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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________
FORM 8-K
CURRENT REPORT
Pursuant to Section l3 or l5(d) of the
Securities Exchange Act of l934
Date of Report (Date of earliest event reported) June 28, 1996
-------------
COTELLIGENT GROUP, INC.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-25372 94-3173918
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(State of other juris- (Commission (I.R.S. Employer
diction of incorporation) File Number) Identification No.)
101 California Street, Suite 2050 San Francisco, CA 94111
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
415-439-6400
- - --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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Item 2. Acquisition or Disposition of Assets
------------------------------------
On June 28, 1996, Cotelligent Group, Inc. (the "Company") completed the
acquisition of two businesses with offices in three cities. Both businesses are
software professional services firms which provide computer consulting and
contract programming services. The acquired companies, with operations in
Dallas, Minneapolis and St. Louis, had unaudited combined revenues of
approximately $16.1 million and unaudited combined income before taxes of
approximately $949,000 for their most recent fiscal years. Aggregate
consideration for these acquisitions was approximately $18 million. Both
acquisitions will be accounted for as poolings-of-interests.
In order to consummate these acquisitions, the Company entered into two
acquisition agreements. First, the Company entered into an Agreement and Plan
of Reorganization and Merger, dated as of June 28, 1996, with Innova Solutions,
Inc. ("Innova") and its sole stockholder, Susan E. Trice, pursuant to which a
newly-formed subsidiary of the Company was merged with Innova, with Innova
thereby becoming a wholly-owned subsidiary of the Company. The stockholder of
Innova received 521,390 newly issued shares of the Company's Common Stock
(valued at the average closing price during a five day period prior to the
closing) as consideration in the merger, which was consummated on June 28, 1996.
The Company also entered into an Agreement and Plan of Reorganization and
Merger, dated as of June 28, 1996, with ESP Software Services, Inc. ("ESP") and
its sole stockholders, Robert Hildreth and Raymond Davey, pursuant to which a
newly-formed subsidiary of the Company was merged with ESP, with ESP thereby
becoming a wholly-owned subsidiary of the Company. The stockholders of ESP
received an aggregate of 534,919 newly issued shares of the Company's Common
Stock (valued at the average closing price during a five day period prior to the
closing) as consideration for the merger, which was consummated on June 28,
1996.
Item 7. Exhibits.
--------
(a) It is impracticable to provide the required financial statements for the
businesses acquired by the registrant. The registrant will file the
required financial statements for such acquired businesses within 60 days
of the date hereof.
(b) It is impracticable to provide the required pro forma financial information
for the businesses acquired by the registrant. The registrant will file the
required pro forma
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financial information for such acquired businesses within 60 days of the
date hereof.
(c) Exhibits
1. Agreement and Plan of Reorganization and Merger, dated as of June 28,
1996, among Cotelligent Group, Inc., Innova Solutions, Inc., CGI
Acquisition, Inc. and Susan E. Trice.
2. Agreement and Plan of Reorganization and Merger, dated as of June 28,
1996, among Cotelligent Group, Inc., ESP Software Services, Inc.,
Cotelligent/ESP Acquisition Corporation, Robert Hildreth and Raymond
Davey.
3
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of l934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COTELLIGENT GROUP, INC.
--------------------------------
(Registrant)
/s/ Daniel E. Jackson
---------------------------------
(Signature)
Daniel E. Jackson
Senior Vice President, Corporate
Development and General Counsel
Date: July 12, 1996
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EXHIBIT INDEX
No.
- - ---
99.1 Agreement and Plan of Reorganization and Merger, dated as of June 28, 1996,
among Cotelligent Group, Inc., Innova Solutions, Inc., CGI Acquisition,
Inc. and Susan E. Trice.
99.2 Agreement and Plan of Reorganization and Merger, dated as of June 28, 1996,
among Cotelligent Group, Inc., ESP Software Services, Inc., Cotelligent/ESP
Acquisition Corporation, Robert Hildreth and Raymond Davey.
5
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EXHIBIT 1
AGREEMENT AND PLAN OF REORGANIZATION
AND MERGER
AMONG
COTELLIGENT GROUP, INC.,
CGI ACQUISITION, INC.,
INNOVA SOLUTIONS, INC.,
AND
SUSAN E. TRICE
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TABLE OF CONTENTS
-----------------
PAGE
----
1. THE MERGER............................................................ 1
1.1 Delivery and Filing of Articles of Merger........................ 1
1.2 Effective Time of the Merger..................................... 2
1.3 Merger of Newco into the Company; Articles of Incorporation,
Bylaws and Board of Directors of Surviving Corporation........... 2
1.4 Certain Information With Respect to the Capital Stock of the
Company, and Newco............................................... 3
1.5 Effect of Merger................................................. 3
2. CONVERSION AND EXCHANGE OF STOCK...................................... 3
2.1 Manner of Conversion............................................. 3
3. DELIVERY OF SHARES.................................................... 4
4. CLOSING............................................................... 4
5. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER......................... 5
5.1 Due Organization................................................ 5
5.2 Authorization................................................... 5
5.3 Capital Stock of the Company.................................... 6
5.4 Transactions in Capital Stock and Spin-offs..................... 6
5.5 No Bonus Shares................................................. 6
5.6 Subsidiaries ................................................... 7
5.7 Predecessor Status; etc......................................... 7
5.8 Cotelligent Stock Ownership..................................... 7
5.9 Financial Statements............................................ 7
5.10 Liabilities and Obligations..................................... 7
5.11 Approvals....................................................... 8
5.12 Accounts and Notes Receivable................................... 8
5.13 Permits and Intangibles......................................... 9
5.14 Real and Personal Property...................................... 9
5.15 Material Contracts and Commitments.............................. 9
5.16 Insurance....................................................... 10
5.17 Compensation.................................................... 10
5.18 Benefit Plans; ERISA Compliance................................. 10
5.19 Conformity with Law............................................. 13
5.20 Taxes........................................................... 14
5.21 Completeness.................................................... 15
5.22 Government Contracts............................................ 15
5.23 Absence of Changes.............................................. 15
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5.24 Deposit Accounts; Powers of Attorney ........................... 16
5.25 Proprietary Rights.............................................. 17
5.26 Validity of Obligations......................................... 17
5.27 Relations with Governments...................................... 17
5.28 Conflicts of Interest........................................... 17
5.29 Environmental Matters........................................... 18
5.30 Disclosure...................................................... 18
6. REPRESENTATIONS OF COTELLIGENT AND NEWCO.............................. 19
6.1 Due Organization................................................ 19
6.2 Cotelligent Stock............................................... 19
6.3 Authorization................................................... 19
6.4 No Conflicts.................................................... 19
6.5 Status of Cotelligent Shares.................................... 20
7. COVENANTS OF STOCKHOLDER AND THE COMPANY PRIOR TO CLOSING............. 20
7.1 Access and Cooperation.......................................... 20
7.2 Conduct of Business Pending Closing............................. 20
7.3 Prohibited Activities........................................... 21
7.4 Pooling of Interests; Reorganization............................ 22
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDER.................... 22
8.1 Representations and Warranties; Performance of Obligations...... 22
8.2 Counsel Approval................................................ 22
8.3 No Litigation................................................... 23
8.4 Opinion of Counsel.............................................. 23
9. CONDITIONS TO OBLIGATIONS OF COTELLIGENT AND NEWCO.................... 23
9.1 Representations and Warranties; Performance of Obligations...... 23
9.2 No Litigation................................................... 23
9.3 Examination of Financial Statements............................. 23
9.4 No Material Adverse Change...................................... 24
9.5 Review.......................................................... 24
9.6 Stockholder Release............................................. 24
9.7 Counsel Approval................................................ 24
9.8 Opinion of Counsel.............................................. 24
9.9 Consents and Approvals.......................................... 24
9.10 Pooling Accounting Treatment.................................... 24
9.11 Good Standing Certificates...................................... 24
10. INDEMNIFICATION....................................................... 25
10.1 General Indemnification by Stockholder.......................... 25
10.2 Specific Indemnification by Stockholder......................... 25
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10.3 Notice and Defense of Third Party Claims........................ 26
10.4 Payment; Interest............................................... 26
11. TERMINATION OF AGREEMENT............................................. 27
12. NONCOMPETITION....................................................... 27
12.1 Prohibited Activities........................................... 27
12.2 Independent Covenant............................................ 29
12.3 Materiality..................................................... 29
13. POST-CLOSING COVENANTS............................................... 29
13.1 Stockholder..................................................... 29
13.2 Cotelligent..................................................... 29
13.3 Damages......................................................... 30
13.4 Covenant to Pay Taxes........................................... 30
14. POOLING ACCOUNTING................................................... 30
14.1 Restrictions on Resale; Legends................................. 30
14.2 Indemnification................................................. 31
15. FEDERAL SECURITIES ACT AND CONTRACTUAL RESTRICTIONS ON COTELLIGENT
STOCK................................................................ 31
15.1 Prospectus Delivery............................................. 31
15.2 Resale of Cotelligent Stock..................................... 32
15.3 Legend.......................................................... 32
16. GENERAL.............................................................. 32
16.1 Cooperation.................................................... 32
16.2 Successors and Assigns......................................... 32
16.3 Entire Agreement............................................... 32
16.4 Counterparts................................................... 33
16.5 Brokers and Agents............................................. 33
16.6 Expenses....................................................... 33
16.7 Notices........................................................ 33
16.8 Governing Law.................................................. 34
16.9 Survival of Representations and Warranties..................... 34
16.10 Exercise of Rights and Remedies................................ 34
16.11 Time........................................................... 34
16.12 Reformation and Severability................................... 34
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EXHIBIT A - FORM OF ARTICLES OF MERGER
EXHIBIT B - NUMBER OF SHARES
EXHIBIT C - FORM OF STOCK POWER
EXHIBIT D - CAPITAL STRUCTURE OF INNOVA
EXHIBIT E - FORM OF LEGAL OPINION OF DANIEL E. JACKSON
EXHIBIT F - FORM OF RECEIPT AND RELEASE
EXHIBIT G - FORM OF LEGAL OPINION OF HUGHES & LUCE, L.L.P.
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DEFINITIONS
-----------
DEFINED TERM SECTION
- - ------------ -------
"Act" 15
"Agreement" Preamble
"Article of Merger" 1.1
"ASRs" 14.1
"Balance Sheet Date" 5.9
"Benefit Plan" 5.18
"Closing" 4
"Closing Date" 4
"Code" Recitals
"Company" Preamble, 5
"Company Stock" 1.4
"Constituent Corporations" Recitals
"Consummation Date" 4
"Cotelligent" Preamble
"Cotelligent Stock" 2.1
"ERISA" 5.18
"Effective Time of the Merger" 1.2
"Environmental Laws" 5.29
"Expiration Date" 5
"Financial Statements" 5.9
"Indemnified Person" 10.3
"Indemnifying Person" 10.3
"IRS" 5.18
"Losses" 5.18
"Merger" Recitals
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DEFINITIONS
-----------
DEFINED TERM SECTION
- - ------------ -------
"Merger Provision" 1.5
"Newco" Preamble
"Newco Stock" 1.4
"PBGC" 5.18
"Pension Plans" 5.18
"pooling-of-interest" 14.1
"Stockholder" Preamble
"Surviving Corporation" 1.2
"Tax" 5.20
"Tax Return" 5.20
"Welfare Plans" 5.18
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AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (the "Agreement") is
made as of the 28th day of June, 1996, among COTELLIGENT GROUP, INC., a Delaware
corporation ("Cotelligent"), and INNOVA SOLUTIONS, INC., a Texas corporation
("Company"), CGI ACQUISITION, INC., a Texas corporation ("Newco"), and SUSAN E.
TRICE ("Stockholder").
WHEREAS, the Newco has been duly organized and is currently existing under
the laws of the State of Texas, having been incorporated solely for the purpose
of completing this transaction, and is a wholly-owned subsidiary of Cotelligent;
and
WHEREAS, Stockholder is the record owner of all the outstanding capital
stock of the Company; and
WHEREAS, the respective Boards of Directors of Cotelligent, Newco and the
Company (all of which companies are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective stockholders that Newco merge with
and into the Company pursuant to this Agreement and the applicable provisions of
the laws of the State of Texas, such transaction sometimes being referred to
herein as the "Merger"; and
WHEREAS, it is intended that the Merger shall be recorded for accounting
purposes as a pooling of interests; and
WHEREAS, the Boards of Directors of each of the Constituent Corporations
have approved and adopted this Agreement as a plan of reorganization within the
provisions of Section 368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code
of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements set forth below, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. Cotelligent, the Company,
Newco and Stockholder agree that Newco shall merge with and into the Company,
upon the terms and conditions set forth in this Agreement and in accordance with
the applicable provisions of the laws of their respective states of
incorporation. The Constituent Corporations will cause Articles of Merger (with
a summary Plan of Merger attached) in substantially the form attached hereto as
Exhibit A (the "Articles of Merger") to be signed, verified by the appropriate
party and delivered to the Secretary of State of Texas on or before the
Consummation Date (as defined in
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Section 4 of this Agreement).
1.2 EFFECTIVE TIME OF THE MERGER. The "Effective Time of the Merger"
shall be such time at which the Articles of Merger are filed with the Secretary
of State for the State of Texas, or if a different effective time is specified
in the Articles of Merger, such later time as is specified in such Articles of
Merger. At the Effective Time of the Merger, Newco shall be merged with and
into the Company and the separate existence of Newco shall cease. The Company,
the party surviving the Merger, is hereinafter sometimes referred to as the
"Surviving Corporation."
1.3 MERGER OF NEWCO INTO THE COMPANY; ARTICLES OF INCORPORATION, BYLAWS
AND BOARD OF DIRECTORS OF SURVIVING CORPORATION. At the Effective Time of the
Merger:
(i) Newco shall merge with and into the Company, with such effects as are
set forth herein and in the Texas Business Corporation Act ("TBCA");
(ii) the Articles of Incorporation of Newco, as in effect immediately prior
to the consummation of the Merger, shall become the Articles of Incorporation of
the Surviving Corporation, except that such Articles shall be amended to retain
the name "Innova Solutions, Inc." as the name of the Surviving Corporation; and
subsequent to the Effective Time of the Merger, such Articles of Incorporation,
as so amended, shall be the Articles of Incorporation of the Surviving
Corporation until changed as provided by law;
(iii) the Bylaws of Newco, as in effect immediately prior to the
consummation of the Merger, shall become the Bylaws of the Surviving
Corporation; and subsequent to the Effective Time of the Merger, such Bylaws
shall be the Bylaws of the Surviving Corporation until they shall thereafter be
duly amended;
(iv) the name of the person who shall serve as the member of the Board of
Directors of the Surviving Corporation is as follows:
Daniel Jackson
The Director of the Surviving Corporation shall hold office subject to the
provisions of the laws of its state of incorporation and of the Articles of
Incorporation and Bylaws of the Surviving Corporation; and
(v) the officers of Newco immediately prior to the Effective Time of the
Merger shall continue as the officers of the Surviving Corporation in the same
capacity or capacities, each of such officers to serve, subject to the
provisions of the Articles of Incorporation and Bylaws of the Surviving
Corporation, until his or her successor is elected and qualified.
2
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1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
AND NEWCO. The respective designations and numbers of outstanding shares and
voting rights of each class of outstanding capital stock of the Company and
Newco as of the date of this Agreement are as follows:
(i) the authorized capital stock of the Company consists of 100,000 shares
of common stock, $.01 par value ("Company Stock"), of which 51,000 shares are
issued and outstanding; and
(ii) the authorized capital stock of Newco consists of 1,000 shares of
common stock, $0.01 par value ("Newco Stock"), of which 1,000 shares are issued
and outstanding.
1.5 EFFECT OF MERGER. The Merger shall have the effects set forth in
Article 5.06 of the TBCA (the "Merger Provision"). Except as specifically set
forth to the contrary in the Merger Provision or in this Agreement, the
identity, existence, purposes, powers, objects, franchises, privileges, rights
and immunities of Newco shall continue unaffected and unimpaired by the Merger
and the corporate franchises, existence and rights of Newco shall be merged into
the Company, and the Company, as the Surviving Corporation, shall be fully
vested therewith; at the Effective Time of the Merger, the separate existence of
Newco shall cease and, in accordance with the terms of this Agreement, the
Surviving Corporation shall possess all the rights, privileges, immunities and
franchises, of a public, as well as of a private nature; and all property and
all debts due on whatever account, including subscriptions to shares and all and
every other interest of or belonging to or due to Newco and the Company shall be
allocated to, and vested in, the Surviving Corporation without further act or
deed and without any transfer or assignment having occurred; and all property,
rights, privileges, powers, licenses and franchises and all and every other
interest shall be thereafter effectively the property of the Surviving
Corporation; and the title to any real estate, or interest therein, whether by
deed or otherwise, under the laws of the state of incorporation vested in the
Company and Newco, shall not revert or be in any way impaired by reason of the
Merger. The Surviving Corporation shall thenceforth be responsible and liable
for all the liabilities and obligations of the Company and Newco and any claim
existing, or action or proceeding pending, by or against the Company or Newco
may be prosecuted as if the Merger had not taken place, or the Surviving
Corporation may be substituted in its place. Neither the rights of creditors
nor any liens upon the property of the Company or Newco shall be impaired by the
Merger, and all debts, liabilities and duties of the Company and Newco shall
attach to the Surviving Corporation, and may be enforced against it to the same
extent as if said debts, liabilities and duties had been incurred or contracted
by the Surviving Corporation.
2. CONVERSION AND EXCHANGE OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting (i) the shares of the
Company Stock issued and outstanding immediately prior to the Effective Time of
the Merger into shares of common stock of Cotelligent, $0.01 par value
("Cotelligent Stock") and (ii) the shares of Newco Stock issued and outstanding
immediately prior to the Effective Time of the Merger into
3
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shares of common stock of the Surviving Corporation, shall be as follows:
Upon the Effective Time of the Merger and without any action on the part of
the Company, Newco or Stockholder:
(i) all of the shares of Company Stock issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger and
without any action on the part of the holder thereof, automatically be converted
into such number of shares of Cotelligent Stock, in the aggregate, as is set
forth on Exhibit B, and each share of Company Stock shall be canceled and cease
to exist; and
(ii) each share of Newco Stock issued and outstanding immediately prior to
the Effective Time of the Merger shall, by virtue of the Merger and without any
action on the part of the holder thereof, automatically be converted into one
fully paid and non-assessable share of stock of the Surviving Corporation; and
such shares in the aggregate shall constitute all of the issued and outstanding
shares of the Surviving Corporation from and after the Effective Time of the
Merger.
3. DELIVERY OF SHARES
3.1 At Closing:
(i) Stockholder, as the holder of all outstanding certificates representing
shares of Company Stock, shall, upon surrender of such certificates, receive the
number of shares of Cotelligent Stock set forth on Exhibit B; and
(ii) Until the certificates representing the Company Stock have been
surrendered by Stockholder and replaced by the Cotelligent Stock, the
certificates for the Company Stock shall, for all corporate purposes be deemed
to evidence ownership of Cotelligent Stock.
3.2 Stockholder shall deliver at Closing the certificates representing the
Company Stock, duly endorsed in blank by Stockholder as set forth on Exhibit C,
or accompanied by a blank stock power, with all necessary transfer tax and other
revenue stamps, acquired at the Stockholder's expense, affixed and canceled.
Stockholder agrees to cure any deficiencies with respect to the endorsement of
the certificates or other documents of conveyance with respect to the Company
Stock or with respect to the stock powers accompanying any Company Stock.
4. CLOSING
The Merger and conversion and delivery of shares referred to in Section 3
hereof (hereinafter referred to as the "Closing") shall take place at the
offices of Hughes & Luce, L.L.P., at 1717 Main Street, Dallas, Texas 75201, at
10:00 a.m., local time, on June 28, 1996, or at such other time and date as
Cotelligent, the Company and Stockholder may mutually agree, which date
4
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shall be referred to herein as the "Consummation Date" or "Closing Date." At or
prior to the Closing, the parties shall take all actions necessary to prepare to
effect the Merger including, if permitted by applicable state law, filing with
the appropriate state authorities the Articles of Merger which shall become
effective at 11:59 p.m. local time on June 30, 1996.
5. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
Stockholder represents and warrants that all of the following
representations and warranties shall be true as of the date of this Agreement
and shall be true at the time of Closing. Such representations and warranties
shall survive the Closing for a period of one (1) year from the Closing Date or
until the completion date of the first audited financial statements of
Cotelligent containing the combined operations for one year from the
Consummation Date, whichever occurs first (which date is hereinafter called the
"Expiration Date"); provided, however, that the specific representations
contained in Sections 5.3 and 5.20 shall survive without limitation.
5.1 DUE ORGANIZATION. The Company and each subsidiary of the Company
indicated on Schedule 5.1 are corporations duly organized, validly existing and
in good standing under the laws of the states shown on Schedule 5.1, and are
duly authorized, qualified and licensed under all applicable laws, regulations,
ordinances and orders of public authorities to carry on their respective
businesses in the places and in the manner as now conducted or as proposed to be
conducted except (i) as disclosed on Schedule 5.1 or (ii) where the failure to
be so authorized, qualified or licensed would not have a material adverse effect
on the business of the Company. Copies of the Articles of Incorporation
(certified by the Secretary of State of the State of incorporation of the
respective company) and Bylaws (certified by the Secretary of the Company), as
amended, of the Company and each of the Company's subsidiaries are all attached
hereto as Schedule 5.1. The stock records and minute books of the Company and
each subsidiary, as heretofore made available to Cotelligent, are correct and
complete.
5.2 AUTHORIZATION. Stockholder and the Company have full right, power
and authority to enter into this Agreement and have the full right, power and
authority to enter into the Merger, and upon consummation of the Merger in
accordance with the terms of this Agreement, Cotelligent will acquire good and
valid title in the Company Stock, or any interests then represented by the
Company Stock, free and clear of all liens, encumbrances and claims of every
kind, subject to the disclosures set forth on Schedule 5.3. The execution and
delivery of this Agreement do not, and the consummation of the transactions
contemplated hereby and compliance with the provisions hereof will not, conflict
with, or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to the loss of a material benefit under, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets of the Company under, any provision of (i)
the Articles of Incorporation or By-laws of the Company, (ii) any material
contract, agreement, loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement, instrument, permit, concession, franchise or license
applicable to the Company (except for any matters disclosed on Schedule 5.2) or
(iii) any
5
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judgment, injunction, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or its properties or assets.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company consists solely of the shares of voting common stock as shown on Exhibit
D attached hereto. All of the issued and outstanding shares of the capital
stock of the Company are owned by Stockholder as set forth on Exhibit D, and,
except as provided on Schedule 5.3, are free and clear of all liens,
encumbrances and claims of every kind. Schedule 5.1 attached hereto sets forth
the number and class of the authorized capital stock of each of the Company's
subsidiaries and the number of shares of each subsidiary which are issued and
outstanding, all of which shares are owned by the Company, free and clear of all
liens, encumbrances and claims of every kind. All of the issued and outstanding
shares of Company Stock have been duly authorized and validly issued, are fully
paid and nonassessable, are owned of record and beneficially by Stockholder, and
further, such shares were offered, issued, sold and delivered by the Company in
compliance with all applicable state and federal laws concerning the issuance of
securities. Further, none of such shares were issued in violation of the
preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK AND SPIN-OFFS. The Company has not
acquired any treasury stock since May 21, 1994. No rights of first refusal,
option, warrant, call, conversion right or commitment of any kind exists which
obligates the Company to issue any of its authorized but unissued capital stock.
In addition, there are no (i) outstanding securities or obligations which are
convertible into or exchangeable for any shares of the capital stock or other
securities of the Company, or (ii) contracts, arrangements or commitments,
written or otherwise, under which the Company is or may become bound to sell or
otherwise issue any shares of its capital stock or any other securities.
