<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 3, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CONDOR TECHNOLOGY SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7379 54-1814931
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
1650 TYSONS BOULEVARD, SUITE 600
MCLEAN, VIRGINIA 22102
(703) 847-3290
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------
KENNARD F. HILL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CONDOR TECHNOLOGY SOLUTIONS, INC.
1650 TYSONS BOULEVARD, SUITE 600
MCLEAN, VIRGINIA 22102
(703) 847-3290
(Name and address, including zip code, and telephone
number, including area code, of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
CHRISTOPHER T. JENSEN, ESQ. DOUGLAS R. NEWKIRK, ESQ.
Morgan, Lewis & Bockius LLP Sachnoff & Weaver, Ltd.
101 Park Avenue 30 S. Wacker Drive, 29th Floor
New York, New York 10178 Chicago, Illinois 60606-7484
(212) 309-6000 (312) 207-1000
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED (1) PER SHARE (2) PRICE (1)(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value..................... 6,785,000 shares $15.00 $101,775,000 $30,841
</TABLE>
(1) Includes 885,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any. See "Underwriting."
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(a).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 3, 1997
5,900,000 SHARES
CONDOR TECHNOLOGY SOLUTIONS, INC.
[LOGO]
COMMON STOCK
------------------
All of the 5,900,000 shares of Common Stock offered hereby are being offered
by Condor Technology Solutions, Inc. (the "Company"). Prior to this Offering,
there has been no public market for the Common Stock of the Company. It is
currently anticipated that the initial public offering price will be between
$13.00 and $15.00 per share. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price. Application
has been made to have the Common Stock quoted on the Nasdaq National Market
under the symbol "CNDR."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGES 7 THROUGH 12.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share................................................ $ $ $
Total (3)................................................ $ $ $
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $5,000,000.
(3) The Company has granted to the Underwriters a 45-day option to purchase up
to 885,000 additional shares of Common Stock on the same terms and
conditions set forth above solely to cover over-allotments, if any. If the
Underwriters exercise this option in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if accepted by them and subject to
certain conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
the certificates for the shares of Common Stock will be available for delivery
at the offices of Volpe Brown Whelan & Company, LLC, One Maritime Plaza, San
Francisco, California, on or about , 1997.
VOLPE BROWN WHELAN & COMPANY FURMAN SELZ
The date of this Prospectus is , 1997
<PAGE>
[LOGO]
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
------------------------
The Company owns or otherwise has rights to trademarks and trade names that
it uses in conjunction with the sale and licensing of its products. The Safari
InfoTools-TM- trademark mentioned in this Prospectus is owned by the Company.
All other trademarks or trade names referred to in this Prospectus are the
property of their respective owners.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS AND
RELATED NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS. SIMULTANEOUSLY WITH AND AS
A CONDITION TO THE CLOSING OF THIS OFFERING, CONDOR TECHNOLOGY SOLUTIONS, INC.
WILL ACQUIRE, IN SEPARATE TRANSACTIONS (THE "MERGERS") IN EXCHANGE FOR CASH AND
SHARES OF ITS COMMON STOCK, PAR VALUE $.01 PER SHARE (THE "COMMON STOCK"), EIGHT
INFORMATION TECHNOLOGY ("IT") SERVICE COMPANIES (EACH, A "FOUNDING COMPANY" AND,
COLLECTIVELY, THE "FOUNDING COMPANIES"). UNLESS OTHERWISE INDICATED, ALL
REFERENCES TO THE "COMPANY" HEREIN INCLUDE CONDOR TECHNOLOGY SOLUTIONS, INC. AND
THE FOUNDING COMPANIES, AND REFERENCES HEREIN TO "CONDOR" MEAN CONDOR TECHNOLOGY
SOLUTIONS, INC. PRIOR TO THE CLOSING OF THE MERGERS. FOR MORE INFORMATION ABOUT
THE MERGERS, SEE "CERTAIN TRANSACTIONS."
UNLESS OTHERWISE INDICATED, ALL SHARE, PER SHARE AND FINANCIAL INFORMATION
IN THIS PROSPECTUS: (I) HAS BEEN ADJUSTED TO GIVE EFFECT TO THE MERGERS; (II)
ASSUMES AN INITIAL PUBLIC OFFERING PRICE OF $14.00 PER SHARE; (III) ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION; AND (IV) GIVES EFFECT TO A
ONE-FOR-5.17921 REVERSE STOCK SPLIT TO BE EFFECTIVE ON THE DAY IMMEDIATELY
PRECEDING THE DATE OF THIS PROSPECTUS. EXCEPT AS INDICATED OTHERWISE, ALL
REFERENCES TO THE COMMON STOCK ALSO INCLUDE THE RESTRICTED COMMON STOCK, PAR
VALUE $.01 PER SHARE (THE "RESTRICTED COMMON STOCK"), OF THE COMPANY. SEE
"DESCRIPTION OF CAPITAL STOCK."
THE COMPANY
Condor was established to create a leading provider of IT services and
solutions to companies with revenues ranging from $100 million to $1 billion,
divisions of larger companies and governmental entities (collectively, 'middle
market organizations'). In order to provide a single-source IT solution, the
Company has entered into agreements (the "Merger Agreements") to acquire,
simultaneously with and as a condition to the closing of this Offering, eight
established IT service providers. The Founding Companies are (i) Management
Support Technology Corporation ("MST"); (ii) Computer Hardware Maintenance
Company, Inc. ("CHMC"); (iii) Federal Computer Corporation ("Federal"); (iv)
Corporate Access, Inc. ("Corporate Access"); (v) Interactive Software Systems
Incorporated ("ISSI"); (vi) U.S. Communications, Inc. ("USComm"); (vii)
InVenture Group, Inc. ("InVenture"); and (viii) MIS Technologies, Inc. ("MIS").
The Founding Companies provide a broad range of IT services, including strategic
planning and management consulting; strategic marketing program development and
implementation; development, integration and installation of IT systems;
contract staffing and recruiting; training and continuing education; desktop
systems maintenance and support; and procurement. The Founding Companies, on a
pro forma combined basis, had net revenues of approximately $120.1 million for
the year ended December 31, 1996 and approximately $69.8 million for the six
months ended June 30, 1997.
The Company will focus on marketing its comprehensive IT offerings to middle
market organizations, which typically spend from $2 million to $30 million
annually on their IT needs. The IT service industry has evolved into a highly
fragmented environment with a small number of large, national service providers
and a large number of small- and medium-sized service providers, usually only
regional in scope. Large IT service providers typically address the IT needs of
large organizations with substantial IT requirements for a wide range of
services, whereas smaller IT service firms provide specialized services of
limited scope. Consequently, middle market organizations rely on multiple, often
specialized, smaller IT service providers to help implement and manage their
systems. The Company believes that a single-source IT service provider will help
middle market organizations reduce cost and management complexity and increase
the quality and compatibility of IT solutions.
The Company will seek to deliver comprehensive IT offerings to the financial
services, government, healthcare and technology markets. These markets are
typically characterized by (i) reliance on legacy systems; (ii) platform
migration to client/server architectures; (iii) changing competitive dynamics,
such as globalization and deregulation; and (iv) heavy dependency on database
and proprietary applications. The Company believes that middle market
organizations in these markets have been underserved by large IT
3
<PAGE>
vendors which, due to economic and high cost structures, cannot address the
requirements of the middle market adequately. The Company intends to market its
services through each of the sales forces at the Founding Companies as well as
through the Company's corporate sales force. This approach will allow the
Company to market its services independently or in combination to provide a
solution to a client's specific IT needs.
As part of its strategy, the Company intends to leverage its high-level
planning and strategic consulting services to foster long-term relationships
with clients and to implement technology strategies in order to achieve the
clients' desired IT solutions. The Company also believes it can increase its
revenues from existing clients by cross-selling its services. In addition, by
focusing on recruiting, training and retaining highly skilled IT professionals,
the Company can effectively respond to the shortage of and significant
competition for such professionals.
Another key element of the Company's strategy is the expansion of service
offerings and the addition of new businesses in order to offer new and existing
clients access to a more complete range of services. The Company also will
operate with a decentralized management structure to provide superior client
service and a motivating environment for its various subsidiaries, and will seek
to acquire IT service companies to strengthen its core competencies, to offer
complementary services and to facilitate its expansion into new geographic
areas.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............. 5,900,000 shares
Common Stock to be outstanding after this
Offering...................................... 10,100,000 shares (1)
Use of proceeds................................. To pay the cash portion of the purchase
price for the Founding Companies, to
repay expenses incurred in connection
with the Mergers and this Offering and
for working capital and other general
corporate purposes, including future
acquisitions. See "Use of Proceeds."
Proposed Nasdaq National Market symbol.......... CNDR
</TABLE>
- ------------------------
(1) Includes 2,153,355 shares of Common Stock to be issued in connection with
the Mergers (assuming an initial public offering price of $14.00 per share).
Excludes (x) up to an aggregate of 2,790,214 additional shares (assuming a
stock price of $14.00 per share at the time the additional shares are
issued) that may be issued in connection with the Mergers of six Founding
Companies pursuant to certain earn-out provisions if such Founding Companies
achieve specified earnings thresholds; and (y) shares of Common Stock
issuable upon exercise of options to be granted by the Company in connection
with the Mergers and this Offering. See "Management--1997 Long-Term
Incentive Plan," "Certain Transactions--Organization of the Company,"
"Description of Capital Stock" and "Shares Eligible for Future Sale."
------------------------
4
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
Condor will acquire the Founding Companies simultaneously with and as a
condition to the closing of this Offering. In July 1996, the Securities and
Exchange Commission issued Staff Accounting Bulletin No. 97 ("SAB 97") relating
to business combinations immediately prior to an initial public offering. SAB 97
requires that these combinations be accounted for using the purchase method of
accounting. In accordance with SAB 97, MST has been identified as the
"accounting acquiror" for financial statement presentation purposes. The pro
forma combined table below presents unaudited pro forma combined financial data
for the Company that give effect to the completion of the Mergers and certain
pro forma adjustments to the historical financial statements described below and
as adjusted to reflect the closing of this Offering and the application of the
net proceeds therefrom. The summary pro forma combined financial data are not
necessarily indicative of operating results or financial position that would
have been achieved had the events described above been consummated during the
periods presented and should not be construed as representative of future
operating results or financial position of the Company. See "Selected Financial
Data," the Unaudited Pro Forma Combined Financial Statements and the related
Notes thereto and the Founding Companies' Historical Financial Statements and
the related Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA COMBINED
---------------------------------------------
SIX MONTHS
ENDED JUNE 30,
YEAR ENDED --------------------------
DECEMBER 31, 1996 1996 1997
----------------- ------------ ------------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
DATA)
STATEMENT OF OPERATIONS DATA (1):
Revenues........................................................... $ 120,068 $ 49,300 $ 69,816
Gross profit....................................................... 31,180 12,921 16,827
Selling, general and administrative expenses (2)................... 22,236 9,667 10,856
Goodwill amortization (3).......................................... 1,483 743 743
Income from operations............................................. 7,461 2,511 5,228
Interest and other income, net..................................... 1,222 233 341
Income before income taxes......................................... 8,683 2,744 5,569
Net income (4)..................................................... $ 4,513 $ 1,297 $ 2,992
Net income per share............................................... $ 0.55 $ 0.16 $ 0.37
Shares used in computing pro forma net income
per share (5).................................................... 8,162,114 8,162,114 8,162,114
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------
<S> <C> <C>
AS
PRO FORMA ADJUSTED
COMBINED (6) (7)
------------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................................... $ 2,221 $ 25,810
Working capital................................................................. (39,574)(8) 32,244
Total assets.................................................................... 70,618 94,207
Long-term debt, net of current maturities....................................... 84 84
Stockholders' equity............................................................ 4,933 76,751
</TABLE>
- ------------------------
(1) The pro forma combined statement of operations data assume that the Mergers
and this Offering were consummated on January 1, 1996.
(2) The pro forma combined statement of operations data reflect pro forma
reductions in salaries, bonuses and benefits to the stockholders and
management of the Founding Companies that have been
5
<PAGE>
agreed to prospectively (the "Compensation Differential"). The Compensation
Differential amounted to approximately $1,411,000, $528,000 and $969,000 for
the year ended December 31, 1996 and the six months ended June 30, 1996 and
1997, respectively.
(3) Consists of amortization of $41,194,000 of goodwill to be recorded as a
result of the Mergers over a seven to 35-year period and computed on the
basis described in the Notes to the Unaudited Pro Forma Combined Financial
Statements.
(4) Assumes all income is subject to a corporate income tax rate of 40% and all
goodwill is not tax-deductible.
(5) Includes (i) 2,153,355 shares to be issued to the stockholders of the
Founding Companies; (ii) 2,046,645 shares issued to founders, consultants
and management of Condor; and (iii) 3,962,114 of the 5,900,000 shares sold
in this Offering necessary to pay the cash portion of the Merger
consideration, S corporation distributions, underwriting discounts and
commissions and estimated expenses of this Offering.
(6) The pro forma combined balance sheet data assume that the Mergers were
consummated on June 30, 1997.
(7) Adjusted to reflect the sale of the 5,900,000 shares of Common Stock offered
hereby and the application of the estimated net proceeds therefrom. See "Use
of Proceeds."
(8) Includes $47,979,000 payable to the stockholders of the Founding Companies,
representing the cash portion of the Merger consideration to be paid from a
portion of the net proceeds of this Offering.
6
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY. THIS
PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL RESULTS AND DEVELOPMENTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF ANY NUMBER OF
FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE
IN THIS PROSPECTUS.
ABSENCE OF COMBINED OPERATING HISTORY; RISKS OF INTEGRATION. Condor was
founded in August 1996 but has conducted no operations and generated no revenues
to date. Condor has entered into definitive agreements to acquire the Founding
Companies simultaneously with, and as a condition to, the closing of this
Offering. The Founding Companies have been operating as separate independent
entities, and there can be no assurance that Condor will be able to successfully
integrate the operations of these businesses or institute the necessary
Company-wide systems and procedures to successfully manage the combined
enterprise on a profitable basis. The Company's management group has been
assembled only recently, and there can be no assurance that the management group
will be able to successfully manage the combined entity or effectively implement
the Company's internal growth strategy and acquisition program. In this regard,
the Company may need to add members to its management group, but there is no
assurance that the Company will be able to attract and retain such additional
members of management. The pro forma financial results of the Company cover
periods when the Founding Companies and Condor were not under common control or
management and, therefore, may not be indicative of the operating results or
financial position that would have been achieved had the Company and the
Founding Companies been under common control and management during the periods
covered by such pro forma financial results and may not be indicative of the
Company's future results of operations, financial condition and business.
A number of the Founding Companies offer different services, utilize
different capabilities and technologies and target different geographic markets
and client segments. These differences increase the risk inherent in
successfully completing such integration. Further, there can be no assurance
that the Company's strategy to establish a single-source provider of IT services
will be successful, or that the Company's targeted clients will accept the
Company as a provider of such services. In addition, there can be no assurance
that the operating results of the Company will match or exceed the combined
individual operating results achieved by the Founding Companies prior to this
Offering. The inability of the Company to successfully integrate the Founding
Companies would have a material adverse effect on the Company's results of
operations, financial condition and business. See "The Company,"
"Business--Strategy" and "Management."
RISKS OF SUBSTANTIAL VARIABILITY IN QUARTERLY OPERATING RESULTS. The
Company's revenues, gross profit, operating income and net income are likely to
vary in the future from quarter to quarter, perhaps substantially. Factors that
may affect this quarter-to-quarter variability include the short-term nature of
certain client commitments; patterns of capital spending by clients; seasonality
that may accompany government or private sector budget cycles; the timing, size
and mix of service and product offerings; the timing and size of significant
software sales; the timing and size of new projects; pricing changes in response
to various competitive factors; market factors affecting the availability of
qualified technical personnel; timing and client acceptance of new service
offerings; changes in the trends affecting the outsourcing of IT services; and
industry and general economic conditions. The Company's operating results will
be affected by changes in technical personnel billing and utilization rates.
Technical personnel utilization rates may be adversely affected during periods
of rapid and concentrated hiring in anticipation of future revenues. Gross
margin may also be adversely affected if the Company is required to use contract
personnel rather than Company personnel to complete certain assignments.
Operating results may also be materially and adversely affected by the cost,
timing and other effects of acquisitions. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
7
<PAGE>
DEPENDENCE ON AVAILABILITY, RECRUITMENT AND RETENTION OF TECHNICAL
PERSONNEL. The Company depends upon its ability to attract, hire and retain
technical personnel who possess the skills and experience necessary to meet the
Company's own personnel needs and the staffing requirements of its clients.
Competition for individuals with proven technical skills is intense. The Company
competes for such individuals with other providers of outsourcing services,
temporary personnel agencies, systems integrators, computer systems consultants,
clients and potential clients. Many large competitors have recently announced
extensive campaigns to hire additional technical personnel. Competition for
quality technical personnel has continued to intensify, resulting in increased
personnel costs for many IT service providers. There can be no assurance the
Company will be able to recruit or retain the technical personnel necessary to
execute its strategy. Failure to do so would have a material adverse effect on
the Company's results of operations, financial condition and business. See
"Business--Strategy."
RISKS ASSOCIATED WITH THE COMPANY'S ACQUISITION STRATEGY. The Company
intends to grow through the acquisition of additional IT service companies. The
market for acquisitions of IT service companies is highly competitive. If
competition intensifies, there may be fewer acquisition opportunities available
to the Company as well as higher prices for acquisitions. There can be no
assurance that the Company will be able to identify, acquire on terms favorable
to the Company, profitably integrate and manage additional IT service companies
without substantial costs, delays or other operational or financial problems.
Failure to acquire and integrate such companies may adversely affect the
Company's ability to bid successfully on certain engagements and otherwise to
grow its business. Client dissatisfaction or performance problems at a single
acquired company could have an adverse effect on the reputation of the Company
as a whole, resulting in increased difficulty in marketing services or acquiring
companies in the future. In addition, there can be no assurance that the
Founding Companies or other IT service companies acquired in the future will
operate profitably. Acquisitions involve a number of additional risks, including
diversion of management's attention, failure to retain key acquired clients or
personnel, risks associated with unanticipated events or liabilities and
amortization of goodwill and acquired intangible assets, some or all of which
could have a material adverse effect on the Company's results of operations,
financial condition and business. See "Business--Strategy."
RISKS ASSOCIATED WITH THE MANAGEMENT OF GROWTH. The Company expects to
expend significant time and effort to attempt to expand its existing businesses.
There can be no assurance that the Company's systems, procedures, controls and
management resources will be adequate to support the Company's future
operations. Any future growth also will impose significant added
responsibilities on members of senior management, including the need to
identify, recruit and integrate new senior level managers and executives. There
can be no assurance that such additional management will be identified and
retained by the Company. To the extent that the Company is unable to manage its
growth efficiently and effectively, or is unable to attract and retain
additional qualified management, the Company's results of operations, financial
condition and business could be materially and adversely affected. See
"Business--Strategy" and "Management."
PROJECT RISKS. The nature of the Company's engagements exposes the Company
to a variety of risks. Many of the Company's engagements involve projects that
are critical to the operations of its clients' businesses. The Company's failure
or inability to meet a client's expectations in the performance of its services
and in the timeframe required by such client could result in a claim for
substantial damages against the Company, regardless of the Company's
responsibility for such failure. Service providers, such as the Company, are in
the business of employing people and placing them in the workplace of other
businesses. Therefore, the Company is also exposed to liability with respect to
actions taken by its employees while on assignment, such as damages caused by
employee errors and omissions, misuse of client proprietary information,
misappropriation of funds, discrimination and harassment, theft of client
property, other criminal activity or torts and other claims. Although the
Company maintains general liability insurance coverage, there can be no
assurance that such coverage will continue to be available on reasonable terms
or will be available in sufficient amounts to cover one or more large claims, or
that the
8
<PAGE>
insurer will not disclaim coverage as to any future claim. The successful
assertion of one or more large claims against the Company that exceed available
insurance coverage or changes in the Company's insurance policies, including
premium increases or the imposition of large deductible or co-insurance
requirements, could have a material adverse effect on the Company's results of
operations, financial condition and business.
COMPETITION. The market for the Company's services is highly competitive.
The Company's competitors vary in size and in the range of the products and
services that they offer. Primary competitors include participants from a
variety of market segments, specifically systems consulting and implementation
firms, "Big Six" accounting firms, applications development firms, computer
equipment companies, general management consulting firms, programming companies,
temporary staffing firms and other IT service providers. Many of the Company's
competitors have greater financial, development, technical, marketing and sales
resources than the Company. As a result, the Company's competitors may be able
to adapt more quickly to changes in client needs or to devote greater resources
than the Company to the sale and the provision of IT products and services. In
addition, clients may elect to increase their internal IT resources to satisfy
their IT needs. The Company also intends to enter new markets and offer new
services, and expects to face intense competition from existing and new
competitors, particularly since barriers of entry in the IT service industry are
low. There can be no assurance that the Company will continue to provide IT
services and products demanded by the market or be able to compete successfully
with existing or new competitors. An inability to compete in its market
effectively would have a material adverse effect on the Company's results of
operations, financial condition and business. See "Business--Competition."
DEPENDENCE ON CONTINUED AUTHORIZATION TO RESELL AND PROVIDE
MANUFACTURER-AUTHORIZED SERVICES. The Company's future success with IT service
offerings and product sales depends in part on its continued authorization as a
service provider and its continued status as a certified reseller of certain
hardware and software products. Without such sales and service authorizations,
the Company would be unable to provide the range of services and products
currently offered by the Company. In general, the agreements between the Company
and such manufacturers include termination provisions, some of which are
immediate. There can be no assurance that such manufacturers will continue to
authorize the Company as an approved reseller or service provider, and the loss
of one or more of such authorizations could have a material adverse effect on
the Company's results of operations, financial condition and business.
DEPENDENCE ON SUPPLIERS. Although the Company has not experienced
significant problems with its suppliers of hardware, software and peripherals,
there can be no assurance that such relationships will continue or that, in the
event of a termination of its relationships with any given supplier, it would be
able to obtain alternative sources of supply without a material disruption in
the Company's ability to provide products and services to its clients.
Furthermore, as is typical in the industry, the Company receives credits or
allowances from many manufacturers for market development which are used to
offset a portion of the Company's cost of products sold. Changes in the
availability, structure or timing of these credits or allowances or any material
disruption in the Company's supply of products could have a material adverse
effect on the Company's results of operations, financial condition and business.
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW SOLUTIONS. The IT service
industry is characterized by rapid technological change, evolving industry
standards, changing client preferences and new product and service
introductions. The Company's success will depend in part on its ability to
develop IT solutions that keep pace with continuing changes in the IT service
industry. There can be no assurance that the Company will be successful in
adequately addressing these developments on a timely basis or that, if these
developments are addressed, the Company will be successful in the marketplace.
In addition, there can be no assurance that products or technologies developed
by others will not render the Company's services non-competitive or obsolete.
The Company's failure to address these developments could have a material
adverse effect on the Company's results of operations, financial condition and
business. See "Business-- Services."
9
<PAGE>
NEED FOR ADDITIONAL FINANCING. The Company intends to finance future
acquisitions and contingent purchase prices for the acquisition of the Founding
Companies in part by using shares of its Common Stock. In the event that its
Common Stock does not maintain a sufficient market value, or potential
acquisition candidates are otherwise unwilling to accept Common Stock as part of
the consideration for the sale of their businesses, the Company may be required
to utilize more of its cash resources, if available, in order to pursue its
acquisition program and to pay the contingent purchase prices for the
acquisition of the Founding Companies. If the Company does not have sufficient
cash resources, its growth could be limited unless it is able to obtain
additional capital through debt or equity financings. Shortly after the closing
of this Offering, the Company will seek to obtain one or more lines of credit of
approximately $50.0 million. There can be no assurance that the Company will be
able to obtain any or all the financing it will need on terms it deems
acceptable. If the Company's financial resources are inadequate to support its
acquisition activities, the Company's future operating results could be
materially and adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Pro Forma Combined Liquidity and
Capital Resources."
In addition, most of the Company's project-based contracts are terminable by
the client with limited advance notice, typically not more than 60 days, and
without significant penalty (generally limited to fees earned and expenses
incurred by the Company through the date of termination). The cancellation or
significant reduction in the scope of a large project could have a material
adverse effect on the Company's results of operations, financial condition and
business. Although the Company's principal method of billing a project is on a
time and materials basis, the Company also undertakes projects billed on a
fixed-bid basis. The failure of the Company to complete a fixed-bid project
within budget would expose the Company to risks associated with cost overruns,
which could have a material adverse effect on the Company's results of
operations, financial condition and business. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Introduction" and
"Business--Services."
DEPENDENCE ON KEY PERSONNEL. The Company's operations are dependent on the
continued efforts of its executive officers and the senior management of the
Founding Companies, in particular Kennard F. Hill and Daniel J. Roche.
Furthermore, the Company will likely be dependent on the senior management of
any businesses acquired in the future. If any of these persons becomes unable to
continue in his or her role with the Company, or if the Company is unable to
attract and retain other qualified employees, the Company's business or
prospects could be adversely affected. Although each of the executive officers
of the Company and individual Founding Companies will enter into an employment
agreement with the Company or a Founding Company, which will include
confidentiality and non-compete provisions, there can be no assurance that any
individual will continue in his or her present capacity with the Company or such
Founding Company for any particular period of time. The Company intends to
obtain an insurance policy on the life of Kennard F. Hill. The Company does not
presently maintain key person life insurance on any of its executive officers.
See "Management."
RISKS OF FEDERAL GOVERNMENT BUSINESS AND CONTRACTING. Approximately 25% of
the Company's pro forma combined revenues for 1996 was derived from business
with the federal government. Changes in the federal budget could have an adverse
effect on the availability and timing of government funding for IT programs. The
Company's federal government contracts can generally be canceled, delayed or
modified at the sole option of the government. The Company believes that any
future federal government contracts will be structured similarly. In addition,
under the terms of future federal government contracts, if any, the federal
government may be in a position to obtain greater rights with respect to the
Company's intellectual property than the Company would grant to other entities.
As a result of engaging in the federal government contracting business, the
Company has been and will be subject to audits, and may be subject to
investigation, by governmental entities. The failure by the Company to comply
with the terms of any of its government contracts could result in substantial
civil and criminal fines and penalties or the Company's suspension or debarment
from future government contracts for a significant period of time. The fines and
penalties that could result from noncompliance with appropriate standards and
regulations, or the
10
<PAGE>
Company's suspension or debarment, could have a material adverse effect on the
Company's results of operations, financial condition and business.
INTELLECTUAL PROPERTY RIGHTS. The Company derives a portion of its net
revenues from the licensing to third parties of software that it owns. The
Company relies upon a combination of nondisclosure and other contractual
arrangements and trade secret, copyright and trademark laws to protect its
proprietary rights in its software. The Company typically enters into
confidentiality agreements with its employees and limits distribution of
proprietary information. The Company's standard licensing agreement contains
nondisclosure provisions. There can be no assurance that the steps taken by the
Company in this regard will be adequate to deter misappropriation of its
software or that the Company will be able to detect unauthorized use and take
appropriate steps to enforce its intellectual property rights.
SUBSTANTIAL PROCEEDS OF OFFERING PAYABLE TO FOUNDING COMPANY
STOCKHOLDERS. Approximately $48.0 million, or approximately 66.9%, of the net
proceeds of this Offering, will be paid as the cash portion of the purchase
price for the Founding Companies, approximately $9.8 million of which will be
paid to C. Lawrence Meador, who will become a director, executive officer and
holder of more than 5% of the Common Stock. Net proceeds available for working
capital and other uses by the Company will be approximately $23.8 million, or
33.1% of the net proceeds of this Offering (approximately $35.3 million, or
42.4% of the net proceeds of this Offering, if the Underwriters' over-allotment
is exercised in full). See "Use of Proceeds" and "Certain Transactions."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON
STOCK. The market price of the Common Stock may be adversely affected by the
sale, or availability for sale, of substantial amounts of the Common Stock in
the public market following this Offering. The 5,900,000 shares being sold in
this Offering will be freely tradable unless held by affiliates of the Company.
Upon completion of this Offering, the holders of Common Stock who did not
purchase shares in this Offering will own 4,200,000 shares of Common Stock,
including (i) the stockholders of the Founding Companies, who will receive, in
the aggregate, 2,153,355 shares of Common Stock (assuming a $14.00 initial
public offering price) as a portion of the consideration for the sale of their
businesses to Condor; and (ii) founders, consultants and management of Condor,
who will own 2,046,645 shares. These shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and, therefore, may
not be sold unless registered under the Securities Act or sold pursuant to an
exemption from registration, such as the exemption provided by Rule 144.
Furthermore, the Founding Company stockholders have agreed with Condor not to
sell, transfer or otherwise dispose of any of these shares for one year
following the closing of this Offering. The Company, all executive officers,
directors and existing stockholders of the Company and certain stockholders of
the Founding Companies have agreed not to offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock, or any securities convertible
into or exercisable or exchangeable for shares of Common Stock, for a period of
one year after the date of this Prospectus without the prior written consent of
Volpe Brown Whelan & Company, LLC except, in the case of the Company, for Common
Stock issued pursuant to the Company's 1997 Long-Term Incentive Plan, in
connection with acquisitions or upon conversion of the Restricted Common Stock.
The Company has agreed to provide piggyback registration rights with respect to
the Common Stock issued to the Founding Companies and existing Company
stockholders. The Company plans to register an additional 5,000,000 shares of
its Common Stock under the Securities Act within 90 days after the closing of
this Offering for use by the Company as consideration for future acquisitions.
Upon such registration, these shares generally will be freely tradable after
issuance, unless the resale thereof is contractually restricted or unless the
holders thereof are subject to the restrictions on resale provided in Rule 145
under the Securities Act. The piggyback registration rights described above will
not apply to the registration statement to be filed with respect to these
5,000,000 shares. See "Shares Eligible for Future Sale."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to this
Offering, there has been no public market for the Common Stock and there can be
no assurance that an active trading market will develop and continue subsequent
to this Offering or that the market price of the Common Stock will not
11
<PAGE>
decline below the initial public offering price. The initial public offering
price for the Common Stock will be determined by negotiation between the Company
and the Representatives of the Underwriters and may bear no relationship to the
price at which the Common Stock will trade after this Offering. See
"Underwriting" for the factors to be considered in determining the initial
public offering price. Application has been made to have the Common Stock quoted
on the Nasdaq National Market. After this Offering, the market price of the
Common Stock may be subject to significant fluctuations in response to numerous
factors, including variations in the annual or quarterly financial results of
the Company or its competitors, timing of announcements of acquisitions by the
Company or its competitors, changes by financial research analysts in their
recommendations or estimates of the earnings of the Company, conditions in the
economy in general or in the IT service sectors in particular, announcements of
technological innovations or new products or services by the Company or its
competitors, proprietary rights development, unfavorable publicity or changes in
applicable laws and regulations (or judicial or administrative interpretations
thereof) affecting the Company or IT service sectors. Moreover, from time to
time, the stock market experiences significant price and volume volatility that
may affect the market price of the Common Stock for reasons unrelated to the
Company's performance.
IMMEDIATE AND SUBSTANTIAL DILUTION. The purchasers of the shares of Common
Stock offered hereby will experience immediate and substantial dilution in the
pro forma combined net tangible book value of their shares of $10.48 per share.
In the event the Company issues additional Common Stock in the future, including
shares issued in connection with future acquisitions or pursuant to the earn-out
provisions of the Merger Agreements, purchasers of Common Stock in this Offering
may experience further dilution. See "Dilution."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS. The
Company's Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") authorizes the Board of Directors of the Company to issue
preferred stock in one or more series without stockholder action. The existence
of this "blank-check" preferred stock could render more difficult or discourage
an attempt to obtain control of the Company by means of a tender offer, merger,
proxy contest or otherwise. In addition, the Certificate of Incorporation
provides for a classified Board of Directors, which may also have the effect of
inhibiting or delaying a change in control of the Company. Certain provisions of
the Delaware General Corporation Law may also discourage takeover attempts that
have not been approved by the Board of Directors. The Company's By-Laws contain
other provisions that may have an anti-takeover effect. See "Management--Board
Classification" and "Description of Capital Stock."
UNALLOCATED NET PROCEEDS. A portion of the anticipated net proceeds of this
Offering has not been designated for specific uses. Therefore, the Board of
Directors of the Company will have broad discretion with respect to the use of
the undesignated net proceeds of this Offering. See "Use of Proceeds."
ABSENCE OF DIVIDENDS. The Company intends to retain future net income, if
any, to fund internal growth and to help fund future acquisitions and,
therefore, does not anticipate paying any dividends on its Common Stock in the
foreseeable future. See "Dividend Policy."
12
<PAGE>
THE COMPANY
The Company was established to create a leading single-source provider of a
wide range of IT services and solutions to middle market organizations. In order
to provide a single-source IT solution, Condor has entered into the Merger
Agreements to acquire, simultaneously with and as a condition to the closing of
this Offering, the eight businesses described below. The Founding Companies will
become wholly owned subsidiaries of the Company. These businesses provide a
broad range of IT services, including strategic planning and management
consulting; strategic marketing communications; development, integration and
installation of IT systems; contract staffing and recruiting; training and
continuing education; desktop systems maintenance and support; and procurement.
The Founding Companies, on a pro forma combined basis, had revenues of
approximately $120.1 million for the year ended December 31, 1996 and
approximately $69.8 million for the six months ended June 30, 1997.
MANAGEMENT SUPPORT TECHNOLOGY CORPORATION--MST, a Delaware corporation
founded in 1992, is a high-level IT management consulting firm specializing in
the use of corporate strategy and IT to improve an organization's overall
effectiveness, productivity, quality, flexibility and responsiveness. MST's
offerings include IT needs analysis, technology infrastructure design, future
technology planning, systems architecture development, decision support planning
and analysis, business process automation and Year 2000 planning and consulting.
MST, which had 25 employees at July 1, 1997, operates primarily at the highest
organizational levels of its clients, typically with the chief executive
officer, chief financial officer or chief information officer. Major clients
include CIGNA Property & Casualty, Reinsurance Solutions International, L.L.C.,
Hughes Aircraft and the U.S. Department of Defense. Headquartered in Framingham,
Massachusetts, MST had revenues of approximately $8.2 million for the year ended
December 31, 1996.
COMPUTER HARDWARE MAINTENANCE COMPANY, INC.--CHMC, a Pennsylvania
corporation founded in 1972, provides desktop computer systems, service and
support programs for a variety of commercial and federal, state and local
governmental entities in the Mid-Atlantic region. CHMC, which had 230 employees
at July 1, 1997, has sales and support offices throughout its market region, and
offers nationwide coverage through a network of operating affiliations and
alliances. CHMC's service offerings include network management and support,
desktop system procurement and refreshment, migration consulting and support,
help-desk, remedial and preventive maintenance and asset management services.
CHMC maintains business alliances with OEMs such as Microsoft, Novell, Inc. and
IBM. Major clients include Mack Truck and Aetna/U.S. Healthcare. Headquartered
in Langhorne, Pennsylvania, CHMC had revenues of approximately $44.7 million for
the year ended February 28, 1997.
FEDERAL COMPUTER CORPORATION--Federal, a Virginia corporation founded in
1982, supplies computer products and services to governmental and commercial
entities. Federal, which had 42 employees at July 1, 1997, provides its clients
with integration, implementation and support services, including network design
and installation, system upgrades and enhancements, hardware and software
maintenance and on-site technical support and relocation services. Federal
maintains business alliances with OEMs such as IBM and Hitachi. Significant
clients include the U.S. Customs Department, the U.S. Department of Justice and
the U.S. Social Security Administration. Headquartered in Falls Church,
Virginia, Federal had revenues of approximately $27.4 million for the year ended
October 31, 1996.
CORPORATE ACCESS, INC.--Corporate Access, a Massachusetts corporation
founded in 1986, offers a variety of desktop computer hardware, software and
peripheral products, along with related configuration and installation services,
to commercial clients and governmental entities in the Greater Boston
metropolitan area. Corporate Access had 25 employees at July 1, 1997. Major
clients include PictureTel and Hewlett-Packard. Headquartered in Andover,
Massachusetts, Corporate Access had revenues of approximately $17.5 million for
the year ended June 30, 1997.
INTERACTIVE SOFTWARE SYSTEMS INCORPORATED--ISSI, a Colorado corporation
founded in 1979, develops, sells and supports proprietary software for
information access and delivery in the end-user production-data
13
<PAGE>
market. Through report writing, meta-data management and data query tools and
services, ISSI enables customers to manage information across virtually all
databases (relational, legacy and application proprietary), computing platforms
and operating systems in a three-tiered, client/server environment. ISSI, which
had 94 employees as of July 1, 1997, is currently expanding its product line
with object visualization tools for the next generation of applications. ISSI
products and services have been provided to over 2,000 customers in 23
countries, representing 150,000 end-users. Customers include AMD, Boeing,
Motorola, Pentastar, Citibank, Hughes and USDA. Headquartered in Denver,
Colorado, ISSI has offices located in San Jose, California; Boston,
Massachusetts; Utrecht, The Netherlands; and Hanover, Germany. ISSI had revenues
of approximately $9.0 million for the year ended December 31, 1996.
U.S. COMMUNICATIONS, INC.--USComm, a Maryland corporation founded in 1994,
provides commercial and governmental clients with desktop computer hardware,
software and peripheral products, technical support and comprehensive training
solutions. USComm's Annapolis, Maryland training facility is a Microsoft
Authorized Technical Education Center focused on Microsoft NT certification
courses. Major clients include the City of Baltimore, Maryland Environmental
Services and Nationwide Insurance. Headquartered in Annapolis, Maryland, USComm
had 17 employees at July 1, 1997 and revenues of approximately $7.2 million for
the year ended December 31, 1996.
INVENTURE GROUP, INC.--InVenture, a Pennsylvania corporation founded in
1993, creates and executes strategic marketing programs for resellers and
manufacturers of IT products and services as well as for commercial customers in
other industries. InVenture, which had 36 employees at July 1, 1997, provides a
broad range of marketing services, including marketing strategy, corporate
identity creation and maintenance programs, creative development, merchandising
programs, publications, web site development, direct mail, advertising and event
planning. Major clients include IBM, Boise Cascade Office Products, XLSource and
CIC Systems. Headquartered in Pittsburgh, Pennsylvania, InVenture had revenues
of approximately $5.4 million for the year ended December 31, 1996.
MIS TECHNOLOGIES, INC.--MIS, an Oklahoma corporation founded in 1984,
provides clients with temporary contract staffing and permanent placement of
qualified IT professionals. In addition to these services, MIS, which had 62
employees at July 1, 1997 and has access to a nationwide database of
approximately 15,000 IT professionals, works with clients to assess their
management information systems and staffing needs. Major clients include IBM
Global Solutions, Express Personnel and Hertz. Headquartered in Tulsa, Oklahoma,
with branch offices in Joplin, Missouri; Oklahoma City, Oklahoma; Scottsdale,
Arizona; and Lincoln, Nebraska, MIS had revenues of approximately $2.6 million
for the year ended December 31, 1996.
The aggregate consideration being paid by Condor to acquire the Founding
Companies is approximately $78.9 million, consisting of approximately $48.0
million in cash, 2,153,355 shares of Common Stock (based on an initial public
offering price of $14.00 per share), and the assumption of approximately
$730,000 in outstanding indebtedness of the Founding Companies. In addition,
pursuant to earn-out arrangements with six of the Founding Companies, up to an
aggregate of 2,790,214 additional shares may be issued (assuming a stock price
of $14.00 per share at the time of such issuance), and approximately $18.8
million additional cash consideration may be paid to stockholders of such
Founding Companies if such companies achieve specific earnings thresholds in
specified periods following the closing of the Mergers.
The closing of each Merger is subject to customary conditions. These
conditions include, among others, the accuracy on the closing date of the
Mergers of the representations and warranties made by the Founding Companies,
their principal stockholders and Condor; the performance of each of their
respective covenants included in the Merger Agreements; and the nonexistence of
a material adverse change in the results of operations, financial condition or
business of each Founding Company. There can be no assurance that the conditions
to the closing of all the Mergers will be satisfied or waived or that each
Merger will close.
14
<PAGE>
For additional information regarding the employment agreement to be entered
into by the Company with one of the executive officers of the Founding
Companies, see "Management--Executive Compensation; Employment Agreements;
Covenants-Not-To-Compete." For a further description of the transactions
pursuant to which these businesses will be acquired, see "Certain
Transactions--Organization of the Company."
Condor Technology Solutions, Inc. is a Delaware corporation. Its executive
offices are located at 1650 Tysons Boulevard, Suite 600, McLean, Virginia 22102,
and the Company's telephone number at that address is (703) 847-3290.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 5,900,000 shares of
Common Stock offered hereby are estimated to be approximately $71.8 million
($83.3 million if the Underwriters' over-allotment option is exercised in full)
at an assumed initial public offering price of $14.00 per share, after deducting
underwriting discounts and commissions and estimated expenses of this Offering.
Of the net proceeds, approximately $48.0 million will be used to pay the
cash portion of the purchase price for the Founding Companies, of which
approximately $9.8 million will be paid directly to Mr. Meador, a stockholder of
a Founding Company who will become an officer, director and holder of more than
5% of the Common Stock of the Company. Additional cash may be used to pay
contingent purchase prices which may be earned over the next three years if the
applicable earnings thresholds of six of the Founding Companies are achieved.
See "Risk Factors--Need for Additional Financing" and "Certain
Transactions--Organization of the Company."
The approximately $23.8 million of remaining net proceeds will be used for
working capital and for general corporate purposes, including future
acquisitions. Pending such uses, the net proceeds will be invested in
short-term, interest-bearing, investment-grade securities.
In addition to the net proceeds of this Offering, the Company will have
approximately $2.2 million in cash as a result of the Mergers. The Company also
intends to obtain a line of credit of approximately $50.0 million to be used for
working capital and other general corporate purposes, including future
acquisitions. There can be no assurance that any line of credit will be obtained
or that, if obtained, it will be on terms that are favorable to the Company. See
"Risk Factors--Need for Additional Financing" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Pro Forma Combined
Liquidity and Capital Resources."
SCM LLC d/b/a The Commonwealth Group ("Commonwealth"), a Virginia-based
merchant banking firm, of which J. Marshall Coleman, a director of the Company,
is a Managing Director, has agreed to advance to Condor such funds as are
necessary to effect the Mergers and this Offering. Commonwealth is a significant
stockholder of the Company. Commonwealth will be reimbursed for these advances
out of the proceeds of this Offering, together with interest on such advances at
the prime rate. Such advances aggregated approximately $637,000 as of June 30,
1997. See "Certain Transactions--Organization of the Company" and "Principal
Stockholders."
DIVIDEND POLICY
The Company intends to retain all of its earnings, if any, to finance the
expansion of its business and for general corporate purposes, including future
acquisitions, and does not anticipate paying any cash dividends on its Common
Stock for the foreseeable future. In addition, in the event the Company is
successful in obtaining one or more lines of credit, it is likely that any such
facility will include restrictions on the ability of the Company to pay
dividends without the consent of the lender.
15
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and current maturities of
long-term debt and the capitalization at June 30, 1997 of the Company (i) on a
pro forma combined basis to give effect to the Mergers; and (ii) as adjusted to
give effect to the Mergers, this Offering and the application of the estimated
net proceeds therefrom. This table should be read in conjunction with "Selected
Financial Data," "Use of Proceeds" and the Unaudited Pro Forma Combined
Financial Statements of the Company and the related Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------------
PRO FORMA COMBINED AS ADJUSTED
--------------------- -----------
<S> <C> <C>
(IN THOUSANDS)
Short-term debt and current maturities of long-term debt....................... $ 646 $ 646
------ -----------
------ -----------
Long-term debt, less current maturities........................................ 84 84
------ -----------
Stockholders' equity:
Preferred Stock: $0.01 par value, 1,000,000 shares authorized; none issued
or outstanding........................................................... - -
Common Stock: $0.01 par value, 49,000,000 shares authorized; 4,200,000
shares issued and outstanding, pro forma;
10,100,000 shares issued and outstanding, as adjusted (1)................ 42 101
Additional paid-in capital................................................. 3,196 74,955
Retained earnings.......................................................... 1,695 1,695
------ -----------
Total stockholders' equity............................................. 4,933 76,751
------ -----------
Total capitalization............................................... $ 5,017 $ 76,835
------ -----------
------ -----------
</TABLE>
- ------------------------
(1) Common Stock outstanding includes 2,046,645 shares of Restricted Common
Stock issued to founders, consultants and management of Condor. Excludes (x)
up to an aggregate of 2,790,214 additional shares (assuming a stock price of
$14.00 per share at the time the additional shares are issued) which may be
issued in connection with the Mergers of six Founding Companies pursuant to
certain earn-out provisions if such Founding Companies achieve specified
earnings thresholds; and (y) shares of Common Stock issuable upon
exercise of options to be granted by the Company in connection with the
Mergers and this Offering. See "Management--1997 Long-Term Incentive Plan,"
"Certain Transactions--Organization of the Company," "Description of Capital
Stock" and "Shares Eligible for Future Sale."
16
<PAGE>
DILUTION
As of June 30, 1997, the Company had a pro forma combined net tangible book
value deficit of $36.3 million, or a deficit of $8.63 per share of Common Stock.
Pro forma combined net tangible book value per share represents the Company's
pro forma combined total tangible assets less its total liabilities, divided by
the number of shares of Common Stock to be outstanding after giving effect to
the Mergers. After giving effect to the sale of the 5,900,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $14.00, and
after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company, the Company's pro forma combined net tangible
book value as of June 30, 1997 as adjusted would have been $35.6 million, or
$3.52 per share. This represents an immediate increase in pro forma combined net
tangible book value of approximately $12.15 per share to existing stockholders
and an immediate dilution of approximately $10.48 per share to new investors
purchasing the shares in this Offering.
The following table illustrates this pro forma dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $ 14.00
Pro forma combined deficit in net tangible book value per share
before this Offering............................................... (8.63)
Increase in pro forma combined net tangible book value per share
attributable to this Offering...................................... 12.15
---------
Pro forma combined net tangible book value per share after this
Offering........................................................... 3.52
---------
Dilution per share to new investors.................................. $ 10.48
---------
---------
</TABLE>
The following table summarizes, on a pro forma combined basis to give effect
to the Mergers as of June 30, 1997, the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid by existing stockholders and the new investors purchasing shares
of Common Stock from the Company in this Offering:
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION (1) AVERAGE
------------------------- --------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders (2)............................ 4,200,000 41.6% $ (31,311,000) (61.0)% $ (7.46 )
New investors........................................ 5,900,000 58.4 82,600,000 161.0 $ 14.00
------------ ----- -------------- -----
Total.............................................. 10,100,000 100.0% $ 51,289,000 100.0%
------------ ----- -------------- -----
------------ ----- -------------- -----
</TABLE>
- ------------------------
(1) Total consideration for existing stockholders represents the combined
stockholders' equity, including the stockholders' equity of the Founding
Companies, before this Offering, adjusted to reflect the payment of $48.0
million in cash to the stockholders of the Founding Companies as part of the
consideration for the Mergers. See "Use of Proceeds" and "Capitalization."
(2) Excludes up to an aggregate of 2,790,214 shares (assuming a stock price of
$14.00 per share at the time the additional shares are issued) that may be
issued in connection with the Mergers of six Founding Companies pursuant to
certain earn-out provisions if such Founding Companies achieve specified
earnings thresholds. See "Certain Transactions--Organization of the
Company."
The foregoing tables assume no exercise of stock options. As of the closing
of this Offering, the Company will have outstanding options issued to
stockholders of the Founding Companies and options issued to directors,
employees and consultants of the Company, each of which will be exercisable at a
price per share equal to the initial public offering price.
17
<PAGE>
SELECTED FINANCIAL DATA
Condor will acquire the Founding Companies simultaneously with and as a
condition to the closing of this Offering. In July 1996, the Securities and
Exchange Commission issued Staff Accounting Bulletin No. 97 relating to business
combinations immediately prior to an initial public offering. SAB 97 requires
that these combinations be accounted for using the purchase method of
accounting. In accordance with SAB 97, MST, one of the Founding Companies, has
been identified as the "accounting acquiror" for financial statement
presentation purposes. The following selected historical financial data of MST
as of December 31, 1995 and 1996 and for each of the three years ended December
31, 1994, 1995 and 1996 have been derived from the audited financial statements
of MST included elsewhere in this Prospectus. The following selected historical
financial data for MST as of December 31, 1992, 1993 and 1994 and for the years
ended December 31, 1992 and 1993 have been derived from audited financial
statements of MST not included in this Prospectus. The following selected
historical data for MST as of June 30, 1997 and for the six months ended June
30, 1996 and 1997 have been derived from unaudited financial statements of MST
which have been prepared on the same basis as the audited financial statements,
and in the opinion of MST reflect all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of such data. The
Statement of Operations Data below do not reflect any provision for income taxes
since, throughout the periods presented, MST was an S corporation for tax
purposes.
The pro forma combined table below presents unaudited pro forma combined
financial data for the Company that give effect to the completion of the Mergers
and certain pro forma adjustments to the historical financial statements
described below and as adjusted to reflect the closing of this Offering and the
application of the estimated net proceeds therefrom. The summary pro forma
combined financial data are not necessarily indicative of the operating results
or financial position that would have been achieved had the events described
been consummated during the periods presented and should not be construed as
representative of the future operating results or financial position of the
Company. See the Unaudited Pro Forma Combined Financial Statements and the
related Notes thereto and the Founding Companies' Historical Financial
Statements and the related Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
MST STATEMENT OF OPERATIONS DATA:
Revenue.................................... $ 1,535 $ 2,049 $ 3,669 $ 6,193 $ 8,211 $ 4,212 $ 3,764
Cost of revenue............................ 626 813 1,463 2,415 3,783 1,980 1,855
--------- --------- --------- --------- --------- --------- ---------
Gross profit............................... 909 1,236 2,206 3,778 4,428 2,232 1,909
General and administrative expenses........ 555 760 1,113 1,606 2,188 1,130 873
--------- --------- --------- --------- --------- --------- ---------
Income from operations..................... 354 476 1,093 2,172 2,240 1,102 1,036
Interest expense........................... -- (4) (2) (12) (29) (20) (3)
Interest income and other income, net...... 1 (4) -- (3) 3 1 --
--------- --------- --------- --------- --------- --------- ---------
Net income................................. $ 355 $ 468 $ 1,091 $ 2,157 $ 2,214 $ 1,083 $ 1,033
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
YEAR ENDED ----------------------
DECEMBER 31, 1996 1996 1997
----------------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
DATA)
PRO FORMA COMBINED
STATEMENT OF OPERATIONS DATA (1):
Revenues........................................................ $ 120,068 $ 49,300 $ 69,816
Cost of revenues................................................ 88,888 36,379 52,989
Gross profit.................................................... 31,180 12,921 16,827
Selling, general and administrative expenses (2)................ 22,236 9,667 10,856
Goodwill amortization (3)....................................... 1,483 743 743
Income from operations.......................................... 7,461 2,511 5,228
Interest and other income, net.................................. 1,222 233 341
Income before income taxes...................................... 8,683 2,744 5,569
Net income (4).................................................. $ 4,513 $ 1,297 $ 2,992
Net income per share............................................ $ 0.55 $ 0.16 $ 0.37
Shares used in computing pro forma net income
per share (5)................................................. 8,162,114 8,162,114 8,162,114
</TABLE>
<TABLE>
<CAPTION>
COMBINED COMPANIES
------------------------
MST
------------------------------------------------------------------ JUNE 30, 1997
------------------------
DECEMBER 31, JUNE 30, PRO FORMA AS
----------------------------------------------------- ----------- COMBINED ADJUSTED
1992 1993 1994 1995 1996 1997 (6) (7)
--------- --------- --------- --------- --------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $ 110 $ 17 $ 6 $ 7 $ 102 $ 153 $ 2,221 $ 25,810
Working capital............ 223 436 105 (350) 847 1,029 (39,574)(8) 32,244
Total assets............... 448 753 2,043 2,547 2,426 1,918 70,618 94,207
Long-term debt, net of
current maturities....... - - - - - - 84 84
Stockholders' equity....... 275 520 790 880 1,551 1,697 4,933 76,751
</TABLE>
- ------------------------
(1) The pro forma combined statement of operations data assume that the Mergers
and this Offering were consummated on January 1, 1996.
(2) The pro forma combined statement of operations data reflect pro forma
reductions in salaries, bonuses and benefits to the stockholders and
management of the Founding Companies that have been agreed to prospectively.
The Compensation Differential amounted to approximately $1,411,000, $528,000
and $969,000 for the year ended December 31, 1996 and the six months ended
June 30, 1996 and 1997, respectively.
(3) Consists of amortization of $41,194,000 of goodwill to be recorded as a
result of the Mergers over a seven to 35-year period and computed on the
basis described in the Notes to the Unaudited Pro Forma Combined Financial
Statements.
(4) Assumes all income is subject to a corporate income tax rate of 40% and all
goodwill is not tax-deductible.
(5) Includes (i) 2,153,355 shares to be issued to the stockholders of the
Founding Companies; (ii) 2,046,645 shares issued to founders, consultants
and management of Condor; and (iii) 3,962,114 of the 5,900,000 shares sold
in this Offering necessary to pay the cash portion of the Merger
consideration, S corporation distributions, underwriting discounts and
commissions and estimated expenses of this Offering.
(6) The pro forma combined balance sheet data assume that the Mergers were
consummated on June 30, 1997.
(7) Adjusted to reflect the sale of the 5,900,000 shares of Common Stock offered
hereby and the application of the estimated net proceeds therefrom. See "Use
of Proceeds."
(8) Includes $47,979,000 payable to the stockholders of the Founding Companies,
representing the cash portion of the Merger consideration to be paid from a
portion of the net proceeds of this Offering.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Data," the Unaudited Pro Forma Combined Financial Statements of the
Company and the related Notes thereto and the Founding Companies' Historical
Financial Statements and the related Notes thereto appearing elsewhere in this
Prospectus. A number of statements in this Prospectus address activities, events
or developments which the Company anticipates may occur in the future, including
such matters as the Company's strategy for internal growth and improved
profitability, additional capital expenditures (including the amount and nature
thereof), acquisitions of assets and businesses, industry trends and other such
matters. These statements are based on certain assumptions and analyses made by
the Company in light of its perception of historical trends, current business
and economic conditions and expected future developments, as well as other
factors the Company believes are reasonable or appropriate. However, whether
actual results and developments will conform with the Company's expectations and
predictions is subject to a number of risks and uncertainties, including those
set forth in "Risk Factors"; general economic, market or business conditions;
the business opportunities (or lack thereof) that may be presented to and
pursued by the Company; changes in laws or regulations; and other factors, many
of which are beyond the control of the Company. Consequently, there can be no
assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequences to or effects on the Company or its business or
operations.
INTRODUCTION
Condor Technology Solutions, Inc. was established to create a leading
provider of a wide range of IT services and solutions to middle market
organizations. The Company offers its clients a single source for a
comprehensive range of services, including strategic planning and management
consulting; strategic marketing communications; development, integration and
installation of IT systems; contract-staffing and recruiting; training and
continuing education; desktop systems maintenance and support; and procurement.
Condor was formed in August 1996 and has conducted no operations to date. The
Founding Companies will become wholly-owned subsidiaries of the Company upon the
closing of this Offering.
The Company earns revenues from the procurement and provision of computer
hardware and software, the performance of consulting and related support
services and the licensing of certain proprietary software products.
Historically, the Company has generated a significant portion of its revenues
through the resale of third-party hardware and software. The Company's
management believes, however, that consulting and systems services will generate
an increasing percentage of its revenues. Revenues from certain desktop
services, such as the procurement and provision of computer hardware and
software, are recognized upon shipment or acceptance of the equipment. The
Company recognizes consulting revenues using formulas based on time and
materials, whereby revenues are recognized as costs are incurred at agreed-upon
billing rates, or based on fixed-prices, whereby revenues are recognized ratably
over the term of the contract. To date, the use of fixed-price contracts for
consulting engagements has not been significant. Revenues on long-term service
contracts are recognized ratably over the term of the contract. Revenues from
license fees are generated from sales to both end-users and resellers and are
recognized when a non-cancelable license agreement has been signed, the product
has been delivered, collection is probable and all significant obligations
relating to the license have been satisfied. There are no significant post-sales
support obligations related to the Founding Companies' revenues. Advance
payments on certain service contracts are recorded as deferred revenues and are
recognized ratably, together with the related costs and expenses, over the life
of the contract.
Cost of revenues includes purchases of services and material directly
related to the revenues, inventory adjustments, costs of acquisition of hardware
and software resold to clients, subcontracted labor or other outside services,
direct labor and benefits and other direct costs associated with revenues, as
well as an allocation of certain indirect costs.
20
<PAGE>
Selling, general and administrative costs include salaries, benefits,
commissions payable to the Company's sales personnel, marketing and advertising
expenses and administrative costs. The Company expects to incur additional
selling, general and administrative expenses after this Offering, reflecting
increased marketing activities, costs associated with the Company's acquisition
program and the costs of being a public company. These additional costs may be
offset in part by reduced costs of certain services and materials, although
there can be no assurance in this regard.
The Founding Companies have been managed throughout the periods presented as
independent private companies and, as such, their results of operations reflect
different corporate and tax structures (S corporations and C corporations) which
have influenced, among other things, their historical levels of owners'
compensation. The owners and key employees of the Founding Companies have agreed
to certain reductions in their salaries, bonuses and benefits in connection with
the organization of the Company. The Compensation Differentials for 1996 and for
the six months ended June 30, 1997 were $1.4 million and $969,000, respectively,
and have been reflected as pro forma adjustments in the Unaudited Pro Forma
Combined Statements of Operations. The Unaudited Pro Forma Combined Statements
of Operations include a provision for income tax as if the Company were taxed as
a C corporation.
The Company anticipates that following the Mergers it will realize savings
from (i) greater volume discounts from suppliers; (ii) consolidation of
insurance programs and treasury functions; and (iii) other general and
administrative areas, such as training and advertising. This integration process
may also present opportunities to reduce costs through the elimination of
duplicative functions and through economies of scale, but may necessitate
additional costs and expenditures for corporate management and administration,
corporate expenses related to being a public company, systems integration and
facilities expansion. These various costs and possible cost savings may make
historical operating results not comparable to, or indicative of, future
performance. Accordingly, neither the anticipated savings nor the anticipated
costs have been included in the unaudited pro forma financial data presented
herein. There can be no assurance, however, that the Company will achieve any
cost savings.
In July 1996, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 97 relating to business combinations immediately prior to an
initial public offering. SAB 97 requires that these combinations be accounted
for using the purchase method of acquisition accounting. MST has been identified
as the "accounting acquiror" for financial statement presentation purposes. A
total of $5.0 million of the purchase price has been allocated to in-process
research and development and will be expensed upon the closing of the Mergers.
Approximately $1.3 million of the excess has been allocated to internally
developed software at a Founding Company and will be amortized over a period of
five years. The excess of the fair value of the consideration received in the
Mergers over the fair value of the net assets to be acquired totals
approximately $41.2 million. The remaining excess purchase price will be
recorded as goodwill on the Company's balance sheet. Goodwill will be amortized
as a non-cash charge to the income statement over a period ranging from seven to
35 years. The pro forma impact of this amortization expense, none of which is
deductible for tax purposes, is approximately $1.5 million per year. See the
Notes to the Unaudited Pro Forma Combined Financial Statements.
PRO FORMA COMBINED RESULTS OF OPERATIONS
The pro forma combined results of operations of the Founding Companies for
the periods presented do not represent combined results of operations presented
in accordance with generally accepted accounting principles, but are only a
summation of the revenues, operating expenses and general and administrative
expenses of the individual Founding Companies on a pro forma basis. The pro
forma combined results may not be comparable to, and may not be indicative of,
the Company's post-combination results of operations because (i) the Founding
Companies were not under common control or management during the periods
presented; (ii) the Company will incur incremental costs related to its new
corporate management and the costs of being a public company; and (iii) the
combined data do not reflect potential benefits and cost savings the Company
expects to realize when operating as a combined entity. The
21
<PAGE>
following discussion should be read in conjunction with the Unaudited Pro Forma
Combined Financial Statements and the related Notes thereto and the Founding
Companies' Historical Financial Statements and the related Notes thereto
appearing elsewhere in this Prospectus.
The following table sets forth the combined results of operations of the
Founding Companies on a pro forma basis and as a percentage of revenues for the
periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------------------
1996 1997
-------------------- --------------------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PERCENTAGES)
Revenues.......................................... $ 49,300 100.0% $ 69,816 100.0%
Cost of revenues.................................. 36,379 73.8 52,989 75.9
--------- --------- --------- ---------
Gross profit...................................... 12,921 26.2 16,827 24.1
Selling, general and administrative expenses...... 9,667 19.6 10,856 15.5
Goodwill amortization............................. 743 1.5 743 1.1
--------- --------- --------- ---------
Income from operations............................ $ 2,511 5.1% $ 5,228 7.5%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
PRO FORMA COMBINED RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO
THE SIX MONTHS ENDED JUNE 30, 1996
REVENUES. Revenues increased approximately $20.5 million, or 41.6%, from
$49.3 million for the six months ended June 30, 1996 to $69.8 million for the
six months ended June 30, 1997. This increase was primarily attributable to
growth in revenues from the provision of IT services and solutions,
predominantly from Federal and CHMC with revenue increases of $10.5 million and
$5.6 million, respectively. Revenues from both of these Founding Companies
increased as a result of expanded maintenance programs as well as procurement
revenues. Additional increases in revenues from procurement services of
approximately $3.2 million were generated at two other Founding Companies. Two
of the other Founding Companies reported an increase in revenues from the six
months ended June 30, 1996 to the same period in 1997, partially offset by a
decline in revenues at MST and InVenture.
COST OF REVENUES. Cost of revenues increased approximately $16.6 million,
or 45.7%, from $36.4 million for the six months ended June 30, 1996 to $53.0
million for the six months ended June 30, 1997, primarily as a result of the net
increase in revenues described above. As a percentage of revenues, cost of
revenues increased from 73.8% for the six months ended June 30, 1996 to 75.9%
for the six months ended June 30, 1997, primarily as a result of lower gross
profit margins sustained on the incremental revenues generated by Federal.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.2 million, or 12.3%, from $9.7 million for
the six months ended June 30, 1996 to $10.9 million for the six months ended
June 30, 1997, due primarily to an increase in infrastructure needed to support
increased volume. As a percentage of revenues, selling, general and
administrative expenses decreased from 19.6% for the six months ended June 30,
1996 to 15.5% for the six months ended June 30, 1997 as the infrastructure was
spread over a larger base of revenues.
INCOME FROM OPERATIONS. Income from operations increased $2.7 million, or
108.2%, from $2.5 million for the six months ended June 30, 1996 to $5.2 million
for the six months ended June 30, 1997. As a percentage of revenues, operating
income increased from 5.1% for the six months ended June 30, 1996 to 7.5% for
the six months ended June 30, 1997. This change was attributable to the factors
discussed above.
PRO FORMA COMBINED LIQUIDITY AND CAPITAL RESOURCES
The Company is a holding company that will conduct all of its operations
through its subsidiaries. Accordingly, the Company's principal sources of
liquidity are the cash flow of its subsidiaries, cash
22
<PAGE>
available from lines of credit it may establish and the unallocated net proceeds
of this Offering. After the closing of the Mergers and this Offering, the
Company will have approximately $25.8 million in cash and approximately $730,000
of indebtedness outstanding (on a pro forma basis), other than the line of
credit discussed below.
The Company is negotiating an agreement for a $50.0 million line of credit
with a number of banks. It is anticipated that the line of credit will require
the Company to comply with various loan covenants including: (i) maintenance of
certain financial ratios; (ii) restrictions on additional indebtedness; and
(iii) restrictions on liens, guarantees, advances and dividends. The facility is
intended to be used for acquisitions, capital expenditures, refinancing of
Founding Company indebtedness, if necessary, and for general corporate purposes.
There can be no assurance that the Company will obtain a credit facility.
The Company made capital expenditures of approximately $800,000 in 1996 and
approximately $100,000 in the six months ended June 30, 1997, primarily for
office equipment and computers and facility upgrades. The Company expects to
expend capital to install or upgrade its accounting and management information
systems, to install an internal network and communications system integrating
the Founding Companies and subsequently acquired businesses and to install a
client call center. Management presently anticipates that such expenditures will
total approximately $5.0 million over the next two years; however, no assurance
can be made with respect to the actual timing and amount of such expenditures.
The Company intends to pursue acquisition opportunities. The timing, size or
success of any acquisition effort and the associated potential capital
commitments are unpredictable. The Company expects to fund future acquisitions
primarily through a combination of a portion of the unallocated net proceeds of
this Offering, cash flow from operations and borrowings, including borrowings
under the proposed line of credit, as well as issuances of additional shares of
Common Stock. The Company plans to register an additional 5,000,000 shares of
its Common Stock under the Securities Act after the completion of this Offering
for use as consideration for future acquisitions.
The Company believes that cash flow from operations, borrowings under the
line of credit currently being negotiated and the unallocated net proceeds of
this Offering will be sufficient to fund its capital requirements for at least
the next 12 months. To the extent that the Company is successful in consummating
acquisitions, it may be necessary to finance such acquisitions through the
issuance of additional equity securities, incurrence of indebtedness or both.
SEASONALITY AND CYCLICALITY; POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING
RESULTS
The Company has experienced and expects to continue to experience
variability in revenues and net income from quarter to quarter as a result of
seasonality in the Company's business. Sales of the Company's IT products and
related services have historically been concentrated in the third and fourth
calendar quarters as a result of patterns of capital spending by clients,
principally the federal, state and local governments.
The Company also believes that the IT industry is influenced by general
economic conditions and particularly by the level of technological change.
Increased levels of technological change can have a favorable impact on the
Company's revenues. In general, technological change drives the need for
hardware and software procurement and information systems services provided by
the Company. The Company also believes that the industry tends to experience
periods of decline and recession during economic downturns. The industry could
experience sustained periods of decline in revenues in the future and any such
decline may have a material adverse effect on the Company.
The Company could in the future experience quarterly fluctuations in
operating results due to the factors discussed above and other factors,
including the loss of a major customer, additional selling, general and
administrative expenses to acquire and support new business and the timing and
magnitude of required capital expenditures. The Company plans its operating
expenditures based on revenue forecasts,
23
<PAGE>
and a revenue shortfall below such forecasts in any quarter would likely
adversely affect the Company's operating results for that quarter. See "Risk
Factors--Risks of Substantial Variability in Quarterly Operating Results."
MST--RESULTS OF OPERATIONS
MST is a high-level IT management consulting firm specializing in the use of
corporate strategy and IT to improve an organization's overall effectiveness,
productivity, quality, flexibility and responsiveness.
The following table sets forth certain selected financial data for MST on an
historical basis and as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------------- ---------
1994 1995 1996 1996
-------------------- -------------------- -------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PERCENTAGES)
Revenue...................................... $ 3,669 100.0% $ 6,193 100.0% $ 8,211 100.0% $ 4,212
Cost of revenue.............................. 1,463 39.9 2,415 39.0 3,783 46.1 1,980
--------- --------- --------- --------- --------- --------- ---------
Gross profit................................. 2,206 60.1 3,778 61.0 4,428 53.9 2,232
General and administrative expenses.......... 1,113 30.3 1,606 25.9 2,188 26.6 1,130
--------- --------- --------- --------- --------- --------- ---------
Income from operations....................... $ 1,093 29.8% $ 2,172 35.1% $ 2,240 27.3% $ 1,102
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
1997
--------------------
<S> <C> <C> <C>
Revenue...................................... 100.0% $ 3,764 100.0%
Cost of revenue.............................. 47.0 1,855 49.3
--------- --------- ---------
Gross profit................................. 53.0 1,909 50.7
General and administrative expenses.......... 26.8 873 23.2
--------- --------- ---------
Income from operations....................... 26.2% $ 1,036 27.5%
--------- --------- ---------
--------- --------- ---------
</TABLE>
MST--SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
REVENUE. Revenue decreased approximately $448,000, or 10.6%, from $4.2
million for the six months ended June 30, 1996 to $3.8 million for the same
period in 1997. This decrease resulted from the completion of short-term
consulting contracts in 1996 and the absence of corresponding contracts in 1997.
For the six months ended June 30, 1996, revenue from CIGNA Property & Casualty
(including revenue from The CSN Company ("CSN"), which was acquired in 1996)
("CIGNA") and Reinsurance Solutions International ("RSI") accounted for 60% and
23%, respectively, of total revenue. For the six months ended June 30, 1997,
revenue from CIGNA and RSI accounted for 59% and 30%, respectively, of total
revenue. No other client accounted for 10% or more of MST's revenue in these
periods.
COST OF REVENUE. Cost of revenue decreased approximately $125,000, or 6.3%,
from $2.0 million for the six months ended June 30, 1996 to $1.9 million for the
same period in 1997. Cost of revenue as a percentage of revenues increased from
47.0% for the six months ended June 30, 1996 to 49.3% for the six months ended
June 30, 1997, substantially due to the decrease in revenue from the completion
of certain short-term consulting contracts while employment and consulting fixed
costs remained stable. Fixed costs primarily consist of costs related to the
employment of consulting professionals which do not vary significantly with
profitability of engagements.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased approximately $257,000, or 22.7%, from $1.1 million for the six months
ended June 30, 1996 to $873,000 for the same period in 1997. This decrease
resulted from a decrease in MST's discretionary profit-sharing contribution and
a reduction in travel-related expenses. General and administrative expenses as a
percentage of revenue decreased from 26.8% for the six months ended June 30,
1996 to 23.2% for the six months ended June 30, 1997.
24
<PAGE>
MST--1996 COMPARED TO 1995
REVENUE. Revenue increased approximately $2.0 million, or 32.6%, from $6.2
million in 1995 to $8.2 million in 1996. This increase resulted from contracts
with several new clients as well as expansion of the work performed at RSI. In
1995, revenue from CIGNA and CSN accounted for 74% and 15%, respectively, of
total revenue. In 1996, revenue from CIGNA and RSI accounted for 61% and 25%,
respectively, of total revenue. No other client accounted for 10% or more of
MST's revenue in 1996 or 1995.
COST OF REVENUE. Cost of revenue increased approximately $1.4 million, or
56.6%, from $2.4 million in 1995 to $3.8 million in 1996. Cost of revenue as a
percentage of revenue increased from 39.0% in 1995 to 46.1% in 1996. This
increase was due to a combination of the direct costs associated with increased
revenues, salary increases to attract and retain technical personnel and the
investment associated with hiring additional employees to support the growth in
the level of activity at MST.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased approximately $582,000, or 36.2%, from $1.6 million in 1995 to $2.2
million in 1996. This increase was due to additional costs associated with the
growth in MST's business, staff and facilities. General and administrative
expenses as a percentage of revenue increased from 25.9% in 1995 to 26.6% in
1996.
MST--1995 COMPARED TO 1994
REVENUE. Revenue increased approximately $2.5 million, or 68.8%, from $3.7
million in 1994 to $6.2 million in 1995 due to new relationships with
significant clients. Included in the new clients for 1995 were an international
financial services group, an environmental controls group, a gas distribution
company and a number of other customers in the financial services, healthcare
and governmental markets. In 1994, revenue from CIGNA and CSN accounted for 62%
and 31%, respectively, of total revenue. In 1995, revenue from CIGNA and CSN
accounted for 74% and 15%, respectively, of total revenue. No other client
accounted for 10% or more of MST's revenue in these years.
COST OF REVENUE. Cost of revenue increased approximately $952,000, or
65.1%, from $1.5 million in 1994 to $2.4 million in 1995. This increase was due
to a combination of the direct costs associated with increased revenue, salary
increases to attract and retain technical personnel and the investment
associated with hiring additional employees to support the growth in the level
of activity at MST. Cost of revenue as a percentage of revenue decreased
slightly from 39.9% in 1994 to 39.0% in 1995.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased approximately $493,000, or 44.3%, from $1.1 million in 1994 to $1.6
million in 1995. Selling expenses increased with the additional revenue. General
and administrative expenses as a percentage of revenue decreased from 30.3% in
1994 to 25.9% in December 31, 1995. MST was able to generate operating leverage
by maintaining relatively consistent general and administrative expenses with
the increased activity.
25
<PAGE>
CHMC--RESULTS OF OPERATIONS
CHMC provides desktop computer systems, service and support programs for a
variety of commercial and federal, state and local governmental entities in the
Mid-Atlantic region.
The following table sets forth certain selected financial data for CHMC on
an historical basis and as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
---------------------------------------------------------------- MAY 31,
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, --------------------
1995 1996 1997 1996
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PERCENTAGES)
Revenues.............................. $ 33,201 100.0% $ 30,808 100.0% $ 44,718 100.0% $ 11,189 100.0%
Cost of revenues...................... 28,044 84.5 26,223 85.1 38,403 85.9 9,822 87.8
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit.......................... 5,157 15.5 4,585 14.9 6,315 14.1 1,367 12.2
Selling, general and administrative
expenses............................ 3,910 11.8 3,844 12.5 4,784 10.7 1,047 9.4
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations................ $ 1,247 3.8% $ 741 2.4% $ 1,531 3.4% $ 320 2.9%
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
1997
--------------------
<S> <C> <C>
Revenues.............................. $ 13,198 100.0%
Cost of revenues...................... 10,480 79.4
--------- ---------
Gross profit.......................... 2,718 20.6
Selling, general and administrative
expenses............................ 1,678 12.7
--------- ---------
Income from operations................ $ 1,040 7.9%
--------- ---------
--------- ---------
</TABLE>
CHMC--THREE MONTHS ENDED MAY 31, 1997 COMPARED TO THREE MONTHS ENDED MAY 31,
1996
REVENUES. Revenues increased approximately $2.0 million, or 18.0%, from
$11.2 million to $13.2 million for the three months ended May 31, 1996 and 1997,
respectively. This increase was primarily attributable to continued expansion of
CHMC's services, including procurement, on-site services, help-desk and project
management and other support programs. Project management work increased over
350% as CHMC was able to introduce and successfully sell this new service
offering to existing clients. CHMC's help-desk services expanded 74% through the
addition of new clients and growth in the existing client base while procurement
services increased as a result of additional product and service sales to
several state governments.
COST OF REVENUES. Cost of revenues increased approximately $658,000, or
6.7%, from $9.8 million for the three months ended May 31, 1996 to $10.5 million
for the three months ended May 31, 1997. Cost of revenues as a percentage of
revenues decreased from 87.8% to 79.4% for the three months ended May 31, 1996
and 1997, respectively. This reduction in costs as a percentage of revenues
resulted principally from an increase in procurement sales to high margin
clients through targeted sales and marketing programs. At the same time, CHMC
took advantage of increased competition among distribution suppliers by
increasing purchase discounts and the use of suppliers' drop-ship programs to
end users. Through enhancements to its help-desk call accounting system, CHMC
was able to increase productivity without corresponding increases in direct
labor costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by approximately $631,000 or 60.3%, from $1.0
million for the three months ended May 31, 1996 to $1.7 million for the three
months ended May 31, 1997. These expenses as a percentage of revenues increased
from 9.4% to 12.7% in these periods, primarily as a result of increases in
discretionary management bonuses due to improved earnings, as well as from
increased selling and training costs.
CHMC--1997 COMPARED TO 1996
REVENUES. Revenues increased approximately $13.9 million, or 45.2%, from
$30.8 million for the year ended February 29, 1996 to $44.7 million for the year
ended February 28, 1997. This resulted from increased sales of all services
offered by CHMC, including expansion in maintenance, help-desk and other support
programs, in addition to growth in procurement revenues. CHMC's overall growth
during this period was attributable to additional procurement contracts and
continued development of telesales and on-line configuration and ordering
capabilities.
26
<PAGE>
COST OF REVENUES. Cost of revenues increased approximately $12.2 million,
or 46.4%, from $26.2 million for the year ended February 29, 1996 to $38.4
million for the year ended February 28, 1997. Cost of revenues as a percentage
of revenues remained relatively stable at 85.1% in fiscal 1996 versus 85.9% in
fiscal 1997 . Several factors, all related to CHMC's ongoing efforts in 1997 to
further develop and expand its IT services, increased costs of revenues.
Specifically, CHMC hired additional engineers to support the further development
of its services and increased salaries in order to attract and retain personnel
who can provide the larger scope of services CHMC is offering its clients. The
efficiencies gained through this strategy partially offset the investment made
in fiscal 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased approximately $940,000, or 24.5%, from $3.8
million for the year ended February 29, 1996 to $4.8 million for the year ended
February 28, 1997. This increase was primarily related to additional
discretionary bonuses due to the improved performance of CHMC, increased sales
commissions resulting from CHMC's growth in sales and an overall increase in
management, both in the number of employees and base compensation, in order to
support the increased organization. These expenses as a percentage of revenues
decreased from 12.5% for the year ended February 29, 1996 to 10.7% for the year
ended February 28, 1997.
CHMC--1996 COMPARED TO 1995
REVENUES. Revenues decreased approximately $2.4 million, or 7.2%, from
$33.2 million for the year ended February 28, 1995 to $30.8 million for the year
ended February 29, 1996. This decline was primarily due to a decrease in sales
of desktop support procurement services resulting from the loss of certain
contracts. As described above, CHMC has been transitioning its business toward a
more complete spectrum of desktop support services and chose to establish new
service offerings rather than seek additional procurement contracts.
COST OF REVENUES. Cost of revenues declined approximately $1.8 million, or
6.5%, from $28.0 million for the year ended February 28, 1995 to $26.2 million
for the year ended February 29, 1996, primarily as a result of the decrease in
revenues described above. Cost of revenues as a percentage of revenues was
relatively unchanged at 84.5% for the year ended February 28, 1995 compared to
85.1% for the year ended February 29, 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were relatively unchanged at $3.9 million for the year
ended February 28, 1995 compared to $3.8 million for the year ended February 29,
1996. These expenses as a percentage of revenues increased from 11.8% for the
year ended February 28, 1995 to 12.5% for the year ended February 29, 1996.
FEDERAL--RESULTS OF OPERATIONS
Federal supplies computer products and services to governmental and
commercial entities. Federal provides its clients with integration,
implementation and support services, including network design and installation,
system upgrades and enhancements, hardware and software maintenance and on-site
technical support and relocation services.
27
<PAGE>
The following table sets forth certain selected financial data for Federal
on an historical basis and as a percentage of revenues for the periods
indicated. The table below includes revenues and related costs generated from
sales of hardware and software as well as sale of maintenance services. Federal
additionally generates revenues through certain agency contracts, equity in a
joint venture and other revenues, including interest and dividends. These other
types of revenues are not considered part of Federal's core operations and,
therefore, have not been included in the table.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED OCTOBER 31, JULY 31,
---------------------------------------------------------------- --------------------
1994 1995 1996 1996
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PERCENTAGES)
Revenues................................ $ 21,903 100.0% $ 45,464 100.0% $ 25,978 100.0% $ 24,067 100.0%
Cost of revenues........................ 18,415 84.1 38,732 85.2 19,168 73.8 18,133 75.3
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit............................ 3,488 15.9 6,732 14.8 6,810 26.2 5,934 24.7
Selling, general and administrative
expenses.............................. 7,539 34.4 7,619 16.8 5,794 22.3 5,094 21.2
--------- --------- --------- --------- --------- --------- --------- ---------
(Loss) income from operations........... $ (4,051) (18.5)% $ (887) (2.0)% $ 1,016 3.9% $ 840 3.5%
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
1997
--------------------
<S> <C> <C>
Revenues................................ $ 29,207 100.0%
Cost of revenues........................ 25,311 86.7
--------- ---------
Gross profit............................ 3,896 13.3
Selling, general and administrative
expenses.............................. 2,505 8.6
--------- ---------
(Loss) income from operations........... $ 1,391 4.7%
--------- ---------
--------- ---------
</TABLE>
28
<PAGE>
FEDERAL--NINE MONTHS ENDED JULY 31, 1997 COMPARED TO NINE MONTHS ENDED JULY 31,
1996
REVENUES. Revenues increased approximately $5.1 million, or 21.4%, from
$24.1 million for the nine months ended July 31, 1996 to $29.2 million for the
nine months ended July 31, 1997. This increase was caused primarily by larger
government contract sales with the U.S. Social Security Administration and the
U.S. Postal Service.
COST OF REVENUES. Cost of revenues increased approximately $7.2 million, or
39.6%, from $18.1 million for the nine months ended July 31, 1996 to $25.3
million for the nine months ended July 31, 1997. Cost of revenues as a
percentage of revenues increased from 75.3% for the nine months ended July 31,
1996 to 86.7% for the nine months ended July 31, 1997. The overall increase in
costs was caused primarily by the purchase of hardware required to fulfill the
large contracts noted above. The increase in cost of revenues as a percentage of
revenues was due to decreased profit margins resulting from the deferral of
certain revenue amounts at July 31, 1997 to reflect estimates of warranty costs
to be incurred by the Company on one of the new hardware contracts. The sales
price on this particular contract included warranty provisions bundled with the
price of the hardware.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased approximately $2.6 million, or 50.8%, from
$5.1 million for the nine months ended July 31, 1996 to $2.5 million for the
nine months ended July 31, 1997. As a percentage of revenues, selling, general
and administrative expenses decreased from 21.2% for the nine months ended July
31, 1996 to 8.6% for the nine months ended July 31, 1997. The primary reason for
this decrease was the revision of the compensation packages for Federal's
principal shareholders, including changes to their base salaries and certain
commission arrangements. The change in arrangements was effective November 1,
1996.
FEDERAL--1996 COMPARED TO 1995
REVENUES. Revenues decreased approximately $19.5 million, or 42.9%, from
$45.5 million in 1995 to $26.0 million in 1996. This decrease was caused
primarily by significant mainframe purchases under unusually large contracts
which ended in 1995.
COST OF REVENUES. Cost of revenues decreased approximately $19.6 million,
or 50.5%, from $38.7 million in 1995 to $19.2 million in 1996. Cost of revenues
as a percentage of revenues decreased from 85.2% in 1995 to 73.8% in 1996. The
overall decrease in costs was caused primarily by the decrease in revenues as
described above. The decrease in cost of revenues as a percentage of revenues
was due to a decrease in the costs of mainframe computers in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased approximately $1.8 million, or 24.0%, from
$7.6 million in 1995 to $5.8 million in 1996, due mainly to the decrease in
revenues discussed above. As a percentage of revenues, selling, general and
administrative expenses increased from 16.8% in 1995 to 22.3% in 1996. This
percentage increase resulted from significant bid and proposal expenses incurred
by Federal during 1996 in an effort to win new business.
FEDERAL--1995 COMPARED TO 1994
REVENUES. Revenues increased approximately $23.6 million, or 107.6%, from
$21.9 million in 1994 to $45.5 million in 1995. This increase was primarily due
to significant mainframe purchase contracts and scanner revenues obtained late
in fiscal 1995.
COST OF REVENUES. Cost of revenues increased approximately $20.3 million,
or 110.3%, from $18.4 million in 1994 to $38.7 million in 1995. Cost of revenues
as a percentage of revenues increased from 84.1% in 1994 to 85.2% in 1995. The
overall increase in costs was caused primarily by the increase in revenues as
described above. The increase in cost of revenues as a percentage of revenues
was due to lower negotiated profit margins earned on the significant mainframe
contract sale noted above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased approximately $80,000, or 1.1%, from $7.5
million in 1994 to $7.6 million in 1995, as a result of the
29
<PAGE>
increases in revenues discussed above. As a percentage of revenues, selling,
general and administrative expenses decreased from 34.4% in 1994 to 16.8% in
1995, primarily due to decreased commission expenses resulting partially from
the acquisition of the affiliated entities Federal historically used as
subcontractors.
CORPORATE ACCESS--RESULTS OF OPERATIONS
Corporate Access offers a variety of desktop computer hardware, software and
peripheral products, along with related configuration and installation services,
to commercial clients and governmental entities in the Greater Boston
metropolitan area.
The following table sets forth certain selected financial data for Corporate
Access on an historical basis and as a percentage of revenues for the period
indicated:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1997
--------------------
<S> <C> <C>
(IN THOUSANDS,
EXCEPT PERCENTAGES)
Revenues................................................................. $ 17,518 100.0%
Cost of revenues......................................................... 14,999 85.6
--------- ---------
Gross profit............................................................. 2,519 14.4
Selling, general and administrative expenses............................. 1,855 10.6
--------- ---------
Income from operations................................................... $ 664 3.8%
--------- ---------
--------- ---------
</TABLE>
Corporate Access recognizes revenues from product sales when the related
product is shipped. There are no post-sales support obligations related to
Corporate Access's product sales. Cost of revenues is comprised of purchased
materials, inventory adjustments, purchase discounts and direct labor and
benefits. Selling, general and administrative expenses include salaries,
benefits, commissions payable to Corporate Access's sales personnel, marketing
and advertising expenses and administrative costs.
ISSI--RESULTS OF OPERATIONS
ISSI develops, sells and supports proprietary software for information
access and delivery in the end-user production-data market.
The following table sets forth certain selected financial data for ISSI on
an historical basis and as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------------- ---------
1994 1995 1996 1996
-------------------- -------------------- -------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PERCENTAGES)
Revenues..................................... $ 5,729 100.0% $ 6,610 100.0% $ 9,028 100.0% $ 4,094
Cost of revenues............................. 1,297 22.6 2,010 30.4 1,482 16.4 875
--------- --------- --------- --------- --------- --------- ---------
Gross profit................................. 4,432 77.4 4,600 69.6 7,546 83.6 3,219
Selling, general and administrative
expenses................................... 3,315 57.9 4,453 67.4 4,557 50.5 1,814
Research and development..................... 1,018 17.8 804 12.2 766 8.5 409
--------- --------- --------- --------- --------- --------- ---------
Income from operations....................... $ 99 1.7% $ (657) -9.9% $ 2,223 24.6% $ 996
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
1997
--------------------
<S> <C> <C> <C>
Revenues..................................... 100.0% $ 5,405 100.0%
Cost of revenues............................. 21.4 909 16.8
--------- --------- ---------
Gross profit................................. 78.6 4,496 83.2
Selling, general and administrative
expenses................................... 44.3 2,520 46.6
Research and development..................... 10.0 513 9.5
--------- --------- ---------
Income from operations....................... 24.3% $ 1,463 27.1%
--------- --------- ---------
--------- --------- ---------
</TABLE>
ISSI--SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
REVENUES. Revenues increased approximately $1.3 million, or 32.0%, from
$4.1 million for the six months ended June 30, 1996 to $5.4 million for the six
months ended June 30, 1997. This increase reflected the impact of ISSI's
continuing maintenance revenues as well as an approximately 43% increase in
revenues from the sale of licenses for ISSI's products and related "first year"
maintenance. The maintenance revenues increase annually as ISSI retains
approximately 85% of its maintenance customers and
30
<PAGE>
begins maintenance contracts for those customers who purchased software during
the year. The increases in license revenues resulted primarily from increased
sales at ISSI's European subsidiary and through additional sales to a major
value added reseller.
COST OF REVENUES. Cost of revenues increased approximately $34,000, or
3.9%, from $875,000 for the six months ended June 30, 1996 to $909,000 for the
six months ended June 30, 1997. Cost of revenues as a percentage of revenues
decreased from 21.4% for the six months ended June 30, 1996 to 16.8% for the
same period in 1997. This decrease was primarily due to increased average
selling prices for software licenses sold to a major value added reseller.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased approximately $706,000, or 38.9%, from $1.8
million for the six months ended June 30, 1996 to $2.5 million for the six
months ended June 30, 1997. This increase in total costs resulted from increased
levels of business, although a portion of the additional business resulted from
maintenance income which has a relatively lower level of associated selling
expenses. In addition, selling and marketing expenses were reduced through
changes in the compensation structure and new marketing programs.
RESEARCH AND DEVELOPMENT. Research and development costs increased
approximately $104,000, or 25.4%, from $409,000 for the six months ended June
30, 1996 to $513,000 for the six months ended June 30, 1997. This increase was
primarily due to expenditures related to the development of certain new products
to be included in ISSI's suite of report writer products.
ISSI--1996 COMPARED TO 1995
REVENUES. Revenues increased approximately $2.4 million, or 36.6%, from
$6.6 million in 1995 to $9.0 million in 1996. This revenue growth was primarily
the result of expansion of ISSI's client base, including a new relationship with
a significant value added reseller. New client revenues accounted for
approximately $2.0 million of the increase in revenues from sales of ISSI's
software products. The remaining increase was attributable primarily to the
impact of a larger installed base on maintenance revenues.
COST OF REVENUES. Cost of revenues decreased $528,000, or 26.3%, from $2.0
million in 1995 to $1.5 million in 1996. Cost of revenues as a percentage of
revenues was 30.4% in 1995 and 16.4% in 1996. This decrease was caused primarily
by a non-recurring charge in 1995, when management determined that there was no
future value to be obtained from certain capitalized software costs. These costs
were written off in 1995, thereby increasing cost of sales. In addition, a
portion of the increased revenues in 1996 consisted of maintenance revenues,
which have lower associated costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased approximately $104,000, or 2.3%, from $4.5
million in 1995 to $4.6 million in 1996. This increase in total costs reflected
the increased level of revenues.
RESEARCH AND DEVELOPMENT. Research and development costs were relatively
unchanged at $804,000 in 1995 and $766,000 in 1996.
ISSI--1995 COMPARED TO 1994
REVENUES. Revenues increased approximately $881,000, or 15.4%, from $5.7
million in 1994 to $6.6 million in 1995. This revenue growth was primarily the
result of expansion of ISSI's client base through development of relationships
with new value added resellers.
COST OF REVENUES. Cost of revenues increased approximately $713,000, or
55.0%, from $1.3 million in 1994 to $2.0 million in 1995. Cost of revenues as a
percentage of revenues increased from 22.6% in 1994 to
31
<PAGE>
30.4% in 1995. This change was caused primarily by the unusual charge related to
the write-off of software development costs in 1995 described above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased approximately $1.1 million, or 34.3%, from
$3.3 million in 1994 to $4.5 million in 1995. A portion of this increase was
consistent with selling costs associated with a higher level of revenues.
Additionally, ISSI added staff in anticipation of engineering, support and sales
requests from its new value added resellers and expensed all of its investment
in its new European subsidiary in its first year of existence. As a percentage
of revenues, selling, general and administrative expenses increased from 57.9%
in 1994 to 67.4% in 1995.
RESEARCH AND DEVELOPMENT. Research and development costs decreased
approximately $214,000, or 21%, from $1.0 million in 1994 to $804,000 in 1995.
This decrease was due to the the termination by ISSI of in-house development of
a graphical user interface tool in light of its purchase of base technology for
the same purpose, allowing for a quicker and more complete roll-out of the
product. The total number of engineers working on this technology decreased from
1994 to 1995.
USCOMM--RESULTS OF OPERATIONS
USComm provides commercial and governmental clients with desktop computer
hardware, software, and peripheral products, technical support and comprehensive
training solutions.
The following table sets forth certain selected financial data for USComm on
an historical basis and as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- ------------------------------------------
1996 1996 1997
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PERCENTAGES)
Revenues....................................................... $ 7,215 100.0% $ 2,578 100.0% $ 4,036 100.0%
Cost of revenues............................................... 6,574 91.1 2,352 91.2 3,750 92.9
--------- --------- --------- --------- --------- ---------
Gross profit................................................... 641 8.9 226 8.8 286 7.1
Selling, general and administrative expenses................... 475 6.6 156 6.1 230 5.7
--------- --------- --------- --------- --------- ---------
Income from operations......................................... $ 166 2.3% $ 70 2.7% $ 56 1.4%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
USCOMM--SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30,
1996
REVENUES. Revenues increased approximately $1.4 million, or 56.6%, from
$2.6 million for the six months ended June 30, 1996 to $4.0 million for the six
months ended June 30, 1997, primarily due to significant new contracts with
several local municipalities enabling USComm to qualify as a general vendor for
municipalities in Maryland, thereby facilitating additional direct sales to
local, state and federal agencies and departments.
COST OF REVENUES. Cost of revenues increased approximately $1.4 million, or
59.4%, from $2.4 million for the six months ended June 30, 1996 to $3.8 million
for the six months ended June 30, 1997. As a percentage of revenues, cost of
revenues increased from 91.2% to 92.9%. This overall increase in cost of
revenues was consistent with increased sales volume. Several other factors
related to USComm's ongoing efforts to further develop and expand IT service
offerings, such as increased hiring of additional technical engineers,
contributed to the increase in cost of revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased approximately $74,000, or 47.4%, from $156,000
for the six months ended June 30, 1996 to $230,000 for the six months ended June
30, 1997. As a percentage of revenues, selling, general and administrative
expenses
32
<PAGE>
decreased from 6.1% to 5.7% in these periods. Selling expenses increased with
the additional revenues. USComm was able to generate operating leverage by
maintaining consistent general and administrative expenses despite the increased
activity.
INVENTURE--RESULTS OF OPERATIONS
InVenture creates and executes strategic marketing programs for resellers
and manufacturers of IT products and services as well as for commercial
customers in other industries.
The following table sets forth certain selected financial data for InVenture
on an historical basis and as a percentage of revenues for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- ------------------------------------------
1996 1996 1997
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PERCENTAGES)
Revenues....................................................... $ 5,416 100.0% $ 3,135 100.0% $ 2,406 100.0%
Cost of revenues............................................... 3,948 72.9 2,331 74.4 1,410 58.6
--------- --------- --------- --------- --------- ---------
Gross profit................................................... 1,468 27.1 804 25.6 996 41.4
Selling, general and administrative expenses................... 1,464 27.0 656 20.9 744 30.9
--------- --------- --------- --------- --------- ---------
Income from operations......................................... $ 4 0.1% $ 148 4.7% $ 252 10.5%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
INVENTURE--SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO JUNE 30, 1996
REVENUES. Revenues decreased approximately $729,000, or 23.3%, from $3.1
million for the six months ended June 30, 1996 to $2.4 million for the six
months ended June 30, 1997, primarily due to InVenture's diversification from
revenues based primarily on marketing collateral to a mix of revenues containing
a higher level of marketing and strategic planning as well as revenues generated
from the production of marketing collateral. Strategic planning services
generate a lower revenue stream, but a higher gross margin for InVenture.
COST OF REVENUES. Cost of revenues decreased approximately $921,000, or
39.5%, from $2.3 million for the six months ended June 30, 1996 to $1.4 million
for the six months ended June 30, 1997. As a percentage of revenues, cost of
revenues decreased from 74.4% in the 1996 period to 58.6% in the 1997 period. A
portion of the overall decrease in cost of revenues was attributable to
decreased sales volume. This decrease in cost of revenues as a percentage of
revenues was due to the lower costs associated with strategic planning that
comprised a larger portion of revenues in 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased approximately $88,000, or 13.4%, from $656,000
for the six months ended June 30, 1996 to $744,000 for the six months ended June
30, 1997. As a percentage of revenues, selling, general and administrative
expenses increased from 20.9% in the 1996 period to 30.9% in the 1997 period.
This increase was due to salary increases to attract and retain technical
personnel and to the investment associated with the hiring of additional
employees to support the expansion of services to be provided by InVenture. In
addition, the diversification of services and clients resulted in higher travel
and telephone costs.
33
<PAGE>
MIS--RESULTS OF OPERATIONS
MIS provides clients with temporary contract staffing and permanent
placement of qualified professionals with IT experience.
The following table sets forth certain selected financial data for MIS on an
historical basis and as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- ------------------------------------------
1996 1996 1997
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PERCENTAGES)
Revenues....................................................... $ 2,582 100.0% $ 1,269 100.0% $ 2,166 100.0%
Cost of revenues............................................... 1,426 55.2 910 71.7 1,404 64.8
--------- --------- --------- --------- --------- ---------
Gross profit................................................... 1,156 44.8 359 28.3 762 35.2
Selling, general and administrative expenses................... 1,150 44.5 311 24.5 685 31.6
--------- --------- --------- --------- --------- ---------
Income from operations......................................... $ 6 0.3% $ 48 3.8% $ 77 3.6%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
MIS--SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
REVENUES. Revenues increased approximately $897,000, or 70.7%, from $1.3
million for the six months ended June 30, 1996 to $2.2 million for the six
months ended June 30, 1997, primarily due to MIS expanding its client base for
both temporary and permanent placements.
COST OF REVENUES. Cost of revenues increased approximately $494,000, or
54.3%, from $910,000 for the six months ended June 30, 1996 to $1.4 million for
the six months ended June 30, 1997. As a percentage of revenues, cost of
revenues decreased from 71.7% to 64.8%. This overall increase in cost of
revenues was consistent with increased sales volume. MIS was able to generate
operating leverage by maintaining consistent direct overhead costs despite the
increased activity.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased approximately $374,000, or 120.3%, from
$311,000 for the six months ended June 30, 1996 to $685,000 for the six months
ended June 30, 1997. As a percentage of revenues, selling, general and
administrative expenses increased from 24.5% to 31.6% in these periods. This
increase in selling, general and administrative expenses as a percentage of
revenues was due to increased commission expense and discretionary management
bonuses.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," provides a new fair-value-based method of
accounting for employee stock options or similar equity instruments; however,
this statement allows companies to continue to utilize the intrinsic-value-based
measure of accounting prescribed by Accounting Principles Board Opinion No. 25
("APB No. 25"). Companies electing to remain with the accounting method provided
in APB No. 25 must make pro forma disclosures of net income and net earnings per
share as if the fair value method of accounting had been applied. In the future,
the Company will provide pro forma disclosure of net income and net income per
share, as applicable, in its notes to consolidated financial statements.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which will be effective for fiscal periods beginning
after December 15, 1997. SFAS No. 128 simplifies the standards required under
current accounting rules for computing earnings per share and replaces the
presentation of primary earnings per share and fully diluted earnings per share
with a presentation of basic earnings per share ("basic EPS") and diluted
earnings per share ("diluted EPS").
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Basic EPS excludes dilution and is determined by dividing income available to
common stockholders by the weighted average number of common shares outstanding
during the period. Diluted EPS reflects the potential dilution that could occur
if securities and other contracts to issue common stock were exercised or
converted into common stock. Diluted EPS is computed similarly to fully diluted
EPS under current accounting principles.
The Company will implement SFAS 128 during 1998.
35
<PAGE>
BUSINESS
INTRODUCTION
Condor Technology Solutions, Inc. provides a wide range of IT services and
solutions to middle market organizations. The Company offers its clients a
single source for a comprehensive range of services, including strategic
planning and management consulting; strategic marketing communications;
development, integration and installation of IT systems; contract staffing and
recruiting; training and continuing education; desktop systems maintenance and
support; and procurement. The Company works with its clients to identify areas
of their businesses where the effective deployment of technology can have the
maximum impact on executing business strategies and optimizing business
processes.
The Company's marketing efforts focus on middle market organizations, which
typically spend from $2 million to $30 million annually on their IT needs. In
addition, the Company targets the financial services, government, healthcare and
technology markets. These markets are typically characterized by (i) reliance on
legacy systems; (ii) platform migration to client/server architectures; (iii)
changing competitive dynamics, such as globalization and deregulation; and (iv)
heavy dependency on database and proprietary applications. The Company believes
that middle market organizations in these industry groups have been underserved
by large IT vendors which, due to economic and high cost structures, cannot
address the requirements of the middle market adequately. The Company intends to
market its services through each of the sales forces at the Founding Companies
as well as through the Company's corporate sales force. This approach will allow
the Company to market its services independently or in combination to provide a
solution to a client's specific IT needs.
The Company has provided IT services through 22 offices located in 11 states
across the United States and in two foreign countries. The Company had 525
employees, including 372 technical professionals, as of July 1, 1997. The
Company cultivates long-term relationships with its clients and believes these
long-term relationships present excellent opportunities for further marketing of
its services.
MARKET OPPORTUNITY
Heightened competition, deregulation, globalization and rapid technological
advances are forcing organizations to make fundamental changes in their business
processes. These pressures have compelled organizations to improve the quality
of products and services, reduce costs and strengthen client relationships.
Increasingly, organizations are addressing these issues by developing and
utilizing IT services and solutions that facilitate the rapid and flexible
collection, analysis and dissemination of information. The ability of an
organization to maintain and refresh its existing systems and to integrate and
deploy new information technologies in a cost-effective manner has become
critical to competing successfully in today's rapidly changing business
environment.
Although many companies have recognized the importance of IT systems and
products to compete in this business climate, the process of designing,
developing, procuring and implementing IT systems has become increasingly
complex. Companies are continuing to migrate away from centralized mainframes
running proprietary software toward decentralized, scalable architectures based
on personal computers, client/server architectures, local and wide area
networks, shared databases and packaged application software. These advances
have greatly enhanced the ability of companies to benefit from the application
of IT. Consequently, the number of companies desiring to use IT in new ways and
the number of end users within these organizations are rising rapidly.
During this time of increasing reliance on IT, rapid technological change
and other challenges, such as the need for Year 2000 conversions, have strained
the capabilities of the internal departments within these organizations. At the
same time, external economic factors have forced organizations to focus on core
competencies and trim workforces in the IT management area. Accordingly, these
organizations often lack the quantity or variety of IT skills necessary to
design and develop emerging IT solutions. Consequently,
36
<PAGE>
businesses are increasingly looking to outsource IT services. By outsourcing IT
services, companies are able to (i) focus on their core business; (ii) access
specialized technical skills; (iii) implement IT solutions more rapidly; (iv)
benefit from flexible staffing; and (v) reduce the cost of recruiting and
training.
Due to the foregoing factors, demand for IT services has grown
significantly. According to Dataquest, the worldwide market for IT services was
approximately $262 billion in 1996 and will grow to $517 billion by the year
2001. The IT professional service portion of such worldwide market (consulting,
systems integration, application development and outsourcing services) was
approximately $158 billion in 1996 and is estimated to grow by 17% annually
through 2001. The domestic market for IT professional services is projected to
grow from approximately $73 billion in 1996 to approximately $148 billion in
2001.
The IT service industry has evolved into a highly fragmented environment
with a small number of large, national service providers and a large number of
small- and medium-size service providers, usually only regional in scope. Large
IT service providers typically address the IT needs of large organizations with
substantial IT requirements for a wide range of services, whereas smaller IT
service firms provide specialized services of limited scope. Consequently,
middle market organizations typically rely on multiple, often specialized,
providers to help implement and manage their systems. These smaller IT service
providers often lack sufficient breadth and depth of services or industry
knowledge to satisfy these organizations' need for comprehensive solutions. The
Company believes the current reliance on multiple service providers can create
multiple relationships which are more logistically difficult and less cost-
effective to manage, a lack of responsibility for ultimate delivery of an
optimal IT solution and an adverse impact on the quality and compatibility of IT
solutions. In an attempt to reduce cost and management complexity, many
organizations are seeking to establish preferred vendor relationships with a
small number of IT service providers that are able to address a broad range of
IT service needs.
THE CONDOR VISION
The Company intends to capitalize upon consolidation opportunities in the
highly fragmented IT service industry in order to create a single-source
provider of a wide range of IT services and solutions to middle market
organizations in select vertical markets. In response to market demand, the
Company has assembled a diverse set of IT offerings, from planning and
consulting to development, integration and installation of IT systems to desktop
services. This broad range of offerings will enable clients to use a single
provider for their IT needs, which should result in tighter integration,
minimized risk and greater management control. In addition, the Company will
focus upon acquisition opportunities that complement and enhance its existing IT
offerings. The Company believes that its expertise in providing IT services,
industry experience, client relationships, geographic reach and size will enable
it to capitalize on the anticipated continued growth of the IT needs of middle
market organizations.
STRATEGY
The Company's objective is to be a leading provider of IT offerings to
middle market organizations with a focus on select vertical markets. Key
elements of the Company's strategy are presented below.
LEVERAGE CONSULTING SERVICES. The Company intends to leverage its
high-level planning and strategic consulting services to foster long-term
relationships with clients and to implement technology strategies in order to
achieve the clients' desired IT solutions. The Company believes that its ability
to partner with clients to define their IT service needs and to deliver the full
range of these IT services provides an attractive single-source solution for its
clients.
EXPAND CLIENT RELATIONSHIPS. The Company believes it can increase its
revenues from existing clients by cross-selling its services. The Company
believes that the quality of its services has enabled it to establish and
maintain long-term relationships with many of its clients. The Company believes
that the access and goodwill derived from these client relationships will
provide it with significant advantages in marketing additional offerings to
existing clients.
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<PAGE>
RECRUIT, TRAIN AND RETAIN TECHNICAL PERSONNEL. The Company focuses on
recruiting, training and retaining highly skilled IT professionals in response
to the shortage of and significant competition for such professionals. MIS, one
of the Founding Companies, is dedicated solely to identifying, attracting and
staffing IT professionals, and another Founding Company, USComm, will
increasingly concentrate on training such professionals. While these activities
will continue to be conducted primarily on behalf of the Company's clients,
these capabilities also will enable the Company to enhance its ability to staff
Company engagements as it implements its growth strategy. The Company intends to
provide competitive incentives, compensation and benefits in order to retain its
IT professionals.
EXPAND SERVICE OFFERINGS AND GEOGRAPHIC REACH. The Company plans to expand
its service offerings and add new businesses in order to offer new and existing
clients access to a more complete range of services. The Company intends to
expand its service offerings by addressing emerging technologies, including
web-based systems, Internet, intranet and object-oriented development systems.
The Company also plans to expand its geographic reach based on its clients'
needs.
IMPLEMENT DECENTRALIZED MANAGEMENT PHILOSOPHY. The Company intends to
operate with a decentralized management structure to provide superior client
service and a motivating environment for its various subsidiaries. The Company
anticipates that finance, accounting, management information systems, treasury,
employee benefits and certain purchasing arrangements will be managed or
provided on a centralized basis. The Founding Companies and subsequently
acquired businesses will manage the professional services and technical aspects
of their respective businesses in a manner consistent with their historical
practices and as dictated by local market conditions. The Company believes that
this approach will enable the Founding Companies and subsequently acquired
businesses to maintain their high level of client service and contact, while
allowing them to draw upon the collective resources of the Company as a whole.
PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES. Given the highly fragmented
nature of the IT service industry, the Company believes significant acquisition
opportunities exist. The Company seeks to acquire IT service companies to
strengthen its core competencies, to offer complementary services and to
facilitate its expansion into new geographic areas. The Company believes that it
will be regarded by acquisition candidates as an attractive acquiror because of:
(i) the Company's cross-selling strategy, which will offer owners of acquisition
candidates significant opportunities to enhance the growth of their businesses;
(ii) its decentralized operating strategy; (iii) the Company's increased
visibility and access to financial resources as a public company; and (iv) the
potential for the owners of the business being acquired to participate in the
Company's planned internal growth and growth through acquisitions, while at the
same time realizing near-term liquidity.
In addition to acquisitions, the Company may seek to form strategic
relationships with business partners to share technical and industry knowledge
and pursue joint marketing opportunities. These relationships typically will
allow the Company to gain access to training, product support and the technology
developed by these partners. The Company has recently established a business
partner relationship with a major telecommunications firm.
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<PAGE>
SERVICES
The Company offers its clients a single source for a broad range of IT
services. The Company delivers each of these services independently or in
combination to provide a solution to a client's specific IT needs.
<TABLE>
<S> <C> <C> <C> <C>
Consulting Services System Services Desktop Services
- IT NEEDS ANALYSIS - CLIENT/SERVER - HARDWARE AND
- TECHNOLOGY DEVELOPMENT AND SOFTWARE PROCUREMENT
INFRASTRUCTURE DESIGN INTEGRATION - SYSTEMS MAINTENANCE
- FUTURE TECHNOLOGY - LAN/WAN DESIGN AND AND SUPPORT
PLANNING AND REFRESHMENT IMPLEMENTATION - HARDWARE AND
- SYSTEMS ARCHITECTURE - PROJECT MANAGEMENT AND SOFTWARE MAINTENANCE
DEVELOPMENT RESOURCE PLANNING - HELP-DESK OPERATIONS
- DECISION SUPPORT - HARDWARE AND SOFTWARE - SYSTEMS TESTING AND
PLANNING AND ANALYSIS SELECTION ENGINEERING
- BUSINESS PROCESS - INFORMATION ACCESS
AUTOMATION SOFTWARE DESIGN AND
- YEAR 2000 PLANNING AND IMPLEMENTATION
CONSULTING - SOFTWARE APPLICATION
- STRATEGIC MARKETING DESIGN AND DEVELOPMENT
SERVICES - CONTRACT STAFFING AND
RECRUITING
- TRAINING AND CONTINUING
EDUCATION
- CONFIGURATION, TESTING
AND INSTALLATION
</TABLE>
CONSULTING SERVICES
STRATEGIC PLANNING AND MANAGEMENT CONSULTING. The Company's technical
professionals provide strategic planning and management consulting to senior
management, typically through a client's chief executive officer, chief
financial officer or chief information officer. These services involve the
development of long-term technology plans that help the client to achieve
specific strategic business objectives and include IT needs analysis, technology
infrastructure design, future technology planning and refreshment, systems
architecture development, decision support planning and analysis, business
process automation and Year 2000 planning and consulting. The Company's ability
to perform such strategic consulting services gives it the opportunity to
deliver "follow-on" services to implement its recommended technology strategies.
STRATEGIC MARKETING PROGRAM DEVELOPMENT AND IMPLEMENTATION. The Company
also creates and executes strategic marketing programs for resellers and
manufacturers of software and hardware products. These programs include a wide
range of marketing related services, including marketing strategies, corporate
identity programs, creative development, merchandising programs, publications,
web site development, direct mail, advertising and event planning.
SYSTEM SERVICES
DEVELOPMENT, INTEGRATION AND INSTALLATION OF IT SYSTEMS. The Company offers
its clients a single source for a wide range of IT services required to
successfully design, develop and implement integrated IT solutions in diverse
computing environments. The Company's services include client/server development
and integration; LAN and WAN design and implementation; project management and
resource planning;
39
<PAGE>
hardware and software selection; information access software design and
installation; systems migration planning and implementation; configuration,
testing and installation; and software application design and development. The
Company integrates servers, mini-computers and mainframe systems, workstations,
terminals and communication gateways into single integrated networks. The
Company also develops, sells and supports proprietary software for information
access and delivery in the end-user, production-data market, primarily under the
Safari InfoTools brand. This software enables clients to manage information
across virtually all databases, computing platforms and operating systems in a
three-tiered, client/server environment.
CONTRACT STAFFING AND RECRUITING. The Company contracts to provide both
temporary and permanent personnel with highly specialized technical skills. In
order to obtain the necessary technical personnel for its contract staffing
business, the Company conducts extensive recruiting operations. The Company also
uses these recruiting services to fulfill its internal personnel requirements.
TRAINING AND CONTINUING EDUCATION. The Company offers IT training through
its training facility in Annapolis, Maryland. The facility, a Microsoft
Authorized Technical Education Center, focuses on Microsoft NT certification
courses. The Company's services also include skills assessment, interactive
learning solutions at the desktop and courseware. The Company intends to expand
its training capabilities, using the Annapolis facility and programs as a model.
The Company also will use these training facilities to fulfill its internal
training requirements.
DESKTOP SERVICES
SYSTEMS MAINTENANCE AND SUPPORT. The Company provides a complete array of
desktop systems maintenance and support services to its clients, including
hardware and software maintenance, help-desk operations and systems testing and
engineering. These services, which are provided both on-site and on a remote
basis, allow clients to make efficient use of their technology tools by
minimizing network disruptions and downtime through the Company's rapid response
to applications inquiries.
PROCUREMENT. The Company resells hardware and software as part of its
desktop services. The Company maintains a dedicated procurement infrastructure
to manage the acquisition process through purchasing arrangements with
distributors, aggregators and manufacturers. The Company maintains reseller
certifications from leading hardware and software manufacturers, including
Microsoft, IBM, Novell, Cisco, 3Com, Compaq, Sun, Oracle, Hewlett-Packard, Bay
Networks and Apple.
CLIENTS AND ALLIANCE PARTNERS
The Company's clients include a broad array of middle market commercial and
governmental users of IT services. The Company focuses on serving four vertical
markets: financial services, government, healthcare and technology. In addition,
the Company has established relationships with "Alliance Partners" that involve
joint marketing, software distribution and the provision of services on a
subcontractor basis.
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The following table shows selected clients, categorized by industry group,
and Alliance Partners for which the Company has provided services in the past 12
months.
<TABLE>
<CAPTION>
TECHNOLOGY GOVERNMENT ALLIANCE PARTNERS
- -------------------------------- -------------------------------- ------------------------
<S> <C> <C>
CIC Systems Internal Revenue Service Baan
Digital Equipment U.S. Customs Department Computer Associates
Hewlett-Packard U.S. Department of Defense EDS
IBM U.S. Department of Justice Perot Systems
PictureTel FINANCIAL SERVICES OTHER
Texas Instruments CIGNA Property & Mack Truck
XLConnect Casualty Town & Country
HEALTHCARE Fidelity Investments Wheelabrator Tech
Boston University Hospital State Street Bank
CIGNA Property & Casualty
McNeil Consumer Products
US Healthcare
</TABLE>
For the year ended December 31, 1996, the Company's top 10 clients accounted
for 46.4% of the Company's pro forma combined revenues. No single client
accounted for as much as 10% of the Company's pro forma combined revenues,
except for the U.S. Customs Department, which accounted for 10.8% of the
Company's pro forma combined revenues. On a pro forma combined basis, the
Company generated revenues of over $1 million from 22 of its clients in 1996.
SALES AND MARKETING
The Company's marketing efforts focus on middle market organizations, which
typically spend from $2 million to $30 million annually on their IT needs. In
addition, the Company targets the financial services, government, healthcare and
technology markets.
The Company intends to focus its sales and marketing efforts around four
principal goals: (i) continuing to expand the existing sales and marketing
efforts of the Founding Companies; (ii) cross-selling the complementary service
capabilities of the Founding Companies and any subsequently acquired companies
across the Company's client base; (iii) leveraging the experience and reputation
of the Company's senior management to secure middle market, IT service contracts
in the $10 million to $50 million range; and (iv) establishing Condor as a
nationally recognized, full-service provider of IT services.
