Stock Purchase Agreement - Cisco Systems Inc., KPMG LLP and KMPG Consulting inc.
STOCK PURCHASE AGREEMENT
by and among
CISCO SYSTEMS, INC.,
KPMG LLP
and
KPMG CONSULTING, INC.
Dated as of December 29, 1999
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TABLE OF CONTENTS
Page
ARTICLE I PURCHASE AND SALE OF SECURITIES...........................................1
1.1 Purchase and Sale of the Securities...............................1
1.2 The Closing.......................................................1
1.3 Deliveries at the Closing.........................................2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND KPMG...................2
2.1 Organization......................................................2
2.2 Authorization, Validity and Enforceability........................2
2.3 No Conflicts......................................................3
2.4 Consents and Approvals............................................3
2.5 Capitalization....................................................4
2.6 Title to Securities...............................................4
2.7 Subsidiaries......................................................5
2.8 Corporate Documents...............................................6
2.9 Financial Statements..............................................6
2.10 Liabilities.......................................................6
2.11 Absence of Changes................................................7
2.12 Legal Proceedings.................................................9
2.13 Compliance with Laws..............................................9
2.14 Licenses and Permits..............................................9
2.15 Contracts........................................................10
2.16 Property.........................................................11
2.17 Intellectual Property............................................11
2.18 Employee Benefit Plans...........................................13
2.19 Employee Relations...............................................13
2.20 Insurance Coverage...............................................13
2.21 Tax Matters......................................................13
2.22 Environmental Matters............................................14
2.23 Exemption from Registration......................................14
2.24 Transaction Document Representations.............................15
2.25 Use of Proceeds..................................................15
2.26 Year 2000 Compliance.............................................15
2.27 No Brokers.......................................................16
2.28 Full Disclosure..................................................16
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.........................17
3.1 Organization of the Investor.....................................17
3.2 Authorization, Validity and Enforceability.......................17
3.3 No Conflicts.....................................................17
3.4 Consents and Approvals...........................................18
3.5 Legal Proceedings................................................18
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TABLE OF CONTENTS
Page
3.6 Investment Intent................................................18
3.7 Financing........................................................18
3.8 No Brokers.......................................................19
ARTICLE IV COVENANTS...............................................................19
4.1 Conduct of Business..............................................19
4.2 Access to Information; Consultation; Confidentiality.............20
4.3 Cooperation and Reasonable Efforts...............................21
4.4 Consents and Approvals...........................................22
4.5 Notification of Certain Matters..................................22
4.6 Public Announcements.............................................22
4.7 No Solicitation..................................................22
4.8 Interim Financial Statements and Investment Reports..............23
4.9 Securities Legends...............................................24
4.10 Exclusive Relationship...........................................25
4.11 Additional Capital...............................................27
4.12 Fees of Counsel..................................................27
ARTICLE V CONDITIONS TO THE OBLIGATION OF THE INVESTOR TO CLOSE....................28
5.1 Representations Warranties and Covenants.........................28
5.2 Consents.........................................................28
5.3 No Injunction or Illegality......................................28
5.4 HSR Act..........................................................28
5.5 Opinion of Counsel to the Company................................28
5.6 Certificates.....................................................28
5.7 Certificate of Designation.......................................29
5.8 Election of Directors............................................29
5.9 Alliance Agreements..............................................29
5.10 The Investor Rights Agreement....................................29
5.11 Reservation of Common Stock upon Conversion of the Series A Preferred Stock29
5.12 Separation.......................................................29
5.13 Transfer Taxes...................................................29
5.14 No Material Adverse Change.......................................29
ARTICLE VI CONDITIONS TO THE OBLIGATION OF THE COMPANY AND KPMG TO CLOSE...........31
6.1 Representations, Warranties and Covenants........................31
6.2 Consents.........................................................31
6.3 No Injunction or Illegality......................................31
6.4 HSR Act..........................................................31
6.5 Certificates.....................................................31
6.6 Certificate of Designation.......................................31
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6.7 Alliance Agreements..............................................32
6.8 Opinion of Counsel to the Investor...............................32
6.9 Separation.......................................................32
As of the Closing, the Separation shall have been consummated.............32
ARTICLE VII SURVIVAL; INDEMNIFICATION..............................................33
7.1 Survival.........................................................33
7.2 Indemnification..................................................33
7.3 Limitations......................................................35
ARTICLE VIII TERMINATION...........................................................36
8.1 Termination of Agreement.........................................36
8.2 Effect of Termination............................................36
ARTICLE IX DEFINITIONS.............................................................36
9.1 Definitions......................................................36
ARTICLE X MISCELLANEOUS............................................................42
10.1 Notices..........................................................42
10.2 Fees and Expenses................................................44
10.3 Specific Performance.............................................44
10.4 Entire Agreement; Waivers and Amendments.........................44
10.5 Assignment; Binding Effect.......................................44
10.6 Severability.....................................................45
10.7 No Third Party Beneficiaries.....................................45
10.8 Governing Law....................................................45
10.9 Interpretation...................................................45
10.10 Captions.........................................................45
10.11 Counterparts.....................................................45
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EXHIBITS
Exhibit A Form of Certificate of Designation
Exhibit B Form of Investor Rights Agreement
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of December 29, 1999, by and among CISCO SYSTEMS, INC., a
California corporation (the "Investor") , KPMG LLP, a registered Delaware
limited liability partnership ("KPMG"), and KPMG CONSULTING, INC., a Delaware
corporation and a wholly owned subsidiary of KPMG (the "Company"). Certain
capitalized terms used herein shall have the meanings set forth in Article IX.
R E C I T A L S
WHEREAS, the Investor wishes to purchase from the Company, and
the Company wishes to issue and sell to the Investor, 5,000,000 shares (the
"Series A Shares") of Series A Mandatorily Redeemable Convertible Preferred
Stock, par value $0.01 per share, of the Company ("Series A Preferred Stock"),
having an aggregate liquidation preference of $1,050,000,000 and the other
rights, preferences and terms set forth in the form of Certificate of
Designation of Series A Mandatorily Redeemable Convertible Preferred Stock of
the Company, attached hereto as Exhibit A (the "Certificate of Designation"),
all upon the terms and subject to the conditions set forth herein; and
WHEREAS, following issuance thereof, the Series A Shares shall
be convertible into shares of the Company's Common Stock, par value $.01 per
share ("Common Stock"); and
WHEREAS, concurrently herewith, the Company, KPMG Consulting,
LLC, a Delaware limited liability company (the "LLC"), and KPMG are entering
into a separation agreement (the "Separation Agreement"), wherein the Consulting
Business shall be transferred to the Company (the "Separation");
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements contained herein, and for
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF SECURITIES
1.1 Purchase and Sale of the Securities. Upon the terms and
subject to the conditions set forth in this Agreement, the Investor agrees to
purchase from the Company, and the Company agrees to (and KPMG agrees to cause
the Company to) issue and sell to the Investor, the Series A Shares, for an
aggregate cash purchase price of $1,050,000,000 (the "Purchase Price").
1.2 The Closing. Subject to the satisfaction or waiver of
all of the conditions to closing set forth in Articles V and VI, the closing
(the "Closing") of the purchase and sale of
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the Series A Shares hereunder shall take place at the offices of Brobeck,
Phleger & Harrison LLP, Two Embarcadero Place, 2200 Geng Road, Palo Alto,
California 94303 at 10:00 a.m., Pacific Standard Time, on January 31, 2000, or,
if later, on the third Business Day after the satisfaction or waiver of the
conditions set forth in Articles V and VI, or at such other time, date or place
as may be mutually agreed upon by the parties hereto. The date on which the
Closing occurs is referred to herein as the "Closing Date."
1.3 Deliveries at the Closing. At the Closing, (a) the
Company shall, and KPMG shall cause the Company to, issue and deliver to the
Investor certificates, in definitive form, representing the Series A Shares
registered in the name of the Investor or in the name of a wholly owned
Subsidiary of the Investor designated in writing to the Company at least two (2)
Business Days prior to the Closing Date, together with all other documents
required hereunder to be delivered by the Company to the Investor at the
Closing, against (b) the payment by the Investor to the Company of the Purchase
Price, by wire transfer of immediately available funds to an account or accounts
designated by the Company in a written notice delivered to the Investor not
later than two (2) Business Days prior to the Closing Date and the delivery to
the Company of all documents required hereunder to be delivered by the Investor
to the Company at the Closing.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND KPMG
Except as disclosed in that section of the document of even
date herewith and delivered by KPMG and the Company to the Investor prior to the
execution and delivery of this Agreement (the "Disclosure Schedule")
corresponding to the Section of this Agreement to which any of the following
representations or warranties pertain, KPMG and the Company, jointly and
severally, hereby represent and warrant to the Investor, as of the date of this
Agreement and as of the Closing Date, as follows:
2.1 Organization. KPMG is a limited liability partnership,
and the Company is a corporation, and each of KPMG and the Company is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, and has full partnership or corporate (as the
case may be) power and authority to own, lease and operate its assets and
Properties and to conduct the Consulting Business as currently being conducted.
KPMG is, and the Company will at the Closing be, duly qualified and in good
standing as a foreign partnership or corporation (as the case may be) in all
jurisdictions in which the nature of the Consulting Business or the ownership of
its Properties makes such qualification necessary, except where the failure to
be so qualified or in good standing would not, individually or in the aggregate
together with all other such failures, have a Material Adverse Effect.
2.2 Authorization, Validity and Enforceability. The
execution and delivery and performance by each of the Company and KPMG of this
Agreement and each other Transaction Document to which it is a party and the
consummation of the transactions contemplated hereby and thereby by the Company
and KPMG have been duly and validly
2.
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authorized by all necessary corporate or partnership (as the case may be) action
on the part of the Company and KPMG and no other corporate or partnership
proceeding on the part of the Company or KPMG is necessary to authorize the
execution, delivery and performance of this Agreement or any other Transaction
Document to which either is a party or the consummation of the transactions
contemplated hereby or thereby. This Agreement has been duly executed and
delivered by the Company and KPMG and (assuming the due authorization, execution
and delivery by the Investor) constitutes the legal, valid and binding
obligation of each of the Company and KPMG, and each other Transaction Document
to which the Company or KPMG is a party is or will, upon due execution and
delivery thereof (assuming the due authorization, execution and delivery thereof
by the other parties thereto), constitute the legal, valid and binding
obligation of each of the Company and KPMG, in each case enforceable against the
Company and KPMG in accordance with its terms, except to the extent such
enforceability may be limited by the effect of any applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting creditors'
rights generally and general principles of equity or public policy (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).
2.3 No Conflicts. Assuming all Consents described in clauses
(a) through (c) of Section 2.4 are obtained, made or given (as the case may be),
the execution and delivery by each of the Company and KPMG of this Agreement,
the Certificate of Designation and each other Transaction Document to which it
is a party do not, and the performance by each of the Company and KPMG of its
obligations hereunder and thereunder and the consummation of the transactions
contemplated hereby and thereby will not, conflict with, result in any breach or
violation of, constitute a default under (or an event which with the giving of
notice or the lapse of time or both would constitute a default under), give rise
to any right of termination or acceleration of any right or obligation of any of
the Company, KPMG or their respective Subsidiaries or the Consulting Business
under, or result in the creation or imposition of any Lien or Encumbrance upon
any assets or Properties of the Company or any of its Subsidiaries or the
Consulting Business by reason of the terms of, or result in any other Material
consequence under, (a) the certificate of incorporation, by-laws, partnership
agreement or other charter or organizational documents of the Company, KPMG or
any of their respective Subsidiaries, (b) any Contract to which the Company,
KPMG or any of their respective Subsidiaries is a party or by or to which any of
them or their assets or Properties or the Consulting Business may be bound or
subject, or (c) any applicable order, writ, judgment, injunction, award, decree,
Permit, law, statute, ordinance, rule or regulation other than any such
conflict, breach, violation, default, termination, acceleration, Lien or
Encumbrance or consequence which in the case of clauses (b) and (c) only, would
not, individually or in the aggregate together with all such other conflicts,
breaches, violations, defaults, terminations, accelerations, Liens or
Encumbrances or consequences have a Material Adverse Effect.
2.4 Consents and Approvals. Except (a) as required under the
HSR Act, (b) for the filing of the Certificate of Designation with the Secretary
of State of the State of Delaware and (c) where the failure to obtain, make or
give such Consent would not, individually or in the aggregate, have a Material
Adverse Effect, no consent, approval, authorization, license or order of,
registration or filing with, or notice to, any federal, state, local, foreign or
other Governmental Entity or any other Person (collectively, "Consents") is
necessary to be obtained, made or given by the Company, KPMG or any of their
respective Subsidiaries or the Consulting Business in connection with the
execution and delivery by the Company of this Agreement, the
3.
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Certificate of Designation or any other Transaction Document to which the
Company is a party, the performance by the Company of its obligations hereunder
and thereunder, and the consummation of the transactions contemplated hereby and
thereby.
2.5 Capitalization.
(a) Immediately prior to the Closing, the authorized
capital stock of the Company will consist solely of (i) 1,000,000,000 shares of
Common Stock, not more than 390,000,000 of which will be issued and outstanding,
and (ii) 10,000,000 shares of preferred stock, par value $0.01 per share
("Preferred Stock"), of which the Series A Shares shall have been designated as
Series A Preferred Stock and none of which shares of Series A Preferred Stock
will be issued or outstanding. Effective upon the filing of the Certificate of
Designation and upon consummation of the Closing, all of the authorized shares
of Series A Preferred Stock will be issued and outstanding and sold to the
Investor and no other voting securities of the Company will be issued or
outstanding except as set forth in the immediately preceding sentence. Upon the
conversion of the outstanding shares of Series A Preferred Stock as provided
pursuant to the Certificate of Designation, no such shares shall be reissuable.
Except (i) as set forth above in this paragraph, (ii) for up to 80,000,000
shares of Common Stock issued or issuable upon exercise of options granted under
the Company's stock-based employee benefit plans and (iii) up to 25,000,000
shares of Common Stock issuable in consideration for the acquisition of
consulting businesses from entities which are members, licensees or sublicensees
of KPMG International or an affiliate of the foregoing (each a "KPMG Firm"), no
common stock, preferred stock, equity interest or other equity or equity
derivative securities of any kind of the Company or relating to the Consulting
Business, are (or at the Closing will be) authorized, issued or outstanding. If
the Company adopts stock-based employee benefit plans prior to the Closing, such
plans shall be reasonably acceptable to the Investor.