Without limiting the generality of the foregoing, there is no basis upon which
any person (other than Stockholder) may claim to be in any way the record or
beneficial owner of, or to be entitled to acquire (of record or beneficially),
any shares of the capital stock or other securities of the Company, and no
person has made or threatened to make, or will in the future make, any such
claim. In addition, the Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof. Neither the voting stock structure of the Company nor the beneficial
or record ownership of shares of the Company has been altered or changed in
contemplation of the Merger. Without limiting the generality of the foregoing,
between May 21, 1994 and the Effective Time, there has not been any (a)
issuance, sale, repurchase, redemption or other transfer of or transaction in
the Company Stock or (b) any sale or spin-off of significant assets of the
Company or any of the Company's subsidiaries other than in the ordinary course
of business.
5.5 NO BONUS SHARES. None of the shares of the Company Stock was issued
pursuant to awards, grants or bonuses.
5.6 SUBSIDIARIES. Set forth on Schedule 5.1 attached hereto is a list of
the names of each of the Company's subsidiaries. Except as set forth in
Schedule 5.1, the Company does not presently own, of record or beneficially, or
control, directly or indirectly, any capital stock,
6
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securities convertible into capital stock or any other equity interest in any
corporation, association or business entity. The Company is not, directly or
indirectly, a participant in any joint venture, partnership or other
noncorporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a list of all
names of all predecessor companies of the Company, including the names of any
entities from whom the Company previously acquired significant assets. Except
as disclosed in Schedule 5.7, the Company has never been a subsidiary or
division of another corporation nor been a part of an acquisition which was
later rescinded.
5.8 COTELLIGENT STOCK OWNERSHIP. Neither the Company, the Stockholder
nor any of the Company's subsidiaries has ever owned any Cotelligent Stock.
5.9 FINANCIAL STATEMENTS. Stockholder has delivered to Cotelligent
copies of the following sets of financial statements (the "Financial
Statements") of the Company:
(i) The Company's Balance Sheet as of December 31, 1995 and for the two
prior years and Statements of Earnings and Retained Earnings for the year then
ended and for the two prior years, and
(ii) The Company's Balance Sheet as of May 31, 1996 (hereinafter referred
to as the "Balance Sheet Date") and Statements of Earnings and Retained Earnings
for the five (5) month period then ended.
Such Financial Statements have been compiled and prepared using methodology
applied on a consistent basis throughout the periods indicated (except as
noted). Such balance sheets present fairly the financial condition of the
Company (and the Company's subsidiaries on a consolidated basis) as of the dates
indicated thereon, and such Statements of Earnings, and Retained Earnings
present fairly the results of its operations for the periods indicated thereon;
provided however, that it is understood by the parties that such financial
statements have been prepared on a cash basis and do not reflect all accruals
that would be required under generally accepted accounting principles. If
required, the President or Chief Financial Officer of the Company has, or will,
execute any documentation reasonably required by Cotelligent's independent
public accountants or any stock exchange with respect to issues related to
pooling accounting treatment (assuming that there is no misrepresentation in any
such requested documentation).
5.10 LIABILITIES AND OBLIGATIONS. Stockholder has delivered to
Cotelligent on Schedule 5.10 an accurate summary as of the Balance Sheet Date of
all liabilities of the Company of any kind, character and description (other
than accounts payable incurred in the ordinary course of business not in excess
of $200,000), whether accrued, absolute, secured or unsecured, contingent or
otherwise, together with, in the case of those liabilities which are not fixed,
an estimate of the maximum amount which may be payable, except for any
liabilities that do not individually or in the aggregate for all similar
liabilities exceed $1,000. For each such liability for which the amount is not
fixed or is contested, Stockholder shall provide a summary
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description of the liability together with the following:
(i) copies of all relevant documentation relating thereto;
(ii) amounts claimed and any other action or relief sought;
(iii) name of claimant and all other parties to the claim, suit or
proceeding;
(iv) the name of each court or agency before which such claim, suit or
proceeding is pending;
(v) the date such claim, suit or proceeding was instituted; and
(vi) a reasonable best estimate by Stockholder of the maximum amount, if
any, which is likely to become payable with respect to each such liability. If
no estimate is provided, the Stockholder's best estimate shall for purposes of
this Agreement be deemed to be zero.
Since May 31, 1996, the Company has not incurred any liabilities or obligations
of any type other than in the ordinary course of business.
5.11 APPROVALS. Except as described in Schedule 5.11, no authorization,
consent or approval of, or registration or filing with, any governmental
authority or any other person is or was required to be obtained or made by the
Company or Stockholder in connection with the execution, delivery or performance
of this Agreement, except when the failure to obtain the same would not prevent
the consummation of the Merger or impose any material liability on the Company
or Cotelligent or any of their assets or interfere with the conduct of their
business. As of the date of this Agreement, except as described in Schedule
5.11, all of the authorizations, consents and approvals referred to in Schedule
5.11 have been obtained, and all of the registrations and filings referred to in
Schedule 5.11 have been made.
5.12 ACCOUNTS AND NOTES RECEIVABLE. Stockholder has delivered to
Cotelligent on Schedule 5.12 an accurate list as of the Closing Date of the
accounts and notes receivable of the Company, including receivables from and
advances to employees and Stockholder and amounts which are not reflected in the
most recent available balance sheet. Stockholder shall provide Cotelligent with
an aging of all accounts and notes receivable showing amounts due in 30-day
aging categories. Except to the extent reflected on Schedule 5.12, such
accounts and notes are collectible in the amount shown on Schedule 5.12.
5.13 PERMITS AND INTANGIBLES. Stockholder has delivered to Cotelligent
on Schedule 5.13 an accurate list and summary description as of the Closing Date
of all certificates of need, permits, titles (including motor vehicle titles and
current registrations), fuel permits,
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licenses, orders, approvals, franchises, certificates, trademarks, trade names,
patents, patent applications and copyrights owned or held by the Company, all of
which are now valid, in good standing and in full force and effect. Except as
set forth on Schedule 5.13, such permits, titles, licenses, orders, approvals,
franchises, certificates, trademarks, trade names, patents, patent applications,
copyrights and similar rights of approvals are adequate for the operation of the
Company's business as presently constituted, except where the failure to obtain
the same would not prevent the consummation of the Merger or impose any material
liability on the Company or Cotelligent or any of their assets or interfere with
the conduct of their business. Except as set forth on Schedule 5.13, Stockholder
has delivered to Cotelligent a description and copies, as of the date of this
Agreement, of all material records, reports, notifications, certificates of
need, permits, pending permit applications, engineering studies, environmental
impact studies filed or submitted or required to be filed or submitted to
governmental agencies, other governmental approvals or applications for approval
and of all material notifications from such governmental agencies.
5.14 REAL AND PERSONAL PROPERTY. Stockholder has delivered to
Cotelligent on Schedule 5.14 an accurate list and a complete description as of
the Balance Sheet Date of all real property leased by the Company, together with
all material items of personal property owned or used by the Company, including
true and correct copies of leases for real estate and equipment, and including
an indication as to which assets were formerly owned by business or personal
affiliates of the Company. Except as shown on Schedule 5.14, substantially all
of the machinery and equipment of the Company are in good working order and
condition, ordinary wear and tear excepted. All leases set forth on Schedule
5.14 are in full force and effect and constitute valid and binding agreements of
the parties (and their successors) thereto in accordance with their respective
terms. All fixed assets used by the Company in the operation of its business is
either owned by the Company or leased under an agreement indicated on Schedule
5.14. Schedule 5.14 shall, without limitation, contain copies of all title
reports and title insurance policies received or owned by the Company.
Stockholder has also indicated on Schedule 5.14 a summary description of all
plans or projects involving the opening of new operations, expansion of any
existing operations or the acquisition of any real or personal property or
existing business, to which management of the Company has devoted any
significant effort or expenditure in the two year period prior to the date of
the Agreement, which if pursued by the Company would require additional
expenditures of significant efforts or capital. Except for the premises
currently leased by the Company and any other prior leasehold interests
described on Schedule 5.14, neither the Company nor any of its predecessors has
ever owned or occupied any real property. Except as described on Schedule 5.14,
the Company owns, and does not lease, all assets and properties it uses in its
business; and there are no liens, restrictions or encumbrances on any property
or assets owned or used by the Company.
5.15 MATERIAL CONTRACTS AND COMMITMENTS. Stockholder has delivered to
Cotelligent on Schedule 5.15 an accurate list of all material contracts,
commitments and similar agreements to which the Company is a party or by which
it or any of its properties are bound (including, but not limited to, joint
venture or partnership agreements, contracts with any labor organizations, loan
agreements, indemnity or guaranty agreements, bonds, mortgages, options to
purchase land,
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liens, pledges or other security agreements) and has delivered true copies of
such agreements to Cotelligent. Except to the extent set forth on Schedule 5.15,
the Company has complied with all commitments and obligations pertaining to such
contracts and agreements, respectively, and are not in material default under
any such contract and agreement and no notice of default has been received, nor
is the Company aware of any default on the part of any other party to such
contract or agreement, or any intent of any such party to attempt to terminate
or amend any such contract or agreement. Except as set forth on Schedule 5.2,
the Merger will not give rise to the right of any party to terminate or modify
any such contract or agreement. The Company is not a party to any contract,
agreement or other instrument or commitment which, singly or in the aggregate,
materially and adversely affects or is likely to materially and adversely
affect, the business, operations, properties, assets or condition, (financial or
otherwise) of the Company. Except as set forth in Schedule 5.15, the Company is
not bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union. Except as set
forth in Schedule 5.15, no employees of the Company are represented by any labor
union or covered by any collective bargaining agreement nor, to the best of the
Company's and Stockholder's knowledge, is any campaign to establish such
representation in progress. There is no pending or, to the best of Company's and
Stockholder's knowledge, threatened labor dispute involving the Company and any
group of its employees nor has the Company experienced any labor interruptions
over the past three years and the Company considers its relationship with
employees to be good.
5.16 INSURANCE. Stockholder has delivered to Cotelligent on Schedule
5.16 an accurate list of all insurance policies carried by the Company and have
delivered to Cotelligent on Schedule 5.17 an accurate list of all insurance loss
runs or worker's compensation claims received for the past three (3) policy
years. Also attached to Schedule 5.16 are complete copies of all policies
currently in effect. The insurance carried by the Company with respect to its
properties, assets and business of the Company is with reputable insurers. Such
insurance policies are currently in full force and effect and shall remain in
full force and effect through the Consummation Date. The Company's insurance
has never been canceled and the Company has never been denied coverage.
5.17 COMPENSATION. Stockholder has delivered to Cotelligent on Schedule
5.17 an accurate list of all officers, directors and key employees of the
Company and each of its subsidiaries and the rate of compensation (and the
portions thereof attributable to salary, bonus and other compensation,
respectively) of the directors, officers and key employees.
5.18 BENEFIT PLANS; ERISA COMPLIANCE.
(a) Schedule 5.18 contains a list of all "employee pension benefit plans"
(as defined in Section 3(2) of Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) (sometimes referred to in this Section 5.18 as "Pension
Plans"), "employee welfare benefit plans" (as defined in Section 3(1) of ERISA)
(sometimes referred to in this Section 5.18 as "Welfare Plans") and all other
Benefit Plans, as defined below, currently maintained in whole or in part,
contributed to, or required to be contributed to by the Company for the benefit
of any present or
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former officer, employee or director of the Company. For purposes of this
Agreement, the term "Benefit Plan" shall mean any collective bargaining
agreement or any bonus, pension, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock option, phantom
stock, retirement, vacation, severance, disability, death benefit,
hospitalization, medical, dependent care, cafeteria, employee assistance,
scholarship or other plan, program, arrangement or understanding (whether or not
legally binding) maintained in whole or in part, contributed to, or required to
be contributed to by the Company for the benefit of any present or former
officer, employee or director of the Company which is not a Pension Plan or
Welfare Plan. The Company has delivered to Cotelligent true, complete and
correct copies of (A) each Pension Plan, Welfare Plan and Benefit Plan (or, in
the case of any unwritten Benefit Plans, descriptions thereof), (B) the three
annual reports on Form 5500 most recently filed with the Internal Revenue
Service ("IRS") with respect to each Pension Plan or Welfare Plan (if any such
report was required), (C) the most recent IRS determination letter request for
each Pension Plan intended to be qualified under Section 401(a) of the Code and
all rulings or determinations concerning such Pension Plan requested of the IRS
subsequent to the date of that letter, (D) the most recent actuarial report for
each Pension Plan and Welfare Plan for which an actuarial report is required by
ERISA, (E) the most recent summary plan description for each Pension Plan and
Welfare Plan for which such summary plan description is required by ERISA and
each summary of material modifications prepared, as required by ERISA, after the
last summary plan description, (F) each trust agreement and/or group annuity
contract relating to any Benefit Plan and (G) all other information reasonably
requested by Cotelligent.
(b) Each Pension Plan maintained and each pension plan formerly maintained
that is or was intended to be qualified under Section 401(a) of the Code has
been the subject of a determination letter from the IRS to the effect that such
plan is qualified under Section 401(a) of the Code or can still be submitted in
a timely manner to the IRS for such a letter, and no such determination letter
has been revoked nor has revocation of any such letter been threatened, nor has
any such plan been amended since the date of its most recent determination
letter or application therefor in any respect that would adversely affect its
qualification or materially increase its costs, and nothing has occurred or
failed to occur which would cause the loss of such qualifications, and all
amendments required to be adopted before the Effective Time for any such Pension
Plan to continue to be so qualified have been or will be duly and timely
adopted; provided however, that to the extent that this representation applies
to terminated pension plans, this representation refers to the qualified status
of any such plan through the time of its termination. The Company has paid all
premiums (including any applicable interest, charges and penalties for late
payment) due the Pension Benefit Guaranty Corporation ("PBGC") with respect to
each such Pension Plan for which premiums to the PBGC are required. No such
Pension Plan in whole or in part maintained by the Company has been terminated
or partially terminated under circumstances which would result in liability to
the PBGC.
(c) Each of the Pension Plan, Welfare Plan and Benefit Plans sponsored by,
and each of the benefit plans formerly sponsored by, the Company: (A) has been
in substantial compliance with all reporting and disclosure requirements of (i)
Part 1 or Subtitle B of Title I of ERISA, if applicable, or (ii) other
applicable law, (B) has had the appropriate required Form 5500 (or
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equivalent annual report) filed timely with the appropriate governmental entity
for each year of its existence, (C) has at all times complied with the bonding
requirements of (i) Section 412 of ERISA, if applicable, or (ii) other
applicable law, (D) has no issue pending (other than the payment of benefits in
the normal course) nor any issue resolved adversely to the Company which may
subject the Company to the payment of material penalty, interest, tax or other
obligation, nor is there any basis for any imposition of any such liability, and
(E) has been maintained in all respects in compliance with the applicable
requirements of ERISA, the Code and other applicable law not otherwise covered
hereunder so as not to give rise to any material liabilities to the Company.
(d) All voluntary employee benefit associations maintained by the Company
and intended to be exempt from federal income tax under Section 501(c)(9) of the
Code have been submitted to and approved as exempt from federal income tax under
Section 501(c)(9) of the Code by the IRS, and nothing has occurred or failed to
occur which would cause the loss of such exemption.
(e) The execution of this Agreement or the consummation of the transactions
contemplated by this Agreement will not give rise to any, or trigger any, change
of control, severance or other similar provisions in any Pension Plan, Welfare
Plan or Benefit Plan. The consummation of any transaction contemplated by this
Agreement will not result in any (i) payment (whether of severance pay or
otherwise) becoming due from the Company to any officer, employee, former
employee or director thereof or to the trustee under any "rabbi trust" or
similar arrangement ; (ii) benefit under any Benefit Plan of the Company being
established or becoming accelerated, vested or payable; or (iii) payment or
series of payments by the Company, directly or indirectly, to any person that
would constitute a "parachute payment" within the meaning of Section 280G of the
Code.
(f) The Company provides no material post-retirement medical, health,
disability or death protection coverage or contributes to or maintains any
employee welfare benefit plan which provides for medical, health, disability or
death benefit coverage following termination of employment by any officer,
director or employee except as is required by Section 4980B(f) of the Code or
other applicable statute, nor has it made any representations, agreements,
covenants or commitments to provide that coverage.
(g) No Pension Plan or pension plan subject to Title IV of ERISA (i) that
the Company maintains or maintained, or (ii) to which the Company is or was
obligated to contribute, other than any such plan that is or was a
"multiemployer plan" (as such term is defined in Section 4001(a)(3) of ERISA)
had, as of its most recent annual valuation date, an "unfunded benefit
liability" (as such term is defined in Section 4001(a)(18) of ERISA), based on
actuarial assumptions which have been furnished to Cotelligent. None of such
plans subject to Section 302 of ERISA has an "accumulated funding deficiency"
(as such term is defined in Section 302 of ERISA), whether or not waived. None
of the Company, any officer of the Company or any of the Pension Plan or Welfare
Plans (including the Pension Plans and prior
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pension plans) which are subject to ERISA, or any trusts created thereunder, or
any trustee or administrator thereof, has engaged in a "prohibited transaction"
(as such term is defined in Section 406, 407 or 408 of ERISA or Section 4975 of
the Code) or any other breach of fiduciary responsibility that could subject the
Company or any officer of the Company to the tax or penalty on prohibited
transactions imposed by such Section 4975 of the Code or to any liability under
Section 502(i) or (1) of ERISA which would have a material adverse effect on the
Company. No "reportable event" (as that term is defined in Section 4043 of
ERISA) with respect to which the 30-day notice requirement has not been waived
has occurred and is continuing with respect to any such Pension Plan, other than
as may arise as a result of the consummation of the Merger. The Company has not
suffered a "complete withdrawal" or a "partial withdrawal" (as such terms are
defined in Section 4203 and Section 4205, respectively, of ERISA) since the
effective date of such Sections 4203 and 4205 for which the Company has any
material liability outstanding.
(h) With respect to any Welfare Plan, (A) each such Welfare Plan that is a
group health plan, as such term is defined in Section 5000(b)(1) of the Code,
complies in all material respects with any applicable requirements of Part 6 of
Title I of ERISA and Section 4980B(f) of the Code and (B) each such Welfare Plan
(including any such plan covering retirees or other former employees) may be
amended or terminated with respect to health benefits without material liability
to the Company on or at any time after the Consummation Date.
(i) All contributions required by law or by a collective bargaining or
other agreement to be made under the Pension Plan, Welfare Plan or Benefit Plans
with respect to all periods through the Effective Date of the Merger, including
a pro rata share of contributions due for the current plan year, will have been
made by such date or provided for by adequate reserves by the Company. No
material changes in contribution rates or benefit levels have been implemented
or negotiated (but not yet implemented), with respect to any Pension Plan,
Welfare Plan or Benefit Plan since the date on which the information provided in
the attached schedule has been provided, and no such material changes are
scheduled to occur.
(j) The Company has not and will not have any material liability or
obligation for taxes, penalties, contributions, losses, claims, damages,
judgments, settlement costs, expenses, costs, or any other liability or
liabilities of any nature whatsoever arising out of or in any manner relating to
any Pension Plan, Welfare Plan or Benefit Plan (including but not limited to
employee benefit plans such as foreign plans which are not subject to ERISA),
that has been, or is, contributed to by any entity, whether or not incorporated,
which is deemed to be under common control (as defined in Section 414 of the
Code), with the Company.
5.19 CONFORMITY WITH LAW. Except to the extent set forth on Schedule
5.19, the Company and Stockholder have fully complied with, and the Company is
not in material default under, any law, rule, ordinance, ruling, directive, or
regulation or under any order, award, judgment or decree of any court or
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality having jurisdiction over the Company or any of
its assets or its business; and except to the extent set forth in Schedule 5.10,
there are no claims, actions, suits or proceedings, pending or threatened,
against or affecting the Company,
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at law or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over the Company or its business and no notice of any claim,
action, suit or proceeding, whether pending or threatened, has been received.
Except as set forth on Schedule 5.19, the Company has conducted and is
conducting its business in full compliance with the requirements, standards,
criteria and conditions set forth in applicable federal, state and local
statues, ordinances, permits, licenses, orders, approvals, variances, rules and
regulations, including, without limitation, all such laws, rules, ordinances,
decrees and orders relating to intellectual property protection, antitrust
matters, consumer protection, currency exchange, environmental protection, equal
employment opportunity, health and occupational safety, pension and employee
benefit matters, securities and investor protection matters, labor and
employment matters, and trading-with-the-enemy matters, except where the failure
to do so would not result in any material liability of the Company or subject
its assets to any material liability or interfere with the conduct of its
business. The Company has not received any notification of any asserted present
or past unremedied failure by the Company to comply with any of such laws,
rules, ordinances, decrees or orders.
5.20 TAXES. The Company has timely filed all requisite federal and other
Tax Returns for all fiscal periods ended on or before the Balance Sheet Date;
and except as set forth on Schedule 5.10, there are no open years, examinations
in progress or claims against the Company for federal or other Taxes for any
period or periods prior to and including the Balance Sheet Date and no notice of
any claim, whether pending or threatened, for Taxes has been received. The
Company is not a party to any Tax allocation or sharing agreement (i.e., any
agreement or arrangement for the payment of Tax liabilities or payment for Tax
benefits with respect to a consolidated, combined or unitary Tax Return which
includes the Company) with any corporation which is not directly or indirectly
100% owned by Company; there are no requests for rulings in respect of any Tax
pending by the Company with any tax authority; and no penalty or deficiency in
respect of any Taxes which has been assessed against the Company remains unpaid.
The amounts shown as accruals for Taxes on the financial statements of the
Company as of the Balance Sheet Date delivered to Cotelligent pursuant to
Section 5.9 are sufficient for the payment of all Taxes of the kinds indicated
for all fiscal periods ended on or before the Closing Date. Copies of (i) any
tax examinations, (ii) extensions of statutory limitations and (iii) the federal
and local income tax returns and franchise tax returns of the Company for their
last three (3) fiscal years, or such shorter period of time as it has existed,
are attached hereto as Schedule 5.20. For all taxable periods beginning with
the taxable year beginning January 1, 1995 the Company has elected to be taxed
as an S corporation as defined in Section 1361(a)(1) of the Code. The Company
timely filed a proper election to be taxed as an S corporation. At all times
since January 1, 1995 the Company has satisfied all requirements for an S
corporation, and the Company's election to be taxed as an S corporation has not
been revoked or terminated. For purposes of this Section 5.20, "Tax" shall mean
any United States or other federal, state, provincial, local or foreign income,
gross receipts, property, sales, goods and services use, license, excise,
franchise, employment, payroll, withholding, alternative or add-on minimum, ad
valorem, transfer or excise tax, or any other tax, custom, duty, governmental
fee or other like assessment or charge of any kind whatsoever, together with any
interest or penalty, imposed by any governmental authority. "Tax Return" shall
mean any return, report or similar statement required
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to be filed with respect to any Tax (including any attached schedules),
including, without limitation, any information return, claim for refund, amended
return and declaration of estimated Tax.
5.21 COMPLETENESS. The certified copies of the Articles of Incorporation
and Bylaws, both as amended to date, of the Company and each of the Company's
subsidiaries, and the copies of all leases, instruments, agreements, licenses,
permits, certificates or other documents which are included on schedules
attached hereto or have been delivered to Cotelligent in connection with the
transactions contemplated hereby are complete and correct; neither the Company
nor any other party hereto is in default thereunder. Except as set forth on
Schedule 5.21, none of such leases, instruments, agreements, contracts,
licenses, permits, certificates or other documents requires notice to, or the
consent or approval of, any governmental agency or other third party to any of
the transactions contemplated hereby to remain in full force and effect or give
rise to any right to termination, cancellation or acceleration or loss of any
right or benefit hereunder.
