SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: August 26, 1999
[GRAPHIC OMITTED][GRAPHIC OMITTED] HAGLER BAILLY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 54-1759180
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification Number)
1530 Wilson Boulevard, Suite 900, Arlington, VA 22209
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(Address of principal executive offices) (Zip Code)
703-351-0300
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes (X) No ( )
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TABLE OF CONTENTS
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.................................1
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS...2
(C) EXHIBITS.............................................................2
SIGNATURES....................................................................3
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1
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Pursuant to the terms of the Share Exchange Agreement (the "Share Exchange
Agreement") by and among Hagler Bailly, Inc. (the "Company"), GKMG, Inc.
("GKMG"), and the former shareholders of GKMG ("Former Shareholders") dated as
of August 12, 1999, the Company acquired all of the outstanding shares of GKMG,
an aviation consulting company, and issued 1,420,000 shares of its common stock
(valued at approximately $10.3 million based on the closing price of the
Company's common stock on the NASDAQ Stock Market on August 12, 1999) to the
Former Shareholders in exchange therefor.
Under the terms of the Share Exchange Agreement, the Company is obligated to
issue additional shares of its common stock to the Former Shareholders up to a
fair market value (as defined in the Share Exchange Agreement) of $15 million if
certain earnings targets for GKMG are met for the periods July 1, 1999-June 30,
2000 and July 1, 2000-June 30, 2001.
In addition, if the highest average of the closing prices of the Company's
common stock for any consecutive twenty (20) trading days does not equal or
exceed $10 per share during the period from August 12, 2000 (or an earlier date
if the shares received by the Former Shareholders become registrable in a
registration statement of the Company which becomes effective) through and
including February 12, 2001, then the Company under the terms of the Share
Exchange Agreement is obligated to issue up to 192,857 additional shares of its
common stock to the Former Shareholders.
The Former Shareholders have registration rights with respect to the shares
issued in the transaction.
In connection with the acquisition, a subsidiary of the Company has entered into
employment and non-competition agreements with each of the Former Shareholders
and certain other employees of GKMG. Two of the Former Shareholders, Morris R.
Garfinkle and James F.
Miller, have become executive officers of the Company.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c)......Exhibits.
No....... ......... Description
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2.1 Share Exchange Agreement dated as of August 12, 1999 by and among the
Company, GKMG, and the Former Shareholders.
4.1 Registration Rights Agreement dated as of August 12, 1999 by and between
the Company and James F. Miller, as the attorney-in-fact and representative
of the Former Shareholders.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
HAGLER BAILLY, INC.
(Registrant)
Date: August 26, 1999 By: /s/ William E. Dickenson
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William E. Dickenson
President and Chief Executive Officer
Date: August 26, 1999 By: /s/ Glenn J. Dozier
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Glenn J. Dozier
Senior Vice President, Chief Financial Officer, Treasurer and Secretary
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EXHIBIT 2.1
SHARE EXCHANGE AGREEMENT
BY AND AMONG
HAGLER BAILLY, INC.,
GKMG, INC.
AND
THE STOCKHOLDERS OF GKMG, INC.
DATED AS OF AUGUST 12, 1999
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TABLE OF CONTENTS
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SHARE EXCHANGE AGREEMENT 1
ARTICLE I EXCHANGE OF SHARES 2
SECTION 1.1. EXCHANGE OF SHARES. 2
SECTION 1.2. EFFECT OF THE EXCHANGE. 2
SECTION 1.3. CLOSING. 2
SECTION 1.4 EXCHANGE OF CERTIFICATES. 2
SECTION 1.5. ADDITIONAL EXCHANGE CONSIDERATION. 3
SECTION 1.7. STOCKHOLDERS'REPRESENTATIVE. 7
SECTION 1.8. TRANSFERABILITY OF ACQUIROR COMMON STOCK. 8
SECTION 1.9. CERTAIN ADJUSTMENTS. 8
SECTION 1.10. LEGEND; SUBSEQUENT TRANSFER. 8
SECTION 1.11. ACCOUNTING DATE. 9
SECTION 1.12. ACQUIROR BOARD APPROVAL. 9
ARTICLE II REPRESENTATIONS AND WARRANTIES OF the Company 10
SECTION 2.1. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. 10
SECTION 2.2. ARTICLES OF INCORPORATION AND BYLAWS. 11
SECTION 2.3. CAPITALIZATION. 11
SECTION 2.4. AUTHORITY. 12
SECTION 2.5. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. 12
SECTION 2.6. FINANCIAL STATEMENTS; NO LIABILITIES. 13
SECTION 2.7. ACCOUNTS RECEIVABLE. 13
SECTION 2.8. ABSENCE OF CERTAIN CHANGES OR EVENTS. 13
SECTION 2.9. ASSETS. 14
SECTION 2.10. LEASES. 14
SECTION 2.11. MATERIAL CONTRACTS. 15
SECTION 2.12. REAL PROPERTY. 16
SECTION 2.13. GOVERNMENT CONTRACTS. 16
SECTION 2.14. ENVIRONMENTAL MATTERS. 17
SECTION 2.15. ABSENCE OF LITIGATION. 19
SECTION 2.16. INTELLECTUAL PROPERTY. 19
SECTION 2.17. PAYMENTS OR LOANS TO STOCKHOLDERS SINCE
BALANCE SHEET DATE. 20
SECTION 2.18. TAXES AND ASSESSMENTS. 20
SECTION 2.19. EMPLOYMENT MATTERS. 21
SECTION 2.20. EMPLOYEE BENEFIT PLANS. 21
SECTION 2.21. TRANSACTIONS WITH RELATED PARTIES. 23
SECTION 2.22. INSURANCE. 23
SECTION 2.23. BOARD APPROVAL. 23
SECTION 2.24. BROKERS. 23
SECTION 2.25. THIRD-PARTY LIABILITY. 24
SECTION 2.26. SPINOFF AGREEMENT. 24
SECTION 2.27. FOREIGN CORRUPT PRACTICES ACT. 24
SECTION 2.28. DISCLOSURE. 24
Article III REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERs 25
SECTION 3.1. AUTHORITY AND CAPACITY. 25
SECTION 3.2. ABSENCE OF VIOLATION. 25
SECTION 3.3. TITLE TO CAPITAL STOCK. 25
SECTION 3.4. NON-REGISTRATION OF SECURITIES; PURCHASE FOR
INVESTMENT ONLY; RULE 144. 26
SECTION 3.5. ABILITY OF STOCKHOLDER TO EVALUATE INVESTMENT
AND BEAR ECONOMIC RISK. 27
SECTION 3.6. GOVERNMENTAL AUTHORIZATION; CONSENTS. 27
SECTION 3.7. WAIVER OF DISSENTER'S RIGHTS. 27
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ACQUIROR 28
SECTION 4.1. ORGANIZATION AND QUALIFICATION. 28
SECTION 4.2. CERTIFICATE OF INCORPORATION AND BYLAWS. 28
SECTION 4.3. CAPITALIZATION. 28
SECTION 4.4. AUTHORITY. 29
SECTION 4.5. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. 29
SECTION 4.6. SEC FILINGS; FINANCIAL STATEMENTS. 29
SECTION 4.7. ABSENCE OF CERTAIN CHANGES OR EVENTS. 30
SECTION 4.8. ABSENCE OF LITIGATION. 31
SECTION 4.9. BROKERS. 31
SECTION 4.10. DISCLOSURE. 31
SECTION 4.11. TAX-FREE REORGANIZATION. 31
ARTICLE V COVENANTS 31
SECTION 5.1. AFFIRMATIVE COVENANTS OF THE COMPANY. 31
SECTION 5.2. NEGATIVE COVENANTS OF THE COMPANY. 32
SECTION 5.3. NEGATIVE COVENANTS OF ACQUIROR
AND THE COMPANY AFTER THE EFFECTIVE TIME. 34
SECTION 5.4. NEGATIVE COVENANTS OF THE STOCKHOLDERS. 34
SECTION 5.5. COVENANTS OF THE ACQUIROR. 35
SECTION 5.6. RIGHTS UNDER THE SPINOFF AGREEMENT. 35
ARTICLE Vi ADDITIONAL AGREEMENTS 36
SECTION 6.1. CONSENTS AND APPROVALS; FILINGS AND NOTICES. 36
SECTION 6.2. ACCESS TO INFORMATION. 36
SECTION 6.3. CONFIDENTIALITY. 37
SECTION 6.4. FURTHER ACTION; REASONABLE BEST EFFORTS. 37
SECTION 6.5. PUBLIC ANNOUNCEMENTS. 38
SECTION 6.6. NO SOLICITATION. 38
SECTION 6.7. EMPLOYEES. 38
SECTION 6.8. INDEMNIFICATION. 38
SECTION 6.9. TAX MATTERS. 39
SECTION 6.10. MANAGEMENT COMMITTEE REPRESENTATIVES. 39
SECTION 6.11. FINANCIAL STATEMENTS. 39
SECTION 6.12. BEST EFFORTS. 39
SECTION 6.13. COMPANY CONTROLLER. 40
ARTICLE VII CLOSING CONDITIONS 40
SECTION 7.1. CONDITIONS TO OBLIGATIONS OF ACQUIROR, STOCKHOLDERS
AND THE COMPANY TO EFFECT THE EXCHANGE. 40
SECTION 7.2. ADDITIONAL CONDITIONS TO OBLIGATIONS OF ACQUIROR.41
SECTION 7.3. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY
AND THE STOCKHOLDERS. 42
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER 43
SECTION 8.1. TERMINATION. 43
SECTION 8.2. EFFECT OF TERMINATION. 44
SECTION 8.3. AMENDMENT. 44
SECTION 8.4. WAIVER. 44
ARTICLE IX SURVIVAL OF REPRESENTATIONS; ESCROW ARRANGEMENTS;
REMEDIES 45
SECTION 9.1. SURVIVAL OF REPRESENTATIONS. 45
SECTION 9.2. STOCKHOLDERS GENERAL INDEMNIFICATION;
ESCROW ARRANGEMENTS. 45
SECTION 9.3. STOCKHOLDERS SPECIAL INDEMNIFICATION 46
SECTION 9.4. STOCKHOLDERS INDEMNIFICATION FOR
BREACHES OF REPRESENTATIONS AND WARRANTIES
OF SECTION 2.15. 49
SECTION 9.5. ACQUIROR'S GENERAL INDEMNIFICATION. 50
SECTION 9.6. INDEMNIFICATION PROCEDURES. 50
SECTION 9.7. REMEDIES EXCLUSIVE; PRE-CLOSING BREACHES;
OTHER AGREEMENTS. 51
ARTICLE X GENERAL PROVISIONS 52
SECTION 10.1. NOTICES. 52
SECTION 10.2. CERTAIN DEFINITIONS. 53
SECTION 10.3. HEADINGS. 56
SECTION 10.4. SEVERABILITY. 56
SECTION 10.5. ENTIRE AGREEMENT. 56
SECTION 10.6. SPECIFIC PERFORMANCE. 57
SECTION 10.7. ASSIGNMENT. 57
SECTION 10.8. THIRD PARTY BENEFICIARIES. 57
SECTION 10.9. GOVERNING LAW. 57
SECTION 10.10. COUNTERPARTS. 57
SECTION 10.11. FEES AND EXPENSES. 58
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Section
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Schedules
Schedule 1.5 Net After Tax Income
Schedule 2.1 Subsidiaries
Schedule 2.3(a) Beneficial and Record Ownership of Shares of the Company
Schedule 2.3(b) Beneficial & Record Ownership of Shares of Company Subs.
Schedule 2.5 Third Party Consents
Schedule 2.8 Absence of Certain Changes or Events
Schedule 2.9 Assets
Schedule 2.10 Leases
Schedule 2.11 Material Contracts
Schedule 2.12 Real Property
Schedule 2.13(a) Government Contracts
Schedule 2.15 Company Litigation
Schedule 2.16 Intellectual Property
Schedule 2.17 Doubtful Receivables
Schedule 2.19 Employment Matters; Labor Relations
Schedule 2.20 Employee Benefit Plans
Schedule 2.21 Transactions with Related Parties
Schedule 2.22 Insurance
Schedule 2.26 Spinoff Agreement
Schedule 4.3 Outstanding Capital Obligations
Schedule 4.7 Absence of Certain Changes or Events
Schedule 4.8 Absence of Litigation
Schedule 5.2 Stockholder Annual Compensation Level
Schedule 6.6 No Solicitation
Schedule 6.7 Employees
Schedule 9.3 Express One Matters
Exhibits
Exhibit A Form of Escrow Agreement
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Capitalization Certificate
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Index of Defined Terms
Section
Accounting Date.................................................... 1.11
Acquiror........................................................... PREAMBLE
Acquiror Board..................................................... 1.12
Acquiror Common Stock.............................................. PREAMBLE
Acquiror Indemnified Persons....................................... 9.2
Acquiror Material Adverse Effect................................... 10.2(a)
Acquiror SEC Reports............................................... 4.6(a)
affiliate and/or Affiliate......................................... 10.2
Agreement ......................................................... PREAMBLE
A/R Assignment..................................................... 2.17
Assets............................................................. 1.2
Balance Sheet...................................................... 2.6
Balance Sheet Date................................................. 2.6
Benefit Plans............................ ......................... 2.20(a)
Blue Sky Laws...................................................... 10.2(d)
BRC China.......................................................... 2.17
business day....................................................... 10.2(e)
Closing............................................................ 1.3
Closing Date....................................................... 1.3
Closing Price...................................................... 1.1(b)
Code............................................................... PREAMBLE
Commonly Controlled Entity......................................... 2.20(a)
Company............................................................ PREAMBLE
Company Common Stock............................................... PREAMBLE
Company Material Adverse Effect.................................... 10.2(f)
Company Subsidiary and/or Company Subsidiaries..................... 2.1
control, controlled by, under common control with.................. 10.2(g)
Earnout Stock...................................................... 3.4(a)
Effective Time..................................................... 1.3
Employment Agreements.............................................. PREAMBLE
Encumbrances....................................................... 10.2(h)
Environmental Claim.............................................. 2.13(f)(i)
Environmental Laws............................................... 2.13(f)(ii)
ERISA............................................................. 2.20(a)
ERISA Plan........................................................ 2.20(a)
Escrow Agent...................................................... PREAMBLE
Escrow Agreement.................................................. PREAMBLE
Escrow Stock...................................................... PREAMBLE
Escrow Stock Certificate.......................................... 1.4(d)
Exchange.......................................................... PREAMBLE
Exchange Act...................................................... 3.4(c)
Exchange Cash..................................................... 1.1(a)(ii)
Exchange Stock.................................................... 1.1
Exchange Stock Certificates....................................... 1.4(d)
Fair Market Value................................................. 1.5(e)
Financial Statements.............................................. 6.11
First FFYE Tranche................................................ 1.5(a)(i)
First FFYE Tranche Payment........................................ 1.5(c)
First Fiscal Year................................................. 1.5(a)
First Fiscal Year Earnout......................................... 1.5(a)
First Fiscal Year Surplus......................................... 1.5(a)
First SFYE Tranche................................................ 1.5(b)(i)
GAAP.............................................................. 10.2(j)
Government Contract............................................... 10.2(k)
Government Entity................................................. 10.2(l)
Hazardous Materials............................................. 2.14(f)(iii)
Highest Closing Price.............................................. 1.6(a)
including.......................................................... 10.2(l)
Independent Accountant............................................. 1.5(g)
Intellectual Property.............................................. 2.16
Laws............................................................... 10.2(m)
Legend............................................................. 1.10
Letter of Intent................................................... 6.3
Losses............................................................. 10.2(n)
Material Contracts................................................. 2.11(a)
Multiemployer Plan................................................. 2.20(d)
Order.............................................................. 7.1(a)
person............................................................. 10.2(o)
Price Performance Period........................................... 1.6(a)
Price Performance Shares........................................... 1.6
Proposed Earnout Payment........................................... 1.5(g)
Real Property...................................................... 2.12
Registration Rights Agreement...................................... PREAMBLE
Related Agreements................................................. PREAMBLE
Second FFYE Tranche Payment..................................... 1.5(i)(A)(2)
Second Fiscal Year................................................. 1.5(b)
Second Fiscal Year Earnout......................................... 1.5(b)
Second Fiscal Year Surplus......................................... 1.5(b)
Second SFYE Tranche............................................... 1.5(b)(ii)
Second SFYE Tranche Payment Date................................... 1.5(d)
Third FFYE Tranche............................................... 1.5(a)(iii)
Third SFYE Tranche Payment Date...................................... 1.5(iv)
Securities Act....................................................... 1.8
Spinoff Agreement.................................................... 10.2
Stockholder........................................................ PREAMBLE
Stockholders....................................................... PREAMBLE
Stockholder's Certificate............................................ 8.2(g)
Stockholders' Representative......................................... 1.7
Subsidiary.......................................................... 10.2(s)
Taxes............................................................... 10.2(t)
Third FFYE Tranche............................................... 1.5(a)(iii)
Third SFYE Tranche............................................... 1.5(b)(iii)
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SHARE EXCHANGE AGREEMENT
THIS SHARE EXCHANGE AGREEMENT (this "Agreement") is entered into this 12th day
of August, 1999, by and among HAGLER BAILLY, INC., a Delaware corporation
("Acquiror"), GKMG, INC., a District of Columbia corporation (the "Company"),
Mr. Morris Garfinkle, Mr. James Miller, Mr. Sam Fairchild, Mr. Xianping Wang,
Ms. Anita Mosner and Mr. Michael Fleming (each, a "Stockholder" and
collectively, the "Stockholders").
WHEREAS, Acquiror desires to acquire the consulting business operated by the
Company and the Company's Subsidiaries;
WHEREAS, each Stockholder is the owner of the number of shares of
common stock, no par value, of the Company (the "Company Common Stock"), set
forth next to the name of such Stockholder in Schedule 2.3(a) to this Agreement,
such shares representing in the aggregate all of the issued and outstanding
shares of Company Common Stock;
WHEREAS, the Stockholders and Acquiror desire to effect an exchange
(the "Exchange") of the shares of the Company Common Stock for shares of common
stock, par value $.01 per share, of Acquiror ("Acquiror Common Stock"), on the
terms and subject to the conditions set forth in this Agreement;
.........WHEREAS, concurrently with the execution of this Agreement and as an
inducement to Acquiror to enter into this Agreement, Morris Garfinkle, James
Miller, Sam Fairchild, Xianping Wang, Anita Mosner, Michael Fleming and certain
other employees of this Company, have entered into employment agreements with
GKMG Consulting Services, Inc. (the "Employment Agreements"), the effectiveness
of which is conditioned upon consummation of the Exchange;
WHEREAS, in connection with the transactions contemplated by this
Agreement and as a condition to consummation of the Exchange, Acquiror and the
Stockholders' Representative (as defined in Section 1.6) and State Street Bank &
Trust Company (the "Escrow Agent") shall enter into an escrow agreement at
Closing, in the form attached hereto as Exhibit A (the "Escrow Agreement"),
pursuant to which One Hundred Fifty Thousand (150,000) of the shares of Acquiror
Common Stock (the "Escrow Stock") to be paid to the Stockholders in the Exchange
will be retained in escrow;
.........WHEREAS, in connection with the transactions contemplated by this
Agreement and as a condition to consummation of the Exchange, Acquiror and the
Stockholders' Representative shall enter into a Registration Rights Agreement in
the form attached hereto as Exhibit B (the "Registration Rights Agreement" and,
together with the Escrow Agreement and the Employment Agreements, the "Related
Agreements") at Closing, pursuant to which the Stockholders will obtain
"piggyback" registration rights; and
.........WHEREAS, for federal income tax purposes, it is intended that the
Exchange constitutes a 'plan of reorganization' within the meaning of Sections
354 and 361 of the Internal Revenue Code of 1986, as amended (the "Code") and
Treas. Reg. Section 1.368-2(g).
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
EXCHANGE OF SHARES
SECTION 1.1. Exchange of Shares.
.........(a) Subject to the terms and conditions of this Agreement, the
Stockholders agree to exchange the shares of Company Common Stock owned by the
Stockholders for, and Acquiror agrees to issue to the Stockholders in exchange
for such shares of Company Common Stock, a number of whole shares of Acquiror
Common Stock equal to One Million Four Hundred Twenty Thousand (1,420,000)
shares (the "Exchange Stock"). The Exchange Stock shall be issued to the
Stockholders on a pro rata basis based on their percentage ownership of the
Company as set forth in Schedule 2.3(a).
.........(b) No fractional shares of Acquiror Common Stock shall be issued, but
in lieu thereof, the Stockholders shall receive an amount in cash equal to the
reported closing price of a share of Acquiror Common Stock on the NASDAQ
National Market on the last business day prior to the Closing Date (the "Closing
Price") multiplied by the fraction of a share of Acquiror Common Stock to which
the Stockholder would otherwise be entitled.
SECTION 1.2. Effect of the Exchange.
.........As a result of the Exchange, Acquiror will indirectly control, as the
sole stockholder of the Company, all assets owned by the Company including,
without limitation, all assets, whether real or personal, tangible or
intangible, of the Company.
SECTION 1.3. Closing.
Subject to the terms and conditions of this Agreement, the closing of the
Exchange (the "Closing") will take place as promptly as practicable after
satisfaction of the latest to occur or, if permissible, waiver of the conditions
set forth in Article VII hereof, at the offices of Hogan & Hartson L.L.P., 555
Thirteenth Street, N.W., Washington, D.C. 20004, unless another date or place is
agreed to by the parties hereto (the "Closing Date" or the "Effective Time").
The Exchange and the Related Agreements will be effective upon consummation of
the Closing.
SECTION 1.4 Exchange of Certificates.