(b) The Company has not issued any securities in
violation of any preemptive or similar rights. Except as provided in (i) this
Agreement (including the conversion of the Series A Preferred Stock), (ii) for
up to 80,000,000 shares of Common Stock issued or issuable upon exercise of
options granted under the Company's stock-based employee benefit plans, (iii) up
to 25,000,000 shares of Common Stock issuable in consideration for the
acquisition of consulting businesses from KPMG Firms, (iv) the Certificate of
Designation and the Investor Rights Agreement and (v) the Separation Agreement,
there are no subscriptions, options, warrants, calls, commitments, preemptive
rights or other rights of any kind (absolute, contingent or otherwise) to
purchase or otherwise receive, nor any securities or instruments of any kind
convertible into or exchangeable for, any capital stock (including, without
limitation, outstanding, authorized but unissued, unauthorized, treasury or
other shares thereof) or other equity interest, equity security or equity
derivative security of the Company.
2.6 Title to Securities.
(a) The Series A Shares, when issued in accordance
with this Agreement, will be duly authorized, validly issued, fully paid,
non-assessable and free and clear of any Liens or Encumbrances (except for (i)
those expressly set forth in this Agreement, the Certificate of Designation or
the Investor Rights Agreement and applicable Federal and state securities laws
and regulations and (ii) any Liens or Encumbrances created by the Investor).
4.
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Assuming the filing of the Certificate of Designation, the issuance, sale and
delivery of the Series A Shares as contemplated by this Agreement are not
subject to any preemptive right or right of first refusal. Upon such issuance,
the Investor will acquire good and marketable title to each of the Series A
Shares, free and clear of any Lien or Encumbrance, and will be entitled to all
the rights and benefits of a holder of such securities, subject to the
parenthetical exceptions set forth in clauses (i) and (ii) above in this
paragraph.
(b) The Company covenants, represents and warrants to
the Investor that, at all times from and after the Closing, the Company will
have authorized and will reserve and keep available solely for issuance and
delivery upon conversion of Series A Shares into shares of Common Stock, at
least the number of shares of Common Stock issuable upon such conversion of all
then outstanding Series A Shares (the "Conversion Shares"). All of the
Conversion Shares, when issued in accordance with the Certificate of
Designation, will be duly authorized, validly issued, fully paid, non-assessable
and free and clear of any Liens or Encumbrances, subject (i) to those expressly
set forth in this Agreement, the Certificate of Designation or the Investor
Rights Agreement and in applicable Federal and state securities laws and
regulations and (ii) any Liens or Encumbrances created by the Investor. Assuming
the filing of the Certificate of Designation and the issuance and delivery of
the Conversion Shares as contemplated by this Agreement, the Conversion Shares
are not subject to any preemptive right or right of first refusal (including,
without limitation, pursuant to any of the other Transaction Documents to which
the Company or KPMG are parties), other than any right of first refusal granted
by the Investor to any third party.
2.7 Subsidiaries.
(a) Section 2.7 of the Disclosure Schedule sets forth
a true and complete list of all Material Subsidiaries of KPMG relating to the
Consulting Business (other than the Company) and all Material Subsidiaries of
the Company on the date hereof and on the Closing Date. Except for the
Subsidiaries listed in Section 2.7 of the Disclosure Schedule, at the Closing,
the Company will not, directly or indirectly, own any Material interest in any
other Person (other than (i) consulting businesses acquired from KPMG Firms or
(ii) non-controlling equity interests included in the investment portfolios of
the Company and its Subsidiaries).
(b) Each of the Subsidiaries of KPMG related to the
Consulting Business is, and each of the Subsidiaries of the Company will be,
duly qualified and in good standing as a foreign corporation in all
jurisdictions in which the nature of its business or the ownership of its
Properties makes such qualification necessary, except where the failure to be so
qualified or in good standing would not, individually or in the aggregate, have
a Material Adverse Effect.
(c) The Company owns or at the Closing will own all of
the outstanding capital stock, equity securities and direct or indirect equity
interests in each of the Subsidiaries required to be set forth in Section 2.7 of
the Disclosure Schedule, except where the failure to own such stock, securities
or interests would not, individually or in the aggregate, have a Material
Adverse Effect. All of the outstanding capital stock and equity securities or
interests of each Subsidiary of either the Company or KPMG (in the case of KPMG,
relating to the Consulting Business) are duly authorized, validly issued, fully
paid and nonassessable, except
5.
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where the failure to be duly authorized, validly issued, fully paid, and
nonassessable would not, individually or in the aggregate, have a Material
Adverse Effect.
(d) No Subsidiary of the Company or KPMG (in the case
of KPMG, relating to the Consulting Business) has issued any securities in
violation of any preemptive or similar rights, and there are no subscriptions,
options, warrants, calls, commitments, preemptive rights or other rights of any
kind (absolute, contingent or otherwise) in favor of any Person other than the
Company, KPMG or any of their respective Subsidiaries to purchase or otherwise
receive, nor any securities or instruments of any kind convertible into or
exchangeable for, any capital stock (including, without limitation, outstanding,
authorized but unissued, unauthorized, treasury or other shares thereof) or
other equity interest, equity security or equity derivative security of any such
Subsidiary of the Company, except where the existence of subscriptions, options,
warrants, calls, commitments, preemptive rights or other rights would not,
individually or in the aggregate, have a Material Adverse Effect.
2.8 Corporate Documents. The Company and KPMG have
heretofore delivered or, in the case of Material Subsidiaries, made available
(with reasonable specificity) to the Investor true and complete copies of the
certificate or articles of incorporation, including all amendments thereto, and
by-laws, as currently in effect, and all other charter or organization
documents, of the Company, and each of its Material Subsidiaries related to the
Consulting Business, including all entities which will be Material Subsidiaries
of the Company at the Closing (other than consulting businesses acquired from
KPMG firms). The Company and KPMG have heretofore made available to the Investor
true and complete copies of the minute books of the Company and each such
Material Subsidiary. The minute books of the Company and such Material
Subsidiaries (other than consulting businesses acquired from KPMG Firms)
accurately reflect all Material corporate actions taken at meetings, or by
written consent in lieu of meetings, of the shareholders, boards of directors
and all committees of such boards of directors of the Company. All material
corporate actions taken by the Company and such Material Subsidiaries have been
duly authorized or ratified, and no such corporate actions have been taken in
breach or violation of the certificate or articles of incorporation, by-laws or
other charter or organization documents of the Company.
2.9 Financial Statements. The Company and KPMG have
heretofore delivered to the Investor true and complete copies of the Financial
Statements. The Financial Statements were prepared in accordance with GAAP
consistently applied throughout the periods involved, were derived from the
books and records of KPMG and its Subsidiaries and, for the fiscal years
included therein, have been audited by Grant Thornton LLP, certified public
accountants (the "Company Auditors"), and present fairly in all material
respects the financial position of the Consulting Business at the respective
dates thereof and the results of operations of the Consulting Business for the
respective periods then ended, subject, in the case of the unaudited Financial
Statements, to normal year-end adjustments and the absence of full footnote
disclosures in accordance with GAAP.
2.10 Liabilities.
(a) None of KPMG, the Company, any of their respective
Subsidiaries or the Consulting Business has any direct or indirect debt,
obligation, loss, damages, deficiency
6.
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or other liability of any nature, whether absolute, accrued, contingent or
otherwise ("Liability" or "Liabilities," as the context may require), relating
to the Consulting Business and required by GAAP to be set forth in a financial
statement other than (i) Liabilities set forth in the Financial Statements, (ii)
Liabilities incurred by KPMG and its Subsidiaries since September 30, 1999 in
the ordinary course of business substantially consistent with past practice,
(iii) Liabilities which, individually and in the aggregate, would not have a
Material Adverse Effect, (iv) Liabilities pursuant to the Separation Agreement
and the transactions contemplated thereby, and (v) Liabilities pursuant to this
Agreement, the Transaction Documents and any of the transactions contemplated
hereby and thereby. Notwithstanding the foregoing, no representation and
warranty is made pursuant to this Section 2.10 with respect to any matter that
is specifically addressed by another representation or warranty contained in
this Article II.
2.11 Absence of Changes.
(a) Since September 30, 1999, there has been no
Material Adverse Effect.
(b) Except as set forth in Schedule 2.11 hereto and
for the transactions specifically contemplated in the Transaction Documents,
since September 30, 1999, the Consulting Business and the business of the
Company and its Subsidiaries have been conducted only in the ordinary course
substantially consistent with past practice and none of the Company, KPMG (only
in respect of the Consulting Business) or any of their Material Subsidiaries
related to the Consulting Business has:
(i) amended its certificate or articles of
incorporation, by-laws, partnership agreement, or other charter or
organizational document, or merged with or into or consolidated with
any other Person, subdivided or in any way reclassified any shares of
capital stock or equity interests of the Company or any Material
Subsidiary related to the Consulting Business or changed or agreed to
change in any manner the rights of their respective outstanding capital
stock or equity interests;
(ii) declared, paid or set aside any sum for any
dividends or declared or made any other distributions of any kind
(whether in cash, stock, Property, any combination thereof or
otherwise) in respect of the capital stock or equity interests of the
Company or any such Material Subsidiary which is not, directly or
indirectly, wholly owned by KPMG or the Company, or made any direct or
indirect redemption, retirement, purchase or other acquisition of any
shares of the capital stock or other equity interests or any bonds,
debentures, notes, debt instruments, evidences of indebtedness for
borrowed money or other securities of the Company or any such Material
Subsidiary which is not, directly or indirectly, wholly owned by KPMG
or the Company, of any kind;
(iii) except in connection with the establishment of
revolving credit facilities with commercial lenders and borrowings in
the ordinary course of business, incurred any indebtedness for borrowed
money or entered into any commitment to borrow money in an amount in
excess of $50,000,000 or guarantee any Liability for borrowed money in
an amount in excess of $50,000,000;
7.
<PAGE> 13
(iv) except as required by GAAP (all of which required
changes occurring after the date hereof will be disclosed in writing to
the Investor), made any Material change in its accounting practices or
made any Material change in depreciation or amortization policies or
rates adopted by it, in each case relating to the Consulting Business;
(v) suffered any damage, destruction, casualty or
loss, whether or not covered by insurance, affecting any of its
Property, which damage, destruction, casualty or loss had or will have,
individually or in the aggregate, a Material Adverse Effect;
(vi) allowed any purchase, sale, transfer, assignment,
lease or abandonment of any interest in any tangible or intangible
asset or Property related to the Consulting Business, other than
purchases, sales, transfers, assignments, leases and abandonments in
the ordinary course of business substantially consistent with past
practice which did not and will not, individually or in the aggregate,
have a Material Adverse Effect;
(vii) except in the ordinary course of business
substantially consistent with past practice, entered into any Contract
or transaction for any capital expenditure or capital contribution, in
each case related to the Consulting Business and which requires or
provides for payments in excess of $50,000,000 with respect to any
individual Contract or transaction or series of related Contracts and
transactions (excluding any purchases or sales of investment assets in
the ordinary course of business);
(viii) forgiven or permitted any cancellation of any
claim, debt or account receivable, other than cancellations which did
not and will not, individually or in the aggregate, have a Material
Adverse Effect;
(ix) directly or indirectly made any payment,
discharge or satisfaction of any Liability in excess of $50,000,000 for
borrowed money before the same became due in accordance with its terms,
other than in the ordinary course of business substantially consistent
with past practice;
(x) except for unrealized gains or losses with
respect to investment assets (not resulting from any write-down,
write-off or change in the basis of valuation thereof) and except as
required by GAAP (all of which required revaluations, write-downs and
write-offs occurring after the date hereof will be, disclosed in
writing to the Investor) or otherwise in the ordinary course of
business substantially consistent with past practice, made any Material
revaluation of any assets or Properties related to the Consulting
Business, or Material write-down or write-off of the value of any
assets or Properties (including, without limitation, any receivables)
related to the Consulting Business;
(xi) made any loan or advance to any Person, other
than loans or advances made in the ordinary course of business
substantially consistent with past practice or in any one case in an
amount below $50,000,000;
8.
<PAGE> 14
(xii) except for purchases of investment assets made
in the ordinary course of business and the acquisition of consulting
businesses from KPMG Firms, made any acquisition of all or any
substantial part of the assets, Properties, securities or business of
any other Person in connection with the Consulting Business in an
amount in excess of $50,000,000;
(xiii) except in the ordinary course of business
substantially consistent with past practice, hired any new executive
officers related to the Consulting Business;
(xiv) considered or adopted a plan of complete or
partial liquidation, dissolution, rehabilitation, restructuring,
recapitalization, redomestication or other reorganization; or
(xv) entered into any Contract or transaction to do
any of the foregoing.
2.12 Legal Proceedings. There is no action, suit, claim,
proceeding or investigation pending or, to the Knowledge of the Company and
KPMG, threatened against the Company, KPMG or any of their respective
Subsidiaries, or any of their directors, officers, assets or Properties, by or
before any court, other Governmental Entity or arbitrator relating to the
Consulting Business which, individually or in the aggregate, would have a
Material Adverse Effect. There is no outstanding order, writ, judgment,
injunction, award or decree of any court, other Governmental Entity or
arbitrator against the Company, KPMG or any of their respective Subsidiaries, or
any of their directors, officers, assets or Properties relating to the
Consulting Business, which, individually or in the aggregate, is reasonably
likely to have a Material Adverse Effect.
2.13 Compliance with Laws. Each of the Company, KPMG (to the
extent relating to the Consulting Business) and their respective Material
Subsidiaries related to the Consulting Business is in compliance with (a) the
terms of its certificate or articles of incorporation, by-laws, partnership
agreement or other charter or organization documents, (b) all applicable laws,
statutes, ordinances, rules, regulations, Permits or other legal requirements,
whether federal, state, local or foreign, and (c) all applicable orders, writs,
judgments, injunctions, awards and decrees of any court, other Governmental
Entity or arbitrator except in the case of each of clauses (a), (b) and (c),
where the failure to comply would not, individually or in the aggregate, have a
Material Adverse Effect. None of the Company, KPMG or any of their respective
Material Subsidiaries (related to the Consulting Business) has received any
written or, to the Knowledge of the Company and KPMG, oral notice of any
violation by the Company, KPMG (relating to the Consulting Business) or any such
Subsidiary of, or default by the Company, KPMG (relating to the Consulting
Business) or any such Subsidiary under, its certificate or articles of
incorporation, by-laws, partnership agreement or other charter or organization
document, any law, statute, ordinance, rule, regulation or other legal
requirement, any order, writ, injunction, award or decree of any court, other
Governmental Entity or arbitrator, or any of its Permits, except for such
violations or defaults which would not, individually or in the aggregate, have a
Material Adverse Effect.
