of California, and has all corporate power and all governmental licenses,
governmental authorizations, governmental consents and governmental approvals
required to carry on the Business as now conducted and to own and operate the
Transferred Assets as now owned and operated. Seller is not required to be
qualified to conduct business in any jurisdiction other than: (a) the
jurisdictions set forth in Schedule 3.01, in which jurisdictions Seller is duly
qualified to do business and in good standing, and (b) such jurisdictions where
the failure to be so qualified, whether singly or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
3.02. Authorization. The execution, delivery and performance by
Seller of this Agreement and the consummation by Seller of the transactions
contemplated hereby are within Seller's corporate powers and have been duly
authorized by all necessary corporate action on the part of Seller. This
Agreement has been duly and validly executed by Seller and constitutes the
14
legal, valid and binding agreement of Seller, enforceable against it in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally and subject to general principles of equity.
3.03. Capital Stock; Subsidiaries.
(a) The entire authorized capital stock of Seller consists
of 10,000 shares, no par value, of common stock (the "Seller Common Stock"), of
which 143.896 shares of Seller Common Stock are issued and outstanding. The
Shareholders are the sole owners of all of the outstanding capital stock of the
Seller, and their respective ownership of the Seller Common Stock are set forth
on Schedule 3.03. Except as set forth on Schedule 3.03, there are no outstanding
obligations, options, warrants, convertible securities, phantom stock, stock
appreciation rights or other rights, agreements, arrangements or commitments of
any kind relating to the capital stock of Seller or obligating Seller to issue
or sell any shares of capital stock of, or any other interest in, Seller. Except
as set forth on Schedule 3.03, there are no outstanding contractual obligations
of Seller to repurchase, redeem or otherwise acquire any shares of Seller Common
Stock or to provide funds to, or make any investment (in the form of a loan,
capital contribution or otherwise) in, any other Person. Except as set forth on
Schedule 3.03, there are no voting trusts, shareholder agreements, proxies or
other agreements or understandings in effect with respect to the voting or
transfer of any of the Seller Common Stock.
(b) Seller has no Subsidiaries.
3.04. Governmental Authorization. The execution, delivery and
performance by the Seller Parties of this Agreement require no action by,
consent or approval of, or filing with, any Governmental Authority. To the best
knowledge of Seller, there are no facts relating to the identity or
circumstances of Seller that would prevent or materially delay obtaining any of
the Required Consents.
3.05. Non-Contravention. Except as set forth on Schedule 3.05, the
execution, delivery and performance by the Seller Parties of this Agreement does
not and will not (a) contravene or conflict with the Articles of Incorporation
or Bylaws of Seller, true and correct copies of which have been delivered to the
Buyer by Seller; (b) assuming receipt of the Required Consents and compliance
with the matters referred to in Section 3.04 hereof, contravene or conflict with
or constitute a violation of any provision of any Applicable Law binding upon or
applicable to Seller, the Business or any of the Transferred Assets; or (c)
result in the creation or imposition of any Lien on any of the Transferred
Assets, other than Permitted Liens.
(a) Attached hereto as Exhibit A are true and complete
copies of (i) the balance sheets and related statements of operations and
retained earnings for Seller for the years ended December 31, 2001, 2000 and
1999, in each case prepared by Frankel, Lodgen, Lacher, Golditch, Sardi & Howard
and (ii) the balance sheet and related statements of income and cash flow for
Seller for the year ended December 31, 2001 prepared by Seller in accordance
with GAAP (collectively, (i) and (ii) the "Annual Statements"), and the balance
sheets and
15
related statements of operations for the five (5) months ended May 31, 2002
(collectively, the "Interim Statements" and, together with the Annual
Statements, the "Financial Statements"). The May 31, 2002 balance sheet is
referred to herein as the "2002 Balance Sheet."
(b) Except as set forth on Schedule 3.06(b), each of
the Financial Statements (i) has been prepared based on the books and records of
Seller in accordance with GAAP and Seller's normal accounting practices,
consistent with past practice and with each other, and present fairly the
financial condition, results of operations of Seller as of the dates indicated
or for the periods indicated; (ii) contains and reflects all necessary
adjustments, accruals, provisions and allowances for a fair presentation of its
financial condition and the results of its operations for the periods covered by
such financial statement; (iii) to the extent applicable, contains and reflects
adequate provisions for all reasonably anticipated liabilities for all Taxes,
federal, state, local or foreign, with respect to the periods then ended and all
prior periods; and (iv) with respect to contracts and commitments for the sale
of goods or the provision of services by Seller, contains and reflects adequate
reserves for all reasonably anticipated losses and costs and expenses in excess
of expected receipts.
(c) Except as set forth on Schedule 3.06(c), there
are no Liabilities of Seller other than: (i) any Liability accrued as a
Liability on the 2002 Balance Sheet; (ii) Liabilities specifically disclosed and
expressly identified as such in the schedules to this Agreement; and (iii)
Liabilities incurred since the date of the 2002 Balance Sheet in Seller's
ordinary course of business consistent with past practice.
3.07. Absence of Certain Changes. Except as set forth on
Schedule 3.07, since the date of the 2002 Balance Sheet, the Business has been
conducted in the ordinary course consistent with past practice, and there has
not been:
(a) to Seller's best knowledge, any event,
occurrence, state of circumstances or facts or change in Seller, the Transferred
Assets or the Business that has had or that may be reasonably expected to have,
either alone or together, a Material Adverse Effect;
(b) to Seller's best knowledge, (i) any change in any
Liability of Seller reflected in the 2002 Balance Sheet or that should be
reflected as a Liability on the 2002 Balance Sheet that has had or may be
reasonably expected to have a Material Adverse Effect or (ii) any incurrence,
assumption or guarantee of any indebtedness for borrowed money by Seller in
connection with the Business, any of the Transferred Assets or otherwise;
(c) any (i) payments by Seller in respect of Debt of
Seller or in satisfaction of any Liabilities of Seller related to the Business,
other than in the ordinary course of business consistent with past practice, or
the guarantee by Seller of the Debt of any other Person; or (ii) creation,
assumption or sufferance of the existence of (whether by action or omission) any
Lien on any Transferred Asset, other than Permitted Liens;
(d) any commitment made, or any Contract entered
into, by Seller (including the acquisition or disposition of any Transferred
Assets), or any waiver, amendment, termination or cancellation of any Contract
by Seller, or any relinquishment of any rights
16
thereunder by Seller, or of any other right or debt owed to Seller, other than
in each such case actions taken in the ordinary course of business consistent
with past practice;
(e) any (i) grant of any severance, continuation or
termination pay to any director, officer, stockholder or employee of Seller or
any Associate of any of the foregoing, (ii) entering into of any employment,
deferred compensation or other similar agreement (or any amendment to any such
existing agreement) with any director, officer, stockholder or employee of
Seller or any Associate of any of the foregoing, (iii) increase in benefits
payable or potentially payable under any severance, continuation or termination
pay policies or employment agreements with any director, officer, stockholder or
employee of Seller or any Associate of any of the foregoing, (iv) increase in
compensation, bonus or other benefits payable or potentially payable to
directors, officers, stockholders or employees of Seller or any Associate of any
of the foregoing, (v) change in the terms of any bonus, pension, insurance,
health or other Benefit Plan of Seller, or (vi) representation of Seller to any
employee or former employee of any of the foregoing that Buyer would assume,
continue to maintain or implement any Benefit Plan after the Closing Date;
(f) any loan to or guarantee or assumption of any loan or
obligation on behalf of any stockholder, director, officer or employee of Seller
or to any Associate of Seller, except reasonable travel advances and expenses
occurring in the ordinary course of business consistent with past practice;
(g) any change by Seller in its accounting principles,
methods or practices or in the manner it keeps its books and records or any
change by Seller of its current practices with regards to sales, receivables,
payables or accrued expenses, other than those changes resulting from Deloitte &
Touche LLP's audit of Seller's financial statements;
(h) any distribution, dividend, bonus or other payment by
Seller to any officer, director, stockholder or Affiliate of Seller
(collectively, "Distributions");
(i) the entering into of any Contract or other arrangement
between Seller and any officer, director, stockholder or Affiliate of Seller;
(j) any (i) single capital expenditure or commitment in
excess of Fifteen Thousand Dollars ($15,000) for additions to property, plant,
equipment or intangible capital assets, (ii) capital expenditures or commitments
in an aggregate amount in excess of Thirty Thousand Dollars ($30,000) for
additions to property, plant, equipment or intangible capital assets or capital
expenditures, (iii) sale, assignment, transfer, lease or other disposition of or
agreement to sell, assign, transfer, lease or otherwise dispose of any asset or
property having a value of Ten Thousand Dollars ($10,000) in the aggregate;
(k) to Seller's best knowledge, any labor dispute or any
activity or proceeding by a labor union or representative thereof to organize
any employees of Seller, who were not subject to a collective bargaining
agreement at the date of the 2002 Balance Sheet, or any lockouts, strikes,
slowdowns, work stoppages or threats thereof by or with respect to any such
employees; or
17
(l) any payment, discharge or satisfaction of any Liabilities
of Seller, other than payments, discharges or satisfactions in the ordinary
course of business consistent with past practice.
3.08. Properties; Leases; Tangible Assets.
(a) Seller has good and valid title to or, in the case of
leased properties or properties held under license, good and valid leasehold or
license interests in, all of its properties, including all such properties
(real, personal or mixed, tangible or intangible (including the Intellectual
Property Rights)) reflected on the 2002 Balance Sheet. Except as disclosed in
Schedule 3.08(a), Seller holds title to each such property and asset free and
clear of all Liens, adverse claims or any other rights of others or other
adverse interests of any kind, including leases, chattel mortgages, conditional
sales contracts, collateral security arrangements and other title or interest
retention arrangements (collectively, "Encumbrances"), except Permitted Liens.
(b) All material tangible properties and assets (other than
inventory) included in the Transferred Assets are in reasonably serviceable
operating condition and repair and are adequate for the uses to which they are
put, and no material properties or assets necessary for the conduct of the
Business in substantially the same manner as the Business has heretofore been
conducted are in need of replacement, maintenance or repair, except for routine
replacement, maintenance and repair.
(c) Seller owns no real property.
(d) Schedule 3.08(d) sets forth all personal property leases
to which Seller is a party or by which it is bound and that are necessary for
the conduct of the Business in substantially the same manner as the Business has
heretofore been conducted and all real property leases (such Schedule 3.08(d)
describing separately those leases relating to real property (the "Leased Real
Property") and those leases relating to personal property and indicating where
appropriate those leases that have been recorded for tax, protection of title or
interest, or other purposes) entered into by Seller (the "Leases"). With respect
to the Leases, there exist no material defaults by Seller or, to the best
knowledge of Seller, any default or threatened default by any third party
thereunder, that has affected or could reasonably be expected to affect the
rights and privileges thereunder of Seller or result in any Liability of Seller.
Except as disclosed in Schedule 3.08(d), each Lease is a legal, valid and
binding obligation of Seller, and, to the best knowledge of Seller, each other
party thereto, enforceable against each such party thereto in accordance with
its terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
and subject to general principles of equity. Except as provided in Schedule
3.08(d), the transfer of the Transferred Assets contemplated by this Agreement
will not result in any default, penalty or modification to any Lease, nor will
any consents thereto be required.
(e) Except as disclosed in Schedule 3.08(e), (i) to Seller's
best knowledge, the current use and operation of all Leased Real Property is in
compliance with all Applicable Laws (including, without limitation, laws
relating to parking, zoning and land use) and public and private covenants and
restrictions, (ii) Seller has not received written notice
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of non-compliance with any Applicable Laws and (iii) to Seller's best knowledge,
the utilities, access and parking for each such Leased Real Property are
adequate for the current use and operation of each such Leased Real Property.
(f) Except as disclosed in Schedule 3.08(f), to Seller's best
knowledge, there are no zoning, building code, occupancy restriction or other
land-use regulation proceedings or, to the best knowledge of Seller, any
proposed change in any Applicable Laws, which could detrimentally affect the use
or operation of any Leased Real Property, nor has Seller received any written
notice of any special assessment proceedings affecting the Leased Real Property,
or applied for any change to the zoning or land use status of the Leased Real
Property.
(g) Seller has obtained all licenses, permits, approvals,
easements and rights of way (and all such items are currently in full force and
effect) required from any Governmental Authority having jurisdiction over each
Leased Real Property or from private parties for the current use and operation
of each Leased Real Property, other than those the absence of which would not
affect the use or operation of such Leased Real Property in the manner currently
used or operated by Seller.
3.09. Sufficiency of and Title to the Transferred Assets. Upon
consummation of the transactions contemplated by this Agreement, Seller will
have sold, assigned, transferred and conveyed to Buyer, free and clear of all
Liens or Encumbrances, other than Permitted Liens, good and marketable title to
or other right to use all of the Transferred Assets, which constitute all of the
properties and assets now held or employed by Seller in connection with the
Business and necessary for the conduct of the Business, other than the Excluded
Assets.
3.10. Affiliates. Except as set forth in Schedule 3.10, none of (i)
Seller, (ii) to the best knowledge of Seller, any stockholder of Seller or any
Affiliate of any such stockholder or any Associate of any such stockholder or
Affiliate or (iii) any officer or director of Seller (or any immediate family
member of any such officer or director):
(a) now has or is or at any time subsequent to June 30, 2002
had, either directly or indirectly, an equity or debt interest in any Person
which furnishes or sells, or during such period furnished or sold, services or
products to Seller, or purchases, or during such period purchased, from Seller
any goods or services, or otherwise does, or during such period did, business
with Seller; provided, however, that no Person identified in clauses (i), (ii)
or (iii) of this Section 3.10 shall be deemed to have such an interest solely by
virtue of the ownership of less than one percent (1%) of the outstanding voting
stock or debt securities of any publicly-held company, the stock or debt
securities of which are traded on a national stock exchange or quoted on the
National Association of Securities Dealers Automated Quotation System; or
(b) was a party to any contract, commitment or agreement to
which Seller is, or during such period was, a party or under which any of them
is or was obligated or bound or to which any of their properties may be or may
have been subject.
3.11. Litigation. Except as disclosed in Schedule 3.11, (i) there are
no actions, suits, claims, hearings, arbitrations, proceedings (public or
private) or governmental
19
investigations that have been brought by or against any Governmental Authority
or any other Person (collectively, "Proceedings") pending or, to the best
knowledge of Seller, threatened, against or by Seller, the Business or any of
the Transferred Assets or which seek to enjoin or rescind the transactions
contemplated by this Agreement; and (ii) there are no existing orders, judgments
or decrees of any Governmental Authority naming Seller as an affected party or
otherwise affecting any of the Transferred Assets or the Business.