As of July 1, 1997, the Company had 78 marketing and sales personnel. The
Company intends to market its services through each of the sales forces at the
Founding Companies as well as through the Company's corporate sales force. This
approach will allow the Company to market its services independently or in
combination to provide a solution to a client's specific IT needs. The senior
executives of the Founding Companies have historically been the primary sales
and marketing leaders at such companies and will continue to provide this
leadership. The Company intends to add sales and marketing personnel to assist
senior executives in increasing the number of new clients and the amount of
business generated from existing clients.
The Company generates sales leads through referrals from clients and
management consultants, responses to requests for proposals, strategic alliances
with complementary companies, the Company's Internet web sites and associated
links, industry seminars, trade shows, direct telephone and mail campaigns and
advertisements in trade journals. In addition, the Company intends to leverage
the experience and reputation within the IT service industry of its senior
management team. The Company also intends to retain senior industry consultants
to assist in identifying, marketing and securing large IT service contracts with
middle market organizations.
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The Company intends to expand its marketing efforts by coordinating the
Founding Companies' responses to requests for proposals from current clients. In
addition, the Company believes it has a significant opportunity to cross-sell
its IT offerings to its existing client base. Historically, MST, which provides
strategic planning and management consulting at the most senior levels of an
organization, outsourced or partnered with other IT service providers in order
to provide the resources to implement the technology programs it had developed.
The implementation of such technology programs has generated revenues for other
IT service providers that generally exceeded the revenues derived by MST in
providing its services. As a result of the formation of the Company, MST will be
able to offer its clients a wider range of IT services and solutions and capture
revenue opportunities created by its strategic planning and consulting practice.
The Company's senior management intends to work directly with the Founding
Companies to assist them in identifying and coordinating opportunities to
cross-sell additional services.
The Company intends to implement marketing and advertising campaigns to
establish the Company as a leading provider of IT offerings to middle market
organizations. The Company believes these efforts will help it obtain new
clients and attract and retain employees.
COMPETITION
The market for the Company's services is highly competitive. The Company's
competitors vary in size and in the scope of the products and services they
offer. Competitors generally include consulting and systems implementation
firms, "Big Six" accounting firms, applications development firms, service
groups of computer equipment companies, general management consulting firms,
programming companies, temporary staffing firms and other IT service providers.
Traditionally, the largest service providers have principally focused on
providing full-service solutions to international Fortune 500 companies. There
is an emerging group of smaller services companies (in terms of market share and
scope and size of contracts) that are exploring opportunities in broader
markets, including Cambridge Technology Partners, Perot Systems Corporation, The
Registry and Technology Solutions Corp.
There are relatively low barriers to entry into the Company's markets, and
the Company expects to face competition from established and emerging companies.
Increased competition may result in greater pricing pressure, which could
adversely affect the Company's gross margins. In addition, many of the Company's
competitors have greater financial, development, technical, marketing and sales
resources than the Company. As a result, they may be able to respond more
quickly to new or emerging technologies and changes in client requirements, or
to devote greater resources to the development, promotion, sale and support of
their products and services than the Company. In addition, there is a risk that
clients may elect to increase their internal IT resources to satisfy their IT
solutions needs. There can be no assurance that the Company will compete
successfully with existing or new competitors.
The Company believes that the principal competitive factors in the IT
service industry include quality of service, availability of qualified technical
personnel, responsiveness to client requirements and needs, price, ability to
deliver on large multi-year contracts, breadth of product and service offerings,
timely completion of projects, adherence to industry technical standards,
capital resources and general market reputation. The Company also believes that
a variety of competitive factors beyond its control, including the capabilities,
resources and reputations of its competitors, may affect the Company's ability
to compete effectively.
HUMAN RESOURCES
The Company's success depends in large part upon its ability to attract,
develop, motivate and retain highly-skilled technical employees. The Company
dedicates significant resources to employee recruitment and employs multiple
recruiting methods, such as maintaining a presence at local and regional
technical colleges, newspaper and technical periodical classified advertising,
participation in national and regional job fair networks and the establishment
of employee referral incentive programs. The Company maintains
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<PAGE>
a staff of 10 full-time recruiters. The Company plans to supplement its internal
recruiting efforts by using the resources of its contract staffing business,
including access to a database of qualified technical professionals. Qualified
technical employees are in great demand and are likely to remain a limited
resource for the foreseeable future. Candidates are typically screened through
detailed interviews by the Company's recruiting personnel, technical interviews
by consultants and an appraisal by the Company's managers.
The Company has developed programs to help train, motivate and retain its
employees. For example, the Company intends to implement a performance-based
incentive compensation program. The Company also intends to develop training
programs to guide technical personnel continually through a progression of skill
and competency development programs. As another incentive measure, the Company
plans to issue options to its employees under its 1997 Long-Term Incentive Plan.
Most importantly, in addition to formal programs, the Company plans to maintain
an environment that fosters creativity and recognizes technical excellence.
The Company is dependent upon its ability to attract, hire and retain
technical personnel who possess the skills and experience necessary to meet the
staffing requirements of its clients and the Company's own personnel needs.
Competition for individuals with proven technical skills is intense. There can
be no assurance the Company will be able to recruit or retain the technical
personnel necessary to execute its business and growth strategy.
As of July 1, 1997, the Company employed approximately 525 employees, of
whom approximately 372 were technical personnel. None of the Company's employees
is represented by a collective bargaining agreement. Although most consultants
are Company employees, the Company does engage consultants as independent
contractors from time to time. The Company considers relations with its
employees to be good.
FACILITIES
The Company's headquarters are located in McLean, Virginia. In addition to
its headquarters, the Company leases office space and warehouse space as
follows:
<TABLE>
<CAPTION>
LOCATION TYPE
- ----------------------------- --------------------------------------
<S> <C>
Allentown, PA Warehouses
Annapolis, MD Office/Training Center/Warehouse
Andover, MA Office/Warehouse
Boston, MA Office
Dallas, TX Office
Denver, CO Office
Falls Church, VA Office
Framingham, MA Office
Hanover, Germany Office
Joplin, MO Office
Langhorne, PA Office/Warehouse
Lincoln, NB Office
Oklahoma City, OK Office
Pittsburgh, PA Office
San Jose, CA Office
Scottsdale, AZ Office
Seal Beach, CA Office
St. Louis, MO Office
Tulsa, OK Office
Utrecht, The Netherlands Office
Vienna, VA Warehouse
</TABLE>
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<PAGE>
The leases expire at various times between 1997 and 2004. The aggregate
square footage for all of the Company's offices and warehouses is 113,677 square
feet.
Corporate Access leases property in Andover, Massachusetts that is owned by
Corpac II Realty Trust, of which Richard T. Marino, the President of Corporate
Access, is a trustee. The lease provides for monthly rentals of approximately
$7,600. The Company believes that the rent for such property does not exceed the
fair market rental thereof. See "Certain Transactions" and the Notes to the
Founding Companies' Historical Financial Statements for information regarding
lease obligations.
The Company has entered into a lease agreement, dated August 1, 1997, with
Tysons II Development Co. Limited Partnership for 8,829 square feet of leased
space at its corporate headquarters located at 1650 Tysons Boulevard, Suite 600,
McLean, Virginia. Under the agreement, which expires on July 31, 2007, subject
to a five-year renewal option, the Company is responsible for annual rental
payments totaling approximately $251,600. The Company currently subleases a
portion of the premises from The Fortress Group, Inc. ("Fortress Group"), a
public U.S. homebuilding company for which J. Marshall Coleman, Chairman of the
Board of the Company, serves as Chairman of the Board. Annual rental under the
sublease is approximately $101,600.
LEGAL PROCEEDINGS
The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of these actions
will have a material adverse effect on the financial condition, business or
results of operations or cash flows of the Company.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages (as of July 31, 1997) and
other information concerning those persons who will be directors and executive
officers of the Company upon the closing of this Offering.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------- --------- -----------------------------------------------------
<S> <C> <C>
Kennard F. Hill.................................. 57 Chairman of the Board (1) and Chief Executive Officer
C. Lawrence Meador............................... 50 Vice Chairman of the Board (2)
Daniel J. Roche.................................. 35 President (1) and Chief Operating Officer
Santanu Sarkar................................... 31 Chief Financial Officer
J. Marshall Coleman.............................. 55 Director
Edward J. Mathias................................ 55 Director (1)
</TABLE>
- ------------------------
(1) Appointment will become effective upon the closing of this Offering.
(2) Appointment will become effective January 1, 1998.
Kennard F. Hill has been President, Chief Executive Officer and a director
of the Company since January 1997. He will resign as President and become
Chairman of the Board of the Company effective upon the closing of this
Offering. Mr. Hill was Group President at I-NET, Inc., a network computing and
systems integration services company, from September 1995 to December 1996. From
June 1993 to June 1995, Mr. Hill was President and Chief Executive Officer of
Insource Technology, Inc., an IT consulting firm. From June 1992 to June 1993,
Mr. Hill was a private consultant on client/server acquisition strategy in the
healthcare industry. From June 1988 to July 1992, Mr. Hill was Chief Executive
Officer of DataLine Inc., a data processing and IT firm. From December 1968 to
March 1988, Mr. Hill was employed by Electronic Data Systems Corporation
("EDS"). He served as President of General Motors-EDS for North America from
1985 to 1988. At EDS, Mr. Hill also served as chief of the Healthcare Division,
having previously served as its Director of Sales. Mr. Hill also was an officer
of EDS's Federal Corp. subsidiary and a director of its National Heritage
Insurance Corp. subsidiary, which provides healthcare underwriting for
lower-income policyholders. In December 1994, Mr. Hill filed a voluntary
petition in bankruptcy in order to discharge indebtedness arising out of his
divorce and several partnerships in which he was a limited partner. The
bankruptcy was discharged in January 1996. Mr. Hill attended the University of
Texas and served two tours of duty as a United States Army pilot in Vietnam.
C. Lawrence Meador will become Vice Chairman of the Board of Directors of
the Company effective January 1, 1998. Mr. Meador is the founder and has been
the President of MST, a Founding Company, since 1992. Since 1996, Mr. Meador has
served, under an MST contract, as the Chief Information Officer of CIGNA, an
insurance company. Mr. Meador has also been on the academic staff of the
Massachusetts Institute of Technology for over 20 years, during which period he
was a consultant to numerous international Fortune 1000 companies, governmental
bodies and other organizations. Mr. Meador received a bachelor of science degree
from the University of Texas and masters degrees in management and mechanical
engineering from the Massachusetts Institute of Technology.
Daniel J. Roche will become Chief Operating Officer of the Company in late
October 1997 and will become President of the Company effective upon the closing
of this Offering. Mr. Roche currently serves as the Chief Operating Officer and
Executive Vice President of BSG, an IT service division of Medaphis Corp. that
focuses on client/server and network technologies. In 1991, Mr. Roche founded
Rapid Systems Solutions, a provider of client/server applications with
competencies in database management systems, networking, communications and
graphical user interfaces, which BSG acquired in May 1996. From 1985 to 1990,
Mr. Roche was an Associate at Booz-Allen & Hamilton. Mr. Roche received a
masters degree in
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computer science from The Johns Hopkins University and a bachelor of science
degree in computer science from Central Michigan University.
Santanu Sarkar has been Chief Financial Officer of the Company since July
1997. He joined Condor from Commonwealth, where he was a Vice President from
March 1997 to June 1997. From 1992 to February 1997, Mr. Sarkar was a member of
the Mergers & Acquisitions Group at Wasserstein Perella & Co., an investment
banking firm, where he most recently served as a Vice President. He also
previously served as a Financial Analyst in the investment banking firm of
Dillon, Read & Co. Mr. Sarkar graduated from the University of Pennsylvania,
where he received a bachelor of arts degree from the College of Arts and
Sciences and a bachelor of science degree from The Wharton School. Mr. Sarkar
also earned a masters degree in economics from Yale University.
J. Marshall Coleman has been Chairman of the Board of Directors of the
Company since August 1996. He will resign as Chairman of the Board of the
Company upon the closing of this Offering but remain as a director of the
Company. Mr. Coleman is also currently Chairman of the Board of Fortress Group,
a public U.S. homebuilding company. Mr. Coleman also serves as Managing Director
of Commonwealth, a Virginia-based merchant banking firm. From August 1992
through April 1996, Mr. Coleman was an attorney with Katten Muchin & Zavis, a
national law firm, and was the Managing Partner of its Washington office from
1994 until April 1996. From 1985 until 1992, Mr. Coleman was an attorney at the
Washington, D.C. law firm of Arent, Fox, Kintner, Plotkin and Kahn. Mr. Coleman
was Attorney General of Virginia from 1978 to 1982. In 1975, Mr. Coleman was
elected to the Virginia State Senate. In 1972, Mr. Coleman was elected to the
Virginia House of Delegates and also served as a United States Magistrate from
1970 to 1972. Mr. Coleman received bachelor of arts and juris doctor degrees
from the University of Virginia. He is a veteran of the United States Marine
Corps, having served as an officer in Vietnam.
Edward J. Mathias will become a director of the Company upon the closing of
this Offering. Mr. Mathias has been a Managing Director of The Carlyle Group, a
Washington, D.C.-based merchant bank, since January 1994. Prior to joining
Carlyle, Mr. Mathias was a Managing Director, officer and employee of T. Rowe
Price Associates, Inc. from June 1971 to December 1993. He received a masters
degree in business administration from Harvard Business School and a bachelor of
arts degree from the University of Pennsylvania. Mr. Mathias also serves on the
board of directors of each of U.S. Office Products, an office products
distributor, Fortress Group, Sirrom Capital and PathoGenesis.
All officers serve at the discretion of the Board of Directors.
BOARD CLASSIFICATION
Effective upon the closing of this Offering, the Board of Directors will be
divided into three classes of two directors, one director and one director, with
directors serving staggered three-year terms, expiring at the annual meeting of
stockholders in 1998, 1999 and 2000, respectively. See "Description of Capital
Stock." At each annual meeting of stockholders, one class of directors will be
elected for a full term of three years to succeed that class of directors whose
terms are expiring. Directors whose terms expire in 1998 are Messrs. Hill and
Meador; the director whose term expires in 1999 is Mr. Mathias; and the director
whose term expires in 2000 is Mr. Coleman.
BOARD COMMITTEES
The Board of Directors has established an Audit Committee and a Compensation
Committee, effective upon the closing of this Offering. The Audit Committee will
review the results and scope of the audit and other services provided by the
Company's independent accountants and will consist of Mr. Coleman and Mr.
Mathias. The Compensation Committee will approve salaries and certain incentive
compensation for management and key employees of the Company, will administer
the 1997 Long-Term Incentive Plan and will consist of Mr. Coleman and Mr.
Mathias.
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DIRECTOR COMPENSATION
Directors who are also employees of the Company or one of its subsidiaries
will not receive additional compensation for serving as directors. Each director
who is not an employee of the Company or one of its subsidiaries will receive an
annual retainer fee of $5,000. In addition, under the Company's 1997 Long-Term
Incentive Plan, each non-employee director will automatically receive an option
to acquire 10,000 shares of Common Stock upon such person's initial election as
a director and, subject to a certain exception, an annual option to acquire
5,000 shares at each annual meeting of the Company's stockholders thereafter at
which such director is re-elected or remains a director. See "--1997 Long-Term
Incentive Plan." Directors also will be reimbursed for out-of-pocket expenses
incurred in attending meetings of the Board of Directors or committees thereof,
in their capacity as directors.
EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS; COVENANTS-NOT-TO-COMPETE
The Company was incorporated in August 1996 and has conducted no operations
and did not pay any of its executive officers compensation during 1996. The
Company anticipates that during 1997 its most highly compensated executive
officers will be Messrs. Meador, Hill, Roche and Sarkar.
Mr. Hill has entered into an employment agreement with the Company,
effective as of January 2, 1997, providing for an annual base salary of $300,000
after the closing of this Offering. Mr. Hill also will participate in the bonus
program to be established by the Company in the same manner as the other
executives as described below. Mr. Hill also received 193,080 shares of the
Common Stock of the Company pursuant to his employment agreement. Mr. Hill's
employment agreement has a three-year term with automatic renewals for
successive one-year periods (each a "Renewal Period") unless, within 30 days
prior to the termination of any such period, either party shall have given
written notice to the other party that the term shall not be so extended.
If the Company terminates Mr. Hill's employment other than for cause prior
to January 2, 1998, he will be entitled to receive all of the benefits payable
under his agreement for the balance of the initial term. If the Company
terminates Mr. Hill's employment other than for cause after January 2, 1998
(Renewal Periods included), he will receive severance pay equal to 100% of his
base salary for the period of time that would have been remaining in the initial
term or any Renewal Period, as the case may be.
Each of Messrs. Meador, Roche and Sarkar will enter into an employment
agreement with the Company providing for an annual base salary of $431,815,
$220,000 and $150,000, respectively, and a bonus to be determined annually in
accordance with an annual bonus program of the Company for senior executives,
which bonus shall be contingent upon the achievement of certain corporate and/or
individual performance goals established by the Compensation Committee. Mr.
Meador's employment agreement will be effective as of January 1, 1998 for a term
of three years. Mr. Roche's employment agreement will be effective in late
October 1997 for a term of three years. Mr. Sarkar's employment agreement was
effective as of July 1, 1997 for a term of three years. Effective as of the
expiration of each such initial term and as of each anniversary date thereof,
the term shall be extended automatically for an additional 12-month period on
the same terms and conditions existing at the time of renewal unless, not later
than two months prior to each such respective date, either party shall have
given notice to the other party that the term shall not be so extended.
Each of these agreements will provide that, in the event of a termination of
employment by the Company without cause (other than upon the death or disability
of the employee) or by the employee for good reason (including (i) a material
breach by the Company of the compensation and benefits provisions set forth in
the agreement, (ii) a material breach by the Company of any other term of the
agreement, (iii) except in the case of Mr. Hill, a notice of termination by such
employee following a Change of Control of the Company, as defined in the
agreement, (iv) except in the case of Mr. Hill, a material diminution in the
employee's duties or responsibilities, as defined under the agreement or, (v) in
the case of Mr. Meador, if he is no longer a director of the Company or MST),
the employee shall be entitled to severance
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<PAGE>
payments equal to the employee's base salary as in effect immediately prior to
such termination over the longer of the then-remaining term or 12 months (the
"Severance Period"). In addition, under the foregoing circumstances, all options
to purchase Common Stock issued to the employee shall become immediately vested
and exercisable and, subject to the 1997 Long-Term Incentive Plan, shall remain
exercisable during the Severance Period.
Mr. Meador's employment agreement provides that he may remain in his current
position as Chief Information Officer of CIGNA. In addition, Mr. Meador may
spend one day per week attending to personal matters (such as managing his
personal business investments and serving in any capacity with civic,
educational or charitable organizations) provided such activities and service do
not materially interfere or conflict with his duties as Vice Chairman of the
Board of the Company. In addition, Mr. Meador's agreement provides that he shall
be paid a special bonus equal to 1% of the total purchase price or total
investment for any acquisition or joint venture by the Company which Mr. Meador
identifies and in which he assists in the closing thereof.
Pursuant to his employment agreement, Mr. Roche acquired 154,464 shares of
the Company's Common Stock. In addition, options to purchase 75,000 shares of
the Company's Common Stock will be granted to Mr. Roche. See "--Long-Term
Incentive Plan."
Each of the aforementioned employees will also be entitled to coverage under
the group medical care, disability and life insurance benefit plans or
arrangements in which such employee is participating at the time of termination,
for the continuation of the Severance Period, provided such employee does not
have comparable substitute coverage from another employer. Each employment
agreement will contain a covenant-not-to-compete with the Company without the
prior approval of the Board of Directors of the Company. The
covenant-not-to-compete is in effect during the period of employment, as well as
during the Severance Period, if applicable. In the case of Mr. Meador, the
covenant-not-to-compete is in effect initially for a period of four years from
the closing of this Offering and remains in effect thereafter during his
employment period. In the event Mr. Meador is terminated by the Company without
cause or he resigns for good reason, the Company must continue to pay him his
base salary in order to keep the covenant-not-to-compete in effect beyond the
Severance Period.
1997 LONG-TERM INCENTIVE PLAN
In July 1997, the Board of Directors and the Company's stockholders approved
the Company's 1997 Long-Term Incentive Plan (the "Plan"). The purpose of the
Plan is to provide a means by which the Company can attract and retain executive
officers, key employees, directors, consultants and other service providers and
to compensate such persons in a way that provides additional incentives and
enables such persons to increase their ownership interests in the Company.
Individual awards under the Plan may take the form of one or more of: (i) either
incentive stock options ("ISOs") or non-qualified stock options ("NQSOs"); (ii)
stock appreciation rights ("SARs"); (iii) restricted or deferred stock; (iv)
dividend equivalents; (v) bonus shares and awards in lieu of Company obligations
to pay cash compensation; and (vi) other awards the value of which is based in
whole or in part upon the value of the Common Stock.
The Plan will generally be administered by a committee (the "Committee"),
which will initially be the Compensation Committee of the Board, except that the
Board will itself perform the Committee's functions under the Plan for purposes
of grants of awards to non-employee directors, and may perform any other
function of the Committee as well. The Committee generally is empowered to
select the individuals who will receive awards and the terms and conditions of
those awards, including exercise prices for options and other exercisable
awards, vesting and forfeiture conditions (if any), performance conditions, the
extent to which awards may be transferable and periods during which awards will
remain outstanding. Awards may be settled in cash, shares, other awards or other
property, as determined by the Committee.
The maximum number of shares of Common Stock that may be subject to
outstanding awards under the Plan at any time may not exceed 15% of the
aggregate number of shares of Common Stock
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<PAGE>
outstanding, minus the number of shares previously issued pursuant to awards
granted under the Plan. The number of shares deliverable upon exercise of ISOs
is limited to 1,000,000. The Plan also provides that no participant may be
granted in any calendar year (i) options or SARs exercisable for more than
400,000 shares, or (ii) other awards that may be settled by delivery of more
than 200,000 shares, and limits payments under cash-settled awards in any
calendar year to an amount equal to the fair market value of that number of
shares as of the date of grant or the date of settlement of the award, whichever
is greater.
In addition to authorizing grants of awards to any eligible person in the
discretion of the Committee, the Plan authorizes automatic grants of NQSOs to
non-employee directors. Under these provisions, each person serving or who has
agreed to serve as a non-employee director at the commencement of this Offering
will be granted an initial option to purchase 10,000 shares, and thereafter each
person who becomes a non-employee director will be granted an initial option to
purchase 10,000 shares upon such person's initial election as a director. In
addition, these provisions authorize the automatic annual grant to each
non-employee director of an option to purchase 5,000 shares at each annual
meeting of stockholders following this Offering; provided, however, that a
director will not be granted an annual option if he or she was granted an
initial option during the preceding three months. The number of shares to be
subject to initial or annual options to be granted after the first annual
meeting of stockholders following this Offering may be altered by the Board of
Directors. These options will have an exercise price equal to the fair market
value of Common Stock on the date of grant (in the case of options granted in
connection with this Offering, the exercise price will be the initial public
offering price per share in this Offering), and the options will expire at the
earlier of 10 years after the date of grant or one year after the date the
participant ceases to serve as a director of the Company for any reason, and
generally will become exercisable one year after the date of grant, except that
an option may be forfeited upon a participant's termination of service as a
director for reasons other than death or disability if the date of termination
is less than 11 months after the date of grant.
In connection with this Offering, in addition to the options to be
automatically granted to non-employee directors, options in the form of NQSOs to
purchase a total of shares of Common Stock of the Company will be granted
to executive officers and an employee director of the Company as follows:
100,000 shares to Mr. Hill, shares to Mr. Meador, 75,000 shares to Mr.
Roche, shares to Mr. Sarkar and shares to the employees of the
Company and the Founding Companies. Each of the foregoing options will have an
exercise price equal to the initial public offering price per share in this
Offering, and will vest as to 33% each on the date that is 12 months, 24 months
and 36 months after the date of closing of this Offering. Unvested options
generally will be forfeited upon a termination of employment that is voluntary
by the participant. Upon a change of control of the Company (as defined),
vesting will be accelerated. The options generally will expire on the earlier of
10 years after the date of grant or three months after termination of employment
(immediately in the event of a termination for cause), unless otherwise
determined by the Committee.
In connection with the Mergers, the Company will assume options to acquire
shares of common stock of certain of the Founding Companies which, following the
Mergers, will constitute options to purchase an aggregate of 57,990 shares of
Common Stock of the Company at an exercise price equal to the initial public
offering price per share. The other terms of such options will be the same as
the terms of the options described in the preceding paragraph.
The Company generally will be entitled to a tax deduction equal to the
amount of compensation realized by a participant through awards under the Plan,
except (i) no deduction is permitted in connection with ISOs if the participant
holds the shares acquired upon exercise for the required holding periods; and
(ii) deductions for some awards could be limited under the $1.0 million
deductibility cap of Section 162(m) of the Internal Revenue Code. This
limitation, however, should not apply to awards granted under the Plan during a
grace period of approximately three years following this Offering, and should
not apply to certain options, SARs and performance-based awards granted
thereafter if the Company complies with certain requirements under Section
162(m).
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<PAGE>
The Plan will remain in effect until terminated by the Board of Directors.
The Plan may be amended by the Board of Directors without the consent of the
stockholders of the Company, except that any amendment, although effective when
made, will be subject to stockholder approval if required by any federal or
state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted. The
number of shares reserved or deliverable under the Plan, the annual
per-participant limits, the number of shares subject to options automatically
granted to non-employee directors and the number of shares subject to
outstanding awards are subject to adjustment in the event of stock splits, stock
dividends and other extraordinary corporate events.
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CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
Condor was formed in August 1996. Condor was initially capitalized by
Commonwealth, a Virginia-based merchant banking firm, of which J. Marshall
Coleman, a director of the Company, is a Managing Director. In connection with
the organization of the Company, Commonwealth acquired 1,331,285 shares of
Common Stock in exchange for consulting, financial advisory and capital raising
services provided by Commonwealth to Condor and Commonwealth's commitment to
provide the funds necessary to effect the Mergers and this Offering. These
shares will be distributed to the members of Commonwealth, J. Marshall Coleman,
James J. Martell, Jr. and Charles F. Smith, prior to the closing of this
Offering. Commonwealth will be reimbursed for the funds advanced by it to the
Company out of the proceeds of this Offering, together with interest on such
advances at the prime rate.
Simultaneously with the closing of this Offering, Condor will acquire by
merger all of the issued and outstanding stock of the eight Founding Companies,
at which time each Founding Company will become a wholly owned subsidiary of the
Company. The aggregate consideration to be paid by Condor in the Mergers
consists of (i) approximately $48.0 million in cash; (ii) 2,153,355 shares
(based on an assumed initial public offering price of $14.00 per share) of
Common Stock, for an aggregate value of approximately $30.1 million; and (iii)
approximately $730,000 of indebtedness of the Founding Companies to be assumed
by the Company. The Company also will assume options to purchase shares of
common stock of certain of the Founding Companies which, following the Mergers,
will constitute options to purchase an aggregate of 64,970 shares of Common
Stock of the Company. See "Management--1997 Long-Term Incentive Plan."
The consideration to be paid for the Founding Companies was determined
through arm's-length negotiations between Condor and the representatives of each
Founding Company. The factors considered by the Company in determining the
consideration to be paid included, among others, the historical operating
results, the net worth, the amount and type of indebtedness and the future
prospects of the Founding Companies. Each Founding Company was represented by
independent counsel in the negotiation of the terms and conditions of the
Mergers. Immediately prior to the Mergers, one of the Founding Companies will
repurchase certain shares held by a minority stockholder for $2.0 million and
another Founding Company will distribute $4.0 million to certain stockholders.
The aggregate consideration to be paid by Condor for each of the Founding
Companies is as follows:
<TABLE>
<CAPTION>
COMMON STOCK(1)
--------------------------- DEBT
FOUNDING COMPANY NUMBER DOLLAR VALUE CASH ASSUMED TOTAL
- ----------------------------------------- ------------ ------------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
MST (2).................................. 560,714 $ 7,850,000 $ 9,750,000 - $ 17,600,000
CHMC (3)................................. 135,714 1,900,000 17,685,000 $ 252,000 19,837,000
Federal (4).............................. 535,714 7,500,000 7,500,000 - 15,000,000
Corporate Access (5)..................... 196,214 2,747,000 5,494,000 - 8,241,000
ISSI (6)................................. 500,000 7,000,000 5,000,000 31,000 12,031,000
USComm (7)............................... 42,857 600,000 600,000 65,000 1,265,000
InVenture (8)............................ 53,571 750,000 750,000 15,000 1,515,000
MIS (9).................................. 128,571 1,800,000 1,200,000 367,000 3,367,000
------------ ------------- ------------- ---------- -------------
Total.................................... 2,153,355 $ 30,147,000 $ 47,979,000 $ 730,000 $ 78,856,000
------------ ------------- ------------- ---------- -------------
------------ ------------- ------------- ---------- -------------
</TABLE>
- ------------------------
(1) Based on an assumed initial public offering price of $14.00 per share. In
order to maintain the dollar value of the stock consideration as of the
closing of this Offering, the total shares issuable in the Mergers will
increase or decrease to the extent the initial public offering price differs
from $14.00 per share.
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<PAGE>
(2) Pursuant to an earn-out, contingent consideration of up to $8,400,000 may be
paid, $2,520,000 of which would be paid in cash and the remainder of which
would be paid in Common Stock, depending on MST's pre-tax income in 1998,
1999 and 2000.
(3) Includes an estimated $585,000 of additional cash consideration pursuant to
an agreed book value at closing as set forth in the Merger Agreement.
(4) Pursuant to an earn-out, contingent consideration of up to $9,000,000 may be
paid, $3,150,000 of which would be paid in cash and the remainder of which
would be paid in Common Stock, depending on Federal's pre-tax income in 1998
and 1999.
(5) Includes an estimated $441,000 of additional consideration apportioned
two-thirds cash and one-third stock pursuant to the purchase price
adjustment set forth in the Merger Agreement.
(6) Pursuant to an earn-out, contingent consideration of up to $14,000,000 may
be paid, $4,200,000 of which would be paid in cash and the remainder of
which would be paid in Common Stock, depending on ISSI's pre-tax income in
1998 and 1999.
(7) Pursuant to an earn-out, contingent consideration of up to $7,000,000 may be
paid, $2,100,000 of which would be paid in cash and the remainder of which
would be paid in Common Stock, depending on USComm's pre-tax income in 1997,
1998 and 1999.
(8) Pursuant to an earn-out, contingent consideration of up to $14,000,000 may
be paid, $4,666,667 of which would be paid in cash and the remainder of
which would be paid in Common Stock, depending on InVenture's pre-tax income
in 1997, 1998 and 1999.
(9) Pursuant to an earn-out, contingent consideration of up to $5,500,000, may
be paid, $2,200,000 of which would be paid in cash and the remainder of
which would be paid in Common Stock, depending on MIS's pre-tax income in
1998 and 1999.
The closing of each Merger is subject to customary conditions. These
conditions include, among others, the simultaneous closing of this Offering; the
accuracy on the closing date of the Mergers of the representations and
warranties made by the Founding Companies, their principal stockholders and the
Company; the performance of each of the parties' respective covenants included
in the Merger Agreements; the nonexistence of a material adverse change in the
results of operations, financial condition or business of each Founding Company;
and the execution of employment agreements between the principal executive
officers of each of the Founding Companies and such Founding Company or the
Company. There can be no assurance that the conditions to the Mergers will be
satisfied or waived or that the Merger Agreements will not be terminated prior
to consummation. If any of the Mergers is terminated for any reason, it is
possible that the Company will not close this Offering on the terms described
herein.
Each of the stockholders of the Founding Companies has agreed not to compete
with the Company for four years, commencing on the date of the closing of this
Offering.
In connection with the Merger of MST into the Company, and as consideration
for his interest in MST, Mr. Meador, who will be an executive officer, director
and holder of more than 5% of the outstanding shares of Common Stock of the
Company upon the closing of this Offering, will receive 560,714 shares of Common
Stock and $9.8 million in cash.
OTHER TRANSACTIONS
The Company currently subleases a portion of its corporate headquarters from
Fortress Group, a public U.S. homebuilding company of which J. Marshall Coleman,
Chairman of the Board of the Company, serves as Chairman of the Board. Annual
rental under the sublease is approximately $101,600.
One of the Founding Companies, CHMC, has a financing arrangement that has
been personally guaranteed by certain of its stockholders. At June 30, 1997, the
aggregate amount of CHMC's current
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<PAGE>
financing that was subject to personal guarantees was approximately $2.6
million. The Company intends to use its best efforts to have the personal
guarantees on such financing arrangements released within 120 days after the
closing of this Offering.
During 1996, MST paid approximately $245,000 and $86,000, in consulting fees
to two companies that have directors in common with MST under arm's-length
terms. During the six months ended June 30, 1996 and 1997, MST paid
approximately $36,000 and $40,000, respectively, to these companies.
Howard Schapiro, President and Chief Executive Officer of InVenture, is a
majority stockholder of The Sound Marketing Group, Inc. ("SMG"), a company
engaged in the business of retail product marketing devices. As of July 31,
1997, SMG was indebted to InVenture in the principal amount of $221,427.
Mr. Schapiro also owns IGI Services, Inc ("IGI"), a company engaged in the
business of operating an electronic service bureau that supplies high-resolution
negatives and positives from computer files for the publishing and advertising
industries. During 1996, InVenture purchased $32,000 of prepress services from
and advanced $56,000 to IGI, net of repayments of $39,000. IGI shares office
space with InVenture and InVenture provides administrative services to IGI. The
total charges to IGI for office space and administrative services for the year
ended December 31, 1996 were $42,000. In addition, for the year ended December
31, 1996, InVenture paid IGI a print brokerage fee amounting to 7.0% of all of
InVenture's print purchases, or $47,000. InVenture believes that the fees paid
to IGI were equivalent to those that would be paid in an arm's-length
transaction. Effective May 31, 1997, InVenture acquired all of the operating
assets of IGI. The purchase price of the acquisition included a cash payment of
$22,000, forgiveness of an account receivable from IGI in the amount of $60,000
and the assumption of liabilities totaling $22,000.
Corporate Access leases property in Andover, Massachusetts that is owned by
Corpac II Realty Trust, of which Richard T. Marino, the President of Corporate
Access, is a trustee. The lease provides for monthly rentals of approximately
$7,600. The Company believes that the rent for such property does not exceed the
fair market rental thereof.
Federal earned consulting fees from certain of its affiliates of
approximately $394,000 for the year ended October 31, 1995 under agreements
entitling Federal to receive a portion of such affiliates' contract profits.
Federal incurred consulting fees from such affiliates of approximately $496,000
for the year ended October 31, 1995 for their work in helping to obtain and
service contracts. During 1995, Federal acquired 100% of the outstanding stock
of these affiliate companies.
Federal previously owned a 22% limited partnership in which Federal's former
majority shareholder was a general partner. The partnership owned the building
that Federal occupies. Federal was leasing the office space in this building
from the partnership on a month-to-month basis, and a portion of Federal's
office space was being subleased to entities owned by such shareholder. On
January 10, 1995, the partnership sold the building to a third party and was
dissolved, resulting in a loss to Federal of $128,000 for the year ended October
31, 1995.
On October 1, 1996, J. Patrick Horner and Gary Wright entered into separate
agreements with Commonwealth, the founder of Condor, pursuant to which Messrs.
Horner and Wright were appointed as directors of Condor. Under such agreements,
Mr. Horner received a monthly retainer of $15,000 in exchange for his
consulting, financial advisory and related services to Condor, and Mr. Wright
received a monthly retainer of $10,000 in exchange for his consulting, financial
advisory and related services to Condor. In addition, in November 1996, Messrs.
Horner and Wright acquired 77,232 and 19,308 shares of Common Stock,
respectively, subject to a repurchase option, as further consideration for
consulting, financial advisory and related services provided by each of them to
Condor, and Condor agreed to grant each options to purchase 57,924 shares of
Common Stock (each, an "Option") upon the successful completion of this
Offering. On August 21, 1997, Mr. Horner and Commonwealth agreed to modify Mr.
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<PAGE>
Horner's arrangement as follows: (i) Mr. Horner resigned from the Board of
Directors effective as of July 31, 1997; (ii) the parties agreed that the
$15,000 monthly payments will continue until the closing of this Offering and
that, after the closing, the Company will enter into a consulting agreement with
Mr. Horner at a rate of $15,000 per month for a one-year term; and (iv) Mr.
Horner relinquished his Option in exchange for a cash payment of $50,000 at the
closing of this Offering. Also on August 21, 1997, Commonwealth and Mr. Wright
agreed to modify his arrangement as follows: (i) Mr. Wright resigned from the
Board of Directors effective as of July 31, 1997; (ii) the $10,000 monthly
payments will continue until the closing of this Offering; and (iii) Mr. Wright
relinquished his Option; and (iv) Mr. Wright acquired an additional 28,962
shares of Common Stock as consideration for the foregoing and additional
consulting, financial advisory and related services provided by him.
COMPANY POLICY
The Company expects that, in the future, any transactions between officers,
directors or holders of more than 5% of the Common Stock will be on terms no
less favorable to the Company than would be obtained through arm's-length
negotiation and will be approved by a majority of the Board of Directors,
including a majority of the disinterested members of the Board of Directors.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company, after giving effect to the Mergers
and this Offering, by (i) each person known to beneficially own more than 5% of
the outstanding shares of Common Stock; (ii) each of the Company's directors and
persons who have consented to be named as directors ("named directors"); (iii)
each named executive officer; and (iv) all executive officers, directors and
named directors as a group. All persons listed have an address in care of the
Company's principal executive offices and have sole voting and investment power
with respect to their shares unless otherwise indicated.
<TABLE>
<CAPTION>
SHARES TO BE
BENEFICIALLY
OWNED AFTER OFFERING
-----------------------
<S> <C> <C>
NAME NUMBER PERCENT
- ----------------------------------------------------------------------------------------- ---------- -----------
Kennard F. Hill (1)(2)................................................................... 193,080 1.9%
C. Lawrence Meador (3)................................................................... 560,714 5.6
Daniel J. Roche (1)(4)................................................................... 154,464 1.5
Santanu Sarkar (1)(5).................................................................... 67,578 *
J. Marshall Coleman (1).................................................................. 414,800 4.1
Edward J. Mathias (1)(6)................................................................. 28,962 *
All executive officers, directors and
named directors as a group (6 persons)................................................. 1,419,598 14.1%
</TABLE>
- ------------------------
* less than 1.0%
(1) All of these shares are shares of Restricted Common Stock having 0.2 of a
vote per share. See "Description of Capital Stock."
(2) All of these shares are owned by the Hill-Craft Irrevocable Family Trust, of
which Mr.Hill and his spouse Shirley Craft, are trustees and share voting
power and investment power with respect to such shares. Does not include
100,000 shares issuable in connection with options that are not exercisable
within 60 days of the date hereof.
(3) Based on an assumed initial public offering price of $14.00 per share. Does
not include shares issuable in connection with options that are not
exercisable within 60 days of the date hereof.
(4) Does not include 75,000 shares issuable in connection with options that are
not exercisable within 60 days of the date hereof.
(5) Does not include shares issuable in connection with options that are
not exercisable within 60 days of the date hereof.
(6) Does not include 10,000 shares issuable in connection with options that are
not exercisable within 60 days of the date hereof.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 49,000,000 shares of
Common Stock, par value $.01 per share, of which 5,000,000 are shares of
Restricted Common Stock, par value $.01 per share, and 1,000,000 shares of
undesignated preferred stock, par value $.01 per share ("Preferred Stock").
After giving effect to the Mergers and this Offering, the Company will have
10,100,000 outstanding shares of Common Stock (including 2,046,645 shares of
Restricted Common Stock) and no shares of Preferred Stock. See "Shares Eligible
for Future Sale."
The following statements are brief summaries of certain provisions with
respect to the Company's capital stock contained in its Certificate of
Incorporation and By-Laws, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part. The following is
qualified in its entirety by reference thereto.
COMMON STOCK AND RESTRICTED COMMON STOCK
The holders of Common Stock are entitled to one vote for each share on all
matters voted upon by stockholders, including the election of directors. Except
as otherwise required by law, holders of shares of Restricted Common Stock shall
be entitled to 0.2 of a vote for each share held on matters on which holders of
Common Stock are entitled to vote. The holders of Restricted Common Stock shall
have no right to vote separately as a class except as specifically required by
law. Subject to the rights of any then outstanding shares of Preferred Stock,
the holders of Common Stock and Restricted Common Stock are entitled to share
ratably such dividends as may be declared in the discretion of the Board of
Directors out of funds legally available therefor. See "Dividend Policy." The
holders of Common Stock and the holders of Restricted Common Stock are entitled
to share ratably in the net assets of the Company upon liquidation after payment
or provision for all liabilities and any preferential liquidation rights of any
Preferred Stock then outstanding. The holders of Common Stock and the holders of
Restricted Common Stock have no preemptive rights to purchase shares of stock of
the Company. Shares of Common Stock and Restricted Common Stock are not subject
to any redemption provisions and are not convertible into any other securities
of the Company, except as provided in the following paragraph. All outstanding
shares of Common Stock and Restricted Common Stock are, and the shares of Common
Stock to be issued pursuant to this Offering will be upon payment therefor,
fully-paid and non-assessable.
Each share of Restricted Common Stock will automatically convert to Common
Stock on a share-for-share basis (i) in the event of a disposition of a share of
Restricted Common Stock by the holder thereof (other than a distribution by a
holder to its partners or beneficial owners or a transfer to a related party of
such holder (as defined in Sections 267, 707, 318 and/or 4946 of the Internal
Revenue Code of 1986)); (ii) in the event following the closing of this
Offering, any person acquires beneficial ownership of 15% or more of the
outstanding shares of Common Stock of the Company; or (iii) in the event
following the closing of this Offering, any person or group of persons acting in
concert offers to acquire 15% or more of the outstanding shares of Common Stock
of the Company. After December 1, 1998, the Company may elect to convert any
outstanding shares of Restricted Common Stock into shares of Common Stock in the
event 80% or more of the outstanding shares of Restricted Stock have been
previously converted into shares of Common Stock.
Application has been made to have the Common Stock quoted on the Nasdaq
National Market under the symbol "CNDR." The Restricted Common Stock will not be
quoted on the Nasdaq National Market.
56
<PAGE>
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors in one or more series. Subject to the provisions of the Certificate of
Incorporation and limitations prescribed by law, the Board of Directors is
expressly authorized to adopt resolutions to issue the shares, to fix the number
of shares and to change the number of shares constituting any series and to
provide for or change the voting powers, designations, preferences and relative,
participating, optional or other special rights, qualifications, limitations or
restrictions thereof, including dividend rights (and whether dividends are
cumulative), dividend rates, terms of redemption (including sinking fund
provisions), redemption prices, conversion rights and liquidation preferences of
the shares constituting any series of the Preferred Stock, in each case without
any further action or vote by the stockholders. The Company has no current plans
to issue any shares of Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.
STATUTORY BUSINESS COMBINATION PROVISION
Upon consummation of this Offering, the Company will be subject to the
provisions of Section 203 ("Section 203") of the DGCL. Section 203 provides,
with certain exceptions, that a Delaware corporation may not engage in any of a
broad range of business combinations with a person or an affiliate or associate
of such person, who is an "interested stockholder" for a period of three years
from the date that such person became an interested stockholder unless: (i) the
transaction resulting in a person becoming an interested stockholder, or the
business combination, is approved by the Board of Directors of the corporation
before the person becomes an interested stockholder; (ii) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction is commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned (a) by persons who are directors and officers and (b) by employee
stock plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer; or (iii) on or after the date the person becomes an
interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined as any person who is (x) the owner of 15% or
more of the outstanding voting stock of the corporation or (y) an affiliate or
associate of the corporation and who was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder.
The provisions of Section 203 could delay or frustrate a change in control
of the Company, deny stockholders the receipt of a premium on their Common Stock
and have an adverse effect on the Common Stock. The provisions also could
discourage, impede or prevent a merger or tender offer, even if such event would
be favorable to the interests of stockholders. The Company's stockholders, by
adopting an amendment to the Certificate of Incorporation, may elect not to be
governed by Section 203, which election would be effective 12 months after such
adoption.
57
<PAGE>
LIMITATION ON DIRECTORS' LIABILITIES
LIMITATION ON LIABILITY. Pursuant to the Certificate of Incorporation and
as permitted by Section 102(b)(7) of the DGCL, directors of the Company are not
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty, except for liability in connection with a breach of duty of
loyalty, for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, for dividend payments or stock
repurchases that are illegal under Delaware law or for any transaction in which
a director has derived an improper personal benefit.
INDEMNIFICATION. To the maximum extent permitted by law, the Certificate of
Incorporation provides for mandatory indemnification of directors and officers
of the Company against any expense, liability and loss to which they become
subject, or which they may incur as a result of having been a director or
officer of the Company. In addition, the Company must advance or reimburse
directors and officers for expenses incurred by them in connection with certain
claims.
POTENTIAL ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE CERTIFICATE OF
INCORPORATION AND BY-LAWS
The Certificate of Incorporation and By-Laws contain provisions that could
have an anti-takeover effect. The provisions are intended to enhance the
likelihood of continuity and stability in the composition of the Board of
Directors and in the policies formulated by the Board of Directors. These
provisions also are intended to help ensure that the Board of Directors, if
confronted by an unsolicited proposal from a third party which has acquired a
block of stock of the Company, will have sufficient time to review the proposal
and appropriate alternatives to the proposal and to act in what it believes to
be the best interest of the stockholders.
The following is a summary of such provisions included in the Certificate of
Incorporation and By-Laws of the Company. See also "--Preferred Stock." The
Board of Directors has no current plans to formulate or effect additional
measures that could have an anti-takeover effect.
CLASSIFIED BOARD OF DIRECTORS. The Certificate of Incorporation provides
for a Board of Directors divided into three classes of directors serving
staggered three-year terms. The classification of directors has the effect of
making it more difficult for stockholders to change the composition of the Board
of Directors in a relatively short period of time. At least two annual meetings
of stockholders, instead of one, generally will be required to effect a change
in a majority of the Board of Directors. Such a delay may help ensure that the
Board of Directors and the stockholders, if confronted with an unsolicited
proposal by a stockholder attempting to force a stock repurchase at a premium
above market, a proxy contest or an extraordinary corporate transaction, will
have sufficient time to review the proposal and appropriate alternatives to the
proposal and to act in what it believes to be the best interests of the
stockholders. Directors, if any, elected by holders of Preferred Stock voting as
a class, will not be classified as aforesaid. Moreover, under Delaware law, in
the case of a corporation having a classified board, stockholders may remove a
director only for cause. This provision will preclude a stockholder from
removing incumbent directors without cause.
ADVANCE NOTICE REQUIREMENTS FOR DIRECTOR NOMINEES. The By-Laws establish an
advance notice procedure with regard to the nomination of candidates for
election as directors at any meeting of stockholders called for the election of
directors. The procedure provides that a notice relating to the nomination of
directors must be timely given in writing to the Secretary of the Company prior
to the meeting. To be timely, notice relating to the nomination of directors for
election at an annual meeting must be delivered not later than the close of
business on the later of the 90th day prior to such annual meeting or the 10th
day following the day on which public announcement of the date of such annual
meeting is first made. Notice relating to the nomination of directors for
election at a special meeting must be given not later than the close of business
on the 10th day following the date notice of such meeting is mailed to
stockholders or public disclosure of the date of such meeting is made.
58
<PAGE>
Notice to the Company from a stockholder who proposes to nominate a person
at a meeting for election as a director must be accompanied by each proposed
nominee's written consent and contain the name, address and principal occupation
of each proposed nominee. Such notice must also contain the total number of
shares of capital stock of the Company that will be voted for each of the
proposed nominees, the number of shares of each class of capital stock of the
Company beneficially owned by such person and other information that may be
required under the proxy rules of the Commission. Such notice must also contain
the name and address of the notifying stockholder and the number of shares of
capital stock of the Company owned by the notifying stockholder.
Although the Company's By-Laws do not give the Board of Directors any power
to approve or disapprove stockholder nominations for the election of directors
or of any other business desired by stockholders to be conducted at an annual or
any other meeting, the Company's By-Laws (i) may have the effect of precluding a
nomination for the election of directors or precluding the conduct of business
at a particular meeting if the proper procedures are not followed; or (ii) may
discourage or deter a third party from conducting a solicitation of proxies to
elect its own slate of directors or otherwise attempting to obtain control of
the Company, even if the conduct of such solicitation or such attempt might be
beneficial to the Company and its stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer and Trust Company.
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Mergers and completion of this Offering, the
Company will have outstanding 10,100,000 shares of Common Stock. The 5,900,000
shares sold in this Offering (plus any additional shares sold upon exercise of
the Underwriters' over-allotment option) will be freely tradable without
restriction unless acquired by affiliates of the Company. None of the remaining
4,200,000 outstanding shares of Common Stock have been registered under the
Securities Act, which means that they may be resold publicly only upon
registration under the Securities Act or in compliance with an exemption from
the registration requirements of the Securities Act, including the exemption
provided by Rule 144 thereunder.
In general, under Rule 144, if one year has elapsed since the later of the
date of the acquisition of restricted shares of Common Stock from the Company or
from any affiliate of the Company, the acquiror or subsequent holder thereof may
sell, within any three-month period commencing 90 days after the date of this
Prospectus, a number of shares that does not exceed the greater of 1% of the
then outstanding shares of the Common Stock, or the average weekly trading
volume of the Common Stock on the Nasdaq National Market during the four
calendar weeks preceding the date on which notice of the proposed sale is sent
to the Commission. Sales under Rule 144 are also subject to certain manner of
sale provisions, notice requirements and the availability of current public
information about the Company. If two years have elapsed since the later of the
date of the acquisition of restricted shares of Common Stock from the Company or
any affiliate of the Company, a person who is not deemed to have been an
affiliate of the Company at any time for 90 days preceding a sale would be
entitled to sell such shares under Rule 144 without regard to the volume
limitations, manner of sale provisions or notice requirements.
Beginning 90 days after the closing of this Offering, shares of Common
Stock will be freely tradable subject to the provisions of Rule 144; between 90
days and 180 days after the closing of this Offering, shares of Common
Stock will be freely tradable subject to the provisions of Rule 144; between 180
days and 270 days after the closing of this Offering, shares of Common
Stock will be freely tradable subject to the provisions of Rule 144; and between
270 and 365 days after the closing of this Offering, shares of Common
Stock will be freely tradable subject to the provisions of Rule 144.
The Company's executive officers and directors and existing stockholders
have agreed not to offer, sell, contract to sell, make any short sale or
otherwise dispose of any shares of Common Stock, options to acquire shares of
Common Stock or securities convertible into or exchangeable for, or any rights
to purchase or acquire, shares of Common Stock during the one-year period
following the date of this Prospectus, without the prior written consent of
Volpe Brown Whelan & Company, LLC. The Company also has agreed not to offer,
sell, contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable for, or any rights to purchase or
acquire, any shares of Common Stock during the one-year period without the prior
written consent of Volpe Brown Whelan & Company, LLC, except for the granting of
options pursuant to the Plan or the issuance of shares of Common Stock upon the
exercise of outstanding options, in connection with acquisitions or in
connection with any conversion of the Restricted Common Stock. Volpe Brown
Whelan & Company, LLC, in its discretion, may waive the foregoing restrictions
in whole or in part, with or without a public announcement of such action. See
"Underwriting."
In connection with the Mergers, the Company has agreed to provide piggyback
registration rights with respect to the Common Stock issued to the stockholders
of the Founding Companies and existing other Company stockholders. Subject to
certain conditions, limitations and exceptions, the piggyback registration
rights provide the holders of Common Stock with the right to participate in
registrations by the Company of its equity securities. The Company is generally
required to pay the costs associated with such an offering other than
underwriting discounts and commissions attributable to the shares sold on behalf
of the selling stockholders.
60
<PAGE>
Within 90 days after the closing of this Offering, the Company intends to
register 5,000,000 shares of its Common Stock under the Securities Act for use
by the Company in connection with future acquisitions. Upon such registration,
these shares will generally be freely tradable after their issuance unless
acquired by parties to the transaction or affiliates thereof, other than the
issuer, in which case they may be sold pursuant to Rule 145 under the Securities
Act. Rule 145 permits, in part, such persons to resell immediately securities
acquired in transactions covered under the Rule, provided such securities are
resold in accordance with the public information requirements, volume
limitations and manner of sale requirements of Rule 144. If a period of one year
has elapsed since the date such securities were acquired in such transaction and
if the issuer meets the public information requirements of Rule 144, Rule 145
permits a person who is not an affiliate of the issuer to freely resell such
securities. In some instances, the Company may contractually restrict the sale
of shares issued in connection with future acquisitions. The piggyback
registration rights described above do not apply to the registration statement
relating to these 5,000,000 shares.
In addition to the shares described above, 15% of the aggregate shares of
Common Stock outstanding from time to time have been reserved for issuance upon
exercise of options that may be granted under the Plan. The Company intends to
file one or more registration statements on Form S-8 under the Securities Act
with respect to such shares of Common Stock, including shares of Common Stock
underlying options to be assumed by the Company in connection with the Mergers.
Shares of Common Stock covered by such registration statements will be freely
tradable by holders who are not affiliates of the Company and, subject to the
volume and other limitations of Rule 144, by holders who are affiliates of the
Company.
Prior to this Offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that the sale of
shares or the availability of shares for sale will have on the market price for
the Common Stock prevailing from time to time. Nevertheless, sales, or the
availability for sale, of substantial amounts of the Common Stock in the public
market could adversely affect prevailing market prices and the ability of the
Company to raise equity capital in the future.
61
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the underwriters named below (the
"Underwriters"), and each of such Underwriters, for whom Volpe Brown Whelan &
Company, LLC and Furman Selz LLC (collectively, the "Representatives") are
acting as representatives, have agreed severally to purchase from the Company,
the respective number of shares of Common Stock set forth opposite its name
below. The Underwriters are committed to purchase and pay for all shares if any
shares are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- -------------------------------------------------------------------------------------------- ----------
<S> <C>
Volpe Brown Whelan & Company, LLC...........................................................
Furman Selz LLC.............................................................................
----------
Total....................................................................................... 5,900,000
----------
----------
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the initial public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession not in excess of $ per share, of which $ per
share may be reallocated to other dealers. After the initial public offering,
the public offering price, concession and reallowance to dealers may be reduced
by the Representatives. No such reduction shall change the amount of proceeds to
be received by the Company as set forth on the cover page of this Prospectus.
The Company has granted the Underwriters an option for 45 days after the
date of this Prospectus to purchase, at the initial public offering price less
the underwriting discounts and commissions as set forth on the cover page of
this Prospectus, up to 885,000 additional shares of Common Stock at the same
price per share as the Company receives for the 5,900,000 shares of Common Stock
offered hereby, solely to cover over-allotments, if any. If the Underwriters
exercise their over-allotment option, the Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares of Common Stock to be purchased by each of
them, as shown in the foregoing table, bears to the 5,900,000 shares of Common
Stock offered hereby. The Underwriters may exercise such option only to cover
the over-allotments in connection with the sale of the 5,900,000 shares of
Common Stock offered hereby.
The Company's executive officers and directors and existing stockholders
have agreed not to offer, pledge, sell, contract to sell, make any short sale or
otherwise dispose of any shares of Common Stock, options to acquire shares of
Common Stock or securities convertible into or exchangeable for shares of Common
Stock, or any rights to purchase or acquire shares of Common Stock during the
one-year period after the date of this Prospectus, without the prior written
consent of Volpe Brown Whelan & Company, LLC. The Company also has agreed not to
offer, sell, contract to sell or otherwise dispose of any shares of Common Stock
or any securities convertible into or exchangeable for shares of Common Stock,
or any rights to purchase or acquire shares of Common Stock during the one-year
period without the prior written consent of Volpe Brown Whelan & Company, LLC,
except for the granting of options pursuant to the Plan or the issuance of
shares of Common Stock upon the exercise of outstanding options, in connection
with acquisitions or in connection with any conversion of the Restricted Common
Stock. Volpe Brown Whelan & Company, LLC, in its discretion, may waive the
foregoing restrictions in whole or in part, with or without a public
announcement of such action. In recent offerings in which it has served as lead
manager of underwriters, Volpe Brown Whelan & Company, LLC has consented to
early releases from lock-up agreements only in a limited number of
circumstances, after considering all circumstances that it deemed to be
relevant. Volpe Brown Whelan & Company, LLC will have, however, complete
discretion in
62
<PAGE>
determining whether to consent to early releases from the lock-up agreements
delivered in connection with this Offering, and no assurance can be given that
it will not consent to the early release of all or a portion of the shares of
Common Stock and options covered by such lock-up agreements.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to accounts over which the Underwriters have
discretionary authority.
Prior to this Offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price of the Common
Stock will be determined by negotiations between the Company and the
Representatives. Among the factors to be considered in such negotiations are
expected to be the results of operations of the Founding Companies in recent
periods, the prospects for the Company and the industry in which the Company
competes, an assessment of the Company's management, its financial condition,
the prospects for future earnings of the Company, the present state of the
Company's development, the general condition of the economy and the securities
markets at the time of this Offering and the market prices of and demand for
publicly traded stock of comparable companies in recent periods.
In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with this Offering than
they are committed to purchase from the Company, and in such case may purchase
Common Stock in the open market following completion of this Offering to cover
all or a portion of such short position. The Underwriters also may cover all or
a portion of such short position, up to 885,000 shares, by exercising the
Underwriters' over-allotment option referred to above. In addition, Volpe Brown
Whelan & Company, LLC, on behalf of the Underwriters, may impose "penalty bids"
under the contractual arrangements with the Underwriters whereby it may reclaim
from an Underwriter (or dealer participating in this Offering), for the account
of the other Underwriters, the selling concession with respect to Common Stock
that is distributed in this Offering but subsequently purchased for the account
of the Underwriters in the open market. Any of the transactions described in
this paragraph may result in the maintenance of the price of the Common Stock at
a level above that which otherwise might prevail in the open market. None of the
transactions described in this paragraph is required, and, if they are
undertaken, they may be discontinued at any time.
The Company has agreed to indemnify the Underwriters against certain
liabilities that may be incurred in connection with this Offering, including
liabilities under the Securities Act, or to contribute to payments that the
Underwriters may be required to make in respect thereof.
The foregoing contains a summary of the principal terms of the Underwriting
Agreement and does not purport to be complete. Reference is made to the copy of
the Underwriting Agreement filed as an exhibit to the Registration Statement of
which this Prospectus is a part.
63
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered by this
Prospectus will be passed upon for the Company by Morgan, Lewis & Bockius LLP,
New York, New York. Certain legal matters related to this Offering will be
passed upon for the Underwriters by Sachnoff & Weaver, Ltd., Chicago, Illinois.
EXPERTS
The Condor financial statements as of December 31, 1996 and for the period
from inception to December 31, 1996, the CHMC financial statements as of
February 28, 1997 and for each of the three years in the period ended February
28, 1997, the Corporate Access financial statements as of June 30, 1997 and for
the year then ended, the ISSI financial statements as of December 31, 1996 and
for each of the three years in the period then ended, the USComm, Inventure and
MIS financial statements as of December 31, 1996 and for the year then ended
included elsewhere in this Prospectus have been so included in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The financial statements of MST as of December 31, 1995 and 1996 and for
each of the three years in the period ended December 31, 1996 included elsewhere
in this Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The consolidated balance sheets of Federal as of October 31, 1995 and 1996
and the consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended October 31, 1996 included
elsewhere in this Prospectus, have been included herein in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C., a Registration Statement on Form S-1 with respect to the
shares of Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information pertaining to the Company and the
shares of Common Stock offered hereby, reference is made to such Registration
Statement, including the exhibits, financial statements and schedules filed
therewith. Statements contained in this Prospectus as to the contents of any
contract or any other document are not necessarily complete and, in each
instance, reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. The Registration Statement, including the
exhibits and schedules thereto, may be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza Building,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and its regional
offices located at 7 World Trade Center, 13th Floor, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such materials can be obtained from the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains an Internet web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically. The address of such Internet web site is
http://www.sec.gov.
As a result of this Offering, the Company will be subject to the information
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). So long as the Company is subject to the periodic reporting requirements
of the Exchange Act, it will continue to furnish the reports and other
information required thereby to the Securities and Exchange Commission. The
Company will furnish to its stockholders annual reports containing financial
statements audited by its independent auditors and will make available copies of
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial information.
64
<PAGE>
CONDOR TECHNOLOGY SOLUTIONS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
CONDOR TECHNOLOGY SOLUTIONS, INC. AND FOUNDING COMPANIES UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS
Introduction to Unaudited Pro Forma Combined Financial Statements.................................... F-3
Unaudited Pro Forma Combined Balance Sheet........................................................... F-4
Unaudited Pro Forma Combined Statements of Operations................................................ F-5
Notes to Unaudited Pro Forma Combined Financial Statements........................................... F-8
CONDOR TECHNOLOGY SOLUTIONS, INC.
Report of Independent Accountants.................................................................... F-12
Balance Sheets....................................................................................... F-13
Notes to Financial Statements........................................................................ F-14
FOUNDING COMPANIES
MANAGEMENT SUPPORT TECHNOLOGY CORPORATION
Independent Auditors' Report......................................................................... F-18
Balance Sheets....................................................................................... F-19
Statements of Income and Retained Earnings........................................................... F-20
Statements of Cash Flows............................................................................. F-21
Notes to Financial Statements........................................................................ F-22
COMPUTER HARDWARE MAINTENANCE COMPANY, INC.
Report of Independent Accountants.................................................................... F-26
Balance Sheets....................................................................................... F-27
Statements of Operations............................................................................. F-28
Statements of Changes in Stockholders' Equity........................................................ F-29
Statements of Cash Flows............................................................................. F-30
Notes to Financial Statements........................................................................ F-31
FEDERAL COMPUTER CORPORATION
Report of Independent Accountants.................................................................... F-39
Consolidated Balance Sheets.......................................................................... F-40
Consolidated Statements of Operations................................................................ F-41
Consolidated Statements of Changes in Shareholders' Equity........................................... F-42
Consolidated Statements of Cash Flows................................................................ F-43
Notes to Consolidated Financial Statements........................................................... F-44
CORPORATE ACCESS, INC.
Report of Independent Accountants.................................................................... F-57
Balance Sheet........................................................................................ F-58
Statement of Operations.............................................................................. F-59
Statement of Changes in Stockholders' Equity......................................................... F-60
Statement of Cash Flows.............................................................................. F-61
Notes to Financial Statements........................................................................ F-62
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
INTERACTIVE SOFTWARE SYSTEMS INCORPORATED
Report of Independent Accountants.................................................................... F-66
Consolidated Balance Sheets.......................................................................... F-67
Consolidated Statements of Operations................................................................ F-68
Consolidated Statements of Changes in Stockholders' Equity........................................... F-69
Consolidated Statements of Cash Flows................................................................ F-70
Notes to Consolidated Financial Statements........................................................... F-71
U.S. COMMUNICATIONS, INC.
Report of Independent Accountants.................................................................... F-78
Balance Sheets....................................................................................... F-79
Statements of Operations............................................................................. F-80
Statements of Changes in Stockholder's Equity........................................................ F-81
Statements of Cash Flows............................................................................. F-82
Notes to Financial Statements........................................................................ F-83
INVENTURE GROUP, INC.
Report of Independent Accountants.................................................................... F-87
Balance Sheets....................................................................................... F-88
Statements of Operations............................................................................. F-89
Statements of Changes in Stockholder's Equity........................................................ F-90
Statements of Cash Flows............................................................................. F-91
Notes to Financial Statements........................................................................ F-92
MIS TECHNOLOGIES, INC.
Report of Independent Accountants.................................................................... F-97
Balance Sheets....................................................................................... F-98
Statements of Operations............................................................................. F-99
Statements of Changes in Stockholder's Equity........................................................ F-100
Statements of Cash Flows............................................................................. F-101
Notes to Financial Statements........................................................................ F-102
</TABLE>
F-2
<PAGE>
CONDOR TECHNOLOGY SOLUTIONS, INC. AND FOUNDING COMPANIES
INTRODUCTION TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect
to the acquisitions by Condor Technology Solutions, Inc. of the outstanding
capital stock of Management Support Technology Corporation, Computer Hardware
Maintenance Company, Inc., Federal Computer Corporation, Corporate Access, Inc.,
Interactive Software Systems Incorporated, U.S. Communications, Inc., InVenture
Group, Inc. (including Menegay Marketing, Inc.) and MIS Technologies, Inc.
(including Kinnaird Technical Resources, Inc.). These acquisitions will occur
simultaneously with the closing of Condor's initial public offering and will be
accounted for using the purchase method of accounting. MST, one of the Founding
Companies, has been identified as the "accounting acquiror" in accordance with
the provisions of SAB 97, which states that the combining company that receives
the largest portion of voting rights in the combined corporation is presumed to
be the "accounting acquiror" for financial statement presentation purposes.
The unaudited pro forma combined balance sheet gives effect to the Mergers
and the Offering as if they had occurred on June 30, 1997. The unaudited pro
forma combined statements of operations give effect to these transactions as if
they had occurred on January 1, 1996.
Condor has preliminarily analyzed the savings that it expects to be realized
from reductions in salaries and certain benefits to the stockholders and
management of the Founding Companies. To the extent the stockholders and
management of the Founding Companies have agreed prospectively to reductions in
salary, bonuses and benefits, these reductions have been reflected in the pro
forma combined statements of operations. With respect to other potential cost
savings, Condor has not and cannot quantify these savings until completion of
the combination of the Founding Companies. It is anticipated that these savings
will be partially offset by the costs of being a publicly held company and the
incremental increase in costs related to the Company's new management. However,
these costs, like the savings that they offset, cannot be quantified accurately.
Neither the anticipated savings nor the anticipated costs have been included in
the pro forma combined financial statements of Condor.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma financial data do not purport to represent what
Condor's financial position or results of operations would actually have been if
such transactions in fact had occurred on those dates and are not necessarily
representative of Condor's financial position or results of operations for any
future period. Since the Founding Companies were not under common control or
management, historical combined results may not be comparable to, or indicative
of, future performance. The unaudited pro forma combined financial statements
should be read in conjunction with the other financial statements and notes
thereto included elsewhere in this Prospectus. See "Risk Factors" included
elsewhere in this Prospectus.
F-3
<PAGE>
CONDOR TECHNOLOGY SOLUTIONS, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
CORPORATE
ASSETS CONDOR MST CHMC FEDERAL ACCESS ISSI USCOMM
----------- --------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents............ $ 3 $ 153 $ 748 $ 3,126 $ 109 $ 3,071 $ 20
Marketable securities................ - - - 1,147 - - -
Accounts receivable, net............. - 1,059 6,861 3,710 2,030 3,757 1,111
Inventories.......................... - - 929 - 97 - 62
Prepaid expenses and other current
assets............................. 782 38 211 504 95 176 9
----------- --------- ----------- ----------- ----------- --------- -----------
Total current assets............. 785 1,250 8,749 8,487 2,331 7,004 1,202
Fixed assets, net.................... 652 425 63 159 424 101
Goodwill, net........................ - - - - - - -
Other assets......................... - 16 47 265 - 140 4
----------- --------- ----------- ----------- ----------- --------- -----------
Total assets..................... $ 785 $ 1,918 $ 9,221 $ 8,815 $ 2,490 $ 7,568 $ 1,307
----------- --------- ----------- ----------- ----------- --------- -----------
----------- --------- ----------- ----------- ----------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt...................... $ - $ - $ 222 $ - $ - $ - $ 57
Accounts payable and accrued
expenses........................... - 221 2,765 1,921 1,516 1,433 1,080
Deferred revenue..................... - - 2,186 - - 2,175 -
Other current liabilities............ 637 -- 481 418 -- 17
Payable to Founding Companies'
stockholders....................... - - - - - - -
----------- --------- ----------- ----------- ----------- --------- -----------
Total current liabilities........ 637 221 5,654 2,339 1,516 3,608 1,154
Long-term debt, net of current
maturities......................... - - 30 - - 31 8
Deferred revenue..................... - - - 560 - - -
Other noncurrent liabilities......... - - - 6 - 20 -
----------- --------- ----------- ----------- ----------- --------- -----------
Total liabilities................ 637 221 5,684 2,905 1,516 3,659 1,162
Stockholders' equity:
Common stock......................... 18 2 - 1 4 26 1
Additional paid-in capital........... 230 - 126 1,089 180 2,602 -
Retained earnings.................... (100) 1,695 3,812 4,820 790 1,281 144
Less: treasury stock................. - - (401) - - - -
----------- --------- ----------- ----------- ----------- --------- -----------
Total stockholders' equity....... 148 1,697 3,537 5,910 974 3,909 145
----------- --------- ----------- ----------- ----------- --------- -----------
Total liabilities and
stockholders' equity........... $ 785 $ 1,918 $ 9,221 $ 8,815 $ 2,490 $ 7,568 $ 1,307
----------- --------- ----------- ----------- ----------- --------- -----------
----------- --------- ----------- ----------- ----------- --------- -----------
<CAPTION>
MERGER OFFERING
ADJUST- ADJUST-
OTHER MENTS MENTS
FOUNDING (SEE PRO FORMA (SEE AS
ASSETS INVENTURE MIS COMPANIES NOTE 3) COMBINED NOTE 3) ADJUSTED
----------- --------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents............ $ 10 $ 78 $ 29 $ (5,126) $ 2,221 $ 23,589 25,810
Marketable securities................ - 75 - (874) 348 348
Accounts receivable, net............. 686 481 97 - 19,792 19,792
Inventories.......................... - - - - 1,088 1,088
Prepaid expenses and other current
assets............................. 158 5 - - 1,978 1,978
----------- --------- ----------- ----------- ----------- ----------- -----------
Total current assets............. 854 639 126 (6,000) 25,427 23,589 49,016
Fixed assets, net.................... 165 21 10 1,300 3,320 3,320
Goodwill, net........................ - - - 41,194 41,194 41,194
Other assets......................... 205 - - - 677 677
----------- --------- ----------- ----------- ----------- ----------- -----------
Total assets..................... $ 1,224 $ 660 $ 136 $ 36,494 $ 70,618 $ 23,589 $ 94,207
----------- --------- ----------- ----------- ----------- ----------- -----------
----------- --------- ----------- ----------- ----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt...................... $ - $ 367 $ - $ - $ 646 $ $ 646
Accounts payable and accrued
expenses........................... 998 148 39 - 10,121 10,121
Deferred revenue..................... - - - - 4,361 4,361
Other current liabilities............ 91 - - - 1,644 1,644
Payable to Founding Companies'
stockholders....................... - - - 48,229 48,229 (48,229) --
----------- --------- ----------- ----------- ----------- ----------- -----------
Total current liabilities........ 1,089 515 39 48,229 65,001 (48,229) 16,772
Long-term debt, net of current
maturities......................... - - 15 - 84 -- 84
Deferred revenue..................... - - - - 560 560
Other noncurrent liabilities......... 14 - - - 40 40
----------- --------- ----------- ----------- ----------- ----------- -----------
Total liabilities................ 1,103 515 54 48,229 65,685 (48,229) 17,456
Stockholders' equity:
Common stock......................... 11 2 1 (24) 42 59 101
Additional paid-in capital........... - - - (1,031) 3,196 71,759 74,955
Retained earnings.................... 110 143 81 (11,081) 1,695 1,695
Less: treasury stock................. - - - 401 -
----------- --------- ----------- ----------- ----------- ----------- -----------
Total stockholders' equity....... 121 145 82 (11,735) 4,933 71,818 76,751
----------- --------- ----------- ----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity........... $ 1,224 $ 660 $ 136 $ 36,494 $ 70,618 $ 23,589 $ 94,207
----------- --------- ----------- ----------- ----------- ----------- -----------
----------- --------- ----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
F-4
<PAGE>
CONDOR TECHNOLOGY SOLUTIONS, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CORPORATE
MST CHMC FEDERAL ACCESS ISSI USCOMM
--------- --------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues.............................................. $ 8,211 $ 44,718 $ 25,978 $ 15,734 $ 9,028 $ 7,215
Cost of revenues...................................... 3,783 38,403 19,168 13,464 1,482 6,574
--------- --------- --------- ----------- --------- -----------
Gross profit.......................................... 4,428 6,315 6,810 2,270 7,546 641
Selling, general and administrative................... 2,188 4,784 5,794 2,028 5,323 475
Goodwill amortization................................. - - - - - -
--------- --------- --------- ----------- --------- -----------
Income from operations................................ 2,240 1,531 1,016 242 2,223 166
Other income (expense):
Interest income..................................... 3 18 562 21 101 -
Interest expense.................................... (29) (209) (49) - (199) (21)
Other, net.......................................... - 152 847 10 8 -
--------- --------- --------- ----------- --------- -----------
Income (loss) before income taxes..................... 2,214 1,492 2,376 273 2,133 145
Provision for income taxes............................ - 598 1,073 116 737 51
--------- --------- --------- ----------- --------- -----------
Net income............................................ $ 2,214 $ 894 $ 1,303 $ 157 $ 1,396 $ 94
--------- --------- --------- ----------- --------- -----------
--------- --------- --------- ----------- --------- -----------
Net income per share..................................
Shares used in computing pro forma net income per
share (See Note 5)..................................
<CAPTION>
OTHER
FOUNDING PRO FORMA PRO FORMA
INVENTURE MIS COMPANIES ADJUSTMENTS COMBINED
----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues.............................................. $ 5,416 $ 2,582 $ 1,186 $ - $ 120,068
Cost of revenues...................................... 3,948 1,426 640 - 88,888
----------- --------- ----------- ----------- -----------
Gross profit.......................................... 1,468 1,156 546 - 31,180
Selling, general and administrative................... 1,464 1,150 181 (1,151) 22,236
Goodwill amortization................................. - - - 1,483 1,483
----------- --------- ----------- ----------- -----------
Income from operations................................ 4 6 365 (332) 7,461
Other income (expense):
Interest income..................................... 3 6 - - 714
Interest expense.................................... - (18) - - (525)
Other, net.......................................... 16 - - - 1,033
----------- --------- ----------- ----------- -----------
Income (loss) before income taxes..................... 23 (6) 365 (332) 8,683
Provision for income taxes............................ 7 - - 1,588 4,170
----------- --------- ----------- ----------- -----------
Net income............................................ $ 16 $ (6) $ 365 $ (1,920) $ 4,513
----------- --------- ----------- ----------- -----------
----------- --------- ----------- ----------- -----------
Net income per share.................................. $ 0.55
-----------
-----------
Shares used in computing pro forma net income per
share (See Note 5).................................. 8,162,114
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
F-5
<PAGE>
CONDOR TECHNOLOGY SOLUTIONS, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CORPORATE
MST CHMC FEDERAL ACCESS ISSI USCOMM
--------- --------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues.............................................. $ 3,764 $ 24,122 $ 17,937 $ 9,315 $ 5,405 $ 4,036
Cost of revenues...................................... 1,855 20,360 15,076 7,955 909 3,750
--------- --------- --------- ----------- --------- -----------
Gross profit.......................................... 1,909 3,762 2,861 1,360 4,496 286
Selling, general and administrative................... 873 2,584 2,338 1,009 3,033 230
Goodwill amortization................................. - - - - - -
--------- --------- --------- ----------- --------- -----------
Income from operations................................ 1,036 1,178 523 351 1,463 56
Other income (expense):
Interest income..................................... - - 166 10 64 -
Interest expense.................................... (3) (38) - - (3) (5)
Other, net.......................................... - 130 - 5 9 -
--------- --------- --------- ----------- --------- -----------
Income before income taxes............................ 1,033 1,270 689 366 1,533 51
Provision for income taxes............................ - 539 310 23 494 20
--------- --------- --------- ----------- --------- -----------
Net income............................................ $ 1,033 $ 731 $ 379 $ 343 $ 1,039 $ 31
--------- --------- --------- ----------- --------- -----------
--------- --------- --------- ----------- --------- -----------
Net income per share..................................
Shares used in computing pro forma net income per
share (See Note 5)..................................
<CAPTION>
OTHER
FOUNDING PRO FORMA PRO FORMA
INVENTURE MIS COMPANIES ADJUSTMENTS COMBINED
----------- --------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues.............................................. $ 2,406 $ 2,166 $ 665 $ - $ 69,816
Cost of revenues...................................... 1,410 1,404 270 - 52,989
----------- --------- ----- ----------- -----------
Gross profit.......................................... 996 762 395 - 16,827
Selling, general and administrative................... 744 685 199 (839) 10,856
Goodwill amortization................................. - - - 743 743
----------- --------- ----- ----------- -----------
Income from operations................................ 252 77 196 96 5,228
Other income (expense):
Interest income..................................... 11 - - - 251
Interest expense.................................... - (14) - - (63)
Other, net.......................................... 9 - - - 153
----------- --------- ----- ----------- -----------
Income before income taxes............................ 272 63 196 96 5,569
Provision for income taxes............................ 108 - - 1,083 2,577
----------- --------- ----- ----------- -----------
Net income............................................ $ 164 $ 63 $ 196 $ (987) $ 2,992
----------- --------- ----- ----------- -----------
----------- --------- ----- ----------- -----------
Net income per share.................................. $ 0.37
-----------
-----------
Shares used in computing pro forma net income per
share (See Note 5).................................. 8,162,114
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
- ------------------------
F-6
<PAGE>
CONDOR TECHNOLOGY SOLUTIONS, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CORPORATE
MST CHMC FEDERAL ACCESS ISSI USCOMM
--------- --------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues.............................................. $ 4,212 $ 18,525 $ 7,486 $ 7,531 $ 4,094 $ 2,578
Cost of revenues...................................... 1,980 16,540 4,797 6,420 875 2,352
--------- --------- --------- ----------- --------- -----------
Gross profit.......................................... 2,232 1,985 2,689 1,111 3,219 226
Selling, general and administrative................... 1,130 2,100 2,269 1,182 2,223 156
Goodwill amortization................................. - - - - - -
--------- --------- --------- ----------- --------- -----------
Income (loss) from operations......................... 1,102 (115) 420 (71) 996 70
Other income (expense):
Interest income..................................... 1 9 303 16 44
Interest expense.................................... (20) (88) - - (163) (6)
Other, net.......................................... - 134 - (1) 3 -
--------- --------- --------- ----------- --------- -----------
Income before income taxes............................ 1,083 (60) 723 (56) 880 64
Provision for income taxes............................ - (27) 325 106 333 26
--------- --------- --------- ----------- --------- -----------
Net income (loss)..................................... $ 1,083 $ (33) $ 398 $ (162) $ 547 $ 38
--------- --------- --------- ----------- --------- -----------
--------- --------- --------- ----------- --------- -----------
Net income per share..................................
Shares used in computing pro forma net income per
share (See Note 5)..................................
<CAPTION>
OTHER
FOUNDING PRO FORMA PRO FORMA
INVENTURE MIS COMPANIES ADJUSTMENTS COMBINED
----------- --------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues.............................................. $ 3,135 $ 1,269 $ 470 $ - $ 49,300
Cost of revenues...................................... 2,331 910 174 - 36,379
----------- --------- ----- ----------- -----------
Gross profit.......................................... 804 359 296 - 12,921
Selling, general and administrative................... 656 311 38 (398) 9,667
Goodwill amortization................................. - - - 743 743
----------- --------- ----- ----------- -----------
Income (loss) from operations......................... 148 48 258 (345) 2,511
Other income (expense):
Interest income..................................... 3 - - - 376
Interest expense.................................... - (8) - - (285)
Other, net.......................................... 6 - - - 142
----------- --------- ----- ----------- -----------
Income before income taxes............................ 157 40 258 (345) 2,744
Provision for income taxes............................ 64 - - 620 1,447
----------- --------- ----- ----------- -----------
Net income (loss)..................................... $ 93 $ 40 $ 258 $ (965) $ 1,297
----------- --------- ----- ----------- -----------
----------- --------- ----- ----------- -----------
Net income per share.................................. $ 0.16
-----------
-----------
Shares used in computing pro forma net income per
share (See Note 5).................................. 8,162,114
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
- ------------------------
F-7
<PAGE>
CONDOR TECHNOLOGY SOLUTIONS, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. GENERAL
Condor was established to create a leading single-source provider of a wide
range of IT services and solutions to middle market organizations. Condor has
conducted no operations to date and will acquire the Founding Companies
concurrently with and as a condition to the closing of the Offering.
The historical financial statements reflect the financial position and
results of operations of Condor and the Founding Companies and were derived from
the respective Founding Companies' financial statements where indicated. The
periods included in these pro forma financial statements for the individual
Founding Companies are as of the respective periods, as indicated in the
accompanying financial statements, or a date within 93 days of December 31,
1996. The audited historical financial statements of Condor and the Founding
Companies included elsewhere in this Prospectus have been included in accordance
with Securities and Exchange Commission Staff Accounting Bulletin No. 80.
2. ACQUISITION OF FOUNDING COMPANIES
Concurrently with and as a condition to the closing of the Offering, Condor
will acquire all of the outstanding capital stock of the Founding Companies. The
acquisitions will be accounted for using the purchase method of accounting with
MST identified as the accounting acquiror.
The following table sets forth the consideration to be paid in cash and in
shares of Common Stock to the stockholders of each of the Founding Companies.
For purposes of computing the estimated purchase price for accounting purposes,
the value of shares is determined using an estimated fair value of $11.20 per
share, which represents a discount of 20 percent from the assumed initial public
offering price of $14.00 per share due to restrictions on the sale and
transferability of the shares issued. The estimated purchase prices for the
acquisitions are based upon preliminary estimates and are subject to certain
purchase price adjustments at and following the closing.
<TABLE>
<CAPTION>
SHARES OF
CASH COMMON STOCK
------------- --------------
<S> <C> <C>
(IN
THOUSANDS)
MST........................................................... $ 9,750 560,714
CHMC.......................................................... 17,685 135,714
Federal....................................................... 7,500 535,714
Corporate Access.............................................. 5,494 196,214
ISSI.......................................................... 5,000 500,000
USComm........................................................ 600 42,857
InVenture..................................................... 750 53,571
MIS........................................................... 1,200 128,571
------------- --------------
Total................................................... $ 47,979 2,153,355
------------- --------------
------------- --------------
</TABLE>
F-8
<PAGE>
CONDOR TECHNOLOGY SOLUTIONS, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
The following table summarizes unaudited pro forma combined balance sheet
adjustments:
<TABLE>
<CAPTION>
MERGER ADJUSTMENTS TOTAL
-------------------------------------------- MERGER
(A) (B) (C) (D) (E) ADJUSTMENTS
-------- -------- ----- -------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents.................... $ - $ (5,126) $ - $ - $ - $ (5,126)
Marketable securities........................ - (874) - - - (874)
-------- -------- ----- -------- ------- -----------
Total current assets................... (6,000) (6,000)
Fixed assets, net............................ 1,300 1,300
Prepaid expense and other current assets..... - - - 5,000 (5,000)
Goodwill, net................................ - - - 41,194 - 41,194
-------- -------- ----- -------- ------- -----------
Total assets........................... $ - $ (6,000) $ - $ 47,494 $(5,000) $ 36,494
-------- -------- ----- -------- ------- -----------
-------- -------- ----- -------- ------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Payable to stockholders...................... $ 47,979 $ - $ 250 $ - $ - $ 48,229
-------- -------- ----- -------- ------- -----------
Total current liabilities.............. 47,979 - 250 - - 48,229
Deferred income taxes........................ - - - - - -
- - - - - -
-------- -------- ----- -------- ------- -----------
Total liabilities...................... 47,979 250 48,229
Stockholders' equity:
Common stock................................. - (6) - (18) - (24)
Additional paid-in capital................... (47,979) (2,602) - 49,550 - (1,031)
Retained earnings............................ - (3,392) (250) (2,439) (5,000) (11,081)
Treasury stock............................... - - - 401 - 401
-------- -------- ----- -------- ------- -----------
Total stockholders' equity............. (47,979) (6,000) (250) 47,494 (5,000) (11,735)
-------- -------- ----- -------- ------- -----------
Total liabilities and stockholders'
equity............................... $ - $ (6,000) $ - $ 47,494 $(5,000) $ 36,494
-------- -------- ----- -------- ------- -----------
-------- -------- ----- -------- ------- -----------
<CAPTION>
OFFERING
ADJUSTMENTS TOTAL
------------------ OFFERING
(F) (G) ADJUSTMENTS
-------- -------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.................... $ 71,818 (48,229) $ 23,589
Marketable securities........................
-------- -------- -----------
Total current assets................... 71,818 (48,229) 23,589
Fixed assets, net............................
Prepaid expense and other current assets.....
Goodwill, net................................
-------- -------- -----------
Total assets........................... $ 71,818 (48,229) $ 23,589
-------- -------- -----------
-------- -------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Payable to stockholders...................... $ (48,229) $(48,229)
-------- -------- -----------
Total current liabilities.............. (48,229) (48,229)
Deferred income taxes........................
-------- -------- -----------
Total liabilities...................... (48,229) (48,229)
Stockholders' equity:
Common stock................................. 59 59
Additional paid-in capital................... 71,759 71,759
Retained earnings............................
Treasury stock...............................
-------- -------- -----------
Total stockholders' equity............. 71,818 71,818
-------- -------- -----------
Total liabilities and stockholders'
equity............................... $ 71,818 (48,229) $ 23,589
-------- -------- -----------
-------- -------- -----------
</TABLE>
(A) Records the liability for the cash portion of the consideration to be
paid to the stockholders of the Founding Companies in connection with the
Mergers.
(B) Reflects the repurchase of shares from a minority stockholder for
$2,000,000 at one of the Founding Companies. Adjustment also reflects
distributions of $4,000,000 to stockholders at another Founding Company,
simultaneously with the consummation of the mergers.
(C) Establishment of liability for S corporation distribution to be paid to
the stockholder at one of the Founding Companies.
(D) Reflects the acquisitions of the Founding Companies, consisting of
$47,979,000 in cash and 2,153,355 shares of common stock valued at $11.20 per
share (or $24,118,000) for a total estimated purchase price of $72,097,000
resulting in excess purchase price over the fair value of the net assets
acquired of $41,194,000. Adjustment also reflects the allocation of $5,000,000
of the purchase price to acquired research and development activities
(in-process research and development) and $1,300,000 of acquired internally
developed software, at a Founding Company.
(E) Records the write-off of the acquired in-process research and
development from a Founding Company.
(F) Records the cash proceeds from the issuance of shares of Condor Common
Stock net of estimated Offering costs (based on an assumed initial public
offering price of $14.00 per share). Offering costs primarily consist of
underwriting discounts and commissions, accounting fees, legal fees and printing
expenses.
F-9
<PAGE>
CONDOR TECHNOLOGY SOLUTIONS, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS (CONTINUED)
(G) Records the cash portion of the consideration and the S corporation
distribution to be paid to the stockholder of one of the Founding Companies in
connection with the Mergers ($48,229,000) from proceeds of the Offering.
4. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS
The following tables summarize unaudited adjustments to the pro forma
combined statements of operations:
For the year ended December 31, 1996:
<TABLE>
<CAPTION>
TOTAL
PRO FORMA
(A) (B) (C) (D) ADJUSTMENTS
--------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Selling, general and administrative........................ $ (1,411) $ - $ 260 $ - $ (1,151)
Goodwill amortization...................................... - 1,483 - - 1,483
--------- --------- --------- --------- -----------
Income from operations..................................... 1,411 (1,483) 260 - (332)
Other income (expense):
Interest expense........................................... - - - -
--------- --------- --------- --------- -----------
Income (loss) before income taxes.......................... 1,411 (1,483) 260 - (332)
Provision for income taxes................................. - - - 1,588 1,588
--------- --------- --------- --------- -----------
Net income (loss).......................................... $ 1,411 $ (1,483) $ 260 $ (1,588) $ (1,920)
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
</TABLE>
For the six months ended June 30, 1997:
<TABLE>
<CAPTION>
TOTAL
PRO FORMA
(A) (B) (C) (D) ADJUSTMENTS
--------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Selling, general and administrative........................ $ (969) $ - $ 130 $ - $ (839)
Goodwill amortization...................................... - 743 - - 743
--------- --------- --------- --------- -----------
Income (loss) from operations.............................. 969 (743) (130) - 96
Other income (expense):
Interest expense........................................... - - - - -
--------- --------- --------- --------- -----------
Income (loss) before income taxes.......................... 969 (743) (130) - 96
Provision for income taxes................................. - - - 1,083 1,083
--------- --------- --------- --------- -----------
Net income (loss).......................................... $ 969 $ (743) $ (130) $ (1,083) $ (987)
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
</TABLE>
F-10
<PAGE>
CONDOR TECHNOLOGY SOLUTIONS, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS (CONTINUED)
For the six months ended June 30, 1996:
<TABLE>
<CAPTION>
TOTAL
PRO FORMA
(A) (B) (C) (D) ADJUSTMENTS
--------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Selling, general and administrative.............................. $ (528) $ - $ 130 $ - $ (398)
Goodwill amortization............................................ - 743 - - 743
--------- --------- --------- --------- -----------
Income (loss) from operations.................................... 528 (743) (130) - (345)
Other income (expense):
Interest expense................................................. - - - - -
--------- --------- --------- --------- -----------
Income (loss) before income taxes................................ 528 (743) (130) - (345)
Provision for income taxes....................................... - - - 620 620
--------- --------- --------- --------- -----------
Net income (loss)................................................ $ 528 $ (743) $ (130) $ (620) $ (965)
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
</TABLE>
(A) Reflects the reductions in salaries, bonuses and benefits to the
stockholders and managers of the Founding Companies to which they have agreed
prospectively.
(B) Reflects the amortization of goodwill to be recorded as a result of
these Mergers over a period of seven- to 35-years. These amortization periods
were determined based on an analysis of the characteristics of the individual
Founding Companies.
(C) Reflects the amortization of internally developed software acquired as a
result of these Mergers over a five year estimated life.
(D) Reflects (i) the incremental provision for federal and state income
taxes assuming all entities were subject to federal and state income taxes; (ii)
federal and state income taxes relating to the other statements of operations'
adjustments; (iii) income taxes on S corporation income; and (iv) that goodwill
is not tax deductible.
5. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS
Includes (i) 2,046,645 shares issued to founders, consultants and management of
Condor; (ii) 2,153,355 shares issued to owners of the Founding Companies; and
(iii) 3,962,114 of the 5,900,000 shares sold in the Offering necessary to pay
the cash portion of the Merger consideration and to pay expenses of the
Offering.
F-11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Condor Technology Solutions, Inc.
The reverse stock split described in Note 2 has not been consummated as of
September 30, 1997. When it has been consummated, we will be in a position to
furnish the following report on these financial statements.
"In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of Condor Technology Solutions,
Inc. at December 31, 1996, in conformity with generally accepted accounting
principles. This financial statement is the responsibility of the Company's
management; our responsibility is to express an opinion on this financial
statement based on our audit. We conducted our audit of this statement in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statement, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above."
Price Waterhouse LLP
Minneapolis, MN
September 30, 1997
F-12
<PAGE>
CONDOR TECHNOLOGY SOLUTIONS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1996 JUNE 30, 1997
--------------- -------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Cash.................................................................................. $ - $ 3
Deferred offering costs............................................................... 265 782
----- -----
Total assets........................................................................ $ 265 $ 785
----- -----
----- -----
LIABILITIES AND STOCKHOLDERS' EQUITY
Amounts due to stockholder............................................................ $ 178 $ 637
Stockholders' equity:
Preferred stock, $.01 par, 1,000,000 authorized, none outstanding...................
Common stock, $.01 par, 49,000,000 authorized, 1,562,980 and 1,824,603 outstanding
at December 31, 1996 and June 30, 1997, respectively.............................. 16 18
Additional paid in capital............................................................ 71 230
Accumulated deficit................................................................... -- ( 100)
----- -----
Total stockholders' equity.......................................................... 87 148
----- -----
Total liabilities and stockholders' equity.......................................... $ 265 $ 785
----- -----
----- -----
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
CONDOR TECHNOLOGY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. GENERAL
Condor Technology Solutions, Inc., a Delaware Corporation, ("Condor" or the
"Company"), was founded in August 1996 to create a leading single-source
provider of a wide range of IT services and solutions to the middle market
organizations. Condor has entered into agreements to acquire (the "Mergers") all
of the common stock of eight established IT service providers (the "Founding
Companies") and subsequently complete an initial public offering (this
"Offering") of its common stock (the "Common Stock").
The Company has not conducted any operations, other than payment of salary
to one officer, and all activities to date have related to this Offering and the
Mergers. The Company's cash balances were provided from the sale of stock to
investors and advances from a shareholder (The Commonwealth Group). Accordingly,
statements of operations, cash flows and change in stockholders' equity for
these periods would not provide meaningful information and have been omitted.
As of June 30, 1997 and December 31, 1996, costs of approximately $782,000
(unaudited) and $265,000, respectively, have been incurred in connection with
this Offering. These costs will be recorded as a reduction of the proceeds of
this Offering. The Company is dependent upon this Offering to execute the
pending Mergers. There is no assurance that the pending Mergers or this Offering
will be completed or that the Company will be able to generate future operating
revenues.
INTERIM FINANCIAL INFORMATION
The interim financial statements as of June 30, 1997, are unaudited, and
certain information and footnote disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting principles,
have been omitted. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the interim
financial statements, have been included. The results of operations for the
interim periods are not necessarily indicative of the results for the entire
fiscal year.
2. STOCKHOLDERS' EQUITY
COMMON STOCK AND PREFERRED STOCK
The Company intends to effect a one-for-5.17921 reverse stock split
effective on the day preceding the date of the final Prospectus for this
Offering. In addition, on October 1, 1997 the Company increased the number of
authorized shares of common stock to 49 million (including 5 million shares of
restricted common stock (the "restricted common stock") and authorized 1 million
shares of $.01 par value preferred stock. The effects of common stock split and
the increase in the shares of authorized common stock have been retroactively
reflected in the balance sheet and the accompanying notes.
In connection with the organization of the Company, Condor issued 8,095,000
shares of common stock, before giving effect to the stock split described above,
to The Commonwealth Group and other founders in exchange for consulting,
financial advisory and related services provided to Condor and, with respect to
The Commonwealth Group, its commitment to provide funds necessary to effect the
Mergers and this Offering. These non-monetary assets are considered to have an
aggregate value of $87,000. Funds advanced by The Commonwealth Group will be
reimbursed out of the proceeds of this Offering, together with interest on such
advances at the prime rate.
F-14
<PAGE>
CONDOR TECHNOLOGY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. STOCKHOLDERS' EQUITY (CONTINUED)
Between January and March 1997, 218,180 shares were issued in exchange for
services associated with the Offering that are considered to have an aggregate
value of $11,000. In the six months ended June 30, 1997, 43,443 shares were sold
to investors for $150,000.
RESTRICTED COMMON STOCK
The common stock and the restricted common stock are identical except that
the holders of restricted common stock are only entitled to one-fifth of one
vote for each share on all matters. Immediately prior to the effectiveness of
the Company's registration statement, the founders and management of Condor will
exchange their shares of common stock for a equal number of shares of restricted
common stock.
3. DEFERRED COSTS
In connection with this Offering, the Company has incurred costs which are
directly attributable to this Offering. These costs, which include legal fees,
investment banking fees and other costs, have been deferred as of December 31,
1996 and June 30, 1997 and will be charged against the proceeds of this
Offering.
4. INCENTIVE COMPENSATION
In October 1997, the Board of Directors and the Company's stockholders
approved the Company's 1997 Long-Term Incentive Plan (the "Plan"). The purpose
of the Plan is to provide a means by which the Company can attract and retain
executive officers, key employees, directors, consultants and other service
providers and to compensate such persons in a way that provides additional
incentives and enables such persons to increase their ownership interests in the
Company. Individual awards under the Plan may take the form of one or more of:
(i) either incentive stock options ("ISOs") or non-qualified stock options
("NQSOs"); (ii) stock appreciation rights ("SARs"); (iii) restricted or deferred
stock; (iv) dividend equivalents; (v) bonus shares and awards in lieu of Company
obligations to pay cash compensation, and (vi) other awards not otherwise
provided for, the value of which is based in whole or in part upon the value of
the common stock of the Company.
The maximum number of shares of common stock that may be subject to
outstanding awards under the Plan will not exceed 15% of the aggregate number of
shares of common stock outstanding, minus the number of shares previously issued
pursuant to awards granted under the Plan. The number of shares deliverable upon
the exercise of ISOs is limited to 1,000,000. The Plan also provides that no
participant may be granted in any calendar year options or SARs for more than
400,000 Shares or other awards settleable by delivery of more than 200,000
shares, and limits cash awards in any calendar year to an amount equal to the
fair market value of the number of shares at the date of grant or the date of
settlement, whichever is greater.
In addition to authorizing grants of awards to eligible persons, the Plan
authorizes automatic grants of NQSOs to non-employee directors. Under these
provisions, each person serving or who has agreed to serve as a non-employee
director at the commencement of the Offering will be granted an initial option
to purchase 10,000 shares, and thereafter each person who becomes a non-employee
director will be granted an initial option to purchase 10,000 shares upon such
person's initial election as a director. In addition, these provisions authorize
the automatic annual grant to each non-employee director of an option to
purchase 5,000 shares at each annual meeting of stockholders following this
Offering, provided, however,
F-15
<PAGE>
CONDOR TECHNOLOGY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCENTIVE COMPENSATION (CONTINUED)
that a director will not be granted an annual option if he or she was granted an
initial option during the preceding three months. These options will have an
exercise price equal to the fair market value of common stock on the date of
grant and the options will expire at the earlier of 10 years after the date of
grant or one year after the date the participant ceases to serve as a director
of the Company. In addition, these options generally will become exercisable one
year after the date of grant, except that an option may be forfeited upon a
participant's termination of service as a director for reasons other than death
or disability if the date of termination is less than 11 months after the date
of grant.
In connection with this Offering, in addition to the options to be
automatically granted to non-employee directors, options in the form of NQSOs to
purchase shares of common stock of the Company will be granted to the executive
officers of the Company, the employees of the Company and the Founding
Companies. Each of the foregoing options will have an exercise price equal to
the initial public offering price per share in this Offering, and will vest as
to 33% each on the date that is 12 months, 24 months and 36 months after the
date of closing of this Offering. These options will not be exercisable until
they are vested, and unvested options generally will be forfeited upon a
termination of employment that is voluntary by the participant. Upon a change of
control of the Company, vesting will be accelerated. The options generally will
expire on the earlier of 10 years after the date of grant or three months after
termination of employment.
5. NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," provides a new fair value based method of
accounting for employee stock options or similar equity instruments, however
this statement allows companies to continue to utilize the intrinsic value based
measure of accounting prescribed by Accounting Principles Board Opinion No. 25
(APB No. 25). Companies electing to remain with the accounting provided in APB
Opinion No. 25 must make pro forma disclosures of net income and net earnings
per share as if the fair value method of accounting had been applied. The
Company will account for stock based compensation pursuant to the requirements
of APB 25 and will provide pro forma disclosure of net income and net income per
share, pursuant to the requirements of SFAS No. 123 as applicable, in the notes
to future consolidated financial statements.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share" which will be effective for fiscal periods beginning
after December 15, 1997. SFAS No. 128 simplifies the standards required under
current accounting rules for computing earnings per share and replaces the
presentation of primary earnings per share and fully diluted earnings per share
with a presentation of basic earnings per share ("basic EPS") and diluted
earnings per share ("diluted EPS"). Basic EPS excludes dilution and is
determined by dividing income available to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted EPS
reflects the potential dilution that could occur if securities and other
contracts to issue common stock were exercised or converted into common stock.
Diluted EPS is computed similarly to fully diluted earnings per share under
current accounting principles.
The Company will implement SFAS 128 during 1998.
F-16
<PAGE>
CONDOR TECHNOLOGY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. SUBSEQUENT EVENTS
The Company has signed definitive agreements to acquire all of the common
stock and ownership interests of the Founding Companies to be consummated
simultaneously with the closing of the Offering. The companies to be acquired
are Management Support Technology Corporation; Computer Hardware Maintenance
Company, Inc.; Federal Computer Corporation; Corporate Access Inc.; Interactive
Software Systems Incorporated; U.S. Communications, Inc.; InVenture Group, Inc.
and MIS Technologies, Inc.
Upon the successful consummation of the Offering, approximately, $48.0
million will be used to pay the cash portion of the purchase price for the
Founding Companies of which approximately $9.8 million will be paid directly to
a former stockholder of a Founding Company who will become an officer, director
and holder of more than 5% of the Common Stock of the Company. Additional cash
may be used to pay contingent purchase prices which may be earned over the next
one to three years if the applicable earnings thresholds of the Founding
Companies are achieved.
In the quarter ending September 30, 1997 the Company issued a total of
193,080 shares of Common Stock to management of the Company. As a result, the
Company will record for financial statement purposes a non-recurring non-cash
compensation charge of approximately $2.0 million (unaudited) in the quarter
ending September 30, 1997, representing the difference between the amount paid
for the shares and the estimated fair value of the shares on the date of grant.
On October 2, 1997, the Company filed a registration statement on Form S-1
for the sale of its Common Stock. An investment in shares of Common Stock
offered by this Prospectus involves a high degree of risk, including, among
others, absence of a combined operating history, risks relating to the Company's
acquisition strategy, risks relating to acquisition financing, reliance on key
personnel and a substantial portion of the proceeds from this Offering payable
to affiliates of the Founding Companies.
F-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Management Support Technology Corporation
Framingham, Massachusetts
We have audited the accompanying balance sheets of Management Support
Technology Corporation (the "Company") as of December 31, 1995 and 1996, and the
related statements of income and retained earnings, and cash flows for each of
the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Management Support Technology Corporation at
December 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
February 14, 1997
F-18
<PAGE>
MANAGEMENT SUPPORT TECHNOLOGY CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------- -----------
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and equivalents........................................................... $ 7 $ 102 $ 153
Accounts receivable (net of allowance for doubtful accounts of $7 in 1995, 1996
and 1997).................................................................... 1,184 1,451 1,059
Prepaid expenses and other current assets...................................... 126 169 38
--------- --------- -----------
Total current assets..................................................... 1,317 1,722 1,250
--------- --------- -----------
Property and equipment:
Equipment...................................................................... 589 822 892
Vehicles....................................................................... 36 36 -
Furniture and fixtures......................................................... 164 177 179
Leasehold improvements......................................................... 20 34 41
--------- --------- -----------
Total.................................................................... 809 1,069 1,112
Less accumulated depreciation.................................................. (194) (381) (460)
--------- --------- -----------
Property and equipment--net.............................................. 615 688 652
--------- --------- -----------
Investment....................................................................... 600 - -
--------- --------- -----------
Deposits and other............................................................... 15 16 16
--------- --------- -----------
Total assets............................................................. $ 2,547 $ 2,426 $ 1,918
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Note payable to a bank......................................................... $ 500 $ 250 $ -
Accrued compensation........................................................... - 280 -
Accounts payable and accrued expenses.......................................... 208 95 221
Deferred revenue............................................................... 959 250 -
--------- --------- -----------
Total current liabilities................................................ 1,667 875 221
--------- --------- -----------
Commitments (Note 3)
Stockholder's equity:
Common stock, $.01, $.002 and $.00025 par value in 1995, 1996 and 1997,
respectively; 20,000,000 shares authorized; 8,105,360 shares issued and
outstanding.................................................................. 2 2 2
Retained earnings.............................................................. 878 1,549 1,695
--------- --------- -----------
Total stockholder's equity............................................... 880 1,551 1,697
--------- --------- -----------
Total liabilities and stockholder's equity............................... $ 2,547 $ 2,426 $ 1,918
--------- --------- -----------
--------- --------- -----------
</TABLE>
See notes to financial statements.
F-19
<PAGE>
MANAGEMENT SUPPORT TECHNOLOGY CORPORATION
STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue....................................................... $ 3,669 $ 6,193 $ 8,211 $ 4,212 $ 3,764
Cost of revenue............................................... 1,463 2,415 3,783 1,980 1,855
--------- --------- --------- --------- ---------
Gross profit.................................................. 2,206 3,778 4,428 2,232 1,909
General and administrative expenses........................... 1,113 1,606 2,188 1,130 873
--------- --------- --------- --------- ---------
Income from operations........................................ 1,093 2,172 2,240 1,102 1,036
Interest expense.............................................. (2) (12) (29) (20) (3)
Interest income and other income (expense).................... - (3) 3 1 -
--------- --------- --------- --------- ---------
Net income.................................................... 1,091 2,157 2,214 1,083 1,033
Retained earnings, beginning of year.......................... 518 789 878 878 1,549
Distributions, net of contributions........................... (820) (2,068) (1,543) (1,355) (887)
--------- --------- --------- --------- ---------
Retained earnings, end of year................................ $ 789 $ 878 $ 1,549 $ 606 $ 1,695
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See notes to financial statements.
F-20
<PAGE>
MANAGEMENT SUPPORT TECHNOLOGY CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------------- ------------------------
1994 1995 1996 1996 1997
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 1,091 $ 2,157 $ 2,214 $ 1,083 $ 1,033
--------- --------- --------- ----------- -----------
Adjustments to reconcile net income to cash provided
by operating activities:
Investment.......................................... (330) (270) - - -
Depreciation and amortization....................... 51 123 188 95 103
Provision for doubtful accounts..................... 7 - - - -
Changes in assets and liabilities:
Accounts receivable............................... (666) 102 (268) 30 393
Prepaid expenses and other current assets......... (41) (60) (43) 79 131
Deposits and other................................ - (5) - (25) -
Deferred revenue.................................. 776 103 (709) (455) (250)
Accounts payable and accrued expenses............. 43 112 166 535 (155)
--------- --------- --------- ----------- -----------
Total adjustments............................... (160) 105 (666) 259 222
--------- --------- --------- ----------- -----------
Cash provided by operating activities........... 931 2,262 1,548 1,342 1,255
--------- --------- --------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.................... (322) (393) (260) (178) (67)
Return of investment.................................. - - 600 600 -
--------- --------- --------- ----------- -----------
Cash provided by (used for) investing
activities.................................... (322) (393) 340 422 (67)
--------- --------- --------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable.......................................... 200 200 (250) (300) (250)
Distributions, net of contributions................... (820) (2,068) (1,543) (1,355) (887)
--------- --------- --------- ----------- -----------
Cash used for financing activities.............. (620) (1,868) (1,793) (1,655) (1,137)
--------- --------- --------- ----------- -----------
Increase (decrease) in cash and equivalents............. (11) 1 95 109 51
Cash and equivalents, beginning of period............... 17 6 7 7 102
--------- --------- --------- ----------- -----------
Cash and equivalents, end of period..................... $ 6 $ 7 $ 102 $ 116 $ 153
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
SUPPLEMENTAL INFORMATION--INTEREST PAID................. $ 2 $ 11 $ 31 $ 20 $ 3
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
Noncash Transactions--In 1994 and 1995, the Company received an equity position
in an investment in exchange for services with an assigned value at the date of
exchange of $330 and $270, respectively (see Note 5).
See notes to financial statements.
F-21
<PAGE>
MANAGEMENT SUPPORT TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS, PRINCIPAL PRODUCT AND MARKETS--Management Support
Technology Corporation (the "Company") is a consulting and systems integration
firm specializing in the use of corporate strategy and information technology to
improve organizational effectiveness, productivity, quality, flexibility and
speed. The Company consults with executive management in major United States and
European companies and governmental agencies to identify opportunities for using
technology to improve organizational performance. This includes business process
reengineering, organizational transformation planning, strategic information
technology initiatives in mission critical business processes, IT product
development, IT technology research and development of executive information
system and decision support applications. The Company provides development and
operational support for these information technology applications to its clients
throughout the entire life cycle of the applications. Its offices are located in
the Boston suburb of Framingham, Massachusetts, and near Los Angeles in Seal
Beach, California.
STOCK SPLITS AND RECAPITALIZATIONS--On June 1, 1996, the Board of Directors
and stockholder declared a five-for-one split of the Company's common stock,
approved an increase in the authorized common stock from 500,000 to 2,500,000
shares, and changed the par value of its common stock from $.01 per share to
$.002 per share. In June 1997, the Board of Directors and stockholder declared
an eight-for-one split of the Company's common stock, approved an increase in
the authorized common stock from 2,500,000 to 20,000,000 shares and changed the
par value of its common stock from $.002 per share to $.00025 per share. All
share data have been adjusted to reflect the splits of the Company's common
stock.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL INFORMATION (UNAUDITED)--The interim financial statements
as of June 30, 1997, and for the six months ended June 30, 1996 and 1997, are
unaudited and certain information and disclosures normally included in annual
financial statements have been omitted. In the opinion of management, the
accompanying interim unaudited financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary to fairly present the
financial position, results of operations and cash flows with respect to the
interim financial statements and have been prepared on the same basis as the
audited financial statements. The results of operations for the interim periods
are not necessarily indicative of the results for the entire fiscal year.
USE OF ESTIMATES--The preparation of the Company's financial statements in
conformity with generally accepted accounting principles necessarily requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
CASH AND EQUIVALENTS--The Company considers all highly liquid investments
purchased with remaining maturities of three months or less to be cash
equivalents.
PROPERTY AND EQUIPMENT--Property and equipment are recorded at cost.
Depreciation and amortization are provided using the straight-line method over
the estimated useful lives of the related assets.
Leasehold improvements are recorded at cost and amortized using the
straight-line method over the lesser of the lease term or the estimated useful
life. Effective January 1, 1996, the Company adopted Statement
F-22
<PAGE>
MANAGEMENT SUPPORT TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
of Financial Accounting Standard ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
SFAS No. 121 requires that long-lived assets be reviewed for impairment whenever
circumstances indicate that the carrying value of an asset may not be
recoverable. The adoption of SFAS No. 121 did not have any effect on the
Company's financial position or results of operations for the year ended
December 31, 1996.
INVESTMENT--The investment was carried at cost (see Note 5).
REVENUE RECOGNITION, SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT
RISK--Substantially all revenue is generated from consulting contracts and is
recognized over specified performance periods using the percentage-of-completion
method. The Company records certain costs incurred and billed to customers as
revenue when billed. The Company performs ongoing credit evaluations of its
customers, maintains allowances for potential credit losses and generally
requires no collateral from its customers. Substantially all of the Company's
revenue was earned from the Joint Venture and six independently operated
divisions of a large multi-national holding company in 1994, 1995, 1996 and 1997
(Notes 5 and 6); an unrelated party in 1995 and an unrelated party in 1996 and
1997.
INCOME TAXES--The Company has elected to be taxed under Subchapter S of the
Internal Revenue Code. As a result, income of the Company is treated as
distributed to the stockholder and is reported on the personal income tax
returns of the stockholder. Accordingly, the Company makes no provision for
income taxes, and has not provided for deferred income taxes.
2. NOTE PAYABLE TO BANK
At December 31, 1996 and June 30, 1997, the Company had a line-of-credit
agreement with Fleet Bank of Boston, N.A. which provides for borrowings of up to
$750 ($500 at December 31, 1995). Borrowings bear interest at the bank's prime
lending rate plus .75% (9% at December 31, 1996 and 9.25% at June 30, 1997). All
amounts outstanding are due on demand and substantially all assets of the
Company are pledged as collateral. The line-of-credit agreement expires October
9, 1997.
3. COMMITMENTS
The Company leases certain equipment and office space under operating lease
arrangements expiring through 2000. Future minimum rental payments under
noncancelable operating leases at June 30, 1997 follow:
<TABLE>
<CAPTION>
Period ended December 31
<S> <C>
1997................................................................. $ 70
1998................................................................. 141
1999................................................................. 74
2000................................................................. 34
---------
$ 319
---------
---------
</TABLE>
F-23
<PAGE>
MANAGEMENT SUPPORT TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
3. COMMITMENTS (CONTINUED)
Rent expense in 1994, 1995 and 1996 was $84, $115 and $136, respectively.
Rent expense for the six months ended June 30, 1996 and 1997 was $84 and $74,
respectively.
4. PROFIT-SHARING PLAN
The Company has a profit-sharing plan for its eligible employees. Employees
are eligible for participation upon attaining the age of 21 and completion of
one year of service. Contributions to the plan are made at the discretion of the
Board of Directors. Discretionary contributions aggregated $73, $93 and $131 in
1994, 1995 and 1996, respectively. Discretionary contributions for the six
months ended June 30, 1996 and 1997 aggregated $49 and $3, respectively.
The Company established a 401(k) plan in 1994 covering substantially all
full-time employees. Under the provisions of the plan, employees may contribute
a portion of their compensation within certain limitations. The Company matches
a percentage of employee contributions on a discretionary basis as determined by
the Board of Directors. For the years ended December 31, 1994, 1995 and 1996,
the Board of Directors elected to match 50% of employee contributions on the
first 6% of the participant's elective deferral, subject to certain limitations.
The Company contributed $18, $37 and $42 to the plan in 1994, 1995 and 1996,
respectively. The Company contributed approximately $21 and $22 for the six
months ended June 30, 1996 and 1997, respectively.
5. INVESTMENT
In 1994, the Company entered into an agreement to purchase, prior to
December 7, 1995, for $600, a 10% equity interest in a recently formed entity
(the "Joint Venture") that is a significant client of the Company (Note 1). The
Company's chief executive officer and stockholder served as a director of the
Joint Venture until May 30, 1996. Under the terms of the agreement, the purchase
price was withheld by the client from amounts payable to the Company for
services rendered under consulting agreements. At December 31, 1995, the entire
$600 had been withheld and was classified as an investment.
On May 30, 1996, the Joint Venture was acquired by a large multinational
holding company (Notes 1 and 6) and returned the Company's $600 investment prior
to consummation of the acquisition of the 10% interest and the Company agreed to
provide consulting services through October 31, 1996 to the Joint Venture in
exchange for $108 plus expenses. Revenue was recognized as services were
provided.
6. OTHER RELATED-PARTY TRANSACTIONS
Included in prepaid expenses and other current assets at December 31, 1995
is an advance of $15 to a director.
During 1996, the Company paid approximately $245 and $86, respectively, in
consulting fees to two companies that have directors in common with the Company
under arms length terms. During the six months ended June 30, 1996 and 1997, the
Company paid approximately $36 and $40, respectively, to these two Companies.
F-24
<PAGE>
MANAGEMENT SUPPORT TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
6. OTHER RELATED-PARTY TRANSACTIONS (CONTINUED)
During 1995, the Company's stockholder became an officer, on an interim
assignment under contract, of a division of a large multinational holding
company (Notes 1 and 5).