2.14 Licenses and Permits. Each of the Company, KPMG and
their respective Subsidiaries possesses all Permits necessary for the ownership
of its assets and Properties related
9.
<PAGE> 15
to the Consulting Business and the conduct of the Consulting Business, except
for Permits, the failure of which to so possess would not, individually or in
the aggregate, have a Material Adverse Effect. All such Material Permits are
valid and in full force and effect in all material respects. There is no action,
proceeding, inquiry or investigation pending or, to the Knowledge of the Company
and KPMG, threatened for or contemplating the suspension, cancellation,
revocation or nonrenewal of any such Material Permit , and neither the Company
nor KPMG has any Knowledge of any existing fact or circumstance which (with or
without notice or lapse of time or both) is reasonably likely to result in the
suspension, limitation, cancellation, revocation or nonrenewal of any such
Material Permit or any limitation of any such Material Permit which would not,
individually or in the aggregate, have a Material Adverse Effect. Neither the
Company, KPMG nor any of their respective Subsidiaries has received any written
or, to the Knowledge of the Company and KPMG, oral notice from any Governmental
Entity that the consummation of the transactions contemplated hereby will result
in the suspension, cancellation, revocation or nonrenewal of any such Material
Permit.
2.15 Contracts.
(a) Section 2.15 of the Disclosure Schedule contains a
true and complete list of all of the following Contracts relating to the
Consulting Business to which any of the Company, KPMG or their respective
Subsidiaries is a party or by or to which any of them or their assets or
Properties are or may be bound or subject, as each may have been amended,
modified or supplemented:
(i) Contracts which would be required to be filed by
the Company as an exhibit to a registration statement of the Company on
Form S-1 if such registration statement were filed on the date hereof;
and
(ii) Contracts which are material to the Alliance as
currently contemplated and the transactions currently contemplated by
the Alliance Documents, or which are material to the performance of any
of the obligations of the Company, KPMG or any Subsidiary under any of
the Alliance Documents.
(b) The Company has heretofore delivered or made
available to the Investor true and complete copies of all of the Contracts
required to be set forth in Section 2.15 of the Disclosure Schedule. Each such
Contract required to be set forth in Section 2.15 of the Disclosure Schedule
(other than the Transaction Documents) is valid and binding in accordance with
its terms except to the extent such enforceability may be limited by the effect
of any applicable bankruptcy, reorganization, insolvency, moratorium or similar
law affecting creditors' rights generally and general principles of equity or
public policy (regardless of whether such enforceability is considered in a
proceeding in equity or at law), and is in full force and effect. None of the
Company, KPMG or any of their respective Subsidiaries is in default in any
material respect with respect to any material provision of any Contract required
to be set forth in Section 2.15 of the Disclosure Schedule, nor (to the
Knowledge of the Company and KPMG) does any condition exist that with notice or
lapse of time or both would constitute such a material default thereunder. To
the Knowledge of the Company and KPMG, no other party to any Contract required
to be set forth in the Disclosure Schedule is in default in any material respect
with respect to any such Contract. No Contract required to be set forth in
Section 2.15 of the
10.
<PAGE> 16
Disclosure Schedule contains any provision providing that any such other party
thereto may terminate or cancel the same by reason of the transactions
contemplated by this Agreement or any other Transaction Document (except for any
Contract in which the other party has a termination right at will or upon
notice), and no party has given any written or (to the Knowledge of the Company
and KPMG) oral notice of termination or cancellation of any such Contract or
that it intends to terminate or cancel any such Contract as a result of the
transactions contemplated hereby or thereby.
2.16 Property. The Properties owned or leased by the
Company, KPMG and their respective Subsidiaries are sufficient to conduct the
Consulting Business as currently conducted in all Material respects, and the
Material items of personal Properties related thereto are in adequate operating
condition and repair, normal wear and tear excepted. Each of the Company, KPMG
and their respective Subsidiaries has good and marketable title to all of its
respective Material assets and Properties related to the Consulting Business, in
each case free and clear of any Lien or Encumbrance, except (i) for assets and
Properties which have been disposed of in the ordinary course of business since
September 30, 1999, (ii) liens for Taxes not yet due or payable or which are
being contested in good faith and are not Material, (iii) mechanics, and
materialmen's liens arising in the ordinary course of business and not yet due
or delinquent or which are being contested in good faith, and (iv) Liens or
Encumbrances which individually or in the aggregate, do not have a Material
Adverse Effect.
2.17 Intellectual Property.
(a) Each of KPMG and the Company, and each of their
respective Subsidiaries own, are licensed under or otherwise possess legally
enforceable rights to use all patents, trademarks, trade names, service marks,
copyrights, and any applications therefor, schematics, technology, know-how,
trade secrets, inventions, ideas, algorithms, processes, computer software
programs or applications (in object code form and in source code form if used by
KPMG, the Company or any of their Subsidiaries in that form), websites,
intranets, extranets, and tangible or intangible proprietary information or
material ("Intellectual Property") that are used by the Company or its
Subsidiaries in, or that KPMG proposes to contribute to the Company for use in,
the Consulting Business ("Consulting Intellectual Property"), except where the
failure to own, license or otherwise possess such rights would not have a
Material Adverse Effect. None of KPMG, the Company or their respective
Subsidiaries has granted any exclusive rights pertaining to the Consulting
Intellectual Property that would have a Material Adverse Effect.
(b) There is no unauthorized use, disclosure,
infringement or misappropriation of any Consulting Intellectual Property by any
third party, including any employee or former employee of KPMG, the Company or
any of their respective Subsidiaries, except where such unauthorized use,
disclosure, infringement or misappropriation would not have a Material Adverse
Effect. Neither KPMG (as related to the Consulting Business), the Company nor
any of their respective Subsidiaries has entered into any agreement to indemnify
any other person against any charge of infringement of any Intellectual
Property, other than indemnification provisions contained in purchase orders or
license agreements arising in the ordinary course of business or indemnification
provisions that, individually or in the aggregate, will not have a Material
Adverse Effect.
11.
<PAGE> 17
(c) Neither KPMG (with respect to the Consulting Business),
the Company, KPMG's Subsidiaries (with respect to the Consulting Business), nor
the Company's Subsidiaries is, nor will they be as a result of the execution and
delivery of this Agreement, the Separation Documents, the Alliance Documents or
the performance of its obligations hereunder and thereunder, in breach of any
license, sublicense or other agreement relating to the Consulting Intellectual
Property or any intellectual property of any third party ("Third Party
Intellectual Property Rights"), except where such breach would not have a
Material Adverse Effect.
(d) All patents, registered trademarks, registered service
marks and registered copyrights related to the Consulting Business, the Company
or their respective Subsidiaries are valid and subsisting and have not been the
subject of any judicial or administrative ruling questioning their validity,
except where any invalidity or any such ruling would not have a Material Adverse
Effect. None of KPMG (as related to the Consulting Business), the Company,
KPMG's Subsidiaries (as related to the Consulting Business), or the Company's
Subsidiaries has been sued in any suit, action or proceeding with respect to
which it has received service of process and which involves a claim of
infringement of any Third Party Intellectual Property, except for suits, actions
or proceedings which will not have a Material Adverse Effect. The manufacturing,
marketing, licensing or sale of any products or services related to the
Consulting Business do not infringe any Third Party Intellectual Property,
except where such infringement would not have a Material Adverse Effect. Neither
KPMG, the Company nor any of their respective Subsidiaries has brought any
action, suit or proceeding for infringement of Consulting Intellectual Property
or breach of any license or agreement involving Consulting Intellectual Property
against any third party, except for any action, suit or proceeding relating to
any infringement or breach which is not anticipated to have a Material Adverse
Effect.
(e) KPMG (as related to the Consulting Business), the
Company, KPMG's Subsidiaries (as related to the Consulting Business), and the
Company's Subsidiaries have secured valid written assignments from all
consultants and employees who contributed to the creation or development of
Consulting Intellectual Property that KPMG, the Company or any of their
respective Subsidiaries does not already own by operation of law, except where
the failure to secure such written assignments would not have a Material Adverse
Effect.
(f) KPMG, the Company and each of their respective
Subsidiaries has taken all reasonable steps consistent with prevailing industry
practice to protect and preserve the confidentiality of all Consulting
Intellectual Property not otherwise protected by patents, patent applications or
copyright ("Confidential Information"), except where the failure to take such
steps will not have a Material Adverse Effect. All use, disclosure or
appropriation of Confidential Information owned by KPMG (as related to the
Consulting Business), the Company or any of their respective Subsidiaries by or
to a third party has been pursuant to the terms of a written agreement between
each such entity and such third party, except where such use, disclosure or
appropriation will not have a Material Adverse Effect. All use, disclosure or
appropriation by KPMG, the Company or any of their respective Subsidiaries of
Confidential Information, relating to the Consulting Business and not owned by
either KPMG, the Company or any of their respective Subsidiaries has been
pursuant to the terms of a written agreement between each such entity and the
owner of such Confidential Information, or is otherwise lawful, except where
such use, disclosure or appropriation will not have a Material Adverse Effect.
12.
<PAGE> 18
2.18 Employee Benefit Plans. Upon consummation of the
transactions neither the Company nor its Subsidiaries will have any Material
Liability under Part III of Title I, section 406 or Title IV of ERISA or under
sections 412 or 4975 of the Code with respect to any Plan maintained or
contributed to by KPMG or its Subsidiaries. Immediately after the consummation
of the transactions contemplated by the Separation Documents, no Plan maintained
or contributed to by the Company or its Subsidiaries will be subject to Part III
of Title I or Title IV of ERISA.
2.19 Employee Relations. No strike, lockout, Material labor
arbitration or grievance or other Material labor disturbance, and no application
for certification of a collective bargaining agent, is pending or, to the
Knowledge of the Company and KPMG, threatened against the Company, KPMG or any
of their respective Subsidiaries related to the Consulting Business. No
employees of the Company, KPMG or any of their respective Subsidiaries relating
to the Consulting Business are covered by any collective bargaining agreement or
any other Contract with any labor union or association other than agreements and
Contracts which will not have a Material Adverse Effect.
2.20 Insurance Coverage. The Company and its Subsidiaries
have such liability, property and casualty, and workers compensation insurance
policies and coverage with respect to the Consulting Business as are generally
carried by similarly situated companies and, to the Knowledge of the Company,
such insurance policies and Contracts provide coverage in amounts and upon terms
that are, in all Material respects, reasonable and adequate for Persons having
similar businesses, operations, Properties and locales as those of the Company,
KPMG and their respective Subsidiaries. At or prior to Closing, the Company will
obtain directors and officers liability insurance providing liability coverage
to all directors of the Company on terms and in amounts which are customary in
light of the Company's size and industry. To the Knowledge of the Company and
KPMG, all insurance policies and Contracts referred to in this Section are valid
and binding in accordance with their terms except to the extent such
enforceability may be limited by the effect of any applicable bankruptcy,
reorganization, insolvency, moratorium or similar law affecting creditors'
rights generally and general principles of equity or public policy (regardless
of whether such enforceability is considered in a proceeding in equity or at
law), and are in full force and effect.
2.21 Tax Matters.
(a) All material Tax Returns required to be filed by
or on behalf of the Company and the LLC and each of their subsidiaries have been
timely filed, taking into account any available extension of the relevant filing
date. All such Tax Returns (i) were prepared in all material respects in the
manner required by applicable law, and (ii) were true, correct, and complete in
all material respects. All Taxes shown to be payable on such Tax Returns, and
any assessments of Tax made with respect to such Tax Returns, were paid when
due. No material action, suit, proceeding, investigation, audit, claim, or
assessment is presently pending or, to the Knowledge of each of the Company,
KPMG, and the LLC proposed to be asserted or commenced with respect to any Tax
Return filed by the Company, the LLC or their subsidiaries.
13.
<PAGE> 19
(b) Any material liability for unpaid Taxes of the
Company, the LLC and their subsidiaries for periods or portions of periods
through the date of the Financial Statements is reflected on the Financial
Statements.
(c) The Company, the LLC and each of their
subsidiaries have timely withheld from their employees, customers, and other
payees, and have timely paid, all amounts required to be withheld and paid by
the Tax withholding provisions of applicable federal, state, local, and foreign
law, rule, or regulation in all material respects.
(d) Neither the Company nor the LLC nor any of their
subsidiaries will incur or accrue any material liability for Taxes after the
latest Financial Statements and through the Closing Date other than Taxes in the
ordinary course of business.
2.22 Environmental Matters. The Company, KPMG (with respect
to the Consulting Business) and each of their Subsidiaries (related to the
Consulting Business) is in compliance with all Environmental Laws, except where
the failure to be so in compliance would not, individually or in the aggregate,
have a Material Adverse Effect. None of the Company, KPMG (with respect to the
Consulting Business) or any of their respective Subsidiaries (related to the
Consulting Business) has received any written or, to the Knowledge of the
Company and KPMG, oral notice of any Material violation by the Company, KPMG
(with respect to the Consulting Business) or any of their respective
Subsidiaries of, or Material default by any of the same under, any Environmental
Law. There is no action, suit, proceeding or investigation (or, to the Knowledge
of the Company and KPMG, any claim) pending or, to the Knowledge of the Company
and KPMG (with respect to the Consulting Business), threatened against any of
the Company, KPMG or their respective Subsidiaries (related to the Consulting
Business) that alleges any violation of any Environmental Law which would
individually or in the aggregate have a Material Adverse Effect.
