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EXHIBIT 10.2
AGREEMENT AND PLAN OF EXCHANGE
BY AND AMONG
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
AND
THE HOLDERS OF THE
OUTSTANDING CAPITAL STOCK
OF
βββββ β. βββββββββ AND ASSOCIATES, INC.
DECEMBER 18, 1997
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TABLE OF CONTENTS
Page
1. AGREEMENT FOR EXCHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Exchange of Shares and Other Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Aggregate Consideration from Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2.1 Exchange Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2.2 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Payment of Exchange Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3.1 Closing Before Receipt of the 1997 Audit Report . . . . . . . . . . . . . . . . . . . . . . 3
1.3.2 Closing After Receipt of the 1997 Audit Report. . . . . . . . . . . . . . . . . . . . . . . 3
1.3.3 No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2. THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Delivery of Company Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2.1 Assignments of Company Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2.2 Payment In Full Satisfaction of All Rights . . . . . . . . . . . . . . . . . . . . . . . . 4
3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Stock Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Shareholder Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Shareholder Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4 Organization, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.5 Capitalization of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.6 Company Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.7 Company Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.8 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.9 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.10 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.11 Other Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.12 Investment Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.13 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.14 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.15 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.16 Full Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.17 Legal Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.18 Company Contracts, Company Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.19 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.20 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.21 Subsidiaries; Predecessors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.22 Affiliate Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.23 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.24 Company Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
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3.25 Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4. REPRESENTATIONS AND WARRANTIES OF THE PARENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.2 Capitalization of the Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.3 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.4 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.5 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.6 Investment Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.8 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.9 Full Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.10 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.11 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.12 Parent Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5. CERTAIN COVENANTS AND AGREEMENTS OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.1 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.2 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.3 Filings, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.4 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.5 Satisfaction of Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.6 Capital Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.7 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.8 Agreements of Shareholders to be Effective Upon Closing . . . . . . . . . . . . . . . . . . . . . . 21
5.8.1 Covenant Not to Compete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.8.2 Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.9 Shareholder Indebtedness and Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6. CERTAIN AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.1 Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.2 Company Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.3 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.4 Tax-Free Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.5 Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.5.1 Tax Periods Ending on or Before the IPO Closing Date . . . . . . . . . . . . . . . . . . . 24
6.5.2 Cooperation on Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.5.3 Tax Sharing Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.6 Sale of Motor Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.7 Positions of ββ. βββββββββ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.8 Release of Certain Assets and Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.9 Parent Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.10 Parent Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.11 Continuation of Company Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
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7. CONDITIONS PRECEDENT; CLOSING DELIVERIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.1 Conditions Precedent to the Obligations of the Parent . . . . . . . . . . . . . . . . . . . . . . . 26
7.1.1 Accuracy of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . 26
7.1.2 Performance of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.1.3 Legal Actions or Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.1.4 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.1.5 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.1.6 No Loss or Damage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.1.7 Licenses, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.1.8 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.1.9 Certain Corporate Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.2 Conditions Precedent to the Obligations of the Shareholders and the Company . . . . . . . . . . . . 27
7.2.1 Accuracy of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . 27
7.2.2 Performance of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.2.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.2.4 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.3 Deliveries by the Shareholders at the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.3.1 Closing Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.3.2 Stock Transfer Restriction Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.3.3 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.3.4 Opinion of Counsel for the Shareholders and the Company . . . . . . . . . . . . . . . . . . 28
7.3.5 Documents, Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.4 No Waiver by Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.5 Deliveries by the Parent at the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.5.1 Closing Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.5.2 Opinion of Counsel for the Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.5.3 Exchange Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.6 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.7 Conditions Precedent to Completion of the Closing . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.7.1 Legal Actions or Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.7.2 IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.8 Delivery of Exchange Consideration on the IPO Closing Date . . . . . . . . . . . . . . . . . . . . . 29
8. SURVIVAL, INDEMNIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.2.1 Parent Indemnified Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.2.2 Minimum Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.2.3 Parent Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.3 Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.4 Procedures for Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.4.1 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.4.2 Legal Defense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.4.3 Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.4.4 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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8.5 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.1 Grounds for Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.1.1 Prior to Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.1.2 After the Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.1 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.2 Further Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.3 Assignability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.4 Exhibits and Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.5 Sections and Articles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.7 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.8 CONTROLLING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.9 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.10 No Third Party Beneficiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.11 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.12 No Employee Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.13 No Personal Liability of Representatives of Parent . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.14 When Effective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.15 Takeover Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.16 Number and Gender of Words . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.17 Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.18 Multiple Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.19 No Rule of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.20 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.21 No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.22 Section 351 Plan of Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Exhibit 1.1 List of Shareholders
Exhibit 2.1 Escrow Agreement
Exhibit 2.2 Letter of Transmittal from Shareholders
Exhibit 5.6 Budgeted Capital Expenditures of Company
Exhibit 6.8 Assets of Shareholders to be Released from Certain Company Obligations
Exhibit 7.3.2 Stock Transfer Restriction Agreement
Exhibit 7.3.3 Certain Employees of the Company
Exhibit 7.3.3A Employment Agreement
Exhibit 7.3.4 Opinion of Counsel for the Shareholders and the Company
Exhibit 7.5.2 Opinion of Counsel for the Parent
Exhibit 10.22 Section 351 Plan of Exchange
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AGREEMENT AND PLAN OF EXCHANGE
This AGREEMENT AND PLAN OF EXCHANGE (this "Agreement") made effective
as of December 18, 1997, by and among BRIGHTSTAR INFORMATION TECHNOLOGY
GROUP, INC., a Delaware corporation (the "Parent"), AND THE UNDERSIGNED HOLDERS
(the "Shareholders") OF ALL OF THE OUTSTANDING CAPITAL STOCK OF βββββ β.
βββββββββ AND ASSOCIATES, INC., a Texas corporation (the "Company").
WHEREAS, Parent and the Shareholders desire to provide for the
transfer by the Shareholders to Parent of the outstanding shares of capital
stock of the Company in exchange for common stock and cash of Parent (the
"Exchange");
WHEREAS, the Exchange is one of several related transactions involving
the assignment of property to Parent in exchange for common stock and cash of
Parent as part of an overall plan that includes an initial public offering of
parent common stock ("Parent Common Stock"); and for federal income tax
purposes, it is intended that this Exchange and the other related exchange
transactions with Parent shall qualify as exchanges under the provisions of
Section 351 of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, and intending to
be legally bound hereby, the parties agree as follows:
1. AGREEMENT FOR EXCHANGE
1.1 Exchange of Shares and Other Consideration. Shareholders
agree to assign, transfer and deliver to Parent all right, title and interest
in and to all of the outstanding shares of common stock of the Company
("Company Common Stock") in exchange for the Exchange Consideration (as defined
below) which Parent hereby agrees to pay, assign, transfer and deliver to the
Shareholders in accordance with this Agreement, and among them in proportion to
the number of shares of Company Common Stock owned by the Shareholders and
assigned to Parent by the Shareholders as set forth in Exhibit 1.1 hereto.
1.2 Aggregate Consideration from Parent. The aggregate
consideration to be delivered to the Shareholders by the Parent shall be an
amount equal to the sum of the Exchange Consideration as defined below.
1.2.1 Exchange Consideration. The Exchange Consideration
shall be equal to the amount of revenue recognized by the Company, less
allowances for doubtful accounts (giving due consideration to the normal
payment practices of customers) and sales returns, as determined in accordance
with GAAP (as defined below) with respect to the period from January 1, 1997
through December 31, 1997, reduced by: (i) Long-Term Debt (as defined below)
of the Company at the Closing Date; (ii) federal, state or local income taxes
payable by the Company with respect to all periods prior to the Closing Date
not included in Long-Term Debt; and (iii) the amount of any reduction in the
Company's Net Working Capital (as defined below) from September 30, 1997 to the
Closing Balance Sheet Date (as defined below); provided that obligations of the
Company arising out of the transactions for the issuance of common stock of the
Company effective March 11, 1997,
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reasonably acknowledged and agreed to in amounts by both the Parent and the
Company, shall not be included in Long-Term Debt or Current Liabilities of the
Company for the purposes of the foregoing adjustment provisions of this Section
1.2.1.
1.2.2 Certain Definitions. The following terms shall have
the meaning ascribed below for purposes of this Agreement:
(i) "Closing Balance Sheet Date" means the end of the
most recent monthly accounting period of the Company preceding the
Closing Date.
(ii) "Current Assets" means the current assets of the
Company determined as of the Closing Balance Sheet Date in accordance
with GAAP.
(iii) "Current Liabilities" means the current liabilities
of the Company determined as of the Closing Balance Sheet Date in
accordance with GAAP excluding those current liabilities included in
Long-Term Debt and federal, state and local income taxes payable by
the Company with respect to all periods prior to Closing not included
in Long-Term Debt, and expressed as a positive number; provided,
however, that all expenses of the Company or the Shareholders incurred
in connection with the transactions contemplated hereby which are
payable by the Company shall be included in Current Liabilities.
(iv) "GAAP" means U.S. generally accepted accounting
principles consistently applied.
(v) "IPO" means the Parent's first underwritten public
offering of Parent Common Stock resulting in net cash proceeds
sufficient to fund the use of proceeds of such offering as described
in the PPM (and any supplements thereto) referenced in Section 3.25
herein (other than any offering pursuant to any registration statement
(i) relating to any capital stock of Parent or options, warrants or
other rights to acquire any such capital stock issued or to be issued
primarily to directors, officers or employees of the Parent or any of
its subsidiaries, (ii) relating to any employee benefit plan or
interest therein, (iii) relating principally to any preferred stock or
debt securities of the Parent, or (iv) filed pursuant to Rule 145
under the Securities Act of 1933, as amended ("Securities Act"), or
any successor or similar provision).
(vi) "IPO Closing Date" means the date that the Parent
receives funds in consideration for the sale of its securities in the
IPO.
(vii) "IPO Price" means the initial price per share to the
public for shares of Parent Common Stock in IPO.
(viii) "Long-Term Debt" means all long-term liabilities of
the Company as of the Closing Date, including capitalized lease
obligations other than those listed on Schedule 1.2.2(viii), as
applicable to a corporation taxable under Subchapter C of the Code, as
determined under GAAP, plus current portions of such long-term
liabilities and pre-payment penalties as of the Closing Date; and
Long-Term Debt does not include the Company's Operating Line of Credit
with CoAmerica Bank or another financial institution.
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(ix) "Net Working Capital" means the Current Assets of the
Company minus the Current Liabilities of the Company as of the Closing
Balance Sheet Date, all as determined under GAAP.
1.3 Payment of Exchange Consideration. Parent shall deliver
payment of the Exchange Consideration by delivery of cash and Parent Common
Stock such that 20% of the Exchange Consideration (and any installment thereof)
is delivered to the Shareholders in cash and 80% of the Exchange Consideration
(and any installment thereof) is delivered in Parent Common Stock. For
purposes of this Section 1.3, such shares of Parent Common Stock shall have a
per share value equal to the IPO Price. The Exchange Consideration shall be
paid as follows:
1.3.1 Closing Before Receipt of the 1997 Audit Report. If
the IPO Closing Date occurs prior to receipt by the Parent and the Company of
the 1997 Audit Report (defined below), then the Exchange Consideration shall be
paid by the Parent in two installments.
(i) The first installment of Exchange
Consideration shall be paid and delivered to the Shareholders on the
IPO Closing Date and shall be equal to that portion of the Exchange
Consideration payable with respect to the period from January 1, 1997
through December 31, 1997, based on revenue recognized by the Company,
less adjustments as provided in Section 1.2.1, as reported on the
Company's unaudited Balance Sheet and Income Statement, prepared in
accordance with GAAP, as of and for the year ending December 31, 1997
(the "Unaudited Financial Statements").
(ii) The second installment of the Exchange
Consideration shall be paid within ten days after receipt by the
Parent and the Company from the independent certified public
accountants for the Company of an audit report (the "1997 Audit
Report") on the Balance Sheet and Income Statement of the Company as
of December 31, 1997 and for the year then ended ("1997 Financial
Statements"), certifying that such Balance Sheet and Income Statement
are in accordance with GAAP. The second installment of the Exchange
Consideration shall be equal to the difference between (A) the
Exchange Consideration based on the 1997 Financial Statements (for the
period from January 1, 1997 through December 31, 1997, including
adjustments as provided in Section 1.2.1), reduced by (B) the amount
of the first installment of the Exchange Consideration actually paid
to the Shareholders pursuant to Subsection 1.3.1(i) above. In the
event that the second installment is a positive number, then Parent
shall pay and deliver such amount to the Shareholders, and in the
event that the second installment is a negative number, the
Shareholders shall pay and deliver, pro-rata in accordance with their
percentage ownership of the Company, the absolute value of such amount
to the Parent.
1.3.2 Closing After Receipt of the 1997 Audit Report. If
the Closing occurs after receipt of the 1997 Audit Report by Parent and the
Company, all of the Exchange Consideration shall be paid and delivered by the
Parent to the Shareholders on the IPO Closing Date based on revenue recognized
by the Company, less adjustments as provided in Section 1.2.1, as reported on
the Company's audited 1997 Financial Statements.