(a)......Delivery of Shares of Company Common Stock. At Closing, the
Stockholders shall deliver to Acquiror certificate(s) for the shares of Company
Common Stock being exchanged by the Stockholders duly endorsed or accompanied by
stock powers duly endorsed in blank, with any required transfer stamps affixed
thereto.
(b) Delivery of Shares. At Closing, Acquiror shall deliver to the Stockholders
certificates representing that number of whole shares of Acquiror Common Stock
equal to the Exchange Stock minus the Escrow Stock, together with a check made
payable to such Stockholder for any fractional shares pursuant to Section 1.1(b)
hereof.
(c) Delivery of Escrow Stock. At the Effective Time, One Hundred Fifty
Thousand (150,000) shares of the Exchange Stock required to be issued in
accordance with Section 1.1, will be placed in escrow pursuant to the Escrow
Agreement as security for the faithful performance of the indemnity obligations
of the Stockholders under Article IX of this Agreement. In the event that after
the Closing Date, Acquiror pays any stock, cash or other dividend on its
outstanding shares of common stock or issues any shares of common stock pursuant
to a stock split, the portion of such dividend or shares of common stock payable
or issuable on shares of Escrow Stock shall be deposited into escrow by Acquiror
as an additional part of the Escrow Stock pursuant to the terms of the Escrow
Agreement. Stockholders shall be entitled to vote the Escrow Stock. The Exchange
Stock otherwise distributable as of the Closing Date to the Stockholder in
connection with the Exchange as provided in Section 1.1(a) shall be reduced to
reflect the placement by the Acquiror of that portion of the Exchange Stock
required to be deposited in escrow as described in this Section 1.4(c), and such
Escrow Stock shall be released to the Stockholders or Acquiror, as the case may
be, only in accordance with the terms of this Agreement and the Escrow
Agreement.
(d) Exchange Procedures. At the Effective Time, certificates
representing the Company Common Stock shall be exchanged for certificates issued
by Acquiror representing the Acquiror Common Stock to be issued to each
Stockholder in accordance with the terms hereof (the "Exchange Stock
Certificates"). The Exchange Stock Certificates shall be registered in the name
of each Stockholder and shall represent 89.44% of the total number of shares of
Acquiror Common Stock initially issuable pursuant to the Exchange in respect of
shares of Company Common Stock held by the Stockholders. One certificate,
representing the shares of Escrow Stock (the "Escrow Stock Certificate"), shall
be issued in the name of the Stockholders' Representative and deposited with the
Escrow Agent.
SECTION 1.5. Additional Exchange Consideration.
In addition to the Exchange Stock, the Stockholders shall have the right to
receive the following additional consideration, on a pro rata basis based on
their percent ownership of the Company as set forth in Schedule 2.3(a), in
accordance with the following terms and conditions:
(a) First Fiscal Year Earnout. If the Net After Tax Income (as defined in
Schedule 1.5) of the Company for the period beginning July 1, 1999 through June
30, 2000 (the "First Fiscal Year") exceeds the amount of One Million Seven
Hundred Fifty Thousand Dollars ($1,750,000) (the amount of such excess, the
"First Fiscal Year Surplus"), the Stockholders shall be entitled to receive an
amount of Acquiror Common Stock with an aggregate Fair Market Value equal to six
(6) multiplied by the First Fiscal Year Surplus (the "First Fiscal Year
Earnout"); provided, however, that under no circumstances shall the amount due
under the First Fiscal Year Earnout, if any, exceed the amount of Seven Million
Five Hundred Thousand Dollars ($7,500,000) of Acquiror Common Stock in aggregate
Fair Market Value (as determined in accordance with Section 1.5(e)). The First
Fiscal Year Earnout shall be payable by the Acquiror using Acquiror Common Stock
in three (3) payments calculated as follows:
(i) "First FFYE Tranche." The First FFYE Tranche shall be the
amount equal to six (6) multiplied by (X) the First Fiscal Year Surplus less (Y)
sixty percent (60%) of the amount of revenues recognized under GAAP during the
First Fiscal Year that are uncollected as of June 30, 2000. If this amount shall
be negative, then the First FFYE Tranche shall be zero.
(ii) "Second FFYE Tranche." The Second FFYE Tranche shall be
the amount equal to (X) the amount equal to six (6) multiplied by (A) the First
Fiscal Year Surplus less (B) sixty percent (60%) of the amount of revenues
recognized under GAAP during the First Fiscal Year that are uncollected as of
December 31, 2000 less (Y) the amount of the First FFYE Tranche. If this amount
shall be negative, then the Second FFYE Tranche shall be zero.
(iii) "Third FFYE Tranche." The Third FFYE Tranche shall be
the amount equal to (X) the amount equal to six (6) multiplied by (A) the First
Fiscal Year Surplus less (B) sixty percent (60%) of the amount of revenues
recognized under GAAP during the First Fiscal Year that are uncollected as of
June 30, 2001 less (Y) the amount of the First FFYE Tranche less (Z) the amount
of the Second FFYE Tranche. If this amount shall be negative, then the Third
FFYE Tranche shall be zero.
(b) Second Fiscal Year Earnout. If the Net After Tax Income of the
Company for the period beginning July 1, 2000 through June 30, 2001 (the "Second
Fiscal Year") exceeds the amount of Three Million Dollars ($3,000,000) (the
amount of such excess, the "Second Fiscal Year Surplus"), the Stockholders shall
be entitled to receive an amount of Acquiror Common Stock with an aggregate Fair
Market Value equal to six (6) multiplied by the Second Fiscal Year Surplus (the
"Second Fiscal Year Earnout"); provided, however, that under no circumstances
shall the amount due under the Second Fiscal Year Earnout , if any, exceed the
amount of Seven Million Five Hundred Thousand Dollars ($7,500,000) of Acquiror
Common Stock in aggregate Fair Market Value (as determined in accordance with
Section 1.5(e)). The Second Fiscal Year Earnout shall be payable by the Acquiror
in three (3) payments calculated as follows:
(i) "First SFYE Tranche." The First SFYE Tranche shall be the
amount equal to six (6) multiplied by (X) the Second Fiscal Year Surplus less
(Y) sixty percent (60%) of the amount of revenues recognized under GAAP during
the Second Fiscal Year that are uncollected as of June 30, 2001. If this amount
shall be negative, then the First SFYE Tranche shall be zero.
(ii) "Second SFYE Tranche." The Second SFYE Tranche shall be
the amount equal to (X) the amount equal to six (6) multiplied by (A) the Second
Fiscal Year Surplus less (B) sixty percent (60%) of the amount of revenues
recognized under GAAP during the Second Fiscal Year that are uncollected as of
December 31, 2001 less (Y) the amount of the First SFYE Tranche. If this amount
shall be negative, then the Second SFYE Tranche shall be zero.
(iii) "Third SFYE Tranche." The Third SFYE Tranche shall be
the amount equal to (X) the amount equal to six (6) multiplied by (A) the Second
Fiscal Year Surplus less (B) sixty percent (60%) of the amount of revenues
recognized under GAAP during the Second Fiscal Year that are uncollected as of
June 30, 2002 less (Y) the amount of the First SFYE Tranche less (Z) the amount
of the Second SFYE Tranche. If this amount shall be negative, then the Third
SFYE Tranche shall be zero.
(c) The First FFYE Tranche, if any, shall be paid no later than the day
prior to the public release of Acquiror's earnings immediately following the
period ending June 30, 2000, but in any event no later than August 15, 2000 (the
"First FFYE Tranche Payment Date"). The Second FFYE Tranche, if any, shall be
paid no later than February 15, 2001 (the "Second FFYE Tranche Payment Date").
The Third FFYE Tranche, if any shall be paid no later than August 15, 2001 (the
"Third FFYE Tranche Payment Date").
(d) The First SFYE Tranche, if any, shall be paid no later than the day
prior to the public release of Acquiror's earnings immediately following the
period ending June 30, 2001, but in any event no later than August 15, 2001 (the
"First SFYE Tranche Payment Date"). The Second SFYE Tranche, if any, shall be
paid no later February 15, 2002 (the "Second SFYE Tranche Payment Date"). The
Third SFYE Tranche, if any, shall be paid no later than August 15, 2002 (the
"Third SFYE Tranche Payment Date").
(e) For payments under this Section 1.5, Acquiror Common Stock shall be
valued at the average closing price (as reported in the Wall Street Journal and
as adjusted for any conversions, exchanges, stock splits, reverse stock splits,
stock dividends or other reclassifications or changes thereof, or consolidations
or reorganizations of Acquiror) for the period of ten (10) trading days prior to
the payment date (the "Fair Market Value"); provided, however, notwithstanding
the foregoing, (A) any payments of Acquiror Common Stock payable on the Second
FFYE Tranche Payment Date or the Third FFYE Tranche Payment Date shall be valued
based on the Fair Market Value of Acquiror Common Stock as of the First FFYE
Tranche Payment Date, and (B) any payments of Acquiror Common Stock payable on
the Second SFYE Tranche Payment Date or the Third SFYE Tranche Payment Date
shall be valued based on the Fair Market Value of Acquiror Common Stock as of
the First SFYE Tranche Payment Date.
(f) Acquiror may, at Acquiror's option, make a prepayment of the
maximum amount payable for each of the First Fiscal Year Earnout and Second
Fiscal Year Earnout, in whole or in part, at any time after providing twenty
(20) days written notice to the Stockholders' Representative. The value of
Acquiror Common Stock for purposes of any such prepayments shall be valued at
the aggregate Fair Market Value as of the date of such prepayments.
(g) Dispute Resolution. The Stockholders' Representative shall have
twenty (20) days after the chief financial officer of the Acquiror delivers the
computation of either the First Fiscal Year Earnout or the Second Fiscal Year
Earnout (each, a "Proposed Earnout Payment") to provide the Acquiror with notice
of any objection to such Proposed Earnout Payment. Unless the Stockholders'
Representative timely objects in writing, such Proposed Earnout Payment shall be
binding on the parties without any further adjustment. If the Stockholders'
Representative shall raise any objection within such twenty (20) day period,
Acquiror and the Stockholders' Representative shall negotiate in good faith and
use their reasonable best efforts to resolve any disputes. If the parties fail
to agree on the amount of such Proposed Earnout Payment within fifteen (15) days
after the Stockholders' Representative raises any objection, the disputed items
shall be resolved by an independent accounting firm identified by Acquiror and
approved by the Stockholders' Representative (the "Independent Accountant");
provided, however, that the parties acknowledge and agree that any accounting
firm engaged by the parties at such time shall not be named as the Independent
Accountant. The Independent Accountant shall resolve the dispute within thirty
(30) days after having the dispute referred to it, and such resolution shall be
binding upon the parties. The costs, fees and expenses of the Independent
Accountant shall be borne equally by Acquiror and the Stockholders. Within ten
(10) days after such Proposed Earnout Payment is binding on the parties pursuant
to this Section 1.5(g), Acquiror shall deliver the appropriate number of shares,
if any, of Acquiror Common Stock to the Stockholders.
SECTION 1.6. Price Performance Shares.
In addition to the Exchange Stock and the additional shares of
Acquiror Common Stock issuable under Section 1.5, the Stockholders shall have
the right to receive, on a pro rata basis based on their percent ownership of
the Company as set forth in Schedule 2.3(a), additional shares of Acquiror
Common Stock (the "Price Performance Shares") the amount of which, if any, shall
be determined in accordance with the following terms and conditions:
(a) If at any time during the period beginning on the twelve
(12) month anniversary of the Closing Date and ending on the eighteen (18) month
anniversary of the Closing Date (or if the Exchange Stock becomes registerable
pursuant to this Agreement or the Registration Rights Agreement prior to the
twelve (12) month anniversary, the period shall begin on the date which the
registration statement pursuant to which such Exchange Stock is registerable
becomes effective) (such period, the "Price Performance Period"), the highest
average closing prices of Acquiror Common Stock (as reported in the Wall Street
Journal and as adjusted to take into account any conversions, exchanges, stock
splits, reverse stock splits, stock dividends or other reclassifications or
changes thereof, or consolidations or reorganizations of Acquiror), for any
twenty (20) consecutive trading days (the "Highest Closing Price") equals or
exceeds Ten Dollars ($10.00) per share, the Acquiror shall not be obligated to
issue any Price Performance Shares to the Stockholders.
(b) If during the Price Performance Period the Highest Closing
Price is less than Ten Dollars ($10.00) per share then on the fifth (5th)
business day after the last day of the Price Performance Period. Acquiror shall
distribute to the Stockholders the number of Price Performance Shares calculated
as follows: (i) the amount equal to (A) Four Million Five Hundred Thousand
(4,500,000) minus (B) such Highest Closing Price multiplied by Four Hundred
Fifty Thousand (450,000) divided by (ii) such Highest Closing Price; provided,
however, that in no event shall the number of Price Performance Shares exceed
One Hundred Ninety-Two Thousand Eight Hundred Fifty-Seven (192,857).
SECTION 1.7. Stockholders' Representative.
James F. Miller shall, by virtue of this Agreement, be irrevocably
authorized and empowered to act, for and on behalf of any or all of the
Stockholders (with full power of substitution in the premises), in connection
with the indemnity provisions of Article IX as they relate to the Company
generally and such other matters as are reasonably necessary for the
consummation of the transactions contemplated hereby including, without
limitation, (a) to review all claims for indemnification asserted by an Acquiror
Indemnified Person, and, to the extent deemed appropriate, dispute, question the
accuracy of, compromise, settle or otherwise resolve any and all such claims,
(b) to authorize payments to be made with respect to any such claims for
indemnification, (c) to execute and deliver on behalf of the Stockholders any
document or agreement contemplated by or necessary or desirable in connection
with this Agreement, the Escrow Agreement, the Registration Rights Agreement and
the transactions contemplated hereby and thereby, (d) to enforce the rights of
the Stockholders under the Registration Rights Agreement and (e) to take such
further actions including coordinating and administering post-closing matters
related to the rights and obligations of the Stockholders as are authorized in
this Agreement (the above named representative, as well as any subsequent
representative of the Stockholders appointed by the Stockholders being referred
to herein as the "Stockholders' Representative"). The Stockholders'
Representative shall not be liable to any Stockholder, Acquiror, or their
respective affiliates or any other person with respect to any action taken or
omitted to be taken by the Stockholders' Representative in his role as
Stockholders' Representative under or in connection with this Agreement unless
such action or omission results from or arises out of fraud, gross negligence,
willful misconduct or bad faith on the part of the Stockholders' Representative;
provided, however, that the Stockholders' Representative shall not be liable to
any Stockholder in the event that in the exercise of his reasonable judgment,
the Stockholders' Representative believes there will not be adequate resources
available to cover potential costs and expenses to contest any claim made by an
Acquiror Indemnified Person pursuant to Article IX hereof. Acquiror shall be
entitled to rely on such appointment and treat such Stockholders' Representative
as the duly appointed attorney-in-fact of each Stockholder.
SECTION 1.8. Transferability of Acquiror Common Stock.
The shares of Acquiror Common Stock to be issued and delivered to the
Stockholders in the Exchange in accordance with the provisions of Section 1.4,
Section 1.5 and Section 1.6 hereof will not have been registered under the
Securities Act of 1933, (the "Securities Act") or under the securities laws of
any state as of the Closing or as of the date of issuance in accordance with
Section 1.5 and Section 1.6. Accordingly, those shares of Acquiror Common Stock
(together with any other shares with respect to these shares received pursuant
to conversions, exchanges, stock splits, stock dividends or other
reclassifications or changes thereof, or consolidations or reorganizations of
Acquiror) will not be transferable except upon compliance with the Securities
Act, any state securities laws, the rules, regulations and other administrative
regulations promulgated under the Securities Act and any state securities laws
and shall bear appropriate legends to this effect as set forth in Section 1.10
below.
SECTION 1.9. Certain Adjustments.
If between the date hereof and August 15, 2002, the
outstanding shares of Acquiror Common Stock shall be changed into a different
number of shares by reason of any conversions, exchanges, stock splits, reverse
stock splits, stock dividends or other reclassifications or changes thereof, or
consolidations or reorganizations of Acquiror with a record date within such
period, the number of shares of Acquiror Common Stock to be issued hereunder
shall be adjusted accordingly to provide to the Stockholders the same economic
effect as contemplated by this Agreement prior to such conversion, exchange,
stock split, reverse stock split, stock dividend or other reclassification or
change thereof, or consolidation or reorganization.
SECTION 1.10. Legend; Subsequent Transfer.
Each certificate representing Acquiror Common Stock issued to the Stockholders
hereunder shall be stamped or otherwise imprinted with a legend (the "Legend")
in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR UNDER THE
SECURITIES LAW OF ANY STATE. SUCH SECURITIES MAY NOT BE SOLD OR OFFERED
FOR SALE OR OTHERWISE HYPOTHECATED OR DISTRIBUTED EXCEPT (A)(i)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES
UNDER THE ACT; OR (ii) PURSUANT TO A VALID EXEMPTION FROM SUCH
REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES LAWS,
AND (B) UPON RECEIPT BY THE ACQUIROR OF AN OPINION OF COUNSEL FOR THE
HOLDER, WHICH OPINION SHALL BE SATISFACTORY IN FORM AND SUBSTANCE TO
ACQUIROR, THAT SUCH SALE IS IN COMPLIANCE WITH THE ACT AND SUCH STATE
SECURITIES LAW.
The legend will also be placed on any certificate representing
Acquiror securities issued subsequent to the original issuance of the Acquiror
Common Stock pursuant to the Exchange as a result of any stock dividend, stock
split, or other recapitalization, as long as the Acquiror Common Stock issued to
the Stockholders pursuant to the Exchange is subject to the restrictions set
forth in the Agreement.
SECTION 1.11. Accounting Date.
Notwithstanding anything to the contrary set forth in this
Agreement or otherwise, Acquiror, the Company and the Stockholders acknowledge
and agree that the date and time to be used with respect to the effectiveness of
the transactions contemplated herein with respect to accounting matters shall be
August 1, 1999 (the "Accounting Date").
SECTION 1.12. Acquiror Board Approval.
The Board of Directors of Acquiror (the "Acquiror Board") shall approve
the issuances of Acquiror Common Stock to Morris Garfinkle and James Miller
pursuant to this Article I in the following manner in order to qualify such
issuances for exemption under Rule 16b-3(d)(1) under the Exchange Act:
(a) Prior to the Closing, the Acquiror Board shall adopt a resolution approving
the issuance to Messrs. Garfinkle and Miller of Exchange Stock pursuant to
Section 1.1 and Acquiror Common Stock pursuant to Section 1.5 and Section 1.6.
Such resolution shall specify (i) the name of each Stockholder, (ii) the number
of shares of Exchange Stock to be acquired by such Stockholder pursuant to
Section 1.1, (iii) the manner in which the number of additional shares of
Acquiror Common Stock, if any, to be issued to each Stockholder pursuant to
Section 1.5 and Section 1.6 will be determined, and (iv) that the approval of
these issuances is granted for purposes of exempting such issuances under Rule
16b-3.
(b) Prior to the First FFYE Tranche Payment Date, the Acquiror Board shall adopt
a resolution approving the issuance to Messrs. Garfinkle and Miller of the
maximum number of shares of Acquiror Common Stock issuable to them pursuant to
Section 1.5(a), subject to reduction as provided in Section 1.5(a). Such
resolution shall specify (i) the name of each Stockholder, (ii) the maximum
number of shares of Acquiror Common Stock issuable to such Stockholder pursuant
to Section 1.5(a), and (iii) that the approval of these issuances, subject to
reduction as provided in Section 1.5(a), is granted for purposes of exempting
such issuances under Rule 16b-3.
(c) Prior to each of the First FFYE Tranche Payment Date, the Second FFYE
Tranche Payment Date and the Third FFYE Tranche Payment Date, the Acquiror Board
shall adopt a resolution approving the issuance to Messrs. Garfinkle and Miller
of the actual number of shares of Acquiror Common Stock required under Sections
1.5(a)(i), 1.5(a)(ii) and 1.5(a)(iii), respectively. Such resolution shall
specify (i) the name of each Stockholder, (ii) the number of shares of Acquiror
Common Stock to be issued to such Stockholder on the applicable Tranche Payment
Date and (iii) that the approval of these issuances is granted for purposes of
exempting such issuances under Rule 16b-3.
(d) Prior to the Second FFYE Tranche Payment Date, the Acquiror Board shall
adopt a resolution approving the issuance to Messrs. Garfinkle and Miller of the
maximum number of shares of Acquiror Common Stock as determined pursuant to
Section 1.5(b), subject to reduction as provided in Section 1.5(b). Such
resolution shall specify (i) the name of each Stockholder, (ii) the maximum
number of shares of Acquiror Common Stock issuable to such Stockholder pursuant
to Section 1.5(b), and (iii) that the approval of these issuances, subject to
reduction as provided in Section 1.5(b), is granted for purposes of exempting
such issuances under Rule 16b-3.
(e) Prior to each of the First SFYE Tranche Payment Date, the Second SFYE
Tranche Payment Date and the Third SFYE Tranche Payment Date, the Acquiror Board
shall adopt a resolution approving the issuance to Messrs. Garfinkle and Miller
of the actual number of shares of Acquiror Common Stock required under Sections
1.5(b)(i), 1.5(b)(ii) and 1.5(b)(iii), respectively. Such resolution shall
specify (i) the name of each Stockholder, the number of shares of Acquiror
Common Stock to be issued to such Stockholder on the applicable Tranche Payment
Date, and (iii) that the approval of these issuances is granted for purposes of
exempting such issuances under Rule 16b-3.
(f) Prior to the delivery of the Price Performance Shares,
the Acquiror Board shall adopt a resolution approving the issuance to Messrs.