3.12. Contracts.
(a) Schedule 3.12(a) sets forth a complete list of all
existing contracts, commitments and obligations (whether written or oral) of
Seller and the Business that are material to Seller, including without
limitation, the following (collectively with the Leases and the Employment
Agreements, the "Scheduled Contracts"):
(i) each agreement or arrangement of Seller that
requires the payment or incurrence of Liabilities, or the rendering of services,
by Seller, subsequent to the date of this Agreement, of more than Ten Thousand
Dollars ($10,000);
(ii) all Contracts relating to, or evidences of, or
guarantees of, or providing security for, Debt or the deferred purchase price of
property (whether incurred, assumed, guaranteed or secured by any asset);
(iii) all license, sale, distribution, commission,
marketing, agent, franchise, technical assistance or similar agreements relating
to or providing for the marketing and/or sale of the products or services to
which Seller is a party or by it is otherwise bound;
(iv) all acquisition, partnership, joint venture,
teaming arrangements or other similar Contracts, arrangements or agreements
entered into by the Company since its incorporation; and
(v) each agreement, arrangement, contract, commitment
or obligation of Seller restricting or otherwise affecting the ability of Seller
to compete in the Business or otherwise in any jurisdiction.
(b) Seller has made true and correct copies of all such
Scheduled Contracts available to Buyer. To the best knowledge of Seller, no
notice of material default arising under any Scheduled Contract has been
delivered to or by Seller. Except as disclosed in Schedule 3.12(b), each
Scheduled Contract is a legal, valid and binding obligation of Seller and each
other party thereto, enforceable against each such party thereto in accordance
with its terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
and subject to general principles of equity, and neither Seller nor, to Seller's
best knowledge, the other party thereto is in default thereunder. Except as
provided in Schedule 3.12(b), the transfer of the Transferred Assets
contemplated by this Agreement will not result in any default, penalty or
modification to any Scheduled Contract.
(c) Schedule 3.12(c) sets forth a list (by name, address and
Persons to contact) of the twelve (12) largest (determined by aggregation of
revenues generated from such Persons by all of Seller's and its Affiliates'
offices) clients of Seller for the six quarters ended
20
June 30, 2002, together with the approximate dollar amount of services provided
to such Persons during said period and a summary description of the services
provided.
3.13. Permits; Required Consents.
(a) To Seller's best knowledge, Schedule 3.13(a) sets forth
all approvals, authorizations, certificates, consents, licenses, orders and
permits and other similar authorizations of all Governmental Authorities (and
all other Persons) necessary for the operation of the Transferred Assets or the
Business in substantially the same manner as currently operated or affecting or
relating in any way to the Business (the "Permits").
(b) Schedule 3.13(b) lists (i) each governmental or other
registration, filing, application, notice, transfer, consent, approval, order,
qualification and waiver known by Seller to be required under Applicable Law to
be obtained by Seller by virtue of the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby to avoid the loss of
any Permit or otherwise (each, a "Required Governmental Approval"), and (ii)
each Scheduled Contract with respect to which the consent of the other party or
parties thereto must be obtained by Seller by virtue of the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby to avoid the invalidity of such Scheduled Contract, the termination
thereof, a breach or default thereunder or any other change or modification to
the terms thereof (each, a "Required Contractual Consent" and, together with the
Required Governmental Approvals, the "Required Consents").
3.14. Compliance with Applicable Laws. Except as set forth in
Schedule 3.14, Seller has not violated or infringed, nor is it in violation or
infringement of, any material Applicable Law or any order, writ, injunction or
decree of any Governmental Authority.
3.15. Employment Agreements; Change in Control; and Employee
Benefits.
(a) Except as set forth on Schedule 3.15(a), there are no
employment, consulting, severance pay, continuation pay, termination pay or
indemnification agreements or other similar agreements of any nature whatsoever
(collectively, "Employment Agreements") between Seller, on the one hand, and any
current or former stockholder, officer, director, employee or Affiliate of
Seller or any consultant or agent of Seller, on the other hand, that are
currently in effect. Except as set forth on Schedule 3.15(a), there are no
Employment Agreements or any other similar agreements to which Seller is a party
under which the transactions contemplated by this Agreement (i) will require any
payment by Seller, Buyer, or any consent or waiver from any stockholder,
officer, director, employee or Affiliate of Seller, any of their respective
Associates or any consultant or agent of Seller or Buyer or (ii) will result in
any change in the nature of any rights of any stockholder, officer, director,
employee or Affiliate of Seller, or any of their respective Associates or any
consultant or agent of Seller under any such Employment Agreement or other
similar agreement.
(b) Schedule 3.15(b) sets forth all Benefit Plans of Seller.
Seller has made true and correct copies of all governing instruments and related
agreements pertaining to such Benefit Plans available to Buyer, including, in
the case of any Benefit Plan not set forth in writing, a written description
thereof.
21
(c) Except as set forth on Schedule 3.15(c), neither Seller
nor any of its ERISA Affiliates sponsors or, within the last five (5) years has
sponsored, maintained, contributed to, or incurred an obligation to contribute
to, any Employee Pension Benefit Plan.
(d) Neither Seller nor any of its ERISA Affiliates sponsors or
has ever sponsored, maintained, contributed to, or incurred an obligation to
contribute to any Multiemployer Plan or to a Multiple Employer Plan.
(e) No individual shall accrue or receive additional benefits,
service or accelerated rights to payments of benefits under any Benefit Plan,
including the right to receive any parachute payment, as defined in Section 280G
of the Code, or become entitled to severance, termination allowance or similar
payments as a direct result of the transactions contemplated by this Agreement.
(f) No Employee Benefit Plan has participated in, engaged in
or been a party to any non-exempt Prohibited Transaction, and neither Seller nor
any of its ERISA Affiliates has had asserted against it any claim for taxes
under Chapter 43 of Subtitle D of the Code and Section 5000 of the Code, or for
penalties under ERISA Section 502(c), (i) or (l), with respect to any Employee
Benefit Plan nor, to the best knowledge of Seller, is there a basis for any such
claim. No officer, director or employee of Seller has committed a material
breach of any responsibility or obligation imposed upon fiduciaries by Title I
of ERISA with respect to any Employee Benefit Plan.
(g) Other than routine claims for benefits, there is no claim
pending or, to the best knowledge of Seller, threatened, involving any Benefit
Plan by any Person against such plan, Seller, or any of its ERISA Affiliates.
There is no pending or, to the best knowledge of Seller, threatened, proceeding
involving any Employee Benefit Plan before the IRS, the United States Department
of Labor or any other Governmental Authority.
(h) There is no violation of any reporting or disclosure
requirement imposed by ERISA or the Code with respect to any Benefit Plan that
could have a Material Adverse Effect.
(i) Each Benefit Plan has at all times prior hereto been
maintained in all material respects, by its terms and in operation, in
accordance with ERISA and the Code. In accordance with Applicable Law, each
Benefit Plan can be amended or terminated at any time, without consent from any
other party and without liability other than for benefits accrued as of the date
of such amendment or termination. Seller and its ERISA Affiliates have made full
and timely payment of all amounts required to be contributed under the terms of
each Benefit Plan and Applicable Law or required to be paid as expenses under
such Benefit Plan, and Seller and its ERISA Affiliates shall continue to do so
through the Closing.
(j) With respect to any Group Health Plans maintained by
Seller or its ERISA Affiliates, whether or not for the benefit of Seller's
employees, Seller and its ERISA Affiliates have complied in all material
respects with the provisions of Part 6 of Title I of ERISA and Sections 4980B,
9801 and 9802 of the Code. Seller is not obligated to provide health care
benefits of any kind to its retired employees pursuant to any Employee Benefit
Plan, including
22
without limitation, any Group Health Plan, or pursuant to any agreement or
understanding, other than as required by Applicable Law.
(k) Seller has made available to the Buyer a copy of (i) the
three (3) most recently filed Federal Form 5500 series and accountant's opinion,
if applicable, for each Employee Benefit Plan, (ii) the most recent IRS
determination letter obtained with respect to each Benefit Plan intended to be
qualified under Section 401(a) of the Code or exempt under Section 501(a) of the
Code and (iii) the most recently prepared financial statements of each Benefit
Plan.
(l) Each Benefit Plan intended to be qualified under Section
401(a) of the Code has been determined to be so qualified by the IRS. Each trust
established in connection with any Benefit Plan which is intended to be exempt
from Federal income taxation under Section 501(a) of the Code has been
determined to be so exempt by the IRS. Since the date of each most recent
determination referred to in this Section 3.15(l), no event has occurred and no
condition or circumstance has existed that has adversely affected, or is likely
to adversely affect, the qualified status of any Benefit Plan.
3.16. Labor and Employment Matters.
(a) Except as set forth on Schedule 3.16(a), no collective
bargaining agreement exists that is binding on Seller and, except as described
on Schedule 3.16(a), no petition has been filed or proceedings instituted by an
employee or group of employees with any labor relations board seeking
recognition of a bargaining representative. Schedule 3.16(a) describes any
organizational effort that, to the best knowledge of Seller, is currently being
made or threatened or has been made since January 1, 2001 by or on behalf of any
labor union to organize any employees of Seller.
(b) Except as set forth on Schedule 3.16(b), (i) there is no
labor strike, slow down or stoppage pending or, to the best knowledge of Seller,
threatened, against or directly affecting Seller; (ii) no grievance or
arbitration proceeding arising out of or under any collective bargaining
agreement is pending and no claims therefor exist; and (iii) neither Seller nor
any of its respective Affiliates has received any notice or has any knowledge of
any threatened labor or employment dispute, controversy or grievance or any
other unfair labor practice proceeding or breach of contract claim or action
with respect to claims of, or obligations to, any employee or group of employees
of Seller.
(c) If required under the Workers Adjustment and Retraining
Notification Act or other applicable state law regulating plant closing or mass
layoffs, Seller and its Affiliates have timely caused there to be filed or
distributed, as appropriate, all required filings and notices with respect to
employment losses occurring through the Closing Date.
(d) Seller and its Affiliates have complied and are currently
complying, in respect of all employees of Seller and its Affiliates, with all
Applicable Laws respecting employment and employment practices and the
protection of the health and safety of employees, from whatever source such law
may be derived, including, without limitation, statutes, ordinances, laws,
rules, regulations, policies, standards, judicial or administrative
23
precedents, judgments, orders, decrees, awards, citations, licenses, official
interpretations and guidelines ("Labor Laws"), except for such instances which
would not, in the aggregate, result in a Material Adverse Effect.
(e) All individuals who are performing or have performed
services for Seller or any of its Affiliates and who are or were classified by
Seller or any of its Affiliates as "independent contractors" qualify for such
classification under Section 530 of the Revenue Act of 1978 or Section 1706 of
the Tax Reform Act of 1986, as applicable, except for such instances which would
not, in the aggregate, result in a Material Adverse Effect.
3.17. Intellectual Property.
(a) Schedule 3.17(a) sets forth a complete and correct list of
each patent, patent application and docketed invention, trademark, trade name,
trademark or trade name registration or application, copyright or copyright
registration or application for copyright registration, servicemark, brand mark
or brand name or any pending application related thereto, or any trade secret,
proprietary know-how, programs or processes or any similar rights, and each
license or licensing agreement for any of the foregoing relating to any
Transferred Asset or the Business or held by Seller (the "Intellectual
Property").
(b) Except as disclosed in Schedule 3.17(b), Seller has not
during the three years preceding the date of this Agreement been a party to any
Proceeding, nor to the best knowledge of Seller is any Proceeding threatened, in
any case, as to which there is a reasonable possibility of a determination
adverse to Seller, that involved or may involve a claim of infringement brought
by any Person (including any Governmental Authority) with respect to the
Intellectual Property. Except as disclosed in Schedule 3.17(b), the Seller's use
of the Intellectual Property is not subject to any outstanding order, judgment,
decree, stipulation or agreement restricting the use thereof by Seller, or
restricting the licensing thereof by Seller to any Person. Except as disclosed
in Schedule 3.17(b), to Seller's best knowledge, the current use of such
Intellectual Property by Seller does not conflict with, infringe upon or violate
any patent, patent license, patent application, trademark, tradename, trademark
or tradename registration, copyright, copyright registration, service mark,
brand mark or brand name or any pending application relating thereto, or any
trade secret, know-how, programs or processes, or any similar rights, of any
Person.
(c) Except as set forth in Schedule 3.17(c), Seller either
owns the entire right, title and interest in, to and under, or has acquired an
express license to use or, in connection with the acquisition of Equipment or
Inventory, has acquired an implied license to use, any and all patents,
trademarks, tradenames, brand names and copyrights which are material to the
conduct of the Business in the manner that the Business has heretofore been
conducted. No other inventions, processes, computer programs, know-how,
formulae, trade secrets, patents, chip designs, mask works, trademarks, trade
names, brand names, copyrights, licenses or applications for any of the
foregoing are reasonably necessary for the unimpaired continued operation of the
Business in the manner that the Business has heretofore been conducted.
3.18. Advisory Fees. Except for Barrington Associates, there is no
investment banker, broker, finder or other intermediary or advisor that has been
retained by or is authorized
24
to act on behalf of Seller, who is entitled to any fee, commission or
reimbursement of expenses from Seller, Buyer or any of their respective
Affiliates or Associates upon consummation of the transactions contemplated by
this Agreement or otherwise.
3.19. Environmental Compliance.
(a) Except as disclosed in Schedule 3.19(a), Seller has
obtained all approvals, authorizations, certificates, consents, licenses, orders
and permits or other similar authorizations of all Governmental Authorities, or
from any other Person, that are required under any Environmental Law. Schedule
3.19(a) sets forth all material permits, licenses and other authorizations
issued under any Environmental Law relating to Seller, the Business or the
Transferred Assets.
(b) Except as disclosed in Schedule 3.19(b), Seller is in
compliance with all terms and conditions of all Permits of all Governmental
Authorities (and all other Persons) required under all Environmental Laws that
are used in the Business or that relate to Seller or the Transferred Assets.
Seller is also in compliance in all material respects with all other
limitations, restrictions, conditions, standards, requirements, schedules and
timetables required or imposed under all Environmental Laws.
(c) Except as set forth in Schedule 3.19(c), there are no past
or present events, conditions, circumstances, incidents, actions or omissions
imposed on Seller relating to or in any way affecting Seller, the Business or
the Transferred Assets that violate, or may violate after the Closing, any
Environmental Law, or that may give rise to any Environmental Liability, or
otherwise form the basis of any claim, action, demand, suit, Proceeding,
hearing, study or investigation (i) under any Environmental Law, (ii) based on
or related to the manufacture, processing, distribution, use, treatment, storage
(including without limitation underground storage tanks), disposal, transport or
handling, or the emission, discharge, release or threatened release of any
Hazardous Substance or (iii) resulting from exposure to workplace hazards.
(d) Seller has delivered to Buyer all environmental documents,
studies and reports in its possession or under its control relating to: (i) any
facilities or real property ever owned, operated or leased by Seller; or (ii)
any Environmental Liability of Seller or the Business.
3.20. Insurance. Schedule 3.20 sets forth a complete and correct list
of all insurance policies of any kind currently in force or in force at any time
subsequent to December 31, 2000 with respect to the Business (the "Insurance
Policies"), including all "occurrence based" liability policies regardless of
the periods to which they relate. Schedule 3.20 also sets forth for each such
Insurance Policy the type of coverage, the name of the insureds, the insurer,
the premium, the expiration date, the period to which it relates, the
deductibles and loss retention amounts and the amounts of coverage.