7. STOCK OPTION PLAN
In June 1997, the Board of Directors and shareholder adopted the 1997 Stock
Option Plan (the "Plan"), pursuant to which options to purchase up to 5,000,000
shares of common stock may be granted. Options granted under the Plan may be
designated as qualified and nonqualified stock options and are exercisable over
a term of not more than ten years (five years in the case of an incentive option
granted to a ten-percent stockholder). The exercise price of qualified stock
options will not be less than 100% (110%, in the case of an incentive option
granted to a ten-percent stockholder) of the fair market value at the time of
grant. Options granted under the Plan vest over a period as determined by the
Board of Directors at the time of grant. No options have been granted under the
Plan.
8. SUBSEQUENT EVENT (UNAUDITED)
In October 1997, the Company entered into an agreement with Condor
Technology Solutions, Inc. ("Condor") for the acquisition of all of the
Company's outstanding common stock (the "Acquisition"). The consideration to be
paid by Condor for the Acquisition is approximately $17.6 million (unaudited),
$9.8 million (unaudited) of which would be paid in cash and $7.9 million
(unaudited) of which would be paid in Condor common stock. In addition, the
Company's stockholder is eligible for an earn-out, resulting in contingent
consideration of up to $8.4 million (unaudited), up to $2.5 million (unaudited)
of which would be paid in cash and the remainder of which would be paid in
additional Condor common stock. The Company's shareholder will also receive
options to acquire a number of shares of Condor common stock equal to 1.33%
(unaudited) of Condor's outstanding common stock at the Acquisition's close
date. The consummation of the Acquisition is conditioned upon Condor acquiring
certain other companies and the availability of acceptable financing.
F-25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Computer Hardware Maintenance Company, Inc.
In our opinion, the accompanying balance sheets at February 28, 1997 and
February 29, 1996, the related statements of operations, of changes in
stockholders' equity and of cash flows for the years ended February 28, 1997 and
February 29, 1996 and the consolidated statement of operations for the year
ended February 28, 1995 present fairly, in all material respects, the financial
position of Computer Hardware Maintenance Company, Inc. at February 28, 1997 and
February 29, 1996, and the results of its operations and its cash flows for the
years ended February 28, 1997, February 29, 1996 and February 28, 1995 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Philadelphia, PA
July 15, 1997
F-26
<PAGE>
COMPUTER HARDWARE MAINTENANCE COMPANY, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FEB. 29, FEB. 28, MAY 31,
1996 1997 1997
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 923 $ 928 $ 1,062
Accounts receivable, net of allowance of $30 in 1996 and 1997................. 3,025 5,267 5,714
Inventory..................................................................... 2,885 1,378 1,219
Deferred income taxes......................................................... 13 11 11
Prepaid expenses and other current assets..................................... 10 171 223
--------- --------- -----------
Total current assets...................................................... 6,856 7,755 8,229
Fixed assets, net............................................................... 265 307 298
Investment in partnership....................................................... 10 17 17
Other non-current assets........................................................ 40 47 53
--------- --------- -----------
Total assets.............................................................. $ 7,171 $ 8,126 $ 8,597
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit................................................................ $ 1,531 $ - $ 142
Current portion of capital lease obligations.................................. 13 16 3
Current portion of long-term debt............................................. 48 34 14
Accounts payable.............................................................. 1,938 2,342 2,150
Accrued liabilities........................................................... 454 850 762
Deferred revenue.............................................................. 1,085 1,730 1,587
Other current liabilities..................................................... 262 262 393
--------- --------- -----------
Total current liabilities................................................. 5,331 5,234 5,051
Long-term debt.................................................................. 19 28 25
Other long-term liabilities..................................................... 14 12 12
--------- --------- -----------
Total liabilities......................................................... 5,364 5,274 5,088
--------- --------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, 10,000,000 shares authorized; 5,980,000 shares
issued in 1996 and 1997; 4,200,000, 4,100,000 and 4,100,000 shares
outstanding at February 1996, February 1997 and May 1997, respectively...... - - -
Additional paid-in capital.................................................... 126 126 126
Deferred stock compensation................................................... - 174 209
Retained earnings............................................................. 2,036 2,930 3,552
--------- --------- -----------
2,162 3,230 3,887
Less: Treasury stock (1,780,000, shares at February 1996 and 1,880,000 shares
at February 1997 and May 1997, all at cost)................................. (355) (378) (378)
--------- --------- -----------
Total stockholders' equity................................................ 1,807 2,852 3,509
--------- --------- -----------
Total liabilities and stockholders' equity................................ $ 7,171 $ 8,126 $ 8,597
--------- --------- -----------
--------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
COMPUTER HARDWARE MAINTENANCE COMPANY, INC.
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28,
1997,
AND FOR THE THREE MONTHS ENDED MAY 31, 1996 AND 1997
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED FEBRUARY 28, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
------------------------------- MAY 31,
FEB. 28, FEB. 29, FEB. 28, --------------------
1995 1996 1997 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues:
Services................................................. $ 7,545 $ 7,997 $ 9,279 $ 1,988 $ 3,157
Hardware and software procurement........................ 25,656 22,811 35,439 9,201 10,041
--------- --------- --------- --------- ---------
Total revenues....................................... 33,201 30,808 44,718 11,189 13,198
--------- --------- --------- --------- ---------
Cost of revenues:
Services................................................. 4,623 5,187 6,061 1,292 2,052
Hardware and software procurement........................ 23,421 21,036 32,342 8,530 8,428
--------- --------- --------- --------- ---------
Total cost of revenues............................... 28,044 26,223 38,403 9,822 10,480
--------- --------- --------- --------- ---------
Gross profit............................................... 5,157 4,585 6,315 1,367 2,718
Selling, general and administrative expenses............... 3,910 3,844 4,784 1,047 1,678
--------- --------- --------- --------- ---------
Income from operations..................................... 1,247 741 1,531 320 1,040
Other income (expense):
Net interest expense..................................... (284) (175) (191) (3) (8)
Other income............................................. 79 107 152 7 6
--------- --------- --------- --------- ---------
Total other income (expense)......................... (205) (68) (39) 4 (2)
--------- --------- --------- --------- ---------
Income before income taxes................................. 1,042 673 1,492 324 1,038
Provision for taxes........................................ 396 285 598 137 416
--------- --------- --------- --------- ---------
Net income................................................. $ 646 $ 388 $ 894 $ 187 $ 622
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
COMPUTER HARDWARE MAINTENANCE COMPANY, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED FEBRUARY 28,
1997
AND FEBRUARY 29, 1996 AND THE PERIOD FROM MARCH 1, 1997 TO MAY 31, 1997
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEAR ENDED
FEBRUARY 28, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON
STOCK ADDITIONAL TREASURY STOCK DEFERRED TOTAL
---------- PAID-IN ----------------------- STOCK RETAINED STOCKHOLDERS'
SHARES CAPITAL SHARES AMOUNT COMPENSATION EARNINGS EQUITY
---------- ------------- ---------- ----------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 28, 1994........ 4,450,000 $ 126 1,530,000 $ (292) $ - $ 1,002 $ 836
Stock repurchase.................. (100,000) - 100,000 (22) - - (22)
Net Income........................ - - - - - 646 646
---------- ----- ---------- ----- ----- ----------- ------
Balance, February 28, 1995........ 4,350,000 126 1,630,000 (314) - 1,648 1,460
Stock repurchase.................. (150,000) - 150,000 (41) - - (41)
Net Income........................ - - - - - 388 388
---------- ----- ---------- ----- ----- ----------- ------
Balance, February 29, 1996........ 4,200,000 126 1,780,000 (355) - 2,036 1,807
Stock repurchase.................. (100,000) - 100,000 (23) - - (23)
Stock options vested.............. - - - - 174 - 174
Net income........................ - - - - - 894 894
---------- ----- ---------- ----- ----- ----------- ------
Balance, February 29, 1997........ 4,100,000 126 1,880,000 (378) 174 2,930 2,852
Stock options vested
(unaudited)..................... - - - - 35 - 35
Net income (unaudited)............ - - - - - 622 622
---------- ----- ---------- ----- ----- ----------- ------
Balance, May 31, 1997
(unaudited)..................... 4,100,000 $ 126 1,880,000 $ (378) $ 209 $ 3,552 $ 3,509
---------- ----- ---------- ----- ----- ----------- ------
---------- ----- ---------- ----- ----- ----------- ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
COMPUTER HARDWARE MAINTENANCE COMPANY, INC.
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28,
1997,
AND FOR THE THREE MONTHS ENDED MAY 31, 1996 AND 1997
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED FEBRUARY 28, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
------------------------------------- ENDED MAY 31,
FEB. 28, FEB. 29, FEB. 28, --------------------
1995 1996 1997 1996 1997
----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................... $ 646 $ 388 $ 894 $ 187 $ 622
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization................................. 148 117 95 22 9
Loss on sale of fixed assets.................................. - - 2 - -
Deferred compensation......................................... - - 174 - 35
Income from partnership....................................... (4) (6) (7) - -
Increase (decrease) in cash from changes in operating assets
and liabilities:
Accounts receivable......................................... (629) 720 (2,242) (2,488) (447)
Inventory................................................... 1,205 (883) 1,507 856 159
Prepaids and other current assets........................... 67 13 (168) (47) 18
Deferred taxes.............................................. 35 10 8 13 -
Accounts payable and accruals............................... (1,488) 331 800 2,184 (225)
Deferred revenue............................................ 135 (741) 645 25 (143)
Other current liabilities................................... - - - 32 -
----------- ----- ----------- --------- ---------
Net cash provided by (used in) operating activities....... 115 (51) 1,708 784 28
----------- ----- ----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets....................................... (95) (112) (139) (39) -
----------- ----- ----------- --------- ---------
Net cash used in investing activities..................... (95) (112) (139) (39) -
----------- ----- ----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt and capital leases......... (5) (10) (37) - (36)
Net borrowings (payments) under line of credit.................. 67 624 (1,504) (1,287) 142
Treasury stock repurchases...................................... (22) (41) (23) (7) -
----------- ----- ----------- --------- ---------
Net cash provided by (used in) financing activities....... 40 573 (1,564) (1,294) 106
----------- ----- ----------- --------- ---------
Net increase (decrease) in cash and cash equivalents.............. 60 410 5 (549) 134
Cash and cash equivalents at beginning of year.................... 453 513 923 923 928
----------- ----- ----------- --------- ---------
Cash and cash equivalents at end of year.......................... $ 513 $ 923 $ 928 $ 374 $ 1,062
----------- ----- ----------- --------- ---------
----------- ----- ----------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest.......................................... $ 303 $ 217 $ 209 $ 18 $ 6
----------- ----- ----------- --------- ---------
----------- ----- ----------- --------- ---------
Cash paid for income taxes...................................... $ 250 $ 289 $ 859 $ 119 $ 49
----------- ----- ----------- --------- ---------
----------- ----- ----------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
COMPUTER HARDWARE MAINTENANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Computer Hardware Maintenance Company, Inc. ("CHMC"), a Pennsylvania
corporation founded in 1972, provides desktop computer systems, service and
support programs for a variety of commercial and federal, state and local
governmental entities in the Mid-Atlantic region. CHMC has sales and support
offices throughout its market region, and offers nationwide coverage through a
network of operating affiliations and alliances. CHMC's service offerings
include network management and support, desktop system procurement and
refreshment, migration consulting and support, help-desk, remedial and
preventive maintenance and asset management services. The Company is
headquartered in Langhorne, Pennsylvania and has significant operations in
Allentown, Pennsylvania.
The Company and its stockholders intend to enter into a definitive agreement
with Condor Technology Solutions, Inc. ("Condor"), pursuant to which all of the
common stock of the Company will be exchanged for cash and shares of Condor
common stock concurrent with the consummation of the initial public offering of
the common stock of Condor.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL INFORMATION
The balance sheet as of May 31, 1997 and the statements of operations, of
changes in stockholders' equity and of cash flows for the three months ended May
31, 1996 and 1997 are unaudited, and certain information and footnote
disclosures related thereto, normally included in financial statements prepared
in accordance with generally accepted accounting principles, have been omitted.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments necessary to fairly present the financial position,
results of operations and cash flows with respect to the interim financial
statements, have been included. The results of operations for the interim
periods are not necessarily indicative of the results for the entire fiscal
year.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of CHMC and its
wholly-owned subsidiary, Computer Hardware Product Centers, Inc. ("CHPC"), in
1995. Effective February 28, 1995, CHMC and CHPC merged to form one legal
entity, under the name of Computer Hardware Maintenance Company, Inc. All
significant intercompany balances and transactions have been eliminated in 1995.
CASH AND CASH EQUIVALENTS
CHMC considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK
CHMC maintains its cash in bank deposit accounts which, at times, may exceed
federally insured limits. CHMC has not experienced any losses in such accounts.
CHMC believes it is not exposed to any significant credit risk on cash and cash
equivalents. In addition, the Company grants credit terms in the normal course
of business to its customers. As part of its ongoing procedures, the Company
monitors the credit worthiness of its customers. The Company does not believe
that it is subject to any unusual credit risk beyond the normal credit risk
attendant in its business.
F-31
<PAGE>
COMPUTER HARDWARE MAINTENANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK (CONTINUED)
The Company's sales and services are provided primarily to large and
mid-size companies. One commercial client represented greater than 10% of total
revenues for the years ended February 28, 1995, February 29, 1996 and February
28, 1997. Total revenues for this client were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Hardware and software............................................ $ 7,500 $ 3,677 $ 7,571
Services......................................................... 1,453 1,402 1,876
--------- --------- ---------
$ 8,953 $ 5,079 $ 9,447
--------- --------- ---------
--------- --------- ---------
</TABLE>
At February 28, 1995 and February 29, 1996, accounts receivable from one
commercial client were 12% of accounts receivable. At February 28, 1997,
accounts receivable from a different commercial client were greater than 10% of
accounts receivable.
REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE
Revenues are recognized upon delivery of the equipment and/or related
services. Revenues on long-term service contracts are recognized ratably over
the term of the contract. The Company receives advance payment on certain
maintenance contracts. Such advance payments are deferred and are reflected in
income together with the related costs and expenses as the services are
performed. Accounts receivable are accounted for net of allowances for estimated
uncollectible amounts.
INVENTORY
Inventories are stated at the lower of cost or market using the average cost
method and at February 29, 1996 and February 28, 1997 were comprised of the
following:
<TABLE>
<CAPTION>
FEB. 29, FEB. 28,
1996 1997
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
New computer products (held for resale).................................. $ 2,145 $ 578
Maintenance supplies..................................................... 275 348
Maintenance parts........................................................ 465 452
--------- ---------
$ 2,885 $ 1,378
--------- ---------
--------- ---------
</TABLE>
FIXED ASSETS
Fixed assets are recorded at cost. Improvements which substantially increase
the useful lives of assets are capitalized. Maintenance and repairs are expensed
as incurred. Upon retirement or disposal, the related cost and accumulated
depreciation are removed from the respective accounts and any gain or loss is
recorded. Depreciation is computed on the straight-line method based on the
estimated useful lives of assets as indicated in Note 5.
F-32
<PAGE>
COMPUTER HARDWARE MAINTENANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income taxes are provided in accordance with the Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Accordingly,
deferred tax assets and liabilities are recognized at the applicable income tax
rates based upon future tax consequences of temporary differences between the
tax basis and financial reporting basis of assets and liabilities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. GOVERNMENT CONTRACTS
The Company has contracts with two state governments to provide products and
services to any of their agencies. These contracts are not subject to
renegotiation nor do they guarantee minimum sales levels; rather they name the
Company as an approved vendor for the governmental agencies. All income under
the contracts is recognized in the same manner as income from other parties.
Sales to governmental agencies totaled $3,980,000, $3,791,000 and $9,063,000 for
the years ended February 28, 1995, February 29, 1996 and February 28, 1997,
respectively. Accounts receivable from such agencies at February 29, 1996 and
February 28, 1997 were $349,000 and $1,215,000, respectively.
4. INVESTMENT IN PARTNERSHIP
The Company is a partner in Computer Hardware Investors, which owns real
estate in Southampton, Pennsylvania. The property is used by CHI Institute, a
technical school, operated by Computer Hardware Service Company, Inc. (a related
party, see Note 13). Under the Partnership Agreement, profits and losses
resulting from the partnership are allocated 30% to each of two general
partners, 34% to Computer Hardware Service Company, Inc. and 6% to CHMC. Income
from the partnership for the years ended February 28, 1995, February 29, 1996
and February 28, 1997 was $4,000, $6,000 and $7,000, respectively. The
investment is accounted for under the equity method with earnings included in
the other income line in the income statement. The Company sold this investment
in June 1997 for a gain of $56,000.
F-33
<PAGE>
COMPUTER HARDWARE MAINTENANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. FIXED ASSETS
Fixed assets at the dates indicated below consisted of the following:
<TABLE>
<CAPTION>
AVERAGE FEB. 29, FEB. 28,
USEFUL LIFE 1996 1997
------------- ----------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
Computer equipment........................................ 3--5 years $ 105 $ 174
Software.................................................. 3 years 20 20
Furniture and equipment................................... 5--7 years 370 400
Motor vehicles............................................ 5 years 132 124
Leasehold and building improvements....................... 1--10 years 209 218
----- -----
Total fixed assets at cost.......................... 836 936
Less accumulated depreciation and amortization............ (571) (629)
----- -----
Total fixed assets, net............................. $ 265 $ 307
----- -----
----- -----
</TABLE>
Property held under capital leases were included in the respective fixed
asset accounts on the balance sheets as follows:
<TABLE>
<CAPTION>
FEB. 29, FEB. 28,
1996 1997
----------- -----------
<S> <C> <C>
(IN THOUSANDS)
Furniture and equipment.................................................. $ 91 $ 77
Less accumulated depreciation............................................ (57) (69)
--- ---
$ 34 $ 8
--- ---
--- ---
</TABLE>
Depreciation and amortization of capital leases totaled $100,000, $117,000
and $95,000 for the years ended February 28, 1995, February 29, 1996 and
February 28, 1997, respectively.
6. LONG-TERM DEBT
Long-term debt at February 29, 1996 and February 28, 1997 consisted of the
following:
<TABLE>
<CAPTION>
1996 1997
----- -----
<S> <C> <C>
(IN THOUSANDS)
Notes payable on automobiles at varying interest rates ranging from 7.25%
to 11.90%; due at various times through February 2000; payable in
monthly installments of principal and interest......................... $ 52 $ 47
Capital leases due through September 2001................................ 27 22
Notes payable to stockholder; interest free; due October 1997............ 15 15
--- ---
94 84
Less current maturities of long-term debt................................ 61 50
--- ---
$ 33 $ 34
--- ---
--- ---
</TABLE>
F-34
<PAGE>
COMPUTER HARDWARE MAINTENANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
Minimum principal payments on long-term debt and capital leases for the
years subsequent to February 28, 1997 is as follows:
<TABLE>
<CAPTION>
AMOUNT
-----------------
<S> <C>
(IN THOUSANDS)
1998........................................................................... $ 50
1999........................................................................... 21
2000........................................................................... 12
2001........................................................................... 1
---
$ 84
---
---
</TABLE>
7. LINE OF CREDIT
The Company has a revolving line of credit with IBM Credit Corp. The amount
available to be drawn from the line is primarily based on 85% of eligible
accounts receivable plus the value of any IBM inventory on hand. The maximum
available to be drawn cannot exceed $4.5 million, unless a temporary extension
of the line is granted. Extensions had been granted at February 29, 1996 and
February 28, 1997 to $6,700,000 and $6,750,000, respectively. The line of credit
is secured by accounts receivable, inventory, other assets of the Company and
the personal guarantees of the principal shareholders.
The interest rate on the line of credit varies between prime plus 1.875% and
prime plus 2.125%. Additionally, a service fee totaling $15,000 annually is
charged on this line.
The balance outstanding on the line of credit at February 29, 1996 and
February 28, 1997 was $1,531,000 and $0, respectively.
The line requires the maintenance of certain financial ratios, including
minimum revenue to working capital, minimum net income after tax to revenue and
maximum liabilities to tangible net worth. The Company was in compliance with
all such covenants at February 28, 1997.
8. FLOOR PLAN FINANCING
Certain inventory purchases are financed through floor plan arrangements.
These arrangements require the maintenance of certain financial levels and
ratios, including minimum net worth, minimum current ratio and minimum working
capital levels. Amounts outstanding under these agreements are interest free for
the first 30 days and bear interest at rates based on prime plus 1.25 to 2.125%
thereafter. At February 28, 1997, the Company was in compliance with all such
covenants. At February 28, 1997 and February 29, 1996, the Company had
outstanding balances of $3,160,000 and $2,268,000, respectively. These amounts
are included in accounts payable on the balance sheet.
9. COMMITMENT AND CONTINGENCIES
OPERATING LEASES
The Company leases various office buildings and a warehouse. Except for its
main office, none of the leases extend beyond one year. Under the terms of this
lease, the Company is required to pay minimum annual rent of $191,000 through
January 14, 1998. The Company has an option to renew the lease for an additional
five years based on the current market rental at the time of exercising such
option.
F-35
<PAGE>
COMPUTER HARDWARE MAINTENANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENT AND CONTINGENCIES (CONTINUED)
Minimum future lease payments under the above mentioned lease for the term
of the lease amount to $175,000.
Rent expense, including lease payments, approximated $315,000, $306,000 and
$303,000 for the years ended February 28, 1995, February 29, 1996 and February
28, 1997, respectively.
CAPITAL LEASE OBLIGATIONS
CHMC has capital lease obligations of $22,000 as of February 28, 1997, net
of imputed interest at a rate of approximately 12.25%, of which $16,000 is due
in the year ending February 28, 1998 and is recorded as a current liability, and
the remaining $6,000 is due ratably through 2001.
LITIGATION
CHMC is a party to litigation arising in the ordinary course of business
which, in the opinion of management, will not have a material adverse effect on
CHMC's financial condition or results of operations.
10. EMPLOYEE BENEFITS DEFINED CONTRIBUTION PLAN
The Company has a 401(k) Savings Plan ("Plan") that covers substantially all
of its employees. Participants may make voluntary contributions to the Plan of
up to 15% of their compensation not to exceed Internal Revenue Service allowable
limits. The Company will contribute 50% of the amount contributed by an employee
that is not in excess of 3% of such employee's compensation.
During the years ended February 28, 1995, February 29, 1996 and February 28,
1997, costs of the Plan charged to operations were $41,000, $45,000 and $52,000,
respectively.
11. INCOME TAXES
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------
<S> <C> <C> <C>
FEB. 28, FEB. 29, FEB. 28,
1995 1996 1997
----------- ----------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Current expense:
Federal........................................................ $ 272 $ 224 $ 452
State.......................................................... 89 71 134
----- ----- -----
361 295 586
Deferred expense (income):
Federal........................................................ 25 (7) 9
State.......................................................... 10 (3) 3
----- ----- -----
35 (10) 12
----- ----- -----
Total...................................................... $ 396 $ 285 $ 598
----- ----- -----
----- ----- -----
</TABLE>
F-36
<PAGE>
COMPUTER HARDWARE MAINTENANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES (CONTINUED)
The components of net deferred taxes at the dates indicated below were as
follows:
<TABLE>
<CAPTION>
FEB. 29 FEB. 28
1996 1997
----------- -----------
<S> <C> <C>
(IN THOUSANDS)
Deferred tax asset:
Accounts receivable....................................................... $ 13 $ 11
--- ---
Deferred tax liability:
Fixed assets.............................................................. (18) (22)
Other..................................................................... - (6)
--- ---
(18) (28)
--- ---
Net deferred tax liability.................................................. $ (5) $ (17)
--- ---
--- ---
</TABLE>
For the years ended February 29, 1996 and February 28, 1997, the effective
tax rates of 42% and 40%, respectively, approximated the combined Federal and
state statutory tax rate.
The effective rate of 38% for the year ended February 28, 1995 differed from
the statutory rate of 42% primarily as a result of the fact that the Company was
able to deduct $73,000 of contributions that were carried forward from prior
years.
The Company is affiliated with Computer Hardware Service Company, Inc. (see
Note 13) under Internal Revenue Regulations, and accordingly, they share one
surtax exemption which was allocated evenly between the two companies.
12. STOCK OPTIONS
Effective June 1, 1996, the Board of Directors authorized a Stock Purchase
Plan (the "Plan") for three employees. Under the terms of the Plan, each
individual has an option to purchase 75,000 shares of stock at $.50 per share.
These options vest in five increments of 15,000 shares. The vesting schedule in
aggregate for all options is as follows:
<TABLE>
<CAPTION>
OPTION PERIOD
------------------------
<S> <C> <C>
FIRST DAY LAST DAY
NUMBER OF SHARES TO EXERCISE TO EXERCISE
- --------------------------------------------------------------------- ----------- -----------
45,000 shares........................................................ 6/1/96 5/31/98
45,000 shares........................................................ 6/1/97 5/31/99
45,000 shares........................................................ 6/1/98 5/31/00
45,000 shares........................................................ 6/1/99 5/31/01
45,000 shares........................................................ 6/1/00 5/31/02
</TABLE>
No shares have been exercised through February 28, 1997.
CHMC has adopted the intrinsic value method of accounting for stock options
under APB 25 which resulted in compensation expense of approximately $174,000
for the year ended February 28, 1997.
FASB Statement No. 123, "Accounting for Stock Based Compensation" ("FAS
123") requires stock options to be valued using an approach such as the
Black-Scholes option pricing model. The Black-Scholes model calculates the fair
value of the grant based upon certain assumptions about the underlying stock.
For
F-37
<PAGE>
COMPUTER HARDWARE MAINTENANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. STOCK OPTIONS (CONTINUED)
this calculation, CHMC has used an expected dividend yield of the stock of zero,
an expected life of the options of five years and an expected risk-free rate of
return is 6%, calculated as the rate offered on U.S. Government securities with
the same term as the expected life of the options. As permitted by FAS 123 for
nonpublic companies, no volatility factor has been used in this valuation. The
weighted average remaining contractual life of all options outstanding at
February 27, 1997 was 4 years and 3 months. Using these assumptions, the
weighted average fair values of options granted during 1997 is $2 per share. No
options were granted in 1995.
Had compensation expense for CHMC's employee stock options been determined
based on the fair value at the grant date for awards in fiscal 1997 consistent
with the provisions of FAS 123, CHMC's net income and net income per share would
not have changed by a significant amount.
13. RELATED PARTY TRANSACTIONS
The Company is affiliated with Computer Hardware Service Company, Inc.
("CHSC") through common ownership. There were no significant transactions
between the Company and CHSC during the years ended February 28, 1995, February
29, 1996 and February 28, 1997.
The Company has guaranteed a mortgage of Computer Hardware Investors, in
which it is a partner. At February 29, 1996 and February 28, 1997, the
outstanding balance on this mortgage was $176,000 and $157,000, respectively.
F-38
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Federal Computer Corporation
We have audited the accompanying consolidated balance sheets of Federal
Computer Corporation and Subsidiaries as of October 31, 1995 and 1996, and the
related consolidated statements of operations, changes in shareholders' equity
and cash flows for each of the three years in the period ended October 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Federal
Computer Corporation and Subsidiaries as of October 31, 1995 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended October 31, 1996, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Washington, D.C.
January 13, 1997
F-39
<PAGE>
FEDERAL COMPUTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 31, JULY 31,
-------------------- -----------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 5,737 $ 4,229 $ 2,668
Marketable securities......................................................... 50 1,112 1,167
Accounts receivable........................................................... 14,642 3,389 15,238
Other current assets.......................................................... 59 68 256
Income taxes receivable....................................................... - 239 -
--------- --------- -----------
Total current assets...................................................... 20,488 9,037 19,329
Property and equipment, net..................................................... 133 82 53
Investment in joint venture..................................................... 49 49 49
Other assets.................................................................... 15 16 16
Goodwill, net................................................................... 600 333 133
--------- --------- -----------
Total assets.............................................................. $ 21,285 $ 9,517 $ 19,580
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 9,097 $ 1,920 $ 11,017
Accrued expenses.............................................................. 308 230 159
Note payable.................................................................. 3,425 - -
Commission payable............................................................ 1,941 1,608 -
Income taxes payable.......................................................... 301 - 37
Deferred income taxes......................................................... 212 418 418
--------- --------- -----------
Total current liabilities................................................... 15,284 4,176 11,631
Deferred revenue................................................................ 1,086 255 1,764
Deferred income taxes........................................................... 8 6 6
--------- --------- -----------
Total liabilities......................................................... 16,378 4,437 13,401
--------- --------- -----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, cumulative and convertible, $.10 par value; 10,000 shares
authorized; 3,824 shares issued and outstanding at October 31, 1995......... - - -
Common stock, $.10 par value; 10,000 shares authorized; 3,295 shares issued
and outstanding............................................................. - - -
Additional paid-in capital.................................................... 1,089 1,089 1,089
Retained earnings............................................................. 6,279 3,991 5,091
Net unrealized gain (loss) on marketable securities........................... 3 - (1)
Unearned ESOP shares.......................................................... (2,464) - -
--------- --------- -----------
Total shareholders' equity................................................ 4,907 5,080 6,179
--------- --------- -----------
Total liabilities and shareholders' equity................................ $ 21,285 $ 9,517 $ 19,580
--------- --------- -----------
--------- --------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-40
<PAGE>
FEDERAL COMPUTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED OCTOBER 31, JULY 31,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues:
Equipment sales and installation.............................. $ 14,582 $ 36,464 $ 18,223 $ 18,403 $ 22,682
Maintenance................................................... 7,321 9,000 7,755 5,664 6,525
Net fee on agency contracts................................... 1,182 619 408 365 58
Equity in net earnings from joint venture less
distributions............................................... 534 722 439 287 362
Consulting fees from affiliates............................... 740 394 - - -
Other, including interest and dividends....................... 2,332 924 562 513 392
--------- --------- --------- --------- ---------
Total revenues.......................................... 26,691 48,123 27,387 25,232 30,019
--------- --------- --------- --------- ---------
Expenses:
Cost of equipment sales and installation...................... 13,144 32,261 13,932 14,293 20,977
Maintenance................................................... 5,271 6,471 5,236 3,840 4,334
Selling, general and administrative........................... 7,539 7,619 5,794 5,094 2,505
Interest and other............................................ 150 211 49 43 13
--------- --------- --------- --------- ---------
Total expenses.......................................... 26,104 46,562 25,011 23,270 27,829
--------- --------- --------- --------- ---------
Income before income taxes and change in accounting methods..... 587 1,561 2,376 1,962 2,190
Income tax expense.............................................. 17 673 1,073 785 1,090
--------- --------- --------- --------- ---------
Net income before cumulative effect of change in accounting
methods....................................................... 570 888 1,303 1,177 1,100
Cumulative effect of a change in the method of accounting for
income taxes and for marketable securities, net of income
taxes......................................................... 40 - - - -
--------- --------- --------- --------- ---------
Net income...................................................... $ 610 $ 888 $ 1,303 $ 1,177 $ 1,100
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-41
<PAGE>
FEDERAL COMPUTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
UNREALIZED
PREFERRED COMMON STOCK ADDITIONAL GAIN(LOSS) ON
STOCK -------------------------- PAID-IN RETAINED MARKETABLE
SHARES SHARES AMOUNT CAPITAL EARNINGS SECURITIES
----------- ----------- ------------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1993, as previously
reported................................. 3,824 6,176 $ 1 $ 125 $ 7,452 $ -
Adjustment for merger of entities under
common control........................... - - - 1 284 -
--
----------- ----------- ----------- ----------- ---
Balance at October 31, 1993, as restated... 3,824 6,176 1 126 7,736 -
Retirement of common stock................. - (429) - - (392) -
Repayment of loan from ESOP................ - - - - - -
Unrealized loss on marketable securities... - - - - - (64)
Preferred stock dividends.................. - - - - (176) -
Net income................................. - - - - 610 -
--
----------- ----------- ----------- ----------- ---
Balance at October 31, 1994................ 3,824 5,747 1 126 7,778 (64)
Repurchase and retirement of
common stock............................. - (5,512) (1) (126) (2,352) -
Issuance of common stock
for business combination................. - 3,060 - 1,300 - -
Return of capital.......................... - - - (200) - -
Change in unrealized gain (loss) on
marketable securities, net of tax........ - - - - - 67
Release of unearned ESOP shares............ - - - (11) - -
Preferred stock dividends.................. - - - - (35) -
Net income................................. - - - - 888 -
--
----------- ----------- ----------- ----------- ---
Balance at October 31, 1995................ 3,824 3,295 - 1,089 6,279 3
Repurchase and retirement of
preferred stock.......................... (3,824) - - - (3,591) -
Change in unrealized gain (loss) on
marketable securities, net of tax........ - - - - - (3)
Net income................................. - - - - 1,303 -
--
----------- ----------- ----------- ----------- ---
Balance at October 31, 1996................ - 3,295 - 1,089 3,991 -
Change in unrealized gain (loss) on
marketable securities, net of tax
(unaudited).............................. - - - - - (1)
Net income (unaudited)..................... - - - - 1,100 -
--
----------- ----------- ----------- ----------- ---
Balance at July 31, 1997 (unaudited)....... - 3,295 - $ 1,089 $ 5,091 $ (1)
--
--
----------- ----------- ----------- ----------- ---
----------- ----------- ----------- ----------- ---
<CAPTION>
UNEARNED TOTAL
ESOP SHAREHOLDERS'
SHARES EQUITY
----------- -------------
<S> <C> <C>
Balance at October 31, 1993, as previously
reported................................. $ (3,168) $ 4,410
Adjustment for merger of entities under
common control........................... - 285
----------- -------------
Balance at October 31, 1993, as restated... (3,168) 4,695
Retirement of common stock................. - (392)
Repayment of loan from ESOP................ 352 352
Unrealized loss on marketable securities... - (64)
Preferred stock dividends.................. - (176)
Net income................................. - 610
----------- -------------
Balance at October 31, 1994................ (2,816) 5,025
Repurchase and retirement of
common stock............................. - (2,479)
Issuance of common stock
for business combination................. - 1,300
Return of capital.......................... - (200)
Change in unrealized gain (loss) on
marketable securities, net of tax........ - 67
Release of unearned ESOP shares............ 352 341
Preferred stock dividends.................. - (35)
Net income................................. - 888
----------- -------------
Balance at October 31, 1995................ (2,464) 4,907
Repurchase and retirement of
preferred stock.......................... 2,464 (1,127)
Change in unrealized gain (loss) on
marketable securities, net of tax........ - (3)
Net income................................. - 1,303
----------- -------------
Balance at October 31, 1996................ - 5,080
Change in unrealized gain (loss) on
marketable securities, net of tax
(unaudited).............................. - (1)
Net income (unaudited)..................... - 1,100
----------- -------------
Balance at July 31, 1997 (unaudited)....... - $ 6,179
----------- -------------
----------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-42
<PAGE>
FEDERAL COMPUTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED OCTOBER 31, JULY 31,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................... $ 610 $ 888 $ 1,303 $ 1,177 $ 1,100
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation................................................. 27 66 52 39 29
Amortization of goodwill..................................... - 200 267 200 200
Release of unearned ESOP shares.............................. - 306 - - -
Deferred income tax provision................................ 189 90 206 - -
Undistributed equity in net earnings from joint ventures..... (427) (198) (249) - -
Losses on disposition of property, equipment, and cumulative
effect of change in accounting for marketable securities
and income taxes marketable securities, net................ 107 192 1 - 1
Changes in assets and liabilities:
Accounts receivable........................................ (1,863) (6,306) 11,502 11,047 (11,849)
Due from affiliates........................................ (229) 577 - -- --
Other current assets....................................... (215) 876 (9) (111) (189)
Income taxes receivable.................................... (280) 282 (239) - 239
Other assets............................................... - 131 - - -
Accounts payable........................................... 1,273 1,514 (7,176) (7,442) 9,097
Accrued expenses........................................... 575 (654) (79) (19) (71)
Due to affiliates.......................................... 522 (1,332) - - -
Commission payable......................................... - 1,941 (333) (610) (1,608)
Income taxes payable....................................... (323) 301 (301) 224 37
Deferred revenue........................................... (301) 59 (831) (220) 1,509
--------- --------- --------- --------- ---------
Net cash (used in) provided by operating activities...... (335) (1,067) 4,114 4,285 (1,505)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................ (65) (45) (2) - -
Purchase of marketable securities.............................. (1,559) (46) (1,068) (1,046) (56)
Sales of marketable securities................................. 1,652 3,331 - - -
Repayment of advance to shareholder............................ 40 - - - -
Investment in joint venture.................................... (49) - - - -
Proceeds on sale of property and equipment and investments..... 9 10 - - -
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing activities...... 28 3,250 (1,070) (1,046) (56)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under line of credit.................. 3,955 5,277 420 420 3,750
Repayments of borrowings under line of credit.................. (3,955) (1,853) (3,845) (3,845) (3,750)
Repurchase and retirement of common stock...................... (392) (2,479) - - -
Repurchase and retirement of preferred stock................... - - (1,127) - -
Return of capital.............................................. - (200) - 210 -
--------- --------- --------- --------- ---------
Net cash (used in) provided by financing activities...... (392) 745 (4,552) (3,215) -
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents............. (699) 2,928 (1,508) 24 (1,561)
Cash and cash equivalents, beginning of year..................... 3,508 2,809 5,737 5,737 4,229
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of year........................... $ 2,809 $ 5,737 $ 4,229 $ 5,761 $ 2,668
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid, net of refunds.............................. $ 422 $ - $ 1,408 $ 706 $ 1,054
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Interest paid.................................................. $ 42 $ 211 $ 49 $ 43 $ 13
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-43
<PAGE>
Federal Computer Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(The interim information as of July 31, 1997 and for the nine-month
periods ended July 31, 1996 and 1997 is unaudited)
1. NATURE OF BUSINESS
Federal Computer Corporation and Subsidiaries (the "Company") is engaged in
the distribution, installation and maintenance of electronic data processing
equipment. The Company pursues this business as a systems integrator combining
data processing equipment obtained from one or more manufacturers into a single
systems configuration. The Company's principal clients are agencies of the
United States Government (the "Government").
The electronic data processing equipment is provided to the Government under
firm-fixed price contracts providing for, in certain cases, purchase options and
lease agency arrangements. Most contracts with the Government are subject to the
availability of annual funding. The Company's contracts provide the Government
with the option not to renew if funding is not received. The Company has never
experienced non-renewal of any significant contracts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL INFORMATION
The interim financial information as of July 31, 1997 and for the nine
months ended July 31, 1996 and 1997 is unaudited. The unaudited interim
financial statements reflect, in the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to fairly present
the results of operations, changes in cash flows and financial position as of
and for the periods presented. The unaudited interim financial information
should be read in conjunction with the audited financial statements and related
notes thereto. The results for the interim periods presented are not necessarily
indicative of results to be expected for the full year.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all of its majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
REVENUE RECOGNITION
The Company sells, installs and provides maintenance on electronic data
processing equipment. For equipment sales and installation, revenue is
recognized after all costs relevant to the sale have been incurred and the
related equipment has been shipped and accepted. Maintenance revenue is
recognized ratably over the maintenance contract period.
The Company enters into agency contracts between equipment vendors and the
Government when the Government leases electronic data processing equipment. The
Company simultaneously enters into agency contracts which provide for the lease
of equipment from vendors to satisfy the lease commitments with the Government.
The principal provisions of the agreements typically are: fixed contractual
payments between the Government, the Company and the vendor; Government payments
directly to an escrow agent who disburses the payment to the vendor and the
Company; no right of the Company to obtain ownership of the equipment; and the
return of the equipment to the vendor in the event of default. The net fee
earned under agency contracts is recognized ratably over the contract period.
Had the Company recognized revenue and the related costs from these
transactions, equipment sales and installation and
F-44
<PAGE>
FEDERAL COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INTERIM INFORMATION AS OF JULY 31, 1997 AND FOR THE NINE-MONTH
PERIODS ENDED JULY 31, 1996 AND 1997 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
maintenance revenue for 1994, 1995 and 1996, would have been approximately
$30,795,000, $52,838,000, and $30,757,000, respectively. The related costs for
1994, 1995, and 1996, would have been $27,377,000, $43,984,000, and $25,762,000,
respectively.
The Company defers revenue to match the estimated future cost of providing
services or equipment in connection with its Government contracts.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
MARKETABLE SECURITIES
Management determines the appropriate classification of its investments in
marketable securities at the time of purchase and reevaluates such determination
at each balance sheet date. At the time of purchase and as of October 31, 1995
and 1996 and July 31, 1997, the Company has considered all marketable securities
as available for sale and has recorded them at fair value, with unrealized gains
and losses, net of tax, reported as a separate component of shareholders'
equity. Net realized gains and losses are determined on the specific
identification cost basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful life.
Maintenance and repairs of property and equipment are charged to operations
and major improvements that extend the useful life are capitalized. Upon
retirement, sale or other disposition of property and equipment, the cost and
accumulated depreciation are eliminated from the accounts and any gain or loss
is included in operations.
INCOME TAXES
The Company accounts for income taxes utilizing the liability method.
Deferred income taxes are recognized for the tax consequences in future years
for differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year end, based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
The provision for income taxes is the current tax expense for the period plus
the change during the period in deferred tax assets and liabilities.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash equivalents, marketable securities
and accounts receivable. To date, the Company has not incurred significant
losses related to these financial instruments. The Company does not have a
formal
F-45
<PAGE>
FEDERAL COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INTERIM INFORMATION AS OF JULY 31, 1997 AND FOR THE NINE-MONTH
PERIODS ENDED JULY 31, 1996 AND 1997 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
policy regarding collateral to mitigate the concentrations of credit risk. As of
October 31, 1996 and July 31, 1997, two customers accounted for 67% and 64%
respectively, of non-related party billed and unbilled accounts receivable.
INVESTMENT IN JOINT VENTURE
The investment in joint venture is accounted for under the equity method.
Under this method, the original investment is recorded at cost and adjusted by
the Company's share of undistributed earnings. Undistributed earnings expected
to be received in the next fiscal year are recorded as accounts receivable. The
Company's share of earnings is reflected in the consolidated statements of
operations.
GOODWILL
Goodwill represents the excess of consideration over the net assets acquired
resulting from acquisitions of companies accounted for by the purchase method.
These amounts are amortized on a straight-line basis over a three year period.
At each balance sheet date, management evaluates the recoverability of the
goodwill based on the undiscounted cash flow projections of each business
acquired.
Accumulated amortization related to goodwill for the years ended October 31,
1995 and 1996 was $200,000 and $466,667, respectively.
EMPLOYEE STOCK OWNERSHIP TRUST
Effective November 1, 1994, the Company adopted Statement of Position 93-6
of the Accounting Standards Division of the American Institute of Certified
Public Accountants ("SOP 93-6") related to its Employee Stock Ownership Trust
(the "ESOP"). As required by SOP 93-6, the Company has applied the standard
prospectively, resulting in no cumulative effect or restatement of previously
issued financial statements. This standard requires compensation expense to be
measured using the fair value of shares released to the participants and
dividends paid on unallocated shares in the ESOP. Implementation of this
standard resulted in an additional charge to the statement of operations of
$130,000 for the year ended October 31, 1995. Effective October 29, 1996, the
Company redeemed all of the preferred stock and terminated the ESOP (see Note
14).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company calculates the fair value of financial instruments and includes
this additional information in the notes to the financial statements. The
carrying value of cash, accounts receivable and accounts payable approximates
fair value because of the relatively short maturities of these instruments. The
carrying value of the note payable approximates fair value since it carries a
fluctuating market interest rate.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingencies at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
F-46
<PAGE>
FEDERAL COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INTERIM INFORMATION AS OF JULY 31, 1997 AND FOR THE NINE-MONTH
PERIODS ENDED JULY 31, 1996 AND 1997 IS UNAUDITED)
3. REDEMPTION AND ACQUISITION
During 1995, the Company entered into a series of transactions whereby the
Company reacquired all of its outstanding common stock from the former majority
shareholder and subsequently issued new common shares to acquire 100% of the
outstanding common stock of six affiliate companies (See Note 6).
The total consideration for the reacquisition of the outstanding common
stock on February 15, 1995 was $2,479,500, which included a $2,339,000 cash
payment to reacquire 5,512 shares of common stock outstanding and the transfer
of a life insurance policy covering the majority shareholder with a cash
surrender value of $140,500.
Following this reacquisition, the Company issued 3,060 shares of common
stock to acquire all of the outstanding common stock of six formerly affiliated
companies. The acquisition of these companies has been accounted for as a
purchase. The cost of this acquisition was $1,300,000 based on the negotiated
per share price for the reacquisition of the previously outstanding common
stock. The acquisition cost has been allocated on the basis of the estimated
fair value of the assets acquired as follows:
<TABLE>
<CAPTION>
AMOUNT
-------------
<S> <C>
(IN
THOUSANDS)
Accounts receivable............................................................ $ 500
Goodwill....................................................................... 800
------
Purchase price................................................................. $ 1,300
------
------
</TABLE>
PRO FORMA INFORMATION (UNAUDITED)
The following unaudited pro forma combined condensed statements of
operations set forth the consolidated results of operations of the Company for
the years ended October 31, 1995 and 1994 as if the above mentioned acquisition
had occurred as of November 1, 1993. The unaudited pro forma information does
not purport to be indicative of the actual financial position or the results
that would actually have occurred if the combination had been in effect for the
years ended October 31. The pro forma information is consistent with actual
results based on the fact that all operations of the acquired affiliates during
those periods were performed under agreements with the Company.
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Revenue............................................................ $ 48,123 $ 26,691
Net income......................................................... $ 888 $ 610
</TABLE>
In conjunction with these transactions, the Company also acquired 100% of
the common stock of Federal Management Group ("FMG") and Computer Maintenance
International, Inc. ("CMI") for $200,000. The Company's majority shareholder at
the time of the transactions was also the 100% owner of these entities.
Therefore, the acquisitions of FMG and CMI were accounted for as exchanges
between entities under common control and recorded at historical cost in a
manner similar to a pooling-of-interests. Accordingly, the consolidated
financial statements were restated to include the accounts and operations of FMG
and CMI for all periods presented.
F-47
<PAGE>
FEDERAL COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INTERIM INFORMATION AS OF JULY 31, 1997 AND FOR THE NINE-MONTH
PERIODS ENDED JULY 31, 1996 AND 1997 IS UNAUDITED)
3. REDEMPTION AND ACQUISITION (CONTINUED)
Total revenues and net income of the Company, CMI and FMG for the fiscal
year preceding the merger of entities under common control were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, 1994
----------------------
<S> <C> <C>
REVENUES NET INCOME
--------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
The Company........................................................... $ 24,957 $ 577
CMI................................................................... 2,228 9
FMG................................................................... 2,499 23
--------- -----------
29,684 609
Eliminations.......................................................... (2,993) -
--------- -----------
Total................................................................. $ 26,691 $ 609
--------- -----------
--------- -----------
</TABLE>
4. MARKETABLE SECURITIES
The fair value of marketable securities, which consist entirely of equity
securities, was $1,112,000 as of October 31, 1996. The cost of such securities
was $1,113,000 as of October 31, 1996.
Gross unrealized holding gains and losses for the years ended October 31,
1995 and 1996 were $4,000 and $3,200, respectively. Proceeds from the sale of
securities classified as available for sale for the year ended October 31, 1995
were $3,331,000. For the year ended October 31, 1995, gross realized gains and
losses were $9,000 and $71,000, respectively. There were no sales of such
securities during the year ended October 31, 1996.
5. ACCOUNTS RECEIVABLE
Accounts receivable consist of amounts due under contracts with the
Government for the purchase, installation and maintenance of electronic
processing equipment and certain amounts due from a joint venture (see Note 15).
Unbilled accounts receivable consist of items for which substantially all of
the related equipment had been shipped, but were not yet billed pursuant to the
terms of the related contracts. Management anticipates that all amounts included
in unbilled accounts receivable will be billed within the next operating cycle.
F-48
<PAGE>
FEDERAL COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INTERIM INFORMATION AS OF JULY 31, 1997 AND FOR THE NINE-MONTH
PERIODS ENDED JULY 31, 1996 AND 1997 IS UNAUDITED)
5. ACCOUNTS RECEIVABLE (CONTINUED)
Accounts receivable consists of the following as of:
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Billed................................................................... $ 8,780 $ 1,750
Unbilled................................................................. 4,606 696
Amount due from joint venture............................................ 1,256 943
--------- ---------
$ 14,642 $ 3,389
--------- ---------
--------- ---------
</TABLE>
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Affiliates are defined by the Company to include entities that conduct joint
business activities with the Company. Prior to the acquisition of the affiliates
on February 15, 1995 (See Note 3), the Company shared certain common facilities
and resources with these affiliates. Typical arrangements with affiliates called
for the Company to provide working capital advances with interest rates ranging
from 9% to 12% due on demand or other funding in exchange for the right to share
in future profits under specified contracts. Additionally, the affiliates
received certain commissions related to contracts awarded to the Company and for
certain consulting services performed on the Company's behalf.
Consulting fees earned from affiliates under agreements entitling the
Company to receive a portion of affiliates' contract profits approximated
$740,000 and $394,000 for the years ended October 31, 1994 and 1995,
respectively. Consulting fees incurred with affiliates for their work in helping
to obtain and service certain contracts approximated $1,532,000 and $496,000 for
the years ended October 31, 1994 and 1995, respectively. Subsequent to the
acquisition of the affiliates, no consulting fees have been earned from or
incurred with affiliates.
The Company previously owned a 22% limited partnership interest in a
partnership in which the Company's former majority shareholder was a general
partner. The partnership owned the building that the Company occupies. The
Company was leasing the office space in this building from the partnership on a
month to month basis, and a portion of the Company's office space was being
subleased to FMG and CMI. On January 10, 1995, the partnership sold the building
to a third party and was dissolved, resulting in a loss to the Company of
$128,000 for the year ended October 31, 1995.
During 1995, the Company has entered into a long term lease with the third
party for the same office space (see Note 11). Included in rent expense for the
year ended October 31, 1995 was approximately $44,000 paid to the partnership
for rent prior to the sale of the building. Additionally, sublease income from
CMI and FMG of approximately $39,400 was recorded prior to the sale of the
building.
F-49
<PAGE>
FEDERAL COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INTERIM INFORMATION AS OF JULY 31, 1997 AND FOR THE NINE-MONTH
PERIODS ENDED JULY 31, 1996 AND 1997 IS UNAUDITED)
7. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of:
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Owned assets:
Office equipment........................................................................... $ 376 $ 255
Computer equipment......................................................................... 19 19
--------- ---------
395 274
Less accumulated depreciation and amortization............................................... (262) (192)
--------- ---------
Property and equipment, net.................................................................. $ 133 $ 82
--------- ---------
--------- ---------
</TABLE>
Depreciation expense for the years ended October 31, 1994, 1995 and 1996 was
$27,018, $65,655, and $51,989, respectively.
8. NOTE PAYABLE
The Company has a line of credit available with a bank which allows the
Company to borrow up to $4,500,000. The line of credit, which expires on March
31, 1998, bears interest at the bank's prime rate (8.5% as of July 31, 1997)
plus 1% and is collateralized by a blanket lien on the Company's accounts
receivable and deposits with the lender. Additionally, an unused fee of .25% per
annum is charged on the unused line of credit. The Company had no outstanding
borrowings under this line of credit as of October 31, 1996. As of October 31,
1995, the balance on the line of credit was $3,425,454.
In accordance with the line of credit agreement, the Company must maintain a
minimum tangible net worth of $3,500,000, a minimum current ratio of 1.25 to 1.0
and a quarterly average leverage ratio below 4.5 to 1.0 but not to exceed 6.0 to
1.0 at any one time during the year. The Company was in compliance with these
covenants at October 31, 1995 and 1996, and at July 31, 1997.
9. DEFERRED REVENUE
Under the terms of these contracts, the Company is required to provide
additional equipment at the option of the Government at prices which would be
less than the cost of acquiring the equipment. Therefore, the Company has
deferred revenue to offset these potential future contract costs. As of October
31, 1996, deferred revenue related to the Company's contracts was $255,000 with
future contractual receipts and payments of approximately $1,369,000 and
$1,612,000 as of October 31, 1996, respectively.
F-50
<PAGE>
FEDERAL COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INTERIM INFORMATION AS OF JULY 31, 1997 AND FOR THE NINE-MONTH
PERIODS ENDED JULY 31, 1996 AND 1997 IS UNAUDITED)
10. INCOME TAXES
The components of the provision for income taxes consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Current (benefit) expense:
Federal........................................................................... $ (103) $ 493 $ 677
State............................................................................. (69) 90 191
--------- --------- ---------
(172) 583 868
--------- --------- ---------
Deferred expense:
Federal........................................................................... 160 76 164
State............................................................................. 29 14 41
--------- --------- ---------
189 90 205
--------- --------- ---------
Total............................................................................... $ 17 $ 673 $ 1,073
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company's provision for income taxes differs from the provision that
would have resulted from applying the federal statutory rates to net income
before taxes. The reasons for these differences are explained in the following
table:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Provision based upon federal statutory rate of 34%................... $ 200 $ 531 $ 808
State taxes, net of federal benefit.................................. 31 51 160
Amortization of assets not deductible................................ - 76 101
Preferred stock dividends............................................ (141) - -
Other, net........................................................... (73) 15 4
--------- --------- ---------
$ 17 $ 673 $ 1,073
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-51
<PAGE>
FEDERAL COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INTERIM INFORMATION AS OF JULY 31, 1997 AND FOR THE NINE-MONTH
PERIODS ENDED JULY 31, 1996 AND 1997 IS UNAUDITED)
10. INCOME TAXES (CONTINUED)
The source and tax effects of temporary differences which give rise to the
net deferred tax liability are comprised of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
----------------------
<S> <C> <C>
1995 1996
---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Current:
Net earnings from joint venture..................................... $ 214 $ 443
Accrued expenses.................................................... - (25)
Marketable securities............................................... 2 -
Other............................................................... (4) -
---------- ----------
Total current..................................................... 212 418
---------- ----------
Noncurrent:
Capital loss carryover.............................................. (43) -
Valuation allowance................................................. 43 -
Other............................................................... 8 6
---------- ----------
Total noncurrent.................................................. 8 6
---------- ----------
Total deferred tax liability.......................................... $ 220 $ 424
---------- ----------
---------- ----------
</TABLE>
The Company had capital loss carryforwards of approximately $114,000 which
expired during fiscal year 1996.
The Company uses the estimated annual effective rate method for interim
income tax purposes. The difference between the federal statutory tax rate and
the Company's effective income tax rate for the nine-month periods ended July
31, 1996 and 1997 is primarily attributable to goodwill amortization and state
taxes.
11. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENT
The Company entered into a 10 year lease for office space beginning January
1, 1995. The Company is obligated to pay a base monthly rent which will increase
each year based on a percentage of the consumer
F-52
<PAGE>
FEDERAL COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INTERIM INFORMATION AS OF JULY 31, 1997 AND FOR THE NINE-MONTH
PERIODS ENDED JULY 31, 1996 AND 1997 IS UNAUDITED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
price index. The lease also provides for an early termination at the conclusion
of the eighth year of the lease. The Company's future minimum lease payments
under this operating lease are as follows:
<TABLE>
<CAPTION>
AMOUNT
-------------
<S> <C>
(IN
THOUSANDS)
Fiscal year ending October 31
1997......................................................................... $ 206
1998......................................................................... 206
1999......................................................................... 206
2000......................................................................... 206
2001......................................................................... 206
Thereafter................................................................... 240
------
$ 1,270
------
------
</TABLE>
The Company recorded rent expense of $264,000, $243,000 and $394,000 for the
fiscal years ended October 31, 1994, 1995 and 1996, respectively.
INCOME TAX CONTINGENCY
The Company's deferred revenue balance consists of amounts deferred to match
with the future costs of providing maintenance and equipment in connection with
certain Government contracts. Revenue is deferred for both financial and income
tax reporting purposes. It is possible the Internal Revenue Service may question
the revenue deferral for income tax purposes. Management believes it is not
likely that this exposure will be assessed by the Internal Revenue Service, and
if assessed, would not have a material impact on the financial condition,
results of operations and cash flows of the Company.
12. MAJOR CUSTOMERS
The Company's primary customers are agencies or departments of the
Government. For the years ended October 31, 1994, 1995 and 1996, approximately
30%, 36% and 65%, respectively, of contract revenue was derived from two
agencies of the Government.
13. BENEFIT PLANS
The Company maintains a defined-contribution 401(k) plan for all full-time
employees of the Company. Employee contributions under this plan are voluntary
and determined on an individual basis with maximum annual contribution equal to
the amount allowable under federal tax regulations. Employer contributions are
discretionary. For the years ended October 31, 1994, 1995 and 1996, employer
contributions to the plan were $12,518, $37,669 and $56,708, respectively.
During 1993, the Company established the Federal Computer Corporation
Employee Stock Ownership Plan (the "Plan"). The Plan was available to all
employees of the Company who had attained age 21 and completed one year of
service. Participants were entitled to the balance of their account in
accordance with vesting provisions set forth in the Plan. Had any participants
left the employ of the Company for reasons other than death, disability or
retirement, they would have forfeited the unvested portion of their
F-53
<PAGE>
FEDERAL COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INTERIM INFORMATION AS OF JULY 31, 1997 AND FOR THE NINE-MONTH
PERIODS ENDED JULY 31, 1996 AND 1997 IS UNAUDITED)
13. BENEFIT PLANS (CONTINUED)
participant account balance. In connection with the Company's redemption of all
shares owned by participants of the Plan (See Note 14), the Plan was amended and
restated to become a profit sharing plan. The profit sharing plan calls for
discretionary contributions by the Company. There were no contributions made by
the Company for the year ended October 31, 1996. Participants are 100% vested in
all balances in the profit sharing plan.
14. SHAREHOLDERS' EQUITY
All of the outstanding preferred stock of the Company was owned by Federal
Computer Corporation Employee Stock Ownership Trust (the "ESOP") prior to the
Company's reacquisition of such stock. The preferred stock was nonvoting,
required cumulative annual preferential dividends of $46.03 per share and had a
liquidation preference equal to $230.13 per share plus accumulated and unpaid
dividends. In addition, the preferred stock was convertible, at the option of
the holder, into 8/10 of a share of common stock and was callable at the option
of the Company at any time after October 29, 2003, at a price equal to the
liquidation preference ($880,017 at October 31, 1994) plus all accumulated and
unpaid dividends.
The obligation of the ESOP for the original purchase of the shares was
considered unearned ESOP shares and, as such, was recorded as a reduction of the
Company's shareholders' equity. The unearned shares were amortized as the
preferred stock was allocated to employees. The preferred stock was being
allocated ratably over ten years through annual tax deductible contributions
made to the ESOP and through dividends paid on the preferred stock. For the year
ended October 31, 1995, the Company expensed approximately $110,000 for ESOP
contributions based upon the estimated fair value of the shares allocated and
declared dividends of $176,000. Dividends declared on unallocated shares
totalled $140,000 and were charged to compensation expense, while dividends
declared on allocated shares totalled $35,000 and were recorded as a reduction
to retained earnings. The $11,000 excess of the original cost of the preferred
stock over the fair value of the shares allocated through the Company's
contribution was recorded as a reduction to paid in capital.
Effective October 29, 1996, the Company redeemed all of the preferred stock
owned by the ESOP. In consideration of the redemption, the Company paid
$1,126,550 to the ESOP and relieved the unearned ESOP share balance of
$2,464,000, which represented the shares that had not been allocated to
employees. The redemption was accounted for as a treasury stock transaction
under the cost method. The reacquisition price of $1,126,550 plus the unearned
ESOP shares balance was recorded as a reduction to retained earnings. In
accordance with Virginia corporate laws, the treasury stock was retired.
15. INVESTMENT IN JOINT VENTURE
The Company is a 38% partner in a joint venture with INET, Inc.
(subsequently acquired by Wang Federal Systems) and International Data Products
Corporation. The purpose of the joint venture is to perform computer
integration, maintenance, contract management, product acquisition, and sales
and marketing under a contract with the Federal Bureau of Investigation. Under
the terms of the joint venture agreement, the Company paid $49,400 as a capital
contribution for its interest in the joint venture partnership. The joint
venture allocates and distributes income in proportion to the partners'
percentage of ownership. The Company's proportionate share of the joint venture
net earnings for the years ended October 31, 1994, 1995 and 1996 was $2,673,030,
$3,031,685, and $1,757,966 respectively. At October 31,
F-54
<PAGE>
FEDERAL COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INTERIM INFORMATION AS OF JULY 31, 1997 AND FOR THE NINE-MONTH
PERIODS ENDED JULY 31, 1996 AND 1997 IS UNAUDITED)
15. INVESTMENT IN JOINT VENTURE (CONTINUED)
1995 and 1996, the Company recorded accounts receivable of $198,056 and
$345,222, respectively, from the joint venture for undistributed net earnings.
Prior to the acquisition of the affiliates (See Note 3), in 1995 the Company
distributed a portion of its proportionate share of joint venture net earnings
to the affiliates. During the years ended October 31, 1994 and 1995, the Company
reduced its proportionate share of the joint venture net earnings by $2,138,425
and $568,260, respectively, for distribution to these affiliates. Subsequent to
the acquisition of the affiliates, a portion of its proportionate share of joint
venture net earnings is paid to certain employees as commissions. For the years
ended October 31, 1995 and 1996, the Company reduced its proportionate share of
the joint venture net earnings by $1,741,020 and $1,318,474, respectively as
commissions paid to certain employees. Commissions payable related to unpaid
distributions from the joint venture as of October 31, 1995 and 1996 were
$284,141 and $186,611, respectively.
Under the terms of the joint venture agreement, the Company is required to
provide certain maintenance services to the joint venture. These services are
performed by the Company and certain third party subcontractors. For the years
ended October 31, 1994, 1995 and 1996, the Company recognized $2,493,183,
$4,438,852, and $5,098,600, of maintenance revenue for services provided to the
joint venture, of which $830,847 and $693,784, were due to the Company as
accounts receivable at October 31, 1995 and 1996. The Company incurred
maintenance expense of $1,956,761, $3,698,454, and $2,821,914 for the years
ended October 31, 1994 1995 and 1996, respectively.
Summarized unaudited financial information of the joint venture consists of
the following as of:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
STATEMENTS OF OPERATIONS
Gross revenues............................................................... $ 31,176 $ 43,282 $ 37,360
Operating expenses........................................................... 24,142 35,304 32,736
--------- --------- ---------
Net earnings................................................................. $ 7,034 $ 7,978 $ 4,624
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEETS
Total assets................................................................. $ 3,683 $ 3,885
Total liabilities............................................................ 3,032 3,304
--------- ---------
Partnerships' equity......................................................... $ 651 $ 581
--------- ---------
--------- ---------
</TABLE>
F-55
<PAGE>
FEDERAL COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INTERIM INFORMATION AS OF JULY 31, 1997 AND FOR THE NINE-MONTH
PERIODS ENDED JULY 31, 1996 AND 1997 IS UNAUDITED)
16. SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Issuance of common stock for acquisition............................................. $ - $ 1,300 $ -
Reduction of stockholders' equity for release of ESOP shares......................... $ - $ 46 $ -
Change in unrealized gain (loss) on marketable securities, before taxes.............. $ - $ 113 $ (5)
Reduction of unearned ESOP shares upon repurchase and retirement of preferred
stock.............................................................................. $ - $ - $ 2,464
Accrued preferred stock dividends.................................................... $ 176 $ - $ -
Reclassification of ESOP note receivable............................................. $ 352 $ - $ -
</TABLE>
17. SUBSEQUENT EVENT-MERGER (UNAUDITED)
The Company has entered into an agreement with Condor for the acquisition of
all of the Company's outstanding common stock. This acquisition is subject to
the successful completion of an initial public offering of the common stock of
Condor. The consideration to be paid by Condor for this acquisition is
$15,000,000, $7,500,000 of which would be paid in cash and $7,500,000 of which
would be paid in common stock of Condor, and an earn-out, resulting in
contingent consideration of up to $9,000,000.
F-56
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Corporate Access, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholders' equity and of cash flows present fairly,
in all material respects, the financial position of Corporate Access, Inc. at
June 30, 1997, and the results of its operations and its cash flows for the year
then ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Philadelphia, PA
July 18, 1997
F-57
<PAGE>
CORPORATE ACCESS, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
1997
-----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................................. $ 109
Restricted cash....................................................................................... 80
Accounts receivable, net of allowance for doubtful accounts of $10.................................... 2,030
Inventory............................................................................................. 97
Prepaid expenses and other current assets............................................................. 15
-----------
Total current assets.............................................................................. 2,331
Fixed assets, net....................................................................................... 159
-----------
Total assets...................................................................................... $ 2,490
-----------
-----------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current liabilities:
Accounts payable...................................................................................... $ 1,354
Accrued expenses...................................................................................... 162
-----------
Total current liabilities......................................................................... 1,516
-----------
Stockholders' equity:
Common stock, $1.00 par value; 300,000 shares authorized, 3,700 shares issued and outstanding......... 4
Additional paid-in capital............................................................................ 180
Retained earnings..................................................................................... 790
-----------
Total stockholders' equity........................................................................ 974
-----------
Total liabilities and stockholders' equity........................................................ $ 2,490
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE>
CORPORATE ACCESS, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
1997
-----------
<S> <C>
Revenues............................................................................................. $ 17,518
Cost of revenues..................................................................................... 14,999
-----------
Gross profit......................................................................................... 2,519
Selling, general and administrative.................................................................. 1,855
-----------
Income from operations............................................................................... 664
Other income......................................................................................... 30
-----------
Income before income taxes........................................................................... 694
Provision for state income taxes..................................................................... 34
-----------
Net income........................................................................................... $ 660
-----------
-----------
Unaudited pro forma information:
Pro forma net income before provision for income taxes............................................. $ 694
Provision for income taxes......................................................................... 273
-----------
Pro forma income (see Note 2)........................................................................ $ 421
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE>
CORPORATE ACCESS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------------ ADDITIONAL PAID- RETAINED STOCKHOLDERS'
SHARES AMOUNT IN CAPITAL EARNINGS EQUITY
----------- ----------- ----------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1996.............................. 3,700 $ 4 $ 180 $ 317 $ 501
Net income.......................................... - - - 660 660
Dividends........................................... - - - (187) (187)
----- ----- ----- ----- -----
Balance, June 30, 1997.............................. 3,700 $ 4 $ 180 $ 790 $ 974
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE>
CORPORATE ACCESS, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
1997
-------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................................................................... $ 660
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation..................................................................................... 76
Gain on sale of equipment........................................................................ (11)
Increase (decrease) in cash from changes in operating assets and liabilities:
Accounts receivable............................................................................ (687)
Inventory...................................................................................... 39
Other current assets........................................................................... (8)
Accounts payable............................................................................... 303
Accrued expenses............................................................................... (26)
-----
Net cash provided by operating activities.................................................... 346
-----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets........................................................................... (74)
Proceeds from sale of equipment.................................................................... 24
-----
Net cash used in investing activities........................................................ (50)
-----
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of dividends.............................................................................. (187)
-----
Net cash used in financing activities........................................................ (187)
-----
Net increase in cash and cash equivalents............................................................ 109
Cash and cash equivalents, beginning of period....................................................... 80
-----
Cash and cash equivalents, end of period............................................................. $ 189
-----
-----
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest............................................................................. $ 1
-----
-----
Cash paid for income taxes......................................................................... $ 102
-----
-----
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE>
CORPORATE ACCESS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Corporate Access, Inc. (the "Company") was incorporated on December 9, 1986
as a Massachusetts corporation. The Company offers a variety of desktop computer
hardware, software and peripherals, as well as configuration and installation
services, to commercial clients and governmental entities in the Greater Boston
metropolitan area. All product sold by the Company is purchased from third
parties.
The Company and its stockholders intend to enter into a definitive agreement
with Condor Technology Solutions, Inc. ("Condor"), pursuant to which all of the
common stock of the Company will be exchanged for cash and shares of Condor
common stock concurrent with the consummation of the initial public offering of
the common stock of Condor.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company invests its excess cash in money market or overnight securities.
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. At June 30,
1997, the Company had invested $410,000 in overnight securities.
CONCENTRATION OF CREDIT RISK
Substantially all of the Company's cash and cash equivalents are held in one
bank. In addition, the Company grants credit terms in the normal course of
business to its customers. As part of its ongoing procedures, the Company
monitors the creditworthiness of its customers. The Company does not believe
that it is subject to any unusual credit risk beyond the normal credit risk
attendant in its business.
At June 30, 1997, 10 customers accounted for approximately 57% of the
Company's accounts receivable, with one of these customers accounting for 23% of
the Company's accounts receivable.
During the year ended June 30, 1997, 10 customers accounted for
approximately 62% of the Company's net revenues, with one of these customers
accounting for approximately 30% of the Company's net revenue.
REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE
Revenues from product sales are recognized when the related product is
shipped. An allowance for doubtful accounts has been established for potentially
uncollectible accounts.
INVENTORY
Inventory is stated at the lower of cost or market. Cost is determined using
the first-in, first-out method. Inventory is comprised entirely of goods held
for resale.
FIXED ASSETS
Fixed assets are recorded at cost. Depreciation is calculated over the
estimated useful life of the assets as indicated in Note 3, primarily using the
double declining balance method. Leasehold improvements are depreciated over the
shorter of their estimated useful life or the remaining lease term. Repair and
maintenance costs are expensed as incurred.
F-62
<PAGE>
CORPORATE ACCESS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company has elected S corporation status as defined by the Internal
Revenue Code, whereby the Company is not subject to taxation for federal
purposes. Under S corporation status, the stockholders report their share of the
Company's taxable earnings or losses in their personal tax returns. The Company
is, however, subject to certain state income taxes.
The unaudited pro forma income tax information included in the Statement of
Operations is presented in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" as if the Company had been
subject to federal and state income taxes for the entire periods presented.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
3. FIXED ASSETS
Fixed assets at June 30, 1997 consisted of the following:
<TABLE>
<CAPTION>
USEFUL LIVES IN
YEARS AMOUNT
----------------- ---------------
<S> <C> <C>
(IN THOUSANDS)
Office furniture and equipment...................................... 7 $ 169
Motor vehicles...................................................... 5 87
Leasehold improvements.............................................. Lease term/life 58
-----
314
Less accumulated depreciation and amortization...................... (155)
-----
Net fixed assets.................................................... $ 159
-----
-----
</TABLE>
4. LINES OF CREDIT
In February 1997, the Company entered into a wholesale financing agreement
with Deutsche Financial Services Corporation ("DFS"). Under this agreement, DFS
will pay certain of the Company's vendors for purchases of inventory. The
Company can have a maximum of $700,000 outstanding at any time under this
agreement. Amounts outstanding under this agreement are interest free for the
first 30 days after payment is made by DFS, and bear interest at 16% thereafter.
At June 30, 1997, there were no amounts outstanding in excess of 30 days. Under
the agreement, the line is voidable in the event that the Company merges with
another party. Outstanding amounts under this agreement are collateralized by
the business assets of the Company. At June 30, 1997, the Company had $153,000
outstanding under this agreement. This amount is included in accounts payable on
the balance sheet.
F-63
<PAGE>
CORPORATE ACCESS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. LINES OF CREDIT (CONTINUED)
The Company has a revolving bank line of credit with Century Bank (the
"Bank"). Borrowings under the line are limited to 80% of the Company's eligible
accounts receivable (as defined), up to a maximum borrowing of $1,000,000. In
June 1997, the maximum borrowings under this line were reduced to $300,000. The
borrowings bear interest at the Bank's prime rate (8.5% at June 30, 1997). Under
the agreement the borrowings are collateralized by substantially all of the
Company's business assets. The Bank's security interest is subordinate to that
of DFS. If the Company fails to meet certain restrictive covenants, a personal
guarantee of one of the Company's stockholders is required to cover up to
$200,000 of the borrowings. At June 30, 1997, there were no borrowings
outstanding under the line. In connection with this line, the Company is
required to maintain a balance of $80,000 in an account with the Bank at all
times.
The Company has pledged its business assets to two vendors for inventory
purchased from the vendors. The security interests are subordinate to those of
DFS and the Bank. At June 30, 1997, the Company had accounts payable to these
vendors totaling $381,000.
5. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its office and warehouse space in Andover, Massachusetts
under a non-cancelable operating lease agreement (expiring in June 2000) with an
entity in which an officer of the Company has ownership. The lease agreement
requires an annual rent plus a proportionate share of certain operating costs.
During the twelve months ended June 30, 1997, rent expense and operating costs
incurred by the Company under this lease amounted to $75,000.
The Company leases an automobile and certain office equipment under
non-cancelable operating leases expiring through October 1999. During the twelve
months ended June 30, 1997, the lease expense incurred under these agreements
totaled $5,000. Commitments under non-cancelable leases over the next five years
are as follows:
<TABLE>
<CAPTION>
AMOUNT
---------------
<S> <C>
(IN THOUSANDS)
1998........................................................................... $ 98
1999........................................................................... 98
2000........................................................................... 71
-----
$ 267
-----
-----
</TABLE>
SUCCESS FEE
The Company has entered into an agreement with a consulting firm to locate a
buyer for the Company. In the event that the Company is sold, pursuant to this
agreement, the consulting firm is entitled to a success fee to be paid by the
Company. This fee is based upon a percentage of the selling price, but is not to
be less than $100,000. Had an acquisition been consummated at June 30, 1997, the
liability under this agreement would be approximately $364,000.
F-64
<PAGE>
CORPORATE ACCESS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. PROFIT SHARING PLAN
The Company sponsors a defined contribution profit sharing plan covering
substantially all of its employees who meet certain eligibility requirements.
Contributions to the plan are made at the discretion of the Company's Board of
Directors. During the year ended June 30, 1997, the Company contributed $34,000
to the plan.
7. RELATED PARTIES
The Company leases its office facilities from a related party (see Note 5).
8. INCOME TAXES
The provision for income taxes of $34,000 for the year ended June 30, 1997
was comprised of state income tax expense.
9. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Values of Financial Instruments,"
requires the disclosure of the fair value of financial instruments, both assets
and liabilities recognized and not recognized on the balance sheet, for which it
is practicable to estimate fair value. The carrying values of the Company's
financial instruments approximate fair value.
F-65
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Interactive Software Systems Incorporated
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in shareholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of Interactive Software Systems Incorporated and its
subsidiary at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years ended December 31, 1996 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Boulder, CO
April 18, 1997
F-66
<PAGE>
INTERACTIVE SOFTWARE SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, 1997
-------------------- -------------
1995 1996
--------- --------- (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 2,711 $ 2,832 $ 3,071
Accounts receivable, net of allowance for doubtful accounts of $52, $30 and $70
(unaudited) in 1995, 1996 and 1997, respectively................................ 2,190 2,435 3,757
Income tax receivable............................................................. 28 226 27
Other current assets.............................................................. 113 107 92
Deferred taxes, net............................................................... 70 59 57
--------- --------- ------
Total current assets........................................................ 5,112 5,659 7,004
--------- --------- ------
Investments......................................................................... 1,242 - -
Property, equipment and software:
Office furniture and equipment, net of accumulated depreciation of $778, $1,028
and $749 (unaudited) in 1995 1996, and 1997 respectively........................ 454 425 424
Software, net of accumulated amortization of $1,069, $1,146 and $1,165 (unaudited)
in 1995, 1996, and 1997, respectively........................................... 70 64 140
Deferred taxes, net............................................................... 90 - -
--------- --------- ------
Total assets................................................................ $ 6,968 $ 6,148 $ 7,568
--------- --------- ------
--------- --------- ------
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt................................................. $ 16 $ 8 $ -
Accounts payable and accrued liabilities.......................................... 282 576 659
Accrued compensation and employee benefits........................................ 497 678 774
Deferred revenue and customer deposits............................................ 1,656 1,805 2,175
--------- --------- ------
Total current liabilities................................................... 2,451 3,067 3,608
--------- --------- ------
Deferred taxes, net................................................................. - - 20
Long-term debt...................................................................... 14 27 31
Mandatorily redeemable convertible preferred stock:
Series A mandatorily redeemable convertible preferred stock, $.10 par value;
1,147,959 and 0 shares authorized, issued and outstanding in 1995 and 1996,
respectively with a liquidation value of $3,500................................. 115 - -
Series B mandatorily redeemable convertible preferred stock, $.10 par value;
159,439 and 0 shares authorized, issued and outstanding in 1995 and 1996,
respectively with a liquidation value of $350................................... 16 - -
Additional paid-in capital........................................................ 5,172 - -
--------- --------- ------
5,303 - -
--------- --------- ------
Commitments and contingencies (Notes 3 and 5)
Shareholders' equity (deficit):
Common stock, $.01 par value; 7,500,000 shares authorized; 2,000,000, 2,640,787
(unaudited) and 2,640,787 (unaudited) shares issued and outstanding in 1995,
1996 and 1997, respectively..................................................... 20 26 26
Additional paid-in capital........................................................ - 2,602 2,602
Retained (deficit) earnings....................................................... (820) 426 1,281
--------- --------- ------
Total liabilities and stockholders' equity.................................. $ 6,968 $ 6,148 $ 7,568
--------- --------- ------
--------- --------- ------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-67
<PAGE>
INTERACTIVE SOFTWARE SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License fees................................................... $ 2,417 $ 2,780 $ 4,310 $ 1,888 $ 3,316
Services and other revenue..................................... 3,312 3,830 4,718 2,206 2,089
--------- --------- --------- --------- ---------
Total revenues............................................... $ 5,729 6,610 9,028 4,094 5,405
--------- --------- --------- --------- ---------
Costs and expenses:
Cost of software and other revenue............................. 1,297 2,010 1,482 875 909
General and administrative..................................... 1,120 1,911 1,535 287 646
Selling and marketing.......................................... 2,030 2,270 2,762 1,472 1,756
Research and development....................................... 1,018 804 766 409 513
Depreciation and amortization.................................. 165 272 260 55 118
--------- --------- --------- --------- ---------
Total costs and expenses..................................... 5,630 7,267 6,805 3,098 3,942
--------- --------- --------- --------- ---------
Income (loss) from operations.................................... 99 (657) 2,223 996 1,463
Other income (expense):
Interest income................................................ 163 169 101 44 64
Interest expense............................................... (4) (4) (199) (163) (3)
Other income................................................... - 1 8 3 9
--------- --------- --------- --------- ---------
Total other income (expense)................................. 159 166 (90) (116) 70
--------- --------- --------- --------- ---------
Income (loss) before income taxes................................ 258 (491) 2,133 880 1,533
(Provision for) benefit from income taxes........................ (82) 188 (737) 333 494
--------- --------- --------- --------- ---------
Net income (loss)................................................ $ 176 $ (303) $ 1,396 $ 547 $ 1,039
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-68
<PAGE>
INTERACTIVE SOFTWARE SYSTEMS INCORPORATED
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
----------------------- PAID-IN EARNINGS SHAREHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
---------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993............................ 2,000,000 $ 20 $ - $ 877 $ 897
Dividends paid........................................ - - - (800) (800)
Accrued dividends..................................... - - - (385) (385)
Net income............................................ - - - 176 176
---------- --- ----------- ----------- ------
Balance, December 31, 1994............................ 2,000,000 20 - (132) (112)
Accrued dividends..................................... - - - (385) (385)
Net loss.............................................. - - - (303) (303)
---------- --- ----------- ----------- ------
Balance, December 31, 1995............................ 2,000,000 20 - (820) (800)
Issuance of common stock on conversion of note
payable............................................. 640,787 6 2,602 - 2,608
Dividends paid........................................ - - - (150) (150)
Net income............................................ - - - 1,396 1,396
---------- --- ----------- ----------- ------
Balance, December 31, 1996............................ 2,640,787 26 2,602 426 3,054
Dividends paid (unaudited)............................ - - - (184) (184)
Net income (unaudited)................................ - - - 1,039 1,039
---------- --- ----------- ----------- ------
Balance, June 30, 1997 (unaudited).................... 2,640,787 $ 26 $ 2,602 $ 1,281 $ 3,909
---------- --- ----------- ----------- ------
---------- --- ----------- ----------- ------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-69
<PAGE>
INTERACTIVE SOFTWARE SYSTEMS INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................................. $ 176 $ (303) $ 1,396 $ 547 $ 1,039
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization................................ 394 826 304 179 144
Amortization of investment premiums.......................... 71 53 - - -
Conversion of accrued interest............................... - - 74 - -
Deferred taxes............................................... 61 (213) 173 80 (29)
Increase (decrease) in cash from changes in operating assets
and liabilities:
Accounts receivable...................................... 144 (773) (244) 155 (1,322)
Income tax receivable.................................... (145) 346 (197) 115 199
Other current assets..................................... (90) (6) 5 57 15
Accounts payable and accrued liabilities................. 59 73 294 (59) 82
Accrued compensation and employee benefits............... (448) 111 183 (31) 87
Deferred revenue and customer deposits................... 102 340 149 (9) 370
--------- --------- --------- --------- ---------
Net cash provided by operating activities................ 324 454 2,135 1,034 585
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed asset additions.......................................... (334) (284) (214) (100) (65)
Capitalized software development costs......................... (325) (14) (71) (34) (95)
Proceeds from sale of investment securities, net............... (1,999) 664 1,232 1,232 -
--------- --------- --------- --------- ---------
Net cash (used in) provided by investing activities...... (2,658) 366 947 1,098 (160)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt........................... (15) (16) (311) (153) (2)
Dividends paid................................................. (800) - (150) (50) (184)
Redemption of preferred stock.................................. - - (2,500) (2,500) -
--------- --------- --------- --------- ---------
Net cash used by financing activities.................... (815) (16) (2,961) (2,703) (186)
--------- --------- --------- --------- ---------
Net (decrease) increase in cash and cash equivalents............. (3,149) 804 121 (571) 239
Cash and cash equivalents at beginning of year................... 5,056 1,907 2,711 2,711 2,832
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of year......................... $ 1,907 $ 2,711 $ 2,832 $ 2,139 $ 3,071
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest......................................... $ 4 $ 5 $ 154 $ 68 $ 2
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Cash paid for income taxes..................................... $ 184 $ 4 $ 744 $ 325 $ 216
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
Capital lease obligations...................................... $ 11 $ 20 $ 6 $ 6 $ -
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Conversion of preferred stock to note payable.................. $ - $ - $ 2,832 $ - $ 2,832
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Conversion of note payable to common stock..................... $ - $ - $ 2,534 $ - $ -
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-70
<PAGE>
INTERACTIVE SOFTWARE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
Interactive Software Systems Incorporated (the "Company") was incorporated
in 1979 and restructured in 1987 for the development, sale and support of
software products for use in database management. The Company designs, markets
and serves end-user business production reporting and data query, access and
warehousing software, specializing in managing information across multiple
relational and production databases, platforms and applications in a
client/server environment.
The Company and its stockholders intend to enter into a definitive agreement
with Condor Technology Solutions, Inc. ("Condor"), pursuant to which all of the
common stock of the Company will be exchanged for cash and shares of Condor
common stock concurrent with the consummation of the initial public offering of
the common stock of Condor.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL INFORMATION
The balance sheet as of June 30, 1997 and the consolidated statements of
operations, of changes in stockholders' equity and of cash flows for the six
months ended June 30, 1996 and 1997 are unaudited, and certain information and
footnote disclosures related thereto, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
omitted. In the opinion of management, the interim consolidated financial
statements have been prepared on the same basis as the audited consolidated
financial statements and reflect all adjustments, consisting only of normal
recurring adjustments necessary to fairly present the financial position,
results of operations and cash flows with respect to the interim financial
statements, have been included. The results of operations for the interim
periods are not necessarily indicative of the results for the entire fiscal
year.
PRINCIPLES OF CONSOLIDATION
In February 1995, the Company incorporated a wholly-owned subsidiary, Visual
Reportwriter Software, B.V. ("VRS"), headquartered in The Netherlands. The
Company's consolidated financial statements include the accounts of VRS. All
significant intercompany accounts and transactions have been eliminated.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with the provisions of
Statement of Position 91-1, Software Revenue Recognition. The Company licenses
software under non-cancelable license agreements and provides related services,
including support, training and consulting.
Revenue from license fees is generated from both end users and resellers and
is recognized when a non-cancelable license agreement has been signed, the
product has been delivered, collection is probable and all significant
obligations relating to the license have been satisfied. Generally, license fees
from resellers are included as license fee revenue net of related costs.
Typically, the Company's software licenses do not include significant
post-delivery obligations to be fulfilled by the Company and payments are due
within a twelve-month period from date of delivery. Revenue from agreements for
supporting and providing periodic enhancements is recorded as deferred revenue
and is recognized ratably over the support service period, and includes a
portion of the related license fee equal to the fair value of any bundled
support services. Training and consulting services are not essential to the
functionality of the
F-71
<PAGE>
INTERACTIVE SOFTWARE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company's software products and are separately priced. Accordingly, revenue from
these services is recorded separately from the license fee, as those services
are performed.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash investments and trade
receivables.
During 1996, royalties from two major resellers comprised approximately 23%
and 18% of total revenue, respectively. At December 31, 1996, these resellers
accounted for approximately 33% and 0% of total accounts receivable,
respectively. During 1995 and 1994, royalties from a major reseller comprised
16% and 13% of total revenue, respectively. At December 31, 1995 and 1994, the
reseller accounted for 9% of total accounts receivable.
INVESTMENTS
Investments at December 31, 1995 were comprised of municipal bonds and
recorded at amortized cost. At December 31, 1995 fair market value of these
investments was $1,242,000.
SOFTWARE COSTS
The Company capitalizes internally developed software costs in accordance
with Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed."
Capitalization of development costs of new software products, as well as costs
incurred to enhance existing software products, begins once the technological
feasibility of the product is established. Capitalization ceases when such
software is ready for general release, at which time amortization of the
capitalized costs begins.
Amortization of capitalized internally developed software costs is computed
as the greater of: (a) the amount determined by the ratio of the product's
current revenue to its total expected future revenue or (b) the straight-line
method over the product's estimated useful life of two to three years. Software
amortization expense was $554,000 and $77,000 in 1995 and 1996, respectively.
Included in the 1995 amortization expense was $226,000 of writeoffs due to
impairment of capitalized costs.
Maintenance of software products as well as research and development costs
related to new software products are charged to expense as incurred.
DEPRECIATION AND AMORTIZATION
Office furniture and equipment are recorded at cost and depreciated using
the straight-line method over estimated useful lives ranging from three to seven
years.
F-72
<PAGE>
INTERACTIVE SOFTWARE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income taxes are provided in accordance with the Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Accordingly,
deferred tax assets and liabilities are recognized at the applicable income tax
rates based upon future tax consequences of temporary differences between the
tax basis and financial reporting basis of assets and liabilities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the financial statements and the reported amounts of revenue and
expenses during the period. Actual results could differ from the estimates
making it reasonably possible that a change in these estimates could occur in
the near term.
3. LONG-TERM DEBT--CAPITALIZED LEASE OBLIGATIONS
Future minimum annual lease payments under capitalized leases are as follows
at December 31, 1996:
<TABLE>
<CAPTION>
AMOUNT
---------------
<S> <C>
(IN THOUSANDS)
1997........................................................................... $ 11
1998........................................................................... 11
1999........................................................................... 11
2000........................................................................... 8
-----
41
Less interest.................................................................. (6)
-----
35
Less current portion........................................................... (8)
-----
$ 27
-----
-----
</TABLE>
Net assets under capitalized leases were $25,000 and $35,000 at December 31,
1995 and 1996, respectively.
4. CAPITAL STOCK AND STOCK OPTIONS
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
During 1991, the Board of Directors authorized 1,307,398 shares of preferred
stock of which 1,147,959 and 159,439 are designated as Series A and Series B
mandatorily redeemable convertible preferred stock,
F-73
<PAGE>
INTERACTIVE SOFTWARE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. CAPITAL STOCK AND STOCK OPTIONS (CONTINUED)
respectively. The following table reflects the activity in Series A and Series B
Preferred Stock for the years ended December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
(IN THOUSANDS)
-----------------------------------
MANDATORILY
REDEEMABLE CONVERTIBLE
PREFERRED STOCK ADDITIONAL
---------------------- PAID-IN
SHARES AMOUNT CAPITAL
--------- ----------- -----------
<S> <C> <C> <C>
Balance, December 31, 1993................................... 1,307 $ 131 $ 4,403
Accrued dividends............................................ - - 385
--------- ----- -----------
Balance, December 31, 1994................................... 1,307 131 4,788
Accrued dividends............................................ - - 384
--------- ----- -----------
Balance, December 31, 1995................................... 1,307 131 5,172
Redemption of preferred shares............................... (1,307) (131) (5,172)
--------- ----- -----------
Balance, December 31, 1996................................... - $ - $ -
--------- ----- -----------
--------- ----- -----------
</TABLE>
Effective January 10, 1996, the Company entered into an agreement to redeem
all of the shares of the Preferred Stock owned by a private investor. In
connection therewith, 536,835 shares of Series A Stock and 75,343 shares of
Series B Stock were redeemed in cash at a redemption price of $4.07 per share.
The remaining 611,124 shares of Series A Stock and the remaining 84,904 shares
of Series B Stock, plus all accrued dividends, were converted into convertible
notes payable in the aggregate principal amount of $2,832,470. The notes were
convertible into the Company's common stock at a rate of $4.07 per share and
bore interest at 9.5% per year. Interest was payable quarterly. In October 1996,
the investor converted the outstanding notes and accrued interest in the
aggregate amount of $2,608,003 into 640,787 shares of common stock.
STOCK COMPENSATION PLAN
The Company has a stock option plan. The Company applies APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its plan. As all options have been granted with an exercise price
equal to the fair market value of common stock on the date of grant, no
compensation cost has been recognized. Had compensation cost for the Company's
stock-based compensation plan been determined based on the fair value at the
grant dates for awards under the plan consistent with the method of FASB
Statement No. 123, "Accounting for Stock Based Compensation," the Company's pro
forma results of operations would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Net income (loss):
As reported........................................................... $ (303) $ 1,394
Pro forma............................................................. $ (335) $ 1,369
</TABLE>
Under the Company's stock option plan, the Company may grant incentive and
non-qualified stock options to its employees and directors for up to 400,000
shares of common stock. Under the plan, options
F-74
<PAGE>
INTERACTIVE SOFTWARE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. CAPITAL STOCK AND STOCK OPTIONS (CONTINUED)
are granted at an exercise price not less than the fair market value of the
stock on the date of grant. The options generally vest ratably over five years
and expire 10 years after the date of grant.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1995 and 1996: dividend yield of 1.4% for both
years; zero volatility for both years; risk-free interest rates of 7.78% and
5.57% in 1995 and 1996, respectively; and an expected option term of 6 years for
each year.
A summary of the status of the Company's fixed option plan as of December
31, 1995 and 1996 and changes during the years then ending is presented below.
As of December 31, 1996, no options were vested.
<TABLE>
<CAPTION>
1995 1996
---------------------- ----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Outstanding at beginning of year...................................... - $ - 127,000 $ 3.05
Granted............................................................... 161,000 3.05 65,000 3.05
Exercised............................................................. - - - -
Forfeited............................................................. (34,000) 3.05 (2,000) 3.05
--------- ----- --------- -----
Outstanding at end of year............................................ 127,000 $ 3.05 190,000 $ 3.05
--------- ----- --------- -----
--------- ----- --------- -----
Weighted average fair value of options granted during the year........ $ 0.94 $ 0.68
Weighted average remaining contractual life........................... 8.31 years
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
The Company maintains non-cancelable operating lease arrangements for office
space and office equipment. Rent expense related to these and other
month-to-month leases approximated $264,000 and $273,000 for the years ended
December 31, 1995 and 1996, respectively. Future minimum annual operating lease
payments are as follows:
<TABLE>
<CAPTION>
AMOUNT
-------------
<S> <C>
(IN
THOUSANDS)
1997........................................................................... $ 280
1998........................................................................... 256
1999........................................................................... 232
2000........................................................................... 226
2001........................................................................... 54
------
$ 1,048
------
------
</TABLE>
F-75
<PAGE>
INTERACTIVE SOFTWARE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES
Income (loss) before income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Domestic.......................................................... $ 258 $ (312) $ 2,058
Foreign........................................................... - (180) 73
--------- --------- ---------
$ 258 $ (492) $ 2,131
--------- --------- ---------
--------- --------- ---------
</TABLE>
The provision for (benefit from) income taxes is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Current tax expense
Federal............................................................ $ 17 $ 19 $ 479
State.............................................................. 4 6 86
--------- --------- ---------
Total current expense.............................................. 21 25 565
--------- --------- ---------
Deferred tax expense (benefit)
Federal............................................................ 45 (192) 169
State.............................................................. 16 (21) 5
Foreign............................................................ - - (2)
--------- --------- ---------
Total deferred expense (benefit)................................... 61 (213) 172
--------- --------- ---------
Total provision for (benefit from) income taxes.................... $ 82 $ (188) $ 737
--------- --------- ---------
--------- --------- ---------
</TABLE>
The provision (benefit) for income taxes differ from the amounts computed by
applying the federal statutory rate to income before income taxes. The amounts
are reconciled as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Statutory rate........................................................ $ 88 $ (167) $ 725
Non-deductible expenses............................................... 22 7 31
Income tax credits.................................................... (41) (27) (27)
State income taxes, net of federal benefit............................ 18 (18) 57
Tax exempt interest................................................... - (39) (15)
Change in valuation allowance......................................... - 61 (26)
Other................................................................. (5) (5) (8)
--------- --------- ---------
Provision (benefit) for income taxes.................................. $ 82 $ (188) $ 737
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-76
<PAGE>
INTERACTIVE SOFTWARE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
Deferred tax assets (liabilities) are comprised of the following at December
31:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Capitalized software, net............................................ $ (234) $ (27) $ (25)
Other................................................................ (6) (33) -
--------- --------- ---------
Gross deferred tax liabilities..................................... (240) (60) (25)
--------- --------- ---------
Change in tax accounting method...................................... 104 78 54
Accrued expenses and allowance for doubtful accounts................. 10 45 30
Research credit carryforwards........................................ 72 97 -
Foreign net operating loss carryforward.............................. - 66 40
--------- --------- ---------
Gross deferred tax assets.......................................... 186 286 124
--------- --------- ---------
Valuation allowance.................................................. - (66) (40)
--------- --------- ---------
$ (54) $ 160 $ 59
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company changed its accounting method for tax purposes from cash to
accrual during 1994. The net change is amortized for tax purposes over six
years.
7. EMPLOYEE BENEFIT PLAN
In January 1989, the Company implemented a 401(k) savings plan. Participants
may contribute up to 18% of their compensation, not to exceed the maximum
allowed by law. The Company made matching contributions of $0 and $69,000 in
1995 and 1996, respectively.
F-77
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
U.S. Communications, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholder's equity and of cash flows present fairly,
in all material respects, the financial position of U.S. Communications, Inc. at
December 31, 1996, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Philadelphia, PA
July 15, 1997
F-78
<PAGE>
U.S. COMMUNICATIONS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------- -----------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash................................................................................ $ 93 $ 20
Accounts receivable................................................................. 891 1,111
Inventory........................................................................... 204 62
Prepaid expenses and other current assets........................................... 3 9
------ -----------
Total current assets............................................................ 1,191 1,202
Fixed assets, net..................................................................... 75 101
Other non-current assets.............................................................. 2 4
------ -----------
Total assets.................................................................... $ 1,268 $ 1,307
------ -----------
------ -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt................................................... $ 6 $ 7
Accounts payable.................................................................... 989 1,080
Other accrued expenses.............................................................. 26 -
Income taxes payable................................................................ 34 17
Notes payable....................................................................... 87 50
------ -----------
Total current liabilities....................................................... 1,142 1,154
Long-term debt........................................................................ 12 8
------ -----------
Total liabilities............................................................... 1,154 1,162
------ -----------
Stockholder's equity:
Common stock, no par value, 100 shares authorized, issued and outstanding at stated
value............................................................................. 1 1
Retained earnings................................................................... 113 144
------ -----------
Total stockholder's equity...................................................... 114 145
------ -----------
Total liabilities and stockholder's equity...................................... $ 1,268 $ 1,307
------ -----------
------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-79
<PAGE>
U.S. COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------- --------------------
1996 1996 1997
------------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
Revenues........................................................................ $ 7,215 $ 2,578 $ 4,036
Cost of revenues................................................................ 6,574 2,352 3,750
------ --------- ---------
Gross profit.................................................................... 641 226 286
Selling, general and administrative expenses.................................... 475 156 230
------ --------- ---------
Income from operations.......................................................... 166 70 56
Interest expense................................................................ 21 6 5
------ --------- ---------
Income before income taxes...................................................... 145 64 51
Provision for income taxes...................................................... 51 26 20
------ --------- ---------
Net income...................................................................... $ 94 $ 38 $ 31
------ --------- ---------
------ --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-80
<PAGE>
U.S. COMMUNICATIONS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------------ RETAINED STOCKHOLDER'S
SHARES AMOUNT EARNINGS EQUITY
----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995........................................... 100 $ 1 $ 19 $ 20
Net income........................................................... - - 94 94
--- ----- ----- -----
Balance, December 31, 1996........................................... 100 1 113 114
Net income (unaudited)............................................... - - 31 31
--- ----- ----- -----
Balance, June 30, 1997 (unaudited)................................... 100 $ 1 $ 144 $ 145
--- ----- ----- -----
--- ----- ----- -----
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-81
<PAGE>
U.S. COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------- --------------------
1996 1996 1997
------------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................... $ 94 $ 38 $ 31
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization............................................... 13 5 11
Increase (decrease) in cash from changes in operating assets and
liabilities:
Accounts receivable, net.................................................. (456) (303) (220)
Inventory................................................................. (167) (10) 142
Prepaid expenses and other assets......................................... (4) (7) (8)
Accounts payable.......................................................... 596 319 91
Other accrued liabilities................................................. 17 (11) (44)
----- --------- ---------
Net cash provided by operating activities............................... 93 31 3
----- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............................................ (22) (22) (37)
----- --------- ---------
Net cash used in investing activities................................... (22) (22) (37)
----- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable..................................................... 87 - -
Decrease in notes payable..................................................... (61) - (36)
Payments on long term debt and notes payable.................................. (6) (8) (3)
----- --------- ---------
Net cash provided by (used in) financing activities..................... 20 (8) (39)
----- --------- ---------
Net increase (decrease) in cash................................................. 91 1 (73)
Cash, beginning of year......................................................... 2 2 93
----- --------- ---------
Cash, end of year............................................................... $ 93 $ 3 $ 20
----- --------- ---------
----- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest........................................................ $ 24 $ 6 $ 5
----- --------- ---------
----- --------- ---------
Cash paid for income taxes.................................................... $ 18 $ - $ -
----- --------- ---------
----- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-82
<PAGE>
U.S. COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
U.S. Communications, Inc. (the "Company") provides commercial and
governmental clients desktop system hardware and software supplies, technical
support and comprehensive training solutions. Clients are primarily government
agencies and private companies located in the eastern region of the U.S. The
computer training programs are held in the Company's training facility which is
located at the Company's headquarters in Annapolis, Maryland.
The Company was organized on June 27, 1994 as a Maryland corporation with
the President of the Company being the sole shareholder and director. Including
the President, the Company has approximately 17 employees fully dedicated to the
sales, service, training and administration activities of the Company. As the
Company relies on government agencies for the majority of its sales, the
retention of employees with strong client contacts is essential to the future
profitability of the Company. In addition, the President of the Company is an
integral part of the Company's operations.
The Company and its stockholder intend to enter into a definitive agreement
with Condor Technology Solutions, Inc. ("Condor"), pursuant to which all of the
common stock of the Company will be exchanged for cash and shares of Condor
common stock concurrent with the consummation of the initial public offering of
the common stock of Condor.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL INFORMATION
The balance sheet as of June 30, 1997 and the statements of operations,
statements of changes in stockholder's equity and statements of cash flows for
the six months ended June 30, 1996 and 1997, are unaudited, and certain
information and footnote disclosures related thereto, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been omitted. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to fairly present the
financial position, results of operations and cash flows with respect to the
interim financial statements, have been included. The results of operations for
the interim periods are not necessarily indicative of the results for the entire
fiscal year.
CONCENTRATION OF CREDIT RISK
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant credit risk on
cash. In addition, the Company grants credit terms in the normal course of
business to its customers. As part of its ongoing procedures, the Company
monitors the creditworthiness of its customers. The Company does not believe
that it is subject to any unusual credit risk beyond the normal credit risk
attendant in its business. The Company had net revenues representing
approximately 53% of total revenue from one customer during 1996. The customer
also represented approximately 18% of the Company's total accounts receivable
balance at December 31, 1996.
REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE
Training revenues are recognized upon the completion of the training course.
Hardware and software revenues are recognized upon the installation or
configuration of the product and the acceptance of the product by the customer.
The Company has no further obligation to the Customer after installation of
software. If no installation or configuration is included in the sale, hardware
and software revenues are
F-83
<PAGE>
U.S. COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
recognized when goods are shipped to the customer. The Company has not recorded
an allowance for doubtful accounts as management anticipates that all of the
accounts receivable balance at December 31, 1996 are collectible.
INVENTORY
Inventory is stated as the lower of cost or market. Cost is determined using
the average cost method. Inventory is comprised entirely of hardware and
software held for resale.
FIXED ASSETS
Equipment and furniture are recorded at costs and depreciated using the
straight-line method over the estimated useful lives of the assets which range
up to 7 years. Leasehold improvements are recorded at cost and amortized using
the straight-line method over the lesser of the lease term or the estimated
useful life. Maintenance and repairs are expensed as incurred.
INCOME TAXES
Income taxes are provided in accordance with the Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Accordingly,
deferred tax assets and liabilities are recognized at the applicable income tax
rates based upon future tax consequences of temporary differences between the
tax basis and financial reporting basis of assets and liabilities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
3. FIXED ASSETS
Fixed assets at December 31, 1996 consisted of the following:
<TABLE>
<CAPTION>
AVERAGE
USEFUL LIFE AMOUNT
----------- -----------------
<S> <C> <C>
(IN THOUSANDS)
Leasehold improvements............................................ 3 years $ 21
Furniture and fixtures............................................ 7 years 15
Computers and office equipment.................................... 3 years 27
Automobiles, trucks and other..................................... 5 years 27
---
90
Less accumulated depreciation and amortization.................... (15)
---
$ 75
---
---
</TABLE>
F-84
<PAGE>
U.S. COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. NOTES PAYABLE
As of December 31, 1996, notes payable consisted of the following:
<TABLE>
<CAPTION>
AMOUNT
-----------------
<S> <C>
(IN THOUSANDS)
Note payable with Resellers Credit Corporation, with monthly interest payments
at prime plus 3%; principal is due on demand................................. $ 50
Loan from shareholder at 0% interest and due on demand; no written agreement
exists....................................................................... 37
---
Total...................................................................... $ 87
---
---
</TABLE>
The Resellers Credit Corporation ("RCC") loan of $50,000 is secured by a
security interest in accounts receivable and specified inventory and includes
certain restrictions and conditions. The Company pays interest to RCC on the
outstanding balance at a rate equal to Chase Manhattan Bank's prime rate (8.25%
at December 31, 1996) plus 3% per annum. The Company also pays an advance fee
equal to .25% on each advance. The outstanding principal is due on demand.
5. LONG-TERM DEBT
Long-term debt at December 31, 1996 consisted of the following:
<TABLE>
<CAPTION>
AMOUNT
-----------------
<S> <C>
(IN THOUSANDS)
Note payable with monthly payments of $283 including interest at 3.9% due in
October 1999, secured by a vehicle........................................... $ 9
Note payable with monthly payments of $278 including interest at 3.9% due in
October 1999, secured by a vehicle........................................... 9
Less current portion of debt................................................... (6)
---
Total...................................................................... $ 12
---
---
</TABLE>
The aggregate maturities of long-term notes payable are as follows:
<TABLE>
<CAPTION>
AMOUNT
-----------------
<S> <C>
(IN THOUSANDS)
1997........................................................................... $ 6
1998........................................................................... 6
1999........................................................................... 6
---
Total...................................................................... $ 18
---
---
</TABLE>
6. LINES OF CREDIT
The Company had a $100,000 line of credit facility with RCC as well as a
Short-Term Accounts Receivable ("STAR") agreement obtained on May 3, 1996.
Effective May 1, 1997, the line of credit was increased to $150,000. Both
agreements are secured by a security interest in accounts receivable and
specified inventory and includes certain restrictions and conditions. The
Company uses the facilities to
F-85
<PAGE>
U.S. COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LINES OF CREDIT (CONTINUED)
purchase merchandise from approved manufacturers. The following table summarizes
the conditions of the two credit facilities:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 HANDLING
-------------------------------- CHARGE
OUTSTANDING UNUSED INTEREST RATE ON NEW
AMOUNT AMOUNT PER ANNUM ADVANCES
----------- ------------------- ----------------------------- -----------
<S> <C> <C> <C> <C>
RCC................................. $ 45,000 $55,000 Prime + 3% .25%
STAR................................ $ 0 customer specific Prime + 3% after 40 days .5%
</TABLE>
Prime rate is equivalent to Chase Manhattan Bank's prime rate (8.25% at
December 31, 1996). Outstanding borrowings at December 31, 1996 are included in
accounts payable.
7. LEASE COMMITMENTS
The Company conducts its operations and training classes from facilities
that are leased for a combined monthly rent of $3,000. The lease for operations
space began on July 1, 1996 and the lease for training class space began on
December 1, 1996. Both leases are under non-cancelable operating leases which
expire on June 30, 1999, with a 4% escalation each year.
In addition, the Company leases automobiles, computer equipment, and office
equipment under long-term operating leases with terms of two to five years.
Total rental expense included in operations is $28,000 for the year ended
December 31, 1996.
Total future minimum lease payments as of December 31, 1996 for all leasing
arrangements were as follows:
<TABLE>
<CAPTION>
AMOUNT
---------------
<S> <C>
(IN THOUSANDS)
1997........................................................................... $ 50
1998........................................................................... 46
1999........................................................................... 27
-----
Total...................................................................... $ 123
-----
-----
</TABLE>
8. INCOME TAXES
The components of the provision for income taxes for the year ended December
31, 1996 were as follows:
<TABLE>
<CAPTION>
AMOUNT
-----------------
<S> <C>
(IN THOUSANDS)
Current income tax expense:
Federal...................................................................... $ 41
State........................................................................ 10
---
Total income tax............................................................... $ 51
---
---
</TABLE>
For the year ended December 31, 1996, the effective tax rate of 35%
approximated the combined federal and state income tax rates. Deferred taxes are
immaterial.
F-86
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
InVenture Group, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholder's equity and of cash flows present fairly,
in all material respects, the financial position of InVenture Group, Inc. at
December 31, 1996, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Philadelphia, PA
July 15, 1997
F-87
<PAGE>
INVENTURE GROUP, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER
31, JUNE 30,
ASSETS 1996 1997
----------- -----------
<S> <C> <C>
(UNAUDITED)
Current assets:
Cash............................................................... $ 80 $ 10
Accounts receivable, net of allowance for doubtful accounts of $35
and $30.......................................................... 629 686
Accounts receivable, officers and employees........................ 54 31
Accounts receivable, affiliates.................................... 62 52
Deferred income taxes.............................................. 26 26
Prepaid expenses and other current assets.......................... 52 49
----------- -----------
Total current assets........................................... 903 854
Fixed assets, net.................................................... 153 165
Intangible assets, net............................................... 9 21
Other non-current assets............................................. 175 184
----------- -----------
Total assets................................................... $ 1,240 $ 1,224
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 830 $ 611
Other accrued expenses............................................. 410 387
Income taxes payable............................................... 27 89
Other current liabilities.......................................... 1 2
----------- -----------
Total current liabilities...................................... 1,268 1,089
----------- -----------
Deferred income taxes................................................ 15 14
----------- -----------
Stockholder's equity:
Common stock, no par value; 10,500 shares authorized, issued and
outstanding...................................................... 11 11
Retained (deficit) earnings........................................ (54) 110
----------- -----------
Total stockholder's equity..................................... (43) 121
----------- -----------
Total liabilities and stockholder's equity..................... $ 1,240 $ 1,224
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-88
<PAGE>
INVENTURE GROUP, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------- --------------------
1996 1996 1997
------------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
Revenues........................................................................ $ 5,416 $ 3,135 $ 2,406
Cost of revenues................................................................ 3,948 2,331 1,410
------ --------- ---------
Gross profit.................................................................... 1,468 804 996
Selling, general and administrative expenses.................................... 1,464 656 744
------ --------- ---------
Income from operations.......................................................... 4 148 252
Other income.................................................................... 19 9 20
------ --------- ---------
Income before income taxes...................................................... 23 157 272
Provision for income taxes...................................................... 7 64 108
------ --------- ---------
Net income...................................................................... $ 16 $ 93 $ 164
------ --------- ---------
------ --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-89
<PAGE>
INVENTURE GROUP, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED TOTAL
---------------------- EARNINGS STOCKHOLDERS'
SHARES AMOUNT (DEFICIT) EQUITY
--------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995............................................ 10,500 $ 11 $ (70) $ (59)
Net income............................................................ - - 16 16
--------- ----- ----- -----
Balance, December 31, 1996............................................ 10,500 11 (54) (43)
Net income (unaudited)................................................ - - 164 164
--------- ----- ----- -----
Balance, June 30, 1997 (unaudited).................................... 10,500 $ 11 $ 110 $ 121
--------- ----- ----- -----
--------- ----- ----- -----
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-90
<PAGE>
INVENTURE GROUP, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
--------------- --------------------
1996 1996 1997
--------------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................................... $ 16 $ 93 $ 164
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization................................................ 77 38 37
Deferred income taxes........................................................ 2 - -
Increase (decrease) in cash from changes in operating assets and liabilities:
Accounts receivable, net................................................... 188 (306) (14)
Prepaid expenses and other current assets.................................. (39) (28) 6
Accounts payable........................................................... 468 727 (241)
Other accrued expenses..................................................... 7 (23) (24)
Income taxes payable....................................................... 20 68 62
Deferred revenue........................................................... (467) (467) -
--- --- ---
Net cash provided by (used in) operating activities...................... 272 102 (10)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................................... (79) (55) (3)
Purchase of trademark.......................................................... (10) (10) -
Acquisition of IGI Services, Inc............................................... - - (82)
Software development costs..................................................... (8) - -
--- --- ---
Net cash used in investing activities.................................... (97) (65) (85)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances to affiliates, net.................................................... (200) (71) 24
Officers loans, net............................................................ (12) - 1
--- --- ---
Net cash (used in) provided by financing activities...................... (212) (71) 25
--- --- ---
Net decrease in cash............................................................. (37) (34) (70)
Cash, beginning of year.......................................................... 117 117 80
--- --- ---
Cash, end of year................................................................ $ 80 $ 83 $ 10
--- --- ---
--- --- ---
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income taxes..................................................... $ 9 $ 5 $ 5
--- --- ---
--- --- ---
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-91
<PAGE>
INVENTURE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
InVenture Group, Inc. ("InVenture" or the "Company") creates and executes
strategic marketing programs for resellers and manufacturers of information
technology products and services as well as commercial customers in other
industries. InVenture provides a comprehensive portfolio of marketing services,
including marketing strategy, corporate identity, creation and maintenance
programs, creative development, merchandising programs, publications, website
development, direct mail advertising, event planning and empowerment programs.
The Company and its stockholders intend to enter into a definitive agreement
with Condor Technology Solutions, Inc. ("Condor"), pursuant to which all of the
common stock of the Company will be exchanged for cash and shares of Condor
common stock concurrent with the consummation of the initial public offering of
the common stock of Condor.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL INFORMATION
The balance sheet as of June 30, 1997 and the statements of operations, of
changes in stockholder's equity and of cash flows for the six months ended June
30, 1996 and 1997, are unaudited, and certain information and footnote
disclosures related thereto, normally included in financial statements prepared
in accordance with generally accepted accounting principles, have been omitted.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary to fairly present the financial position,
results of operations and cash flows with respect to the interim financial
statements, have been included. The results of operations for the interim
periods are not necessarily indicative of the results for the entire fiscal
year.
CONCENTRATION OF CREDIT RISK
Financial instruments that subject the Company to concentrations of credit
risks consist primarily of accounts receivable. In addition, the Company grants
credit terms in the normal course of business to its customers. As part of its
ongoing procedures, the Company monitors the creditworthiness of its customers.
The Company does not believe that it is subject to any unusual credit risk
beyond the normal credit risk attendant in its business.
The Company had net revenues of approximately $3.9 million and $625,000 from
two customers during 1996 which represent 84% of total revenues. Accounts
receivable from these two customers totaled $334,000 at December 31, 1996.
In the third quarter of 1997, the contract with the customer that accounted
for $625,000 expired and was not renewed.
REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE
Revenues are recognized upon completion and/or delivery of specific
projects. An allowance for doubtful accounts has been established for
potentially uncollectible accounts.
F-92
<PAGE>
INVENTURE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FIXED ASSETS
Equipment and furniture are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets which range
up to 7 years. Leasehold improvements are recorded at cost and are amortized
over the shorter of the estimated lives of the related assets or the term of the
lease.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires an asset and liability approach in accounting for income taxes. The
asset and liability approach requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between carrying amounts and the tax bases of all assets and liabilities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
3. FIXED ASSETS
Fixed assets as of December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
AVERAGE
USEFUL
LIFE AMOUNT
---------- ---------------
<S> <C> <C>
(IN THOUSANDS)
Leasehold improvements............................................ 5 years $ 22
Equipment......................................................... 3-7 years 306
Furniture and fixtures............................................ 3-7 years 26
Software.......................................................... 3 years 11
-----
365
Less accumulated depreciation and amortization.................... (212)
-----
Fixed assets, net................................................. $ 153
-----
-----
</TABLE>
There were no significant operating leases other than leases for office
space (see Note 4).
Depreciation and amortization expense for the year ended December 31, 1996
was $76,000.
4. COMMITMENTS
The Company leases office space in Pittsburgh, Pennsylvania, under an
agreement that provides for escalating rent. Rent expense is normalized over the
term of the lease, which expires in April 2000. The difference between cash
payments and rent expense is carried as accrued rent.