Garfinkle and Miller of the actual number of shares of Acquiror Common Stock
required under Section 1.6. Such resolution shall specify (i) the name of each
Stockholder, (ii) the number of shares of Acquiror Common Stock to be issued to
such Stockholder under Section 1.6 and (iii) that the approval of these
issuances is granted for purposes of exempting such issuances under Rule 16b-3.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF the Company
Each of the Company and the Stockholders represents and warrants to Acquiror as
follows:
SECTION 2.1. Organization and Qualification; Subsidiaries.
The Company and each Subsidiary of the Company (each, a "Company Subsidiary" and
collectively, the "Company Subsidiaries") is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization. The Company and each Company Subsidiary has the requisite power
and authority to own, lease and operate its business as it is now being
conducted and to perform the terms of this Agreement and the transactions
contemplated hereby. The Company and each Company Subsidiary is duly qualified
to conduct its business, and is in good standing, in Delaware, Virginia and the
District of Columbia, as applicable, and each other jurisdiction in which the
ownership or leasing of its Assets or the nature of its activities in connection
with the conduct of its business makes such qualification necessary except for
such failure which would not have a Company Material Adverse Effect. The Company
has no Subsidiaries or any equity interest or other investment in any entity
other than those listed on Schedule 2.1.
SECTION 2.2. Articles of Incorporation and Bylaws.
The Company has heretofore delivered or made available to Acquiror a complete
and correct copy of the articles of incorporation, bylaws, operating agreement
or other organizational documents of the Company and each Company Subsidiary,
each as amended to date. Each such certificate of incorporation, bylaws,
operating agreement or other organizational documents is in full force and
effect. The Company is not in violation of any of the provisions of its
respective certificate of incorporation or bylaws. None of the Company
Subsidiaries is in material violation of any of the provisions of its respective
certificate of incorporation, bylaws, operating agreement or other
organizational document.
SECTION 2.3. Capitalization.
(a) As of the date hereof, the authorized capital stock of the Company
consists of Ten Thousand (10,000) shares of Company Common Stock, of which One
Thousand (1,000) shares are issued and outstanding. All of the outstanding
shares of capital stock of the Company are owned beneficially and of record as
set forth in Schedule 2.3(a). There are no options, warrants or other rights,
agreements, arrangements or commitments of any character relating to the issued
or unissued capital stock of the Company or obligating the Company to issue or
sell any shares of capital stock of, or other equity interests in, the Company,
including any securities directly or indirectly convertible into or exercisable
or exchangeable for any capital stock or other equity securities of the Company.
Except as set forth in Schedule 2.3(a), there are no outstanding obligations of
the Company to repurchase, redeem or otherwise acquire any shares of its capital
stock or make any investment (in the form of a loan, capital contribution or
otherwise) in any other person. All of the issued and outstanding shares of
Company Common Stock have been duly authorized and validly issued in accordance
with applicable laws and are fully paid and nonassessable and not subject to
preemptive rights. Except as set forth in Schedule 2.3(a), no shares of capital
stock of the Company have been reserved for any purpose.
(b) All of the outstanding shares of capital stock of each Company
Subsidiary are (i) duly authorized and validly issued in accordance with
applicable laws and are fully paid and nonassessable and not subject to
preemptive rights, and (ii) owned beneficially and of record as set forth in
Schedule 2.3(b), free and clear of all Encumbrances. There are no options,
warrants or other rights, agreements, arrangements or commitments of any
character relating to the issued or unissued capital stock of the Company
Subsidiaries or obligating the Company Subsidiaries to issue or sell any shares
of capital stock of, or other equity interests in the Company Subsidiaries,
including any securities directly or indirectly convertible into or exercisable
or exchangeable for any capital stock or other equity securities of the Company
Subsidiaries. Except as set forth in Schedule 2.3(b), there are no outstanding
obligations of the Company Subsidiaries to repurchase, redeem or otherwise
acquire any shares of its capital stock or make any investment (in the form of a
loan, capital contribution or otherwise) in any other person.
SECTION 2.4. Authority.
The Company has the necessary corporate power and authority to enter into this
Agreement and the Related Agreements to which the Company is a party and to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Related Agreements by the Company and the consummation by the
Company of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action and no other corporate proceedings
on the part of the Company are necessary to authorize this Agreement and the
Related Agreements to which the Company is a party or to consummate the
transactions contemplated hereby and thereby. This Agreement and the Related
Agreements to which the Company is a party have been duly executed and delivered
by the Company and, assuming the due authorization, execution and delivery by
Acquiror, constitute legal, valid and binding obligations of the Company,
enforceable in accordance with their terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and other similar
laws of general applicability relating to or affecting creditors' rights
generally and by the application of general principles of equity.
SECTION 2.5. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement and the Related
Agreements to which the Company is a party by the Company do not, and the
performance by the Company of its obligations under this Agreement and the
Related Agreements to which the Company is a party will not, (i) conflict with
or violate the certificate of incorporation, bylaws, operating agreement or
other organizational document of the Company or any Company Subsidiary, (ii)
conflict with or violate any Laws applicable to the Company or any Company
Subsidiary or to their respective Assets, or (iii) result in any breach of or
constitute a material default (or an event which with notice or lapse of time or
both would become a default) under any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company or any Company Subsidiary is a party or by which
the Company or any Company Subsidiary is bound or to which any of their
respective Assets is subject.
(b) Except as set forth in Schedule 2.5, the Company's execution and
delivery of this Agreement and the Related Agreements to which the Company is a
party does not, and the Company's performance of this Agreement and the Related
Agreements to which the Company is a party will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
third party or any court, arbitral tribunal, administrative agency or
commission, whether national or foreign, or Government Entity.
SECTION 2.6. Financial Statements; No Liabilities.
The Company has furnished to Acquiror the audited balance
sheet of the Company as of January 31, 1999 (the "Balance Sheet"). Except as
reflected in the Balance Sheet (or disclosed in the notes thereto) and except
for liabilities incurred in the ordinary course of business consistent with past
practices of the consulting unit of the Company, there exist no liabilities
(whether contingent or absolute, matured or unmatured, known or unknown) of the
Company.
SECTION 2.7. Accounts Receivable.
The accounts receivable of the Company shown on the Balance
Sheet have been collected or are collectible in amounts not less than the
amounts thereof carried on the books of the Company, except to the extent of the
allowance for doubtful accounts shown on such Balance Sheet. The accounts
receivable of the Company shown on the balance sheet prepared as of the
Accounting Date and certified by certified public accountants as provided by
Section 6.11 have been collected or are collectible in amounts not less than the
amounts thereof carried on the books of the Company, except to the extent of the
allowance for doubtful accounts shown on such balance sheet.
SECTION 2.8. Absence of Certain Changes or Events.
Except as set forth in Schedule 2.8 and except as otherwise
disclosed in the Balance Sheet, since the Balance Sheet Date, there has been no
Company Material Adverse Effect. Except as set forth in Schedule 2.8, since the
Balance Sheet Date, the Company and the Company Subsidiaries have conducted
their business in the ordinary course, and the Company and the Company
Subsidiaries have not (a) paid any dividend or distribution in respect of, or
redeemed or repurchased any of, its capital stock; (b) issued any capital stock,
bonds or other corporate securities or debt instruments, granted any options,
warrants or other rights calling for the issuance thereof, or borrowed any
funds; (c) incurred loss of, or significant injury to, any of their respective
Assets as the result of any fire, explosion, flood, windstorm, earthquake, labor
trouble, riot, accident, act of God or public enemy or armed forces, or other
casualty except losses or injuries resulting in less than $25,000 worth of
damage to such Assets; (d) incurred, or become subject to, any obligation or
liability (absolute or contingent, matured or unmatured, known or unknown),
except liabilities incurred in the ordinary course of business of less than
$25,000 in the aggregate; (e) mortgaged, pledged or subjected to any Encumbrance
any of their respective Assets; (f) sold, exchanged, transferred or otherwise
disposed of any of their respective Assets except in the ordinary course of
business or canceled any debts or claims; (g) written down the value of any of
their respective Assets or written off as uncollectible any accounts receivable,
except write downs and write-offs in the ordinary course of business, none of
which, individually or in the aggregate, had a Company Material Adverse Effect;
(h) entered into any transactions other than in the ordinary course of business
except as contemplated by this Agreement; (i) made any change in any method of
accounting or accounting practice; (j) made any agreement to do anything
prohibited by the foregoing; or (k) record a reserve for Losses relating
directly or indirectly to the matters set forth in Schedule 2.15.
SECTION 2.9. Assets.
Except as set forth in Schedule 2.9, each of the Company and the Company
Subsidiaries is the sole and exclusive legal and equitable owner of and has good
and marketable title to the Assets that are owned by the Company and the Company
Subsidiaries, as applicable, and, such Assets of the Company and the Company
Subsidiaries are free and clear of all Encumbrances. No person or Government
Entity has an option to purchase, right of first refusal or other similar right
with respect to all or any part of these Assets.
SECTION 2.10. Leases.
Schedule 2.10 lists and describes all leases and other
agreements under which the Company or any Company Subsidiary is lessee or lessor
of any Asset, or holds, manages or operates any Asset owned by any third party,
or under which any Asset owned by the Company or any Company Subsidiary is held,
operated or managed by a third party. Each such lease and other agreement is in
full force and effect and constitutes a legal, valid and binding obligation of,
and is legally enforceable against, the Company or the Company Subsidiary which
is a party thereto and, to the knowledge of the Company, the other party or
respective parties thereto and, if a lease, grants the leasehold estate it
purports to grant free and clear of all Encumbrances. All necessary governmental
approvals with respect thereto required to be obtained by the Company or any
Company Subsidiary, as applicable, have been obtained, all necessary filings or
registrations therefor required to be made by the Company or any Company
Subsidiary, as applicable, have been made, and to the knowledge of the Company,
there have been no threatened cancellations thereof and no outstanding material
disputes thereunder. The Company and the Company Subsidiaries have performed in
all material respects all obligations thereunder required to be performed by the
Company and the Company Subsidiaries to date. To the knowledge of the Company,
no party is in default in any material respect under any of the foregoing, and
there has not occurred any event which (whether with or without notice, lapse of
time or the happening or occurrence of any other event) would constitute such a
default.
SECTION 2.11. Material Contracts.
(a) Schedule 2.11 sets forth a complete and correct list, as of the
date of this Agreement, of all agreements of the following type to which the
Company or any Company Subsidiary is a party or may be bound (collectively, the
"Material Contracts"): (i) material contracts; (ii) employment, severance,
termination, consulting and retirement agreements; (iii) license agreements or
distributor, dealer, manufacturer's representative, sales agency, advertising,
property management or brokerage agreements; (iv) agreements with any labor
organization or other collective bargaining unit; (v) agreements for the future
purchase of materials, supplies, services, merchandise or equipment involving
payments of more than $5,000 individually (or $25,000 in the aggregate for all
such agreements involving more than $5,000) except for travel services and
except for purchases on behalf of clients over its remaining term (including,
without limitation, periods covered by any option to renew by either party);
(vi) agreements for the purchase, sale or lease of any real estate or other
Assets; (vii) profit-sharing, bonus, incentive compensation, deferred
compensation, stock option, severance pay, stock purchase, employee benefit,
insurance, hospitalization, pension, retirement or other similar plans or
agreements; (viii) agreements for the sale of Assets other than in the ordinary
course of business or the grant of any preferential rights to purchase Assets;
(ix) agreements which contain provisions requiring the Company or any Company
Subsidiary to indemnify any person; (x) joint venture agreements or other
agreements involving the sharing of profits; (xi) outstanding loans to any
persons or entities or receivables due from any Stockholders or any
Stockholders' Subsidiaries or any affiliates of the Company or the Company
Subsidiaries; (xii) agreements (including, without limitation, agreements not to
compete and exclusivity agreements) that reasonably could be interpreted to
impose any restriction on any business operations of the Company or the Company
Subsidiaries; or (xiii) other material agreement which by its terms does not
terminate or is not terminable by the Company or any Company Subsidiary within
thirty (30) days or upon thirty (30) days (or less) notice.
(b) All the Material Contracts are valid and in full force and effect
on the date hereof (except to the extent they have previously expired or
terminated in accordance with their terms) and constitute legal, valid and
binding obligations of, and are legally enforceable against, the Company or the
Company Subsidiary which is a party thereto, and to the knowledge of the
Company, the other party or respective parties thereto. All necessary
governmental approvals with respect thereto required to be obtained by the
Company or any Company Subsidiary, as applicable, have been obtained, all
necessary filings or registrations therefor required to be made by the Company
or any Company Subsidiary, as applicable, have been made, and, to the knowledge
of the Company, there have been no threatened cancellations thereof and no
outstanding disputes thereunder. Each of the Company and the Company
Subsidiaries has in all material respects performed all the obligations
thereunder required to be performed by the Company and the Company Subsidiaries
to date. The Company and the Company Subsidiaries are not in default and to the
knowledge of the Company, no other party is in default in any material respect
under any of the Material Contracts, and there has not occurred any event which
(whether with or without notice, lapse of time or the happening or occurrence of
any other event) would constitute such a default. True and complete copies of
all Material Contracts have been delivered to Acquiror or made available for
inspection.
SECTION 2.12. Real Property.
Schedule 2.12 contains a list and brief description of all
leasehold interests in real estate, easements, rights to access, rights-of-way
and other real property interests which are owned, leased, used or held for use
by the Company and the Company Subsidiaries (collectively, the "Real Property").
None of the Company or the Company Subsidiaries holds any fee simple interest in
any real estate. The Real Property described in Schedule 2.12 constitutes all
real property interests necessary to conduct the business and operations of the
Company and the Company Subsidiaries as now conducted and is suitable and
adequate for the uses for which it is currently devoted.
SECTION 2.13. Government Contracts.
(a) Schedule 2.13(a) sets forth a listing, as of the date of this
Agreement, of (i) each Government Contract to which the Company or any Company
Subsidiary is or has been a party during the past three (3) years; (ii) all
outstanding offers which if accepted would constitute a contract submitted by
the Company or any Company Subsidiary to either the Government or any proposed
prime contractor of the Government; and (iii) all Government Contracts
(including options) on which delivery or performance is currently in an
unsatisfactory or delinquent status, behind schedule or which the Company or any
Company Subsidiary knows or has reason to know, after reasonable investigation,
will be performed unsatisfactorily or behind schedule or will become delinquent
in the future. Each of the Company and the Company Subsidiaries has provided a
complete and correct copy of each Government Contract listed in Schedule 2.13(a)
to Acquiror. Schedule 2.13(a) also sets forth (i) all outstanding or pending
change orders, claims and requests for equitable adjustments relating to such
Government Contracts, (ii) all outstanding or pending subcontractor, supplier
and vendor claims for the Government Contracts, and (iii) all current teaming
agreements, joint venture arrangements and agency agreements relating to the
Government Contracts (copies of which have been provided to Acquiror). All
financing arrangements, if any, with respect to the performance of any current
Government Contract have been disclosed. Each of the Company and the Company
Subsidiaries possesses all necessary security clearances and permits for the
execution of its obligations under each Government Contract to which it is
currently a party. None of the Company or the Company Subsidiaries has ever been
denied a security clearance.
(b) None of the Company or the Company Subsidiaries has ever been
debarred or suspended from contracting (as a prime contractor or subcontractor
at any tier) for or bidding on any Government Contract or, at any time during
the past three (3) years, had a Government Contract canceled or terminated, in
whole or in part, by reason of a default or alleged default on the part of the
Company or any Company Subsidiary. None of the Company or the Company
Subsidiaries is currently debarred or suspended from (nor has it received
written notice that it is under investigation with respect to a possible
debarment or suspension from) bidding on or entering into any Government
Contract. With respect to any Government Contract in effect as of the date of
this Agreement, none of the Company or the Company Subsidiaries has received
written notice (i) that any such Government Contract may be or will be
terminated for convenience or by reason of a default or alleged default by the
Company or any Company Subsidiary, (ii) that funding for any such Government
Contract or governmental program involving the Company or any Company Subsidiary
will be eliminated or substantially reduced or suspended, (iii) requiring or
resulting in loss of use or substantial impairment or interference of use by the
Company or any Company Subsidiary of any facilities owned by a governmental
authority, or (iv) that any relevant budget authority or contract authority has
been exceeded with respect to any such Government Contract to which the Company
or any Company Subsidiary is a party. None of the Company or the Company
Subsidiaries anticipates that it will incur any cost overrun with respect to any
Government Contract to which it is a party that would have a Company Material
Adverse Effect.
(c) To the Company's knowledge, there are no facts or issues that could
reasonably be expected to result in any of the following in the event an audit
of the Government Contracts of the Company or any Company Subsidiary is
conducted by the Defense Contract Audit Agency: (i) the suspension or debarment
of the Company or any Company Subsidiary from bidding on or entering into any
Government Contract, (ii) the termination for default of any Government Contract
to which the Company or any Company Subsidiary is a party or under which the
Company is providing goods or services, or (iii) except as reserved for in the
Balance Sheet, any assertion or claim of material liability against the Company
or any Company Subsidiary for an equitable adjustment, price reduction,
liquidated damages or monetary penalty, or damages under the terms of such
Government Contract or based on a default or alleged default by the Company or
other malfeasance or alleged malfeasance by the Company or any Company
Subsidiary arising out of or relating to the performance or failure to perform
by the Company or any Company Subsidiary thereunder.
SECTION 2.14. Environmental Matters.
(a) Each of the Company and the Company Subsidiaries has complied in
all material respects and is in material compliance with all Environmental Laws
(as defined below). There are no pending or, to the knowledge of the Company and
the Company Subsidiaries, threatened actions, suits, claims, legal proceedings
or other proceedings based on, and none of the Company and the Company
Subsidiaries has directly or indirectly received any notice of any complaint,
order, directive, citation, notice of responsibility, notice of potential
responsibility, or information request from any Government Entity or any other
person arising out of or attributable to: (i) the current or past presence at
any part of the Real Property of Hazardous Materials (as defined below) or any
substances that pose a hazard to human health or an impediment to working
conditions; (ii) the current or past release or threatened release into the
environment from the Real Property (including, without limitation, into any
storm drain, sewer, septic system or publicly owned treatment works) of any
Hazardous Materials or any substances that pose a hazard to human health or an
impediment to working conditions; (iii) the off-site disposal of Hazardous
Materials originating on or from the Real Property; or (iv) any violation of
Environmental Laws at any part of the Real Property or otherwise arising from
the Company's activities involving Hazardous Materials.
(b) None of the Company or any Company Subsidiaries has been issued any
permits, licenses, certificates and approvals required to be maintained by the
Company under any Environmental Law with respect to the use or ownership of the
Real Property by the Company and the Company Subsidiaries. There has been no
discharge of any Hazardous Materials or any other material regulated by any
permits, licenses, certificates or approvals required to be maintained by the
Company under any Environmental Law.
(c) There is no material Environmental Claim (as defined below) pending
or, to the knowledge of the Company, threatened against or involving the Company
or any Company Subsidiary or against any person or entity whose liability for
any material Environmental Claim the Company or any Company Subsidiary has or
may have retained or assumed either contractually or by operation of law.
(d) To the knowledge of the Company, there are no past or present
actions or activities by the Company or any Company Subsidiary including the
storage, treatment, release, emission, discharge, disposal or arrangement for
disposal of any Hazardous Materials, that could reasonably form the basis of any
Environmental Claim against the Company or any Company Subsidiary or against any
person or entity whose liability for any Environmental Claim the Company or any
Company Subsidiary may have retained or assumed either contractually or by
operation of law.
(e) To the knowledge of the Company, none of the Real Property contains
any underground storage tanks, or underground piping associated with such tanks,
used currently or in the past for Hazardous Materials.
(f) As used herein, these terms shall have the following meanings:
(i) "Environmental Claim" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, liens, investigations, proceedings or notices of noncompliance or
violation (written or oral) by any person or governmental authority alleging
potential liability arising out of, based on or resulting from the presence, or
release or threatened release into the environment, of any Hazardous Materials
at any location owned or leased by the Company or other circumstances forming
the basis of any violation or alleged violation of any Environmental Law.
(ii) "Environmental Laws" means all applicable foreign,
federal, state and local laws (including the common law), rules, requirements
and regulations relating to pollution, the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata) or protection of human health as it relates to the environment
including, without limitation, laws and regulations relating to releases of
Hazardous Materials, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials or relating to management of asbestos in buildings.
(iii) "Hazardous Materials" means wastes, substances, or
materials (whether solids, liquids or gases) that are deemed hazardous, toxic,
pollutants, or contaminants, including without limitation, substances defined as
"hazardous substances", "toxic substances", "radioactive materials", or other
similar designations in, or otherwise subject to regulation under, any
Environmental Laws.
SECTION 2.15. Absence of Litigation.
Except as set forth in Schedule 2.15, there are (a) no
actions, suits, claims, arbitrations, proceedings or investigations pending, or,
to the Company's knowledge, threatened or reasonably anticipated against,
affecting or involving the Company or any of the Company Subsidiaries or their
respective businesses or Assets, or the transactions contemplated by this
Agreement, at law or in equity or admiralty, or before or by any court,
administrative, governmental, arbitral, mediation or regulatory authority or
body, domestic or foreign, and (b) no judgments, decrees, injunctions or orders
of any Government Entity or arbitrator outstanding against the Company or any of
the Company Subsidiaries or any of their respective businesses or Assets.
Neither the Company or any of the Company Subsidiaries is operating under,
subject to or in default with respect to any order, award, writ, injunction,
decree or judgment of any court, arbitrator or governmental authority.
SECTION 2.16. Intellectual Property.