2.23 Exemption from Registration. Assuming the
representations and warranties of the Investor set forth in Section 3.6 are true
and correct in all material respects, the offer and sale of the Series A Shares
made pursuant to this Agreement will be exempt from the registration
requirements of the Securities Act. Assuming the representations and warranties
of the Investor set forth in Section 3.6 are true and correct in all material
respects on the date of issuance thereof, any issuance and delivery of the
Conversion Shares, to the Investor or a wholly owned Subsidiary of the Investor
(or to a transferee who has obtained such securities in compliance with federal
and state securities laws, assuming that the representations of Section 3.6 are
true and correct in all material respects with respect to such transferee) will
be exempt from the registration requirements of the Securities Act. Neither the
Company nor any Person acting on its behalf has, in connection with the offering
of the Series A Shares or the Conversion Shares, engaged in (a) any form of
general solicitation or general advertising (as those terms are used within the
meaning of Rule 502(c) under the Securities Act), (b) any action involving a
public offering within the meaning of section 4(2) of the Securities Act, (c)
any action which would require the registration of the offering and sale of the
Series A Shares (or any issuance or delivery of the Conversion Shares under the
Securities Act, except pursuant to the Investor Rights Agreement, or (d) any
action which would violate in any material respect any applicable state
securities or "blue sky" laws. The Company has not made and will not make,
directly or indirectly, any offer or sale of capital stock or other equity or
debt security if, as a result, the
14.
<PAGE> 20
offer and sale of the Series A Shares contemplated hereby would fail to be
entitled to exemption from the registration requirements of the Securities Act.
As used herein, the terms "offer" and "sale" have the respective meanings
specified in Section 2(3) of the Securities Act.
2.24 Transaction Document Representations.
(a) Schedule 2.24 contains a true and complete list of
all of the Separation Documents. The Company has heretofore delivered to the
Investor true and complete copies of each of the Separation Documents (including
all written notices of the parties pursuant thereto).
(b) None of the Company, KPMG or, to the Knowledge of
the Company and KPMG, any other party to any Transaction Document is in breach
or default in any material respect in respect of any Transaction Document. None
of the Transaction Documents contains any provision providing that any party
thereto may terminate or cancel the same by reason of the transactions
contemplated by this Agreement or any other Transaction Document, or any other
provision which would be altered or otherwise become applicable by reason of
such transactions, and no party has given notice of termination or cancellation
of any Transaction Document or that it intends to terminate or cancel any
Transaction Document.
(c) At the Closing, pursuant to the Separation
Documents, KPMG will have transferred or leased (to the extent KPMG is providing
products or services to the Company pursuant to the Outsourcing Agreement or
leasing assets pursuant to the Leased Asset Agreement) to the Company all
Properties and Subsidiaries relating primarily to the Consulting Business and
all Properties and Subsidiaries necessary to conduct the Consulting Business as
currently conducted in all material respects.
(d) Each of the Company, KPMG and, to the Knowledge of
the Company and KPMG, each other party thereto (other than the Investor) has
performed in all material respects its obligations under each of the Transaction
Documents which have been executed and delivered and to which it is a party.
2.25 Use of Proceeds. The Company shall not use more than
$630 million of the net proceeds from the sale of the Series A Shares hereunder
to repay the Intercompany Note to be issued by the Company to KPMG pursuant to
the Separation Agreement. The Company shall use all other net proceeds from the
sale of the Series A Shares hereunder for general corporate purposes, including
performing its obligations under the Alliance Documents.
2.26 Year 2000 Compliance. Each of the Company and KPMG
reasonably believe that the Company is Year 2000 Compliant. For purposes of the
foregoing, the phrase "Year 2000 Compliant" means that the Company's computer
systems and applications, including without limitation software and hardware
("Systems"), will function in all Material respects and will not produce
Materially incorrect results when providing or receiving (i) date-related data
from, into and between the Twentieth and Twenty-First Centuries or (ii)
date-related data in connection with any valid date in the Twentieth or
Twenty-First Centuries. To each of the Company's and KPMG's Knowledge, the
Company has no customers, suppliers or vendors (including KPMG and the services
which KPMG will still be providing on behalf of the
15.
<PAGE> 21
Company following the Separation) whose failure to be Year 2000 Compliant would
have a Material Adverse Effect.
2.27 No Brokers. Other than the fees and expenses of Morgan
Stanley Dean Witter as disclosed in Schedule 2.27 of the Disclosure Schedule, of
which sixty percent (60%) shall be paid by KPMG and forty percent (40%) shall be
paid by the Company, no broker, finder or investment banker has been retained or
engaged on behalf of the Company, KPMG or any of their respective Subsidiaries
or is entitled to any brokerage, finder's or other fee, compensation or
commission from any such Person in connection with the transactions contemplated
by this Agreement.
2.28 Full Disclosure. To the Knowledge of the Company and
KPMG, the Company, KPMG and their respective Subsidiaries have complied in good
faith with all requests of the Investor and its representatives for Material
documents, papers and information relating to the Company, KPMG and their
respective Subsidiaries in connection with the transactions contemplated hereby,
and have not knowingly withheld any Material document, paper or other
information requested by the Investor or any of its representatives in
connection therewith. No representation or warranty made by the Company in this
Agreement (including the Disclosure Schedule) or in any certificate delivered to
the Investor pursuant to Section 5 hereof contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material fact
required to be stated therein or necessary to make the statements contained
herein or therein, in light of the circumstances under which they were made, not
misleading; and, without limiting the foregoing representations and warranties,
it being agreed and understood among the parties that the representations and
warranties are not intended to be and do not constitute a full description of
the business and, therefore, will not contain disclosure of all the risks
associated with an investment in the Series A Shares.
16.
<PAGE> 22
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE INVESTOR
The Investor hereby represents and warrants to the Company, as
of the date of this Agreement and as of the Closing Date as follows:
3.1 Organization of the Investor. The Investor is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction and has full corporate power and authority to execute and
deliver this Agreement and each other Transaction Document to which it is a
party, to perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby.
3.2 Authorization, Validity and Enforceability. The
execution, delivery and performance by the Investor of this Agreement and each
other Transaction Document to which it is a party and the consummation of the
transactions contemplated hereby and thereby by the Investor have been duly and
validly authorized by all necessary corporate action on the part of the Investor
and no other corporate proceeding on the part of the Investor is necessary to
authorize the execution, delivery and performance of this Agreement or any other
Transaction Document to which the Investor is a party or the consummation of any
of the transactions contemplated hereby or thereby. This Agreement has been duly
executed and delivered by the Investor and (assuming the due authorization,
execution and delivery by KPMG and the Company) constitutes the legal, valid and
binding obligation of the Investor, and each other Transaction Document to which
the Investor is a party will, upon due execution and delivery thereof (assuming
the due authorization, execution and delivery thereof by the other parties
thereto), constitute the legal, valid and binding obligation of the Investor, in
each case enforceable against the Investor in accordance with its terms, except
to the extent such enforceability may be limited by the effect of any applicable
bankruptcy, reorganization, insolvency, moratorium or similar laws affecting
creditors' rights generally and general principles of equity or public policy
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
3.3 No Conflicts. Assuming all Consents described in clauses
(a) through (c) of Section 3.4 are obtained, made or given (as the case may be),
the execution and delivery by the Investor of this Agreement and each other
Transaction Document to which it is a party do not, and the performance by the
Investor of its obligations hereunder and thereunder and the consummation of the
transactions contemplated hereby and thereby will not, conflict with, result in
any breach or violation of, constitute a default under (or an event which with
the giving of notice or the lapse of time or both would constitute a default
under), (a) the certificate of incorporation, by-laws or other charter or
organizational documents of the Investor, (b) any Contract to which the Investor
is a party or by or to which it or its assets or Properties may be bound or
subject, or (c) any applicable order, writ, judgment, injunction, award, decree,
Permit, law, statute, ordinance, rule or regulation, other than any conflict,
breach, violation or default which in the case of clauses (b) and (c) only,
would not, individually or in the aggregate together with all such other
conflicts, breaches, violations or defaults, have a material adverse effect on
the ability of the Investor to execute and deliver this Agreement or any other
Transaction
17.
<PAGE> 23
Document to which it is a party, perform its obligations hereunder and
thereunder, or consummate the transactions contemplated hereby or thereby.
3.4 Consents and Approvals. Except (a) as required under the
HSR Act, (b) as set forth in Schedule 3.4 hereto, and (c) where the failure to
obtain, make or give such Consent would not, individually or in the aggregate,
have a material adverse effect on, or a material adverse change in, the ability
of the Investor to execute and deliver this Agreement or any other Transaction
Document to which it is a party, perform its obligations hereunder and
thereunder, or consummate the transactions contemplated hereby or thereby, no
Consent of any Governmental Entity or other Person is necessary to be obtained,
made or given by the Investor in connection with the execution and delivery by
the Investor of this Agreement or any other Transaction Document to which it is
a party, the performance by the Investor of its obligations hereunder and
thereunder, and the consummation of the transactions contemplated hereby and
thereby.
3.5 Legal Proceedings. There is no action, suit, claim,
proceeding or investigation pending or, to the Knowledge of the Investor,
threatened against the Investor or any of its Subsidiaries by or before any
court, other Governmental Entity or arbitrator which, if adversely determined,
individually or in the aggregate, would have a material adverse effect on the
ability of the Investor to execute and deliver this Agreement or any other
Transaction Document to which it is a party, perform its obligations hereunder
or thereunder, or consummate the transactions contemplated hereby or thereby.
There is no outstanding order, writ, judgment, injunction, award or decree of
any court, other Governmental Entity or arbitrator against the Investor which,
individually or in the aggregate, is reasonably likely to have a material
adverse effect on the ability of the Investor to execute and deliver this
Agreement or any other Transaction Document to which it is a party, perform its
obligations hereunder or thereunder, or consummate the transactions contemplated
hereby or thereby.
3.6 Investment Intent. The Investor understands that the
Series A Shares and the Conversion Shares (collectively, the "Transaction
Securities") have not been registered under the Securities Act or the securities
laws of any state, and may only be sold or disposed of by the Investor (i)
pursuant to an effective registration statement under the Securities Act or an
applicable exemption from registration thereunder and (ii) in compliance with
any applicable state securities laws. The Transaction Securities will be
acquired by the Investor (or its wholly owned Subsidiary designee) pursuant to
this Agreement for its own account without a view to a distribution or resale
thereof, it being understood that the Investor or such designee shall have the
right to sell or otherwise dispose of any of the Transaction Securities pursuant
to an effective registration statement or an exemption therefrom under the
Securities Act and in compliance with any applicable state securities laws. The
Investor is an "accredited investor" as that term is defined in Rule 501 of
Regulation D under the Securities Act, and either alone or with its advisors has
such knowledge, skill and experience in business, financial and investment
matters that it is capable of evaluating the merits and risks of an investment
in the Transaction Securities as provided in this Agreement.
3.7 Financing. The Investor has available sufficient funds
to pay the Purchase Price in cash at the Closing.
18.
<PAGE> 24
3.8 No Brokers. No broker, finder or investment banker has
been retained or engaged on behalf of the Investor or is entitled to any
brokerage, finder's or other fee, compensation or commission from the Investor
in connection with the transactions contemplated by this Agreement.
ARTICLE IV
COVENANTS
4.1 Conduct of Business.
(a) From the date hereof to and including the Closing
Date, KPMG will cause the Company and each of its Subsidiaries related to the
Consulting Business to, and the Company will, and will cause each of its
Subsidiaries to, (i) conduct their operations in the ordinary course of business
substantially consistent with past practice (except as contemplated hereby and
as contemplated by any of the Transaction Documents), (ii) use all reasonable
efforts to preserve intact the Consulting Business, goodwill and Permits, to
keep available the services of the management and to maintain existing
relationships with customers, agents, distributors, suppliers and others having
business dealings with the Consulting Business, and (iii) maintain the books,
records and accounts in the ordinary manner substantially consistent with prior
practice, except in the case of clauses (ii) and (iii) where the failure to do
so would not, individually or in the aggregate, have a Material Adverse Effect.
(b) Except as expressly contemplated in this Agreement
or the other Transaction Documents, from the date hereof to and including the
Closing Date, KPMG will not permit the Company or any of its other Material
Subsidiaries related to the Consulting Business to, and the Company will not and
will not permit any of its Material Subsidiaries to, directly or indirectly (i)
amend or modify its certificate or articles of incorporation, by-laws or other
charter or organizational documents, (ii) authorize for issuance, issue, sell,
deliver or agree or commit to issue, sell or deliver (whether through the
issuance or granting of options, warrants, call, commitments, subscriptions,
rights to purchase or otherwise) any stock of any class or series or any other
equity interest, or any bonds, debentures, notes, surplus notes, debt
instruments, evidences of indebtedness for borrowed money or other securities of
any kind, including, without limitation, any stock options or stock appreciation
rights, other than as contemplated in the last sentence of Section 2.5(a), (iii)
split, combine or reclassify any shares of its capital stock (except for
dividends by direct or indirect wholly owned Subsidiaries of the Company or
KPMG), or declare, pay or set aside any sum for any dividend or other
distribution (whether in cash, stock or Property, any combination thereof or
otherwise) in respect of its capital stock, or redeem, purchase or otherwise
acquire (or agree to redeem, purchase or otherwise acquire) any Common Stock,
Preferred Stock or any of its other securities or any securities of its
Subsidiaries, (iv) adopt a plan of complete or partial liquidation, dissolution,
rehabilitation, merger, consolidation, restructuring, recapitalization,
redomestication or other reorganization, (v) make any Material change in any
financial reporting, Tax, accounting, actuarial or reserving methods or
practices (unless required to do so in accordance with GAAP or applicable Tax
laws, in which event the Company shall notify the Investor in reasonable detail
as to such required change), (vi) other
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than in the ordinary course of business substantially consistent with past
practice (including acquisitions of investment assets which qualify as such) or
in connection with the acquisition of the consulting practices from KPMG Firms,
purchase or sell securities or other investments, or invest or reinvest income
and proceeds in respect thereof, other than pursuant to the Separation or the
Alliance Documents or in accordance with applicable law, (vii) adopt any new
severance or other Plan which is Material, (viii) amend, modify, or terminate
(other than by expiration in accordance with the terms thereof) any Contracts in
a manner which would, individually or in the aggregate, have a Material Adverse
Effect, (ix) amend or modify any Transaction Document or the terms or conditions
of the Separation, except any such amendment or modification which (I) is
required to reflect changes in the ordinary course of business of the Consulting
Business which would not have a Material Adverse Effect thereon or (II) will not
(A) Materially increase the cost of the Separation to the Company, and its
Subsidiaries or (B) have a Material Adverse Effect or a material adverse effect
on the ability of the Investor to execute and deliver this Agreement or any
other Transaction Document to which it is a party, perform its obligations
hereunder or thereunder, or consummate the transactions contemplated hereby or
thereby, (x) amend or modify the contribution formula of any Benefit Plan that
would Materially increase the cost of such Benefit Plan or (xi) without the
prior written consent of the Investor, take any of the other actions described
in Section 2.11 (excluding, for purposes of this clause (xi), those described in
clauses (v), (viii), (ix), (xi) and (xiii) of Section 2.11(b)) or take any
action, or willfully omit to do any act, that would result in any of the
representations and warranties set forth in Article II of this Agreement not
being true in all material respects (or, in the case of any such representations
or warranties which are qualified as to materiality, true in all respects) or
take any action, or omit to do any act, that KPMG or the Company then Knows
would result in any of the conditions set forth in Articles V and VI not being
satisfied by such action.