F-93
<PAGE>
INVENTURE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. COMMITMENTS (CONTINUED)
Future minimum lease payments under noncancelable operating leases as of
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
AMOUNT
---------------
<S> <C>
(IN THOUSANDS)
1997........................................................................... $ 188
1998........................................................................... 183
1999........................................................................... 184
2000........................................................................... 73
2001........................................................................... 1
-----
Total.......................................................................... $ 629
-----
-----
</TABLE>
Rent expense for the year ended December 31, 1996 was $194,000.
5. EMPLOYEE BENEFIT PLAN
The Company has an employee savings plan (the "Plan") which permits
participants who make contributions by salary reduction pursuant to section
401(k) Savings Plan of the Internal Revenue Code. The Company matches employee
contributions 100% for the first 3% of compensation deferred plus 50% of the
next 3% of compensation deferred. Amounts deferred over 6% are not matched.
Participants in the Plan vest in the employer contributions pro rata over 3
years. During 1996, the Company contributed $21,000 to the Plan.
6. RELATED PARTIES
During 1996, the Company purchased $32,000 of prepress services from IGI
Services, Inc. ("IGI"), a related organization that is owned by the stockholder
of the Company. The Company also advanced $56,000 to IGI during 1996, net of
repayments of $39,000. IGI shares office space with InVenture and InVenture
provides administrative services to IGI. The total charges to IGI for office
space and administrative services for the year ended December 31, 1996 were
$42,000. In addition, InVenture annually (through July 1, 1996) submitted to IGI
a print brokerage fee amounting to 7.0% of all InVenture print purchases, or
$47,000 for the year ended December 31, 1996. The Company believes the fees paid
to IGI were equivalent to those that would be paid under an arm's length
transaction. See Note 9 regarding a related subsequent event.
During 1996, the Company advanced funds and provided marketing services to
The Sound Marketing Group ("SMG"), an organization with common ownership,
totaling $168,000. This amount has been recorded as a note receivable in the
December 31, 1996 balance sheet. The note is payable beginning January 1, 1998
with payments on the outstanding principal amortized over 60 months and bears
interest at 6.65%.
At December 31, 1996, the Company had advanced funds totaling $42,000 to the
stockholders of the Company. This amount is included as a note receivable at
December 31, 1996 and is payable on demand.
F-94
<PAGE>
INVENTURE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
The provision for income taxes at December 31, 1996 consisted of the
following:
<TABLE>
<CAPTION>
AMOUNT
---------------
<S> <C>
(IN THOUSANDS)
Current taxes:
Federal...................................................................... $ 5
State........................................................................ -
-----
Current tax expense.......................................................... 5
Deferred taxes:
Federal tax benefit.......................................................... (5)
State tax expense............................................................ 7
-----
Deferred tax expense......................................................... 2
-----
Provision for income taxes................................................... $ 7
-----
-----
</TABLE>
Deferred tax liabilities (assets) at December 31, 1996 were comprised of the
following:
<TABLE>
<CAPTION>
AMOUNT
---------------
<S> <C>
(IN THOUSANDS)
Depreciation................................................................... $ 15
-----
Deferred tax liabilities....................................................... 15
-----
Allowance for doubtful accounts................................................ (12)
Vacation accrual............................................................... (6)
Accrued rent................................................................... (8)
-----
Deferred tax asset............................................................. (26)
-----
Net deferred tax asset....................................................... $ (11)
-----
-----
</TABLE>
The provision for income taxes differs from the amount computed by applying
the U.S. federal income tax rates due to use of graduated tax rates at lower
income brackets, non-deductible expenses and state income taxes.
8. SUBSEQUENT EVENTS
ACQUISITION OF IGI
Effective May 31, 1997, the Company acquired all of the operating assets of
IGI Services, Inc. ('IGI'), a company engaged in the business of operating an
electronic service bureau that supplies high resolution negatives and positives
from computer files for the publishing and advertising industries. The purchase
price of the acquisition included a cash payment of $22,000, forgiveness of
account receivable from IGI in the amount of $60,000 and the assumption of
liabilities totaling $22,000.
F-95
<PAGE>
INVENTURE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. SUBSEQUENT EVENTS (CONTINUED)
The acquisition has been accounted for using the purchase method of
accounting, and, accordingly, the purchase price has been allocated to the
assets purchased based on the fair values at the date of acquisition. The
purchase price was allocated as follows:
<TABLE>
<CAPTION>
AMOUNT
---------------
<S> <C>
(IN THOUSANDS)
Accounts receivable............................................................ $ 43
Equipment...................................................................... 46
Intangibles.................................................................... 12
Prepaids and other assets...................................................... 3
Accounts payable............................................................... (22)
-----
$ 82
-----
-----
</TABLE>
The operating results of IGI have been included in the unaudited statement
of operations from the date of acquisition. The following unaudited pro forma
information has been prepared assuming that this acquisition had taken place at
the beginning of the respective period. This pro forma financial information is
presented for informational purposes only and may not be indicative of what the
actual results of operations might have been if the acquisition had been
effective at the beginning of 1996.
<TABLE>
<CAPTION>
AMOUNT
-------------
<S> <C>
(IN
THOUSANDS)
Net sales...................................................................... $ 5,674
Net income..................................................................... $ 14
</TABLE>
ACQUISITION OF MENEGAY
The Company intends to enter into an agreement to acquire all of the issued
outstanding stock of Menegay Marketing, Inc. ("Menegay") through a wholly-owned
subsidiary concurrent with the proposed Condor acquisition and the initial
public offering of the common stock of Condor. Upon consummation of these
transactions, Ms. Molly Menegay will receive 10% of the common stock of
InVenture.
SETTLEMENT OF LIABILITY
In October 1997, the Company entered into an agreement with a vendor to whom
InVenture owed $321,000. The vendor agreed to accept assignment of the Company's
receivable from SMG in full settlement of this liability. As the receivable was
$221,000 at the time of this agreement, a gain of $100,000 will be recorded in
the quarter ending December 31, 1997.
F-96
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
MIS Technologies, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholder's equity and of cash flows present fairly,
in all material respects, the financial position of MIS Technologies, Inc. at
December 31, 1996, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Philadelphia, PA
July 11, 1997
F-97
<PAGE>
MIS TECHNOLOGIES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
--------------- -------------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
ASSETS
<S> <C> <C>
Current assets:
Cash................................................................................ $ 20 $ 78
Investments......................................................................... 75 75
Accounts receivable, less allowance for doubtful accounts of $13.................... 296 481
Other current assets................................................................ 5 5
----- -----
Total current assets............................................................ 396 639
Fixed assets, net..................................................................... 22 21
----- -----
Total assets.................................................................... $ 418 $ 660
----- -----
----- -----
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C>
Current liabilities:
Lines of credit..................................................................... $ 193 $ 350
Accrued expenses.................................................................... 107 148
Shareholder note payable............................................................ 20 17
----- -----
Total current liabilities....................................................... 320 515
Stockholder's equity:
Common stock, no par value, 1,000 shares authorized, 500 shares issued and
outstanding....................................................................... 2 2
Retained earnings................................................................... 96 143
----- -----
Total stockholder's equity...................................................... 98 145
----- -----
Total liabilities and stockholder's equity...................................... $ 418 $ 660
----- -----
----- -----
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-98
<PAGE>
MIS TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------- --------------------
1996 1996 1997
------------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
Revenues..................................................................... $ 2,582 $ 1,269 $ 2,166
Cost of revenues............................................................. 1,426 910 1,404
------ --------- ---------
Gross profit................................................................. 1,156 359 762
Selling, general and administrative expenses................................. 1,150 311 685
------ --------- ---------
Income from operations....................................................... 6 48 77
Net interest expense......................................................... 12 8 14
------ --------- ---------
Net (loss) income............................................................ $ (6) $ 40 $ 63
------ --------- ---------
------ --------- ---------
Unaudited pro forma information (see Note 2):
Pro forma net income before provision for income taxes..................... $ (6) $ 40 $ 63
Provision for income taxes................................................. - 16 25
------ --------- ---------
Pro forma income............................................................. $ (6) $ 24 $ 38
------ --------- ---------
------ --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-99
<PAGE>
MIS TECHNOLOGIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------------ RETAINED STOCKHOLDER'S
SHARES AMOUNT EARNINGS EQUITY
----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995............................................ 500 $ 2 $ 151 $ 153
Distributions to shareholder.......................................... - - (49) (49)
Net loss.............................................................. - - (6) (6)
--- ----- ----- -----
Balance, December 31, 1996............................................ 500 2 96 98
Distributions to shareholder (unaudited).............................. - - (16) (16)
Net income (unaudited)................................................ - - 63 63
--- ----- ----- -----
Balance, June 30, 1997 (unaudited).................................... 500 $ 2 $ 143 $ 145
--- ----- ----- -----
--- ----- ----- -----
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-100
<PAGE>
MIS TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED
DECEMBER 31, JUNE 30,
--------------- --------------------
1996 1996 1997
--------------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income................................................................ $ (6) $ 40 $ 63
Adjustments to reconcile net (loss) income to net cash provided by (used in)
operating activities:
Depreciation................................................................... 12 6 2
Increase (decrease) in cash from changes in operating assets and liabilities:
Accounts receivable.......................................................... (88) (63) (185)
Other assets................................................................. (6) (6) 1
Accrued liabilities.......................................................... 57 22 41
--- --- ---------
Net cash used by operating activities...................................... (31) (1) (78)
--- --- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.............................................. (15) (5) (2)
--- --- ---------
Net cash used in investing activities...................................... (15) (5) (2)
--- --- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in borrowings under lines of credit..................................... 65 35 154
Distributions to shareholder..................................................... (49) (35) (16)
--- --- ---------
Net cash provided by financing activities.................................. 16 - 138
--- --- ---------
Net (decrease) increase in cash.................................................... (30) (6) 58
Cash, beginning of year............................................................ 50 50 20
--- --- ---------
Cash, end of year.................................................................. $ 20 $ 44 $ 78
--- --- ---------
--- --- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest........................................................... $ 17 $ - $ -
--- --- ---------
--- --- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-101
<PAGE>
MIS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
MIS Technologies, Inc. (the "Company") is an S corporation headquartered in
Tulsa, Oklahoma. The Company, founded in 1984, provides clients temporary
contract information, staffing and permanent placement of qualified
professionals with information technology experience. In addition to these
serivices, the Company works with clients to assess their management information
systems and staffing needs.
The Company and its stockholder intend to enter into a definitive agreement
with Condor Technology Solutions, Inc. ("Condor"), pursuant to which all of the
common stock of the Company will be exchanged for cash and shares of Condor
common stock concurrent with the consummation of the initial public offering of
the common stock of Condor.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL INFORMATION
The interim balance sheet as of June 30, 1997 and statements of operations,
of changes in stockholder's equity and of cash flows for the six months ended
June 30, 1996 and 1997 are unaudited, and certain information and footnote
disclosures related thereto, normally included in financial statements prepared
in accordance with generally accepted accounting principles, have been omitted.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary to fairly present the financial position,
results of operations and cash flows with respect to the interim financial
statements, have been included. The results of operations for the interim
periods are not necessarily indicative of the results for the entire fiscal
year.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of 90 days or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK
The Company has four significant customers which accounted for 24%, 15%, 11%
and 10%, respectively, of total 1996 revenue. Additionally, one significant
customer accounted for 24% of the Company's accounts receivable as of December
31, 1996.
REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE
The Company recognizes revenues from contract services as the work is
performed and recognizes revenues from permanent placement services upon
commencement of employment. An allowance for doubtful accounts has been
established for potentially uncollectible accounts.
INVESTMENTS
Investments consist of certificates of deposit with original maturities of
more than 90 days. The carrying value of these assets approximates the fair
market value.
OTHER CURRENT ASSETS
Other current assets consist primarily of employee receivables.
F-102
<PAGE>
MIS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FIXED ASSETS
Fixed assets are stated at cost. Costs of assets acquired through
acquisition have been recorded at their respective fair value at the date of
acquisition. Depreciation is computed using the double declining balance method
over the following estimated useful lives of the related assets:
<TABLE>
<CAPTION>
YEARS
-----------------
<S> <C>
Furniture and equipment........................................................ 5-7
Computers and accessories...................................................... 5
</TABLE>
INCOME TAXES
The Company has elected S corporation status as defined by the Internal
Revenue Code and relevant state tax code whereby the Company is not subject to
taxation. Under S corporation status the stockholder reports his share of the
Company's taxable earnings or losses in his personal returns. Accordingly, the
financial statements include no provision for income taxes. If the Company were
subject to taxation, deferred tax assets and liabilities would be established
based on temporary differences between the book and tax basis of assets and
liabilities. Due to differences in book and tax accounting treatment for certain
items, including accounts receivable, property and equipment and accrued
liabilities, the stockholder's basis in the Company's net assets for book
purposes exceeds the related tax basis by $152,000.
The unaudited pro forma income tax information included in the Statement of
Operations is presented in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," as if the Company had been
subject to federal and state income taxes for the entire periods presented.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
3. FIXED ASSETS
Fixed assets at December 31, 1996 consisted of the following:
<TABLE>
<CAPTION>
AMOUNT
-----------------
<S> <C>
(IN THOUSANDS)
Furniture and equipment........................................................ $ 41
Computers and accessories...................................................... 20
---
61
Less accumulated depreciation.................................................. (39)
---
$ 22
---
---
</TABLE>
F-103
<PAGE>
MIS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. ACCRUED EXPENSES
Accrued liabilities at December 31, 1996 consisted of the following:
<TABLE>
<CAPTION>
AMOUNT
---------------
<S> <C>
(IN THOUSANDS)
Salaries and wages............................................................. $ 32
Vacation and sick pay.......................................................... 28
Commissions.................................................................... 35
Other accrued liabilities...................................................... 12
-----
$ 107
-----
-----
</TABLE>
5. SHAREHOLDER NOTE AND LINES OF CREDIT
Shareholder note and lines of credit at December 31, 1996 consisted of the
following:
<TABLE>
<CAPTION>
AMOUNT
---------------
<S> <C>
(IN THOUSANDS)
BancFirst $400,000 line of credit dated September 11, 1996 expiring September
6, 1997; interest paid monthly at prime plus 1.75% (10.0% at December 31,
1996), principal due at maturity............................................. $ 175
Wells Fargo $40,000 line of credit dated July 31, 1996 expiring July 31, 1997;
interest paid monthly at prime plus 4.0% (13.0% at December 31, 1996),
principal paid in monthly installments of varying amounts.................... 18
-----
$ 193
-----
-----
Shareholder note payable of $20,000; term note bears no interest and is payable
upon demand.................................................................. $ 20
-----
-----
</TABLE>
The BancFirst line of credit is secured by a continuing security interest in
the Company's cash, accounts receivable and equipment. The Wells Fargo line of
credit is unsecured. Additionally, the Company's sole shareholder has personally
guaranteed the lines of credit. The Company made cash interest payments of
$17,000 during the year ended December 31, 1996.
6. COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities and equipment under long-term leases
which are accounted for as operating leases.
Future minimum lease payments for long-term operating leases as of December
31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------------------------------------------------------------------------- -----------------
<S> <C>
(IN THOUSANDS)
1997........................................................................... $ 36
1998........................................................................... 36
1999........................................................................... 7
---
Total.................................................................... $ 79
---
---
</TABLE>
Rent expense for 1996 was $36,000.
F-104
<PAGE>
MIS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. SUBSEQUENT EVENT
The Company intends to enter into an agreement with Kinnaird Technical
Resources, Inc. ("KTR") to merge the two companies whereby KTR will become a
wholly-owned subsidiary of MIS. KTR previously operated as an independent branch
of MIS. In 1996, commissions totaling $79,000 were paid by MIS to KTR for
contract and temporary placement services performed by KTR. In addition, certain
administrative expenses related to KTR's operations totaling $23,000 were paid
directly by MIS during 1996.
F-105
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
Offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, any
securities other than the shares of Common Stock to which it relates or an offer
to, or a solicitation of, any person in any jurisdiction in which such offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication that
there has been no change in the affairs of the Company or that the information
contained herein is correct as of any time subsequent to the date hereof.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
The Company............................................................... 13
Use of Proceeds........................................................... 15
Dividend Policy........................................................... 15
Capitalization............................................................ 16
Dilution.................................................................. 17
Selected Financial Data................................................... 18
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 20
Business.................................................................. 36
Management................................................................ 45
Certain Transactions...................................................... 51
Principal Stockholders.................................................... 55
Description of Capital Stock.............................................. 56
Shares Eligible for Future Sale........................................... 60
Underwriting.............................................................. 62
Legal Matters............................................................. 64
Experts................................................................... 64
Additional Information.................................................... 64
Index to Financial Statements............................................. F-1
</TABLE>
------------------------
Until , 1997 (25 days from the date of this Prospectus), all dealers
effecting transactions in the registered securities offered hereby, whether or
not participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments of
subscriptions.
5,900,000 SHARES
[LOGO]
CONDOR TECHNOLOGY SOLUTIONS, INC. COMMON STOCK
--------------
PROSPECTUS
, 1997
-------------------
VOLPE BROWN WHELAN & COMPANY
FURMAN SELZ
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses (other than underwriting
compensation expected to be incurred) in connection with this Offering. All of
such amounts (except the SEC Registration Fee and the NASD Filing Fee) are
estimated.
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 30,841
Nasdaq National Market Listing Fees............................. *
NASD Filing Fee................................................. 10,678
Blue Sky Fees and Expenses...................................... 3,000
Printing and Engraving Costs.................................... *
Legal Fees and Expenses......................................... *
Accounting Fees and Expenses.................................... *
Transfer Agent and Registrar Fees and Expenses.................. *
Miscellaneous................................................... *
---------
Total..................................................... $5,000,000
</TABLE>
- ------------------------
* To be provided.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's By-Laws provide that the Company shall, to the fullest extent
permitted by Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL"), as amended from time to time, indemnify all persons whom it may
indemnify pursuant thereto.
Section 145 of the DGCL permits a corporation, under specified
circumstances, to indemnify its directors, officers, employees or agents against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlements actually and reasonably incurred by them in connection with any
action, suit or proceeding brought by third parties by reason of the fact that
they were or are directors, officers, employees or agents of the corporation, if
such directors, officers, employees or agents acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reason to believe their conduct was unlawful. In a derivative action, I.E., one
by or in the right of the corporation, indemnification may be made only for
expenses actually and reasonably incurred by directors, officers, employees or
agents in connection with the defense or settlement of an action or suit, and
only with respect to a matter as to which they shall have acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and only
to the extent that the court in which the action or suit was brought shall
determine upon application that the defendant directors, officers, employees or
agents are fairly and reasonably entitled to indemnity for such adjudication of
liability.
Article Seven of the Company's Certificate of Incorporation provides that
the Company's directors will not be personally liable to the Company or its
stockholders for monetary damages resulting from breaches of their fiduciary
duty as directors except (a) for any breach of the duty of loyalty to the
Company or its stockholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the DGCL, which makes directors liable for unlawful dividends or
unlawful stock repurchases or redemptions, or (d) for transactions from which
directors derive improper personal benefit.
II-1
<PAGE>
The Underwriting Agreement filed as Exhibit 1 provides that the Underwriters
named therein will indemnify and hold harmless the Company and each director,
officer or controlling person of the Company from and against certain
liabilities, including liabilities under the Securities Act. The Underwriting
Agreement also provides that such Underwriters will contribute to certain
liabilities of such persons under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information relates to securities of the Company issued or
sold by the Company within the past three years which were not registered under
the Securities Act.
In November 1996, the Company sold 7,500,000 shares of Common Stock to
Commonwealth, 500,000 shares to the Hill-Craft Irrevocable Family Trust, 400,000
shares to James P. Horner, 100,000 shares to Gary Wright and 200,000 shares to
David C. Mathes. In January 1997, the Company sold 300,000 shares to the
Hill-Craft Irrevocable Family Trust, 35,000 shares to James Pirello, 20,000
shares to Forrest Walpole, 20,000 shares to Dan McCann and 5,000 shares to
Michael Welch. In February 1997, the Company sold 100,000 shares to Gregory
Bosiack and 30,000 shares to Fearghal McCarthy. In March 1997, the Company sold
350,000 shares to Santanu Sarkar, 250,000 shares to Sean Coleman, and 20,000
shares to William Coleman. In August 1997 and October 1997, the Company sold an
aggregate of 800,000 shares to Daniel Roche. In September 1997, the Company sold
200,000 shares to the Hill-Craft Irrevocable Family Trust. Each of these sales
was in consideration of the provision prior to the date of such sale of
consulting, financial advisory and/or related services with a value per share
equal to the par value per share of the Common Stock. In April 1997, the Company
sold 150,000 shares to Edward J. Mathias and 75,000 shares to Raymond Ranelli,
in each case for cash consideration of $.67 per share. The Company will effect a
one-for-5.17921 reverse stock split effective on the day immediately preceding
the date of the Prospectus.
Simultaneously with the completion of this Offering, the Company will issue
2,153,355 shares of its Common Stock in connection with the Mergers of the eight
Founding Companies. The Company also will assume options to purchase 177,000
shares of common stock of certain of the Founding Companies which, following the
Mergers, will constitute options to purchase an aggregate of 64,970 shares of
Common Stock of the Company.
Each of the transactions described in this Item 15 was effected or will be
effected without registration of the relevant security under the Securities Act
in reliance upon the exemption provided by Section 4(2) of the Securities Act
and/or Regulation D thereunder for transactions not involving a public offering
and/ or Rule 701 under the Securities Act.
(b) Financial Statement Schedules
None
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
1* -- Form of Underwriting Agreement
2.1 -- Agreement and Plan of Organization, dated as of October 1, 1997, by and among the Company, MST
Acquisition Corp., Management Support Technology Corporation and the Stockholders named therein
2.2 -- Agreement and Plan of Organization, dated as of October 1, 1997, by and among the Company, CHMC
Acquisition Corp., Computer Hardware Maintenance Company, Inc. and the Stockholders named therein
2.3 -- Agreement and Plan of Organization, dated as of October 1, 1997, by and among the Company, Federal
Acquisition Corp., Federal Computer Corporation and the Stockholders named therein
2.4 -- Agreement and Plan of Organization, dated as of October 1, 1997, by and among the Company,
Corporate Access Acquisition Corp., Corporate Access, Inc. and the Stockholders named therein
2.5 -- Agreement and Plan of Organization, dated as of October 1, 1997, by and among the Company,
Interactive Acquisition Corp., Interactive Software Systems Incorporated and the Stockholders named
therein
2.6 -- Agreement and Plan of Organization, dated as of October 1, 1997, by and among the Company, US Comm
Acquisition Corp., U.S. Communications, Inc. and the Stockholders named therein
2.7 -- Agreement and Plan of Organization, dated as of October 1, 1997, by and among the Company,
InVenture Acquisition Corp., InVenture Group, Inc. and the Stockholders named therein
2.8 -- Agreement and Plan of Organization, dated as of October 1, 1997, by and among the Company, MIS
Acquisition Corp., MIS Technologies, Inc. and the Stockholders named therein
3.1 -- Amended and Restated Certificate of Incorporation of the Company
3.2 -- By-Laws of the Company as amended
4.1* -- Form of Certificate Evidencing Ownership of Common Stock of the Company
5* -- Opinion of Morgan, Lewis & Bockius LLP
10.1 -- 1997 Long-Term Incentive Plan of the Company
10.2 -- Employment Agreement between the Company and Kennard F. Hill
10.3 -- Form of Employment Agreement between the Company and C. Lawrence Meador
10.4 -- Form of Employment Agreement between the Company and Daniel J. Roche
10.5 -- Employment Agreement between the Company and Santanu J. Sarkar
10.6* -- Form of Sublease between The Fortress Group Inc. and the Company
10.7* -- Form of Lease between Corporate Access and Corpac II Realty Trust
21 -- List of Subsidiaries of the Company
23.1 -- Consent of Price Waterhouse LLP
23.2 -- Consent of Coopers & Lybrand L.L.P.
23.3 -- Consent of Deloitte & Touche LLP
23.4 -- Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 5)
23.5 -- Consent of C. Lawrence Meador to be named as a director
23.6 -- Consent of Edward J. Mathias to be named as a director
24 -- Powers of Attorney (included on signature page)
27 -- Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes as follows:
(1) The undersigned will provide to the Underwriters at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
(2) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(3) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be the initial bona fide
offering thereof.
(4) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Company has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of McLean, the
Commonwealth of Virginia, on the 3rd day of October, 1997.
<TABLE>
<S> <C> <C>
CONDOR TECHNOLOGY SOLUTIONS, INC.
By: /s/ KENNARD F. HILL
-----------------------------------------
Kennard F. Hill
President and Chief Executive Officer
</TABLE>
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints J. Marshall Coleman and Kennard F. Hill, and each
of them, with full power to act without the other, such person's true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign this Registration Statement, any and all amendments thereto
(including post-effective amendments), any subsequent Registration Statements
pursuant to Rule 462 of the Securities Act of 1933, as amended, and any
amendments thereto and to file the same, with exhibits and schedules thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary or desirable to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------------------ ----------------------
<C> <S> <C>
/s/ J. MARSHALL COLEMAN
------------------------------------ Chairman of the Board October 3, 1997
J. Marshall Coleman
/s/ KENNARD F. HILL
------------------------------------ President, Chief Executive Officer and October 3, 1997
Kennard F. Hill Director (Principal Executive Officer)
/s/ SANTANU SARKAR
------------------------------------ Chief Financial Officer (Principal October 3, 1997
Santanu Sarkar Financial and Accounting Officer)
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
1* -- Form of Underwriting Agreement
2.1 -- Agreement and Plan of Organization, dated as of October 1, 1997, by and among the Company, MST
Acquisition Corp., Management Support Technology Corporation and the Stockholders named therein
2.2 -- Agreement and Plan of Organization, dated as of October 1, 1997, by and among the Company, CHMC
Acquisition Corp., Computer Hardware Maintenance Company, Inc. and the Stockholders named therein
2.3 -- Agreement and Plan of Organization, dated as of October 1, 1997, by and among the Company, Federal
Acquisition Corp., Federal Computer Corporation and the Stockholders named therein
2.4 -- Agreement and Plan of Organization, dated as of October 1, 1997, by and among the Company,
Corporate Access Acquisition Corp., Corporate Access, Inc. and the Stockholders named therein
2.5 -- Agreement and Plan of Organization, dated as of October 1, 1997, by and among the Company,
Interactive Acquisition Corp., Interactive Software Systems Incorporated and the Stockholders named
therein
2.6 -- Agreement and Plan of Organization, dated as of October 1, 1997, by and among the Company, US Comm
Acquisition Corp., U.S. Communications, Inc. and the Stockholders named therein
2.7 -- Agreement and Plan of Organization, dated as of October 1, 1997, by and among the Company,
InVenture Acquisition Corp., InVenture Group, Inc. and the Stockholders named therein
2.8 -- Agreement and Plan of Organization, dated as of October 1, 1997, by and among the Company, MIS
Acquisition Corp., MIS Technologies, Inc. and the Stockholders named therein
3.1 -- Amended and Restated Certificate of Incorporation of the Company
3.2 -- By-Laws of the Company as amended
4.1* -- Form of Certificate Evidencing Ownership of Common Stock of the Company
5* -- Opinion of Morgan, Lewis & Bockius LLP
10.1 -- 1997 Long-Term Incentive Plan of the Company
10.2 -- Employment Agreement between the Company and Kennard F. Hill
10.3 -- Form of Employment Agreement between the Company and C. Lawrence Meador
10.4 -- Form of Employment Agreement between the Company and Daniel J. Roche
10.5 -- Employment Agreement between the Company and Santanu J. Sarkar
10.6* -- Form of Sublease between Fortress Mortgage and the Company
10.7* -- Form of Lease between Corporate Access and Corpac II Realty Trust
21 -- List of Subsidiaries of the Company
23.1 -- Consent of Price Waterhouse LLP
23.2 -- Consent of Coopers & Lybrand L.L.P.
23.3 -- Consent of Deloitte & Touche LLP
23.4 -- Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 5)
23.5 -- Consent of C. Lawrence Meador to be named as a director
23.6 -- Consent of Edward J. Mathias to be named as a director
24 -- Powers of Attorney (included on signature page)
27 -- Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
-----------------------------------------------------------------
AGREEMENT AND PLAN OF ORGANIZATION
dated as of October 1, 1997
by and among
CONDOR TECHNOLOGY SOLUTIONS, INC.
MST ACQUISITION CORP.
(a subsidiary of Condor Technology Solutions, Inc.)
MANAGEMENT SUPPORT TECHNOLOGY CORP.
and
the STOCKHOLDER named herein
-----------------------------------------------------------------
<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (this "Agreement") is made as of
September __, 1997, by and among CONDOR TECHNOLOGY SOLUTIONS, INC., a Delaware
corporation ("CTS"), MST ACQUISITION CORP., a Delaware corporation ("NEWCO"),
MANAGEMENT SUPPORT TECHNOLOGY CORP., a Delaware corporation (the "COMPANY"), and
C. Lawrence Meador (the "STOCKHOLDER"). The STOCKHOLDER is the sole stockholder
of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing under
the laws of the State of Delaware, having been incorporated on July 7,
1997, solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of CTS;
WHEREAS, the respective Boards of Directors of NEWCO and the COMPANY
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective stockholders that NEWCO
merge with and into the COMPANY pursuant to this Agreement and the
applicable provisions of the laws of the State of Delaware (the "Merger"),
and in furtherance thereof have approved the Merger;
WHEREAS, CTS is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with companies in
the information technology industry (collectively, the "Other Founding
Companies"), and their respective stockholders in order to acquire
additional information technology companies. The COMPANY, together with
each of the entities with which CTS has entered into the Other Agreements,
are collectively referred to herein as the "Founding Companies;"
WHEREAS, this Agreement, the Other Agreements and the IPO (as
hereinafter defined) of CTS Stock (as hereinafter defined) constitute the
"CTS Plan of Organization;"
WHEREAS, the Boards of Directors of CTS and each of the Founding
Companies have approved and adopted the CTS Plan of Organization as an
integrated plan to transfer the capital stock of the Founding Companies to
CTS and the cash raised in the IPO of CTS Stock to CTS as a transfer of
property under Section 351 of the Internal Revenue Code of 1986, as
amended (the "Code");
<PAGE>
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the STOCKHOLDER and the Board
of Directors of the COMPANY and the stockholders and the boards of
directors of each of CTS and NEWCO have approved this Agreement and the
transactions contemplated hereby;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined herein shall have the following meanings for all
purposes of this Agreement:
"Acquired Party" means the COMPANY, any subsidiary and any member of a
Relevant Group.
"Acquisition Companies" means NEWCO and each of the other Delaware
companies wholly-owned by CTS prior to the Closing Date.
"Acquisition Transaction" has the meaning set forth in Section 7.4.
"Affiliates" has the meaning set forth in Section 5.8.
"A/R Aging Reports" has the meaning set forth in Section 9.16.
"Articles of Merger" means those Articles or Certificates of Merger with
respect to the Merger substantially in the form[s] attached as Annex I hereto or
with such changes therein as may be required by applicable state laws.
"Balance Sheet Date" means December 31, 1996.
"Benefit Plan" means any Plan, existing at the Closing Date or prior
thereto, established or to which contributions have at any time been made by the
COMPANY, any ERISA Affiliate, or any predecessor of any of the foregoing, under
which any employee or former employee of the COMPANY, or any beneficiary
thereof, is covered, is eligible for coverage or has benefit rights.
"CTS" has the meaning set forth in the first paragraph of this Agreement.
"CTS Charter Documents" has the meaning set forth in Section 6.1.
"CTS Plan of Organization" has the meaning set forth in the fourth recital
of this Agreement.
"CTS Stock" means the common stock, par value $.01 per share, of CTS.
-2-
<PAGE>
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" means the consummation of the transactions contemplated by this
Agreement on the Closing Date.
"Closing Date" has the meaning set forth in Section 4.
"Code" has the meaning set forth in the fifth recital of this Agreement.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Current Assets" means all assets of the COMPANY classified in the balance
sheet of the COMPANY at such date as current assets in accordance with GAAP in
the manner applied in the audited financial statements of the COMPANY included
in the Registration Statement (excluding, however, amounts due and to become due
from affiliates of the COMPANY and/or the STOCKHOLDER which have arisen from
transactions which are other than arm's-length and in the ordinary course of the
COMPANY's business).
"Current Liabilities" means all liabilities of the COMPANY classified in
the balance sheet of the COMPANY at such date as current liabilities in
accordance with GAAP in the manner applied in the audited financial statements
of the COMPANY included in the Registration Statement.
"Current Ratio" means the ratio of (a) Current Assets to (b) Current
Liabilities.
"Delaware Law" has the meaning set forth in Section 1.2.
"Effective Time of the Merger" means the time as of which the Merger
becomes effective, which the parties hereto contemplate to occur on the Closing
Date.
"Environmental Requirements" has the meaning set forth in Section 5.13.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
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"ERISA Affiliate" means any Person who is, or at any time was, a member of
a controlled group (within the meaning of Section 412(n)(6) of the Code) that
includes, or at any time included, the COMPANY or any predecessor of the
COMPANY.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" has the meaning set forth in the third recital of
this Agreement.
"GAAP" means generally accepted accounting principles of the United States
applied in a manner consistent with the past practices of the COMPANY.
"Governmental Authority" means any governmental, regulatory or
administrative body, agency, subdivision or authority, any court or judicial
authority, or any public, private or industry regulatory authority, whether
national, Federal, state, local or otherwise.
"Hazardous Materials" has the meaning set forth in Section 5.13(b).
"Intellectual Property" means all trademarks, service marks, trade dress,
trade names, patents and copyrights and any registration or application for any
of the foregoing, and any trade secret, invention, process, know-how, computer
software or technology systems.
"IPO" means the initial public offering of CTS Stock pursuant to the
Registration Statement.
"Laws" has the meaning set forth in Section 5.21.
"Material Adverse Effect" means, with respect to any Person, any event or
occurrence which would have a material adverse effect on such Person's business,
condition (financial or other), properties, business prospects or financial
results.
"Material Contract" means any lease, instrument, agreement, license or
permit set forth on Schedule 5.12, 5.13, 5.14, 5.15, 5.16, 5.18 or 5.19 or any
other material agreement to which the COMPANY is a party or by which its
properties are bound.
"Merger" means the merger of NEWCO with and into the COMPANY pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO STOCK" means the common stock, par value $.01 per share, of
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NEWCO.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Other Agreements" has the meaning set forth in the third recital of this
Agreement.
"Other Founding Companies" has the meaning set forth in the third recital
of this Agreement.
"PGBC" means the Pension Benefit Guaranty Corporation.
"Person" means any natural person, corporation, partnership,
proprietorship, other business organization, trust, union, association or
Governmental Authority.
"Plan" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance, severance,
separation or other employee benefit plan, practice, policy or arrangement of
any kind, whether written or oral, or whether for the benefit of a single
individual or more than one individual including, but not limited to, any
"employee benefit plan" within the meaning of Section 3(3) of ERISA.
"Pre-Closing Date" has the meaning set forth in Section 4.
"Pricing" means the date of determination by CTS and the Underwriters of
the public offering price of the shares of CTS Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on or immediately prior to
the Pre-Closing Date.
"Registration Statement" means that certain registration statement of CTS
on Form S-1 covering the shares of CTS Stock to be issued in the IPO.
"Relevant Group" has the meaning set forth in Section 5.22(a).
"Returns" has the meaning set forth at the end of Section 5.22.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
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"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 7.3(e).
"STOCKHOLDER" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" shall mean the COMPANY as the surviving party in
the Merger.
"Tax" or "Taxes" has the meaning set forth at the end of Section 5.22.
"Taxing Authority" has the meaning set forth at the end of Section 5.22.
"Third Person" has the meaning set forth in Section 11.2.
"Transfer Taxes" has the meaning set forth in Section 17.6.
"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
"Underwriting Agreement" means the Underwriting Agreement dated the
Closing Date between the Underwriters and CTS in respect of the IPO.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 Delivery and Filing of Articles of Merger. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and filed
with the Secretary of State of the State of Delaware and stamped receipt copies
of each such filing to be delivered to CTS on or before the Closing Date.
1.2 Effective Time of the Merger. At the Effective Time of the Merger and
subject to the terms and conditions of this Agreement and the applicable
provisions of the Delaware General Corporation Law (the "Delaware Law"), NEWCO
shall be merged with and into the COMPANY in accordance with the Articles of
Merger, the separate existence of NEWCO shall cease and the COMPANY shall be the
surviving party in the Merger. At the Effective Time of the Merger, the effect
of the Merger otherwise shall be as provided in the applicable provisions of
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time of the Merger, all
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the property, rights, privileges, powers and franchises of the COMPANY and NEWCO
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of the COMPANY and NEWCO shall become the debts, liabilities and duties of the
Surviving Corporation. The Merger will be effected in a single transaction.
1.3 Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(a) the Certificate or Articles of Incorporation of the COMPANY then
in effect shall be the Certificate or Articles of Incorporation of the
Surviving Corporation until amended as provided by law;
(b) the By-laws of the COMPANY then in effect shall be the By-laws
of the Surviving Corporation until amended as provided by law;
(c) two directors of NEWCO and four nominees of the STOCKHOLDER
shall be the directors of the Surviving Corporation until their respective
successors are elected or appointed and qualified in accordance with the
terms the By-laws of the Surviving Corporation; the Board of Directors of
the Surviving Corporation shall hold office subject to the provisions of
the laws of the State of Delaware and of the Certificate of Incorporation
and By-laws of the Surviving Corporation; and
(d) the officers of the COMPANY immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities, and effective upon the
Effective Time of the Merger, J. Marshall Coleman shall be appointed as a
vice president and assistant secretary of the Surviving Corporation and
shall not be entitled to any compensation from the COMPANY as a result of
such appointment and his serving in such capacity, such officers to serve,
subject to the provisions of the Certificate or Articles of Incorporation
and By-laws of the Surviving Corporation, until his or her successor is
duly elected and qualified.
1.4 Certain Information With Respect to the Capital Stock of the COMPANY,
CTS and NEWCO. The respective designations and numbers of outstanding shares and
voting rights of each class of outstanding capital stock of the COMPANY, CTS and
NEWCO as of the date of this Agreement are as follows:
(a) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 1.4 hereto;
(b) immediately prior to the Closing Date, the authorized capital
stock of CTS will consist of 50,000,000 shares; and
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(c) as of the date of this Agreement, the authorized capital stock
of NEWCO consists of 3,000 shares of NEWCO Stock, of which ten (10) shares
are issued and outstanding and beneficially owned by CTS.
2. CONVERSION OF STOCK
2.1 Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) CTS Stock and (y) common stock of the Surviving
Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(a) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger will be canceled and
extinguished and, by virtue of the Merger and without any action on the
part of the holder thereof, automatically shall be deemed to represent,
with respect to the STOCKHOLDER, (1) the right to receive the number of
shares of CTS Stock set forth on Annex III hereto with respect to the
STOCKHOLDER and (2) the right to receive the amount of cash set forth on
Annex III hereto with respect to the STOCKHOLDER;
(b) all shares of COMPANY Stock that are held by the COMPANY as
treasury stock shall be canceled and retired and no shares of CTS Stock or
other consideration shall be delivered or paid in exchange therefor; and
(c) each share of NEWCO Stock issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger
and without any action on the part of CTS, automatically be converted into
one fully paid and non-assessable share of common stock of the Surviving
Corporation, which shall constitute all of the issued and outstanding
shares of common stock of the Surviving Corporation immediately after the
Effective Time of the Merger.
All CTS Stock received by the STOCKHOLDER pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 5 and
15 hereof and the registration rights described in Section 16 hereof, have the
same rights as all the other shares of outstanding CTS Stock by reason of the
provisions of the Certificate of Incorporation of CTS or as otherwise provided
by the Delaware Law. All voting rights of such CTS Stock received by the
STOCKHOLDER shall be fully exercisable by the STOCKHOLDER and the STOCKHOLDER
shall not be deprived nor restricted in
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exercising those rights. At the Effective Time of the Merger, CTS shall have no
class of capital stock issued and outstanding other than the CTS Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 At the Effective Time of the Merger and on the Closing Date the
STOCKHOLDER, who is the holder of all outstanding certificates representing
shares of COMPANY Stock, shall, upon surrender of such certificates, receive (i)
the respective number of shares of CTS Stock and (ii) the amount of cash, all as
set forth on Annex III hereto with respect to the STOCKHOLDER, provided that
such cash shall be paid out of the net proceeds from the IPO. The cash payable
pursuant to clause (ii) shall be paid by wire transfer.
3.2 The STOCKHOLDER shall deliver in trust to Morgan, Lewis & Bockius LLP,
counsel to CTS, at the Pre-Closing the certificates representing COMPANY Stock,
duly endorsed in blank by the STOCKHOLDER, or accompanied by stock powers duly
endorsed in blank, with signatures guaranteed by a national or state chartered
bank or other financial institution, and with all necessary Transfer Tax and
other revenue stamps, acquired at the STOCKHOLDER's expense, affixed and
canceled. The STOCKHOLDER agrees promptly to cure any deficiencies with respect
to the endorsement of the stock certificates or other documents of conveyance
with respect to such COMPANY Stock or with respect to the stock powers
accompanying any COMPANY Stock. Upon consummation of the IPO and the
transactions contemplated to occur on the Closing Date, all of such certificates
shall be deemed released by such counsel to CTS without any further action on
the part of such counsel.
4. CLOSING
At or prior to the Pre-Closing, the parties shall take all actions
necessary to prepare to (i) effect the Merger (including, if permitted by
applicable state law, the advance filing with the appropriate state authorities
of the Articles of Merger, which shall become effective at the Effective Time of
the Merger) and (ii) effect the conversion and delivery of shares referred to in
Section 2 hereof; provided, that such actions shall not include the actual
completion of the Merger for purposes of this Agreement or the conversion and
delivery of the shares and transmission of funds by wire referred to in Section
3 hereof, each of which actions shall only be taken upon the Closing Date as
herein provided. In the event that there is no Closing and this Agreement
terminates, CTS hereby covenants and agrees to do all things required by
Delaware Law and all things which counsel for the COMPANY advise CTS are
required by applicable laws of the State of Delaware in order to rescind any
merger or other actions effected by the advance filing of the Articles of Merger
as described in this Section. The taking of the actions described in clauses (i)
and (ii) above (the "Pre-Closing") shall take place on the date of the execution
of the underwriting agreement to be used in connection with the
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IPO (the "Pre-Closing Date") at the offices of Morgan, Lewis & Bockius LLP, 101
Park Avenue, New York, New York 10178. On the Closing Date (x) the Articles of
Merger shall be or shall have been filed with the appropriate state authorities
so that they shall be or, as of 8:00 a.m. New York City time on the Closing
Date, shall become effective and the Merger shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares, the transmission of funds by wire in an amount equal to the
cash portion of the consideration which the STOCKHOLDER shall be entitled to
receive pursuant to the Merger referred to in Section 3 hereof shall be
completed and (z) the closing with respect to the IPO shall occur and be deemed
to be completed. The date on which the actions described in the preceding
clauses (x), (y) and (z) occur shall be referred to as the "Closing Date." Time
is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDER
(A) Representations and Warranties of the COMPANY and the STOCKHOLDER.
Each of the COMPANY and the STOCKHOLDER jointly and severally represents
and warrants to CTS and NEWCO that all of the following representations and
warranties in this Section 5(A) are true and correct at the date of this
Agreement and, subject to Section 7.8 hereof, shall be true and correct at the
time of the Pre-Closing and the Closing Date, and that such representations and
warranties shall survive the Closing Date for a period of eighteen months (the
last day of such period being the "Expiration Date"), except that (i) the
representations and warranties set forth in Section 5.22 hereof shall survive
until such time as the statute of limitations period has run for all tax periods
ended on or prior to the Closing Date, which shall be deemed to be the
Expiration Date for Section 5.22, and (ii) solely for purposes of Section
11.1(iii) hereof and solely to the extent that, in connection with the IPO, CTS
actually incurs liability under the 1933 Act, the 1934 Act, or any other Federal
or state securities laws, the representations and warranties set forth in this
Section 5(A) shall survive until the expiration of any applicable statute of
limitations period, which shall be deemed to be the Expiration Date for such
purposes. For purposes of this Section 5 and for the opinion referred to in
Sectionn 9.8 of this Agreement, the term "COMPANY" shall mean and refer to the
COMPANY and all of its subsidiaries, if any.
5.1 Due Organization. The COMPANY is a corporation duly incorporated,
validly existing and in good standing under the laws of the state of its
incorporation, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted, to own
or hold under lease the properties and assets it now owns or holds under lease,
and to perform all of its obligations under the Material Contracts; is duly
qualified in the jurisdictions listed in Schedule 5.1 and there are no
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other jurisdictions in which the conduct of the COMPANY's business or activities
or its ownership of assets requires any other qualification under applicable
law, the absence of which would have a Material Adverse Effect on the COMPANY.
True, complete and correct copies of the Certificate or Articles of
Incorporation and By-laws, each as amended, of the COMPANY (the "Charter
Documents") are all attached to Schedule 5.1. The minute books and stock records
of the COMPANY, as heretofore made available to CTS, are correct and complete in
all material respects. The most recent minutes of the COMPANY, which are dated
no earlier than 10 business days prior to the date hereof, affirm and ratify all
prior acts of the COMPANY and of its officers and directors on behalf of the
COMPANY.
5.2 Authorization. The representatives of the COMPANY executing this
Agreement have the authority to execute and deliver this Agreement and to
perform its obligations hereunder. The execution and delivery of this Agreement
by the COMPANY and performance by the COMPANY of its obligations under this
Agreement and the consummation by the COMPANY of the transactions contemplated
hereby have been duly authorized by all necessary corporate and stockholder
action in accordance with applicable law and the Articles of Incorporation and
By-Laws of the COMPANY on the part of the COMPANY and the STOCKHOLDER. This
Agreement constitutes the valid and binding obligation of the COMPANY,
enforceable in accordance with its terms.
5.3 Capital Stock of the COMPANY. The authorized capital stock of the
COMPANY is as set forth in Schedule 1.4. All of the issued and outstanding
shares of capital stock of the COMPANY are owned by the STOCKHOLDER in the
amounts set forth in Annex IV and, except as set forth on Schedule 5.3, are
owned free and clear of all liens, security interests, pledges, charges, voting
trusts, restrictions, encumbrances and claims of every kind. All of the issued
and outstanding shares of capital stock of the COMPANY have been duly authorized
and validly issued, are fully paid and nonassessable, are owned of record and
beneficially by the STOCKHOLDER and were offered, issued, sold and delivered by
the COMPANY in compliance with all applicable state and Federal laws concerning
the issuance of securities. The COMPANY and the STOCKHOLDER have full right,
power and authority to exchange the COMPANY Stock as provided herein without
obtaining the consent or approval of any other person or Governmental Authority.
Further, none of such shares were issued in violation of the preemptive
rights of any past or present stockholder.
5.4 Transactions in Capital Stock; Organization Accounting. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock since
January 1, 1994. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
COMPANY to issue any of its authorized but unissued capital stock or its
treasury stock; (ii) the
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COMPANY has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) the
voting stock structure of the COMPANY has not been altered or changed in
contemplation of the Merger and/or the CTS Plan of Organization. Schedule 5.4
also includes complete and accurate copies of all stock option or stock purchase
plans, including a list of all outstanding options, warrants or other rights to
acquire shares of the COMPANY Stock and a description of the material terms of
such outstanding options, warrants or other rights.
5.5 No Bonus Shares. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
5.6 Subsidiaries. Schedule 5.6 attached hereto lists the name of each of
the COMPANY's subsidiaries and sets forth the number and class of the authorized
capital stock of each of the COMPANY's subsidiaries and the number of shares of
each of the COMPANY's subsidiaries which are issued and outstanding, all of
which shares (except as set forth on Schedule 5.6) are owned by the COMPANY,
free and clear of all liens, security interests, pledges, voting trusts,
equities, restrictions, encumbrances and claims of every kind. Except as set
forth on Schedule 5.6, the COMPANY does not presently own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity nor is the COMPANY, directly or indirectly, a
participant in any joint venture, partnership or other non-corporate entity.
5.7 Predecessor Status; etc. Set forth on Schedule 5.7 is a list of all
names of all predecessor companies of the COMPANY, including the names of any
entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from which the COMPANY previously acquired material
assets. Except as disclosed on Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
5.8 Spin-off by the COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1994.
5.9 Financial Statements. The COMPANY has delivered to CTS copies of the
following financial statements (the "Financial Statements").
(a) Audited Balance Sheets, Income Statements, Statements of
Stockholders' Equity and Statements of Cash Flows at and for the years
ended December 31, 1994, 1995 and 1996.
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(b) Unaudited Balance Sheets, Income Statements, Statements of
Stockholders' Equity, and Statements of Cash Flows for the six months
ended June 30, 1996 and 1997.
Each of the Financial Statements is consistent with the books and records
of the COMPANY (which, in turn, are accurate and complete in all material
respects) and fairly presents the COMPANY's financial condition, assets and
liabilities as of their respective dates and the results of operations and cash
flows for the periods related thereto in accordance with GAAP, consistently
applied among the periods which are the subject of the Financial Statements,
except unaudited interim financial statements which were or are subject to
normal year-end adjustments which were not and are not expected to be material
in amount and the addition of required footnotes thereto.
5.10 Liabilities and Obligations. The COMPANY has delivered to CTS an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY in excess of $10,000 which are not
reflected on the balance sheet of the COMPANY at the Balance Sheet Date or
otherwise reflected in the COMPANY Financial Statements at the Balance Sheet
Date and (ii) all loan agreements, indemnity or guaranty agreements, bonds,
mortgages, liens, pledges or other security agreements to which the COMPANY is a
party. Except as set forth on Schedule 5.10, since the Balance Sheet Date, the
COMPANY has not incurred any material liabilities of any kind, character and
description, whether accrued, absolute, secured or unsecured, contingent or
otherwise, other than liabilities incurred in the ordinary course of business.
The COMPANY has also set forth on Schedule 5.10, in the case of those contingent
liabilities related to pending or threatened litigation, or other liabilities
which are not fixed or are being contested, the following information:
(a) a summary description of the liability and has provided CTS's
counsel with: (i) copies of all relevant documentation relating
thereto;
(ii) amounts claimed and any other action or relief
sought;
(iii) and name of claimant and all other parties to the
claim, suit or proceeding;
(b) the name of each court or agency before which such claim, suit
or proceeding is pending;
(c) the date such claim, suit or proceeding was instituted; and
(d) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such
liability. If no estimate is provided, the estimate shall for purposes of
this Agreement be deemed to be zero.
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5.11 Accounts and Notes Receivable. The COMPANY has delivered to CTS an
accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY as of the Balance Sheet Date, including any such
amounts which are not reflected in the balance sheet as of the Balance Sheet
Date, and including receivables from and advances to employees and the
STOCKHOLDER. Except to the extent reflected on Schedule 5.11 or as disclosed by
the COMPANY to CTS in a writing accompanying the A/R Aging Reports, as the case
may be, the accounts, notes and other receivables shown on Schedule 5.11 and on
the A/R Aging Reports are and shall be, and the COMPANY has no reason to believe
that any such account receivable is not or shall not be, collectible in the
amounts shown (in the case of the accounts and notes receivable set forth on
Schedule 5.11, net of reserves reflected in the balance sheet calculated
consistent with the reserves as of the Balance Sheet Date).
5.12 Intellectual Property; Permits and Intangibles.
(a) The COMPANY owns or has licenses to all Intellectual Property
the absence of any of which would have a Material Adverse Effect on the
COMPANY, and the COMPANY has delivered to CTS an accurate list (which is
set forth on Schedule 5.12(a)) of all Intellectual Property owned by or
licensed by the COMPANY. Each item of Intellectual Property owned by or
licensed by the COMPANY is valid and in full force and effect. Except as
set forth on Schedule 5.12(a), all right, title and interest in and to
each item of Intellectual Property is owned by the COMPANY and is not
subject to any license except as set forth on Schedule 5.12(a), royalty
arrangement or pending or threatened claim or dispute. To the COMPANY's
knowledge, none of the Intellectual Property owned by or licensed by the
COMPANY nor any product sold or licensed by the COMPANY, infringes any
Intellectual Property right of any other entity and to the COMPANY's
knowledge, no Intellectual Property owned by the COMPANY is infringed upon
by any other entity.
(b) The COMPANY holds all licenses, franchises, permits and other
governmental authorizations the absence of any of which could have a
Material Adverse Effect on the COMPANY, and the COMPANY has delivered to
CTS an accurate list and summary description (which is set forth on
Schedule 5.12(b)) of all governmental licenses, franchises, permits and
other governmental authorizations, including permits, titles, licenses,
franchises and certificates (it being understood and agreed that a list of
all environmental permits and other environmental approvals is set forth
on Schedule 5.13). To the knowledge of the COMPANY, the licenses,
franchises, permits and other governmental authorizations listed on
Schedules 5.12(b) and 5.13 are valid, and the COMPANY has not received any
notice that any Governmental Authority intends to cancel, terminate or not
renew any such license, franchise, permit or other governmental
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authorization. The COMPANY has conducted and is conducting its business in
compliance with the requirements, standards, criteria and conditions set
forth in the licenses, franchises, permits and other governmental
authorizations listed on Schedules 5.12(b) and 5.13 and is not in
violation of any of the foregoing except where such non-compliance or
violation would not have a Material Adverse Effect on the COMPANY. Except
as specifically provided in Schedule 5.12(a) or 5.12(b), the transactions
contemplated by this Agreement will not (i) to the COMPANY's knowledge,
result in the infringement by the COMPANY of any Intellectual Property
right of any other entity, (ii) infringe any Intellectual Property listed
on Schedule 5.12(a), or (iii) result in a default under or a breach or
violation of, or adversely affect the rights and benefits afforded to the
COMPANY by, any licenses, franchises, permits or government authorizations
listed on Schedule 5.12(b).
5.13 Environmental Matters.
(a) Except as set forth on Schedule 5.13,
(i) the COMPANY is and at all times has been in compliance
in all material respects with, and has not been in
violation of or liable under, all Environmental
Requirements, and
(ii) the COMPANY possesses all permits, licenses and
certificates required by all Environmental Requirements,
and has filed all notices or applications required
thereby.
As used herein, "Environmental Requirements" shall mean all applicable federal,
state and local laws, rules, regulations, ordinances and requirements relating
to pollution and protection of the environment, all as amended to date.
(b) Except as disclosed on Schedule 5.13:
(i) the COMPANY has not been subject to, or received any
notice of any private, administrative or judicial
action, or notice of any intended private,
administrative or judicial action relating to the
presence or alleged presence of Hazardous Materials in,
under or upon any real property currently or formerly
owned, leased or used by (A) the COMPANY or (B) any
other person that has, at any time, disposed of
Hazardous Materials on behalf of the COMPANY;
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(ii) the COMPANY does not have any basis for any such notice
or action; and
(iii) there are no pending or, to the knowledge of the
COMPANY, threatened actions or proceedings (or notices
of potential actions or proceedings) from any
Governmental Authority or any other entity regarding any
matter relating to health, safety or protection of the
environment against the COMPANY.
"Hazardous Materials" for purposes of this Agreement shall include,
without limitation: (A) hazardous materials, hazardous substances,
extremely hazardous substances or hazardous wastes, as those terms are
defined by the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. ss.9601 et seq. ("CERCLA"), the Resource
Conservation and Recovery Act, 42 U.S.C. ss.6901 et seq. ("RCRA"), and any
other Environmental and Safety Requirements; (B) petroleum, including,
without limitation, crude oil or any fraction thereof which is liquid at
standard conditions of temperature and pressure (60 degrees Fahrenheit and
14.7 pounds per square inch absolute); (C) any radioactive material,
including, without limitation, any source, special nuclear, or by-product
material as defined in 42 U.S.C. ss. 2011 et seq.; and (D) asbestos in any
form or condition.
(c) To the Company's knowledge, there are and have been no past or
present events, conditions, circumstances, activities, practices,
incidents or actions which could reasonably be expected to interfere with
or prevent continued compliance with any Environmental Requirements, give
rise to any legal obligation or liability, or otherwise form the basis of
any claim, action, suit, proceeding, hearing or investigation against or
involving the COMPANY or any real property presently or previously owned
or used by the COMPANY under any Environmental Requirements or related
common law theories, except as identified on Schedule 5.13.
(d) Schedule 5.13 sets forth the name and principal place of
business of every off-site waste disposal organization, and each of the
haulers, transporters or cartage organization engaged now or in the
preceding three years by the COMPANY to dispose of Hazardous Materials to
any such off-site waste disposal location on behalf of the COMPANY or any
of its predecessors.
5.14 Personal Property. The COMPANY has delivered to CTS an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property with a fair
market value individually in excess of $10,000 which is included (or that will
be included) in "depreciable plant, property and equipment" (or similarly named
line item) on the
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balance sheet of the COMPANY as of the Balance Sheet Date, (y) all other
personal property owned by the COMPANY with a value individually in excess of
$10,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date and (z) all leases and agreements in respect of personal property
with a value individually in excess of $10,000, including, in the case of each
of (x), (y) and (z), (1) true, complete and correct copies of all such leases
which have been provided to CTS's counsel, (2) a listing of the capital costs of
all such assets which are subject to capital leases and (3) an indication as to
which assets are currently owned, or, to the COMPANY's knowledge, were formerly
owned, by the STOCKHOLDER or Affiliates of the COMPANY or the STOCKHOLDER.
Except as set forth on Schedule 5.14, (i) all personal property with a value
individually in excess of $10,000 used by the COMPANY in its business is either
owned by the COMPANY or leased by the COMPANY pursuant to a lease included on
Schedule 5.14, (ii) all of the personal property listed on Schedule 5.14 is in
good working order and condition, ordinary wear and tear excepted, and (iii) all
leases and agreements included on Schedule 5.14 are in full force and effect and
constitute valid and binding agreements of the COMPANY, and to the COMPANY's
knowledge, of the other parties (and their successors) thereto in accordance
with their respective terms.
5.15 Significant Customers: Material Contracts and Commitments. The
COMPANY has delivered to CTS an accurate list (which is set forth on Schedule
5.15) of all significant customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person or entity) representing 5% or more of the COMPANY's annual revenues as of
the Balance Sheet Date. Except to the extent set forth on Schedule 5.15, none of
the COMPANY's significant customers has canceled or substantially reduced or, to
the knowledge of the COMPANY, is currently attempting or threatening to cancel a
contract or substantially reduce utilization of the services provided by the
COMPANY.
Except as listed or described on Schedule 5.15, as of or on the date
hereof, neither the COMPANY is a party to or bound by, nor do there exist any,
Contracts relating to or in any way affecting the operation or ownership of the
COMPANY's business that are of a type described below:
(a) any collective bargaining arrangement with any labor union or
any such agreement currently in negotiation or proposed;
(b) any contract for capital expenditures or the acquisition or
construction of fixed assets for or in respect to real property other than
in the COMPANY's ordinary course of business in excess of $50,000;
(c) any contract with a term in excess of one year for the purchase,
maintenance, acquisition, sale or furnishing of materials, supplies,
merchandise, machinery, equipment, parts or other property or services
(except that the
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COMPANY need not list any such contract made in the ordinary course of
business) which requires aggregate future payments of greater than
$100,000;
(d) any contract relating to the borrowing of money, or the guaranty
of another person's borrowing of money, including, without limitation, all
notes, mortgages, indentures and other obligations, agreements and other
instruments for or relating to any lending or borrowing, including assumed
indebtedness;
(e) any contract granting any person a lien on any of the assets of
the COMPANY, in whole or in part;
(f) any contract for the cleanup, abatement or other actions in
connection with Hazardous Materials (as defined in Section 5.13), the
remediation of any existing environmental liabilities or relating to the
performance of any environmental audit or study;
(g) any contract granting to any person a first-refusal, first-offer
or similar preferential right to purchase or acquire any of the assets of
the COMPANY's business other than in the ordinary course of business;
(h) any contract under which the COMPANY is
(i) a lessee or sublessee of any machinery, equipment,
vehicle or other tangible personal property or real
property, or
(ii) a lessor of any real property or tangible personal
property owned by the COMPANY,
in either case having an original value in excess of $50,000;
(i) any contract providing for the indemnification of any officer,
director, employee or other person, where such indemnification may exceed
the sum of $50,000;
(j) any joint venture or partnership contract; and
(k) any other contract with a term in excess of one year, whether or
not made in the ordinary course of business, which involves payments in
excess of $100,000.
The COMPANY has provided CTS with a true and complete copy of each written
Material Contract, including all amendments or other modifications thereto.
Except as set forth on Schedule 5.15, each Material Contract is a valid and
binding obligation of the
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COMPANY, enforceable against the COMPANY in accordance with its terms, and is in
full force and effect. Except as set forth on Schedule 5.15, the COMPANY has
performed all obligations required to be performed by it under each Material
Contract and neither the COMPANY nor, to the knowledge of the COMPANY, any other
party to any Contract, is (with or without the lapse of time or the giving of
notice or both) in breach or default in any material respect thereunder; and
there exists no condition which, to the knowledge of the COMPANY, would
constitute a breach or default thereunder. The COMPANY has not been notified
that any party to any Material Contract intends to cancel, terminate, not renew
or exercise an option under any Material Contract, whether in connection with
the transactions contemplated hereby or otherwise.
5.16 Real Property. (a) Schedule 5.16(a) includes a list of all real
property owned by the COMPANY (i) as of the Balance Sheet Date and (ii) acquired
since the Balance Sheet Date, and all other real property, if any, used by the
COMPANY in the conduct of its business. The COMPANY has good and insurable title
to the real property owned by it, including that reflected on Schedule 5.14,
subject to no mortgage, pledge, lien, conditional sale agreement, encumbrance or
charge, except for:
(i) liens reflected on Schedule 5.10 or 5.15 as securing
specified liabilities (with respect to which no default
by the COMPANY exists);
(ii) liens for current taxes not yet due and payable and
assessments not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other
exceptions to title shown of record in the office of the
County Clerks in which the properties, assets and
leasehold estates are located which do not adversely
affect the current use of the property.
Attached to Schedule 5.16(a) are true, complete and correct copies of all title
reports and title insurance policies currently in possession of the COMPANY with
respect to real property owned by the COMPANY.
(b) Schedule 5.16(b) includes an accurate list of real property leases to
which the COMPANY is a party and an indication as to which such properties, if
any, are currently owned, or were formerly owned, by the STOCKHOLDER or
Affiliates of the COMPANY or the STOCKHOLDER. Counsel to CTS has been provided
with true, complete and correct copies of all leases and agreements in respect
of such real property leased by the COMPANY. Except as set forth on Schedule
5.16(b), all of such leases
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included on Schedule 5.16(b) are in full force and effect and constitute valid
and binding agreements of the COMPANY and, to the COMPANY's knowledge, of the
parties (and their successors) thereto in accordance with their respective
terms.
5.17 Insurance.
(a) The COMPANY has delivered to CTS:
(i) true and complete copies of all policies of insurance to
which the COMPANY is a party or under which the COMPANY,
or any director of the COMPANY, is or has been covered
at any time within two years preceding the date of this
Agreement;
(ii) true and complete copies of all pending applications for
policies of insurance; and
(iii) any statement by the auditor of the COMPANY's financial
statements with regard to the adequacy of such entity's
coverage or of the reserves for claims.
(b) Schedule 5.17(b) describes:
(i) any self-insurance arrangement by or affecting the
COMPANY, including any reserves established thereunder;
(ii) any contract or arrangement, other than a policy of
insurance, for the transfer or sharing of any risk by
the COMPANY; and
(iii) all obligations of the COMPANY to third parties with
respect to insurance (including such obligations under
leases and service agreements), and identifies the
policy under which such coverage is provided.
(c) Schedule 5.17(c) sets forth, by year, for the current policy
year and each of the preceding two policy years:
(i) a summary of the loss experience under each policy;
(ii) a statement describing each claim under an insurance
policy for an amount in excess of $25,000, which sets
forth:
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a) the name of the claimant;
b) a description of the policy by insurer, type of
insurance and period of coverage; and
c) the amount and a brief description of the claim;
and
(iii) a statement describing the loss experience for all
claims that were self-insured, including the number and
aggregate cost of such claims.
(d) Except as set forth on Schedule 5.17(d):
(i) All policies to which the COMPANY is a party or that
provide coverage to the COMPANY:
a) are valid, outstanding and enforceable;
b) are issued by an insurer that is financially sound
and reputable;
c) taken together, provide adequate insurance for the
assets and the operations of the COMPANY for all
risks normally insured against by a person
carrying on the same business or businesses of the
COMPANY;
d) are sufficient for compliance with all legal
requirements and Material Contracts to which the
COMPANY is a party or by which it is bound;
e) will continue in full force and effect following
the Closing in accordance with their respective
terms;
(ii) the COMPANY has not received (A) any refusal of coverage
or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation
or any other indication that any insurance policy is no
longer in full force or effect or will not be renewed or
that the issuer of any policy is not willing or able to
perform its obligations thereunder;
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(iii) the COMPANY has paid all premiums due, and has otherwise
performed all of its obligations, under each policy to
which it is a party or that provides coverage to it or
any director thereof.
(iv) the COMPANY has given notice to the insurer of all
claims known by it to be insured thereby.
5.18 Compensation; Employment Agreements; Organized Labor Matters. The
COMPANY has delivered to CTS an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the COMPANY, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons as of (i) the
Balance Sheet Date and (ii) the date hereof. The COMPANY has provided to CTS
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
increases in the compensation payable or any special bonuses to any officer,
director, key employee or other employee, except ordinary salary increases
implemented on a basis consistent with past practices.
Except as set forth on Schedule 5.18, there is no, and within the last
three years the COMPANY has not experienced any, strike, picketing, boycott,
work stoppage or slowdown, other labor dispute, union organizational activity,
allegation, charge or complaint of unfair labor practice, employment
discrimination or other matters relating to the employment of labor, pending or,
to the COMPANY's knowledge, threatened against the COMPANY; nor is there, to the
knowledge of the COMPANY, any basis for any such allegation, charge or
complaint. Except as set forth on Schedule 5.18, to the knowledge of the
COMPANY, none of the employees of any critical subcontractor utilized by the
COMPANY are represented by a labor union. There is no request directed to the
COMPANY for union or similar representation pending and, to the COMPANY's
knowledge, no question concerning representation has been raised. To the
COMPANY's knowledge, there is no grievance pending which might have a Material
Adverse Effect on the COMPANY nor any which might have a Material Adverse Effect
on any arbitration proceeding arising out of any union agreement. There are no
arbitration awards, court orders, orders of the National Labor Relations Board
or private settlement agreements which in any way alter, amend or clarify any
union agreement or which restrict or otherwise impact the COMPANY's ability to
act with respect to the employees covered by any union agreement in the future.
To the COMPANY's knowledge, no key employee and no group of employees has any
plans to terminate employment with the COMPANY. The COMPANY has complied in all
material respects with all applicable laws relating to the employment of labor,
including provisions thereof relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and other taxes.
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The COMPANY is not liable for any arrearages of wages or any taxes or penalties
for failure to comply with any such laws, ordinances or regulation.
5.19 Employee Plans. The COMPANY has delivered to CTS an accurate schedule
(which is set forth on Schedule 5.19) showing all Benefit Plans of the COMPANY,
together with true, complete and correct copies of such Benefit Plans,
agreements and any trusts related thereto, and classifications of employees
covered thereby as of the Balance Sheet Date. The COMPANY is not required to
contribute to any Benefit Plan pursuant to the provisions of any collective
bargaining agreement establishing the terms and conditions of employment of any
of COMPANY's employees.
5.20 Compliance with ERISA. All Benefit Plans that are intended to qualify
under Section 401 (a) of the Code are and have been so qualified and have been
determined by the Internal Revenue Service to be so qualified, and copies of
such determination letters are included as part of Schedule 5.19 hereof. Except
as disclosed on Schedule 5.20, all reports and other documents required to be
filed with any Governmental Authority or distributed to plan participants or
beneficiaries (including, but not limited to, actuarial reports, audits or tax
returns) have been timely filed or distributed, and copies thereof are included
as part of Schedule 5.19 hereof other than those reports required to be
distributed to Plan participants and beneficiaries. Neither the STOCKHOLDER, any
such Benefit Plan, nor the COMPANY has engaged in any transaction prohibited
under the provisions of Section 4975 of the Code or Section 406 of ERISA. No
Benefit Plan has incurred an accumulated funding deficiency, as defined in
Section 412(a) of the Code and Section 302(l) of ERISA; and the COMPANY has not
incurred any liability for excise tax or penalty due to the Internal Revenue
Service nor any liability to the PBGC. The COMPANY further represents that:
(a) there have been no terminations, partial terminations or
discontinuance of contributions to any such Benefit Plan intended to
qualify under Section 401 (a) of the Code without notice to and approval
by the Internal Revenue Service;
(b) no such Benefit Plan subject to the provisions of Title IV of
ERISA has been terminated;
(c) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any Benefit Plan;
(d) the COMPANY has not incurred liability under Section 4062 of
ERISA;
(e) no circumstances exist pursuant to which the COMPANY could have
any direct or indirect liability whatsoever (including, but not limited
to, any
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liability to any multiemployer plan or the PBGC under Title IV of ERISA or
to the Internal Revenue Service for any excise tax or penalty, or being
subject to any statutory lien to secure payment of any such liability)
with respect to any Benefit Plan now or heretofore maintained or
contributed to by any entity other than the COMPANY that is, or at any
time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the COMPANY;
(f) the COMPANY is not now, nor can it as a result of its past
activities become, liable to the PBGC or to any multiemployer employee
pension benefit plan under the provisions of Title IV of ERISA;
(g) all Benefit Plans listed on Schedule 5.19 and the administration
thereof are in substantial compliance with their terms and all applicable
provisions of ERISA and the regulations issued thereunder, as well as with
all other applicable federal, state and local statutes, ordinances and
regulations; and
(h) all accrued contribution obligations of the COMPANY with respect
to any Benefit Plan have either been fulfilled in their entirety or are
fully reflected on the balance sheet of the COMPANY as of the Balance
Sheet Date.
5.21 Conformity with Law; Litigation. Except as set forth on Schedule 5.13
or 5.21, the COMPANY has complied with all laws, rules, regulations, writs,
injunctions, decrees, and orders applicable to it or to the operation of its
Business (collectively, "Laws") and has not received any notice of any alleged
claim or threatened claim, violation of, liability or potential responsibility
under, any such Law which has not heretofore been cured and for which there is
no remaining liability other than, in each case, those not having a Material
Adverse Effect on the COMPANY. Without limiting the generality of the foregoing,
the COMPANY has complied with all applicable federal, state and local Laws
relating to antitrust and trade regulations.
Except to the extent set forth on Schedule 5.10 or 5.13 or as set forth on
Schedule 5.21 (which shall disclose the parties to, nature of, and relief sought
for each matter to be disclosed on Schedule 5.21) :
(a) There is no suit, action, proceeding, claim, order or, to the
Company's knowledge, investigation pending or, to the COMPANY's knowledge,
threatened against either the COMPANY or any Benefit Plan, or any
fiduciary of any such Benefit Plan or, to the knowledge of the COMPANY,
pending or threatened against any of the officers, directors or employees
of the COMPANY with respect to its business or proposed business
activities or to which the COMPANY is otherwise a party, which would have
a Material Adverse Effect on the COMPANY, before any court, or before any
Governmental
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Authority (collectively, "Claims"); nor, to the COMPANY's knowledge, is
there any basis for any such Claims.
(b) The COMPANY is not subject to any judgment, order or decree of
any court or Governmental Authority; the COMPANY has not received any
opinion or memorandum from legal counsel to the effect that it is exposed,
from a legal standpoint, to any liability or disadvantage which may be
material to its business. The COMPANY is not engaged in any legal action
to recover monies due it or for damages sustained by it.
(c) The COMPANY's current insurance is believed in good faith to be
adequate to cover all pending or threatened Claims, the COMPANY has given
all required notice of such Claims to its appropriate insurance carrier(s)
and/or all such claims have been fully reserved for on the financial
statements of the COMPANY has delivered to CTS pursuant to the terms of
this Agreement. Schedule 5.21 lists the insurer for each Claim covered by
insurance or designates each Claim, or portion of each Claim, as uninsured
and the individual and aggregate policy limits for the insurance covering
each insured Claim and the applicable policy deductibles for each insured
Claim.
Schedule 5.21 sets forth all closed litigation matters (other than workers
compensation claims) to which the COMPANY was a party during the three
years preceding the Closing, the date such litigation was commenced and
concluded, and the nature of the resolution thereof (including amounts
paid in settlement or judgment).
5.22 Taxes. Except as set forth on Schedule 5.22:
(a) All Returns required to have been filed by or with respect to
the COMPANY and any affiliated, combined, consolidated, unitary or similar
group of which the COMPANY is or was a member (a "Relevant Group") with
any Taxing Authority have been duly filed, and each such Return correctly
and completely reflects the Tax liability and all other information
required to be reported thereon. All Taxes (whether or not shown on any
Return) owed by the COMPANY, any subsidiary and any member of a Relevant
Group (individually, the "Acquired Party" and collectively, the "Acquired
Parties") have been paid.
(b) To the knowledge of the COMPANY and the STOCKHOLDER, the
provisions for Taxes due by the COMPANY and any subsidiaries (as opposed
to any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) in the COMPANY Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of such Acquired Party.
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(c) No Acquired Party is a party to any agreement extending the time
within which to file any Return. No claim has ever been made by any Taxing
Authority in a jurisdiction in which an Acquired Party does not file
Returns that it is or may be subject to taxation by that jurisdiction that
is unresolved or if adversely determined would have a Material Adverse
Effect on such Acquired Party.
(d) Each Acquired Party has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to
any employee, creditor, independent contractor or other third party.
(e) No Acquired Party expects any Taxing Authority to assess any
additional Taxes against or in respect of it for any past period. There is
no dispute or claim concerning any Tax liability of any Acquired Party
either (i) claimed or raised by any Taxing Authority or (ii) otherwise
known to any Acquired Party. No issues have been raised in any examination
by any Taxing Authority with respect to any Acquired Party which, by
application of similar principles, reasonably could be expected to result
in a proposed deficiency for any other period not so examined. Schedule
5.22(v) attached hereto lists all federal, state, local and foreign income
Tax Returns filed by or with respect to any Acquired Party for all taxable
periods ended on or after January 1, 1991, indicates those Returns, if
any, that have been audited, and indicates those Returns that currently
are the subject of audit. Each Acquired Party has delivered to CTS
complete and correct copies of all federal, state, local and foreign
income Tax Returns filed by, and all Tax examination reports and
statements of deficiencies assessed against or agreed to by, such Acquired
Party since January 1, 1991.
(f) No Acquired Party has waived any statute of limitations, the
waiver of which remains in effect on the date hereof, in respect of Taxes
or agreed to any extension of time with respect to any Tax assessment or
deficiency.
(g) No Acquired Party has made any payments, is obligated to make
any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not
deductible (i) under Section 280G of the Code or (ii) as compensation
under Section 162(m) of the Code or any similar provision under state
and/or local law.
(h) No Acquired Party is a party to any Tax allocation or sharing
agreement.
(i) None of the assets of any Acquired Party constitutes tax-exempt
bond financed property or tax-exempt use property, within the meaning of
Section
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168 of the Code. No Acquired Party is a party to any "safe harbor lease"
that is subject to the provisions of Section 168(f)(8) of the Internal
Revenue Code as in effect prior to the Tax Reform Act of 1986, or to any "
long-term contract" within the meaning of Section 460 of the Code.
(j) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of any
state statutes, and none of the assets of any Acquired Party is subject to
an election under Section 341(f) of the Code or comparable provisions of
any state statutes.
(k) No Acquired Party is a party to any joint venture, partnership
or other arrangement that is treated as a partnership for federal income
Tax purposes.
(l) There are no accounting method changes or proposed or threatened
accounting method changes, of any Acquired Party that could give rise to
an adjustment under Section 481 of the Code for periods after the Closing
Date.
(m) No Acquired Party has received any written ruling of a Taxing
Authority related to Taxes or entered into any written and legally binding
agreement with a Taxing Authority relating to Taxes.
(n) Each Acquired Party has disclosed (in accordance with Section
6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns all
positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Section 6662(d)
of the Code.
(o) No Acquired Party has any liability for Taxes of any person
other than such Acquired Party (i) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign law),
(ii) as a transferee or successor, (iii) by contract or (iv) otherwise.
(p) Prior to CTS's acquisition of the COMPANY pursuant to this
Agreement, there currently are no limitations on the utilization of the
net operating losses, built-in losses, capital losses, Tax credits or
other similar items of any Acquired Party (collectively, the "Tax Losses")
under (i) Section 382 of the Code, (ii) Section 383 of the Code, (iii)
Section 384 of the Code, (iv) Section 269 of the Code, (v) Section
1.1502-15 and Section 1.1 502-15A of the Treasury regulations, (vi)
Section 1.1502-21 and Section 1.1502-21A of the Treasury regulations or
(vii) Sections 1.1502-91 through 1.1502-99 of the Treasury regulations, in
each case as in effect both prior to and following the Tax Reform Act of
1986.
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(q) At the Balance Sheet Date, the Acquired Parties had aggregate
Tax Losses for federal income Tax purposes as described on Schedule
5.22(9) attached hereto.
(r) The COMPANY is not an investment company as defined in Section
351(e)(1) of the Code.
(s) The fair market value of the assets of the COMPANY exceeds the
sum of its liabilities, plus the amount of liabilities, if any, to which
the assets are subject.
(t) The COMPANY is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 351(e)(2) of the Code.
For purposes of this Section 5.22, the following definitions shall
apply:
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or Governmental Authority.
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatsoever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Taxing Authority" means any Governmental Authority, board, bureau,
body, department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
5.23 No Violations. The COMPANY is not in violation of any Charter
Document. Neither the COMPANY nor, to the knowledge of the COMPANY or the
STOCKHOLDER, any other party thereto, is in default under any Material Contract;
and, except as set forth on Schedule 5.23, (a) the rights and benefits of the
COMPANY under the Material Contracts will not be adversely affected by the
transactions contemplated hereby and (b) the execution of this Agreement and the
performance by the COMPANY and the STOCKHOLDER of their obligations hereunder
and the consummation by the COMPANY and the STOCKHOLDER of the transactions
contemplated hereby will not (i) result in any violation or breach of, or
constitute a default under, any of the terms or provisions of the Material
Contracts or the Charter Documents or (ii) require the consent, approval, waiver
of any acceleration, termination or other right or remedy or action of or by, or
make any filing with or give any notice to, any other party. Except as set forth
on
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Schedule 5.23, none of the Material Contracts requires notice to, or the consent
or approval of, any Governmental Authority or other third party with respect to
any of the transactions contemplated hereby in order to remain in full force and
effect and consummation of the transactions contemplated hereby will not give
rise to any right to termination, cancellation or acceleration or loss of any
material right or benefit. Except as set forth on Schedule 5.23, none of the
Material Contracts prohibits the use or publication by the COMPANY, CTS or NEWCO
of the name of any other party to such Material Contracts, and none of the
Material Contracts prohibits or restricts the COMPANY from freely providing
services to any other customer or potential customer of the COMPANY, CTS, NEWCO
or any Other Founding Company.
5.24 Government Contracts. Except as set forth on Schedule 5.24, the
COMPANY is not a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 Business Conduct. Except as set forth on Schedule 5.25, since
December 31, 1996, the COMPANY has conducted its business only in the ordinary
course consistent with past custom and practices and has incurred no liabilities
other than in the ordinary course of business consistent with past custom and
practices. Except as forth on Schedule 5.25, since December 31, 1996, there has
not been any:
(a) Material adverse change in the COMPANY's operations, condition
(financial or otherwise), operating results, assets, liabilities,
employee, customer or supplier relations or business prospects;
(b) Damage, destruction or loss of any property owned by the COMPANY
or used in the operation of the business, whether or not covered by
insurance, having a replacement cost or fair market value in excess of
$50,000 affecting the COMPANY's property, financial status or the
Business;
(c) Voluntary or involuntary sale, transfer, surrender, abandonment
or other disposition of any kind by the COMPANY of any assets or property
rights (tangible or intangible), having a replacement cost or fair market
value in excess of $50,000, except in each case the sale of inventory and
collection of accounts in the ordinary course of business consistent with
past custom and practices;
(d) Loan or advance by the COMPANY to any party other than sales to
customers on credit in the ordinary course of business consistent with
past custom and practices;
(e) Declaration, setting aside, or payment of any dividend or other
distribution in respect to the COMPANY's capital stock, any direct or
indirect
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redemption, purchase, or other acquisition of such stock, or the payment
of principal or interest on any note, bond, debt instrument or debt to any
Affiliate;
(f) Incurrence of debts, liabilities or obligations except current
liabilities incurred in connection with or for services rendered or goods
supplied in the ordinary course of business consistent with past custom
and practices, liabilities on account of taxes and governmental charges
but not penalties, interest or fines in respect thereof, and obligations
or liabilities incurred by virtue of the execution of this Agreement;
(g) Issuance by the COMPANY of any notes, bonds, or other debt
securities or any equity securities or securities convertible into or
exchangeable for any equity securities;
(h) Cancellation, waiver or release by the COMPANY of any debts,
rights or claims, except in each case in the ordinary course of business
consistent with past custom and practices;
(i) Amendment of the COMPANY's Articles or Certificate of
Incorporation or By-Laws;
(j) Amendment or termination of any Material Contract, other than
expiration of such contract in accordance with its terms;
(k) Change in accounting principles, methods or practices
(including, without limitation, any change in depreciation or amortization
policies or rates) utilized by the COMPANY;
(l) Discharge or satisfaction of any material liability, encumbrance
or payment of any material obligation or liability, other than current
liabilities paid in the ordinary course of business consistent with past
custom and practices or cancellation of any debts or claims;
(m) Sale or assignment by the COMPANY of any tangible assets other
than in the ordinary course of business;
(n) Capital expenditures or commitments therefor by the COMPANY
other than in the ordinary course of business in excess of $100,000 in the
aggregate;
(o) Charitable contributions or pledges by the COMPANY in excess of
$25,000 per year in the aggregate;
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(p) Mortgage, pledge or other encumbrance of any asset of the
COMPANY other than in the ordinary course of business;
(q) Adoption, amendment or termination of any Benefit Plan;
(r) Increase in the benefits provided under any Benefit Plan; or
(s) An occurrence or event not included in clauses (a) through (r)
that has resulted or might be expected to have a Material Adverse Effect
on the COMPANY.
5.26 Deposit Accounts; Powers of Attorney. The COMPANY has delivered to
CTS an accurate schedule (which is set forth on Schedule 5.26) as of the date of
this Agreement of:
(a) the name of each financial institution in which the COMPANY has
accounts or safe deposit boxes;
(b) the names in which the accounts or boxes are held;
(c) the type of account and account number; and
(d) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY and
a description of the terms of such power of attorney.
5.27 Relations with Governments. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause the COMPANY to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.28 Disclosure.
(a) The representations and warranties of the COMPANY and the
STOCKHOLDER contained in this Agreement, the schedules to this Agreement
provided by the COMPANY and/or the STOCKHOLDER, the certificates and the
other documents furnished by the COMPANY and/or the STOCKHOLDER to CTS
pursuant hereto and for inclusion in the Registration Statement (which,
for purposes of this Agreement, shall include the completed Directors and
Officers
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Questionnaires and Registration Statement Questionnaires), taken as a
whole, present fairly the business and operations of the COMPANY for the
time periods with respect to which such information was requested. The
COMPANY's rights under the documents delivered pursuant hereto would not
be materially adversely affected by, and no statement made herein would be
rendered untrue in any material respect by, any other document to which
the COMPANY is a party, or to which its properties are subject, or by any
other fact or circumstance regarding the COMPANY (which fact or
circumstance was, or should reasonably, after due inquiry, have been known
to the COMPANY) that is not disclosed pursuant hereto or thereto. If,
prior to the 25th day after the date of the final prospectus of CTS
utilized in connection with the IPO, the COMPANY or the STOCKHOLDER
becomes aware of any fact or circumstance which would change (or, if after
the Closing Date, would have changed) a representation or warranty of the
COMPANY or the STOCKHOLDER in this Agreement or would affect any document
delivered pursuant hereto in any material respect, the COMPANY and the
STOCKHOLDER shall immediately give notice of such fact or circumstance to
CTS. However, subject to the provisions of Section 7.8, such notification
shall not relieve either the COMPANY or the STOCKHOLDER of their
respective obligations under this Agreement.
(b) The COMPANY and the STOCKHOLDER acknowledge and agree (i) that
there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant
thereto will occur at a particular price or within a particular range of
prices or occur at all; (ii) that neither CTS or any of its officers,
directors, agents or representatives nor any Underwriter shall have any
liability to the COMPANY, the STOCKHOLDER or any other person affiliated
or associated with the COMPANY for any failure of the Registration
Statement to become effective, the IPO to occur at a particular price or
within a particular range of prices or to occur at all; and (iii) that the
decision of the STOCKHOLDER to enter into this Agreement, or to vote in
favor of or consent to the proposed Merger, has been or will be made
independent of, and without reliance upon, any statements, opinions or
other communications, or due diligence investigations which have been or
will be made or performed by any prospective Underwriter, relative to CTS
or the prospective IPO.
5.29 Prohibited Activities. Except as set forth on Schedule 5.29, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions set forth in Section 7.3.
5.30 Affiliate Transactions. Schedule 5.30 sets forth the parties to and
the date, nature and amount of (A) each transaction or series of similar
transactions (other than payments of salary and bonus which are reflected as
line items in the Financial
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Statements) involving the transfer of any cash, property or rights in which the
amount involved individually or collectively exceeded $60,000 to or from the
COMPANY from, to, or for the benefit of any Affiliate or former Affiliate of the
COMPANY ("Affiliate Transactions") during the period commencing January 1, 1994
through the date hereof and (B) any existing commitments of the COMPANY to
engage in the future in any Affiliate Transactions. Each Affiliate Transaction
was effected on terms equivalent to those which would have been established in
an arms'-length negotiation, except as disclosed on Schedule 5.30.
5.31 Misrepresentation. To the knowledge of the COMPANY and the
STOCKHOLDER, none of the representations and warranties set forth in this
Agreement, the certificates and the other documents furnished by the COMPANY to
CTS pursuant hereto and for inclusion in the Registration Statement, taken as a
whole, contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements contained herein or therein not
misleading.
(B) Representations and Warranties of the STOCKHOLDER
The STOCKHOLDER represents and warrants to CTS and NEWCO that the
representations and warranties set forth below with respect to such STOCKHOLDER
are true and correct as of the date of this Agreement and, subject to Section
7.8 hereof, shall be true and correct at the time of the Pre-Closing and on the
Closing Date.
5.32 Securities Act Representations. The STOCKHOLDER alone, or together
with the STOCKHOLDER's "purchaser representative" (as defined in Rule 501(h)
promulgated under the 1933 Act):
(a) acknowledges and agrees that (x) the shares of CTS Stock to be
delivered to the STOCKHOLDER pursuant to this Agreement have not been and will
not be registered under the 1933 Act, and therefore may not be sold, transferred
or otherwise conveyed without compliance with the 1933 Act or pursuant to an
exemption therefrom and (y) the CTS Stock to be acquired by the STOCKHOLDER
pursuant to this Agreement is being acquired solely for its own account, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of the CTS Stock in connection with a distribution;
(b) acknowledges and agrees that it knows and understands that an
investment in the CTS Stock is a speculative investment which involves a high
degree of risk of loss;
(c) represents and warrants that it is able to bear the economic risk of
an investment in the CTS Stock acquired pursuant to this Agreement, can afford
to sustain a total loss of such investment and has such knowledge and experience
in financial and
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business matters that it is capable of evaluating the merits and risks of the
proposed investment in the CTS Stock;
(d) represents and warrants that it has had an adequate opportunity to
review and to ask questions and receive answers concerning any and all matters
relating to the transactions described in (i) CTS's private placement memorandum
and (ii) this Agreement;
(e) represents and warrants that it has had an adequate opportunity to ask
questions and receive answers concerning (i) the background and experience of
the current and proposed officers and directors of CTS, (ii) the plans for the
operations of the business of CTS, (iii) the business, operations and financial
condition of the Other Founding Companies, and (iv) any plans for additional
acquisitions and the like;
(f) represents and warrants that it is either an "accredited investor" (as
defined in Rule 501(a) promulgated under the 1933 Act) or, after taking into
consideration the information and advice provided to the STOCKHOLDER, has the
requisite knowledge and experience in financial and business matters to be
capable of evaluating the merits and risks of an investment in the CTS Stock;
(g) represents and warrants that, to its knowledge, there have been no
general or public solicitations or advertisements or other broadly disseminated
disclosures (including, without limitation, any advertisement, article, notice
or other communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or advertising) by or on behalf of
CTS regarding an investment in the CTS Stock; and
(h) acknowledges and agrees that the CTS Stock shall bear the following
legend in addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND, IF REQUIRED BY
CONDOR TECHNOLOGY SOLUTIONS, INC., AN OPINION OF COUNSEL TO CONDOR
TECHNOLOGY SOLUTIONS, INC. STATING THAT REGISTRATION IS NOT REQUIRED UNDER
THE ACT.
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The STOCKHOLDER acknowledges that the effect of the foregoing legend, among
other things, is or may be to limit or destroy the value of the certificate for
purposes of sale or use as loan collateral. The STOCKHOLDER consents that "stop
transfer" instructions may be noted against the CTS Stock.
5.33 Authority; Ownership. The STOCKHOLDER has the full legal right, power
and authority to enter into this Agreement. The STOCKHOLDER owns beneficially
and of record all of the shares of the COMPANY Stock identified on Annex IV as
being owned by the STOCKHOLDER, and, except as set forth on Schedule 5.33, such
COMPANY Stock is owned free and clear of all liens, security interests, pledges,
charges, voting trusts, restrictions, encumbrances and claims of every kind.
5.34 Preemptive Rights. The STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of COMPANY Stock or CTS Stock
that the STOCKHOLDER has or may have had other than rights of the STOCKHOLDER to
acquire CTS Stock pursuant to (i) this Agreement or (ii) any option granted by
CTS.
5.35 No Intention to Dispose of CTS Stock. No STOCKHOLDER has any current
plan or intention, or is under any binding commitment or contract, to sell,
exchange or otherwise dispose of shares of CTS Stock received pursuant to
Section 3.1.
5.36 Questionnaires. The Completed Directors and Officers Questionnaires
and Registration Statement Questionnaires attached hereto as Schedule 5.36,
present fairly the business and operations of the COMPANY for the time periods
with respect to which such information was requested. If, prior to the 25th day
after the date of the final prospectus of CTS utilized in connection with the
IPO, the STOCKHOLDER becomes aware of any fact or circumstance which would
affect the information disclosed in his Directors and Officers Questionnaires or
their Registration Statement Questionnaires in any material respect, then the
STOCKHOLDER shall immediately give notice of such fact or circumstance to CTS.
However, subject to the provisions of Section 7.8, such notification shall not
relieve the STOCKHOLDER of his obligations under this Agreement.
6. REPRESENTATIONS OF CTS and NEWCO
CTS and NEWCO jointly and severally represent and warrant to the COMPANY
and the STOCKHOLDER that all of the following representations and warranties in
this Section 6 are true and correct at the date of this Agreement and, subject
to Section 7.8 hereof, shall be true and correct at the time of the Pre-Closing
and on the Closing Date, and that such representations and warranties shall
survive the Closing Date for a period of eighteen months.
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6.1 Due Organization. CTS and NEWCO are each corporations duly
incorporated, validly existing and in good standing under the laws of the state
of their incorporation, and are duly authorized and qualified to do business
under all applicable laws, regulations, ordinances and orders of public
authorities to carry on their business in the places and in the manner as now
conducted, to own or hold under lease the properties and assets they now own or
hold under lease, and to perform all of their obligations under any material
agreement to which they are a party or by which their properties are bound. CTS
and NEWCO are not qualified to do business as foreign corporations in any
jurisdiction, and there is no jurisdiction in which the conduct of CTS'S and
NEWCO's business or activities or their ownership of assets requires
qualification under applicable law, the absence of which would have a Material
Adverse Effect on either CTS or NEWCO. True, complete and correct copies of the
Certificate or Articles of Incorporation and By-Laws, each as amended, of CTS
and NEWCO (the "CTS Charter Documents") are all attached hereto as Annex II. The
minute books and stock records of each of CTS and NEWCO as heretofore made
available to the COMPANY, are correct and complete in all material respects. The
most recent minutes of each of CTS and NEWCO, which are dated no earlier than 10
business days prior to the date hereof, affirm and ratify all prior acts of CTS
and NEWCO, as the case may be, and of their respective officers and directors.
6.2 Authorization. The respective representatives of CTS and NEWCO
executing this Agreement have the authority to execute and deliver this
Agreement and to bind CTS and NEWCO to perform their respective obligations
hereunder. The execution and delivery of this Agreement by CTS and NEWCO and the
performance by CTS and NEWCO of their respective obligations under this
Agreement and the consummation by CTS and NEWCO of the transactions contemplated
hereby have been duly authorized by all necessary corporate action by each in
accordance with applicable law and the Certificate or Articles of Incorporation
and By-Laws of CTS and NEWCO, as the case may be. Each share of CTS Stock to be
issued to the STOCKHOLDER on the Closing Date will be duly and validly
authorized and issued, free and clear of all liens, claims and other
encumbrances and fully paid and nonassessable. This Agreement constitutes the
valid and binding obligation of CTS and NEWCO, enforceable in accordance with
its terms.
6.3 Transaction Not a Breach. Neither the execution and delivery of this
Agreement nor their performance will violate, conflict with, or result in a
breach of any provision of any Law, rule, regulation, order, permit, judgment,
injunction, decree or other decision of any court or other tribunal or any
Governmental Authority binding on CTS or NEWCO or conflict with or result in the
breach of any of the terms, conditions or provisions of the Certificate or
Articles of Incorporation or the By-laws of CTS or NEWCO or of any contract,
agreement, mortgage or other instrument or obligation of any nature to which CTS
or NEWCO is a party or by which CTS or NEWCO is bound.
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6.4 Misrepresentation. None of the representations and warranties set
forth in this Agreement or in any of the certificates, schedules, exhibits,
lists, documents, exhibits, or other instruments delivered, or to be delivered,
to the COMPANY as contemplated by any provision hereof, contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading.
6.5 Capital Stock. The entire authorized capital stock of CTS will consist
of 50,000,000 shares. Except as disclosed on Schedule 6.5, there are no
outstanding options, rights (preemptive or otherwise), warrants, calls,
convertible securities or commitments or any other arrangements to which CTS is
a party requiring issuance, sale or transfer of any equity securities of CTS or
any securities convertible directly or indirectly into equity securities of CTS,
or evidencing the right to subscribe for any equity securities of CTS, or giving
any person other than the Founding Companies any rights with respect to the
capital stock of CTS. Except as contemplated by this Agreement or disclosed on
Schedule 6.5, there are no voting agreements, voting trusts, other agreements
(including cumulative voting rights), commitments or understandings with respect
to the CTS Stock.
6.6 Subsidiaries. Schedule 6.6 attached hereto lists the name of each of
CTS's and NEWCO's subsidiaries and sets forth the number and class of the
authorized capital stock of each of CTS's and NEWCO's subsidiaries and the
number of shares of each of CTS's and NEWCO's subsidiaries which are issued and
outstanding prior to the Merger, all of which shares (except as set forth on
Schedule 6.6) are owned by CTS and NEWCO, as the case may be, free and clear of
all liens, security interests, pledges, voting trusts, equities, restrictions,
encumbrances and claims of every kind. Except as set forth on Schedule 6.6, CTS
and NEWCO do not presently own, of record or beneficially, or control, directly
or indirectly, any capital stock, securities convertible into capital stock or
any other equity interest in any corporation, association or business entity nor
is CTS or NEWCO, as the case may be, directly or indirectly, a participant in
any joint venture, partnership or other non-corporate entity.
6.7 Conformity with Law; Litigation. Except as set forth on Schedule 6.7,
CTS and NEWCO have complied with all Laws applicable to them or to the operation
of their businesses and have not received any notice of any alleged claim or
threatened claim, violation of, liability or potential responsibility under, any
Law which has not heretofore been cured and for which there is no remaining
liability other than, in each case, those not having a Material Adverse Effect
on CTS or NEWCO, taken as a whole. Without limiting the generality of the
foregoing, CTS and NEWCO each have complied with all applicable Federal, state
and local Laws relating to antitrust and trade regulations.
Except to the extent set forth on Schedule 6.7 (which shall disclose the
parties to, nature of, and relief sought for each matter):
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(a) There is no suit, action, proceeding, investigation, claim or
order pending or, to the knowledge of CTS and NEWCO, threatened against
either of CTS or NEWCO or any Plan, or any fiduciary of any such Plan or,
to the knowledge of CTS and NEWCO, pending or threatened against any of
the officers, directors or employees of CTS or NEWCO with respect to their
businesses or proposed business activities which are material to CTS or
NEWCO, or to which CTS or NEWCO are otherwise a party, or which may affect
either CTS or NEWCO, their assets or their businesses, before any court,
or before any Governmental Authority.
(b) CTS and NEWCO are not subject to any judgment, order or decree
of any court or Governmental Authority; CTS and NEWCO have not received
any opinion or memorandum from legal counsel to the effect that either is
exposed, from a legal standpoint, to any liability or disadvantage which
may be material to their businesses. Neither CTS nor NEWCO are engaged in
any legal action to recover monies due it or them for damages sustained by
either of them.
7. COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation; Due Diligence.
(a) Between the date of this Agreement and the Closing Date, the
COMPANY will afford to the officers and authorized representatives of CTS
and the Other Founding Companies access during business hours to all of
the COMPANY's sites, properties, books and records and will furnish CTS
with such additional financial and operating data and other information as
to the business and properties of the COMPANY as CTS or the Other Founding
Companies may from time to time reasonably request. The COMPANY will
cooperate with CTS and the Other Founding Companies and their respective
representatives, including CTS's auditors and counsel, in the preparation
of any documents or other material (including the Registration Statement)
which may be required in connection with the transactions contemplated by
this Agreement. CTS, NEWCO, the STOCKHOLDER and the COMPANY will treat all
information obtained in connection with the negotiation and performance of
this Agreement or the due diligence investigations conducted with respect
to the Other Founding Companies as confidential in accordance with the
provisions of Section 14 hereof. In addition, CTS will cause each of the
Other Agreements, binding each of the Other Founding Companies, to contain
a provision similar to this Section 7.1 requiring each such Other Founding
Company, its stockholders, directors, officers, representatives, employees
and agents to keep confidential any information obtained by such Other
Founding Company.
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(b) Between the date of this Agreement and the Closing Date, CTS
will afford to the officers and authorized representatives of the COMPANY
access during business hours to all of CTS's and NEWCO's sites,
properties, books and records and will furnish the COMPANY with such
additional financial and operating data and other information as to the
business and properties of CTS and NEWCO as the COMPANY may from time to
time reasonably request. CTS and NEWCO will cooperate with the COMPANY,
its representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection with the
transactions contemplated by this Agreement. The COMPANY will cause all
information obtained in connection with the negotiation and performance of
this Agreement to be treated as confidential in accordance with the
provisions of Section 14 hereof.
7.2 Conduct of Business Pending Closing. Between the date of this
Agreement and the Closing Date, the COMPANY will, except as set forth on
Schedule 7.2:
(a) carry on its business in the ordinary course substantially as
conducted heretofore and not introduce any new method of management,
operation or accounting;
(b) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(c) perform in all material respects its obligations under
agreements relating to or affecting its assets, properties or rights;
(d) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(e) maintain and preserve its business organization intact and use
its best efforts to retain its present key employees and relationships
with suppliers, customers and others having business relations with the
COMPANY;
(f) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar Governmental Authorities; and
(g) maintain present debt and lease instruments in accordance with
their respective terms and not enter into new or amended debt or lease
instruments, provided that debt and/or lease instruments may be replaced
if such
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replacement instruments are on terms at least as favorable to the COMPANY
as the instruments being replaced.
7.3 Prohibited Activities. Except as disclosed on Schedule 7.3, between
the date hereof and the Closing Date, the COMPANY will not, without the prior
written consent of CTS:
(a) make any change in its Articles or Certificate of Incorporation
or By-laws;
(b) grant or issue any securities, options, warrants, calls,
conversion rights or commitments of any kind relating to its securities of
any kind other than in connection with the exercise of options or warrants
listed on Schedule 5.4;
(c) declare or pay any dividend, or make any distribution in respect
of its stock whether now or hereafter outstanding, or purchase, redeem or
otherwise acquire or retire for value any shares of its stock or engage in
any transaction that will significantly affect the cash reflected on the
balance sheet of the COMPANY as of December 31, 1996.
(d) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditure, except if it is in the
ordinary course of business (consistent with past practice) or involves an
amount not in excess of $10,000;
(e) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $10,000 necessary or desirable for the conduct of
the business of the COMPANY, (2)(A) liens for Taxes either not yet due or
being contested in good faith and by appropriate proceedings (and for
which adequate reserves have been established and are being maintained) or
(B) materialmen's, mechanics', workers', repairmen's, employees' or other
like liens arising in the ordinary course of business (the liens set forth
in clause (2) being referred to herein as "Statutory Liens"), or (3) liens
set forth on Schedule 5.10 or 5.15 hereto;
(f) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the ordinary course of business;
(g) negotiate for the acquisition of any business or the start-up of
any new business;
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(h) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(i) waive any material right or claim of the COMPANY, provided that
the COMPANY may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be
included on Schedule 5.11 unless specifically listed thereon;
(j) commit a material breach, materially amend or terminate any
Material Contract;
(k) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder; or
(l) except in the ordinary course of business or as required by Law
or contractual obligations or other understandings or arrangements
existing on the date hereof, the COMPANY will not (i) increase in any
manner the base compensation of, or enter into any new bonus or incentive
agreement or arrangement with, any of the employees engaged in the
COMPANY's business, (ii) pay or agree to pay any additional pension,
retirement allowance or other employee benefit to any such employee,
whether past or present, (iii) enter into any new employment, severance,
consulting, or other compensation agreement with any existing employee
engaged in the COMPANY's business, (iv) amend or enter into a new Plan
(except as required by Law) or amend or enter into a new collective
bargaining agreement (except as required by this Agreement), or (v) engage
in any Affiliate Transaction.
7.4 No Shop. In consideration of the substantial expenditure of time,
effort and expense undertaken by CTS in connection with its due diligence review
and the preparation and execution of this Agreement, the COMPANY and the
STOCKHOLDER agree that neither they nor their representatives, agents or
employees will, after the execution of this Agreement until the earlier of (i)
the termination of this Agreement or (ii) the Closing, directly or indirectly,
solicit, encourage, negotiate or discuss with any third party (including by way
of furnishing any information concerning the COMPANY) any acquisition proposal
relating to or affecting the COMPANY or any part of it, or any direct or
indirect interests in the COMPANY, whether by purchase of assets or stock,
purchase of interests, merger or other transaction ("Acquisition Transaction"),
and that the COMPANY will promptly advise CTS of the terms of any communications
the STOCKHOLDER or the COMPANY may receive or become aware of relating to any
bid for all or any part of the COMPANY.
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7.5 Notice to Bargaining Agents. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements. Set forth on
Schedule 7.5 is any and all proof that any such required notice has been sent.
7.6 Agreements. Except as set forth on Schedule 9.7, the STOCKHOLDER and
the COMPANY shall terminate (i) any stockholders' agreements, voting agreements,
voting trusts, options, warrants and employment agreements between the COMPANY
and any employee listed on Schedule 9.12 hereto and (ii) any existing agreement
between the COMPANY and any STOCKHOLDER, on or prior to the Closing Date. A list
of such agreements to be terminated is set forth on Schedule 7.6 and copies of
each such agreement to be terminated have been provided to counsel for CTS.
7.7 Notification of Certain Matters. The STOCKHOLDER and the COMPANY shall
give prompt notice to CTS of (i) the occurrence or non-occurrence of any event
of which the COMPANY or the STOCKHOLDER has knowledge, the occurrence or
non-occurrence of which, would cause any representation or warranty of the
COMPANY or the STOCKHOLDER contained herein to be untrue or inaccurate in any
material respect at or prior to the Closing and (ii) any material failure of the
STOCKHOLDER or the COMPANY to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. CTS and
NEWCO shall give prompt notice to the COMPANY of (i) the occurrence or
non-occurrence of any event of which CTS or NEWCO has knowledge, the occurrence
or non-occurrence of which, would cause any representation or warranty of CTS or
NEWCO contained herein to be untrue or inaccurate in any material respect at or
prior to the Closing and (ii) any material failure of CTS or NEWCO to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder. The delivery of any notice pursuant to this Section
7.7 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.8, (ii) modify the conditions set forth in Sections 8
and 9, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
7.8 Amendment of Schedules.
(a) Each party hereto agrees that, with respect to the
representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing Date to
supplement or amend promptly the Schedules hereto with respect to any
matter hereafter arising or discovered which, if existing or known at the
date of this Agreement, would have been required to be set forth or
described in the Schedules; provided, however, that supplements and
amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall only
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have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business.
(b) Until 24 hours prior to the anticipated effectiveness of the
Registration Statement, and notwithstanding the foregoing clause (a), the
provisions of this clause (b) shall apply: no amendment or supplement to a
Schedule prepared by the COMPANY or the STOCKHOLDER that constitutes or
reflects an event or occurrence that would have a Material Adverse Effect
on the COMPANY may be made unless CTS and a majority of the Founding
Companies other than the COMPANY consent to such amendment or supplement;
and provided further, that no amendment or supplement to a Schedule
prepared by CTS or NEWCO that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on the COMPANY may be
made unless a majority of the Founding Companies consent to such amendment
or supplement. In the event that one of the Other Founding Companies seeks
to amend or supplement a Schedule pursuant to Section 7.8 of one of the
Other Agreements, and such amendment or supplement constitutes or reflects
an event or occurrence that would have a Material Adverse Effect on such
Other Founding Company, CTS shall give the COMPANY notice promptly after
it has knowledge thereof. If CTS and a majority of the Founding Companies
consent to such amendment or supplement, which consent shall have been
deemed given by CTS or any Founding Company if no response is received
from CTS or any such Founding Company within 24 hours following receipt of
notice by CTS or any Founding Company of such amendment or supplement (or
sooner if required by the circumstances under which such consent is
requested), but the COMPANY does not give its consent, the COMPANY may
terminate this Agreement pursuant to Section 12.1(d) hereof. In the event
that the COMPANY seeks to amend or supplement a Schedule pursuant to this
Section 7.8 and CTS and a majority of the Other Founding Companies do not
consent to such amendment or supplement as provided above, this Agreement
shall be deemed terminated by mutual consent as set forth in Section
12.1(a) hereof. In the event that CTS or NEWCO seeks to amend or
supplement a Schedule pursuant to this Section 7.8 and a majority of the
Founding Companies do not consent to such amendment or supplement as
provided above, this Agreement shall be deemed terminated by mutual
consent as set forth in Section 12.1(d) hereof.
(c) Between 24 hours prior to the anticipated effectiveness of the
Registration Statement and the Closing Date, the provisions of this clause
(c) shall apply. No amendment or supplement to a Schedule prepared by the
COMPANY or the STOCKHOLDER that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on the COMPANY may be
made unless CTS consents to such amendment or supplement after
consultation with the Underwriters. CTS and NEWCO hereby covenant that
neither CTS nor NEWCO
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will amend or supplement any Schedule prepared by CTS or NEWCO that
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect on CTS or NEWCO, as the case may be, without consulting
with the Underwriters, and CTS shall provide immediate notice of such
amendment or supplement to the Founding Companies.
(d) For all purposes of this Agreement, including without limitation
for purposes of determining whether the conditions set forth in Sections
8.1 and 9.1 have been fulfilled, the Schedules hereto shall be deemed to
be the Schedules as amended or supplemented pursuant to this Section 7.8.
No party to this Agreement shall be liable to any other party if this
Agreement shall be terminated pursuant to the provisions of this Section
7.8, except that, notwithstanding anything to the contrary contained in
this Agreement, if the COMPANY or the STOCKHOLDER on the one hand, or CTS
or NEWCO on the other hand, amends or supplements a Schedule which results
in a termination of this Agreement and such amendment or supplement arises
out of or reflects facts or circumstances which such party knew about at
the time of execution of this Agreement and knew would result in a
termination of this Agreement or if such amendment or supplement otherwise
is proposed in bad faith, such party shall pay or reimburse CTS or the
COMPANY and the STOCKHOLDER, as the case may be, for all of the legal,
accounting and other out of pocket costs reasonably incurred in connection
with this Agreement and the IPO as it relates to the COMPANY and the
STOCKHOLDER.
7.9 Cooperation in Preparation of Registration Statement.
(a) The COMPANY and STOCKHOLDER shall furnish or cause to be
furnished to CTS and the Underwriters all of the information concerning
the COMPANY and the STOCKHOLDER requested by CTS or the Underwriters for
inclusion in, and will cooperate with CTS and the Underwriters in the
preparation of, the Registration Statement and the prospectus included
therein (including audited and unaudited financial statements, prepared in
accordance with GAAP, in form suitable for inclusion in the Registration
Statement). The COMPANY and the STOCKHOLDER agree promptly to advise CTS
if at any time during the period in which a prospectus relating to the
offering is required to be delivered under the Securities Act, any
information contained in the prospectus concerning the COMPANY or the
STOCKHOLDER contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and to provide the information
needed to correct such inaccuracy. Insofar as the information relates
solely to the COMPANY or the STOCKHOLDER, the COMPANY represents and
warrants as to such information furnished by the COMPANY or the
STOCKHOLDER for use in the Registration Statement with respect to itself,
and
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the STOCKHOLDER represents and warrants, as to such information furnished
by the COMPANY or the STOCKHOLDER for use in the Registration Statement
with respect to the COMPANY and himself or herself, that the Registration
Statement at its effective date, at the date of the final Prospectus, each
preliminary prospectus and each amendment to the Registration Statement,
and at each closing date with respect to the IPO under the Underwriting
Agreement (including with respect to any over-allotment option) will not
include an 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 not misleading.
(b) CTS agrees that it will use its best efforts to provide to the
COMPANY and its counsel copies of material drafts of the Registration
Statement as they are prepared and to the extent practicable in light of
the timetable of the IPO and the potential need to respond promptly to
SEC, NASD or Nasdaq comments, to give the COMPANY sufficient time to
review and comment upon such documents prior to filing with the SEC. Any
objections posed by the COMPANY or its counsel shall state with
specificity the material in question, the reason for the objection, and
the COMPANY's proposed alternative. If the objection is founded upon a
rule promulgated under the Securities Act, the objection shall cite the
rule. Notwithstanding the foregoing, during the five business days
immediately preceding the date scheduled for the effective date of the
IPO, the COMPANY and the STOCKHOLDER agree that (i) two hours from the
time the proposed changes are transmitted to the COMPANY's counsel if such
transmission is during the COMPANY's normal business hours or (ii) four
hours from the time the proposed changes are transmitted to the COMPANY's
counsel if such transmission is not during the COMPANY's normal business
hours, is sufficient time to review and respond to proposed changes.
7.10 Final Financial Statements. The COMPANY shall provide prior to the
Closing Date, and CTS shall have had sufficient time prior thereto to review,
the unaudited consolidated balance sheets of the COMPANY as of the end of all
fiscal quarters following the Balance Sheet Date, and the unaudited consolidated
statements of income, cash flows and retained earnings of the COMPANY for all
fiscal quarters ended no earlier than 30 days prior to the Closing Date,
disclosing no material adverse change in the financial condition of the COMPANY
or the results of its operations from the financial statements as of the Balance
Sheet Date. Such financial statements shall have been prepared in accordance
with GAAP applied on a consistent basis throughout the periods indicated (except
as noted therein), but shall not include all of the footnotes and adjustments
required by GAAP for complete financial statements. Except as noted in such
financial statements, all of such financial statements will present fairly the
results of operations of the COMPANY for the periods indicated thereon.
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7.11 Further Assurances. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 Approval of Merger Agreement. The STOCKHOLDER agrees to vote all of
its shares of the COMPANY Stock in favor of the Merger and all other
transactions contemplated by this Agreement.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDER AND THE COMPANY
The obligations of the STOCKHOLDER and the COMPANY with respect to actions
to be taken on the Pre-Closing Date and, to the extent specified in this Section
8, on the Closing Date are subject to the satisfaction or waiver on or prior to
the Pre-Closing Date and/or the Closing Date, as the case may be, of all of the
conditions set forth in this Section 8. As of the Pre-Closing Date or the
Closing Date, as the case may be, all conditions not satisfied shall be deemed
to have been waived by the COMPANY and the STOCKHOLDER unless such parties have
objected by notifying CTS in writing of such objection on or before the
Pre-Closing Date or consummation of the transactions on the Closing Date,
respectively, except that no such waiver shall be deemed to affect the survival
of the representations and warranties of CTS and NEWCO contained in Section 6
hereof.
8.1 Representations and Warranties. All representations and warranties of
CTS and NEWCO contained in the Agreement shall be true and correct in all
material respects as of the Pre-Closing Date and the Closing Date as though such
representations and warranties had been made on and as of that date; and a
certificate to the foregoing effect dated the Pre-Closing Date and the Closing
Date and signed by the President or any Vice President of CTS shall have been
delivered to the COMPANY and the STOCKHOLDER.
8.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with and performed by CTS and NEWCO on or
before each of the Pre-Closing Date and the Closing Date shall have been duly
complied with and performed in all material respects on or before each of the
Pre-Closing Date and the Closing Date, as the case may be; and certificates to
the foregoing effect dated each of the Pre-Closing Date and the Closing Date and
signed by the President or any Vice President of CTS shall have been delivered
to the COMPANY and the STOCKHOLDER.
8.3 No Litigation. No action or proceeding before a court or any other
Governmental Authority or body shall have been instituted or threatened to
restrain or prohibit the Merger or the IPO.
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8.4 Opinion of Counsel. The STOCKHOLDER shall have received an opinion
from counsel for CTS and NEWCO, dated the Pre-Closing Date and including a
statement to the effect that it may be relied upon as of the Closing Date,
substantially in the form annexed hereto as Annex VI.