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9
1.3.3 No Fractional Shares. Notwithstanding the
foregoing, no fractional shares of Parent Common Stock will be issued pursuant
to this Section 1.3, and if any Shareholder would be entitled hereunder to
receive a fractional share of Parent Common Stock but for this paragraph, that
Shareholder will be entitled to receive a cash payment for and in lieu thereof
in the amount (rounded upward to the nearest whole cent) equal to that
Shareholder's fractional interest in a share of Parent Common Stock multiplied
by the IPO Price.
2. THE CLOSING
2.1 Closing. A closing into Escrow ("Closing") will take place at
the offices of Chamberlain, Hrdlicka, White, ββββββββ & ββββββ in Houston,
Texas at the time and on the day that the Parent and its underwriters agree on
the IPO Price for shares of Parent Common Stock offered in the Parent's IPO
(the "Pricing Date") as set forth in an executed underwriting agreement, but in
no event later than April 23, 1998 (the "Closing Date"); provided that each of
the conditions precedent to the obligations of the parties to effect the
Closing are then satisfied or waived by the applicable party. The parties may
agree in writing on another date, time or place for the Closing. At the
Closing, the parties will deliver or cause to be delivered into escrow with the
escrow agent ("Escrow Agent") under the Escrow Agreement set forth in Exhibit
2.1 hereto, the documents described in Sections 7.3 and 7.5 below. On the IPO
Closing Date, such documents shall be delivered out of escrow to the parties
designated to receive such documents under this Agreement in accordance with
the Escrow Agreement, and Parent shall pay and deliver the Exchange
Consideration to the Shareholders as prescribed in this Agreement.
2.2 Delivery of Company Common Stock. Prior to the Closing, the
Parent will deliver to each of the Shareholders a Letter of Transmittal, in
substantially the form attached hereto as Exhibit 2.2, to be used by each
Shareholder for surrendering to Parent certificates representing all the
Company Common Stock in exchange for the right to receive the Exchange
Consideration. On the Closing Date, certificates for all of the Company Common
Stock held by each Shareholder will be delivered by such Shareholder to the
Escrow Agent in accordance with the Escrow Agreement for the benefit of the
Parent together with properly completed and executed Letters of Transmittal.
2.2.1 Assignments of Company Common Stock. It is agreed
that no assignment, transfer or other disposition of record or beneficial
ownership of any shares of Company Common Stock may be made on or after the
date hereof other than as provided herein.
2.2.2 Payment In Full Satisfaction of All Rights. The
delivery of the Exchange Consideration to the Shareholders with respect to
their shares shall be deemed to be payment in full satisfaction of all rights
pertaining to the outstanding shares.
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3. REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
Each Shareholder separately, and with respect only to his matters and
circumstances, hereby represents and warrants to the Parent that the following
statements in Sections 3.1 through 3.3 and 3.25 are true and correct; and βββββ
β. βββββββββ unqualifiedly, and each of the other Shareholders to the best of
their knowledge, hereby represent and warrant to the Parent that the following
statements in Sections 3.4 through 3.24 are true and correct.
3.1 Stock Ownership. Exhibit 1.1 accurately sets forth the names
of each Shareholder, the number of shares of Company Common Stock owned by each
Shareholder, and the percentage of total outstanding shares of Company Common
Stock owned by each Shareholder. Each Shareholder owns, beneficially and of
record, with full power to vote, transfer and assign the number of shares of
Company Common Stock set forth beside such Shareholder's name on Exhibit 1.1
and such shares are so held by the Shareholders free and clear of all liens,
encumbrances and adverse claims whatsoever except as set forth on Exhibit 1.1.
3.2 Shareholder Authority. Each Shareholder has full right,
power, legal capacity and authority to (i) execute, deliver and perform this
Agreement, and all other documents and instruments referred to herein or
contemplated hereby to be executed, delivered and/or performed by the
Shareholders (each a "Shareholder Related Document") and (ii) consummate the
transactions contemplated herein and thereby. This Agreement has been duly
executed and delivered by each Shareholder and constitutes, and each
Shareholder Related Document, when duly executed and delivered by each
Shareholder who is a party thereto will constitute, legal, valid and binding
obligations of such Shareholder enforceable against such Shareholder in
accordance with their respective terms and conditions, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity (whether applied in a proceeding
at law or in equity).
3.3 Shareholder Consents. Except as provided on Schedule 3.3 and
Exhibit 1.1, no approval, consent, order or action of or filing with any court,
administrative agency, governmental authority or other third party is required
for the execution, delivery or performance by the Shareholders of this
Agreement or any Shareholder Related Document other than filings related to the
IPO. The execution, delivery and performance by each Shareholder of this
Agreement and the Shareholder Related Documents do not violate any mortgage,
indenture, contract, agreement, lease or commitment or other instrument of any
kind to which such Shareholder is a party or by which such Shareholder or such
Shareholder's assets or properties may be bound or affected or any law, rule or
regulation applicable to such Shareholder or any court injunction, order or
decree or any valid and enforceable order of any governmental agency in effect
as of the date hereof having jurisdiction over such Shareholder.
3.4 Organization, Etc. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas and is duly qualified or licensed as a foreign corporation authorized to
do business in all other states in which any of its assets or properties may be
situated or where the business of the Company is conducted except where the
failure to obtain
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such qualification or license will not have a Company Material Adverse Effect
(as defined in Section 3.24 below). Except as disclosed on Schedule 3.4 of the
Disclosure Schedule previously provided to the Parent by the Company
("Disclosure Schedule"), the Company does not own, of record or beneficially,
directly or indirectly, any of the outstanding capital stock, voting interests
or ownership interests in any corporation, partnership, joint venture, limited
liability company, trust, limited partnership or other entity.
3.5 Capitalization of the Company. The total authorized capital
stock of the Company is 100,000 shares of Company Common Stock, no par value,
of which 13,068 shares are issued and outstanding and held of record and
beneficially by the Shareholders as set forth on Exhibit 1.1 hereto and none of
which are held in the treasury of the Company. Each issued and outstanding
share of Company Common Stock is duly and validly authorized and issued, fully
paid and non-assessable, and was not issued in violation of the preemptive
rights of any past or present shareholder. Except for the shares of Company
Common Stock owned beneficially and of record by the Shareholders as set forth
on Exhibit 1.1 hereto, there are no outstanding shares of capital stock,
convertible or exchangeable securities, subscriptions, calls, options,
warrants, rights or other agreements or commitments of any character relating
to the issuance or sale of any shares of capital stock of, or other equity
ownership interest in, the Company. Except as set forth in Exhibit 1.1, the
Company has no liability, contingent or otherwise, to any person or entity in
connection with preemptive or contractual subscription rights or the offer,
sale, purchase, surrender or cancellation of any shares of capital stock,
warrants, options or other equity or voting interests or securities of the
Company.
3.6 Company Authority. The Company has full right, power, legal
capacity and authority to execute, deliver and perform all documents and
instruments referred to herein or contemplated hereby to be executed, delivered
and/or performed by the Company (the "Company Related Documents") and to
consummate the transactions contemplated thereby. All of the Company Related
Documents, when duly executed and delivered by the Company, will constitute,
legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, except as such enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (whether applied in a proceeding at law or in
equity).
3.7 Company Consents. No approval, consent, order or action of or
filing with any court, administrative agency, governmental authority or other
third party is required for the execution, delivery or performance by the
Company of the Company Related Documents.
3.8 Intellectual Property. The Company owns or is licensed to
use, and has sufficient rights to use, all trade names, trademarks, logos,
service marks, copyrights, patents, writings, literary works, licenses, mask
works, trade secrets, patented ideas, schematics, sketches, drawings, designs,
notebooks, reports, memoranda, drafts, worksheets, formulas, processes,
inventions, procedures, knowhow, computer software programs, computer
technology, databases, operating systems, source and object codes, flowcharts,
algorithms, coding sheets, routines, sub-routines, compilers, assemblers,
design concepts, plans, documentation, manuals, production processes, marketing
techniques and arrangements, mailing lists, purchasing information, pricing
policies, customer and supplier lists and data and other intellectual property
(collectively "Intellectual Property") necessary for the operation of the
Company's business as presently conducted and the marketing, sale, use and
application of the
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services and products sold by the Company. Each item of such Intellectual
Property will be owned or licensed to be used and available for use by the
Company after the IPO Closing Date on the same terms and conditions as prior to
Closing except that several of the licenses owned by the Company will terminate
upon a change of the Company's name. None of the ownership, access to, or use
of the Intellectual Property by the Company infringes on the rights of any
other party and the Company's rights to the Intellectual Property are valid and
enforceable. No person has interfered with, infringed upon, misappropriated or
otherwise come into conflict with the Intellectual Property rights of the
Company. The Company has not interfered with, infringed upon, misappropriated
or otherwise come into conflict with any intellectual property rights of
others, and the Company has not received any charge, complaint, demand or
notice alleging any such interference, infringement, misappropriation or
conflict.
3.9 Title. Except as set forth in Schedule 3.9 of the Disclosure
Schedule, the Company owns outright, and has full legal and beneficial title to
all of its assets free and clear of all liens, pledges, mortgages, security
interests, conditional sales contracts and encumbrances, including good and
marketable title to all of its real property interests, free and clear of any
mortgages, security agreements, liens or encumbrances.
3.10 Defaults. Except as set forth on Schedule 3.10 of the
Disclosure Schedule, neither the Company nor any Company Plan (as defined
below) is in default under or in violation of, and the execution and delivery
of the Agreement, the Company Related Documents and the Shareholder Related
Documents and the consummation of the transactions contemplated hereby and
thereby will not result in a default by the Company or any Company Plan under
or a violation of (i) any mortgage, indenture, charter or bylaw provision,
provision of any Company Plan, contract, agreement, lease, commitment or other
instrument of any kind to which the Company or any Company Plan is a party or
by which the Company or any Company Plan or any of its properties or assets may
be bound or affected or (ii) any law, rule or regulation applicable to the
Company or any Company Plan or any court injunction, order or decree, or any
valid and enforceable order of any governmental agency in effect having
jurisdiction over the Company or any Company Plan, which default or violation
could adversely affect the ability of the Company to consummate the
transactions contemplated hereby or will have a Company Material Adverse
Effect.
3.11 Other Disclosures. The following disclosures pertaining to
the Company are set forth in Schedule 3.11 of the Disclosure Schedule. Such
disclosures are complete and accurate.
(i) Schedule 3.11(i) is a list of the products of the
Company and all product registrations used by the Company, including all
products licensed by the Company to customers and products licensed to the
Company from licensors, and a description of the parties to and principal terms
of such license arrangements, and a list of all material safety data sheets,
toxicology studies and environmental studies of the Company.
(ii) Schedule 3.11(ii) is a list of the names, titles,
start dates and current annual salary and wage rates of all salaried and hourly
regular full-time and part-time employees of the Company as of the date hereof,
together with a summary of the bonuses, additional compensation and other like
benefits and any decrease in compensation, if any, paid or payable to each
employee during
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the twelve months prior to the date hereof, and the last date on which each
employee received (a) any change in annual salary or hourly wage and (b) any
bonus or additional compensation or benefits.
(iii) Schedule 3.11(iii) includes the legal descriptions of
all real property owned in fee or leased as lessee by the Company and a list of
documents reflecting any other real property interests owned of record or
beneficially or leased as lessee by the Company.
(iv) Schedule 3.11(iv) includes (a) a list of assets owned
by the Company as of the date hereof which have been capitalized and have an
unamortized value of $5,000 or more, including vehicles and rolling stock, (b)
a list of all leased equipment of the Company, including leased vehicles and
rolling stock and (c) the Company's most recent depreciation schedule with
respect to the assets of the Company. The Shareholders represent and warrant
that all of the machinery, equipment, vehicles and rolling stock of the Company
are in good working order and condition, ordinary wear and tear excepted.
(v) Schedule 3.11(v) is a list of raw materials or other
property located at any property owned or leased as lessee by the Company, that
has been consigned to the Company, or is otherwise owned by a third party, and
has a market value exceeding $5,000.
(vi) Attached to and listed on Schedule 3.11(vi) is each
policy of insurance maintained by the Company together with information on
premiums, coverages, insurers, expiration dates and deductibles, an accurate
list of all insurance loss runs and workers' compensation claims received for
the past three policy years. The Shareholders represent and warrant that (a)
such insurance is currently in full force and effect, (b) the Company's
insurance has never been canceled, (c) the Company has never been denied
coverage or experienced a substantial increase in premiums or a substantial
reduction in coverage from one policy period to the next policy period, (d)
such coverage is adequate in character and amount and (e) such coverage is
placed with financially sound and reputable insurers unaffiliated with either
the Shareholders or the Company.