3.21. Tax Matters.
Except as set forth on Schedule 3.21:
(a) Seller has duly and timely filed all Tax Returns required
to be filed with respect to the Transferred Assets, and such Tax Returns are
complete and accurate and
25
correctly reflect the Tax liability required to be reported thereon. Such Tax
Returns do not contain (and were not required to contain in order to avoid the
imposition of a penalty) a disclosure statement under Section 6662 of the Code
(or any predecessor provision or comparable provision of state, local or foreign
law).
(b) Seller and the shareholders of Seller have timely paid all
Taxes that have become due and payable with respect to the Transferred Assets
prior to the Closing Date, and have adequately provided in the Financial
Statements for all Taxes accrued through the date of such Financial Statements
that were not yet due and payable as of the date thereof; all Taxes of Seller
accrued with respect to the Transferred Assets following the end of the most
recent period covered by the Financial Statements have been accrued in the
ordinary course of business of Seller. Seller has not taken any action not in
accordance with past practice that would have the effect of deferring a measure
of Tax with respect to the Transferred Assets (including but not limited to
income, sales, gross receipts or payroll) from a period (or portion thereof)
ending on or prior to the Closing to a period (or portion thereof) beginning
after the Closing; and no election has been made with respect to Taxes of Seller
in any Tax Return that has not been provided to Buyer.
(c) No claim for assessment or collection of Taxes with
respect to the Transferred Assets has been or is presently being asserted
against Seller or its shareholders; no rationale underlying a claim for Taxes
with respect to the Transferred Assets has been asserted previously by any
taxing authority that reasonably could be expected to be asserted in any other
period; and Seller is not a party to any action, proceeding, audit or
investigation by any taxing authority nor does Seller have knowledge of any such
threatened action, proceeding, audit or investigation.
(d) There are no Taxes of Seller or the shareholders of Seller
or deficiencies in Taxes or claims for Taxes against Seller or the shareholders
of Seller for any taxable period that could become a liability of, or which
could be assessed or collected against Buyer as a result of or after the
transfer of assets contemplated by this Agreement.
(e) The Transferred Assets are subject to no Liens for Taxes
other than Liens for current Taxes not yet due and payable on the Transferred
Assets or which are being contested in good faith.
(f) All amounts that are required to be collected or withheld
by Seller, or with respect to Taxes of Seller or the shareholders of Seller,
have been duly collected or withheld and all such amounts that are required to
be remitted to any taxing authority have been duly remitted.
(g) None of the Transferred Assets is property that is
required to be treated as owned by any other Person pursuant to the "safe harbor
lease" provisions of former Section 168(f)(8) of the Code and in effect
immediately prior to the enactment of the Tax Reform Act of 1986 and none of the
Transferred Assets is "tax exempt use property" within the meaning of Section
168(h) of the Code.
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(h) Seller is not a party to or bound by any obligation under
any Tax sharing, Tax allocation, Tax indemnity or similar agreement or
arrangement.
(i) At all times during Seller's existence through the Closing
Date, Seller has been and will be an "S corporation," as such term is defined in
Section 1361(a)(1) of the Code (and comparable provisions of state, local or
foreign law), and neither Seller nor any of its shareholders has taken any
action that would cause, or would result in, the termination of such S
corporation status. None of the income or gain of Seller recognized prior to or
in connection with the Closing has been or will be subject to Section 1374 or
1375 of the Code.
3.22. Clients. Schedule 3.22 sets forth (i) the ten (10) largest
clients by gross revenues to Seller during the last fiscal year (the
"Significant Clients"). Since December 31, 2001, no Significant Client has: (a)
stopped or expressly stated its intention to stop doing business with Seller,
(b) reduced or expressly stated its intention to materially reduce, its business
with Seller or (c) changed or expressly stated its intention to change,
materially the terms and conditions on which it is prepared to do business with
Seller. No Significant Client has given Seller notice or expressly stated that,
as a result of the transactions contemplated by this Agreement, it will: (x) not
do business with Seller (y) reduce substantially its business with Seller, or
(z) change the terms and conditions on which it is prepared to do business with
Seller. Seller has no knowledge of any facts, conditions or events that would
give rise to a material claim by Seller against any of its Significant Clients
or any material claim by a Significant Client against Seller.
3.23. Books and Records. Seller has maintained books and records
which, in reasonable detail, accurately and fairly reflect all material
transactions entered into by Seller or to which Seller is a party. Seller has
not engaged in any transaction, maintained any bank account or used any
corporate funds, except for transactions, bank accounts and funds which have
been and are reflected in its normally maintained books and records.
3.24. Warranties. Schedule 3.24 sets forth a summary of the material
terms of all unexpired service warranties and guarantees given by Seller to any
client. Except as described on Schedule 3.24, (i) no claims are pending or, to
Seller's best knowledge, are threatened under the service warranties of Seller
thereof, and (ii) to Seller's best knowledge, there exists no event or
circumstance which after notice or the passage of time on both, could create or
result in liabilities or obligations under any of the service warranties of
Seller.
3.25. Bank Accounts. Schedule 3.25 sets forth a true and complete
list of all bank accounts, safe deposit boxes and lock boxes of Seller,
including the names in which such accounts or boxes are held and identification
of all Persons authorized to draw thereon or have access thereto.
3.26. Certain Business Practices. To the extent applicable to Seller
and its officers, directors, employees and representatives, Seller and its
officers, directors, employees and representatives have complied in all material
respects with the U.S. Foreign Corrupt Practices Act or any similar such law in
any foreign jurisdiction. Neither Seller nor any of its officers, directors,
employees or representatives has, directly or indirectly, used funds or other
assets (regardless of form or description of such payment) of Seller, or made
any promise or
27
undertaking in such regard, for any illegal payments to or for the benefit of
any Person, to secure favorable treatment of a contract or the Business or for
the establishment or maintenance of a secret or unrecorded fund; and there have
been no false or fictitious entries made in the books or records of Seller
relating to any such illegal payment or secret or unrecorded fund.
3.27. Complete Disclosure. No representation or warranty by the
Seller in this Agreement, and no exhibit, schedule, statement, certificate, or
other writing furnished to the Buyer, Parent or its advisors pursuant to this
Agreement or the Ancillary Agreements to which it is a party, contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained herein and therein not
misleading.
3.28. No Other Representations. Seller shall not be deemed to have
made to Parent and Buyer any representation or warranty other than as made by
Seller in this Article III.
ARTICLE IV.
CERTAIN REPRESENTATIONS AND WARRANTIES OF SELLER PARTIES
As an inducement to Buyer to enter into this Agreement and to
consummate the transactions contemplated herein, each of the Seller Parties,
jointly and severally, hereby represents and warrants, as of the date of this
Agreement and as of the Closing Date, to Buyer as follows:
4.01. Understanding that Shares will Be Issued without Registration.
Each of the Seller Parties understands that the Shares will be issued without
registration under the Securities Act, in reliance upon exemptions from
registration under the Securities Act including, without limitation, the safe
harbor provided by Regulation D promulgated under Section 4(2) of the Securities
Act. Each of the Seller Parties further understands that such exemptions depend
in part upon, and such shares will be issued in reliance on, the representations
and warranties made by the Seller Parties in this Article IV.
(a) Each of the Seller Parties will acquire the Shares for
their own respective accounts for investment purposes only and not with a view
to resale or other distribution thereof, in whole or in part; and none of the
Seller Parties will assign, sell, hypothecate or otherwise transfer the Shares
unless (i)(a) a registration statement is in effect under the Securities Act
with respect to such Shares or (b) an applicable exemption from registration is
available and a written opinion of counsel acceptable to Buyer is obtained to
the effect that no such registration is required pursuant to the application of
such exemption (except that no opinion of counsel shall be necessary if the sale
is made in a routine transaction under Rule 144 promulgated under the Securities
Act), and (ii) they have complied with all applicable holding periods imposed by
the Securities Act (and the regulations thereunder) and this Agreement.
(b) Each of the Seller Parties acknowledges, agrees and is
aware that: (i) no United States federal or state or any foreign agency has
passed upon the accuracy, validity or completeness of this Agreement or made any
finding or determination as to the fairness of an
28
investment in the Shares; (ii) there may be restrictions on the transferability
of the Shares; (iii) the Shares have not been registered under the Securities
Act or under the securities laws of any other jurisdiction; (iv) an offer or
sale of any of the Shares by any of the Seller Parties in the absence of
registration under the Securities Act will require the availability of an
exemption thereunder; and (v) a restrictive legend is or shall be placed on the
certificates representing the Shares and a notation shall be made in the
appropriate records of Parent indicating that the Shares are subject to
restrictions on transfer.
4.02. Accredited Investor. Each of the Seller Parties qualifies as an
"accredited investor" within the meaning of Rule 501 under the Securities Act.
4.03. Receipt of Information; Access to Information. Each of the
Seller Parties acknowledges that he, she or it:
(a) has been furnished with the Certificate of Incorporation
and Bylaws of Parent, the Parent SEC Reports and any documents that may have
been made available upon its, his or her request (collectively, the "Other
Documents"), and are capable of understanding and evaluating the risks of
acquiring the Shares;
(b) has been given the opportunity to ask questions of, and
receive answers from, Buyer and/or Parent and their respective officers
concerning the terms and conditions of the acquisition of the Shares and other
matters pertaining to an investment in the Shares, has been given the
opportunity to obtain such additional information necessary to evaluate the
merits and risks of acquiring the Shares to the extent Buyer or Parent possesses
such information, and has received all documents and information that each of
them has requested relating to an investment in the Shares;
(c) has not relied upon any representations or other
information (whether oral or written) from Buyer or Parent or their respective
directors, officers or Affiliates, or from any other Persons, other than the
representations of Buyer and Parent made in this Agreement and the Other
Documents;
(d) is familiar with the nature of and risks attendant to
investments in the business of Parent and securities in general and has
carefully considered and has, to the extent he, she or it believes such
discussion necessary, discussed with his, her or its respective professional
legal, financial and tax advisers the suitability of an investment in the Shares
for his, her or its respective financial and tax situations and has determined
that the Shares are a suitable investment for him, her or it; and
(e) has made, and is solely responsible for making, his, her
or its respective own independent evaluations of the economic and other risks
involved in his, her or its respective investments in the Shares and his, her or
its own respective independent decisions to make such investments.
4.04. Authority Relative to this Agreement. Each of the Seller
Parties has all requisite legal right, power and authority to execute and
deliver this Agreement and the Ancillary Agreements to which they are
signatories and to perform their respective obligations hereunder and thereunder
and to consummate the transactions contemplated hereby and thereby. This
29
Agreement has been, and the Ancillary Agreements to which the Seller Parties are
signatories will be, duly and validly executed and delivered by the Seller
Parties and, assuming that this Agreement constitutes, and the Ancillary
Agreements to which they are signatories will constitute when signed, the legal,
valid and binding obligations of the other parties hereto and thereto, each such
agreement constitutes or will constitute the legal, valid and binding obligation
of the Seller Parties, as the case may be, enforceable in accordance with its
terms subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws (including court decisions) and
doctrines affecting the rights of creditors generally and general equitable
principles.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER
As an inducement to Seller to enter into this Agreement and to
consummate the transactions contemplated herein, each of Parent and Buyer
hereby, jointly and severally, represents and warrants to each of the Seller
Parties as follows:
5.01. Corporate Existence and Power. Parent and Buyer are
corporations duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, and Parent and Buyer have all corporate power to
enter into this Agreement and consummate the transactions contemplated hereby.
Each of Parent and Buyer is duly qualified to do business as a foreign
corporation in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification necessary
to carry on its business as now conducted, except for those jurisdictions where
in the aggregate the failure to be so qualified is not, and is not reasonably
expected to become, material.
5.02. Corporate Authorization. The execution, delivery and
performance by Parent and Buyer of this Agreement and the consummation by Parent
and Buyer of the transactions contemplated hereby are within the corporate
powers of Parent and Buyer and have been duly authorized by all necessary
corporate action on the part of Parent and Buyer. This Agreement constitutes the
legal, valid and binding agreement of Parent and Buyer, enforceable in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally and subject to general principles of equity.
5.03. Governmental Authorization. The execution, delivery and
performance by Parent and Buyer of this Agreement require no action by, consent
or approval of, or filing with, any Governmental Authority other than any
actions, consents, approvals or filings otherwise expressly referred to in this
Agreement.
5.04. Non-Contravention. The execution, delivery and performance by
Parent and Buyer of this Agreement does not (a) contravene or conflict with the
Certificate of Incorporation or Bylaws of Parent or Buyer, (b) except as set
forth on Schedule 5.04, contravene or constitute a material default under any
agreement to which Parent or Buyer is a party or (c) assuming compliance with
the matters referred to in Section 5.03, contravene or conflict with
30
or constitute a violation of any provision of any Applicable Law binding upon or
applicable to Parent or Buyer.
5.05. Parent SEC Filings; No Material Adverse Effect.
(a) Parent has filed all forms, reports and documents required
to be filed with the SEC since January 1, 2001, and has heretofore delivered or
made available to the Seller Parties, in the form filed with the SEC, (i) its
Annual Report on Form 10-K for the fiscal year ended December 30, 2001, (ii) its
Quarterly Reports on Form 10-Q for the periods ended March 31, 2002, and (iii)
all proxy statements relating to Parent's meetings of stockholders (whether
annual or special) held since January 1, 2001, (iv) all Forms 8-K filed by
Parent with the SEC since January 1, 2001, (v) all other reports or registration
statements filed by Parent with the SEC since January 1, 2001, and (vi) all
amendments and supplements to all such reports and registration statements filed
by Parent with the SEC since January 1, 2001 (collectively, the "Parent SEC
Reports"). The Parent SEC Reports were prepared in substantial compliance as to
form with the requirements of the Securities Act or the Exchange Act, as the
case may be, and did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(b) Since January 1, 2002, there has been no Material Adverse
Effect on Parent or its Subsidiaries, taken as a whole, and since the date of
Parent's last filing with the SEC, no event has occurred which would require any
filing by Parent with the SEC regarding any such event.
5.06. No Other Representations. Neither Parent nor Buyer shall be
deemed to have made to any of the Seller Parties any representation or warranty
other than as made by Parent and Buyer in this Article V.
ARTICLE VI.
COVENANTS OF SELLER
Seller hereby agrees that:
6.01. Compliance with Terms of Required Contractual Consents. On and
after the Closing Date, Seller shall comply at its own expense with all
conditions and requirements applicable to it set forth in each Required
Contractual Consent to the extent necessary such that all Required Contractual
Consents will remain effective and enforceable against the Persons giving such
Required Contractual Consents, assuming continued compliance with the terms
thereof by Buyer.