5.22 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.22, the
Company is not now and has never been a party to any governmental contracts
subject to price redetermination or renegotiation.
5.23 ABSENCE OF CHANGES. Except as set forth on Schedule 5.23, since the
Balance Sheet Date, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the Company;
(ii) any damage, destruction or loss (whether or not covered by insurance)
materially adversely affecting the properties or business of the Company;
(iii) any change in the authorized capital of the Company or its
securities outstanding or any change in the ownership interests or any grant of
any options, warrants, calls, conversion rights or commitments;
(iv) 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, except for a cash
distribution to Stockholder declared by the Board of Directors in an amount
sufficient to pay any tax obligation owed by Stockholder not to exceed $500,000,
and to be paid by the Company;
(v) any increase in the compensation, bonus, fringe benefits or fee
arrangement payable or to become payable by the Company to any of its officers,
directors, Stockholder, employees, consultants or agents, or any change in the
method by which sales commissions are calculated and paid;
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(vi) any work interruptions, labor grievances or claims filed, proposed law
or regulation or any event or condition of any character, materially adversely
affecting the business or future prospects of the Company;
(vii) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of the Company to any person, including,
without limitation, Stockholder and her affiliates;
(viii) any cancellation, or agreement to cancel, any indebtedness or other
obligation owing to the Company, including without limitation any indebtedness
or obligation of Stockholder or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any preferential rights to
purchase or acquire any interest in any of the assets, property or rights of the
Company or requiring consent of any party to the transfer and assignment of any
such assets, property or rights;
(x) any purchase or acquisition, or agreement, plan or arrangement to
purchase or acquire, any property, rights or assets;
(xi) any waiver of any material rights or claims of the Company;
(xii) any breach, amendment or termination of any material contract,
agreement, license, permit or other right to which the Company is a party; or
(xiii) any transaction by the Company outside the ordinary course of its
business.
5.24 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. Stockholder has delivered to
Cotelligent on Schedule 5.24 an accurate list as of the date of this Agreement,
of:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account; and
(iv) the name of each person authorized to draw thereon or have access
thereto.
Schedule 5.24 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company or
any of its subsidiaries and a description of the terms of such power. Each such
power has been or will be canceled from and after the Closing hereunder.
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5.25 PROPRIETARY RIGHTS. Except as set forth on Schedule 5.13, the
Company does not own or have any right or interest in any patent, trademark,
trade name, copyright, trade secret, or other intellectual property right, or
any license or assignment with respect thereto. The Company has not infringed
upon and is not infringing upon, and has not engaged in and is not engaged in
any unauthorized use or misappropriation of, any patent, trademark, trade name,
copyright, trade secret, process, design, invention, know-how or technology
owned by or belonging to any other person; and there is no pending or threatened
claim, and no basis for the assertion of any claim, against the Company with
respect to any such infringement, unauthorized use or misappropriation.
5.26 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the Company and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors and the
Stockholder of the Company, and this Agreement has been duly and validly
authorized by all necessary corporate action and is a valid and binding
obligation of the Company.
5.27 RELATIONS WITH GOVERNMENTS. Neither the Company, Stockholder nor,
to the Company's or Stockholder's knowledge, any director, officer, agent,
employee or other person acting on behalf of the Company, has used any Company
funds for improper or unlawful contributions, payments, gifts or entertainment,
or made any improper or unlawful expenditures relating to political activity to
domestic or foreign government officials or others. The Company has adequate
financial controls to prevent such improper or unlawful contributions, payments,
gifts, entertainment or expenditures. Neither the Company, Stockholder nor, to
the Company's or Stockholder's knowledge, any current director, officer, agent,
employee or other person acting on behalf of the Company, has accepted or
received any improper or unlawful contributions, payments, gifts or
expenditures. The Company has at all times complied, and is in compliance, in
all material respects with the Foreign Corrupt Practices Act and in all material
respects with all foreign laws and regulations relating to prevention of corrupt
practices.
5.28 CONFLICTS OF INTEREST. Except as disclosed in Schedule 5.28,
neither (i) any past or present officer or director of the Company, nor (ii) to
the best of Stockholder's knowledge, any relative of any past or present officer
or director of the Company, nor (iii) any corporation, partnership, trust or
other entity of which any such past or present officer or director of the
Company has a direct or indirect interest or is a director, officer,
stockholder, partner or trustee, is or has ever been a party, directly or
indirectly, to any transaction with the Company, including without limitation
any agreement or other arrangement providing for the furnishing of services by
or to the Company or the rental of any property from or to the Company, or
otherwise requiring or contemplating any payments by or to the Company. Except
as disclosed in Schedule 5.28, neither any present officer or director, nor any
relative of any such officer or director, owns directly or indirectly any
interest in any corporation, firm, partnership, trust or other entity or
business which is a competitor, potential competitor, customer, client or
supplier of the Company or any related business.
5.29 ENVIRONMENTAL MATTERS. Except as set forth on the Schedule 5.29,
(i) the
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Company has complied with and is in compliance with all Federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, notices, permits, judgments, orders and decrees applicable to it or any
of its properties, assets, operations and business relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes and
Hazardous Substances (as such terms are defined in any applicable Environmental
Law), except to the extent that noncompliance with any Environmental Law, either
singly or in the aggregate, does not have a material adverse effect on its
business; (ii) the Company has obtained, and in all material respects adhered
to, all necessary permits and other approvals necessary to treat, transport,
store, dispose of and otherwise handle Hazardous Wastes and Hazardous Substances
and has reported, to the extent required by all Environmental Laws, all past and
present sites owned or operated by the Company where Hazardous Wastes or
Hazardous Substances have been treated, stored, disposed of or otherwise
handled; (iii) there have been no releases or threats of releases (as defined in
Environmental Laws) at, from, in or on any property owned or operated by the
Company except as permitted by Environmental Laws; (iv) the Company knows of no
on-site or off-site location to which the Company has transported or disposed of
Hazardous Wastes and Hazardous Substances or arranged for the transportation of
Hazardous Wastes and Hazardous Substances, which site is the subject of any
Federal, state, local or foreign enforcement action or any other investigation
which could lead to any claim against the Company, Cotelligent or Newco for any
clean-up cost, remedial work, damage to natural resources or personal injury,
including, but not limited to, any claim under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended; and (v) the
Company has no contingent liability in connection with any release of any
Hazardous Waste or Hazardous Substance into the environment.
5.30 DISCLOSURE. This Agreement and the schedules hereto and all other
documents and information furnished to Cotelligent and its representatives
pursuant hereto do not and will not include any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein
not misleading. If the Company or Stockholder becomes aware of any fact or
circumstance which would change a representation or warranty of the Company or
Stockholder in this Agreement or any representation made on behalf of the
Company, the Company and Stockholder shall immediately give notice of such fact
or circumstance to Cotelligent. However, such notification shall not relieve
the Company or Stockholder of their respective obligations under this Agreement,
and at the sole option of Cotelligent, the truth and accuracy of any and all
warranties and representations of the Company, or on behalf of Company and of
Stockholder at the date of this Agreement and at the closing, shall be a
precondition to the consummation of this transaction.
6. REPRESENTATIONS OF COTELLIGENT AND NEWCO
Cotelligent and Newco represent and warrant that all of the following
representations and warranties are true as of the date of the Agreement and
shall be true at the time of Closing and shall survive the Closing for a period
of one (1) year following the Closing.
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6.1 DUE ORGANIZATION. Cotelligent and Newco are duly organized, validly
existing and in good standing under the laws of the States of Delaware and
Texas, respectively, and are duly authorized, qualified and licensed under all
applicable laws, regulations, and ordinances of public authorities to carry on
their respective businesses in the places and in the manner as now conducted
except for where the failure to be so authorized, qualified or licensed would
not have a material adverse affect on their respective businesses.
6.2 COTELLIGENT STOCK. The Cotelligent Stock to be delivered to
Stockholder on the Consummation Date will constitute valid and legally issued
shares of Cotelligent, fully paid and nonassessable, and with the exception of
restrictions upon resale imposed by the applicable securities laws and
regulations, will be legally equivalent in all respects to the Cotelligent Stock
issued and outstanding as of the date hereof.
6.3 AUTHORIZATION. The representatives of Cotelligent and Newco
executing this Agreement have the corporate authority to enter into and bind
Cotelligent and Newco by the terms of this Agreement. The execution and
delivery of this Agreement do not, and the consummation of the transactions
contemplated hereby and compliance with the provisions hereof will not, conflict
with, or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to the loss of a material benefit under, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets of Cotelligent under, any provision of (i)
the Certificate of Incorporation or By-laws of Cotelligent, (ii) any material
contract, agreement, loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement, instrument, permit, concession, franchise or license
applicable to Cotelligent or (iii) any judgment, injunction, order, decree,
statute, law, ordinance, rule or regulation applicable to Cotelligent or its
properties or assets.
6.4 NO CONFLICTS. The execution, delivery and performance of this
Agreement, the consummation of any transactions herein referred to or
contemplated and the fulfillment of the terms hereof will not:
(i) conflict with, or result in a breach or violation of the Certificate of
Incorporation or Bylaws of either Cotelligent or Newco,
(ii) materially conflict with, or result in a material default (or would
constitute a default but for any requirement of notice or lapse of time or both)
under any document, agreement or other instrument to which either Cotelligent or
Newco is a party, or result in the creation or imposition of any lien, charge or
encumbrance on any of Cotelligent's or Newco's properties pursuant to (A) any
law or regulation to which Cotelligent or Newco, or any of their property is
subject, or (B) any judgment, order or decree to which Cotelligent, or Newco is
bound or any of their property is subject; or
(iii) result in termination or any impairment of any material permit,
license, franchise, contractual right or other authorization of Cotelligent or
Newco.
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6.5 STATUS OF COTELLIGENT SHARES. The offer, transfer and delivery of
the Cotelligent Shares to Stockholder have been registered pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), on a registration
statement on Form S-1 that has been declared effective by the Securities and
Exchange Commission and will be effective at the Closing. When issued at the
Closing, the Cotelligent Shares will be listed on the Nasdaq National Market
System. The Cotelligent Shares may be resold by Stockholder without further
registration under the Securities Act and any purchaser of the Cotelligent
Shares will receive certificates that do not bear a restrictive legend; provided
that any such resale complies with the provisions of Rule 145(d) under the
Securities Act.
7. COVENANTS OF STOCKHOLDER AND THE COMPANY PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION. Between the date of this Agreement and the
Consummation Date, the Company will afford to the officers and authorized
representatives of Cotelligent reasonable access to all of the Company's
(including the Company's subsidiaries) sites, properties, books and records and
will furnish Cotelligent with such additional financial and operating data and
other information as to the business and properties of the Company as
Cotelligent may from time to time reasonably request. The Company will
cooperate with Cotelligent, its representatives, engineers, auditors and counsel
in the preparation of any documents or other material which may be required in
connection with any documents or materials required by any governmental agency.
Cotelligent will cause all information obtained in connection with the
negotiation and performance of this Agreement to be treated as confidential.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the Balance Sheet Date
and the Consummation Date, Stockholder will cause the Company to:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(ii) maintain its properties and facilities, including those held under
leases, in as good working order and condition as at present, ordinary wear and
tear excepted;
(iii) perform all of its obligations under agreements relating to or
affecting its respective assets, properties or rights;
(iv) keep in full force and effect 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 relationships with
suppliers, customers and others having business relations with the Company;
(vi) maintain compliance with all permits, laws, rules and regulations,
consent
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orders, and similar governmental approvals, to the extent necessary to carry on
its business;
(vii) maintain present debt and lease instruments and not enter into new
or amended debt or lease instruments, without the knowledge and consent of
Cotelligent; and
(viii) except as set forth on Schedule 5.23, maintain present salaries and
commission levels for all officers, directors, employees and agents.
7.3 PROHIBITED ACTIVITIES. Between the Balance Sheet Date and the
Consummation Date, the Company will not, without prior written consent of
Cotelligent, which consent shall not unreasonably be withheld (unless, as to the
matters set forth in clauses (iv) through (xii) below, such actions are taken in
the ordinary course of business):
(i) make any change in its Articles of Incorporation or Bylaws;
(ii) issue any securities, options, warrants, calls, conversion rights or
commitments relating to its securities of any kind;
(iii) declare or pay any dividend, or make any distribution in respect of
its stock whether now or hereafter outstanding, or purchase, redeem or otherwise
acquire or retire for value any shares of its stock, except for a cash
distribution to Stockholder declared by the Board of Directors in an amount
sufficient to pay any tax obligation owed by Stockholder not to exceed $500,000,
and to be paid by the Company;
(iv) enter into any contract or commitment or incur or agree to incur any
liability or make any capital expenditures in excess of $10,000;
(v) increase any fringe benefit or the compensation payable or to become
payable to any officer, director, Stockholder, employee or agent, or make any
bonus or management fee payment to any such person except ordinary and customary
bonuses to employees;
(vi) create, assume or permit to exist any mortgage, pledge or other lien
or encumbrance upon any assets or properties whether now owned or hereafter
acquired, except pursuant to existing loan agreements;
(vii) sell, assign, lease or otherwise transfer or dispose of any property
or equipment except in the normal course of business;
(viii) negotiate for the acquisition of any business or the start-up of
any new business;
(ix) merge or consolidate or agree to merge or consolidate with or into any
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other corporation;
(x) take any action to waive any material rights or claims of the Company;
(xi) breach or permit a breach, amend or terminate any agreement or any
permit, license or other right of the Company; or
(xii) enter into any other transaction outside the ordinary course of its
business or prohibited hereunder.
7.4 POOLING OF INTERESTS; REORGANIZATION. During the period from the
date of this Agreement through the Effective Time of the Merger, unless the
other parties shall otherwise agree in writing, none of the Stockholder, the
Company or any subsidiary of the Company shall (a) knowingly take or fail to
take any action which action or failure to act would jeopardize the treatment of
the Company's combination with Newco as a pooling-of-interests for accounting
purposes or (b) knowingly take or fail to take any action, which action or
failure to act would jeopardize qualification of the Merger as a reorganization
within the meaning of Section 368(a) of the Code.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDER
The obligations of Stockholder hereunder are, at her option, subject to the
following conditions. Upon consummation of this Agreement, all conditions not
satisfied are deemed to be waived:
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. The
representations and warranties of Cotelligent and Newco contained in Section 6
shall be accurate as of the Consummation Date as though such representations and
warranties had been made as of that time; all of the terms, covenants and
conditions of this Agreement to be complied with
and performed by Cotelligent and Newco on or before the Consummation Date shall
have been duly complied with and performed.
8.2 COUNSEL APPROVAL. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental hereto and all
other related legal matters shall have been approved by counsel to Stockholder.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the acquisition by Cotelligent of the Company Stock and no
governmental agency or body shall have taken any other action or made any
request of the Company as a result of which the management of the Company deems
it inadvisable to proceed with the transactions hereunder.
8.4 OPINION OF COUNSEL. Stockholder shall have received an opinion from
Daniel E. Jackson, in-house counsel for Cotelligent, dated the Closing Date,
substantially in the form
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attached hereto as Exhibit E to the effect that:
(i) Cotelligent and Newco have been duly organized and are validly existing
in good standing under the laws of the States of Delaware and Texas; and
(ii) the shares of Cotelligent Stock to be received by the Stockholder on
the Consummation Date shall be duly authorized, validly issued, fully paid and
nonassessable; and that a registration statement on Form S-1 under the
Securities Act of 1933, as amended, is in effect as to the issuance by
Cotelligent of such Cotelligent Stock.
9. CONDITIONS TO OBLIGATIONS OF COTELLIGENT AND NEWCO
The Obligations of Cotelligent and Newco hereunder are, at their option,
subject to the satisfaction, on or prior to the Consummation Date, of the
following conditions. Upon Closing, all conditions not satisfied are deemed to
be waived.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of Stockholder and the Company contained in this
Agreement shall be true on and as of the Consummation Date with the same effect
as though such representations and warranties had been made on and as of such
date, except for matters expressly disclosed in the certificate or a schedule
thereto; each and all of the agreements of Stockholder and the Company to be
performed on or before the Consummation Date pursuant to the terms hereof shall
have been performed.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the acquisition by Cotelligent of the Company Stock; and no
governmental agency or body shall have taken any other action or made any
request of Cotelligent as a result of which the management of Cotelligent deems
it inadvisable to proceed with the transactions hereunder.
9.3 EXAMINATION OF FINANCIAL STATEMENTS. Prior to the Consummation Date,
Cotelligent shall have had sufficient time to review the unaudited balance
sheets of the Company as of the end of the month immediately preceding the
Closing Date, and the unaudited statements of income, cash flow and
stockholder's investment of the Company for the period then ended, disclosing no
material adverse change in the financial condition of the Company or the results
of its operations from the financial statements originally furnished by the
Company as set forth in Schedule 5.9.
9.4 NO MATERIAL ADVERSE CHANGE. No material adverse change in the
results of operations, financial condition or business of the Company shall have
occurred, and the Company shall not have suffered any material loss or damage to
any of its properties or assets, whether or not covered by insurance, since the
Balance Sheet Date, which change, loss or damage materially affects or impairs
the ability of the Company to conduct its business; and Cotelligent shall have
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received a certificate signed by Stockholder dated the Consummation Date to such
effect.
9.5 REVIEW. Cotelligent, through its authorized representatives, must
have completed a satisfactory review of the practices and procedures of the
Company including, but not limited to, compliance with contracts and federal,
state and local laws and regulations governing the operations of the Company,
disclosing no actual or probable violations, compliance problems, required
capital expenditures or other substantive concerns.
9.6 STOCKHOLDER RELEASE. Stockholder shall have delivered to Cotelligent
an instrument dated the Consummation Date in the form attached as Exhibit F.
9.7 COUNSEL APPROVAL. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental hereto and all
other related legal matters shall have been approved by counsel to Cotelligent.
9.8 OPINION OF COUNSEL. Cotelligent shall have received an opinion from
Hughes & Luce, L.L.P., counsel to the Stockholder, dated the Closing Date,
substantially in the form attached hereto as Exhibit G, the scope and substance
of which shall be negotiated by the parties hereto.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency or any third party relating to the
consummation of the transaction contemplated herein shall have been obtained or
made, as applicable, and no action or proceeding shall have been instituted or
threatened to restrain or prohibit Cotelligent's acquisition of the Company
Stock.
9.10 POOLING ACCOUNTING TREATMENT. Cotelligent shall have been advised
in writing by its independent public accountants that in their opinion the
transactions contemplated herein meet the requirements for pooling-of-interest
accounting treatment under generally accepted accounting principles.
9.11 GOOD STANDING CERTIFICATES. Stockholder shall have delivered to
Cotelligent a certificate, dated as of a date no longer than five days prior to
the Closing Date, duly issued by the appropriate governmental authority in the
Company's state of incorporation and, unless waived by Cotelligent, in each
state in which the Company is authorized to do business, showing the Company is
in good standing and authorized to do business and that all state franchise
and/or income tax returns have been filed and taxes paid for the Company for all
periods prior to the Closing.
10. INDEMNIFICATION
10.1 GENERAL INDEMNIFICATION BY STOCKHOLDER. Stockholder covenants and
agrees that she will indemnify, defend, protect and hold harmless Cotelligent,
Newco and the Company and each of their respective employees, counsel, agents,
contractors, successors, assigns, heirs and
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legal and personal representatives at all times from and after the date of this
Agreement (subject to any limitation on the survival of representations and
warranties set forth elsewhere in this Agreement) against all losses, claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses ("Losses") (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) incurred by
Cotelligent, Newco or the Company as a result of or incident to any breach of
the representations, warranties or covenants set forth herein or on the
schedules or certificates attached hereto and any misrepresentations or
nonfulfillment of any agreement on the part of Stockholder or the Company under
this Agreement; provided, however, that Stockholder shall not be required to
provide such indemnification for the breach of any such representation or
warranty (other than a breach of the warranty set forth in Section 5.3) unless
and until Buyer shall have sustained cumulative Losses of at least One Hundred
Thousand and No/100 Dollars ($100,000) (the "Threshold Amount"). Once such
cumulative Losses equals or exceeds the Threshold Amount, Stockholder shall
provide indemnification for all Losses sustained as a result of such breaches,
including Losses counted in reaching the Threshold Amount.
10.2 SPECIFIC INDEMNIFICATION BY STOCKHOLDER. Notwithstanding the above,
the Stockholder covenants and agrees that she will indemnify, defend, protect
and hold harmless Cotelligent, Newco and the Company at all times from and after
the date of this Agreement, without limitation as to amount or time (except that
Shareholder shall not be required to indemnify Cotelligent, Newco or the Company
hereunder in respect of clause (i) below after the statute of limitations on the
underlying tax claim has run and such indemnified parties have had sufficient
time, after receiving notice of same, to notify Shareholder of any tax claims
brought prior to the running of such statutes), against all Losses (including
specifically, but without limitation, reasonable attorney's fees and expenses of
investigation) incident to any of the following:
(i) breach of the representation related to Taxes as set forth in Section
5.20 or the covenant set forth in Section 13.4;
(ii) the breach of the representations and warranties set forth in Section
5.3; or
(iii) Stockholder's covenant set forth in Section 14.2.
10.3 NOTICE AND DEFENSE OF THIRD PARTY CLAIMS. If any proceeding shall
be brought or asserted against an indemnified party or any successor thereto
(the "Indemnified Person") in respect of which indemnity may be sought under
this Section 10 from an indemnifying person or any successor thereto (the
"Indemnifying Person"), the Indemnified Person shall give prompt written notice
of such proceeding to the Indemnifying Person who shall assume the defense
thereof, including the employment of counsel reasonably satisfactory to the
Indemnified Person and the payment of all expenses; provided, that any delay or
failure so to notify the Indemnifying Person shall relieve the Indemnifying
Person of its obligations hereunder only to the extent, if at all, that it is
prejudiced by reason of such delay or failure. In no event shall any Indemnified
Person be required to make any expenditure or bring any cause of action to
enforce the
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Indemnifying Person's obligations and liability under and pursuant to the
indemnifications set forth in this Section 10. In addition, actual or threatened
action by a governmental authority or other entity is not a condition or
prerequisite to the Indemnifying Person's obligations under this Section 10. The
Indemnified Person shall have the right to employ separate counsel in any of the
foregoing proceedings and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the Indemnified Person
unless the Indemnified Person shall in good faith determine that there exist
actual or potential conflicts of interest which make representation by the same
counsel inappropriate. The Indemnified Person's right to participate in the
defense or response to any proceeding should not be deemed to limit or otherwise
modify its obligations under this Section 10. In the event that the Indemnifying
Person, within 15 days after notice of any such proceeding, fails to assume the
defense thereof, the Indemnified Person shall have the right to undertake the
defense, compromise or settlement of such proceeding for the account of the
Indemnifying Person, subject to the right of the Indemnifying Person to assume
the defense of such proceeding with counsel reasonably satisfactory to the
Indemnified Person at any time prior to the settlement, compromise or final
determination thereof. Anything in this Section 10 to the contrary
notwithstanding, the Indemnifying Person shall not, without the Indemnified
Person's prior written consent, settle or compromise any proceeding or consent
to the entry of any judgment with respect to any proceeding for anything other
than money damages paid by the Indemnifying Person. The Indemnifying Person may,
without the Indemnified Person's prior written consent, settle or compromise any
such proceeding or consent to entry of any judgment with respect to any such
proceeding that requires solely the payment of money damages by the Indemnifying
Person and that includes as an unconditional term thereof the release by the
claimant or the plaintiff of the indemnified Person from all liability in
respect of such proceeding.