(vii) Schedule 3.11(vii) is a list of each bank, brokerage
firm, trust company or other financial institution in which the Company has an
account and the identity of each such account, and each bank in which the
Company has a safe deposit box, together with the names of all persons
authorized to draw on any such account or have access to any such safe deposit
box.
(viii) Schedule 3.11(viii) is a list and summary description
of, or copies of, all governmental licenses and permits of the Company.
(ix) Schedule 3.11(ix) is a list of each debt, note,
mortgage, security agreement, pledge agreement, guaranty, bond, letter of
credit, lease or other instrument creating any debt or contingent obligation of
the Company or a lien or claim on any of its assets (other than unsecured trade
accounts payable incurred in the ordinary course of business) and each claim,
lawsuit, investigation, audit or legal proceeding involving the Company or any
of its assets.
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(x) Schedule 3.11(x) is a list of all of the Company's
Intellectual Property and a description of all license fees and royalties
(including the basis of calculation thereof) required to be paid now or in the
future by the Company for the use of any of its Intellectual Property.
(xi) Schedule 3.11(xi) is a list naming each Company
Contract (as defined below). The Shareholders represent and warrant that: (a)
none of the Company's customers or suppliers have canceled or substantially
reduced, or are currently attempting or threatening to cancel or substantially
reduce, service or products; (b) except to the extent set forth on Schedule
3.11(xi), the Company has complied with all commitments and obligations and is
not in default under any such contracts and agreements, no notice of default
has been received by the Company, and the Company is not aware of any defaults
by customers, suppliers and other parties to such contracts and agreements; (c)
the Company has not experienced labor interruptions over the past three years
and the Shareholders consider the relationship between the Company and its
employees to be good; and (d) the Company has never been a party to any
governmental contracts subject to price redetermination or renegotiation. The
term "Company Contract" means each contract, lease, undertaking, commitment,
mortgage, indenture, note, security agreement, license and other agreement of
the Company in effect on the date hereof (a) involving the expenditure or
receipt of more than $10,000 over the term thereof, (b) containing provisions
calling for the sale or purchase of raw materials, products or services at
prices that vary from the market prices of such raw materials, products or
services generally prevailing in customary third party markets, (c) which
include "take or pay", "meet or release", "most favored nations" or similar
pricing or delivery arrangements, (d) requiring the Company to indemnify or
hold harmless any other person or entity, (e) evidencing any warranty
obligation of the Company with respect to goods, services or products sold or
leased by it, (other than warranties given in the ordinary course of business),
(f) imposing on the Company any confidentiality, non-disclosure or non-compete
obligation or containing any acceleration or termination provisions effective
upon a change of control of the Company, or a merger of the Company into
another entity, or (g) involving collective bargaining or agreements with any
labor union or employee group.
(xii) Schedule 3.11(xii) is a list of all powers of
attorney presently in effect granted by the Company and all investments of the
Company in any equity securities, partnership interests, indebtedness or other
interests in any other corporation, or any person, partnership, joint venture,
limited liability company, trust, limited partnership or other legal entity.
(xiii) Schedule 3.11(xiii) is a list of all obligations,
contingent or otherwise, covering any of the Company's employees under any
employment or consulting agreement or under any executive or employee's
compensation plan, agreement or arrangement including, without limitation, any
"employee welfare benefit plan" as defined in Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), "employee pension
benefit plan" as defined in Section 3(2) of ERISA or any other pension,
retirement, profit sharing, stock option, stock purchase, bonus, fringe
benefit, incentive, vacation, savings plan, health, welfare or other employee
or former employee benefit plan, program, policy or arrangement (collectively
referred to as "Company Plans").
3.12 Investment Company. The Company is not an "investment
company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of
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1940, as amended, or a "holding company", a "subsidiary company" of a "holding
company" or an "affiliate" of a "holding company" or a "public utility" within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
3.13 Financial Statements. The Shareholders have listed on
Schedule 3.13 of the Disclosure Schedule and have delivered to the Parent
copies of the following audited financial statements of the Company: Balance
Sheets as of September 30, 1996 and 1997, and Statements of Operations,
Stockholders Deficit and Cash Flows for the years ended September 30, 1995,
1996 and 1997. Such financial statements are collectively referred to herein
as "Company Financial Statements". September 30, 1997 is herein referred to as
the "Balance Sheet Date." The Company Financial Statements, except as
described in the notes thereto, have been prepared from the Company's records
in accordance with GAAP. The Company Financial Statements present accurately
and fairly in all material respects the financial condition of the Company as
of the dates indicated thereon, and present accurately and fairly in all
respects the results of the Company's operations for the periods indicated
thereon. The Company Financial Statements do not omit any liabilities or
obligations of a type which should be included in or reflected in such
financial statements in accordance with GAAP, whether related to tax or non-tax
matters, accrued or contingent, due or not yet due, liquidated or unliquidated,
or otherwise, except as and to the extent disclosed or reflected in the Company
Financial Statements, or in Schedule 3.14 of the Disclosure Schedule.
3.14 Undisclosed Liabilities. To the best knowledge of
Shareholders and the Company, except as and to the extent disclosed in Schedule
3.14 of the Disclosure Schedule or in the Company Financial Statements, the
Company has no liabilities or obligations of any nature (whether absolute,
contingent or otherwise). In the case of any liabilities which are not fixed,
an estimate of the maximum amount which may be payable is set forth on Schedule
3.14 of the Disclosure Schedule.
3.15 Tax Matters.
(i) All federal, state, local and foreign tax returns
required to be filed by the Company (and, if applicable, its subsidiaries)
prior to the date hereof have been filed on a timely basis with the appropriate
governmental authorities in all jurisdictions in which such tax returns are
required to be filed, and all such returns are correct and complete. The
Shareholders have delivered to Parent, and Schedule 3.15(i) of the Disclosure
Schedule includes, correct and complete copies of all federal, state, local and
foreign income tax returns filed by, examination reports received by, and
statements of deficiencies asserted against or agreed to by the Company (and,
if applicable, its subsidiaries) since January 1, 1991. The Company (including
any of its subsidiaries) is not currently the subject of any audit, examination
or any similar investigation by any governmental authority. Schedule 3.15(i)
of the Disclosure Schedule sets forth all audits, examinations or similar
investigations of the Company (including any of its subsidiaries) by any
governmental authority.
(ii) All federal, state, local and foreign income,
franchise, sales, use, property, and all other taxes, fees, assessments, or
other governmental charges (including withholding taxes), and all interest and
penalties thereon (all of the foregoing collectively, "Taxes") due from or
properly accruable by the Company (including any of its subsidiaries) have been
fully and timely paid or, in the cases of Taxes for which payment is not yet
required, properly and fully accrued for on the Company
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Financial Statements with respect to all taxable periods ending on or prior to
the date hereof and interim periods through the date hereof.
(iii) The Company (including any of its subsidiaries) has
not filed a consent under Section 341(f) of the Internal Revenue Code of 1986
("Code") concerning collapsible corporations. The Company (including any of
its subsidiaries) and each of the Shareholders is not a party to any agreement,
contract or arrangement that would, by reason of the consummation of any of the
transactions contemplated by this Agreement, individually or in the aggregate,
result in the payment of any "excess parachute payment" within the meaning of
Section 280G of the Code. None of the assets of the Company (including any of
its subsidiaries) is required to be treated as being owned by any other person
pursuant to the "safe harbor" leasing provisions of Section 168 of the Internal
Revenue Code of 1954, as in effect prior to the repeal of such provisions.
(iv) The Company (including any of its subsidiaries) is
not a party to any Tax allocation or sharing agreement. The Company (including
any of its subsidiaries): (A) has not been a member of an affiliated group
filing a consolidated federal income tax return (other than a group the common
parent of which was the Company); and (B) does not have any liability for the
taxes of any person (other than the Company or any of its subsidiaries) under
Treas. Reg. Section 1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract, or otherwise.
(v) Schedule 3.15(v) of the Disclosure Schedule sets
forth the following information with respect to the Company (including any of
its subsidiaries) as of the most recent practicable date: (A) the basis of the
Company (and any of its subsidiaries) in its assets; (B) the basis of the
stockholder(s) of any subsidiary of the Company in its stock of the subsidiary
(or the amount of any excess loss account); (C) the amount of any net operating
loss, net capital loss, unused investment or other credit, unused foreign tax,
or excess charitable contribution allocable to the Company (and any of its
subsidiaries); and (D) the amount of any deferred gain or loss allocable to the
Company (or any of its subsidiaries) arising out of any Deferred Intercompany
Transaction (as defined in Treas. Reg. Section 1.1502-13).
(vi) The Company (including any of its subsidiaries) has
not waived any statute of limitations, or agreed to any extension of time with
respect to an assessment or deficiency, with respect to any Taxes.
(vii) The amount of Company's (including any of its
subsidiaries) liability for unpaid Taxes for all periods ending on or before
the date of this Agreement do not, in the aggregate, exceed the amount of the
current liability accruals for Taxes (other than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) solely
with respect to Company as of the date of this Agreement, and the amount of
Company's liability for unpaid Taxes for all periods ending on or before the
IPO Closing Date shall not, in the aggregate, exceed the amount of the current
liability accruals for Taxes (other than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) as such
accruals are reflected on the face of the Company Financial Statements.
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(viii) With respect to the qualification of the Exchange as
an exchange transaction within the meaning of Section 351 of the Code, there is
no specific plan or intention on the part of any Shareholders to sell, exchange
or otherwise dispose of any shares of Parent Common Stock received in the
Exchange.
3.16 Full Authority. The Company has full power, authority and
legal right and has all licenses, permits, qualifications, and other
documentation (including permits required under applicable Environmental Law
(as defined below)) necessary to own and/or operate its businesses, properties
and assets and to carry on its businesses as being conducted on the date
hereof, and such businesses are now being conducted and such assets and
properties are being owned and/or operated, and the Company Plans have been
implemented and maintained, in compliance with all applicable laws (including
Environmental Law), ordinances, rules and regulations of any governmental
agency of the United States, any state or political subdivision thereof, or any
foreign jurisdiction, all applicable court or administrative agency decrees,
awards and orders and all such licenses, permits, qualifications and other
documentation, except where the failure to comply will not have a Company
Material Adverse Effect, and there is no existing condition or state of facts
which would give rise to a violation thereof or a liability or default
thereunder, except where a violation, liability or default will not have a
Company Material Adverse Effect. The term "Environmental Law" means any law,
rule, regulation, approval, decision, decree, ordinance, by-law having the
force of law or order of any federal, state or local executive, legislative,
judicial, regulatory or administrative agency, board or authority, which relate
to (i) noise; (ii) pollution or protection of the air, surface water, ground
water or land; (iii) solid, gaseous or liquid waste generation, treatment,
storage, use, processing, disposal or transportation; (iv) exposure to
hazardous or toxic substances; (v) the safety or health of employees or (vi)
regulation of the manufacture, processing, distribution in commerce, use, or
storage of chemical substances.
3.17 Legal Actions. Except as described in Schedule 3.17 of the
Disclosure Schedule, no legal action, suit, audit, investigation, unfair labor
practice charge, complaint, claim, grievance, or proceeding by or before any
court, arbitration panel, governmental authority or third party is pending or,
to the best knowledge of the Company or the Shareholders threatened, which
involves or may involve the Company or its now or previously owned or operated
assets, operations, properties or businesses.
3.18 Company Contracts, Company Plans. Neither the Company nor any
other party thereto is in default under or in violation of any Company Contract
or Company Plan.
3.19 Access. The Company has cooperated fully in permitting the
Parent and the Parent's lenders, underwriters and placement agents and their
respective representatives to make a full investigation of the properties,
operations and financial condition of the Company; and afforded the Parent and
the Parent's lenders, underwriters and placement agents and their respective
representatives reasonable access to the offices, buildings, real properties,
machinery and equipment, inventory and supplies, records, files, books of
account, tax returns, agreements and commitments and personnel of the Company.