8.5 Consents and Approvals. All necessary consents of and filings required
to be obtained or made by CTS or NEWCO with any Governmental Authority or agency
relating to the consummation of the transactions contemplated herein shall have
been obtained and made.
8.6 Good Standing Certificates. CTS and NEWCO each shall have delivered to
the COMPANY a certificate, dated as of a date no earlier than 10 days prior to
the Pre-Closing Date, duly issued by the Delaware Secretary of State and in each
state in which CTS or NEWCO is authorized to do business, showing that each of
CTS and NEWCO is in good standing and authorized to do business and that all
state franchise and/or income tax returns and taxes for CTS and NEWCO,
respectively, for all periods prior to the Closing have been filed and paid.
8.7 Consummation of Other Agreements. The Other Agreements shall have been
delivered by each of the Other Companies and each of the Other Agreements and
this Agreement shall be in effect immediately prior to the Merger.
8.8 Secretary's Certificate. The COMPANY shall have received a certificate
or certificates, dated the Pre-Closing Date and the Closing Date and signed by
the secretary of CTS and of NEWCO, certifying the truth and correctness of
attached copies of the CTS's and NEWCO's respective Certificates of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the boards of directors and, if required, the
stockholders of CTS and NEWCO approving CTS's and NEWCO's entering into this
Agreement and the consummation of the transactions contemplated hereby.
8.9 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VIII hereto.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CTS AND NEWCO
The obligations of CTS and NEWCO with respect to actions to be taken on
the Pre-Closing Date and, to the extent specified in this Section 9, on the
Closing Date, are subject to the satisfaction or waiver on or prior to the
Pre-Closing Date and/or the Closing Date, as the case may be, of all of the
conditions set forth in this Section 9. As of the Pre-Closing Date or the
Closing Date, as the case may be, all conditions not satisfied shall be
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deemed to have been waived by CTS and NEWCO unless such parties have objected by
notifying the COMPANY and the STOCKHOLDER in writing of such objection on or
before the Pre-Closing Date or consummation of the transactions on the Closing
Date, respectively, except that no such waiver shall be deemed to affect the
survival of the representations and warranties of the COMPANY and the
STOCKHOLDER contained in Section 5 hereof.
9.1 Representations and Warranties. All the representations and warranties
of the STOCKHOLDER and the COMPANY contained in this Agreement shall be true and
correct in all material respects as of the Pre-Closing Date and the Closing Date
with the same effect as though such representations and warranties had been made
on and as of such date; and the STOCKHOLDER shall have delivered to CTS
certificates dated the Pre-Closing Date and the Closing Date and signed by them
to such effect.
9.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with or performed by the STOCKHOLDER and the
COMPANY on or before each of the Pre-Closing Date and the Closing Date shall
have been duly performed or complied with in all material respects on or before
each of the Pre-Closing Date and the Closing Date, as the case may be; and the
STOCKHOLDER shall have delivered to CTS certificates dated the Pre-Closing Date
and the Closing Date, respectively, and signed by them to such effect.
9.3 No Litigation. No action or proceeding before a court or any other
Governmental Authority or body shall have been instituted or threatened to
restrain or prohibit the Merger or the IPO.
9.4 Secretary's Certificate. CTS shall have received a certificate or
certificates, dated each of the Pre-Closing Date and the Closing Date and signed
by the secretary of the COMPANY, certifying the truth and correctness of
attached copies of the COMPANY's Certificate or Articles of Incorporation
(including amendments thereto), By-Laws (including amendments thereto), and
resolutions of the board of directors and the shareholders approving the
COMPANY's entering into this Agreement and the consummation of the transactions
contemplated hereby.
9.5 No Material Adverse Change. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred with respect to the
COMPANY which would constitute a Material Adverse Effect on the COMPANY, and the
COMPANY shall not have suffered any material loss or damages to any of its
properties or assets, whether or not covered by insurance, which change, loss or
damage materially affects or impairs the ability of the COMPANY to conduct its
business.
9.6 STOCKHOLDER's Release. The STOCKHOLDER shall have delivered to CTS an
instrument dated the Closing Date releasing the COMPANY from
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any and all (i) claims prior to the Closing Date of the STOCKHOLDER against the
COMPANY and CTS and (ii) obligations prior to the Closing Date, of the COMPANY
and CTS to the STOCKHOLDER, except for (x) items specifically identified on
Schedules 5.10 and 5.15 as being claims of or obligations to the STOCKHOLDER,
(y) continuing obligations to the STOCKHOLDER relating to his employment by the
COMPANY and (z) obligations arising under this Agreement or the transactions
contemplated hereby.
9.7 Termination of Related Party Agreements. Except as set forth on
Schedule 9.7, all existing agreements between the COMPANY and the STOCKHOLDER
shall have been canceled effective prior to or as of the Closing Date.
9.8 Opinion of Counsel. CTS shall have received an opinion from Counsel to
the COMPANY and the STOCKHOLDER, dated the Pre-Closing Date and including a
statement to the effect that it may be relied upon as of the Closing Date,
substantially in the form annexed hereto as Annex VII, which form shall be
deemed to include any additional opinions by such counsel or separate counsel
retained by the COMPANY covering matters customary under the circumstances,
including, without limitation, opinions covering the COMPANY's intellectual
property, and the Underwriters shall have received a copy of the same opinion
addressed to them.
9.9 Consents and Approvals. All necessary consents of and filings with any
Governmental Authority relating to the consummation of the transactions
contemplated herein shall have been obtained and made and all consents and
approvals of third parties listed on Schedule 5.23 shall have been obtained.
9.10 Good Standing Certificates. The COMPANY shall have delivered to CTS a
certificate, dated as of a date no earlier than five days prior to the
Pre-Closing Date, duly issued by the appropriate Governmental Authority in the
COMPANY's state of incorporation and, unless waived by CTS, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the COMPANY for all periods prior to the
Closing have been filed and paid.
9.11 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act, or
any state securities laws, and the Underwriters shall have agreed to acquire on
a firm commitment basis, subject to the conditions set forth in the Underwriting
Agreement, shares of CTS Stock at a price to the public acceptable to CTS.
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9.12 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have entered into an employment agreement substantially in the form of
Annex I hereto.
9.13 Closing of IPO. The closing of the sale of the CTS Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
9.14 FIRPTA Certificate. The STOCKHOLDER shall have delivered to CTS a
certificate to the effect that he or she is not a foreign person pursuant to
Section 1. 1445-2(b) of the Treasury regulations.
9.15 Consummation of Other Agreements. The Other Agreements shall have
been delivered by each of the Other Companies and each of the Other Agreements
and this Agreement shall be in effect immediately prior to the Merger.
9.16 A/R Aging Reports. Within ten (10) days prior to Closing, the COMPANY
shall have provided CTS (x) an accurate list of all outstanding receivables
obtained subsequent to the Balance Sheet Date and as of a date which is within
10 calendar days of the Closing Date and (y) an aging of all such accounts and
notes receivable showing amounts due in 30 day aging categories (the "A/R Aging
Reports").
9.17 Current Ratio. The COMPANY will have a Current Ratio of no less than
2.00:1.00.
9.18 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall have been approved by counsel to CTS.
10. COVENANTS OF CTS AND THE STOCKHOLDER AFTER CLOSING
10.1 Release From Guarantees; Repayment of Certain Obligations. CTS shall
use its best efforts to have the STOCKHOLDER released from any and all
guarantees on any indebtedness that they personally guaranteed and from any and
all pledges of assets that they pledged to secure such indebtedness for the
benefit of the COMPANY, with all such guarantees on indebtedness being assumed
by CTS, if necessary to achieve such releases. In the event that CTS cannot
obtain such releases from the lenders of any such guaranteed indebtedness on or
prior to 180 days subsequent to the Closing Date, CTS shall pay off or otherwise
refinance or retire such indebtedness.
10.2 Preservation of Tax and Accounting Treatment. Except as contemplated
by this Agreement or the Registration Statement, after the Closing Date, CTS
shall not and shall not permit any of its subsidiaries to undertake any act that
would
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jeopardize the tax-free status of the organization, including liquidating or
merging the COMPANY into CTS.
10.3 Preparation and Filing of Tax Returns.
(a) The COMPANY shall, if possible, file or cause to be filed all
separate Returns of any Acquired Party for all taxable periods that end on
or before the Closing Date. The STOCKHOLDER shall pay or cause to be paid
all Tax liabilities (in excess of all amounts already paid with respect
thereto or properly accrued or reserved with respect thereto on the
COMPANY Financial Statements) shown by such Returns to be due.
(b) CTS shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Closing Date.
(c) Each party hereto shall, and shall cause its subsidiaries and
Affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any Return, amended Return or claim for refund, determining a
liability for Taxes or a right to refund of Taxes or in conducting any
audit or other proceeding in respect of Taxes. Such cooperation and
information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each
party shall make its employees reasonably available on a mutually
convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence, each party
required to file Returns pursuant to this Agreement shall bear all costs
of filing such Returns.
(d) Each of the COMPANY, NEWCO, CTS and the STOCKHOLDER shall comply
with the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and treat the transaction as a tax
free transfer of property under Section 351(a) of the Code.
10.4 Directors and Officers. The persons named in the Registration
Statement shall be appointed as directors and elected as officers of CTS, as and
to the extent set forth in the Registration Statement, promptly following the
Closing Date. For a period of two years after the Closing Date, the STOCKHOLDER
shall have the right to nominate a majority of the members to serve on the
COMPANY's Board of Directors; provided, that, (i) at the time of such nomination
the STOCKHOLDER is employed by either CTS or the COMPANY and (ii) CTS has
consented to such nominees, whose consent will not be
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unreasonably withheld. CTS agrees to vote all of its shares of COMPANY Stock for
such nominees, subject to the proviso of the preceding sentence.
10.5 Preservation of Employee Benefit Plans. Following the Closing Date,
CTS shall not terminate any health insurance, life insurance, 401(k) or any
other Benefit Plan in effect at the COMPANY until such time as CTS is able to
replace such Benefit Plan with a Plan that is applicable to CTS and all of its
then existing subsidiaries. CTS shall have no obligation to provide replacement
Plans that have the same terms and provisions as the existing Benefit Plans,
provided, that any new health insurance plan shall provide for coverage for
preexisting conditions.
10.6 Rule 144. For a period of two years after the Closing Date, CTS shall
take all actions that are within its powers and that are reasonably necessary to
make Rule 144 promulgated under the 1933 Act available to the STOCKHOLDER.
10.7 Authorization of Shares. CTS agrees to take all actions as may be
necessary from time to time to reserve an adequate number of shares of CTS Stock
to pay the stock portion of the consideration to the STOCKHOLDER pursuant to
Annex III hereof.
11. INDEMNIFICATION
The STOCKHOLDER, CTS and NEWCO each make the following covenants that are
applicable to them, respectively:
11.1 General Indemnification by the STOCKHOLDER. The STOCKHOLDER covenants
and agrees that it will indemnify, defend, protect and hold harmless CTS, NEWCO,
the COMPANY and the Surviving Corporation at all times, from and after the date
of this Agreement until the Expiration Date, from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and reasonable expenses of investigation) incurred by CTS,
NEWCO, the COMPANY or the Surviving Corporation as a result of or arising from
(i) any breach of the representations and warranties of the STOCKHOLDER or the
COMPANY set forth herein or on the schedules or certificates delivered in
connection herewith, (ii) any breach of any agreement on the part of the
STOCKHOLDER or the COMPANY under this Agreement, (iii) any liability under the
1933 Act, the 1934 Act or other Federal or state law or regulation, at common
law or otherwise, arising out of or based upon any untrue statement or alleged
untrue statement of a material fact relating to the COMPANY or the STOCKHOLDER,
and provided to CTS or its counsel by the COMPANY or the STOCKHOLDER for
inclusion in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission by the COMPANY and/or the
STOCKHOLDER
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to state therein a material fact relating to the COMPANY or the STOCKHOLDER
required to be stated therein or necessary to make the statements therein not
misleading, (iv) the matters described on Schedule 11.1(iv) or (v) any Tax
imposed upon or relating to any third party or Acquired Party for a pre-Closing
Date period, including, in each case, any such Tax arising out of or in
connection with the transactions effected pursuant to this Agreement or any such
Tax for which an Acquired Party may be liable under Section 1.1502-6 of the
Treasury Regulations (or any similar provisions of state, local or foreign law),
as a transferee or successor, by contract or otherwise; provided, however, that
in the case of any indemnity arising pursuant to clause (iii) such indemnity
shall not inure to the benefit of CTS, NEWCO, the COMPANY or the Surviving
Corporation to the extent that such untrue statement (or alleged untrue
statement) was made in, or omission (or alleged omission) occurred in, any
preliminary prospectus and the STOCKHOLDER provided, in writing, corrected
information to CTS counsel and to CTS for inclusion in the final prospectus, and
such information was not so included or properly delivered.
11.2 Indemnification by CTS. CTS covenants and agrees that it will
indemnify, defend, protect and hold harmless the STOCKHOLDER at all times from
and after the date of this Agreement until the eighteenth month anniversary of
the Closing Date, from and against all claims, damages, actions, suits,
proceedings, demands, assessments, adjustments, costs and expenses (including
specifically, but without limitation, reasonable attorneys' fees and expenses of
investigation) incurred by the STOCKHOLDER as a result of or arising from (i)
any breach by CTS or NEWCO of its representations and warranties set forth
herein or on the schedules or certificates delivered in connection herewith,
(ii) any breach of any agreement on the part of CTS or NEWCO under this
Agreement, (iii) any liability which the STOCKHOLDER may incur due to CTS's or
NEWCO's failure to be responsible for the liabilities and obligations of the
COMPANY as provided in Section 10.1 hereof (except to the extent that CTS or
NEWCO has claims against the STOCKHOLDER by reason of such liabilities); (iv)
any liability to a Person not a party to this Agreement (a "Third Person") under
the 1933 Act, the 1934 Act or other Federal or state law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact relating to CTS or NEWCO for
inclusion in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to CTS or NEWCO required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, in the case of any indemnity arising pursuant to clause (iv) such
indemnity shall not inure to the benefit of the STOCKHOLDER if any such claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses incurred by the STOCKHOLDER are based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity
with information furnished by the STOCKHOLDER for use in the preliminary
prospectus, Registration Statement or any
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prospectus forming a part thereof, or any amendment thereof or supplement
thereto unless the STOCKHOLDER provided, in writing, corrected information to
CTS counsel and to CTS for inclusion in the final prospectus to the Registration
Statement, and such information was not so included or properly delivered by CTS
(or its representative).
In the event the breach relates to the representation contained in Section
6.5 concerning the absence of options, rights (preemptive or otherwise),
warrants, calls, convertible securities or commitments or any other arrangements
dealing with CTS Stock as set forth in Section 6.5 (a "CTS Security Right") and
the existence of an undisclosed CTS Security Right will dilute the CTS capital,
the stockholders of the Founding Company whose representation caused the breach
of Section 6.5 shall suffer such dilution proportionately to the number of
shares of CTS Stock owned by each of them.
11.3 Third Person Claims. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
Third Person or of the commencement of any action or proceeding by a Third
Person, the Indemnified Party shall, as a condition precedent to a claim with
respect thereto being made against any party obligated to provide
indemnification pursuant to Section 11.1 or 11.2 hereof (hereinafter the
"Indemnifying Party"), give the Indemnifying Party written notice of such claim
or the commencement of such action or proceeding. Such notice shall state the
nature and the basis of such claim and a reasonable estimate of the amount
thereof. The Indemnifying Party shall have the right to defend and settle, at
its own expense and by its own counsel, any such matter so long as the
Indemnifying Party pursues the same in good faith and diligently, provided that
the Indemnifying Party shall not settle any criminal proceeding without the
written consent of the Indemnified Party, such consent not to be unreasonably
withheld or delayed. If the Indemnifying Party undertakes to defend or settle,
it shall promptly notify the Indemnified Party of its intention to do so, and
the Indemnified Party shall cooperate, at the Indemnifying Party's expense, with
the Indemnifying Party and its counsel in the defense thereof and in any
settlement thereof. Such cooperation shall include, but shall not be limited to,
furnishing the Indemnifying Party with any books, records or information
reasonably requested by the Indemnifying Party that are in the Indemnified
Party's possession or control. All Indemnified Parties shall endeavor to use the
same counsel, which shall be the counsel selected by the Indemnifying Party,
provided that if counsel to the Indemnifying Party shall have a conflict of
interest in the opinion of such counsel that prevents counsel for the
Indemnifying Party from representing the Indemnified Party, the Indemnified
Party shall have the right to participate in such matter through counsel of its
own choosing and the Indemnifying Party will reimburse the Indemnified Party for
the reasonable expenses of its counsel and experts. After the Indemnifying Party
has notified the Indemnified Party of its intention to undertake to defend or
settle any such asserted liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall not be liable for
any additional legal expenses incurred by the Indemnified Party in connection
with any defense or settlement of such asserted liability, except (i) as set
forth
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in the preceding sentence and (ii) to the extent such participation is requested
by the Indemnifying Party, in which event the Indemnified Party shall be
reimbursed by the Indemnifying Party for reasonable additional legal expenses
and out-of-pocket expenses. If the Indemnifying Party desires to accept a final
and complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement to said Third Person, plus all indemnifiable
costs and expenses incurred to date, the Indemnifying Party shall be relieved of
its duty to defend and shall tender the Third Person claim back to the
Indemnified Party, who shall thereafter, at its own expense, be responsible for
the defense and negotiation of such Third Person claim. If the Indemnifying
Party does not undertake to defend such matter to which the Indemnified Party is
entitled to indemnification hereunder, or fails diligently to pursue such
defense, the Indemnified Party may undertake such defense through counsel of its
choice, at the cost and expense of the Indemnifying Party, and the Indemnified
Party may settle such matter, and the Indemnifying Party shall reimburse the
Indemnified Party for the amount paid in such settlement and any other
liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for any Tax benefits, Tax detriments or
insurance proceeds in determining the amount of any indemnification obligation
under this Section, provided that no Indemnifying Party shall be obligated to
seek any payment pursuant to the terms of any insurance policy.
11.4 Exclusive Remedy. Except as provided in Section 11.5(b) or Section
14.3 hereof, the indemnification provided for in this Section 11 shall (except
as prohibited by ERISA) be the exclusive remedy in any action seeking damages or
any other form of monetary relief brought by any party to this Agreement against
another party, provided that nothing herein shall be construed to limit the
right of a party, in a proper case, to seek injunctive relief for a breach of
this Agreement or to seek relief for a breach of any employment agreement with,
or any stock option issued by, CTS.
11.5 Limitations on Indemnification. (a) CTS, NEWCO, the Surviving
Corporation and the other Persons or entities indemnified pursuant to Section
11.1 (other than the STOCKHOLDER) shall not assert any claim other than a Third
Person claim for indemnification hereunder against the STOCKHOLDER until such
time as, and solely to the extent that, the aggregate of all claims which such
Persons may have against the STOCKHOLDER shall exceed 1.0% of the sum of (i) the
cash paid to the STOCKHOLDER plus (ii) the value (determined in accordance with
Section 11.5(c) hereof) of the CTS Stock delivered to the STOCKHOLDER (the
"Indemnification
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Threshold"); provided, however, that CTS, NEWCO, the Surviving Corporation and
the other Persons or entities indemnified pursuant to Section 11.1 (other than
the STOCKHOLDER) may assert and shall be indemnified for any claim under Section
11.1(iv) or 11.1(v) at any time, regardless of whether the aggregate of all
claims which such Persons may have against the STOCKHOLDER exceeds the
Indemnification Threshold, it being understood that the amount of any such claim
under Section 11.1(iv) or 11.1(v) shall not be counted towards the
Indemnification Threshold. The STOCKHOLDER shall not assert any claim for
indemnification hereunder against CTS, NEWCO, the Surviving Corporation or the
other Persons set forth in Section 11.1 (other than the STOCKHOLDER) until such
time as, and solely to the extent that, the aggregate of all claims which the
STOCKHOLDER may have against any of such Persons exceeds $100,000. No Person
shall be entitled to indemnification under this Section 11 if and to the extent
that such Person's claim for indemnification is directly or indirectly related
to a breach by such Person of any representation, warranty, covenant or other
agreement set forth in this Agreement.
(b) CTS shall have the right, upon written notice, to offset
indemnification amounts due to it pursuant to this Agreement against payments
due to the STOCKHOLDER under (i) this Agreement (including, without limitation,
the consideration set forth on Annex III hereto) and/or (ii) any contract
contemplated by, or referred to in, this Agreement.
(c) Indemnity obligations hereunder may be satisfied through the payment
of cash or the delivery of CTS Stock, or a combination thereof. For purposes of
calculating the value of the CTS Stock received or delivered by the STOCKHOLDER
(for purposes of determining the Indemnification Threshold and the amount of any
indemnity paid), CTS Stock shall be valued at its initial public offering price
as set forth in the Registration Statement.
(d) Notwithstanding any other term of this Agreement (except the proviso
to this sentence), the STOCKHOLDER shall not be liable under this Section 11 for
an amount which exceeds the amount of proceeds received by the STOCKHOLDER in
connection with the Merger, such proceeds to be equal to the sum of (i) the cash
paid to the STOCKHOLDER (ii) the additional consideration, if any, earned by the
STOCKHOLDER pursuant to Annex III hereof, and (iii) the value of the CTS Stock
delivered to the STOCKHOLDER (determined in accordance with Section 11.5(c)
hereof); provided, that the STOCKHOLDER's indemnification obligations pursuant
to Sections 11.1(iv) and (v) shall not be limited.
12. TERMINATION OF AGREEMENT
12.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date solely:
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(a) by mutual consent of the boards of directors of CTS and the
COMPANY;
(b) by the STOCKHOLDER or the COMPANY (acting through its board of
directors), on the one hand, or by CTS (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, unless the failure of such transactions to be
consummated is due to the willful failure of the party seeking to
terminate this Agreement to perform any of its obligations under this
Agreement to the extent required to be performed by it prior to or on the
Closing Date;
(c) by the STOCKHOLDER or the COMPANY, on the one hand, or by CTS,
on the other hand, if a material breach or default shall be made by the
other party in the observance or in the due and timely performance of any
of the covenants, agreements or conditions contained herein, and the
curing of such default shall not have been made on or before the Closing
Date; or
(d) pursuant to Section 7.8 hereof.
12.2 Liabilities in Event of Termination. Except as provided in Section
7.8 hereof. the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 Prohibited Activities. The STOCKHOLDER acknowledges and agrees to
be bound by the noncompetition terms and provisions set forth in the
employment agreement referred to in Section 8.9 hereof.
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13.2 Damages. Because of the difficulty of measuring economic losses to
CTS as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to CTS for which it would
have no other adequate remedy, the STOCKHOLDER agrees that, in the event of
breach by the STOCKHOLDER, the foregoing covenant may be enforced by CTS by
injunctions and restraining orders.
13.3 Independent Covenant. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of the STOCKHOLDER
against CTS (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by CTS
of such covenants.
13.4 Materiality. The COMPANY and the STOCKHOLDER hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
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14.1 STOCKHOLDER. The STOCKHOLDER recognizes and acknowledges that it had
in the past, currently has, and in the future may have, access to certain
confidential information of the COMPANY, the Other Founding Companies, and/or
CTS, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the COMPANY's, the Other Founding
Companies' and/or CTS's respective businesses. The STOCKHOLDER agrees that it
will not disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of CTS or the Other Founding Companies
who need to know information in connection with the transactions contemplated
hereby, who have been informed of the confidential nature of such information
and who have agreed to keep such information confidential as provided hereby,
(b) following the Closing, such information may be disclosed by the STOCKHOLDER
as is required in the course of performing its duties for CTS or the Surviving
Corporation and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of the STOCKHOLDER, (ii) disclosure is required by law or the order of
any Governmental Authority under color of law; provided, that prior to
disclosing any information pursuant to this clause (ii), the STOCKHOLDER shall,
if possible, give prior written notice thereof to CTS and provide CTS with the
opportunity to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party. In the event the transactions contemplated
by this Agreement are not consummated, the STOCKHOLDER shall have none of the
above-mentioned restrictions on his ability to disseminate confidential
information with respect to the COMPANY.
14.2 CTS AND NEWCO. CTS and NEWCO recognize and acknowledge that they had
in the past, currently have, and in the future may have, access to certain
confidential information of the COMPANY, such as operational policies, and
pricing and cost policies that are valuable, special and unique assets of the
COMPANY's business. CTS and NEWCO agree that, prior to the Closing, or if the
Transactions contemplated by this Agreement are not consummated, they will not
disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
the STOCKHOLDER and to authorized representatives of the COMPANY, (b) to counsel
and other advisers, provided that such advisors (other than counsel) agree to
the confidentiality provisions of this Section 14.2 and (c) to the Other
Founding Companies and their representatives pursuant to Section 7. 1 (a),
unless (i) such information becomes known to the public generally through no
fault of CTS or NEWCO, (ii) disclosure is required by law or the order of any
Governmental Authority under color of law; provided, that, prior to disclosing
any information pursuant to this clause (ii), CTS and NEWCO shall, if possible,
give prior written notice thereof to the COMPANY and the STOCKHOLDER and provide
the COMPANY and the STOCKHOLDER with the opportunity to contest such disclosure,
or (iii) the disclosing
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party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party. In the event of a breach
or threatened breach by CTS or NEWCO of the provisions of this Section, the
COMPANY and the STOCKHOLDER shall be entitled to an injunction restraining CTS
and NEWCO from disclosing, in whole or in part, such confidential information.
Nothing herein shall be construed as prohibiting the COMPANY and the STOCKHOLDER
from pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
14.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
Nothing herein shall be construed as prohibiting a party hereto from pursuing
any other available remedy for such breach or threatened breach of Sections 14.1
and 14.2, including the recovery of damages.
14.4 Survival. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Closing Date.
15. TRANSFER RESTRICTIONS
15.1 Transfer Restrictions. For a period of one year from the Closing
Date, except pursuant to Section 16 hereof, the STOCKHOLDER shall not (i) sell,
assign, exchange, transfer, encumber, pledge, distribute, appoint or otherwise
dispose of (a) any shares of CTS Stock received by the STOCKHOLDER pursuant to
the terms hereunder or (b) any interest (including, without limitation, an
option to buy or sell) in any such shares of CTS Stock, in whole or in part, and
no such attempted transfer shall be treated as effective for any purpose; or
(ii) engage in any transaction, whether or not with respect to any shares of CTS
Stock or any interest therein, the intent or effect of which is to reduce the
risk of owning the shares of CTS Stock acquired pursuant to Section 2 hereof
(including, by way of example and not limitation, engaging in put, call,
short-sale, straddle or similar market transactions). Notwithstanding the
foregoing, the STOCKHOLDER may (x) transfer shares of CTS Stock to immediate
family members (or trusts for the benefit of the STOCKHOLDER or family members,
the trustees of which so agree) or (y) encumber or pledge any of such shares of
CTS Stock; provided, that the family member, trust, trustee, pledgee or other
beneficiary of such transfer, encumbrance or pledge, as the case may be, agrees
in writing prior to such transaction to be bound by (1) the provisions of this
Section as if the STOCKHOLDER and party hereto and (2) the indemnification
provisions set forth in this Agreement as if a STOCKHOLDER and party hereto. The
certificates evidencing the CTS Stock delivered to the STOCKHOLDER pursuant to
Section 3 of this Agreement will bear a legend
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substantially in the form set forth below and containing such other information
as CTS may deem necessary or appropriate:
EXCEPT AS PROVIDED BY THAT CERTAIN AGREEMENT AND PLAN OF ORGANIZATION, A COPY OF
WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY FOR PUBLIC
INSPECTION, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO
ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE FIRST ANNIVERSARY OF
THE CLOSING DATE. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE,
THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED
WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
16. REGISTRATION RIGHTS
16.1 Piggyback Registration Rights. At any time following the Closing
Date, whenever CTS proposes to register any CTS Stock for its own or others'
account under the 1933 Act for a public offering, other than (i) any shelf
registration of shares to be used as consideration for acquisitions of
additional businesses by CTS, (ii) registrations relating to Plans and (iii)
registrations relating to rights offerings made to the stockholders of CTS, CTS
shall give the STOCKHOLDER prompt written notice of its intent to do so. Upon
the written request of the STOCKHOLDER given within 30 days after receipt of
such notice, CTS shall cause to be included in such registration all of the CTS
Stock issued to the STOCKHOLDER pursuant to this Agreement which any such
STOCKHOLDER requests, provided that CTS shall have the right to reduce the
number of shares included in such registration to the extent that inclusion of
such shares could, in the opinion of tax counsel to CTS or its independent
auditors, jeopardize the status of the transactions contemplated hereby and by
the Registration Statement as a tax-free organization. In addition, if CTS is
advised in writing in good faith by any managing underwriter of an underwritten
offering of the securities being offered pursuant to any registration statement
under this Section 16.1 that the number of shares to be sold by persons other
than CTS is greater than the number of such shares which can be offered without
adversely affecting the offering, CTS may reduce pro rata the number of shares
offered for the accounts of such persons (based upon the number of shares
proposed to be sold by each such person) to a number deemed satisfactory by such
managing underwriter, provided, that, for each such offering made by CTS after
the IPO, such reduction shall be made first by reducing the number of shares to
be sold by persons other than CTS, the STOCKHOLDER and the stockholders of the
Other Founding Companies (collectively, the STOCKHOLDER and the stockholders of
the Other Founding
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Companies being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing pro rata the number
of shares to be sold by the Founding Stockholders.
16.2 Registration Procedures. All expenses incurred in connection with the
registrations under this Section 16 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts with respect to any CTS Stock sold on behalf of the
STOCKHOLDER), shall be borne by CTS. In connection with registrations under
Section 16.1, CTS shall (i) use its best efforts to prepare and file with the
SEC as soon as reasonably practicable, a registration statement with respect to
the CTS Stock and use its best efforts to cause such registration to promptly
become and remain effective for a period of at least 120 days (or such shorter
period during which stockholders of the Founding Companies shall have sold all
CTS Stock which they requested to be registered); (ii) use its best efforts to
register and qualify the CTS Stock covered by such registration statement under
applicable state securities laws as the holders shall reasonably request for the
distribution of the CTS Stock; (iii) take all actions necessary to have the CTS
Stock covered by such registration listed or quoted on the exchange or automated
quotation system on which the CTS Stock trades at the time of registration; (iv)
take such other actions as are reasonable and necessary to comply with the
requirements of the 1933 Act and the regulations thereunder; and (v) make
available its general counsel to advise the STOCKHOLDER and provide the legal
opinions required under the purchase agreement used in connection with the
registrations under this Section 16.
16.3 Underwriting Agreement. In connection with each registration pursuant
to Section 16.1 covering an underwritten registered public offering, CTS and
each participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of CTS's size and investment stature,
including indemnification provisions.
16.4 Availability of Rule 144. CTS shall not be obligated to register
shares of CTS Stock held by the STOCKHOLDER at any time when the resale
provisions of Rule 144(k) (or any successor provision) promulgated under the
1933 Act are available to the STOCKHOLDER for such shares.
16.5 Market Standoff. In consideration of the granting to the STOCK HOLDER
of the registration rights under this Section 16, the STOCKHOLDER agrees that it
will not sell, transfer or otherwise dispose of, including without limitation
through put or short sale arrangements, shares of CTS Stock in the 10 days prior
to the effectiveness of any registration of CTS Stock for sale to the public and
for up to 90 days following the effectiveness of such registration, provided,
that: (i) all directors, executive officers and holders of more than five
percent of the outstanding CTS Stock agree to the
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same restrictions; (ii) with respect to the first public offering of shares of
the CTS Stock within three years following the IPO, the STOCKHOLDER shall have
been afforded a meaningful opportunity to include shares in such registration
after any reduction by reason of underwriters' advice; and (iii) CTS has not
exercised its rights to delay under this Section 16.5 more than once in any 12
month period.
17. GENERAL
17.1 Cooperation. The COMPANY, the STOCKHOLDER, CTS and NEWCO shall each
deliver or cause to be delivered to the other on the Closing Date, and at such
other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The STOCKHOLDER will cooperate and use his reasonable efforts to
have the present officers, directors and employees of the COMPANY cooperate with
CTS on and after the Closing Date in furnishing information, evidence, testimony
and other assistance in connection with any Tax Return filing obligations,
actions, proceedings, arrangements or disputes of any nature with respect to
matters pertaining to all periods prior to the Closing Date.
17.2 Successors and Assigns. During the period payments are to be made to
the STOCKHOLDER pursuant to Annex III hereof, this Agreement and the rights of
the parties hereunder may not be assigned (including by operation of law) and
shall be binding upon and shall inure to the benefit of the parties hereto, the
successors of CTS, and the heirs and legal representatives of the STOCKHOLDER;
provided, however, that this Agreement and the rights of the parties hereunder
may be assigned if the assignee is a company whose capital stock is traded on
the Nasdaq Stock Market, the New York Stock Exchange or the American Stock
Exchange.
17.3 Entire Agreement. This Agreement (including the Schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the STOCKHOLDER, the
COMPANY, NEWCO and CTS and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the STOCKHOLDER, the COMPANY, NEWCO and CTS,
acting through their respective officers or trustees, duly authorized by their
respective boards of directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the COMPANY and the STOCKHOLDER shall
make a good faith effort to cross reference disclosure, as necessary or
advisable, between related Schedules.
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17.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
17.5 Brokers and Agents. Except as disclosed on Schedule 17.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commissions of
brokers employed or alleged to have been employed by such indemnifying party.
17.6 Expenses.
(a) Whether or not the transactions herein contemplated shall be
consummated, CTS will pay the fees, expenses and disbursements of CTS and
its agents, representatives, accountants and counsel incurred in
connection with the subject matter of this Agreement and any amendments
thereto, including all costs and expenses incurred in the performance and
compliance with all conditions to be performed by CTS under this
Agreement, including the fees and expenses of Price Waterhouse LLP,
Morgan, Lewis & Bockius LLP, and any other person or entity retained by
CTS, and the costs of preparing the Registration Statement.
(b) If the transactions herein contemplated shall not be
consummated, the Company shall pay the fees, expenses and disbursements of
the STOCKHOLDER, the COMPANY and their respective agents, representatives,
accountants and counsel incurred in connection with the subject matter of
this Agreement and any amendments thereto, including all costs and
expenses incurred in the performance and compliance with all conditions to
be performed by the COMPANY and the STOCKHOLDER under this Agreement,
including the fees and expenses of legal counsel to the COMPANY and the
STOCKHOLDER.
(c) If the transaction herein contemplated is consummated, CTS will
pay the fees, expenses, and disbursements of the STOCKHOLDER and the
COMPANY as described in (b), above.
(d) The STOCKHOLDER shall pay all sales, use, transfer, real
property transfer, recording, gains, stock transfer and other similar
taxes and fees ("Transfer Taxes") imposed in connection with the
transactions contemplated hereby. The STOCKHOLDER shall file all necessary
documentation and Returns with respect to such Transfer Taxes. In
addition, the STOCKHOLDER acknowledges that he, and not the COMPANY or
CTS, will pay all Taxes due upon receipt of the consideration payable
pursuant to Section 2 hereof, and will
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assume all Tax risks and liabilities of the STOCKHOLDER in connection with
the transactions contemplated hereby.
17.7 Notices. All notices or communications required or permitted
hereunder shall be in writing and shall be deemed to have been given when
personally delivered or upon receipt if sent by first class certified mail,
return receipt requested or the next business day if sent by telefax (receipt
confirmed and followed up by one of the other delivery methods discussed herein
as well), or upon delivery if sent by express mail, in each case postage prepaid
and addressed as follows:
(a) If to CTS, or NEWCO:
1650 Tysons Boulevard
Suite 600
McLean, Virginia 22102
with copies to:
The Commonwealth Group
1650 Tysons Boulevard
Suite 600
McLean, Virginia 22102
and
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Attn: Christopher T. Jensen, Esq.
(b) If to the STOCKHOLDER, addressed to him at his address set forth
on Annex IV, with copies to his counsel as is set forth with respect to
the STOCKHOLDER on such Annex IV;
(c) If to the COMPANY:
Management Support Technology, Corp.
3 Speen Street
Framingham, Massachusetts 01701
Attn: Mr. C. Lawrence Meador
and marked "Personal and Confidential"
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with copies to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attn: David A. Fine, Esq.
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 17.7 from time to time.
17.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of New York, except that matters herein within the purview
of the matters covered by the General Corporation Law of the State of Delaware
shall be governed by such General Corporation Law, in each case without
reference to conflicts of laws principles.
17.9 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
17.10 Time. Time is of the essence with respect to this Agreement.
17.11 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
17.12 Remedies Cumulative. Except as provided in Section 11.4 of this
Agreement, no right, remedy or election given by any term of this Agreement
shall be deemed exclusive but each shall be cumulative with all other rights,
remedies and elections available at law or in equity.
17.13 Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
-66-
<PAGE>
17.14 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of CTS, NEWCO, the COMPANY and the STOCKHOLDER. Any amendment or
waiver effected in accordance with this Section 17.14 shall be binding upon each
of the parties hereto, any other person receiving CTS Stock in connection with
the Merger and each future holder of such CTS Stock.
-67-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
CONDOR TECHNOLOGY SOLUTIONS, INC.
By: /s/ Kennard F. Hill
---------------------------------
Name: Kennard F. Hill
Title: President and Chief Executive Officer
MST ACQUISITION CORP.
By: /s/ Kennard F. Hill
---------------------------------
Name: Kennard F. Hill
Title: President and Chief Executive Officer
MANAGEMENT SUPPORT TECHNOLOGY
CORP.
By: /s/ C. Lawrence Meador
---------------------------------
Name: C. Lawrence Meador
Title: President
STOCKHOLDER:
/s/ C. Lawrence Meador
------------------------------------
Name: C. Lawrence Meador
<PAGE>
ANNEX III
CONSIDERATION TO BE PAID TO THE STOCKHOLDER
(1) Total consideration to be paid to the STOCKHOLDER on the Closing Date:
$9,750,000 in cash and $7,850,000/IPO price per share shares of CTS
Stock.
(2) At the Closing, CTS shall grant options equal to 1.3333% of the
shares of CTS outstanding (giving effect to the Closing) under the
terms of the 1997 Long-Term Incentive Plan of CTS, such options to
be granted with an exercise price equal to the IPO price and vesting
provisions equal to other options being granted to executives of
CTS, and to be allocated to the employees of MST, including
Mr. C. Lawrence Meador, as may be designated in writing to CTS prior
to the Closing by Mr. Meador.
(3) Contingent consideration of up to $8,400,000 will be paid to the
STOCKHOLDER contingent on the 1998, 1999 and 2000 financial performance of
the COMPANY. Contingent consideration (if earned) is being offered herein
in view of the differences of opinion between CTS and the STOCKHOLDER
regarding the value of the COMPANY's business, including without limitation
its growth rate, sustainability of customer base and operating margins.
Accordingly, the contingent portion of the consideration (if any) will
enable the total consideration to be based on the actual value of the
COMPANY's business.
The following details the potential contingent consideration for the
COMPANY:
<TABLE>
<CAPTION>
Annual Cumulative Annual Cumulative
Pre-tax Pre-tax Pre-tax Pre-tax
Conditions Income Target* Income Target* Income Threshold* Income Threshold*
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 Cumulative Earn-out $3,464,000 $3,464,000 $2,750,000 $2,750,000
earn-out Consideration cannot
exceed $4,700,000
1999 Cumulative Earn-out $4,330,000 $7,794,000 $3,079,000 $5,829,000
earn-out Consideration cannot
exceed $8,400,000
2000 Cumulative Earn-out $4,330,000 $12,124,000 $3,000,000 $8,829,000
earn-out Consideration cannot
exceed $8,400,000
</TABLE>
<TABLE>
<CAPTION>
Basis of Earn-out Calculation %Cash / %Equity Consideration Cumulative Consideration
-------------------------------------------------------------------------------------------------
<S> <C>
1998 4.27 x Cumulative Pre-tax 30% $3,052,214 $20,652,214
earn-out Income over Cumulative Threshold 70%
1999 4.27 x Cumulative Pre-tax Income over 30% $5,347,786 $26,000,000
earn-out Cumulative Threshold less 70%
1998 earn-out
2000 4.27 x Cumulative Pre-tax Income over 30% -- $26,000,000
earn-out Cumulative Threshold less 1998 70%
& 1999 earn-outs
</TABLE>
* Pre-tax Income shall be calculated as follows:
(i) January 1, 1998 through December 31, 1998: Pre-tax Income
shall equal the COMPANY's earnings after interest,
depreciation and amortization, but before Federal and state
taxes for the period from January 1, 1998 through December 31,
1998, calculated in accordance with GAAP in the manner applied
in the audited financial statements of the COMPANY included in
the Registration Statement, but without giving effect to (x)
any intercompany costs or charges imposed by CTS for services
provided to the COMPANY (other than charges for services
provided by CTS that were previously arranged for and
independently paid by the COMPANY, including, without
limitation, audit fees, insurance costs, and general overhead)
or (y) the amortization of intangible assets resulting from
the transactions contemplated by the Agreement.
Notwithstanding the foregoing, Pre-tax Income for such period
shall include all costs or other charges imposed for services
or products provided by CTS to the COMPANY for use in
connection with the servicing of the COMPANY's customers.
(ii) January 1, 1999 through December 31, 1999: Pre-tax
Income shall equal the COMPANY's earnings after interest,
depreciation and amortization, but before Federal and state
taxes for the period from January 1, 1999 through December 31,
1999, calculated in accordance with GAAP in the manner applied
in the audited financial statements of the COMPANY included in
the Registration Statement, but without giving effect to (x)
any intercompany costs or charges imposed by CTS for services
provided to the COMPANY (other than charges for services
provided by CTS that were previously arranged for and
independently paid by the COMPANY, including, without
limitation, audit fees, insurance costs, and general overhead)
or (y) the amortization of intangible assets resulting from
the transactions contemplated by the Agreement.
Notwithstanding the foregoing, Pre-tax Income for such period
shall include all costs or other charges imposed for services
or products provided by CTS to the COMPANY for use in
connection with the servicing of the COMPANY's customers.
(iii) January 1, 2000 through December 31, 2000: Pre-tax
Income shall equal the COMPANY's earnings after interest,
depreciation and amortization, but before Federal and state
taxes for the period from January 1, 2000 through December 31,
2000, calculated in accordance with GAAP in the manner applied
in the audited financial statements of the COMPANY included in
the Registration Statement, but without giving effect to (x)
any intercompany costs or charges imposed by CTS for services
provided to the COMPANY (other than charges for services
provided by CTS that were previously arranged for and
independently paid by the COMPANY, including, without
limitation, audit fees, insurance costs, and general overhead)
or (y) the amortization of intangible assets resulting from
the transactions contemplated by the Agreement.
Notwithstanding the foregoing, Pre-tax Income for such period
shall include all costs or other charges imposed for services
or products provided by CTS to the COMPANY for use in
connection with the servicing of the COMPANY's customers.
The equity to be delivered hereunder shall be valued at a per
share price equal to one-tenth (1/10) of the sum of the
closing price per share of the CTS Stock as reported by the
"Exchange" (as defined in Section 3(a)(1) of the 1934 Act) on
which the CTS Stock is traded at the close of each of the last
ten business days immediately prior to the date the contingent
consideration is paid. If the CTS Stock is not traded on any
Exchange, then the value of the equity shall be determined by
one appraiser selected upon mutual agreement of CTS and the
STOCKHOLDER, whose fees and expenses shall be paid one-half by
CTS and one-half by the STOCKHOLDER.
(3) The equity and cash delivered hereunder shall be delivered to the
STOCKHOLDER no later than 30 days after CTS has received from its
independent accountants audited consolidated financial statements
for CTS.
<PAGE>
-----------------------------------------------------------------
AGREEMENT AND PLAN OF ORGANIZATION
dated as of October 1, 1997
by and among
CONDOR TECHNOLOGY SOLUTIONS, INC.
CHMC ACQUISITION CORP.
(a subsidiary of Condor Technology Solutions, Inc.)
COMPUTER HARDWARE MAINTENANCE COMPANY, INC.
and
the STOCKHOLDERS named herein
-----------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
1. THE MERGER.......................................................6
1.1 Delivery and Filing of Articles of Merger..................6
1.2 Effective Time of the Merger...............................6
1.3 Certificate of Incorporation, By-laws and Board of
Directors of Surviving Corporation.........................6
1.4 Certain Information With Respect to the Capital
Stock of the COMPANY, CTS and NEWCO........................7
2. CONVERSION OF STOCK..............................................7
2.1 Manner of Conversion.......................................7
3. DELIVERY OF MERGER CONSIDERATION.................................8
4. CLOSING.........................................................10
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND
STOCKHOLDERS....................................................10
5.1 Due Organization..........................................11
5.2 Authorization.............................................11
5.3 Capital Stock of the COMPANY..............................11
5.4 Transactions in Capital Stock; Organization Accounting....12
5.5 No Bonus Shares...........................................12
5.6 Subsidiaries..............................................12
5.7 Predecessor Status; etc...................................13
5.8 Spin-off by the COMPANY...................................13
5.9 Financial Statements......................................13
5.10 Liabilities and Obligations...............................13
5.11 Accounts and Notes Receivable.............................14
5.12 Intellectual Property; Permits and Intangibles............14
5.13 Environmental Matters.....................................15
5.14 Personal Property.........................................17
5.15 Significant Customers; Material Contracts and
Commitments...............................................17
5.16 Real Property.............................................19
5.17 Insurance.................................................20
5.18 Compensation; Employment Agreements; Organized Labor
Matters...................................................22
5.19 Employee Plans............................................22
5.20 Compliance with ERISA.....................................23
5.21 Conformity with Law; Litigation...........................24
5.22 Taxes.....................................................25
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<PAGE>
5.23 No Violations.............................................28
5.24 Government Contracts......................................28
5.25 Business Conduct..........................................28
5.26 Deposit Accounts; Powers of Attorney......................30
5.27 Relations with Governments................................30
5.28 Disclosure................................................30
5.29 Prohibited Activities.....................................31
5.30 Affiliate Transactions....................................32
5.31 Misrepresentation.........................................32
5.32 Securities Act Representations............................32
5.33 Authority; Ownership......................................34
5.34 Preemptive Rights.........................................34
5.35 No Intention to Dispose of CTS Stock......................34
5.36 Questionnaires. ..........................................34
6. REPRESENTATIONS OF CTS AND NEWCO................................34
6.1 Due Organization..........................................35
6.2 Authorization.............................................35
6.3 Transaction Not a Breach..................................35
6.4 Misrepresentation.........................................35
6.5 Capital Stock.............................................36
6.6 Subsidiaries..............................................36
6.7 Conformity with Law; Litigation...........................36
7. COVENANTS PRIOR TO CLOSING......................................37
7.1 Access and Cooperation; Due Diligence.....................37
7.2 Conduct of Business Pending Closing.......................38
7.3 Prohibited Activities.....................................38
7.4 No Shop...................................................40
7.5 Notice to Bargaining Agents...............................40
7.6 Agreements................................................40
7.7 Notification of Certain Matters...........................40
7.8 Amendment of Schedules....................................41
7.9 Cooperation in Preparation of Registration Statement......43
7.10 Final Financial Statements................................44
7.11 Further Assurances........................................44
7.12 Approval of Merger Agreement..............................44
7.13 Distributions.............................................44
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS
AND THE COMPANY.................................................44
8.1 Representations and Warranties............................45
8.2 Performance of Obligations................................45
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<PAGE>
8.3 No Litigation.............................................45
8.4 Opinion of Counsel........................................45
8.5 Consents and Approvals....................................45
8.6 Good Standing Certificates................................45
8.7 Consummation of Other Agreements..........................45
8.8 Secretary's Certificate...................................45
8.9 Employment Agreements.....................................46
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CTS AND NEWCO............46
9.1 Representations and Warranties............................46
9.2 Performance of Obligations................................46
9.3 No Litigation.............................................46
9.4 Secretary's Certificate...................................46
9.5 No Material Adverse Change................................47
9.6 STOCKHOLDERS' Release.....................................47
9.7 Termination of Related Party Agreements...................47
9.8 Opinion of Counsel........................................47
9.9 Consents and Approvals....................................47
9.10 Good Standing Certificates................................47
9.11 Registration Statement....................................48
9.12 Employment Agreements.....................................48
9.13 Closing of IPO............................................48
9.14 FIRPTA Certificate........................................48
9.15 Consummation of Other Agreements..........................48
9.16 A/R Aging Reports.........................................48
9.17 Satisfaction..............................................48
10. COVENANTS OF CTS AND THE STOCKHOLDERS AFTER CLOSING.............48
10.1 Release From Guarantees; Repayment of Certain
Obligations...............................................48
10.2 Preservation of Tax and Accounting Treatment..............48
10.3 Preparation and Filing of Tax Returns.....................49
10.4 Directors and Officers....................................49
10.5 Preservation of Employee Benefit Plans....................49
10.6 Rule 144..................................................50
10.7 Authorization of Shares...................................50
11. INDEMNIFICATION.................................................50
11.1 General Indemnification by the STOCKHOLDERS...............50
11.2 Indemnification by CTS....................................51
11.3 Third Person Claims.......................................51
11.4 Exclusive Remedy..........................................53
11.5 Limitations on Indemnification............................53
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<PAGE>
12. TERMINATION OF AGREEMENT........................................54
12.1 Termination...............................................54
12.2 Liabilities in Event of Termination.......................54
13. NONCOMPETITION..................................................55
13.1 Prohibited Activities.....................................55
13.2 Damages...................................................56
13.3 Reasonable Restraint......................................56
13.4 Severability; Reformation.................................56
13.5 Independent Covenant......................................56
13.6 Materiality...............................................57
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.......................57
14.1 Stockholders..............................................57
14.2 CTS AND NEWCO.............................................57
14.3 Damages...................................................58
14.4 Survival..................................................58
15. TRANSFER RESTRICTIONS...........................................58
15.1 Transfer Restrictions.....................................58
16. REGISTRATION RIGHTS.............................................59
16.1 Piggyback Registration Rights.............................59
16.2 Registration Procedures...................................60
16.3 Underwriting Agreement....................................60
16.4 Availability of Rule 144..................................60
16.5 Market Standoff...........................................61
17. GENERAL.........................................................61
17.1 Cooperation...............................................61
17.2 Successors and Assigns....................................61
17.3 Entire Agreement..........................................61
17.4 Counterparts..............................................62
17.5 Brokers and Agents........................................62
17.6 Expenses..................................................62
17.7 Notices...................................................63
17.8 Governing Law.............................................64
17.9 Exercise of Rights and Remedies...........................64
17.10 Time......................................................64
17.11 Reformation and Severability..............................64
17.12 Remedies Cumulative.......................................64
17.13 Captions..................................................65
17.14 Amendments and Waivers....................................65
-iv-
<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (this "Agreement") is made as of
September __, 1997, by and among CONDOR TECHNOLOGY SOLUTIONS, INC., a Delaware
corporation ("CTS"), CHMC ACQUISITION CORP., a Delaware corporation ("NEWCO"),
COMPUTER HARDWARE MAINTENANCE COMPANY, INC., a Pennsylvania corporation (the
"COMPANY"), and Joseph F. Colyar, Claude Haring and Michael Paglaiccetti (the
"STOCKHOLDERS"). The STOCKHOLDERS are the principal stockholders of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing under the laws
of the State of Delaware, having been incorporated on July 7, 1997, solely for
the purpose of completing the transactions set forth herein, and is a
wholly-owned subsidiary of CTS;
WHEREAS, the respective Boards of Directors of NEWCO and the COMPANY
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the Constituent
Corporations and their respective stockholders that NEWCO merge with and into
the COMPANY pursuant to this Agreement and the applicable provisions of the laws
of the States of Delaware and Pennsylvania (the "Merger"), and in furtherance
thereof have approved the Merger;
WHEREAS, CTS is entering into other separate agreements substantially
similar to this Agreement (the "Other Agreements"), each of which is entitled
"Agreement and Plan of Organization," with companies in the information
technology industry (collectively, the "Other Founding Companies"), and their
respective stockholders in order to acquire additional information technology
companies. The COMPANY, together with each of the entities with which CTS has
entered into the Other Agreements, are collectively referred to herein as the
"Founding Companies;"
WHEREAS, this Agreement, the Other Agreements and the IPO (as hereinafter
defined) of CTS Stock (as hereinafter defined) constitute the "CTS Plan of
Organization;"
WHEREAS, the Boards of Directors of CTS and each of the Founding Companies
have approved and adopted the CTS Plan of Organization as an integrated plan to
transfer the capital stock of the Founding Companies to CTS and the cash raised
in the IPO of CTS Stock to CTS as a transfer of property under Section 351 of
the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the STOCKHOLDERS and the Board of
Directors of the COMPANY and the stockholders and the boards of directors of
each of
<PAGE>
CTS and NEWCO have approved this Agreement and the transactions contemplated
hereby;
WHEREAS, unless the context otherwise requires, capitalized terms used in
this Agreement or in any schedule attached hereto and not otherwise defined
herein shall have the following meanings for all purposes of this Agreement:
"Acquired Party" means the COMPANY, any subsidiary and any member of a
Relevant Group.
"Acquisition Companies" means NEWCO and each of the other Delaware
companies wholly-owned by CTS prior to the Closing Date.
"Acquisition Transaction" has the meaning set forth in Section 7.4.
"Affiliates" has the meaning set forth in Section 5.8.
"A/R Aging Reports" has the meaning set forth in Section 9.16.
"Articles of Merger" means those Articles or Certificates of Merger with
respect to the Merger substantially in the form[s] attached as Annex I hereto or
with such changes therein as may be required by applicable state laws.
"Balance Sheet Date" means February 28, 1997.
"Benefit Plan" means any Plan, existing at the Closing Date or prior
thereto, established or to which contributions have at any time been made by the
COMPANY, any ERISA Affiliate, or any predecessor of any of the foregoing, under
which any employee or former employee of the COMPANY, or any beneficiary
thereof, is covered, is eligible for coverage or has benefit rights.
"CTS" has the meaning set forth in the first paragraph of this Agreement.
"CTS Charter Documents" has the meaning set forth in Section 6.1.
"CTS Plan of Organization" has the meaning set forth in the fourth recital
of this Agreement.
"CTS Stock" means the common stock, par value $.01 per share, of CTS.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" means the consummation of the transactions contemplated by this
Agreement on the Closing Date.
-2-
<PAGE>
"Closing Date" has the meaning set forth in Section 4.
"Code" has the meaning set forth in the fifth recital of this Agreement.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Delaware Law" has the meaning set forth in Section 1.2.
"Effective Time of the Merger" means the time as of which the Merger
becomes effective, which the parties hereto contemplate to occur on the Closing
Date.
"Environmental Requirements" has the meaning set forth in Section 5.13.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any Person who is, or at any time was, a member of
a controlled group (within the meaning of Section 412(n)(6) of the Code) that
includes, or at any time included, the COMPANY or any predecessor of the
COMPANY.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" has the meaning set forth in the third recital of
this Agreement.
"GAAP" means generally accepted accounting principles of the United States
applied in a manner consistent with the past practices of the COMPANY.
"Governmental Authority" means any governmental, regulatory or
administrative body, agency, subdivision or authority, any court or judicial
authority, or any public, private or industry regulatory authority, whether
national, Federal, state, local or otherwise.
"Hazardous Materials" has the meaning set forth in Section 5.13(b).
"Intellectual Property" means all trademarks, service marks, trade dress,
trade names, patents and copyrights and any registration or application for any
of the foregoing, and any trade secret, invention, process, know-how, computer
software or technology systems.
-3-
<PAGE>
"IPO" means the initial public offering of CTS Stock pursuant to the
Registration Statement.
"Laws" has the meaning set forth in Section 5.21.
"Material Adverse Effect" means, with respect to any Person, any event or
occurrence which would have a material adverse effect on such Person's business,
condition (financial or other), properties, business prospects or financial
results.
"Material Contract" means any lease, instrument, agreement, license or
permit set forth on Schedule 5.12, 5.13, 5.14, 5.15, 5.16, 5.18 or 5.19 or any
other material agreement to which the Company is a party or by which its
properties are bound.
"Merger" means the merger of NEWCO with and into the COMPANY pursuant to
this Agreement and the applicable provisions of the laws of the States of
Delaware and Pennsylvania.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO STOCK" means the common stock, par value $.01 per share, of
NEWCO.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Other Agreements" has the meaning set forth in the third recital of this
Agreement.
"Other Founding Companies" has the meaning set forth in the third recital
of this Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means any natural person, corporation, partnership,
proprietorship, other business organization, trust, union, association or
Governmental Authority.
"Plan" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance, severance,
separation or other employee benefit plan, practice, policy or arrangement of
any kind, whether written or oral, or whether for the benefit of a single
-4-
<PAGE>
individual or more than one individual including, but not limited to, any
"employee benefit plan" within the meaning of Section 3(3) of ERISA.
"Pre-Closing Date" has the meaning set forth in Section 4.
"Pricing" means the date of determination by CTS and the Underwriters of
the public offering price of the shares of CTS Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on or immediately prior to
the Pre-Closing Date.
"Registration Statement" means that certain registration statement of CTS
on Form S-1 covering the shares of CTS Stock to be issued in the IPO.
"Relevant Group" has the meaning set forth in Section 5.22(a).
"Returns" has the meaning set forth at the end of Section 5.22.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 7.3(e).
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Stockholders' Equity" means the COMPANY's stockholders' equity, including
retained earnings, as set forth on the balance sheet of the COMPANY as of the
Closing Date; provided, that such determination will reflect all reserves,
accruals, and adjustments required by GAAP to be, and/or customarily, reflected
in year-end financial statements.
"Surviving Corporation" shall mean the COMPANY as the surviving party in
the Merger.
"Tax" or "Taxes" has the meaning set forth at the end of Section 5.22.
"Taxing Authority" has the meaning set forth at the end of Section 5.22.
"Third Person" has the meaning set forth in Section 11.2.
"Transfer Taxes" has the meaning set forth in Section 17.6.
-5-
<PAGE>
"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
"Underwriting Agreement" means the Underwriting Agreement dated the
Closing Date between the Underwriters and CTS in respect of the IPO.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 Delivery and Filing of Articles of Merger. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and filed
with the Secretary of State of the State of Delaware and the Secretary of State
of the State of Pennsylvania and stamped receipt copies of each such filing to
be delivered to CTS on or before the Pre-Closing Date.
1.2 Effective Time of the Merger. At the Effective Time of the Merger and
subject to the terms and conditions of this Agreement and the applicable
provisions of the Delaware General Corporation Law (the "Delaware Law"), NEWCO
shall be merged with and into the COMPANY in accordance with the Articles of
Merger, the separate existence of NEWCO shall cease and the COMPANY shall be the
surviving party in the Merger. At the Effective Time of the Merger, the effect
of the Merger otherwise shall be as provided in the applicable provisions of
Delaware Law and the law of the State of Pennsylvania. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time of the
Merger, all the property, rights, privileges, powers and franchises of the
COMPANY and NEWCO shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the COMPANY and NEWCO shall become the debts,
liabilities and duties of the Surviving Corporation. The Merger will be effected
in a single transaction.
1.3 Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(a) the Certificate or Articles of Incorporation of the COMPANY then
in effect shall be the Certificate or Articles of the Surviving
Corporation until amended as provided by law;
(b) the By-laws of the COMPANY then in effect shall be the By-laws
of the Surviving Corporation until amended as provided by law;
(c) a director of NEWCO and three nominees of the COMPANY shall be
the directors of the Surviving Corporation until their respective
successors are
-6-
<PAGE>
elected or appointed and qualified in accordance with the terms the
By-laws of the Surviving Corporation; the Board of Directors of the
Surviving Corporation shall hold office subject to the provisions of the
laws of the State of Pennsylvania and of the Certificate of Incorporation
and By-laws of the Surviving Corporation; and
(d) the officers of the COMPANY immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities, and effective upon the
Effective Time of the Merger, J. Marshall Coleman shall be appointed as a
vice president and assistant secretary of the Surviving Corporation and
shall not be entitled to any compensation from the COMPANY as a result of
such appointment and his serving in such capacity, such officers to serve,
subject to the provisions of the Certificate or Articles of Incorporation
and By-laws of the Surviving Corporation, until his or her successor is
duly elected and qualified.
1.4 Certain Information With Respect to the Capital Stock of the COMPANY,
CTS and NEWCO. The respective designations and numbers of outstanding shares and
voting rights of each class of outstanding capital stock of the COMPANY, CTS and
NEWCO as of the date of this Agreement are as follows:
(a) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 1.4 hereto;
(b) immediately prior to the Closing Date, the authorized capital
stock of CTS will consist of 50,000,000 shares; and
(c) as of the date of this Agreement, the authorized capital stock
of NEWCO consists of 3,000 shares of NEWCO Stock, of which ten (10) shares
are issued and outstanding and beneficially owned by CTS.
2. CONVERSION OF STOCK
2.1 Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) CTS Stock and (y) common stock of the Surviving
Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(a) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger will be canceled and
extinguished and, by virtue of the Merger and without any action on the
part of the holder thereof, automatically shall be deemed to represent,
with respect to
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each STOCKHOLDER, (1) the right to receive the number of shares of CTS
Stock set forth on Annex III hereto with respect to such STOCKHOLDER and
(2) the right to receive the amount of cash set forth on Annex III hereto
with respect to such STOCKHOLDER;
(b) all shares of COMPANY Stock that are held by the COMPANY as
treasury stock shall be canceled and retired and no shares of CTS Stock or
other consideration shall be delivered or paid in exchange therefor; and
(c) each share of NEWCO Stock issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger
and without any action on the part of CTS, automatically be converted into
one fully paid and non-assessable share of common stock of the Surviving
Corporation, which shall constitute all of the issued and outstanding
shares of common stock of the Surviving Corporation immediately after the
Effective Time of the Merger.
All CTS Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 5 and
15 hereof and the registration rights described in Section 16 hereof, have the
same rights as all the other shares of outstanding CTS Stock by reason of the
provisions of the Certificate of Incorporation of CTS or as otherwise provided
by the Delaware Law. All voting rights of such CTS Stock received by the
STOCKHOLDERS shall be fully exercisable by the STOCKHOLDERS and the STOCKHOLDERS
shall not be deprived nor restricted in exercising those rights. At the
Effective Time of the Merger, CTS shall have no class of capital stock issued
and outstanding other than the CTS Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 At the Effective Time of the Merger and on the Closing Date the
STOCKHOLDERS, who are the holders of all outstanding certificates representing
shares of COMPANY Stock, shall, upon surrender of such certificates, receive (i)
the respective number of shares of CTS Stock and (ii) the amount of cash, all as
set forth on Annex III hereto with respect to such STOCKHOLDER (collectively,
the "Merger Consideration"). The cash portion of the Merger Consideration shall
be paid by wire transfer out of the cash net proceeds from the IPO.
Notwithstanding the foregoing, the Merger Consideration shall be (i) reduced, on
a dollar-for-dollar basis, by the amount that Stockholders' Equity, determined
in accordance with Section 3.2, is less than $2,951,531 and (ii) increased, on a
dollar-for-dollar basis, by the amount that Stockholders' Equity, determined in
accordance with Section 3.2, is greater than $2,951,531 (collectively, the
"Purchase Price Adjustment") . In the event the Merger Consideration is (x)
reduced as a result of Section 3.2, then the cash portion of the Merger
Consideration shall be adjusted downward, then, if necessary, the CTS Stock
portion of the Merger Consideration shall be adjusted downward based on a per
share value equal to the initial public offering price of the CTS Stock as set
forth in the Registration Statement or (y) increased as a result of
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Section 3.2, then the cash portion of the Merger Consideration shall be adjusted
upward.
3.2 (a) Within five (5) business days prior to the Closing Date, the
STOCKHOLDERS and the COMPANY will furnish to CTS their reasonable, good faith
estimate of Stockholders' Equity, including reasonable support and related
documentation therefor. The STOCKHOLDERS and the COMPANY will discuss and
consider in good faith any objections thereto by CTS, and if the STOCKHOLDERS
thereafter consider appropriate, modify their estimate of Stockholders' Equity.
(b) Within thirty (30) calendar days after the Closing Date, the
STOCKHOLDERS will prepare statements which shall set forth the calculation of
Stockholders' Equity (the "Stockholders' Equity Statements"), which will be
reviewed by CTS and Price Waterhouse ("PW"), as independent certified public
accountants for CTS. Within thirty (30) calendar days after CTS has received the
Stockholders' Equity Statements, CTS will deliver a report to the STOCKHOLDERS
setting forth any objections to the amount of Stockholders' Equity as set forth
in the Stockholders' Equity Statement (the "Report"). The STOCKHOLDERS shall
have the opportunity to review and evaluate all working papers, worksheets and
other documents utilized by CTS and PW in the preparation of the CTS Report.
(c) The STOCKHOLDERS and CTS will attempt to resolve in good faith any
disputed items relating to the determination of Stockholders' Equity as set
forth in the Stockholders' Equity Statement and the Report. Failing such
resolution, CTS and the STOCKHOLDERS will exchange within ten (10) calendar days
of receipt of the Stockholders' Equity Statement and the Report detailed written
explanations of those items that remain in dispute. Within a further period of
ten (10) calendar days from the end of the aforementioned review period, the
parties will attempt to resolve in good faith any disputed items.
(d) Failing resolution, the unresolved disputed items will be referred for
final binding resolution to the New York office of a "Big Six" accounting firm
as mutually agreed by CTS and the STOCKHOLDERS or to such other arbitrator as
the parties may hereafter jointly select (the "Arbitrator"). If the Arbitrator
determines that the resolution of a given disputed item requires an
interpretation of law, then the Arbitrator may request a law firm of national
standing chosen by it to resolve such matter. The amount of the Purchase Price
Adjustment affected by such unresolved disputed items (if any) will be as
determined by the Arbitrator. The Arbitrator shall be requested with respect to
all references to it to render its decision within thirty (30) calendar days of
a reference or as soon as practicable thereafter. The Arbitrator shall send
copies of its decision to CTS and the STOCKHOLDERS. The costs of such
Arbitrator's review (including reasonable attorneys' fees, if any) shall be
borne by the party or parties as determined by the Arbitrator, or absent any
such determination, equally by CTS and the STOCKHOLDERS. Sums payable pursuant
to this Section 3.2 shall bear interest from the Closing Date to the date of
payment at the "base" lending rate of Citibank, N.A. in
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effect during such period, plus 2%.
3.3 The STOCKHOLDERS shall deliver in trust to Morgan, Lewis & Bockius
LLP, counsel to CTS, at the Pre-Closing the certificates representing COMPANY
Stock, duly endorsed in blank by the STOCKHOLDERS, or accompanied by stock
powers duly endorsed in blank, with signatures guaranteed by a national or state
chartered bank or other financial institution, and with all necessary Transfer
Tax and other revenue stamps, acquired at the STOCKHOLDERS' expense, affixed and
canceled. The STOCKHOLDERS agree promptly to cure any deficiencies with respect
to the endorsement of the stock certificates or other documents of conveyance
with respect to such COMPANY Stock or with respect to the stock powers
accompanying any COMPANY Stock. Upon consummation of the IPO and the
transactions contemplated to occur on the Closing Date, all of such certificates
shall be deemed released by such counsel to CTS without any further action on
the part of such counsel.
4. CLOSING
At or prior to the Pre-Closing, the parties shall take all actions
necessary to prepare to (i) effect the Merger (including, if permitted by
applicable state law, the advance filing with the appropriate state authorities
of the Articles of Merger, which shall become effective at the Effective Time of
the Merger) and (ii) effect the conversion and delivery of shares referred to in
Section 2 hereof; provided, that such actions shall not include the actual
completion of the Merger for purposes of this Agreement or the conversion and
delivery of the shares and transmission of funds by wire referred to in Section
3 hereof, each of which actions shall only be taken upon the Closing Date as
herein provided. In the event that there is no Closing and this Agreement
terminates, CTS hereby covenants and agrees to do all things required by
Delaware Law and all things which counsel for the COMPANY advise CTS are
required by applicable laws of the State of Pennsylvania in order to rescind any
merger or other actions effected by the advance filing of the Articles of Merger
as described in this Section. The taking of the actions described in clauses (i)
and (ii) above (the "Pre-Closing") shall take place on the date of the execution
of the underwriting agreement to be used in connection with the IPO (the
"Pre-Closing Date") at the offices of Morgan, Lewis & Bockius LLP, 101 Park
Avenue, New York, New York 10178. On the Closing Date (x) the Articles of Merger
shall have been filed with the appropriate state authorities so that they shall
be or, as of 8:00 a.m. New York City time on the Closing Date, shall become
effective and the Merger shall thereby be effected, (y) all transactions
contemplated by this Agreement, including the conversion and delivery of shares,
the transmission of funds by wire in an amount equal to the cash portion of the
consideration which the STOCKHOLDERS shall be entitled to receive pursuant to
the Merger referred to in Section 3 hereof shall be completed and (z) the
closing with respect to the IPO shall occur and be deemed to be completed. The
date on which the actions described in the preceding clauses (x), (y) and (z)
occur shall be referred to as the "Closing Date." Time is of the essence.
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5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) Representations and Warranties of the COMPANY and the STOCKHOLDERS
Each of the COMPANY and the STOCKHOLDERS jointly and severally represents
and warrants to CTS and NEWCO that all of the following representations and
warranties in this Section 5(A) are true and correct at the date of this
Agreement and, subject to Section 7.8 hereof, shall be true and correct at the
time of the Pre-Closing and the Closing Date, and that such representations and
warranties shall survive the Closing Date for a period of eighteen months (the
last day of such period being the "Expiration Date"), except that (i) the
representations and warranties set forth in Section 5.22 hereof shall survive
until such time as the statute of limitations period has run for all tax periods
ended on or prior to the Closing Date, which shall be deemed to be the
Expiration Date for Section 5.22, and (ii) solely for purposes of Section
11.1(iii) hereof and solely to the extent that, in connection with the IPO, CTS
actually incurs liability under the 1933 Act, the 1934 Act, or any other Federal
or state securities laws, the representations and warranties set forth in this
Section 5(A) shall survive until the expiration of any applicable statute of
limitations period, which shall be deemed to be the Expiration Date for such
purposes. For purposes of this Section 5 and for the opinion referred to in
Section 9.8 of this Agreement, the term "COMPANY" shall mean and refer to the
COMPANY and all of its subsidiaries, if any.
5.1 Due Organization. The COMPANY is a corporation duly incorporated,
validly existing and in good standing under the laws of the state of its
incorporation, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted, to own
or hold under lease the properties and assets it now owns or holds under lease,
and to perform all of its obligations under the Material Contracts; is duly
qualified in the jurisdictions listed in Schedule 5.1 and there are no other
jurisdictions in which the conduct of the COMPANY's business or activities or
its ownership of assets requires any other qualification under applicable law,
the absence of which would have a Material Adverse Effect on the COMPANY. True,
complete and correct copies of the Certificate or Articles of Incorporation and
By-laws, each as amended, of the COMPANY (the "Charter Documents") are all
attached to Schedule 5.1. The minute books and stock records of the COMPANY, as
heretofore made available to CTS, are correct and complete in all material
respects. The most recent minutes of the COMPANY, which are dated no earlier
than 10 business days prior to the date hereof, affirm and ratify all prior acts
of the COMPANY and of its officers and directors on behalf of the COMPANY.
5.2 Authorization. The representatives of the COMPANY executing this
Agreement have the authority to execute and deliver this Agreement and to
perform its
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obligations hereunder. The execution and delivery of this Agreement by the
COMPANY and performance by the COMPANY of its obligations under this Agreement
and the consummation by the COMPANY of the transactions contemplated hereby have
been duly authorized by all necessary corporate and stockholder action in
accordance with applicable law and the Articles of Incorporation and By-Laws of
the COMPANY on the part of the COMPANY and the STOCKHOLDERS. This Agreement
constitutes the valid and binding obligation of the COMPANY, enforceable in
accordance with its terms.
5.3 Capital Stock of the COMPANY. The authorized capital stock of the
COMPANY is as set forth in Schedule 1.4. All of the issued and outstanding
shares of capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex IV and, except as set forth on Schedule 5.3, are
owned free and clear of all liens, security interests, pledges, charges, voting
trusts, restrictions, encumbrances and claims of every kind. All of the issued
and outstanding shares of capital stock of the COMPANY have been duly authorized
and validly issued, are fully paid and nonassessable, are owned of record and
beneficially by the STOCKHOLDERS and were offered, issued, sold and delivered by
the COMPANY in compliance with all applicable state and Federal laws concerning
the issuance of securities. The COMPANY and the STOCKHOLDERS have full right,
power and authority to exchange the COMPANY Stock as provided herein without
obtaining the consent or approval of any other person or Governmental Authority.
Further, none of such shares were issued in violation of the preemptive
rights of any past or present stockholder.
5.4 Transactions in Capital Stock; Organization Accounting. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock since
January 1, 1994. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
COMPANY to issue any of its authorized but unissued capital stock or its
treasury stock; (ii) the COMPANY has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof; and (iii) neither the voting stock structure of the COMPANY nor the
relative ownership of shares among any of the STOCKHOLDERS has been altered or
changed in contemplation of the Merger and/or the CTS Plan of Organization.
Schedule 5.4 also includes complete and accurate copies of all stock option or
stock purchase plans, including a list of all outstanding options, warrants or
other rights to acquire shares of the COMPANY Stock and a description of the
material terms of such outstanding options, warrants or other rights.
5.5 No Bonus Shares. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
5.6 Subsidiaries. Schedule 5.6 attached hereto lists the name of each of
the
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COMPANY's subsidiaries and sets forth the number and class of the authorized
capital stock of each of the COMPANY's subsidiaries and the number of shares of
each of the COMPANY's subsidiaries which are issued and outstanding, all of
which shares (except as set forth on Schedule 5.6) are owned by the COMPANY,
free and clear of all liens, security interests, pledges, voting trusts,
equities, restrictions, encumbrances and claims of every kind. Except as set
forth on Schedule 5.6, the COMPANY does not presently own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity nor is the COMPANY, directly or indirectly, a
participant in any joint venture, partnership or other non-corporate entity.
5.7 Predecessor Status; etc. Set forth on Schedule 5.7 is a list of all
names of all predecessor companies of the COMPANY, including the names of any
entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from which the COMPANY previously acquired material
assets. Except as disclosed on Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
5.8 Spin-off by the COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1994.
5.9 Financial Statements. The COMPANY has delivered to CTS copies of the
following financial statements (the "Financial Statements"):
(a) Audited Balance Sheets, Income Statements, Statements of
Stockholders' Equity and Statements of Cash Flows at and for the years
ended February 28, 1995, 1996 and 1997.
(b) Unaudited Balance Sheets, Income Statements, Statements of
Stockholders' Equity, and Statements of Cash Flows for the three months
ended May 31, 1996 and 1997.
(c) Unaudited Balance Sheet for June 30, 1997 and Unaudited Income
Statement for the period from January 1, 1997 to June 30, 1997.
Each of the Financial Statements is consistent with the books and records
of the COMPANY (which, in turn, are accurate and complete in all material
respects) and fairly presents the COMPANY's financial condition, assets and
liabilities as of their respective dates and the results of operations and cash
flows for the periods related thereto in accordance with GAAP, consistently
applied among the periods which are the subject of the Financial Statements,
except unaudited interim financial statements which were or are
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subject to normal year-end adjustments which were not and are not expected to be
material in amount and the addition of required footnotes thereto.
5.10 Liabilities and Obligations. The COMPANY has delivered to CTS an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY in excess of $10,000 which are not
reflected on the balance sheet of the COMPANY at the Balance Sheet Date or
otherwise reflected in the COMPANY Financial Statements at the Balance Sheet
Date and (ii) all loan agreements, indemnity or guaranty agreements, bonds,
mortgages, liens, pledges or other security agreements to which the COMPANY is a
party. Except as set forth on Schedule 5.10, since the Balance Sheet Date, the
COMPANY has not incurred any material liabilities of any kind, character and
description, whether accrued, absolute, secured or unsecured, contingent or
otherwise, other than liabilities incurred in the ordinary course of business.
The COMPANY has also set forth on Schedule 5.10, in the case of those contingent
liabilities related to pending or threatened litigation, or other liabilities
which are not fixed or are being contested, the following information:
(a) a summary description of the liability and has provided CTS's
counsel with: (i) copies of all relevant documentation relating thereto;
(ii) amounts claimed and any other action or relief sought; and (iii) name
of claimant and all other parties to the claim, suit or proceeding;
(b) the name of each court or agency before which such claim, suit
or proceeding is pending;
(c) the date such claim, suit or proceeding was instituted; and
(d) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such
liability. If no estimate is provided, the estimate shall for purposes of
this Agreement be deemed to be zero.
5.11 Accounts and Notes Receivable. The COMPANY has delivered to CTS an
accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY as of the Balance Sheet Date, including any such
amounts which are not reflected in the balance sheet as of the Balance Sheet
Date, and including receivables from and advances to employees and the
STOCKHOLDERS. Except to the extent reflected on Schedule 5.11 or as disclosed by
the COMPANY to CTS in a writing accompanying the A/R Aging Reports, as the case
may be, the accounts, notes and other receivables shown on Schedule 5.11 and on
the A/R Aging Reports are and shall be, and the COMPANY has no reason to believe
that any such account receivable is not or shall not be, collectible in the
amounts shown (in the case of the accounts and notes receivable set forth on
Schedule 5.11, net of reserves reflected in the balance sheet calculated
consistent with reserves as of the Balance Sheet Date).
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5.12 Intellectual Property; Permits and Intangibles.
(a) The COMPANY owns or has licenses to all Intellectual Property
the absence of any of which would have a Material Adverse Effect on the
COMPANY, and the COMPANY has delivered to CTS an accurate list (which is
set forth on Schedule 5.12(a)) of all Intellectual Property owned by or
licensed by the COMPANY. Each item of Intellectual Property owned by or
licensed by the COMPANY is valid and in full force and effect. Except as
set forth on Schedule 5.12(a), all right, title and interest in and to
each item of Intellectual Property is owned by the COMPANY and is not
subject to any license except as set forth on Schedule 5.12(a), royalty
arrangement or pending or threatened claim or dispute. To the Company's
knowledge, none of the Intellectual Property owned by or licensed by the
COMPANY nor any product sold or licensed by the COMPANY, infringes any
Intellectual Property right of any other entity and to the Company's
knowledge, no Intellectual Property owned by the COMPANY is infringed upon
by any other entity.
(b) The COMPANY holds all licenses, franchises, permits and other
governmental authorizations the absence of any of which could have a
Material Adverse Effect on the COMPANY, and the COMPANY has delivered to
CTS an accurate list and summary description (which is set forth on
Schedule 5.12(b)) of all such licenses, franchises, permits and other
governmental authorizations, including permits, titles, licenses,
franchises and certificates (it being understood and agreed that a list of
all environmental permits and other environmental approvals is set forth
on Schedule 5.13). To the knowledge of the COMPANY, the licenses,
franchises, permits and other governmental authorizations listed on
Schedules 5.12(b) and 5.13 are valid, and the COMPANY has not received any
notice that any Governmental Authority intends to cancel, terminate or not
renew any governmental license, franchise, permit or other governmental
authorization. The COMPANY has conducted and is conducting its business in
compliance with the requirements, standards, criteria and conditions set
forth in the licenses, franchises, permits and other governmental
authorizations listed on Schedules 5.12(b) and 5.13 and is not in
violation of any of the foregoing except where such non-compliance or
violation would not have a Material Adverse Effect on the COMPANY. Except
as specifically provided in Schedule 5.12(a) or 5.12(b), the transactions
contemplated by this Agreement will not (i) to the Company's knowledge
result in the infringement by the COMPANY of any Intellectual Property
right of any other entity, (ii) infringe any Intellectual Property listed
on Schedule 5.12(a), or (iii) result in a default under or a breach or
violation of, or adversely affect the rights and benefits afforded to the
COMPANY by, any licenses, franchises, permits or government authorizations
listed on Schedule 5.12(b).
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5.13 Environmental Matters.
(a) Except as set forth on Schedule 5.13,
(i) the COMPANY is and at all times has been in compliance
in all material respects with, and has not been in
violation of or liable under, all Environmental
Requirements, and
(ii) the COMPANY possesses all permits, licenses and
certificates required by all Environmental Requirements,
and has filed all notices or applications required
thereby.
As used herein, "Environmental Requirements" shall mean all applicable
federal, state and local laws, rules, regulations, ordinances and
requirements relating to pollution and protection of the environment, all
as amended to date.
(b) Except as disclosed on Schedule 5.13:
(i) the COMPANY has not been subject to, or received any
notice of any private, administrative or judicial
action, or notice of any intended private,
administrative or judicial action relating to the
presence or alleged presence of Hazardous Materials in,
under or upon any real property currently or formerly
owned, leased or used by (A) the COMPANY or (B) any
other person that has, at any time, disposed of
Hazardous Materials on behalf of the COMPANY;
(ii) the COMPANY does not have any basis for any such notice
or action; and
(iii) there are no pending or, to the knowledge of the
COMPANY, threatened actions or proceedings (or notices
of potential actions or proceedings) from any
Governmental Authority or any other entity regarding any
matter relating to health, safety or protection of the
environment against the COMPANY.
"Hazardous Materials" for purposes of this Agreement shall include,
without limitation: (A) hazardous materials, hazardous substances,
extremely hazardous substances or hazardous wastes, as those terms are
defined by the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. ss.9601 et seq. ("CERCLA"), the Resource
Conservation and Recovery Act, 42 U.S.C. ss.6901 et seq. ("RCRA"), and any
other Environmental and Safety
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Requirements; (B) petroleum, including, without limitation, crude oil or
any fraction thereof which is liquid at standard conditions of temperature
and pressure (60 degrees Fahrenheit and 14.7 pounds per square inch
absolute); (C) any radioactive material, including, without limitation,
any source, special nuclear, or by-product material as defined in 42
U.S.C. ss.2011 et seq.; and (D) asbestos in any form or condition.
(c) To the Company's knowledge, there are and have been no past or
present events, conditions, circumstances, activities, practices,
incidents or actions which could reasonably be expected to interfere with
or prevent continued compliance with any Environmental Requirements, give
rise to any legal obligation or liability, or otherwise form the basis of
any claim, action, suit, proceeding, hearing or investigation against or
involving the COMPANY or any real property presently or previously owned
or used by the COMPANY under any Environmental Requirements or related
common law theories, except as identified on Schedule 5.13.
(d) Schedule 5.13 sets forth the name and principal place of
business of every off-site waste disposal organization, and each of the
haulers, transporters or cartage organization engaged now or in the
preceding three years by the COMPANY to dispose of Hazardous Materials to
any such off-site waste disposal location on behalf of the COMPANY or any
of its predecessors.
5.14 Personal Property. The COMPANY has delivered to CTS an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property with a value
individually in excess of $10,000 which is included (or that will be included)
in "depreciable plant, property and equipment" (or similarly named line item) on
the balance sheet of the COMPANY as of the Balance Sheet Date, (y) all other
personal property owned by the COMPANY with a value individually in excess of
$10,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date and (z) all leases and agreements in respect of personal property
with a value individually in excess of $10,000, including, in the case of each
of (x), (y) and (z), (1) true, complete and correct copies of all such leases
which have been provided to CTS's counsel, (2) a listing of the capital costs of
all such assets which are subject to capital leases and (3) an indication as to
which assets are currently owned, or, to the COMPANY's knowledge, were formerly
owned, by STOCKHOLDERS or Affiliates of the COMPANY or STOCKHOLDERS. Except as
set forth on Schedule 5.14, (i) all personal property with a value individually
in excess of $10,000 used by the COMPANY in its business is either owned by the
COMPANY or leased by the COMPANY pursuant to a lease included on Schedule 5.14,
(ii) all of the personal property listed on Schedule 5.14 is in good working
order and condition, ordinary wear and tear excepted, and (iii) all leases and
agreements included on Schedule 5.14 are in full force and effect and constitute
valid and binding agreements of the COMPANY, and to the COMPANY's knowledge, of
the other parties (and their successors) thereto in accordance with their
respective terms.
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5.15 Significant Customers; Material Contracts and Commitments. The
COMPANY has delivered to CTS an accurate list (which is set forth on Schedule
5.15) of all significant customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person or entity) representing 5% or more of the COMPANY's annual revenues as of
the Balance Sheet Date. Except to the extent set forth on Schedule 5.15, none of
the COMPANY's significant customers has canceled or substantially reduced or, to
the knowledge of the COMPANY, is currently attempting or threatening to cancel a
contract or substantially reduce utilization of the services provided by the
COMPANY.
Except as listed or described on Schedule 5.15 as of or on the date
hereof, neither the COMPANY is a party to or bound by, nor do there exist any,
Contracts relating to or in any way affecting the operation or ownership of the
COMPANY's business that are of a type described below:
(a) any collective bargaining arrangement with any labor union or
any such agreement currently in negotiation or proposed;
(b) any contract for capital expenditures or the acquisition or
construction of fixed assets for or in respect to real property other than
in the COMPANY's ordinary course of business in excess of $50,000;
(c) any contract with a term in excess of one year for the purchase,
maintenance, acquisition, sale or furnishing of materials, supplies,
merchandise, machinery, equipment, parts or other property or services
(except that the COMPANY need not list any such contract made in the
ordinary course of business) which requires aggregate future payments of
greater than $100,000;
(d) any contract relating to the borrowing of money, or the guaranty
of another person's borrowing of money, including, without limitation, all
notes, mortgages, indentures and other obligations, agreements and other
instruments for or relating to any lending or borrowing, including assumed
indebtedness;
(e) any contract granting any person a lien on any of the assets of
the COMPANY, in whole or in part;
(f) any contract for the cleanup, abatement or other actions in
connection with Hazardous Materials (as defined in Section 5.13), the
remediation of any existing environmental liabilities or relating to the
performance of any environmental audit or study;
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(g) any contract granting to any person a first-refusal, first-offer
or similar preferential right to purchase or acquire any of the assets of
the COMPANY's business other than in the ordinary course of business;
(h) any contract under which the COMPANY is
(i) a lessee or sublessee of any machinery, equipment,
vehicle or other tangible personal property or real
property, or
(ii) a lessor of any real property or tangible personal
property owned by the COMPANY,
in either case having an original value in excess of $50,000;
(i) any contract providing for the indemnification of any officer,
director, employee or other person, where such indemnification may exceed
the sum of $50,000;
(j) any joint venture or partnership contract; and
(k) any other contract with a term in excess of one year, whether or
not made in the ordinary course of business, which involves payments in
excess of $100,000.
The COMPANY has provided CTS with a true and complete copy of each written
Material Contract, including all amendments or other modifications thereto.
Except as set forth on Schedule 5.15, each Material Contract is a valid and
binding obligation of the COMPANY, enforceable against the COMPANY in accordance
with its terms, and is in full force and effect. Except as set forth on Schedule
5.15, the COMPANY has performed all obligations required to be performed by it
under each Material Contract and neither the COMPANY nor, to the knowledge of
the COMPANY, any other party to any Contract, is (with or without the lapse of
time or the giving of notice or both) in breach or default in any material
respect thereunder; and there exists no condition which, to the knowledge of the
COMPANY, would constitute a breach or default thereunder. The COMPANY has not
been notified that any party to any Material Contract intends to cancel,
terminate, not renew or exercise an option under any Material Contract, whether
in connection with the transactions contemplated hereby or otherwise.
5.16 Real Property. (a) Schedule 5.16(a) includes a list of all real
property owned by the COMPANY (i) as of the Balance Sheet Date and (ii) acquired
since the Balance Sheet Date, and all other real property, if any, used by the
COMPANY in the conduct of its business. The COMPANY has good and insurable title
to the real property owned by it, including that reflected on Schedule 5.14,
subject to no mortgage, pledge, lien, conditional sale agreement, encumbrance or
charge, except for:
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(i) liens reflected on Schedule 5.10 or 5.15 as securing specified
liabilities (with respect to which no default by the COMPANY exists);
(ii) liens for current taxes not yet due and payable and assessments
not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the County Clerks in which the
properties, assets and leasehold estates are located which do not
adversely affect the current use of the property.
Attached to Schedule 5.16(a) are true, complete and correct copies of all title
reports and title insurance policies currently in possession of the COMPANY with
respect to real property owned by the COMPANY.
(b) Schedule 5.16(b) includes an accurate list of real property leases to
which the COMPANY is a party and an indication as to which such properties, if
any, are currently owned, or were formerly owned, by STOCKHOLDERS or Affiliates
of the COMPANY or STOCKHOLDERS. Counsel to CTS has been provided with true,
complete and correct copies of all leases and agreements in respect of such real
property leased by the COMPANY. Except as set forth on Schedule 5.16(b), all of
such leases included on Schedule 5.16(b) are in full force and effect and
constitute valid and binding agreements of the COMPANY and, to the COMPANY'S
knowledge, of the parties (and their successors) thereto in accordance with
their respective terms.
5.17 Insurance.
(a) The COMPANY has delivered to CTS:
(i) true and complete copies of all policies of insurance to
which the COMPANY is a party or under which the COMPANY,
or any director of the COMPANY, is or has been covered
at any time within two years preceding the date of this
Agreement;
(ii) true and complete copies of all pending applications for
policies of insurance; and
(iii) any statement by the auditor of the COMPANY's financial
statements with regard to the adequacy of such entity's
coverage or of the reserves for claims.
(b) Schedule 5.17(b) describes:
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(i) any self-insurance arrangement by or affecting the
COMPANY, including any reserves established thereunder;
(ii) any contract or arrangement, other than a policy of
insurance, for the transfer or sharing of any risk by
the COMPANY; and
(iii) all obligations of the COMPANY to third parties with
respect to insurance (including such obligations under
leases and service agreements), and identifies the
policy under which such coverage is provided.
(c) Schedule 5.17(c) sets forth, by year, for the current policy
year and each of the preceding two policy years:
(i) a summary of the loss experience under each policy;
(ii) a statement describing each claim under an insurance
policy for an amount in excess of $25,000, which sets
forth:
a) the name of the claimant;
b) a description of the policy by insurer, type of
insurance and period of coverage; and
c) the amount and a brief description of the claim;
and
(iii) a statement describing the loss experience for all
claims that were self-insured, including the number and
aggregate cost of such claims.
(d) Except as set forth on Schedule 5.17(d):
(i) All policies to which the COMPANY is a party or that
provide coverage to the COMPANY:
a) are valid, outstanding and enforceable;
b) are issued by an insurer that is financially sound
and reputable;
c) taken together, provide adequate insurance for the
assets and the operations of the COMPANY for all
risks normally insured against by a person
carrying on the same business or businesses of the
COMPANY;
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d) are sufficient for compliance with all legal
requirements and Material Contracts to which the
COMPANY is a party or by which it is bound;
e) will continue in full force and effect following
the Closing in accordance with their respective
terms;
(ii) the COMPANY has not received (A) any refusal of coverage
or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation
or any other indication that any insurance policy is no
longer in full force or effect or will not be renewed or
that the issuer of any policy is not willing or able to
perform its obligations thereunder;
(iii) the COMPANY has paid all premiums due, and has otherwise
performed all of its obligations, under each policy to
which it is a party or that provides coverage to it or
any director thereof.
(iv) the COMPANY has given notice to the insurer of all
claims known by it to be insured thereby.
5.18 Compensation; Employment Agreements; Organized Labor Matters. The
COMPANY has delivered to CTS an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the COMPANY, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons as of (i) the
Balance Sheet Date and (ii) the date hereof. The COMPANY has provided to CTS
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
increases in the compensation payable or any special bonuses to any officer,
director, key employee or other employee, except ordinary salary increases
implemented on a basis consistent with past practices.
Except as set forth on Schedule 5.18, there is no, and within the last
three years the COMPANY has not experienced any, strike, picketing, boycott,
work stoppage or slowdown, other labor dispute, union organizational activity,
allegation, charge or complaint of unfair labor practice, employment
discrimination or other matters relating to the employment of labor, pending or,
to the COMPANY's knowledge, threatened against the COMPANY; nor is there, to the
knowledge of the COMPANY, any basis for any such allegation, charge or
complaint. Except as set forth on Schedule 5.18, to the knowledge of the
COMPANY, none of the employees of any critical subcontractor utilized by the
COMPANY are represented by a labor union. There is no request directed to the
COMPANY for union or similar representation pending and, to the COMPANY's
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knowledge, no question concerning representation has been raised. To the
COMPANY's knowledge, there is no grievance pending which might have a Material
Adverse Effect on the COMPANY nor any which might have a Material Adverse Effect
on any arbitration proceeding arising out of any union agreement. There are no
arbitration awards, court orders, orders of the National Labor Relations Board
or private settlement agreements which in any way alter, amend or clarify any
union agreement or which restrict or otherwise impact the COMPANY's ability to
act with respect to the employees covered by any union agreement in the future.
To the COMPANY's knowledge, no key employee and no group of employees has any
plans to terminate employment with the COMPANY. The COMPANY has complied in all
material respects with all applicable laws relating to the employment of labor,
including provisions thereof relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and other taxes. The
COMPANY is not liable for any arrearages of wages or any taxes or penalties for
failure to comply with any such laws, ordinances or regulation.
5.19 Employee Plans. The COMPANY has delivered to CTS an accurate schedule
(which is set forth on Schedule 5.19) showing all Benefit Plans of the COMPANY,
together with true, complete and correct copies of such Benefit Plans,
agreements and any trusts related thereto, and classifications of employees
covered thereby as of the Balance Sheet Date. The COMPANY is not required to
contribute to any Benefit Plan pursuant to the provisions of any collective
bargaining agreement establishing the terms and conditions of employment of any
of COMPANY's employees.
5.20 Compliance with ERISA. All Benefit Plans that are intended to qualify
under Section 401(a) of the Code are and have been so qualified and have been
determined by the Internal Revenue Service to be so qualified, and copies of
such determination letters are included as part of Schedule 5.19 hereof. Except
as disclosed on Schedule 5.20, all reports and other documents required to be
filed with any Governmental Authority or distributed to Plan participants or
beneficiaries (including, but not limited to, actuarial reports, audits or tax
returns) have been timely filed or distributed, and copies thereof are included
as part of Schedule 5.19 hereof other than those reports required to be
distributed to Plan participants and beneficiaries. None of the STOCKHOLDERS,
any such Benefit Plan, nor the COMPANY has engaged in any transaction prohibited
under the provisions of Section 4975 of the Code or Section 406 of ERISA. No
Benefit Plan has incurred an accumulated funding deficiency, as defined in
Section 412(a) of the Code and Section 302(1) of ERISA; and the COMPANY has not
incurred any liability for excise tax or penalty due to the Internal Revenue
Service nor any liability to the PBGC. The COMPANY further represents that:
(a) there have been no terminations, partial terminations or
discontinuance of contributions to any such Benefit Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
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(b) no Benefit Plan subject to the provisions of Title IV of ERISA
has been terminated;
(c) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any Benefit Plan;
(d) the COMPANY has not incurred liability under Section 4062 of
ERISA;
(e) no circumstances exist pursuant to which the COMPANY could have
any direct or indirect liability whatsoever (including, but not limited
to, any liability to any multiemployer plan or the PBGC under Title IV of
ERISA or to the Internal Revenue Service for any excise tax or penalty, or
being subject to any statutory lien to secure payment of any such
liability) with respect to any Benefit Plan now or heretofore maintained
or contributed to by any entity other than the COMPANY that is, or at any
time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the COMPANY;
(f) the COMPANY is not now, nor can it as a result of its past
activities become, liable to the PBGC or to any multiemployer employee
pension benefit plan under the provisions of Title IV of ERISA;
(g) all Benefit Plans listed on Schedule 5.19 and the administration
thereof are in substantial compliance with their terms and all applicable
provisions of ERISA and the regulations issued thereunder, as well as with
all other applicable federal, state and local statutes, ordinances and
regulations; and
(h) all accrued contribution obligations of the COMPANY with respect
to any Benefit Plan have either been fulfilled in their entirety or are
fully reflected on the balance sheet of the COMPANY as of the Balance
Sheet Date.
5.21 Conformity with Law; Litigation. Except as set forth on Schedule 5.13
or 5.21, the COMPANY has complied with all laws, rules, regulations, writs,
injunctions, decrees, and orders applicable to it or to the operation of its
Business (collectively, "Laws") and has not received any notice of any alleged
claim or threatened claim, violation of, liability or potential responsibility
under, any such Law which has not heretofore been cured and for which there is
no remaining liability other than, in each case, those not having a Material
Adverse Effect on the COMPANY. Without limiting the generality of the foregoing,
the COMPANY has complied with all applicable federal, state and local Laws
relating to antitrust and trade regulations.
Except to the extent set forth on Schedule 5.10 or 5.13 or as set forth on
Schedule 5.21 (which shall disclose the parties to, nature of, and relief sought
for each matter to be disclosed on Schedule 5.21) :
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(a) There is no suit, action, proceeding, claim, order or, to the
Company's knowledge, investigation pending or, to the COMPANY's knowledge,
threatened against either the COMPANY or any Benefit Plan, or any
fiduciary of any such Benefit Plan or, to the knowledge of the COMPANY,
pending or threatened against any of the officers, directors or employees
of the COMPANY with respect to its business or proposed business
activities or to which the COMPANY is otherwise a party, which would have
a Material Adverse Effect on the COMPANY, before any court, or before any
Governmental Authority (collectively, "Claims"); nor, to the COMPANY's
knowledge, is there any basis for any such Claims.
(b) The COMPANY is not subject to any judgment, order or decree of
any court or Governmental Authority; the COMPANY has not received any
opinion or memorandum from legal counsel to the effect that it is exposed,
from a legal standpoint, to any liability or disadvantage which may be
material to its business. The COMPANY is not engaged in any legal action
to recover monies due it or for damages sustained by it.
(c) The COMPANY's current insurance is believed in good faith to be
adequate to cover all pending or threatened Claims, the COMPANY has given
all required notice of such Claims to its appropriate insurance carrier(s)
and/or all such claims have been fully reserved for on the financial
statements of the COMPANY has delivered to CTS pursuant to the terms of
this Agreement. Schedule 5.21 lists the insurer for each Claim covered by
insurance or designates each Claim, or portion of each Claim, as uninsured
and the individual and aggregate policy limits for the insurance covering
each insured Claim and the applicable policy deductibles for each insured
Claim.
Schedule 5.21 sets forth all closed litigation matters (other than
workers compensation claims) to which the COMPANY was a party during the
three years preceding the Closing, the date such litigation was commenced
and concluded, and the nature of the resolution thereof (including amounts
paid in settlement or judgment).
5.22 Taxes. Except as set forth on Schedule 5.22:
(a) All Returns required to have been filed by or with respect to
the COMPANY and any affiliated, combined, consolidated, unitary or similar
group of which the COMPANY is or was a member (a "Relevant Group") with
any Taxing Authority have been duly filed, and each such Return correctly
and completely reflects the Tax liability and all other information
required to be reported thereon. All Taxes (whether or not shown on any
Return) owed by the COMPANY, any subsidiary and any member of a Relevant
Group (individually, the "Acquired Party" and collectively, the "Acquired
Parties") have been paid.
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(b) To the knowledge of the COMPANY and the STOCKHOLDERS, the
provisions for Taxes due by the COMPANY and any subsidiaries (as opposed
to any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) in the COMPANY Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of such Acquired Party.
(c) No Acquired Party is a party to any agreement extending the time
within which to file any Return. No claim has ever been made by any Taxing
Authority in a jurisdiction in which an Acquired Party does not file
Returns that it is or may be subject to taxation by that jurisdiction that
is unresolved or if adversely determined would have a Material Adverse
Effect on such Acquired Party.
(d) Each Acquired Party has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to
any employee, creditor, independent contractor or other third party.
(e) No Acquired Party expects any Taxing Authority to assess any
additional Taxes against or in respect of it for any past period. There is
no dispute or claim concerning any Tax liability of any Acquired Party
either (i) claimed or raised by any Taxing Authority or (ii) otherwise
known to any Acquired Party. No issues have been raised in any examination
by any Taxing Authority with respect to any Acquired Party which, by
application of similar principles, reasonably could be expected to result
in a proposed deficiency for any other period not so examined. Schedule
5.22(v) attached hereto lists all federal, state, local and foreign income
Tax Returns filed by or with respect to any Acquired Party for all taxable
periods ended on or after January 1, 1991, indicates those Returns, if
any, that have been audited, and indicates those Returns that currently
are the subject of audit. Each Acquired Party has delivered to CTS
complete and correct copies of all federal, state, local and foreign
income Tax Returns filed by, and all Tax examination reports and
statements of deficiencies assessed against or agreed to by, such Acquired
Party since January 1, 1991.
(f) No Acquired Party has waived any statute of limitations, the
waiver of which remains in effect on the date hereof, in respect of Taxes
or agreed to any extension of time with respect to any Tax assessment or
deficiency.
(g) No Acquired Party has made any payments, is obligated to make
any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not
deductible (i) under Section 280G of the Code or (ii) as compensation
under Section 162(m) of the Code or any similar provision under state
and/or local law.
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(h) No Acquired Party is a party to any Tax allocation or sharing
agreement.
(i) None of the assets of any Acquired Party constitutes tax-exempt
bond financed property or tax-exempt use property, within the meaning of
Section 168 of the Code. No Acquired Party is a party to any "safe harbor
lease" that is subject to the provisions of Section 168(f)(8) of the
Internal Revenue Code as in effect prior to the Tax Reform Act of 1986, or
to any "long-term contract" within the meaning of Section 460 of the Code.
(j) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of any
state statutes, and none of the assets of any Acquired Party is subject to
an election under Section 341(f) of the Code or comparable provisions of
any state statutes.
(k) No Acquired Party is a party to any joint venture, partnership
or other arrangement that is treated as a partnership for federal income
Tax purposes.
(l) There are no accounting method changes or proposed or threatened
accounting method changes, of any Acquired Party that could give rise to
an adjustment under Section 481 of the Code for periods after the Closing
Date.
(m) No Acquired Party has received any written ruling of a Taxing
Authority related to Taxes or entered into any written and legally binding
agreement with a Taxing Authority relating to Taxes.
(n) Each Acquired Party has disclosed (in accordance with Section
6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns all
positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Section 6662(d)
of the Code.
(o) No Acquired Party has any liability for Taxes of any person
other than such Acquired Party (i) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign law),
(ii) as a transferee or successor, (iii) by contract or (iv) otherwise.
(p) Prior to CTS's acquisition of the COMPANY pursuant to this
Agreement, there currently are no limitations on the utilization of the
net operating losses, built-in losses, capital losses, Tax credits or
other similar items of any Acquired Party (collectively, the "Tax Losses")
under (i) Section 382 of the Code, (ii) Section 383 of the Code, (iii)
Section 384 of the Code, (iv) Section 269 of the Code, (v) Section
1.1502-15 and Section 1.1502-15A of the Treasury regulations, (vi) Section
1.1502-21 and Section 1.1502-21A of the Treasury regulations or (vii)
Sections 1.1502-91 through 1.1502-99 of the Treasury
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regulations, in each case as in effect both prior to and following the Tax
Reform Act of 1986.
(q) At the Balance Sheet Date, the Acquired Parties had aggregate
Tax Losses for federal income Tax purposes as described on Schedule
5.22(9) attached hereto.
(r) The COMPANY is not an investment company as defined in Section
351(e)(1) of the Code.
(s) The fair market value of the assets of the COMPANY exceeds the
sum of its liabilities, plus the amount of liabilities, if any, to which
the assets are subject.
(t) The COMPANY is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 351(e)(2) of the Code.
For purposes of this Section 5.22, the following definitions shall
apply:
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or Governmental Authority.
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatsoever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Taxing Authority" means any Governmental Authority, board, bureau,
body, department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
5.23 No Violations. The COMPANY is not in violation of any Charter
Document. Neither the COMPANY nor, to the knowledge of the COMPANY or the
STOCKHOLDERS, any other party thereto, is in default under any Material
Contract; and, except as set forth on Schedule 5.23, (a) the rights and benefits
of the COMPANY under the Material Contracts will not be adversely affected by
the transactions contemplated hereby and (b) the execution of this Agreement and
the performance by the COMPANY and the STOCKHOLDERS of their obligations
hereunder and the consummation by the COMPANY and the STOCKHOLDERS of the
transactions contemplated hereby will not (i) result in any violation or breach
of, or constitute a default under, any of the terms or provisions of the
Material Contracts or the Charter Documents or (ii) require the consent,
approval, waiver of any acceleration, termination
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or other right or remedy or action of or by, or make any filing with or give any
notice to, any other party. Except as set forth on Schedule 5.23, none of the
Material Contracts requires notice to, or the consent or approval of, any
Governmental Authority or other third party with respect to any of the
transactions contemplated hereby in order to remain in full force and effect and
consummation of the transactions contemplated hereby will not give rise to any
right to termination, cancellation or acceleration or loss of any material right
or benefit. Except as set forth on Schedule 5.23, none of the Material Contracts
prohibits the use or publication by the COMPANY, CTS or NEWCO of the name of any
other party to such Material Contracts, and none of the Material Contracts
prohibits or restricts the COMPANY from freely providing services to any other
customer or potential customer of the COMPANY, CTS, NEWCO or any Other Founding
Company.
5.24 Government Contracts. Except as set forth on Schedule 5.24, the
COMPANY is not a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 Business Conduct. Except as set forth on Schedule 5.25 or otherwise
permitted by Section 7.13 of this Agreement, since February 28, 1997, the
COMPANY has conducted its business only in the ordinary course consistent with
past custom and practices and has incurred no liabilities other than in the
ordinary course of business consistent with past custom and practices. Except as
forth on Schedule 5.25, since February 28, 1997, there has not been any:
(a) Material adverse change in the COMPANY's operations, condition
(financial or otherwise), operating results, assets, liabilities,
employee, customer or supplier relations or business prospects;
(b) Damage, destruction or loss of any property owned by the COMPANY
or used in the operation of the business, whether or not covered by
insurance, having a replacement cost or fair market value in excess of
$50,000 affecting the COMPANY's property, financial status or the
Business;
(c) Voluntary or involuntary sale, transfer, surrender, abandonment
or other disposition of any kind by the COMPANY of any assets or property
rights (tangible or intangible), having a replacement cost or fair market
value in excess of $50,000, except in each case the sale of inventory and
collection of accounts in the ordinary course of business consistent with
past custom and practices;
(d) Loan or advance by the COMPANY to any party other than sales to
customers on credit in the ordinary course of business consistent with
past custom and practices;
(e) Declaration, setting aside, or payment of any dividend or other
distribution in respect to the COMPANY's capital stock, any direct or
indirect
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redemption, purchase, or other acquisition of such stock, or the payment
of principal or interest on any note, bond, debt instrument or debt to any
Affiliate;
(f) Incurrence of debts, liabilities or obligations except current
liabilities incurred in connection with or for services rendered or goods
supplied in the ordinary course of business consistent with past custom
and practices, liabilities on account of taxes and governmental charges
but not penalties, interest or fines in respect thereof, and obligations
or liabilities incurred by virtue of the execution of this Agreement;
(g) Issuance by the COMPANY of any notes, bonds, or other debt
securities or any equity securities or securities convertible into or
exchangeable for any equity securities;
(h) Cancellation, waiver or release by the COMPANY of any debts,
rights or claims, except in each case in the ordinary course of business
consistent with past custom and practices;
(i) Amendment of the COMPANY's Articles or Certificate of
Incorporation or By-Laws;
(j) Amendment or termination of any Material Contract, other than
expiration of such contract in accordance with its terms;
(k) Change in accounting principles, methods or practices
(including, without limitation, any change in depreciation or amortization
policies or rates) utilized by the COMPANY;
(l) Discharge or satisfaction of any material liability, encumbrance
or payment of any material obligation or liability, other than current
liabilities paid in the ordinary course of business consistent with past
custom and practices or cancellation of any debts or claims;
(m) Sale or assignment by the COMPANY of any tangible assets other
than in the ordinary course of business;
(n) Capital expenditures or commitments therefor by the COMPANY
other than in the ordinary course of business in excess of $100,000 in the
aggregate;
(o) Charitable contributions or pledges by the COMPANY in excess of
$25,000 per year in the aggregate;
(p) Mortgage, pledge or other encumbrance of any asset of the
COMPANY other than in the ordinary course of business;
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(q) Adoption, amendment or termination of any Benefit Plan;
(r) Increase in the benefits provided under any Benefit Plan; or
(s) An occurrence or event not included in clauses (a) through (r)
that has or might be expected to have a Material Adverse Effect on the
COMPANY.
5.26 Deposit Accounts; Powers of Attorney. The COMPANY has delivered to
CTS an accurate schedule (which is set forth on Schedule 5.26) as of the date of
this Agreement of:
(a) the name of each financial institution in which the COMPANY has
accounts or safe deposit boxes;
(b) the names in which the accounts or boxes are held;
(c) the type of account and account number; and
(d) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY and
a description of the terms of such power of attorney.
5.27 Relations with Governments. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause the COMPANY to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.28 Disclosure.
(a) The representations and warranties of the COMPANY and the
STOCKHOLDERS contained in this Agreement, the schedules to this Agreement
provided by the Company and/or the STOCKHOLDERS, the certificates and the
other documents furnished by the COMPANY and/or the STOCKHOLDERS to CTS
pursuant hereto and for inclusion in the Registration Statement (which,
for purposes of this Agreement, shall include the completed Directors and
Officers Questionnaires and Registration Statement Questionnaires), taken
as a whole, present fairly the business and operations of the COMPANY for
the time periods with respect to which such information was requested. The
COMPANY'S rights under the documents delivered pursuant hereto would not
be materially adversely affected by, and no statement made herein would be
rendered untrue in any material respect by, any other document to which
the COMPANY is a party, or to which its properties are subject, or by any
other fact or circumstance regarding the
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COMPANY (which fact or circumstance was, or should reasonably, after due
inquiry, have been known to the COMPANY) that is not disclosed pursuant
hereto or thereto. If, prior to the 25th day after the date of the final
prospectus of CTS utilized in connection with the IPO, the COMPANY or the
STOCKHOLDERS become aware of any fact or circumstance which would change
(or, if after the Closing Date, would have changed) a representation or
warranty of COMPANY or STOCKHOLDERS in this Agreement or would affect any
document delivered pursuant hereto in any material respect, the COMPANY
and the STOCKHOLDERS shall immediately give notice of such fact or
circumstance to CTS. However, subject to the provisions of Section 7.8,
such notification shall not relieve either the COMPANY or the STOCKHOLDERS
of their respective obligations under this Agreement.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i) that
there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant
thereto will occur at a particular price or within a particular range of
prices or occur at all; (ii) that neither CTS or any of its officers,
directors, agents or representatives nor any Underwriter shall have any
liability to the COMPANY, the STOCKHOLDERS or any other person affiliated
or associated with the COMPANY for any failure of the Registration
Statement to become effective, the IPO to occur at a particular price or
within a particular range of prices or to occur at all; and (iii) that the
decision of the STOCKHOLDERS to enter into this Agreement, or to vote in
favor of or consent to the proposed Merger, has been or will be made
independent of, and without reliance upon, any statements, opinions or
other communications, or due diligence investigations which have been or
will be made or performed by any prospective Underwriter, relative to CTS
or the prospective IPO.
5.29 Prohibited Activities. Except as set forth on Schedule 5.29, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions set forth in Section 7.3.
5.30 Affiliate Transactions. Schedule 5.30 sets forth the parties to and
the date, nature and amount of (A) each transaction or series of similar
transactions (other than payments of salary and bonus which are reflected as
line items in the Financial Statements) involving the transfer of any cash,
property or rights in which the amount involved individually or collectively
exceeded $60,000 to or from the COMPANY from, to, or for the benefit of any
Affiliate or former Affiliate of the COMPANY ("Affiliate Transactions") during
the period commencing January 1, 1994 through the date hereof and (B) any
existing commitments of the COMPANY to engage in the future in any Affiliate
Transactions. Each Affiliate Transaction was effected on terms equivalent to
those which would have been established in an arms'-length negotiation, except
as disclosed on Schedule 5.30.
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5.31 Misrepresentation. To the knowledge of the COMPANY and the
STOCKHOLDERS, none of the representations and warranties set forth in this
Agreement, the certificates and the other documents furnished by the COMPANY to
CTS pursuant hereto and for inclusion in the Registration Statement, taken as a
whole, contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements contained herein or therein not
misleading.
(B) Representations and Warranties of the STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants to CTS and NEWCO
that the representations and warranties set forth below with respect to such
STOCKHOLDER are true and correct as of the date of this Agreement and, subject
to Section 7.8 hereof, shall be true and correct at the time of the Pre-Closing
and on the Closing Date.
5.32 Securities Act Representations. Each STOCKHOLDER alone, or
together with such STOCKHOLDER's "purchase representative" (as defined in Rule
501(h) promulgated under the 1933 Act):
(a) acknowledges and agrees that (x) the shares of CTS Stock to be
delivered to such STOCKHOLDER pursuant to this Agreement have not been and
will not be registered under the 1933 Act, and therefore may not be sold,
transferred or otherwise conveyed without compliance with the 1933 Act or
pursuant to an exemption therefrom and (y) the CTS Stock to be acquired by
such STOCKHOLDER pursuant to this Agreement is being acquired solely for
its own account, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of the CTS Stock
in connection with a distribution;
(b) acknowledges and agrees that it knows and understands that an
investment in the CTS Stock is a speculative investment which involves a
high degree of risk of loss;
(c) represents and warrants that it is able to bear the economic
risk of an investment in the CTS Stock acquired pursuant to this
Agreement, can afford to sustain a total loss of such investment and has
such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the proposed investment in
the CTS Stock;
(d) represents and warrants that it has had an adequate opportunity
to review and to ask questions and receive answers concerning any and all
matters relating to the transactions described in (i) CTS's private
placement memorandum and (ii) this Agreement;
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(e) represents and warrants that it has had an adequate opportunity
to ask questions and receive answers concerning (i) the background and
experience of the current and proposed officers and directors of CTS, (ii)
the plans for the operations of the business of CTS, (iii) the business,
operations and financial condition of the Other Founding Companies, and
(iv) any plans for additional acquisitions and the like;
(f) represents and warrants that it is either an "accredited
investor" (as defined in Rule 501(a) promulgated under the 1933 Act) or,
after taking into consideration the information and advice provided to
such STOCKHOLDER, has the requisite knowledge and experience in financial
and business matters to be capable of evaluating the merits and risks of
an investment in the CTS Stock;
(g) represents and warrants that, to its knowledge, there have been
no general or public solicitations or advertisements or other broadly
disseminated disclosures (including, without limitation, any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or
radio, or any seminar or meeting whose attendees have been invited by any
general solicitation or advertising) by or on behalf of CTS regarding an
investment in the CTS Stock; and
(h) acknowledges and agrees that the CTS Stock shall bear the
following legend in addition to the legend required under Section 15 of
this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND, IF REQUIRED BY
CONDOR TECHNOLOGY SOLUTIONS, INC., AN OPINION OF COUNSEL TO CONDOR
TECHNOLOGY SOLUTIONS, INC. STATING THAT REGISTRATION IS NOT REQUIRED UNDER
THE ACT.