10.4 PAYMENT; INTEREST. The Indemnifying Person shall make any payment
required to be made under this Section 10 in either Cotelligent Stock or
immediately available funds at the sole and absolute option of Cotelligent and
on demand. Any amounts or payments required to be paid by an Indemnifying
Person under this Section 10 which are not paid within five business days of
receipt by the Indemnifying Person of the Indemnified Person's demand therefor
shall thereafter be deemed delinquent, and the Indemnifying Person shall pay to
the Indemnified Person immediately upon demand, interest at the rate of 12% per
annum, not to exceed the maximum nonusurious rate allowed by applicable law,
from the date such payment becomes delinquent to the date of payment of such
delinquent sums.
11. TERMINATION OF AGREEMENT
Cotelligent or Stockholder may, by notice in the manner hereinafter
provided on or before the Consummation Date, terminate this Agreement if a
material default shall be made by the other party in the observance or in the
due and timely performance of any of the covenants, agreements or conditions
contained herein, and the curing of such default shall not have been made on or
before the Consummation Date and shall not reasonably be expected to occur. In
any event, if the Articles of Merger have not been filed with the appropriate
state authorities on or before December 31, 1996, this Agreement shall
terminate. In the event of termination pursuant
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to this Section 11, this Agreement shall become null and void and each party
hereto shall have no further liability or obligation to the other.
12. NONCOMPETITION
12.1 PROHIBITED ACTIVITIES:
(a) For a period of five years after the Closing (except as set forth in
the following paragraph), Stockholder shall not for any reason whatsoever,
directly or indirectly, for herself or on behalf or in conjunction with any
other person, persons, company, partnership, corporation or business of whatever
nature engage, as an officer, director, shareholder, owner, partner, joint
venturer, lender or in any capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, of any business
in direct or indirect competition with the Company or Cotelligent located or
operating within 75 miles of any facility of the Company, Cotelligent or any of
their subsidiaries at which Stockholder worked or in respect of which she
supervised employees, agents or contractors;
Notwithstanding the foregoing provisions of this paragraph (a) Stockholder
may (i) be a passive investor owning no more than 1% of the outstanding equity
securities of any corporation the equity securities of which are listed on a
national securities exchange or traded on the NASDAQ National Market System and
with which the Stockholder has no other connection whatsoever, (ii) invest in or
act as an employee, consultant or other position for Cotelligent or (iii) at
such time as Stockholder is not employed by the Company or Cotelligent,
Stockholder may own or operate a business within Napa County, California;
(b) For a period of five years Stockholder shall not, and shall cause each
of her affiliates not to, offer to employ any person who is, at that time, or
which has been within one (1) year prior to that time, an employee of
Cotelligent or the Company;
(c) For a period of five years after the Closing Date, the Stockholder
shall not and shall cause each of her affiliates not to, engage or participate
in any effort or act to induce any customer, supplier, associate, employee,
sales or other agent or independent contractor of Cotelligent or the Company or
which has been a customer, supplier, employee, sales or other agent or
independent contractor of Cotelligent or the Company within one (1) years prior
to that time, to take any action which might be disadvantageous to Cotelligent
or the Company, or not to take any action which might be advantageous to
Cotelligent or the Company; for a period of five years, Stockholder shall not
for any reason whatsoever, directly or indirectly, for herself or on behalf or
in conjunction with any other person, persons, company, partnership, corporation
or business of whatever nature call upon any prospective acquisition candidate,
on Stockholder's behalf or on behalf
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of any competitor which candidate was either called upon by the Company or
Cotelligent (including the respective subsidiaries thereof) or for which the
Company or Cotelligent made an acquisition analysis, for the purpose of
acquiring such entity;
(d) The Stockholder acknowledges that the damages that would be suffered by
Cotelligent as a result of any breach of the provisions of this Section 12.1 may
not be calculable and that an award of a monetary judgment for such a breach
would be an inadequate remedy. Consequently, Cotelligent shall have the right,
in addition to any other rights it may have, to obtain, in any court of
competent jurisdiction, injunctive relief to restrain any breach or threatened
breach of any provision of this Section 12.1 or otherwise to specifically
enforce any of the provisions hereof, and Cotelligent shall not be obligated to
post a bond or other security in seeking such relief. This remedy is in
addition to damages directly or indirectly suffered by Cotelligent and
reasonable attorneys fees; and
(e) It is agreed by the parties that the foregoing covenants in this
Section 12.1 impose a reasonable restraint on Stockholder in light of the
activities and business of the Company or Cotelligent (including Cotelligent's
other subsidiaries) on the date of the execution of this Agreement and the
current plans of Cotelligent (including Cotelligent's other subsidiaries); but
it is also the intent of Cotelligent and Stockholder that such covenants be
construed and enforced in accordance with the changing activities, business and
locations of the Company and Cotelligent (including Cotelligent's subsidiaries)
throughout the term of this covenant. For example, if, during the term of this
Agreement, the Company or Cotelligent (including Cotelligent's subsidiaries)
engages in new and different activities or business, then Stockholder will be
precluded through the term of this covenant from soliciting the customers or
employees of such new activities or business or from such new location and from
competing with such new business within 75 miles of any office at which
Stockholder worked for the Company or Cotelligent, or in respect of which she
supervised employees, agents or contractors.
(f) The parties hereto agree that the duration and area for which the
covenants in this Section 12.1 are to be effective are reasonable. In the event
that any court finally determines that the time period or the geographic scope
of any such covenant is unreasonable or excessive and any covenant is to that
extent made unenforceable, the parties agree that the restrictions of this
Section 12.1 shall remain in full force and effect for the greatest time period
and within the greatest geographic area that would not render it unenforceable.
The parties intend that each of the covenants in Sections 12.1(a), (b), (c) and
(d) shall be deemed to be a separate covenant.
12.2 INDEPENDENT COVENANT. All of the covenants in this Section 12 shall
be construed as an agreement independent of any other provision of this
Agreement, and the existence of any
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claim or cause of action of Stockholder against the Company or Cotelligent,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by Cotelligent or the Company of such covenants. It
is specifically agreed that the period of five years stated above, shall be
computed by excluding from such computation any time during which Stockholder is
in violation of any provision of this Section 12 and any time during which there
is pending in any court of competent jurisdiction any action (including any
appeal from any judgment) brought by any person, whether or not a party to this
Agreement, in which action Cotelligent or the Company seeks to enforce the
agreements and covenants of Stockholder or in which any person contests the
validity of such agreements and covenants or their enforceability or seeks to
avoid their performance or enforcement.
12.3 MATERIALITY. Stockholder hereby agrees that this covenant is a
material and substantial part of this transaction.
13. POST-CLOSING COVENANTS
13.1 STOCKHOLDER. Stockholder recognizes and acknowledges that she had
in the past, currently has, and in the future may possibly have, access to
certain confidential information of Company, such as lists of customers,
operational policies, and pricing and cost policies that are valuable, special
and unique assets of the Company and the Company's business. Stockholder agrees
that she will not disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except to authorized representatives of Cotelligent, unless such information
becomes known to the public generally through no fault of Stockholder. In the
event of a breach or threatened breach by Stockholder of the provisions of this
Section 13.1, Cotelligent and the Company shall be entitled to an injunction
restraining Stockholder from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting Cotelligent and
the Company from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
13.2 COTELLIGENT. Cotelligent recognizes and acknowledges that it has in
the past, currently has, and prior to the Consummation Date, will have access to
certain confidential information of the Company, such as lists of customers,
operational policies, pricing and cost policies that are valuable, special and
unique assets of the Company and the Company's business. Cotelligent agrees that
it will not disclose such confidential information to any person, firm,
corporation, association, or other entity for any purpose or reason whatsoever,
prior to the Consummation Date without Stockholder's prior written consent;
provided, however, that nothing contained in this Section 13.2 shall restrict or
prohibit the disclosure of information to Cotelligent's representatives and
counsel for purposes of analyzing the transaction set forth herein. In the event
of a breach or threatened breach by Cotelligent of the provisions of this
Section 13.2, Stockholder shall be entitled to an injunction restraining
Cotelligent from disclosing, in whole or in part, such confidential information.
Nothing contained herein shall be construed as prohibiting Stockholder from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
29
<PAGE>
13.3 DAMAGES. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants, and because of the immediate
and irreparable damage that would be caused for which they would have no other
adequate remedy, Cotelligent, Newco, the Company and Stockholder agree that, in
the event of a breach by any of them of the foregoing covenant, the covenant may
be enforced against them by injunctions and restraining orders.
13.4 COVENANT TO PAY TAXES. If the Company is required to file any Tax
Return for a taxable period which includes days before and after the Closing
Date, Cotelligent shall prepare and cause such Tax Return to be filed.
Stockholder shall be responsible for all Taxes attributable to the period ending
on the Closing Date and the Company or Cotelligent shall be responsible for all
Taxes attributable to the period after the Closing Date. The Tax attributable
to the period through the Closing Date shall be determined (i) as if that period
were a separate taxable year and (ii) to the extent permitted by law, by using
the tax accounting methods and tax elections used by the Company (as
appropriate) before the Closing Date. In no event, however, shall the Tax for
the Company attributable to the period through the Closing Date exceed the
amount of Tax actually payable by the Company for the entire taxable period.
Cotelligent shall compute the amount of the Tax attributable to the period
through the Closing Date and shall notify the Stockholder of such amount in
writing, accompanied by a detailed calculation which shows how Cotelligent
computed the amount shown. Within 30 days after the date of such notification
by Cotelligent, the Stockholder shall pay to Cotelligent the excess of (a) the
lesser of (i) the amount of the applicable Tax determined by Cotelligent as
attributable to the portion of the period through the Closing Date or (ii) the
amount of the applicable Tax determined by Cotelligent as payable by the Company
for the entire taxable period, reduced by (b) the amount of the applicable Tax
for the taxable period paid by the Company on or before the Closing Date.
14. POOLING ACCOUNTING
14.1 RESTRICTIONS ON RESALE; LEGENDS. Cotelligent has informed the
Stockholder that it is a material factor to Cotelligent in entering into this
Agreement that the transactions contemplated by this Agreement be treated as a
"pooling-of-interest" for accounting purposes. Therefore, notwithstanding any
other provision of this Agreement, prior to the publication and dissemination by
Cotelligent of consolidated financial results which include results of combined
operations of the Company and Cotelligent for at least thirty days on a
consolidated basis following the Consummation Date, Stockholder shall not sell
or otherwise transfer or dispose of, or in any other way reduce her risk
relative to, any shares of the Cotelligent Stock received by Stockholder
(including, by way of example and not limitation, engaging in put, call, short-
sale, straddle or similar market transactions). The SEC has issued Accounting
Series Release Nos. 130 and 135, as amended, (collectively the "ASRs") setting
forth certain restrictions applicable to the availability of "pooling-of-
interest" accounting treatment in transactions of the type contemplated by this
Agreement. The Stockholder, therefore, covenants and agrees with Cotelligent to
hold her shares of Cotelligent Stock and to comply with the ASRs until the
requirements of the ASRs have been met. The certificates evidencing the
Cotelligent Stock to be received by the Stockholder will bear a legend
substantially in the form set forth below and containing such other information
as Cotelligent may deem necessary or appropriate:
30
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED
SALE, TRANSFER OR ASSIGNMENT PRIOR TO THE PUBLICATION AND DISSEMINATION OF
FINANCIAL STATEMENTS BY THE ISSUER WHICH INCLUDE THE RESULTS OF AT LEAST THIRTY
(30) DAYS OF COMBINED OPERATIONS OF THE ISSUER AND THE COMPANY ACQUIRED BY THE
ISSUER FOR WHICH THESE SHARES ARE ISSUED. UPON THE WRITTEN REQUEST OF THE
HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND
(AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENTS) WHEN THE REQUIREMENTS OF
ACCOUNTING SERIES RELEASE NOS. 130 AND 135, AS AMENDED, OF THE SECURITIES AND
EXCHANGE COMMISSION HAVE BEEN MET.
14.2 INDEMNIFICATION. The Stockholder covenants and agrees that she will
indemnify and hold harmless Cotelligent from and after the Closing Date against
any and all losses, damages, liabilities, claims, deficiencies, costs, expenses
or expenditures resulting from a breach by her of the restrictions set forth in
Section 14.1, the ASRs or Stockholder representations and warranties set forth
in this Agreement which results in Cotelligent not being able to account for the
transactions contemplated herein as a reorganization or in the transactions not
qualifying as a tax free reorganization.
15. FEDERAL SECURITIES ACT AND CONTRACTUAL RESTRICTIONS ON COTELLIGENT STOCK
The shares of Cotelligent Stock delivered to the Stockholder pursuant to
this Agreement have been registered under the Securities Act of 1933, as amended
(the "Act"), and are being issued pursuant to an effective registration
statement.
15.1 PROSPECTUS DELIVERY. Stockholder represents and acknowledges that
Stockholder has been provided with a full and complete Prospectus dated April 8,
1996, and a prospectus supplement containing Cotelligent's Annual Report on Form
10-K for the period ended March 31, 1996, and has been provided as much time and
opportunity as she deemed appropriate to review and study such Prospectus and to
consult with Cotelligent regarding the merits and risks of the transactions
contemplated by this Agreement.
15.2 RESALE OF COTELLIGENT STOCK. Immediately after issuance of the
Stock, Stockholder shall be free to resell such shares in a private transaction
or a public transaction on the National Market System; provided that for two (2)
years after the Closing Date, Seller shall comply with the resale requirements
of Rule 145(d) under the Act, more specifically, the volume limitations, broker
transactions, and manner of sale provisions of Rule 144(e), (f) and (g),
respectively.
15.3 LEGEND. Stockholder acknowledges and agrees that all Cotelligent
Stock shall bear the following legend:
31
<PAGE>
"THE SHARES REPRESENTED HEREBY HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. SUCH SHARES MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE
HOLDER HEREOF REPRESENTS IN WRITING, AND PROVIDES EVIDENCE SATISFACTORY TO
COTELLIGENT GROUP, INC., THAT SUCH HOLDER HAS COMPLIED WITH RESALE LIMITATIONS
UNDER APPLICABLE SECURITIES LAW."
; provided, however, that pursuant to Rule 145(d) of the Act, on the second
anniversary following the Closing Date, the foregoing legend shall be removed
from such certificates, and Cotelligent shall issue a certificate without such
legend to Stockholder upon such Stockholder's request therefor.
16. GENERAL
16.1 COOPERATION. Stockholder and Cotelligent shall each deliver or
cause to be delivered to the other on the Consummation Date, and at such other
times and places as shall be reasonably agreed to, such additional instruments
as the other may reasonably request for the purpose of carrying out this
Agreement. Stockholder will cooperate and use her best efforts to have the
present officers, directors and employees of the Company cooperate with
Cotelligent on and after the Consummation Date in furnishing information,
evidence, testimony and other assistance in connection with any actions,
proceedings, arrangements or disputes of any nature with respect to matters
pertaining to all periods prior to the Consummation Date.
16.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of Cotelligent, and the heirs and legal representatives of
Stockholder.
16.3 ENTIRE AGREEMENT. This Agreement (including the schedules and
annexes attached hereto) and the documents delivered pursuant hereto constitute
the entire agreement and understanding between Stockholder, the Company,
Cotelligent and Newco and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement on the parties thereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by Stockholder, the Company, Cotelligent, and
Newco acting through their respective officers, duly authorized by their
respective Boards of Directors.
16.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
16.5 BROKERS AND AGENTS. Each party represents and warrants that it
employed no broker or agent in connection with this transaction and agrees to
indemnify the other against all loss, cost, damages or expense arising out of
claims for fees or commission of brokers employed
32
<PAGE>
or alleged to have been employed by such indemnifying party.
16.6 EXPENSES. Whether or not the transactions herein contemplated shall
be consummated, Cotelligent will pay the fees, expenses and disbursements of
Cotelligent and Newco and its agents, representatives, accountants and counsel
incurred in connection with the subject matter of this Agreement and any
amendments thereto. Whether or not the transactions herein contemplated shall
be consummated, Stockholder will personally pay the fees, expenses and
disbursements of the Company, Stockholder and her agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement and any amendments hereto and all other costs and expenses incurred in
the performance and compliance with all conditions to be performed by
Stockholder and Company under this Agreement; provided, however, that
Cotelligent shall reimburse Stockholder for up to $40,000 of accounting and
legal fees incurred in connection with the subject matter of this Agreement.
16.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the same
in person to an officer or agent of such party.
(a) If to Cotelligent or Newco, addressed to them at:
Cotelligent Group, Inc.
101 California Street, Suite 2050
San Francisco, California 94111
Attention: Corporate Secretary
with a copy to:
Mayor, Day, Caldwell & Keeton, L.L.P.
700 Louisiana, Suite 1900
Houston, Texas 77002
Attn: Roy E. Bertolatus
(b) If to Stockholder, addressed to her at:
3030 LBJ Freeway, Suite 1610
Dallas, Texas 75234
with a copy to:
Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
33
<PAGE>
Dallas, Texas 75201
Attn: John Holden, Jr.
16.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
16.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties.
16.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
16.11 TIME. Time is of the essence of this Agreement.
16.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such a manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
34
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"COTELLIGENT"
ATTEST: COTELLIGENT GROUP, INC.
By: /s/ Daniel E. Jackson
- - ----------------------------- -----------------------------------------
Name: Daniel E. Jackson
Title: Senior Vice President and General
Counsel
"COMPANY"
ATTEST: INNOVA SOLUTIONS, INC.
By: /s/ Susan E. Trice
- - ---------------------------- ----------------------------------------
Name: Susan E. Trice
Title: President, Secretary and Treasurer
35
<PAGE>
"NEWCO"
ATTEST: CGI ACQUISITION, INC.
By:
- - ---------------------------- ----------------------------------------
Name:
Title:
"STOCKHOLDER"
/s/ Susan E. Trice
-------------------------------------------
Name: Susan E. Trice
36
<PAGE>
EXHIBIT A
---------
ARTICLES OF MERGER
OF DOMESTIC CORPORATIONS
Pursuant to the provisions of Article 5.04 of the Texas Business
Corporation Act, the undersigned corporations adopt the following Articles of
Merger for the purposes of merging them into one such corporation:
1 Plan of Reorganization and Merger adopted in accordance with the
provisions of Article 5.04 of the Texas Business Corporation Act providing for
the merger of CGI Acquisition, Inc. into Innova Solutions, Inc. was approved by
the shareholders of each of the undersigned corporations and is attached hereto
and hereby incorporated herein by reference.
2 As to each of the undersigned corporations, the number of shares
outstanding and the designation and number of outstanding shares of each class
entitled to vote as a class on such Plan, are as follows:
NAME OF NUMBER OF SHARES OF
CORPORATION COMMON STOCK OUTSTANDING
----------- ------------------------
CGI Acquisition, Inc. 1,000
Innova Solutions, Inc. 51,000
3 As to each of the undersigned corporations, the number of shares of
common stock voted for and against such Plan, respectively, are as follows:
NAME OF TOTAL VOTED TOTAL VOTED
CORPORATION FOR AGAINST
----------- --- -------
CGI Acquisition, Inc. 1,000 0
Innova Solutions, Inc. 51,000 0
4 The merger herein provided for shall be effective in the State of Texas
as of 11:59 p.m. local time on the 30th day of June, 1996.
Dated: June 28, 1996.
CGI ACQUISITION, INC.
37
<PAGE>
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
INNOVA SOLUTIONS, INC.
By: /s/ Susan E. Trice
--------------------------------------
Name: Susan E. Trice
Title: President, Secretary and Treasurer
38
<PAGE>
EXHIBIT B
---------
Upon the surrender of the Company Stock by Stockholder, Cotelligent shall
deliver 521,390 shares of Cotelligent's Common Stock, par value $.01 per share.
39
<PAGE>
EXHIBIT D
---------
Innova Solutions, Inc. has 100,000 authorized shares of Common Stock,
51,000 shares of which has been issued and are outstanding. Susan E. Trice is
the record holder and beneficial owner of such 51,000 shares of Cotelligent
Stock and such stock represents all the outstanding capital stock of the
Company.
40
<PAGE>
EXHIBIT E
---------
June 28, 1996
Ms. Susan E. Trice
Innova Solutions, Inc.
3030 LBJ Freeway, Suite 1610
Dallas, Texas 75234
Re: Agreement and Plan of Reorganization and Merger (the "Agreement")
among Cotelligent Group, Inc., a Delaware corporation ("Buyer"), CGI
Acquisition, Inc., a Texas corporation ("Newco"), Innova Solutions, Inc., a
Texas corporation (the "Company") and Susan E. Trice ("Shareholder") dated as of
June 28, 1996
Gentlemen:
I have acted as counsel to Buyer in connection with Buyer's acquisition of
the stock of the Company by merging Newco, a wholly-owned subsidiary of Buyer
with and into the Company, pursuant to the Agreement. Capitalized terms used
herein that are not defined herein shall have the meanings set forth in respect
thereof in the Agreement.
In rendering the opinion set forth below, I have examined such documents,
instruments and certificates as I deemed necessary to render the opinion set
forth herein. Based on the foregoing, I am of the opinion that:
1 The execution and delivery by Buyer of the Agreement and each of the
collateral agreements to which it is a party, and the consummation of the
transactions contemplated thereby, have been duly authorized by all requisite
corporate action of Buyer.
2 The shares of common stock, $.01 par value per share, of Buyer
delivered to Shareholder pursuant to Section 3 of the Agreement are duly
authorized, validly issued and outstanding, fully paid and nonassessable; and
none of such shares have been issued in violation of the preemptive rights of
any person.
3 The Registration Statement on Form S-1 filed by the Company with the
Securities and Exchange Commission ("Registration Statement") has become
effective
41
<PAGE>
under the Securities Act of 1933, as amended, and, to the best of my
knowledge, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or contemplated. The issuance of the shares of the
Buyer's Common Stock to Shareholder is covered by such Registration Statement.
The opinions expressed herein are expressed as of the date hereof, and I
assume no obligation to advise any person of any change concerning any of the
above, whether or not deemed material, which may hereafter come or be brought to
my attention, including, but not limited to, any change which could result from
pending or future legislation, law and jurisprudence.
This opinion is limited to the laws of the State of Texas and the Delaware
General Corporation Law, to the extent that the same may apply to or govern the
transactions contemplated by the Agreement. I express no opinion as to the laws
of any other jurisdiction.
This opinion relates only to the matters expressly addressed above, and I
express no opinion with respect to any other matter. This opinion is rendered
only to you and is solely for your benefit in connection with the transactions
contemplated by the Agreement, and may not be relied upon by you for any other
purpose, and may not be relied upon by any other person or entity for any
purposes without my prior written consent.
This letter expresses my legal opinion as to the matters set forth above
and is based upon my professional knowledge and judgment at this time. However,
it is not to be construed as a guaranty, nor is it a warranty that at court
considering such matters would not rule in a manner contrary to the opinions set
forth herein.
Very truly yours,
Daniel E. Jackson
Senior Vice President and General Counsel
of Cotelligent Group, Inc.