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3.20 No Material Adverse Change. Except as specifically set forth
on Schedule 3.20 of the Disclosure Schedule, since the Balance Sheet Date,
there has not been: (a) any change in the Company's Articles of Incorporation
or Bylaws, (b) any material adverse change of any nature whatsoever in the
financial condition, assets, liabilities (contingent or otherwise), income,
business or prospects of the Company; (c) any damage, destruction or loss
(whether or not covered by insurance) materially adversely affecting the
properties or business of the Company; (d) any change in the authorized capital
of the Company or in its securities outstanding or any change in its ownership
interests; (e) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of the Company; (f) any contract
or commitment entered into by the Company or any incurrence by the Company or
agreement by the Company to incur any liability or make any capital
expenditures in excess of $3,000, except in the normal course of business; (g)
any increase in the compensation, bonus, sales commissions or fee arrangement
payable or to become payable by the Company to any of its officers, directors,
stockholders, employees, consultants or agents; (h) any work interruptions,
labor grievances or claims filed, proposed law or regulation (the existence of
which is known, or under the normal course of business should be known, to the
Shareholder) or any event or condition of any character materially adversely
affecting the business of future prospects of the Company; (i) any creation,
assumption or permitting to exist any mortgage, pledge or other lien or
encumbrance upon any assets or properties whether now owned or hereafter
acquired, except as set forth in Schedules 3.11(ix), 3.11(xi) and 3.14 of the
Disclosure Schedule; (j) any sale or transfer, or any agreement to sell or
transfer, any material assets, properties or rights of the Company to any
person, including, without limitation, the Shareholders and their respective
affiliates; (k) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including, without limitation, any
indebtedness or obligation of the Shareholders or any of their affiliates; (1)
any plan, agreement or arrangement granting any preferential rights to purchase
or acquire any interest in any of the assets, properties or rights of the
Company or requiring consent of any party to the transfer and assignment of any
such assets, properties or rights; (m) any purchase or acquisition, or
agreement, plan or arrangement to purchase or acquire, any property, rights or
assets of the Company; (n) any negotiation for the acquisition of any business
or start-up of any new business; (o) any merger or consolidation or agreement
to merge or consolidate with or into any other corporation (except the
transactions contemplated by this Agreement); (p) any waiver of any material
rights or claims of the Company; (q) any breach, amendment or termination of
any material contract, agreement, license, permit, permit application or other
right to which the Company is a party; (r) any discharge, satisfaction,
compromise or settlement of any claim, lien, charge or encumbrance or payment
of any obligation or liability, contingent or otherwise, other than current
liabilities as of the Balance Sheet Date, current liabilities incurred since
the Balance Sheet Date in the ordinary course of business and prepayments of
obligations in accordance with normal and customary past practices; or (s) any
transaction by the Company outside the ordinary course of its business or
prohibited hereunder.
3.21 Subsidiaries; Predecessors. Schedule 3.21 of the Disclosure
Schedule lists the name of the Company's subsidiaries and the securities of any
other corporation, partnership, firm, association or business organization,
entity or enterprise owned by the Company or any of the Company's subsidiaries.
Except as disclosed in Schedule 3.21 of the Disclosure Schedule, all the issued
shares of the capital stock of the subsidiaries of the Company are directly or
ultimately owned
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by the Company, free and clear of all liens, encumbrances or adverse claims of
every kind. All such shares are duly and validly authorized and issued, fully
paid and nonassessable, and were not issued in violation of the preemptive
rights of any past or present stockholder. Also set forth in Schedule 3.21 of
the Disclosure Schedule is a listing of all names under which the Company has
done business as well as the names of all predecessors of the Company,
including the names of any entities from which the Company previously acquired
significant assets.
3.22 Affiliate Relationships.
(i) Except as set forth on Schedule 3.22 of the
Disclosure Schedule, neither the Shareholders nor any affiliate of the
Shareholders, and no director, officer or employee of or consultant to the
Company owns, directly or indirectly, in whole or in part, any property, assets
or right, tangible or intangible, which is associated with any property, asset
or right owned by the Company or which the Company is operating or using or the
use of which is necessary for its business. Also included in Schedule 3.22 of
the Disclosure Schedule is the disclosure of any relationships which any
Shareholder or any director, officer, employee, agent or consultant of the
Company has with any other corporation, partnership, firm, association or
business organization, entity or enterprise which is a competitor, potential
competitor (based upon the nature of such potential competitor's business as of
the Closing Date), supplier or customer of the Company.
(ii) The term "affiliate" means with respect to any
person, any other person which directly or indirectly, by itself or through one
or more intermediaries, controls, or is controlled by, or is under direct or
indirect common control with, such person. The term "control" means the
possession, directly or indirectly, of the power to direct, or cause the
direction of, the management and policies of a person, whether through the
ownership of voting securities, by contract or otherwise.
3.23 Disclosure. No representation or warranty by the Company or
any Shareholder in the Agreement (including the Exhibits hereto) and no
statement contained in the Disclosure Schedule or any certificate delivered by
the Company or the Shareholders to the Parent pursuant to the Agreement,
contains or will contain any untrue statement of a material fact or omits or
will omit any material fact necessary in order to make the statements herein or
therein, in light of the circumstances under which they are or were made, not
misleading.
3.24 Company Material Adverse Effect. The term "Company Material
Adverse Effect" shall mean an adverse effect on the properties, assets,
financial position, results of operations, long-term debt, other indebtedness,
cash flows or contingent liabilities of the Company in an amount of $25,000 or
more.
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3.25 Restricted Securities.
(1) Each Shareholder acknowledges that the shares of
Parent Common Stock to be acquired by the Shareholder hereunder have
not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), and are being acquired for the Shareholder's own
account for investment and not with a view to the distribution
thereof, and the Parent Common Stock will be subject to the Stock
Transfer Restriction Agreement in Exhibit 7.3.2 hereto.
(2) Each Shareholder and its representatives have the
knowledge and experience in financial and business matters to enable
them to evaluate the merits and risks of entering this Agreement and
the transactions contemplated hereby and acquiring shares of Parent
Common Stock.
(3) Each Shareholder is able to bear the economic risks
of its investment in the Parent Common Stock, including the risk of a
loss of the value of the Parent Common Stock.
(4) Each Shareholder has been represented by legal
counsel in this transaction and such Shareholder and its
representatives, including such counsel, have been given the
opportunity to ask questions of, and receive answers from, the
officers of the Parent concerning the terms of the transactions
contemplated by this Agreement and the affairs and the business and
financial condition of the Parent.
(5) Each Shareholder has received a Confidential Private
Placement Memorandum ("PPM") concerning the Parent and an investment
in shares of Parent Common Stock, and such Shareholder and its
representatives have been given such access to all documents, books
and additional information concerning Parent which they have requested
regarding Parent.
(6) Each Shareholder and its representatives have
conducted such investigations in making a decision to approve this
Agreement and the transactions contemplated hereby as they have deemed
necessary and advisable.
(7) Each Shareholder acknowledges and agrees that the
Parent Common Stock to be issued to such Shareholder may not be
disposed of except in accordance with the requirements of the
Securities Act and any applicable state securities laws and the Stock
Transfer Restriction Agreement in Exhibit 7.3.2 hereto.
4. REPRESENTATIONS AND WARRANTIES
OF THE PARENT
The Parent hereby represents and warrants to the Shareholders as
follows:
4.1 Organization. The Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
The Parent is duly qualified or licensed asa foreign corporation authorized to
do business in all states in which any of its assets or properties may be
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situated or where its business is conducted except where the failure to obtain
such qualification or license would not have a Parent Material Adverse Effect
(as defined in Section 4.12 below).
4.2 Capitalization of the Parent. The total authorized capital
stock of Parent is as set forth and described in Parent's Confidential Private
Placement Memorandum ("PPM") delivered to Shareholders in connection with the
transactions contemplated by this Agreement. The outstanding shares of Parent
Common Stock have been duly and validly issued and are fully paid and
non-assessable.
4.3 Authority. The Parent has the requisite, power and authority
to execute, deliver and perform this Agreement and all documents and
instruments referred to herein or contemplated hereby (the "Parent Related
Documents") and to consummate the transactions contemplated herein and thereby.
This Agreement has been duly executed and delivered by the Parent and
constitutes, and all the Parent Related Documents, when executed and delivered
by the Parent will constitute, legal, valid and binding obligations of the
Parent, enforceable in accordance with their respective terms and conditions
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether
applied in a proceeding at law or in equity).
4.4 Consents. No approval, consent, order or action of or filing
with any court, administrative agency, governmental authority or other third
party is required for the execution, delivery or performance by the Parent of
this Agreement or the Parent Related Documents or the consummation by the
Parent of the transactions contemplated hereby, except as may be described in
the PPM and except for the filing of the Parent's registration statement with
respect to the IPO ("Registration Statement") with the U.S. Securities and
Exchange Commission ("SEC") pursuant to the Securities Act and the SEC's
declaration of effectiveness of such Registration Statement and the completion
of all necessary filings required under, and the obtaining of all necessary
consents and approvals required pursuant to, state securities or "blue sky"
laws in connection with the IPO.
4.5 Defaults. The Parent is not in default under or in violation
of, and the execution, delivery and performance of this Agreement and the
Parent Related Documents and the consummation by the Parent of the transactions
contemplated hereby and thereby will not result in a default under or in
violation of (i) any mortgage, indenture, charter or bylaw provision, contract,
agreement, lease, commitment or other instrument of any kind to which the
Parent is a party or by which the Parent or any of its properties or assets may
be bound or affected or (ii) any law, rule or regulation applicable to the
Parent or any court injunction, order or decree, or any valid and enforceable
order of any governmental agency in effect as of the date hereof having
jurisdiction over the Parent, which default or violation prevents the Parent
from consummating the transactions contemplated hereby or is reasonably likely
to have a Parent Material Adverse Effect.
4.6 Investment Company. The Parent is not an "investment company"
or a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or a "holding company," a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
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4.7 Financial Statements. The Parent has provided certain
financial statements to the Shareholders in the PPM ("Parent Financial
Statements") and such Parent Financial Statements have been prepared in
accordance with GAAP and fairly present the consolidated financial position,
results of operations and cash flows of the Parent and its then existing
consolidated subsidiaries as of the dates and for the periods indicated,
subject to normal year-end adjustments and any other adjustments described
therein or in the notes or schedules thereto. The books and records of the
Parent have been kept in reasonable detail and accurately and fairly reflect
the transactions of the Parent.
4.8 Taxes. The Parent has either accrued, discharged or caused to
be discharged, as the same have become due, or the Parent Financial Statements
contain adequate accruals and reserves for, all taxes, interest thereon, fines
and penalties of every kind and character for such taxes, attributable or
relating to the properties and business of the Parent.
4.9 Full Authority. The Parent has the corporate power and
authority and has obtained all licenses, permits, qualifications, and other
documentation (including permits required under applicable environmental law)
necessary to own and/or operate its businesses, properties and assets and to
carry on its businesses as being conducted on the date of this Agreement,
except such licenses, permits, qualifications or other documentation, the
failure to obtain which is not reasonably likely to result in a Parent Material
Adverse Effect, and such businesses are now being conducted and such assets and
properties are being owned and/or operated in compliance with all applicable
laws (including environmental law), ordinances, rules and regulations of any
governmental agency of the United States, any state or political subdivision
thereof, or any foreign jurisdiction, all applicable court or administrative
agency decrees, awards and orders and all such licenses, permits,
qualifications and other documentation, except where the failure to comply will
not have a Parent Material Adverse Effect, and there is no existing condition
or state of facts that would give rise to a violation thereof or a liability or
default thereunder that is reasonably likely to have a Parent Material Adverse
Effect.
4.10 Access. The Parent has cooperated fully in permitting the
Shareholders and their representatives to make a full investigation of the
properties, operations and financial condition of the Parent and has afforded
the Shareholders and their representatives reasonable access to the offices,
buildings, real properties, machinery and equipment, inventory and supplies,
records, files, books of account, tax returns, agreements and commitments and
personnel of Parent.
4.11 Disclosure. No representation or warranty by the Parent in
this Agreement, and no statement contained in any certificate delivered by the
Parent to the Shareholders pursuant to this Agreement, contains any untrue
statement of a material fact or omits any material fact necessary in order to
make the statements herein or therein, in light of the circumstances under
which they are or were made, not misleading.
4.12 Parent Material Adverse Effect. The term "Parent Material
Adverse Effect" shall mean an adverse effect on the properties, assets,
financial position, results of operations, long-term debt, other indebtedness,
cash flows or contingent liabilities of the Parent and its consolidated
subsidiaries, taken as a whole in an amount of $25,000 or more.