(c) Except as expressly contemplated in this Agreement
or the other Transaction Documents, from the date hereof to and including the
Closing Date, the Investor will not take any action, or willfully omit to do any
act, that would result in any of the representations and warranties set forth in
Article III of this Agreement not being true in all material respects (or, in
the case of any such representations or warranties which are qualified as to
materiality, true in all respects) or take any action, or omit to do any act,
that the Investor then Knows would result in any of the conditions set forth in
Articles V and VI not being satisfied by such action.
4.2 Access to Information; Consultation; Confidentiality.
(a) From the date hereof until the Closing, the
Company will, and will cause each of its Subsidiaries to, and KPMG will cause
the Company and each of KPMG's Subsidiaries related to the Consulting Business
to, subject to any applicable confidentiality restrictions of third parties
(which each of the Company and KPMG will use reasonable efforts to remove; it
being understood that in no event shall such reasonable efforts include the
payment of any fee borne by KPMG or the Company or the surrender of any material
right under any agreement) (i) allow the Investor and its officers, employees,
counsel, accountants, consultants and other authorized representatives
("Representatives") to have reasonable access during normal business hours to
the books, records, Contracts, facilities, management and personnel of the
Company, KPMG and each of their respective Subsidiaries involved in the
Consulting Business, (ii) furnish as promptly as practicable to the Investor and
its Representatives all information and documents concerning the Company, KPMG
and their respective Subsidiaries
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involved in the Consulting Business that are in the possession of the Company,
as the Investor or its Representatives may reasonably request, and (iii) cause
the respective officers, employees and Representatives of the Company, KPMG and
their respective Subsidiaries to reasonably cooperate in good faith with the
Investor and its Representatives in connection with all such access. In
addition, from the date hereof until the Closing the Company will and will cause
each of its Subsidiaries to, and KPMG will cause the Company and each of KPMG's
Subsidiaries related to the Consulting Business to, use reasonable efforts to
consult with the Investor a reasonable period of time prior to entering into any
Material transaction or arrangement or taking any Material action, in a manner
which will allow the Investor a reasonable opportunity to evaluate and present
its views to the Company regarding such Material transaction, arrangement or
action, it being understood and agreed that the foregoing shall not limit the
Company's discretion with respect to any such matter.
(b) All information and documents provided under this
Section shall be kept confidential by the Investor and its Representatives,
unless any such information or documents (i) is or becomes generally available
to the public (other than as a result of a disclosure by the Investor or any of
its Representatives), (ii) was already known by or available on a
non-confidential basis to the Investor or its Representatives prior to being
furnished by or on behalf of the Company, KPMG and their respective Subsidiaries
hereunder, or (iii) is or becomes available to the Investor or its
Representatives from a third party not bound by, directly or indirectly, any
legal obligation to the Company, KPMG and their respective Subsidiaries to keep
such information confidential. In the event of the termination of this Agreement
in accordance with the terms hereof, the Investor will, upon the request of the
Company, promptly deliver to the Company all written or electronic information
and documents provided above under this Section, and any copies thereof, in the
possession of the Investor or any of its personnel, and destroy any documents,
files or analyses derived from any such confidential information or documents.
(c) Notwithstanding the foregoing, no investigation or
review by the Investor or any of its Representatives shall affect or be deemed
to modify any of the representations, warranties, covenants or agreements of the
Company under this Agreement or otherwise; it being understood that,
notwithstanding any right of the Investor fully to investigate the affairs of
the Company, KPMG and their respective Subsidiaries, and notwithstanding any
knowledge of facts determined or determinable by the Investor pursuant to any
such investigation or right of investigation, the Investor has the right to rely
fully upon the representations, warranties, covenants and agreements of the
Company contained in this Agreement.
4.3 Cooperation and Reasonable Efforts. Subject to the terms
and conditions hereof, (a) each of the parties hereto shall reasonably cooperate
with the other, and the Company will cause each of its Subsidiaries to
reasonably cooperate with the Investor, in connection with consummating the
transactions contemplated by this Agreement and the other Transaction Documents,
and (b) each of the parties hereto agrees to, and the Company will cause each of
its Subsidiaries to, use all reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement or any other Transaction Document.
For purposes of this Section 4.3, the covenant of the parties to use their
"reasonable
21.
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efforts" shall not require any party to (i) incur any unreasonable expenses,
(ii) agree to materially limit or adversely affect in any material respect the
conduct of its business or (iii) divest itself of any material assets or
Properties, in each case except as otherwise contemplated hereunder.
4.4 Consents and Approvals. As soon as practicable after the
execution of this Agreement, subject to the last sentence of Section 4.3, each
of the parties hereto shall, and the Company shall cause each of its
Subsidiaries to, use all reasonable efforts to obtain any necessary Consents of,
and make any filing with or give any notice to, any Governmental Entities and
other Persons (including, without limitation, (i) pursuant to the HSR Act) as
are required to be obtained, made or given by such party to consummate the
transactions contemplated by this Agreement and the other Transaction Documents.
The parties hereto shall cooperate with one another in exchanging such
information and reasonable assistance as may be required by any such
Governmental Entity or as any other party may reasonably request in connection
with the foregoing.
4.5 Notification of Certain Matters. Promptly after becoming
aware thereof, each of the parties hereto shall give notice to the other of (a)
the occurrence or nonoccurrence of any event, the occurrence or nonoccurrence of
which would cause, or is reasonably likely to cause any representation or
warranty of the Company or the Investor, respectively, contained in this
Agreement to be untrue or inaccurate in any material respect (or, in the case of
any representation or warranty which is qualified as to Materiality, untrue or
inaccurate in any respect) at or prior to the Closing and (b) any material
failure of the Company or the Investor, respectively, to comply with or satisfy
any covenant or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 4.5
shall not cure such failure or limit or otherwise affect the remedies available
hereunder to the parties receiving such notice. Without limiting the generality
of the foregoing, from the date hereof through the Closing Date, each of the
parties hereto shall promptly notify the other of any action, suit, claim,
litigation, proceeding or investigation of the type required to be described in
Articles II or III that, to its Knowledge, is commenced or threatened, and of
any material request for additional information or documentary materials by any
Governmental Entity in connection with the transactions contemplated hereby or
by the Transaction Documents. The Company shall, as promptly as practicable,
furnish to the Investor any and all further material filings and submissions
made in connection with the Separation Documents, the Alliance Documents and any
and all material written notices pursuant to the Transaction Documents.
4.6 Public Announcements. Each party hereto shall notify the
other prior to issuing any press release or making any public statement
pertaining to this Agreement or the transactions contemplated hereby, and shall
not issue any such press release or make any such public statement without
obtaining the reasonable approval of the other parties prior thereto, except
that each party will in any event have the right to issue any such release or
statement upon advice of its counsel that such issuance is required in order to
comply with any applicable law or any listing agreement with, or rules of, a
national securities exchange to which such party is a party or subject.
4.7 No Solicitation. Until the earlier of the consummation
of the transactions contemplated hereby or the termination of this Agreement in
accordance with the terms hereof,
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KPMG, the Company, and each of their respective Subsidiaries and their
respective officers, employees, Representatives and agents shall immediately
cease any existing discussions, communications or negotiations, if any, with any
Persons ("Prior Bidders") other than the Investor and its Representatives,
conducted heretofore with respect to any direct or indirect acquisition or
offering of all or any Material portion of the assets or Properties of, or any
capital stock (including, without limitation, Common Stock or Preferred Stock)
or other equity interest in, the Company, KPMG (relating to the Consulting
Business) or any of their respective Subsidiaries or the Consulting Business,
other than as contemplated in the last sentence of Section 2.5(a), or any
business combination with the Company, KPMG (relating to the Consulting
Business) or any of their respective Subsidiaries or the Consulting Business
(whether by merger, consolidation, or otherwise) or any other transaction
inconsistent with the consummation of, or similar in whole or in part to, the
transactions contemplated herein (any of the foregoing, an "Alternative
Transaction"), and will not, directly or indirectly, solicit, encourage,
participate in or initiate discussions or negotiations with, or provide any
information or documents to, or otherwise cooperate in any way with, any Person
(other than the Investor and its Representatives) concerning any Alternative
Transaction. KPMG and the Company shall notify the Investor orally and in
writing if any bona fide proposal relating to an Alternative Transaction (an
"Alternative Transaction Proposal") is received by KPMG, the Company, any of
their respective Subsidiaries or (to the Knowledge of the Company and KPMG)
their Affiliates or Representatives, or if any inquiry is received by, any
information is requested from, or any discussions or negotiations are sought to
be initiated or continued with, any of the foregoing Persons in connection with
an Alternative Transaction or Alternative Transaction Proposal, promptly after
receipt of such Alternative Transaction Proposal, inquiry, request or other
communication. Such written notification shall include the identity of the
Person making such Alternative Transaction Proposal, inquiry, request or other
communication and such other information with respect thereto as is reasonably
necessary to apprise the Investor of the precise nature of such inquiry, request
or other communication, or the material terms of such Alternative Transaction
Proposal, and all other material information relating thereto. The Company shall
use all reasonable efforts to cause any confidential or proprietary materials
relating to the Company, KPMG and their respective Subsidiaries previously
furnished to Prior Bidders or other Persons in connection with an Alternative
Transaction to be promptly returned to the Company.
4.8 Interim Financial Statements and Investment Reports.
(a) From the date hereof until the Closing Date, as
soon as practicable (and in any event within five (5) Business Days) after they
become available, the Company shall deliver to the Investor true and complete
copies of (i) the consolidated balance sheet of the Consulting Business as at
the end of each fiscal quarterly or annual period ending after September 30,
1999, and the related consolidated statements of income, retained earnings and
cash flows of the Consulting Business for such interim fiscal year-to-date or
annual period, and (ii) to the extent prepared, all monthly financial statements
of the Company and/or any of its Subsidiaries (collectively, the "Interim
Financial Statements"). In addition, during such period, if and when available,
the Company shall deliver to the Investor true and complete copies of any
budgets, business plans and financial projections, or modifications thereof,
relating to the Consulting Business prepared for or furnished to the Board of
Directors of KPMG.
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(b) The Interim Financial Statements will each be
prepared in accordance with GAAP consistently applied throughout the periods
involved (and on a basis consistent with the Financial Statements) and will be
derived from the books and records of the Company, KPMG and their respective
Subsidiaries, and will present fairly in all material respects the consolidated
financial position of the Consulting Business as at the respective dates thereof
and the results of operations of the Consulting Business for the respective
periods then ended, except that quarterly and monthly Interim Financial
Statements will not be required to contain full footnote disclosures in
accordance with GAAP and may be subject to normal year-end audit adjustments.
4.9 Securities Legends.
(a) Each certificate evidencing ownership of shares of
Series A Shares shall be stamped or otherwise have endorsed or imprinted thereon
a legend in substantially the following form, so long as applicable:
"THE SHARES REPRESENTED BY THIS CERTIFICATE AND ANY SHARES OF
COMMON STOCK OF THE CORPORATION ISSUABLE UPON CONVERSION
HEREOF MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN ACCORDANCE
WITH THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
THE CORPORATION. THE SHARES REPRESENTED BY THIS CERTIFICATE
AND ANY SHARES OF COMMON STOCK OF THE CORPORATION ISSUABLE
UPON CONVERSION HEREOF MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR AN APPLICABLE EXEMPTION
FROM REGISTRATION THEREUNDER AND IN COMPLIANCE WITH APPLICABLE
STATE SECURITIES LAWS. THE SALE OR TRANSFER OF THE SHARES
REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION HEREOF IS FURTHER SUBJECT TO
RESTRICTIONS CONTAINED IN AN INVESTOR RIGHTS AGREEMENT BY AND
AMONG CISCO SYSTEMS, INC., KPMG LLP AND THE COMPANY, A COPY OF
WHICH AGREEMENT IS ON FILE AT THE OFFICES OF THE COMPANY."
(b) Each certificate evidencing ownership of
Conversion Shares shall be stamped or otherwise have endorsed or imprinted
thereon a legend in substantially the following form, so long as applicable:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR AN APPLICABLE EXEMPTION FROM REGISTRATION
THEREUNDER AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES
LAWS. THE SALE OR TRANSFER OF THE SHARES REPRESENTED BY THIS
CERTIFICATE IS FURTHER
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SUBJECT TO RESTRICTIONS CONTAINED IN AN INVESTOR RIGHTS
AGREEMENT BY AND AMONG CISCO SYSTEMS, INC., KPMG LLP AND THE
COMPANY, A COPY OF WHICH AGREEMENT IS ON FILE AT THE OFFICES
OF THE COMPANY."
(c) Notwithstanding the foregoing, upon receipt by the
Company of evidence and documents reasonably satisfactory to it of the
termination of the requirement that all or any part of any of the foregoing
legends be placed upon a certificate and upon the written request of the holders
of the securities represented thereby, the Company shall issue certificates for
such securities that do not bear such legend.