42
<PAGE>
EXHIBIT 2
AGREEMENT AND PLAN OF REORGANIZATION
AND MERGER
AMONG
COTELLIGENT GROUP, INC.,
COTELLIGENT/ESP ACQUISITION CORPORATION,
ESP SOFTWARE SERVICES, INC.,
AND
ROBERT HILDRETH
RAYMOND DAVEY
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
1. THE MERGER........................................................... 1
1.1 Delivery and Filing of Articles of Merger..................... 1
1.2 Effective Time of the Merger.................................. 2
1.3 Merger of Newco into Company; Articles of Incorporation,
Bylaws and Board of Directors of Surviving Corporation........ 2
1.4 Certain Information With Respect to the Capital Stock of
Company, and Newco............................................ 3
1.5 Effect of Merger.............................................. 3
2. CONVERSION AND EXCHANGE OF STOCK..................................... 3
2.1 Manner of Conversion.......................................... 3
3. DELIVERY OF SHARES................................................... 4
4. CLOSING.............................................................. 5
5. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS....................... 5
5.1 Due Organization.............................................. 5
5.2 Authorization................................................. 5
5.3 Capital Stock of Company...................................... 6
5.4 Transactions in Capital Stock and Spin-offs................... 6
5.5 No Bonus Shares............................................... 7
5.6 Subsidiaries.................................................. 7
5.7 Predecessor Status; etc....................................... 7
5.8 Cotelligent Stock Ownership................................... 7
5.9 Financial Statements.......................................... 7
5.10 Liabilities and Obligations................................... 8
5.11 Approvals..................................................... 8
5.12 Accounts and Notes Receivable................................. 8
5.13 Permits and Intangibles....................................... 8
5.14 Real and Personal Property.................................... 9
5.15 Material Contracts and Commitments............................ 9
5.16 Title to Real Property........................................ 10
5.17 Insurance..................................................... 10
5.18 Employees; Compensation....................................... 10
5.19 Intentionally Deleted......................................... 10
5.20 Benefit Plans; ERISA Compliance............................... 10
5.21 Conformity with Law........................................... 13
5.22 Taxes......................................................... 14
5.23 Completeness.................................................. 14
5.24 Government Contracts.......................................... 15
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
5.25 Absence of Changes............................................ 15
5.26 Deposit Accounts; Powers of Attorney.......................... 16
5.27 Proprietary Rights............................................ 16
5.28 Validity of Obligations....................................... 16
5.29 Relations with Governments.................................... 16
5.30 Conflicts of Interest......................................... 17
5.31 Environmental Matters......................................... 17
5.32 Private Sale.................................................. 18
5.33 Disclosure.................................................... 18
6. REPRESENTATIONS OF COTELLIGENT AND NEWCO............................. 18
6.1 Due Organization.............................................. 18
6.2 Cotelligent Stock............................................. 18
6.3 Authorization................................................. 19
6.4 No Conflicts.................................................. 19
6.5 Company Stock................................................. 19
7. COVENANTS OF STOCKHOLDERS AND COMPANY PRIOR TO CLOSING............... 19
7.1 Access and Cooperation........................................ 19
7.2 Conduct of Business Pending Closing........................... 19
7.3 Prohibited Activities......................................... 20
7.4 Pooling of Interests; Reorganization.......................... 21
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS.................. 21
8.1 Representations and Warranties; Performance of Obligations.... 21
8.2 Counsel Approval.............................................. 21
8.3 No Litigation................................................. 22
8.4 Opinion of Counsel............................................ 22
9. CONDITIONS TO OBLIGATIONS OF COTELLIGENT AND NEWCO................... 22
9.1 Representations and Warranties; Performance of Obligations.... 22
9.2 No Litigation................................................. 22
9.3 Examination of Financial Statements........................... 22
9.4 No Material Adverse Change.................................... 23
9.5 Review........................................................ 23
9.6 Stockholders Release.......................................... 23
9.7 Counsel Approval.............................................. 23
9.8 Opinion of Counsel............................................ 23
9.9 Consents and Approvals........................................ 23
9.10 Additional Liabilities and Obligations........................ 23
9.11 Additional Contracts.......................................... 23
9.12 Pooling Accounting Treatment.................................. 23
9.13 Good Standing Certificates.................................... 24
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
10. POST CLOSING COVENANTS................................................ 24
10.1 Announcement of Earnings...................................... 24
10.2 Board Advisory Committee...................................... 24
10.3 Release of Stockholder Guaranties............................. 24
10.4 Tax Treatment................................................. 24
11. INDEMNIFICATION....................................................... 24
11.1 General Indemnification by Stockholders....................... 24
11.2 Specific Indemnification by Stockholders...................... 25
11.3 Indemnification by Cotelligent and the Surviving Corporation.. 25
11.4 Limitation on Liability....................................... 25
11.5 Notice and Defense of Third Party Claims...................... 26
11.6 Payment; Interest............................................. 27
11.7 Arbitration................................................... 27
12. TERMINATION OF AGREEMENT.............................................. 27
13. NONCOMPETITION........................................................ 27
13.1 Prohibited Activities......................................... 27
13.2 Independent Covenant.......................................... 29
13.3 Materiality................................................... 29
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION............................. 30
14.1 Stockholders.................................................. 30
14.2 Cotelligent................................................... 30
14.3 Damages....................................................... 30
15. POOLING ACCOUNTING.................................................... 30
15.1 Restrictions on Resale; Legends............................... 30
15.2 Indemnification............................................... 31
16. FEDERAL SECURITIES ACT AND CONTRACTUAL RESTRICTIONS ON
COTELLIGENT STOCK
16.1 Prospectus Delivery........................................... 31
16.2 Resale of Cotelligent Stock................................... 32
16.3 Legend........................................................ 32
17. GENERAL
17.1 Cooperation................................................... 32
17.2 Successors and Assigns........................................ 32
17.3 Entire Agreement.............................................. 32
17.4 Counterparts.................................................. 33
17.5 Brokers and Agents............................................ 33
17.6 Expenses...................................................... 33
17.7 Notices....................................................... 33
</TABLE>
iii
<PAGE>
<TABLE>
<C> <S> <C>
17.8 Governing Law................................................. 33
17.9 Survival of Representations and Warranties.................... 34
17.10 Exercise of Rights and Remedies............................... 34
17.11 Time.......................................................... 34
17.12 Reformation and Severability.................................. 34
</TABLE> 35
iv
<PAGE>
DEFINITIONS
-----------
<TABLE>
<CAPTION>
DEFINED TERM SECTION
- - ------------ -----------
<S> <C>
"Act"............................................ 15
"Agreement"...................................... Preamble
"Article of Merger".............................. 1.1
"ASRs"........................................... 14.1
"Balance Sheet Date"............................. 5.9
"Benefit Plans".................................. 5.20
"Claims"......................................... 10.1
"Closing"........................................ 4
"Closing Date"................................... 4
"Code"........................................... Recitals
"Company"........................................ Preamble, 5
"Company Stock".................................. 1.4
"Constituent Corporations"....................... Recitals
"Cotelligent".................................... Preamble
"Cotelligent Stock".............................. 2.1
"ERISA".......................................... 5.20
"Effective Time of the Merger"................... 1.2
"Environmental Laws"............................. 5.31
"Expiration Date"................................ 5
"Financial Statements"........................... 5.9
"Indemnified Person"............................. 10.3
"Indemnifying Person"............................ 10.3
"IRS"............................................ 5.20
"Merger"......................................... Recitals
"Merger Provision"............................... 1.5
"Newco".......................................... Preamble
"Newco Stock".................................... 1.4
"PBGC"........................................... 5.20
"Pension Plans".................................. 5.20
"pooling-of-interest"............................ 5.4, 14.1
"Stockholder".................................... Preamble
"Surviving Corporation".......................... 1.2
"Tax"............................................ 5.22
"Tax Return"..................................... 5.22
"Welfare Plans".................................. 5.20
</TABLE>
v
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (the "Agreement")
is made as of the 28th day of June, 1996, among COTELLIGENT GROUP, INC., a
Delaware corporation ("Cotelligent"), and ESP SOFTWARE SERVICES, INC., a
Minnesota corporation ("Company"); Cotelligent/ESP Acquisition Corporation
("Newco"), and ROBERT HILDRETH and RAYMOND DAVEY, the sole shareholders of
Company ("Stockholders").
WHEREAS, Newco has been duly organized and is currently existing under
the laws of the State of Minnesota, having been incorporated on June 20, 1996
solely for the purpose of completing this transaction, and is a wholly-owned
subsidiary of Cotelligent; and
WHEREAS, Stockholders are the record owners of all the outstanding
capital stock of the Company; and
WHEREAS, the respective Boards of Directors of Cotelligent, Newco and
Company (all of which companies are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective stockholders that Newco merge with
and into Company pursuant to this Agreement and the applicable provisions of the
laws of Company's and Newco's respective states of incorporation, such
transaction sometimes being referred to herein as the "Merger"; and
WHEREAS, it is intended that the Merger shall be recorded for
accounting purposes as a pooling of interests; and
WHEREAS, the Boards of Directors of each of the Constituent
Corporations have approved and adopted this Agreement as a plan of
reorganization within the provisions of Section 368(a)(1)(A) and 368(a)(2)(E) of
the Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements set forth below, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. Cotelligent, Company,
Newco and Stockholders agree that Newco shall merge with and into Company, upon
the terms and conditions set forth in this Agreement and in accordance with the
applicable provisions of the laws of their respective states of incorporation.
The Constituent Corporations will cause Articles of Merger in substantially the
form attached hereto as Exhibit A (the "Articles of Merger") to be signed,
verified by the appropriate party and delivered to the Secretary of State of
Minnesota on or before the Closing Date (as defined in Section 4 of this
Agreement). The "Plan of Merger" set forth in Articles of Merger is the plan of
merger required by applicable Minnesota
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statues, but the terms and conditions of such plan do not supersede, preclude or
adversely affect the terms set forth herein.
1.2 EFFECTIVE TIME OF THE MERGER. The "Effective Time of the Merger"
shall be such time at which the Articles of Merger are filed with the Secretary
of State for the State of Minnesota, or if a different effective time is
specified in the Articles of Merger, such later time as is specified in such
Articles of Merger. At the Effective Time of the Merger, Newco shall be merged
with and into Company and the separate existence of Newco shall cease. Company,
the party surviving the Merger, is hereinafter sometimes referred to as the
"Surviving Corporation."
1.3 MERGER OF NEWCO INTO COMPANY; ARTICLES OF INCORPORATION, BYLAWS
AND BOARD OF DIRECTORS OF SURVIVING CORPORATION. At the Effective Time of the
Merger:
(i) Newco shall merge with and into Company, with such effects as are
set forth herein and in the corporate laws of the State of Minnesota;
(ii) the Articles of Incorporation of Newco, as in effect immediately
prior to the consummation of the Merger, shall become the Articles of
Incorporation of the Surviving Corporation; and subsequent to the Effective Time
of the Merger, such Articles of Incorporation shall be the Articles of
Incorporation of the Surviving Corporation until changed as provided by law;
(iii) the Bylaws of Newco, as in effect immediately prior to the
consummation of the Merger, shall become the Bylaws of the Surviving
Corporation; and subsequent to the Effective Time of the Merger, such Bylaws
shall be the Bylaws of the Surviving Corporation until they shall thereafter be
duly amended;
(iv) the name of the person who shall serve as the member of the Board
of Directors of the Surviving Corporation is as follows:
Daniel Jackson
The Director of the Surviving Corporation shall hold office subject to the
provisions of the laws of its state of incorporation and of the Articles of
Incorporation and Bylaws of the Surviving Corporation; and
(v) the officers of Newco immediately prior to the Effective Time of
the Merger shall continue as the officers of the Surviving Corporation in the
same capacity or capacities, each of such officers to serve, subject to the
provisions of the Articles of Incorporation and Bylaws of the Surviving
Corporation, until his or her successor is elected and qualified.
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1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF COMPANY,
AND NEWCO. The respective designations and numbers of outstanding shares and
voting rights of each class of outstanding capital stock of Company and Newco as
of the date of this Agreement are as follows:
(i) the authorized capital stock of Company consists of 20,000 shares
of common stock, $0.01 par value ("Company Stock"), of which 1,074 shares are
issued and outstanding; and
(ii) the authorized capital stock of Newco consists of 1,000 shares of
common stock, $0.01 par value ("Newco Stock"), of which 100 shares are issued
and outstanding.
1.5 EFFECT OF MERGER. The Merger shall have the effects set forth in
the corporate laws of the State of Minnesota (the "Merger Provision"). Except
as specifically set forth to the contrary in the Merger Provision or in this
Agreement, the identity, existence, purposes, powers, objects, franchises,
privileges, rights and immunities of Newco shall continue unaffected and
unimpaired by the Merger and the corporate franchises, existence and rights of
Newco shall be merged into Company, and Company, as the Surviving Corporation,
shall be fully vested therewith; at the Effective Time of the Merger, the
separate existence of Newco shall cease and, in accordance with the terms of
this Agreement, the Surviving Corporation shall possess all the rights,
privileges, immunities and franchises, of a public, as well as of a private
nature; and all property and all debts due on whatever account, including
subscriptions to shares and all and every other interest of or belonging to or
due to Newco and Company shall be taken and deemed to be transferred to, and
vested in, the Surviving Corporation without further act or deed; and all
property, rights, privileges, powers, licenses and franchises and all and every
other interest shall be thereafter as effectually the property of the Surviving
Corporation as they were of Company and Newco; and the title to any real estate,
or interest therein, whether by deed or otherwise, under the laws of the state
of incorporation vested in Company and Newco, shall not revert or be in any way
impaired by reason of the Merger. The Surviving Corporation shall thenceforth
be responsible and liable for all the liabilities and obligations of Company and
Newco and any claim existing, or action or proceeding pending, by or against
Company or Newco may be prosecuted as if the Merger had not taken place, or the
Surviving Corporation may be substituted in its place. Neither the rights of
creditors nor any liens upon the property of Company or Newco shall be impaired
by the Merger, and all debts, liabilities and duties of Company and Newco shall
attach to the Surviving Corporation, and may be enforced against it to the same
extent as if said debts, liabilities and duties had been incurred or contracted
by the Surviving Corporation.
2. CONVERSION AND EXCHANGE OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting (i) the shares of
Company Stock issued and outstanding immediately prior to the Effective Time of
the Merger into shares of common stock of Cotelligent, $0.01 par value
("Cotelligent Stock") and (ii) the shares of Newco Stock issued and outstanding
immediately prior to the Effective Time of the Merger into shares of common
stock of the Surviving Corporation, shall be as follows:
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Upon the Effective Time of the Merger and without any action on the
part of Company, Newco or Stockholders:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger shall, by virtue of the
Merger and without any action on the part of the holder thereof, automatically
be converted into that number of shares of Cotelligent Stock calculated in
accordance with Section 3 below, and each share of Company Stock shall be
cancelled and cease to exist; and
(ii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger and
without any action on the part of the holder thereof, automatically be converted
into one fully paid and non-assessable share of stock of the Surviving
Corporation; and such shares in the aggregate shall constitute all of the issued
and outstanding shares of the Surviving Corporation from and after the Effective
Time of the Merger.
3. DELIVERY OF SHARES
3.1 At Closing:
(i) Stockholders, as the holder of all outstanding certificates
representing shares of Company Stock, shall, upon surrender of such
certificates, be entitled to receive that total number of shares of Cotelligent
Stock which shall have an aggregate Agreed Value of $9,000,000 determined
pursuant to subsection (iii) below. The shares of Cotelligent Stock to be
issued and distributed pursuant to this Section shall be allocated among and be
paid to Stockholders in accordance with the percentages set forth on Exhibit B
attached hereto and made a part hereof.
(ii) Until the certificates representing Company Stock have been
surrendered by Stockholders and replaced by the Cotelligent Stock, the
certificates for Company Stock shall, for all corporate purposes be deemed to
evidence ownership of Cotelligent Stock.
(iii) For purposes of this Agreement, the "Agreed Value" per share of
Cotelligent Stock shall be the lesser of: (A) $20.00; and (B) the average of
the closing prices of a share of Cotelligent Stock on the National Market System
of the NASDAQ Stock Market, as reported in The Wall Street Journal for the five
trading days immediately preceding the five trading days immediately prior to
the Closing Date, adjusted for any stock splits, stock dividends and other
capital changes between the first date of the valuation period and the Closing
Date.
3.2 Stockholders shall deliver at Closing the certificates
representing Company Stock, duly endorsed in blank by Stockholders as set forth
on Exhibit C, or accompanied by a blank stock power, with signature guaranteed
by a national bank, and with all necessary transfer tax and other revenue
stamps, acquired at the Stockholders's expense, affixed and canceled.
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Stockholders agrees to cure any deficiencies with respect to the endorsement of
the certificates or other documents of conveyance with respect to Company Stock
or with respect to the stock powers accompanying any Company Stock.
4. CLOSING
The Merger and conversion and delivery of shares referred to in
Section 3 hereof (hereinafter referred to as the "Closing") shall take place at
the offices of Felhaber, Larson, Fenlon & Vogt, 4200 First Bank Place, 601
Second Avenue South, Minneapolis, Minnesota 55402-4302, on June 28, 1996, or at
such other time and date as Cotelligent, Company and Stockholders may mutually
agree, which date shall be referred to herein as the "Closing Date." At or prior
to the Closing, the parties shall take all actions necessary to prepare to
effect the Merger including, if permitted by applicable state law, filing with
the appropriate state authorities the Articles of Merger which shall become
effective on the Closing Date.
5. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Stockholders, jointly and severally, represent and warrant to
Cotelligent that all of the following representations and warranties shall be
true as of the date of this Agreement and shall be true at the time of Closing.
Such representations and warranties shall survive the Closing for a period of
one year from the Closing Date or until the completion date of the first audited
financial statements of Cotelligent containing the combined operations for one
year from the Closing Date, whichever occurs first (which date is hereinafter
called the "Expiration Date"). For purposes of these representations and
warranties, the term "Company" shall include Company and each of Company's
subsidiaries indicated on Schedule 5.6.
5.1 DUE ORGANIZATION. Company and each subsidiary of Company
indicated on Schedule 5.1 are corporations duly organized, validly existing and
in good standing under the laws of the states shown on Schedule 5.1, and are
duly authorized, qualified and licensed under all applicable laws, regulations,
ordinances and orders of public authorities to carry on their respective
businesses in the places and in the manner as now conducted or as proposed to be
conducted except (i) as disclosed on Schedule 5.1 or (ii) where the failure to
be so authorized, qualified or licensed would not have a material adverse effect
on the business of Company. Copies of the Articles of Incorporation (certified
by the Secretary of State of the State of incorporation of the respective
company) and Bylaws (certified by the Secretary of Company), as amended, of
Company and each of Company's subsidiaries are all attached hereto as Schedule
5.1. The stock records and minute books of Company and each subsidiary, as
heretofore made available to Cotelligent, are correct and complete.
5.2 AUTHORIZATION. Stockholders and Company have full legal right,
power and authority to enter into this Agreement and have the full legal right,
power and authority to enter into the Merger, and the conversion of Company
Stock into Cotelligent Stock, pursuant to the provisions of this Agreement will
transfer valid title in Company Stock to Cotelligent, free and clear of all
liens, encumbrances and claims of every kind, subject to the disclosures set
forth on Schedule 5.3. The execution and delivery of this Agreement do not, and
the consummation of
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the transactions contemplated hereby and compliance with the provisions hereof
will not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
material benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of Company
under, any provision of (i) the Articles of Incorporation or By-laws of Company,
(ii) any contract, agreement, loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise
or license applicable to Company or (iii) any judgment, injunction, order,
decree, statute, law, ordinance, rule or regulation applicable to Company or its
properties or assets.
5.3 CAPITAL STOCK OF COMPANY. The authorized capital stock of
Company consists solely of the shares of voting common stock as shown on Exhibit
C attached hereto. All of the issued and outstanding shares of the capital
stock of Company are owned by Stockholders as set forth on Exhibit C, and are
free and clear of all liens, encumbrances and claims of every kind. Schedule 5.6
attached hereto sets forth the number and class of the authorized capital stock
of each of Company's subsidiaries and the number of shares of each subsidiary
which are issued and outstanding, all of which shares are owned by Company, free
and clear of all liens, encumbrances and claims of every kind. All of the
issued and outstanding shares of Company Stock have been duly authorized and
validly issued, are fully paid and nonassessable, are owned of record and
beneficially by Stockholders, and such shares were offered, issued, sold and
delivered by Company in compliance with all applicable state and federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of the preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK AND SPIN-OFFS. Company has not
acquired any treasury stock since June 11, 1994. No rights of first refusal,
option, warrant, call, conversion right or commitment of any kind exists which
obligates Company to issue any of its authorized but unissued capital stock. In
addition, there are no (i) outstanding securities or obligations which are
convertible into or exchangeable for any shares of the capital stock or other
securities of Company, or (ii) contracts, arrangements or commitments, written
or otherwise, under which Company is or may become bound to sell or otherwise
issue any shares of its capital stock or any other securities. Without limiting
the generality of the foregoing, there is no basis upon which any person (other
than Stockholders) may claim to be in any way the record or beneficial owner of,
or to be entitled to acquire (of record or beneficially), any shares of the
capital stock or other securities of Company, and no person has made or
threatened to make, or will in the future have any legitimate basis to make, any
such claim. In addition, except as set forth in item 2 of Schedule 5.3, Company
has no obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its equity securities or any interests therein or to pay any
dividend or make any distribution in respect thereof. Except as set forth on
Schedule 5.3, there has been no transaction or action taken with respect to the
equity ownership of Company in contemplation of the transaction described in
this Agreement which would prevent Cotelligent from accounting for such
transaction on a "pooling-of-interest" or on a reorganization accounting basis.
Neither the voting stock structure of Company nor the ownership of shares has
been altered or changed in contemplation of the Merger since June 11, 1994.
Between June 11, 1994 and the Closing
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Date, there has not been any sale or spin-off of significant assets of Company
or any of Company's subsidiaries other than in the ordinary course of business.
5.5 NO BONUS SHARES. None of the shares of Company Stock was issued
pursuant to awards, grants or bonuses.
5.6 SUBSIDIARIES. Set forth on Schedule 5.6 attached hereto is a
list of the names of each of Company's subsidiaries. Except as set forth in
Schedule 5.6, Company does not presently own, of record or beneficially, or
control, directly or indirectly, any capital stock, securities convertible into
capital stock or any other equity interest in any corporation, association or
business entity. Company is not, directly or indirectly, a participant in any
joint venture, partnership or other noncorporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a list of
all names of all predecessor companies of Company, including the names of any
entities from whom Company previously acquired significant assets. Except as
disclosed in Schedule 5.7, Company has never been a subsidiary or division of
another corporation nor been a part of an acquisition which was later rescinded.
5.8 COTELLIGENT STOCK OWNERSHIP. Neither Company, the Stockholders
nor any of Company's subsidiaries has ever owned any Cotelligent Stock.
5.9 FINANCIAL STATEMENTS. Stockholders has delivered to Cotelligent
copies of the following sets of financial statements (the "Financial
Statements") of Company attached hereto as Schedule 5.9:
(i) Company's Balance Sheet as of December 31, 1995 and for the two
prior years and Statements of Earnings, Cash Flows and Retained Earnings for the
year then ended and for the two prior years, and
(ii) Company's Balance Sheet as of April 30, 1996 (hereinafter
referred to as the "Balance Sheet Date") and Statements of Earnings, Cash Flows
and Retained Earnings for the four-month period then ended.
Such Financial Statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") and applied on a consistent basis
throughout the periods indicated (except as noted). Except as noted on Schedule
5.9, such balance sheets present fairly the financial condition of Company (and
Company's subsidiaries on a consolidated basis) as of the dates indicated
thereon, and such Statements of Earnings, and Cash Flows and Retained Earnings
present fairly the results of its operations for the periods indicated thereon.
If required, the President or Chief Financial Officer of Company has, or will on
or before the Closing Date, execute any documentation reasonably required by
Cotelligent's independent public accountants or any stock exchange with respect
to issues related to pooling accounting treatment.