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5. CERTAIN COVENANTS AND AGREEMENTS OF SHAREHOLDERS
The Shareholders further jointly and severally agree with the Parent
that from the date hereof through the Closing Date:
5.1 Conduct of Business. The Shareholders shall cause the Company
to conduct its operations according to its ordinary and usual course of
business to preserve substantially intact its business organization, keep
available the services of its officers and employees, and maintain its present
relationships with licensors, suppliers, distributors, customers and others
having significant business relationships with it. The Shareholders agree to
cause representatives of the Company to confer with representatives of the
Parent to keep it informed with respect to the general status of the on-going
operations of the business of the Company. Without limiting the generality of
the foregoing, and except as otherwise contemplated herein or agreed to in
writing by Parent, the Shareholders will cause the Company to:
(i) carry on its business in substantially the same
manner as heretofore carried on and not introduce any material new
method of management, operation or accounting, nor provide discounted
services outside the ordinary course of business;
(ii) maintain its properties, facilities, equipment and
other assets, including those held under leases, in good working
order, condition and repair, ordinary wear and tear excepted;
(iii) perform all of its obligations under all debt and
lease instruments and other agreements (including the Company
Contracts) relating to or affecting its business, assets, properties,
equipment and rights, and pay all vendors, suppliers, and other third
parties (including mechanics and materialmen) as and when their bills
are due consistent with past practices in the ordinary and prudent
course of business and pay in full all payroll obligations when due;
(iv) keep in full force and effect its present insurance
policies or other comparable insurance coverage;
(v) use its best efforts to maintain and preserve its
business organization intact, retain its present employees and
maintain its relationship with suppliers, customers and other having
business relations with the Company;
(vi) refrain from effecting any change in the capital
structure of the Company and from incurring any expenditures outside
the ordinary course of business;
(vii) refrain from starting or acquiring any new
businesses;
(viii) refrain from adding or deleting personnel outside the
ordinary course of business and maintain its present salaries and
commission levels for all officers, directors, employees or agents,
except for the usual and customary merit increases for employees;
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(ix) refrain from declaring or paying any bonuses, fees,
extraordinary commissions, dividends or any other distributions to the
Shareholders, directors, management, sales agents, employees or other
personnel inconsistent with past practice;
(x) promptly notify the Parent of the receipt by it or
any Shareholder of any notice or claim, written or oral, of (a)
default or breach by the Company under, or of any termination (other
than at the end of the stated term thereof) or cancellation, or threat
of termination (other than at end of the stated term thereof) of
cancellation, of any Company Contract, (b) any loss of, damage to or
disposition of, any of the properties, assets or the products of the
Company of a value of $10,000 or more, singly or in the aggregate
(other than the sale or use of inventories in the ordinary course of
business), (c) any claim or litigation threatened or instituted, or
any other adverse event or occurrence involving or affecting the
Company or any of its assets, properties, operations, businesses or
employees, and (d) any proposal made by any third party received by
the Company or of which any Shareholder obtains knowledge in respect
of any sale or other disposition, direct or indirect, of the assets
(other than the sale or use of inventories in the ordinary course of
business), businesses or outstanding capital stock or other ownership
or voting interests of the Company;
(xi) comply with and cause to be complied with all
applicable laws, rules, regulations and orders of all federal, state
and local governments or governmental agencies affecting or relating
to the Company or its assets, properties, operations, businesses or
employees except where the failure to comply will not have a Company
Material Adverse Effect;
(xii) refrain from any sale, disposition, distribution or
encumbrance of any of its properties or assets and refrain from
entering into any agreement or commitment with respect to any such
sale, disposition, distribution or encumbrance (other than the sale or
use of inventories in the ordinary course of business);
(xiii) refrain from any purchase or redemption of any
capital stock, other ownership interest or other voting interest of
the Company and refrain from issuing any capital stock or other
ownership interest;
(xiv) refrain from making any change in any accounting
principle, classification, policy or practice;
(xv) refrain from effecting any amendment to the
certificate or articles of incorporation or bylaws or other governing
instruments of the Company;
(xvi) refrain from entering into or agreeing to enter into
any merger or consolidation by the Company with or into, and refrain
from acquiring all or substantially all of the assets, capital stock
or business of, any person, corporation, partnership, association or
other business organization or division of any thereof;
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(xvii) maintain and comply with its debt and lease
agreements and instruments (except those that expire on their stated
maturity or lease termination dates); refrain from entering into any
amendment thereto or new debt or lease agreements or instruments
except for the renewal of existing agreements or the replacement
thereof with agreements with similar or more favorable terms; refrain
from increasing any indebtedness for borrowed money or issuing or
selling any debt securities or letters of credit; and refrain from
making any payments of any indebtedness or interest or other amounts
thereon or with respect thereto (other than regularly scheduled
principal and interest payments and payments of principal, interest
and fees under revolving lines of credit);
(xviii) manage working capital in the ordinary course
consistent with past practice and refrain from introducing any new
method of management or operation, providing any discounted services
or products, discounting any receivables or taking any action to
accelerate payment of any receivable prior to its due date (except in
the ordinary course of business consistent with past practices); and
(xix) refrain from entering into any contract, lease,
undertaking, commitment, mortgage, indenture, note, security
agreement, license or other agreement (a) involving the receipt or
expenditure of more than $25,000 over the term thereof (other than
consulting or service contracts with customers entered in the ordinary
course of business), (b) containing provisions calling for the sale or
purchase of raw materials, product or service at prices that vary from
the market prices of such raw materials, products or services
generally prevailing in customary third-party markets, (c) which
include "take or pay", "meet or release", "most favored nations" or
similar pricing or delivery arrangements, (d) with any officer,
director, shareholder or affiliate of the Company, (e) requiring the
Company to indemnify or hold harmless any other person or entity
(other than consulting or service contracts with customers entered in
the ordinary course of business), (f) evidencing any warranty
obligation of the Company with respect to goods, services or products
sold or leased by it (other than warranties given in the normal course
of business containing substantially the same terms as those presently
in effect), or (g) imposing on the Company any confidentiality,
non-disclosure or non- compete obligation (other than consulting or
service contracts with customers entered in the ordinary course of
business).
5.2 Cooperation. Each Shareholder will cooperate fully with the
Parent, and will cause the Company to cooperate fully with the Parent, as to
arrangements for the consummation of the transactions contemplated hereby in an
orderly fashion.
5.3 Filings, Etc. Each Shareholder will make, and cause the
Company to make, all filings which are required to be made by them to lawfully
consummate the transactions contemplated hereby.
5.4 Access. The Shareholders will, and will cause the Company to,
cooperate fully in permitting the Parent and the Parent's lenders, underwriters
and placement agents and their respective
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representatives, advisers, consultants, appraisers, auditors, engineers and
other experts to make a full investigation of the properties, operations and
financial condition of the Company and will afford the Parent and the Parent's
lenders, underwriters and placement agents and their respective
representatives, advisers, consultants, appraisers, auditors, engineers and
other experts reasonable access to the offices, buildings, real properties,
machinery and equipment, inventory and supplies, records, files, books of
account, tax returns, agreements and commitments and personnel of the Company.
Without limitation of the foregoing, the Shareholders and the Company shall
provide the Parent with such reasonably available financial information (and
schedules with respect thereto) with respect to the Company as the Parent may
reasonably request and will cooperate with and assist representatives of the
Parent in the preparation of such financial information (and any opinions or
reports with respect thereto) with respect to the Company as the Parent may
reasonably request. Notwithstanding the above, the Parent and its respective
lenders, underwriters and placement agents and their respective
representatives, advisers, consultants, appraisers, engineers and other experts
shall incur no liability with respect to control, operation or management (or
alleged control, operation or management) of the Company as a result of the
covenants in this Section 5.4.
5.5 Satisfaction of Conditions. The Shareholders shall (i) use
their reasonable efforts to obtain, as soon as possible, all governmental
approvals required to be obtained by the Company and make, as soon as possible,
all filings with any governmental authority required on the part of the Company
to consummate the transactions contemplated hereby, (ii) use their reasonable
efforts to obtain, as soon as possible, all other consents to and approvals
required to be obtained by the Company to consummate the transactions
contemplated hereby, and (iii) otherwise use their reasonable efforts to
satisfy the conditions set forth in this Agreement to the extent that such
satisfaction is within their control; provided, however, that this Section 5.5
shall not be construed to limit the rights of the Company to terminate this
Agreement as provided in Article 9 of this Agreement.
5.6 Capital Budget. Exhibit 5.6 hereto contains the budgeted
capital expenditures of the Company from July 1, 1997 through December 31,
1998. Unless otherwise consented to by the Parent, the Company will make
capital expenditures in accordance with such budget and shall not make any
additional capital expenditures.
5.7 Exclusivity. The Shareholders shall not (i) solicit,
initiate, or encourage the submission of any proposal or offer from any person
or entity relating to the acquisition of any capital stock or other voting
securities, or any substantial portion of the assets of the Company (including
any acquisition structured as a merger, consolidation, or share exchange) or
(ii) participate in any negotiations or discussions regarding, furnishing any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any person or entity in favor of any such
acquisition. The Shareholders will (and shall cause the Company to) promptly
notify the Parent if any person or entity makes any proposal, offer, inquiry,
or contact with respect to any of the foregoing.
5.8 Agreements of Shareholders to be Effective Upon Closing.
Effective upon Closing, and without further action on the part of any party or
other person, each Shareholder covenants and agrees as follows:
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5.8.1 Covenant Not to Compete.
(i) For the consideration specified in this Agreement and
in recognition that the covenants by the Shareholders in this Section
are a material inducement to the Parent to enter into and perform this
Agreement, (a) each Shareholder who is not an employee of the Company
prior to the date hereof agrees that during the one- year period after
the Closing Date, Shareholder will comply with the provisions of
Section 5.8.1(ii) below, and (b) each Shareholder who is an employee
of the Company agrees to comply with the provisions of Section
5.8.1(ii) below until the date which is the later to occur of two
years after the Closing Date or one year from and after the date of
termination of such Shareholder's employment by the Company regardless
of the reason for such termination.
(ii) Each Shareholder agrees that for the applicable time
period in Section 5.8.1(i) above ("Restricted Period"), such
Shareholder will not represent, engage in or carry on, directly or
indirectly, any business with any person or entity who was a customer
or client of the Company during the one year period preceding the
beginning of the Restricted Period (or any customer or client of an
affiliate of the Company for which the Shareholder has materially
assisted such affiliate in serving such customer or client ("Assisted
Affiliate")) or any business within 100 miles of the city or county
limits of any city or county in the United States or foreign countries
where the Company or any Assisted Affiliates has an office or in which
the Company provides services which produce Company revenues of an
amount equal to 2% or more of the Company's revenues for the twelve
complete calendar months preceding the time of termination, which
business competes with any business, services or products produced,
sold, conducted, developed, or in the process of development by the
Company or jointly by the Company and an Assisted Affiliate, including
any business that involves the furnishing of information technology
services that are the type of services furnished by the Company,
either for himself, as a member or equity owner of a partnership or
limited liability company, or as a shareholder (other than as a
shareholder of less than one percent (1%) of the issued and
outstanding stock of a publicly- held company whose gross revenues
exceed $100 million), investor, owner, officer, or director of a
company or other entity, or as an employee, agent, trustee, manager,
associate or consultant of any person, partnership, corporation or
other entity.
(iii) Each Shareholder agrees that the limitations set
forth herein on such Shareholder's rights to compete with the Parent
and its affiliates as set forth above are reasonable and necessary for
the protection of Parent and its affiliates. In this regard, each
Shareholder specifically agrees that the limitations as to period of
time and geographic area, as well as all other restrictions on the
Shareholder's activities specified herein, are reasonable and
necessary for the protection of the Parent and its affiliates. Each
Shareholder agrees that, in the event that the provisions of this
Section should ever be deemed to exceed the scope of business, time or
geographic limitations permitted by applicable law, such provisions
shall be and are hereby reformed to the maximum scope of business,
time or geographic limitations permitted by applicable law.
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(iv) Each Shareholder agrees that the remedy at law for
any breach by such Shareholder of this Section 5.8.1 will be
inadequate and that the Parent shall be entitled to injunctive relief.
5.8.2 Release. Effective as of the Closing Date, the
Shareholders do hereby (i) release, acquit and forever discharge the Company
from any and all liabilities, obligations, claims, demands, actions or causes
of action arising from or relating to any event, occurrence, act, omission or
condition occurring or existing on or prior to the Closing Date, including,
without limitation, any claim for indemnity or contribution from the Company in
connection with the obligations or liabilities of the Shareholders hereunder,
except for salary and benefits payable to a Shareholder as an employee in the
ordinary course of business; (ii) waive all breaches, defaults or violations of
any agreement applicable to the Company Common Stock and agree that any and all
such agreements are terminated as of the Closing Date, and (iii) waive any and
all preemptive or other rights to acquire any shares of capital stock of the
Company and release any and all claims arising in connection with any prior
default, violation or failure to comply with or satisfy any such preemptive or
other rights.
5.9 Shareholder Indebtedness and Receivables. On or prior to
Closing, the Shareholders shall cause to be paid in full in cash all accounts
payable, notes payable and advances payable by any Shareholder to the Company
and the Company shall pay in full in cash all accounts payable, notes payable
and advances payable by the Company to any Shareholder.
6. CERTAIN AGREEMENTS
The parties hereto further agree as follows:
6.1 Audit. Prior to Closing, at the expense of Parent, Deloitte &
Touche LLP may complete an audit of the Company through December 31, 1997, and
such additional review work as may be requested by the Parent through and
including the Closing Date (or other periods subsequent to December 31, 1997),
and provide its report to the Parent and the Shareholders.
6.2 Company Plans. Except as otherwise provided in this
Agreement, the Company Plans (within the meaning of Section 3.11 (xiii)
hereto), in effect at the date of this Agreement, shall remain in effect unless
otherwise determined by Parent after the Closing Date.