6.02. Confidentiality. Seller will, and will cause its respective
employees, officers, directors, shareholders, outside advisors, agents,
Affiliates and representatives to, treat any data and information obtained with
respect to Buyer or any of its Affiliates from any representative, officer,
director, or employee of Buyer, or from any books or records of Buyer in
connection with this Agreement, confidentially and with commercially reasonable
care and discretion, and will not disclose any such information to third
parties; provided, however, that the
31
foregoing shall not apply to (i) information in the public domain or that
becomes public through disclosure by any party other than Seller or its
Affiliates or representatives, so long as such information is not made public by
such other party in breach of a confidentiality obligation, (ii) information
that may be required to be disclosed by Applicable Law provided Seller
immediately gives Buyer notice of any request or demand for such confidential
information upon receipt of such request or demand along with a copy of any
written correspondence, pleading or other communication concerning the request
or demand, (iii) any information that is disclosed by Seller or its respective
Affiliates, on a confidential basis, to any of their respective agents,
accountants or attorneys in correction with or related to the consummation of
the transactions contemplated hereby; or (iv) information required to be
disclosed to obtain any Required Consents. Each of the parties to this Agreement
agree to be responsible for the breach of any obligation of confidentiality
under this Agreement by and of their agents, accountants, attorneys and any
prospective lenders or investors.
6.03. Change of Name. Seller will amend its articles of incorporation
within ten (10) Business Days of the Closing Date so as to change its corporate
name to a name dissimilar to the name by which the Business as conducted by
Seller is known and will file as promptly as practicable, but in any event
within sixty (60) days after the Closing, in all jurisdictions in which it is
qualified to do business, any documents necessary to reflect such change in its
corporate name or to terminate its qualification therein. At the request of
Buyer, Seller shall consent to Buyer adopting a name that is similar or
identical to Seller's name at the Closing.
6.04. Administration of Accounts. All payments and reimbursements
made in the ordinary course by any third party in the name of or to Seller or
any Affiliate of Seller in connection with or arising out of the Transferred
Assets, the Business or the Assumed Liabilities after the Closing Date shall be
held by Seller or such Affiliate in trust for the benefit of Buyer and,
immediately upon receipt by Seller or any such Affiliate of any such payment or
reimbursement, Seller shall pay, or cause to be paid, over to Buyer the amount
of such payment or reimbursement without right of set off.
6.05. Specific Performance. The parties hereto recognize and agree
that in the event of a breach by Seller of this Article VI, money damages would
not be an adequate remedy to Buyer or its Affiliates for such breach and, even
if money damages were adequate, it would be impossible to ascertain or measure
with any degree of accuracy the damages sustained by Buyer or its Affiliates
therefrom. Accordingly, if there should be a breach or threatened breach by
Seller of the provisions of this Article VI, Buyer and its Affiliates shall be
entitled to seek an injunction restraining Seller from any breach without
showing or proving actual damage sustained by Buyer or its Affiliates, as the
case may be. Nothing in the preceding sentence shall limit or otherwise affect
any remedies that Buyer may otherwise have under Applicable Law.
6.06. Taxes.
(a) Each party hereof shall (i) provide the other parties
hereof with such assistance as may reasonably be requested in connection with
the preparation of any Tax Return with respect to the Transferred Assets and the
conduct of any audit or other examination by any taxing authority or in
connection with judicial or administrative proceedings relating to any liability
for Taxes with respect to the Transferred Assets and (ii) retain and provide the
other
32
parties hereof with all records or other information that may be relevant to the
preparation of any Tax Returns with respect to the Transferred Assets, or the
conduct of any audit or examination, or other Tax Proceeding with respect to the
Transferred Assets. The parties shall retain all relevant documents, including
prior year's Tax Returns, supporting work schedules and other records or
information that may be relevant to such returns as required by Applicable Law.
(b) Seller shall provide Buyer with all tax clearance
certificates or similar documents that may be required by any state or local
taxing authority in order to relieve Buyer of any obligations to withhold any
portion of the consideration paid for the Transferred Assets hereunder.
(c) All sales, value added, use, transfer, registration, stamp
and similar Taxes imposed in connection with the sale of the Transferred Assets
shall be borne by Buyer.
(d) Pursuant to Section 1445(b)(2) of the Code, Seller shall
furnish Buyer an affidavit, stating under penalty of perjury the Seller's United
States taxpayer identification number and that the Seller is not a foreign
person.
6.07. COBRA. Seller shall offer COBRA continuation coverage to all
"M & A qualified beneficiaries" (as such term is defined in Treasury Regulation
section 54.4980B-9, Q&A 4) affected by the asset purchase described in this
Agreement, and Seller shall maintain a Group Health Plan to provide such COBRA
coverage during the entire period of coverage mandated by COBRA for such M & A
qualified beneficiaries.
ARTICLE VII.
COVENANTS OF BUYER AND PARENT
7.01. Confidentiality.
Parent and Buyer will, and will cause their respective
employees, officers, directors, shareholders, outside advisors, agents,
Affiliates and representatives to, treat any agreements, data and information
obtained with respect to Seller from any representative, officer, director or
employee of Seller, or from any books or records of Seller in connection with
this Agreement, confidentially and with commercially reasonable care and
discretion, and will not disclose any such information to third parties;
provided, however, that the foregoing shall not apply to (i) information in the
public domain or that becomes public through disclosure by any party other than
Parent, Buyer or their respective Affiliates or representatives, so long as such
other party is not in breach of a confidentiality obligation, (ii) information
that may be required to be disclosed by Applicable Law, provided Parent or Buyer
promptly gives Seller notice of any request or demand for such confidential
information upon receipt of such request or demand, along with a copy of any
written correspondence, pleading or other communication concerning the request
or demand, (iii) information required to be disclosed to obtain any Required
Consents, (iv) any information that is disclosed by Parent or Buyer or their
respective Affiliates, on a confidential basis, to any of their respective
agents, accountants, attorneys or financial advisors or (v) any information that
is disclosed by Parent or Buyer after the Closing shall have occurred. The
parties to this Agreement agree to be responsible for the breach of any
obligation
33
of confidentiality under this Agreement by and of their agents, accountants,
attorneys and financial advisors.
7.02. Specific Performance. The parties hereto recognize and agree
that in the event of a breach by Parent or Buyer of this Article VII, money
damages would not be an adequate remedy to Seller for such breach and, even if
money damages were adequate, it would be impossible to ascertain or measure with
any degree of accuracy the damages sustained by Seller therefrom. Accordingly,
if there should be a breach or threatened breach by Parent or Buyer of the
provisions of this Article VII, Seller shall be entitled to seek an injunction
restraining Parent and Buyer from any breach without showing or proving actual
damage sustained by Seller. Nothing in the preceding sentence shall limit or
otherwise affect any remedies that Seller may otherwise have under Applicable
Law.
7.03. Pre-paid Items. Parent agrees to promptly reimburse Seller for
any rent or license fees (pro rated by the number of days in the applicable
month) paid by Seller prior to the date hereof pursuant to leases relating to
Leased Real Property or an agreement with Monster.com for any period after the
date hereof.
ARTICLE VIII.
COVENANTS OF ALL PARTIES
8.01. Further Assurances. Parent, Buyer and Seller Parties agree to
execute and deliver such other documents, certificates, agreements and other
writings and to take such other actions as may be reasonably necessary or
desirable (including, without limitation, obtaining the Required Consents) in
order to consummate or implement expeditiously the transactions contemplated by
this Agreement, including Seller's receipt of any amounts comprising or payable
in respect of any Transferred Assets and Buyer's receipt of any amounts
comprising or payable in respect of any Excluded Assets. Notwithstanding the
foregoing, no party hereto shall have any obligation to expend any funds or to
incur any other obligation in connection with the consummation of the
transactions contemplated hereby (including, by way of illustration only, any
payment in connection with obtaining the Required Consents) other than normal
out-of-pocket expenses (such as fees and expenses of counsel and accountants)
reasonably necessary to consummate such transactions.
8.02. Certain Filings. The parties hereto shall cooperate with one
another in determining whether any action by or in respect of, or filing with,
any Governmental Authority is required or reasonably appropriate, or any action,
consent, approval or waiver from any party to any Contract is required or
reasonably appropriate, in connection with the consummation of the transactions
contemplated by this Agreement. Subject to the terms and conditions of this
Agreement, in taking such actions or making any such filings, the parties hereto
shall furnish information required in connection therewith and seek timely to
obtain any such actions, consents, approvals or waivers.
8.03. Public Announcements. The parties hereto agree that a mutually
agreed upon press release will be issued upon the execution of this Agreement.
Further, the parties may, on a confidential basis, advise and release
information regarding the existence and content of this
34
Agreement or the transactions contemplated hereby to their respective Affiliates
or any of their agents, accountants, attorneys and prospective lenders or
investors in connection with or related to the transactions contemplated by this
Agreement.
8.04. Specific Performance. The parties hereto recognize and agree
that in the event of a breach by one party hereto of this Article VIII, money
damages would not be an adequate remedy to the other party for such breach and,
even if money damages were adequate, it would be impossible to ascertain or
measure with any degree of accuracy the damages sustained by the non-breaching
party therefrom. Accordingly, if there should be a breach or threatened breach
by one party of provisions of this Article VIII, the non-breaching party shall
be entitled to seek an injunction restraining the breaching party from any
breach without showing or proving actual damage sustained by the non-breaching
party.
ARTICLE IX.
INDEMNIFICATION
9.01 Seller Parties' Agreement to Indemnify.
(a) Each of the Seller Parties shall, jointly and severally,
indemnify and hold harmless Parent, Buyer and their respective Affiliates
(collectively, the "Buyer Indemnitees") in respect of any and all Damages
incurred by any Buyer Indemnitee as a result of:
(i) any inaccuracy or misrepresentation in or breach of
any representation, warranty, covenant or agreement made in this Agreement by
any of the Seller Parties;
(ii) any Environmental Liability imposed upon any of the
Seller Parties relating to the Business or Seller, whether presently in
existence or arising hereafter from acts, events, conditions or circumstances
existing or occurring on or before the Closing Date (in the case of this clause
(ii) regardless of whether such Environmental Liability arises out of or
constitutes a breach of any representation, warranty or covenant in this
Agreement made by any of the Seller Parties);
(iii) any Liabilities in connection with the Proceedings
described in Schedule 3.11 hereto;
(iv) any Liabilities for Taxes of Seller or any
shareholder of Seller, or any predecessor in interest or any Affiliate of any of
them with respect to any period, and any Liabilities for Taxes relating to the
Transferred Assets with respect to any pre-Closing tax period (in the case of
this clause (iv), regardless of whether such Liabilities for Taxes arise out of
or constitute a breach of any representation, warranty or covenant in this
Agreement made by Seller at any time);
(v) any Excluded Liabilities;
35
(vi) acts or omissions of the Seller Representative
(other than Damages arising solely from claims brought by the Seller
Representative on behalf of the Seller Parties after Closing in the Seller
Representative's capacity as agent for the Seller Parties);
(vii) the violation, conflict, breach of or default under
(or omission or commission of any action, condition or event which, after notice
or lapse of time or both, would result in any such violation, conflict or breach
of or default under) any Contract, Permit or law by any of the Seller Parties
prior to the Closing Date;
(viii) [Intentionally Omitted];
(ix) the enforcement of this Section 9.01; or
(x) Seller's failure to qualify to transact business as
a foreign corporation in good standing in the States of Georgia, Louisiana and
Virginia.
(b) Seller Parties shall have no obligation under Section
9.01(a) unless and until the aggregate amount of Damages incurred under Section
9.01(a) hereof and Section 9.01(a) of each of the Related Purchase Agreements
exceeds Two Hundred Fifty Thousand Dollars ($250,000) (the "Seller Deductible"),
whereupon the Seller Parties shall be liable to indemnify the Buyer Indemnitees
for all amounts of Damages over the Seller Deductible; provided, however, that
Damages incurred by any Buyer Indemnitee as a result of any misrepresentation,
breach or inaccuracy of any representations or warranties made by any of the
Seller Parties relating to Sections 3.02, 3.03(a), 3.09, 3.21, and 4.04 or
pursuant to Sections 9.01(a)(v) [Excluded Liabilities] or 9.01(a)(viii) shall
not be subject to the Seller Deductible, and the Buyer Indemnitees shall be
indemnified for any and all Damages as a result of any such misrepresentation,
breach or inaccuracy of any such representations or warranties in such Sections
or pursuant to such Sections 9.01(a)(v) [Excluded Liabilities] or 9.01(a)(viii);
provided, further, (A) the maximum liability of the Seller Parties to indemnify
the Buyer Indemnitees under Section 9.01(a) hereof and Section 9.01(a) of each
of the Related Purchase Agreements shall equal One Million Five Hundred Thousand
Dollars ($1,500,000), and (B) none of the foregoing limit or the Seller
Deductible shall apply with respect to any claim based upon a breach of any of
the representations, warranties, covenants, agreements and obligations set forth
in Sections 3.02, 3.03(a), 3.09, 3.21 and 4.04 of this Agreement or pursuant to
Sections 9.01(a)(v) [Excluded Liabilities] or 9.01(a)(viii) or arising out of
fraud or willful misrepresentation or misconduct.
9.02. Parent's and Buyer's Agreement to Indemnify.
(a) Each of Parent and Buyer shall, jointly and severally,
indemnify and hold harmless the Seller Parties (collectively, the "Seller
Indemnitees") in respect of any and all Damages incurred by any Seller
Indemnitee as a result of:
(i) any inaccuracy or misrepresentation in or breach of
any representation, warranty, covenant or agreement made by Parent and Buyer in
this Agreement; and
(ii) any Assumed Liabilities; or
36
(iii) the enforcement of this Section 9.02.
(b) Neither Parent or Buyer shall have any obligation under
Section 9.02(a) unless and until the aggregate amount of Damages incurred under
Section 9.02(a) hereof and Section 9.02(a) of each of the Related Purchase
Agreements exceeds One Hundred and Fifty Thousand Dollars ($150,000) (the "Buyer
Deductible"), whereupon Parent and Buyer shall be liable to indemnify the Seller
Indemnitees for all amounts of Damages over the Buyer Deductible; provided,
however, that Damages incurred by any Buyer Indemnitee as a result of any
misrepresentation, breach or inaccuracy of any representations or warranties
made by Parent or Buyer relating to Section 5.02 or pursuant to Section
9.02(a)(ii) [Assumed Liabilities] or a claim arising out of fraud or willful
misrepresentation or misconduct shall not be subject to the Buyer Deductible,
and the Seller Indemnitees shall be indemnified for any and all Damages as a
result of any such misrepresentation, breach or inaccuracy of any such
representations or warranties in such Section or pursuant to such Section
9.02(a)(ii) [Assumed Liabilities] or pursuant such claim arising out of fraud or
willful misrepresentation or misconduct.