4.10 Exclusive Relationship.
(a) During the five (5) years following the Closing,
unless the Alliance Agreement shall have been terminated by the Company (and no
other party) in accordance with its terms, neither KPMG nor the Company will,
directly or indirectly, enter into any agreement, understanding or arrangement
with any of the following companies, including any of their respective
controlled affiliates, subsidiaries, successors or assigns (the "Specified
Companies"), providing for any merger, consolidation or other business
combination involving the Company or sale of all or any Material portion of the
assets of the Company (each, a "Restricted Transaction") to any of the same: (i)
Lucent Technologies Inc., (ii) Nortel Networks Corporation, (iii) Alcatel S.A.
and (iv) a company to be identified by the Investor at or prior to the Closing;
provided, however that the parties hereto agree that during each twelve (12)
month period following the Closing Date (each, an "Election Period"), the
Investor may submit (a "Submission"), on one (1) occasion during each such
Election Period, to both KPMG and the Company a revised list of Specified
Companies (each such revision, a "Specified Company List") set forth in this
Section 4.10, with the understanding that such revised list of Specified
Companies shall (A) on the date thereof, replace the companies listed in clauses
(i), (ii), (iii) and (iv) of this Section 4.10 to the extent that the revised
list of companies is different from the list of companies identified pursuant to
such clauses, (B) include, as contemplated herein, any of their respective
controlled affiliates, subsidiaries, successors or assigns, and (C) not, as
initially set forth in this Section 4.10, exceed four companies (not including,
for the purposes of this paragraph (C), any of their respective controlled
affiliates, subsidiaries, successors or assigns). If the Company determines, in
the reasonable good faith judgment of its Board of Directors, that a Specified
Company, appointed by the Investor to a Specified Company List or pursuant to
clause (iv) above, is a company with which the Company is unable to engage in or
consummate any Restricted Transaction because of the auditor independence rules
promulgated by regulatory bodies (the "Auditor Independence Rules"), including
the U.S. Securities and Exchange Commission, the American Institute of Certified
Public Accountants, the Independence Standards Board, and the state boards of
accountancy (each, a "Preempted Specified Company"), then the Company shall (i)
not be required, during that Election Period, to designate such Preempted
Specified Company or Companies as a Specified Company on the Specified Company
List and (ii) reduce the number of companies that are allowed to be set forth on
the current and any subsequent Specified Company List by the number of such
Preempted Specified Companies. The Investor agrees that any company selected
pursuant to clause (iv) above or any company set forth on a Specified Company
List pursuant to this Section 4.10(a) or 4.10(d) shall be a company that is a
direct competitor of the Investor and that is of comparable significance to
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the companies named in clauses (i), (ii), and (iii) above and shall only be
included after consultation with the Company and KPMG.
(b) In the event that any such Preempted Specified
Company is no longer unable to engage in or consummate any Restricted
Transaction with the Company, each of KPMG and the Company shall immediately (i)
provide notice of such change in status regarding any such Preempted Specified
Company to the Investor, (ii) increase the number of companies which are allowed
to be set forth on the current and any subsequent Specified Company List by one,
and (iii) include the Preempted Specified Company as a Specified Company on the
Specified Company List (with the understanding that such a change does not in
any way affect, or take away, the Investor's right to a Submission during any
Election Period as provided in Section 4.10 (a)). It is further understood and
agreed to by the parties hereto that, if the Investor makes a Submission to the
Company, during any Election Period, which adjusts the Specified Companies List
by replacing a Preempted Specified Company with a new Specified Company, then
the Company shall immediately (i) increase the number of companies which are
allowed to be set forth on the current and any subsequent Specified Company List
by one and (ii) include the new Specified Company on the Specified Company List.
(c) Notwithstanding anything in this Agreement or in
any Transaction Document to the contrary, if at any time prior to the fifth
anniversary of the Closing but after the expiration of the Restricted Period:
(i) the Investor directly or indirectly sells,
transfers, assigns, pledges or otherwise disposes of Series A Shares (or the
shares of Common Stock into which such Series A Shares are convertible) in an
amount greater than seventy-five percent (75%) of the Series A Shares (and
shares of Common Stock into which such Series A Shares are convertible) held by
the Investor as of the Closing; and
(ii) the gross revenue of the Company actually
derived from the Alliance is less than Forty Million Dollars ($40,000,000) per
quarter for each of two consecutive quarters;
then the provisions of this Section 4.10, Section 2.5 of the Investor Rights
Agreement, and Section 3 of the Alliance Agreement shall, upon the occurrence of
the events set forth in clauses (i) and (ii), automatically terminate and shall
no longer be applicable to KPMG, the Company, or Cisco.
(d) Notwithstanding anything to the contrary contained
herein, at least thirty (30) days prior to the filing by the Company of a
registration statement with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, regarding an initial public offering of the
common stock of the Company, the Company shall provide notice (the "IPO Notice")
to the Investor of such proposed filing. The date of such notice is referred to
herein as the IPO Notice Date. Within twenty (20) days following the IPO Notice
Date, the Investor shall deliver to the Company a final list of a total of up to
four (4) Specified Companies, none of which may be a company with which the
Company is then unable to engage in or consummate any Restricted Transaction
because of the Auditor Independence Rules. Upon the submission of this final
list of Specified Companies, the Investor shall not have any right to revise or
amend such list until the termination of this Section 4.10; provided, however,
that if the Company files
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such registration statement and then withdraws such filing from the Securities
and Exchange Commission, the provisions of Section 4.10(a) shall control and the
Investor may submit a Submission during an Election Period until the Company
elects to deliver another IPO Notice to the Investor.
(e) Notwithstanding anything herein to the contrary,
each of KPMG and the Company shall be permitted to perform its obligations
pursuant to any agreement, understanding or arrangement with any Specified
Company not specified herein or pursuant to Section 4.10(a)(iv) that was entered
into by KPMG or the Company prior to the date such company became a Specified
Company.
4.11 Additional Capital. Prior to a Qualified IPO,
KPMG shall lend up to $100 million to the Company, at an interest rate per annum
equal to 1% below the prime rate as announced by the Chase Manhattan Bank N.A.,
and upon other terms and conditions reasonably acceptable to the Investor, to
the extent necessary to enable the Company to meet its contractual commitments
to the Investor under the Alliance Agreement.
4.12 Fees of Counsel. At or prior to the Closing, KPMG
shall pay the reasonable fees and expenses of Brobeck, Phleger & Harrison LLP,
special counsel to the Investor, of up to $342,000 incurred in connections with
the transactions contemplated by the Transaction Documents, provided however,
that KPMG shall not be obligated to pay any fees under this Section 4.12 in the
event that this Agreement is terminated prior to Closing.
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ARTICLE V
CONDITIONS TO THE OBLIGATION
OF THE INVESTOR TO CLOSE
The obligation of the Investor to purchase the Series A Shares
at the Closing shall be subject to the satisfaction of the following conditions
at or prior to the Closing:
5.1 Representations Warranties and Covenants. The
representations and warranties of the Company and KPMG contained in this
Agreement which are qualified as to materiality or Material Adverse Effect shall
be true and correct in all respects, and those not so qualified shall be true
and correct in all material respects, as of the date of this Agreement and as of
the Closing Date with the same force and effect as though made on and as of the
Closing Date, except that any such representations and warranties which are made
as of and relate solely to a specified earlier date (other than the date hereof)
shall be so true and correct as of such earlier date. Each of the Company and
KPMG shall have performed and complied in all material respects with all
covenants, conditions and agreements required to be performed or complied with
by the Company hereunder on or prior to the Closing Date.
5.2 Consents. All Consents required in connection with the
purchase and sale of the Series A Shares and the consummation of the Closing
(other than non-Material Consents from third parties) shall have been duly
obtained, made or given and shall be in full force and effect, without the
imposition upon the Investor, the Company, KPMG or any of their respective
Subsidiaries or the Consulting Business of any Material condition, restriction
or required undertaking.
5.3 No Injunction or Illegality. No injunction, order, decree
or judgment shall have been issued by any court or other Governmental Entity of
competent jurisdiction and be in effect, and no statute, rule or regulation
shall have been enacted or promulgated by any Governmental Entity and be in
effect, which in each case restrains or prohibits the consummation of the
purchase and sale of the Series A Shares or the issuance of any Conversion
Shares.
5.4 HSR Act. The required waiting period applicable to the
purchase and sale of the Series A Shares under the HSR Act shall have expired or
been earlier terminated.
5.5 Opinions of Counsel to the Company. The Investor shall
have received, in form and substance reasonably acceptable to the Investor, the
opinion of Sidley & Austin, special counsel to KPMG and the Company and the
opinion of Claudia Taft, the General Counsel of KPMG.
5.6 Certificates. Each of KPMG, the Company and their
respective Subsidiaries shall have delivered to the Investor (a) copies of the
resolutions adopted by its Board of Directors and partners or securityholders
(as the case may be), certified as of the Closing Date by the corporate
secretary or assistant secretary of the Company, authorizing and approving this
Agreement and the Transaction Documents and the transactions contemplated hereby
and thereby (including, without limitation, the issuance and sale of the Series
A Shares),
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and (b) a certificate dated the Closing Date, signed by an executive
officer of the Company, certifying as to the fulfillment of the conditions set
forth in Sections 5.1, 5.12 and 5.14. In addition, the Company shall have
furnished the Investor with such other certificates and closing documents as the
Investor may reasonably request and which are customary for transactions of the
type contemplated hereby.
5.7 Certificate of Designation. The Certificate of Designation
shall have been filed by the Secretary of the State of the State of Delaware,
and shall have become effective.
5.8 Election of Directors. The two (2) persons designated by
the Investor shall have been duly elected or appointed as members of the Board
of Directors of the Company, and at least one such person as selected by the
Investor shall have been duly appointed as a member of each committee of such
Board, in each case effective at or prior to the Closing.
5.9 Alliance Agreements. The Alliance Documents shall be in
full force and effect in accordance with their terms. Each party to the Alliance
Documents other than the Investor shall have performed and complied in all
material respects with all covenants and agreements required to be performed or
complied with by such party thereunder, and no such party shall be in material
default thereunder. In addition, the representations and warranties of KPMG
contained in the Alliance Documents shall be true and correct in all material
respects as of the Closing Date with the same force and effect as though made on
and as of the Closing Date.
5.10 The Investor Rights Agreement. The Company and KPMG shall
have duly executed and delivered an Investor Rights Agreement, substantially in
the form attached hereto as Exhibit B (the "Investor Rights Agreement").
5.11 Reservation of Common Stock. The Company shall at the
time of the Closing have reserved enough shares of Common Stock to effect the
issuance of all Conversion Shares.
5.12 Separation. As of the Closing, the Separation shall have
been consummated substantially in accordance with the terms of the Separation
Documents and all applicable laws and regulatory requirements and each of the
Separation Documents shall be in full force and effect in accordance with their
terms (it being understood that the Member Agreements for purposes of this
condition shall be considered generally together as a whole and not
individually). Each party to the Separation Agreement shall have performed and
complied in all material respects with all covenants and agreements required to
be performed or complied with by each party thereunder, and no such party shall
be in material default thereunder.
5.13 Transfer Taxes. The Company shall have caused all
appropriate stock transfer Tax stamps to be affixed to the certificate or
certificates representing the Series A Shares so sold and delivered, if any.
5.14 No Material Adverse Effect. There shall not have occurred
any Material Adverse Effect since the date hereof.
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5.15 Accounting. The Investor shall be reasonably satisfied
that the Securities and Exchange Commission will permit the Investor to account
for its investment in the Company under the "cost-accounting" method under GAAP.
30.
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ARTICLE VI
CONDITIONS TO THE OBLIGATION
OF THE COMPANY AND KPMG TO CLOSE
The obligation of the Company to issue and sell (and of KPMG
to cause the Company to issue and sell) the Series A Shares at the Closing shall
be subject to the satisfaction of the following conditions at or prior to the
Closing:
6.1 Representations, Warranties and Covenants. The
representations and warranties of the Investor contained in this Agreement which
are qualified as to materiality or Material Adverse Effect shall be true and
correct in all respects, and those not so qualified shall be true and correct in
all material respects, as of the date of this Agreement and as of the Closing
Date with the same force and effect as though made on and as of the Closing
Date, except that any such representations and warranties which are made as of
and relate solely to a specified earlier date (other than the date hereof) shall
be so true and correct as of such earlier date. The Investor shall have
performed and complied in all material respects with all covenants and
agreements required to be performed or complied with by the Investor hereunder
on or prior to the Closing Date.
6.2 Consents. All Consents required in connection with the
purchase and sale of the Series A Shares and the consummation of the Closing
(other than non-Material Consents from third parties) shall have been duly
obtained, made or given and shall be in full force and effect, without the
imposition upon the Company, KPMG or any of their respective Subsidiaries of any
Material condition, restriction or required undertaking.
6.3 No Injunction or Illegality. No injunction, order, decree
or judgment shall have been issued by any court or other Governmental Entity of
competent jurisdiction and be in effect, and no statute, rule or regulation
shall have been enacted or promulgated by any Governmental Entity and be in
effect, which in each case restrains or prohibits the consummation of the
purchase and sale of the Series A Shares.
6.4 HSR Act. The required waiting period applicable to the
purchase and sale of the Securities under the HSR Act shall have expired or been
earlier terminated.
6.5 Certificates. The Investor shall have delivered to KPMG
and the Company (a) a copy of the resolutions adopted by its Board of Directors
or Committee thereof, certified as of the Closing Date by the corporate
secretary or assistant secretary of the Investor, authorizing and approving this
Agreement and the other Transaction Documents to which it is a party and the
transactions contemplated hereby and thereby (including, without limitation, the
purchase of the Series A Shares), and (b) a certificate dated the Closing Date,
signed by an executive officer thereof, certifying as to the fulfillment of the
conditions set forth in Section 6.1.
6.6 Certificate of Designation. The Certificate of Designation
shall have been filed with the Secretary of State of the State of Delaware and
shall have become effective.
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6.7 Alliance Agreements. The Alliance Documents shall be in
full force and effect in accordance with their terms. The Investor shall have
performed and complied in all material respects with all covenants and
agreements required to be performed or complied with by the Investor under the
Alliance Documents, and shall not be in material default thereunder. In
addition, the representations and warranties of the Investor contained in the
Alliance Documents shall be true and correct in all material respects as of the
Closing Date with the same force and effect as though made on and as of the
Closing Date.
6.8 Opinion of Counsel to the Investor. KPMG and the Company
shall have received, in form and substance reasonably acceptable to KPMG and the
Company, the opinion of Brobeck, Phleger & Harrison LLP, special counsel to the
Investor.
6.9 Separation. As of the Closing, the Separation shall have
been consummated.
6.10 Accounting. KPMG and the Company shall be reasonably
satisfied that the Securities and Exchange Commission will permit the Investor
to account for its investment in the Company under the "cost-accounting" method
under GAAP.