6.3 Confidentiality. Prior to the Closing Date, none of the
Parent, the Company or the Shareholders will disclose the terms of this
Agreement or the Exchange to any person other than their respective directors,
officers, agents or representatives, except as otherwise provided herein or
unless required by law. The Company may make appropriate disclosures of the
general nature of the Exchange to its employees, vendors and customers to
protect the Company's goodwill and to facilitate the Closing. The Parent may
disclose pertinent information regarding the Exchange to its existing and
prospective investors, lenders, or investment bankers or financial advisors for
the purpose of obtaining financing, including, without limitation, financing
related to the IPO or other offerings of its securities may describe this
Agreement and the transactions contemplated hereby in any registration
statement filed by the Parent under the Securities Act and in reports filed by
the Parent under the Securities Exchange Act of 1934, and may file this
Agreement as an exhibit to any
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thereof. The Parent may also make appropriate disclosures of the general
nature of the Exchange and the identity, nature and scope of the Company's
operations to prospective acquisition candidates in connection with the
Parent's efforts to effect additional acquisitions. Each party will have
mutual approval rights with respect to written employee presentations
concerning the prospective Exchange.
6.4 Tax-Free Exchange. Unless the other parties shall otherwise
agree in writing, none of the Shareholders, the Parent or the Company shall
knowingly take or fail to take any action, which action or failure to act would
jeopardize the qualification of the Exchange as an exchange within the meaning
of Section 351 of the Code.
6.5 Certain Tax Matters.
6.5.1 Tax Periods Ending on or Before the IPO Closing Date.
Parent shall prepare or cause to be prepared and file or cause to be filed all
returns, declarations, reports, claims for refund, or information returns or
statements relating to Taxes, including any schedule, attachment, or amendment
thereto ("Tax Returns") for the Company (including any of its subsidiaries) for
all periods ending on or prior to the IPO Closing Date which are filed after
the IPO Closing Date. Parent shall permit Shareholders to review and comment
on each such Tax Return described in the preceding sentence prior to filing and
shall make such revisions to such Tax Returns as are reasonably requested by
Shareholders. Shareholders shall reimburse Parent for Taxes of the Company
(including any of its subsidiaries) with respect to such periods within fifteen
(15) days after payment by Parent or the Company (including any of its
subsidiaries) of such Taxes to the extent such Taxes are not reflected in the
reserve for Tax liability (other than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) shown on
the face of the Company Financial Statements.
6.5.2 Cooperation on Tax Matters.
(i) Parent, Company (including any of its subsidiaries)
and Shareholders shall cooperate fully, as and to the extent
reasonably requested by the other party, in connection with the filing
of Tax Returns pursuant to this Section and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include
the retention and (upon the other party's request) the provision of
records and information which are reasonably relevant to any such
audit, litigation or other proceeding and making employees available
on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder. Company (and any of
its subsidiaries) and Shareholders agree: (A) to retain all books and
records with respect to Tax matters pertinent to Company (including
any of its subsidiaries) relating to any taxable period beginning
before the IPO Closing Date until the expiration of the statute of
limitations (and, to the extent notified by Parent or Shareholders,
any extensions thereof) of the respective taxable periods, and to
abide by all record retention agreements entered into with any taxing
authority; and (B) to give the other party reasonable written notice
prior to transferring, destroying or discarding any such books and
records and, if the other party so requests, Company (including any of
its subsidiaries) or Shareholders, as the case may be, shall allow the
other party to take possession of such books and records.
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(ii) Parent and Shareholders further agree, upon request,
to use their best efforts to obtain any certificate or other document
from any governmental authority or any other person as may be
necessary to mitigate, reduce or eliminate any Taxes that could be
imposed (including, but not limited to, with respect to the
transactions contemplated hereby).
(iii) The Company and each of the Shareholders shall
cooperate fully in the preparation and delivery to Parent and its
counsel of tax certificates, representations, or similar documents
that may be reasonably necessary or appropriate in connection with the
preparation of tax opinions or other items regarding the tax matters
impacting this Agreement, the Parent, or the Company that are
prepared with respect to the IPO.
6.5.3 Tax Sharing Agreements. All tax sharing agreements
or similar agreements with respect to or involving Company (including any of
its subsidiaries) shall be terminated as of the IPO Closing Date and, after the
IPO Closing Date, Company (including any of its subsidiaries) shall not be
bound thereby or have any liability thereunder.
6.6 Sale of Motor Vehicles. The Shareholders agree to cause the
Company to effect the sale of any Company-owned motor vehicle primarily used
by an executive management employee to such employee prior to the Closing at a
price equal to the depreciated book value of the vehicle as included in the
Company financial statements at the time of purchase.
6.7 Positions of ββ. βββββββββ. The parties hereto shall take
such steps as are appropriate to cause βββββ β. βββββββββ to continue as
President and Chief Executive Officer of the Company in accordance with the
terms of an Employment Agreement between the Company and ββ. βββββββββ pursuant
to Section 7.3.3 hereof. Parent shall use its commercially reasonable efforts
to influence the shareholders of Parent to elect ββ. βββββββββ to Parent's
Board of Directors as promptly as reasonably possible after the Closing.
6.8 Release of Certain Assets and Guaranties. As soon as
reasonably possible after the Closing and in any event not later than six
months thereafter, Parent shall take such steps as are necessary to release the
assets of the Shareholders or the personal guaranties of the Shareholders as
described on Exhibit 6.8 hereto from any security interest granted in such
assets or any guaranty to secure the performance of obligations of the Company
as such security interests, guaranties and obligations are described on Exhibit
6.8 hereto; and until such releases are acquired, Parent shall indemnify the
Shareholder from any loss, payment, cost or expense incurred by the
Shareholders with respect to paying any obligations to the secured party or
guaranteed party based on such security interests or guaranties.
6.9 Parent Insurance. Prior to the Closing, Parent and its Board
of Directors shall obtain and put in place reasonable and customary insurance
coverage for errors, omissions and/or negligence covering the actions and
activities of its officers and directors.
6.10 Parent Stock Option Plan. Prior to or within six (6) months
of the IPO Closing Date, Parent shall use its commercially reasonable efforts
to adopt an employee stock option plan in which key Company employees may
participate.
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6.11 Continuation of Company Name. For at least one year from the
IPO Closing Date and if βββββ β. βββββββββ is employed by the Company or the
Parent, the name of the Company shall remain as βββββ β. βββββββββ and
Associates, Inc. Within two months after the date that βββββ β. βββββββββ is
no longer employed by Company or Parent, the name of the Company shall be
changed so as not to use the name "βββββββββ."
7. CONDITIONS PRECEDENT; CLOSING DELIVERIES
7.1 Conditions Precedent to the Obligations of the Parent. The
obligations of the Parent to effect the Closing under this Agreement are
subject to the satisfaction of each of the following conditions, unless waived
by Parent in writing to the extent permitted by applicable law. Provisions in
this Section 7.1 requiring the delivery of documents and certificates to Parent
shall be deemed satisfied by the delivery of such materials to the Escrow Agent
for later release to Parent upon satisfaction of the conditions contained in
the Escrow Agreement.
7.1.1 Accuracy of Representations and Warranties. The
representations and warranties of the Shareholders contained in this Agreement,
and the Disclosure Schedule referred to herein and the Exhibits provided by the
Shareholders pursuant to this Agreement or in any closing certificate or
document delivered to the Parent pursuant hereto shall be true and correct at
and as of the Closing Date as though made at and as of that time other than
such representations and warranties as are specifically made as of another
date, and the Shareholders shall have delivered to the Parent a certificate to
that effect.
7.1.2 Performance of Covenants. The Shareholders shall
have performed and complied with all covenants of this Agreement to be
performed or complied with by them at or prior to the Closing Date, and the
Shareholders shall each have delivered to the Parent a certificate to that
effect.
7.1.3 Legal Actions or Proceedings. No legal action or
proceeding shall have been instituted after the date hereof against the Company
or the Shareholders which is reasonably likely (i) to restrain, prohibit or
invalidate the consummation of the transactions contemplated by this Agreement,
(ii) to have a Company Material Adverse Effect or (iii) to have a Parent
Material Adverse Effect after giving effect to the consummation of the
transactions contemplated by this Agreement, and the Shareholders shall each
have delivered to the Parent a certificate to that effect.
7.1.4 Approvals. The Shareholders shall have procured all
of the consents, approvals and waivers of third parties or any regulatory body
or authority, whether required contractually or by applicable law or otherwise
necessary for the execution, delivery and performance of this Agreement
(including the Company Related Documents and the Shareholder Related Documents)
by the Shareholders prior to the Closing Date, and Shareholders shall have
delivered to the Parent a certificate to that effect.
7.1.5 Closing Deliveries. All documents required to be
executed or delivered at Closing by the Shareholders pursuant to Section 7.3 of
this Agreement shall have been so executed and delivered.
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7.1.6 No Loss or Damage. No loss or damage which could
reasonably be expected to have a Company Material Adverse Effect shall have
occurred on or prior to the Closing Date to any of the properties or assets of
the Company.
7.1.7 Licenses, etc. The Company shall have obtained all
such licenses and permits as are legally required for the continued operation
of the business after the IPO Closing Date, except such licenses and permits,
the absence of which will not have a Company Material Adverse Effect.
7.1.8 No Material Adverse Change. Since the Balance Sheet
Date, there shall not have been any event that in the reasonable judgment of
the Parent adversely affects the properties, assets, financial condition,
results of operations, cash flows, businesses or prospects of the Company.
7.1.9 Certain Corporate Actions. All necessary director
and shareholder resolutions, waivers and consents required to consummate the
transactions contemplated hereunder shall have been executed and delivered.
7.2 Conditions Precedent to the Obligations of the Shareholders
and the Company. The obligations of the Shareholders to effect the Closing
under this Agreement are subject to the satisfaction of each of the following
conditions, unless waived in writing by βββββ β. βββββββββ. Provisions in this
Section 7.2 requiring the delivery of documents and certificates to the
Shareholders shall be deemed satisfied by the delivery of such materials to the
Escrow Agent for later release to Shareholders upon satisfaction of the
conditions contained in the Escrow Agreement.
7.2.1 Accuracy of Representations and Warranties. The
representations and warranties of the Parent contained in this Agreement or in
any closing certificate or document delivered to the Shareholders pursuant
hereto shall be true and correct on and as of the Closing Date as though made
at and as of that date other than such representations and warranties as are
specifically made as of another date, and the Parent shall have delivered to
the Shareholders a certificate to that effect.
7.2.2 Performance of Covenants. The Parent shall have
performed and complied with all covenants of this Agreement to be performed or
complied with by them at or prior to the Closing Date and the Parent shall have
delivered to the Shareholders a certificate to such effect.
7.2.3 Approvals. The Parent shall have procured prior to
the Closing Date all of the consents, approvals and waivers required of it for
entering into this Agreement without violating any requirements to which it is
subject, and the Parent shall deliver to the Shareholders a certificate to that
effect.
7.2.4 Closing Deliveries. All documents and payments
required to be executed, delivered or tendered at Closing by the Parent
pursuant to Section 7.5 of this Agreement shall have been so executed,
delivered or tendered.
7.3 Deliveries by the Shareholders at the Closing. In accordance
with Section 2.1 above, at the Closing, simultaneously with the deliveries by
the Parent specified in Section 7.5 below, and
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in addition to any deliveries required to be made by the Shareholders pursuant
to any other transaction document at the Closing, the Shareholders shall
deliver or cause to be delivered to the Escrow Agent the following:
7.3.1 Closing Certificates. The Shareholders shall deliver
the certificates required pursuant to Sections 7.1.1, 7.1.2, 7.1.3 and 7.1.4.
7.3.2 Stock Transfer Restriction Agreement. Each
Shareholder shall execute and deliver a Stock Transfer Restriction Agreement on
the Closing Date substantially in the form set forth in Exhibit 7.3.2.
7.3.3 Employment Agreements. Each employee of the Company
specified on Exhibit 7.3.3. shall execute and deliver an Employment Agreement
with the Company on the Closing Date substantially in the form of the
applicable form of the three forms of Employment Agreement set forth in Exhibit
7.3.3A, as stated by employee's name on Exhibit 7.3.3.
7.3.4 Opinion of Counsel for the Shareholders and the
Company. The Shareholders shall deliver the favorable opinion of Hill &
βββββββ, PLLC, counsel to the Shareholders and the Company, dated as of the
Closing Date, substantially in the form and to the effect set forth in Exhibit
7.3.4 attached hereto.
7.3.5 Documents, Stock Certificates. The Shareholders
shall execute and deliver, and shall cause the Company to execute and deliver,
the documents, certificates, opinions, instruments and agreements required to
be executed and delivered by the Company or its officers or directors or any
Shareholder at the Closing as contemplated hereby or as may be reasonably
requested by the Parent and shall deliver or cause to be delivered the
documents and evidence required under this Agreement. Stock Certificates
representing all of the outstanding Company Common Stock and properly executed
and completed Letters of Transmittal shall be delivered by the Shareholders to
the Escrow Agent.