Such STOCKHOLDER acknowledges that the effect of the foregoing legend, among
other things, is or may be to limit or destroy the value of the certificate for
purposes of sale or use as loan collateral. Such STOCKHOLDER consents that "stop
transfer" instructions may be noted against the CTS Stock.
5.33 Authority; Ownership. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
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beneficially and of record all of the shares of the COMPANY Stock identified on
Annex IV as being owned by such STOCKHOLDER, and, except as set forth on
Schedule 5.33, such COMPANY Stock is owned free and clear of all liens, security
interests, pledges, charges, voting trusts, restrictions, encumbrances and
claims of every kind.
5.34 Preemptive Rights. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of COMPANY Stock or CTS Stock
that such STOCKHOLDER has or may have had other than rights of any STOCKHOLDER
to acquire CTS Stock pursuant to (i) this Agreement or (ii) any option granted
by CTS.
5.35 No Intention to Dispose of CTS Stock. No STOCKHOLDER has any current
plan or intention, or is under any binding commitment or contract to sell,
exchange or otherwise dispose of shares of CTS Stock received pursuant to
Section 3.1.
5.36 Questionnaires. The Completed Directors and Officers Questionnaires
and Registration Statement Questionnaires attached hereto as schedule 5.36,
present fairly the business and operations of the COMPANY for the time periods
with respect to which such information was requested. If, prior to the 25th day
after the date of the final prospectus of CTS utilized in connection with the
IPO, the STOCKHOLDERS become aware of any fact or circumstance which would
affect the information disclosed in their Directors and Officers Questionnaires
or their Registration Statement Questionnaires in any material respect, then the
relevant STOCKHOLDER shall immediately give notice of such fact or circumstance
to CTS. However, subject to the provisions of Section 7.8, such notification
shall not relieve the relevant STOCKHOLDER of his or its obligations under this
Agreement.
6. REPRESENTATIONS OF CTS AND NEWCO
CTS and NEWCO jointly and severally represent and warrant to the
COMPANY and the STOCKHOLDERS that all of the following representations and
warranties in this Section 6 are true and correct at the date of this Agreement
and, subject to Section 7.8 hereof, shall be true and correct at the time of the
Pre-Closing and on the Closing Date, and that such representations and
warranties shall survive the Closing Date for a period of eighteen months.
6.1 Due Organization. CTS and NEWCO are each corporations duly
incorporated, validly existing and in good standing under the laws of the state
of their incorporation, and are duly authorized and qualified to do business
under all applicable laws, regulations, ordinances and orders of public
authorities to carry on their businesses in the places and in the manner as now
conducted, to own or hold under lease the properties and assets they now own or
hold under lease, and to perform all of their obligations under any material
agreement to which they are a party or by which their properties are bound. CTS
and NEWCO are not qualified to do business as foreign corporations in any
jurisdiction, and there is no jurisdiction in which the conduct of
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CTS's and NEWCO's business or activities or their ownership of assets requires
qualification under applicable law, the absence of which would have a Material
Adverse Effect on either CTS or NEWCO. True, complete and correct copies of the
Certificate or Articles of Incorporation and By-laws, each as amended, of CTS
and NEWCO (the "CTS Charter Documents") are all attached hereto as Annex II. The
minute books and stock records of each of CTS and NEWCO as heretofore made
available to the COMPANY, are correct and complete in all material respects. The
most recent minutes of each CTS and NEWCO, which are dated no earlier than 10
business days prior to the date hereof, affirm and ratify all prior acts of CTS
and NEWCO, as the case may be, and of their respective officers and directors.
6.2 Authorization. The respective representatives of CTS and NEWCO
executing this Agreement have the authority to execute and deliver this
Agreement and to bind CTS and NEWCO to perform their respective obligations
hereunder. The execution and delivery of this Agreement by CTS and NEWCO and the
performance by CTS and NEWCO of their respective obligations under this
Agreement and the consummation by CTS and NEWCO of the transactions contemplated
hereby have been duly authorized by all necessary corporate action by each in
accordance with applicable law and the Certificate or Articles of Incorporation
and By-Laws of CTS and NEWCO, as the case may be. Each share of CTS Stock to be
issued to the STOCKHOLDERS on the Closing Date will be duly and validly
authorized and issued, free and clear of all liens, claims and other
encumbrances and fully paid and nonassessable. This Agreement constitutes the
valid and binding obligation of CTS and NEWCO, enforceable in accordance with
its terms.
6.3 Transaction Not a Breach. Neither the execution and delivery of this
Agreement nor their performance will violate, conflict with, or result in a
breach of any provision of any Law, rule, regulation, order, permit, judgment,
injunction, decree or other decision of any court or other tribunal or any
Governmental Authority binding on CTS or NEWCO or conflict with or result in the
breach of any of the terms, conditions or provisions of the Certificate or
Articles of Incorporation or the By-laws of CTS or NEWCO or of any contract,
agreement, mortgage or other instrument or obligation of any nature to which CTS
or NEWCO is a party or by which CTS or NEWCO is bound.
6.4 Misrepresentation. None of the representations and warranties set
forth in this Agreement or in any of the certificates, schedules, exhibits,
lists, documents, exhibits, or other instruments delivered, or to be delivered,
to the COMPANY as contemplated by any provision hereof, contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading.
6.5 Capital Stock. The entire authorized capital stock of CTS will consist
of 50,000,000 shares. Except as disclosed on Schedule 6.5, there are no
outstanding options, rights (preemptive or otherwise), warrants, calls,
convertible securities or commitments or any other arrangements to which CTS is
a party requiring issuance, sale or transfer of
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any equity securities of CTS or any securities convertible directly or
indirectly into equity securities of CTS, or evidencing the right to subscribe
for any equity securities of CTS, or giving any person other than the Founding
Companies any rights with respect to the capital stock of CTS. Except as
contemplated by this Agreement or disclosed on Schedule 6.5, there are no voting
agreements, voting trusts, other agreements (including cumulative voting
rights), commitments or understandings with respect to the CTS Stock.
6.6 Subsidiaries. Schedule 6.6 attached hereto lists the name of each of
CTS's and NEWCO's subsidiaries and sets forth the number and class of the
authorized capital stock of CTS's and NEWCO's subsidiaries and the number of
shares of each of CTS's and NEWCO's subsidiaries which are issued and
outstanding prior to the Merger, all of which shares (except as set forth on
Schedule 6.6) are owned by CTS and NEWCO, as the case may be, free and clear of
all liens, security interests, pledges, voting trusts, equities, restrictions,
encumbrances and claims of every kind. Except as set forth on Schedule 6.6, CTS
and NEWCO do not presently own, of record or beneficially, or control, directly
or indirectly, any capital stock, securities convertible into capital stock or
any other equity interest in any corporation, association or business entity nor
is CTS or NEWCO, as the case may be, directly or indirectly, a participant in
any joint venture, partnership or other non-corporate entity.
6.7 Conformity with Law; Litigation. Except as set forth on Schedule 6.7,
CTS and NEWCO have complied with all Laws, applicable to them or to the
operation of their businesses and have not received any notice of any alleged
claim or threatened claim, violation of, liability or potential responsibility
under, any Law which has not heretofore been cured and for which there is no
remaining liability other than, in each case, those not having a Material
Adverse Effect on CTS or NEWCO, taken as a whole. Without limiting the
generality of the foregoing, CTS and NEWCO have each complied with all
applicable Federal, state and local Laws relating to antitrust and trade
regulations.
Except to the extent set forth on Schedule 6.7 (which shall disclose the
parties to, nature of, and relief sought for each matter):
(a) There is no suit, action, proceeding, investigation, claim or
order pending or, to the knowledge of CTS and NEWCO, threatened against
either of CTS or NEWCO or any Plan, or any fiduciary of any such Plan or,
to the knowledge of CTS and NEWCO, pending or threatened against any of
the officers, directors or employees of CTS or NEWCO with respect to their
businesses or proposed business activities which are material to CTS or
NEWCO, or to which CTS or NEWCO are otherwise a party, or which may affect
either CTS or NEWCO, their assets or their businesses, before any court,
or before any Governmental Authority.
(b) CTS and NEWCO are not subject to any judgment, order or decree
of any court or Governmental Authority; CTS and NEWCO have not received
any opinion or memorandum from legal counsel to the effect that either is
exposed,
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from a legal standpoint, to any liability or disadvantage which may be
material to their businesses. Neither CTS nor NEWCO are engaged in any
legal action to recover monies due it or them for damages sustained by
either of them.
7. COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation; Due Diligence.
(a) Between the date of this Agreement and the Closing Date, the
COMPANY will afford to the officers and authorized representatives of CTS
and the Other Founding Companies access during business hours to all of
the COMPANY's sites, properties, books and records and will furnish CTS
with such additional financial and operating data and other information as
to the business and properties of the COMPANY as CTS or the Other Founding
Companies may from time to time reasonably request. The COMPANY will
cooperate with CTS and the Other Founding Companies and their respective
representatives, including CTS's auditors and counsel, in the preparation
of any documents or other material (including the Registration Statement)
which may be required in connection with the transactions contemplated by
this Agreement. CTS, NEWCO, the STOCKHOLDERS and the COMPANY will treat
all information obtained in connection with the negotiation and
performance of this Agreement or the due diligence investigations
conducted with respect to the Other Founding Companies as confidential in
accordance with the provisions of Section 14 hereof. In addition, CTS will
cause each of the Other Agreements, binding each of the Other Founding
Companies, to contain a provision similar to this Section 7.1 requiring
each such Other Founding Company, its stockholders, directors, officers,
representatives, employees and agents to keep confidential any information
obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Closing Date, CTS
will afford to the officers and authorized representatives of the COMPANY
access during business hours to all of CTS's and NEWCO's sites,
properties, books and records and will furnish the COMPANY with such
additional financial and operating data and other information as to the
business and properties of CTS and NEWCO as the COMPANY may from time to
time reasonably request. CTS and NEWCO will cooperate with the COMPANY,
its representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection with the
transactions contemplated by this Agreement. The COMPANY will cause all
information obtained in connection with the negotiation and performance of
this Agreement to be treated as confidential in accordance with the
provisions of Section 14 hereof.
7.2 Conduct of Business Pending Closing. Between the date of this
Agreement and the Closing Date, the COMPANY will, except as set forth on
Schedule 7.2:
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(a) carry on its business in the ordinary course substantially as
conducted heretofore and not introduce any new method of management,
operation or accounting;
(b) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(c) perform in all material respects its obligations under
agreements relating to or affecting its assets, properties or rights;
(d) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(e) maintain and preserve its business organization intact and use
its best efforts to retain its present key employees and relationships
with suppliers, customers and others having business relations with the
COMPANY;
(f) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar Governmental Authorities; and
(g) maintain present debt and lease instruments in accordance with
their respective terms and not enter into new or amended debt or lease
instruments, provided that debt and/or lease instruments may be replaced
if such replacement instruments are on terms at least as favorable to the
COMPANY as the instruments being replaced.
7.3 Prohibited Activities. Except as disclosed on Schedule 7.3 or
otherwise permitted by Section 7.13 of this Agreement, between the date hereof
and the Closing Date, the COMPANY will not, without the prior written consent of
CTS:
(a) make any change in its Articles or Certificate of Incorporation
or By-laws;
(b) grant or issue any securities, options, warrants, calls,
conversion rights or commitments of any kind relating to its securities of
any kind other than in connection with the exercise of options or warrants
listed on Schedule 5.4;
(c) declare or pay any dividend, or make any distribution in respect
of its stock whether now or hereafter outstanding, or purchase, redeem or
otherwise acquire or retire for value any shares of its stock or engage in
any transaction that will significantly affect the cash reflected on the
balance sheet of the COMPANY as of February 28, 1997.
(d) enter into any contract or commitment or incur or agree to incur
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any liability or make any capital expenditure, except if it is in the
ordinary course of business (consistent with past practice) or involves an
amount not in excess of $10,000;
(e) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $10,000 necessary or desirable for the conduct of
the business of the COMPANY, (2) (A) liens for Taxes either not yet due or
being contested in good faith and by appropriate proceedings (and for
which adequate reserves have been established and are being maintained) or
(B) materialmen's, mechanics', workers', repairmen's, employees' or other
like liens arising in the ordinary course of business (the liens set forth
in clause (2) being referred to herein as "Statutory Liens"), or (3) liens
set forth on Schedule 5.10 or 5.15 hereto;
(f) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the ordinary course of business;
(g) negotiate for the acquisition of any business or the start-up of
any new business;
(h) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(i) waive any material right or claim of the COMPANY, provided that
the COMPANY may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be
included on Schedule 5.11 unless specifically listed thereon;
(j) commit a material breach, materially amend or terminate any
Material Contract;
(k) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder; or
(l) except in the ordinary course of business or as required by Law
or contractual obligations or other understandings or arrangements
existing on the date hereof, the COMPANY will not (i) increase in any
manner the base compensation of, or enter into any new bonus or incentive
agreement or arrangement with, any of the employees engaged in the
COMPANY's business, (ii) pay or agree to pay any additional pension,
retirement allowance or other employee benefit to any such employee,
whether past or present, (iii) enter into any new employment, severance,
consulting, or other compensation agreement
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with any existing employee engaged in the COMPANY's business, (iv) amend
or enter into a new Plan (except as required by Law) or amend or enter
into a new collective bargaining agreement (except as required by this
Agreement), or (v) engage in any Affiliate Transaction.
7.4 No Shop. In consideration of the substantial expenditure of time,
effort and expense undertaken by CTS in connection with its due diligence review
and the preparation and execution of this Agreement, the COMPANY and the
STOCKHOLDERS agree that neither they nor their representatives, agents or
employees will, after the execution of this Agreement until the earlier of (i)
the termination of this Agreement or (ii) the Closing, directly or indirectly,
solicit, encourage, negotiate or discuss with any third party (including by way
of furnishing any information concerning the COMPANY) any acquisition proposal
relating to or affecting the COMPANY or any part of it, or any direct or
indirect interests in the COMPANY, whether by purchase of assets or stock,
purchase of interests, merger or other transaction ("Acquisition Transaction"),
and that the COMPANY will promptly advise CTS of the terms of any communications
any of the STOCKHOLDERS or the COMPANY may receive or become aware of relating
to any bid for all or any part of the COMPANY.
7.5 Notice to Bargaining Agents. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements. Set forth on
Schedule 7.5 is any and all proof that any such required notice has been sent.
7.6 Agreements. Except as set forth on Schedule 9.7, the STOCKHOLDERS and
the COMPANY shall terminate (i) any stockholders' agreements, voting agreements,
voting trusts, options, warrants and employment agreements between the COMPANY
and any employee listed on Schedule 9.12 hereto and (ii) any existing agreement
between the COMPANY and any STOCKHOLDER, on or prior to the Closing Date. A list
of such agreements to be terminated is set forth on Schedule 7.6 and copies of
each such agreement to be terminated have been provided to counsel for CTS.
7.7 Notification of Certain Matters. The STOCKHOLDERS and the COMPANY
shall give prompt notice to CTS of (i) the occurrence or non-occurrence of any
event of which the COMPANY or the STOCKHOLDERS have knowledge, the occurrence or
non-occurrence of which, would cause any representation or warranty of the
COMPANY or the STOCKHOLDERS contained herein to be untrue or inaccurate in any
material respect at or prior to the Closing and (ii) any material failure of any
STOCKHOLDER or the COMPANY to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. CTS and
NEWCO shall give prompt notice to the COMPANY of (i) the occurrence or
non-occurrence of any event of which CTS or NEWCO have knowledge, the occurrence
or non-occurrence of which, would cause any representation or warranty of CTS or
NEWCO contained herein to be untrue or inaccurate in any material respect at or
prior to the Closing and (ii) any material failure of CTS or NEWCO to comply
with or satisfy any
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covenant, condition or agreement to be complied with or satisfied by it
hereunder. The delivery of any notice pursuant to this Section 7.7 shall not be
deemed to (i) modify the representations or warranties hereunder of the party
delivering such notice, which modification may only be made pursuant to Section
7.8, (ii) modify the conditions set forth in Sections 8 and 9, or (iii) limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
7.8 Amendment of Schedules.
(a) Each party hereto agrees that, with respect to the
representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing Date to
supplement or amend promptly the Schedules hereto with respect to any
matter hereafter arising or discovered which, if existing or known at the
date of this Agreement, would have been required to be set forth or
described in the Schedules; provided, however, that supplements and
amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall only have to be
delivered at the Closing Date, unless such Schedule is to be amended to
reflect an event occurring other than in the ordinary course of business.
(b) Until 24 hours prior to the anticipated effectiveness of the
Registration Statement, and notwithstanding the foregoing clause (a), the
provisions of this clause (b) shall apply: no amendment or supplement to a
Schedule prepared by the COMPANY or the STOCKHOLDERS that constitutes or
reflects an event or occurrence that would have a Material Adverse Effect
on the COMPANY may be made unless CTS and a majority of the Founding
Companies other than the COMPANY consent to such amendment or supplement;
and provided further, that no amendment or supplement to a Schedule
prepared by CTS or NEWCO that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on the COMPANY may be
made unless a majority of the Founding Companies consent to such amendment
or supplement. In the event that one of the Other Founding Companies seeks
to amend or supplement a Schedule pursuant to Section 7.8 of one of the
Other Agreements, and such amendment or supplement constitutes or reflects
an event or occurrence that would have a Material Adverse Effect on such
Other Founding Company, CTS shall give the COMPANY notice promptly after
it has knowledge thereof. If CTS and a majority of the Founding Companies
consent to such amendment or supplement, which consent shall have been
deemed given by CTS or any Founding Company if no response is received
from CTS or any such Founding Company within 24 hours following receipt of
notice by CTS or any Founding Company of such amendment or supplement (or
sooner if required by the circumstances under which such consent is
requested), but the COMPANY does not give its consent, the COMPANY may
terminate this Agreement pursuant to Section 12.1(d) hereof. In the event
that the COMPANY seeks to amend or supplement a Schedule pursuant to this
Section 7.8 and CTS and a majority of the
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Other Founding Companies do not consent to such amendment or supplement as
provided above, this Agreement shall be deemed terminated by mutual
consent as set forth in Section 12.1(a) hereof. In the event that CTS or
NEWCO seeks to amend or supplement a Schedule pursuant to this Section 7.8
and a majority of the Founding Companies do not consent to such amendment
or supplement, as provided above, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(d) hereof.
(c) Between 24 hours prior to the anticipated effectiveness of the
Registration Statement and the Closing Date, the provisions of this clause
(c) shall apply. No amendment or supplement to a Schedule prepared by the
COMPANY or the STOCKHOLDERS that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on the COMPANY may be
made unless CTS consents to such amendment or supplement after
consultation with the Underwriters. CTS and NEWCO hereby covenant that
neither CTS nor NEWCO will amend or supplement any Schedule prepared by
CTS or NEWCO that constitutes or reflects an event or occurrence that
would have a Material Adverse Effect on CTS or NEWCO, as the case may be,
without consulting with the Underwriters, and CTS shall provide immediate
notice of such amendment or supplement to the Founding Companies.
(d) For all purposes of this Agreement, including without limitation
for purposes of determining whether the conditions set forth in Sections
8.1 and 9.1 have been fulfilled, the Schedules hereto shall be deemed to
be the Schedules as amended or supplemented pursuant to this Section 7.8.
No party to this Agreement shall be liable to any other party if this
Agreement shall be terminated pursuant to the provisions of this Section
7.8, except that, notwithstanding anything to the contrary contained in
this Agreement, if the COMPANY or the STOCKHOLDERS on the one hand, or CTS
or NEWCO on the other hand, amends or supplements a Schedule which results
in a termination of this Agreement and such amendment or supplement arises
out of or reflects facts or circumstances which such party knew about at
the time of execution of this Agreement and knew would result in a
termination of this Agreement or if such amendment or supplement otherwise
is proposed in bad faith, such party shall pay or reimburse CTS or the
COMPANY and the STOCKHOLDERS, as the case may be, for all of the legal,
accounting and other out of pocket costs reasonably incurred in connection
with this Agreement and the IPO as it relates to the COMPANY and the
STOCKHOLDERS.
7.9 Cooperation in Preparation of Registration Statement.
(a) The COMPANY and STOCKHOLDERS shall furnish or cause to be
furnished to CTS and the Underwriters all of the information concerning
the COMPANY and the STOCKHOLDERS requested by CTS or the Underwriters for
inclusion in, and will cooperate with CTS and the Underwriters in the
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preparation of, the Registration Statement and the prospectus included
therein (including audited and unaudited financial statements, prepared in
accordance with GAAP, in form suitable for inclusion in the Registration
Statement). The COMPANY and the STOCKHOLDERS agree promptly to advise CTS
if at any time during the period in which a prospectus relating to the
offering is required to be delivered under the Securities Act, any
information contained in the prospectus concerning the COMPANY or the
STOCKHOLDERS contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and to provide the information
needed to correct such inaccuracy. Insofar as the information relates
solely to the COMPANY or the STOCKHOLDERS, the COMPANY represents and
warrants as to such information furnished by the COMPANY or the
STOCKHOLDERS for use in the Registration Statement with respect to itself,
and each STOCKHOLDER represents and warrants, as to such information
furnished by the COMPANY or the STOCKHOLDERS for use in the Registration
Statement with respect to the COMPANY and himself or herself, that the
Registration Statement at its effective date, at the date of the final
Prospectus, each preliminary prospectus and each amendment to the
Registration Statement, and at each closing date with respect to the IPO
under the Underwriting Agreement (including with respect to any
over-allotment option) will not include an 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 not misleading.
(b) CTS agrees that it will use its best efforts to provide to the
COMPANY and its counsel copies of material drafts of the Registration
Statement as they are prepared and to the extent practicable in light of
the timetable of the IPO and the potential need to respond promptly to
SEC, NASD or Nasdaq comments, to give the COMPANY sufficient time to
review and comment upon such documents prior to filing with the SEC. Any
objections posed by the COMPANY or its counsel shall state with
specificity the material in question, the reason for the objection, and
the COMPANY's proposed alternative. If the objection is founded upon a
rule promulgated under the Securities Act, the objection shall cite the
rule. Notwithstanding the foregoing, during the five business days
immediately preceding the date scheduled for the effective date of the
IPO, the COMPANY and the STOCKHOLDERS agree that (i) two hours from the
time the proposed changes are transmitted to the COMPANY's counsel if such
transmission is during the COMPANY's normal business hours or (ii) four
hours from the time the proposed changes are transmitted to the COMPANY's
counsel if such transmission is not during the COMPANY's normal business
hours, is sufficient time to review and respond to proposed changes.
7.10 Final Financial Statements. The COMPANY shall provide prior to the
Closing Date, and CTS shall have had sufficient time prior thereto to review,
the unaudited consolidated balance sheets of the COMPANY as of the end of all
fiscal quarters following the Balance Sheet Date, and the unaudited consolidated
statements of
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income, cash flows and retained earnings of the COMPANY for all fiscal quarters
ended no earlier than 30 days' prior to the Closing Date, disclosing no material
adverse change in the financial condition of the COMPANY or the results of its
operations from the financial statements as of the Balance Sheet Date. Such
financial statements shall have been prepared in accordance with GAAP applied on
a consistent basis throughout the periods indicated (except as noted therein),
but shall not include all of the footnotes and adjustments required by GAAP for
complete financial statements. Except as noted in such financial statements, all
of such financial statements will present fairly the results of operations of
the COMPANY for the periods indicated thereon.
7.11 Further Assurances. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 Approval of Merger Agreement. Each of the STOCKHOLDERS agrees to vote
all of its shares of the COMPANY Stock in favor of the Merger and all other
transactions contemplated by this Agreement.
7.13 Distributions. Notwithstanding any other provision of this Agreement
to the contrary, the COMPANY will be permitted subsequent to the Balance Sheet
Date to make bonus payments to any of the STOCKHOLDERS; provided, that, in the
event that the aggregate amount of such bonus payments results in Stockholders'
Equity being less than $2,951,531, then the Merger Consideration shall be
adjusted in accordance with Sections 3.1 and 3.2 of this Agreement.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY
The obligations of the STOCKHOLDERS and the COMPANY with respect to
actions to be taken on the Pre-Closing Date and, to the extent specified in this
Section 8, on the Closing Date are subject to the satisfaction or waiver on or
prior to the Pre-Closing Date and/or the Closing Date, as the case may be, of
all of the conditions set forth in this Section 8. As of the Pre-Closing Date or
the Closing Date, as the case may be, all conditions not satisfied shall be
deemed to have been waived by the COMPANY and the STOCKHOLDERS unless such
parties have objected by notifying CTS in writing of such objection on or before
the Pre-Closing Date or consummation of the transactions on the Closing Date,
respectively, except that no such waiver shall be deemed to affect the survival
of the representations and warranties of CTS and NEWCO contained in Section 6
hereof.
8.1 Representations and Warranties. All representations and warranties of
CTS and NEWCO contained in this Agreement shall be true and correct in all
material respects as of the Pre-Closing Date and the Closing Date as though such
representations and warranties had been made on and as of that date; and a
certificate to the foregoing effect dated the Pre-Closing Date and the Closing
Date and signed by the President or any
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Vice President of CTS shall have been delivered to the COMPANY and the
STOCKHOLDERS.
8.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with and performed by CTS and NEWCO on or
before each of the Pre-Closing Date and the Closing Date shall have been duly
complied with and performed in all material respects on or before each of the
Pre-Closing Date and the Closing Date, as the case may be; and certificates to
the foregoing effect dated each of the Pre-Closing Date and the Closing Date and
signed by the President or any Vice President of CTS shall have been delivered
to the COMPANY and the STOCKHOLDERS.
8.3 No Litigation. No action or proceeding before a court or any other
Governmental Authority or body shall have been instituted or threatened to
restrain or prohibit the Merger or the IPO.
8.4 Opinion of Counsel. The STOCKHOLDERS shall have received an opinion
from counsel for CTS and NEWCO, dated the Pre-Closing Date and including a
statement to the effect that it may be relied upon as of the Closing Date,
substantially in the form annexed hereto as Annex VI.
8.5 Consents and Approvals. All necessary consents of and filings required
to be obtained or made by CTS or NEWCO with any Governmental Authority or agency
relating to the consummation of the transactions contemplated herein shall have
been obtained and made.
8.6 Good Standing Certificates. CTS and NEWCO each shall have delivered to
the COMPANY a certificate, dated as of a date no earlier than 10 days prior to
the Pre-Closing Date, duly issued by the Delaware Secretary of State and in each
state in which CTS or NEWCO is authorized to do business, showing that each of
CTS and NEWCO is in good standing and authorized to do business and that all
state franchise and/or income tax returns and taxes for CTS and NEWCO,
respectively, for all periods prior to the Closing have been filed and paid.
8.7 Consummation of Other Agreements. The Other Agreements shall have been
delivered by each of the Other Companies and each of the Other Agreements and
this Agreement shall be in effect immediately prior to the Merger.
8.8 Secretary's Certificate. The COMPANY shall have received a certificate
or certificates, dated the Pre-Closing Date and the Closing Date and signed by
the secretary of CTS and of NEWCO, certifying the truth and correctness of
attached copies of the CTS's and NEWCO's respective Certificates of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the boards of directors and, if required, the
stockholders of CTS and NEWCO approving CTS's and NEWCO's entering into this
Agreement and the consummation of the transactions contemplated hereby.
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8.9 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VIII hereto.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CTS AND NEWCO
The obligations of CTS and NEWCO with respect to actions to be taken on
the Pre-Closing Date and, to the extent specified in this Section 9, on the
Closing Date, are subject to the satisfaction or waiver on or prior to the
Pre-Closing Date and/or the Closing Date, as the case may be, of all of the
conditions set forth in this Section 9. As of the Pre-Closing Date or the
Closing Date, as the case may be, all conditions not satisfied shall be deemed
to have been waived by CTS and NEWCO unless such parties have objected by
notifying the COMPANY and the STOCKHOLDERS in writing of such objection on or
before the Pre-Closing Date or consummation of the transactions on the Closing
Date, respectively, except that no such waiver shall be deemed to affect the
survival of the representations and warranties of the COMPANY and the
STOCKHOLDERS contained in Section 5 hereof.
9.1 Representations and Warranties. All the representations and warranties
of the STOCKHOLDERS and the COMPANY contained in this Agreement shall be true
and correct in all material respects as of the Pre-Closing Date and the Closing
Date with the same effect as though such representations and warranties had been
made on and as of such date; and the STOCKHOLDERS shall have delivered to CTS
certificates dated the Pre-Closing Date and the Closing Date and signed by them
to such effect.
9.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with or performed by the STOCKHOLDERS and the
COMPANY on or before each of the Pre-Closing Date and the Closing Date shall
have been duly performed or complied with in all material respects on or before
each of the Pre-Closing Date and the Closing Date, as the case may be; and the
STOCKHOLDERS shall have delivered to CTS certificates dated the Pre-Closing Date
and the Closing Date, respectively, and signed by them to such effect.
9.3 No Litigation. No action or proceeding before a court or any other
Governmental Authority or body shall have been instituted or threatened to
restrain or prohibit the Merger or the IPO.
9.4 Secretary's Certificate. CTS shall have received a certificate or
certificates, dated each of the Pre-Closing Date and the Closing Date and signed
by the secretary of the COMPANY, certifying the truth and correctness of
attached copies of the COMPANY's Certificate or Articles of Incorporation
(including amendments thereto), By-Laws (including amendments thereto), and
resolutions of the board of directors and the shareholders approving the
COMPANY's entering into this Agreement and the consummation of the transactions
contemplated hereby.
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9.5 No Material Adverse Change. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred with respect to the
COMPANY which would constitute a Material Adverse Effect on the COMPANY, and the
COMPANY shall not have suffered any material loss or damages to any of its
properties or assets, whether or not covered by insurance, which change, loss or
damage materially affects or impairs the ability of the COMPANY to conduct its
business.
9.6 STOCKHOLDERS' Release. The STOCKHOLDERS shall have delivered to CTS an
instrument dated the Closing Date releasing the COMPANY from any and all (i)
claims prior to the Closing Date of the STOCKHOLDERS against the COMPANY and CTS
and (ii) obligations prior to the Closing Date, of the COMPANY and CTS to the
STOCKHOLDERS, except for (x) items specifically identified on Schedules 5.10 and
5.15 as being claims of or obligations to the STOCKHOLDERS, (y) continuing
obligations to the STOCKHOLDERS relating to their employment by the COMPANY and
(z) obligations arising under this Agreement or the transactions contemplated
hereby.
9.7 Termination of Related Party Agreements. Except as set forth on
Schedule 9.7, all existing agreements between the COMPANY and the STOCKHOLDERS
shall have been canceled effective prior to or as of the Closing Date.
9.8 Opinion of Counsel. CTS shall have received an opinion from Counsel to
the COMPANY and the STOCKHOLDERS, dated the Pre-Closing Date and including a
statement to the effect that it may be relied upon as of the Closing Date,
substantially in the form annexed hereto as Annex VII, which form shall be
deemed to include any additional opinions by such counsel or separate counsel
retained by the COMPANY covering matters customary under the circumstances,
including without limitation, opinions covering the COMPANY's intellectual
property, and the Underwriters shall have received a copy of the same opinion
addressed to them.
9.9 Consents and Approvals. All necessary consents of and filings with any
Governmental Authority relating to the consummation of the transactions
contemplated herein shall have been obtained and made and all consents and
approvals of third parties listed on Schedule 5.23 shall have been obtained.
9.10 Good Standing Certificates. The COMPANY shall have delivered to CTS a
certificate, dated as of a date no earlier than five days prior to the
Pre-Closing Date, duly issued by the appropriate Governmental Authority in the
COMPANY's state of incorporation and, unless waived by CTS, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the COMPANY as of the most recent practicable
date have been filed and paid.
9.11 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been
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instituted or shall be pending or contemplated under the 1933 Act or any state
securities laws, and the Underwriters shall have agreed to acquire on a firm
commitment basis, subject to the conditions set forth in the Underwriting
Agreement, shares of CTS Stock at a price to the public acceptable to CTS.
9.12 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have entered into an employment agreement substantially in the form of
Annex VIII hereto.
9.13 Closing of IPO. The closing of the sale of the CTS Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
9.14 FIRPTA Certificate. Each STOCKHOLDER shall have delivered to CTS a
certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
9.15 Consummation of Other Agreements. The Other Agreements shall have
been delivered by each of the Other Companies and each of the Other Agreements
and this Agreement shall be in effect immediately prior to the Merger.
9.16 A/R Aging Reports. Within ten (10) days prior to Closing, the COMPANY
shall have provided CTS (x) an accurate list of all outstanding receivables
obtained subsequent to the Balance Sheet Date and as of a date which is within
10 calendar days of the Closing Date and (y) an aging of all such accounts and
notes receivable showing amounts due in 30 day aging categories (the "A/R Aging
Reports").
9.17 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall have been approved by counsel to CTS.
10. COVENANTS OF CTS AND THE STOCKHOLDERS AFTER CLOSING
10.1 Release From Guarantees; Repayment of Certain Obligations. CTS shall
use its best efforts to have the STOCKHOLDERS released from any and all
guarantees on any indebtedness that they personally guaranteed and from any and
all pledges of assets that they pledged to secure such indebtedness for the
benefit of the COMPANY, with all such guarantees on indebtedness being assumed
by CTS, if necessary to achieve such releases. In the event that CTS cannot
obtain such releases from the lenders of any such guaranteed indebtedness on or
prior to 180 days subsequent to the Closing Date, CTS shall pay off or otherwise
refinance or retire such indebtedness.
10.2 Preservation of Tax and Accounting Treatment. Except as contemplated
by this Agreement or the Registration Statement, after the Closing Date, CTS
shall not and shall not permit any of its subsidiaries to undertake any act that
would
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jeopardize the tax-free status of the organization, including liquidating or
merging the COMPANY into CTS.
10.3 Preparation and Filing of Tax Returns.
(a) The COMPANY shall, if possible, file or cause to be filed all
separate Returns of any Acquired Party for all taxable periods that end on
or before the Closing Date. Each STOCKHOLDER shall pay or cause to be paid
all Tax liabilities (in excess of all amounts already paid with respect
thereto or properly accrued or reserved with respect thereto on the
COMPANY Financial Statements) shown by such Returns to be due.
(b) CTS shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Closing Date.
(c) Each party hereto shall, and shall cause its subsidiaries and
Affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any Return, amended Return or claim for refund, determining a
liability for Taxes or a right to refund of Taxes or in conducting any
audit or other proceeding in respect of Taxes. Such cooperation and
information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each
party shall make its employees reasonably available on a mutually
convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence, each party
required to file Returns pursuant to this Agreement shall bear all costs
of filing such Returns.
(d) Each of the COMPANY, NEWCO, CTS and each STOCKHOLDER shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax free transfer of property under Section 351(a) of the Code.
10.4 Directors and Officers. The persons named in the Registration
Statement shall be appointed as directors and elected as officers of CTS, as and
to the extent set forth in the Registration Statement, promptly following the
Closing Date.
10.5 Preservation of Employee Benefit Plans. Following the Closing Date,
CTS shall not terminate any health insurance, life insurance, 401(k) or any
other Benefit Plan in effect at the COMPANY until such time as CTS is able to
replace such Benefit Plan with a Plan that is applicable to CTS and all of its
then existing subsidiaries. CTS shall have no obligation to provide replacement
Plans that have the same terms and provisions as the existing Benefit Plans,
provided, that any new health insurance plan shall provide for coverage for
preexisting conditions.
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10.6 Rule 144. For a period of two years after the Closing Date, CTS shall
take all actions that are within its powers and that are reasonably necessary to
make Rule 144 promulgated under the 1933 Act available to the STOCKHOLDERS.
10.7 Authorization of Shares.CTS agrees to take all actions as may be
necessary from time to time to reserve an adequate number of shares of CTS Stock
to pay the stock portion of the consideration to the STOCKHOLDERS pursuant to
Annex III hereof.
11. INDEMNIFICATION
The STOCKHOLDERS, CTS and NEWCO each make the following covenants that are
applicable to them, respectively:
11.1 General Indemnification by the STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless CTS, NEWCO, the COMPANY and the Surviving Corporation
at all times, from and after the date of this Agreement until the Expiration
Date, from and against all claims, damages, actions, suits, proceedings,
demands, assessments, adjustments, costs and expenses (including specifically,
but without limitation, reasonable attorneys' fees and reasonable expenses of
investigation) incurred by CTS, NEWCO, the COMPANY or the Surviving Corporation
as a result of or arising from (i) any breach of the representations and
warranties of the STOCKHOLDERS or the COMPANY set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the STOCKHOLDERS or the COMPANY under this
Agreement, (iii) any liability under the 1933 Act, the 1934 Act or other Federal
or state law or regulation, at common law or otherwise, arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
relating to the COMPANY or the STOCKHOLDERS, and provided to CTS or its counsel
by the COMPANY or the STOCKHOLDERS for inclusion in the Registration Statement
or any prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission by the
COMPANY and/or the STOCKHOLDERS to state therein a material fact relating to the
COMPANY or the STOCKHOLDERS required to be stated therein or necessary to make
the statements therein not misleading, (iv) the matters described on Schedule
11.1(iv) or (v) any Tax imposed upon or relating to any third party or Acquired
Party for a pre-Closing Date period, including, in each case, any such Tax for
which an Acquired Party may be liable under Section 1.1502-6 of the Treasury
Regulations (or any similar provisions of state, local of foreign law), as a
transferee or successor, by contract or otherwise; provided, however, (A) that
in the case of any indemnity arising pursuant to clause (iii) such indemnity
shall not inure to the benefit of CTS, NEWCO, the COMPANY or the Surviving
Corporation to the extent that such untrue statement (or alleged untrue
statement) was made in, or omission (or alleged omission) occurred in, any
preliminary prospectus and the STOCKHOLDERS provided, in writing, corrected
information to CTS counsel and to CTS for inclusion in the final prospectus, and
such information was
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not so included or properly delivered, and (B) that no STOCKHOLDER shall be
liable for any indemnification obligation pursuant to this Section 11.1 to the
extent attributable to a breach of any representation, warranty or agreement
made herein individually by any other STOCKHOLDER.
11.2 Indemnification by CTS. CTS covenants and agrees that it will
indemnify, defend, protect and hold harmless the STOCKHOLDERS at all times from
and after the date of this Agreement until the eighteenth month anniversary of
the Closing Date, from and against all claims, damages, actions, suits,
proceedings, demands, assessments, adjustments, costs and expenses (including
specifically, but without limitation, reasonable attorneys' fees and expenses of
investigation) incurred by the STOCKHOLDERS as a result of or arising from (i)
any breach by CTS or NEWCO of its representations and warranties set forth
herein or on the schedules or certificates delivered in connection herewith,
(ii) any breach of any agreement on the part of CTS or NEWCO under this
Agreement, (iii) any liability which the STOCKHOLDERS may incur due to CTS's or
NEWCO's failure to be responsible for the liabilities and obligations of the
COMPANY as provided in Section 10.1 hereof (except to the extent that CTS or
NEWCO has claims against the STOCKHOLDERS by reason of such liabilities); (iv)
any liability to a Person not a party to this Agreement (a "Third Person") under
the 1933 Act, the 1934 Act or other Federal or state law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact relating to CTS or NEWCO for
inclusion in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to CTS or NEWCO required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, in the case of any indemnity arising pursuant to clause (iv) such
indemnity shall not inure to the benefit of the STOCKHOLDERS if any such claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses incurred by any of the STOCKHOLDERS are based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by a STOCKHOLDER for use in the
preliminary prospectus, the Registration Statement or any prospectus forming a
part thereof, or any amendment thereof or supplement thereto unless the
STOCKHOLDERS provided, in writing, corrected information to CTS counsel and to
CTS for inclusion in the final prospectus to the Registration Statement, and
such information was not so included or properly delivered by CTS (or its
representative).
In the event the breach relates to the representation contained in Section
6.5 concerning the absence of options, rights (preemptive or otherwise),
warrants, calls, convertible securities or commitments or any other arrangements
dealing with CTS Stock as set forth in Section 6.5 (a "CTS Security Right") and
the existence of an undisclosed CTS Security Right will dilute the CTS capital,
the stockholders of the Founding Company whose representation caused the breach
of Section 6.5 shall suffer such dilution proportionately to the number of
shares of CTS Stock owned by each of them.
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11.3 Third Person Claims. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
Third Person or of the commencement of any action or proceeding by a Third
Person, the Indemnified Party shall, as a condition precedent to a claim with
respect thereto being made against any party obligated to provide
indemnification pursuant to Section 11.1 or 11.2 hereof (hereinafter the
"Indemnifying Party"), give the Indemnifying Party written notice of such claim
or the commencement of such action or proceeding. Such notice shall state the
nature and the basis of such claim and a reasonable estimate of the amount
thereof. The Indemnifying Party shall have the right to defend and settle, at
its own expense and by its own counsel, any such matter so long as the
Indemnifying Party pursues the same in good faith and diligently, provided that
the Indemnifying Party shall not settle any criminal proceeding without the
written consent of the Indemnified Party, such consent not to be unreasonably
withheld or delayed. If the Indemnifying Party undertakes to defend or settle,
it shall promptly notify the Indemnified Party of its intention to do so, and
the Indemnified Party shall cooperate, at the Indemnifying Party's expense, with
the Indemnifying Party and its counsel in the defense thereof and in any
settlement thereof. Such cooperation shall include, but shall not be limited to,
furnishing the Indemnifying Party with any books, records or information
reasonably requested by the Indemnifying Party that are in the Indemnified
Party's possession or control. All Indemnified Parties shall endeavor to use the
same counsel, which shall be the counsel selected by the Indemnifying Party,
provided that if counsel to the Indemnifying Party shall have a conflict of
interest in the opinion of such counsel that prevents counsel for the
Indemnifying Party from representing the Indemnified Party, the Indemnified
Party shall have the right to participate in such matter through counsel of its
own choosing and the Indemnifying Party will reimburse the Indemnified Party for
the reasonable expenses of its counsel and experts. After the Indemnifying Party
has notified the Indemnified Party of its intention to undertake to defend or
settle any such asserted liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall not be liable for
any additional legal expenses incurred by the Indemnified Party in connection
with any defense or settlement of such asserted liability, except (i) as set
forth in the preceding sentence and (ii) to the extent such participation is
requested by the Indemnifying Party, in which event the Indemnified Party shall
be reimbursed by the Indemnifying Party for reasonable additional legal expenses
and out-of-pocket expenses. If the Indemnifying Party desires to accept a final
and complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement to said Third Person plus all indemnifiable
costs and expenses incurred to date, the Indemnifying Party shall be relieved of
its duty to defend and shall tender the Third Person claim back to the
Indemnified Party, who shall thereafter, at its own expense, be responsible for
the defense and negotiation of such Third Person claim. If the Indemnifying
Party does not undertake to defend such matter to which the Indemnified Party is
entitled to indemnification hereunder, or fails diligently to pursue such
defense, the Indemnified Party may undertake such defense through counsel of its
choice, at the cost and expense of the
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Indemnifying Party, and the Indemnified Party may settle such matter, and the
Indemnifying Party shall reimburse the Indemnified Party for the amount paid in
such settlement and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. All settlements hereunder shall effect a
complete release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. The parties hereto will make appropriate
adjustments for any Tax benefits, Tax detriments or insurance proceeds in
determining the amount of any indemnification obligation under this Section,
provided that no Indemnifying Party shall be obligated to seek any payment
pursuant to the terms of any insurance policy.
11.4 Exclusive Remedy. Except as provided in Section 11.5(b) or Section
14.3 hereof, the indemnification provided for in this Section 11 shall (except
as prohibited by ERISA) be the exclusive remedy in any action seeking damages or
any other form of monetary relief brought by any party to this Agreement against
another party, provided that nothing herein shall be construed to limit the
right of a party, in a proper case, to seek injunctive relief for a breach of
this Agreement or to seek relief for a breach of any employment agreement with,
or any stock option issued by, CTS.
11.5 Limitations on Indemnification. (a) CTS, NEWCO, the Surviving
Corporation and the other Persons or entities indemnified pursuant to Section
11.1 (other than the STOCKHOLDERS) shall not assert any claim other than a Third
Person claim for indemnification hereunder against the STOCKHOLDERS until such
time as, and solely to the extent that, the aggregate of all claims which such
Persons may have against the STOCKHOLDERS shall exceed 1.0% of the sum of (i)
the cash paid to the STOCKHOLDERS plus (ii) the value (determined in accordance
with Section 11.5(c) hereof) of the CTS Stock delivered to the STOCKHOLDERS (the
"Indemnification Threshold"), provided, however, that CTS, NEWCO, the Surviving
Corporation and the other Persons or entities indemnified pursuant to Section
11.1 (other than the STOCKHOLDERS) may assert and shall be indemnified for any
claim under Section 11.1(iv) or 11.1(v) at any time, regardless of whether the
aggregate of all claims which such Persons may have against any STOCKHOLDER or
all STOCKHOLDERS exceeds the Indemnification Threshold, it being understood that
the amount of any such claim under (i) Section 11.1(iv) or 11.1(v) or (ii) the
Purchase Price Adjustment shall not be counted towards the Indemnification
Threshold. The STOCKHOLDERS shall not assert any claim for indemnification
hereunder against CTS, NEWCO, the Surviving Corporation or the other Persons set
forth in Section 11.1 (other than the STOCKHOLDERS) until such time as, and
solely to the extent that, the aggregate of all claims which STOCKHOLDERS may
have against any of such Persons exceeds $100,000. No Person shall be entitled
to indemnification under this Section 11 if and to the extent that such Person's
claim for indemnification is directly or indirectly related to a breach by such
Person of any representation, warranty, covenant or other agreement set forth in
this Agreement.
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(b) CTS shall have the right, upon written notice, to offset
indemnification amounts due to it pursuant to this Agreement against payments
due to the STOCKHOLDERS under (i) this Agreement (including, without limitation,
the consideration set forth on Annex III hereto) and/or (ii) any contract
contemplated by, or referred to in, this Agreement.
(c) Indemnity obligations hereunder may be satisfied through the payment
of cash or the delivery of CTS Stock, or a combination thereof. For purposes of
calculating the value of the CTS Stock received or delivered by a STOCKHOLDER
(for purposes of determining the Indemnification Threshold and the amount of any
indemnity paid), CTS Stock shall be valued at its initial public offering price
as set forth in the Registration Statement. For purposes of calculating the
value of the CTS Stock received by a STOCKHOLDER, the CTS Stock shall be valued
at its initial public offering price as set forth in the Registration Statement.
(d) Notwithstanding any other term of this Agreement (except the proviso
to this sentence), no STOCKHOLDER shall be liable under this Section 11 for an
amount which exceeds the amount of proceeds received by such STOCKHOLDER in
connection with the Merger, such proceeds to be equal to the sum of (i) the cash
paid to the STOCKHOLDER, (ii) the additional consideration, if any, earned by
such STOCKHOLDER pursuant to Annex III hereof, and (iii) the value of the CTS
Stock delivered to the STOCKHOLDER (determined in accordance with Section
11.5(c) hereof); provided, that a STOCKHOLDER's indemnification obligations
pursuant to Sections 11.1(iv) and (v) shall not be limited.
12. TERMINATION OF AGREEMENT
12.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date solely:
(a) by mutual consent of the boards of directors of CTS and the
COMPANY;
(b) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by CTS (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, unless the failure of such transactions to be
consummated is due to the willful failure of the party seeking to
terminate this Agreement to perform any of its obligations under this
Agreement to the extent required to be performed by it prior to or on the
Closing Date;
(c) by the STOCKHOLDERS or the COMPANY, on the one hand, or by CTS,
on the other hand, if a material breach or default shall be made by the
other party in the observance or in the due and timely performance of any
of the
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covenants, agreements or conditions contained herein, and the curing of
such default shall not have been made on or before the Closing Date; or
(d) pursuant to Section 7.8 hereof.
12.2 Liabilities in Event of Termination. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 Prohibited Activities. The STOCKHOLDERS will not, for a period of
four (4) years following the Closing Date, for any reason whatsoever, directly
or indirectly, for themselves or on behalf of or in conjunction with any other
person, company, partnership, corporation or business of whatever nature:
(a) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in direct
competition with CTS or any of the subsidiaries thereof, within 100 miles
of where the COMPANY or any of its subsidiaries or any of the Other
Founding Companies conducted business prior to the effectiveness of the
Merger (the "Territory") ;
(b) call upon any person who is, at that time, within the Territory,
an employee of CTS (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent
of enticing such employee away from or out of the employ of CTS (including
the subsidiaries thereof), provided that each STOCKHOLDER shall be
permitted to call upon and hire any member of his or her immediate family;
(c) call upon any person or entity which is, at that time, or which
has been, within one (1) year prior to the Closing Date, a customer of CTS
(including the subsidiaries thereof), of the COMPANY or of any of the
Other Founding Companies within the Territory for the purpose of
soliciting or selling products or services in direct competition with CTS
within the Territory;
(d) call upon any prospective acquisition candidate, on any
STOCKHOLDER's own behalf or on behalf of any competitor in similar or
incidental businesses or activities described in the Registration
Statement, which candidate, to the actual knowledge of such STOCKHOLDER
after due inquiry, was called upon by CTS (including the subsidiaries
thereof) or for which, to the actual knowledge of such STOCKHOLDER after
due inquiry, CTS (or any
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subsidiary thereof) made an acquisition analysis, for the purpose of
acquiring such entity; or
(e) disclose customers, whether in existence or proposed, of the
COMPANY to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever except to the extent that the COMPANY has in
the past disclosed such information to the public for valid business
reasons or disclosure is specifically required by law; provided, however,
in the event disclosure is required by law, the STOCKHOLDERS shall provide
CTS with prompt notice of such requirement prior to making any disclosure
so that CTS may seek a protective order.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit (i) any STOCKHOLDER from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter so long as the STOCKHOLDER
does not consult with or is not employed by such competitor or (ii) Messrs.
Colyar and Haring from providing services to and/or having an ownership interest
in a business which operates career colleges and/or vocational/trade and
technical schools; provided, that Messrs. Colyar and Haring comply with the
terms and provisions of Section 14 hereof.
13.2 Damages. Because of the difficulty of measuring economic losses to
CTS as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to CTS for which it would
have no other adequate remedy, each STOCKHOLDER agrees that, in the event of
breach by such STOCKHOLDER, the foregoing covenant may be enforced by CTS by
injunctions and restraining orders.
13.3 Reasonable Restraint. It is agreed by the parties hereto that it is
the intent of CTS and the STOCKHOLDERS that the foregoing covenants in this
Section 13 be construed and enforced in accordance with the changing activities
and business of CTS (including the subsidiaries thereof) throughout the term of
this covenant. It is further agreed by the parties hereto that, in the event
that any STOCKHOLDER who has entered into an employment agreement with CTS
and/or any subsidiary thereof as set forth in Sections 8.10 and 9.12 hereto,
shall thereafter cease to be employed thereunder, and such STOCKHOLDER shall
enter into a business or pursue other activities not in competition with CTS
and/or any subsidiary thereof, or similar activities or business in locations
the operations of which, under such circumstances, does not violate this Article
13 and in any event such new business, activities or location are not in
violation of this Article 13 or such STOCKHOLDER's obligations under this
Article 13, such STOCKHOLDER shall not be chargeable with a violation of this
Article 13 if CTS and/or any subsidiary thereof shall thereafter enter the same,
similar or a competitive (i) business (ii) course of activities, or (iii)
location, as applicable.
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13.4 Severability; Reformation. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
13.5 Independent Covenant. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any STOCKHOLDER
against CTS (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by CTS
of such covenants. It is specifically agreed that the period of four (4) years
stated at the beginning of this Section 13, during which the agreements and
covenants of each STOCKHOLDER made in this Section 13 shall be effective, shall
be computed by excluding from such computation any time during which such
STOCKHOLDER is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 Materiality. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 Stockholders. The STOCKHOLDERS recognize and acknowledge that they
had in the past, currently have, and in the future may have, access to certain
confidential information of the COMPANY, the Other Founding Companies, and/or
CTS, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the COMPANY's, the Other Founding
Companies' and/or CTS's respective businesses. The STOCKHOLDERS agree that they
will not disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of CTS or the Other Founding Companies
who need to know information in connection with the transactions contemplated
hereby, who have been informed of the confidential nature of such information
and who have agreed to keep such information confidential as provided hereby,
(b) following the Closing, such information may be disclosed by the STOCKHOLDERS
as is required in the course of performing their duties for CTS or the Surviving
Corporation and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of any such STOCKHOLDERS, (ii) disclosure is required by law or the
order of any Governmental Authority under color of law; provided, that prior to
disclosing any information pursuant to this clause (ii), the STOCKHOLDERS shall,
if possible, give prior written notice
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thereof to CTS and provide CTS with the opportunity to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party. In the event the transactions contemplated by this Agreement are not
consummated, the STOCKHOLDERS shall have none of the above-mentioned
restrictions on their ability to disseminate confidential information with
respect to the COMPANY.
14.2 CTS AND NEWCO. CTS and NEWCO recognize and acknowledge that they had
in the past, currently have, and in the future may have, access to certain
confidential information of the COMPANY, such as operational policies, and
pricing and cost policies that are valuable, special and unique assets of the
COMPANY's business. CTS and NEWCO agree that, prior to the Closing, or if the
Transactions contemplated by this Agreement are not consummated, they will not
disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
the STOCKHOLDERS and to authorized representatives of the COMPANY, (b) to
counsel and other advisers, provided that such advisors (other than counsel)
agree to the confidentiality provisions of this Section 14.2 and (c) to the
Other Founding Companies and their representatives pursuant to Section 7.1(a),
unless (i) such information becomes known to the public generally through no
fault of CTS or NEWCO, (ii) disclosure is required by law or the order of any
Governmental Authority under color of law; provided, that, prior to disclosing
any information pursuant to this clause (ii), CTS and NEWCO shall, if possible,
give prior written notice thereof to the COMPANY and the STOCKHOLDERS and
provide the COMPANY and the STOCKHOLDERS with the opportunity to contest such
disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party. In the event of a breach or threatened breach by CTS or NEWCO
of the provisions of this Section, the COMPANY and the STOCKHOLDERS shall be
entitled to an injunction restraining CTS and NEWCO from disclosing, in whole or
in part, such confidential information. Nothing herein shall be construed as
prohibiting the COMPANY and the STOCKHOLDERS from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
14.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
Nothing herein shall be construed as prohibiting a party hereto from pursuing
any other available remedy for such breach or threatened breach of Sections 14.1
and 14.2, including the recovery of damages.
14.4 Survival. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Closing Date.
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15. TRANSFER RESTRICTIONS
15.1 Transfer Restrictions. For a period of one year from the Closing
Date, except pursuant to Section 16 hereof, none of the STOCKHOLDERS shall (i)
sell, assign, exchange, transfer, encumber, pledge, distribute, appoint or
otherwise dispose of (a) any shares of CTS Stock received by the STOCKHOLDERS
pursuant to the terms hereunder or (b) any interest (including, without
limitation, an option to buy or sell) in any such shares of CTS Stock, in whole
or in part, and no such attempted transfer shall be treated as effective for any
purpose; or (ii) engage in any transaction, whether or not with respect to any
shares of CTS Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of CTS Stock acquired pursuant to Section 2
hereof (including, by way of example and not limitation, engaging in put, call,
short-sale, straddle or similar market transactions). Notwithstanding the
foregoing, the STOCKHOLDERS may (x) transfer shares of CTS Stock to immediate
family members (or trusts for the benefit of the STOCKHOLDERS or family members,
the trustees of which so agree) or (y) encumber or pledge any of such shares of
CTS Stock; provided, that, the family member, trust, trustee, pledgee or other
beneficiary of such transfer, encumbrance or pledge, as the case may be, agrees
in writing prior to such transaction to be bound by (1) the provisions of this
Section as if a STOCKHOLDER and party hereto and (2) the indemnification
provisions set forth in this Agreement as if a STOCKHOLDER and party hereto. The
certificates evidencing the CTS Stock delivered to the STOCKHOLDERS pursuant to
Section 3 of this Agreement will bear a legend substantially in the form set
forth below and containing such other information as CTS may deem necessary or
appropriate:
EXCEPT AS PROVIDED BY THAT CERTAIN AGREEMENT AND PLAN OF ORGANIZATION, A
COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY
FOR PUBLIC INSPECTION, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT
BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT
BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION PRIOR TO THE FIRST ANNIVERSARY OF THE CLOSING DATE. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
16. REGISTRATION RIGHTS
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16.1 Piggyback Registration Rights. At any time following the Closing
Date, whenever CTS proposes to register any CTS Stock for its own or others'
account under the 1933 Act for a public offering, other than (i) any shelf
registration of shares to be used as consideration for acquisitions of
additional businesses by CTS, (ii) registrations relating to Plans and (iii)
registrations relating to rights offerings made to the stockholders of CTS, CTS
shall give each of the STOCKHOLDERS prompt written notice of its intent to do
so. Upon the written request of any of the STOCKHOLDERS given within 30 days
after receipt of such notice, CTS shall cause to be included in such
registration all of the CTS Stock issued to the STOCKHOLDERS pursuant to this
Agreement which any such STOCKHOLDER requests, provided that CTS shall have the
right to reduce the number of shares included in such registration to the extent
that inclusion of such shares could, in the opinion of tax counsel to CTS or its
independent auditors, jeopardize the status of the transactions contemplated
hereby and by the Registration Statement as a tax-free organization. In
addition, if CTS is advised in writing in good faith by any managing underwriter
of an underwritten offering of the securities being offered pursuant to any
registration statement under this Section 16.1 that the number of shares to be
sold by persons other than CTS is greater than the number of such shares which
can be offered without adversely affecting the offering, CTS may reduce pro rata
the number of shares offered for the accounts of such persons (based upon the
number of shares proposed to be sold by each such person) to a number deemed
satisfactory by such managing underwriter, provided, that, for each such
offering made by CTS after the IPO, such reduction shall be made first by
reducing the number of shares to be sold by persons other than CTS, the
STOCKHOLDERS, the other stockholders of the COMPANY and the stockholders of the
Other Founding Companies (collectively, the STOCKHOLDERS, the other stockholders
of the COMPANY and the stockholders of the Other Founding Companies being
referred to herein as the "Founding Stockholders"), and thereafter, if a further
reduction is required, by reducing pro rata the number of shares to be sold by
the Founding Stockholders.
16.2 Registration Procedures. All expenses incurred in connection with the
registrations under this Section 16 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts with respect to any CTS Stock sold on behalf of any
STOCKHOLDER), shall be borne by CTS. In connection with registrations under
Section 16.1, CTS shall (i) use its best efforts to prepare and file with the
SEC as soon as reasonably practicable, a registration statement with respect to
the CTS Stock and use its best efforts to cause such registration to promptly
become and remain effective for a period of at least 120 days (or such shorter
period during which stockholders of the Founding Companies shall have sold all
CTS Stock which they requested to be registered); (ii) use its best efforts to
register and qualify the CTS Stock covered by such registration statement under
applicable state securities laws as the holders shall reasonably request for the
distribution of the CTS Stock; (iii) take all actions necessary to have the CTS
Stock covered by such registration listed or quoted on the exchange or automated
quotation system on which the CTS Stock trades at the time of registration; (iv)
take such other actions as are reasonable and
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necessary to comply with the requirements of the 1933 Act and the regulations
thereunder; and (v) make available its general counsel to advise each
STOCKHOLDER and provide the legal opinions required under the purchase agreement
used in connection with the registrations under this Section 16.
16.3 Underwriting Agreement. In connection with each registration pursuant
to Section 16.1 covering an underwritten registered public offering, CTS and
each participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of CTS's size and investment stature,
including indemnification provisions.
16.4 Availability of Rule 144. CTS shall not be obligated to register
shares of CTS Stock held by any STOCKHOLDER at any time when the resale
provisions of Rule 144(k) (or any successor provision) promulgated under the
1933 Act are available to such STOCKHOLDER for such shares.
16.5 Market Standoff. In consideration of the granting to the STOCKHOLDERS
of the registration rights under this Section 16, the STOCKHOLDERS agree that
they will not sell, transfer or otherwise dispose of, including without
limitation through put or short sale arrangements, shares of CTS Stock
in the 10 days prior to the effectiveness of any registration of CTS Stock for
sale to the public and for up to 90 days following the effectiveness of such
registration, provided, that: (i) all directors, executive officers and holders
of more than five percent of the outstanding CTS Stock agree to the same
restrictions; (ii) with respect to the first public offering of shares of the
CTS Stock within three years following the IPO, the STOCKHOLDERS shall have been
afforded a meaningful opportunity to include shares in such registration after
any reduction by reason of underwriters' advice; and (iii) CTS has not exercised
its rights to delay under this Section 16.5 more than once in any 12 month
period.
17. GENERAL
17.1 Cooperation. The COMPANY, the STOCKHOLDERS, CTS and
NEWCO shall each deliver or cause to be delivered to the other on the Closing
Date, and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement. The STOCKHOLDERS will cooperate and use their
reasonable efforts to have the present officers, directors and employees of the
COMPANY cooperate with CTS on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any Tax
Return filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the Closing
Date.
17.2 Successors and Assigns. During the period that payments are to be
made to the STOCKHOLDERS pursuant to Annex III hereof, this Agreement and the
rights of
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the parties hereunder may not be assigned (including by operation of law) and
shall be binding upon and shall inure to the benefit of the parties hereto, the
successors of CTS, and the heirs and legal representatives of the STOCKHOLDERS;
provided, however, that this Agreement and the rights of the parties hereunder
may be assigned (i) upon receipt of the consent of the STOCKHOLDERS who hold a
majority of the CTS Stock issued and outstanding under this Agreement at such
time of determination, whose consent shall not be unreasonably withheld or (ii)
if the assignee is a company whose capital stock is traded on the Nasdaq Stock
Market, the New York Stock Exchange or the American Stock Exchange.
17.3 Entire Agreement. This Agreement (including the Schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the STOCKHOLDERS, the
COMPANY, NEWCO and CTS and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the STOCKHOLDERS, the COMPANY, NEWCO and CTS,
acting through their respective officers or trustees, duly authorized by their
respective boards of directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the COMPANY and the STOCKHOLDERS shall
make a good faith effort to cross reference disclosure, as necessary or
advisable, between related Schedules.
17.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
17.5 Brokers and Agents. Except as disclosed on Schedule 17.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commissions of
brokers employed or alleged to have been employed by such indemnifying party.
17.6 Expenses.
(a) Whether or not the transactions herein contemplated shall be
consummated, CTS will pay the fees, expenses and disbursements of CTS and
its agents, representatives, accountants and counsel incurred in
connection with the subject matter of this Agreement and any amendments
thereto, including all costs and expenses incurred in the performance and
compliance with all conditions to be performed by CTS under this
Agreement, including the fees and expenses of Price Waterhouse LLP,
Morgan, Lewis & Bockius LLP, and any other person or entity retained by
CTS, and the costs of preparing the Registration Statement.
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(b) If the transactions herein contemplated shall not be
consummated, the Company shall pay the fees, expenses and disbursements of
the STOCKHOLDERS, the COMPANY and their respective agents,
representatives, accountants and counsel incurred in connection with the
subject matter of this
Agreement and any amendments thereto, including all costs and expenses incurred
in the performance and compliance with all conditions to be performed by the
COMPANY and the STOCKHOLDERS under this Agreement, including the fees and
expenses of legal counsel to the COMPANY and the STOCKHOLDERS.
(c) If the transaction herein contemplated is consummated, CTS will
pay the fees, expenses, and disbursements of the STOCKHOLDERS and the
COMPANY as described in (b), above.
(d) Each STOCKHOLDER shall pay all sales, use, transfer, real
property transfer, recording, gains, stock transfer and other similar
taxes and fees ("Transfer Taxes") imposed in connection with the
transactions contemplated hereby. Each STOCKHOLDER shall file all
necessary documentation and Returns with respect to such Transfer Taxes.
In addition, each STOCKHOLDER acknowledges that he, and not the COMPANY or
CTS, will pay all Taxes due upon receipt of the consideration payable
pursuant to Section 2 hereof, and will assume all Tax risks and
liabilities of such STOCKHOLDER in connection with the transactions
contemplated hereby.
17.7 Notices. All notices or communications required or permitted
hereunder shall be in writing and shall be deemed to have been given when
personally delivered or upon receipt if sent by first class certified mail,
return receipt requested or the next business day if sent by telefax (receipt
confirmed and followed up by one of the other delivery methods discussed herein
as well), or upon delivery if sent by express mail, in each case postage prepaid
and addressed as follows:
(a) If to CTS, or NEWCO:
1650 Tysons Boulevard
Suite 600
McLean, Virginia 22102
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with copies to:
The Commonwealth Group
1650 Tysons Boulevard
Suite 600
Vienna, Virginia 22102
and
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Attn: Christopher T. Jensen, Esq.
(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on Annex IV, with copies to such counsel as is set forth with
respect to each STOCKHOLDER on such Annex IV;
(c) If to the COMPANY:
Computer Hardware Maintenance Company, Inc.
2010 Cabot Boulevard West
P.O. Box 2025
Langhorne, PA 19047-1811
Attn: Michael G. Paglaiccetti
and marked "Personal and Confidential"
with copies to:
England and Young, P.C.
50 East Court Street
Doylestown, Pennsylvania 18901
Attn: Boyd A. England, Esq.
and
Mesirov, Gelman, Jaffe, Cramer & Jamieson
1735 Market Street, Suite 3800
Philadelphia, Pennsylvania 19103
Attn: Richard P. Jaffe, Esq.
or to such other address or counsel as any party hereto shall specify pursuant
to this
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Section 17.7 from time to time.
17.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of New York, except that matters herein within the purview
of the matters covered by the General Corporation Law of the State of Delaware
shall be governed by such General Corporation Law, in each case without
reference to conflicts of laws principles.
17.9 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
17.10 Time. Time is of the essence with respect to this Agreement.
17.11 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
17.12 Remedies Cumulative. Except as provided in Section 11.4 of this
Agreement, no right, remedy or election given by any term of this Agreement
shall be deemed exclusive but each shall be cumulative with all other rights,
remedies and elections available at law or in equity.
17.13 Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
17.14 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of CTS, NEWCO, the COMPANY and the STOCKHOLDERS who hold a
majority of the CTS Stock issued and outstanding under this Agreement at such
time of determination. Any amendment or waiver effected in accordance with this
Section 17.14 shall be binding upon each of the parties hereto, any other person
receiving CTS Stock in connection with the Merger and each future holder of such
CTS Stock.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
CONDOR TECHNOLOGY SOLUTIONS, INC.
By: /s/ Kennard F. Hill
------------------------------------
Name: Kennard F. Hill
Title: President and Chief Executive
Officer
COMPUTER HARDWARE ACQUISITION
CORP.
By: /s/ Kennard F. Hill
------------------------------------
Name: Kennard F. Hill
Title: President and Chief Executive
Officer
COMPUTER HARDWARE MAINTENANCE
COMPANY, INC.
By: /s/ Michael Paglaiccetti
------------------------------------
Name: Michael Paglaiccetti
Title: President
STOCKHOLDERS:
/s/ Joseph F. Colyar
----------------------------------------
Joseph F. Colyar
/s/ Claude Haring
----------------------------------------
Claude Haring
/s/ Michael Paglaiccetti
----------------------------------------
Michael Paglaiccetti
<PAGE>
SCHEDULE 11.1(iv)
SPECIAL INDEMNITY
Any direct or indirect damage, fee, expense or cost of any nature relating to
the litigation instituted by Mr. Gary G. Free against the Company and/or any of
the Company's direct or indirect subsidiaries and/or affiliates.
<PAGE>
ANNEX III
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
Total consideration to be paid to the STOCKHOLDERS on the Closing Date:
Name Shares of CTS Common Stock Cash
Joseph Colyar $702,628.36\IPO Price per share $6,323,655.26
Claude Haring, Jr. $702,628.36\IPO Price per share $6,323,655.26
Michael Paglaiccetti $418,092.72\IPO Price per share $3,762,836.19
TOTALS: $1,823,349.63\IPO Price per share $16,410,146.71
<PAGE>
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AGREEMENT AND PLAN OF ORGANIZATION
dated as of October 1, 1997
by and among
CONDOR TECHNOLOGY SOLUTIONS, INC.
FEDERAL ACQUISITION CORP.
(a subsidiary of Condor Technology Solutions, Inc.)
FEDERAL COMPUTER CORPORATION
and
the STOCKHOLDERS named herein
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<PAGE>
TABLE OF CONTENTS
Page
1. THE MERGER.......................................................6
1.1 Delivery and Filing of Articles of Merger..................6
1.2 Effective Time of the Merger...............................6
1.3 Certificate of Incorporation, By-laws and Board of
Directors of Surviving Corporation.........................6
1.4 Certain Information With Respect to the Capital
Stock of the COMPANY, CTS and NEWCO........................7
2. CONVERSION OF STOCK..............................................7
2.1 Manner of Conversion.......................................7
3. DELIVERY OF MERGER CONSIDERATION.................................8
4. CLOSING..........................................................8
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND
STOCKHOLDERS.....................................................9
5.1 Due Organization..........................................10
5.2 Authorization.............................................10
5.3 Capital Stock of the COMPANY..............................10
5.4 Transactions in Capital Stock; Organization Accounting....11
5.5 No Bonus Shares...........................................11
5.6 Subsidiaries..............................................11
5.7 Predecessor Status; etc...................................11
5.8 Spin-off by the COMPANY...................................11
5.9 Financial Statements......................................12
5.10 Liabilities and Obligations...............................12
5.11 Accounts and Notes Receivable.............................13
5.12 Intellectual Property; Permits and Intangibles............13
5.13 Environmental Matters.....................................14
5.14 Personal Property.........................................15
5.15 Significant Customers; Material Contracts and
Commitments...............................................16
5.16 Real Property.............................................18
5.17 Insurance.................................................19
5.18 Compensation; Employment Agreements; Organized
Labor Matters.............................................20
5.19 Employee Plans............................................21
5.20 Compliance with ERISA.....................................21
5.21 Conformity with Law; Litigation...........................23
5.22 Taxes.....................................................24
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5.23 No Violations.............................................27
5.24 Government Contracts......................................27
5.25 Business Conduct..........................................27
5.26 Deposit Accounts; Powers of Attorney......................29
5.27 Relations with Governments................................29
5.28 Disclosure................................................29
5.29 Prohibited Activities.....................................30
5.30 Affiliate Transactions....................................30
5.31 Misrepresentation.........................................31
5.33 Authority; Ownership......................................33
5.34 Preemptive Rights.........................................33
5.35 No Intention to Dispose of CTS Stock......................33
5.36 Questionnaires. ..........................................33
6. REPRESENTATIONS OF CTS AND NEWCO................................33
6.1 Due Organization..........................................33
6.2 Authorization.............................................34
6.3 Transaction Not a Breach..................................34
6.4 Misrepresentation.........................................34
6.5 Capital Stock.............................................34
6.6 Subsidiaries..............................................35
6.7 Conformity with Law; Litigation...........................35
7. COVENANTS PRIOR TO CLOSING......................................36
7.1 Access and Cooperation; Due Diligence.....................36
7.2 Conduct of Business Pending Closing.......................36
7.3 Prohibited Activities.....................................37
7.4 No Shop...................................................39
7.5 Notice to Bargaining Agents...............................39
7.6 Agreements................................................39
7.7 Notification of Certain Matters...........................39
7.8 Amendment of Schedules....................................40
7.9 Cooperation in Preparation of Registration Statement......41
7.10 Final Financial Statements................................42
7.11 Further Assurances........................................43
7.12 Approval of Merger Agreement..............................43
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS
AND THE COMPANY.................................................43
8.1 Representations and Warranties............................43
8.2 Performance of Obligations................................43
8.3 No Litigation.............................................44
8.4 Opinion of Counsel........................................44
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8.5 Consents and Approvals....................................44
8.7 Good Standing Certificates................................44
8.8 Secretary's Certificate...................................44
8.9 Employment Agreements.....................................44
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CTS AND NEWCO............44
9.1 Representations and Warranties............................45
9.2 Performance of Obligations................................45
9.3 No Litigation.............................................45
9.4 Secretary's Certificate...................................45
9.5 No Material Adverse Change................................45
9.6 STOCKHOLDERS' Release.....................................45
9.7 Termination of Related Party Agreements...................46
9.8 Opinion of Counsel........................................46
9.9 Consents and Approvals....................................46
9.10 Good Standing Certificates................................46
9.11 Registration Statement....................................46
9.12 Employment Agreements.....................................46
9.13 Closing of IPO............................................46
9.14 FIRPTA Certificate........................................46
9.15 Consummation of Other Agreements..........................47
9.16 A/R Aging Reports.........................................47
9.17 Satisfaction..............................................47
10. COVENANTS OF CTS AND THE STOCKHOLDERS AFTER CLOSING.............47
10.1 Release From Guarantees; Repayment of Certain
Obligations...............................................47
10.2 Preservation of Tax and Accounting Treatment..............47
10.3 Preparation and Filing of Tax Returns.....................47
10.4 Directors and Officers....................................48
10.5 Preservation of Employee Benefit Plans....................48
11. INDEMNIFICATION.................................................48
11.1 General Indemnification by the STOCKHOLDERS...............49
11.2 Indemnification by CTS....................................49
11.3 Third Person Claims.......................................50
11.4 Exclusive Remedy..........................................51
11.5 Limitations on Indemnification............................52
12. TERMINATION OF AGREEMENT........................................53
12.1 Termination...............................................53
12.2 Liabilities in Event of Termination.......................53
13. NONCOMPETITION..................................................53
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13.1 Prohibited Activities.....................................53
13.2 Damages...................................................55
13.3 Reasonable Restraint......................................55
13.4 Severability; Reformation.................................55
13.5 Independent Covenant......................................55
13.6 Materiality...............................................55
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.......................56
14.1 Stockholders..............................................56
14.2 CTS AND NEWCO.............................................56
14.3 Damages...................................................57
14.4 Survival..................................................57
15. TRANSFER RESTRICTIONS...........................................57
15.1 Transfer Restrictions.....................................57
16. REGISTRATION RIGHTS.............................................58
16.1 Piggyback Registration Rights.............................58
16.2 Registration Procedures...................................59
16.3 Underwriting Agreement....................................59
16.4 Availability of Rule 144..................................59
16.5 Market Standoff...........................................59
17. GENERAL.........................................................60
17.1 Cooperation...............................................60
17.2 Successors and Assigns....................................60
17.3 Entire Agreement..........................................60
17.4 Counterparts..............................................60
17.5 Brokers and Agents........................................61
17.6 Expenses..................................................61
17.7 Notices...................................................61
17.8 Governing Law.............................................63
17.9 Exercise of Rights and Remedies...........................63
17.10 Time......................................................63
17.11 Reformation and Severability..............................63
17.12 Remedies Cumulative.......................................63
17.13 Captions..................................................63
17.14 Amendments and Waivers....................................63
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<PAGE>
ANNEX I FORM OF ARTICLES OF MERGER...............................I-I
ANNEX II FORM OF CERTIFICATE OF INCORPORATION AND
BY-LAWS OF CTS AND NEWCO................................II-I
ANNEX III CONSIDERATION TO BE PAID TO STOCKHOLDERS...............III-1
ANNEX IV STOCKHOLDERS AND STOCK OWNERSHIP OF
THE COMPANY.............................................IV-1
ANNEX V [INTENTIONALLY OMITTED]..................................V-1
ANNEX VI FORM OF OPINION OF COUNSEL TO CTS.......................VI-1
ANNEX VII FORM OF OPINION OF COUNSEL TO COMPANY AND
STOCKHOLDERS...........................................VII-1
ANNEX VIII FORM OF EMPLOYMENT AGREEMENT..........................VIII-1
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<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (this "Agreement") is made as of
September __, 1997, by and among CONDOR TECHNOLOGY SOLUTIONS, INC., a Delaware
corporation ("CTS"), FEDERAL ACQUISITION CORP., a Delaware corporation
("NEWCO"), FEDERAL COMPUTER CORPORATION, a Virginia corporation (the "COMPANY"),
and George R. Blick, Charles F. Crowe, Lou J. Fisher, William E. Hummel, R.
Joseph Market and R. Wayne Talley (the "STOCKHOLDERS"). The STOCKHOLDERS are all
of the stockholders of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing under the laws
of the State of Delaware, having been incorporated on July 7, 1997, solely for
the purpose of completing the transactions set forth herein, and is a
wholly-owned subsidiary of CTS;
WHEREAS, the respective Boards of Directors of NEWCO and the COMPANY
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the Constituent
Corporations and their respective stockholders that NEWCO merge with and into
the COMPANY pursuant to this Agreement and the applicable provisions of the laws
of the States of Delaware and Virginia (the "Merger"), and in furtherance
thereof have approved the Merger;
WHEREAS, CTS is entering into other separate agreements substantially
similar to this Agreement (the "Other Agreements"), each of which is entitled
"Agreement and Plan of Organization," with companies in the information
technology industry (collectively, the "Other Founding Companies"), and their
respective stockholders in order to acquire additional information technology
companies. The COMPANY, together with each of the entities with which CTS has
entered into the Other Agreements, are collectively referred to herein as the
"Founding Companies;"
WHEREAS, this Agreement, the Other Agreements and the IPO (as hereinafter
defined) of CTS Stock (as hereinafter defined) constitute the "CTS Plan of
Organization;"
WHEREAS, the Boards of Directors of CTS and each of the Founding Companies
have approved and adopted the CTS Plan of Organization as an integrated plan to
transfer the capital stock of the Founding Companies to CTS and the cash raised
in the IPO of CTS Stock to CTS as a transfer of property under Section 351 of
the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the STOCKHOLDERS and the Board of
Directors of the COMPANY and the stockholders and the boards of directors of
each of
<PAGE>
CTS and NEWCO have approved this Agreement and the transactions contemplated
hereby;
WHEREAS, unless the context otherwise requires, capitalized terms used in
this Agreement or in any schedule attached hereto and not otherwise defined
herein shall have the following meanings for all purposes of this Agreement:
"Acquired Party" means the COMPANY, any subsidiary and any member of a
Relevant Group.
"Acquisition Companies" means NEWCO and each of the other Delaware
companies wholly-owned by CTS prior to the Closing Date.
"Acquisition Transaction" has the meaning set forth in Section 7.4.
"Affiliates" has the meaning set forth in Section 5.8.
"A/R Aging Reports" has the meaning set forth in Section 9.16.
"Articles of Merger" means those Articles or Certificates of Merger with
respect to the Merger substantially in the form[s] attached as Annex I hereto or
with such changes therein as may be required by applicable state laws.
"Balance Sheet Date" means October 31, 1996.
"Benefit Plan" means any Plan, existing at the Closing Date or prior
thereto, established or to which contributions have at any time been made by the
COMPANY, any ERISA Affiliate, or any predecessor of any of the foregoing, under
which any employee or former employee of the COMPANY, or any beneficiary
thereof, is covered, is eligible for coverage or has benefit rights.
"CTS" has the meaning set forth in the first paragraph of this Agreement.
"CTS Charter Documents" has the meaning set forth in Section 6.1.
"CTS Plan of Organization" has the meaning set forth in the fourth recital
of this Agreement.
"CTS Stock" means the common stock, par value $.01 per share, of CTS.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" means the consummation of the transactions contemplated by this
Agreement on the Closing Date.
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"Closing Date" has the meaning set forth in Section 4.
"Code" has the meaning set forth in the fifth recital of this Agreement.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Delaware Law" has the meaning set forth in Section 1.2.
"Effective Time of the Merger" means the time as of which the Merger
becomes effective, which the parties hereto contemplate to occur on the Closing
Date.
"Environmental Requirements" has the meaning set forth in Section 5.13.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any Person who is, or at any time was, a member of
a controlled group (within the meaning of Section 412(n)(6) of the Code) that
includes, or at any time included, the COMPANY or any predecessor of the
COMPANY.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" has the meaning set forth in the third recital of
this Agreement.
"GAAP" means generally accepted accounting principles of the United States
applied in a manner consistent with the past practices of the COMPANY.
"Governmental Authority" means any governmental, regulatory or
administrative body, agency, subdivision or authority, any court or judicial
authority, or any public, private or industry regulatory authority, whether
national, Federal, state, local or otherwise.
"Hazardous Materials" has the meaning set forth in Section 5.13(b).
"Intellectual Property" means all trademarks, service marks, trade dress,
trade names, patents and copyrights and any registration or application for any
of the foregoing, and any trade secret, invention, process, know-how, computer
software or technology systems.
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<PAGE>
"IPO" means the initial public offering of CTS Stock pursuant to the
Registration Statement.
"Laws" has the meaning set forth in Section 5.21.
"Material Adverse Effect" means, with respect to any Person, any event or
occurrence which would have a material adverse effect on such Person's business,
condition (financial or other), properties, business prospects or financial
results
"Material Contract" means any lease, instrument, agreement, license or
permit set forth on Schedule 5.12, 5.13, 5.14, 5.15, 5.16, 5.18 or 5.19 or any
other material agreement to which the Company is a party or by which its
properties are bound.
"Merger" means the merger of NEWCO with and into the COMPANY pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware and the Commonwealth of Virginia.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO STOCK" means the common stock, par value $.01 per share, of
NEWCO.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Other Agreements" has the meaning set forth in the third recital of this
Agreement.
"Other Founding Companies" has the meaning set forth in the third recital
of this Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means any natural person, corporation, partnership,
proprietorship, other business organization, trust, union, association or
Governmental Authority.
"Plan" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance, severance,
separation or other employee benefit plan, practice, policy or arrangement of
any kind, whether written or oral, or whether for the benefit of a single
-4-
<PAGE>
individual or more than one individual including, but not limited to, any
"employee benefit plan" within the meaning of Section 3(3) of ERISA.
"Pre-Closing Date" has the meaning set forth in Section 4.
"Pricing" means the date of determination by CTS and the Underwriters of
the public offering price of the shares of CTS Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on or immediately prior to
the Pre-Closing Date.
"Registration Statement" means that certain registration statement of CTS
on Form S-1 covering the shares of CTS Stock to be issued in the IPO.
"Relevant Group" has the meaning set forth in Section 5.22(a).
"Returns" has the meaning set forth at the end of Section 5.22.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 7.3(e).
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" shall mean the COMPANY as the surviving party in
the Merger.
"Tax" or "Taxes" has the meaning set forth at the end of Section 5.22.
"Taxing Authority" has the meaning set forth at the end of Section 5.22.
"Third Person" has the meaning set forth in Section 11.2.
"Transfer Taxes" has the meaning set forth in Section 17.6.
"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
"Underwriting Agreement" means the Underwriting Agreement dated the
Closing Date between the Underwriters and CTS in respect of the IPO.
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<PAGE>
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 Delivery and Filing of Articles of Merger. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and filed
with the Secretary of State of the State of Delaware and the Secretary of State
of the Commonwealth of Virginia and stamped receipt copies of each such filing
to be delivered to CTS on or before the Pre-Closing Date.
1.2 Effective Time of the Merger. At the Effective Time of the Merger and
subject to the terms and conditions of this Agreement and the applicable
provisions of the Delaware General Corporation Law (the "Delaware Law") and the
laws of the Commonwealth of Virginia, NEWCO shall be merged with and into the
COMPANY in accordance with the Articles of Merger, the separate existence of
NEWCO shall cease and the COMPANY shall be the surviving party in the Merger. At
the Effective Time of the Merger, the effect of the Merger otherwise shall be as
provided in the applicable provisions of Delaware Law and the laws of the
Commonwealth of Virginia. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time of the Merger, all the property, rights,
privileges, powers and franchises of the COMPANY and NEWCO shall vest in the
Surviving Corporation, and all debts, liabilities and duties of the COMPANY and
NEWCO shall become the debts, liabilities and duties of the Surviving
Corporation. The Merger will be effected in a single transaction.
1.3 Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(a) the Articles of Incorporation of the COMPANY then in effect
shall be the Articles of Incorporation of the Surviving Corporation until
amended as provided by law;
(b) the By-laws of the COMPANY then in effect shall be the By-laws
of the Surviving Corporation until amended as provided by law;
(c) a director of NEWCO and two nominees of the COMPANY shall be the
directors of the Surviving Corporation until their respective successors
are elected or appointed and qualified in accordance with the terms the
By-laws of the Surviving Corporation; the Board of Directors of the
Surviving Corporation shall hold office subject to the provisions of the
laws of the Commonwealth of Virginia and of the Articles of Incorporation
and By-laws of the Surviving Corporation; and
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<PAGE>
(d) the officers of the COMPANY immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities, and effective upon the
Effective Time of the Merger, J. Marshall Coleman shall be appointed as a
vice president and assistant secretary of the Surviving Corporation and
shall not be entitled to any compensation from the COMPANY as a result of
such appointment and his serving in such capacity, such officers to serve,
subject to the provisions of the Articles of Incorporation and By-laws of
the Surviving Corporation, until his or her successor is duly elected and
qualified.
1.4 Certain Information With Respect to the Capital Stock of the COMPANY,
CTS and NEWCO. The respective designations and numbers of outstanding shares and
voting rights of each class of outstanding capital stock of the COMPANY, CTS and
NEWCO as of the date of this Agreement are as follows:
(a) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 1.4 hereto;
(b) immediately prior to the Closing Date, the authorized capital
stock of CTS will consist of 50,000,000 shares; and
(c) as of the date of this Agreement, the authorized capital stock
of NEWCO consists of 3,000 shares of NEWCO Stock, of which ten (10) shares
are issued and outstanding and beneficially owned by CTS.
2. CONVERSION OF STOCK
2.1 Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) CTS Stock and (y) common stock of the Surviving
Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(a) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger will be canceled and
extinguished and, by virtue of the Merger and without any action on the
part of the holder thereof, automatically shall be deemed to represent,
with respect to each STOCKHOLDER, (1) the right to receive the number of
shares of CTS Stock set forth on Annex III hereto with respect to such
STOCKHOLDER and (2) the right to receive the amount of cash set forth on
Annex III hereto with respect to such STOCKHOLDER;
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<PAGE>
(b) all shares of COMPANY Stock that are held by the COMPANY as
treasury stock shall be canceled and retired and no shares of CTS Stock or
other consideration shall be delivered or paid in exchange therefor; and
(c) each share of NEWCO Stock issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger
and without any action on the part of CTS, automatically be converted into
one fully paid and non-assessable share of common stock of the Surviving
Corporation, which shall constitute all of the issued and outstanding
shares of common stock of the Surviving Corporation immediately after the
Effective Time of the Merger.
All CTS Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 5 and
15 hereof and the registration rights described in Section 16 hereof, have the
same rights as all the other shares of outstanding CTS Stock by reason of the
provisions of the Certificate of Incorporation of CTS or as otherwise provided
by the Delaware Law. All voting rights of such CTS Stock received by the
STOCKHOLDERS shall be fully exercisable by the STOCKHOLDERS and the STOCKHOLDERS
shall not be deprived nor restricted in exercising those rights. At the
Effective Time of the Merger, CTS shall have no class of capital stock issued
and outstanding other than the CTS Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 At the Effective Time of the Merger and on the Closing Date the
STOCKHOLDERS, who are the holders of all outstanding certificates representing
shares of COMPANY Stock, shall, upon surrender of such certificates, receive (i)
the respective number of shares of CTS Stock and (ii) the amount of cash, all as
set forth on Annex III hereto with respect to such STOCKHOLDER, provided that
such cash shall be paid out of the net proceeds from the IPO. The cash payable
pursuant to clause (ii) shall be paid by wire transfer.
3.2 The STOCKHOLDERS shall deliver in trust to Morgan, Lewis & Bockius
LLP, counsel to CTS, at the Pre-Closing the certificates representing COMPANY
Stock, duly endorsed in blank by the STOCKHOLDERS, or accompanied by stock
powers duly endorsed in blank, with signatures guaranteed by a national or state
chartered bank or other financial institution, and with all necessary Transfer
Tax and other revenue stamps, acquired at the STOCKHOLDERS' expense, affixed and
canceled. The STOCKHOLDERS agree promptly to cure any deficiencies with respect
to the endorsement of the stock certificates or other documents of conveyance
with respect to such COMPANY Stock or with respect to the stock powers
accompanying any COMPANY Stock. Upon consummation of the IPO and the
transactions contemplated to occur on the Closing Date, all of such certificates
shall be deemed released by such counsel to CTS without any further action on
the part of such counsel.
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<PAGE>
4. CLOSING
At or prior to the Pre-Closing, the parties shall take all actions
necessary to prepare to (i) effect the Merger (including, if permitted by
applicable state law, the advance filing with the appropriate state authorities
of the Articles of Merger, which shall become effective at the Effective Time of
the Merger) and (ii) effect the conversion and delivery of shares referred to in
Section 2 hereof; provided, that such actions shall not include the actual
completion of the Merger for purposes of this Agreement or the conversion and
delivery of the shares and transmission of funds by wire referred to in Section
3 hereof, each of which actions shall only be taken upon the Closing Date as
herein provided. In the event that there is no Closing and this Agreement
terminates, CTS hereby covenants and agrees to do all things required by
Delaware Law and all things which counsel for the COMPANY advise CTS are
required by applicable laws of the Commonwealth of Virginia in order to rescind
any merger or other actions effected by the advance filing of the Articles of
Merger as described in this Section. The taking of the actions described in
clauses (i) and (ii) above (the "Pre-Closing") shall take place on the date of
the execution of the underwriting agreement to be used in connection with the
IPO (the "Pre-Closing Date") at the offices of Morgan, Lewis & Bockius LLP, 101
Park Avenue, New York, New York 10178. On the Closing Date (x) the Articles of
Merger shall have been filed with the appropriate state authorities so that they
shall be or, as of 8:00 a.m. New York City time on the Closing Date, shall
become effective and the Merger shall thereby be effected, (y) all transactions
contemplated by this Agreement, including the conversion and delivery of shares,
the transmission of funds by wire in an amount equal to the cash portion of the
consideration which the STOCKHOLDERS shall be entitled to receive pursuant to
the Merger referred to in Section 3 hereof shall be completed and (z) the
closing with respect to the IPO shall occur and be deemed to be completed. The
date on which the actions described in the preceding clauses (x), (y) and (z)
occur shall be referred to as the "Closing Date." Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) Representations and Warranties of the COMPANY and the STOCKHOLDERS
Each of the COMPANY and the STOCKHOLDERS jointly and severally represents
and warrants to CTS and NEWCO that all of the following representations and
warranties in this Section 5(A) are true and correct at the date of this
Agreement and, subject to Section 7.8 hereof, shall be true and correct at the
time of the Pre-Closing and the Closing Date, and that such representations and
warranties shall survive the Closing Date for a period of eighteen months (the
last day of such period being the "Expiration Date"), except that (i) the
representations and warranties set forth in Section 5.22 hereof shall survive
until such time as the statute of limitations period has run for all tax periods
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ended on or prior to the Closing Date, which shall be deemed to be the
Expiration Date for Section 5.22, and (ii) solely for purposes of Section
11.1(iii) hereof and solely to the extent that, in connection with the IPO, CTS
actually incurs liability under the 1933 Act, the 1934 Act, or any other Federal
or state securities laws, the representations and warranties set forth in this
Section 5(A) shall survive until the expiration of any applicable statute of
limitations period, which shall be deemed to be the Expiration Date for such
purposes. For purposes of this Section 5 and for the opinion referred to in
Section 9.8 of this Agreement, the term "COMPANY" shall mean and refer to the
COMPANY and all of its subsidiaries, if any.
5.1 Due Organization. The COMPANY is a corporation duly incorporated,
validly existing and in good standing under the laws of the state of its
incorporation, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted, to own
or hold under lease the properties and assets it now owns or holds under lease,
and to perform all of its obligations under the Material Contracts; is duly
qualified in the jurisdictions listed in Schedule 5.1 and there are no other
jurisdictions in which the conduct of the COMPANY's business or activities or
its ownership of assets requires any other qualification under applicable law,
the absence of which would have a Material Adverse Effect on the COMPANY. True,
complete and correct copies of the Articles of Incorporation and By-laws, each
as amended, of the COMPANY (the "Charter Documents") are all attached to
Schedule 5.1. The minute books and stock records of the COMPANY, as heretofore
made available to CTS, are correct and complete in all material respects. The
most recent minutes of the COMPANY, which are dated no earlier than 10 business
days prior to the date hereof, affirm and ratify all prior acts of the COMPANY
and of its officers and directors on behalf of the COMPANY.
5.2 Authorization. The representatives of the COMPANY executing this
Agreement have the authority to execute and deliver this Agreement and to
perform its obligations hereunder. The execution and delivery of this Agreement
by the COMPANY and performance by the COMPANY of its obligations under this
Agreement and the consummation by the COMPANY of the transactions contemplated
hereby have been duly authorized by all necessary corporate and stockholder
action in accordance with applicable law and the Articles of Incorporation and
By-Laws of the COMPANY on the part of the COMPANY and the STOCKHOLDERS. This
Agreement constitutes the valid and binding obligation of the COMPANY,
enforceable in accordance with its terms.
5.3 Capital Stock of the COMPANY. The authorized capital stock of the
COMPANY is as set forth in Schedule 1.4. All of the issued and outstanding
shares of capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex IV and, except as set forth on Schedule 5.3, are
owned free and clear of all liens, security interests, pledges, charges, voting
trusts, restrictions, encumbrances and claims of every kind. All of the issued
and outstanding shares of capital stock of the
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COMPANY have been duly authorized and validly issued, are fully paid and
nonassessable, are owned of record and beneficially by the STOCKHOLDERS and were
offered, issued, sold and delivered by the COMPANY in compliance with all
applicable state and Federal laws concerning the issuance of securities. The
COMPANY and the STOCKHOLDERS have full right, power and authority to exchange
the COMPANY Stock as provided herein without obtaining the consent or approval
of any other person or Governmental Authority.
Further, none of such shares were issued in violation of the preemptive
rights of any past or present stockholder.
5.4 Transactions in Capital Stock; Organization Accounting. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock since
January 1, 1994. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
COMPANY to issue any of its authorized but unissued capital stock or its
treasury stock; (ii) the COMPANY has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof; and (iii) neither the voting stock structure of the COMPANY nor the
relative ownership of shares among any of the STOCKHOLDERS has been altered or
changed in contemplation of the Merger and/or the CTS Plan of Organization.
Schedule 5.4 also includes complete and accurate copies of all stock option or
stock purchase plans, including a list of all outstanding options, warrants or
other rights to acquire shares of the COMPANY Stock and a description of the
material terms of such outstanding options, warrants or other rights.
5.5 No Bonus Shares. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
5.6 Subsidiaries. Schedule 5.6 attached hereto lists the name of each of
the COMPANY's subsidiaries and sets forth the number and class of the authorized
capital stock of each of the COMPANY's subsidiaries and the number of shares of
each of the COMPANY's subsidiaries which are issued and outstanding, all of
which shares (except as set forth on Schedule 5.6) are owned by the COMPANY,
free and clear of all liens, security interests, pledges, voting trusts,
equities, restrictions, encumbrances and claims of every kind. Except as set
forth on Schedule 5.6, the COMPANY does not presently own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity nor is the COMPANY, directly or indirectly, a
participant in any joint venture, partnership or other non-corporate entity.
5.7 Predecessor Status; etc. Set forth on Schedule 5.7 is a list of all
names of all predecessor companies of the COMPANY, including the names of any
entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the
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COMPANY or from which the COMPANY previously acquired material assets. Except as
disclosed on Schedule 5.7, the COMPANY has not been a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 Spin-off by the COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1994.
5.9 Financial Statements. The COMPANY has delivered to CTS copies of the
following financial statements (the "Financial Statements"):
(a) Audited Balance Sheets, Income Statements, Statements of
Stockholders' Equity and Statements of Cash Flows at and for the years
ended October 31, 1994, 1995 and 1996.
(b) Unaudited Balance Sheets, Income Statements, Statements of
Stockholders' Equity, and Statements of Cash Flows for the nine months
ended July 31, 1996 and 1997.
Each of the Financial Statements is consistent with the books and records
of the COMPANY (which, in turn, are accurate and complete in all material
respects) and fairly presents the COMPANY's financial condition, assets and
liabilities as of their respective dates and the results of operations and cash
flows for the periods related thereto in accordance with GAAP, consistently
applied among the periods which are the subject of the Financial Statements,
except unaudited interim financial statements which were or are subject to
normal year-end adjustments which were not and are not expected to be material
in amount and the addition of required footnotes thereto.
5.10 Liabilities and Obligations. The COMPANY has delivered to CTS an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY in excess of $10,000 which are not
reflected on the balance sheet of the COMPANY at the Balance Sheet Date or
otherwise reflected in the COMPANY Financial Statements at the Balance Sheet
Date and (ii) all loan agreements, indemnity or guaranty agreements, bonds,
mortgages, liens, pledges or other security agreements to which the COMPANY is a
party. Except as set forth on Schedule 5.10, since the Balance Sheet Date, the
COMPANY has not incurred any material liabilities of any kind, character and
description, whether accrued, absolute, secured or unsecured, contingent or
otherwise, other than liabilities incurred in the ordinary course of business.
The COMPANY has also set forth on Schedule 5.10, in the case of those contingent
liabilities related to pending or threatened litigation, or other liabilities
which are not fixed or are being contested, the following information:
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(a) a summary description of the liability and has provided CTS's
counsel with: (i) copies of all relevant documentation relating thereto;
(ii) amounts claimed and any other action or relief sought; and (iii) name
of claimant and all other parties to the claim, suit or proceeding;
(b) the name of each court or agency before which such claim, suit
or proceeding is pending;
(c) the date such claim, suit or proceeding was instituted; and
(d) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such
liability. If no estimate is provided, the estimate shall for purposes of
this Agreement be deemed to be zero.
5.11 Accounts and Notes Receivable. The COMPANY has delivered to CTS an
accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY as of the Balance Sheet Date, including any such
amounts which are not reflected in the balance sheet as of the Balance Sheet
Date, and including receivables from and advances to employees and the
STOCKHOLDERS. Except to the extent reflected on Schedule 5.11 or as disclosed by
the COMPANY to CTS in a writing accompanying the A/R Aging Reports, as the case
may be, the accounts, notes and other receivables shown on Schedule 5.11 and on
the A/R Aging Reports are and shall be, and the COMPANY has no reason to believe
that any such account receivable is not or shall not be, collectible in the
amounts shown (in the case of the accounts and notes receivable set forth on
Schedule 5.11, net of reserves reflected in the balance sheet calculated
consistent with reserves as of the Balance Sheet Date).
5.12 Intellectual Property; Permits and Intangibles.
(a) The COMPANY owns or has licenses to all Intellectual Property
the absence of any of which would have a Material Adverse Effect on the
COMPANY, and the COMPANY has delivered to CTS an accurate list (which is
set forth on Schedule 5.12(a)) of all Intellectual Property owned by or
licensed by the COMPANY. Each item of Intellectual Property owned by or
licensed by the COMPANY is valid and in full force and effect. Except as
set forth on Schedule 5.12(a), all right, title and interest in and to
each item of Intellectual Property is owned by the COMPANY and is not
subject to any license except as set forth on Schedule 5.12(a), royalty
arrangement or pending or threatened claim or dispute. To the COMPANY's
knowledge, none of the Intellectual Property owned by or licensed by the
COMPANY nor any product sold or licensed by the COMPANY, infringes any
Intellectual Property right of any other entity and to the COMPANY's
knowledge, no Intellectual Property owned by the COMPANY is infringed upon
by any other entity.
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(b) The COMPANY holds all licenses, franchises, permits and other
governmental authorizations the absence of any of which could have a
Material Adverse Effect on the COMPANY, and the COMPANY has delivered to
CTS an accurate list and summary description (which is set forth on
Schedule 5.12(b)) of all governmental licenses, franchises, permits and
other governmental authorizations, including permits, titles, licenses,
franchises and certificates (it being understood and agreed that a list of
all environmental permits and other environmental approvals is set forth
on Schedule 5.13). To the knowledge of the COMPANY, the licenses,
franchises, permits and other governmental authorizations listed on
Schedules 5.12(b) and 5.13 are valid, and the COMPANY has not received any
notice that any Governmental Authority intends to cancel, terminate or not
renew any such license, franchise, permit or other governmental
authorization. The COMPANY has conducted and is conducting its business in
compliance with the requirements, standards, criteria and conditions set
forth in the licenses, franchises, permits and other governmental
authorizations listed on Schedules 5.12(b) and 5.13 and is not in
violation of any of the foregoing except where such non-compliance or
violation would not have a Material Adverse Effect on the COMPANY. Except
as specifically provided in Schedule 5.12(a) or 5.12(b), the transactions
contemplated by this Agreement will not (i) to the Company's knowledge
result in the infringement by the COMPANY of any Intellectual Property
right of any other entity, (ii) infringe any Intellectual Property listed
on Schedule 5.12(a), or (iii) result in a default under or a breach or
violation of, or adversely affect the rights and benefits afforded to the
COMPANY by, any licenses, franchises, permits or government authorizations
listed on Schedule 5.12(b).
5.13 Environmental Matters.
(a) Except as set forth on Schedule 5.13,
(i) the COMPANY is and at all times has been in compliance
in all material respects with, and has not been in
violation of or liable under, all Environmental
Requirements, and
(ii) the COMPANY possesses all permits, licenses and
certificates required by all Environmental Requirements,
and has filed all notices or applications required
thereby.
As used herein, "Environmental Requirements" shall mean all applicable
federal, state and local laws, rules, regulations, ordinances and
requirements relating to pollution and protection of the environment, all
as amended to date.
(b) Except as disclosed on Schedule 5.13:
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(i) the COMPANY has not been subject to, or received any
notice of any private, administrative or judicial
action, or notice of any intended private,
administrative or judicial action relating to the
presence or alleged presence of Hazardous Materials in,
under or upon any real property currently or formerly
owned, leased or used by (A) the COMPANY or (B) any
other person that has, at any time, disposed of
Hazardous Materials on behalf of the COMPANY;
(ii) the COMPANY does not have any basis for any such
notice or action; and
(iii) there are no pending or, to the knowledge of the
COMPANY, threatened actions or proceedings (or notices
of potential actions or proceedings) from any
Governmental Authority or any other entity regarding any
matter relating to health, safety or protection of the
environment against the COMPANY.
"Hazardous Materials" for purposes of this Agreement shall include,
without limitation: (A) hazardous materials, hazardous substances,
extremely hazardous substances or hazardous wastes, as those terms are
defined by the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. ss.9601 et seq. ("CERCLA"), the Resource
Conservation and Recovery Act, 42 U.S.C. ss.6901 et seq. ("RCRA"), and any
other Environmental and Safety Requirements; (B) petroleum, including,
without limitation, crude oil or any fraction thereof which is liquid at
standard conditions of temperature and pressure (60 degrees Fahrenheit and
14.7 pounds per square inch absolute); (C) any radioactive material,
including, without limitation, any source, special nuclear, or by-product
material as defined in 42 U.S.C. ss.2011 et seq.; and (D) asbestos in any
form or condition.
(c) To the Company's knowledge, there are and have been no past or
present events, conditions, circumstances, activities, practices,
incidents or actions which could reasonably be expected to interfere with
or prevent continued compliance with any Environmental Requirements, give
rise to any legal obligation or liability, or otherwise form the basis of
any claim, action, suit, proceeding, hearing or investigation against or
involving the COMPANY or any real property presently or previously owned
or used by the COMPANY under any Environmental Requirements or related
common law theories, except as identified on Schedule 5.13.
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(d) Schedule 5.13 sets forth the name and principal place of
business of every off-site waste disposal organization, and each of the
haulers, transporters or cartage organization engaged now or in the
preceding three years by the COMPANY to dispose of Hazardous Materials to
any such off-site waste disposal location on behalf of the COMPANY or any
of its predecessors.
5.14 Personal Property. The COMPANY has delivered to CTS an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property with a value
individually in excess of $10,000 which is included (or that will be included)
in "depreciable plant, property and equipment" (or similarly named line item) on
the balance sheet of the COMPANY as of the Balance Sheet Date, (y) all other
personal property owned by the COMPANY with a value individually in excess of
$10,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date and (z) all leases and agreements in respect of personal property
with a value individually in excess of $10,000, including, in the case of each
of (x), (y) and (z), (1) true, complete and correct copies of all such leases
which have been provided to CTS's counsel, (2) a listing of the capital costs of
all such assets which are subject to capital leases and (3) an indication as to
which assets are currently owned, or, to the COMPANY's knowledge, were formerly
owned, by STOCKHOLDERS or Affiliates of the COMPANY or STOCKHOLDERS. Except as
set forth on Schedule 5.14, (i) all personal property with a value individually
in excess of $10,000 used by the COMPANY in its business is either owned by the
COMPANY or leased by the COMPANY pursuant to a lease included on Schedule 5.14,
(ii) all of the personal property listed on Schedule 5.14 is in good working
order and condition, ordinary wear and tear excepted, and (iii) all leases and
agreements included on Schedule 5.14 are in full force and effect and constitute
valid and binding agreements of the COMPANY, and to the COMPANY's knowledge, of
the other parties (and their successors) thereto in accordance with their
respective terms.
5.15 Significant Customers; Material Contracts and Commitments. The
COMPANY has delivered to CTS an accurate list (which is set forth on Schedule
5.15) of all significant customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person or entity) representing 5% or more of the COMPANY's annual revenues as of
the Balance Sheet Date. Except to the extent set forth on Schedule 5.15, none of
the COMPANY's significant customers has canceled or substantially reduced or, to
the knowledge of the COMPANY, is currently attempting or threatening to cancel a
contract or substantially reduce utilization of the services provided by the
COMPANY.
Except as listed or described on Schedule 5.15 as of or on the date
hereof, neither the COMPANY is a party to or bound by, nor do there exist any,
Contracts relating to or in any way affecting the operation or ownership of the
COMPANY's business that are of a type described below:
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(a) any collective bargaining arrangement with any labor union or
any such agreement currently in negotiation or proposed;
(b) any contract for capital expenditures or the acquisition or
construction of fixed assets for or in respect to real property other than
in the COMPANY's ordinary course of business in excess of $50,000;
(c) any contract with a term in excess of one year for the purchase,
maintenance, acquisition, sale or furnishing of materials, supplies,
merchandise, machinery, equipment, parts or other property or services
(except that the COMPANY need not list any such contract made in the
ordinary course of business) which requires aggregate future payments of
greater than $100,000;
(d) any contract relating to the borrowing of money, or the guaranty
of another person's borrowing of money, including, without limitation, all
notes, mortgages, indentures and other obligations, agreements and other
instruments for or relating to any lending or borrowing, including assumed
indebtedness;
(e) any contract granting any person a lien on any of the assets of
the COMPANY, in whole or in part;
(f) any contract for the cleanup, abatement or other actions in
connection with Hazardous Materials (as defined in Section 5.13), the
remediation of any existing environmental liabilities or relating to the
performance of any environmental audit or study;
(g) any contract granting to any person a first-refusal, first-offer
or similar preferential right to purchase or acquire any of the assets of
the COMPANY's business other than in the ordinary course of business;
(h) any contract under which the COMPANY is
(i) a lessee or sublessee of any machinery, equipment,
vehicle or other tangible personal property or real
property, or
(ii) a lessor of any real property or tangible personal
property owned by the COMPANY,
in either case having an original value in excess of $50,000;
(i) any contract providing for the indemnification of any officer,
director, employee or other person, where such indemnification may exceed
the sum of $50,000;
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(j) any joint venture or partnership contract; and
(k) any other contract with a term in excess of one year, whether or
not made in the ordinary course of business, which involves payments in
excess of $100,000.
The COMPANY has made available to CTS true and complete copies of each
written Material Contract, including all amendments or other modifications
thereto. Except as set forth on Schedule 5.15, each Material Contract is a valid
and binding obligation of the COMPANY, enforceable against the COMPANY in
accordance with its terms, and is in full force and effect. Except as set forth
on Schedule 5.15, the COMPANY has performed all obligations required to be
performed by it under each Material Contract and neither the COMPANY nor, to the
knowledge of the COMPANY, any other party to any Contract, is (with or without
the lapse of time or the giving of notice or both) in breach or default in any
material respect thereunder; and there exists no condition which, to the
knowledge of the COMPANY, would constitute a breach or default thereunder. The
COMPANY has not been notified that any party to any Material Contract intends to
cancel, terminate, not renew or exercise an option under any Material Contract,
whether in connection with the transactions contemplated hereby or otherwise.
5.16 Real Property.
(a) Schedule 5.16(a) includes a list of all real property owned by
the COMPANY (i) as of the Balance Sheet Date and (ii) acquired since the
Balance Sheet Date, and all other real property, if any, used by the
COMPANY in the conduct of its business. The COMPANY has good and insurable
title to the real property owned by it, including that reflected on
Schedule 5.14, subject to no mortgage, pledge, lien, conditional sale
agreement, encumbrance or charge, except for:
(i) liens reflected on Schedule 5.10 or 5.15 as securing specified
liabilities (with respect to which no default by the COMPANY
exists);
(ii) liens for current taxes not yet due and payable and
assessments not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the County Clerks in
which the properties, assets and leasehold estates are located
which do not adversely affect the current use of the property.
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Attached to Schedule 5.16(a) are true, complete and correct copies of all
title reports and title insurance policies currently in possession of the
COMPANY with respect to real property owned by the COMPANY.
(b) Schedule 5.16(b) includes an accurate list of real property
leases to which the COMPANY is a party and an indication as to
which such properties, if any, are currently owned, or were
formerly owned, by STOCKHOLDERS or Affiliates of the COMPANY
or STOCKHOLDERS. Counsel to CTS has been provided with true,
complete and correct copies of all leases and agreements in
respect of such real property leased by the COMPANY. Except as
set forth on Schedule 5.16(b), all of such leases included on
Schedule 5.16(b) are in full force and effect and constitute
valid and binding agreements of the COMPANY and, to the
COMPANY'S knowledge, of the parties (and their successors)
thereto in accordance with their respective terms.
5.17 Insurance.
(a) The COMPANY has delivered to CTS:
(i) true and complete copies of all policies of insurance to
which the COMPANY is a party or under which the COMPANY,
or any director of the COMPANY, is or has been covered
at any time within two years preceding the date of this
Agreement;
(ii) true and complete copies of all pending applications for
policies of insurance; and
(iii) any statement by the auditor of the COMPANY's financial
statements with regard to the adequacy of such entity's
coverage or of the reserves for claims.
(b) Schedule 5.17(b) describes:
(i) any self-insurance arrangement by or affecting the
COMPANY, including any reserves established thereunder;
(ii) any contract or arrangement, other than a policy of
insurance, for the transfer or sharing of any risk by
the COMPANY; and
(iii) all obligations of the COMPANY to third parties with
respect to insurance (including such obligations under
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leases and service agreements), and identifies the
policy under which such coverage is provided.
(c) Schedule 5.17(c) sets forth, by year, for the current policy
year and each of the preceding two policy years:
(i) a summary of the loss experience under each policy;
(ii) a statement describing each claim under an insurance
policy for an amount in excess of $25,000, which sets
forth:
a) the name of the claimant;
b) a description of the policy by insurer, type of
insurance and period of coverage; and
c) the amount and a brief description of the claim;
and
(iii) a statement describing the loss experience for all
claims that were self-insured, including the number and
aggregate cost of such claims.
(d) Except as set forth on Schedule 5.17(d):
(i) All policies to which the COMPANY is a party or that
provide coverage to the COMPANY:
a) are valid, outstanding and enforceable;
b) are issued by an insurer that is financially sound
and reputable;
c) taken together, provide adequate insurance for the
assets and the operations of the COMPANY for all
risks normally insured against by a person
carrying on the same business or businesses of the
COMPANY;
d) are sufficient for compliance with all legal
requirements and Material Contracts to which the
COMPANY is a party or by which it is bound;
e) will continue in full force and effect following
the Closing in accordance with their respective
terms;
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(ii) the COMPANY has not received (A) any refusal of coverage
or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation
or any other indication that any insurance policy is no
longer in full force or effect or will not be renewed or
that the issuer of any policy is not willing or able to
perform its obligations thereunder;
(iii) the COMPANY has paid all premiums due, and has otherwise
performed all of its obligations, under each policy to
which it is a party or that provides coverage to it or
any director thereof.
(iv) the COMPANY has given notice to the insurer of all
claims known by it to be insured thereby.
5.18 Compensation; Employment Agreements; Organized Labor Matters. The
COMPANY has delivered to CTS an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the COMPANY, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons as of (i) the
Balance Sheet Date and (ii) the date hereof. The COMPANY has provided to CTS
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
increases in the compensation payable or any special bonuses to any officer,
director, key employee or other employee, except ordinary salary increases
implemented on a basis consistent with past practices.