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ARTICLE VII
SURVIVAL; INDEMNIFICATION
7.1 Survival. The representations and warranties of the
parties contained in this Agreement, or in any Schedule hereto or any,
certificate delivered pursuant to Section 5.6 or Section 6.5 hereof, shall
survive until the earlier of (i) March 31, 2001 or (ii) December 31, 2000 if,
and only if, the Company has consummated a Qualified IPO by that date; provided,
however, that (a) the representations and warranties set forth in Sections 2.18
(Employee Benefit Plans) and 2.23 (Exemption from Registration) shall expire
upon expiration of all applicable statute of limitations periods, (b) the
representations and warranties set forth in Section 2.21 (Tax Matters) with
respect to a Tax shall survive the Closing and shall terminate and expire upon
the lapse of the statute of limitations for the assessment of such Tax, except
that the representations and warranties with respect to any Tax that is resolved
pursuant to a refund, setoff, or mitigation proceeding shall survive the Closing
and terminate sixty (60) days after the final administrative or judicial
determination thereof, (c) the representations and warranties set forth in
Sections 2.2 (Authorization, Validity and Enforceability) and 2.3 (No
Conflicts), insofar as they relate to the Alliance Documents and/or the Investor
Rights Agreement, shall survive for the period in which the Alliance Documents
or the Investor Rights Agreement are in effect, and (d) the representations and
warranties set forth in Sections 2.5 (Capitalization), 2.6 (Title to
Securities), 2.7 (Subsidiaries) (excluding paragraph (b) thereof), and 2.24(b)
(Transaction Document Representations) shall survive forever. The covenants and
agreements of the parties contained in this Agreement that by their terms are
required to be performed by any party hereto "on or prior to the Closing Date"
shall remain in full force and effect until the first anniversary of the Closing
Date, and all other covenants and agreements hereunder shall remain in full
force and effect in accordance with the terms hereof.
7.2 Indemnification.
(a) The Company and KPMG, and each of their respective
Subsidiaries, hereby agree to indemnify, defend, and hold harmless the Investor
(and its directors, officers, Affiliates, successors, and assigns) from and
against any out-of-pocket losses, liabilities, damages, costs, or expenses,
including interest, penalties, and reasonable attorneys' fees and expenses,
(collectively, "Losses"), or other diminution in the value of the Series A
Shares, arising out of, based upon, or otherwise resulting from (i) any
inaccuracy in any representation or breach of any warranty of the Company or
KPMG contained in this Agreement or in any Schedule hereto or certificate
delivered pursuant to Article V or (ii) the breach or nonfulfillment of any
covenant, agreement, or other obligation of the Company or KPMG under this
Agreement, the Investor Rights Agreement or the Certificate of Designation; it
being understood that the Company, KPMG and their respective Subsidiaries shall
not be obligated to further indemnify the Investor (and its directors, officers,
Affiliates, successors and assigns) on account of any further diminution in
value of the Series A Shares resulting solely from the payment of any amount due
to the Investor pursuant to Section 7.2(a)(i) or (ii).
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(b) The Investor hereby agrees to indemnify, defend, and hold
harmless KPMG and the Company (and their respective directors, officers,
partners, principals, Affiliates, successors, and assigns) from and against any
Losses arising out of, based upon, or otherwise resulting from (i) any
inaccuracy in any representation or breach of any warranty of the Investor
contained in this Agreement or in any Schedule hereto or certificate delivered
pursuant to Article VI or (ii) the breach or nonfulfillment of any covenant,
agreement, or other obligation of the Investor under this Agreement, the
Investor Rights Agreement, or the Certificate of Designation.
(c) Promptly after the receipt by any party hereto of notice
of any third-party claim or the commencement of any third-party action, suit or
proceeding subject to indemnification hereunder (a "Third-Party Claim"), such
party (the "Indemnified Party") will, if a claim in respect thereto is to be
made against any party obligated to provide indemnification hereunder (the
"Indemnifying Party"), give such Indemnifying Party prompt written notice of
such Third-Party Claim; provided, however, that the failure to provide such
notice will not relieve the Indemnifying Party of any of its obligations, or
impair the right of the Indemnified Party to indemnification pursuant to this
Section 7.2 unless, and only to the extent that, such failure materially
prejudices the Indemnifying Party's opportunity to defend or compromise the
Third-Party Claim or such failure directly increases the amount of
indemnification payments hereunder over and above the amount thereof that would
otherwise have been payable had such notice been provided as aforesaid. If the
Indemnified Party is not a litigant, participant, or real party in interest in
the Third-Party Claim, the Indemnifying Party shall be entitled and required to
assume the defense of such Third-Party Claim and defend the same at its own
expense and shall have sole authority to compromise or settle the same. If the
Indemnified Party is a litigant, participant, or real party in interest in the
Third-Party Claim (an "Interested Third-Party Claim"), the Indemnifying Party
shall have the right, at its option, to defend at its own expense and by its own
counsel such Interested Third-Party Claim, provided that (i) such counsel is
reasonably satisfactory to the Indemnified Party, (ii) the Indemnified Party is
kept reasonably informed of all developments, is furnished with copies of all
documents and papers related thereto, and is given the right to participate in
the defense and investigation thereof at the expense of the Indemnified Party as
provided below, and (iii) such counsel proceeds with diligence and in good faith
with respect thereto. If any Indemnifying Party shall undertake to defend any
Interested Third-Party Claim, it shall notify the Indemnified Party of its
intention to do so promptly (and in any event no later than thirty (30) days)
after receipt of notice of the Interested Third-Party Claim, and the Indemnified
Party agrees to cooperate in good faith with the Indemnifying Party and its
counsel in the defense of such Interested Third-Party Claim. Notwithstanding the
foregoing, the Indemnified Party shall have the right to participate in the
defense and investigation of any such Interested Third-Party Claim with its own
counsel at its own expense, except that the Indemnifying Party shall bear the
expense of one such separate counsel if (A) in the written opinion of counsel to
the Indemnified Party reasonably acceptable to the Indemnifying Party, the use
of counsel of the Indemnifying Party's choice to represent both the Indemnifying
Party and the Indemnified Party in such matter would be expected to give rise to
a conflict of interest, (B) there are or may be legal defenses available to the
Indemnified Party that are different from or additional to those available to
the Indemnifying Party, (C) the Indemnifying Party shall not have employed
counsel to represent the Indemnified Party within a reasonable time after notice
of such Interested Third-Party Claim is given to the Indemnifying Party or after
notice that the Indemnifying Party intends to assume the defense of the
Interested
34.
<PAGE> 40
Third-Party Claim is given to the Indemnified Party, or (D) the
Indemnifying Party shall authorize the Indemnified Party in writing to employ
separate counsel at the expense of the Indemnifying Party. The Indemnifying
Party shall not settle any Interested Third-Party Claim without the prior
written consent of the Indemnified Party, which shall not be unreasonably
withheld (except that no such consent shall be required if such settlement
contains a complete release of all liability related to such Interested
Third-Party Claim). If, under the foregoing provisions, the Indemnified Party
assumes control of the defense of any Interested Third-Party Claim, the
Indemnified Party shall not settle such Interested Third-Party Claim without the
prior written consent of the Indemnifying Party, which shall not be unreasonably
withheld.
(d) Except to the extent otherwise required by law, any
indemnity payment made pursuant to this Section 7.2 or other payment made
pursuant to this Agreement shall be treated by the parties and their Affiliates
on their Tax Returns as an adjustment to the consideration being provided for
the Series A Shares hereunder. For purposes of this Section 7.2, Losses shall
include any tax liabilities of the Indemnified Party resulting from the
indemnity payments and shall be reduced by the Indemnified Party by any tax
benefits realized by the Indemnified Party as a result of the losses,
liabilities, damages, costs or expenses included in computing the Losses.
(e) Notwithstanding the foregoing, no Indemnified Party shall
be entitled to payment from an Indemnifying Party under this Section 7.2, unless
and until the total value of any claim or claims, whether considered
individually or in the aggregate, exceeds $10,000,000 in value (the "Indemnity
Threshold"). Once the Indemnity Threshold has been exceeded, the Indemnified
Party is entitled to reimbursement for the total value of any claim or claims
(including the initial $10,000,000).
7.3 Limitations.
(a) In no event shall any party be liable hereunder, to
another party to this Agreement, for consequential, special, exemplary or
punitive damages, including, but not limited to, damages consisting of business
interruption or lost profits, damages for lost value of the Company, or damages
computed on a multiple of earnings or similar basis, arising from breach of this
Agreement (it being understood that this Section 7.3 shall in no event limit the
indemnification obligations of Section 7.2 for damages, including consequential,
special, exemplary, or punitive damages, suffered by a third party that are the
subject of a Third-Party Claim).
(b) Thirty (30) days after the Closing, the Company shall
assume all obligations of KPMG hereunder and KPMG shall have no further
liability for any representations, warranties, covenants, indemnities or other
agreements included in this Agreement; provided, however, that KPMG shall in any
event remain liable and responsible for (i) any fraud, gross negligence, or
willful misconduct on the part of KPMG and (ii) any breach or default under
Sections 2.24(c) or 4.11 hereof.
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ARTICLE VIII
TERMINATION
8.1 Termination of Agreement. This Agreement may be terminated
prior to the Closing:
(a) by either party hereto, upon written notice to the other
if, without fault of the terminating party, the Closing shall not have occurred
on or before February 29, 2000; provided, however, that a party shall not be
entitled to terminate the Agreement on account of this paragraph (a) in the
event that the conditions to Closing have not been satisfied on account of such
party's breach of its representations, warranties or covenants; or
(b) by either party hereto, upon written notice to the other,
if the Separation Agreement is terminated or any party thereto becomes unable to
consummate the Separation in accordance with the terms thereof (in each case
without any breach or default by the party so terminating this Agreement); or
(c) by either party hereto, upon written notice to the other,
if there has been a material breach or default of any covenant or agreement
hereunder or under any of the Alliance Documents on the part of such other party
or, in the case of any such Alliance Document, any other party thereto, which
breach or default is not curable or, if curable, is not cured within fifteen
(15) Business Days after notice to such party of the breach or default; or
(d) at any time by mutual agreement in writing of the parties
hereto.
8.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 8.1, this Agreement shall thereafter become void
and have no effect, and (subject to the next sentence) no party hereto shall
have any liability or obligation to any other party hereto in respect of this
Agreement, except that the provisions of Section 4.2 (Access to Information;
Consultation; Confidentiality), Section 4.6 (Public Announcements), Section 7.2
(Indemnification), Article X (Miscellaneous), and this Section 8.2 shall survive
any such termination. Nothing herein shall relieve any party from liability for
any breach of any of its representations, warranties, covenants or agreements
contained in this Agreement prior to termination of this Agreement.
ARTICLE IX
DEFINITIONS
9.1 Definitions. The following terms when used in this Agreement
(including the Schedules and Exhibits hereto) shall have the following
respective meanings:
"Affiliate" of a Person means any other Person that directly
or indirectly through one or more intermediaries controls, is controlled by or
is under common control with such Person. For purposes of this definition and
the definition of "Subsidiary" below, "control" (or
36.
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"controlled," as the context may require) shall have the meaning set forth in
Rule 12b-2 under the Exchange Act.
"Agreement" has the meaning set forth in the first paragraph
of this Agreement.
"Alliance" has the meaning set forth in the Alliance
Agreement.
"Alliance Agreement" means that certain Alliance Agreement
dated as of December 15, 1999 between KPMG and the Investor.
"Alliance Documents" means the Alliance Agreement and each
other Contract entered into or delivered pursuant to the formation of the
Alliance as of the Closing.
"Alternative Transaction" and "Alternative Transaction
Proposal" have the respective meanings set forth in Section 4.7.
"Auditor Independence Rules" has the meaning set forth in
Section 4.10.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in California or New York are required or
authorized by law to be closed.
"Certificate of Designation" has the meaning set forth in the
recitals of this Agreement.
"Closing" has the meaning set forth in Section 1.2.
"Closing Date" has the meaning set forth in Section 1.2.
"Code" means the Internal Revenue Code of 1986, as amended,
and the Treasury Regulations promulgated thereunder.
"Common Stock" has the meaning set forth in the recitals of
this Agreement.
"Company" has the meaning set forth in the first paragraph of
this Agreement.
"Company Auditors" has the meaning set forth in Section 2.9.
"Consents" has the meaning set forth in Section 2.4.
"Consulting Business" has the meaning set forth in the
Separation Agreement. "Consulting Intellectual Property" has the meaning set
forth in Section 2.17.
"Contracts" means all written or binding oral contracts,
agreements, undertakings, indentures, notes, debentures, bonds, loans,
instruments, leases, mortgages, franchise, license, commitments or other binding
arrangements.
"Conversion Shares" has the meaning set forth in Section 2.6.
37.
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"Disclosure Schedule" has the meaning set forth in the first
paragraph of Article II.
"Election Period" has the meaning set forth in Section 4.10.
"Environmental Laws" means the Federal Comprehensive
Environmental Response, Compensation and Liability Act, the Federal Water
Pollution Control Act, the Safe Drinking Water Act, the Federal Clean Water Act,
the Federal Clean Air Act, the Federal Resource Conservation and Recovery Act,
the Hazardous Materials Transportation Act, the Federal Solid Waste Disposal
Act, the Federal Toxic Substances Control Act, the Federal Insecticide,
Fungicide and Rodenticide Act, and the Occupational Safety and Health Act, each
as amended, and all other environmental statutes enacted by any Governmental
Entity, and any executive order, ordinances, rules or regulations promulgated
under any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder.
"Financial Statements" means (i) the audited combined
statements of assets and liabilities of the Consulting Business at June 30,
1999, 1998 and 1997 and the related combined statement of revenues and expenses
and combined statements of cash flows of the Consulting Business for the periods
then ended, including in each case the related notes and auditor's report
thereon, and (ii) the unaudited combined statement of assets and liabilities of
the Consulting Business at September 30, 1999 and the related combined statement
of revenues and expenses and combined statement of cash flows of the Consulting
Business for the fiscal year-to-date periods then ended.
"GAAP" means United States generally accepted accounting
principles.
"Governmental Entity" means any federal, state, local or
foreign government, political subdivision, legislature, court, agency,
department, bureau, commission or other governmental or regulatory authority,
body or instrumentality, including any industry or other non-governmental
self-regulatory organizations.
"HSR Act" has the meaning set forth in Section 2.2.
"Indemnified Party" and "Indemnifying Party" have the
respective meanings set forth in Section 7.2.
"Indemnity Threshold" has the meaning set forth in Section
7.2.
"Intellectual Property" has the meaning set forth in Section
2.17.
"Interested Third Party Claim" has the meaning set forth in
Section 7.2.
"Interim Financial Statements" has the meaning set forth in
Section 4.8.
"Investor" has the meaning set forth in the first paragraph of
this Agreement.