9.03. Survival of Representations, Warranties and Covenants.
(a) All representations, warranties, covenants, agreements and
obligations of each Indemnifying Party contained in this Agreement, and all
claims of any Buyer Indemnitee or Seller Indemnitee in respect of any breach of
any representation, warranty, covenant, agreement or obligation of any
Indemnifying Party contained in this Agreement shall survive the Closing and
shall expire on the eighteenth month anniversary of the Closing Date, except
that:
(i) covenants or obligations of any of the Seller
Parties, Parent or Buyer which by their terms are to be performed after the
Closing shall survive the Closing and not expire unless otherwise provided in
this Agreement;
(ii) the representations and warranties set forth in
Sections 3.02, 3.03(a), 3.09 and 4.04 of this Agreement and all claims of any
Buyer Indemnitee in respect of any breach of any such representation or warranty
against any of the Seller Parties as Indemnifying Party shall survive the
Closing Date and shall not expire;
(iii) the representations and warranties set forth in
Section 3.21 of this Agreement and all claims of any Buyer Indemnitee in respect
of any breach of any such representation or warranty or in respect of the Seller
Parties' indemnification obligations under Section 9.01(a)(iv) of this Agreement
against any of the Seller Parties as Indemnifying Party shall survive the
Closing Date and shall not expire until thirty (30) days after the expiration of
any applicable statute of limitations, including extensions thereof;
(iv) the representations and warranties set forth in
Section 3.17 of this Agreement and all claims of any Buyer Indemnitee in respect
of any breach of such representation or warranty against any of the Seller
Parties as Indemnifying Party shall survive the Closing Date and shall not
expire until the third anniversary of the Closing Date; and
37
(v) all claims of any Buyer Indemnitee against any of
the Seller Parties as an Indemnifying Party in respect of any claim arising out
of fraud or willful misrepresentation or misconduct shall survive the Closing
Date and shall not expire until thirty (30) days after the expiration of any
applicable statute of limitations, including extensions thereof.
(b) Notwithstanding anything herein to the contrary,
indemnification for claims for which written notice as provided in Section 9.04
has been given prior to the expiration of the representation, warranty,
covenant, agreement or obligation upon which such claim is based shall not
expire, and claims for indemnification may be pursued, until the final
resolution of such claim in accordance with Section 10.11.
9.04. Claims for Indemnification. If any Indemnitee shall believe
that such Indemnitee is entitled to indemnification pursuant to this Article IX
in respect of any Damages, such Indemnitee shall give the appropriate
Indemnifying Parties prompt written notice thereof. Any such notice shall set
forth in reasonable detail and to the extent then known the basis for such claim
for indemnification. The failure of such Indemnitee to give notice of any claim
for indemnification promptly, but within the periods specified by Section
9.03(a) or (b), as the case may be, shall not adversely affect such Indemnitee's
right to indemnity hereunder except to the extent that such failure adversely
affects the right of the Indemnifying Parties to assert any reasonable defense
to such claim. Each such claim for indemnity shall expressly state that the
Indemnifying Parties shall have only the twenty (20) Business Day period
referred to in the next sentence to dispute or deny such claim. The Indemnifying
Parties shall have twenty (20) Business Days following its receipt of such
notice either (y) to acquiesce in such claim and their respective
responsibilities to indemnify the Indemnitee in respect thereof in accordance
with the terms of this Article IX by giving such Indemnitee written notice of
such acquiescence or (z) to object to the claim by giving such Indemnitee
written notice of the objection. If the Indemnifying Parties do not object
thereto within such twenty (20) Business Day period, such Indemnifying Parties
shall be deemed to have acquiesced in such claim and their respective
responsibilities to indemnify the Indemnitee in respect thereof in accordance
with the terms of this Article IX.
9.05. Defense of Claims. In connection with any claim which may give
rise to indemnity under this Article IX resulting from or arising out of any
claim or Proceeding against an Indemnitee by a Person that is not a party
hereto, the Indemnifying Parties may (unless such Indemnitee elects not to seek
indemnity hereunder for such claim), upon written notice sent at any time to the
relevant Indemnitee, assume the defense of any such claim or Proceeding. If the
Indemnifying Parties assume the defense of any such claim or Proceeding, the
Indemnifying Parties shall select counsel reasonably acceptable to such
Indemnitee to conduct the defense of such claim or Proceeding, shall take all
reasonable steps necessary in the defense or settlement thereof and shall at all
times diligently and promptly pursue the resolution thereof. If the Indemnifying
Parties shall have assumed the defense of any claim or Proceeding in accordance
with this Section 9.05, the Indemnifying Parties shall be authorized to consent
to a settlement of, or the entry of any judgment arising from, any such claim or
Proceeding, without the prior written consent of such Indemnitee; provided,
however, that:
38
(i) the Indemnifying Parties shall pay or cause to be paid all
amounts arising out of such settlement or judgment either concurrently with the
effectiveness thereof or shall obtain and deliver to such Indemnitees prior to
the execution of such settlement a general release executed by the Person not a
party hereto, which general release shall release such Indemnitee from any
liability in such matter;
(ii) the Indemnifying Parties shall not be authorized to encumber
any of the assets of any Indemnitee or to agree to any restriction that would
apply to any Indemnitee or to its conduct of business; and
(iii) a condition to any such settlement shall be a complete release
of such Indemnitee and its directors, stockholders, officers, employees,
consultants, agents and their respective Affiliates with respect to such claim.
Such Indemnitee shall be entitled to participate in (but not control) the
defense of any such action, with its own counsel and at its own expense. Each
Indemnitee shall, and shall cause each of its Affiliates, officers, employees,
consultants and agents to, cooperate fully with the Indemnifying Parties in the
defense of any claim or Proceeding being defended by the Indemnifying Parties
pursuant to this Section 9.05. If the Indemnifying Parties do not assume the
defense of any claim or Proceeding resulting therefrom in accordance with the
terms of this Section 9.05, such Indemnitee may defend against such claim or
Proceeding in such manner as it may reasonably deem appropriate, including
settling such claim or Proceeding after giving notice of the same to the
Indemnifying Parties, on such terms as such Indemnitee may reasonably deem
appropriate. If the Indemnifying Parties seek to question the manner in which
such Indemnitee defended such claim or Proceeding or the amount of or nature of
any such settlement, the Indemnifying Parties shall have the burden to prove by
a preponderance of the evidence that such Indemnitee did not defend such claim
or Proceeding in a reasonably prudent manner.
9.06. Limitation on Remedies. The remedies of the Buyer Indemnitees
and Seller Indemnitees under this Article IX shall be their exclusive remedy for
any breach of this Agreement, except that nothing set forth in this Article IX
shall be deemed to prohibit or limit any Buyer Indemnitee's or Seller
Indemnitee's right at any time before, on or after the Closing Date, to seek
injunctive or other equitable relief for the failure of any Indemnifying Party
to perform any covenant or agreement contained herein.
9.07. Nature of Payments. Any payment under this Article IX shall be
treated for tax purposes as an adjustment of the total consideration paid for
the Transferred Assets under this Agreement to the extent such characterization
is proper and permissible under relevant Tax authorities, including court
decisions, statutes, regulations and administrative promulgations.
9.08. Right of Set-Off. Parent or Buyer, after recovery against the
escrow contemplated by the Escrow Agreement, shall have the right to set-off all
or any part of any Damages Buyer or Parent may suffer by notifying the Seller
Representative that Buyer or Parent is reducing the amount of any Earnout due to
any of the Seller Parties; provided, however, Parent's and Buyer's right to
set-off pursuant to this Section 9.08 and Section 9.08 in each of the Related
Purchase Agreements shall not exceed Nine Hundred and Fifty Thousand Dollars
($950,000).
39
9.09. Appointment of the Seller Representative.
(a) In order to efficiently administer the defense and/or
settlement of any claims for indemnity by a Buyer Indemnitee pursuant to this
Article IX, the Seller Representative is hereby appointed to serve as the
representative of the Seller and the Shareholders. The Seller Representative
shall have full power and authority to make, on behalf of the Seller Parties,
all decisions relating to the defense and/or settlement of any claims for which
any Buyer Indemnitee may claim to be entitled to indemnity pursuant to this
Article IX and otherwise to act on behalf of the Seller Parties in all respects
with respect to this Agreement, including, without limitation, the amendment or
termination thereof. All decisions and actions by the Seller Representative
shall be binding upon all of the Seller Parties, and no Seller Party shall have
the right to object to, dissent from, protest or otherwise contest the same.
(b) Each of the Seller Parties agree that (i) the provision of
this Section 9.09 are independent and severable, are irrevocable and coupled
with an interest and shall be enforceable notwithstanding any rights or remedies
any Seller Party may have in connection with the transactions contemplated by
this Agreement, (ii) the remedy at law for any breach of the provisions of this
Section 9.09 would be inadequate, and (iii) the provisions of Section 9.01 and
this Section 9.09 shall be binding upon the Seller Parties and the successors
and assigns of each of the Seller Parties.
(c) Any notice or communication delivered by Parent or Buyer
to the Seller Representative shall, as between Parent and Buyer, on the one
hand, and the Seller Parties, on the other, be deemed to have been delivered to
all of the Seller Parties. Parent and Buyer shall be entitled to rely
exclusively upon any communication or writings given or executed by the Seller
Representative in connection with any claims for indemnity or set-off and shall
not be liable in any manner whatsoever for any action taken or not taken in
reliance upon the actions taken or not taken or communications or writings given
or executed by the Seller Representative. Parent and Buyer shall be entitled to
disregard any notices or communications given or made by the Seller Parties in
connection with any claims for indemnity or set-off unless given or made through
the Seller Representative.
9.10. Deductibles, Caps and Set-Off Rights. Each of the parties
hereof agree and acknowledge that the Seller Deductible, the Buyer Deductible,
the limitation on liabilities set forth in Section 9.01(b) hereof and the
maximum amount subject to set-off set forth in Section 9.08 hereof shall be
applied against Damages arising under this Agreement and each of the Related
Purchase Agreements. For example, if Buyer or Parent has indemnifiable Damages
(in the circumstances where the Seller Deductible is applicable) pursuant to
this Agreement of One Hundred Thousand Dollars ($100,000) and indemnifiable
Damages of One Hundred Thousand Dollars ($100,000) under each of the Related
Purchase Agreements, then Buyer and Parent shall be deemed to have
indemnification rights under Section 9.01 hereof for Three Hundred Thousand
Dollars ($300,000) less the Seller Deductible in the amount of Two Hundred and
Fifty Thousand Dollars.
40
ARTICLE X.
MISCELLANEOUS
10.01. Notices. All notices, requests, demands, claims and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given (i) if
personally delivered, when so delivered, (ii) if mailed, two Business Days after
having been sent by registered or certified mail, return receipt requested,
postage prepaid and addressed to the intended recipient as set forth below,
(iii) if given by telex or telecopier, once such notice or other communication
is transmitted to the telex or telecopier number specified below and the
appropriate answer back or telephonic confirmation is received, provided that
such notice or other communication is promptly thereafter mailed in accordance
with the provisions of clause (ii) above or (iv) if sent through an overnight
delivery service in circumstances to which such service guarantees next day
delivery, the day following being so sent:
If to Seller:
Boardnetwork
3400 West Alameda Avenue, Suite 200
Burbank, CA 91505
Attn: Jeffrey Evans
Matthew Johnston
Telecopier No.: (309) 416-9486
with a copy to:
Weinstock, Manion, Reisman, Shore & Neumann
1875 Century Park East, Suite 1500
Los Angeles, CA 90067
Attn: Louis Reisman, Esq.
Telecopier No.: (310) 553-5165
If to Buyer:
Hall, Kinion & Associates, Inc.
2570 North First Street, Suite 400
San Jose, CA 95131-1018
Gibson, Dunn & Crutcher LLP
1530 Page Mill Road
Palo Alto, CA 94304
Attn: Larry Calof, Esq.
Telecopier No.: (650) 849-5333
41
Any party may give any notice, request, demand, claim or other
communication hereunder using any other means (including ordinary mail or
electronic mail), but no such notice, request, demand, claim or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any party may
change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other parties notice
in the manner herein set forth.
10.02. Amendments; No Waivers.
(a) Any provision of this Agreement may be amended or waived
if, and only if, such amendment or waiver is in writing and signed, in the case
of an amendment, by all parties hereto, or in the case of a waiver, by the party
against whom the waiver is to be effective.
(b) No waiver by a 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 occurrence. No failure or delay by a party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.
10.03. Expenses. All costs and expenses incurred in connection with
this Agreement and in closing and carrying out the transactions contemplated
hereby shall be paid by the party incurring such cost or expense. Without
limiting the generality of the immediately preceding sentence, the fees, costs
and expenses of the accountants, attorneys and financial advisors (including,
without limitation, Barrington Associates, Weinstock, Manion, Reisman, Shore &
Neumann, and Frankel, Lodgen, Lacher, Golditch, Sardi & Howard) to Seller and
its Affiliates in connection with the preparation or negotiation of, or
consummation of the transactions contemplated by, this Agreement shall be borne
by Seller and/or the Shareholders and none of such fees, costs or expenses shall
be paid or assumed by Buyer. Without limiting the generality of the second
immediately preceding sentence, the fees, costs and expenses of the accountants,
attorneys and financial advisors (including, without limitation, Gibson, Dunn &
Crutcher LLP, Deloitte & Touche LLP and Robert W. Baird & Co.) to Buyer in
connection with the preparation or negotiation of, or consummation of the
transactions contemplated by, this Agreement shall be borne by the Buyer and
Parent and none of such fees, costs or expenses shall be paid by Seller. This
section shall survive any termination of this Agreement.
10.04. 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 hereto may assign either this Agreement or any
of its rights, interests or obligations hereunder without the prior written
approval of each other party, except that Buyer may assign its rights hereunder
to Parent or its other Affiliates without the prior written approval of any of
the Seller Parties, so long as Buyer and Parent remain responsible for
satisfying their respective obligations, liabilities, covenants and agreements
hereunder.
42
10.05. Governing Law and Forum. This Agreement shall in all respects
be interpreted, construed and governed by and in accordance with the laws of the
State of California, disregarding any conflict of laws provisions which may
require the application of the law of another jurisdiction. In the event that
arbitration is unavailable with respect to any action to enforce or that arises
out of or in any way relates to any of the provisions of this Agreement, or in
the event any action is brought to enforce the provisions of Section 10.11
hereof, such action shall be brought and prosecuted exclusively in a Federal or
state court located in Los Angeles County, California, and the parties hereto
hereby consent to the jurisdiction of any such court and to the service of
process by registered mail, return receipt requested, or by any other manner
provided by the laws of such State.
10.06. Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts and the signatures delivered by telecopy, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Agreement shall become effective
when each party hereto shall have received a counterpart hereof signed by the
other parties hereto.
10.07. Entire Agreement. This Agreement (including the Schedules and
Exhibits referred to herein which are hereby incorporated by reference and the
other agreements executed simultaneously herewith) constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, understandings and negotiations, both written
and oral, between the parties with respect to the subject matter of this
Agreement, including, without limitation, the letter of intent between Buyer and
Seller dated as of June 26, 2002, as supplemented and amended. Neither this
Agreement nor any provision hereof is intended to confer upon any Person other
than the parties hereto any rights or remedies hereunder. The parties agree and
acknowledge that notwithstanding anything to the contrary in this Agreement,
Seller is not making any representations and warranties that are not expressly
provided in this Agreement.
10.08. Captions. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof. All references to an Article or Section include all subparts thereof.
10.09. Severability. If any provision of this Agreement, or the
application thereof to any Person, place or circumstance, shall be held by an
arbitrator or a court of competent jurisdiction to be invalid, unenforceable or
void, the remainder of this Agreement and such provisions as applied to other
Persons, places and circumstances shall remain in full force and effect only if,
after excluding the portion deemed to be unenforceable, the remaining terms
shall provide for the consummation of the transactions contemplated hereby in
substantially the same manner as originally set forth at the later of the date
this Agreement was executed or last amended.