Schedule 2.16 lists all franchises, patents, patent
qualifications, trademarks, service marks, trade names, trade styles, brands,
private labels, copyrights, know how, computer software, industrial designs and
drawings, and general intangibles of a like nature, trade secrets, licenses and
rights and filings with respect to the foregoing (including all reissues,
extensions and renewals thereof) (the "Intellectual Property"), and applications
therefor owned or licensed by or registered in the name of the Company and the
Company Subsidiaries. Except as set forth in Schedule 2.16, the Company and the
Company Subsidiaries own all of the Intellectual Property listed that is
purported to be owned by the Company and the Company Subsidiaries, pays no
royalty to anyone with respect to any Intellectual Property, and has the right
to bring action for the infringement of such Intellectual Property purported to
be owned by the Company and the Company Subsidiaries. Each of the Company and
the Company Subsidiaries owns or possesses adequate rights to use all
Intellectual Property necessary to the conduct of the present business of the
Company and the Company Subsidiaries. None of the Company or the Company
Subsidiaries has any knowledge that any product it sells or service it renders,
or that the marketing or use by the Company and the Company Subsidiaries of such
product or service, may or is claimed to infringe any Intellectual Property or
legally protectable right of another.
SECTION 2.17. Payments or Loans to Stockholder Since Balance Sheet Date.
Since the Balance Sheet Date through the Closing Date, the
Company has not made any payments or loans to or for the benefit of Stockholders
other than (a) reimbursement by the Company of out-of-pocket travel and
entertainment expenses, (b) repayment by the Company of bona fide loans and
advances from such Stockholders in an aggregate amount which is less than
$290,293, (c) a one time loan prior to the Closing Date to a Stockholder that is
not more than $50,000 and which shall be repayable not later than August 31,
2001 (such loan shall bear interest, payable monthly, at a rate not less than
six percent (6%) per annum, shall provide for setoff against payments otherwise
due from the Company or Acquiror to the borrowing Stockholder if such loan is
not repaid when due and shall be evidenced by a promissory note), (d) the grant
of an option to the Stockholders with respect to an undivided interest in the
Company's interest for the Budget Rent-a-Car franchise for China ("BRC China"),
(e) the assignment of certain doubtful receivables set forth on Schedule 2.17
(the "A/R Assignment"), provided, however, that the A/R Assignment shall be
limited and only include accounts receivable relating to time and expense
incurred prior to February 1, 1999 and be subject to the rights of Legal Corp.
(as defined in the Spinoff Agreement) and (f) payment by the Company of such
Stockholders' salaries at "pre-existing levels"; provided, however that for the
period from July 1, 1999 to August 1, 1999, the aggregate salaries paid to the
Stockholders shall not be less than the pro rata portion in relation to their
salaries of Two Million One Hundred Thousand Dollars ($2,100,000) per year. The
term "pre-existing levels" shall be calculated on a Stockholder by Stockholder
basis as of January 31, 1999 and refer to all amounts (exclusive of expense
reimbursement, loan and advance repayment, and fees and expenses of the Exchange
described above) paid to or for the benefit of the Stockholders, after January
31, 1999 and prior to the date hereof, in an amount not to exceed the product of
the Annual Compensation Level shown on Schedule 5.2 and number of days elapsed
after January 31, 1999 (inclusive of the Closing Date) divided by 365 days.
SECTION 2.18. Taxes and Assessments.
Each of the Company and the Company Subsidiaries has (i) duly
and timely paid all Taxes (as defined below) which have become due and payable
by it; (ii) none of the Company or the Company Subsidiaries has received notice
of, nor do the Company and the Company Subsidiaries have any knowledge of, any
notice of deficiency or assessment or proposed deficiency or assessment from any
taxing Government Entity; and (iii) to the Company and the Company Subsidiaries'
knowledge, there are no audits pending and there are no outstanding agreements
or waivers by the Company or any Company Subsidiary that extend the statutory
period of limitations applicable to any federal, state, local, or foreign tax
returns or Taxes.
SECTION 2.19. Employment Matters.
(a) Schedule 2.19 contains a true and complete list of names, positions
and annual rates of compensation (including bonuses) of all current directors,
officers and employees of the Company and the Company Subsidiaries. With respect
to any persons employed by the Company and the Company Subsidiaries, the Company
and the Company Subsidiaries are in compliance in all material respects with all
Laws respecting employment conditions and practices, have withheld all amounts
required by any applicable Laws to be withheld from wages or any Taxes or
penalties for failure to comply with any of the foregoing.
(b) There are no collective bargaining agreements applicable to any
Company or any Company Subsidiary employees and none of the Company or the
Company Subsidiaries has a duty to bargain with any labor organization with
respect to any such persons. There is not pending any demand for recognition or
any other request or demand from a labor organization for representative status
with respect to any persons employed by the Company and the Company
Subsidiaries.
(c) Except as provided in Schedule 2.19, with respect to any persons
employed by the Company and the Company Subsidiaries, (i) to the knowledge of
the Company, each of the Company and the Company Subsidiaries has not engaged in
any unfair labor practice within the meaning of the National Labor Relations Act
and has not violated any legal requirement prohibiting discrimination on the
basis of race, color, national origin, sex, religion, age, marital status, or
handicap in its employment conditions or practices; and (ii) there are no
pending or, to the knowledge of the Company or the Company Subsidiaries,
threatened unfair labor practice charges or discrimination complaints relating
to race, color, national origin, sex, religion, age, marital status, or handicap
against the Company or the Company Subsidiaries before any Government Entity
nor, to the knowledge of the Company and the Company Subsidiaries, does any
basis therefor exist.
SECTION 2.20. Employee Benefit Plans.
(a) Schedule 2.20 sets forth a list of all of the pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, sabbatical, vacation, bonus, loans, medical, dental, vision care,
disability, life insurance or other employee programs, arrangements or
agreements and all other material employee benefit plans or fringe benefit
plans, including, without limitation, all "employee benefit plans" as that term
is defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), currently adopted, maintained by, sponsored in whole
or in part by, or contributed to by the Company or any Company Subsidiary or for
which the Company could incur a liability or any entity required to be
aggregated with the Company (each, a "Commonly Controlled Entity") pursuant to
Section 414 of the Code for the benefit of present and former employees or
directors of the Company and of each Company Subsidiary or their beneficiaries,
or providing benefits to such persons in respect of services provided to any
such entity (collectively, the "Benefit Plans"). Any of the Benefit Plans which
is an "employee pension benefit plan", as that term is defined in Section 3(2)
of ERISA, is referred to herein as an "ERISA Plan".
(b) Each of the Benefit Plans intended to be "qualified" within the
meaning of Section 401(a) or 501 of the Code has been determined by the Internal
Revenue Service to be so qualified and to the Company's knowledge, no
circumstances exist that could reasonably be expected by the Company to result
in the revocation of any such determination. Each of the Benefit Plans is in
compliance with their terms and the applicable terms of ERISA and the Code and
any other applicable laws, rules and regulations the breach or violation of
which could result in a material liability to the Company or any Commonly
Controlled Entity.
(c) No ERISA Plan which is a defined benefit pension plan has any
"unfunded current liability", as that term is defined in Section 302(d)(8)(A) of
ERISA, and the present fair market value of the assets of any such plan equals
or exceeds the plan's "benefit liabilities", as that term is defined in Section
4001(a)(16) of ERISA, when determined under actuarial factors that would apply
if the plan terminated in accordance with all applicable legal requirements. All
contributions, premiums and other payments with respect to each ERISA Plan which
have become due and payable have been paid.
(d) No Benefit Plan is or has been a multiemployer plan within the
meaning of Section 3(37) of ERISA (a "Multiemployer Plan"). Neither the Company
nor any Commonly Controlled Entity has completely or partially withdrawn from
any Multiemployer Plan. No termination liability to the Pension Benefit Guaranty
Corporation or withdrawal liability to any Multiemployer Plan that is material
in the aggregate has been or is reasonably expected to be incurred with respect
to any Multiemployer Plan by the Company or any Commonly Controlled Entity.
(e) The Company has made available to Acquiror complete copies, as of
the date hereof, of all of the Benefit Plans that have been reduced to writing,
together with all documents establishing or constituting any related trust,
annuity contract, insurance contract or other funding instrument. The Company
has made available to Acquiror complete copies of current plan summaries,
employee booklets, personnel manuals and other material documents or written
materials concerning the Benefit Plans that are in the possession of the Company
as of the date hereof.
(f) No claim, lawsuit, arbitration or other action has been threatened
or instituted against any Benefit Plan.
(g) Except as set forth in Schedule 2.20 or as otherwise contemplated
by the terms of this Agreement, the consummation of the transactions
contemplated by this Agreement will not give rise to any liability, including,
without limitation, liability for severance pay or termination pay, or
accelerate the time of payment or vesting or increase the amount of compensation
or benefits due to any employee, director or Stockholder (whether current,
former, or retired) or their beneficiaries solely by reason of such
transactions. No amounts payable under any Benefit Plan will fail to be
deductible for federal income tax purposes by virtue of Section 280G or 162(m)
of the Code.
(h) Neither the Company nor any Company Subsidiary maintains,
contributes to, or in any way provides for any benefits of any kind (other than
under Section 4980B of the Code, the Federal Social Security Act, or a plan
qualified under Section 401(a) of the Code) to any current or future retiree or
terminee.
(i) Neither the Company, any Company Subsidiary nor any Commonly
Controlled Entity has (or could incur) any liability under Title IV of ERISA.
SECTION 2.21. Transactions with Related Parties.
Except as set forth in Schedule 2.21, no present or former
officer, director, stockholder or person known by the Company to be an affiliate
of the Company or any Company Subsidiary, nor any person known by the Company or
any Company Subsidiary to be an affiliate of any such person, is currently a
party to any transaction or agreement with the Company or any Company
Subsidiary, including any agreement providing for any loans, the employment of,
furnishing of services by, rental of their respective Assets from or to, or
otherwise requiring payments to, any such officer, director, stockholder or
affiliate.
SECTION 2.22. Insurance.
Schedule 2.22 contains a list of all insurance policies of
title, property, fire, casualty, liability, life, workmen's compensation, libel
and slander, and other forms of insurance of any kind relating to the Assets or
the business and operations of the Company and the Company Subsidiaries, copies
of which have been made available to Acquiror. All premiums with respect to such
policies covering all periods up to and including the date hereof have been
paid, and no notice of cancellation or termination has been received with
respect to any such policy. All such policies: (a) are in full force and effect;
(b) are sufficient for compliance by the Company and the Company Subsidiaries
with all requirements of applicable Law and of all licenses, franchises and
other agreements to which the Company and the Company Subsidiaries are a party;
and (c) are valid, outstanding, and enforceable policies. Except as set forth in
Schedule 2.22, there are no pending claims under any insurance policies and the
Company has no facts in the Company's possession which would lead the Company to
believe that the Company will receive a claim under any insurance policies.
SECTION 2.23. Board Approval.
The Board of Directors of the Company has determined that the
transactions contemplated by this Agreement are in the best interests of the
Company and the Stockholders and has resolved to recommend the Exchange to such
Stockholders.
SECTION 2.24. Brokers.
No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
SECTION 2.25. Third-Party Liability.
The Company represents and warrants that Acquiror shall not
incur any liability to any third party as a result of the consummation of the
Exchange with whom the Company or its agents have had discussions regarding the
disposition of the Company's Assets and business.
SECTION 2.26. Spinoff Agreement.
Except as set forth in Schedule 2.26, neither the Company, nor
to the knowledge of the Company or any Stockholder, any other party to the
Spinoff Agreement is in breach of, or has defaulted under, any of the terms of
the Spinoff Agreement. The Company has not waived any of the Company's rights
under the Spinoff Agreement. Other than as set forth in Schedule 2.26, there are
no actions, suits, claims, arbitrations, proceedings or investigations pending,
threatened or reasonably anticipated with respect to the rights, obligations or
liabilities of any party under the Spinoff Agreement.
SECTION 2.27. Foreign Corrupt Practices Act.
Each of the Company and the Company Subsidiaries represents
and warrants that (a) it is aware of the prohibitions imposed by the U.S.
Foreign Corrupt Practices Act or other similar laws in the jurisdictions in
which the Company and the Company Subsidiaries conduct their respective
businesses (collectively, "FCPA") and (b) neither the Company nor the Company
Subsidiaries, including their respective officers, directors, employees,
representatives, consultants, agents and stockholders, has offered to pay, paid
or promised to pay money or give anything of value, directly or indirectly, to
any foreign government official or authority of any kind or in order to secure
or retain business for the Company or any of the Company Subsidiaries except as
permitted by Laws, and neither the Company nor the Company Subsidiaries have
otherwise committed any violation of the FCPA and have taken all steps
reasonably required to ensure that no such offers, payments or promises to pay
or to give anything of value have been made by any agents, representatives,
consultants, venture partners or any other third persons in a manner that might
cause the Company or any of the Company Subsidiaries to have committed a
violation of the FCPA.
SECTION 2.28. Disclosure.
No representations or warranties by the Company in this
Agreement and no statement or information contained in the Schedules hereto
relating to the Company and the Stockholders, in any certificate furnished or to
be furnished by the Company to Acquiror pursuant to the provisions of this
Agreement provided or to be provided by the Stockholders in connection with the
transactions contemplated by this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary, in light of the circumstances under which it was made, in order to
make the statements herein or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
In addition to the representations and warranties made by the
Stockholders in Article III hereof, each Stockholder hereby severally and not
jointly represents and warrants to Acquiror as follows:
SECTION 3.1. Authority and Capacity.
Such Stockholder has full legal right, capacity, power and
authority necessary to execute and deliver this Agreement and all other Related
Agreements, to perform the obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. This Agreement and
the Related Agreements have been duly executed and delivered by such Stockholder
and, assuming due authorization, execution and delivery by Acquiror and the
other parties hereto and thereto, constitute legal, valid and binding
obligations of such Stockholder, enforceable in accordance with their respective
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general applicability
relating to or affecting creditor's rights generally and by the applications of
general principles of equity.
SECTION 3.2. Absence of Violation.
The execution, delivery and performance by such Stockholder of
this Agreement and all other Related Agreements, the fulfillment of and the
compliance with the respective terms and provisions hereof and thereof, and the
consummation of the transactions contemplated hereby and thereby, do not and
will not (a) conflict with, or violate any provision of, any Laws applicable to
such Stockholder; or (b) conflict with, or result in any breach of, or
constitute a default under, any agreement to which such Stockholder is a party
or by which such Stockholder or such Stockholder's property is bound or
affected.
SECTION 3.3. Title to Capital Stock.
The shares of Company Common Stock reflected on Schedule
2.3(a) as being owned by such Stockholder are the only shares of voting stock
owned beneficially or of record by such Stockholder in the Company, and except
as set forth in Schedule 2.3(a), such Stockholder does not own any other
options, warrants or rights to acquire shares of any class of capital stock of
the Company. Such Stockholders own all of the issued and outstanding shares of
capital stock of the Company. Such Stockholder has the sole power respecting
voting and transfer of such Stockholder's shares. The shares of Company Common
Stock of such Stockholder are now, and at all times prior to the Effective Time
will be, owned as indicated on Schedule 2.3(a) by such Stockholder, free and
clear of all Encumbrances.
SECTION 3.4. Non-Registration of Securities; Purchase for Investment Only; Rule
144.
(a) The Exchange Stock and any shares of Acquiror Common Stock issued
to such Stockholder pursuant to Section 1.5(a) or Section 1.5(b) (collectively,
the "Earnout Stock") hereof, will be acquired for investment for such
Stockholder's own account, not as a nominee or agent, and not with a view to the
sale or distribution of any part thereof, and such Stockholder has no present
intention of selling, granting any participation in, or otherwise distributing
the same. Such Stockholder represents that the legal and beneficial interest of
the Exchange Stock and any Earnout Stock will be held for such Stockholder's
account only, and neither in whole or in part for any other person. Such
Stockholder further represents that such Stockholder has no present contract,
undertaking, agreement or arrangement with any person to sell, transfer, or
grant participation to such person or to any third person, with respect to any
of the Exchange Stock or any Earnout Stock . Notwithstanding the foregoing,
after the Closing Date, such Stockholder may sell, transfer, or grant
participation to such Stockholder's spouse or children or to a trust, in which
all the beneficial interests are owned by such Stockholder's spouse or children,
so long as such sale, transfer or grant is in compliance with the Securities Act
and the Exchange Act and applicable state securities Laws and the Acquiror's
policies regarding the transfer of Acquiror Common Stock which are generally
applicable.
(b) Such Stockholder understands and acknowledges that the offering of
the Exchange Stock or any Earnout Stock, pursuant to this Agreement, is being
conducted on the basis of an exemption from registration under the Securities
Act and that the Acquiror's reliance upon such exemption is predicated upon such
Stockholder's representations.
(c) Such Stockholder is familiar with the provisions of Rule 144,
promulgated under the Securities Act, which in substance, permits limited public
release of "restricted securities" acquired, directly or indirectly from the
issuer thereof (or from an affiliate of such issuer) in a non-public offering
subject to the satisfaction of certain conditions, including, among other
things: (i) a public trading market then exists for the Acquiror Common Stock;
(ii) the availability of certain public information about Acquiror; (iii) the
resale occurring not less than one (1) year after the party has purchased, and
made full payment for, within the meaning of Rule 144, the securities to be
sold; and (iv) the sale being made through a broker in an unsolicited "broker
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934 (the "Exchange Act")) and the
amount of securities being sold during any three (3)-month period not exceeding
the specified limitations stated therein, if applicable. Such Stockholder
further understands that at the time such Stockholder wishes to sell the
Exchange Stock or any Earnout Stock, there may be no public market upon which to
make such a sale, and that, even if such a public market then exists, Acquiror
may not be satisfying the current public information requirements of Rule 144,
and that, in such event, such Stockholder would be precluded from selling the
Exchange Stock or any Earnout Stock under Rule 144 even if the one (1) year
minimum holding period had been satisfied. The Stockholder further understands
that in the event all of the applicable requirements of Rule 144 are not
satisfied, registration under the Securities Act or compliance with a
registration exemption would be required to sell the Exchange Stock or any
Earnout Stock.
(d) Such Stockholder is an "accredited investor" as defined in Rule
501(a) of Regulation D promulgated under Section 4(2) of the Securities Act.
SECTION 3.5. Ability of Stockholder to Evaluate Investment and Bear Economic
Risk.
Such Stockholder further represents that such Stockholder: (a)
has such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of such Stockholder's prospective
investment in the Exchange Stock or any Earnout Stock and such Stockholder's
liabilities and obligations under this Agreement; (b) has received all of the
information he has requested from the Acquiror for deciding whether to accept
the Exchange Stock or any Earnout Stock; (c) has the ability to bear the
economic risks of such Stockholder's prospective investment; (d) is able,
without materially impairing his financial condition, to hold the Exchange Stock
or any Earnout Stock for an indefinite period of time and to suffer complete
loss on his investment; and (e) has been given sufficient time and opportunity
to seek the advice of counsel regarding such Stockholder's liabilities and
obligations hereunder.
SECTION 3.6. Governmental Authorization; Consents.
(a) The execution, delivery and performance by such Stockholder of this
Agreement require no action by or in respect of, or filing with, any
Governmental Entity.
(b) No consent, approval, waiver or other action by any person under
any contract, agreement, indenture, lease, instrument or other document to which
the Stockholder is a party or by which such Stockholder is bound is required for
the execution, delivery and performance of this Agreement by such Stockholder or
the consummation by such Stockholder of the transactions contemplated hereby.
SECTION 3.7. Waiver of Dissenter's Rights.
Such Stockholder, by executing this Agreement, approves the
Exchange and all other transactions contemplated by this Agreement. Such
Stockholder understands and acknowledges that such Stockholder shall not be
entitled to receive payment of the appraisal value of such shares of Company
Common Stock held by such Stockholder in accordance with the provisions of any
Laws.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror represents and warrants to the Company and the
Stockholders as follows:
SECTION 4.1. Organization and Qualification.
Acquiror is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Acquiror has the
requisite power and authority to own, lease and operate its Assets and
properties and to carry on its business as it is now being conducted and to
perform the terms of this Agreement and the transaction contemplated hereby.
Acquiror is duly qualified to conduct its business, and is in good standing, in
each jurisdiction where the ownership or leasing of its properties or the nature
of its activities in connection with the conduct of its business makes such
qualification necessary, except where the failure to be so qualified would not
have an Acquiror Material Adverse Effect.
SECTION 4.2. Certificate of Incorporation and Bylaws.
Acquiror has heretofore delivered to the Company a complete
and correct copy of the certificate of incorporation and the bylaws of Acquiror,
each as amended to date. Such certificate of incorporation and bylaws are in
full force and effect. Acquiror is not in violation of any of the provisions of
its certificate of incorporation or bylaws or other organizational or governing
document.
SECTION 4.3. Capitalization.
As of August 3, 1999, the authorized capital stock of Acquiror
consists of: (a) 50,000,000 shares of common stock, par value $.01 per share, of
which 16,514,577 shares are issued and outstanding as of the date hereof; and
(b) 5,000,000 shares of preferred stock, par value $.01 per share, of which no
shares are issued and outstanding. As of August 3, 1999, there are 2,788,674
shares of Acquiror Common Stock subject to options, warrants or other rights,
agreements, arrangements or commitments of any character relating to the issued
or unissued capital stock of Acquiror or obligating Acquiror to issue or sell
any shares of capital stock of, or other equity interests in Acquiror, including
any securities directly or indirectly convertible into or exercisable or
exchangeable for any capital stock or other equity securities of Acquiror.