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"Investors' Rights Agreement" has the meaning set forth in
Section 5.10.
"IPO Notice" has the meaning set forth in Section 4.10.
"IPO Notice Date" has the meaning set forth in Section 4.10.
"IRS" means the United States Internal Revenue Service.
"Knowledge" means (i) with respect to any natural person, the
actual knowledge, after reasonable inquiry, of such person or (ii) with respect
to any corporation or other entity, the actual knowledge of such party's
executive officers and directors provided that such persons shall have made
reasonable inquiry of those employees of such party whom such executive officers
and directors reasonably believe would have actual knowledge of the matters
represented.
"KPMG" has the meaning set forth in the first paragraph of
this Agreement.
"KPMG Firms" has the meaning set forth in Section 2.5.
"Liability" and "Liabilities" have the meanings set forth in
Section 2.10.
"Lien or Encumbrance" means any lien, pledge, mortgage,
security interest, claim, lease, charge, option, right, easement, servitude,
transfer limit, restriction, title defect or other encumbrance.
"LLC" has the meaning set forth in the recitals.
"Losses" has the meaning set forth in Section 7.2.
"Material" means any event, change, condition or effect which
(i) is material to the Consulting Business or, after the Separation, the Company
and its subsidiaries, taken as a whole, or (ii) would have a material adverse
effect on the ability of KPMG, the Company or any other party to execute and
deliver this Agreement, any Separation Document (it being understood that, with
respect to the Member Agreements, this definition of Material considers such
Member Agreements taken as a whole and not individually), any Alliance Document
or any other Transaction Document, to perform its obligations hereunder or
thereunder, or to consummate the sale of Series A Shares hereunder, the
Separation, the formation of the Alliance or any other transaction contemplated
hereunder or thereunder or to prevent or materially alter or delay the purchase
of Series A Shares, the Separation, the formation of the Alliance or any of the
other transactions contemplated by this Agreement.
"Material Adverse Effect" means any event, change condition or
effect that individually or in the aggregate together with other events,
changes, conditions or effects (i) is materially adverse to the Consulting
Business or, after the Separation, the Company and its subsidiaries, taken as a
whole, or (ii) would have a material adverse effect on the ability of KPMG, the
Company or any other party to execute and deliver this Agreement, any Separation
Document (it being understood that, with respect to the Member Agreements, this
definition of Material considers such Member Agreements taken as a whole and not
individually), any
39.
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Alliance Document or any other Transaction Document, to perform its obligations
hereunder or thereunder, or to consummate the sale of Series A Shares hereunder,
the Separation, the formation of the Alliance or any of the other transactions
contemplated hereunder or thereunder, or to prevent or materially alter or delay
the purchase by the Investor from the Company of Series A Shares, the
Separation, the formation of the Alliance or any of the other transactions
contemplated by this Agreement, other than any event, change, condition or
effect relating to generally applicable economic conditions or relating to
conditions generally applicable to the industry of the Consulting Business in
general.
"Member Agreements" shall mean those agreement set forth in
clauses (ii), (iii), (iv), (v) and (vi) under the definition of Separation
Documents in this Section 9.1.
"Outsourcing Agreement" shall mean that agreement set forth in
clause (i) under the definition of Separation Documents in Section 9.1.
"Permits" means all licenses, certificates of authority,
permits, orders, consents, approvals, registrations, authorizations,
qualifications and filings under any federal, state, local or foreign laws or
with any Governmental Entities.
"Person" means any individual, corporation, partnership,
limited liability company, firm, joint venture, association, joint stock
company, trust, unincorporated organization, Governmental Entity or other entity
or organization.
"Plan" means "any employee benefit plan" (as that term is
defined in section 3(3) of ERISA), as well as any other formal or informal plan,
arrangement or contract involving direct or indirect compensation, in which any
current or former officers or employees of the Company, KPMG or any of their
respective Subsidiaries involved in the Consulting Business participate, or to
which the Company, KPMG or any of their respective Subsidiaries has any
liability related to the Consulting Business or under which the Company, KPMG or
any of their respective Subsidiaries has any present or future obligations or
liability on behalf of their respective employees or former employees involved
in the Consulting Business or their dependents or beneficiaries, including but
not limited to, each retirement, pension, profit-sharing, thrift, savings,
target benefit, employee stock ownership, cash or deferred, multiple employer,
multiemployer or other similar plan or program, each other deferred or incentive
compensation, bonus, stock option, employee stock purchase, "phantom stock" or
stock appreciation right plan, each other program providing payment or
reimbursement for or of medical, dental or visual care, psychiatric counseling,
or vacation, sick, disability or severance pay and each other "fringe benefit"
plan or arrangement.
"Preempted Specified Company" has the meaning set forth in
Section 4.10.
"Preferred Stock" has the meaning set forth in Section 2.5.
"Prior Bidders" has the meaning set forth in Section 4.7.
"Property" means any real, personal or mixed property, whether
tangible or intangible.
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"Purchase Price" has the meaning set forth in Section 1.1.
"Qualified IPO" has the meaning set forth in the Investor
Rights Agreement.
"Redemption Value" has the meaning set forth in the
Certificate of Designation.
"Representatives" has the meaning set forth in Section 4.2.
"Restricted Period" has the meaning set forth in the
Investors' Rights Agreement.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations thereunder.
"Separation" has the meaning set forth in the recitals of this
Agreement.
"Separation Documents" means the Separation Agreement and each
other Contract (which, viewed singly, is Material) entered into or delivered
pursuant to the same, including the following (as they are each defined in the
Separation Agreement): (i) the Outsourcing Agreement, (ii) the KPMG Qualified
Member Distribution Agreements (not individually, but generally taken as a
whole), (iii) the Consulting Qualified Member Distribution Agreements (not
individually, but generally taken as a whole), (iv) the KPMG Non-Qualified
Member Distribution Agreements (not individually, but generally taken as a
whole), (v) the Consulting Non-Qualified Member Distribution Agreements (not
individually, but generally taken as a whole), (vi) the Consulting Non-Eligible
Member Agreements (not individually, but generally taken as a whole), (vii) the
Registration Rights Agreement, (viii) the Separation Note, and (ix) the Leased
Asset Agreement.
"Series A Preferred Stock" and "Series A Shares" have the
respective meanings set forth in the recitals of this Agreement.
"Specified Companies" has the meaning set forth in Section
4.10.
"Specified Company List" has the meaning set forth in Section
4.10.
"Submission" has the meaning set forth in Section 4.10.
"Subsidiary" means, with respect to any Person, any entity
controlled (as such term is defined in the definition of "Affiliate" above) by
such Person.
"Systems" has the meaning set forth in Section 2.26.
"Tax" and "Taxes" mean all income, profits, gains, gross
receipts, net worth, premium, value added, ad valorem, sales, use, excise,
stamp, transfer, franchise, withholding, payroll, employment, occupation,
severance, unemployment insurance, social security and property taxes, and all
other taxes of any kind whatsoever (including estimated taxes), together with
any interest, penalties and additions thereto imposed by any federal, state,
local or foreign government or any agency or political subdivision of any such
government, including all amounts imposed as a result of being a member of an
affiliated or combined group, as a result of
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being a transferee or successor in interest or as a result of a contractual
indemnification agreement.
"Tax Return" means all returns, reports, elections, estimates,
declarations, information statements and other forms and documents (including
all schedules, exhibits, and other attachments thereto) relating to, and
required to be filed in connection with, any Taxes (including estimated Taxes).
"Third Party Claim" has the meaning set forth in Section 7.2.
"Transaction Documents" means, collectively, (a) this
Agreement, (b) the Certificate of Designation, (c) the Investor Rights
Agreement, (d) the Alliance Documents, and (e) the Separation Documents, and (f)
each other Contract (which, viewed singly, is Material) entered into or
delivered pursuant to any of the same or the transactions contemplated hereby or
thereby. For purposes of this Agreement, the Separation and the Alliance shall
be deemed a transaction contemplated by this Agreement, and all references to
the "consummation" of the Alliance shall mean the formation of the Alliance.
"Transaction Securities" has the meaning set forth in Section
3.6.
"Voting Securities" means all outstanding capital stock or
other securities of the Company entitled to vote generally for the election of
directors or on any matters on which the holders of Common Stock are entitled to
vote, whether under ordinary circumstances, contingently or otherwise.
"Year 2000 Compliant" has the meaning set forth in Section
2.26.
ARTICLE X
MISCELLANEOUS
10.1 Notices. Any notices and other communications required to be
given pursuant to this Agreement shall be in writing and shall be effective upon
delivery by hand (against written receipt) or upon receipt if sent by certified
or registered mail (postage prepaid and return receipt requested) or by a
nationally recognized overnight courier service (appropriately marked for
overnight delivery) or upon transmission if sent by telex or facsimile (with
request for immediate confirmation of receipt in a manner customary for
communications of such respective type and with physical delivery of the
communication being made by one of the other means specified in this Section
10.1 as promptly as practicable thereafter) Notices are to be addressed as
follows:
(a) If to KPMG to:
KPMG LLP
345 Park Avenue
New York, New York 10154
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Attention: Chairman
Telecopy No.: (212) 758-9819
With a copy to:
KPMG LLP
280 Park Avenue
New York, New York 10017
Attention: Claudia Taft
Telecopy No.: (212) 909-5485
and
Sidley & Austin
Bank One Plaza
10 South Dearborn Street
Chicago, Illinois 60603
Attention: Paul L. Choi, Esq.
Telecopy No.: (312) 853-7036
(b) If to the Company to:
KPMG Consulting, Inc.
Three Chestnut Ridge Road
Montvale, New Jersey 07645
Attention: Chief Financial Officer
Telecopy No.: (201) 505-6262
with a copy to:
KPMG LLP
280 Park Avenue
New York, New York 10017
Attention: Claudia Taft
Telecopy No.: (212) 909-5485
and
Sidley & Austin
Bank One Plaza
10 South Dearborn Street
Chicago, Illinois 60603
Attention: Paul L. Choi, Esq.
Telecopy No.: (312) 853-7036
(c) If to the Investor to:
Cisco Systems, Inc.
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<PAGE> 49
170 West Tasman Drive
San Jose, California 95134
Attention: Larry Carter
Telecopy No.: (408) 526-4545
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, California 94303
Attention: Curtis L. Mo, Esq.
Telecopy No.: (650) 496-2885
or to such other respective addresses as any of the parties hereto shall
designate to the others by like notice, provided that notice of a change of
address shall be effective only upon receipt thereof.
10.2 Fees and Expenses. Except as provided herein, each of the
parties hereto shall pay its own respective fees and expenses (including,
without limitation, the fees and disbursements of any attorneys, accountants,
investment bankers, consultants or other Representatives) incurred in connection
with this Agreement and the transactions contemplated hereby, whether or not
such transactions are consummated.
10.3 Specific Performance. Each party hereto acknowledges and
agrees that in the event of any breach or default by the other party under this
Agreement, the other party hereto would be irreparably and immediately harmed
and could not be made whole by monetary damages. It is accordingly agreed that
in such case (i) each defaulting party hereto will waive, in any action, suit or
proceeding for specific performance or other relief referred to in this
paragraph, the defense of adequacy of money damages or a remedy at law, and (ii)
the other non-defaulting party shall be entitled, in addition to any other
remedy to which it may be entitled at law or in equity or otherwise, to compel
specific performance of this Agreement or to obtain a temporary restraining
order, preliminary and permanent injunction or other equitable relief or remedy,
in any action, suit or proceeding instituted in any state or federal court.
10.4 Entire Agreement; Waivers and Amendments. This Agreement
(including the Exhibits and Schedules hereto and the documents and instruments
referred to herein) contains the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes all prior
written or oral agreements, representations and understandings with respect
thereto. This Agreement may only be amended or modified, and the terms hereof
may only be waived, by a writing signed by both parties hereto or, in the case
of a waiver, by the party entitled to the benefit of the terms being waived.
10.5 Assignment; Binding Effect. This Agreement may not be assigned
or delegated, in whole or in part, by either party hereto without the prior
written consent of the other party hereto, except that the Investor shall have
the right at any time, without such consent, to assign its right hereunder to
purchase any or all of the Series A Shares to any wholly owned
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<PAGE> 50
Subsidiary of the Investor (in which event, the Investor shall irrevocably and
unconditionally guarantee the performance by such Subsidiary of the Investor's
obligation hereunder to purchase such Series A Shares). Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
10.6 Severability. In the event that any provision of this
Agreement shall be declared invalid or unenforceable by a court of competent
jurisdiction in any jurisdiction, such provision shall, as to such jurisdiction,
be ineffective to the extent declared invalid or unenforceable without affecting
the validity or enforceability of the other provisions of this Agreement, and
the remainder of this Agreement shall remain binding on the parties hereto (so
long as the economic or legal substance of the transactions contemplated hereby
is not affected in any manner adverse to any party). Upon such determination,
the parties shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the transactions contemplated hereby be
consummated as originally contemplated to the greatest extent possible.
10.7 No Third Party Beneficiaries. This Agreement is for the
benefit of the parties hereto and is not intended to confer upon any other
Person any rights or remedies hereunder. Notwithstanding anything herein to the
contrary, the only Persons entitled to assert any rights or claims hereunder are
KPMG, the Company, and the Investor.
10.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of California,
without giving effect to the principles of conflicts of law thereof.
10.9 Interpretation. This Agreement is the result of arms-length
negotiations between the parties hereto and has been prepared jointly by the
parties. In applying and interpreting the provisions of this Agreement, there
shall be no presumption that the Agreement was prepared by any one party or that
the Agreement shall be construed in favor of or against any one party.
10.10 Captions. The Article and Section Headings in this Agreement
are inserted for convenience of reference only, and shall not affect the
interpretation of this Agreement.
10.11 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original and all of which together shall be
considered one and the same agreement.
[SIGNATURE PAGE TO FOLLOW]
45.
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IN WITNESS WHEREOF, each of the parties has executed this Agreement as of
the date first written above.
CISCO SYSTEMS, INC.
By: /s/ John T. Chambers
-----------------------------
Name: John T. Chambers
Title: President and Chief Executive
Officer
KPMG LLP
By: /s/ Stephen G. Butler
-----------------------------
Name: Stephen G. Butler
Title: Chairman
KPMG CONSULTING, INC.
By: /s/ Roderick C. McGeary
-----------------------------
Name: Roderick C. McGeary
Title: President and Co-Chief
Executive Officer
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]