10.10. Construction. The parties hereto intend that each
representation, warranty and covenant contained herein shall have independent
significance. If any party has breached any representation, warranty or covenant
contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) that the party has not
breached shall not detract
43
from or mitigate the fact that the party is in breach of the first
representation, warranty or covenant.
10.11. Arbitration.
(a) Any dispute or difference between or among the parties
(such parties being referred to individually as a "Disputing Party," and,
together, as the "Disputing Parties") arising out of this Agreement or the
transactions contemplated hereby which the parties are unable to resolve
themselves shall be submitted to and resolved by arbitration as herein provided.
Any Disputing Party may request the American Arbitration Association (the "AAA")
to designate one arbitrator, who shall be qualified as an arbitrator under the
standards of the AAA, who shall be a retired or former judge of any appellate or
trial court of the State of California, any United States appellate court or the
United States District Court for any California District, who is, in any such
case, not affiliated with any party in interest to such arbitration, and who has
substantial professional experience with regard to corporate legal matters.
(b) The arbitrator shall consider the dispute at issue in Los
Angeles County, California, at a mutually agreed upon time within sixty (60)
days (or such longer period as may be acceptable to the Disputing Parties or as
directed by the arbitrator) of the designation of the arbitrator. The
arbitration proceeding shall be held in accordance with the rules for commercial
arbitration of the AAA in effect on the date of the initial request by the
Disputing Party, that gave rise to the dispute to be arbitrated (as such rules
are modified by the terms of this Agreement or may be further modified by mutual
agreement of the Disputing Parties) and shall include an opportunity for the
parties to conduct discovery in advance of the proceeding. Notwithstanding the
foregoing, the Disputing Parties shall agree that they will attempt, and they
intend that they and the arbitrator should use its best efforts in that attempt,
to conclude the arbitration proceeding and have a final decision from the
arbitrator within one hundred twenty (120) days from the date of selection of
the arbitrator; provided, however, that the arbitrator shall be entitled to
extend such one hundred twenty (120) day period for a total of two one hundred
twenty (120) day periods. The arbitrator shall deliver a written award with
respect to the dispute to each of the parties, who shall promptly act in
accordance therewith. Each Disputing Party to such arbitration agrees that any
award of the arbitrator shall be final, conclusive and binding and that they
will not contest any action by any other party thereto in accordance with an
award of the arbitrator. It is specifically understood and agreed that any party
may enforce any award rendered pursuant to the arbitration provisions of this
Section 10.11 by bringing suit in any court of competent jurisdiction.
(c) All costs and expenses attributable to the arbitrator
shall be allocated among the parties to the arbitration in such manner as the
arbitrator shall determine to be appropriate under the circumstances.
10.12. Cumulative Remedies. The rights, remedies, powers and
privileges herein provided are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law.
44
10.13. Third Party Beneficiaries. Except as specifically provided in
Article IX with respect to indemnification provided to the Indemnitees
identified therein, no provision of this Agreement shall create any third party
beneficiary rights in any Person, including any employee of Buyer or employee or
former employee of Seller or any Affiliate thereof (including any beneficiary or
dependent thereof).
10.14. Knowledge. Whenever used in this Agreement, "to the best
knowledge" of Seller or any variations thereof shall in all cases be understood
as comprising the actual knowledge and belief of Jeffrey A. Evans and Matthew
Johnston after reasonable inquiry of Seller's employees and representatives and
reasonable review of Seller's files, books and records.
45
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
SELLER PARTIES:
BOARDNETWORK.COM,
a California corporation
By: /s/ Diane Prince Johnston
-------------------------------------
Name: ___________________________________
Title: __________________________________
ALAN PRINCE, an individual
/s/ Alan Prince
-----------------------------------------
JEFFREY A. EVANS, an individual
/s/ Jeffrey A. Evans
-----------------------------------------
MATTHEW JOHNSTON GRANTOR RETAINED
ANNUITY TRUST DATED 4/23/01
By: /s/ Matthew Johnston
-------------------------------------
Name: ___________________________________
DIANE PRINCE JOHNSTON GRANTOR RETAINED
ANNUITY TRUST DATED 4/23/01
By: /s/ Diane Prince Johnston
-------------------------------------
Name: ___________________________________
MATTHEW AND DIANE JOHNSTON 2001
IRREVOCABLE GIFT TRUST DATED 4/23/01
By: /s/ Alan Prince
-------------------------------------
Name: ___________________________________
SIGNATURE PAGE TO BOARDNETWORK.COM ASSET PURCHASE AGREEMENT
JOHNSTON LIVING TRUST DATED 3/27/01
By: /s/ Matthew Johnston
-------------------------------------
Name: ___________________________________
SELLER REPRESENTATIVE:
/s/ Matthew Johnston
-----------------------------
Matthew Johnston
By signing below, the undersigned acknowledges that she has read the
foregoing Asset Purchase Agreement, is aware that her spouse has agreed to sell
substantially all of the assets of Seller, and consents to such a sale and
agrees to be bound by the terms of the foregoing Asset Purchase Agreement.
/s/ Laurie Soll Evans
-----------------------------------------
Laurie Soll, spouse of Jeffrey A. Evans
By signing below, the undersigned acknowledges that she has read the
foregoing Asset Purchase Agreement, is aware that her spouse has agreed to sell
substantially all of the assets of Seller, and consents to such a sale and
agrees to be bound by the terms of the foregoing Asset Purchase Agreement.
/s/ Wynne Prince
-----------------------------------------
Wynne Prince, spouse of Alan Prince
SIGNATURE PAGE TO BOARDNETWORK.COM ASSET PURCHASE AGREEMENT
47
BUYER:
ONSTAFF ACQUISITION CORP.
a Delaware corporation
By: /s/ Martin A. Kropelnicki
-------------------------------------
Name: Martin A. Kropelnicki
-----------------------------------
Title: __________________________________
PARENT:
HALL, KINION & ASSOCIATES, INC.,
a Delaware corporation
By: /s/ Brenda C. Rhodes
-------------------------------------
Name: ___________________________________
Title: __________________________________
SIGNATURE PAGE TO BOARDNETWORK.COM ASSET PURCHASE AGREEMENT
Exhibit 4.4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into as of
August 9, 2002, by and among Hall, Kinion & Associates, Inc., a Delaware
corporation (the "Company"), OnStaff, a California corporation ("OnStaff"),
Healthcare Staffing Resources, Inc., a California corporation ("Healthcare"),
and Boardnetwork.com, a California corporation ("Boardnetwork," and
collectively, with OnStaff and Healthcare, the "Shareholders" and individually,
a "Shareholder").
RECITALS
WHEREAS, the Company, OnStaff Acquisition Corp., a Delaware corporation and
wholly owned subsidiary of the Company ("Buyer"), the Shareholders, and certain
other parties named therein are concurrently entering into Asset Purchase
Agreements dated as of even date herewith (the "Asset Purchase Agreements"),
pursuant to which Buyer will acquire substantially all the assets of the
Shareholders in exchange for the Shares (as defined herein) as partial
consideration.
WHEREAS, in connection with entering into the Asset Purchase Agreements,
the Company agrees to grant the Shareholders certain registration rights with
respect to the Shares.
NOW, THEREFORE, in consideration of the above Recitals, which are
incorporated into this Agreement below by reference as if fully set forth
therein, and in consideration of the Shareholders consummating the transactions
described in the Asset Purchase Agreements, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
Shareholders, the Company agrees with the Shareholders as follows:
1. Certain Definitions. All capitalized terms used and not defined herein
shall have the meanings set forth in the Asset Purchase Agreement. The following
terms shall have the following respective meanings:
"Commission" shall mean the U.S. Securities and Exchange Commission.
"Common Stock" shall mean the common stock of the Company, par value
$0.001.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holder" shall mean any Shareholder holding Registrable Securities and
any person holding Registrable Securities to whom the rights under this
Agreement have been transferred in accordance with Section 10 hereof.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
-1-
"Registration Expenses" shall mean all expenses incurred by the
Company in complying with Section 5 hereof, but excluding any attorneys' fees
incurred by any Holder participating in such registration if such Holder is not
represented by the Company's counsel.
"Registrable Securities" means the Shares; provided, however, the
Shares shall only be treated as Registrable Securities if and so long as they
have not been (A) sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, (B) sold or saleable in
a transaction exempt from the registration and prospectus delivery requirements
of the Securities Act under Section 4(1) thereof so that all transfer
restrictions and restrictive legends with respect thereto are removed upon the
consummation of such sale, (C) sold or transferred pursuant to Rule 144 under
the Securities Act, or (D) sold or transferred to a person or entity other than
pursuant to Section 10 of this Agreement.
"Restricted Securities" shall mean the securities of the Company
required to bear the legend referring to the Securities Act set forth in Section
3 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders and all fees and disbursements of counsel for the Holders.
"Shares" shall mean the shares of Common Stock issued to the
Shareholders pursuant to the Asset Purchase Agreements.
2. Restrictions. The Shares shall not be sold, assigned, transferred or
pledged except upon the conditions specified in this Agreement, which conditions
are intended to ensure compliance with the provisions of the Securities Act. The
Shareholders shall cause any proposed purchaser, assignee, transferee or pledgee
of the Shares to agree to take and hold such securities subject to the
provisions and upon the conditions specified in this Agreement.
3. Restrictive Legend. Each certificate representing (i) the Shares and
(ii) any other securities issued in respect of the Shares upon any stock split,
stock dividend, recapitalization, merger, consolidation or similar event, shall
be stamped or otherwise imprinted with legends in the following form (in
addition to any legend required under applicable state securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
UNDER ANY STATE SECURITIES LAWS. SUCH SHARES MAY NOT BE SOLD, OFFERED FOR SALE,
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS EITHER (i) IN THE ABSENCE OF SUCH
REGISTRATION THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO
THE COMPANY IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY TO THE
EFFECT THAT SUCH DISPOSITION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE REGISTRATION
REQUIREMENTS OF ALL APPLICABLE STATE SECURITIES LAWS OR (ii) THE SALE IS EXEMPT
FROM SUCH
-2-
REGISTRATION REQUIREMENTS PURSUANT TO THE SECURITIES AND EXCHANGE COMMISSION'S
RULE 144."
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF A REGISTRATION RIGHTS AGREEMENT BETWEEN THE COMPANY
AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY."
Each Shareholder and Holder consents to the Company making a notation
on its records and giving instructions to any transfer agent of the Restricted
Securities in order to implement the restrictions on transfer established in
this Section 3.
4. Notice of Proposed Transfers. Prior to any proposed sale, assignment,
transfer or pledge of any Restricted Securities, unless there is in effect a
registration statement under the Securities Act covering the proposed transfer,
the holder thereof shall give written notice to the Company of such holder's
intention to effect such transfer, sale, assignment or pledge. Each such notice
shall describe the manner and circumstances of the proposed transfer, sale,
assignment or pledge in sufficient detail and either (i) shall be accompanied at
such holder's expense by an unqualified written opinion of legal counsel who
shall be, and whose legal opinion shall be, reasonably satisfactory to the
Company in form and substance, addressed to the Company, to the effect that the
proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act and any applicable state securities law or
(ii) state that the proposed transfer, sale, assignment or pledge is exempt from
the Commission's Rule 144, whereupon the holder of such Restricted Securities
shall be entitled to transfer such Restricted Securities in accordance with the
terms of the notice delivered by the holder to the Company. Each certificate
evidencing the Restricted Securities transferred as above provided shall bear,
except if such transfer is made pursuant to Rule 144, the appropriate
restrictive legends referring to the Securities Act set forth in Section 3
above, except that such certificate shall not bear such restrictive legend if,
in the opinion of counsel for such holder and the Company, such legend is not
required in order to establish compliance with any provisions of the Securities
Act.
5. Piggyback Registration.
(a) Notice of Registration. If at any time or from time to time, the
Company shall determine to register any of its securities for its own account
other than (i) a registration relating solely to employee benefit plans or (ii)
a registration relating solely to a Commission Rule 145 transaction, the Company
shall:
(1) promptly give to each Holder written notice thereof, and
(2) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests made within fifteen (15) days after receipt of such written notice
from the Company by any Holder, but only to the extent that such inclusion
will not diminish the number of securities included in the registration by
the Company.
-3-
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 5(a). In such event, the right of any Holder to registration
pursuant to this Section 5 shall be conditioned upon such Holder's participation
in such underwriting and the inclusion of Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the other holders distributing their securities through such underwriting) enter
into an underwriting agreement in reasonable and customary form with the
managing underwriter selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 5, if the managing
underwriter determines that marketing factors require a limitation of the number
of shares or other securities to be underwritten, the managing underwriter may
limit the number of Registrable Securities to be included in the registration
and underwriting, on a pro rata basis based on the total number of securities
(including, without limitation, Registrable Securities) entitled to registration
pursuant to registration rights granted to the participating Holders by the
Company. The number of shares or other securities that may be included in the
registration and underwriting shall be allocated as follows: (i) first, to the
Company and (ii) second, to the shareholders of the Company electing to
participate in such registration such that each shareholder may include in such
registration that number of shares equal to: (A) the number of shares such
shareholder wants to register multiplied by (B) the quotient obtained by
dividing the number of shares owned by such shareholder by the number of shares
owned by all shareholders participating in the registration.
(c) Withdrawal; Lock-Up. If any Holder or other holder disapproves of
the terms of any such underwriting, it may elect to withdraw therefrom by
written notice to the Company and the managing underwriter no later than five
(5) business days prior to the date of the registration statement with respect
to the registration, is declared effective. Any securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration, and shall not
be offered, sold, loaned, granted any option for the purchase of, or otherwise
disposed of during the period of time (not to exceed 180 days) determined by the
Board of Directors of the Company upon advice of its managing underwriting, from
and after the effective date of the registration statement.
(d) Right to Terminate Registration. The Company shall have the right
to terminate or withdraw any registration initiated by it under this Section 5
prior to the effectiveness of such registration, whether or not any Holder has
elected to include securities in such registration. In such case, the Company
shall be deemed not to have effected a registration pursuant to Section 5 of
this Agreement.
(e) Not Demand Registration. Registration pursuant to this Section 5
shall not be deemed to be a requested registration. No Holder shall have the
right to demand registration of its Registrable Securities, nor shall any
provision in this Agreement be construed to provide any Holder such demand
rights.
6. Expenses of Registration. All Registration Expenses incurred in
connection with any registration pursuant to Section 5 shall be borne by the
Company. Unless otherwise stated, all Selling Expenses relating to securities
registered on behalf of the Holders and all other registration expenses incurred
in connection with registration pursuant to this Agreement shall be
-4-
borne by the Holders of the registered securities included in such registration
pro rata on the basis of the number of shares so registered.
7. Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement,
the Company shall:
(a) Prepare and file with the Commission a registration statement with
respect to such securities, including any amendments and supplements to the
registration statement and the prospectus contained therein, and use
commercially reasonable efforts to cause such registration statement to
become and remain effective for at least ninety (90) days.
(b) Furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number
of copies of the registration statement, preliminary prospectus, final
prospectus and such other documents as such underwriters may reasonably
request in order to facilitate the public offering of such securities.
(c) Use commercially reasonable efforts to register and qualify the
securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required
in connection therewith or as a condition thereto to qualify to do business
or to file a general consent to service of process in any such states or
jurisdictions.