Except as set forth on Schedule 5.18, there is no, and within the last
three years the COMPANY has not experienced any, strike, picketing, boycott,
work stoppage or slowdown, other labor dispute, union organizational activity,
allegation, charge or complaint of unfair labor practice, employment
discrimination or other matters relating to the employment of labor, pending or,
to the COMPANY's knowledge, threatened against the COMPANY; nor is there, to the
knowledge of the COMPANY, any basis for any such allegation, charge or
complaint. Except as set forth on Schedule 5.18, to the knowledge of the
COMPANY, none of the employees of any critical subcontractor utilized by the
COMPANY are represented by a labor union. There is no request directed to the
COMPANY for union or similar representation pending and, to the COMPANY's
knowledge, no question concerning representation has been raised. To the
COMPANY's knowledge, there is no grievance pending which might have a Material
Adverse Effect on the COMPANY nor any which might have a Material Adverse Effect
on any arbitration proceeding arising out of any union agreement. There are no
arbitration awards, court orders, orders of the National Labor Relations Board
or private settlement agreements which in any way alter, amend or clarify any
union agreement or which restrict or otherwise impact the COMPANY's ability to
act with respect to the employees covered
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by any union agreement in the future. To the COMPANY's knowledge, no key
employee and no group of employees has any plans to terminate employment with
the COMPANY. The COMPANY has complied in all material respects with all
applicable laws relating to the employment of labor, including provisions
thereof relating to wages, hours, equal opportunity, collective bargaining and
the payment of social security and other taxes. The COMPANY is not liable for
any arrearages of wages or any taxes or penalties for failure to comply with any
such laws, ordinances or regulation.
5.19 Employee Plans. The COMPANY has delivered to CTS an accurate schedule
(which is set forth on Schedule 5.19) showing all Benefit Plans of the COMPANY,
together with true, complete and correct copies of such Benefit Plans,
agreements and any trusts related thereto, and classifications of employees
covered thereby as of the Balance Sheet Date. The COMPANY is not required to
contribute to any Benefit Plan pursuant to the provisions of any collective
bargaining agreement establishing the terms and conditions of employment of any
of COMPANY's employees.
5.20 Compliance with ERISA. All Benefit Plans that are intended to qualify
under Section 401(a) of the Code are and have been so qualified and have been
determined by the Internal Revenue Service to be so qualified, and copies of
such determination letters are included as part of Schedule 5.19 hereof. Except
as disclosed on Schedule 5.20, all reports and other documents required to be
filed with any Governmental Authority or distributed to Plan participants or
beneficiaries (including, but not limited to, actuarial reports, audits or tax
returns) have been timely filed or distributed, and copies thereof are included
as part of Schedule 5.19 hereof other than those reports required to be
distributed to Plan participants and beneficiaries. None of the STOCKHOLDERS,
any such Benefit Plan, nor the COMPANY has engaged in any transaction prohibited
under the provisions of Section 4975 of the Code or Section 406 of ERISA. No
Benefit Plan has incurred an accumulated funding deficiency, as defined in
Section 412(a) of the Code and Section 302(1) of ERISA; and the COMPANY has not
incurred any liability for excise tax or penalty due to the Internal Revenue
Service nor any liability to the PBGC. The COMPANY further represents that:
(a) there have been no terminations, partial terminations or
discontinuance of contributions to any such Benefit Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(b) no such Benefit Plan subject to the provisions of Title IV of
ERISA has been terminated;
(c) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any Benefit Plan;
(d) the COMPANY has not incurred liability under Section 4062 of
ERISA;
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(e) no circumstances exist pursuant to which the COMPANY could have
any direct or indirect liability whatsoever (including, but not limited
to, any liability to any multiemployer plan or the PBGC under Title IV of
ERISA or to the Internal Revenue Service for any excise tax or penalty, or
being subject to any statutory lien to secure payment of any such
liability) with respect to any Benefit Plan now or heretofore maintained
or contributed to by any entity other than the COMPANY that is, or at any
time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the COMPANY;
(f) the COMPANY is not now, nor can it as a result of its past
activities become, liable to the PBGC or to any multiemployer employee
pension benefit plan under the provisions of Title IV of ERISA;
(g) all Benefit Plans listed on Schedule 5.19 and the administration
thereof are in substantial compliance with their terms and all applicable
provisions of ERISA and the regulations issued thereunder, as well as with
all other applicable federal, state and local statutes, ordinances and
regulations; and
(h) all accrued contribution obligations of the COMPANY with respect
to any Benefit Plan have either been fulfilled in their entirety or are
fully reflected on the balance sheet of the COMPANY as of the Balance
Sheet Date.
5.21 Conformity with Law; Litigation. Except as set forth on Schedule 5.13
or 5.21, the COMPANY has complied with all laws, rules, regulations, writs,
injunctions, decrees, and orders applicable to it or to the operation of its
Business (collectively, "Laws") and has not received any notice of any alleged
claim or threatened claim, violation of, liability or potential responsibility
under, any such Law which has not heretofore been cured and for which there is
no remaining liability other than, in each case, those not having a Material
Adverse Effect on the COMPANY. Without limiting the generality of the foregoing,
the COMPANY has complied with all applicable federal, state and local Laws
relating to antitrust and trade regulations.
Except to the extent set forth on Schedule 5.10 or 5.13 or as set forth on
Schedule 5.21 (which shall disclose the parties to, nature of, and relief sought
for each matter to be disclosed on Schedule 5.21) :
(a) There is no suit, action, proceeding, claim, order or, to the
Company's knowledge, investigation pending or, to the COMPANY's knowledge,
threatened against either the COMPANY or any Benefit Plan, or any
fiduciary of any Benefit Plan, or, to the knowledge of the COMPANY,
pending or threatened against any of the officers, directors or employees
of the COMPANY with respect to its business or proposed business
activities or to which the COMPANY is otherwise a party, which would have
a Material Adverse Effect on the COMPANY, before any court, or before any
Governmental Authority
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(collectively, "Claims"); nor, to the COMPANY's knowledge, is there any
basis for any such Claims.
(b) The COMPANY is not subject to any judgment, order or decree of
any court or Governmental Authority; the COMPANY has not received any
opinion or memorandum from legal counsel to the effect that it is exposed,
from a legal standpoint, to any liability or disadvantage which may be
material to its business. The COMPANY is not engaged in any legal action
to recover monies due it or for damages sustained by it.
(c) The COMPANY's current insurance is believed in good faith to be
adequate to cover all pending or threatened Claims, the COMPANY has given
all required notice of such Claims to its appropriate insurance carrier(s)
and/or all such claims have been fully reserved for on the financial
statements of the COMPANY has delivered to CTS pursuant to the terms of
this Agreement. Schedule 5.21 lists the insurer for each Claim covered by
insurance or designates each Claim, or portion of each Claim, as uninsured
and the individual and aggregate policy limits for the insurance covering
each insured Claim and the applicable policy deductibles for each insured
Claim.
Schedule 5.21 sets forth all closed litigation matters (other than
workers compensation claims) to which the COMPANY was a party during the
three years preceding the Closing, the date such litigation was commenced
and concluded, and the nature of the resolution thereof (including amounts
paid in settlement or judgment).
5.22 Taxes. Except as set forth on Schedule 5.22:
(a) All Returns required to have been filed by or with respect to
the COMPANY and any affiliated, combined, consolidated, unitary or similar
group of which the COMPANY is or was a member (a "Relevant Group") with
any Taxing Authority have been duly filed, and each such Return correctly
and completely reflects the Tax liability and all other information
required to be reported thereon. All Taxes (whether or not shown on any
Return) owed by the COMPANY, any subsidiary and any member of a Relevant
Group (individually, the "Acquired Party" and collectively, the "Acquired
Parties") have been paid.
(b) To the knowledge of the COMPANY and the STOCKHOLDERS, the
provisions for Taxes due by the COMPANY and any subsidiaries (as opposed
to any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) in the COMPANY Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of such Acquired Party.
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(c) No Acquired Party is a party to any agreement extending the time
within which to file any Return. No claim has ever been made by any Taxing
Authority in a jurisdiction in which an Acquired Party does not file
Returns that it is or may be subject to taxation by that jurisdiction that
is unresolved or if adversely determined would have a Material Adverse
Effect on such Acquired Party.
(d) Each Acquired Party has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to
any employee, creditor, independent contractor or other third party.
(e) No Acquired Party expects any Taxing Authority to assess any
additional Taxes against or in respect of it for any past period. There is
no dispute or claim concerning any Tax liability of any Acquired Party
either (i) claimed or raised by any Taxing Authority or (ii) otherwise
known to any Acquired Party. No issues have been raised in any examination
by any Taxing Authority with respect to any Acquired Party which, by
application of similar principles, reasonably could be expected to result
in a proposed deficiency for any other period not so examined. Schedule
5.22(v) attached hereto lists all federal, state, local and foreign income
Tax Returns filed by or with respect to any Acquired Party for all taxable
periods ended on or after January 1, 1991, indicates those Returns, if
any, that have been audited, and indicates those Returns that currently
are the subject of audit. Each Acquired Party has delivered to CTS
complete and correct copies of all federal, state, local and foreign
income Tax Returns filed by, and all Tax examination reports and
statements of deficiencies assessed against or agreed to by, such Acquired
Party since January 1, 1991.
(f) No Acquired Party has waived any statute of limitations, the
waiver of which remains in effect on the date hereof, in respect of Taxes
or agreed to any extension of time with respect to any Tax assessment or
deficiency.
(g) No Acquired Party has made any payments, is obligated to make
any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments that are not
deductible (i) under Section 280G of the Code or (ii) as compensation
under Section 162(m) of the Code or any similar provision under state
and/or local law.
(h) No Acquired Party is a party to any Tax allocation or sharing
agreement.
(i) None of the assets of any Acquired Party constitutes tax-exempt
bond financed property or tax-exempt use property, within the meaning of
Section 168 of the Code. No Acquired Party is a party to any "safe harbor
lease" that is subject to the provisions of Section 168(f)(8) of the
Internal Revenue Code as in effect prior to the Tax Reform Act of 1986, or
to any "long-term contract" within
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the meaning of Section 460 of the Code.
(j) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of any
state statutes, and none of the assets of any Acquired Party is subject to
an election under Section 341(f) of the Code or comparable provisions of
any state statutes.
(k) No Acquired Party is a party to any joint venture, partnership
or other arrangement that is treated as a partnership for federal income
Tax purposes.
(l) There are no accounting method changes or proposed or threatened
accounting method changes, of any Acquired Party that could give rise to
an adjustment under Section 481 of the Code for periods after the Closing
Date.
(m) No Acquired Party has received any written ruling of a Taxing
Authority related to Taxes or entered into any written and legally binding
agreement with a Taxing Authority relating to Taxes.
(n) Each Acquired Party has disclosed (in accordance with Section
6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns all
positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Section 6662(d)
of the Code.
(o) No Acquired Party has any liability for Taxes of any person
other than such Acquired Party (i) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign law),
(ii) as a transferee or successor, (iii) by contract or (iv) otherwise.
(p) Prior to CTS's acquisition of the COMPANY pursuant to this
Agreement, there currently are no limitations on the utilization of the
net operating losses, built-in losses, capital losses, Tax credits or
other similar items of any Acquired Party (collectively, the "Tax Losses")
under (i) Section 382 of the Code, (ii) Section 383 of the Code, (iii)
Section 384 of the Code, (iv) Section 269 of the Code, (v) Section
1.1502-15 and Section 1.1502-15A of the Treasury regulations, (vi) Section
1.1502-21 and Section 1.1502-21A of the Treasury regulations or (vii)
Sections 1.1502-91 through 1.1502-99 of the Treasury regulations, in each
case as in effect both prior to and following the Tax Reform Act of 1986.
(q) At the Balance Sheet Date, the Acquired Parties had aggregate
Tax Losses for federal income Tax purposes as described on Schedule
5.22(9) attached hereto.
(r) The COMPANY is not an investment company as defined in Section
351(e)(1) of the Code.
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(s) The fair market value of the assets of the COMPANY exceeds the
sum of its liabilities, plus the amount of liabilities, if any, to which
the assets are subject.
(t) The COMPANY is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 351(e)(2) of the Code.
For purposes of this Section 5.22, the following definitions shall
apply:
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or Governmental Authority.
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatsoever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Taxing Authority" means any Governmental Authority, board, bureau,
body, department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
5.23 No Violations. The COMPANY is not in violation of any Charter
Document. Neither the COMPANY nor, to the knowledge of the COMPANY or the
STOCKHOLDERS, any other party thereto, is in default under any Material
Contract; and, except as set forth on Schedule 5.23, (a) the rights and benefits
of the COMPANY under the Material Contracts will not be adversely affected by
the transactions contemplated hereby and (b) the execution of this Agreement and
the performance by the COMPANY and the STOCKHOLDERS of their obligations
hereunder and the consummation by the COMPANY and the STOCKHOLDERS of the
transactions contemplated hereby will not (i) result in any violation or breach
of, or constitute a default under, any of the terms or provisions of the
Material Contracts or the Charter Documents or (ii) require the consent,
approval, waiver of any acceleration, termination or other right or remedy or
action of or by, or make any filing with or give any notice to, any other party.
Except as set forth on Schedule 5.23, none of the Material Contracts requires
notice to, or the consent or approval of, any Governmental Authority or other
third party with respect to any of the transactions contemplated hereby in order
to remain in full force and effect and consummation of the transactions
contemplated hereby will not give rise to any right to termination, cancellation
or acceleration or loss of any material right or benefit. Except as set forth on
Schedule 5.23, none of the Material Contracts prohibits the use or publication
by the COMPANY, CTS or NEWCO of the name of any other party to such Material
Contracts, and none of the Material Contracts prohibits or restricts the COMPANY
from freely providing services to any other
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customer or potential customer of the COMPANY, CTS, NEWCO or any Other Founding
Company.
5.24 Government Contracts. Except as set forth on Schedule 5.24, the
COMPANY is not a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 Business Conduct. Except as set forth on Schedule 5.25, since
December 31, 1996, the COMPANY has conducted its business only in the ordinary
course consistent with past custom and practices and has incurred no liabilities
other than in the ordinary course of business consistent with past custom and
practices. Except as forth on Schedule 5.25, since December 31, 1996, there has
not been any:
(a) Material adverse change in the COMPANY's operations, condition
(financial or otherwise), operating results, assets, liabilities,
employee, customer or supplier relations or business prospects;
(b) Damage, destruction or loss of any property owned by the COMPANY
or used in the operation of the business, whether or not covered by
insurance, having a replacement cost or fair market value in excess of
$50,000 affecting the COMPANY's property, financial status or the
Business;
(c) Voluntary or involuntary sale, transfer, surrender, abandonment
or other disposition of any kind by the COMPANY of any assets or property
rights (tangible or intangible), having a replacement cost or fair market
value in excess of $50,000, except in each case the sale of inventory and
collection of accounts in the ordinary course of business consistent with
past custom and practices;
(d) Loan or advance by the COMPANY to any party other than sales to
customers on credit in the ordinary course of business consistent with
past custom and practices;
(e) Declaration, setting aside, or payment of any dividend or other
distribution in respect to the COMPANY's capital stock, any direct or
indirect redemption, purchase, or other acquisition of such stock, or the
payment of principal or interest on any note, bond, debt instrument or
debt to any Affiliate;
(f) Incurrence of debts, liabilities or obligations except current
liabilities incurred in connection with or for services rendered or goods
supplied in the ordinary course of business consistent with past custom
and practices, liabilities on account of taxes and governmental charges
but not penalties, interest or fines in respect thereof, and obligations
or liabilities incurred by virtue of the execution of this Agreement;
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(g) Issuance by the COMPANY of any notes, bonds, or other debt
securities or any equity securities or securities convertible into or
exchangeable for any equity securities;
(h) Cancellation, waiver or release by the COMPANY of any debts,
rights or claims, except in each case in the ordinary course of business
consistent with past custom and practices;
(i) Amendment of the COMPANY's Articles of Incorporation or By-
Laws;
(j) Amendment or termination of any Material Contract, other than
expiration of such contract in accordance with its terms;
(k) Change in accounting principles, methods or practices
(including, without limitation, any change in depreciation or amortization
policies or rates) utilized by the COMPANY;
(l) Discharge or satisfaction of any material liability, encumbrance
or payment of any material obligation or liability, other than current
liabilities paid in the ordinary course of business consistent with past
custom and practices or cancellation of any debts or claims;
(m) Sale or assignment by the COMPANY of any tangible assets other
than in the ordinary course of business;
(n) Capital expenditures or commitments therefor by the COMPANY
other than in the ordinary course of business in excess of $100,000 in the
aggregate;
(o) Charitable contributions or pledges by the COMPANY in excess of
$25,000 per year in the aggregate;
(p) Mortgage, pledge or other encumbrance of any asset of the
COMPANY other than in the ordinary course of business;
(q) Adoption, amendment or termination of any Benefit Plan;
(r) Increase in the benefits provided under any Benefit Plan; or
(s) An occurrence or event not included in clauses (a) through (r)
that has or might be expected to have a Material Adverse Effect on the
COMPANY.
5.26 Deposit Accounts; Powers of Attorney. The COMPANY has delivered to
CTS an accurate schedule (which is set forth on Schedule 5.26) as of the date of
this Agreement of:
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(a) the name of each financial institution in which the COMPANY has
accounts or safe deposit boxes;
(b) the names in which the accounts or boxes are held;
(c) the type of account and account number; and
(d) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY and
a description of the terms of such power of attorney.
5.27 Relations with Governments. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause the COMPANY to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.28 Disclosure.
(a) The representations and warranties of the COMPANY and the
STOCKHOLDERS contained in this Agreement, the schedules to this Agreement
provided by the Company and/or the STOCKHOLDERS, the certificates and the
other documents furnished by the COMPANY and/or the STOCKHOLDERS to CTS
pursuant hereto and for inclusion in the Registration Statement (which,
for purposes of this Agreement, shall include the completed Directors and
Officers Questionnaires and Registration Statement Questionnaires), taken
as a whole, present fairly the business and operations of the COMPANY for
the time periods with respect to which such information was requested. The
COMPANY'S rights under the documents delivered pursuant hereto would not
be materially adversely affected by, and no statement made herein would be
rendered untrue in any material respect by, any other document to which
the COMPANY is a party, or to which its properties are subject, or by any
other fact or circumstance regarding the COMPANY (which fact or
circumstance was, or should reasonably, after due inquiry, have been known
to the COMPANY) that is not disclosed pursuant hereto or thereto. If,
prior to the 25th day after the date of the final prospectus of CTS
utilized in connection with the IPO, the COMPANY or the STOCKHOLDERS
become aware of any fact or circumstance which would change (or, if after
the Closing Date, would have changed) a representation or warranty of
COMPANY or STOCKHOLDERS in this Agreement or would affect any document
delivered pursuant hereto in any material respect, the COMPANY and the
STOCKHOLDERS shall immediately give notice of such fact or circumstance to
CTS. However, subject to the provisions of Section 7.8, such
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notification shall not relieve either the COMPANY or the STOCKHOLDERS of
their respective obligations under this Agreement.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i) that
there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant
thereto will occur at a particular price or within a particular range of
prices or occur at all; (ii) that neither CTS or any of its officers,
directors, agents or representatives nor any Underwriter shall have any
liability to the COMPANY, the STOCKHOLDERS or any other person affiliated
or associated with the COMPANY for any failure of the Registration
Statement to become effective, the IPO to occur at a particular price or
within a particular range of prices or to occur at all; and (iii) that the
decision of the STOCKHOLDERS to enter into this Agreement, or to vote in
favor of or consent to the proposed Merger, has been or will be made
independent of, and without reliance upon, any statements, opinions or
other communications, or due diligence investigations which have been or
will be made or performed by any prospective Underwriter, relative to CTS
or the prospective IPO.
5.29 Prohibited Activities. Except as set forth on Schedule 5.29, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions set forth in Section 7.3.
5.30 Affiliate Transactions. Schedule 5.30 sets forth the parties to and
the date, nature and amount of (A) each transaction or series of similar
transactions (other than payments of salary and bonus which are reflected as
line items in the Financial Statements) involving the transfer of any cash,
property or rights in which the amount involved individually or collectively
exceeded $60,000 to or from the COMPANY from, to, or for the benefit of any
Affiliate or former Affiliate of the COMPANY ("Affiliate Transactions") during
the period commencing January 1, 1994 through the date hereof and (B) any
existing commitments of the COMPANY to engage in the future in any Affiliate
Transactions. Each Affiliate Transaction was effected on terms equivalent to
those which would have been established in an arms'-length negotiation, except
as disclosed on Schedule 5.30.
5.31 Misrepresentation. To the knowledge of the COMPANY and the
STOCKHOLDERS, none of the representations and warranties set forth in this
Agreement, the certificates and the other documents furnished by the COMPANY to
CTS pursuant hereto and for inclusion in the Registration Statement, taken as a
whole, contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements contained herein or therein not
misleading.
(B) Representations and Warranties of the STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants to CTS and
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NEWCO that the representations and warranties set forth below with respect to
such STOCKHOLDER are true and correct as of the date of this Agreement and,
subject to Section 7.8 hereof, shall be true and correct at the time of the
Pre-Closing and on the Closing Date.
5.32 Securities Act Representations. Each STOCKHOLDER alone, or
together with such STOCKHOLDER's "purchaser representative" (as defined in Rule
501(h) promulgated under the 1933 Act):
(a) acknowledges and agrees that (x) the shares of CTS Stock to be
delivered to such STOCKHOLDER pursuant to this Agreement have not been and will
not be registered under the 1933 Act, and therefore may not be sold, transferred
or otherwise conveyed without compliance with the 1933 Act or pursuant to an
exemption therefrom and (y) the CTS Stock to be acquired by such STOCKHOLDER
pursuant to this Agreement is being acquired solely for its own account, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of the CTS Stock in connection with a distribution;
(b) acknowledges and agrees that it knows and understands that an
investment in the CTS Stock is a speculative investment which involves a high
degree of risk of loss;
(c) represents and warrants that it is able to bear the economic risk of
an investment in the CTS Stock acquired pursuant to this Agreement, can afford
to sustain a total loss of such investment and has such knowledge and experience
in financial and business matters that it is capable of evaluating the merits
and risks of the proposed investment in the CTS Stock;
(d) represents and warrants that it has had an adequate opportunity to
review and to ask questions and receive answers concerning any and all matters
relating to the transactions described in (i) CTS's private placement memorandum
and (ii) this Agreement;
(e) represents and warrants that it has had an adequate opportunity to ask
questions and receive answers concerning (i) the background and experience of
the current and proposed officers and directors of CTS, (ii) the plans for the
operations of the business of CTS, (iii) the business, operations and financial
condition of the Other Founding Companies, and (iv) any plans for additional
acquisitions and the like;
(f) represents and warrants that it is either an "accredited investor" (as
defined in Rule 501(a) promulgated under the 1933 Act) or, after taking into
consideration the information and advice provided to such STOCKHOLDER, has the
requisite knowledge and experience in financial and business matters to be
capable of evaluating the merits and risks of an investment in the CTS Stock;
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(g) represents and warrants that, to its knowledge, there have been no
general or public solicitations or advertisements or other broadly disseminated
disclosures (including, without limitation, any advertisement, article, notice
or other communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or advertising) by or on behalf of
CTS regarding an investment in the CTS Stock; and
(h) acknowledges and agrees that the CTS Stock shall bear the following
legend in addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND, IF REQUIRED BY
CONDOR TECHNOLOGY SOLUTIONS, INC., AN OPINION OF COUNSEL TO CONDOR
TECHNOLOGY SOLUTIONS, INC. STATING THAT REGISTRATION IS NOT REQUIRED UNDER
THE ACT.
Such STOCKHOLDER acknowledges that the effect of the foregoing legend, among
other things, is or may be to limit or destroy the value of the certificate for
purposes of sale or use as loan collateral. Such STOCKHOLDER consents that "stop
transfer" instructions may be noted against the CTS Stock.
5.33 Authority; Ownership. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY Stock identified on
Annex IV as being owned by such STOCKHOLDER, and, except as set forth on
Schedule 5.33, such COMPANY Stock is owned free and clear of all liens, security
interests, pledges, charges, voting trusts, restrictions, encumbrances and
claims of every kind.
5.34 Preemptive Rights. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of COMPANY Stock or CTS Stock
that such STOCKHOLDER has or may have had other than rights of any STOCKHOLDER
to acquire CTS Stock pursuant to (i) this Agreement or (ii) any option granted
by CTS.
5.35 No Intention to Dispose of CTS Stock. No STOCKHOLDER has any current
plan or intention, or is under any binding commitment or contract, to sell,
exchange or otherwise dispose of shares of CTS Stock received pursuant to
Section 3.1.
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5.36 Questionnaires. The Completed Directors and Officers Questionnaires
and Registration Statement Questionnaires attached hereto as schedule 5.36,
present fairly the business and operations of the COMPANY for the time periods
with respect to which such information was requested. If, prior to the 25th day
after the date of the final prospectus of CTS utilized in connection with the
IPO, the STOCKHOLDERS become aware of any fact or circumstance which would
affect the information disclosed in their Directors and Officers Questionnaires
or their Registration Statement Questionnaires in any material respect, then the
relevant STOCKHOLDER shall immediately give notice of such fact or circumstance
to CTS. However, subject to the provisions of Section 7.8, such notification
shall not relieve the relevant STOCKHOLDER of his or its obligations under this
Agreement.
6. REPRESENTATIONS OF CTS AND NEWCO
CTS and NEWCO jointly and severally represent and warrant to the
COMPANY and the STOCKHOLDERS that all of the following representations and
warranties in this Section 6 are true and correct at the date of this Agreement
and, subject to Section 7.8 hereof, shall be true and correct at the time of the
Pre-Closing and on the Closing Date, and that such representations and
warranties shall survive the Closing Date for a period of eighteen months.
6.1 Due Organization. CTS and NEWCO are each corporations duly
incorporated, validly existing and in good standing under the laws of the state
of their incorporation, and are duly authorized and qualified to do business
under all applicable laws, regulations, ordinances and orders of public
authorities to carry on their businesses in the places and in the manner as now
conducted, to own or hold under lease the properties and assets they now own or
hold under lease, and to perform all of their obligations under any material
agreement to which they are a party or by which their properties are bound. CTS
and NEWCO are not qualified to do business as foreign corporations in any
jurisdiction, and there is no jurisdiction in which the conduct of CTS'S and
NEWCO's business or activities or their ownership of assets requires
qualification under applicable law, the absence of which would have a Material
Adverse Effect on either CTS or NEWCO. True, complete and correct copies of the
Certificate or Articles of Incorporation and By-laws, each as amended, of CTS
and NEWCO (the "CTS Charter Documents") are all attached hereto as Annex II. The
minute books and stock records of each of CTS and NEWCO as heretofore made
available to the COMPANY, are correct and complete in all material respects. The
most recent minutes of each CTS and NEWCO, which are dated no earlier than 10
business days prior to the date hereof, affirm and ratify all prior acts of CTS
and NEWCO, as the case may be, and of their respective officers and directors.
6.2 Authorization. The respective representatives of CTS and NEWCO
executing this Agreement have the authority to execute and deliver this
Agreement and to bind CTS and NEWCO to perform their respective obligations
hereunder. The execution and delivery of this Agreement by CTS and NEWCO and the
performance by CTS and
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NEWCO of their respective obligations under this Agreement and the consummation
by CTS and NEWCO of the transactions contemplated hereby have been duly
authorized by all necessary corporate action by each in accordance with
applicable law and the Certificate or Articles of Incorporation and By-Laws of
CTS and NEWCO, as the case may be. Each share of CTS Stock to be issued to the
STOCKHOLDERS on the Closing Date will be duly and validly authorized and issued,
free and clear of all liens, claims and other encumbrances and fully paid and
nonassessable. This Agreement constitutes the valid and binding obligation of
CTS and NEWCO, enforceable in accordance with its terms.
6.3 Transaction Not a Breach. Neither the execution and delivery of this
Agreement nor their performance will violate, conflict with, or result in a
breach of any provision of any Law, rule, regulation, order, permit, judgment,
injunction, decree or other decision of any court or other tribunal or any
Governmental Authority binding on CTS or NEWCO or conflict with or result in the
breach of any of the terms, conditions or provisions of the Certificate or
Articles of Incorporation or the By-laws of CTS or NEWCO or of any contract,
agreement, mortgage or other instrument or obligation of any nature to which CTS
or NEWCO is a party or by which CTS or NEWCO is bound.
6.4 Misrepresentation. None of the representations and warranties set
forth in this Agreement or in any of the certificates, schedules, exhibits,
lists, documents, exhibits, or other instruments delivered, or to be delivered,
to the COMPANY as contemplated by any provision hereof, contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading.
6.5 Capital Stock. The entire authorized capital stock of CTS will consist
of 50,000,000 shares. Except as disclosed on Schedule 6.5, there are no
outstanding options, rights (preemptive or otherwise), warrants, calls,
convertible securities or commitments or any other arrangements to which CTS is
a party requiring issuance, sale or transfer of any equity securities of CTS or
any securities convertible directly or indirectly into equity securities of CTS,
or evidencing the right to subscribe for any equity securities of CTS, or giving
any person other than the Founding Companies any rights with respect to the
capital stock of CTS. Except as contemplated by this Agreement or disclosed on
Schedule 6.5, there are no voting agreements, voting trusts, other agreements
(including cumulative voting rights), commitments or understandings with respect
to the CTS Stock.
6.6 Subsidiaries. Schedule 6.6 attached hereto lists the name of each of
CTS's and NEWCO's subsidiaries and sets forth the number and class of the
authorized capital stock of CTS's and NEWCO's subsidiaries and the number of
shares of each of CTS's and NEWCO's subsidiaries which are issued and
outstanding prior to the Merger, all of which shares (except as set forth on
Schedule 6.6) are owned by CTS and NEWCO, as the case may be, free and clear of
all liens, security interests, pledges, voting trusts, equities, restrictions,
encumbrances and claims of every kind. Except as set forth on Schedule 6.6, CTS
and NEWCO do not presently own, of record or beneficially, or
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control, directly or indirectly, any capital stock, securities convertible into
capital stock or any other equity interest in any corporation, association or
business entity nor is CTS or NEWCO, as the case may be, directly or indirectly,
a participant in any joint venture, partnership or other non-corporate entity.
6.7 Conformity with Law; Litigation. Except as set forth on Schedule 6.7,
CTS and NEWCO have complied with all Laws, applicable to them or to the
operation of their businesses and have not received any notice of any alleged
claim or threatened claim, violation of, liability or potential responsibility
under, any Law which has not heretofore been cured and for which there is no
remaining liability other than, in each case, those not having a Material
Adverse Effect on CTS or NEWCO, taken as a whole. Without limiting the
generality of the foregoing, CTS and NEWCO have each complied with all
applicable Federal, state and local Laws relating to antitrust and trade
regulations.
Except to the extent set forth on Schedule 6.7 (which shall disclose the
parties to, nature of, and relief sought for each matter):
(a) There is no suit, action, proceeding, investigation, claim or order
pending or, to the knowledge of CTS and NEWCO, threatened against either of CTS
or NEWCO or any Plan, or any fiduciary of any such Plan or, to the knowledge of
CTS and NEWCO, pending or threatened against any of the officers, directors or
employees of CTS or NEWCO with respect to their businesses or proposed business
activities which are material to CTS or NEWCO, or to which CTS or NEWCO are
otherwise a party, or which may affect either CTS or NEWCO, their assets or
their businesses, before any court, or before any Governmental Authority.
(b) CTS and NEWCO are not subject to any judgment, order or decree of any
court or Governmental Authority; CTS and NEWCO have not received any opinion or
memorandum from legal counsel to the effect that either is exposed, from a legal
standpoint, to any liability or disadvantage which may be material to their
businesses. Neither CTS nor NEWCO are engaged in any legal action to recover
monies due it or them for damages sustained by either of them.
7. COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation; Due Diligence.
(a) Between the date of this Agreement and the Closing Date, the
COMPANY will afford to the officers and authorized representatives of CTS
and the Other Founding Companies access during business hours to all of
the COMPANY's sites, properties, books and records and will furnish CTS
with such additional financial and operating data and other information as
to the business and properties of the COMPANY as CTS or the Other Founding
Companies may from time to time reasonably request. The COMPANY will
cooperate with CTS and the Other Founding Companies and their respective
representatives, including
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CTS's auditors and counsel, in the preparation of any documents or other
material (including the Registration Statement) which may be required in
connection with the transactions contemplated by this Agreement. CTS,
NEWCO, the STOCKHOLDERS and the COMPANY will treat all information
obtained in connection with the negotiation and performance of this
Agreement or the due diligence investigations conducted with respect to
the Other Founding Companies as confidential in accordance with the
provisions of Section 14 hereof. In addition, CTS will cause each of the
Other Agreements, binding each of the Other Founding Companies, to contain
a provision similar to this Section 7.1 requiring each such Other Founding
Company, its stockholders, directors, officers, representatives, employees
and agents to keep confidential any information obtained by such Other
Founding Company.
(b) Between the date of this Agreement and the Closing Date, CTS
will afford to the officers and authorized representatives of the COMPANY
access during business hours to all of CTS's and NEWCO's sites,
properties, books and records and will furnish the COMPANY with such
additional financial and operating data and other information as to the
business and properties of CTS and NEWCO as the COMPANY may from time to
time reasonably request. CTS and NEWCO will cooperate with the COMPANY,
its representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection with the
transactions contemplated by this Agreement. The COMPANY will cause all
information obtained in connection with the negotiation and performance of
this Agreement to be treated as confidential in accordance with the
provisions of Section 14 hereof.
7.2 Conduct of Business Pending Closing. Between the date of this
Agreement and the Closing Date, the COMPANY will, except as set forth on
Schedule 7.2:
(a) carry on its business in the ordinary course substantially as
conducted heretofore and not introduce any new method of management,
operation or accounting;
(b) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(c) perform in all material respects its obligations under
agreements relating to or affecting its assets, properties or rights;
(d) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(e) maintain and preserve its business organization intact and use
its
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best efforts to retain its present key employees and relationships with
suppliers, customers and others having business relations with the
COMPANY;
(f) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar Governmental Authorities; and
(g) maintain present debt and lease instruments in accordance with
their respective terms and not enter into new or amended debt or lease
instruments, provided that debt and/or lease instruments may be replaced
if such replacement instruments are on terms at least as favorable to the
COMPANY as the instruments being replaced.
7.3 Prohibited Activities. Except as disclosed on Schedule 7.3, between
the date hereof and the Closing Date, the COMPANY will not, without the prior
written consent of CTS:
(a) make any change in its Articles of Incorporation or By-laws;
(b) grant or issue any securities, options, warrants, calls,
conversion rights or commitments of any kind relating to its securities of
any kind other than in connection with the exercise of options or warrants
listed on Schedule 5.4;
(c) declare or pay any dividend, or make any distribution in respect
of its stock whether now or hereafter outstanding, or purchase, redeem or
otherwise acquire or retire for value any shares of its stock or engage in
any transaction that will significantly affect the cash reflected on the
balance sheet of the COMPANY as of October 31, 1996.
(d) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditure, except if it is in the
ordinary course of business (consistent with past practice) or involves an
amount not in excess of $10,000 ;
(e) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $10,000 necessary or desirable for the conduct of
the business of the COMPANY, (2) (A) liens for Taxes either not yet due or
being contested in good faith and by appropriate proceedings (and for
which adequate reserves have been established and are being maintained) or
(B) materialmen's, mechanics', workers', repairmen's, employees' or other
like liens arising in the ordinary course of business (the liens set forth
in clause (2) being referred to herein as "Statutory Liens"), or (3) liens
set forth on Schedule 5.10 or 5.15 hereto;
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(f) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the ordinary course of business;
(g) negotiate for the acquisition of any business or the start-up of
any new business;
(h) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(i) waive any material right or claim of the COMPANY, provided that
the COMPANY may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be
included on Schedule 5.11 unless specifically listed thereon;
(j) commit a material breach, materially amend or terminate any
Material Contract;
(k) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder; or
(l) except in the ordinary course of business or as required by Law
or contractual obligations or other understandings or arrangements
existing on the date hereof, the COMPANY will not (i) increase in any
manner the base compensation of, or enter into any new bonus or incentive
agreement or arrangement with, any of the employees engaged in the
COMPANY's business, (ii) pay or agree to pay any additional pension,
retirement allowance or other employee benefit to any such employee,
whether past or present, (iii) enter into any new employment, severance,
consulting, or other compensation agreement with any existing employee
engaged in the COMPANY's business, (iv) amend or enter into a new Plan
(except as required by Law) or amend or enter into a new collective
bargaining agreement (except as required by this Agreement), or (v) engage
in any Affiliate Transaction.
7.4 No Shop. In consideration of the substantial expenditure of time,
effort and expense undertaken by CTS in connection with its due diligence review
and the preparation and execution of this Agreement, the COMPANY and the
STOCKHOLDERS agree that neither they nor their representatives, agents or
employees will, after the execution of this Agreement until the earlier of (i)
the termination of this Agreement or (ii) the Closing, directly or indirectly,
solicit, encourage, negotiate or discuss with any third party (including by way
of furnishing any information concerning the COMPANY) any acquisition proposal
relating to or affecting the COMPANY or any part of it, or any direct or
indirect interests in the COMPANY, whether by purchase of assets or stock,
purchase of interests, merger or other transaction ("Acquisition Transaction"),
and that the COMPANY will promptly advise CTS of the terms of any
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communications any of the STOCKHOLDERS or the COMPANY may receive or become
aware of relating to any bid for all or any part of the COMPANY.
7.5 Notice to Bargaining Agents. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements. Set forth on
Schedule 7.5 is any and all proof that any such required notice has been sent.
7.6 Agreements. Except as set forth on Schedule 9.7, the STOCKHOLDERS and
the COMPANY shall terminate (i) any stockholders' agreements, voting agreements,
voting trusts, options, warrants and employment agreements between the COMPANY
and any employee listed on Schedule 9.12 hereto and (ii) any existing agreement
between the COMPANY and any STOCKHOLDER, on or prior to the Closing Date. A list
of such agreements to be terminated is set forth on Schedule 7.6 and copies of
each such agreement to be terminated have been provided to counsel for CTS.
7.7 Notification of Certain Matters. The STOCKHOLDERS and the COMPANY
shall give prompt notice to CTS of (i) the occurrence or non-occurrence of any
event of which the COMPANY or the STOCKHOLDERS have knowledge, the occurrence or
non-occurrence of which, would cause any representation or warranty of the
COMPANY or the STOCKHOLDERS contained herein to be untrue or inaccurate in any
material respect at or prior to the Closing and (ii) any material failure of any
STOCKHOLDER or the COMPANY to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. CTS and
NEWCO shall give prompt notice to the COMPANY of (i) the occurrence or
non-occurrence of any event of which CTS or NEWCO have knowledge, the occurrence
or non-occurrence of which, would cause any representation or warranty of CTS or
NEWCO contained herein to be untrue or inaccurate in any material respect at or
prior to the Closing and (ii) any material failure of CTS or NEWCO to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder. The delivery of any notice pursuant to this Section
7.7 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.8, (ii) modify the conditions set forth in Sections 8
and 9, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
7.8 Amendment of Schedules.
(a) Each party hereto agrees that, with respect to the
representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing Date to
supplement or amend promptly the Schedules hereto with respect to any
matter hereafter arising or discovered which, if existing or known at the
date of this Agreement, would have been required to be set forth or
described in the Schedules; provided, however, that supplements and
amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall only
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have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business.
(b) Until 24 hours prior to the anticipated effectiveness of the
Registration Statement, and notwithstanding the foregoing clause (a), the
provisions of this clause (b) shall apply: no amendment or supplement to a
Schedule prepared by the COMPANY or the STOCKHOLDERS that constitutes or
reflects an event or occurrence that would have a Material Adverse Effect
on the COMPANY may be made unless CTS and a majority of the Founding
Companies other than the COMPANY consent to such amendment or supplement;
and provided further, that no amendment or supplement to a Schedule
prepared by CTS or NEWCO that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on the COMPANY may be
made unless a majority of the Founding Companies consent to such amendment
or supplement. In the event that one of the Other Founding Companies seeks
to amend or supplement a Schedule pursuant to Section 7.8 of one of the
Other Agreements, and such amendment or supplement constitutes or reflects
an event or occurrence that would have a Material Adverse Effect on such
Other Founding Company, CTS shall give the COMPANY notice promptly after
it has knowledge thereof. If CTS and a majority of the Founding Companies
consent to such amendment or supplement, which consent shall have been
deemed given by CTS or any Founding Company if no response is received
from CTS or any such Founding Company within 24 hours following receipt of
notice by CTS or any Founding Company of such amendment or supplement (or
sooner if required by the circumstances under which such consent is
requested), but the COMPANY does not give its consent, the COMPANY may
terminate this Agreement pursuant to Section 12.1(d) hereof. In the event
that the COMPANY seeks to amend or supplement a Schedule pursuant to this
Section 7.8 and CTS and a majority of the Other Founding Companies do not
consent to such amendment or supplement as provided above, this Agreement
shall be deemed terminated by mutual consent as set forth in Section
12.1(a) hereof. In the event that CTS or NEWCO seeks to amend or
supplement a Schedule pursuant to this Section 7.8 and a majority of the
Founding Companies do not consent to such amendment or supplement, as
provided above, this Agreement shall be deemed terminated by mutual
consent as set forth in Section 12.1(d) hereof.
(c) Between 24 hours prior to the anticipated effectiveness of the
Registration Statement and the Closing Date, the provisions of this clause
(c) shall apply. No amendment or supplement to a Schedule prepared by the
COMPANY or the STOCKHOLDERS that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on the COMPANY may be
made unless CTS consents to such amendment or supplement after
consultation with the Underwriters. CTS and NEWCO hereby covenant that
neither CTS nor NEWCO will amend or supplement any Schedule prepared by
CTS or NEWCO that
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constitutes or reflects an event or occurrence that would have a Material
Adverse Effect on CTS or NEWCO, as the case may be, without consulting
with the Underwriters, and CTS shall provide immediate notice of such
amendment or supplement to the Founding Companies.
(d) For all purposes of this Agreement, including without limitation
for purposes of determining whether the conditions set forth in Sections
8.1 and 9.1 have been fulfilled, the Schedules hereto shall be deemed to
be the Schedules as amended or supplemented pursuant to this Section 7.8.
No party to this Agreement shall be liable to any other party if this
Agreement shall be terminated pursuant to the provisions of this Section
7.8, except that, notwithstanding anything to the contrary contained in
this Agreement, if the COMPANY or the STOCKHOLDERS on the one hand, or CTS
or NEWCO on the other hand, amends or supplements a Schedule which results
in a termination of this Agreement and such amendment or supplement arises
out of or reflects facts or circumstances which such party knew about at
the time of execution of this Agreement and knew would result in a
termination of this Agreement or if such amendment or supplement otherwise
is proposed in bad faith, such party shall pay or reimburse CTS or the
COMPANY and the STOCKHOLDERS, as the case may be, for all of the legal,
accounting and other out of pocket costs reasonably incurred in connection
with this Agreement and the IPO as it relates to the COMPANY and the
STOCKHOLDERS.
7.9 Cooperation in Preparation of Registration Statement.
(a) The COMPANY and STOCKHOLDERS shall furnish or cause to be
furnished to CTS and the Underwriters all of the information concerning
the COMPANY and the STOCKHOLDERS requested by CTS or the Underwriters for
inclusion in, and will cooperate with CTS and the Underwriters in the
preparation of, the Registration Statement and the prospectus included
therein (including audited and unaudited financial statements, prepared in
accordance with GAAP, in form suitable for inclusion in the Registration
Statement). The COMPANY and the STOCKHOLDERS agree promptly to advise CTS
if at any time during the period in which a prospectus relating to the
offering is required to be delivered under the Securities Act, any
information contained in the prospectus concerning the COMPANY or the
STOCKHOLDERS contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and to provide the information
needed to correct such inaccuracy. Insofar as the information relates
solely to the COMPANY or the STOCKHOLDERS, the COMPANY represents and
warrants as to such information furnished by the COMPANY or the
STOCKHOLDERS for use in the Registration Statement with respect to itself,
and each STOCKHOLDER represents and warrants, as to such information
furnished by the COMPANY or the STOCKHOLDERS for use in the Registration
Statement with respect to the COMPANY and himself or herself, that
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the Registration Statement at its effective date, at the date of the final
Prospectus, each preliminary prospectus and each amendment to the
Registration Statement, and at each closing date with respect to the IPO
under the Underwriting Agreement (including with respect to any
over-allotment option) will not include an 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 not misleading.
(b) CTS agrees that it will use its best efforts to provide to the
COMPANY and its counsel copies of material drafts of the Registration
Statement as they are prepared and to the extent practicable in light of
the timetable of the IPO and the potential need to respond promptly to
SEC, NASD or Nasdaq comments, to give the COMPANY sufficient time to
review and comment upon such documents prior to filing with the SEC. Any
objections posed by the COMPANY or its counsel shall state with
specificity the material in question, the reason for the objection, and
the COMPANY's proposed alternative. If the objection is founded upon a
rule promulgated under the Securities Act, the objection shall cite the
rule. Notwithstanding the foregoing, during the five business days
immediately preceding the date scheduled for the effective date of the
IPO, the COMPANY and the STOCKHOLDERS agree that (i) two hours from the
time the proposed changes are transmitted to the COMPANY's counsel if such
transmission is during the COMPANY's normal business hours or (ii) four
hours from the time the proposed changes are transmitted to the COMPANY's
counsel if such transmission is not during the COMPANY's normal business
hours, is sufficient time to review and respond to proposed changes.
7.10 Final Financial Statements. The COMPANY shall provide prior to the
Closing Date, and CTS shall have had sufficient time prior thereto to review,
the unaudited consolidated balance sheets of the COMPANY as of the end of all
fiscal quarters following the Balance Sheet Date, and the unaudited consolidated
statements of income, cash flows and retained earnings of the COMPANY for all
fiscal quarters ended no earlier than 30 days' prior to the Closing Date,
disclosing no material adverse change in the financial condition of the COMPANY
or the results of its operations from the financial statements as of the Balance
Sheet Date. Such financial statements shall have been prepared in accordance
with GAAP applied on a consistent basis throughout the periods indicated (except
as noted therein), but shall not include all of the footnotes and adjustments
required by GAAP for complete financial statements. Except as noted in such
financial statements, all of such financial statements will present fairly the
results of operations of the COMPANY for the periods indicated thereon.
7.11 Further Assurances. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
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7.12 Approval of Merger Agreement. Each of the STOCKHOLDERS agrees to vote
all of its shares of the COMPANY Stock in favor of the Merger and all other
transactions contemplated by this Agreement.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY
The obligations of the STOCKHOLDERS and the COMPANY with respect to
actions to be taken on the Pre-Closing Date and, to the extent specified in this
Section 8, on the Closing Date are subject to the satisfaction or waiver on or
prior to the Pre-Closing Date and/or the Closing Date, as the case may be, of
all of the conditions set forth in this Section 8. As of the Pre-Closing Date or
the Closing Date, as the case may be, all conditions not satisfied shall be
deemed to have been waived by the COMPANY and the STOCKHOLDERS unless such
parties have objected by notifying CTS in writing of such objection on or before
the Pre-Closing Date or consummation of the transactions on the Closing Date,
respectively, except that no such waiver shall be deemed to affect the survival
of the representations and warranties of CTS and NEWCO contained in Section 6
hereof.
8.1 Representations and Warranties. All representations and warranties of
CTS and NEWCO contained in this Agreement shall be true and correct in all
material respects as of the Pre-Closing Date and the Closing Date as though such
representations and warranties had been made on and as of that date, and a
certificate to the foregoing effect dated the Pre-Closing Date and the Closing
Date and signed by the President or any Vice President of CTS shall have been
delivered to the COMPANY and the STOCKHOLDERS.
8.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with and performed by CTS and NEWCO on or
before each of the Pre-Closing Date and the Closing Date shall have been duly
complied with and performed in all material respects on or before each of the
Pre-Closing Date and the Closing Date, as the case may be; and certificates to
the foregoing effect dated each of the Pre-Closing Date and the Closing Date and
signed by the President or any Vice President of CTS shall have been delivered
to the COMPANY and the STOCKHOLDERS.
8.3 No Litigation. No action or proceeding before a court or any other
Governmental Authority or body shall have been instituted or threatened to
restrain or prohibit the Merger or the IPO.
8.4 Opinion of Counsel. The STOCKHOLDERS shall have received an opinion
from counsel for CTS and NEWCO, dated the Pre-Closing Date and including a
statement to the effect that it may be relied upon as of the Closing Date,
substantially in the form annexed hereto as Annex VI.
8.5 Consents and Approvals. All necessary consents of and filings required
to be obtained or made by CTS or NEWCO with any Governmental Authority or agency
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relating to the consummation of the transactions contemplated herein shall have
been obtained and made.
8.6 Consummation of Other Agreements. The Other Agreements shall have been
delivered by each of the Other Companies and each of the Other Agreements and
this Agreement shall be in effect immediately prior to the Merger.
8.7 Good Standing Certificates. CTS and NEWCO each shall have delivered to
the COMPANY a certificate, dated as of a date no earlier than 10 days prior to
the Pre-Closing Date, duly issued by the Delaware Secretary of State and in each
state in which CTS or NEWCO is authorized to do business, showing that each of
CTS and NEWCO is in good standing and authorized to do business and that all
state franchise and/or income tax returns and taxes for CTS and NEWCO,
respectively, for all periods prior to the Closing have been filed and paid.
8.8 Secretary's Certificate. The COMPANY shall have received a certificate
or certificates, dated the Pre-Closing Date and the Closing Date and signed by
the secretary of CTS and of NEWCO, certifying the truth and correctness of
attached copies of the CTS's and NEWCO's respective Certificates of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the boards of directors and, if required, the
stockholders of CTS and NEWCO approving CTS's and NEWCO's entering into this
Agreement and the consummation of the transactions contemplated hereby.
8.9 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VIII hereto.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CTS AND NEWCO
The obligations of CTS and NEWCO with respect to actions to be taken on
the Pre-Closing Date and, to the extent specified in this Section 9, on the
Closing Date, are subject to the satisfaction or waiver on or prior to the
Pre-Closing Date and/or the Closing Date, as the case may be, of all of the
conditions set forth in this Section 9. As of the Pre-Closing Date or the
Closing Date, as the case may be, all conditions not satisfied shall be deemed
to have been waived by CTS and NEWCO unless such parties have objected by
notifying the COMPANY and the STOCKHOLDERS in writing of such objection on or
before the Pre-Closing Date or consummation of the transactions on the Closing
Date, respectively, except that no such waiver shall be deemed to affect the
survival of the representations and warranties of the COMPANY and the
STOCKHOLDERS contained in Section 5 hereof.
9.1 Representations and Warranties. All the representations and warranties
of the STOCKHOLDERS and the COMPANY contained in this Agreement shall be true
and correct in all material respects as of the Pre-Closing Date and the Closing
Date with the same effect as though such representations and warranties had been
made on and as of
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such date; and the STOCKHOLDERS shall have delivered to CTS certificates dated
the Pre-Closing Date and the Closing Date and signed by them to such effect.
9.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with or performed by the STOCKHOLDERS and the
COMPANY on or before each of the Pre-Closing Date and the Closing Date shall
have been duly performed or complied with in all material respects on or before
each of the Pre-Closing Date and the Closing Date, as the case may be; and the
STOCKHOLDERS shall have delivered to CTS certificates dated the Pre-Closing Date
and the Closing Date, respectively, and signed by them to such effect.
9.3 No Litigation. No action or proceeding before a court or any other
Governmental Authority or body shall have been instituted or threatened to
restrain or prohibit the Merger or the IPO.
9.4 Secretary's Certificate. CTS shall have received a certificate or
certificates, dated each of the Pre-Closing Date and the Closing Date and signed
by the secretary of the COMPANY, certifying the truth and correctness of
attached copies of the COMPANY's Articles of Incorporation (including amendments
thereto), By-Laws (including amendments thereto), and resolutions of the board
of directors and the shareholders approving the COMPANY's entering into this
Agreement and the consummation of the transactions contemplated hereby.
9.5 No Material Adverse Change. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred with respect to the
COMPANY which would constitute a Material Adverse Effect on the Company, and the
COMPANY shall not have suffered any material loss or damages to any of its
properties or assets, whether or not covered by insurance, which change, loss or
damage materially affects or impairs the ability of the COMPANY to conduct its
business.
9.6 STOCKHOLDERS' Release. The STOCKHOLDERS shall have delivered to CTS an
instrument dated the Closing Date releasing the COMPANY from any and all (i)
claims prior to the Closing Date of the STOCKHOLDERS against the COMPANY and CTS
and (ii) obligations prior to the Closing Date, of the COMPANY and CTS to the
STOCKHOLDERS, except for (x) items specifically identified on Schedules 5.10 and
5.15 as being claims of or obligations to the STOCKHOLDERS, (y) continuing
obligations to the STOCKHOLDERS relating to their employment by the COMPANY and
(z) obligations arising under this Agreement or the transactions contemplated
hereby.
9.7 Termination of Related Party Agreements. Except as set forth on
Schedule 9.7, all existing agreements between the COMPANY and the STOCKHOLDERS
shall have been canceled effective prior to or as of the Closing Date.
9.8 Opinion of Counsel. CTS shall have received an opinion from Counsel
to the COMPANY and the STOCKHOLDERS, dated the Pre-Closing Date and including
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a statement to the effect that it may be relied upon as of the Closing Date,
substantially in the form annexed hereto as Annex VII, which form shall be
deemed to include any additional opinions by such counsel or separate counsel
retained by the COMPANY covering matters customary under the circumstances,
including without limitation, opinions covering the COMPANY's intellectual
property, and the Underwriters shall have received a copy of the same opinion
addressed to them.
9.9 Consents and Approvals. All necessary consents of and filings with any
Governmental Authority relating to the consummation of the transactions
contemplated herein shall have been obtained and made and all consents and
approvals of third parties listed on Schedule 5.23 shall have been obtained.
9.10 Good Standing Certificates. The COMPANY shall have delivered to CTS a
certificate, dated as of a date no earlier than five days prior to the
Pre-Closing Date, duly issued by the appropriate Governmental Authority in the
COMPANY's state of incorporation and, unless waived by CTS, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the COMPANY for all periods prior to the
Closing have been filed and paid.
9.11 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act, or
any state securities laws, and the Underwriters shall have agreed to acquire on
a firm commitment basis, subject to the conditions set forth in the Underwriting
Agreement, shares of CTS Stock at a price to the public acceptable to CTS.
9.12 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have entered into an employment agreement substantially in the form of
Annex VIII hereto.
9.13 Closing of IPO. The closing of the sale of the CTS Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
9.14 FIRPTA Certificate. Each STOCKHOLDER shall have delivered to CTS a
certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
9.15 Consummation of Other Agreements. The Other Agreements shall have
been delivered by each of the Other Companies and each of the Other Agreements
and this Agreement shall be in effect immediately prior to the Merger.
9.16 A/R Aging Reports. Within ten (10) days prior to Closing, the COMPANY
shall have provided CTS (x) an accurate list of all outstanding receivables
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obtained subsequent to the Balance Sheet Date and as of a date which is within
10 calendar days of the Closing Date and (y) an aging of all such accounts and
notes receivable showing amounts due in 30 day aging categories (the "A/R Aging
Reports").
9.17 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall have been approved by counsel to CTS.
10. COVENANTS OF CTS AND THE STOCKHOLDERS AFTER CLOSING
10.1 Release From Guarantees; Repayment of Certain Obligations. CTS shall
use its best efforts to have the STOCKHOLDERS released from any and all
guarantees on any indebtedness that they personally guaranteed and from any and
all pledges of assets that they pledged to secure such indebtedness for the
benefit of the COMPANY, with all such guarantees on indebtedness being assumed
by CTS, if necessary to achieve such releases. In the event that CTS cannot
obtain such releases from the lenders of any such guaranteed indebtedness on or
prior to 180 days subsequent to the Closing Date, CTS shall pay off or otherwise
refinance or retire such indebtedness.
10.2 Preservation of Tax and Accounting Treatment. Except as contemplated
by this Agreement or the Registration Statement, after the Closing Date, CTS
shall not and shall not permit any of its subsidiaries to undertake any act that
would jeopardize the tax-free status of the organization, including liquidating
or merging the COMPANY into CTS.
10.3 Preparation and Filing of Tax Returns.
(a) The COMPANY shall, if possible, file or cause to be filed all
separate Returns of any Acquired Party for all taxable periods that end on
or before the Closing Date. Each STOCKHOLDER shall pay or cause to be paid
all Tax liabilities (in excess of all amounts already paid with respect
thereto or properly accrued or reserved with respect thereto on the
COMPANY Financial Statements) shown by such Returns to be due.
(b) CTS shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Closing Date.
(c) Each party hereto shall, and shall cause its subsidiaries and
Affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any Return, amended Return or claim for refund, determining a
liability for Taxes or a right to refund of Taxes or in conducting any
audit or other proceeding in respect of Taxes. Such cooperation and
information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings or other
determinations by
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Taxing Authorities and relevant records concerning the ownership and Tax
basis of property, which such party may possess. Each party shall make its
employees reasonably available on a mutually convenient basis at its cost
to provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns
pursuant to this Agreement shall bear all costs of filing such Returns.
(d) Each of the COMPANY, NEWCO, CTS and each STOCKHOLDER shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax free transfer of property under Section 351(a) of the Code.
10.4 Directors and Officers. The persons named in the Registration
Statement shall be appointed as directors and elected as officers of CTS, as and
to the extent set forth in the Registration Statement, promptly following the
Closing Date.
10.5 Preservation of Employee Benefit Plans. Following the Closing Date,
CTS shall not terminate any health insurance, life insurance, 401(k) or any
other Benefit Plan in effect at the COMPANY until such time as CTS is able to
replace such Benefit Plan with a Plan that is applicable to CTS and all of its
then existing subsidiaries. CTS shall have no obligation to provide replacement
Plans that have the same terms and provisions as the existing Benefit Plans,
provided, that any new health insurance plan shall provide for coverage for
preexisting conditions.
10.6 Rule 144. For a period of two years after the Closing Date, CTS shall
take all actions that are within its powers and that are reasonably necessary to
make Rule 144 promulgated under the 1933 Act available to the STOCKHOLDERS.
10.7 Authorization of Shares. CTS agrees to take all actions as may be
necessary from time to time to reserve an adequate number of shares of CTS Stock
to pay the stock portion of the consideration to the STOCKHOLDERS pursuant to
Annex III hereof.
11. INDEMNIFICATION
The STOCKHOLDERS, CTS and NEWCO each make the following covenants that are
applicable to them, respectively:
11.1 General Indemnification by the STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless CTS, NEWCO, the COMPANY and the Surviving Corporation
at all times, from and after the date of this Agreement until the Expiration
Date, from and against all claims, damages, actions, suits, proceedings,
demands, assessments, adjustments, costs and expenses (including specifically,
but without limitation, reasonable attorneys' fees and reasonable expenses of
investigation) incurred by CTS, NEWCO, the COMPANY or the Surviving Corporation
as a result of or arising
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from (i) any breach of the representations and warranties of the STOCKHOLDERS or
the COMPANY set forth herein or on the schedules or certificates delivered in
connection herewith, (ii) any breach of any agreement on the part of the
STOCKHOLDERS or the COMPANY under this Agreement, (iii) any liability under the
1933 Act, the 1934 Act or other Federal or state law or regulation, at common
law or otherwise, arising out of or based upon any untrue statement or alleged
untrue statement of a material fact relating to the COMPANY or the STOCKHOLDERS,
and provided to CTS or its counsel by the COMPANY or the STOCKHOLDERS for
inclusion in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission by the COMPANY and/or the
STOCKHOLDERS to state therein a material fact relating to the COMPANY or the
STOCKHOLDERS required to be stated therein or necessary to make the statements
therein not misleading, (iv) the matters described on Schedule 11.1(iv) or (v)
any Tax imposed upon or relating to any third party or Acquired Party for a
pre-Closing Date period, including, in each case, any such Tax arising out of or
in connection with the transactions effected pursuant to this Agreement or any
such Tax for which an Acquired Party may be liable under Section 1.1502-6 of the
Treasury Regulations (or any similar provisions of state, local of foreign law),
as a transferee or successor, by contract or otherwise; provided, however, (A)
that in the case of any indemnity arising pursuant to clause (iii) such
indemnity shall not inure to the benefit of CTS, NEWCO, the COMPANY or the
Surviving Corporation to the extent that such untrue statement (or alleged
untrue statement) was made in, or omission (or alleged omission) occurred in,
any preliminary prospectus and the STOCKHOLDERS provided, in writing, corrected
information to CTS counsel and to CTS for inclusion in the final prospectus, and
such information was not so included or properly delivered, and (B) that no
STOCKHOLDER shall be liable for any indemnification obligation pursuant to this
Section 11.1 to the extent attributable to a breach of any representation,
warranty or agreement made herein individually by any other STOCKHOLDER.
11.2 Indemnification by CTS. CTS covenants and agrees that it will
indemnify, defend, protect and hold harmless the STOCKHOLDERS at all times from
and after the date of this Agreement until the eighteenth month anniversary of
the Closing Date, from and against all claims, damages, actions, suits,
proceedings, demands, assessments, adjustments, costs and expenses (including
specifically, but without limitation, reasonable attorneys' fees and expenses of
investigation) incurred by the STOCKHOLDERS as a result of or arising from (i)
any breach by CTS or NEWCO of its representations and warranties set forth
herein or on the schedules or certificates delivered in connection herewith,
(ii) any breach of any agreement on the part of CTS or NEWCO under this
Agreement, (iii) any liability which the STOCKHOLDERS may incur due to CTS's or
NEWCO's failure to be responsible for the liabilities and obligations of the
COMPANY as provided in Section 10.1 hereof (except to the extent that CTS or
NEWCO has claims against the STOCKHOLDERS by reason of such liabilities); (iv)
any liability to a Person not a party to this Agreement (a "Third Person") under
the 1933 Act, the 1934 Act or other Federal or state law or regulation, at
common
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law or otherwise, arising out of or based upon any untrue statement or alleged
untrue statement of a material fact relating to CTS or NEWCO for inclusion in
any preliminary prospectus, the Registration Statement or any prospectus forming
a part thereof, or any amendment thereof or supplement thereto, or arising out
of or based upon any omission or alleged omission to state therein a material
fact relating to CTS or NEWCO required to be stated therein or necessary to make
the statements therein not misleading; provided, however, in the case of any
indemnity arising pursuant to clause (iv) such indemnity shall not inure to the
benefit of the STOCKHOLDERS if any such claims, damages, actions, suits,
proceedings, demands, assessments, adjustments, costs and expenses incurred by
any of the STOCKHOLDERS are based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished by a STOCKHOLDER for use in the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto unless the STOCKHOLDERS provided, in writing, corrected information to
CTS counsel and to CTS for inclusion in the final prospectus to the Registration
Statement, and such information was not so included or properly delivered by CTS
(or its representative).
In the event the breach relates to the representation contained in Section
6.5 concerning the absence of options, rights (preemptive or otherwise),
warrants, calls, convertible securities or commitments or any other arrangements
dealing with CTS Stock as set forth in Section 6.5 (a "CTS Security Right") and
the existence of an undisclosed CTS Security Right will dilute the CTS capital,
the stockholders of the Founding Company whose representation caused the breach
of Section 6.5 shall suffer such dilution proportionately to the number of
shares of CTS Stock owned by each of them.
11.3 Third Person Claims. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of, or has knowledge of any claim by a
Third Person or of the commencement of any action or proceeding by a Third
Person, the Indemnified Party shall, as a condition precedent to a claim with
respect thereto being made against any party obligated to provide
indemnification pursuant to Section 11.1 or 11.2 hereof (hereinafter the
"Indemnifying Party"), give the Indemnifying Party written notice of such claim
or the commencement of such action or proceeding. Such notice shall state the
nature and the basis of such claim and a reasonable estimate of the amount
thereof. The Indemnifying Party shall have the right to defend and settle, at
its own expense and by its own counsel, any such matter so long as the
Indemnifying Party pursues the same in good faith and diligently, provided that
the Indemnifying Party shall not settle any criminal proceeding without the
written consent of the Indemnified Party, such consent not to be unreasonably
withheld or delayed. If the Indemnifying Party undertakes to defend or settle,
it shall promptly notify the Indemnified Party of its intention to do so, and
the Indemnified Party shall cooperate, at the Indemnifying Party's expense, with
the Indemnifying Party and its counsel in the defense thereof and in any
settlement thereof. Such cooperation shall include, but shall not be limited to,
furnishing the Indemnifying Party with any books, records or information
reasonably requested by the Indemnifying Party that are in the Indemnified
Party's possession or control. All Indemnified Parties shall endeavor to use the
same counsel, which shall be the counsel
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selected by the Indemnifying Party, provided that if counsel to the Indemnifying
Party shall have a conflict of interest in the opinion of such counsel that
prevents counsel for the Indemnifying Party from representing the Indemnified
Party, the Indemnified Party shall have the right to participate in such matter
through counsel of its own choosing and the Indemnifying Party will reimburse
the Indemnified Party for the reasonable expenses of its counsel and experts.
After the Indemnifying Party has notified the Indemnified Party of its intention
to undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except (i) as set forth in the preceding sentence and (ii) to the
extent such participation is requested by the Indemnifying Party, in which event
the Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any such
Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement to said Third Person plus all indemnifiable costs and expenses
incurred to date, the Indemnifying Party shall be relieved of its duty to defend
and shall tender the Third Person claim back to the Indemnified Party, who shall
thereafter, at its own expense, be responsible for the defense and negotiation
of such Third Person claim. If the Indemnifying Party does not undertake to
defend such matter to which the Indemnified Party is entitled to indemnification
hereunder, or fails diligently to pursue such defense, the Indemnified Party may
undertake such defense through counsel of its choice, at the cost and expense of
the Indemnifying Party, and the Indemnified Party may settle such matter, and
the Indemnifying Party shall reimburse the Indemnified Party for the amount paid
in such settlement and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. All settlements hereunder shall effect a
complete release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. The parties hereto will make appropriate
adjustments for any Tax benefits, Tax detriments or insurance proceeds in
determining the amount of any indemnification obligation under this Section,
provided that no Indemnifying Party shall be obligated to seek any payment
pursuant to the terms of any insurance policy or to seek relief for a breach of
any employment agreement with, or any stock option issued by, CTS.
11.4 Exclusive Remedy. Except as provided in Section 11.5(b) or Section
14.3 hereof, the indemnification provided for in this Section 11 shall (except
as prohibited by ERISA) be the exclusive remedy in any action seeking damages or
any other form of monetary relief brought by any party to this Agreement against
another party, provided that nothing herein shall be construed to limit the
right of a party, in a proper case, to seek injunctive relief for a breach of
this Agreement.
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11.5 Limitations on Indemnification.
(a) CTS, NEWCO, the Surviving Corporation and the other Persons or
entities indemnified pursuant to Section 11.1 (other than the
STOCKHOLDERS) shall not assert any claim other than a Third Person claim
for indemnification hereunder against the STOCKHOLDERS until such time as,
and solely to the extent that, the aggregate of all claims which such
Persons may have against the STOCKHOLDERS shall exceed 1.0% of the sum of
(i) the cash paid to the STOCKHOLDERS plus (ii) the value (determined in
accordance with Section 11.5(c) hereof) of the CTS Stock delivered to the
STOCKHOLDERS (the "Indemnification Threshold"); provided, however, that
CTS, NEWCO, the Surviving Corporation and the other Persons or entities
indemnified pursuant to Section 11.1 (other than the STOCKHOLDERS) may
assert and shall be indemnified for any claim under Section 11.1(iv) or
11.1(v) at any time, regardless of whether the aggregate of all claims
which such Persons may have against any STOCKHOLDER or all STOCKHOLDERS
exceeds the Indemnification Threshold, it being understood that the amount
of any such claim under Section 11.1(iv) or 11.1(v) shall not be counted
towards the Indemnification Threshold. The STOCKHOLDERS shall not assert
any claim for indemnification hereunder against CTS, NEWCO, the Surviving
Corporation or the other Persons set forth in Section 11.1 (other than the
STOCKHOLDERS) until such time as, and solely to the extent that, the
aggregate of all claims which STOCKHOLDERS may have against any of such
Persons exceed $100,000. No Person shall be entitled to indemnification
under this Section 11 if and to the extent that such Person's claim for
indemnification is directly or indirectly related to a breach by such
Person of any representation, warranty, covenant or other agreement set
forth in this Agreement.
(b) CTS shall have the right, upon written notice, to offset
indemnification amounts due to it pursuant to this Agreement against
payments due to the STOCKHOLDERS under (i) this Agreement (including,
without limitation, the consideration set forth on Annex III hereto)
and/or (ii) any contract contemplated by, or referred to in, this
Agreement.
(c) Indemnity obligations hereunder may be satisfied through the
payment of cash or the delivery of CTS Stock, or a combination thereof.
For purposes of calculating the value of the CTS Stock received or
delivered by a STOCKHOLDER (for purposes of determining the
Indemnification Threshold and the amount of any indemnity paid), CTS Stock
shall be valued at its initial public offering price as set forth in the
Registration Statement.
(d) Notwithstanding any other term of this Agreement (except the
proviso to this sentence), no STOCKHOLDER shall be liable under this
Section 11 for an amount which exceeds the amount of proceeds received by
such STOCKHOLDER in connection with the Merger, such proceeds to be equal
to the
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sum of (i) the cash paid to the STOCKHOLDER (ii) the additional
consideration, if any, earned by such STOCKHOLDER pursuant to Annex III
hereof, and (iii) the value of the CTS Stock delivered to the STOCKHOLDER
(determined in accordance with Section 11.5(c) hereof); provided, that a
STOCKHOLDER's indemnification obligations pursuant to Sections 11.1(iv)
and (v) shall not be limited.
12. TERMINATION OF AGREEMENT
12.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date solely:
(a) by mutual consent of the boards of directors of CTS and the
COMPANY;
(b) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by CTS (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, unless the failure of such transactions to be
consummated is due to the willful failure of the party seeking to
terminate this Agreement to perform any of its obligations under this
Agreement to the extent required to be performed by it prior to or on the
Closing Date;
(c) by the STOCKHOLDERS or the COMPANY, on the one hand, or by CTS,
on the other hand, if a material breach or default shall be made by the
other party in the observance or in the due and timely performance of any
of the covenants, agreements or conditions contained herein, and the
curing of such default shall not have been made on or before the Closing
Date; or
(d) pursuant to Section 7.8 hereof.
12.2 Liabilities in Event of Termination. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 Prohibited Activities. The STOCKHOLDERS will not, for a period of
four (4) years following the Closing Date, for any reason whatsoever, directly
or indirectly, for themselves or on behalf of or in conjunction with any other
person, company, partnership, corporation or business of whatever nature:
(a) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent
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contractor, consultant or advisor, or as a sales representative, in any
business selling any products or services in direct competition with CTS
or any of the subsidiaries thereof, within 100 miles of where the COMPANY
or any of its subsidiaries or any of the Other Founding Companies
conducted business prior to the effectiveness of the Merger (the
"Territory") ;
(b) call upon any person who is, at that time, within the Territory,
an employee of CTS (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent
of enticing such employee away from or out of the employ of CTS (including
the subsidiaries thereof), provided that each STOCKHOLDER shall be
permitted to call upon and hire any member of his or her immediate family;
(c) call upon any person or entity which is, at that time, or which
has been, within one (1) year prior to the Closing Date, a customer of CTS
(including the subsidiaries thereof), of the COMPANY or of any of the
Other Founding Companies within the Territory for the purpose of
soliciting or selling products or services in direct competition with CTS
within the Territory;
(d) call upon any prospective acquisition candidate, on any
STOCKHOLDER's own behalf or on behalf of any competitor in similar or
incidental businesses or activities described in the Registration
Statement, which candidate, to the actual knowledge of such STOCKHOLDER
after due inquiry, was called upon by CTS (including the subsidiaries
thereof) or for which, to the actual knowledge of such STOCKHOLDER after
due inquiry, CTS (or any subsidiary thereof) made an acquisition analysis,
for the purpose of acquiring such entity; or
(e) disclose customers, whether in existence or proposed, of the
COMPANY to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever except to the extent that the COMPANY has in
the past disclosed such information to the public for valid business
reasons or disclosure is specifically required by law; provided, however,
in the event disclosure is required by law, the STOCKHOLDERS shall provide
CTS with prompt notice of such requirement prior to making any disclosure
so that CTS may seek a protective order.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any STOCKHOLDER from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter so long as the STOCKHOLDER
does not consult with or is not employed by such competitor.
13.2 Damages. Because of the difficulty of measuring economic losses to
CTS as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to CTS for which it would
have no other
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adequate remedy, each STOCKHOLDER agrees that, in the event of breach by such
STOCKHOLDER, the foregoing covenant may be enforced by CTS by injunctions and
restraining orders.
13.3 Reasonable Restraint. It is agreed by the parties hereto that it is
the intent of CTS and the STOCKHOLDERS that the foregoing covenants in this
Section 13 be construed and enforced in accordance with the changing activities
and business of CTS (including the subsidiaries thereof) throughout the term of
this covenant. It is further agreed by the parties hereto that, in the event
that any STOCKHOLDER who has entered into an employment agreement with CTS
and/or any subsidiary thereof as set forth in Sections 8.10 and 9.12 hereto,
shall thereafter cease to be employed thereunder, and such STOCKHOLDER shall
enter into a business or pursue other activities not in competition with CTS
and/or any subsidiary thereof, or similar activities or business in locations
the operations of which, under such circumstances, does not violate this Article
13 and in any event such new business, activities or location are not in
violation of this Article 13 or such STOCKHOLDER's obligations under this
Article 13, such STOCKHOLDER shall not be chargeable with a violation of this
Article 13 if CTS and/or any subsidiary thereof shall thereafter enter the same,
similar or a competitive (i) business (ii) course of activities, or (iii)
location, as applicable.
13.4 Severability; Reformation. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
13.5 Independent Covenant. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any STOCKHOLDER
against CTS (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by CTS
of such covenants. It is specifically agreed that the period of four (4) years
stated at the beginning of this Section 13, during which the agreements and
covenants of each STOCKHOLDER made in this Section 13 shall be effective, shall
be computed by excluding from such computation any time during which such
STOCKHOLDER is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 Materiality. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
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14.1 Stockholders. The STOCKHOLDERS recognize and acknowledge that they
had in the past, currently have, and in the future may have, access to certain
confidential information of the COMPANY, the Other Founding Companies, and/or
CTS, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the COMPANY's, the Other Founding
Companies' and/or CTS's respective businesses. The STOCKHOLDERS agree that they
will not disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of CTS or the Other Founding Companies
who need to know information in connection with the transactions contemplated
hereby, who have been informed of the confidential nature of such information
and who have agreed to keep such information confidential as provided hereby,
(b) following the Closing, such information may be disclosed by the STOCKHOLDERS
as is required in the course of performing their duties for CTS or the Surviving
Corporation and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of any such STOCKHOLDERS, (ii) disclosure is required by law or the
order of any Governmental Authority under color of law; provided, that prior to
disclosing any information pursuant to this clause (ii), the STOCKHOLDERS shall,
if possible, give prior written notice thereof to CTS and provide CTS with the
opportunity to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party. In the event the transactions contemplated
by this Agreement are not consummated, the STOCKHOLDERS shall have none of the
above-mentioned restrictions on their ability to disseminate confidential
information with respect to the COMPANY.
14.2 CTS AND NEWCO. CTS and NEWCO recognize and acknowledge that they had
in the past, currently have, and in the future may have, access to certain
confidential information of the COMPANY, such as operational policies, and
pricing and cost policies that are valuable, special and unique assets of the
COMPANY's business. CTS and NEWCO agree that, prior to the Closing, or if the
Transactions contemplated by this Agreement are not consummated, they will not
disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
the STOCKHOLDERS and to authorized representatives of the COMPANY, (b) to
counsel and other advisers, provided that such advisors (other than counsel)
agree to the confidentiality provisions of this Section 14.2 and (c) to the
Other Founding Companies and their representatives pursuant to Section 7.1(a),
unless (i) such information becomes known to the public generally through no
fault of CTS or NEWCO, (ii) disclosure is required by law or the order of any
Governmental Authority under color of law; provided, that, prior to disclosing
any information pursuant to this clause (ii), CTS and NEWCO shall, if possible,
give prior written notice thereof to the COMPANY and the STOCKHOLDERS and
provide the COMPANY and the STOCKHOLDERS with the opportunity to contest such
disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in
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connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by CTS or NEWCO of the provisions of this
Section, the COMPANY and the STOCKHOLDERS shall be entitled to an injunction
restraining CTS and NEWCO from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
COMPANY and the STOCKHOLDERS from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
14.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
Nothing herein shall be construed as prohibiting a party hereto from pursuing
any other available remedy for such breach or threatened breach of Sections 14.1
and 14.2, including the recovery of damages.
14.4 Survival. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Closing Date.
15. TRANSFER RESTRICTIONS
15.1 Transfer Restrictions. For a period of one year from the Closing
Date, except pursuant to Section 16 hereof, none of the STOCKHOLDERS shall (i)
sell, assign, exchange, transfer, encumber, pledge, distribute, appoint or
otherwise dispose of (a) any shares of CTS Stock received by the STOCKHOLDERS
pursuant to the terms hereunder or (b) any interest (including, without
limitation, an option to buy or sell) in any such shares of CTS Stock, in whole
or in part, and no such attempted transfer shall be treated as effective for any
purpose; or (ii) engage in any transaction, whether or not with respect to any
shares of CTS Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of CTS Stock acquired pursuant to Section 2
hereof (including, by way of example and not limitation, engaging in put, call,
short-sale, straddle or similar market transactions). Notwithstanding the
foregoing, the STOCKHOLDERS may (x) transfer shares of CTS Stock to immediate
family members (or trusts for the benefit of the STOCKHOLDERS or family members,
the trustees of which so agree) or (y) encumber or pledge any of such shares of
CTS Stock; provided, that the family member, trust, trustee, pledgee or other
beneficiary of such transfer, encumbrance or pledge, as the case may be, agrees
in writing prior to such transaction to be bound by (1) the provisions of this
Section as if a STOCKHOLDER and party hereto and (2) the indemnification
provisions set forth in this Agreement as if a STOCKHOLDER and party hereto. The
certificates evidencing the CTS Stock delivered to the STOCKHOLDERS pursuant to
Section 3 of this Agreement will bear a legend substantially in the form set
forth below and containing such other information as CTS may deem necessary or
appropriate:
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EXCEPT AS PROVIDED BY THAT CERTAIN AGREEMENT AND PLAN OF ORGANIZATION, A
COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY
FOR PUBLIC INSPECTION, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT
BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT
BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION PRIOR TO THE FIRST ANNIVERSARY OF THE CLOSING DATE. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
16. REGISTRATION RIGHTS
16.1 Piggyback Registration Rights. At any time following the Closing
Date, whenever CTS proposes to register any CTS Stock for its own or others'
account under the 1933 Act for a public offering, other than (i) any shelf
registration of shares to be used as consideration for acquisitions of
additional businesses by CTS, (ii) registrations relating to Plans and (iii)
registrations relating to rights offerings made to the stockholders of CTS, CTS
shall give each of the STOCKHOLDERS prompt written notice of its intent to do
so. Upon the written request of any of the STOCKHOLDERS given within 30 days
after receipt of such notice, CTS shall cause to be included in such
registration all of the CTS Stock issued to the STOCKHOLDERS pursuant to this
Agreement which any such STOCKHOLDER requests, provided that CTS shall have the
right to reduce the number of shares included in such registration to the extent
that inclusion of such shares could, in the opinion of tax counsel to CTS or its
independent auditors, jeopardize the status of the transactions contemplated
hereby and by the Registration Statement as a tax-free organization. In
addition, if CTS is advised in writing in good faith by any managing underwriter
of an underwritten offering of the securities being offered pursuant to any
registration statement under this Section 16.1 that the number of shares to be
sold by persons other than CTS is greater than the number of such shares which
can be offered without adversely affecting the offering, CTS may reduce pro rata
the number of shares offered for the accounts of such persons (based upon the
number of shares proposed to be sold by each such person) to a number deemed
satisfactory by such managing underwriter, provided, that, for each such
offering made by CTS after the IPO, such reduction shall be made first by
reducing the number of shares to be sold by persons other than CTS, the
STOCKHOLDERS and the stockholders of the Other Founding Companies (collectively,
the STOCKHOLDERS and the stockholders of the Other Founding Companies being
referred to herein as the "Founding Stockholders"),
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and thereafter, if a further reduction is required, by reducing pro rata the
number of shares to be sold by the Founding Stockholders.
16.2 Registration Procedures. All expenses incurred in connection with the
registrations under this Section 16 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts with respect to any CTS Stock sold on behalf of any
STOCKHOLDER), shall be borne by CTS. In connection with registrations under
Section 16.1, CTS shall (i) use its best efforts to prepare and file with the
SEC as soon as reasonably practicable, a registration statement with respect to
the CTS Stock and use its best efforts to cause such registration to promptly
become and remain effective for a period of at least 120 days (or such shorter
period during which stockholders of the Founding Companies shall have sold all
CTS Stock which they requested to be registered); (ii) use its best efforts to
register and qualify the CTS Stock covered by such registration statement under
applicable state securities laws as the holders shall reasonably request for the
distribution of the CTS Stock; (iii) take all actions necessary to have the CTS
Stock covered by such registration listed or quoted on the exchange or automated
quotation system on which the CTS Stock trades at the time of registration; (iv)
take such other actions as are reasonable and necessary to comply with the
requirements of the 1933 Act and the regulations thereunder; and (v) make
available its general counsel to advise each STOCKHOLDER and provide the legal
opinions required under the purchase agreement used in connection with the
registrations under this Section 16.
16.3 Underwriting Agreement. In connection with each registration pursuant
to Section 16.1 covering an underwritten registered public offering, CTS and
each participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of CTS's size and investment stature,
including indemnification provisions.
16.4 Availability of Rule 144. CTS shall not be obligated to register
shares of CTS Stock held by any STOCKHOLDER at any time when the resale
provisions of Rule 144(k) (or any successor provision) promulgated under the
1933 Act are available to such STOCKHOLDER for such shares.
16.5 Market Standoff. In consideration of the granting to the STOCKHOLDERS
of the registration rights under this Section 16, the STOCKHOLDERS agree that
they will not sell, transfer or otherwise dispose of, including without
limitation through put or short sale arrangements, shares of CTS Stock
in the 10 days prior to the effectiveness of any registration of CTS Stock for
sale to the public and for up to 90 days following the effectiveness of such
registration, provided, that: (i) all directors, executive officers and holders
of more than five percent of the outstanding CTS Stock agree to the same
restrictions; (ii) with respect to the first public offering of shares of the
CTS Stock within three years following the IPO, the STOCKHOLDERS shall have been
afforded a meaningful opportunity to include shares
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in such registration after any reduction by reason of underwriters' advice; and
(iii) CTS has not exercised its rights to delay under this Section 16.5 more
than once in any 12 month period.
17. GENERAL
17.1 Cooperation. The COMPANY, the STOCKHOLDERS, CTS and NEWCO shall each
deliver or cause to be delivered to the other on the Closing Date, and at such
other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The STOCKHOLDERS will cooperate and use their reasonable efforts
to have the present officers, directors and employees of the COMPANY cooperate
with CTS on and after the Closing Date in furnishing information, evidence,
testimony and other assistance in connection with any Tax Return filing
obligations, actions, proceedings, arrangements or disputes of any nature with
respect to matters pertaining to all periods prior to the Closing Date.
17.2 Successors and Assigns. During the period payments are to be made to
the STOCKHOLDERS pursuant to Annex III hereof, this Agreement and the rights of
the parties hereunder may not be assigned including by operation of law) and
shall be binding upon and shall inure to the benefit of the parties hereto, the
successors of CTS, and the heirs and legal representatives of the STOCKHOLDERS;
provided, however, that this Agreement and the rights of the parties hereunder
may be assigned (i) upon receipt of the consent of the STOCKHOLDERS who hold a
majority of the CTS Stock issued and outstanding under this Agreement at such
time of determination, whose consent shall not be unreasonably withheld or (ii)
if the assignee is a company whose capital stock is traded on the Nasdaq Stock
Market, the New York Stock Exchange or the American Stock Exchange.
17.3 Entire Agreement. This Agreement (including the Schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the STOCKHOLDERS, the
COMPANY, NEWCO and CTS and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the STOCKHOLDERS, the COMPANY, NEWCO and CTS,
acting through their respective officers or trustees, duly authorized by their
respective boards of directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the COMPANY and the STOCKHOLDERS shall
make a good faith effort to cross reference disclosure, as necessary or
advisable, between related Schedules.
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17.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
17.5 Brokers and Agents. Except as disclosed on Schedule 17.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commissions of
brokers employed or alleged to have been employed by such indemnifying party.
17.6 Expenses.
(a) Whether or not the transactions herein contemplated shall be
consummated, CTS will pay the fees, expenses and disbursements of CTS and
its agents, representatives, accountants and counsel incurred in
connection with the subject matter of this Agreement and any amendments
thereto, including all costs and expenses incurred in the performance and
compliance with all conditions to be performed by CTS under this
Agreement, including the fees and expenses of Price Waterhouse LLP,
Morgan, Lewis & Bockius LLP, and any other person or entity retained by
CTS, and the costs of preparing the Registration Statement.
(b) If the transactions herein contemplated shall not be
consummated, the Company shall pay the fees, expenses and disbursements of
the STOCKHOLDERS, the COMPANY and their respective agents,
representatives, accountants and counsel incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all
costs and expenses incurred in the performance and compliance with all
conditions to be performed by the COMPANY and the STOCKHOLDERS under this
Agreement, including the fees and expenses of legal counsel to the COMPANY
and the STOCKHOLDERS.
(c) If the transaction herein contemplated is consummated, CTS will
pay the fees, expenses, and disbursements of the STOCKHOLDERS and the
COMPANY as described in (b), above.
(d) Each STOCKHOLDER shall pay all sales, use, transfer, real
property transfer, recording, gains, stock transfer and other similar
taxes and fees ("Transfer Taxes") imposed in connection with the
transactions contemplated hereby. Each STOCKHOLDER shall file all
necessary documentation and Returns with respect to such Transfer Taxes.
In addition, each STOCKHOLDER acknowledges that he, and not the COMPANY or
CTS, will pay all Taxes due upon receipt of the consideration payable
pursuant to Section 2 hereof, and will assume all Tax risks and
liabilities of such STOCKHOLDER in connection with the transactions
contemplated hereby.
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17.7 Notices. All notices or communications required or permitted
hereunder shall be in writing and shall be deemed to have been given when
personally delivered or upon receipt if sent by first class certified mail,
return receipt requested or the next business day if sent by telefax (receipt
confirmed and followed up by one of the other delivery methods discussed herein
as well), or upon delivery if sent by express mail, in each case postage prepaid
and addressed as follows:
(a) If to CTS, or NEWCO:
1650 Tysons Boulevard
Suite 600
McLean, Virginia 22102
with copies to:
The Commonwealth Group
1650 Tysons Boulevard
Suite 600
McLean, Virginia 22102
and
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Attn: Christopher T. Jensen, Esq.
(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on Annex IV, with copies to such counsel as is set forth with
respect to each STOCKHOLDER on such Annex IV;
(c) If to the COMPANY:
Federal Computer Corporation
2745 Harland Road
Falls Church, VA 22043-3549
Attn: William E. Hummel
and marked "Personal and Confidential"
with copies to:
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Swidler & Berlin, Chartered
3000 K Street, N.W.
Suite 300
Washington, D.C. 20007
Attn: Morris F. DeFeo, Jr., Esq.
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 17.7 from time to time.
17.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of New York, except that matters herein within the purview
of the matters covered by the General Corporation Law of the State of Delaware
shall be governed by such General Corporation Law, in each case without
reference to conflicts of laws principles.
17.9 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
17.10 Time. Time is of the essence with respect to this Agreement.
17.11 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
17.12 Remedies Cumulative. Except as provided in Section 11.4 of this
Agreement, no right, remedy or election given by any term of this Agreement
shall be deemed exclusive but each shall be cumulative with all other rights,
remedies and elections available at law or in equity.
17.13 Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
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17.14 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of CTS, NEWCO, the COMPANY and the STOCKHOLDERS who hold a
majority of the CTS Stock issued and outstanding under this Agreement at such
time of determination. Any amendment or waiver effected in accordance with this
Section 17.14 shall be binding upon each of the parties hereto, any other person
receiving CTS Stock in connection with the Merger and each future holder of such
CTS Stock.
17.15 CTS Government Clearances. Notwithstanding any other provision
herein to the contrary, CTS acknowledges and agrees that, until such time as
CTS and the Board of Directors and officers of CTS have received all
appropriate security clearances from all governmental entities applicable to
the access and use of classified information, neither CTS nor any of its
directors or officers shall have access to such information or participate in
any decision-making with respect to the business of FCC which would require
such security clearances.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
CONDOR TECHNOLOGY SOLUTIONS, INC.
By: /s/ Kennard F. Hill
------------------------------------
Name: Kennard F. Hill
Title: President and Chief Executive
Officer
FEDERAL ACQUISITION CORP.
By: /s/ Kennard F. Hill
------------------------------------
Name: Kennard F. Hill
Title: President and Chief Executive
Officer
FEDERAL COMPUTER CORPORATION
By: /s/ William E. Hummel
------------------------------------
Name: William E. Hummel
Title: President
STOCKHOLDERS:
/s/ George R. Blick
----------------------------------------
Name: George R. Blick
/s/ Charles F. Crowe
----------------------------------------
Name: Charles F. Crowe
<PAGE>
/s/ Lou J. Fisher
----------------------------------------
Name: Lou J. Fisher
/s/ William E. Hummel
----------------------------------------
Name: William E. Hummel
/s/ R. Joseph Market
----------------------------------------
Name: R. Joseph Market
/s/ R. Wayne Talley
----------------------------------------
Name: R. Wayne Talley
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SCHEDULE 11.1(iv)
SPECIAL INDEMNITY BY THE STOCKHOLDERS
1. Any direct or indirect damage, fee, expense or cost of any nature relating to
litigation instituted by any of Messrs. Allen Izadpanah, Fred Page, Terry Page,
Douglas Stup, Earl Cunard, Ms. Janice Cunard, Craft Industries and/or 87 Adiant
Limited Partnership and/or any of their affiliates against the Company and/or
any of the Company's direct or indirect subsidiaries and/or affiliates.
<PAGE>
ANNEX III
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
(1) Total consideration to be paid to the STOCKHOLDERS on the Closing Date:
$7,500,000 in cash and $7,500,000/IPO price per share shares of
CTS Stock.
(2) Contingent consideration of up to $9,000,000 in cash and shares of CTS
Stock will be paid to the STOCKHOLDERS contingent on the 1998 and 1999
financial performance of the COMPANY. Contingent consideration (if
earned) is being offered herein in view of the differences of opinion
between CTS and the STOCKHOLDERS regarding the value of the COMPANY's
business, including without limitation its growth rate, sustainability
of customer base and operating margins. Accordingly, the contingent
portion of the consideration (if any) will enable the total
consideration to be based on the actual value of the COMPANY's
business.
The following details the potential contingent consideration for the
COMPANY:
% Cash /
Conditions Basis of Earnout Calculation (1) % Equity(2)
- --------------------------------------------------------------------------------
1998 earn-out Consideration 6.0 x Pre-tax Income over 35.0%
cannot exceed $3,850,000 65.0%
$4,500,000
1999 earn-out Consideration 6.0 x Pre-tax Income over 35.0%
cannot exceed $4,200,000 65.0%
$4,500,000
(1) Pre-tax Income shall be calculated as follows:
(i) November 1, 1997 through December 31, 1998: Pre-tax Income shall
equal the COMPANY's earnings after interest, depreciation and
amortization, but before Federal and state taxes for the period from
November 1, 1997 through December 31, 1998, calculated in accordance with
GAAP in the manner applied in the audited financial statements of the
COMPANY included in the Registration Statement, but without giving
effect to (x) any intercompany costs or charges imposed by CTS for
services provided to the COMPANY (other than charges for services
provided by CTS that were previously arranged for and independently paid
by the COMPANY, including, without limitation, audit fees, insurance
costs, and general overhead), (y) the amortization of intangible assets
resulting from the transactions contemplated by the Agreement or (z)
deferred revenue released to income which is not reinstated through new
or additional deferred revenue generated in the COMPANY's ordinary
course of business, other than up to $850,000 (such amount being
referred to as the the "Postal Service Contract Deferred Revenue
Amount") of deferred revenue that has been released to income which was
generated under that certain U.S.
<PAGE>
Postal Service Contract, dated July 1997, by and between the COMPANY
and the U.S. Postal Service (the "Postal Service Contract"). Notwithstanding
the foregoing, Pre-tax Income for such period shall include all costs or
other charges imposed for services or products provided by CTS to the
COMPANY for use in connection with the servicing of the COMPANY's customers.
(ii) January 1, 1999 through December 31, 1999: Pre-tax Income shall
equal the COMPANY's earnings after interest, depreciation and
amortization, but before Federal and state taxes for the period from
January 1, 1999 through December 31, 1999, calculated in accordance with
GAAP in the manner applied in the audited financial statements of the
COMPANY included in the Registration Statement, but without giving
effect to (x) any intercompany costs or charges imposed by CTS for
services provided to the COMPANY (other than charges for services
provided by CTS that were previously arranged for and independently paid
by the COMPANY, including, without limitation, audit fees, insurance
costs, and general overhead), (y) the amortization of intangible assets
resulting from the transactions contemplated by the Agreement or (z)
deferred revenue released to income which is not reinstated through new
or additional deferred revenue generated in the COMPANY's ordinary
course of business, other than up to the difference of $850,000 less the
Postal Service Contract Deferred Revenue Amount of deferred revenue that
has been released to income which has been generated under the Postal
Service Contract. Notwithstanding the foregoing, Pre-tax Income for
such period shall include all costs or other charges imposed for
services or products provided by CTS to the COMPANY for use in
connection with the servicing of the COMPANY's customers.
(2) The equity to be delivered hereunder shall be valued at a per share
price equal to one-tenth (1/10) of the sum of the closing price per share
of the CTS Stock as reported by the "Exchange" (as defined in Section
3(a)(1) of the 1934 Act) on which the CTS Stock is traded at the close of
each of the last ten business days immediately prior to the date the
contingent consideration is paid. If the CTS Stock is not traded on any
Exchange, then the value of the equity shall be determined by one appraiser
selected upon mutual agreement of CTS and the STOCKHOLDERS who hold a
majority of the CTS Stock issued and outstanding under the Agreement at
such time of determination, whose fees and expenses shall be paid one-half
by CTS and one-half by such STOCKHOLDERS.
(3) The equity and cash delivered hereunder shall be delivered to the
STOCKHOLDERS, pro rata in accordance with their share ownership set forth
in Annex IV hereof, no later than 30 days after CTS has received from its
independent accountants audited consolidated financial statements for CTS.
<PAGE>
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF ORGANIZATION
dated as of October 1, 1997
by and among
CONDOR TECHNOLOGY SOLUTIONS, INC.
ACCESS ACQUISITION CORP.
(a subsidiary of Condor Technology Solutions, Inc.)
CORPORATE ACCESS, INC.
and
the STOCKHOLDERS named herein
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
1. THE MERGER.......................................................7
1.1 Delivery and Filing of Articles of Merger..................7
1.2 Effective Time of the Merger...............................7
1.3 Certificate of Incorporation, By-laws and Board of
Directors of Surviving Corporation.........................7
1.4 Certain Information With Respect to the Capital Stock
of the COMPANY, CTS and NEWCO..............................8
2. CONVERSION OF STOCK..............................................8
2.1 Manner of Conversion.......................................8
3. DELIVERY OF MERGER CONSIDERATION.................................9
4. CLOSING.........................................................11
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND
STOCKHOLDERS....................................................12
5.1 Due Organization..........................................12
5.2 Authorization.............................................12
5.3 Capital Stock of the COMPANY..............................13
5.4 Transactions in Capital Stock; Organization Accounting....13
5.5 No Bonus Shares...........................................13
5.6 Subsidiaries..............................................13
5.7 Predecessor Status; etc...................................14
5.8 Spin-off by the COMPANY...................................14
5.9 Financial Statements......................................14
5.10 Liabilities and Obligations...............................14
5.11 Accounts and Notes Receivable.............................15
5.12 Intellectual Property; Permits and Intangibles............15
5.13 Environmental Matters.....................................16
5.14 Personal Property.........................................18
5.15 Significant Customers; Material Contracts and
Commitments...............................................18
5.16 Real Property.............................................20
5.17 Insurance.................................................21
5.18 Compensation; Employment Agreements; Organized
Labor Matters.............................................23
5.19 Employee Plans............................................24
5.20 Compliance with ERISA.....................................24
5.21 Conformity with Law; Litigation...........................25
5.22 Taxes.....................................................26
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5.23 No Violations.............................................29
5.24 Government Contracts......................................29
5.25 Business Conduct..........................................29
5.26 Deposit Accounts; Powers of Attorney......................31
5.27 Relations with Governments................................31
5.28 Disclosure................................................32
5.29 Prohibited Activities.....................................33
5.30 Affiliate Transactions....................................33
5.31 Misrepresentation.........................................33
5.33 Authority; Ownership......................................35
5.34 Preemptive Rights.........................................35
5.35 No Intention to Dispose of CTS Stock......................35
5.36 Questionnaires. ..........................................35
6. REPRESENTATIONS OF CTS AND NEWCO................................35
6.1 Due Organization..........................................36
6.2 Authorization.............................................36
6.3 Transaction Not a Breach..................................36
6.4 Misrepresentation.........................................36
6.5 Capital Stock.............................................37
6.6 Subsidiaries..............................................37
6.7 Conformity with Law; Litigation...........................37
7. COVENANTS PRIOR TO CLOSING......................................38
7.1 Access and Cooperation; Due Diligence.....................38
7.2 Conduct of Business Pending Closing.......................39
7.3 Prohibited Activities.....................................39
7.4 No Shop...................................................41
7.5 Notice to Bargaining Agents...............................41
7.6 Agreements................................................41
7.7 Notification of Certain Matters...........................41
7.8 Amendment of Schedules....................................42
7.9 Cooperation in Preparation of Registration Statement......44
7.10 Final Financial Statements................................45
7.11 Further Assurances........................................45
7.12 Approval of Merger Agreement..............................45
7.13 Payment of Indebtedness...................................45
7.14 Distributions.............................................45
7.15 Accumulated Adjustments Account...........................45
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS
AND THE COMPANY.................................................46
8.1 Representations and Warranties............................46
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8.2 Performance of Obligations................................46
8.3 No Litigation.............................................46
8.4 Opinion of Counsel........................................46
8.5 Consents and Approvals....................................46
8.6 Good Standing Certificates................................47
8.8 Secretary's Certificate...................................47
8.9 Employment Agreements.....................................47
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CTS AND NEWCO............47
9.1 Representations and Warranties............................47
9.2 Performance of Obligations................................48
9.3 No Litigation.............................................48
9.4 Clerk's Certificate.......................................48
9.5 No Material Adverse Change................................48
9.6 STOCKHOLDERS' Release.....................................48
9.7 Termination of Related Party Agreements...................48
9.8 Opinion of Counsel........................................48
9.9 Consents and Approvals....................................49
9.10 Good Standing Certificates................................49
9.11 Registration Statement....................................49
9.12 Employment Agreements.....................................49
9.13 Closing of IPO............................................49
9.14 FIRPTA Certificate........................................49
9.15 Consummation of Other Agreements..........................49
9.16 A/R Aging Reports.........................................49
9.17 Satisfaction..............................................50
9.18 Payment of Indebtedness...................................50
10. COVENANTS OF CTS AND THE STOCKHOLDERS AFTER CLOSING.............50
10.1 Preservation of Tax and Accounting Treatment..............50
10.2 Preparation and Filing of Tax Returns.....................50
10.3 Directors and Officers....................................51
10.4 Preservation of Employee Benefit Plans....................51
11. INDEMNIFICATION.................................................51
11.1 General Indemnification by the STOCKHOLDERS...............51
11.2 Indemnification by CTS....................................52
11.3 Third Person Claims.......................................53
11.4 Exclusive Remedy..........................................54
11.5 Limitations on Indemnification............................54
12. TERMINATION OF AGREEMENT........................................55
12.1 Termination...............................................55
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12.2 Liabilities in Event of Termination.......................56
13. NONCOMPETITION..................................................56
13.1 Prohibited Activities.....................................56
13.2 Damages...................................................57
13.3 Reasonable Restraint......................................57
13.4 Severability; Reformation.................................58
13.5 Independent Covenant......................................58
13.6 Materiality...............................................58
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.......................58
14.1 Stockholders..............................................58
14.2 CTS AND NEWCO.............................................59
14.3 Damages...................................................59
14.4 Survival..................................................60
15. TRANSFER RESTRICTIONS...........................................60
15.1 Transfer Restrictions.....................................60
16. REGISTRATION RIGHTS.............................................61
16.1 Piggyback Registration Rights.............................61
16.2 Registration Procedures...................................61
16.3 Underwriting Agreement....................................62
16.4 Availability of Rule 144..................................62
16.5 Market Standoff...........................................62
17. GENERAL.........................................................62
17.1 Cooperation...............................................62
17.2 Successors and Assigns....................................63
17.3 Entire Agreement..........................................63
17.4 Counterparts..............................................63
17.5 Brokers and Agents........................................63
17.6 Expenses..................................................63
17.7 Notices...................................................64
17.8 Governing Law.............................................65
17.9 Exercise of Rights and Remedies...........................65
17.10 Time......................................................65
17.11 Reformation and Severability..............................65
17.12 Remedies Cumulative.......................................66
17.13 Captions..................................................66
17.14 Amendments and Waivers....................................66
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ANNEX I FORM OF ARTICLES OF MERGER
ANNEX II CERTIFICATE OF INCORPORATION AND BY-LAWS OF
CTS AND NEWCO
ANNEX III CONSIDERATION TO BE PAID TO STOCKHOLDERS
ANNEX IV STOCKHOLDERS AND STOCK OWNERSHIP OF THE
COMPANY
ANNEX V [INTENTIONALLY OMITTED]
ANNEX VI FORM OF OPINION OF COUNSEL TO CTS
ANNEX VII FORM OF OPINION OF COUNSEL TO COMPANY AND
STOCKHOLDERS
ANNEX VIII FORM OF EMPLOYMENT AGREEMENT
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (this "Agreement") is made as of
September __, 1997, by and among CONDOR TECHNOLOGY SOLUTIONS, INC., a Delaware
corporation ("CTS"), ACCESS ACQUISITION CORP., a Delaware corporation ("NEWCO"),
CORPORATE ACCESS, INC., a ___________ corporation (the "COMPANY"), Richard
Marino, Sebastian Tine and Margaret Pike (the "STOCKHOLDERS"). The STOCKHOLDERS
are all of the stockholders of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing under the laws
of the State of Delaware, having been incorporated on July 7, 1997, solely for
the purpose of completing the transactions set forth herein, and is a
wholly-owned subsidiary of CTS;
WHEREAS, the respective Boards of Directors of NEWCO and the COMPANY
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the Constituent
Corporations and their respective stockholders that NEWCO merge with and into
the COMPANY pursuant to this Agreement and the applicable provisions of the laws
of the State of Delaware and the Commonwealth of Massachusetts (the "Merger"),
and in furtherance thereof have approved the Merger;
WHEREAS, CTS is entering into other separate agreements substantially
similar to this Agreement (the "Other Agreements"), each of which is entitled
"Agreement and Plan of Organization," with companies in the information
technology industry (collectively, the "Other Founding Companies"), and their
respective stockholders in order to acquire additional information technology
companies. The COMPANY, together with each of the entities with which CTS has
entered into the Other Agreements, are collectively referred to herein as the
"Founding Companies;"
WHEREAS, this Agreement, the Other Agreements and the IPO (as hereinafter
defined) of CTS Stock (as hereinafter defined) constitute the "CTS Plan of
Organization;"
WHEREAS, the Boards of Directors of CTS and each of the Founding Companies
have approved and adopted the CTS Plan of Organization as an integrated plan to
transfer the capital stock of the Founding Companies to CTS and the cash raised
in the IPO of CTS Stock to CTS as a transfer of property under Section 351 of
the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the STOCKHOLDERS and the Board of
Directors of the COMPANY and the stockholders and the boards of directors of
each of
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CTS and NEWCO have approved this Agreement and the transactions contemplated
hereby;
WHEREAS, unless the context otherwise requires, capitalized terms used in
this Agreement or in any schedule attached hereto and not otherwise defined
herein shall have the following meanings for all purposes of this Agreement:
"Accumulated Adjustments Account" means accumulated adjustments account as
defined in Section 1368(e)(1) of the Code.
"Acquired Party" means the COMPANY, any subsidiary and any member of a
Relevant Group.
"Acquisition Companies" means NEWCO and each of the other Delaware
companies wholly-owned by CTS prior to the Closing Date.
"Acquisition Transaction" has the meaning set forth in Section 7.4.
"Affiliates" has the meaning set forth in Section 5.8.
"A/R Aging Reports" has the meaning set forth in Section 9.16.
"Articles of Merger" means those Articles or Certificates of Merger with
respect to the Merger substantially in the form[s] attached as Annex I hereto or
with such changes therein as may be required by applicable state laws.
"Balance Sheet Date" means June 30, 1996.
"Benefit Plan" means any Plan, existing at the Closing Date or prior
thereto, established or to which contributions have at any time been made by the
COMPANY, any ERISA Affiliate, or any predecessor of any of the foregoing, under
which any employee or former employee of the COMPANY, or any beneficiary
thereof, is covered, is eligible for coverage or has benefit rights.
"CTS" has the meaning set forth in the first paragraph of this Agreement.
"CTS Charter Documents" has the meaning set forth in Section 6.1.
"CTS Plan of Organization" has the meaning set forth in the fourth recital
of this Agreement.
"CTS Stock" means the common stock, par value $.01 per share, of CTS.
"Charter Documents" has the meaning set forth in Section 5.1.
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"Closing" means the consummation of the transactions contemplated by this
Agreement on the Closing Date.
"Closing Date" has the meaning set forth in Section 4.
"Code" has the meaning set forth in the fifth recital of this Agreement.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Delaware Law" has the meaning set forth in Section 1.2.
"Effective Time of the Merger" means the time as of which the Merger
becomes effective, which the parties hereto contemplate to occur on the Closing
Date.
"Environmental Requirements" has the meaning set forth in Section 5.13.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any Person who is, or at any time was, a member of
a controlled group (within the meaning of Section 412(n)(6) of the Code) that
includes, or at any time included, the COMPANY or any predecessor of the
COMPANY.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" has the meaning set forth in the third recital of
this Agreement.
"GAAP" means generally accepted accounting principles of the United States
applied in a manner consistent with the past practices of the COMPANY.
"Governmental Authority" means any governmental, regulatory or
administrative body, agency, subdivision or authority, any court or judicial
authority, or any public, private or industry regulatory authority, whether
national, Federal, state, local or otherwise.
"Guarantee" means any guarantee or other contingent liability (other than
any endorsement for collection or deposit in the ordinary course of business),
direct or indirect with respect to any Indebtedness or obligations of another
Person, through a
3
<PAGE>
contract or otherwise, including, without limitation (a) any other endorsement
or discount with recourse or undertaking substantially equivalent to or having
economic effect similar to a guarantee in respect of any such obligation or to
assure the owner thereof against loss regardless of the delivery or nondelivery
of the property, products, materials or supplies or transportation or services
or (b) to make any loan, advance or capital contribution to or other investment
in, or to otherwise provide funds to or for, such other Person in respect of
enabling such Person to satisfy an obligation (including any liability for a
dividend, stock liquidation payment or expense) or to assure a minimum equity,
working capital or other balance sheet condition in respect of any such
obligation.
"Hazardous Materials" has the meaning set forth in Section 5.13(b).
"Intellectual Property" means all trademarks, service marks, trade dress,
trade names, patents and copyrights and any registration or application for any
of the foregoing, and any trade secret, invention, process, know-how, computer
software or technology systems.
"Indebtedness" means any obligation for borrowed money by the COMPANY, and
in any event shall include (i) all obligations of the COMPANY evidenced by
bonds, debentures, notes or other similar instruments, (ii) whether or not so
included as liabilities in accordance with GAAP, any obligation incurred for all
or any part of the purchase price of property or other assets or for the cost of
property or other assets constructed or of improvements thereto, (iii) any
obligation, contingent or otherwise, related to the face amount of all letters
of credit, whether or not drawn, for the account of the COMPANY and banker's
acceptances issued for the account of the COMPANY, (iv) obligations (whether or
not the COMPANY has assumed or become liable for the payment of such obligation)
secured by any lien, (v) capitalized lease obligations, (vi) all Guarantees of
the COMPANY, (vii) all accrued interest, fees and charges in respect of any
Indebtedness, (viii) any agreement, undertaking or arrangement by which the
COMPANY guarantees, endorses or otherwise becomes or is contingently liable upon
(by direct or indirect agreement, contingent or otherwise, to provide funds for
payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise
to assure a creditor against loss) the indebtedness, obligation or any other
liability of any other Person, or guarantees the payment of dividends or other
distributions upon the shares of any other Person, (ix) all prepayment premiums
and penalties, and any other fees, expenses, indemnities and other amounts
payable as a result of the prepayment and/or discharge of any Indebtedness and
(x) all other items which, in accordance with GAAP, would be included as
liabilities on the liability side of the balance sheet of the COMPANY as of the
date at which Indebtedness is to be determined. Notwithstanding the foregoing,
Indebtedness shall not include (i) the COMPANY's then current liabilities, other
than for money borrowed, including without limitation, trade payable included in
current liabilities and incurred in the ordinary course of business and (ii)
amounts deemed to be "current" under that certain Agreement for Wholesale
Financing, dated as of February 19, 1997, by and between the COMPANY and
Deutsche Financial Services Corporation.
4
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"IPO" means the initial public offering of CTS Stock pursuant to the
Registration Statement.
"Laws" has the meaning set forth in Section 5.21.
"Material Adverse Effect" means, with respect to any Person, any event or
occurrence which would have a material adverse effect on such Person's business,
condition (financial or other), properties, business prospects or financial
results.
"Material Contract" means any lease, instrument, agreement, license or
permit set forth on Schedule 5.12, 5.13, 5.14, 5.15, 5.16, 5.18 or 5.19 or any
other material agreement to which the Company is a party or by which its
properties are bound.
"Merger" means the merger of NEWCO with and into the COMPANY pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware and the Commonwealth of Massachusetts.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO STOCK" means the common stock, par value $.01 per share, of
NEWCO.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Other Agreements" has the meaning set forth in the third recital of this
Agreement.
"Other Founding Companies" has the meaning set forth in the third recital
of this Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means any corporation, partnership, joint venture, organization,
entity, Governmental Authority or natural person.
"Plan" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance, severance,
separation or other employee benefit plan, practice, policy or arrangement of
any kind, whether written or oral, or whether for the benefit of a single
5
<PAGE>
individual or more than one individual including, but not limited to, any
"employee benefit plan" within the meaning of Section 3(3) of ERISA.
"Pre-Closing Date" has the meaning set forth in Section 4.
"Pricing" means the date of determination by CTS and the Underwriters of
the public offering price of the shares of CTS Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on or immediately prior to
the Pre-Closing Date.
"Registration Statement" means that certain registration statement of CTS
on Form S-1 covering the shares of CTS Stock to be issued in the IPO.
"Relevant Group" has the meaning set forth in Section 5.22(a).
"Returns" has the meaning set forth at the end of Section 5.22.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 7.3(e).
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Stockholders' Equity" means the COMPANY's stockholders' equity, including
retained earnings, as set forth on the balance sheet of the COMPANY as of the
Closing Date; provided, that such determination will reflect all reserves,
accruals, and adjustments required by GAAP to be, and/or customarily, reflected
in year-end financial statements.
"Surviving Corporation" shall mean the COMPANY as the surviving party in
the Merger.
"Tax" or "Taxes" has the meaning set forth at the end of Section 5.22.
"Taxing Authority" has the meaning set forth at the end of Section 5.22.
"Third Person" has the meaning set forth in Section 11.2.
"Transfer Taxes" has the meaning set forth in Section 17.6.
6
<PAGE>
"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
"Underwriting Agreement" means the Underwriting Agreement dated the
Closing Date between the Underwriters and CTS in respect of the IPO.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 Delivery and Filing of Articles of Merger. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and filed
with the Secretary of State of the State of Delaware and the Secretary of State
of the Commonwealth of Massachusetts and stamped receipt copies of each such
filing to be delivered to CTS on or before the Pre-Closing Date.
1.2 Effective Time of the Merger. At the Effective Time of the Merger and
subject to the terms and conditions of this Agreement and the applicable
provisions of the Delaware General Corporation Law (the "Delaware Law"), NEWCO
shall be merged with and into the COMPANY in accordance with the Articles of
Merger, the separate existence of NEWCO shall cease and the COMPANY shall be the
surviving party in the Merger. At the Effective Time of the Merger, the effect
of the Merger otherwise shall be as provided in the applicable provisions of
Delaware Law and the law of the Commonwealth of Massachusetts. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time of
the Merger, all the property, rights, privileges, powers and franchises of the
COMPANY and NEWCO shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the COMPANY and NEWCO shall become the debts,
liabilities and duties of the Surviving Corporation. The Merger will be effected
in a single transaction.
1.3 Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(a) the Articles of Organization of the COMPANY then in effect shall
be the Certificate or Articles of Incorporation of the Surviving
Corporation until amended as provided by law;
(b) the By-laws of the COMPANY then in effect shall be the By-laws
of the Surviving Corporation until amended as provided by law;
(c) a director of NEWCO and two nominees of the COMPANY shall be the
directors of the Surviving Corporation until their respective successors
are
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elected or appointed and qualified in accordance with the terms the
By-laws of the Surviving Corporation; the Board of Directors of the
Surviving Corporation shall hold office subject to the provisions of the
laws of the Commonwealth of Massachusetts and of the Certificate of
Incorporation and By-laws of the Surviving Corporation; and
(d) the officers of the COMPANY immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities, and effective upon the
Effective Time of the Merger, J. Marshall Coleman shall be appointed as a
vice president and assistant clerk of the Surviving Corporation and shall
not be entitled to any compensation from the COMPANY as a result of such
appointment and his serving in such capacity, such officers to serve,
subject to the provisions of the Articles of Organization and By-laws of
the Surviving Corporation, until his or her successor is duly elected and
qualified.