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5.10 LIABILITIES AND OBLIGATIONS. Stockholders have delivered to
Cotelligent on Schedule 5.10 an accurate list as of the Balance Sheet Date of
all liabilities of Company which are not individually reflected in the Financial
Statements dated the Balance Sheet Date, but which would have been so reflected
in a full GAAP accounting, of any kind, character and description, whether
accrued, absolute, secured or unsecured, contingent or otherwise, together with,
in the case of those liabilities which are not fixed, an estimate of the maximum
amount which may be payable. For each such liability for which the amount is
not fixed or is contested, Stockholders shall provide a summary description of
the liability together with the following:
(i) copies of all relevant documentation relating thereto;
(ii) amounts claimed and any other action or relief sought;
(iii) name of claimant and all other parties to the claim, suit or proceeding;
(iv) the name of each court or agency before which such claim, suit or
proceeding is pending;
(v) the date such claim, suit or proceeding was instituted; and
(vi) a reasonable best estimate by Stockholders of the maximum amount, if any,
which is likely to become payable with respect to each such liability. If
no estimate is provided, the Stockholders' best estimate shall for purposes
of this Agreement be deemed to be zero.
5.11 APPROVALS. Except as described in Schedule 5.11, no
authorization, consent or approval of, or registration or filing with, any
governmental authority or any other person is or was required to be obtained or
made by Company or Stockholders in connection with the execution, delivery or
performance of this Agreement. As of the date of this Agreement, except as
described in Schedule 5.11, all of the authorizations, consents and approvals
referred to in Schedule 5.11 have been obtained, and all of the registrations
and filings referred to in Schedule 5.11 have been made.
5.12 ACCOUNTS AND NOTES RECEIVABLE. Stockholders have delivered to
Cotelligent on Schedule 5.12 an accurate list as of the Closing Date of the
accounts and notes receivable of Company, including receivables from and
advances to employees and Stockholders and amounts which are not reflected in
the most recent available balance sheet. Stockholders shall provide Cotelligent
with an aging of all accounts and notes receivable showing amounts due in 30 day
aging categories. Except to the extent reflected on Schedule 5.12, such
accounts and notes are collectible in the amount shown on Schedule 5.12.
5.13 PERMITS AND INTANGIBLES. Stockholders have delivered to
Cotelligent on Schedule 5.13 an accurate list and summary description as of the
Closing Date of all permits, titles (including motor vehicle titles and current
registrations), fuel permits, licenses, orders, approvals, franchises,
certificates, trademarks, trade names, patents, patent applications and
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copyrights owned or held by Company, all of which are now valid, in good
standing and in full force and effect. Except as set forth on Schedule 5.13,
such permits, titles, licenses, orders, approvals, franchises, certificates,
trademarks, trade names, patents, patent applications, copyrights and similar
rights of approvals are adequate for the operation of Company's business as
presently constituted. Except as set forth on Schedule 5.13, Stockholders have
delivered to Cotelligent a description and copies, as of the date of this
Agreement, of all material records, reports, notifications, certificates,
permits, pending permit applications, engineering studies, environmental impact
studies filed or submitted or required to be filed or submitted to governmental
agencies, other governmental approvals or applications for approval and of all
material notifications from such governmental agencies.
5.14 REAL AND PERSONAL PROPERTY. Stockholders have delivered to
Cotelligent on Schedule 5.14 an accurate list and a reasonable description as of
the date hereof of all the real and personal property of Company, including true
and correct copies of leases for equipment and properties on which are situated
buildings, warehouses, workshops, garages and other structures used in the
operation of the business of Company and including an indication as to which
assets were formerly owned by business or personal affiliates of Company.
Except as shown on Schedule 5.14, substantially all of the machinery and
equipment of Company are in good working order and condition, ordinary wear and
tear excepted. All leases set forth on Schedule 5.14 are in full force and
effect and constitute valid and binding agreements of the parties (and their
successors) thereto in accordance with their respective terms. All fixed assets
used by Company in the operation of its business are either owned by Company or
leased under an agreement indicated on Schedule 5.14. Schedule 5.14 shall,
without limitation, contain copies of all title reports and title insurance
policies received or owned by Company. Stockholders have also indicated on
Schedule 5.14 a summary description of all plans or projects involving the
opening of new operations, expansion of any existing operations or the
acquisition of any real or personal property or existing business, to which
management of Company has devoted any significant effort or expenditure in the
two year period prior to the date of the Agreement, which if pursued by Company
would require additional expenditures of significant efforts or capital.
Included in Schedule 5.14 is a complete list and description of all real
property previously, but not currently, owned or leased by Company or any of
Company's predecessors.
5.15 MATERIAL CONTRACTS AND COMMITMENTS. Stockholders have delivered
to Cotelligent on Schedule 5.15 an accurate list of all material contracts,
commitments and similar agreements to which Company is a party or by which it or
any of its properties are bound (including, but not limited to, joint venture or
partnership agreements, leases of real property, powers of attorney, contracts
with any labor organizations, loan agreements, indemnity or guaranty agreements,
bonds, mortgages, options to purchase land, liens, pledges or other security
agreements and agreements for employment of any individual) and has delivered
true copies of such agreements to Cotelligent. For purposes of this Section, a
contract will be considered to be material if its value is equal to or greater
than $10,000 per year. The aggregate value of contracts not deemed to be
material in accordance with the preceding sentence does not exceed $100,000.
Except to the extent set forth on Schedule 5.15, Company has complied with all
commitments and obligations pertaining to such contracts and agreements,
respectively, and are not in material default under any such contract and
agreement and no notice of default has been
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received, nor is Company aware of any default on the part of any other party to
such contract or agreement, or any intent of any such party to attempt to
terminate or amend any such contract or agreement. Company is not a party to any
contract, agreement or other instrument or commitment which, singly or in the
aggregate, materially and adversely affects or is likely to materially and
adversely affect, the business, operations, properties, assets or condition,
(financial or otherwise) of Company. Except as set forth in Schedule 5.15,
Company is not bound by or subject to (and none of its respective assets or
properties is bound by or subject to) any arrangement with any labor union.
Except as set forth in Schedule 5.15, no employees of Company are represented by
any labor union or covered by any collective bargaining agreement nor, to the
best of Company's and Stockholders' knowledge, is any campaign to establish such
representation in progress. There is no pending or, to the best of Company's and
Stockholders' knowledge, threatened labor dispute involving Company and any
group of its employees nor has Company experienced any labor interruptions over
the past three years. No such contract or agreement will be terminated or
modified by virtue of the Merger, nor will the Merger give rise to the right of
any party to terminate or modify any such contract or agreement.
5.16 TITLE TO REAL PROPERTY. Company does not currently own any real
property. All, if any, real property previously owned by Company is listed as
part of Schedule 5.14.
5.17 INSURANCE. Stockholders have delivered to Cotelligent on
Schedule 5.17 an accurate list of all insurance policies carried by Company and
an accurate list of all insurance loss runs or worker's compensation claims
received for the past three policy years. Also attached as Schedule 5.17 are
complete copies of all policies currently in effect. Such insurance policies
are currently in full force and effect and shall remain in full force and effect
through the Closing Date. Company's insurance has never been canceled and
Company has never been denied coverage.
5.18 EMPLOYEES; COMPENSATION. Stockholders have delivered to
Cotelligent on Schedule 5.18 an accurate list of all officers, directors and key
employees of Company and each of its subsidiaries and the rate of compensation
(and the portions thereof attributable to salary, bonus and other compensation,
respectively) of the directors, officers and key employees.
5.19 INTENTIONALLY DELETED.
5.20 BENEFIT PLANS; ERISA COMPLIANCE. (a) Since the Balance Sheet
Date, there has not been any adoption or material amendment by Company of any
collective bargaining agreement or any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock retirement, vacation, severance, disability, death
benefit, hospitalization, medical, dependant care, cafeteria, employee
assistance, scholarship or other plan, program, arrangement or understand
(whether or not legally binding) maintained in whole or in part, contributed to,
or required to be contributed to by Company for the benefit of any present or
former officer, employee or director of Company (collectively, and including all
amendments thereto, for purposes of this Section 5.20, "Benefit Plans").
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(b) Schedule 5.20 contains a identification of all "employee pension
benefit plans" (as defined in Section 3(2) of Employment Retirement Income
Security Act of 1974, as amended ("ERISA")) (sometimes referred to in this
Section 5.20 as "Pension Plans"), "employee welfare benefit plans" (as defined
in Section 3(1) of ERISA) (sometimes referred to in this Section 5.20 as
"Welfare Plans") and all other Benefit Plans currently maintained in whole or in
part, contributed to, or required to be contributed to by Company for the
benefit of any present or former officer, employee or director of Company.
Company has delivered to Cotelligent true, complete and correct copies of (A)
each Benefit Plan (or, in the case of any unwritten Benefit Plans, descriptions
thereof), (B) the three annual reports on Form 5500 most recently filed with the
Internal Revenue Service ("IRS") with respect to each Benefit Plan (if any such
report was required), (C) the most recent IRS determination letter request for
each Benefit Plan intended to be qualified under Section 401(a) of the Code and
all rulings or determinations concerning such Benefit Plan requested of the IRS
subsequent to the date of that letter, (D) the most recent actuarial report for
each Benefit Plan for which an actuarial report is required by ERISA, (E) the
most recent summary plan description for each Benefit Plan for which such
summary plan description is required by ERISA and each summary of material
modifications prepared, as required by ERISA, after the last summary plan
description, (F) each trust agreement and/or group annuity contract relating to
any Benefit Plan and (G) all material correspondence for the last three years
prior to the Effective Date with the IRS or the United States Department of
Labor relating to plan qualification, filing of required forms, pending,
contemplated and announced plan audits with respect to any Benefit Plan, except
that this sentence does not apply to any multiemployer plans.
(c) Each Pension Plan maintained and each pension plan formerly
maintained that is or was intended to be qualified under Section 401(a) of the
Code has been the subject of a determination letter from the IRS to the effect
that such plan is qualified under Section 401(a) of the Code or can still be
submitted in a timely manner to the IRS for such a letter, and no such
determination letter has been revoked nor has revocation of any such letter been
threatened, nor has any such plan been amended since the date of its most recent
determination letter or application therefor in any respect that would adversely
affect its qualification or materially increase its costs, and nothing has
occurred or failed to occur which would cause the loss of such qualifications,
and all amendments required to be adopted before the Effective Time for any such
Pension Plan to continue to be so qualified have been or will be duly and timely
adopted; provided however, that to the extent that this representation applies
to terminated pension plans, this representation refers to the qualified status
of any such plan through the time of its termination. Company has paid all
premiums (including any applicable interest, charges and penalties for late
payment) due the Pension Benefit Guaranty Corporation ("PBGC") with respect to
each such Pension Plan for which premiums to the PBGC are required. No such
Pension Plan in whole or in part maintained by Company has been terminated or
partially terminated under circumstances which would result in liability to the
PBGC.
(d) Each of the Benefit Plans sponsored by, and each of the benefit
plans formerly sponsored by, Company: (A) has been in substantial compliance
with all reporting and disclosure requirements of (i) Part 1 or Subtitle B of
Title I of ERISA, if applicable, or (ii) other applicable law, (B) has had the
appropriate required Form 5500 (or equivalent annual report)
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filed timely with the appropriate governmental entity for each year of its
existence, (C) has at all times complied with the bonding requirements of (i)
Section 412 of ERISA, if applicable, or (ii) other applicable law (D) has no
issue pending (other than the payment of benefits in the normal course) nor any
issue resolved adversely to Company which may subject Company to the payment of
material penalty, interest, tax or other obligation, nor is there any basis for
any imposition of any such liability, and (E) has been maintained in all
respects in compliance with the applicable requirements of ERISA, the Code and
other applicable law (including all rules and regulations issued thereunder) not
otherwise covered hereunder so as not to give rise to any material liabilities
to Company.
(e) Company has never maintained any voluntary employee benefit
associations.
(f) The execution of this Agreement or the consummation of the
transactions contemplated by this Agreement will not give rise to any, or
trigger any, change of control, severance or other similar provisions in any
Benefit Plan. The consummation of any transaction contemplated by this
Agreement will not result in any (i) payment (whether of severance pay or
otherwise) becoming due from Company to any officer, employee, former employee
or director thereof or to the trustee under any "rabbi trust" or similar
arrangement ; (ii) benefit under any Benefit Plan of Company being established
or becoming accelerated, vested or payable; or (iii) payment or series of
payments by Company, directly or indirectly, to any person that would constitute
a "parachute payment" within the meaning of Section 280G of the Code.
(g) Company provides no material post-retirement medical, health,
disability or death protection coverage or contributes to or maintains any
employee welfare benefit plan which provides for medical, health, disability or
death benefit coverage following termination of employment by any officer,
director or employee except as is required by Section 4980B(f) of the Code or
other applicable statute, nor has it made any representations, agreements,
covenants or commitments to provide that coverage.
(h) No Pension Plan or pension plan subject to Title IV of ERISA (i)
that Company maintains or maintained, or (ii) to which Company is or was
obligated to contribute, other than any such plan that is or was a
"multiemployer plan" (as such term is defined in Section 4001(a)(3) of ERISA)
had, as of its most recent annual valuation date, an "unfunded benefit
liability" (as such term is defined in Section 4001(a)(18) of ERISA), based on
actuarial assumptions which have been furnished to Cotelligent. None of such
plans subject to Section 302 of ERISA has an "accumulated funding deficiency"
(as such term is defined in Section 302 of ERISA), whether or not waived. None
of Company, any officer of Company or any of the Benefit Plans or prior benefit
plans (including the Pension Plans and prior pension plans) which are subject to
ERISA, or any trusts created thereunder, or any trustee or administrator
thereof, has engaged in a "prohibited transaction" (as such term is defined in
Section 406, 407 or 408 of ERISA or Section 4975 of the Code) or any other
breach of fiduciary responsibility that could subject Company or any officer of
Company to the tax or penalty on prohibited transactions imposed by such Section
4975 of the Code or to any liability under Section 502(i) or (1) of ERISA which
would have a material adverse effect on Company. No "reportable event" (as that
term is defined in Section 4043 of ERISA) with respect to which the 30-day
notice requirement
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has not been waived has occurred and is continuing with respect to any such
Pension Plan, other than as may arise as a result of the consummation of the
Merger. Company has not suffered a "complete withdrawal" or a "partial
withdrawal" (as such terms are defined in Section 4203 and Section 4205,
respectively, of ERISA) since the effective date of such Sections 4203 and 4205
for which Company has any material liability outstanding.
(i) With respect to any Benefit Plan that is a Welfare Plan, (A) each
such Benefit Plan that is a group health plan, as such term is defined in
Section 5000(b)(1) of the Code, complies in all material respects with any
applicable requirements of Part 6 of Title I of ERISA and Section 4980B(f) of
the Code and (B) each such Benefit Plan (including any such plan covering
retirees or other former employees) may be amended or terminated with respect to
health benefits without material liability to Company on or at any time after
the Closing Date.
(j) All contributions required by law or by a collective bargaining or
other agreement to be made under the Benefit Plans with respect to all periods
through the Effective Date of the Merger, including a pro rata share of
contributions due for the current plan year, will have been made by such date or
provided for by adequate reserves by Company. No changes in contribution rates
or benefit levels have been implemented or negotiated (but not yet implemented),
with respect to any Benefit Plan since the date on which the information
provided in the attached schedule has been provided, and no such changes are
scheduled to occur.
(k) Company has not and will not have any material liability or
obligation for taxes, penalties, contributions, losses, claims, damages,
judgments, settlement costs, expenses, costs, or any other liability or
liabilities of any nature whatsoever arising out of or in any manner relating to
any Benefit Plan or prior benefit plan (including but not limited to employee
benefit plans such as foreign plans which are not subject to ERISA), that has
been, or is, contributed to by any entity, whether or not incorporated, which is
deemed to be under common control (as defined in Section 414 of the Code), with
Company.
5.21 CONFORMITY WITH LAW. Except to the extent set forth on Schedule
5.21, Company and Stockholders have fully complied with, and Company is not in
material default under, any law, rule, ordinance, ruling, directive, or
regulation or under any order, award, judgment or decree of any court or
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality having jurisdiction over either of them; and
except to the extent set forth in Schedule 5.10, there are no claims, actions,
suits or proceedings, pending or threatened, against or affecting Company, at
law or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over Company or its business and no notice of any claim,
action, suit or proceeding, whether pending or threatened, has been received.
Company has conducted and is conducting its business in full compliance with the
requirements, standards, criteria and conditions set forth in applicable
federal, state and local statues, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations, including, without limitation, all
such laws, rules, ordinances, decrees and orders relating to intellectual
property protection, antitrust matters, consumer protection, currency exchange,
environmental protection, equal employment opportunity, health and occupational
safety, pension and employee benefit matters,
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securities and investor protection matters, labor and employment matters, and
trading-with-the-enemy matters. Company has not received any notification of any
asserted present or past unremedied failure by Company to comply with any of
such laws, rules, ordinances, decrees or orders.
5.22 TAXES. Company has timely filed all requisite federal and other
Tax Returns for all fiscal periods ended on or before the Balance Sheet Date;
and there are no open years, examinations in progress or claims against Company
for federal and other Taxes (including penalties and interest) for any period or
periods prior to and including the Balance Sheet Date and no notice of any
claim, whether pending or threatened, for Taxes has been received. Company is
not a party to any Tax allocation or sharing agreement (i.e., any agreement or
arrangement for the payment of Tax liabilities or payment for Tax benefits with
respect to a consolidated, combined or unitary Tax Return which includes
Company) with any corporation which is not directly or indirectly 100% owned by
Company; there are no requests for rulings in respect of any Tax pending by
Company with any tax authority; and no penalty or deficiency in respect of any
Taxes which has been assessed against Company remains unpaid. The amounts shown
as accruals for Taxes on the financial statements of Company as of the Balance
Sheet Date delivered to Cotelligent as a part of Schedule 5.9 are sufficient for
the payment of all taxes of the kinds indicated (including penalties and
interest) for all fiscal periods ended on or before that date. Copies of (i)
any tax examinations, (ii) extensions of statutory limitations and (iii) the
federal and local income tax returns and franchise tax returns of Company for
their last three fiscal years, or such shorter period of time as it has existed,
are attached hereto as Schedule 5.22. For purposes of this Section 5.22, "Tax"
shall mean any United States or other federal, state, provincial, local or
foreign income, gross receipts, property, sales, goods and services use,
license, excise, franchise, employment, payroll, withholding, alternative or
add-on minimum, ad valorem, transfer or excise tax, or any other tax, custom,
duty, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or penalty, imposed by any governmental
authority. "Tax Return" shall mean any return, report or similar statement
required to be filed with respect to any Tax (including any attached schedules),
including, without limitation, any information return, claim for refund, amended
return and declaration of estimated Tax.
5.23 COMPLETENESS. The certified copies of the Articles of
Incorporation and Bylaws, both as amended to date, of Company and each of
Company's subsidiaries, and the copies of all leases, instruments, agreements,
licenses, permits, certificates or other documents which are included on
schedules attached hereto or have been delivered to Cotelligent in connection
with the transactions contemplated hereby are complete and correct; neither
Company nor any other party hereto is in default thereunder. Except as set
forth on Schedule 5.23, none of such leases, instruments, agreements, contracts,
licenses, permits, certificates or other documents requires notice to, or the
consent or approval of, any governmental agency or other third party to any of
the transactions contemplated hereby to remain in full force and effect or give
rise to any right to termination, cancellation or acceleration or loss of any
right or benefit hereunder.
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5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24,
Company is not now and has never been a party to any governmental contracts
subject to price redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on Schedule 5.25, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of Company;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of Company;
(iii) any change in the authorized capital of Company or its
securities outstanding or any change in the ownership interests or any grant of
any options, warrants, calls, conversion rights or commitments;
(iv) 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 Company;
(v) any increase in the compensation, bonus, sales commissions, fringe
benefits or fee arrangement payable or to become payable by Company to any of
its officers, directors, Stockholders, employees, consultants or agents;
(vi) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the business
or future prospects of Company;
(vii) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Company to any person, including, without
limitation, Stockholders and her affiliates;
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to Company, including without limitation any indebtedness
or obligation of Stockholders or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of Company or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(x) any purchase or acquisition, or agreement, plan or arrangement to
purchase or acquire, any property, rights or assets;
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(xi) any waiver of any material rights or claims of Company;
(xii) any breach, amendment or termination of any material contract,
agreement, license, permit or other right to which Company is a party; or
(xiii) any transaction by Company outside the ordinary course of its
business.
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. Stockholders have
delivered to Cotelligent on Schedule 5.26 an accurate list as of the date of
this Agreement, of:
(i) the name of each financial institution in which Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account; and
(iv) the name of each person authorized to draw thereon or have access
thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from Company or any
of its subsidiaries and a description of the terms of such power, each of which
shall be cancelled on the Closing Date.
5.27 PROPRIETARY RIGHTS. Except as set forth on Schedule 5.27,
Company does not own or have any right or interest in any patent, trademark,
trade name, copyright, trade secret, or other intellectual property right, or
any license or assignment with respect thereto. To the best of Stockholders'
knowledge, Company has not infringed upon and is not infringing upon, and has
not engaged in and is not engaged in any unauthorized use or misappropriation
of, any patent, trademark, trade name, copyright, trade secret, process, design,
invention, know-how or technology owned by or belonging to any other person; and
there is no pending or threatened claim, and no basis for the assertion of any
claim, against Company with respect to any such infringement, unauthorized use
or misappropriation.
5.28 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by Company and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors and the
Stockholders of Company, and this Agreement has been duly and validly authorized
by all necessary corporate action and is a legal, valid and binding obligation
of Company.
5.29 RELATIONS WITH GOVERNMENTS. Neither Company, Stockholders nor,
to Company's or Stockholders' knowledge, any director, officer, agent, employee
or other person acting on behalf of Company, has used any Company funds for
improper or unlawful contributions, payments, gifts or entertainment, or made
any improper or unlawful expenditures relating to political activity to domestic
or foreign government officials or others. Neither Company, Stockholders nor,
to Company's or Stockholders' knowledge, any current director, officer,
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agent, employee or other person acting on behalf of Company, has accepted or
received any improper or unlawful contributions, payments, gifts or
expenditures. Company has at all times complied, and is in compliance, in all
material respects with the Foreign Corrupt Practices Act and in all material
respects with all foreign laws and regulations relating to prevention of corrupt
practices.
5.30 CONFLICTS OF INTEREST. Except as disclosed in Schedule 5.30,
neither (i) any present officer or director of Company, nor (ii) to the best of
Stockholders' knowledge, any past officer or director of Company; nor (iii) to
the best of Stockholders' knowledge, any relative of any past or present officer
or director of Company, nor (iv) any corporation, partnership, trust or other
entity of which any present officer or director of Company or, to the best of
Stockholders' knowledge, any past officer or director has a direct or indirect
interest or is a director, officer, stockholder, partner or trustee, is or has
ever been a party, directly or indirectly, to any transaction with Company,
including without limitation any agreement or other arrangement providing for
the furnishing of services by or to Company or the rental of any property from
or to Company, or otherwise requiring or contemplating any payments by or to
Company. Except as disclosed in Schedule 5.30, neither any present officer or
director, nor any relative of any such officer or director, owns directly or
indirectly any interest in any corporation, firm, partnership, trust or other
entity or business which is a competitor, potential competitor, customer, client
or supplier of Company or any related business.