(d) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.
8. Suspension of Registration. Following the effectiveness of a
registration statement (and the making of any required filings with any state
securities commissions), the Company may direct the Holders to suspend sales of
its Registrable Securities (the "Suspension Notice") and such Holders shall
immediately cease any sales of its Registrable Securities pursuant to the
registration statement, if one or more of the following events (each, a
"Suspension Event") occurs pending negotiations relating to, or consummation of,
a transaction or the occurrence of an event:
(a) that would require additional disclosure of material information
by the Company, the absence of which would make the registration statement
materially misleading,
(b) as to which the Company has a bona fide business purpose for
preserving confidentiality, or
(c) which renders the Company unable to comply with Commission
requirements;
-5-
in each case under circumstances that would make it impracticable or
inadvisable (i) to take any action with respect to the registration statement,
the effectiveness or continued effectiveness thereof, or (ii) to promptly amend
or supplement the registration statement on a post-effective basis, as
applicable. Upon termination of a Suspension Event, the Holders may commence
effecting sales of the Registrable Securities pursuant to the registration
statement, accompanied by any required supplemental or amended prospectus
necessary to resume such sales, following a written notice to such effect from
the Company (the "Termination Notice"). If the Company is not able to terminate
a Section 8(b) or 8(c) Suspension Event, then, at the election of the holders of
a majority of the Registrable Shares included in the suspended registration
statement, the duration of the suspended registration statement shall be
extended for a period of time equal to the duration of the suspension.
9. Information by Holder. The Holder or Holders of Registrable Securities
included in any registration shall furnish to the Company such information
regarding such Holder or Holders, the Registrable Securities held by them and
the distribution proposed by such Holder or Holders as the Company may request
in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 9.
10. Transfer of Registration Rights. This Agreement, and the rights and
obligations of each Shareholder hereunder, may only be assigned by such
Shareholder to:
(a) any shareholder of Shareholder, if Shareholder is a closely held
corporation;
(b) any spouse, direct descendant or trust for the benefit of the
Shareholder or such Shareholder's spouse or direct descendant, if Shareholder is
an individual; and
(c) any entity controlled by, controlling or under common control with the
Shareholder;
provided that (i) such transfer may otherwise be effected in accordance
with applicable securities laws, (ii) written notice of such assignment is given
to the Company, including the name and notice information of the transferee, and
(iii) the transferee agrees to be bound by the terms of this Agreement.
11. Termination of Rights. The registration rights of any particular Holder
under Section 5 shall terminate with respect to such Holder on the earlier of
(i) the first anniversary of the effective date of this Agreement or (ii) with
respect to any holder of Registrable Securities, at such time as the Holder is
able to dispose its Registrable Securities pursuant to Rule 144.
12. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of California, without giving effect to
the principles of conflicts of law thereof. In the event that arbitration is
unavailable with respect to any action to enforce or that arises out of or in
any way relates to any of the provisions of this Agreement, such action shall be
brought and prosecuted exclusively in a Federal or state court located in Los
Angeles County, California, and the parties hereto hereby consent to the
jurisdiction of any such court and to the service of process by registered mail,
return receipt requested, or by any other manner provided by the laws of such
State.
-6-
13. Third Parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
14. Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
15. Entire Agreement; Amendment. This Agreement constitutes the full and
entire understanding and agreement among the parties with regard to the subject
matter hereof. Neither this Agreement nor any term hereof may be amended,
waived, discharged or terminated other than by a written instrument signed by
the party against whom enforcement of any such amendment, waiver, discharge or
termination is sought; provided, however, that holders of more than fifty
percent (50%) of the outstanding Registrable Securities may waive or amend, on
behalf of all Shareholders and other Holders of Shares, any provisions hereof
benefiting the Shareholders so long as the effect thereof will be that all such
Shareholders and other Holders of Shares will be treated equally.
16. Effect of Amendment or Waiver. The Shareholders and their successors
and assigns acknowledge that by the operation of Section 15 hereof the holders
of a majority of the outstanding Registrable Securities, acting in conjunction
with the Company, will have the right and power to diminish or eliminate any or
all rights or increase any or all obligations pursuant to this Agreement.
17. Rights of Holders Not Exclusive. Nothing contained in this Agreement
shall prohibit the Company from granting to any holder or prospective holder of
any securities of the Company registration rights which would allow such holder
or prospective holder to include securities of the Company in any registration
statement filed by the Company.
18. Notices, Etc. All notices and other communications hereunder shall be
in writing and shall be effective if it is delivered personally, couriered,
faxed or mailed (United States registered or certified mail, postage prepaid),
and shall be deemed to have been duly given (i) when received, if delivered
personally, (ii) when sent by facsimile upon receipt of confirmation, (iii) when
sent by express courier service (receipt requested) or (iv) five (5) calendar
days after being so mailed and received, as follows:
(a) If to Company, to: with copies to:
(which shall not constitute
notice)
Hall, Kinion & Associates, Inc. Gibson, Dunn & Crutcher LLP
2570 North First Street, Suite 400 1530 Page Mill Road
San Jose, CA 95131-1018 Palo Alto, CA 94304
Attn: Chief Executive Officer Attn: Larry Calof, Esq.
Telecopier No.: (408) 383-0902 Telecopier No.: (650) 849-5333
-7-
(b) If to the Shareholders, to: with copies to:
(which shall not constitute notice)
c/o Matthew Johnston Weinstock, Manion, Reisman,
6650 Wandermere Road Shore & Neumann
Malibu, CA 90265 1875 Century Park East, Suite 1500
Telecopier No.: (928) 396-7141 Los Angeles, CA 90067
Attn: Louis Reisman, Esq.
Telecopier No.: (310) 553-5165
or at such other address as any of the parties to this Agreement may hereafter
designate by written notice to the other parties.
19. Delays or Omissions. No delay or omission to exercise any right, power
or remedy accruing to any holder of any Shares or to the Company upon any breach
or default under this Agreement shall impair any such right, power or remedy of
such holder or of the Company, nor shall it be construed to be a waiver of any
such breach or default, or an acquiescence therein, or of or in any similar
breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore
or thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder or of the Company of any
provisions or conditions of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing or as
provided in this Agreement. All remedies, either under this Agreement or by law
or otherwise afforded to any holder, shall be cumulative and not alternative.
20. Counterparts. This Agreement may be executed simultaneously in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
21. Severability of this Agreement. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision and the parties agree to replace such provision
with a valid and enforceable provision that will achieve, to the extent
possible, the economic, business and other purposes of such provisions; provided
that no such severability will be effective against a party if it materially and
adversely changes the economic benefits of this Agreement to such party.
22. Headings, Etc. The headings of the Sections of this Agreement, and the
headings on the signature pages of this Agreement categorizing the signatories
hereto, have been inserted for convenience of reference only, are not to be
considered a part hereof, and shall in no way modify or restrict any of the
terms and provisions hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK -
THE NEXT PAGE IS THE SIGNATURE PAGE]
-8-
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the date first written above.
COMPANY
HALL, KINION & ASSOCIATES, INC.,
a Delaware corporation
By: /s/ Martin A. Kropelnicki
----------------------------------------
Name:
Its:
SHAREHOLDERS
ONSTAFF, a California corporation
By: /s/ Jeffrey A. Evans
----------------------------------------
Name:
Its:
HEALTHCARE STAFFING RESOURCES, INC.,
a California corporation
By: /s/ Jeffrey A. Evans
----------------------------------------
Name:
Its:
BOARDNETWORK.COM, a California
corporation
By: /s/ Diane Prince Johnston
----------------------------------------
Name:
Its:
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
Exhibit 10.10
FIRST AMENDMENT TO
REVOLVING LOAN AND SECURITY AGREEMENT
This FIRST AMENDMENT TO REVOLVING LOAN AND SECURITY AGREEMENT is
entered into as of August 9, 2002 (this "Amendment") by and between COMERICA
BANK-CALIFORNIA ("Bank"), a California banking corporation and HALL, KINION &
ASSOCIATES, INC., a Delaware corporation ("Borrower").
RECITALS
WHEREAS, Borrower and Bank have previously entered into that certain
Revolving Loan and Security Agreement dated June 21, 2002 (the "Loan
Agreement"); and
WHEREAS, OnStaff Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Borrower ("Buyer") will purchase certain assets (the
"Acquisitions") of OnStaff, a California corporation, Healthcare Staffing
Resources, Inc., a California corporation, and Boardnetwork.com, a California
corporation (collectively, "Sellers") pursuant to the terms of those certain
Asset Purchase Agreements dated as of August 9, 2002 (as the same may be further
amended, modified or supplemented from time to time the "Acquisition
Agreements") by and among Borrower and Buyer, on the one hand, and Sellers,
Jeffrey A. Evans, an individual, Matthew Johnston Grantor Retained Annuity Trust
dated 4/23/01, Diane Prince Johnston Grantor Retained Annuity Trust dated
4/23/01, Matthew and Diane Johnston 2001 Irrevocable Gift Trust dated 4/23/01,
Johnston Living Trust dated 3/27/01, and Matthew Johnston, as a representative
of the Seller (the "Seller Parties") on the other hand. The Acquisition
Agreements and each schedule, exhibit, document, instrument and certificate
incorporated therein or delivered in connection therewith, are referred to as
the "Acquisition Documents"; and
WHEREAS, pursuant to Section 10.2 of the Loan Agreement, the
Acquisitions require the consent of Bank; and
WHEREAS, Bank is willing to consent to the Acquisitions, subject to the
terms and conditions of this Amendment; and
WHEREAS, in addition to Bank's consent for the Acquisitions, Borrower
is requesting a sublimit for letters of credit and modification to certain
financial covenants, and Bank has agreed to provide the sublimit for letters of
credit and modification to certain financial covenants pursuant to certain terms
and conditions, as set forth more completely herein.
1
AGREEMENT
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Incorporation by Reference; Definitions. The foregoing Loan
Agreement and the Recitals are incorporated
herein by this reference as though set forth in full herein. Any term
not defined herein shall have the meaning
given in the Loan Agreement.
2. Amendment to the Loan Agreement. The Loan Agreement is hereby
modified as set forth below.
2.1 Amendment to Section 1.1 of the Loan Agreement.
Section 1.1 of the Loan Agreement is hereby amended by adding the following new
definitions:
"Held Cash Balances" mean any cash balances of Borrower
maintained at Bank for which Bank has placed a hold."
"Letter of Credit" means any trade letter of credit issued
by Bank at the request of or for the account of Borrower pursuant to
Section 2.11.
"Letter of Credit Obligations" shall mean at any date of
determination, the sum of (a) the aggregate undrawn amount of all
Letters of Credit issued and outstanding; (b) the aggregate face
amount of all Letters of Credit requested but not yet issued as of
such date; and (c) all obligations of Borrower to reimburse Bank for
amounts paid by Bank in respect of drawings under Letters of Credit as
of such date.
2.2 Amendment to Section 2 of the Loan Agreement.
Section 2 of the Loan Agreement is hereby amended by adding the following new
Section 2.11:
"2.11 Letters of Credit.
2.11.1 Issuance. Subject to, and upon the terms
and conditions contained herein, at the request of Borrower, Bank
agrees from time to
2
time during the term of this Agreement to issue Letters of Credit for
the account of Borrower containing terms and conditions acceptable to
Bank provided, however that no Letter of Credit shall have an
expiration date beyond one hundred eighty (180) days.
(a) Letters of Credit. Borrower may request Bank to issue a
Letter of Credit by delivering to Bank, Bank's form of Letter of Credit
Application (the "Letter of Credit Application") completed to the
satisfaction of Bank; and, each Letter of Credit shall be subject to
the additional terms and conditions of the Letter of Credit Agreement
and related documents, if any, required by Bank in connection with the
issuance thereof (each, a "Letter of Credit Agreement") together with
such other certificates, documents and other papers and information as
Bank may reasonably request.
2.11.2 Sublimit. No Letters of Credit shall be issued unless, on
the date of the proposed issuance of any Letter of Credit, the Advances
available to Borrower under the Revolving Facility are equal to one
hundred percent (100%) of the face amount of such Letters of Credit.
Except in Bank's discretion, the aggregate amount of all Letter of
Credit Obligations shall not at any time exceed One Million and 00/100
Dollars ($1,000,000.00).
2.11.3 Reimbursement. Each draft paid by Bank under a Letter of
Credit shall be deemed an Advance under the Revolving Facility and
shall be repaid by Borrower in accordance with the terms and conditions
of this Agreement applicable to such Advances; provided, however, that
if the Revolving Facility is not available, for any reason whatsoever,
at the time any draft is paid by Bank, or if Advances are not available
under the Revolving Facility at such time due to any limitation on
borrowings set forth herein, then the full amount of such draft shall
be immediately due and payable, together with interest thereon, from
the date such amount is paid by Bank to the date such amount is fully
repaid by Borrower, at the rate of
3
interest applicable to Advances. In such event, Borrower agrees that
Bank, at Bank's sole discretion, may debit Borrower's deposit account
with Bank for the amount of any such draft. In addition, Bank is hereby
irrevocably authorized, in its sole discretion, to make Advances from
time to time, or to charge any deposit account of Borrower, to pay any
Letter of Credit for which payment is due, or at any time after the
occurrence of an Event of Default to fund cash collateral for any
outstanding Letter of Credit.
2.11.4 Letter of Credit Fees. Borrower shall pay to Bank
fees upon the issuance or amendment of each Letter of Credit and upon
the payment by Bank of each draft under any Letter of Credit determined
in accordance with Bank's standard fees and charges in effect at the
time any Letter of Credit is issued or amended or any draft is paid.
2.3 Amendment to Section 9.1 of the Loan Agreement. Section
9.1 of the Loan Agreement is hereby amended by deleting it in its entirety and
replacing it with the following:
"9.1 Current Ratio. Borrower shall maintain, as of the last day
of each fiscal quarter of Borrower, a ratio of current assets to
current liabilities of at least 1.05:1.00; provided, however that as of
December 31, 2002, Borrower shall maintain, as of the last day of each
fiscal quarter of Borrower, a ratio of current assets to current
liabilities of at least 1.25:1.00."
2.4 Amendment to Section 2.1.1 of the Loan Agreement. Section
2.1.1 of the Loan Agreement is hereby amended by deleting it in its entirety and
replaced with the following:
2.1.1 Borrowing Base. Borrowing Base shall mean an amount equal
to the sum of: (a) Eighty percent (80%) of the Net Amount of Eligible
Accounts; plus (b) the aggregate amount of Held Cash Balances; less (c)
any Availability Reserves.
2.5 Amendment to Section 9.2 of the Loan Agreement. Section
9.2 of the Loan Agreement is hereby amended by deleting the term "Forty
4
One Million Five Hundred Thousand and 00/100 Dollars ($41,500,000.00)" and
replacing it with the term "Twenty Four Million and 00/100 Dollars
($24,000,000.00)".