Except as set forth in Schedule 4.3, there are no outstanding obligations of
Acquiror to repurchase, redeem or otherwise acquire any shares of Acquiror
Common Stock or make any investment (in the form of a loan, capital contribution
or otherwise) in any other person. All of the issued and outstanding shares of
Acquiror Common Stock have been duly authorized and validly issued in accordance
with applicable laws and are fully paid and nonassessable and not subject to
preemptive rights.
SECTION 4.4. Authority.
Acquiror has the necessary corporate power and authority to
enter into this Agreement and the Related Agreements, to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Related
Agreements by Acquiror and the consummation by Acquiror of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of Acquiror are
necessary to authorize this Agreement and the Related Agreements or to
consummate the transactions contemplated hereby and thereby. This Agreement and
the Related Agreements have been duly executed and delivered by Acquiror and,
assuming the due authorization, execution and delivery by the Company and the
Stockholders, constitute legal, valid and binding obligations of Acquiror,
enforceable in accordance with their terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and other similar
laws of general applicability relating to or affecting creditors' rights
generally and by the application of general principles of equity.
SECTION 4.5. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement and the Related
Agreements by Acquiror do not, and the performance by Acquiror of its
obligations under this Agreement and the Related Agreements will not, (i)
conflict with or violate the certificate of incorporation or bylaws of Acquiror,
(ii) conflict with or violate any Laws applicable to Acquiror or its Assets, or
(iii) result in any breach of or constitute a default under any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Acquiror is a party or by which Acquiror
is bound, or by which any of its Assets is subject.
(b) Acquiror's execution and delivery of this Agreement and the Related
Agreements to which Acquiror is a party does not, and Acquiror's performance of
this Agreement and the Related Agreements to which Acquiror is a party will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any third party or any court, arbitral tribunal, administrative
agency or commission, whether national or foreign, or Government Entity.
SECTION 4.6. SEC Filings; Financial Statements.
(a) Acquiror has filed all forms, reports, statements and other documents
required to be filed with the SEC since Acquiror's initial public offering in
July, 1997, and has heretofore made available to the Company, in the form filed
with the SEC since such date, together with any amendments thereto, its (i)
prospectus relating to its initial public offering in July 1997, (ii) its Annual
Reports on Form 10-K and Quarterly Reports on Form 10-Q, and (iii) any other
reports or registration statements filed by Acquiror (collectively, the
"Acquiror SEC Reports") with the SEC. As of their respective filing dates (and,
if amended or superseded, then on the date of such filing) the Acquiror SEC
Reports (i) complied as to form in all material respects with the requirements
of the Exchange Act and the Securities Act and (ii) did not at the time they
were filed (and, if amended or superseded, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(b) The consolidated financial statements of Acquiror included in the
Acquiror SEC Reports (i) comply as to form with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, (ii) have been prepared in accordance with GAAP (except, in the case of
unaudited financial statements, as permitted by Form 10-Q of the SEC) applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto), and (iii) fairly present the consolidated financial position
of the Acquiror as of the dates thereof and the results of its operations and
cash flows for the periods then ended (subject, in the case of unaudited
financial statements, to normal year-end adjustments which, individually and in
the aggregate, are not material). Except as set forth in the Acquiror SEC
Documents, Acquiror has no liabilities or obligations of any nature (whether
accrued, absolute, contingent, or otherwise) which individually or in the
aggregate would have an Acquiror Material Adverse Effect.
SECTION 4.7. Absence of Certain Changes or Events.
Except as disclosed in the Acquiror SEC Reports filed prior to
the date of this Agreement and except as set forth in Schedule 4.7, since
December 31, 1998, there has been no Acquiror Material Adverse Effect and
Acquiror has conducted its business in the ordinary course, and Acquiror has not
(a) paid any dividend or distribution in respect of, or redeemed or repurchased
any of, its capital stock; (b) issued any capital stock, bonds or other
corporate securities or debt instruments, granted any options, warrants or other
rights calling for the issuance thereof, or borrowed any funds; (c) incurred
loss of, or significant injury to, any of the Assets as the result of any fire,
explosion, flood, windstorm, earthquake, labor trouble, riot, accident, act of
God or public enemy or armed forces, or other casualty; (d) incurred, or become
subject to, any obligation or liability (absolute or contingent, matured or
unmatured, known or unknown), except current liabilities incurred in the
ordinary course of business; (e) mortgaged, pledged or subjected to any
Encumbrance any of the Assets; (f) sold, exchanged, transferred or otherwise
disposed of any of the Assets except in the ordinary course of business, or
canceled any debts or claims; (g) written down the value of any Assets or
written off as uncollectible any accounts receivable, except write downs and
write-offs in the ordinary course of business, none of which, individually or in
the aggregate, are material; (h) entered into any transactions other than in the
ordinary course of business; (i) made any change in any method of accounting or
accounting practice; or (j) made any agreement to do any of the foregoing.
SECTION 4.8. Absence of Litigation.
Except as set forth in Schedule 4.8, there are (a) no actions,
suits, claims, arbitrations, proceedings or investigations pending, or, to
Acquiror's knowledge, threatened or reasonably anticipated against, affecting or
involving Acquiror or any Subsidiary of the Acquiror or their respective
businesses or Assets, or the transactions contemplated by this Agreement, at law
or in equity or admiralty, or before or by any court, administrative,
governmental, arbitral, mediation or regulatory authority or body, domestic or
foreign, and (b) no judgments, decrees, injunctions or orders of any Government
Entity or arbitrator outstanding against Acquiror or any Subsidiary of the
Acquiror or any of their respective businesses or Assets. Acquiror is not
operating under, subject to or in default with respect to any order, award,
writ, injunction, decree or judgment of any court, arbitrator or governmental
authority.
SECTION 4.9. Brokers.
No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Acquiror.
SECTION 4.10. Disclosure.
No representations or warranties by Acquiror in this Agreement
and no statement or information contained in the Schedules hereto relating to
the Acquiror, in any certificate furnished or to be furnished by Acquiror to the
Company pursuant to the provisions of this Agreement, contains or will contain
any untrue statement of a material fact or omits or will omit to state any
material fact necessary, in light of the circumstances under which it was made,
in order to make the statements herein or therein not misleading.
SECTION 4.11. Tax-Free Reorganization.
To Acquiror's knowledge, the Exchange shall constitute a tax-free reorganization
within the meaning of Section 368 of the Code.
ARTICLE V
COVENANTS
SECTION 5.1. Affirmative Covenants of the Company.
The Company hereby covenants and agrees that, prior to the
Effective Time, unless otherwise expressly contemplated by this Agreement or
consented to in writing by Acquiror, the Company shall (a) operate its business
in the usual and ordinary course consistent with past practices and in
accordance with in all material respects applicable Laws; (b) preserve
substantially intact its business organization, maintain its rights and
contracts, use its best efforts to retain the services of its respective
principal officers and key employees and maintain its relationship with its
respective suppliers, contractors, distributors, customers and others having
business relationships with it; (c) keep its Assets in as good repair and
condition as at present, ordinary wear and tear excepted; and (d) keep in full
force and effect insurance comparable in amount and scope of coverage to that
currently maintained.
SECTION 5.2. Negative Covenants of the Company.
Except as expressly contemplated by this Agreement or
otherwise consented to in writing by Acquiror, from the date hereof until the
Effective Time, the Company shall not do any of the following:
(a) (i) increase the compensation payable to or to become payable to
any of its directors, officers or employees, except for increases in salary,
wages or bonuses payable or to become payable in the ordinary course of business
and consistent with past practice; (ii) except as set forth in Schedule 5.2,
grant any severance or termination pay to, or enter into or modify any
employment or severance agreement with, any of its directors, officers or
employees; or (iii) adopt or amend any employee benefit plan or arrangement,
except as may be required by applicable Laws;
(b) declare, set aside or pay any dividend on, or make any other
distribution in respect of, any of its capital stock;
(c) (i) redeem, repurchase or otherwise reacquire any share of the
Company Common Stock or any securities or obligations convertible into or
exchangeable for any share of its capital stock, or any options, warrants or
conversion or other rights to acquire any shares of its capital stock or any
such securities or obligations; (ii) effect any reorganization or
recapitalization; or (iii) split, combine or reclassify any of its capital stock
or issue or authorize or propose the issuance of any other securities in respect
of, in lieu of, or in substitution for, shares of its capital stock;
(d) (i) issue, deliver, award, grant or sell, or authorize or propose
the issuance, delivery, award, grant or sale (including the grant of any
Encumbrances) of, any shares of any class of its capital stock (including shares
held in treasury) or other equity securities, any securities or obligations
directly or indirectly convertible into or exercisable or exchangeable for any
such shares, or any rights, warrants or options to acquire, any such shares or
securities or any rights, warrants or options directly or indirectly to acquire
any such shares or securities; or (ii) amend or otherwise modify the terms of
any such securities, obligations, rights, warrants or options in a manner
inconsistent with the provisions of this Agreement or the effect of which shall
be to make such terms more favorable to the holders thereof;
(e) except as provided in Schedule 5.2, acquire or agree to acquire, by
merging or consolidating with, by purchasing an equity interest in or a portion
of the Assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof, or
otherwise acquire or agree to acquire any Assets of any other person (other than
the purchase of assets in the ordinary course of business and consistent with
past practice), or make or commit to make any capital expenditures other than
capital expenditures in the ordinary course of business and consistent with past
practice;
(f) sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, any of its Assets except for dispositions of assets in the
ordinary course of business and consistent with past practice;
(g) propose or adopt any amendments to its certificate of incorporation or
bylaws;
(h) (i) change any of its methods of accounting or (ii) make or rescind
any express or deemed election relating to taxes, settle or compromise any
claim, action, suit, litigation, proceeding, arbitration, investigation, audit
or controversy relating to taxes, or change any of its methods of reporting
income or deductions for federal income tax purposes from those employed in the
preparation of the federal income tax returns for the taxable year ending
January 31, 1999, except, in the case of clause (i) or clause (ii), as may be
required by law or GAAP, consistently applied;
(i) prepay, before the scheduled maturity thereof, any of its long-term
debt, or incur any obligation for borrowed money, whether or not evidenced by a
note, bond, debenture or similar instrument, other than trade payables incurred
in the ordinary course of business consistent with past practices.
(j) enter into or modify in any material respect any Material Contract
or Government Contract which, if in effect as of the date hereof, would have
been required to be disclosed on Schedule 2.11 and/or Schedule 2.13(a),
respectively, except to enter into customer contracts in the ordinary course of
business consistent with past practice of the Company;
(k) take any action that would or could reasonably be expected to
result in any of its representations and warranties set forth in this Agreement
being untrue or in any of the conditions to the Exchange set forth in Article
VII not being satisfied; or
(l) make any payment to or for the benefit of Stockholders other than
in the ordinary course of business consistent with past practices; provided,
however that nothing in this Section 5.2 shall restrict the ability of the
Company to make the following payments or loans to the Stockholders prior to the
Closing Date: (i) reimbursement of out-of-pocket travel and entertainment
expenses, (ii) repayment of bona fide loans and advances from such Stockholders
in an amount not to exceed $290,293, (iii) a one time loan to a Stockholder that
is not more than $50,000 and which shall be repayable not later than August 31,
2001 (such loan shall bear interest, payable monthly, at a rate not less than
six percent (6%) per annum, shall provide for setoff against payments otherwise
due from the Company or Acquiror to the borrowing Stockholder if such loan is
not repaid when due) and shall be evidenced by a promissory note, (iv) the grant
of the option to the Stockholders with respect to the BRC China, (v) the A/R
Assignment; provided, however, that the A/R Assignment shall be limited and only
include accounts receivable relating to time and expense incurred prior to
February 1, 1999 and be subject to the rights of Legal Corp. (as defined in the
Spinoff Agreement), and (vi) payment of such Stockholders' salaries at
"pre-existing levels." The term "pre-existing levels" shall be calculated on a
Stockholder by Stockholder basis as of January 31, 1999 and refer to all amounts
(exclusive of expense reimbursement, loan and advance repayment, and fees and
expenses of the Exchange described above) paid to or for the benefit of the
Stockholders, after January 31, 1999, in an amount not to exceed the product of
the Annual Compensation Level shown on Schedule 5.2 and number of days elapsed
after January 31, 1999 (inclusive of the date of Closing) divided by 365 days.
(m) agree in writing or otherwise to do any of the foregoing.
SECTION 5.3. Negative Covenants of Acquiror and the Company After the
Effective Time.
Except as expressly contemplated by this Agreement or
otherwise consented to in writing by the Company or Acquiror, until consummation
of the Exchange on the Closing Date, or in the event the Exchange is not
consummated, neither the Company or any Company Subsidiary, nor Acquiror shall
solicit or hire the employees engaged in the other's business for a period of
one year from the date of this Agreement.
SECTION 5.4. Negative Covenants of the Stockholders.
Each Stockholder covenants and agrees that such Stockholder
will not sell, transfer, pledge, assign or otherwise encumber or dispose of or
enter into any contract, option or other agreement with respect to, the sale,
transfer, pledge, assignment or other encumbrance or disposition of, any shares
of Company Common Stock or any other voting interests in the Company now owned
or hereafter acquired beneficially or of record by such Stockholder, except for
the exchange of any such shares in accordance with the terms of this Agreement.
SECTION 5.5. Covenants of the Acquiror.
(a) Acquiror hereby covenants and agrees to use Acquiror's reasonable
efforts to file with the SEC in a timely manner and reports and other documents
required of the Acquiror under the Securities Act and the Exchange Act.
(b) After the Closing and until June 30, 2001 (or such earlier date as
Acquiror has made a prepayment pursuant to Section 1.5(f)), the Acquiror,
without prior written consent of the Stockholders' Representative (which consent
shall not be unreasonably withheld or delayed), shall comply with the following:
(i) Acquiror will provide working capital to the Company adequate to maintain
operation of the Company's current line of business.
(ii) Acquiror may not cause the Company to change in any material respect the
Company's current line of business or to add a new line of business.
(iii) Acquiror may not sell or otherwise dispose of all or a substantial part of
the Assets of the Company or securities issued by the Company or merge the
Company; provided, however, nothing herein shall limit or be deemed to prohibit
any business combination or similar transaction involving Acquiror.
(iv) Acquiror may not cause the Company to hire or terminate employees;
provided, however, that nothing herein shall limit Acquiror's ability to cause
any of the following terminations: (A) pursuant to any employment agreements,
(B) for cause or (C) of any employees hired after the date hereof by the Company
without the prior written consent of Acquiror.
SECTION 5.6. Rights Under the Spinoff Agreement.
The Company and each of the Stockholders covenants and agrees
with Acquiror as follows with respect to the rights and obligations of the
Company and the Stockholders under the Spinoff Agreement:
(a) The Company and each of the Stockholders shall enforce all of their
respective rights under the Spinoff Agreement, including, causing the other
parties thereto to act in conformity with the Spinoff Agreement.
(b) Neither the Company nor any of the Stockholders shall waive any
rights or conditions under the Spinoff Agreement, or enter into any amendment or
modification to any provisions of the Spinoff Agreement. The Company and the
Stockholders shall enforce their respective rights to the fullest extent
possible under the Spinoff Agreement unless otherwise consented to by Acquiror
and that consent is not to be unreasonably withheld.
(c) To the extent that the Company receives any notifications or
information from the other parties to the Spinoff Agreement with respect to any
matters thereunder (whether in writing or orally) or otherwise becomes aware of
any breach of any representation, warranty, covenant or agreement in the Spinoff
Agreement (or any claim against the Company under the Spinoff Agreement), the
Company and/or the Stockholders, as the case may be, shall immediately notify
Acquiror and provide such information to Acquiror, and thereafter use reasonable
best efforts to enforce, perform or waive any provision of the Spinoff Agreement
as may reasonably be requested by Acquiror.
(d) Any net proceeds received by the Company or any of the Stockholders
from the exercise of any rights under the Spinoff Agreement shall be paid over
to Acquiror within five (5) business days of receipt thereof.
(e) This covenant shall survive the Effective Time and remain in full
force and effect as provided in Section 9.1.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1. Consents and Approvals; Filings and Notices.
The Company shall use reasonable efforts to as promptly as
possible make all filings with, provide all notices to and obtain all consents
and approvals from third parties required to be obtained by the Company in
connection with the transactions contemplated hereunder, including all filings
with, notices to and consents and approvals from any Government Entities and
other persons.
SECTION 6.2. Access to Information.
The Company shall afford Acquiror and its accountants, counsel
and other representatives, reasonable access during normal business hours during
the period prior to the Effective Time to (a) all of the Company's properties,
books, contracts, commitments and records, and (b) all other information
concerning the business, properties and personnel (subject to restrictions
imposed by applicable law) of the Company as Acquiror may reasonably request.
The Company agrees to provide to Acquiror and its accountants, counsel and other
representatives copies of internal financial statements promptly upon request.
Acquiror shall provide the Company and the Stockholders with copies of such
publicly available information and such other information about Acquiror as the
Company may request and shall provide the Company with reasonable access to its
executive officers in this regard. No information or knowledge obtained in any
investigation pursuant to this Section 6.2 shall affect or be deemed to modify
any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Exchange.
In the event of the termination of this Agreement, each of
Acquiror and the Company or any Company Subsidiary and their respective
officers, directors, employees, representatives, advisors and agents, as
applicable, shall destroy or deliver to the Company or Acquiror, as applicable,
all confidential documents, work papers and other materials, and all copies
thereof, obtained by Acquiror or the Company, as applicable, or on their
respective behalf, as applicable, from either party as a result of this
Agreement or in connection herewith, whether obtained before or after the
execution and delivery of this Agreement.
SECTION 6.3. Confidentiality.
Each of the parties hereto hereby agree to keep confidential
any information or knowledge obtained pursuant to Section 6.2, the
Confidentiality Agreement dated March 23, 1999, the Letter of Intent dated May
6, 1999 (the "Letter of Intent"), or pursuant to the negotiation and execution
of this Agreement or the effectuation of the transactions contemplated hereby;
provided, however that the foregoing shall not apply to information or knowledge
(a) a party can demonstrate was already lawfully in its possession prior to the
disclosure thereof by the other party, (b) is generally known to the public and
did not become so known through any violation of law, (c) became known to the
public through no fault of such party, (d) is later lawfully acquired by such
party from other sources, (e) is required to be disclosed by order of court of
government agency with subpoena powers or (f) which is disclosed in the course
of any litigation between any of the parties hereto. The confidentiality
provisions of the Confidentiality Agreement and Letter of Intent are
incorporated herein by reference with the same effect as if fully set forth
herein.
SECTION 6.4. Further Action; Reasonable Best Efforts.
Subject to the terms and conditions herein provided, each of
the parties shall use reasonable best efforts to take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary, proper or
advisable under applicable Laws or otherwise to consummate and make effective
the transactions contemplated by this Agreement as promptly as practicable,
including using its reasonable best efforts to obtain all licenses, permits,
consents, approvals, authorizations, qualifications and orders of Government
Entities and parties to contracts with the Company and Acquiror as are necessary
for the transactions contemplated herein.
SECTION 6.5. Public Announcements.
Acquiror and the Company agree that neither will issue any
press release or otherwise make any public statements concerning this Agreement
or the transactions contemplated hereby without the prior written consent of the
other party, except that Acquiror may make such public disclosure that Acquiror
believes in good faith to be required by any Laws.
SECTION 6.6. No Solicitation.
Except as set forth in Schedule 6.6, prior to Closing, neither
the Company nor any of its affiliates or any person acting on behalf of such
party shall (a) solicit or favorably respond to indications of interest from, or
enter into negotiations with, any third party for any proposed merger,
consolidation, sale or acquisition of the Company, the Assets or the capital
stock or (b) furnish or cause to be furnished any material nonpublic information
concerning the business to any person other than in the ordinary course of
business or pursuant to applicable Laws and after prior written notice to
Acquiror.
SECTION 6.7. Employees.
(a) The Employment Agreements will be enforceable in accordance with their terms
after the Closing Date and the Effective Time. In addition, the Company shall
use its best efforts to encourage the current employees of the Company to
continue their employment with the Acquiror or any of the Company Subsidiaries
following the Closing Date.
(b) Acquiror agrees that, as of the Effective Time, Acquiror shall cause the
Company to continue to employ all of the employees of the Company and the
Company Subsidiaries, it being understood that nothing in this Agreement (other
than in connection with any employment agreement to be entered into pursuant to
the terms hereof) shall be deemed to create any employment status other than
employment at will. Acquiror agrees to continue all employee benefit plans
maintained by the Company for employees of the Company generally on the terms
and conditions set forth in Schedule 6.7 hereto until such time as such
employees participate in the employee benefit plans of Acquiror, for which
participation Acquiror agrees to give employees of the Company credit for their
years of employment at the Company.
SECTION 6.8. Indemnification.
From and after the Effective Time, Acquiror agrees to cause the Company
to indemnify and hold harmless each current and former director and officer of
the Company against any costs or expenses (including reasonable attorneys'
fees), judgments, fines, losses, claims, damages or liabilities incurred in
connection with any claim, action, suit, proceeding or investigation, whether
civil or criminal, administrative or investigative, arising out of matters
existing or occurring at or prior to the Effective Time, whether asserted or
claimed prior to, at or after the Effective Time, to the same extent as the
Company provided for under the Company's articles of incorporation or by-laws as
in effect on the date hereof to indemnify such person (and Acquiror shall
advance expenses as incurred to the same extent provided for under the Company's
articles of incorporation and by-laws as in effect on the date hereof, provided
the person to whom expenses are advanced provides an unsecured undertaking to
repay such advances if it is ultimately determined that such person is not
entitled to indemnification).
SECTION 6.9. Tax Matters.