5.31 ENVIRONMENTAL MATTERS. Except as set forth on the Schedule
5.31, (i) to the best of Stockholders' knowledge, Company has in the past
complied with and is now in compliance with all federal, state, local and
foreign statutes (civil and criminal), laws, ordinances, regulations, rules,
notices, permits, judgments, orders and decrees applicable to it or any of its
properties, assets, operations and business relating to environmental protection
(collectively "Environmental Laws") including, without limitation, Environmental
Laws relating to air, water, land and the generation, storage, use, handling,
transportation, treatment or disposal of Hazardous Wastes and Hazardous
Substances (as such terms are defined in any applicable Environmental Law),
except to the extent that noncompliance with any Environmental Law, either
singly or in the aggregate, does not have a material adverse effect on its
business; (ii) Company has obtained and adhered to all necessary permits and
other approvals necessary to treat, transport, store, dispose of and otherwise
handle Hazardous Wastes and Hazardous Substances and has reported, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by Company where Hazardous Wastes or Hazardous Substances have been
treated, stored, disposed of or otherwise handled; (iii) Company has not and, to
the best of Stockholders' knowledge, there have been no, releases or threats of
releases (as defined in Environmental Laws) at, from, in or on any property
owned or operated by Company except as permitted by Environmental Laws; (iv)
Company knows of no on-site or off-site location to which Company has
transported or disposed of Hazardous Wastes and Hazardous Substances or arranged
for the transportation of Hazardous Wastes and Hazardous Substances, which site
is the subject of any federal, state, local or foreign enforcement action or any
other investigation which could lead to any claim against Company, Cotelligent
or the Surviving Corporation for any clean-up cost, remedial work, damage to
natural resources or personal injury, including, but not limited to, any claim
under the Comprehensive Environmental
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Response, Compensation and Liability Act of 1980, as amended; and (v) Company
has no contingent liability in connection with any release of any Hazardous
Waste or Hazardous Substance into the environment.
5.32 PRIVATE SALE. Raymond Davey acquired his Company Stock from
Robert Hildreth for good and sufficient value in a private transaction.
5.33 DISCLOSURE. This Agreement, the exhibits and the schedules
hereto and all other documents and information furnished to Cotelligent and its
representatives pursuant hereto do not and will not include any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein not misleading. If Company or Stockholders becomes aware of
any fact or circumstance which would change a representation or warranty of
Company or Stockholders in this Agreement or any representation made on behalf
of Company, Company and Stockholders shall immediately give notice of such fact
or circumstance to Cotelligent. However, such notification shall not relieve
Company or Stockholders of their respective obligations under this Agreement,
and at the sole option of Cotelligent, the truth and accuracy of any and all
warranties and representations of Company, or on behalf of Company and of
Stockholders at the date of this Agreement and at the Closing, shall be a
precondition to the consummation of this transaction.
6. REPRESENTATIONS OF COTELLIGENT AND NEWCO
Cotelligent and Newco represent and warrant that all of the following
representations and warranties are true as of the date of the Agreement and
shall be true at the time of Closing and shall survive the Closing for a period
of one year following the Closing.
6.1 DUE ORGANIZATION. Cotelligent and Newco are duly organized,
validly existing and in good standing under the laws of the States of Delaware
and Minnesota, respectively, and are duly authorized, qualified and licensed
under all applicable laws, regulations, and ordinances of public authorities to
carry on their respective businesses in the places and in the manner as now
conducted except for where the failure to be so authorized, qualified or
licensed would not have a material adverse affect on their respective
businesses. Newco is a wholly owned subsidiary of Cotelligent. Copies of the
Certificate of Incorporation (certified by the Secretary of State of the States
of Delaware and Minnesota, respectively) and the Bylaws, as amended, of
Cotelligent and Newco (certified by the Secretary of the respective
corporations) are attached hereto as Schedule 6.1.
6.2 COTELLIGENT STOCK. The Cotelligent Stock to be delivered to
Stockholders on the Closing Date will constitute valid and legally issued shares
of Cotelligent, fully paid and nonassessable, and with the exception of
restrictions upon resale imposed by the applicable securities laws and
regulations, will be legally equivalent in all respects to the Cotelligent Stock
issued and outstanding as of the date hereof.
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6.3 AUTHORIZATION. The representatives of Cotelligent and Newco
executing this Agreement have the corporate authority to enter into and bind
Cotelligent and Newco by the terms of this Agreement.
6.4 NO CONFLICTS. The execution, delivery and performance of this
Agreement, the consummation of any transactions herein referred to or
contemplated and the fulfillment of the terms hereof will not:
(i) conflict with, or result in a breach or violation of the
Certificate of Incorporation or Bylaws of either Cotelligent or Newco,
(ii) materially conflict with, or result in a material default (or
would constitute a default but for any requirement of notice or lapse of time or
both) under any document, agreement or other instrument to which either
Cotelligent or Newco is a party, or result in the creation or imposition of any
lien, charge or encumbrance on any of Cotelligent's or Newco's properties
pursuant to (A) any law or regulation to which Cotelligent or Newco, or any of
their property is subject, or (B) any judgment, order or decree to which
Cotelligent, or Newco is bound or any of their property is subject; or
(iii) result in termination or any impairment of any material permit,
license, franchise, contractual right or other authorization of Cotelligent or
Newco.
6.5 COMPANY STOCK. Newco and Company acknowledge that the Company
Stock is not registered and that neither Newco or Company is acquiring the
Company Stock with a present intention to resell or distribute such stock in
violation of any Minnesota securities laws or regulations.
7. COVENANTS OF STOCKHOLDERS AND COMPANY PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION. Between the date of this Agreement and
the Closing Date, Company will afford to the officers and authorized
representatives of Cotelligent access to all of Company's (including Company's
subsidiaries) sites, properties, books and records and will furnish Cotelligent
with such additional financial and operating data and other information as to
the business and properties of Company as Cotelligent may from time to time
reasonably request. Company will cooperate with Cotelligent, its
representatives, engineers, auditors and counsel in the preparation of any
documents or other material which may be required in connection with any
documents or materials required by any governmental agency. Cotelligent will
cause all information obtained in connection with the negotiation and
performance of this Agreement to be treated as confidential.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the Balance Sheet
Date and the Closing Date, Stockholders will cause Company to:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
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(ii) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(iii) perform all of its obligations under agreements relating to or
affecting its respective assets, properties or rights;
(iv) keep in full force and effect 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 relationships
with suppliers, customers and others having business relations with Company;
(vi) maintain compliance with all permits, laws, rules and
regulations, consent orders, and similar governmental approvals;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments, without the knowledge and consent of
Cotelligent; and
(viii) maintain present salaries and commission levels for all
officers, directors, employees and agents.
7.3 PROHIBITED ACTIVITIES. Between the Balance Sheet Date and the
Closing Date, Company will not, without prior written consent of Cotelligent:
(i) make any change in its Articles of Incorporation or Bylaws;
(ii) issue any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase, redeem
or otherwise acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures in excess of $10,000;
(v) increase any fringe benefit or the compensation payable or to
become payable to any officer, director, Stockholders, employee or agent, or
make any bonus or management fee payment to any such person except ordinary and
customary bonuses to employees;
(vi) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or hereafter
acquired;
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(vii) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(viii) negotiate for the acquisition of any business or the start-up
of any new business;
(ix) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(x) waive any material rights or claims of Company;
(xi) breach or permit a breach, amend or terminate any agreement or
any permit, license or other right of Company; or
(xii) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 POOLING OF INTERESTS; REORGANIZATION. During the period from the
date of this Agreement through the Effective Time of the Merger, unless the
other parties shall otherwise agree in writing, none of the Stockholders,
Company or any subsidiary of Company shall (a) knowingly take or fail to take
any action which action or failure to act would jeopardize the treatment of
Company's combination with Newco as a pooling-of-interests for accounting
purposes or (b) knowingly take or fail to take any action, which action or
failure to act would jeopardize qualification of the Merger as a reorganization
within the meaning of Section 368(a) of the Code.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS
The obligations of Stockholders hereunder are, at their option,
subject to the following conditions. Upon consummation of this Agreement, all
conditions not satisfied are deemed to be waived:
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. The
representations and warranties of Cotelligent and Newco contained in Section 6
shall be accurate as of the Closing Date as though such representations and
warranties had been made as of that time; all of the terms, covenants and
conditions of this Agreement to be complied with and performed by Cotelligent
and Newco on or before the Closing Date shall have been duly complied with and
performed; and a certificate to the foregoing effect dated as of the Closing
Date and signed by a duly authorized agent of Cotelligent shall have been
delivered to Stockholders.
8.2 COUNSEL APPROVAL. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental hereto and all
other related legal matters shall have been approved by counsel to Stockholders.
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8.3 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the acquisition by Cotelligent of Company Stock and no
governmental agency or body shall have taken any other action or made any
request of Company as a result of which the management of Company deems it
inadvisable to proceed with the transactions hereunder.
8.4 OPINION OF COUNSEL. Stockholders shall have received an opinion
from Baker & Hostetler dated the Closing Date, in form and substance
satisfactory to Stockholders to the effect that:
(i) Cotelligent and Newco have been duly organized and are validly
existing in good standing under the laws of the States of Delaware and
Minnesota, respectively; and
(ii) the shares of Cotelligent Stock to be received by the
Stockholders on the Closing Date shall be duly authorized, fully paid and
nonassessable.
9. CONDITIONS TO OBLIGATIONS OF COTELLIGENT AND NEWCO
The obligations of Cotelligent and Newco hereunder are, at their
option, subject to the satisfaction, on or prior to the Closing Date, of the
following conditions. Upon Closing, all conditions not satisfied are deemed to
be waived.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
Stockholders shall have delivered to Cotelligent a certificate dated the Closing
Date and signed by them to the effect that all the representations and
warranties of Stockholders and Company contained in this Agreement shall be true
on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, except for
matters expressly disclosed in the certificate or a schedule thereto; each and
all of the agreements of Stockholders and Company to be performed on or before
the Closing Date pursuant to the terms hereof shall have been performed.
9.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the acquisition by Cotelligent of Company Stock; and no
governmental agency or body shall have taken any other action or made any
request of Cotelligent as a result of which the management of Cotelligent deems
it inadvisable to proceed with the transactions hereunder.
9.3 EXAMINATION OF FINANCIAL STATEMENTS. Prior to the Closing Date,
Cotelligent shall have had sufficient time to review the unaudited balance
sheets of Company as of the end of the month immediately preceding the Closing
Date, and the unaudited statements of income, cash flow and stockholder's
investment of Company for the period then ended, disclosing no material adverse
change in the financial condition of Company or the results of its operations
from the financial statements originally furnished by Company as set forth in
Schedule 5.9.
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9.4 NO MATERIAL ADVERSE CHANGE. No material adverse change in the
results of operations, financial condition or business of Company shall have
occurred, and Company shall not have suffered any material loss or damage to any
of its properties or assets, whether or not covered by insurance, since the
Balance Sheet Date, which change, loss or damage materially affects or impairs
the ability of Company to conduct its business; and Cotelligent shall have
received a certificate signed by Stockholders dated the Closing Date to such
effect.
9.5 REVIEW. Cotelligent, through its authorized representatives,
must have completed a satisfactory review of the practices and procedures of
Company including, but not limited to, compliance with contracts and federal,
state and local laws and regulations governing the operations of Company,
disclosing no actual or probable violations, compliance problems, required
capital expenditures or other substantive concerns.
9.6 STOCKHOLDERS RELEASE. Stockholders shall have delivered to
Cotelligent an instrument dated the Closing Date releasing Company from any and
all claims of Stockholders against Company in form and substance satisfactory to
Cotelligent and Stockholders.
9.7 COUNSEL APPROVAL. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental hereto and all
other related legal matters shall have been approved by counsel to Cotelligent.
9.8 OPINION OF COUNSEL. Cotelligent shall have received an opinion
from Felhaber, Larson, Fenlon & Vogt, counsel to the Stockholders, dated the
Closing Date, in form and substance satisfactory to Cotelligent.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency or any third party relating to the
consummation of the transaction contemplated herein shall have been obtained or
made, as applicable, and no action or proceeding shall have been instituted or
threatened to restrain or prohibit Cotelligent's acquisition of Company Stock
and no manufacturer, governmental agency or body shall have taken any other
action or made any request of Cotelligent as a result of which Cotelligent deems
it inadvisable to proceed with the transactions hereunder.
9.10 ADDITIONAL LIABILITIES AND OBLIGATIONS. Stockholders shall have
delivered to Cotelligent on Schedule 9.10 a list, dated the Closing Date,
setting forth all material liabilities and obligations of Company arising since
the Balance Sheet Date.
9.11 ADDITIONAL CONTRACTS. Stockholders shall have delivered to
Cotelligent on Schedule 9.11 a list, dated the Closing Date, showing all
material contracts and agreements, together with copies thereof, entered into by
Company since the date of Schedule 5.15.
9.12 POOLING ACCOUNTING TREATMENT. Cotelligent shall have been
advised in writing by its independent public accountants that in their opinion
the transactions contemplated herein meet the requirements for pooling-of-
interest accounting treatment under generally accepted accounting principles.
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9.13 GOOD STANDING CERTIFICATES. Stockholders shall have delivered
to Cotelligent a certificate, dated as of a date no longer than five days prior
to the Closing Date, duly issued by the appropriate governmental authority in
Company's state of incorporation and, unless waived by Cotelligent, in each
state in which Company is authorized to do business, showing Company is in good
standing and authorized to do business and that all state franchise and/or
income tax returns have been filed and taxes paid for Company for all periods
prior to the Closing.
10. POST CLOSING COVENANTS
10.1 ANNOUNCEMENT OF EARNINGS. Cotelligent agrees to announce
consolidated financial results of the combined operations of Cotelligent and the
Surviving Corporation for the four months ended July 31, 1996, as promptly as
possible after those results are available.
10.2 BOARD ADVISORY COMMITTEE. Cotelligent agrees to establish an
advisory committee to Cotelligent's board of directors, and to appoint Robert
Hildreth as a member of that committee for a period of at least two years,
within a reasonable period of time following the Closing Date. Such committee
shall, among other things, hold regular meetings, be provided reasonable access
to information, and its members shall be invited to attend (but not to vote at)
board meetings and will be reimbursed for their out-of-pocket costs of
attendance at such meetings.
10.3 RELEASE OF STOCKHOLDER GUARANTIES. The Surviving Corporation
agrees that after the Closing it will take all commercially reasonable actions
to have the Stockholders (and their spouses if applicable) released from any
obligations of Company for which they are personally liable within 120 days
following the Closing (except that the time period for release of the
obligations under the line of credit from National City Bank shall be 60 days).
If Cotelligent is unable to secure a release within the stated time period, then
Cotelligent shall pay in full the applicable obligation.
10.4 TAX TREATMENT. The parties contemplate that the Merger will
qualify as a tax deferred transaction in accordance with Section 368(a)(2)(E) of
the Code. Each party agrees to report the transaction hereunder in accordance
with such intent and in a manner consistent with such intent. However, no party
makes to any other party any representation or warranty as to the tax effect of
the transaction contemplated by this Agreement and the transaction will not be
affected if taxed in a manner other than that contemplated.
11. INDEMNIFICATION
11.1 GENERAL INDEMNIFICATION BY STOCKHOLDERS. Stockholders, jointly
and severally, covenant and agree that they will each indemnify, defend, protect
and hold harmless Cotelligent, the Surviving Corporation, Newco and Company and
each of their respective employees, counsel, agents, contractors, successors,
assigns, heirs and legal and personal representatives at all times from and
after the date of this Agreement until the Expiration Date against all
liabilities, claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, losses, costs and expenses ("Claims") (including specifically, but
without limitation, reasonable
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attorneys' fees and expenses of investigation) incurred by Cotelligent, Newco or
Company as a result of or incident to any material breach of the representations
and warranties set forth herein or on the schedules or certificates attached
hereto and any misrepresentations or nonfulfillment of any agreement on the part
of Stockholders or Company under this Agreement.
11.2 SPECIFIC INDEMNIFICATION BY STOCKHOLDERS. Notwithstanding the
above, the Stockholders, jointly and severally, covenant and agree that they
will each indemnify, defend, protect and hold harmless Cotelligent, the
Surviving Corporation, Newco and Company at all times from and after the date of
this Agreement, without time or dollar limitation, against all Claims (including
specifically, but without limitation, reasonable attorney's fees and expenses of
investigation) incident to any of the following: NONE.
11.3 INDEMNIFICATION BY COTELLIGENT AND THE SURVIVING CORPORATION.
The Surviving Corporation and Cotelligent each agree that they will, jointly and
severally, indemnify, defend (as to third party claims only) and hold harmless
Stockholders and their respective heirs and personal representatives at all
times from and after the date of this Agreement until the Expiration Date from
and against all claims, assessments, adjustments (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
incurred by Stockholders as a result of or incident to (i) any material breach
of, misrepresentation in, untruth in or inaccuracy in any representations and
warranties by Cotelligent or Newco set forth herein, or in the Schedules or
certificates attached hereto or delivered at the Closing pursuant hereto; or
(ii) nonfulfillment or nonperformance of any agreement, covenant or condition on
the part of Cotelligent or Newco made in this Agreement; or (iii) any operation
of the Surviving Corporation after the Closing.
11.4 LIMITATION ON LIABILITY.
(a) The indemnification obligations of Stockholders set forth in this
Article 11 shall apply only after the aggregate amount of such obligations
exceed $100,000 (the "Basket") at which time the indemnification obligation
shall be effective as to all amounts, including the initial $100,000; provided,
however, that such indemnification obligations shall not exceed, in the
aggregate, the sum of $9,000,000. The Surviving Corporation shall notify
Stockholders in writing of each addition to the Basket within a reasonable time
after the Surviving Corporation becomes aware of any such addition. The
Surviving Corporation and Cotelligent agree that any claim brought pursuant to
this Article 11 shall be brought against both Stockholders; provided, however,
that such agreement in no way alters or affects Stockholders' joint and several
liability.
(b) In addition, the indemnification obligations of Stockholders
would:
(i) be adjusted to be net of any insurance proceeds received by the
Surviving Corporation as a result of a policy or policies maintained by the
Surviving Corporation or Cotelligent, it being understood and agreed that
whether to carry insurance to cover any potential risk and whether to submit any
given
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loss to an insurance carrier shall be at the sole option of Cotelligent using
its reasonable business judgment; and
(ii) be adjusted to be net of the value of any net tax benefit
actually realized by Cotelligent (taking into account the difference between the
discounted present value of a future benefit and the current liability) by
reason of a tax deduction, basis reduction, shifting of income or credit
determined by Cotelligent to be in the interest of Cotelligent, in its sole
discretion. The parties agree that the foregoing does not give Stockholders any
right to review the Surviving Corporation's or Cotelligent's tax returns nor to
require a particular tax treatment of any loss sustained by the Surviving
Corporation or Cotelligent.
11.5 NOTICE AND DEFENSE OF THIRD PARTY CLAIMS. If any proceeding
shall be brought or asserted against an indemnified party or any successor
thereto (the "Indemnified Person") in respect of which indemnity may be sought
under this Section 10 from an indemnifying person or any successor thereto (the
"Indemnifying Person"), the Indemnified Person shall give prompt written notice
of such proceeding to the Indemnifying Person who shall assume the defense
thereof, including the employment of counsel reasonably satisfactory to the
Indemnified Person and the payment of all expenses; provided, that any delay or
failure so to notify the Indemnifying Person shall relieve the Indemnifying
Person of its obligations hereunder only to the extent, if at all, that it is
prejudiced by reason of such delay or failure. In no event shall any Indemnified
Person be required to make any expenditure or bring any cause of action to
enforce the Indemnifying Person's obligations and liability under and pursuant
to the indemnifications set forth in this Section 10. In addition, actual or
threatened action by a governmental authority or other entity is not a condition
or prerequisite to the Indemnifying Person's obligations under this Section 10.
The Indemnified Person shall have the right to employ separate counsel in any of
the foregoing proceedings and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of the Indemnified
Person unless counsel, after consultation with the Indemnifying and the
Indemnified Person, respectively, determines that there exists actual or
potential conflicts of interest which make representation by the same counsel
inappropriate. The Indemnified Person's right to participate in the defense or
response to any proceeding should not be deemed to limit or otherwise modify its
obligations under this Section 10. In the event that the Indemnifying Person,
within 15 days after notice of any such proceeding, fails to assume the defense
thereof, the Indemnified Person shall have the right to undertake the defense,
compromise or settlement of such proceeding for the account of the Indemnifying
Person, subject to the right of the Indemnifying Person to assume the defense of
such proceeding with counsel reasonably satisfactory to the Indemnified Person
at any time prior to the settlement, compromise or final determination thereof.
Anything in this Section 10 to the contrary notwithstanding, the Indemnifying
Person shall not, without the Indemnified Person's prior written consent, settle
or compromise any proceeding or consent to the entry of any judgment with
respect to any proceeding for anything other than money damages paid by the
Indemnifying Person. The Indemnifying Person may, without the Indemnified
Person's prior written consent, settle or compromise any such proceeding or
consent to entry of any judgment with respect to any such proceeding that
requires solely the payment of money damages by the Indemnifying Person and that
includes as an unconditional term thereof the release by the
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claimant or the plaintiff of the indemnified Person from all liability in
respect of such proceeding.
11.6 PAYMENT; INTEREST. The Indemnifying Person shall make any
payment required to be made under this Section 10 in either Cotelligent Stock or
immediately available funds at the sole and absolute option of the Indemnifying
Person and on demand. Any amounts or payments required to be paid by an
Indemnifying Person under this Section 10 which are not paid within five
business days of receipt by the Indemnifying Person of the Indemnified Person's
demand therefor shall thereafter be deemed delinquent, and the Indemnifying
Person shall pay to the Indemnified Person immediately upon demand, interest at
the rate of 12% per annum, not to exceed the maximum nonusurious rate allowed by
applicable law, from the date such payment becomes delinquent to the date of
payment of such delinquent sums.
11.7 ARBITRATION. Any unresolved dispute or controversy arising
under or in connection with this Article 11 shall be settled exclusively by
arbitration, conducted before a panel of three arbitrators in Minneapolis,
Minnesota, in accordance with the rules of the American Arbitration Association
then in effect. The arbitrators shall not have the authority to add to, detract
from, or modify any provision hereof nor to award punitive damages to any
injured party. A decision by a majority of the arbitration panel shall be final
and binding. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. The prevailing party in any arbitration shall be entitled
to receive as a component of its recovery all of its costs and expenses of the
arbitration (including, without limitation, costs of investigation, and
attorneys' fees and expenses).
12. TERMINATION OF AGREEMENT
Cotelligent or Stockholders may, by notice in the manner hereinafter
provided on or before the Closing Date, terminate this Agreement if a material
default shall be made by the other party in the observance or in the due and
timely performance of any of the covenants, agreements or conditions contained
herein, and the curing of such default shall not have been made on or before the
Closing Date and shall not reasonably be expected to occur. In any event, if
the Articles of Merger have not been filed with the appropriate state
authorities on or before August 31, 1996, this Agreement shall terminate. In
the event of termination pursuant to this Section 11, this Agreement shall
become null and void and each party hereto shall have no further liability or
obligation to the other.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES:
(a) For a period of five years after the Closing (except as set forth
in the following paragraph), neither of the Stockholders shall for any reason
whatsoever, directly or indirectly, for himself or on behalf or in conjunction
with any other person, persons, company, partnership, corporation or business of
whatever nature engage, as an officer, director, shareholder, owner, partner,
investor, joint
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venturer, lender or in any capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, of any business
selling any products or services in direct or indirect competition with Company
or Cotelligent located or operating within 100 miles of Company, Cotelligent,
any of their subsidiaries or any facility where they or any of their
subsidiaries conducts business on the date hereof, specifically, Minneapolis,
Minnesota; St. Louis, Missouri; Dallas, Texas; San Francisco, California;
Boston, Massachusetts; New York, New York; Somerset, New Jersey; Seattle,
Washington; Portland, Oregon; Denver, Colorado and Phoenix, Arizona.