2.6 Amendment to Section 9.5 of the Loan Agreement. Section
9.5 of the Loan Agreement is hereby amended by deleting it in its entirety and
replacing it with the following:
"9.5 Profitability. Commencing July 1, 2002 and ending December
31, 2003, Borrower shall have a minimum Net Income of One and 00/100
Dollars ($1.00) for each of Borrower's fiscal quarters during said
period; provided, however, that commencing December 31, 2003, and for
each fiscal year of Borrower thereafter, Borrower shall have a minimum
Net Income of One and 00/100 Dollars ($1.00) measured on a fiscal year
to date basis."
2.7 Amendment to Section 9 of the Loan Agreement. Section 9 of
the Loan Agreement is hereby amended by adding new Section 9.6 as follows:
9.6 Cash Balances. Borrower and its Subsidiaries shall
maintain a minimum aggregate cash balance with Bank of Twelve Million
and 00/100 Dollars ($12,000,000.00); provided, however that if Borrower
is profitable in its third (3rd) and fourth (4th) fiscal quarters for
fiscal year 2002, then Borrower and its Subsidiaries shall maintain a
minimum aggregate cash balance with Bank of Ten Million and 00/100
Dollars ($10,000,000.00)."
3. Hold on Cash Balances. As additional security for the
Obligations, Borrower shall pledge and Bank shall place a hold on Two Million
and 00/100 Dollars ($2,000,000.00) of Borrower's cash balances held at Bank in
money market account #1892-272293, which hold shall be released on November 15,
2002. The hold on such funds is in addition to and does not affect or impair the
security interest in Borrower's deposit accounts granted to Bank by Borrower
under the Loan Agreement.
4. Conditions Precedent. Bank's consent to this Amendment and the
Acquisitions is subject to satisfaction of all of the conditions set forth
below.
4.1 Financial Condition. Borrower shall have
5
delivered to Bank, within thirty (30) Business Days after the closing of the
Acquisitions, the unaudited consolidated balance sheet of Borrower and its
Subsidiaries as of July 31 giving effect to the Acquisitions together with a
certificate of Borrower, executed by the chief financial officer of Borrower in
such Person's capacity as an officer of Borrower, in form and substance
satisfactory to Bank certifying that, after giving effect to the Acquisitions,
the fair saleable value of the assets of Borrower, on a going concern basis,
will exceed the probable liability on its debts, that Borrower will be able to
pay its debts as they mature and that Borrower will not have unreasonably small
capital to conduct its business, together with attachments demonstrating the
basis of such conclusions.
4.2 Seller Financial Statements. Borrower shall deliver to
Bank, the balance sheet of each Seller as of the end of such Seller's two (2)
previous fiscal years, together with the related statements of income and
retained earnings for such fiscal years, and the statements of changes in
financial position, all in reasonable detail and standing in comparative form
and all prepared in accordance with GAAP. Upon the completion of the audit of
the Seller's consolidated financial statements for fiscal year ending 2001, and
for the period ending June 30, 2002, Borrower shall promptly deliver an opinion
thereon acceptable to Bank by independent accountants, together with such
financial statements.
4.3 Acquisition. The Acquisitions shall have been consummated
in accordance with the terms of the Acquisition Documents.
4.4 Acquisition Documents. Within ten (10) Business Days after
the closing of the Acquisitions, Bank (a) shall have received true and complete
executed or conformed copies of the Acquisition Documents and any amendments
thereto; (b) the Acquisition Documents shall be in full force and effect and no
material term or condition thereof shall have been amended, modified or waived
after the execution thereof (other than solely to extend the date by which the
Acquisitions are required to occur or waivers of closing requirements that are
not material); (c) neither any Seller, Buyer, Borrower or any of the Seller
Parties shall have failed to perform any material obligation or covenant
required by the Acquisition Documents to be performed or complied with by it on
or before the date hereof, other than waivers of closing requirements that are
not material; and (d) Bank shall have received a certificate of Borrower and
Buyer, executed by Borrower's and Buyer's chief executive or chief financial
officer in such Person's capacity as an officer of Borrower or Buyer, to the
effect set forth in clauses (a), (b) and (c) above.
4.5 Security Interests, UCC Filings and Stock Certificates.
Bank shall have received satisfactory evidence that Bank has a valid and
perfected first priority security interest as of the date hereof in the
Collateral, subject only to liens permitted under the Loan Agreement. Borrower
shall have delivered to or caused to be delivered to Bank executed documents
(including
6
financing statements under the UCC and other applicable documents under the laws
of any jurisdiction with respect to the perfection of liens) as Bank may deem
necessary to perfect its security interests in the Collateral. Borrower,
pursuant to the stock pledge agreements, shall have delivered or caused to be
delivered to Bank certificates (which certificates shall be properly endorsed in
blank for transfer or accompanied by irrevocable undated stock powers duly
endorsed in blank) representing all of the capital stock of Borrower and each
Subsidiary of Borrower whose capital stock is subject to the stock pledge
agreements.
4.6 Termination of Liens. Bank shall have received, duly
executed, such UCC-3 termination statements, mortgage releases and other
instruments, in form and substance satisfactory to Bank, as shall be necessary
to terminate and satisfy all liens except permitted encumbrances on the
Collateral.
4.7 Assumption Agreement. Buyer shall execute and deliver to Bank
an assumption agreement in the form attached hereto as Exhibit A.
4.8 First Amendment to Stock Pledge Agreement. Borrower shall
execute and deliver to Bank the First Amendment to Stock Pledge Agreement in the
form attached hereto as Exhibit B.
4.9 Borrower Documents. Borrower shall deliver or cause to be
delivered to Bank the documents listed below, each, unless otherwise noted,
dated the date hereof, duly executed, in form and substance satisfactory to
Bank:
(a) this Amendment;
(b) payment by Borrower of Bank's attorneys' fees and costs
incurred in the preparation of this Amendment and the documents executed
pursuant thereto; and
(c) a certificate of the secretary of Borrower with respect
to (a) resolutions of the Board of Directors of Borrower approving and
authorizing the execution, delivery and performance of this Amendment and the
documents executed pursuant thereto to which Borrower is to be a party; and (b)
the signature and incumbency of the officers of Borrower executing such
documents;
(d) a certificate of the secretary of Buyer with respect to
(a) resolutions of the Board of Directors of Buyer approving and authorizing the
execution, delivery and performance of the documents executed pursuant hereto to
which Buyer is to be a party; and (b) the signature and incumbency of the
officers of Buyer executing such documents; such other and further documents,
and completion of such other and further matters, as Bank may
7
reasonably deem necessary or appropriate.
5. Consent. Subject to the terms and conditions herein, Bank
hereby consents to the Acquisition.
6. No Amendment of Other Obligations; No Effect on Collateral.
Except as is otherwise specifically set forth herein or in any document executed
in connection herewith, the Loan Agreement and the Loan Documents are and shall
remain unmodified and in full force and effect. Borrower ratifies and reaffirms
the Obligations, without setoff, defense, or counterclaim, and agrees fully and
faithfully to pay, perform and discharge, as and when payment, performance and
discharge are due, all of the Obligations under the Loan Agreement, as amended
hereby. Nothing herein shall be deemed to affect in anyway the Collateral that
secures the obligations under the Loan Agreement (as modified by this Amendment)
or under any other agreement now or in the future.
7. Conflicts. If any conflict exists between the provisions of
the Loan Documents and the provisions of this Amendment, the provisions of this
Amendment shall control.
8. Ratification of the Guaranties and Security Therefor. By
executing this Amendment below where indicated, Guarantors acknowledge and agree
that they have read and are familiar with, and consent to, all of the terms and
conditions of this Amendment. In light of the foregoing, by executing this
Amendment, Guarantors further confirm and agree that all of the terms and
provisions of the Guaranty and the Guarantor Security Agreement are ratified and
reaffirmed, and that the Guaranty and Guarantor Security Agreement shall and
does continue in full force and effect. Although Bank has informed Guarantors of
the terms of this Amendment, Guarantors understand and agree that Bank has no
duty whatsoever to do so, nor to seek this or any future acknowledgment,
consent, or reaffirmation, and that nothing contained herein is intended to, or
shall create, such a duty on the part of Bank as to any transactions hereafter.
9. Further Assurances. Borrower agrees to make and execute such
other documents and/or take such other action and/or provide such further
assurances as may be requested by Bank in connection with the Obligations or as
may be necessary or required to effectuate the terms and conditions of this
Amendment and any documents executed in connection herewith.
10. Future Amendments. Neither this Amendment nor any document
executed herein entitles, or implies any consent or agreement to, any further or
future modification of, amendment to, waiver of, or consent with respect to any
provision of the Amendment or the Loan Documents. Any modifications hereto or to
the Loan Documents shall be in writing and signed by the parties.
8
11. Integration. This Amendment and any documents executed in
connection herewith are integrated agreements, and supersede all negotiations
and agreements regarding the subject matter hereof and thereof, and taken
together with the Loan Documents and any documents executed in connection
herewith, constitute the final agreement of the parties with respect to the
subject matter hereof and thereof.
12. Severability. In the event any one or more of the provisions
contained in this Amendment is held to be invalid, illegal or unenforceable in
any respect, then such provision shall be ineffective only to the extent of such
prohibition or invalidity, and the validity, legality, and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
13. Interpretation. This Amendment and all agreements relating to
the subject matter hereof are the product of negotiation and preparation by and
among each party and its respective attorneys, and shall be construed
accordingly. The parties waive the provisions of California Civil Code (S) 1654.
14. Counterparts. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if all
signatures were upon the same instrument. Delivery of an executed counterpart of
the signature page to this Amendment by telefacsimile shall be effective as
delivery of a manually executed counterpart of this Amendment, and any party
delivering such an executed counterpart of the signature page to this Amendment
by telefacsimile to any other party shall thereafter also promptly deliver a
manually executed counterpart of this Amendment to such other party, provided
that the failure to deliver such manually executed counterpart shall not affect
the validity, enforceability, or binding effect of this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to Revolving Loan and Security Agreement to be executed as of the date
first above written.
HALL, KINION & ASSOCIATES, INC.
By: /s/ Martin A. Kropelnicki
---------------------------------------
Title: CFO
--------------------------------------
9
COMERICA BANK - CALIFORNIA
/s/ Joan S. Clark
------------------------------
By: Joan S. Clark
Its: Assistant Vice President
10
ACCEPTED AND AGREED TO:
ICPLANET,
a Delaware corporation
By: /s/ Martin A. Kropelnicki
------------------------------
Its:
______________________________
HUNTINGTON ACQUISITION CORPORATION,
a Delaware corporation
By: /s/ Martin A. Kropelnicki
------------------------------
Its:
______________________________
INTERACTIVE ACQUISITION CORPORATION
a Delaware corporation
By: /s/ Martin A. Kropelnicki
------------------------------
Its:
______________________________
TKO PERSONNEL INC.
a California corporation
By: /s/ Martin A. Kropelnicki
------------------------------
11
Its:
GROUP-IPEX, INC.
a California corporation
By: /s/ Martin A. Kropelnicki
------------------------------
Its:
______________________________
TKI ACQUISITION CORPORATION
a Delaware corporation
By: /s/ Martin A. Kropelnicki
------------------------------
Its:
______________________________
TA ACQUISITION CORPORATION
a Delaware corporation
By: /s/ Martin A. Kropelnicki
------------------------------
Its:
______________________________
EXHIBIT 99.1
(HALL KINION LOGO)
FOR IMMEDIATE RELEASE
Contacts:
At Hall, Kinion & Associates, Inc.
Investor Contact:
Martin Kropelnicki
Vice President & CFO
(415) 925-8700
(415) 925-8700
Media Contact:
Laila Kaiser
Marketing Director
HALL KINION TO ACQUIRE ONSTAFF, A SPECIALTY STAFFING FIRM
San Jose, CA—August 9, 2002
—Hall Kinion & Associates, Inc. (Nasdaq: HAKI), The Talent
Source
™
, announced today that it will acquire the assets of OnStaff, a privately-held, specialty
staffing firm based in Burbank, California. Under the terms of the agreement, Hall Kinion will pay approximately $20.0 million in cash and common stock to acquire OnStaff. In addition, the agreement provides for the payment over a three year period
of up to an additional $13.0 million subject to the achievement of certain earn-out milestones based on revenue, gross margin, and production targets.
This transaction has received the required approvals from both companies’ board of directors, but is subject to various customary closing conditions. The purchase is expected to be completed
within the next few days.
Founded in 1996, OnStaff’s 2001 revenues were approximately $35.2 million. Since
inception, the firm has placed more than 30,000 temporary, temporary-to-hire and full-time professionals in the real estate, finance and healthcare sectors throughout the United States with 28 office locations in 12 states.
“The acquisition of OnStaff is a key milestone in our diversification and specialization strategy. We will continue to expand our
niche approach to serve clients’ particular needs and capitalize on Hall Kinion’s core strength of providing specialty professionals into high demand markets,” said Brenda Rhodes, Hall Kinion’s Chairman and CEO.
“OnStaff is a premier player in the specialty staffing industry. We believe that OnStaff’s position in the industries
it serves will significantly enhance our presence in important growing vertical markets. This enables us to provide even greater services to clients and candidates,” Rhodes said. “In particular, OnStaff’s highly respected brand
provides a unique platform for which Hall Kinion can build upon in the real estate sector. We have great respect for the OnStaff management team and we look forward to providing enhanced professional staffing services to our collective client and
candidate bases.”
OnStaff will operate as a Hall Kinion subsidiary with Jeffrey Evans continuing as its
President. In addition, Evans’ will be appointed as an Executive Vice President of Hall Kinion & Associates.
“We are delighted to be joining a company with the reputation and industry stature of Hall Kinion and are confident this will be a winning combination,” said Evans. “The transaction will broaden both
organizations’ ability to provide highly specialized professionals to key companies around the world while offering expanded services into new sectors.”
Hall Kinion & Associates will hold a conference call concerning this announcement on Friday, August 9, 2002. The conference call will begin at 1:00 p.m. EDT/ 10:00 a.m.
PDT and will last for approximately one hour. Please dial (800) 982-3654, passcode 6154259, at least five minutes prior to the start time to participate on the call. Investors have the opportunity to listen to the conference call live on the
Internet at the company’s web site at
http://www.halkinion.com
. Investors should go to the web site a few minutes early, as it may be necessary to
download audio software to hear the conference call. A replay of the conference call will be available
for one week at (888) 266-2086, passcode 6154259.
About Hall Kinion & Associates
Hall Kinion & Associates, Inc., The Talent Source
™
for specialized professionals, delivers world-class talent on a contract and full-time basis to high-demand sectors around the globe. The
company finds, evaluates and places professional talent in more than 15 critical industries including: Technology, Finance, Medical and Healthcare, Government and Energy. Founded in 1991, Hall Kinion’s client list includes many of the
world’s most prominent technology innovators such as Compaq, AT&T Wireless and IBM. The company currently operates in the United States and abroad. Hall Kinion’s Web site address is http://www.hallkinion.com.
About OnStaff
OnStaff, a premier national specialty staffing company, places temporary and full-time employees in Real Estate, Finance and Healthcare industries. The company operates three specialized staffing divisions: TitleTemps; Finance &
Accounting; and Healthcare. OnStaff also has two online recruiting and placement websites: TheBoardNetwork.com and MediCenter.com. OnStaff’s Web site address is
http://www.onstaff.com
.
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