(a) Acquiror and the Stockholders acknowledge and agree that the
Exchange is intended to qualify as a, or a part of a, "reorganization" within
the meaning of Section 368(a) of the Code. Neither the Acquiror nor the Company
shall take or cause to be taken any action, whether before or after the Closing,
that would disqualify the Exchange as a, or part of a, "reorganization" within
the meaning of Section 368(a) of the Code. Acquiror and the Company agree to use
their reasonable efforts to cure any impediment to the qualification of the
Exchange as a, or part of a, "reorganization" within the meaning of Section
368(a) of the Code.
(b) Acquiror and the Stockholders each have adopted a plan of
reorganization as provided in the Code and Treasury Regulations promulgated
thereunder (the "Treasury Regulations") with respect to the intended
qualification of the share exchange as a tax free reorganization within the
meaning of Section 368(a)(1)(B) of the Code.
(c) Immediately after the Exchange, Acquiror will own shares of the
Company's capital stock possessing at least eighty percent (80%) of the combined
voting power of all the shares of capital stock of the Company entitled to vote.
(d) The transactions described in this Agreement have a "bona fide
business purpose" as defined in the Treasury Regulations.
SECTION 6.10. Management Committee Representatives.
Acquiror agrees that Morris Garfinkle and James Miller shall
be representatives on Acquiror's Management Committee during the two year period
following the Closing.
SECTION 6.11. Financial Statements.
No later than sixty (60) days after Closing, the Company
agrees to deliver financial statements, including statements of income and cash
flow ("Financial Statements") prepared as of the Accounting Date in accordance
with GAAP and certified by certified public accountants acceptable to Acquiror
and including the period from February 1, 1999 to the Accounting Date.
SECTION 6.12. Best Efforts.
Each of the parties to this Agreement shall use best efforts
to consummate and effect this Agreement and the transactions contemplated hereby
and to fulfill and cause to be fulfilled the conditions to closing under this
Agreement.
SECTION 6.13. Company Controller.
The parties acknowledge and agree that the Company shall incur
approximately $120,000 per annum in salary or equivalent financial management
support and that the salary or other direct expense, indirect cost, and other
expenses for such services shall be included in any calculation of Net After Tax
Income.
ARTICLE VII
CLOSING CONDITIONS
SECTION 7.1. Conditions to Obligations of Acquiror, Stockholders and the
Company to Effect the Exchange.
The respective obligations of Acquiror, Stockholders and the
Company to effect the Exchange and the other transactions contemplated herein
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions, any or all of which may be waived, in whole or in part, to
the extent permitted by applicable law:
(a) No Order. No Governmental Entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any law, statute, rule, ordinance, regulation, executive order, decree,
judgment, stipulation, injunction or other order (whether temporary, preliminary
or permanent) (collectively, an "Order"), in any case which is in effect and
which prevents or prohibits consummation of the Exchange or any other
transactions contemplated in this Agreement; provided, however, that the parties
shall use their reasonable efforts to cause any such Order to be vacated or
lifted.
(b) Tax-free Reorganization. Acquiror shall have received reasonable
assurances from Ernst & Young L.L.P., in form and substance reasonably
satisfactory to Acquiror and the Company that the Exchange will constitute a
"reorganization" within the meaning of Section 368 of the Code.
(c) Employment Agreements. The Employment Agreements shall remain in
full force and effect.
(d) Escrow Agreement. Acquiror, the Escrow Agent and the Stockholders'
Representative shall enter into the Escrow Agreement at or before Closing in a
form substantially similar to Exhibit A, pursuant to which the Escrow Stock
shall have been retained in escrow.
(e) Company Net Worth. The Company shall have had a net worth of not
less than One Million Five Hundred Thousand Dollars ($1,500,000) as of the
Balance Sheet Date.
(f) Termination of Shareholder Agreement. The Shareholder Agreement
dated February 1, 1999 entered into by and among the Stockholders and the
Company shall have terminated and be of no further force and effect.
SECTION 7.2. Additional Conditions to Obligations of Acquiror.
The obligations of Acquiror to effect the Exchange and the
other transactions contemplated in this Agreement are also subject to the
fulfillment at or prior to the Effective Time of the following conditions, any
or all of which may be waived, in whole or in part, to the extent permitted by
applicable law:
(a) Representations and Warranties. The representations and warranties
of the Company and the Stockholders made in this Agreement shall be true and
correct in all material respects when made and on and as of the Effective Time
(provided that any representation or warranty contained herein that is qualified
by a materiality standard shall not be further qualified hereby), except for
representations and warranties that speak as of a specific date or time (which
need only be true and correct in all material respects as of such date or time).
Acquiror shall have received a certificate signed on behalf of the Company by
the president of the Company to that effect with respect to the Company's
representations and warranties and a certificate signed by each of the
Stockholders to that effect with respect to the Stockholders' representations
and warranties.
(b) Agreements and Covenants. The agreements and covenants of the
Company required to be performed on or before the Effective Time shall have been
performed in all material respects. Acquiror shall have received a certificate
signed on behalf of the Company by the president of the Company to that effect
with respect to the Company's agreements and covenants and a certificate signed
by each of the Stockholders to that effect with respect to the Stockholders'
agreements and covenants.
(c) No Company Material Adverse Effect. Since the date of this
Agreement, no Company Material Adverse Effect shall have occurred and be
continuing.
(d) Required Consents. The Company shall have delivered to Acquiror at
or before Closing all consents or notices necessary to be obtained or made by
the Company in connection with the transactions contemplated by this Agreement,
except for such consents or notices that, if not obtained, would not,
individually or in the aggregate, result in a Company Material Adverse Effect.
(e) No Litigation. There shall not be pending or threatened any suit,
action, proceeding or investigation: (i) challenging or seeking to restrain or
prohibit the consummation of the Exchange or any of the other transactions
contemplated by this Agreement; (ii) relating to the Exchange and seeking to
obtain from Acquiror or any Subsidiary of Acquiror any damages that may be
material to Acquiror, (iii) seeking to prohibit or limit in any material respect
Acquiror's ability to vote, receive dividends with respect to or otherwise
exercise ownership rights with respect to the stock of the Company; (iv) which
would materially and adversely affect the right of the Company to own the assets
or operate the business of the Company; or (v) which, if adversely determined,
would have a Company Material Adverse Effect or an Acquiror Material Adverse
Effect.
(f) Capitalization Certificate. Acquiror shall have received a
capitalization certificate in the form set forth as Exhibit C from the chief
executive officer of the Company relating to, among other things, capitalization
of the Company.
(g) Delivery of Stock Certificates. All of the Stockholders shall have
delivered all of the Company Common Stock outstanding with appropriate stock
powers attached.
(h) Other Closing Documents. The Company shall have executed and/or
delivered to Acquiror such additional documents, certificates, opinions and
agreements as Acquiror may reasonably request.
SECTION 7.3. Additional Conditions to Obligations of the Company and the
Stockholders.
The obligations of the Company and the Stockholders to effect
the Exchange and the other transactions contemplated in this Agreement are also
subject to the fulfillment at or prior to the Effective Time of the following
conditions any or all of which may be waived, in whole or in part, to the extent
permitted by applicable law:
(a) Representations and Warranties. The representations and warranties
of Acquiror made in this Agreement shall be true and correct in all material
respects when made and on and as of the Effective Time (provided that any
representation or warranty contained herein that is qualified by a materiality
standard shall not be further qualified hereby), except for representations and
warranties that speak as of a specific date or time other than the Effective
Time (which need only be true and correct in all material respects as of such
date or time). The Company and the Stockholders shall have received a
certificate of the chief executive officer of Acquiror to that effect.
(b) Agreements and Covenants. The agreements and covenants of Acquiror
required to be performed on or before the Effective Time shall have been
performed in all material respects. The Company and the Stockholders shall have
received a certificate of the chief executive officer of Acquiror to that
effect.
(c) Registration Rights Agreement. Acquiror and the Stockholders'
Representative shall execute at or before Closing an agreement in form
substantially as set forth in Exhibit B providing, among other things, that such
Stockholders shall have "piggy-back" registration rights with respect to the
Acquiror Common Stock.
(d) No Acquiror Material Adverse Effect. Since the date of this
Agreement, no Acquiror Material Adverse Effect shall have occurred and be
continuing.
(e) Other Closing Documents. The Acquiror shall have executed
and/or delivered to the Company and the Stockholders such additional documents,
certificates, opinions and agreements as the Company or the Stockholders may
reasonably request.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1. Termination.
This Agreement may be terminated at any time prior to the Effective Time:
(a) by mutual written consent of Acquiror and the Company;
(b) by Acquiror if the Company shall have breached any of its
representations, warranties, covenants or agreements contained in this
Agreement, or any such representation or warranty shall have become untrue, in
any such case such that the conditions precedent to the obligations of Acquiror
to close specified in Section 7.2 will not be satisfied and such breach has not
been promptly cured within thirty (30) days following receipt by the Company of
written notice of such breach;
(c) by the Company if Acquiror shall have breached any of its
representations, warranties, covenants or agreements contained in this
Agreement, or any such representation or warranty shall have become untrue, in
any such case such that the conditions precedent to the obligation of the
Company to close specified in Section 7.3, will not be satisfied and such breach
has not been promptly cured within thirty (30) days following receipt by
Acquiror of written notice of such breach;
(d) by either Acquiror or the Company if any decree, permanent
injunction, judgment, order or other action by any court of competent
jurisdiction or any Government Entity preventing or prohibiting consummation of
the Exchange shall have become final and non-appealable; or
(e) by either Acquiror or the Company if the Effective Time has not
occurred on or prior to ninety (90) days after execution of this Agreement upon
giving written notice of such termination to the other party (unless such date
shall be extended by the mutual written consent of the parties); provided, that
the right to terminate this Agreement under this Section 8.1(e) shall not be
available to any party whose breach of representations, warranties, covenants or
agreements contained in this Agreement has been the cause of, or resulted in,
the failure of the Effective Time to occur by such date or the inability of such
condition to be satisfied.
SECTION 8.2. Effect of Termination.
If this Agreement is terminated pursuant to Section 8.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of any party hereto, except that the provisions of
Sections 5.3, 6.3 and 10.11 shall not be extinguished but shall survive such
termination, and nothing herein shall relieve any party from liability for any
breach hereof and each party shall be entitled to any remedies at law or in
equity for such breach.
SECTION 8.3. Amendment.
This Agreement may not be amended except by an instrument in
writing signed by the parties hereto.
SECTION 8.4. Waiver.
At any time prior to the Effective Time, Acquiror may (a)
extend the time for the performance of any of the obligations or other acts of
the Company and the Stockholders, (b) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any document
delivered pursuant to this Agreement of the Company and the Stockholders and (c)
waive compliance by the Company and the Stockholders with any of the agreements
or conditions contained in this Agreement. At any time prior to the Effective
Time, the Company and the Stockholders may (a) extend the time for the
performance of any of the obligations or other acts of Acquiror, (b) waive any
inaccuracies in the representations and warranties contained in this Agreement
or in any document delivered pursuant to this Agreement of Acquiror and (c)
waive compliance by Acquiror with any of the agreements or conditions contained
in this Agreement. Any such extension or waiver shall be valid only if set forth
in an instrument in writing signed on behalf of the extending or waiving party
or parties.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS; ESCROW ARRANGEMENTS; REMEDIES
SECTION 9.1. Survival of Representations.
All representations, warranties, covenants, indemnities and
other agreements made by any party to this Agreement herein or pursuant hereto,
shall be deemed made on and as of the Closing Date as though such
representations, warranties, covenants, indemnities and other agreements were
made on and as of such date, and all such representations, warranties,
covenants, indemnities and other agreements shall only survive the Closing Date
as follows: (a) all matters for which an indemnification claim may be made
pursuant to Section 9.2(a) shall survive for a period of one (1) year after the
Closing Date, (b) all matters for which an indemnification claim may be made
pursuant to Section 9.3(a) shall survive for a period of the earlier to occur of
(i) six (6) years after the Closing Date or (ii) the applicable statute of
limitations, (c) all matters for which an indemnification claim may be made
pursuant to Section 9.4 shall survive for the applicable statute of limitations,
and (d) all matters for which an indemnification claim may be made pursuant to
Section 9.5 shall survive for a period of three (3) years after the Closing
Date. No claim may be asserted nor any action commenced under this Article IX
unless written notice of such claim or action is received by the indemnifying
party prior to the termination of the appropriate survival period.
Notwithstanding anything herein to the contrary, any representation, warranty,
covenant, agreement or indemnity which is the subject of a claim which is
asserted in writing prior to the expiration of the applicable period set forth
above, if any, shall survive with respect to such claim or dispute until the
final resolution thereof.
SECTION 9.2. Stockholders General Indemnification; Escrow Arrangements.
(a) Each Stockholder, jointly and severally, hereby agrees to indemnify
and hold the Acquiror, the Company, and any entity that controls the Acquiror,
and their respective officers, directors, employees, agents and representatives
(collectively, the "Acquiror Indemnified Persons") harmless against all Losses
resulting from, imposed upon or incurred by any Acquiror Indemnified Person
(including the Company), directly or indirectly, as a result of:
(i) any inaccuracy or breach of a representation or warranty
of the Company or a Stockholder in this Agreement or in any document,
certificate or agreement furnished by the Company or a Stockholder pursuant to
this Agreement;
(ii) any failure by the Company or a Stockholder to perform or
comply with any covenant or agreement contained in this Agreement or in any
document, certificate or agreement furnished by the Company or a Stockholder
pursuant to this Agreement (notwithstanding the foregoing, the parties
acknowledge and agree that no Acquiror Indemnified Person shall have the right
to seek indemnification hereunder as a result of any breach of any of the
Employment Agreements);
(iii) any material inaccuracies in the books of account, stock
records, minute books and other records of the Company or any Company
Subsidiary; and
(iv) any failure of any financial statements of the Company
and any Company Subsidiaries to appropriately reflect any matters required to be
reflected therein which are in the books of account, stock records, minute books
and other records of the Company and the Company Subsidiaries.
(b) Except to the extent that any matter set forth in this Section 9.2
is also a matter for which an Acquiror Indemnified Person is entitled to
indemnification pursuant to Section 9.3 or Section 9.4, the parties acknowledge
and agree that (i) the Acquiror Indemnified Persons shall be compensated for any
indemnification pursuant to this Section 9.2 solely from the Escrow Stock
pursuant to the terms and conditions of the Escrow Agreement and (ii) the amount
of the indemnification liability and obligation under this Section 9.2(a) shall
not exceed the aggregate Fair Market Value of the Escrow Stock as of the Closing
Date.
(c) For purposes of Section 9.2, Losses shall be decreased by any
insurance proceeds recovered by the indemnified party or any affiliate thereof
(after reduction for any costs incurred in connection therewith, including,
retrospective premium adjustments, experience-based premium adjustments, and
indemnification obligations). Each of the Stockholders acknowledges and agrees
that neither the Acquiror nor the Company shall have any obligation to maintain
insurance or be obligated to have to resort to litigation against insurance
carriers in order to pursue any insurance claims.
(d) No claim or action may be made under this Section 9.2 until the
Acquiror Indemnified Persons have incurred $25,000 of Losses, in the aggregate.
SECTION 9.3. Stockholders Special Indemnification
(a) Without limiting the generality of Section 9.2, each Stockholder,
jointly and severally, hereby agrees to indemnify and hold the Acquiror
Indemnified Persons harmless against all Losses, resulting from, imposed upon or
incurred by any Acquiror Indemnified Person (including the Company), directly or
indirectly, as a result of:
(i) any actions, claims, suits, demands, obligations and liabilities of any
former or current stockholders of the Company or any Company Subsidiary and/or
their respective heirs, executors, successors or assigns, against the Company or
any Company Subsidiary, whether asserted, unasserted, absolute, contingent,
known or unknown which relates to the period (in whole or in part) prior to the
Closing Date;
(ii) any inaccuracy or breach of any representations or warranties
contained in Section 2.3 of this Agreement;
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(iii) any matter disclosed on Schedule 2.15 (except for any matter arising from
or related to the Express One Matters which are addressed in Section 9.3(a)(iv))
and/or Schedule 2.26;
(iv) any actions, claims, suits, demands, obligations and liabilities affecting
or involving the Company or any of the Company Subsidiaries arising from or
related to the facts that have given rise to the pending litigation or
proceedings listed on Schedule 9.3 ("Express One Matters"); provided, however no
claim or action may be made under this Section 9.3(iv) until the Acquiror
Indemnified Persons have incurred $100,000 of Losses, in the aggregate;
(v) any liabilities, obligations or other matters with respect to or under the
Spinoff Agreement and the transactions consummated in connection therewith,
arising or resulting from any material breaches by the Company of the Spinoff
Agreement or the documents executed in connection therewith;
(vi) any Taxes assessed against the Company, any Company Subsidiary or any of
the other parties to the Spinoff Agreement in connection with the consummation
of the transactions contemplated by the Spinoff Agreement, including any tax
indemnification of certain parties set forth in Section 7(a) of the Spinoff
Agreement;
(vii) any actions, claims, suits, demands, obligations and liabilities with
respect to the "Liabilities" described in Section 3(b) of the Spinoff Agreement
(whether the liabilities are of the Legal Corp. (as defined in the Spinoff
Agreement) or of the Company; provided, however, the Stockholders shall have no
indemnification obligation with respect to the obligations of the Company (as
opposed to the Legal Corp.) for the "Liabilities" described in the following
sections of the Spinoff Agreement: Section 3(b)(iii), Section 3(b)(iv) or
Section 3(b)(v) (to the extent related to Section 3(b)(iii) or Section 3(b)(iv)
thereof).
(viii) any Taxes (including any transfer Taxes assessed against the Company, any
Company Subsidiary and/or the Acquiror in connection with the grant of the
option with respect to BRC China);
(ix) any actions, claims, suits, demands, obligations and liabilities relating
to, or involving, any professional liability matters (including malpractice)
with respect to the practice of law by the Company or any Company Subsidiary
and/or any of their respective employees, partners, associates or other
attorneys whether asserted, unasserted, absolute, contingent, known, or unknown
which arise from acts or omissions occurring (in whole or in part) prior to
February 1, 1999;
(x) any actions, claims, suits, demands, obligations and liabilities relating
to, or involving, any professional liability matters (including malpractice)
with respect to the practice of law by any Stockholder, the Company or any
Company Subsidiary, whether asserted, unasserted, absolute, contingent, known or
unknown which arise from acts or omissions occurring (in whole or in part) after
February 1, 1999 and prior to the Closing; and
(xi) any actions, claims, suits, demands, obligations and liabilities relating
to, or involving, the employment practices or policies of the Company or any
Company Subsidiaries which arise from acts or omissions occurring (in whole or
in part) prior to February 1, 1999.
(b) The parties acknowledge and agree that the amount of the
indemnification liability under Section 9.3(a) shall not exceed Fourteen Million
Two Hundred Thousand Dollars ($14,200,000), subject to increase as set forth
herein, but less the amount of any Losses for which indemnification is paid by
the Stockholders pursuant to Section 9.2(a) (collectively, the "Special
Indemnity Cap"). Upon the final determination of the amount of the First Fiscal
Year Earnout as set forth in Section 1.5(a), the Special Indemnity Cap shall be
increased by the amount of such First Fiscal Year Earnout. Upon the final
determination of the amount of the Second Fiscal Year Earnout as set forth in
Section 1.5(b), the Special Indemnity Cap shall be increased by the amount of
such Second Fiscal Year Earnout. If at the time that any Losses hereunder become
payable and the amount of such Losses exceed (in the aggregate, together with
all other Losses under Section 9.3(a)) the then Special Indemnity Cap, the
amount of such excess Losses shall be carried forward as "Unsatisfied Losses"
hereunder. If at any time the Special Indemnity Cap is subsequently increased in
accordance with the terms hereof, such Unsatisfied Losses shall immediately
become due and payable to the extent of the increase in the Special Indemnity
Cap.
(c) The parties acknowledge and agree that the amount of any
indemnification for Losses may be payable, in the sole and absolute discretion
of the Stockholders, in either Acquiror Common Stock, cash or a combination of
Acquiror Common Stock and cash. The parties further acknowledge and agree that
Losses incurred by any Acquiror Indemnified Person prior to August 15, 2001,
shall only become payable by the Stockholders on August 15, 2001.
(d) If Acquiror Common Stock is used for the payment of Losses pursuant
to this Section 9.3, the value of such shares shall be determined as follows:
(i) the value per share of the first One Million Four Hundred
Twenty Thousand (1,420,000) shares of Acquiror Common Stock (less the number of
Escrow Shares used for payment of the indemnification obligations set forth in
Section 9.2 hereof) used to pay indemnification for such Losses shall be the
greater of (A) Ten Dollars ($10.00) or (B) the average closing price (as
reported in the Wall Street Journal) for the period of ten (10) trading days
prior to the date payment is received by an Acquiror Indemnified Person for any
such Losses;
(ii) to the extent that a Stockholder has retained Acquiror
Common Stock issued to such Stockholder pursuant to Section 1.5(a) or Section
1.5(b), the value per share of any such shares of Acquiror Common Stock used to
pay indemnification for such Losses shall be the greater of (A) the Fair Market
Value of the Acquiror Common Stock when received by the Stockholders pursuant to
Section 1.5, as calculated in accordance with Section 1.5(e) (including the
proviso therein), or (B) the average closing price (as reported in the Wall
Street Journal) for the period of ten (10) trading days prior to the date
payment is received by an Acquiror Indemnified Person for any such Losses;
(iii) the value per share for any other shares of Acquiror
Common Stock used to pay indemnification for such Losses shall be the average
closing price (as reported in the Wall Street Journal) for the period of ten
(10) trading days prior to the date payment is received by an Acquiror
Indemnified Person for any such Losses.