7.4 No Waiver by Parent. The consummation of the Closing shall
not be deemed to be a waiver by the Parent or the Company of any of their
rights or remedies against the Shareholders hereunder for any breach of
warranty, covenant or agreement by the Shareholders herein irrespective of any
knowledge of or investigation made by or on behalf of the Parent; provided,
however, that if the Shareholders shall disclose in writing to the Parent prior
to the Closing Date a specified breach of a specifically identified
representation, warranty, covenant or agreement of the Shareholder herein, and
requests a waiver thereof by the Parent, and the Parent shall waive any such
specifically identified breach in writing prior to the Closing Date, the Parent
and the Company, for themselves and for each Parent Indemnified Party (as
defined below) shall be deemed to have waived their respective rights and
remedies hereunder for, and the Shareholders shall have no liability with
respect to, any such specifically identified breach, to the extent so
identified by the Shareholders and so waived by the Parent.
7.5 Deliveries by the Parent at the Closing. In accordance with
Section 2.1 above, at the Closing, simultaneously with the deliveries by the
Shareholders specified in Section 7.3 above, and
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in addition to any other deliveries to be made by the Parent pursuant to any
other transaction document at the Closing, the Parent shall deliver or cause to
be delivered to the Escrow Agent the following:
7.5.1 Closing Certificates. The Parent shall deliver the
certificates required pursuant to Sections 7.2.1, 7.2.2, and 7.2.3.
7.5.2 Opinion of Counsel for the Parent. The Parent shall
deliver the favorable opinion of Chamberlain, Hrdlicka, White, ββββββββ &
ββββββ, counsel to the Parent, dated as of the Closing Date, substantially in
the form and to the effect set forth in Exhibit 7.5.2.
7.5.3 Exchange Consideration. Parent shall execute and
deliver this Agreement as evidence of its obligation to deliver the Exchange
Consideration to the Shareholders at the IPO Closing Date.
7.6 No Waiver. The consummation of the Closing shall not be
deemed to be a waiver by the Shareholders of any of their rights or remedies
hereunder for breach of any warranty, covenant or agreement herein by the
Parent irrespective of any knowledge of or investigation with respect thereto
made by or on behalf of any Shareholder; provided, however, that if the Parent
shall disclose in writing to the Shareholders prior to the Closing a specified
breach of a specifically identified representation, warranty, covenant or
agreement of the Parent contained herein by the Parent, and requests a waiver
thereof by the Shareholders, and the Shareholders shall waive any such
specifically identified breach in writing prior to the Closing, the
Shareholders shall be deemed to have waived their rights and remedies hereunder
for, and the Parent shall have no liability or obligation to the Shareholders
with respect to, any such specifically identified breach, to the extent so
identified by the Parent and waived the Shareholders.
7.7 Conditions Precedent to Completion of the Closing. The
obligations of the parties to consummate the share exchange transaction under
this Agreement on the IPO Closing Date are subject to the satisfaction of each
of the following conditions (unless waived by each of the parties in writing):
7.7.1 Legal Actions or Proceedings. No legal action or
proceeding shall have been instituted after the date hereof against the Company
or the Shareholders which is reasonably likely (i) to restrain, prohibit or
invalidate the consummation of the transactions contemplated by this Agreement,
(ii) to have a Company Material Adverse Effect or (iii) to have a Parent
Material Adverse Effect after giving effect to the consummation of the
transactions contemplated by this Agreement.
7.7.2 IPO. The Parent shall have completed the IPO on
terms described in the Registration Statement, and the net proceeds thereof
shall have been received by the Parent.
7.8 Delivery of Exchange Consideration on the IPO Closing Date.
On the IPO Closing Date, the Parent shall deliver the portion of the Exchange
Consideration due to the Shareholders at that time, and the Escrow Agent shall
release and deliver all documents and certificates held in escrow to the
appropriate parties.
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8. SURVIVAL, INDEMNIFICATIONS
8.1 Survival. The representations and warranties set forth in
this Agreement and the other documents, instruments and agreements contemplated
hereby shall survive after the date hereof to the extent provided herein. The
representations and warranties of the Shareholders and the Company herein and
in the Shareholder Related Documents and the Company Related Documents, other
than those in Sections 3.9 and 3.15, shall survive for a period of 24 months
after the date hereof and the representations and warranties of the
Shareholders and the Company contained in Sections 3.9 and 3.15 shall survive
for the maximum period permitted by applicable law. The representations and
warranties of the Parent herein and in the Parent Related Documents shall
survive for a period of 24 months after the date hereof. The periods of
survival of the representations and warranties as stated above in this Section
8.1 are referred to herein as the "Survival Period." The liabilities of the
parties under their respective representations and warranties shall expire as
of the expiration of the applicable Survival Period and no claim for
indemnification may be made with respect to any breach of any representation or
warranty, the applicable Survival Period of which shall have expired, except to
the extent that written notice of such breach shall have been given to the
party against which such claim is asserted on or before the date of such
expiration. The covenants and agreements of the parties herein and in other
documents and instruments executed and delivered in connection with the closing
of the transactions contemplated hereby shall survive for the maximum period
permitted by law.
8.2 Indemnification.
8.2.1 Parent Indemnified Parties. Subject to the
provisions of Sections 8.1 and 8.3 hereof, the Shareholders shall indemnify,
save and hold harmless the Parent, the Company and any of their assignees
(including lenders) and all of their respective officers, directors, employees,
representatives, agents, advisors and consultants and all of their respective
heirs, legal representatives, successors and assigns (collectively the "Parent
Indemnified Parties") from and against any and all damages, liabilities,
losses, claims, deficiencies, penalties, interest, expenses, fines,
assessments, charges and costs, including reasonable attorneys' fees and court
costs (collectively "Losses") arising from, out of or in any manner connected
with or based on:
(i) any breach of any covenant of any Shareholder or the
Company or the failure by any Shareholder or the Company to perform
any obligation of any Shareholder or the Company contained herein or in
any Company Related Document or Shareholder Related Document;
(ii) any inaccuracy in or breach of any representation or
warranty of any Shareholder contained herein or in any Shareholder
Related Document;
(iii) any inaccuracy in or breach of any representation or
warranty of the Company contained herein or in any Company Related
Document;
(iv) indemnification payments made by the Company to the
Company's present or former officers, directors, employees, agents,
consultants, advisors or representatives in respect of actions taken
or omitted to be taken prior to the Closing; and
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(v) any act, omission, occurrence, event, condition or
circumstance occurring or existing at any time on or before the
Closing Date and involving or related to the assets, properties,
business or operations now or previously owned or operated by the
Company and not (a) disclosed in the Disclosure Schedule or (b)
disclosed in the Company Financial Statements excluding liability for
decisions made in the exercise of the Company's reasonable business
judgement and in the ordinary course of business.
Notwithstanding the foregoing, the foregoing indemnities shall not apply to the
extent that such Losses are reimbursed to the Parent Indemnified Parties under
provisions of any errors and omissions or professional liability insurance
policy containing waiver of subrogation provisions applicable to claims
relating to such Losses. The foregoing indemnities shall not limit or
otherwise adversely affect the Shareholder Indemnified Parties' rights of
indemnity for Losses under Section 8.2.3
8.2.2 Minimum Losses. For purposes of this Section 8.2.2,
Losses shall be calculated with respect to any inaccuracy or breach of any
representation or warranty of any Shareholder contained herein or in any
Shareholder Related Document without giving effect to any clause which would
permit such inaccuracy or breach up to an amount which would be deemed a
Company Material Adverse Effect. The Shareholders shall have no obligation
under Section 8.2.1 until the aggregate amount of all such Losses equal or
exceed $75,000 (whether or not resulting in a Company Material Adverse Effect),
at which time the Shareholders shall be subject to the provisions of Section
8.2.1 with respect to all Losses of the Parent Indemnified Parties in excess of
the first $75,000 of Losses.
8.2.3 Parent Indemnity. Subject to the provisions of
Sections 8.1 and 8.3, the Parent shall indemnify, save and hold harmless the
Shareholders and the Shareholders' heirs, legal representatives, successors and
assigns (the "Shareholder Indemnified Parties") from and against all Losses
arising from, out of or in any manner connected with or based on:
(i) any breach of any covenant of the Parent or the
failure by the Parent to perform any of its obligations contained
herein or in the Parent Related Documents;
(ii) any inaccuracy in or breach of any representation or
warranty of the Parent contained herein or in the Parent Related
Documents; and
(iii) any act, omission, event, condition or circumstance
occurring or existing at any time after (but not on or before) the
Closing Date and involving or relating to the assets, properties,
businesses or operations of the Company; provided, however, that this
clause (iii) shall not apply to any Losses to the extent that such
Losses result from any Shareholder's acts or omissions after the
Closing Date as an officer, director and/or employee of the Parent,
the Surviving Corporation and/or any other affiliate of the Parent.
The foregoing indemnities shall not limit or otherwise adversely affect the
Parent Indemnified Parties' rights of indemnity for Losses under Section 8.2.1.
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8.3 Limitations. The aggregate liability of each Shareholder
under Section 8.2.1 shall not exceed the amount equal to the portion of the
Exchange Consideration payable to such Shareholder, with the Parent Common
Stock being valued at the IPO Price for such purpose. The aggregate liability
of the Parent under Section 8.2.3 shall not exceed the amount of the Exchange
Consideration paid with Parent Common Stock.
8.4 Procedures for Indemnification.
8.4.1 Notice. The party (the "Indemnified Party") that may
be entitled to indemnity hereunder shall give prompt notice to the party
obligated to give indemnity hereunder (the "Indemnifying Party") of the
assertion of any claim, or the commencement of any suit, action or proceeding
in respect of any Losses for which indemnity may be sought hereunder, and
Parent shall give such notice to βββββ β. βββββββββ of any Loss claim by it
that would apply against the $75,000 allowance in Section 8.2.2 above ("$75,000
Allowance"). Any failure on the part of any Indemnified Party to give the
notice described in this Section 8.4.1 shall relieve the Indemnifying Party of
its obligations under this Article 8 only to the extent that such Indemnifying
Party has been prejudiced by the lack of timely and adequate notice (except
that the Indemnifying Party shall not be liable for any expenses incurred by
the Indemnified Party during the period in which the Indemnified Party failed
to give such notice). Thereafter, the Indemnified Party shall deliver to the
Indemnifying Party, promptly (and in any event within 10 days thereof) after
the Indemnified Party's receipt thereof, copies of all notices and documents
(including court papers) received by the Indemnified Party relating to such
claim, action, suit or proceeding.
8.4.2 Legal Defense. The Parent shall have the obligation
to assume the defense or settlement of any third-party claim, suit, action or
proceeding in respect of which indemnity may be sought hereunder or that would
apply against the $75,000 Allowance; provided that the Shareholders shall have
the first right, but not the obligation, to undertake the defense of any such
third-party claim, suit, action or proceeding, and in such event, the Parent
shall have the right to participate in such defense. βββββ β. βββββββββ shall
give notice to Parent of Shareholder election to defend said claim within 10
days of the notice under Section 8.4.1. If the Parent assumes the defense, the
Shareholders shall have the right to participate therein.
8.4.3 Settlement. The Indemnifying Party shall not be
required to indemnify the Indemnified Party with respect to any amounts paid in
settlement of any third-party suit, action, proceeding or investigation entered
into without the written consent of the Indemnifying Party; provided, however,
that if the Indemnified Party is a Parent Indemnified Party, such third-party
suit, action, proceeding or investigation may be settled without the consent of
the Indemnifying Party on 10 days' prior written notice to the Indemnifying
Party if such third-party suit, action, proceeding or investigation is then
unreasonably interfering with the business or operations of the Company and the
settlement is commercially reasonable under the circumstances; and provided
further, that if the Indemnifying Party gives 10 days' prior written notice to
the Indemnified Party of a settlement offer which the Indemnifying Party
desires to accept and to pay all Losses with respect thereto ("Settlement
Notice") and the Indemnified Party fails or refuses to consent to such
settlement within 10 days after delivery of the Settlement Notice to the
Indemnified Party, and such settlement otherwise complies with the provisions
of this Section 8.4, the Indemnifying Party shall not be liable for Losses
arising
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from such third-party suit, action, proceeding or investigation in excess of
the amount proposed in such settlement offer. Notwithstanding the foregoing,
no Indemnifying Party will consent to the entry of any judgment or enter into
any settlement without the consent of the Indemnified Party, if such judgment
or settlement imposes any obligation or liability upon the Indemnified Party
other than the execution, delivery or approval thereof and customary releases
of claims with respect to the subject matter thereof.
8.4.4 Cooperation. The parties shall cooperate in
defending any such third-party suit, action, proceeding or investigation, and
the parties shall have reasonable access to the books and records, and
personnel in the possession or control of the Indemnified Party that are
pertinent to the defense. The Indemnified Party may join the Indemnifying
Party in any suit, action, claim or proceeding brought by a third party, as to
which any right of indemnity created by this Agreement would or might apply,
for the purpose of enforcing any right of the indemnity granted to such
Indemnified Party pursuant to this Agreement.