(b) For a period of five years after the Closing Date, neither of the
Stockholders shall and shall cause each of their affiliates not to, offer to
employ any person who is, at that time, or which has been within one year prior
to that time, an employee of Cotelligent or Company;
(c) For a period of five years after the Closing Date, neither of the
Stockholders shall and shall cause each of their affiliates not to, engage or
participate in any effort or act to induce any customer, supplier, associate,
employee, sales or other agent or independent contractor of Cotelligent or
Company or which has been a customer, supplier, employee, sales or other agent
or independent contractor of Cotelligent or Company within one year prior to
that time, to take any action which might be disadvantageous to Cotelligent or
Company, or not to take any action which might be advantageous to Cotelligent or
Company; or (ii) to for any reason whatsoever, directly or indirectly, for
himself or on behalf or in conjunction with any other person, persons, company,
partnership, corporation or business of whatever nature call upon any
prospective acquisition candidate, on Stockholders's behalf or on behalf of any
competitor which candidate was either called upon by Company or Cotelligent
(including the respective subsidiaries thereof) or for which Company or
Cotelligent made an acquisition analysis, for the purpose of acquiring such
entity;
Notwithstanding the foregoing provisions of this Section, (i) each
Stockholder may be a passive investor owning no more than 1% of the outstanding
equity securities of any competitor the equity securities of which are listed on
a national securities exchange or traded on the NASDAQ National Market System
and with which the Stockholders has no other connection whatsoever, (ii) each
Stockholder may invest in or act as an employee, consultant or other position
for Cotelligent or any of its affiliates, (iii) Robert Hildreth may acquire, own
and/or operate one or more businesses for the permanent placement of employees
(including, without limitation, "temporary-to-permanent" placement) without
geographic restriction, and (iv) Robert Hildreth may become an owner and/or
operator of the business located in St. Louis known as Bradford & Galt, Inc.,
which engages in the temporary and permanent placement of employees, in
accordance with the terms of the existing agreements for such potential
acquisition and operation.
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(d) The Stockholders acknowledge that the damages that would be
suffered by Cotelligent as a result of any breach of the provisions of this
Section 12.1 may not be calculable and that an award of a monetary judgment for
such a breach would be an inadequate remedy. Consequently, Cotelligent shall
have the right, in addition to any other rights it may have, to obtain, in any
court of competent jurisdiction, injunctive relief to restrain any breach or
threatened breach of any provision of this Section 12.1 or otherwise to
specifically enforce any of the provisions hereof, and Cotelligent shall not be
obligated to post a bond or other security in seeking such relief. This remedy
is in addition to damages directly or indirectly suffered by Cotelligent and
reasonable attorneys fees; and
(e) It is agreed by the parties that the foregoing covenants in this
Section 12.1 impose a reasonable restraint on Stockholders in light of the
activities and business of Company or Cotelligent (including Cotelligent's other
subsidiaries) on the date of the execution of this Agreement and the current
plans of Cotelligent (including Cotelligent's other subsidiaries).
(f) The parties hereto agree that the duration and area for which the
covenants in this Section 12.1 are to be effective are reasonable. In the event
that any court finally determines that the time period or the geographic scope
of any such covenant is unreasonable or excessive and any covenant is to that
extent made unenforceable, the parties agree that the restrictions of this
Section 12.1 shall remain in full force and effect for the greatest time period
and within the greatest geographic area that would not render it unenforceable.
The parties intend that each of the covenants in Sections 12.1(a), (b), (c) and
(d) shall be deemed to be a separate covenant.
13.2 INDEPENDENT COVENANT. All of the covenants in this Section 12
shall be construed as an agreement independent of any other provision of this
Agreement, and the existence of any claim or cause of action of Stockholders
against Company or Cotelligent, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by Cotelligent or
Company of such covenants. It is specifically agreed that the period of five
years stated above, shall be computed by excluding from such computation any
time during which Stockholders is in violation of any provision of this Section
12 and any time during which there is pending in any court of competent
jurisdiction any action (including any appeal from any judgment) brought by any
person, whether or not a party to this Agreement, in which action Cotelligent or
Company seeks to enforce the agreements and covenants of Stockholders or in
which any person contests the validity of such agreements and covenants or their
enforceability or seeks to avoid their performance or enforcement.
13.3 MATERIALITY. Stockholders hereby agree that this covenant is a
material and substantial part of this transaction.
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14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. Stockholders recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of Company, such as lists of customers,
operational policies, and pricing and cost policies that are valuable, special
and unique assets of Company and Company's business. Stockholders agree that
they will not disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except to authorized representatives of Cotelligent, unless such information
becomes known to the public generally through no fault of either of the
Stockholders. In the event of a breach or threatened breach by Stockholders of
the provisions of this Section 13.1, Cotelligent and Company shall be entitled
to an injunction restraining Stockholders from disclosing, in whole or in part,
such confidential information. Nothing herein shall be construed as prohibiting
Cotelligent and Company from pursuing any other available remedy for such breach
or threatened breach, including the recovery of damages.
14.2 COTELLIGENT. Cotelligent recognizes and acknowledges that it
has in the past, currently has, and prior to the Closing Date, will have access
to certain confidential information of Company, such as lists of customers,
operational policies, pricing and cost policies that are valuable, special and
unique assets of Company and Company's business. Cotelligent agrees that it
will not use or disclose such confidential information to any person, firm,
corporation, association, or other entity for any purpose or reason whatsoever,
prior to the Closing Date without Stockholders' prior written consent; provided,
however, that nothing contained in this Section 13.2 shall restrict or prohibit
the disclosure of information to Cotelligent's representatives and counsel for
purposes of analyzing the transaction set forth herein or as may be required by
law. In the event of a breach or threatened breach by Cotelligent of the
provisions of this Section 13.2, Stockholders shall be entitled to an injunction
restraining Cotelligent from disclosing, in whole or in part, such confidential
information. Nothing contained herein shall be construed as prohibiting
Stockholders from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses
as a result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which they would have
no other adequate remedy, Cotelligent, Newco, Company and Stockholders agree
that, in the event of a breach by any of them of the foregoing covenant, the
covenant may be enforced against them by injunctions and restraining orders.
15. POOLING ACCOUNTING
15.1 RESTRICTIONS ON RESALE; LEGENDS. Cotelligent has informed the
Stockholders that it is a material factor to Cotelligent in entering into this
Agreement that the transactions contemplated by this Agreement be treated as a
"pooling-of-interest" for accounting purposes. Therefore, notwithstanding any
other provision of this Agreement, prior to the publication and dissemination by
Cotelligent of consolidated financial results which include results of combined
operations of Company and Cotelligent for at least thirty days on a consolidated
basis following
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the Closing Date, Stockholders shall not sell or otherwise transfer or dispose
of, or in any other way reduce their risk relative to, any shares of the
Cotelligent Stock received by Stockholders (including, by way of example and not
limitation, engaging in put, call, short-sale, straddle or similar market
transactions); provided, however, that either Stockholder may, without such
restriction, transfer for no consideration the Cotelligent Stock to a spouse or
lineal descendent(s) of such Stockholder or to a trust or partnership for the
benefit of such Stockholder and/or his spouse and/or lineal descendent(s). The
SEC has issued Accounting Series Release Nos. 130 and 135, as amended,
(collectively the "ASRs") setting forth certain restrictions applicable to the
availability of "pooling-of-interest" accounting treatment in transactions of
the type contemplated by this Agreement. The Stockholders, therefore, covenant
and agree with Cotelligent to hold their shares of Cotelligent Stock and to
comply with the ASRs until the requirements of the ASRs have been met. The
certificates evidencing the Cotelligent Stock to be received by the Stockholders
will bear a legend substantially in the form set forth below and containing such
other information as Cotelligent may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
ATTEMPTED SALE, TRANSFER OR ASSIGNMENT PRIOR TO THE PUBLICATION AND
DISSEMINATION OF FINANCIAL STATEMENTS BY THE ISSUER WHICH INCLUDE THE
RESULTS OF AT LEAST THIRTY (30) DAYS OF COMBINED OPERATIONS OF THE ISSUER
AND COMPANY ACQUIRED BY THE ISSUER FOR WHICH THESE SHARES ARE ISSUED. UPON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENTS) WHEN THE REQUIREMENTS OF ACCOUNTING SERIES RELEASE NOS. 130 AND
135, AS AMENDED, OF THE SECURITIES AND EXCHANGE COMMISSION HAVE BEEN MET.
15.2 INDEMNIFICATION. The Stockholders covenant and agree that they
will indemnify and hold harmless Cotelligent from and after the Closing Date
against any and all losses, damages, liabilities, claims, deficiencies, costs,
expenses or expenditures resulting from a breach by Stockholders of the
restrictions set forth in Section 14.1, the ASRs or Stockholders'
representations and warranties set forth in this Agreement which results in
Cotelligent not being able to account for the transactions contemplated herein
as a "pooling-of-interest" reorganization or in the transactions not qualifying
as a tax free reorganization.
16. FEDERAL SECURITIES ACT AND CONTRACTUAL RESTRICTIONS ON COTELLIGENT STOCK
The shares of Cotelligent Stock delivered to the Stockholders pursuant to
this Agreement have been registered under the Securities Act of 1933, as amended
(the "Act"), and are being issued pursuant to an effective registration
statement.
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16.1 PROSPECTUS DELIVERY. Stockholders represents and acknowledges
that Stockholders has been provided with a full and complete Prospectus dated
April 8, 1996, as supplemented, and has been provided as much time and
opportunity as they deemed appropriate to review and study such Prospectus and
to consult with Cotelligent regarding the merits and risks of the transactions
contemplated by this Agreement.
16.2 RESALE OF COTELLIGENT STOCK. Subject to Section 14.1,
immediately after issuance of the Cotelligent Stock, Stockholders shall be free
to resell such shares in a private transaction or a public transaction on the
National Market System; provided that for two (2) years after the Closing Date,
Seller shall comply with the resale requirements of Rule 145(d) under the Act,
more specifically, the volume limitations, broker transactions, and manner of
sale provisions of Rule 144(e), (f) and (g), respectively.
16.3 LEGEND. Stockholders acknowledge and agree that all Cotelligent
Stock shall bear the following legend:
"THE SHARES REPRESENTED HEREBY HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. SUCH SHARES MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE
HOLDER HEREOF REPRESENTS IN WRITING, AND PROVIDES EVIDENCE SATISFACTORY TO
COTELLIGENT GROUP, INC., THAT SUCH HOLDER HAS COMPLIED WITH RESALE
LIMITATIONS UNDER APPLICABLE SECURITIES LAW."
; provided, however, that pursuant to Rule 145(d) of the Act, on the second
anniversary following the Closing Date, the foregoing legend shall be removed
from such certificates, and Cotelligent shall issue a certificate without such
legend to either of the Stockholders upon such Stockholders's request therefor.
17. GENERAL
17.1 COOPERATION. Stockholders and Cotelligent shall each deliver or
cause to be delivered to the other on the Closing Date, and at such other times
and places as shall be reasonably agreed to, such additional instruments as the
other may reasonably request for the purpose of carrying out this Agreement.
Stockholders will cooperate and use their best efforts to have the present
officers, directors and employees of Company cooperate with Cotelligent on and
after the Closing Date in furnishing information, evidence, testimony and other
assistance in connection with any actions, proceedings, arrangements or disputes
of any nature with respect to matters pertaining to all periods prior to the
Closing Date.
17.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of Cotelligent, and the heirs and legal representatives of
Stockholders.
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17.3 ENTIRE AGREEMENT. This Agreement (including the schedules and
annexes attached hereto) and the documents delivered pursuant hereto constitute
the entire agreement and understanding between Stockholders, Company,
Cotelligent and Newco and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement on the parties thereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by Stockholders, Company, Cotelligent, and Newco
acting through their respective officers, duly authorized by their respective
Boards of Directors.
17.4 COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
17.5 BROKERS AND AGENTS. Each party represents and warrants that it
employed no broker or agent in connection with this transaction and agrees to
indemnify the other against all loss, cost, damages or expense arising out of
claims for fees or commission of brokers employed or alleged to have been
employed by such indemnifying party.
17.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, Cotelligent will pay the fees, expenses and disbursements
of Cotelligent and Newco and its agents, representatives, accountants and
counsel incurred in connection with the subject matter of this Agreement and any
amendments thereto. Whether or not the transactions herein contemplated shall
be consummated, Stockholders will personally pay the fees, expenses and
disbursements of Company, Stockholders and their agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement and any amendments hereto and all other costs and expenses incurred in
the performance and compliance with all conditions to be performed by
Stockholders and Company under this Agreement.
17.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the same
in person to an officer or agent of such party.
(a) If to Cotelligent or Newco, addressed to them at:
Cotelligent Group, Inc.
101 California Street, Suite 2050
San Francisco, California 94111
ATTN: Daniel E. Jackson, Esq.
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with a copy to:
Baker & Hostetler
3200 National City Center
1900 E. 9th Street
Cleveland, Ohio 44114-3485
Attn: Elaine A. Chotlos, Esq.
(b) If to Robert Hildreth, addressed to him at:
5908 Lee Valley Road
Edina, Minnesota 55439
and if to Raymond Davey, addressed to him at:
Suite 1800
701 4th Avenue South
Minneapolis, Minnesota 55415
with a copy to:
Felhaber, Larson, Fenlon & Vogt
4200 First Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attn: Christopher S. Hayhoe, Esq.
17.8 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Minnesota.
17.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties.
17.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
17.11 TIME. Time is of the essence of this Agreement.
34
<PAGE>
17.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such a manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ATTEST: COTELLIGENT GROUP, INC.
By:/S/ Duane W. Bell
--------------------------------------
/S/ Christopher S. Hayhoe Its:Senior Vice President
- - -------------------------------------- --------------------------------------
ATTEST: ESP SOFTWARE SERVICES, INC.
/S/ Christopher S. Hayhoe By:/S/ Raymond P. Davey
- - -------------------------------------- --------------------------------------
Its:President
--------------------------------------
ATTEST: COTELLIGENT/ESP ACQUISITION
CORPORATION
/S/ Christopher S. Hayhoe
- - --------------------------------------
By:/S/ Duane W. Bell
-------------------------------------
Its:Senior Vice President
-------------------------------------
/S/ Raymond P. Davey
--------------------------------------
Name: Raymond Davey
(SSN:###-##-####)
/S/ Robert A. Hildreth
--------------------------------------
Name: Robert Hildreth
(SSN:###-##-####)
35
<PAGE>
EXHIBIT A
ARTICLES OF MERGER
OF
COTELLIGENT/ESP ACQUISITION CORPORATION, A MINNESOTA CORPORATION,
WITH AND INTO
ESP SOFTWARE SERVICES, INC., A MINNESOTA CORPORATION
ESP Software Services, Inc., a Minnesota corporation, hereinafter
designated the "Surviving Corporation" or "SSI," and Cotelligent/ESP Acquisition
Corporation, a Minnesota corporation, hereinafter designated "Co-ESP," hereby
execute and adopt these Articles of Merger:
A. The Plan of Merger of Co-ESP into the Surviving Corporation is as
follows:
1. The names of the corporations proposing to merge are
Cotelligent/ESP Acquisition Corporation, a Minnesota corporation,
and ESP Software Services, Inc., a Minnesota Corporation.
2. The name of the Surviving Corporation shall be ESP Software
Services, Inc. The Surviving Corporation will continue to be a
Minnesota corporation.
3. The merger pursuant to this Plan of Merger shall be effective when
Articles of Merger are filed with the Secretary of State of the
State of Minnesota (that time being the "Effective Time of the
Merger"). The separate existence of Co-ESP shall cease as of the
Effective Time of the Merger.
Page 1 of 8
<PAGE>
4. The manner and basis for converting shares of the constituent
corporations into shares of the Surviving Corporation or of any
other corporation is as follows:
(a) The, 1,074 shares of common stock of the Surviving Corporation
which are issued and outstanding immediately prior to the
Effective Time of the Merger, and which constitute all of the
outstanding shares of the Surviving Corporation as of that
time, shall by virtue of the merger and without any action on
the part of any holder thereof or any constituent corporation,
automatically be converted into 534,919 shares of voting
common stock of Cotelligent Group, Inc., a Delaware
corporation (Cotelligent"), each share of which has a one-cent
par value, at the rate of approximately 498.0624 voting common
shares of Cotelligent for each share of SSI;
(b) The 1,000 shares of voting common stock of Co-ESP, each
having a one-cent par value, which are issued and outstanding
immediately prior to the Effective Time of the Merger, and
which together constitute all of the outstanding shares of Co-
ESP as of that time, shall by virtue of the merger and without
any action on the part of any holder thereof or any
constituent corporation, automatically be converted into 1,000
fully paid and non-accessible shares of voting common stock of
Surviving
Page 2 of 8
<PAGE>
Corporation, at the rate of one Co-ESP share for one share of
the Surviving Corporation.
The 1,000 voting common shares of the Surviving Corporation which are
outstanding as a result of the conversion identified in the preceding
subparagraph (b) shall be and constitute all of the issued and
outstanding shares of the Surviving Corporation from and after the
Effective Time of the Merger, until and unless by separate action
additional such shares are subsequently issued, or redeemed.
5. Until the certificates representing the SSI shares outstanding
immediately prior to the Effective Time of the Merger have been
surrendered and replaced by certificates representing the Cotelligent
shares into which such shares shall have been converted by the Merger,
the certificates of SSI shares shall, for all corporate purposes, be
deemed to evidence ownership of Cotelligent shares in such number as
provided in these Articles of Merger. Until the certificates
representing the Co-ESP shares outstanding immediately prior to the
Effective Time of the Merger have been surrendered and replaced by
certificates of shares of Surviving Corporation, the certificates
for Co-ESP shares shall, for all corporate purposes, be deemed to
evidence ownership of shares of the Surviving Corporation as provided
above.
6. The Articles of Incorporation of Co-ESP, as the same are on file
with the Secretary of State of the State of Minnesota Immediately prior
to the
Page 3 of 8
<PAGE>
Effective Time of the Merger (Co-ESP's "Pre-Merger Articles"),
shall become and be the Articles of Incorporation of the
Surviving Corporation; and subsequent to the Effective Time of
the Merger, such Articles of Incorporation shall be the Articles
of Incorporation of the Surviving Corporation until changed as
provided by law. The Articles of Incorporation of the Surviving
Corporation as in effect immediately prior to the Effective Time
of the Merger shall be deemed to have been, and shall be,
amended and restated in their entirety to read as do Co-ESP's
Pre-Merger Articles.
7. The Bylaws of Co-ESP, as in effect immediately prior to the
Effective Time of the Merger, shall become and be the Bylaws of
the Surviving Corporation; and subsequent to the Effective Time
of the Merger, such Bylaws shall be the Bylaws of the Surviving
Corporation until they shall thereafter be duly amended.
8. The name of the person who shall serve as the member of the
Board of Directors of the Surviving Corporation from and after
the Effective Time of Merger is Daniel Jackson, who shall serve
as the sole director of the Surviving Corporation from and after
the Effective Time of the Merger subject to provisions of the
laws of the State of Minnesota and the Articles of Incorporation
and Bylaws of the Surviving Corporation.
9. The officers of Co-ESP immediately prior to Effective Time of
the Merger shall continue as the officers of the Surviving
Corporation in the same
Page 4 of 8
<PAGE>
capacity or capacities, each of such officers to serve, subject
to the provisions of the Articles of Incorporation and Bylaws of
the Surviving Corporation, until his or her successor is elected
and qualified.
10. Except as specifically set forth to the contrary in the laws of
the State of Minnesota, or in that certain Agreement and Plan of
Reorganization and Merger made as of June 28, 1996 among
Cotelligent Group, Inc., the Surviving Corporation, Co-ESP, and
Robert R. Hildreth and Raymond P. Davey (the "Merger
Agreement"), the identity, existence, purposes, powers, objects,
franchises, privileges, rights and immunities of Co-ESP shall
continue unaffected and unimpaired by the Merger and the
corporate franchises, existence and rights of Co-ESP shall be
merged into the Surviving Corporation which shall then be fully
vested therewith; at the Effective Time of the Merger, the
separate existence of Co-ESP shall cease and the Surviving
Corporation shall possess all the rights, privileges, immunities
and franchises, of a public, as well as of a private nature; and
all property and all debts due on whatever account, including
subscriptions to shares and all and every other interest of or
belonging to or due to Co-ESP and SSI shall be taken and deemed
to be transferred to, and vested in, the Surviving Corporation
without further act or deed; all property, rights, privileges,
powers, licenses and franchises and all and every other interest
shall be thereafter as effectually the property of the Surviving
Corporation as they were of otherwise, under the laws of
Page 5 of 8
<PAGE>
the State of Minnesota, vested in SSI and Co-ESP, shall not
revert or be in any way impaired by reason of the Merger. The
Surviving Corporation shall thenceforth be responsible and
liable for all the liabilities and obligations of SSI and Co-ESP
and any claim existing, or action or proceeding pending, by or
against SSI or Co-ESP may be prosecuted as if the Merger had not
take place, or the Surviving Corporation may be substituted in
its place. Neither the rights of creditors nor any liens upon
the property of SSI or Co-ESP shall be impaired by the Merger,
and all debts, liabilities and duties of SSI and Co-ESP shall
attach to the Surviving Corporation, and may be enforced against
it to the same extent as if said debts, liabilities and duties
had been incurred or contracted by the Surviving Corporation.
11. Other terms and conditions of the merger and related
transaction, which are in addition to but not a part of this
Plan of Merger, are set forth in the Merger Agreement, which
governs as to its parties.
12. This plan of Merger may be abandoned prior to its effective
date, by an affirmative vote of the majority of the respective
directors of SSI and Co-ESP, notwithstanding intervening
approval by the shareholders of either corporation.
B. The foregoing Plan of Merger Between Co-ESP and SSI has been approved by
each corporation pursuant to Minnesota Statute (S)302A.613.
Page 6 of 8
<PAGE>
C. We, the President and Secretary of Cotelligent/ESP Acquisition
Corporation, a Minnesota corporation, and ESP Software Services, Inc., a
Minnesota corporation, certify that we hold these offices in each
corporation, that we are are duly authorized to execute and cause to be
filed these Articles of Merger, that we have examined the foregoing
Articles of Merger and, to the best of our knowledge and belief, they
are true, correct and complete.
DATED: June 28, 1996. COTELLIGENT/ESP ACQUISITION
CORPORATION
By: /s/ Duane W. Bell
------------------------------------
Duane W. Bell, Senior Vice President
DATED: June 28, 1996 ESP SOFTWARE SERVICES, INC.
By: /s/ Raymond P. Davey
------------------------------------
Raymond P. Davey, President
STATE OF MINNESOTA)
)ss.
COUNTY OF HENNEPIN)
The foregoing instrument was acknowledged before me this 28th day of
June, 1996 by Duane W. Bell, the Senior Vice President of Cotelligent/ESP
Acquisition Corporation, a Minnesota corporation, on behalf of the corporation
by authority of its Board of Directors.
[SEAL] /s/ Thomas J. Doyle
------------------------------------
Notary Public
My Commission Expires: 1/31/2000
Page 7 of 8
<PAGE>
STATE OF MINNESOTA)
)ss.
COUNTY OF HENNEPIN)
The foregoing instrument was acknowledged before me this 28th day of
June, 1996 by Raymond P. Davey, the President of ESP Software Services, Inc., a
Minnesota corporation, on behalf of the corporation by authority of its Board of
Directors.
[SEAL] /s/ Thomas J. Doyle
--------------------------------
Notary Public
My Commission Expires: 1/31/2000
Page 8 of 8
<PAGE>
EXHIBIT B TO AGREEMENT AND PLAN
OF REORGANIZATION AND MERGER
The shares of Cotelligent Stock to be issued and distributed pursuant to
Section 3.1(i) of said Agreement shall be allocated between and paid to the
stockholders, Robert R. Hildreth and Raymond P. Davey, in accordance with the
following percentages:
Robert R. Hildreth 75%
Raymond P. Davey 25%
<PAGE>
EXHIBIT C TO AGREEMENT AND PLAN
OF REORGANIZATION AND MERGER
Attached hereto are original certificates for shares representing all
outstanding Company Stock as defined in said Agreement, as contemplated and
required by Section 3.2 thereof:
Certificate No. Stockholder Shares
5 Robert R. Hildreth 805.50
6 Raymond P. Davey 268.50