All calculations of the value per share of any Acquiror Common
Stock used to pay any indemnification obligations pursuant to this Section 9.3
shall be adjusted to take into account any conversions, exchanges, stock splits,
reverse stock splits, stock dividends or other reclassifications or changes
thereof, or consolidations or reorganizations of Acquiror.
(e) For purposes of Section 9.3, Losses shall be decreased by any
insurance proceeds recovered by the indemnified party or any affiliate thereof
(after reduction for any costs incurred in connection therewith, including,
retrospective premium adjustments, experience-based premium adjustments, and
indemnification obligations). Each of the Stockholders acknowledges and agrees
that neither the Acquiror nor the Company shall have any obligation to maintain
insurance or be obligated to have to resort to litigation against insurance
carriers in order to pursue any insurance claims.
(f) Except for Section 9.3(a)(iv), no claim or action may be made under
this Section 9.3 for the first $50,000 (the "Special Indemnity Deductible") in
the aggregate; provided, however that the amounts of any claims or actions made
under Section 9.3(a)(iv), shall be applied against the Special Indemnity
Deductible notwithstanding the fact that such a claim or action may be less than
$100,000.
SECTION 9.4. Stockholders Indemnification For Breaches of Representations and
Warranties of Section 2.15.
(a) Without limiting the generality of Section 9.2 and Section 9.3, the
Stockholders hereby agree to indemnify and hold the Acquiror Indemnified Persons
harmless against all Losses resulting from, imposed upon or incurred by any
Acquiror Indemnified Person, directly or indirectly, as a result of any
inaccuracy or breach of any representations or warranties contained in Section
2.15 of this Agreement of which the Company or any Stockholder has knowledge as
of the date hereof or as of the Closing Date.
(b) For purposes of Section 9.4, Losses shall be decreased by any
insurance proceeds recovered by the indemnified party or any affiliate thereof
(after reduction for any costs incurred in connection therewith, including,
retrospective premium adjustments, experience-based premium adjustments, and
indemnification obligations). The Acquiror acknowledges and agrees that the
Stockholders shall not have any obligation to maintain insurance or be obligated
to have to resort to litigation against insurance carriers in order to pursue
any insurance claims.
SECTION 9.5. Acquiror's General Indemnification.
(a) The Acquiror hereby agrees to indemnify and hold the Stockholders
harmless against all Losses resulting from, imposed upon or incurred by any
Stockholder, directly or indirectly, as a result of any failure by Acquiror to
perform or comply with any covenant or agreement contained in this Agreement
(but not any representation or warranty of the Acquiror) or in any document,
certificate or agreement furnished pursuant to this Agreement. Notwithstanding
the foregoing, the parties acknowledge and agree that no Stockholder shall have
the right to seek indemnification hereunder as a result of any breach of any of
the Employment Agreements. The parties further acknowledge and agree that the
amount of indemnification liability and obligation under this Section 9.5(a)
shall not exceed in the aggregate Five Million Dollars ($5,000,000).
(b) For purposes of Section 9.5, Losses shall be decreased by any
insurance proceeds recovered by the indemnified party or any affiliate thereof
(after reduction for any costs incurred in connection therewith, including,
retrospective premium adjustments, experience-based premium adjustments, and
indemnification obligations). The Acquiror acknowledges and agrees that the
Stockholders shall not have any obligation to maintain insurance or be obligated
to have to resort to litigation against insurance carriers in order to pursue
any insurance claims.
(c) No claim or action may be made under this Section 9.5 until the Stockholders
have incurred $25,000 of Losses, in the -----------
aggregate.
SECTION 9.6. Indemnification Procedures.
(a) In the event that an Acquiror Indemnified Person has a claim or
demand (a "Claim") under Section 9.3 or Section 9.4 of this Article IX for
indemnification for Losses, such Acquiror Indemnified Person shall send a
written notice to the Stockholders' Representative (a "Claims Notice") stating
(i) the facts or circumstances set forth in reasonable detail that gave rise to
such Claim, and (ii) the amount or the estimated amount thereof to the extent
then feasible (which estimate shall not be conclusive of the final amount of
such Claim).
(b) Upon receipt of a Claims Notice, the Stockholders' Representative
shall have twenty (20) days (the "Notice Period") to notify the Acquiror
Indemnified Person in writing that (i) the Stockholders' Representative disputes
the liability of the Stockholders to the Acquiror Indemnified Person, or (ii)
the Stockholders' Representative acknowledges and agrees in writing (the
"Acknowledgement") that such Claim is indemnifiable under this Article IX. The
Acknowledgement shall constitute a waiver of any rights the Stockholders'
Representative or the Stockholders may have hereunder to contest the
classification of any such Claim as indemnifiable hereunder. In the event the
Stockholders' Representative does not acknowledge the Claim, whether by failure
of the Stockholders' Representative to deliver a timely Acknowledgment as
provided above or otherwise, then the Acquiror Indemnified Person, without
waiving any rights against the Stockholders, may settle, compromise or defend
against any such Claim in the Acquiror Indemnified Person's sole discretion. In
such event, (i) the Acquiror Indemnified Person shall be entitled to seek
recovery from the Stockholders for all Losses with respect to such Claim,
including the amount of any settlement, compromise or judgment and, on an
ongoing basis, all indemnifiable costs and expenses of the Acquiror Indemnified
Person with respect thereto, including interest from the date such costs and
expenses were incurred and (ii) the Stockholders, in contesting the right of the
Acquiror Indemnified Person to so recover against the Stockholders, must, in
order to prevail, demonstrate by clear and convincing evidence that the
settlement or compromise was not reasonable.
(c) In the event the Stockholders' Representative delivers the
Acknowledgement within the Notice Period, no settlement or compromise of such
Claim shall be executed without the Acquiror first seeking the prior written
consent of the Stockholders' Representative (which consent may not be
unreasonably withheld); provided, however, nothing herein shall be deemed to
limit the exclusive right of the Acquiror in its sole discretion to defend,
compromise or settle any proceeding involving or relating to the Acquiror. In
the event the Stockholders' Representative does not consent to any settlement or
compromise of a Claim proposed by the Acquiror, whether by failure of the
Stockholders' Representative to deliver a timely consent or otherwise, then the
Acquiror Indemnified Person, without waiving any rights against the
Stockholders, may settle, compromise or defend against any such Claim in the
Acquiror Indemnified Person's sole discretion and the Acquiror Indemnified
Person shall be entitled to recover from the Stockholders all Losses with
respect to such Claim, including the amount of any settlement or compromise to
the extent reasonable and, on an ongoing basis, all indemnifiable costs and
expenses of the Acquiror Indemnified Person with respect thereto, including
interest from the date such costs and expenses were incurred.
(d) Nothing herein shall be deemed to prevent an Acquiror Indemnified
Person from making a Claim, and an Acquiror Indemnified Person may make a Claim
hereunder, for potential or contingent claims or demands provided the Claims
Notice sets forth the specific basis for any such potential or contingent claim
or demand to the extent then feasible and the Acquiror Indemnified Person has
reasonable grounds to believe that such a claim or demand may be made.
(e) An Acquiror Indemnified Person's failure to give reasonably prompt
notice to the Stockholders' Representative of any actual, threatened or possible
claim or demand which may give rise to a right of indemnification hereunder
shall not relieve the Stockholders of any liability which the Stockholders may
have to the Acquiror Indemnified Person unless the failure to give such notice
materially and adversely prejudiced the Stockholders.
SECTION 9.7. Remedies Exclusive; Pre-Closing Breaches; Other Agreements.
(a) Except for fraud and other tortious claims based on the intentional
or willful acts of the Company or the Stockholders, this Article IX shall be the
Acquiror's sole and exclusive remedy after the Closing for breaches by the
Company or the Stockholders of this Agreement. Except for fraud, other tortious
claims based on the intentional or willful acts of the Acquiror, or claims under
the Securities Act, the Exchange Act, any state securities laws, the rules,
regulations and other administrative regulations promulgated under the
Securities Act or the Exchange Act and any state securities laws, this Article
IX shall be the Stockholders' sole and exclusive remedy after the Closing for
breaches of covenants or agreements by the Acquiror of this Agreement.
(b) Nothing herein shall limit the liability of the Acquiror, the
Company or the Stockholders for any breach of any representation, warranty,
agreement or covenant contained in this Agreement if the Exchange is not
consummated.
(c) After August 15, 2002, in the event that at any time the
Stockholders have paid the Acquiror Indemnified Persons for Losses pursuant to
Section 9.2(a), Section 9.3(a) and Section 9.4(a) in an amount in excess of
seventy-five percent (75%) of the then applicable Special Indemnity Cap (plus
the amount of any indemnification Losses paid by the Stockholders pursuant to
Section 9.2(a)), each Stockholder shall have, for a period of sixty (60) days
beginning on the date such seventy-five percent (75%) threshold is met, the
right to terminate any employment agreements, non-competition agreements or
non-solicitation agreements which such Stockholder has previously entered into
with the Acquiror (or any affiliate of Acquiror).
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1. Notices.
All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the date delivered, mailed or transmitted, and shall be effective upon
receipt, if delivered personally, mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
changes of address) or sent by electronic transmission to the telecopier number
specified below:
(a) If to Acquiror:
Hagler Bailly, Inc.
1530 Wilson Boulevard
Arlington, Virginia 22209
Telecopier No.: (703) 528-8573
Attention: Stephen V.R. Whitman
With a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Telecopier No.: (202) 637-5910
Attention: David B.H. Martin, Jr.
(b) If to the Company:
GKMG, Inc.
1054 31st Street, N.W.
Washington, D.C. 20007
Telecopier No.: (202) 337-8787
Attention: Mr. Morris R. Garfinkle
With a copy (which shall not constitute notice) to:
Arent Fox Kintner Plotkin & Kahn, PLLC
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036-5339
Telecopier No.: (202) 857-6395
Attention: Mr. James B. Halpern
(c) If to the Stockholders:
c/o Stockholders' Representative
James Miller
1054 31st Street, N.W.
Washington, D.C. 20007
Telecopier No.: (202) 337-8787
SECTION 10.2. Certain Definitions.
(a) "Acquiror Material Adverse Effect" means, with respect to Acquiror, any
event, change, circumstance, condition, development, effect or occurrence that
individually or in the aggregate (taking into account all other such events,
changes, circumstances, conditions, developments, effects or occurrences) has
had, caused or resulted in (or with the passage of time would be reasonably
likely to have, cause, or result in) a material adverse effect on the
business, operations, earnings, assets, properties, results of operations or
condition (financial or otherwise) of Acquiror and Acquiror's Subsidiaries,
taken as a whole, except to the extent that any such event, change,
circumstance, condition, development, effect or occurrence relates to a change
in the market price or trading volume of the securities of Acquiror.
(b) "affiliate" means a person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
the first mentioned person.
(c) "Assets" shall mean the assets, rights and properties, whether owned, leased
or licensed, real, personal or mixed, tangible or intangible, that are used,
useful or held for use in connection with the business of an entity.
(d) "Blue Sky Laws" shall mean state securities or "blue sky" laws.
(e) "cause" shall mean (i) failure to comply with material rules, standards, or
procedures reasonably promulgated by the Acquiror (or any affiliate of
Acquiror) in accordance with ordinary and usual business standards, or
dereliction of assigned responsibilities (such failure or dereliction
remaining uncured for (30) days after receiving written notice from the
Acquiror (or any affiliate of Acquiror) of such failure or dereliction that
specifically describes the nature of such alleged failures); (ii) substandard
performance of assigned responsibilities measured in accordance with
performance standards agreed upon from time to time by employee and the
Acquiror (or any affiliate of Acquiror); (iii) material violation by employee,
or any other person acting upon his/her specific directions, of a federal,
state or local statute, rule or regulation applicable to the Acquiror (or any
affiliate of Acquiror), to its management, or to the operation of Acquiror's
business; (iv) material breach of the terms of any employment agreement; (v)
knowing falsification of the Acquiror's (or any affiliate of Acquiror) records
or documents; (vi) gross negligence; (vii) conviction of employee, or any
other person acting upon Employee's specific directions, of any misdemeanor
that involves fraud or a material loss to the Acquiror (or any affiliate of
Acquiror) or of a felony; or (viii) any act of dishonesty or moral turpitude.
(f) "business day" shall mean any day other than a day on which banks in the
Commonwealth of Virginia are authorized or obligated to be closed.
(g) "Company Material Adverse Effect" means, with respect to the Company, any
event, change, circumstance, condition, development, effect or occurrence that
individually or in the aggregate (taking into account all other such events,
changes, circumstances, conditions, developments, effects or occurrences) has
had, caused or resulted in (or with the passage of time would be reasonably
likely to have, cause, or result in) a material adverse effect on the
business, operations, earnings, assets, properties, results of operations or
condition (financial or otherwise) of the Company and Company's Subsidiaries,
taken as a whole.
(h) "control" (including the terms "controlled by" and "under common control
with") means the possession, directly or indirectly or as trustee or executor,
of the power to direct or cause the direction of the management or policies of
a person, whether through the ownership of stock or as trustee or executor, by
contract or credit arrangement or otherwise."Encumbrances" means mortgages,
liens, pledges, encumbrances, security interests, deeds of trust, options,
encroachments, reservations, orders, decrees, judgments, restrictions,
charges, contract rights, claims or equity of any kind.
(i) "GAAP" means generally accepted accounting principles consistently applied.
(j) "Government Contract" means any Agreement with or for (and any subcontract
at any tier under an Agreement with or for) any foreign, federal, state or
local governmental agency, department, commission, board, bureau, authority or
instrumentality.
(k) "Government Entity" means any United States or other national, state,
municipal or local government, domestic or foreign, any subdivision, agency,
entity, commission or authority thereof, or any quasi-governmental or private
body exercising any regulatory, taxing, importing or other governmental or
quasi-governmental authority.
(l) "including" means "including but not limited to."
(m) "knowledge" with respect to the Company, a Company Subsidiary or a
Stockholder means the actual knowledge of the officers, employees or
stockholders of the Company.
(n) "Laws" means all foreign, federal, state and local laws, statues,
ordinances, regulations, rules, resolutions, orders, determinations, writs,
injunctions, awards (including, without limitation, awards of any arbitrator),
judgments and decrees applicable to the specified persons or entities.
"Losses" means all demands, losses, claims, actions or causes of action,
assessments, damages, liabilities, costs and expenses, including, without
limitation, interest, penalties and reasonable attorneys' fees and
disbursements; provided, however, there shall be no gross-up for Taxes in the
calculation of Losses.
(o) "person" means an individual, corporation, partnership, association, trust,
unincorporated organization, other entity or group (as defined in Section
13(d) of the Exchange Act).
(p) "Spinoff Agreement" means that certain Spinoff Agreement, dated as of
January 31, 1999, by and between GKMG, Inc., GKMG Consulting Services, Inc.,
Steven John Fellman, Edward D. Greenberg, Keith G. Swirsky, David K. Monroe,
David P. Street, Richard B. Bar and M. Roy Goldberg, Galland, Kharasch,
Greenberg, Fellman & Swirsky, P.C., Morris R. Garfinkle, James F. Miller, Samuel
W. Fairchild, Anita M. Mosner, Xianping Wang, and Michael P. Fleming.
(q) "Subsidiary" means any corporation, partnership, joint venture or other
legal entity of which such person (either alone or through or together with
any other Subsidiary) (i) owns, directly or indirectly, fifty percent (50%) or
more of the stock, partnership interests or other equity interests the holders
of which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation, partnership, joint
venture or other legal entity; or (ii) possesses, directly or indirectly,
control over the direction of management or policies of such corporation,
partnership, joint venture or other legal entity (whether through ownership of
voting securities, by agreement or otherwise).
(r) "Taxes" shall mean all federal, state, local and foreign taxes (including
income, profit, franchise, sales, use, real property, personal property, ad
valorem, excise, employment, social security and wage withholding taxes) and
installments of estimated taxes, assessments, deficiencies, levies, imports,
duties, license fees, registration, fees, withholdings or other similar
charges of every kind, character or description imposed by any governmental
authorities, and any interest, penalties or additions to tax imposed thereon
or in connection therewith.
SECTION 10.3. Headings.
The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
SECTION 10.4. Severability.
If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
SECTION 10.5. Entire Agreement.
This Agreement (together with the Exhibits, the Schedules and
the other documents delivered pursuant hereto), together with the Related
Agreements, constitute the entire agreement of the parties and supersede all
prior agreements and undertakings, both written and oral, between the parties,
or any of them, with respect to the subject matter hereof and, except as
otherwise expressly provided herein, are not intended to confer upon any other
person any rights or remedies hereunder.
SECTION 10.6. Specific Performance.
The transactions contemplated by this Agreement are unique.
Accordingly, each of the parties acknowledges and agrees that, in addition to
all other remedies to which it may be entitled, each of the parties hereto is
entitled to a decree of specific performance, provided such party is not in
material default hereunder.
SECTION 10.7. Assignment.
Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties; provided, however, that Acquiror shall have the right to assign this
Agreement without the prior written consent of the Company to a direct or
indirect subsidiary of Acquiror, but no such assignment shall relieve Acquiror
of its obligations hereunder. Subject to the preceding sentence, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns and personal representatives.
SECTION 10.8. Third Party Beneficiaries.
This Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and nothing in this Agreement, express or implied,
is intended to or shall confer upon any other person any right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 10.9. Governing Law.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law.
SECTION 10.10. Counterparts.
This Agreement may be executed and delivered in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed and delivered shall be deemed to be an original but all
of which taken together shall constitute one and the same agreement.
SECTION 10.11. Fees and Expenses.
Except as otherwise provided for in this Agreement, each party
hereto shall pay its own fees, costs and expenses incurred in connection with
this Agreement and in the preparation for and consummation of the transactions
provided for herein.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this SHARE EXCHANGE
AGREEMENT to be executed and delivered as of the date first written above.
HAGLER BAILLY, INC.
By: /s/ Stephen V.R. Whitman
Name: Stephen V.R. Whitman
Title: Senior Vice President
& General Counsel
- ------------------------------------------------------------------------------
GKMG, INC.
By: /s/ Morris Garfinkle
Name: Morris Garfinkle
Title: President
/s/ Morris Garfinkle
MORRIS GARFINKLE
/s/ James Miller
JAMES MILLER
/s/ Sam Fairchild
SAM FAIRCHILD
/s/ Xianping Wang
XIANPING WANG
/s/ Anita Mosner
ANITA MOSNER
/s/ Michael Fleming7
MICHAEL FLEMING
<PAGE>
- 10 -
EXHIBIT 4.1
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into this 12th
day of August 1999, by and between HAGLER BAILLY, INC., a Delaware corporation
(the "Acquiror"), and JAMES F. MILLER, acting by virtue of the Share Exchange
Agreement (as hereinafter defined) as the attorney-in-fact and representative
(the "Stockholders' Representative") of the stockholders listed in Schedule A
attached hereto (the "Stockholders") of GKMG, Inc., a District of Columbia
corporation (the "Company"). Certain capitalized terms used herein are defined
in Section 10 of this Agreement.
WHEREAS, on or about the date hereof, the Stockholders have or will have become
the owners of shares of Acquiror's Common Stock, par value $.01 per share
("Acquiror Common Stock"); and
WHEREAS, as part of the inducement for the parties hereto to enter into and
perform the Share Exchange Agreement (the "Share Exchange Agreement"), dated as
of August 12, 1999, among the Company, Acquiror, and the Stockholders, the
parties hereto have agreed to enter into this Agreement in order to provide,
among other things, for certain registration rights.
NOW, THEREFORE, the parties hereto, in consideration of the foregoing, the
mutual covenants and agreements hereinafter set forth, and other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, agree as follows:
1. Term. This Agreement shall terminate on the date on which the Stockholders
could sell all of their Registerable Securities to the public in a single
transaction pursuant to the provisions of Rule 144 under the Securities Act,
provided, however, the indemnification provisions of Section 6 hereof shall
survive the termination of
this Agreement.
2. Piggyback Registration Rights.
(a) If at any time or times Acquiror proposes to make a registered public
offering of any of its securities (whether for its own account or for the
account of others) under the Securities Act, Acquiror shall (i) promptly give
written notice of the proposed registration to each of the Stockholders (such
notice to include the number of shares the Company or other security holders
propose to register and, if known, the name of the proposed underwriter) and
(ii) use reasonable efforts to include in such registration (and any related
qualification under Blue Sky laws and/or other compliance) all the Registerable
Securities specified in a written request or requests made by any Stockholder
within 30 days after the receipt of such notice from the Company (a "Piggyback
Registration"). Such written request may specify all or a part of a holder's
Registerable Securities, provided, however, that (x) Acquiror will not be
required to effect a Piggyback Registration if it is registering securities on
Forms S-8 or S-4 (or any successor forms) or other SEC registration form not
suitable for inclusion of shares of selling stockholders for offer to the
public, and (y) Acquiror may withdraw any proposed registration statement or
offering of securities under this Section 2 at any time without liability to any
Stockholder, in which case Acquiror will not be required to effect a
registration.
b) If a Piggyback Registration is an underwritten primary registration on
behalf of Acquiror, and the managing underwriter advises Acquiror in writing
that in the managing underwriter's opinion the number of securities requested to
be included in such registration exceeds the number that can be sold in such
offering without adversely affecting the marketability of the offering, Acquiror
shall include in such offering first, the securities of Acquiror proposed to be
sold by Acquiror and second, all other securities held by security holders
having applicable registration rights, including the Registerable Securities,
requested to be included in such registration by all other security holders
having applicable registration rights (including the Stockholders), pro rata
among such security holders, based upon the number of shares requested by each
to be included in such registration. In addition, if a Piggyback Registration is
an underwritten primary registration on behalf of Acquiror, the selling
Stockholders agree to sell their Acquiror Common Stock, if Acquiror so requests,
on the same basis as the other securities included in such registration are
being sold and the underwriter or underwriters for such registration shall be
selected by Acquiror. If a Piggyback Registration is an underwritten secondary
registration on behalf of selling stockholders, and the managing underwriter
advises Acquiror in writing that in the managing underwriter's opinion the
number of securities requested to be included in such registration exceeds the
number that can be sold in such offering without adversely affecting the
marketability of the offering, then Acquiror shall include in such offering
first, the securities of Acquiror proposed to be sold by the stockholders
requiring or demanding that Acquiror effect such registration and second, all
other securities held by security holders having applicable registration rights,
including the Registerable Securities, requested to be included in such
registration by all other security holders having applicable registration rights
(including the Stockholders), pro rata among such security holders, based upon
the number of shares requested by each to be included in such registration.