8.5 Subrogation. Each Indemnifying Party hereby waives for itself
and its affiliates any rights to subrogation against any Indemnified Party or
its insurers for Losses arising from any third-party claims for which it is
liable or against which it indemnifies any Indemnified Party and, if necessary,
each Indemnifying Party shall obtain waivers of such subrogation from its, his
or her insurers.
9. TERMINATION
9.1 Grounds for Termination. This Agreement may be terminated
only as provided below.
9.1.1 Prior to Closing. The parties may terminate this
Agreement at any time prior to the Closing only as provided below:
(i) Mutual Consent. Parent and βββββ β. βββββββββ
("ββ. βββββββββ") may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(ii) Termination by Parent. Parent may terminate
this Agreement by giving written notice thereof to ββ.
βββββββββ at any time prior to the Closing: (a) in the event
that the Shareholders or the Company has breached any
material representation, warranty, or covenant contained in
this Agreement in any material respect, Parent has notified
ββ. βββββββββ of the breach, and the breach has continued
without cure until the earlier of 20 days after the notice of
such breach or the Closing Date, whichever is earlier, (b) if
the Registration Statement for the IPO has not been filed with
the Securities and Exchange Commission on or before December
31, 1997, or (c) if the IPO Closing Date shall not have
occurred on or before April 30, 1998, by reason of the failure
of any condition precedent under Section 7.1 hereof (unless
the failure results primarily from Parent itself materially
breaching any material representation, warranty, or covenant
contained in this Agreement); and
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(iii) Termination by ββ. βββββββββ. ββ. βββββββββ
may terminate this Agreement by giving written notice thereof
to Parent at any time prior to the Closing: (a) in the event
the Parent has breached any material representation,
warranty, or covenant contained in this Agreement in any
material respect, the Shareholders have notified Parent of the
breach, and the breach has continued without cure until the
earlier of 20 days after the notice of such breach or the
Closing Date, whichever is earlier, (b) if the Registration
Statement for the IPO has not been filed with the Securities
and Exchange Commission on or before December 31, 1997, or (c)
if the IPO Closing Date shall not have occurred on or before
April 30, 1998 by reason of the failure of any condition
precedent under Section 7.2 hereof (unless the failure results
primarily from any Shareholder materially breaching any
material representation, warranty, or covenant contained in
this Agreement).
9.1.2 After the Closing Date. This agreement may be
terminated after the Closing only as follows:
(i) Termination of Underwriting Agreement. Upon
termination, prior to the successful completion of the IPO, of
the agreement between Parent and certain investment banking
firms (the "Underwriting Agreement") under which such firms
agree to purchase shares of Parent Common Stock from Parent on
a firm commitment basis for resale to the public initially at
the IPO Price, Parent or the Shareholders may each terminate
this Agreement by providing written notice to the other.
(ii) Automatic Termination. This Agreement shall
terminate automatically and without action on the part of any
party hereto if the IPO is not consummated within 10 business
days after the Closing.
9.2 Effect of Termination. If this Agreement is terminated as
permitted under Section 9.1, such termination shall be without liability of any
party to any other party, except that such termination shall be without
prejudice to any and all remedies the parties may have against each other for
breach of this Agreement. Upon termination, documents delivered by one party
to another party pursuant hereto shall be promptly returned.
10. MISCELLANEOUS
10.1 Notice. Any notice, delivery or communication required or
permitted to be given under this Agreement shall be in writing, and shall be
mailed, postage prepaid, or delivered, to the addresses given below, or sent by
telecopy to the telecopy numbers set forth below, as follows:
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To the Shareholders:
βββββ β. βββββββββ
Chateau Plaza, Suite 1700
ββββ ββββββββ ββββββ, ββ-ββ
ββββββ, βββββ βββββ
Telecopy: (βββ) βββ-ββββ
Copy to:
βββββββ β. ββββ
Hill & βββββββ, P.L.L.C.
Attorneys at Law
One Turtle Creek Village
ββββ βββ ββββ ββββββ, βββββ βββ
ββββββ, βββββ βββββ-ββββ
Telecopy: (βββ) βββ-ββββ
To the Parent:
BrightStar Information Technology Group, Inc.
Attn: President
βββββ ββββββββ ββββββ, βββββ ββββ
βββββββ, βββββ βββββ
Telecopy: (βββ) βββ-ββββ
Copy to:
ββββββ β. ββββββ, ββ.
Chamberlain, Hrdlicka, White, ββββββββ & ββββββ
ββββ βββββ ββββββ, βββββ ββββ
βββββββ, βββββ βββββ-ββββ
Telecopy: (βββ) βββ-ββββ
or other such address as shall be furnished in writing by any such party to the
other party, and such notice shall be effective and be deemed to have been
given as of the date actually received.
To the extent any notice provision in any other agreement, instrument
or document required to be executed or executed by the parties in connection
with the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 10.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
10.2 Further Documents. Each party shall, at any time and from
time to time after the date hereof, upon reasonable request by another party
and without further consideration, execute and
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deliver such instruments or other documents and take such further action as may
be reasonably required in order to perfect any other undertaking made by the
party hereunder.
10.3 Assignability. No Shareholder shall assign this Agreement in
whole or in part without the prior written consent of the Parent, except by the
operation of law. The Parent may not assign its rights under this Agreement,
the Company Related Documents and the Shareholder Related Documents prior to
six months after the IPO Closing Date without the consent of βββββ β.
βββββββββ. Any effectuated assignment in violation of the preceding sentence
shall cause this Agreement and the agreements effected ancillary hereto, to be
revocable at the option of the Shareholders in addition to any other remedies
available to the Shareholders at law or in equity. After the expiration of the
above time period, the Company may assign its rights under this Agreement, the
Company Related Documents and the Shareholder Related Documents without the
consent of any of the Shareholders.
10.4 Exhibits and Schedules. The Exhibits and Schedules (and any
appendices thereto) referred to in this Agreement are and shall be incorporated
herein and made a part hereof.
10.5 Sections and Articles. Unless the context otherwise requires,
all Sections, Articles and Exhibits referred to herein are, respectively,
sections and articles of, and exhibits to, this Agreement and all Schedules
referred to herein are schedules constituting a part of the Disclosure
Schedule.
10.6 Entire Agreement. This Agreement constitutes the full
understanding of the parties, a complete allocation of risks between them and a
complete and exclusive statement of the terms and conditions of their agreement
relating to the subject matter hereof and supersedes any and all prior
agreements, whether written or oral, that may exist between the parties with
respect thereto. Except as otherwise specifically provided in this Agreement,
no conditions, usage of trade, course of dealing or performance, understanding
or agreement purporting to modify, vary, explain or supplement the terms or
conditions of this Agreement shall be binding unless hereafter made in writing
and signed by the party to be bound, and no modification shall be effected by
the acknowledgment or acceptance of documents containing terms or conditions at
variance with or in addition to those set forth in this Agreement. No waiver
by any party with respect to any breach or default or of any right or remedy
and no course of dealing shall be deemed to constitute a continuing waiver of
any other breach or default or of any other right or remedy, unless such waiver
be expressed in writing signed by the party to be bound. Failure of a party to
exercise any right shall not be deemed a waiver of such right or rights in the
future.
10.7 Headings. Headings as to the contents of particular articles
and sections are for convenience only and are in no way to be construed as part
of this Agreement or as a limitation of the scope of the particular articles or
sections to which they refer.
10.8 CONTROLLING LAW. THE VALIDITY, INTERPRETATION AND PERFORMANCE
OF THIS AGREEMENT AND ANY DISPUTE CONNECTED HEREWITH SHALL BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE
EXTENT THE APPLICABLE CORPORATE LAW MANDATORILY APPLIES WITH RESPECT THERETO.
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10.9 Public Announcements. No Shareholder shall make any press
release, public announcement, or public confirmation or disclose any other
information regarding this Agreement or the contents hereof.
10.10 No Third Party Beneficiaries. Except as set forth in Article
8, no person or entity not a party to this Agreement shall have rights under
this Agreement as a third party beneficiary or otherwise.
10.11 Amendments and Waivers. This Agreement may be amended by the
Parent and the Shareholders; provided that all amendments to this Agreement
must be by an instrument in writing signed on behalf of the Parent and the
Shareholders. Any term or provision of this Agreement (other than the
requirements for shareholder approvals) may be waived in writing at any time by
the party which is, or whose shareholders are, entitled to the benefits
thereof.
10.12 No Employee Rights. Nothing herein expressed or implied shall
confer upon any employee of the Company, any other employee or legal
representatives or beneficiaries of any thereof any rights or remedies,
including any right to employment or continued employment for any specified
period, of any nature or kind whatsoever under or by reason of this Agreement,
or shall cause the employment status of any employee to be other than
terminable at will.
10.13 No Personal Liability of Representatives of Parent. No
recourse for the payment of any amounts due hereunder or for any claim based on
this Agreement or the transactions contemplated hereby or otherwise in respect
thereof, and no recourse under or upon any obligation, covenant or agreement of
the Parent in this Agreement shall be had against any incorporator, organizer,
promoter, shareholder, officer, director, employee or representative as such
(other than the Shareholders as set forth herein), past, present or future, of
the Parent or of any successor corporation, whether by virtue of any
constitution, statute or rule of law, or by enforcement of any assessment or
penalty or otherwise; it being expressly understood that all such obligations
are those of the Parent as a separate corporate entity.
10.14 When Effective. This Agreement shall become effective only
upon the execution and delivery of one or more counterparts of this Agreement
by each of the Parent and the Shareholders.
10.15 Takeover Statutes. If any "fair price," "moratorium,"
"control share acquisition" or other form of anti-takeover statute or
regulation shall become applicable to the transactions contemplated hereby,
Parent and the Company and their respective members of their Boards of
Directors shall grant such approvals and take such actions as are necessary so
that the transactions contemplated by this Agreement may be consummated as
promptly as practicable on the terms contemplated herein and otherwise act to
eliminate or minimize the effects of such statute or regulation on the
transactions contemplated herein.
10.16 Number and Gender of Words. Whenever herein the singular
number is used, the same shall include the plural where appropriate and words
of any gender shall include each other gender where appropriate.
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10.17 Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid, or unenforceable under present or future laws,
such provisions shall be fully severable as if such invalid or unenforceable
provisions had never comprised a part of the Agreement; and the remaining
provisions of the Agreement shall remain in full force and effect and shall not
be affected by the illegal, invalid or unenforceable provision or by its
severance from this Agreement. Furthermore, in lieu of such illegal, invalid
or unenforceable provision, there shall be automatically as a part of this
Agreement, a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
10.18 Multiple Counterparts. This Agreement may be executed in a
number of identical counterparts. If so executed, each of such counterparts is
to be deemed an original for all purposes and all such counterparts shall,
collectively, constitute one agreement, but, in making proof of this Agreement,
it shall not be necessary to produce or account for more than one such
counterpart.
10.19 No Rule of Construction. All of the parties hereto have been
represented by counsel in the negotiations and preparation of this Agreement;
therefore, this Agreement will be deemed to be drafted by each of the parties
hereto, and no rule of construction will be invoked respecting the authorship
of this Agreement.
10.20 Expenses. Each of the parties shall bear all of their own
expenses in connection with the negotiation and closing of this Agreement and
the transactions contemplated hereby; provided that the Company shall pay the
costs of any attorney engaged by the Shareholders; and provided further that
all fees, costs and expenses incurred or payable by the Company (other than
accounting and auditing fees and expenses) in connection with the negotiation
and closing of this Agreement and the transactions contemplated hereby and the
costs of any such attorney shall be included in current liabilities for
purposes of determining Net Working Capital.
10.21 No Brokers. Each party represents and warrants to the other
party that such representing party has not engaged a broker, finder or similar
party in connection with this Agreement and the transactions contemplated
hereunder, and each representing party will indemnify the other party for any
costs or expenses resulting from the representing party's misrepresentation in
this section.
10.22 Section 351 Plan of Exchange. Simultaneously with the
execution hereof, the parties hereto shall execute the Section 351 Plan of
Exchange in the form set forth in Exhibit 10.22 hereto.
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IN WITNESS WHEREOF, this Agreement and Plan of Exchange has been duly
executed and delivered effective as of the date first hereinabove written.
PARENT:
BRIGHTSTAR INFORMATION
TECHNOLOGY GROUP, INC.
By: /s/ ββββββββ β. ββββ
----------------------------------
ββββββββ β. ββββ, President
SHAREHOLDERS:
/s/ βββββ β. βββββββββ
-------------------------------------
βββββ β. βββββββββ
/s/ ββββββ β. ββββ
-------------------------------------
ββββββ β. ββββ
/s/ ββββ β. ββββ
-------------------------------------
ββββ β. ββββ
/s/ βββββ ββββ
-------------------------------------
βββββ ββββ
/s/ ββββ βββββββββ
-------------------------------------
ββββ βββββββββ
/s/ βββββββ βββββββββ
-------------------------------------
βββββββ βββββββββ
/s/ βββββ β. βββββ
-------------------------------------
βββββ β. βββββ
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