3. Registration Procedures.
(a) The Acquiror shall have no obligation to include Registerable
Securities owned by the Stockholders in a registration statement for a Piggyback
Registration, unless and until the Stockholders have furnished to Acquiror all
information and statements about or pertaining to the Stockholders in such
reasonable detail and on such timely basis as is reasonably deemed by Acquiror
to be necessary or appropriate for the preparation of the registration
statement.
(b) Whenever the Stockholders have requested that
Registerable Securities be registered in a Piggyback
Registration, Acquiror shall keep each Stockholder advised in writing as to the
initiation of each registration and as to the completion thereof. As
expeditiously as reasonably possible, Acquiror shall:
(1) prepare and file with the SEC a registration statement with respect to
such Registerable Securities and use reasonable efforts, subject to Section
2(a)(y), to cause such registration statement to become effective (provided that
before filing a registration statement or prospectus or any amendments or
supplements thereto, Acquiror will furnish to one counsel selected by the
Stockholder's Representative copies of all such documents proposed to be filed,
which documents will be subject to the review of such counsel);
(2) furnish to the Stockholders the number
of copies of such registration statement, each
amendment and supplement thereto, the prospectus contained in such registration
statement (including each preliminary prospectus), and such other documents as
the Stockholders from time to time may reasonably request;
(3) use reasonable efforts to register or
qualify such shares under the state blue sky or
securities ("Blue Sky") laws of such jurisdictions as any Stockholder reasonably
requests, and to do any and all other acts and things that may be reasonably
necessary or advisable to enable the Stockholders to consummate the disposition
of such shares in such jurisdictions; provided, however, that Acquiror will not
be required to do any of the following: (i) qualify generally to do business in
any jurisdiction where it is not then so qualified or otherwise required to be
so qualified but for this Section 3(b), or (ii) take any action which would
subject it to the service of process in actions other than those arising out of
such registration;
(4) notify the Stockholders, at any time when a prospectus relating to the
Registerable Securities is required to be delivered under the Securities Act, of
the occurrence of any event as a result of which the prospectus included in any
such registration statement contains an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein in the light of the circumstances under which they
were made, not misleading, and prepare and furnish to such Stockholders a
reasonable number of copies of a supplement or amendment to the prospectus as
may be necessary so that, as thereafter delivered to the purchasers of such
shares, the prospectus will not contain an untrue statement of a material fact
or omit to state any fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances then existing, not
misleading;
(5) cause all such Registerable Securities to be listed on each securities
exchange on which similar securities issued by Acquiror are then listed and, if
not so listed, to be listed on the National Association of Securities Dealers
("NASD") Automated Quotation ("Nasdaq") system and, if listed on the Nasdaq
system, use reasonable efforts to secure designation of all such Registerable
Securities covered by such registration statement as a Nasdaq "national market
system security" within the meaning of Rule 11Aa2-1 of the SEC or, failing that,
to secure Nasdaq authorization for such Registerable Securities;
(6) provide a transfer agent and registrar for all such Registerable
Securities (if Acquiror does not already have such an agent) not later than the
effective date of such registration statement;
(7) enter into such customary agreements
(including underwriting agreements in customary
form) and take all such other actions as the holders of a majority of the
Registerable Securities being sold or the underwriters, if any, reasonably
request in order to expedite or facilitate the disposition of such Registerable
Securities (including, without limitation, effecting a stock split or a
combination of shares);
(8) make available all financial and other
records, pertinent corporate documents and
properties of Acquiror for inspection by, and cause Acquiror's officers,
directors, employees and independent accountants to supply all information
reasonably requested by, any seller of Registerable Securities, any underwriter
participating in any disposition pursuant to such registration statement and any
attorney, accountant or other agent retained by any such seller or underwriter
in connection with such registration statement who executes any reasonable
confidentiality agreement that may be reasonably requested by Acquiror or who is
bound by fiduciary duty or professional responsibility to preserve the
confidentiality thereof;
(9) otherwise use reasonable efforts to
comply with all applicable rules and regulations of
the SEC, and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at least 12 months
beginning with the first day of Acquiror's first full calendar quarter after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder; and
(10) use reasonable efforts to cause such
Registerable Securities covered by such registration
statement to be registered with or approved by such other governmental agencies
or authorities as may be necessary to enable the sellers thereof to consummate
the disposition of such Registerable Securities.
4. Holdback Agreements. (a) Each holder of Registerable Securities who is
included in the Registration Statement agrees not to effect any public sale or
distribution (including sales pursuant to Rule 144) of equity securities of
Acquiror, or any securities convertible into or exchangeable or exercisable for
such securities, during the seven days prior to and the 90-day period beginning
on the effective date of any underwritten Piggyback Registration (except as part
of such underwritten registration), unless the underwriters managing the
registered public offering otherwise agree.
(b) The Acquiror agrees (i) not to effect any public
sale or distribution of its equity securities, or
any securities convertible into or exchangeable or exercisable for such
securities, during the seven days prior to and during the 90-day period
beginning on the effective date of any underwritten Piggyback Registration
(except as part of such underwritten registration or pursuant to registrations
on Form S-8 or Form S-4 or any successor form), unless the underwriters managing
the registered public offering otherwise agree, and (ii) to use reasonable
efforts to cause each Person that, during the 30-day period prior to the
effective date of such Piggyback Registration, holds shares of Acquiror Common
Stock (or securities convertible into or exercisable or exchangeable for
Acquiror Common Stock) received from Acquiror in an amount which, on a fully
diluted basis, exceeds 1% of Acquiror Common Stock then outstanding (on a fully
diluted basis), to agree not to effect any public sale or distribution
(including sales pursuant to Rule 144) of any such securities during such period
(except as part of such underwritten registration, if otherwise permitted),
unless the underwriters managing the registered public offering otherwise agree.
5. Registration Expenses. (a) If Registerable Securities are included in a
registration statement for a Piggyback Registration, then each selling
Stockholder shall pay all transfer taxes, if any, relating to the sale of its
shares, the fees and expenses of its own counsel, and its pro rata portion of
any underwriting discounts or commissions or the equivalent
thereof.
(b) If Registerable Securities are included in a registration statement for
a Piggyback Registration, then except for the fees and expenses specified in
Section 5(a) hereof and except as provided below in this Section 5(b),
regardless of whether any registration statement becomes effective, Acquiror
shall pay all expenses incident to a Piggyback Registration, including, without
limitation, all registration, qualification and filing fees, fees and expenses
of compliance with Blue Sky laws, underwriting discounts, fees, and expenses
(other than the Stockholders' pro rata portion of any underwriting discounts or
commissions or the equivalent thereof), printing expenses, messenger and
delivery expenses, and fees and expenses of counsel for Acquiror and all
independent certified public accountants and other persons retained by Acquiror.
6. Indemnification.
(a) The Acquiror agrees to indemnify, to the extent permitted by law, each
holder of Registerable Securities, each Person who controls such holder (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) and their respective officers, directors, partners, employees, agents and
representatives, against all losses, claims, damages, liabilities and expenses
("Losses") arising out of or based upon any untrue or alleged untrue statement
of material fact contained in any registration statement, prospectus, or
preliminary prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, except insofar as the same are caused by
or contained in any information furnished in writing to Acquiror by such holder
expressly for use therein or by such holder's failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements thereto
after Acquiror has furnished such holder with a sufficient number of copies of
the same and except insofar as the same are caused by or contained in any
prospectus if such holder failed to send or deliver a copy of any subsequent
prospectus or prospectus supplement which would have corrected such untrue or
alleged untrue statement of material fact or such omission or alleged omission
of a material fact with or prior to the delivery of written confirmation of the
sale by such holder after Acquiror has furnished such holder with a sufficient
number of copies of the same. In connection with an underwritten offering,
Acquiror will indemnify such underwriters, each Person who controls such
underwriters (within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act) and their respective officers, directors, partners,
employees, agents and representatives to the same extent as provided above with
respect to the indemnification of the holders of Registerable Securities.
(b) In connection with any registration statement in
which holders of Registerable Securities are
participating, each such holder will furnish to Acquiror in writing such
information and affidavits as Acquiror reasonably requests for use in connection
with any such registration statement or prospectus and, to the extent permitted
by law, will indemnify Acquiror, each Person who controls Acquiror (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
and their respective officers, directors, partners, employees, agents and
representatives against any Losses arising out of or based upon any untrue or
alleged untrue statement of a material fact contained in any registration
statement, prospectus, or form of prospectus, or arising out of or based upon
any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, to the extent, but
only to the extent, that such untrue or alleged untrue statement is contained
in, or such omission or alleged omission is required to be contained in, any
information so furnished in writing by such holder to Acquiror expressly for use
in such registration statement or prospectus and that such statement or omission
was relied upon by Acquiror in preparation of such registration statement,
prospectus or form of prospectus; provided, however, that such holder of
Registerable Securities shall not be liable in any such case to the extent that
the holder has furnished in writing to the Company prior to the filing of any
such registration statement or prospectus or amendment or supplement thereto
information expressly for use in such registration statement or prospectus or
any amendment or supplement thereto which corrected or made not misleading
information previously furnished to Acquiror, and Acquiror failed to include
such information therein. In no event shall the liability of any selling holder
of Registerable Securities hereunder be greater in amount than the dollar amount
of the proceeds (net of payment of all expenses) received by such holder upon
the sale of the Registerable Securities giving rise to such indemnification
obligation. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such indemnified party.
(c) If any Person shall be entitled to indemnity
hereunder, such indemnified party shall give prompt
notice to the party or parties from which such indemnity is sought of the
commencement of any action, suit, proceeding or investigation or written threat
thereof ("Proceeding") with respect to which such indemnified party seeks
indemnification or contribution pursuant hereto; provided, however, that the
failure to so notify the indemnifying parties shall not relieve the indemnifying
parties from any obligation or liability hereunder except to the extent that the
indemnifying parties have been prejudiced by such failure. The indemnifying
parties shall have the right, exercisable by giving written notice to an
indemnified party promptly after the receipt of written notice from such
indemnified party of such Proceeding, to assume, at the indemnifying parties'
expense, the defense of any such Proceeding, with counsel reasonably
satisfactory to such indemnified party; provided, however, that an indemnified
party or parties (if more than one such indemnified party is named in any
Proceeding) shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such indemnified party or parties
unless the parties to such Proceeding include both the indemnified party or
parties and the indemnifying party or parties, and there exists, in the opinion
of the parties' counsel, a conflict between one or more indemnifying parties and
one or more indemnified parties, in which case the indemnifying parties shall,
in connection with any one such Proceeding or separate but substantially similar
or related Proceedings in the same jurisdiction, arising out of the same general
allegations or circumstances, be liable for the fees and expenses of not more
than one separate firm of attorneys (together with appropriate local counsel) at
any time for such indemnified party or parties. If an indemnifying party assumes
the defense of such Proceeding, the indemnifying parties will not be subject to
any liability for any settlement made by the indemnified party without its or
their consent (such consent not to be unreasonably withheld).
(d) If the indemnification provided for in this Section 6 is unavailable to an
indemnified party or is --------- insufficient to hold such indemnified
party harmless for any Losses in respect of which this Section 6 would
otherwise apply by its terms, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall have a joint and several
obligation to contribute to the amount paid or payable by such indemnified
party as a result of such Losses, in such proportion as is appropriate to
reflect the relative fault of the indemnifying party, on the one hand, and
such indemnified party, on the other hand, in connection with the actions,
statements or omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such indemnifying
party, on the one hand, and indemnified party, on the other hand, shall be
determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact, has been
taken by, or relates to information supplied by, such indemnifying party or
indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent any such action,
statement or omission. The amount paid or payable by a party as a result of
any Losses shall be deemed to include any legal or other fees or expenses
incurred by such party in connection with any Proceeding, to the extent
such party would have been indemnified for such expenses under Section 6(c)
if the indemnification provided for in Section 6(a) or 6(b) was available
to such party. The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 6(d) were determined by
pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in this paragraph.
Notwithstanding the provision of this Section 6(d), an indemnifying party
that is a selling holder of Registerable Securities shall not be required
to contribute any amount in excess of the amount by which the net proceeds
received by such indemnifying party exceeds the amount of any damages that
such indemnifying party has otherwise been required to pay by reasons of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation. 7.
Information by Holder. Each holder of Registerable Securities shall furnish
to the Acquiror and to the managing underwriter such information regarding
such holder and the distribution proposed by such holder as the Acquiror or
the managing underwriter may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in Section 3.
8. Rule 144 Reporting. With a view to making available the benefits of certain
rules and regulations ------------------ of the SEC which may permit the
sale of restricted securities (as that term is defined in Rule 144(a)(3)
under the Securities Act) to the public without registration, Acquiror
agrees to:
(a) use reasonable efforts to file with the SEC in a timely manner all reports
and other documents
required of the Company under the Securities Act and the Exchange Act; and
(b) so long as any holder of Registerable Securities
owns any restricted securities, furnish to such
holder upon request a written statement by the Acquiror as to its compliance
with the reporting requirements of the Securities Act and the Exchange Act, a
copy of the most recent annual or quarterly report of the Acquiror, and such
other reports and documents so filed as a holder may reasonably request in
availing itself of any rule or regulation of the SEC allowing such holder to
sell any such securities without registration.
9. Representations and Warranties of Acquiror. The Acquiror hereby represents
and warrants to the Stockholders, as of the date hereof, as follows:
(a) Acquiror has the necessary corporate power and authority to enter into
this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Acquiror and the consummation by Acquiror of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
and no other corporate proceedings on the part of Acquiror are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly executed and delivered by Acquiror and, assuming
the due authorization, execution and delivery by the Stockholders'
Representative on behalf of the Company, constitutes a legal, valid and binding
obligation of Acquiror, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general applicability relating to or
affecting creditors' rights generally and by the application of general
principles of equity.)
(b) The execution and delivery of this Agreement by Acquiror does not, and
the performance by Acquiror of its obligations under this Agreement will not,
(i) conflict with or violate the certificate of incorporation or bylaws of
Acquiror, (ii) conflict with or violate any law, statute, ordinance, rule,
regulation, order, judgment or decree whether national or foreign, applicable to
Acquiror or its assets and properties, or (iii) result in any breach of or
constitute a default under any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Acquiror is a party or by which Acquiror is bound, or by which any of
its properties or assets is subject.
10. Definitions. The following terms shall have the
following meanings for purposes of this Agreement:
"Affiliate" means, with respect to a specified Person, any Person controlling,
controlled by or under common control with such Person.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from time
to time.
"Person" means an individual, a partnership, a corporation, a limited liability
company, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization or a governmental entity or any department, agency
or political subdivision thereof.
"Registerable Securities" means all shares of Acquiror Common Stock held at the
relevant time by a Stockholder, and any other issued or issuable shares of
Acquiror Common Stock issued in connection with the Share Exchange Agreement
held by a Stockholder at the relevant time, either at the time of initial
issuance or subsequently, by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization; provided, however, that the parties acknowledge and
agree that all shares of Acquiror Common Stock held in escrow pursuant to the
terms of the Share Exchange Agreement shall not be Registerable Securities
hereunder unless, and until such shares are released from escrow to a
Stockholder; provided, further, that the parties acknowledge and agree that all
shares issuable pursuant to Section 1.5 and Section 1.6 of the Share Exchange
Agreement shall not be Registerable Securities hereunder unless and until such
shares are issued to a Stockholder. As to any particular Registerable
Securities, such securities will cease to be Registerable Securities when they
have been transferred in a public offering registered under the Securities Act
or in a sale made through a broker, dealer or market-maker pursuant to Rule 144
under the Securities Act. For purposes of this Agreement, a Stockholder will be
deemed to be a holder of Registerable Securities whenever such Stockholder has
the right to acquire directly or indirectly such Registerable Securities (upon
conversion or exercise in connection with a transfer of securities or otherwise,
but disregarding any restrictions or limitations upon the exercise of such
right), whether or not such acquisition has actually been effected.
"Securities Act" means the Securities Act of 1933, as amended from time to time.
"SEC" means the Securities and Exchange Commission.
"Stockholders" means all of the stockholders of the Company listed on Schedule A
hereto and any successor or permitted assignee of any of their rights hereunder
that holds Registerable Securities.
11. Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given without the written consent of Acquiror and the Stockholder's
Representative.
12. Notices. All notices and other communications given or made pursuant hereto
shall be in writing and shall be deemed to have been duly given or made as
of the date delivered,
mailed or transmitted, and shall be effective upon receipt, if delivered
personally, mailed by registered or certified mail (postage prepaid, return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like changes of address) or sent by
electronic transmission to the telecopier number specified below:
(i) if to Acquiror:
Hagler Bailly, Inc.
1530 Wilson Boulevard
Arlington, Virginia 22209
Telecopier No.: (703) 528-8573
Attention: Stephen V.R. Whitman, Esq.
With a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Telecopier No.: (202) 637-5910
Attention: David B.H. Martin, Jr., Esq.
(ii) if to the Stockholders' Representative:
James F. Miller
1054 31st Street, N.W.
Washington, D.C. 20007
Telecopier No.: (202) 337-8787
13. Other Registration Rights. Except as provided in this Agreement, Acquiror
will not grant to any Persons any Piggyback Registration rights with
respect to any equity securities of the Company, or any securities
convertible or exchangeable into or exercisable for such securities, which
are materially more favorable to such Persons than the Piggyback
Registration rights granted to the holders of Registerable Securities
hereunder without the prior written consent of the Stockholder's
Representative, unless Acquiror agrees to amend this Agreement to grant
such more favorable rights to the holders of Registerable Securities, in
lieu of the rights granted hereunder.
14. Transfer of Registration Rights; Successors and Assigns. A Stockholder may
not transfer or assign its rights hereunder, in whole or in part, to a
purchaser or other transferee of its Registerable Securities without the
prior approval of the Acquiror, except to an Affiliate or a Family Member
(as defined below) of a Stockholder. For purposes of this Agreement,
"Family Member" shall mean a member of the Stockholder's family, which
shall include such Stockholder's spouse or children or a trust, all of the
beneficial interests in which shall be held by such
Stockholder's spouse or children.
15. Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon the successors and permitted assigns of each of the parties,
including, without limitation and without the need for an express
assignment, Affiliates of the Stockholders. If any Stockholder shall
acquire Registerable Securities, in any manner, whether by operation of law
or otherwise, such Registerable Securities shall be held subject to all of
the terms of this Agreement, and by taking and holding such Registerable
Securities such Person shall be entitled to receive the benefits hereof and
shall be conclusively deemed to have agreed to be bound
by all of the terms and provisions hereof.
16. Severability. If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy,
all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as possible in an
acceptable manner to the end that transactions contemplated
hereby are fulfilled to the extent possible.
17. Counterparts. This Agreement may be executed and delivered in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed and delivered shall be deemed to be an original but all
of which taken together shall constitute one and the same agreement.
18. Headings. The headings in this Agreement are for convenience reference only
and shall not limit or otherwise affect the meaning hereof.
19. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without giving effect to the
conflicts of laws provisions thereof.
20. Specific Performance. The parties hereto acknowledge that there would be no
adequate remedy at law if any party fails to perform any of its obligations
hereunder, and accordingly agree that each party, in addition to any other
remedy to which it may be entitled at law or in equity, shall be entitled to
compel specific performance of the obligations of any other party under this
Agreement in accordance with the terms and conditions of this Agreement in any
court of the United States or any State thereof having jurisdiction.
21. Entire Agreement. This Agreement constitutes the entire agreement of the
parties and supersede all prior agreements and undertakings, both written and
oral, between the parties, or any of them, with respect to the subject matter
hereof and, except as otherwise expressly provided herein, are not intended to
confer upon any other person any rights or remedies hereunder.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed
this Registration Rights Agreement, or caused this Registration Rights Agreement
to be duly executed on its behalf, as of the date first written above.
HAGLER BAILLY, INC.
By: /s/ Stephen V.R. Whitman
Name: Stephen V.R. Whitman
Title: Senior Vice President
& General Counsel
STOCKHOLDERS' REPRESENTATIVE
/s/ James F. Miller
James F. Miller
<PAGE>
SCHEDULE A
Common Stock Common Stock Owned
Stockholder Name and Address Owned of Record Beneficially*/
Morris R. Garfinkle
11954 E. Del Timbre Dr.
Scottsdale, AZ 85259
James F. Miller
11243 Eastwood Drive
Hagerstown, MD 21742
Samuel W. Fairchild
P.O. Box 341
Brookside, NJ 07926
Xianping Wang
9731 Dellford Court
Burke, VA 22015
Anita M. Mosner
9432 Rose Hill Drive
Bethesda, MD 20817
Michael P. Fleming
3530 N. Utah St.
Arlington, VA 22207
- ------------
*/ Explain any differences between record and beneficial ownership.