1.4 Certain Information With Respect to the Capital Stock of the COMPANY,
CTS and NEWCO. The respective designations and numbers of outstanding shares and
voting rights of each class of outstanding capital stock of the COMPANY, CTS and
NEWCO as of the date of this Agreement are as follows:
(a) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 1.4 hereto;
(b) immediately prior to the Closing Date, the authorized capital
stock of CTS will consist of 50,000,000 shares; and
(c) as of the date of this Agreement, the authorized capital stock
of NEWCO consists of 3,000 shares of NEWCO Stock, of which ten (10) shares
are issued and outstanding and beneficially owned by CTS.
2. CONVERSION OF STOCK
2.1 Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) CTS Stock and (y) common stock of the Surviving
Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(a) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger will be canceled and
extinguished and, by virtue of the Merger and without any action on the
part of
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the holder thereof, automatically shall be deemed to represent, with
respect to each STOCKHOLDER, (1) the right to receive the number of shares
of CTS Stock set forth on Annex III hereto with respect to such
STOCKHOLDER and (2) the right to receive the amount of cash set forth on
Annex III hereto with respect to such STOCKHOLDER;
(b) all shares of COMPANY Stock that are held by the COMPANY as
treasury stock shall be canceled and retired and no shares of CTS Stock or
other consideration shall be delivered or paid in exchange therefor; and
(c) each share of NEWCO Stock issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger
and without any action on the part of CTS, automatically be converted into
one fully paid and non-assessable share of common stock of the Surviving
Corporation, which shall constitute all of the issued and outstanding
shares of common stock of the Surviving Corporation immediately after the
Effective Time of the Merger.
All CTS Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 5 and
15 hereof and the registration rights described in Section 16 hereof, have the
same rights as all the other shares of outstanding CTS Stock by reason of the
provisions of the Certificate of Incorporation of CTS or as otherwise provided
by the Delaware Law. All voting rights of such CTS Stock received by the
STOCKHOLDERS shall be fully exercisable by the STOCKHOLDERS and the STOCKHOLDERS
shall not be deprived nor restricted in exercising those rights. At the
Effective Time of the Merger, CTS shall have no class of capital stock issued
and outstanding other than the CTS Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 At the Effective Time of the Merger and on the Closing Date the
STOCKHOLDERS, who are the holders of all outstanding certificates representing
shares of COMPANY Stock, shall, upon surrender of such certificates, receive (i)
the respective number of shares of CTS Stock and (ii) the amount of cash, all as
set forth on Annex III hereto with respect to such STOCKHOLDER (collectively,
the "Merger Consideration"). The cash portion of the Merger Consideration shall
be paid by wire transfers provided that such cash shall be paid out of the net
proceeds from the IPO. Notwithstanding the foregoing, the Merger Consideration
shall be (i) reduced, on a dollar-for-dollar basis, by the amount that
Stockholders' Equity, determined in accordance with Section 3.2, is less than
$546,695 and (ii) increased, on a dollar-for-dollar basis, by the amount that
Stockholders' Equity, determined in accordance with Section 3.2, is greater than
$546,695 (collectively, the "Purchase Price Adjustment") . In the event the
Merger Consideration is (x) reduced as a result of Section 3.2, then the CTS
Stock portion of the Merger Consideration shall be adjusted downward based on a
per share value equal to the initial public offering price of the CTS Stock as
set forth in the
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Registration Statement or (y) increased as a result of Section 3.2, then (1) the
cash portion of the Merger Consideration shall be first adjusted upward to a
maximum amount such that the cash portion of the Merger Consideration is no
greater than two-thirds of the Merger Consideration, then, if necessary, (2) the
CTS Stock portion of the Merger Consideration shall be adjusted upward based on
a per share value equal to the initial public offering price of the CTS Stock as
set forth in the Registration Statement.
3.2 (a) Within five (5) business days prior to the Closing Date, the
STOCKHOLDERS and the COMPANY will furnish to CTS their reasonable, good faith
estimate of Stockholders' Equity, including reasonable support and related
documentation therefor. The STOCKHOLDERS and the COMPANY will discuss and
consider in good faith any objections thereto by CTS, and if they thereafter
consider appropriate, modify their estimate of Stockholders' Equity.
(b) Within thirty (30) calendar days after the Closing Date, the
STOCKHOLDERS will prepare statements which shall set forth the calculation of
Stockholders' Equity (the "Stockholders' Equity Statements"), which will be
reviewed by CTS and Price Waterhouse ("PW"), as independent certified public
accountants for CTS. Within thirty (30) calendar days after CTS has received the
Stockholders' Equity Statements, CTS will deliver a report to the STOCKHOLDERS
setting forth any objections to the amount of Stockholders' Equity as set forth
in the Stockholders' Equity Statement (the "Report"). The STOCKHOLDERS shall
have the opportunity to review and evaluate all working papers, worksheets and
other documents utilized by CTS and PW in the preparation of the CTS Report.
(c) The STOCKHOLDERS and CTS will attempt to resolve any disputed
items relating to the determination of Stockholders' Equity as set forth in the
Stockholders' Equity Statement and the Report. Failing such resolution, CTS and
the STOCKHOLDERS will exchange within ten (10) calendar days of receipt of the
Stockholders' Equity Statement and the Report detailed written explanations of
those items that remain in dispute. Within a further period of ten (10) calendar
days from the end of the aforementioned review period, the parties will attempt
to resolve in good faith any disputed items.
(d) Failing resolution, the unresolved disputed items will be
referred for final binding resolution to the New York office of a "Big Six"
accounting firm as mutually agreed by CTS and the STOCKHOLDERS or to such other
arbitrator as the parties may hereafter jointly select (the "Arbitrator"). If
the Arbitrator determines that the resolution of a given disputed item requires
an interpretation of law, then the Arbitrator may request a law firm of national
standing chosen by it to resolve such matter. The amount of the Purchase Price
Adjustment affected by such unresolved disputed items (if any) will be as
determined by the Arbitrator. The Arbitrator shall be requested with respect to
all references to it to render its decision within thirty (30) calendar days of
a reference or as soon as practicable thereafter. The Arbitrator shall send
copies of its
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decision to CTS and the STOCKHOLDERS. The costs of such Arbitrator's review
(including reasonable attorneys' fees, if any) shall be borne by the party or
parties as determined by the Arbitrator, or absent any such determination,
equally by CTS and the STOCKHOLDERS. Sums payable pursuant to this Section 3.2
shall bear interest from the Closing Date to the date of payment at the "base"
lending rate of Citibank, N.A. in effect during such period, plus 2%.
3.3 The STOCKHOLDERS shall deliver in trust to Morgan, Lewis & Bockius
LLP, counsel to CTS, at the Pre-Closing the certificates representing COMPANY
Stock, duly endorsed in blank by the STOCKHOLDERS, or accompanied by stock
powers duly endorsed in blank, with signatures guaranteed by a national or state
chartered bank or other financial institution, and with all necessary Transfer
Tax and other revenue stamps, acquired at the STOCKHOLDERS' expense, affixed and
canceled. The STOCKHOLDERS agree promptly to cure any deficiencies with respect
to the endorsement of the stock certificates or other documents of conveyance
with respect to such COMPANY Stock or with respect to the stock powers
accompanying any COMPANY Stock. Upon consummation of the IPO and the
transactions contemplated to occur on the Closing Date, all of such certificates
shall be deemed released by such counsel to CTS without any further action on
the part of such counsel.
4. CLOSING
At or prior to the Pre-Closing, the parties shall take all actions
necessary to prepare to (i) effect the Merger (including, if permitted by
applicable state law, the advance filing with the appropriate state authorities
of the Articles of Merger, which shall become effective at the Effective Time of
the Merger) and (ii) effect the conversion and delivery of shares referred to in
Section 2 hereof; provided, that such actions shall not include the actual
completion of the Merger for purposes of this Agreement or the conversion and
delivery of the shares and transmission of funds by wire referred to in Section
3 hereof, each of which actions shall only be taken upon the Closing Date as
herein provided. In the event that there is no Closing and this Agreement
terminates, CTS hereby covenants and agrees to do all things required by
Delaware Law and all things which counsel for the COMPANY advise CTS are
required by applicable laws of the Commonwealth of Massachusetts in order to
rescind any merger or other actions effected by the advance filing of the
Articles of Merger as described in this Section. The taking of the actions
described in clauses (i) and (ii) above (the "Pre-Closing") shall take place on
the date of the execution of the underwriting agreement to be used in connection
with the IPO (the "Pre-Closing Date") at the offices of Morgan, Lewis & Bockius
LLP, 101 Park Avenue, New York, New York 10178. On the Closing Date (x) the
Articles of Merger shall have been filed with the appropriate state authorities
so that they shall be or, as of 8:00 a.m. New York City time on the Closing
Date, shall become effective and the Merger shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares, the transmission of funds by wire in an amount equal to the
cash portion of the consideration which the STOCKHOLDERS shall
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be entitled to receive pursuant to the Merger referred to in Section 3 hereof
shall be completed and (z) the closing with respect to the IPO shall occur and
be deemed to be completed. The date on which the actions described in the
preceding clauses (x), (y) and (z) occur shall be referred to as the "Closing
Date." Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) Representations and Warranties of the COMPANY and the STOCKHOLDERS
Each of the COMPANY and the STOCKHOLDERS jointly and severally represents
and warrants to CTS and NEWCO that all of the following representations and
warranties in this Section 5(A) are true and correct at the date of this
Agreement and, subject to Section 7.8 hereof, shall be true and correct at the
time of the Pre-Closing and the Closing Date, and that such representations and
warranties shall survive the Closing Date for a period of eighteen months (the
last day of such period being the "Expiration Date"), except that (i) the
representations and warranties set forth in Section 5.22 hereof shall survive
until such time as the statute of limitations period has run for all tax periods
ended on or prior to the Closing Date, which shall be deemed to be the
Expiration Date for Section 5.22, and (ii) solely for purposes of Section
11.1(iii) hereof and solely to the extent that, in connection with the IPO, CTS
actually incurs liability under the 1933 Act, the 1934 Act, or any other Federal
or state securities laws, the representations and warranties set forth in this
Section 5(A) shall survive until the expiration of any applicable statute of
limitations period, which shall be deemed to be the Expiration Date for such
purposes. For purposes of this Section 5 and for the opinion referred to in
Section 9.8 of this Agreement, the term "COMPANY" shall mean and refer to the
COMPANY and all of its subsidiaries, if any.
5.1 Due Organization. The COMPANY is a corporation duly incorporated,
validly existing and in good standing under the laws of the state of its
incorporation, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted, to own
or hold under lease the properties and assets it now owns or holds under lease,
and to perform all of its obligations under the Material Contracts; is duly
qualified in the jurisdictions listed in Schedule 5.1 and there are no other
jurisdictions in which the conduct of the COMPANY's business or activities or
its ownership of assets requires any other qualification under applicable law,
the absence of which would have a Material Adverse Effect on the COMPANY. True,
complete and correct copies of the Articles of Organization and By-laws, each as
amended, of the COMPANY (the "Charter Documents") are all attached to Schedule
5.1. The minute books and stock records of the COMPANY, as heretofore made
available to CTS, are correct and complete in all material respects. The most
recent minutes of the COMPANY, which are dated no earlier than 10 business days
prior to the date hereof,
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affirm and ratify all prior acts of the COMPANY and of its officers and
directors on behalf of the COMPANY.
5.2 Authorization. The representatives of the COMPANY executing this
Agreement have the authority to execute and deliver this Agreement and to
perform its obligations hereunder. The execution and delivery of this Agreement
by the COMPANY and performance by the COMPANY of its obligations under this
Agreement and the consummation by the COMPANY of the transactions contemplated
hereby have been duly authorized by all necessary corporate and stockholder
action in accordance with applicable law and the Articles of Incorporation and
By-Laws of the COMPANY on the part of the COMPANY and the STOCKHOLDERS. This
Agreement constitutes the valid and binding obligation of the COMPANY,
enforceable in accordance with its terms.
5.3 Capital Stock of the COMPANY. The authorized capital stock of the
COMPANY is as set forth in Schedule 1.4. All of the issued and outstanding
shares of capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex IV and, except as set forth on Schedule 5.3, are
owned free and clear of all liens, security interests, pledges, charges, voting
trusts, restrictions, encumbrances and claims of every kind. All of the issued
and outstanding shares of capital stock of the COMPANY have been duly authorized
and validly issued, are fully paid and nonassessable, are owned of record and
beneficially by the STOCKHOLDERS and were offered, issued, sold and delivered by
the COMPANY in compliance with all applicable state and Federal laws concerning
the issuance of securities. The COMPANY and the STOCKHOLDERS have full right,
power and authority to exchange the COMPANY Stock as provided herein without
obtaining the consent or approval of any other person or Governmental Authority.
Further, none of such shares were issued in violation of the preemptive
rights of any past or present stockholder.
5.4 Transactions in Capital Stock; Organization Accounting. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock since
January 1, 1994. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
COMPANY to issue any of its authorized but unissued capital stock or its
treasury stock; (ii) the COMPANY has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof; and (iii) neither the voting stock structure of the COMPANY nor the
relative ownership of shares among any of the STOCKHOLDERS has been altered or
changed in contemplation of the Merger and/or the CTS Plan of Organization.
Schedule 5.4 also includes complete and accurate copies of all stock option or
stock purchase plans, including a list of all outstanding options, warrants or
other rights to acquire shares of the COMPANY Stock and a description of the
material terms of such outstanding options, warrants or other rights.
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5.5 No Bonus Shares. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
5.6 Subsidiaries. Schedule 5.6 attached hereto lists the name of each of
the COMPANY's subsidiaries and sets forth the number and class of the authorized
capital stock of each of the COMPANY's subsidiaries and the number of shares of
each of the COMPANY's subsidiaries which are issued and outstanding, all of
which shares (except as set forth on Schedule 5.6) are owned by the COMPANY,
free and clear of all liens, security interests, pledges, voting trusts,
equities, restrictions, encumbrances and claims of every kind. Except as set
forth on Schedule 5.6, the COMPANY does not presently own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity nor is the COMPANY, directly or indirectly, a
participant in any joint venture, partnership or other non-corporate entity.
5.7 Predecessor Status; etc. Set forth on Schedule 5.7 is a list of all
names of all predecessor companies of the COMPANY, including the names of any
entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from which the COMPANY previously acquired material
assets. Except as disclosed on Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
5.8 Spin-off by the COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1994.
5.9 Financial Statements. The COMPANY has delivered to CTS copies of
the following financial statements (the "Financial Statements"):
(a) Audited Balance Sheets, Income Statements, Statements of
Stockholders' Equity and Statements of Cash Flows at and for the year
ended June 30, 1996 and 1997
Each of the Financial Statements is consistent with the books and records
of the COMPANY (which, in turn, are accurate and complete in all material
respects) and fairly presents the COMPANY's financial condition, assets and
liabilities as of their respective dates and the results of operations and cash
flows for the periods related thereto in accordance with GAAP, consistently
applied among the periods which are the subject of the Financial Statements,
except unaudited interim financial statements which were or are subject to
normal year-end adjustments which were not and are not expected to be material
in amount and the addition of required footnotes thereto.
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5.10 Liabilities and Obligations. The COMPANY has delivered to CTS an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY in excess of $10,000 which are not
reflected on the balance sheet of the COMPANY at the Balance Sheet Date or
otherwise reflected in the COMPANY Financial Statements at the Balance Sheet
Date and (ii) all loan agreements, indemnity or guaranty agreements, bonds,
mortgages, liens, pledges or other security agreements to which the COMPANY is a
party. Except as set forth on Schedule 5.10, since the Balance Sheet Date, the
COMPANY has not incurred any material liabilities of any kind, character and
description, whether accrued, absolute, secured or unsecured, contingent or
otherwise, other than liabilities incurred in the ordinary course of business.
The COMPANY has also set forth on Schedule 5.10, in the case of those contingent
liabilities related to pending or threatened litigation, or other liabilities
which are not fixed or are being contested, the following information:
(a) a summary description of the liability and has provided CTS's
counsel with: (i) copies of all relevant documentation relating thereto;
(ii) amounts claimed and any other action or relief sought; and (iii) name
of claimant and all other parties to the claim, suit or proceeding;
(b) the name of each court or agency before which such claim, suit
or proceeding is pending;
(c) the date such claim, suit or proceeding was instituted; and
(d) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such
liability. If no estimate is provided, the estimate shall for purposes of
this Agreement be deemed to be zero.
5.11 Accounts and Notes Receivable. The COMPANY has delivered to CTS an
accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY as of the Balance Sheet Date, including any such
amounts which are not reflected in the balance sheet as of the Balance Sheet
Date, and including receivables from and advances to employees and the
STOCKHOLDERS. Except to the extent reflected on Schedule 5.11 or as disclosed by
the COMPANY to CTS in a writing accompanying the A/R Aging Reports, as the case
may be, the accounts, notes and other receivables shown on Schedule 5.11 and on
the A/R Aging Reports are and shall be, and the COMPANY has no reason to believe
that any such account receivable is not or shall not be, collectible in the
amounts shown (in the case of the accounts and notes receivable set forth on
Schedule 5.11, net of reserves reflected in the balance sheet calculated
consistent with reserves as of the Balance Sheet Date).
5.12 Intellectual Property; Permits and Intangibles.
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(a) The COMPANY owns or has licenses to all Intellectual Property
the absence of any of which would have a Material Adverse Effect on the
COMPANY, and the COMPANY has delivered to CTS an accurate list (which is
set forth on Schedule 5.12(a)) of all Intellectual Property owned by or
licensed by the COMPANY. Each item of Intellectual Property owned by or
licensed by the COMPANY is valid and in full force and effect. Except as
set forth on Schedule 5.12(a), all right, title and interest in and to
each item of Intellectual Property is owned by the COMPANY and is not
subject to any license except as set forth on Schedule 5.12(a), royalty
arrangement or pending or threatened claim or dispute. To the COMPANY's
knowledge, none of the Intellectual Property owned by or licensed by the
COMPANY nor any product sold or licensed by the COMPANY, infringes any
Intellectual Property right of any other entity and to the COMPANY's
knowledge, no Intellectual Property owned by the COMPANY is infringed upon
by any other entity.
(b) The COMPANY holds all licenses, franchises, permits and other
governmental authorizations the absence of any of which could have a
Material Adverse Effect on the COMPANY, and the COMPANY has delivered to
CTS an accurate list and summary description (which is set forth on
Schedule 5.12(b)) of all governmental licenses, franchises, permits and
other governmental authorizations, including permits, titles, licenses,
franchises and certificates (it being understood and agreed that a list of
all environmental permits and other environmental approvals is set forth
on Schedule 5.13). To the knowledge of the COMPANY, the licenses,
franchises, permits and other governmental authorizations listed on
Schedules 5.12(b) and 5.13 are valid, and the COMPANY has not received any
notice that any Governmental Authority intends to cancel, terminate or not
renew any such license, franchise, permit or other governmental
authorization. The COMPANY has conducted and is conducting its business in
compliance with the requirements, standards, criteria and conditions set
forth in the licenses, franchises, permits and other governmental
authorizations listed on Schedules 5.12(b) and 5.13 and is not in
violation of any of the foregoing except where such non-compliance or
violation would not have a Material Adverse Effect on the COMPANY. Except
as specifically provided in Schedule 5.12(a) or 5.12(b), the transactions
contemplated by this Agreement will not (i) to the COMPANY's knowledge
result in the infringement by the COMPANY of any Intellectual Property
right of any other entity, (ii) infringe any Intellectual Property listed
on Schedule 5.12(a), or (iii) result in a default under or a breach or
violation of, or adversely affect the rights and benefits afforded to the
COMPANY by, any licenses, franchises, permits or government authorizations
listed on Schedule 5.12(b).
5.13 Environmental Matters.
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(a) Except as set forth on Schedule 5.13,
(i) the COMPANY is and at all times has been in compliance
in all material respects with, and has not been in
violation of or liable under, all Environmental
Requirements, and
(ii) the COMPANY possesses all permits, licenses and
certificates required by all Environmental Requirements,
and has filed all notices or applications required
thereby.
As used herein, "Environmental Requirements" shall mean all applicable
federal, state and local laws, rules, regulations, ordinances and
requirements relating to pollution and protection of the environment, all
as amended to date.
(b) Except as disclosed on Schedule 5.13:
(i) the COMPANY has not been subject to, or received any
notice of any private, administrative or judicial
action, or notice of any intended private,
administrative or judicial action relating to the
presence or alleged presence of Hazardous Materials in,
under or upon any real property currently or formerly
owned, leased or used by (A) the COMPANY or (B) any
other person that has, at any time, disposed of
Hazardous Materials on behalf of the COMPANY;
(ii) the COMPANY does not have any basis for any such
notice or action; and
(iii) there are no pending or, to the knowledge of the
COMPANY, threatened actions or proceedings (or notices
of potential actions or proceedings) from any
Governmental Authority or any other entity regarding any
matter relating to health, safety or protection of the
environment against the COMPANY.
"Hazardous Materials" for purposes of this Agreement shall include,
without limitation: (A) hazardous materials, hazardous substances,
extremely hazardous substances or hazardous wastes, as those terms are
defined by the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. ss.9601 et seq. ("CERCLA"), the Resource
Conservation and Recovery Act, 42 U.S.C. ss.6901 et seq. ("RCRA"), and any
other Environmental and Safety Requirements; (B) petroleum, including,
without limitation, crude oil or any fraction thereof which is liquid at
standard conditions of temperature and pressure
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(60 degrees Fahrenheit and 14.7 pounds per square inch absolute); (C) any
radioactive material, including, without limitation, any source, special
nuclear, or by-product material as defined in 42 U.S.C. ss.2011 et seq.;
and (D) asbestos in any form or condition.
(c) To the Company's knowledge, there are and have been no past or
present events, conditions, circumstances, activities, practices,
incidents or actions which could reasonably be expected to interfere with
or prevent continued compliance with any Environmental Requirements, give
rise to any legal obligation or liability, or otherwise form the basis of
any claim, action, suit, proceeding, hearing or investigation against or
involving the COMPANY or any real property presently or previously owned
or used by the COMPANY under any Environmental Requirements or related
common law theories, except as identified on Schedule 5.13.
(d) Schedule 5.13 sets forth the name and principal place of
business of every off-site waste disposal organization, and each of the
haulers, transporters or cartage organization engaged now or in the
preceding three years by the COMPANY to dispose of Hazardous Materials to
any such off-site waste disposal location on behalf of the COMPANY or any
of its predecessors.
5.14 Personal Property. The COMPANY has delivered to CTS an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property with a value
individually in excess of $10,000 which is included (or that will be included)
in "depreciable plant, property and equipment" (or similarly named line item) on
the balance sheet of the COMPANY as of the Balance Sheet Date, (y) all other
personal property owned by the COMPANY with a value individually in excess of
$10,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date and (z) all leases and agreements in respect of personal property
with a value individually in excess of $10,000, including, in the case of each
of (x), (y) and (z), (1) true, complete and correct copies of all such leases
which have been provided to CTS's counsel, (2) a listing of the capital costs of
all such assets which are subject to capital leases and (3) an indication as to
which assets are currently owned, or, to the COMPANY's knowledge, were formerly
owned, by STOCKHOLDERS or Affiliates of the COMPANY or STOCKHOLDERS. Except as
set forth on Schedule 5.14, (i) all personal property with a value individually
in excess of $10,000 used by the COMPANY in its business is either owned by the
COMPANY or leased by the COMPANY pursuant to a lease included on Schedule 5.14,
(ii) all of the personal property listed on Schedule 5.14 is in good working
order and condition, ordinary wear and tear excepted, and (iii) all leases and
agreements included on Schedule 5.14 are in full force and effect and constitute
valid and binding agreements of the COMPANY, and to the COMPANY's knowledge, of
the other parties (and their successors) thereto in accordance with their
respective terms.
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5.15 Significant Customers; Material Contracts and Commitments. The
COMPANY has delivered to CTS an accurate list (which is set forth on Schedule
5.15) of all significant customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person or entity) representing 5% or more of the COMPANY's annual revenues as of
the Balance Sheet Date. Except to the extent set forth on Schedule 5.15, none of
the COMPANY's significant customers has canceled or substantially reduced or, to
the knowledge of the COMPANY, is currently attempting or threatening to cancel a
contract or substantially reduce utilization of the services provided by the
COMPANY.
Except as listed or described on Schedule 5.15 as of or on the date
hereof, neither the COMPANY is a party to or bound by, nor do there exist any,
Contracts relating to or in any way affecting the operation or ownership of the
COMPANY's business that are of a type described below:
(a) any collective bargaining arrangement with any labor union or
any such agreement currently in negotiation or proposed;
(b) any contract for capital expenditures or the acquisition or
construction of fixed assets for or in respect to real property other than
in the COMPANY's ordinary course of business in excess of $50,000;
(c) any contract with a term in excess of one year for the purchase,
maintenance, acquisition, sale or furnishing of materials, supplies,
merchandise, machinery, equipment, parts or other property or services
(except that the COMPANY need not list any such contract made in the
ordinary course of business) which requires aggregate future payments of
greater than $100,000;
(d) any contract relating to the borrowing of money, or the guaranty
of another person's borrowing of money, including, without limitation, all
notes, mortgages, indentures and other obligations, agreements and other
instruments for or relating to any lending or borrowing, including assumed
indebtedness;
(e) any contract granting any person a lien on any of the assets of
the COMPANY, in whole or in part;
(f) any contract for the cleanup, abatement or other actions in
connection with Hazardous Materials (as defined in Section 5.13), the
remediation of any existing environmental liabilities or relating to the
performance of any environmental audit or study;
(g) any contract granting to any person a first-refusal, first-offer
or similar preferential right to purchase or acquire any of the assets of
the COMPANY's business other than in the ordinary course of business;
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(h) any contract under which the COMPANY is
(i) a lessee or sublessee of any machinery, equipment,
vehicle or other tangible personal property or real
property, or
(ii) a lessor of any real property or tangible personal
property owned by the COMPANY,
in either case having an original value in excess of $50,000;
(i) any contract providing for the indemnification of any officer,
director, employee or other person, where such indemnification may exceed
the sum of $50,000;
(j) any joint venture or partnership contract; and
(k) any other contract with a term in excess of one year, whether or
not made in the ordinary course of business, which involves payments in
excess of $100,000.
The COMPANY has provided CTS with a true and complete copy of each written
Material Contract, including all amendments or other modifications thereto.
Except as set forth on Schedule 5.15, each Material Contract is a valid and
binding obligation of the COMPANY, enforceable against the COMPANY in accordance
with its terms, and is in full force and effect. Except as set forth on Schedule
5.15, the COMPANY has performed all obligations required to be performed by it
under each Material Contract and neither the COMPANY nor, to the knowledge of
the COMPANY, any other party to any Contract, is (with or without the lapse of
time or the giving of notice or both) in breach or default in any material
respect thereunder; and there exists no condition which, to the knowledge of the
COMPANY, would constitute a breach or default thereunder. The COMPANY has not
been notified that any party to any Material Contract intends to cancel,
terminate, not renew or exercise an option under any Material Contract, whether
in connection with the transactions contemplated hereby or otherwise.
5.16 Real Property.
(a) Schedule 5.16(a) includes a list of all real property owned by
the COMPANY (i) as of the Balance Sheet Date and (ii) acquired since the
Balance Sheet Date, and all other real property, if any, used by the
COMPANY in the conduct of its business. The COMPANY has good and insurable
title to the real property owned by it, including that reflected on
Schedule 5.14, subject to no mortgage, pledge, lien, conditional sale
agreement, encumbrance or charge, except for:
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(i) liens reflected on Schedule 5.10 or 5.15 as securing
specified liabilities (with respect to which no default
by the COMPANY exists);
(ii) liens for current taxes not yet due and payable and
assessments not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other
exceptions to title shown of record in the office of the
County Clerks in which the properties, assets and
leasehold estates are located which do not adversely
affect the current use of the property.
Attached to Schedule 5.16(a) are true, complete and correct copies of all title
reports and title insurance policies currently in possession of the COMPANY with
respect to real property owned by the COMPANY.
(b) Schedule 5.16(b) includes an accurate list of real property
leases to which the COMPANY is a party and an indication as to which such
properties, if any, are currently owned, or were formerly owned, by
STOCKHOLDERS or Affiliates of the COMPANY or STOCKHOLDERS. Counsel to CTS
has been provided with true, complete and correct copies of all leases and
agreements in respect of such real property leased by the COMPANY. Except
as set forth on Schedule 5.16(b), all of such leases included on Schedule
5.16(b) are in full force and effect and constitute valid and binding
agreements of the COMPANY and, to the COMPANY'S knowledge, of the parties
(and their successors) thereto in accordance with their respective terms.
5.17 Insurance.
(a) The COMPANY has delivered to CTS:
(i) true and complete copies of all policies of insurance to
which the COMPANY is a party or under which the COMPANY,
or any director of the COMPANY, is or has been covered
at any time within two years preceding the date of this
Agreement;
(ii) true and complete copies of all pending applications for
policies of insurance; and
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(iii) any statement by the auditor of the COMPANY's financial
statements with regard to the adequacy of such entity's
coverage or of the reserves for claims.
(b) Schedule 5.17(b) describes:
(i) any self-insurance arrangement by or affecting the
COMPANY, including any reserves established thereunder;
(ii) any contract or arrangement, other than a policy of
insurance, for the transfer or sharing of any risk by
the COMPANY; and
(iii) all obligations of the COMPANY to third parties with
respect to insurance (including such obligations under
leases and service agreements), and identifies the
policy under which such coverage is provided.
(c) Schedule 5.17(c) sets forth, by year, for the current policy
year and each of the preceding two policy years:
(i) a summary of the loss experience under each policy;
(ii) a statement describing each claim under an insurance
policy for an amount in excess of $25,000, which sets
forth:
a) the name of the claimant;
b) a description of the policy by insurer, type of
insurance and period of coverage; and
c) the amount and a brief description of the claim; and
(iii) a statement describing the loss experience for all
claims that were self-insured, including the number and
aggregate cost of such claims.
(d) Except as set forth on Schedule 5.17(d):
(i) All policies to which the COMPANY is a party or that
provide coverage to the COMPANY:
a) are valid, outstanding and enforceable;
b) are issued by an insurer that is financially sound
and reputable;
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c) taken together, provide adequate insurance for the
assets and the operations of the COMPANY for all
risks normally insured against by a person
carrying on the same business or businesses of the
COMPANY;
d) are sufficient for compliance with all legal
requirements and Material Contracts to which the
COMPANY is a party or by which it is bound;
e) will continue in full force and effect following
the Closing in accordance with their respective
terms;
(ii) the COMPANY has not received (A) any refusal of coverage
or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation
or any other indication that any insurance policy is no
longer in full force or effect or will not be renewed or
that the issuer of any policy is not willing or able to
perform its obligations thereunder;
(iii) the COMPANY has paid all premiums due, and has otherwise
performed all of its obligations, under each policy to
which it is a party or that provides coverage to it or
any director thereof.
(iv) the COMPANY has given notice to the insurer of all
claims known by it to be insured thereby.
5.18 Compensation; Employment Agreements; Organized Labor Matters. The
COMPANY has delivered to CTS an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the COMPANY, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons as of (i) the
Balance Sheet Date and (ii) the date hereof. The COMPANY has provided to CTS
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
increases in the compensation payable or any special bonuses to any officer,
director, key employee or other employee, except ordinary salary increases
implemented on a basis consistent with past practices.
Except as set forth on Schedule 5.18, there is no, and within the last
three years the COMPANY has not experienced any, strike, picketing, boycott,
work stoppage or slowdown, other labor dispute, union organizational activity,
allegation, charge or complaint of unfair labor practice, employment
discrimination or other matters relating to
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the employment of labor, pending or, to the COMPANY's knowledge, threatened
against the COMPANY; nor is there, to the knowledge of the COMPANY, any basis
for any such allegation, charge or complaint. Except as set forth on Schedule
5.18, to the knowledge of the COMPANY, none of the employees of any critical
subcontractor utilized by the COMPANY are represented by a labor union. There is
no request directed to the COMPANY for union or similar representation pending
and, to the COMPANY's knowledge, no question concerning representation has been
raised. To the COMPANY's knowledge, there is no grievance pending which might
have a Material Adverse Effect on the COMPANY nor any which might have a
Material Adverse Effect on any arbitration proceeding arising out of any union
agreement. There are no arbitration awards, court orders, orders of the National
Labor Relations Board or private settlement agreements which in any way alter,
amend or clarify any union agreement or which restrict or otherwise impact the
COMPANY's ability to act with respect to the employees covered by any union
agreement in the future. To the COMPANY's knowledge, no key employee and no
group of employees has any plans to terminate employment with the COMPANY. The
COMPANY has complied in all material respects with all applicable laws relating
to the employment of labor, including provisions thereof relating to wages,
hours, equal opportunity, collective bargaining and the payment of social
security and other taxes. The COMPANY is not liable for any arrearages of wages
or any taxes or penalties for failure to comply with any such laws, ordinances
or regulation.
5.19 Employee Plans. The COMPANY has delivered to CTS an accurate schedule
(which is set forth on Schedule 5.19) showing all Benefit Plans of the COMPANY,
together with true, complete and correct copies of such Benefit Plans,
agreements and any trusts related thereto, and classifications of employees
covered thereby as of the Balance Sheet Date. The COMPANY is not required to
contribute to any Benefit Plan pursuant to the provisions of any collective
bargaining agreement establishing the terms and conditions of employment of any
of COMPANY's employees.
5.20 Compliance with ERISA. All Benefit Plans that are intended to qualify
under Section 401(a) of the Code are and have been so qualified and have been
determined by the Internal Revenue Service to be so qualified, and copies of
such determination letters are included as part of Schedule 5.19 hereof. Except
as disclosed on Schedule 5.20, all reports and other documents required to be
filed with any Governmental Authority or distributed to Plan participants or
beneficiaries (including, but not limited to, actuarial reports, audits or tax
returns) have been timely filed or distributed, and copies thereof are included
as part of Schedule 5.19 hereof other than those reports required to be
distributed to Plan participants and beneficiaries. None of the STOCKHOLDERS,
any such Benefit Plan, nor the COMPANY has engaged in any transaction prohibited
under the provisions of Section 4975 of the Code or Section 406 of ERISA. No
Benefit Plan has incurred an accumulated funding deficiency, as defined in
Section 412(a) of the Code and Section 302(1) of ERISA; and the COMPANY has not
incurred any liability for excise tax or penalty due to the Internal Revenue
Service nor any liability to the PBGC. The COMPANY further represents that:
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(a) there have been no terminations, partial terminations or
discontinuance of contributions to any such Benefit Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(b) no Benefit Plan subject to the provisions of Title IV of ERISA
has been terminated;
(c) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any Benefit Plan;
(d) the COMPANY has not incurred liability under Section 4062 of
ERISA;
(e) no circumstances exist pursuant to which the COMPANY could have
any direct or indirect liability whatsoever (including, but not limited
to, any liability to any multiemployer plan or the PBGC under Title IV of
ERISA or to the Internal Revenue Service for any excise tax or penalty, or
being subject to any statutory lien to secure payment of any such
liability) with respect to any Benefit Plan now or heretofore maintained
or contributed to by any entity other than the COMPANY that is, or at any
time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the COMPANY;
(f) the COMPANY is not now, nor can it as a result of its past
activities become, liable to the PBGC or to any multiemployer employee
pension benefit plan under the provisions of Title IV of ERISA;
(g) all Benefit Plans listed on Schedule 5.19 and the administration
thereof are in substantial compliance with their terms and all applicable
provisions of ERISA and the regulations issued thereunder, as well as with
all other applicable federal, state and local statutes, ordinances and
regulations; and
(h) all accrued contribution obligations of the COMPANY with respect
to any Benefit Plan have either been fulfilled in their entirety or are
fully reflected on the balance sheet of the COMPANY as of the Balance
Sheet Date.
5.21 Conformity with Law; Litigation. Except as set forth on Schedule 5.13
or 5.21, the COMPANY has complied with all laws, rules, regulations, writs,
injunctions, decrees, and orders applicable to it or to the operation of its
Business (collectively, "Laws") and has not received any notice of any alleged
claim or threatened claim, violation of, liability or potential responsibility
under, any such Law which has not heretofore been cured and for which there is
no remaining liability other than, in each case, those not having a Material
Adverse Effect on the COMPANY. Without limiting the generality of the foregoing,
the COMPANY has complied with all applicable federal, state and local Laws
relating to antitrust and trade regulations.
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Except to the extent set forth on Schedule 5.10 or 5.13 or as set forth on
Schedule 5.21 (which shall disclose the parties to, nature of, and relief sought
for each matter to be disclosed on Schedule 5.21) :
(a) There is no suit, action, proceeding, claim, order or, to the
Company's knowledge, investigation pending or, to the COMPANY's knowledge,
threatened against either the COMPANY or any Benefit Plan, or any
fiduciary of any such Benefit Plan or, to the knowledge of the COMPANY,
pending or threatened against any of the officers, directors or employees
of the COMPANY with respect to its business or proposed business
activities or to which the COMPANY is otherwise a party, which would have
a Material Adverse Effect on the COMPANY, before any court, or before any
Governmental Authority (collectively, "Claims"); nor, to the COMPANY's
knowledge, is there any basis for any such Claims.
(b) The COMPANY is not subject to any judgment, order or decree of
any court or Governmental Authority; the COMPANY has not received any
opinion or memorandum from legal counsel to the effect that it is exposed,
from a legal standpoint, to any liability or disadvantage which may be
material to its business. The COMPANY is not engaged in any legal action
to recover monies due it or for damages sustained by it.
(c) The COMPANY's current insurance is believed in good faith to be
adequate to cover all pending or threatened Claims, the COMPANY has given
all required notice of such Claims to its appropriate insurance carrier(s)
and/or all such claims have been fully reserved for on the financial
statements of the COMPANY has delivered to CTS pursuant to the terms of
this Agreement. Schedule 5.21 lists the insurer for each Claim covered by
insurance or designates each Claim, or portion of each Claim, as uninsured
and the individual and aggregate policy limits for the insurance covering
each insured Claim and the applicable policy deductibles for each insured
Claim.
Schedule 5.21 sets forth all closed litigation matters (other than
workers compensation claims) to which the COMPANY was a party during the
three years preceding the Closing, the date such litigation was commenced
and concluded, and the nature of the resolution thereof (including amounts
paid in settlement or judgment).
5.22 Taxes. Except as set forth on Schedule 5.22:
(a) All Returns required to have been filed by or with respect to
the COMPANY and any affiliated, combined, consolidated, unitary or similar
group of which the COMPANY is or was a member (a "Relevant Group") with
any Taxing Authority have been duly filed, and each such Return correctly
and completely reflects the Tax liability and all other information
required to be
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reported thereon. All Taxes (whether or not shown on any Return) owed by
the COMPANY, any subsidiary and any member of a Relevant Group
(individually, the "Acquired Party" and collectively, the "Acquired
Parties") have been paid.
(b) To the knowledge of the COMPANY and the STOCKHOLDERS, the
provisions for Taxes due by the COMPANY and any subsidiaries (as opposed
to any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) in the COMPANY Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of such Acquired Party.
(c) No Acquired Party is a party to any agreement extending the time
within which to file any Return. No claim has ever been made by any Taxing
Authority in a jurisdiction in which an Acquired Party does not file
Returns that it is or may be subject to taxation by that jurisdiction that
is unresolved or if adversely determined would have a Material Adverse
Effect on such Acquired Party.
(d) Each Acquired Party has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to
any employee, creditor, independent contractor or other third party.
(e) No Acquired Party expects any Taxing Authority to assess any
additional Taxes against or in respect of it for any past period. There is
no dispute or claim concerning any Tax liability of any Acquired Party
either (i) claimed or raised by any Taxing Authority or (ii) otherwise
known to any Acquired Party. No issues have been raised in any examination
by any Taxing Authority with respect to any Acquired Party which, by
application of similar principles, reasonably could be expected to result
in a proposed deficiency for any other period not so examined. Schedule
5.22(v) attached hereto lists all federal, state, local and foreign income
Tax Returns filed by or with respect to any Acquired Party for all taxable
periods ended on or after January 1, 1991, indicates those Returns, if
any, that have been audited, and indicates those Returns that currently
are the subject of audit. Each Acquired Party has delivered to CTS
complete and correct copies of all federal, state, local and foreign
income Tax Returns filed by, and all Tax examination reports and
statements of deficiencies assessed against or agreed to by, such Acquired
Party since January 1, 1991.
(f) No Acquired Party has waived any statute of limitations, the
waiver of which remains in effect on the date hereof, in respect of Taxes
or agreed to any extension of time with respect to any Tax assessment or
deficiency.
(g) No Acquired Party has made any payments, is obligated to make
any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not
deductible (i) under Section
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280G of the Code or (ii) as compensation under Section 162(m) of the Code
or any similar provision under state and/or local law.
(h) No Acquired Party is a party to any Tax allocation or sharing
agreement.
(i) None of the assets of any Acquired Party constitutes tax-exempt
bond financed property or tax-exempt use property, within the meaning of
Section 168 of the Code. No Acquired Party is a party to any "safe harbor
lease" that is subject to the provisions of Section 168(f)(8) of the
Internal Revenue Code as in effect prior to the Tax Reform Act of 1986, or
to any "long-term contract" within the meaning of Section 460 of the Code.
(j) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of any
state statutes, and none of the assets of any Acquired Party is subject to
an election under Section 341(f) of the Code or comparable provisions of
any state statutes.
(k) No Acquired Party is a party to any joint venture, partnership
or other arrangement that is treated as a partnership for federal income
Tax purposes.
(l) There are no accounting method changes or proposed or threatened
accounting method changes, of any Acquired Party that could give rise to
an adjustment under Section 481 of the Code for periods after the Closing
Date.
(m) No Acquired Party has received any written ruling of a Taxing
Authority related to Taxes or entered into any written and legally binding
agreement with a Taxing Authority relating to Taxes.
(n) Each Acquired Party has disclosed (in accordance with Section
6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns all
positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Section 6662(d)
of the Code.
(o) No Acquired Party has any liability for Taxes of any person
other than such Acquired Party (i) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign law),
(ii) as a transferee or successor, (iii) by contract or (iv) otherwise.
(p) The COMPANY made a valid election to be an S corporation, as
defined in Section 1361 of the Code, for Federal, state and local tax
purposes for its taxable year, beginning on July 1, 1996 under Section
1362(a) of the Code and corresponding provisions of the laws of the state
and local jurisdictions in which it is subject to tax, and has qualified
and has been taxed as an S corporation for Federal, state and local tax
purposes at all times since such date.
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(q) The COMPANY is not an investment company as defined in Section
351(e)(1) of the Code.
(r) The fair market value of the assets of the COMPANY exceeds the
sum of its liabilities, plus the amount of liabilities, if any, to which
the assets are subject.
(s) The COMPANY is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 351(e)(2) of the Code.
For purposes of this Section 5.22, the following definitions shall
apply:
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or Governmental Authority.
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatsoever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Taxing Authority" means any Governmental Authority, board, bureau,
body, department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
5.23 No Violations. The COMPANY is not in violation of any Charter
Document. Neither the COMPANY nor, to the knowledge of the COMPANY or the
STOCKHOLDERS, any other party thereto, is in default under any Material
Contract; and, except as set forth on Schedule 5.23, (a) the rights and benefits
of the COMPANY under the Material Contracts will not be adversely affected by
the transactions contemplated hereby and (b) the execution of this Agreement and
the performance by the COMPANY and the STOCKHOLDERS of their obligations
hereunder and the consummation by the COMPANY and the STOCKHOLDERS of the
transactions contemplated hereby will not result (i) in any violation or breach
of, or constitute a default under, any of the terms or provisions of the
Material Contracts or the Charter Documents or (ii) require the consent,
approval, waiver of any acceleration, termination or other right or remedy or
action of or by, or make any filing with or give any notice to, any other party.
Except as set forth on Schedule 5.23, none of the Material Contracts requires
notice to, or the consent or approval of, any Governmental Authority or other
third party with respect to any of the transactions contemplated hereby in order
to remain in full force and effect and consummation of the transactions
contemplated hereby will not give rise to any right to termination, cancellation
or acceleration or loss of any material right or benefit. Except as set forth on
Schedule 5.23, none of the Material
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Contracts prohibits the use or publication by the COMPANY, CTS or NEWCO of the
name of any other party to such Material Contracts, and none of the Material
Contracts prohibits or restricts the COMPANY from freely providing services to
any other customer or potential customer of the COMPANY, CTS, NEWCO or any Other
Founding Company.
5.24 Government Contracts. Except as set forth on Schedule 5.24, the
COMPANY is not a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 Business Conduct. Except as set forth on Schedule 5.25, since
December 31, 1996, the COMPANY has conducted its business only in the ordinary
course consistent with past custom and practices and has incurred no liabilities
other than in the ordinary course of business consistent with past custom and
practices. Except as forth on Schedule 5.25, since December 31, 1996, there has
not been any:
(a) Material adverse change in the COMPANY's operations, condition
(financial or otherwise), operating results, assets, liabilities,
employee, customer or supplier relations or business prospects;
(b) Damage, destruction or loss of any property owned by the COMPANY
or used in the operation of the business, whether or not covered by
insurance, having a replacement cost or fair market value in excess of
$50,000 affecting the COMPANY's property, financial status or the
Business;
(c) Voluntary or involuntary sale, transfer, surrender, abandonment
or other disposition of any kind by the COMPANY of any assets or property
rights (tangible or intangible), having a replacement cost or fair market
value in excess of $50,000, except in each case the sale of inventory and
collection of accounts in the ordinary course of business consistent with
past custom and practices;
(d) Loan or advance by the COMPANY to any party other than sales to
customers on credit in the ordinary course of business consistent with
past custom and practices;
(e) Declaration, setting aside, or payment of any dividend or other
distribution in respect to the COMPANY's capital stock, any direct or
indirect redemption, purchase, or other acquisition of such stock, or the
payment of principal or interest on any note, bond, debt instrument or
debt to any Affiliate;
(f) Incurrence of debts, liabilities or obligations except current
liabilities incurred in connection with or for services rendered or goods
supplied in the ordinary course of business consistent with past custom
and practices, liabilities on account of taxes and governmental charges
but not penalties, interest or fines in respect thereof, and obligations
or liabilities incurred by virtue of the
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execution of this Agreement;
(g) Issuance by the COMPANY of any notes, bonds, or other debt
securities or any equity securities or securities convertible into or
exchangeable for any equity securities;
(h) Cancellation, waiver or release by the COMPANY of any debts,
rights or claims, except in each case in the ordinary course of business
consistent with past custom and practices;
(i) Amendment of the COMPANY's Articles of Organization or By- Laws;
(j) Amendment or termination of any Material Contract, other than
expiration of such contract in accordance with its terms;
(k) Change in accounting principles, methods or practices
(including, without limitation, any change in depreciation or amortization
policies or rates) utilized by the COMPANY;
(l) Discharge or satisfaction of any material liability, encumbrance
or payment of any material obligation or liability, other than current
liabilities paid in the ordinary course of business consistent with past
custom and practices or cancellation of any debts or claims;
(m) Sale or assignment by the COMPANY of any tangible assets other
than in the ordinary course of business;
(n) Capital expenditures or commitments therefor by the COMPANY
other than in the ordinary course of business in excess of $100,000 in the
aggregate;
(o) Charitable contributions or pledges by the COMPANY in excess of
$25,000 per year in the aggregate;
(p) Mortgage, pledge or other encumbrance of any asset of the
COMPANY other than in the ordinary course of business;
(q) Adoption, amendment or termination of any Benefit Plan;
(r) Increase in the benefits provided under any Benefit Plan; or
(s) An occurrence or event not included in clauses (a) through (r)
that has or might be expected to have a Material Adverse Effect on the
COMPANY.
5.26 Deposit Accounts; Powers of Attorney. The COMPANY has delivered
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to CTS an accurate schedule (which is set forth on Schedule 5.26) as of the date
of this Agreement of:
(a) the name of each financial institution in which the COMPANY has
accounts or safe deposit boxes;
(b) the names in which the accounts or boxes are held;
(c) the type of account and account number; and
(d) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY and
a description of the terms of such power of attorney.
5.27 Relations with Governments. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause the COMPANY to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.28 Disclosure.
(a) The representations and warranties of the COMPANY and the
STOCKHOLDERS contained in this Agreement, the schedules to this Agreement
provided by the COMPANY and/or the STOCKHOLDERS, the certificates and the
other documents furnished by the COMPANY and/or the STOCKHOLDERS to CTS
pursuant hereto and for inclusion in the Registration Statement (which,
for purposes of this Agreement, shall include the completed Directors and
Officers Questionnaires and Registration Statement Questionnaires), taken
as a whole, present fairly the business and operations of the COMPANY for
the time periods with respect to which such information was requested. The
COMPANY'S rights under the documents delivered pursuant hereto would not
be materially adversely affected by, and no statement made herein would be
rendered untrue in any material respect by, any other document to which
the COMPANY is a party, or to which its properties are subject, or by any
other fact or circumstance regarding the COMPANY (which fact or
circumstance was, or should reasonably, after due inquiry, have been known
to the COMPANY) that is not disclosed pursuant hereto or thereto. If,
prior to the 25th day after the date of the final prospectus of CTS
utilized in connection with the IPO, the COMPANY or the STOCKHOLDERS
become aware of any fact or circumstance which would change (or, if after
the Closing Date, would have changed) a representation or warranty of
COMPANY or STOCKHOLDERS in this Agreement or would affect
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any document delivered pursuant hereto in any material respect, the
COMPANY and the STOCKHOLDERS shall immediately give notice of such fact or
circumstance to CTS. However, subject to the provisions of Section 7.8,
such notification shall not relieve either the COMPANY or the STOCKHOLDERS
of their respective obligations under this Agreement.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i) that
there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant
thereto will occur at a particular price or within a particular range of
prices or occur at all; (ii) that neither CTS or any of its officers,
directors, agents or representatives nor any Underwriter shall have any
liability to the COMPANY, the STOCKHOLDERS or any other person affiliated
or associated with the COMPANY for any failure of the Registration
Statement to become effective, the IPO to occur at a particular price or
within a particular range of prices or to occur at all; and (iii) that the
decision of the STOCKHOLDERS to enter into this Agreement, or to vote in
favor of or consent to the proposed Merger, has been or will be made
independent of, and without reliance upon, any statements, opinions or
other communications, or due diligence investigations which have been or
will be made or performed by any prospective Underwriter, relative to CTS
or the prospective IPO.
5.29 Prohibited Activities. Except as set forth on Schedule 5.29, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions set forth in Section 7.3.
5.30 Affiliate Transactions. Schedule 5.30 sets forth the parties to and
the date, nature and amount of (A) each transaction or series of similar
transactions (other than payments of salary and bonus which are reflected as
line items in the Financial Statements) involving the transfer of any cash,
property or rights in which the amount involved individually or collectively
exceeded $60,000 to or from the COMPANY from, to, or for the benefit of any
Affiliate or former Affiliate of the COMPANY ("Affiliate Transactions") during
the period commencing January 1, 1994 through the date hereof and (B) any
existing commitments of the COMPANY to engage in the future in any Affiliate
Transactions. Each Affiliate Transaction was effected on terms equivalent to
those which would have been established in an arms'-length negotiation, except
as disclosed on Schedule 5.30.
5.31 Misrepresentation. To the knowledge of the COMPANY and the
STOCKHOLDERS, none of the representations and warranties set forth in this
Agreement, the certificates and the other documents furnished by the COMPANY to
CTS pursuant hereto and for inclusion in the Registration Statement, taken as a
whole, contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements contained herein or therein not
misleading.
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(B) Representations and Warranties of the STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants to CTS and NEWCO that
the representations and warranties set forth below with respect to such
STOCKHOLDER are true and correct as of the date of this Agreement and, subject
to Section 7.8 hereof, shall be true and correct at the time of the Pre-Closing
and on the Closing Date.
5.32 Securities Act Representations. Each STOCKHOLDER alone, or
together with such STOCKHOLDER's "purchaser representative" (as defined in Rule
501(h) promulgated under the 1933 Act):
(a) acknowledges and agrees that (x) the shares of CTS Stock to be
delivered to such STOCKHOLDER pursuant to this Agreement have not been and will
not be registered under the 1933 Act, and therefore may not be sold, transferred
or otherwise conveyed without compliance with the 1933 Act or pursuant to an
exemption therefrom and (y) the CTS Stock to be acquired by such STOCKHOLDER
pursuant to this Agreement is being acquired solely for its own account, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of the CTS Stock in connection with a distribution;
(b) acknowledges and agrees that it knows and understands that an
investment in the CTS Stock is a speculative investment which involves a high
degree of risk of loss;
(c) represents and warrants that it is able to bear the economic risk of
an investment in the CTS Stock acquired pursuant to this Agreement, can afford
to sustain a total loss of such investment and has such knowledge and experience
in financial and business matters that it is capable of evaluating the merits
and risks of the proposed investment in the CTS Stock;
(d) represents and warrants that it has had an adequate opportunity to
review and to ask questions and receive answers concerning any and all matters
relating to the transactions described in (i) CTS's private placement memorandum
and (ii) this Agreement;
(e) represents and warrants that it has had an adequate opportunity to ask
questions and receive answers concerning (i) the background and experience of
the current and proposed officers and directors of CTS, (ii) the plans for the
operations of the business of CTS, (iii) the business, operations and financial
condition of the Other Founding Companies, and (iv) any plans for additional
acquisitions and the like;
(f) represents and warrants that it is either an "accredited investor" (as
defined in Rule 501(a) promulgated under the 1933 Act) or, after taking into
consideration the information and advice provided to such STOCKHOLDER, has the
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requisite knowledge and experience in financial and business matters to be
capable of evaluating the merits and risks of an investment in the CTS Stock;
(g) represents and warrants that, to its knowledge, there have been no
general or public solicitations or advertisements or other broadly disseminated
disclosures (including, without limitation, any advertisement, article, notice
or other communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or advertising) by or on behalf of
CTS regarding an investment in the CTS Stock; and
(h) acknowledges and agrees that the CTS Stock shall bear the following
legend in addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND, IF REQUIRED BY
CONDOR TECHNOLOGY SOLUTIONS, INC., AN OPINION OF COUNSEL TO CONDOR
TECHNOLOGY SOLUTIONS, INC. STATING THAT REGISTRATION IS NOT REQUIRED UNDER
THE ACT.
Such STOCKHOLDER acknowledges that the effect of the foregoing legend, among
other things, is or may be to limit or destroy the value of the certificate for
purposes of sale or use as loan collateral. Such STOCKHOLDER consents that "stop
transfer" instructions may be noted against the CTS Stock.
5.33 Authority; Ownership. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY Stock identified on
Annex IV as being owned by such STOCKHOLDER, and, except as set forth on
Schedule 5.33, such COMPANY Stock is owned free and clear of all liens, security
interests, pledges, charges, voting trusts, restrictions, encumbrances and
claims of every kind.
5.34 Preemptive Rights. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of COMPANY Stock or CTS Stock
that such STOCKHOLDER has or may have had other than rights of any STOCKHOLDER
to acquire CTS Stock pursuant to (i) this Agreement or (ii) any option granted
by CTS.
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5.35 No Intention to Dispose of CTS Stock. No STOCKHOLDER has any current
plan or intention, or is under any binding commitment or contract, to sell,
exchange or otherwise dispose of shares of CTS Stock received pursuant to
Section 3.1.
5.36 Questionnaires. The Completed Directors and Officers Questionnaires
and Registration Statement Questionnaires attached hereto as schedule 5.36,
present fairly the business and operations of the COMPANY for the time periods
with respect to which such information was requested. If, prior to the 25th day
after the date of the final prospectus of CTS utilized in connection with the
IPO, the STOCKHOLDERS become aware of any fact or circumstance which would
affect the information disclosed in their Directors and Officers Questionnaires
or their Registration Statement Questionnaires in any material respect, then the
relevant STOCKHOLDER shall immediately give notice of such fact or circumstance
to CTS. However, subject to the provisions of Section 7.8, such notification
shall not relieve the relevant STOCKHOLDER of his or its obligations under this
Agreement.
6. REPRESENTATIONS OF CTS AND NEWCO
CTS and NEWCO jointly and severally represent and warrant to the COMPANY
and the STOCKHOLDERS that all of the following representations and warranties in
this Section 6 are true and correct at the date of this Agreement and, subject
to Section 7.8 hereof, shall be true and correct at the time of the Pre-Closing
and on the Closing Date, and that such representations and warranties shall
survive the Closing Date for a period of eighteen months.
6.1 Due Organization. CTS and NEWCO are each corporations duly
incorporated, validly existing and in good standing under the laws of the state
of their incorporation, and are duly authorized and qualified to do business
under all applicable laws, regulations, ordinances and orders of public
authorities to carry on their businesses in the places and in the manner as now
conducted, to own or hold under lease the properties and assets they now own or
hold under lease, and to perform all of their obligations under any material
agreement to which they are a party or by which their properties are bound. CTS
and NEWCO are not qualified to do business as foreign corporations in any
jurisdiction, and there is no jurisdiction in which the conduct of CTS's and
NEWCO's business or activities or their ownership of assets requires
qualification under applicable law, the absence of which would have a Material
Adverse Effect on either CTS or NEWCO. True, complete and correct copies of the
Certificate or Articles of Incorporation and By-laws, each as amended, of CTS
and NEWCO (the "CTS Charter Documents") are all attached hereto as Annex II. The
minute books and stock records of each of CTS and NEWCO as heretofore made
available to the COMPANY, are correct and complete in all material respects. The
most recent minutes of each CTS and NEWCO, which are dated no earlier than 10
business days prior to the date hereof, affirm and ratify all prior acts of CTS
and NEWCO, as the case may be, and of their respective officers and directors.
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6.2 Authorization. The respective representatives of CTS and NEWCO
executing this Agreement have the authority to execute and deliver this
Agreement and to bind CTS and NEWCO to perform their respective obligations
hereunder. The execution and delivery of this Agreement by CTS and NEWCO and the
performance by CTS and NEWCO of their respective obligations under this
Agreement and the consummation by CTS and NEWCO of the transactions contemplated
hereby have been duly authorized by all necessary corporate action by each in
accordance with applicable law and the Certificate or Articles of Incorporation
and By-Laws of CTS and NEWCO, as the case may be. Each share of CTS Stock to be
issued to the STOCKHOLDERS on the Closing Date will be duly and validly
authorized and issued, free and clear of all liens, claims and other
encumbrances and fully paid and nonassessable. This Agreement constitutes the
valid and binding obligation of CTS and NEWCO, enforceable in accordance with
its terms.
6.3 Transaction Not a Breach. Neither the execution and delivery of this
Agreement nor their performance will violate, conflict with, or result in a
breach of any provision of any Law, rule, regulation, order, permit, judgment,
injunction, decree or other decision of any court or other tribunal or any
Governmental Authority binding on CTS or NEWCO or conflict with or result in the
breach of any of the terms, conditions or provisions of the Certificate or
Articles of Incorporation or the By-laws of CTS or NEWCO or of any contract,
agreement, mortgage or other instrument or obligation of any nature to which CTS
or NEWCO is a party or by which CTS or NEWCO is bound.
6.4 Misrepresentation. None of the representations and warranties set
forth in this Agreement or in any of the certificates, schedules, exhibits,
lists, documents, exhibits, or other instruments delivered, or to be delivered,
to the COMPANY as contemplated by any provision hereof, contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading.
6.5 Capital Stock. The entire authorized capital stock of CTS will consist
of 50,000,000 shares. Except as disclosed on Schedule 6.5, there are no
outstanding options, rights (preemptive or otherwise), warrants, calls,
convertible securities or commitments or any other arrangements to which CTS is
a party requiring issuance, sale or transfer of any equity securities of CTS or
any securities convertible directly or indirectly into equity securities of CTS,
or evidencing the right to subscribe for any equity securities of CTS, or giving
any person other than the Founding Companies any rights with respect to the
capital stock of CTS. Except as contemplated by this Agreement or disclosed on
Schedule 6.5, there are no voting agreements, voting trusts, other agreements
(including cumulative voting rights), commitments or understandings with respect
to the CTS Stock.
6.6 Subsidiaries. Schedule 6.6 attached hereto lists the name of each of
CTS's and NEWCO's subsidiaries and sets forth the number and class of the
authorized capital stock of CTS's and NEWCO's subsidiaries and the number of
shares of each of
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CTS's and NEWCO's subsidiaries which are issued and outstanding prior to the
Merger, all of which shares (except as set forth on Schedule 6.6) are owned by
CTS and NEWCO, as the case may be, free and clear of all liens, security
interests, pledges, voting trusts, equities, restrictions, encumbrances and
claims of every kind. Except as set forth on Schedule 6.6, CTS and NEWCO do not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is CTS or NEWCO,
as the case may be, directly or indirectly, a participant in any joint venture,
partnership or other non-corporate entity.
6.7 Conformity with Law; Litigation. Except as set forth on Schedule 6.7,
CTS and NEWCO have complied with all Laws applicable to them or to the operation
of their businesses and have not received any notice of any alleged claim or
threatened claim, violation of, liability or potential responsibility under, any
Law which has not heretofore been cured and for which there is no remaining
liability other than, in each case, those not having a Material Adverse Effect
on CTS or NEWCO, taken as a whole. Without limiting the generality of the
foregoing, CTS and NEWCO have each complied with all applicable Federal, state
and local Laws relating to antitrust and trade regulations.
Except to the extent set forth on Schedule 6.7 (which shall disclose the
parties to, nature of, and relief sought for each matter):
(a) There is no suit, action, proceeding, investigation, claim or
order pending or, to the knowledge of CTS and NEWCO, threatened against
either of CTS or NEWCO, or any Plan, or any fiduciary of any such Plan or,
to the knowledge of CTS and NEWCO, pending or threatened against any of
the officers, directors or employees of CTS or NEWCO with respect to their
businesses or proposed business activities which are material to CTS or
NEWCO, or to which CTS or NEWCO are otherwise a party, or which may affect
either CTS or NEWCO, their assets or their businesses, before any court,
or before any Governmental Authority.
(b) CTS and NEWCO are not subject to any judgment, order or decree
of any court or Governmental Authority; CTS and NEWCO have not received
any opinion or memorandum from legal counsel to the effect that either is
exposed, from a legal standpoint, to any liability or disadvantage which
may be material to their businesses. Neither CTS nor NEWCO are engaged in
any legal action to recover monies due it or them for damages sustained by
either of them.
7. COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation; Due Diligence.
(a) Between the date of this Agreement and the Closing Date, the
COMPANY will afford to the officers and authorized representatives of CTS
and
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the Other Founding Companies access during business hours to all of the
COMPANY's sites, properties, books and records and will furnish CTS with
such additional financial and operating data and other information as to
the business and properties of the COMPANY as CTS or the Other Founding
Companies may from time to time reasonably request. The COMPANY will
cooperate with CTS and the Other Founding Companies and their respective
representatives, including CTS's auditors and counsel, in the preparation
of any documents or other material (including the Registration Statement)
which may be required in connection with the transactions contemplated by
this Agreement. CTS, NEWCO, the STOCKHOLDERS and the COMPANY will treat
all information obtained in connection with the negotiation and
performance of this Agreement or the due diligence investigations
conducted with respect to the Other Founding Companies as confidential in
accordance with the provisions of Section 14 hereof. In addition, CTS will
cause each of the Other Agreements, binding each of the Other Founding
Companies, to contain a provision similar to this Section 7.1 requiring
each such Other Founding Company, its stockholders, directors, officers,
representatives, employees and agents to keep confidential any information
obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Closing Date, CTS
will afford to the officers and authorized representatives of the COMPANY
access during business hours to all of CTS's and NEWCO's sites,
properties, books and records and will furnish the COMPANY with such
additional financial and operating data and other information as to the
business and properties of CTS and NEWCO as the COMPANY may from time to
time reasonably request. CTS and NEWCO will cooperate with the COMPANY,
its representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection with the
transactions contemplated by this Agreement. The COMPANY will cause all
information obtained in connection with the negotiation and performance of
this Agreement to be treated as confidential in accordance with the
provisions of Section 14 hereof.
7.2 Conduct of Business Pending Closing. Between the date of this
Agreement and the Closing Date, the COMPANY will, except as set forth on
Schedule 7.2:
(a) carry on its business in the ordinary course substantially as
conducted heretofore and not introduce any new method of management,
operation or accounting;
(b) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
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(c) perform in all material respects its obligations under
agreements relating to or affecting its assets, properties or rights;
(d) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(e) maintain and preserve its business organization intact and use
its best efforts to retain its present key employees and relationships
with suppliers, customers and others having business relations with the
COMPANY;
(f) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar Governmental Authorities; and
(g) maintain present debt and lease instruments in accordance with
their respective terms and not enter into new or amended debt or lease
instruments, provided that debt and/or lease instruments may be replaced
if such replacement instruments are on terms at least as favorable to the
COMPANY as the instruments being replaced.
7.3 Prohibited Activities. Except as disclosed on Schedule 7.3 or
otherwise permitted by Section 7.14 or 7.15 of this Agreement, between the date
hereof and the Closing Date, the COMPANY will not, without the prior written
consent of CTS:
(a) make any change in its Articles or Certificate of Incorporation
or By-laws;
(b) grant or issue any securities, options, warrants, calls,
conversion rights or commitments of any kind relating to its securities of
any kind other than in connection with the exercise of options or warrants
listed on Schedule 5.4;
(c) declare or pay any dividend, or make any distribution in respect
of its stock whether now or hereafter outstanding, or purchase, redeem or
otherwise acquire or retire for value any shares of its stock or engage in
any transaction that will significantly affect the cash reflected on the
balance sheet of the COMPANY as of December 31, 1996.
(d) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditure, except if it is in the
ordinary course of business (consistent with past practice) or involves an
amount not in excess of $10,000;
(e) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection
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with the acquisition of equipment with an aggregate cost not in excess of
$10,000 necessary or desirable for the conduct of the business of the
COMPANY, (2)(A) liens for Taxes either not yet due or being contested in
good faith and by appropriate proceedings (and for which adequate reserves
have been established and are being maintained) or (B) materialmen's,
mechanics', workers', repairmen's, employees' or other like liens arising
in the ordinary course of business (the liens set forth in clause (2)
being referred to herein as "Statutory Liens"), or (3) liens set forth on
Schedule 5.10 or 5.15 hereto;
(f) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the ordinary course of business;
(g) negotiate for the acquisition of any business or the start-up of
any new business;
(h) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(i) waive any material right or claim of the COMPANY, provided that
the COMPANY may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be
included on Schedule 5.11 unless specifically listed thereon;
(j) commit a material breach, materially amend or terminate any
Material Contract;
(k) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder; or
(l) except in the ordinary course of business or as required by Law
or contractual obligations or other understandings or arrangements
existing on the date hereof, the COMPANY will not (i) increase in any
manner the base compensation of, or enter into any new bonus or incentive
agreement or arrangement with, any of the employees engaged in the
COMPANY's business, (ii) pay or agree to pay any additional pension,
retirement allowance or other employee benefit to any such employee,
whether past or present, (iii) enter into any new employment, severance,
consulting, or other compensation agreement with any existing employee
engaged in the COMPANY's business, (iv) amend or enter into a new Benefit
Plan (except as required by Law) or amend or enter into a new collective
bargaining agreement (except as required by this Agreement), or (v) engage
in any Affiliate Transaction.
7.4 No Shop. In consideration of the substantial expenditure of time,
effort and expense undertaken by CTS in connection with its due diligence review
and the
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preparation and execution of this Agreement, the COMPANY and the STOCKHOLDERS
agree that neither they nor their representatives, agents or employees will,
after the execution of this Agreement until the earlier of (i) the termination
of this Agreement or (ii) the Closing, directly or indirectly, solicit,
encourage, negotiate or discuss with any third party (including by way of
furnishing any information concerning the COMPANY) any acquisition proposal
relating to or affecting the COMPANY or any part of it, or any direct or
indirect interests in the COMPANY, whether by purchase of assets or stock,
purchase of interests, merger or other transaction ("Acquisition Transaction"),
and that the COMPANY will promptly advise CTS of the terms of any communications
any of the STOCKHOLDERS or the COMPANY may receive or become aware of relating
to any bid for all or any part of the COMPANY.
7.5 Notice to Bargaining Agents. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements. Set forth on
Schedule 7.5 is any and all proof that any such required notice has been sent.
7.6 Agreements. Except as set forth on Schedule 9.7, the STOCKHOLDERS and
the COMPANY shall terminate (i) any stockholders' agreements, voting agreements,
voting trusts, options, warrants and employment agreements between the COMPANY
and any employee listed on Schedule 9.12 hereto and (ii) any existing agreement
between the COMPANY and any STOCKHOLDER, on or prior to the Closing Date. A list
of such agreements to be terminated is set forth on Schedule 7.6 and copies of
each such agreement to be terminated have been provided to counsel for CTS.
7.7 Notification of Certain Matters. The STOCKHOLDERS and the COMPANY
shall give prompt notice to CTS of (i) the occurrence or non-occurrence of any
event of which the COMPANY or the STOCKHOLDERS have knowledge, the occurrence or
non-occurrence of which, would cause any representation or warranty of the
COMPANY or the STOCKHOLDERS contained herein to be untrue or inaccurate in any
material respect at or prior to the Closing and (ii) any material failure of any
STOCKHOLDER or the COMPANY to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. CTS and
NEWCO shall give prompt notice to the COMPANY of (i) the occurrence or
non-occurrence of any event of which CTS or NEWCO have knowledge, the occurrence
or non-occurrence of which, would cause any representation or warranty of CTS or
NEWCO contained herein to be untrue or inaccurate in any material respect at or
prior to the Closing and (ii) any material failure of CTS or NEWCO to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder. The delivery of any notice pursuant to this Section
7.7 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.8, (ii) modify the conditions set forth in Sections 8
and 9, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
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7.8 Amendment of Schedules.
(a) Each party hereto agrees that, with respect to the
representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing Date to
supplement or amend promptly the Schedules hereto with respect to any
matter hereafter arising or discovered which, if existing or known at the
date of this Agreement, would have been required to be set forth or
described in the Schedules; provided, however, that supplements and
amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall only have to be
delivered at the Closing Date, unless such Schedule is to be amended to
reflect an event occurring other than in the ordinary course of business.
(b) Until 24 hours prior to the anticipated effectiveness of the
Registration Statement, and notwithstanding the foregoing clause (a), the
provisions of this clause (b) shall apply: no amendment or supplement to a
Schedule prepared by the COMPANY or the STOCKHOLDERS that constitutes or
reflects an event or occurrence that would have a Material Adverse Effect
on the COMPANY may be made unless CTS and a majority of the Founding
Companies other than the COMPANY consent to such amendment or supplement;
and provided further, that no amendment or supplement to a Schedule
prepared by CTS or NEWCO that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on the COMPANY may be
made unless a majority of the Founding Companies consent to such amendment
or supplement. In the event that one of the Other Founding Companies seeks
to amend or supplement a Schedule pursuant to Section 7.8 of one of the
Other Agreements, and such amendment or supplement constitutes or reflects
an event or occurrence that would have a Material Adverse Effect on such
Other Founding Company, CTS shall give the COMPANY notice promptly after
it has knowledge thereof. If CTS and a majority of the Founding Companies
consent to such amendment or supplement, which consent shall have been
deemed given by CTS or any Founding Company if no response is received
from CTS or any such Founding Company within 24 hours following receipt of
notice by CTS or any Founding Company of such amendment or supplement (or
sooner if required by the circumstances under which such consent is
requested), but the COMPANY does not give its consent, the COMPANY may
terminate this Agreement pursuant to Section 12.1(d) hereof. In the event
that the COMPANY seeks to amend or supplement a Schedule pursuant to this
Section 7.8 and CTS and a majority of the Other Founding Companies do not
consent to such amendment or supplement as provided above, this Agreement
shall be deemed terminated by mutual consent as set forth in Section
12.1(a) hereof. In the event that CTS or NEWCO seeks to amend or
supplement a Schedule pursuant to this Section 7.8 and a majority of the
Founding Companies do not consent to such amendment or supplement, as
provided above, this Agreement shall be deemed terminated by mutual
consent as set forth in Section 12.1(d) hereof.
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(c) Between 24 hours prior to the anticipated effectiveness of the
Registration Statement and the Closing Date, the provisions of this clause
(c) shall apply. No amendment or supplement to a Schedule prepared by the
COMPANY or the STOCKHOLDERS that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on the COMPANY may be
made unless CTS consents to such amendment or supplement after
consultation with the Underwriters. CTS and NEWCO hereby covenant that
neither CTS nor NEWCO will amend or supplement any Schedule prepared by
CTS or NEWCO that constitutes or reflects an event or occurrence that
would have a Material Adverse Effect on CTS or NEWCO, as the case may be,
without consulting with the Underwriters, and CTS shall provide immediate
notice of such amendment or supplement to the Founding Companies.
(d) For all purposes of this Agreement, including without limitation
for purposes of determining whether the conditions set forth in Sections
8.1 and 9.1 have been fulfilled, the Schedules hereto shall be deemed to
be the Schedules as amended or supplemented pursuant to this Section 7.8.
No party to this Agreement shall be liable to any other party if this
Agreement shall be terminated pursuant to the provisions of this Section
7.8, except that, notwithstanding anything to the contrary contained in
this Agreement, if the COMPANY or the STOCKHOLDERS on the one hand, or CTS
or NEWCO on the other hand, amends or supplements a Schedule which results
in a termination of this Agreement and such amendment or supplement arises
out of or reflects facts or circumstances which such party knew about at
the time of execution of this Agreement and knew would result in a
termination of this Agreement or if such amendment or supplement otherwise
is proposed in bad faith, such party shall pay or reimburse CTS or the
COMPANY and the STOCKHOLDERS, as the case may be, for all of the legal,
accounting and other out of pocket costs reasonably incurred in connection
with this Agreement and the IPO as it relates to the COMPANY and the
STOCKHOLDERS.
7.9 Cooperation in Preparation of Registration Statement.
(a) The COMPANY and STOCKHOLDERS shall furnish or cause to be
furnished to CTS and the Underwriters all of the information concerning
the COMPANY and the STOCKHOLDERS requested by CTS or the Underwriters for
inclusion in, and will cooperate with CTS and the Underwriters in the
preparation of, the Registration Statement and the prospectus included
therein (including audited and unaudited financial statements, prepared in
accordance with GAAP, in form suitable for inclusion in the Registration
Statement). The COMPANY and the STOCKHOLDERS agree promptly to advise CTS
if at any time during the period in which a prospectus relating to the
offering is required to be delivered under the Securities Act, any
information contained in the prospectus concerning the COMPANY or the
STOCKHOLDERS contains any untrue
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statement of a material fact or omits to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading, and to provide the information needed to correct such
inaccuracy. Insofar as the information relates solely to the COMPANY or
the STOCKHOLDERS, the COMPANY represents and warrants as to such
information furnished by the COMPANY or the STOCKHOLDERS for use in the
Registration Statement with respect to itself, and each STOCKHOLDER
represents and warrants, as to such information furnished by the COMPANY
or the STOCKHOLDERS for use in the Registration Statement with respect to
the COMPANY and himself or herself, that the Registration Statement at its
effective date, at the date of the final Prospectus, each preliminary
prospectus and each amendment to the Registration Statement, and at each
closing date with respect to the IPO under the Underwriting Agreement
(including with respect to any over-allotment option) will not include an
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
not misleading.
(b) CTS agrees that it will use its best efforts to provide to the
COMPANY and its counsel copies of material drafts of the Registration
Statement as they are prepared and to the extent practicable in light of
the timetable of the IPO and the potential need to respond promptly to
SEC, NASD or Nasdaq comments, to give the COMPANY sufficient time to
review and comment upon such documents prior to filing with the SEC. Any
objections posed by the COMPANY or its counsel shall state with
specificity the material in question, the reason for the objection, and
the COMPANY's proposed alternative. If the objection is founded upon a
rule promulgated under the Securities Act, the objection shall cite the
rule. Notwithstanding the foregoing, during the five business days
immediately preceding the date scheduled for the effective date of the
IPO, the COMPANY and the STOCKHOLDERS agree that (i) two hours from the
time the proposed changes are transmitted to the COMPANY's counsel if such
transmission is during the COMPANY's normal business hours or (ii) four
hours from the time the proposed changes are transmitted to the COMPANY's
counsel if such transmission is not during the COMPANY's normal business
hours, is sufficient time to review and respond to proposed changes.
7.10 Final Financial Statements. The COMPANY shall provide prior to the
Closing Date, and CTS shall have had sufficient time prior thereto to review,
the unaudited consolidated balance sheets of the COMPANY as of the end of all
fiscal quarters following the Balance Sheet Date, and the unaudited consolidated
statements of income, cash flows and retained earnings of the COMPANY for all
fiscal quarters ended no earlier than 30 days' prior to the Closing Date,
disclosing no material adverse change in the financial condition of the COMPANY
or the results of its operations from the financial statements as of the Balance
Sheet Date. Such financial statements shall have been prepared in accordance
with GAAP applied on a consistent basis throughout the periods indicated (except
as noted therein), but shall not include all of the footnotes and adjustments
required by GAAP for complete financial statements. Except as noted in
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such financial statements, all of such financial statements will present fairly
the results of operations of the COMPANY for the periods indicated thereon.
7.11 Further Assurances. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 Approval of Merger Agreement. Each of the STOCKHOLDERS agrees to vote
all of its shares of the COMPANY Stock in favor of the Merger and all other
transactions contemplated by this Agreement.
7.13 Payment of Indebtedness. On or prior to the Closing Date, the COMPANY
shall pay all outstanding Indebtedness as of the Closing Date.
7.14 Distributions. Notwithstanding any other provision of this Agreement
to the contrary, the COMPANY will be permitted to declare dividends subsequent
to the Balance Sheet Date to the STOCKHOLDERS for the purpose of providing the
STOCKHOLDERS with funds to pay their taxes on earnings attributable to such
STOCKHOLDER, in an amount up to 45% of (i) the 1996 net taxable income the
COMPANY taxable to the STOCKHOLDERS, reduced by all prior distributions for
1996, and (ii) the 1997 net taxable income of the COMPANY taxable to the
STOCKHOLDERS to the Closing Date, reduced by all prior distributions for 1997.
For purposes of this Section 7.14, 45% will be deemed to be the aggregate
Federal, state and local income tax rate of the STOCKHOLDERS.
7.15 Accumulated Adjustments Account. The COMPANY will be permitted to
distribute to the STOCKHOLDERS, subsequent to the Balance Sheet Date, any
amounts which have accumulated in the COMPANY's Accumulated Adjustments Account;
provided, however, that (i) the maximum amount which can be so distributed is
equal to the aggregate cash portion of the purchase price to be paid to the
STOCKHOLDERS as indicated in Annex III and (ii) the aggregate indemnification
limits will not be altered by any reduction in the total purchase price caused
by a distribution of any amounts from the Accumulated Adjustments Account.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY
The obligations of the STOCKHOLDERS and the COMPANY with respect to
actions to be taken on the Pre-Closing Date and, to the extent specified in this
Section 8, on the Closing Date are subject to the satisfaction or waiver on or
prior to the Pre-Closing Date and/or the Closing Date, as the case may be, of
all of the conditions set forth in this Section 8. As of the Pre-Closing Date or
the Closing Date, as the case may be, all conditions not satisfied shall be
deemed to have been waived by the COMPANY and the STOCKHOLDERS unless such
parties have objected by notifying CTS in writing of such objection on or before
the Pre-Closing Date or consummation of the transactions on the
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Closing Date, respectively, except that no such waiver shall be deemed to affect
the survival of the representations and warranties of CTS and NEWCO contained in
Section 6 hereof.
8.1 Representations and Warranties. All representations and warranties of
CTS and NEWCO contained in this Agreement shall be true and correct in all
material respects as of the Pre-Closing Date and the Closing Date as though such
representations and warranties had been made on and as of that date; and a
certificate to the foregoing effect dated the Pre-Closing Date and the Closing
Date and signed by the President or any Vice President of CTS shall have been
delivered to the COMPANY and the STOCKHOLDERS.
8.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with and performed by CTS and NEWCO on or
before each of the Pre-Closing Date and the Closing Date shall have been duly
complied with and performed in all material respects on or before each of the
Pre-Closing Date and the Closing Date, as the case may be; and certificates to
the foregoing effect dated each of the Pre-Closing Date and the Closing Date and
signed by the President or any Vice President of CTS shall have been delivered
to the COMPANY and the STOCKHOLDERS.
8.3 No Litigation. No action or proceeding before a court or any other
Governmental Authority or body shall have been instituted or threatened to
restrain or prohibit the Merger or the IPO.
8.4 Opinion of Counsel. The STOCKHOLDERS shall have received an opinion
from counsel for CTS and NEWCO, dated the Pre-Closing Date and including a
statement to the effect that it may be relied upon as of the Closing Date,
substantially in the form annexed hereto as Annex VI.
8.5 Consents and Approvals. All necessary consents of and filings required
to be obtained or made by CTS or NEWCO with any Governmental Authority or agency
relating to the consummation of the transactions contemplated herein shall have
been obtained and made.
8.6 Good Standing Certificates. CTS and NEWCO each shall have delivered to
the COMPANY a certificate, dated as of a date no earlier than 10 days prior to
the Pre-Closing Date, duly issued by the Delaware Secretary of State and in each
state in which CTS or NEWCO is authorized to do business, showing that each of
CTS and NEWCO is in good standing and authorized to do business and that all
state franchise and/or income tax returns and taxes for CTS and NEWCO,
respectively, for all periods prior to the Closing have been filed and paid.
8.7 Consummation of Other Agreements. The Other Agreements shall have been
delivered by each of the Other Companies and each of the Other Agreements and
this Agreement shall be in effect immediately prior to the Merger.
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8.8 Secretary's Certificate. The COMPANY shall have received a certificate
or certificates, dated the Pre-Closing Date and the Closing Date and signed by
the secretary of CTS and of NEWCO, certifying the truth and correctness of
attached copies of the CTS's and NEWCO's respective Certificates of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the boards of directors and, if required, the
stockholders of CTS and NEWCO approving CTS's and NEWCO's entering into this
Agreement and the consummation of the transactions contemplated hereby.
8.9 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VIII hereto.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CTS AND NEWCO
The obligations of CTS and NEWCO with respect to actions to be taken on
the Pre-Closing Date and, to the extent specified in this Section 9, on the
Closing Date, are subject to the satisfaction or waiver on or prior to the
Pre-Closing Date and/or the Closing Date, as the case may be, of all of the
conditions set forth in this Section 9. As of the Pre-Closing Date or the
Closing Date, as the case may be, all conditions not satisfied shall be deemed
to have been waived by CTS and NEWCO unless such parties have objected by
notifying the COMPANY and the STOCKHOLDERS in writing of such objection on or
before the Pre-Closing Date or consummation of the transactions on the Closing
Date, respectively, except that no such waiver shall be deemed to affect the
survival of the representations and warranties of the COMPANY and the
STOCKHOLDERS contained in Section 5 hereof.
9.1 Representations and Warranties. All the representations and warranties
of the STOCKHOLDERS and the COMPANY contained in this Agreement shall be true
and correct in all material respects as of the Pre-Closing Date and the Closing
Date with the same effect as though such representations and warranties had been
made on and as of such date; and the STOCKHOLDERS shall have delivered to CTS
certificates dated the Pre-Closing Date and the Closing Date and signed by them
to such effect.
9.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with or performed by the STOCKHOLDERS and the
COMPANY on or before each of the Pre-Closing Date and the Closing Date shall
have been duly performed or complied with in all material respects on or before
each of the Pre-Closing Date and the Closing Date, as the case may be; and the
STOCKHOLDERS shall have delivered to CTS certificates dated the Pre-Closing Date
and the Closing Date, respectively, and signed by them to such effect.
9.3 No Litigation. No action or proceeding before a court or any other
Governmental Authority or body shall have been instituted or threatened to
restrain or prohibit the Merger or the IPO.
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9.4 Clerk's Certificate. CTS shall have received a certificate or
certificates, dated each of the Pre-Closing Date and the Closing Date and signed
by the clerk of the COMPANY, certifying the truth and correctness of attached
copies of the COMPANY's Certificate or Articles of Incorporation (including
amendments thereto), By-Laws (including amendments thereto), and resolutions of
the board of directors and the shareholders approving the COMPANY's entering
into this Agreement and the consummation of the transactions contemplated
hereby.
9.5 No Material Adverse Change. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred with respect to the
COMPANY which would constitute a Material Adverse Effect on the COMPANY, and the
COMPANY shall not have suffered any material loss or damages to any of its
properties or assets, whether or not covered by insurance, which change, loss or
damage materially affects or impairs the ability of the COMPANY to conduct its
business.
9.6 STOCKHOLDERS' Release. The STOCKHOLDERS shall have delivered to CTS an
instrument dated the Closing Date releasing the COMPANY from any and all (i)
claims prior to the Closing Date of the STOCKHOLDERS against the COMPANY and CTS
and (ii) obligations prior to the Closing Date, of the COMPANY and CTS to the
STOCKHOLDERS, except for (x) items specifically identified on Schedules 5.10 and
5.15 as being claims of or obligations to the STOCKHOLDERS, (y) continuing
obligations to the STOCKHOLDERS relating to their employment by the COMPANY and
(z) obligations arising under this Agreement or the transactions contemplated
hereby.
9.7 Termination of Related Party Agreements. Except as set forth on
Schedule 9.7, all existing agreements between the COMPANY and the STOCKHOLDERS
shall have been canceled effective prior to or as of the Closing Date.
9.8 Opinion of Counsel. CTS shall have received an opinion from Counsel to
the COMPANY and the STOCKHOLDERS, dated the Pre-Closing Date and including a
statement to the effect that it may be relied upon as of the Closing Date,
substantially in the form annexed hereto as Annex VII, which form shall be
deemed to include any additional opinions by such counsel or separate counsel
retained by the COMPANY covering matters customary under the circumstances,
including without limitation, opinions covering the COMPANY's intellectual
property, and the Underwriters shall have received a copy of the same opinion
addressed to them.
9.9 Consents and Approvals. All necessary consents of and filings with any
Governmental Authority relating to the consummation of the transactions
contemplated herein shall have been obtained and made and all consents and
approvals of third parties listed on Schedule 5.23 shall have been obtained.
9.10 Good Standing Certificates. The COMPANY shall have delivered to CTS a
certificate, dated as of a date no earlier than five days prior to the
Pre-Closing Date, duly issued by the appropriate Governmental Authority in the
COMPANY's state
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of incorporation and, unless waived by CTS, in each state in which the COMPANY
is authorized to do business, showing the COMPANY is in good standing and
authorized to do business and that all state franchise and taxes for the COMPANY
as of the most recent practicable date have been filed and paid.
9.11 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act, or
any state securities laws, and the Underwriters shall have agreed to acquire on
a firm commitment basis, subject to the conditions set forth in the Underwriting
Agreement, shares of CTS Stock at a price to the public acceptable to CTS.
9.12 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have entered into an employment agreement substantially in the form of
Annex VIII hereto.
9.13 Closing of IPO. The closing of the sale of the CTS Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
9.14 FIRPTA Certificate. Each STOCKHOLDER shall have delivered to CTS a
certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
9.15 Consummation of Other Agreements. The Other Agreements shall have
been delivered by each of the Other Companies and each of the Other Agreements
and this Agreement shall be in effect immediately prior to the Merger.
9.16 A/R Aging Reports. Within ten (10) days prior to Closing, the COMPANY
shall have provided CTS (x) an accurate list of all outstanding receivables
obtained subsequent to the Balance Sheet Date and as of a date which is within
10 calendar days of the Closing Date and (y) an aging of all such accounts and
notes receivable showing amounts due in 30 day aging categories (the "A/R Aging
Reports").
9.17 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall have been approved by counsel to CTS.
9.18 Payment of Indebtedness. The STOCKHOLDERS and the COMPANY shall have
made arrangements, reasonably satisfactory in form and substance to CTS,
providing for the delivery to CTS of standard and customary payoff, discharge
and release letters, dated as of the Closing Date, from each holder of
Indebtedness, evidencing to the reasonable satisfaction of CTS, their respective
release and discharge of the COMPANY from any obligations or liabilities in
respect of such Indebtedness.
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10. COVENANTS OF CTS AND THE STOCKHOLDERS AFTER CLOSING
10.1 Preservation of Tax and Accounting Treatment. Except as contemplated
by this Agreement or the Registration Statement, after the Closing Date, CTS
shall not and shall not permit any of its subsidiaries to undertake any act that
would jeopardize the tax-free status of the organization, including liquidating
or merging the COMPANY into CTS.
10.2 Preparation and Filing of Tax Returns.
(a) Each STOCKHOLDER shall file or cause to be filed all Returns of
any Acquired Party for all taxable periods that end on or before the
Closing Date and shall pay or cause to be paid any and all Tax liabilities
due and payable with respect to such periods shown by such Returns to be
due. The COMPANY shall pay any state Taxes assessed against it or any
Acquired Party for all taxable periods that end on or before the Closing
Date.
(b) CTS shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Closing Date.
(c) Each party hereto shall, and shall cause its subsidiaries and
Affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any Return, amended Return or claim for refund, determining a
liability for Taxes or a right to refund of Taxes or in conducting any
audit or other proceeding in respect of Taxes. Such cooperation and
information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each
party shall make its employees reasonably available on a mutually
convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence, each party
required to file Returns pursuant to this Agreement shall bear all costs
of filing such Returns.
(d) Each of the COMPANY, NEWCO, CTS and each STOCKHOLDER shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax-free transfer of property under Section 351(a) of the Code.
10.3 Directors and Officers. The persons named in the Registration
Statement shall be appointed as directors and elected as officers of CTS, as and
to the extent set forth in the Registration Statement, promptly following the
Closing Date.
10.4 Preservation of Employee Benefit Plans. Following the Closing Date,
CTS shall not terminate any health insurance, life insurance, 401(k) or any
other Benefit
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Plan listed in effect at the COMPANY until such time as CTS is able to replace
such Benefit Plan with a Plan that is applicable to CTS and all of its then
existing subsidiaries. CTS shall have no obligation to provide replacement Plans
that have the same terms and provisions as the existing Benefit Plans, provided,
that any new health insurance plan shall provide for coverage for preexisting
conditions.
10.5 Rule 144. For a period of two years after the Closing Date, CTS shall
take all actions that are within its powers and that are reasonably necessary to
make Rule 144 promulgated under the 1933 Act available to the STOCKHOLDERS.
10.6 Authorization of Shares. CTS agrees to take all actions as may be
necessary from time to time to reserve an adequate number of shares of CTS Stock
to pay the stock portion of the consideration to the STOCKHOLDERS pursuant to
Annex III hereof.
11. INDEMNIFICATION
The STOCKHOLDERS, CTS and NEWCO each make the following covenants that are
applicable to them, respectively:
11.1 General Indemnification by the STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless CTS, NEWCO, the COMPANY and the Surviving Corporation
at all times, from and after the date of this Agreement until the Expiration
Date, from and against all claims, damages, actions, suits, proceedings,
demands, assessments, adjustments, costs and expenses (including specifically,
but without limitation, reasonable attorneys' fees and reasonable expenses of
investigation) incurred by CTS, NEWCO, the COMPANY or the Surviving Corporation
as a result of or arising from (i) any breach of the representations and
warranties of the STOCKHOLDERS or the COMPANY set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the STOCKHOLDERS or the COMPANY under this
Agreement, (iii) any liability under the 1933 Act, the 1934 Act or other Federal
or state law or regulation, at common law or otherwise, arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
relating to the COMPANY or the STOCKHOLDERS, and provided to CTS or its counsel
by the COMPANY or the STOCKHOLDERS for inclusion in the Registration Statement
or any prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission by the
COMPANY and/or the STOCKHOLDERS to state therein a material fact relating to the
COMPANY or the STOCKHOLDERS required to be stated therein or necessary to make
the statements therein not misleading, (iv) the matters described on Schedule
11.1(iv) or (v) any Tax imposed upon or relating to any third party or Acquired
Party for a pre-Closing Date period, including, in each case, any such Tax
arising out of or in connection with the transactions effected pursuant to this
Agreement or any such Tax for which an Acquired Party may be liable under
Section 1.1502-6 of the Treasury Regulations (or any similar
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provisions of state, local of foreign law), as a transferee or successor, by
contract or otherwise; provided, however, (A) that in the case of any indemnity
arising pursuant to clause (iii) such indemnity shall not inure to the benefit
of CTS, NEWCO, the COMPANY or the Surviving Corporation to the extent that such
untrue statement (or alleged untrue statement) was made in, or omission (or
alleged omission) occurred in, any preliminary prospectus and the STOCKHOLDERS
provided, in writing, corrected information to CTS counsel and to CTS for
inclusion in the final prospectus, and such information was not so included or
properly delivered, and (B) that no STOCKHOLDER shall be liable for any
indemnification obligation pursuant to this Section 11.1 to the extent
attributable to a breach of any representation, warranty or agreement made
herein individually by any other STOCKHOLDER.
11.2 Indemnification by CTS. CTS covenants and agrees that it will
indemnify, defend, protect and hold harmless the STOCKHOLDERS at all times from
and after the date of this Agreement until the eighteenth month anniversary of
the Closing Date, from and against all claims, damages, actions, suits,
proceedings, demands, assessments, adjustments, costs and expenses (including
specifically, but without limitation, reasonable attorneys' fees and expenses of
investigation) incurred by the STOCKHOLDERS as a result of or arising from (i)
any breach by CTS or NEWCO of its representations and warranties set forth
herein or on the schedules or certificates delivered in connection herewith,
(ii) any breach of any agreement on the part of CTS or NEWCO under this
Agreement, (iii) any liability which the STOCKHOLDERS may incur due to CTS's or
NEWCO's failure to be responsible for the liabilities and obligations of the
COMPANY as provided in Section 10.1 hereof (except to the extent that CTS or
NEWCO has claims against the STOCKHOLDERS by reason of such liabilities); (iv)
any liability to a Person not a party to this Agreement (a "Third Person") under
the 1933 Act, the 1934 Act or other Federal or state law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact relating to CTS or NEWCO for
inclusion in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to CTS or NEWCO required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, in the case of any indemnity arising pursuant to clause (iv) such
indemnity shall not inure to the benefit of the STOCKHOLDERS if any such claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses incurred by any of the STOCKHOLDERS are based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by a STOCKHOLDER for use in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto unless the STOCKHOLDERS provided, in
writing, corrected information to CTS counsel and to CTS for inclusion in the
final prospectus to the Registration Statement, and such information was not so
included or properly delivered by CTS (or its representative).
In the event the breach relates to the representation contained in Section
6.5
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concerning the absence of options, rights (preemptive or otherwise), warrants,
calls, convertible securities or commitments or any other arrangements dealing
with CTS Stock as set forth in Section 6.5 (a "CTS Security Right") and the
existence of an undisclosed CTS Security Right will dilute the CTS capital, the
stockholders of the Founding Company whose representation caused the breach of
Section 6.5 shall suffer such dilution proportionately to the number of shares
of CTS Stock owned by each of them.
11.3 Third Person Claims. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
Third Person or, of the commencement of any action or proceeding by a Third
Person, the Indemnified Party shall, as a condition precedent to a claim with
respect thereto being made against any party obligated to provide
indemnification pursuant to Section 11.1 or 11.2 hereof (hereinafter the
"Indemnifying Party"), give the Indemnifying Party written notice of such claim
or the commencement of such action or proceeding. Such notice shall state the
nature and the basis of such claim and a reasonable estimate of the amount
thereof. The Indemnifying Party shall have the right to defend and settle, at
its own expense and by its own counsel, any such matter so long as the
Indemnifying Party pursues the same in good faith and diligently, provided that
the Indemnifying Party shall not settle any criminal proceeding without the
written consent of the Indemnified Party, such consent not to be unreasonably
withheld or delayed. If the Indemnifying Party undertakes to defend or settle,
it shall promptly notify the Indemnified Party of its intention to do so, and
the Indemnified Party shall cooperate, at the Indemnifying Party's expense, with
the Indemnifying Party and its counsel in the defense thereof and in any
settlement thereof. Such cooperation shall include, but shall not be limited to,
furnishing the Indemnifying Party with any books, records or information
reasonably requested by the Indemnifying Party that are in the Indemnified
Party's possession or control. All Indemnified Parties shall endeavor to use the
same counsel, which shall be the counsel selected by the Indemnifying Party,
provided that if counsel to the Indemnifying Party shall have a conflict of
interest in the opinion of such counsel that prevents counsel for the
Indemnifying Party from representing the Indemnified Party, the Indemnified
Party shall have the right to participate in such matter through counsel of its
own choosing and the Indemnifying Party will reimburse the Indemnified Party for
the reasonable expenses of its counsel and experts. After the Indemnifying Party
has notified the Indemnified Party of its intention to undertake to defend or
settle any such asserted liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall not be liable for
any additional legal expenses incurred by the Indemnified Party in connection
with any defense or settlement of such asserted liability, except (i) as set
forth in the preceding sentence and (ii) to the extent such participation is
requested by the Indemnifying Party, in which event the Indemnified Party shall
be reimbursed by the Indemnifying Party for reasonable additional legal expenses
and out-of-pocket expenses. If the Indemnifying Party desires to accept a final
and complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement to said Third Person plus all
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indemnifiable costs and expenses incurred to date, the Indemnifying Party shall
be relieved of its duty to defend and shall tender the Third Person claim back
to the Indemnified Party, who shall thereafter, at its own expense, be
responsible for the defense and negotiation of such Third Person claim. If the
Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails diligently
to pursue such defense, the Indemnified Party may undertake such defense through
counsel of its choice, at the cost and expense of the Indemnifying Party, and
the Indemnified Party may settle such matter, and the Indemnifying Party shall
reimburse the Indemnified Party for the amount paid in such settlement and any
other liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for any Tax benefits, Tax detriments or
insurance proceeds in determining the amount of any indemnification obligation
under this Section, provided that no Indemnifying Party shall be obligated to
seek any payment pursuant to the terms of any insurance policy.
11.4 Exclusive Remedy. Except as provided in Section 11.5(b) or Section
14.3 hereof, the indemnification provided for in this Section 11 shall (except
as prohibited by ERISA) be the exclusive remedy in any action seeking damages or
any other form of monetary relief brought by any party to this Agreement against
another party, provided that nothing herein shall be construed to limit the
right of a party, in a proper case, to seek injunctive relief for a breach of
this Agreement or to seek relief for a breach of any employment agreement with,
or any stock option issued by, CTS.
11.5 Limitations on Indemnification. (a) CTS, NEWCO, the Surviving
Corporation and the other Persons or entities indemnified pursuant to Section
11.1 (other than the STOCKHOLDERS) shall not assert any claim other than a Third
Person claim for indemnification hereunder against the STOCKHOLDERS until such
time as, and solely to the extent that, the aggregate of all claims which such
Persons may have against the STOCKHOLDERS shall exceed 1.0% of the sum of (i)
the cash paid to the STOCKHOLDERS plus (ii) the value (determined in accordance
with Section 11.5(c) hereof) of the CTS Stock delivered to the STOCKHOLDERS (the
"Indemnification Threshold"); provided, however, that CTS, NEWCO, the Surviving
Corporation and the other Persons or entities indemnified pursuant to Section
11.1 (other than the STOCKHOLDERS) may assert and shall be indemnified for any
claim under (i) Section 11.1(iv) or 11.1(v) or (ii) the Purchase Price
Adjustment at any time, regardless of whether the aggregate of all claims which
such Persons may have against any STOCKHOLDER or all STOCKHOLDERS exceeds the
Indemnification Threshold, it being understood that the amount of any such claim
under (i) Section 11.1(iv) or 11.1(v) or (ii) the Purchase Price Adjustment
shall not be counted towards the Indemnification Threshold. The STOCKHOLDERS
shall not assert any claim for indemnification
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hereunder against CTS, NEWCO, the Surviving Corporation or the other Persons set
forth in Section 11.1 (other than the STOCKHOLDERS) until such time as, and
solely to the extent that, the aggregate of all claims which STOCKHOLDERS may
have against any of such Persons exceeds $100,000. No Person shall be entitled
to indemnification under this Section 11 if and to the extent that such Person's
claim for indemnification is directly or indirectly related to a breach by such
Person of any representation, warranty, covenant or other agreement set forth in
this Agreement.
(b) CTS shall have the right, upon written notice, to offset
indemnification amounts due to it pursuant to this Agreement against payments
due to the STOCKHOLDERS under (i) this Agreement (including, without limitation,
the consideration set forth on Annex III hereto) and/or (ii) any contract
contemplated by, or referred to in, this Agreement.
(c) Indemnity obligations hereunder may be satisfied through the payment
of cash or the delivery of CTS Stock, or a combination thereof. For purposes of
calculating the value of the CTS Stock received or delivered by a STOCKHOLDER
(for purposes of determining the Indemnification Threshold and the amount of any
indemnity paid), the CTS Stock shall be valued at its initial public offering
price as set forth in the Registration Statement.
(d) Notwithstanding any other term of this Agreement (except the proviso
to this sentence), no STOCKHOLDER shall be liable under this Section 11 for an
amount which exceeds the amount of proceeds received by such STOCKHOLDER in
connection with the Merger, such proceeds to be equal to the sum of (i) the cash
paid to the STOCKHOLDER (ii) the additional consideration, if any, earned by
such STOCKHOLDER pursuant to Annex III hereof, and (iii) the value of the CTS
Stock delivered to the STOCKHOLDER (determined in accordance with Section
11.5(c) hereof); provided, that a STOCKHOLDER's indemnification obligations
pursuant to Sections 11.1(iv) and (v) shall not be limited.
12. TERMINATION OF AGREEMENT
12.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date solely:
(a) by mutual consent of the boards of directors of CTS and the
COMPANY;
(b) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by CTS (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, unless the failure of such transactions to be
consummated is due to the willful failure of the party seeking to
terminate this Agreement to perform any of
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its obligations under this Agreement to the extent required to be
performed by it prior to or on the Closing Date;
(c) by the STOCKHOLDERS or the COMPANY, on the one hand, or by CTS,
on the other hand, if a material breach or default shall be made by the
other party in the observance or in the due and timely performance of any
of the covenants, agreements or conditions contained herein, and the
curing of such default shall not have been made on or before the Closing
Date; or
(d) pursuant to Section 7.8 hereof.
12.2 Liabilities in Event of Termination. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 Prohibited Activities. The STOCKHOLDERS will not, for a period of
four (4) years following the Closing Date, for any reason whatsoever, directly
or indirectly, for themselves or on behalf of or in conjunction with any other
person, company, partnership, corporation or business of whatever nature:
(a) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in direct
competition with CTS or any of the subsidiaries thereof, within 100 miles
of where the COMPANY or any of its subsidiaries or any of the Other
Founding Companies conducted business prior to the effectiveness of the
Merger (the "Territory") ;
(b) call upon any person who is, at that time, within the Territory,
an employee of CTS (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent
of enticing such employee away from or out of the employ of CTS (including
the subsidiaries thereof), provided that each STOCKHOLDER shall be
permitted to call upon and hire any member of his or her immediate family;
(c) call upon any person or entity which is, at that time, or which
has been, within one (1) year prior to the Closing Date, a customer of CTS
(including the subsidiaries thereof), of the COMPANY or of any of the
Other Founding Companies within the Territory for the purpose of
soliciting or selling products or services in direct competition with CTS
within the Territory;
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(d) call upon any prospective acquisition candidate, on any
STOCKHOLDER's own behalf or on behalf of any competitor in similar or
incidental businesses or activities described in the Registration
Statement, which candidate, to the actual knowledge of such STOCKHOLDER
after due inquiry, was called upon by CTS (including the subsidiaries
thereof) or for which, to the actual knowledge of such STOCKHOLDER after
due inquiry, CTS (or any subsidiary thereof) made an acquisition analysis,
for the purpose of acquiring such entity; or
(e) disclose customers, whether in existence or proposed, of the
COMPANY to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever except to the extent that the COMPANY has in
the past disclosed such information to the public for valid business
reasons or disclosure is specifically required by law; provided, however,
in the event disclosure is required by law, the STOCKHOLDERS shall provide
CTS with prompt notice of such requirement prior to making any disclosure
so that CTS may seek a protective order.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any STOCKHOLDER from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter so long as the STOCKHOLDER
does not consult with or is not employed by such competitor.
13.2 Damages. Because of the difficulty of measuring economic losses to
CTS as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to CTS for which it would
have no other adequate remedy, each STOCKHOLDER agrees that, in the event of
breach by such STOCKHOLDER, the foregoing covenant may be enforced by CTS by
injunctions and restraining orders.
13.3 Reasonable Restraint. It is agreed by the parties hereto that it is
the intent of CTS and the STOCKHOLDERS that the foregoing covenants in this
Section 13 be construed and enforced in accordance with the changing activities
and business of CTS (including the subsidiaries thereof) throughout the term of
this covenant. It is further agreed by the parties hereto that, in the event
that any STOCKHOLDER who has entered into an employment agreement with CTS
and/or any subsidiary thereof as set forth in Sections 8.10 and 9.12 hereto,
shall thereafter cease to be employed thereunder, and such STOCKHOLDER shall
enter into a business or pursue other activities not in competition with CTS
and/or any subsidiary thereof, or similar activities or business in locations
the operations of which, under such circumstances, does not violate this Article
13 and in any event such new business, activities or location are not in
violation of this Article 13 or such STOCKHOLDER's obligations under this
Article 13, such STOCKHOLDER shall not be chargeable with a violation of this
Article 13 if CTS
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and/or any subsidiary thereof shall thereafter enter the same, similar or a
competitive (i) business (ii) course of activities, or (iii) location, as
applicable.
13.4 Severability; Reformation. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
13.5 Independent Covenant. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any STOCKHOLDER
against CTS (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by CTS
of such covenants. It is specifically agreed that the period of four (4) years
stated at the beginning of this Section 13, during which the agreements and
covenants of each STOCKHOLDER made in this Section 13 shall be effective, shall
be computed by excluding from such computation any time during which such
STOCKHOLDER is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 Materiality. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 Stockholders. The STOCKHOLDERS recognize and acknowledge that they
had in the past, currently have, and in the future may have, access to certain
confidential information of the COMPANY, the Other Founding Companies, and/or
CTS, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the COMPANY's, the Other Founding
Companies' and/or CTS's respective businesses. The STOCKHOLDERS agree that they
will not disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of CTS or the Other Founding Companies
who need to know information in connection with the transactions contemplated
hereby, who have been informed of the confidential nature of such information
and who have agreed to keep such information confidential as provided hereby,
(b) following the Closing, such information may be disclosed by the STOCKHOLDERS
as is required in the course of performing their duties for CTS or the Surviving
Corporation and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of any such
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STOCKHOLDERS, (ii) disclosure is required by law or the order of any
Governmental Authority under color of law; provided, that prior to disclosing
any information pursuant to this clause (ii), the STOCKHOLDERS shall, if
possible, give prior written notice thereof to CTS and provide CTS with the
opportunity to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party. In the event the transactions contemplated
by this Agreement are not consummated, the STOCKHOLDERS shall have none of the
above-mentioned restrictions on their ability to disseminate confidential
information with respect to the COMPANY.
14.2 CTS AND NEWCO. CTS and NEWCO recognize and acknowledge that they had
in the past, currently have, and in the future may have, access to certain
confidential information of the COMPANY, such as operational policies, and
pricing and cost policies that are valuable, special and unique assets of the
COMPANY's business. CTS and NEWCO agree that, prior to the Closing, or if the
Transactions contemplated by this Agreement are not consummated, they will not
disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
the STOCKHOLDERS and to authorized representatives of the COMPANY, (b) to
counsel and other advisers, provided that such advisors (other than counsel)
agree to the confidentiality provisions of this Section 14.2 and (c) to the
Other Founding Companies and their representatives pursuant to Section 7.1(a),
unless (i) such information becomes known to the public generally through no
fault of CTS or NEWCO, (ii) disclosure is required by law or the order of any
Governmental Authority under color of law; provided, that, prior to disclosing
any information pursuant to this clause (ii), CTS and NEWCO shall, if possible,
give prior written notice thereof to the COMPANY and the STOCKHOLDERS and
provide the COMPANY and the STOCKHOLDERS with the opportunity to contest such
disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party. In the event of a breach or threatened breach by CTS or NEWCO
of the provisions of this Section, the COMPANY and the STOCKHOLDERS shall be
entitled to an injunction restraining CTS and NEWCO from disclosing, in whole or
in part, such confidential information. Nothing herein shall be construed as
prohibiting the COMPANY and the STOCKHOLDERS from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
14.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
Nothing herein shall be construed as prohibiting a party hereto from pursuing
any other available remedy for such breach or threatened breach of Sections 14.1
and 14.2, including the recovery of damages.
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14.4 Survival. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Closing Date.
15. TRANSFER RESTRICTIONS
15.1 Transfer Restrictions. For a period of one year from the Closing
Date, except pursuant to Section 16 hereof, none of the STOCKHOLDERS shall (i)
sell, assign, exchange, transfer, encumber, pledge, distribute, appoint or
otherwise dispose of (a) any shares of CTS Stock received by the STOCKHOLDERS
pursuant to the terms hereunder or (b) any interest (including, without
limitation, an option to buy or sell) in any such shares of CTS Stock, in whole
or in part, and no such attempted transfer shall be treated as effective for any
purpose; or (ii) engage in any transaction, whether or not with respect to any
shares of CTS Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of CTS Stock acquired pursuant to Section 2
hereof (including, by way of example and not limitation, engaging in put, call,
short-sale, straddle or similar market transactions). Notwithstanding the
foregoing, the STOCKHOLDERS may (x) transfer to immediate family members (or
trusts for the benefit of the STOCKHOLDERS or family members), (y) encumber or
pledge any of such shares of CTS Stock or (z) transfer or invest in hedge funds,
other private investment funds, or other hedging activities approved in writing
by the Underwriters; provided, that in each case the trustee, pledgee or other
beneficiary of such transfer, encumbrance or pledge or the trust, transferee
hedge fund, investment fund or other Underwriter approved hedging vehicle, as
the case may be, agrees in writing prior to such transaction to be bound by (1)
the provisions of this Section as if a STOCKHOLDER and party hereto and (2) the
indemnification provisions set forth in this Agreement as if a STOCKHOLDER and
party hereto. The certificates evidencing the CTS Stock delivered to the
STOCKHOLDERS pursuant to Section 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as CTS may deem necessary or appropriate:
EXCEPT AS PROVIDED BY THAT CERTAIN AGREEMENT AND PLAN OF ORGANIZATION, A
COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY
FOR PUBLIC INSPECTION, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT
BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT
BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION PRIOR TO THE FIRST ANNIVERSARY OF THE CLOSING DATE. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER
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PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
16. REGISTRATION RIGHTS
16.1 Piggyback Registration Rights. At any time following the Closing
Date, whenever CTS proposes to register any CTS Stock for its own or others'
account under the 1933 Act for a public offering, other than (i) any shelf
registration of shares to be used as consideration for acquisitions of
additional businesses by CTS, (ii) registrations relating to Plans and (iii)
registrations relating to rights offerings made to the stockholders of CTS, CTS
shall give each of the STOCKHOLDERS prompt written notice of its intent to do
so. Upon the written request of any of the STOCKHOLDERS given within 30 days
after receipt of such notice, CTS shall cause to be included in such
registration all of the CTS Stock issued to the STOCKHOLDERS pursuant to this
Agreement which any such STOCKHOLDER requests, provided that CTS shall have the
right to reduce the number of shares included in such registration to the extent
that inclusion of such shares could, in the opinion of tax counsel to CTS or its
independent auditors, jeopardize the status of the transactions contemplated
hereby and by the Registration Statement as a tax-free organization. In
addition, if CTS is advised in writing in good faith by any managing underwriter
of an underwritten offering of the securities being offered pursuant to any
registration statement under this Section 16.1 that the number of shares to be
sold by persons other than CTS is greater than the number of such shares which
can be offered without adversely affecting the offering, CTS may reduce pro rata
the number of shares offered for the accounts of such persons (based upon the
number of shares proposed to be sold by each such person) to a number deemed
satisfactory by such managing underwriter, provided, that, for each such
offering made by CTS after the IPO, such reduction shall be made first by
reducing the number of shares to be sold by persons other than CTS, the
STOCKHOLDERS and the stockholders of the Other Founding Companies (collectively,
the STOCKHOLDERS and the stockholders of the Other Founding Companies being
referred to herein as the "Founding Stockholders"), and thereafter, if a further
reduction is required, by reducing pro rata the number of shares to be sold by
the Founding Stockholders.
16.2 Registration Procedures. All expenses incurred in connection with the
registrations under this Section 16 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts with respect to any CTS Stock sold on behalf of any
STOCKHOLDER), shall be borne by CTS. In connection with registrations under
Section 16.1, CTS shall (i) use its best efforts to prepare and file with the
SEC as soon as reasonably practicable, a registration statement with respect to
the CTS Stock and use its best efforts to cause such registration to promptly
become and remain effective for a period of at least 120 days (or such shorter
period during which stockholders of the Founding Companies shall have sold all
CTS Stock which they requested to be registered); (ii) use its best efforts to
register and qualify the CTS Stock covered by such registration statement under
applicable state securities laws as the holders shall reasonably request for the
distribution of the CTS
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Stock; (iii) take all actions necessary to have the CTS Stock covered by such
registration listed or quoted on the exchange or automated quotation system on
which the CTS Stock trades at the time of registration; (iv) take such other
actions as are reasonable and necessary to comply with the requirements of the
1933 Act and the regulations thereunder; and (v) make available its general
counsel to advise each STOCKHOLDER and provide the legal opinions required under
the purchase agreement used in connection with the registrations under this
Section 16.
16.3 Underwriting Agreement. In connection with each registration pursuant
to Section 16.1 covering an underwritten registered public offering, CTS and
each participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of CTS's size and investment stature,
including indemnification provisions.
16.4 Availability of Rule 144. CTS shall not be obligated to register
shares of CTS Stock held by any STOCKHOLDER at any time when the resale
provisions of Rule 144(k) (or any successor provision) promulgated under the
1933 Act are available to such STOCKHOLDER for such shares.
16.5 Market Standoff. In consideration of the granting to the STOCKHOLDERS
of the registration rights under this Section 16, the STOCKHOLDERS agree that
they will not sell, transfer or otherwise dispose of, including without
limitation through put or short sale arrangements, shares of CTS Stock
in the 10 days prior to the effectiveness of any registration of CTS Stock for
sale to the public and for up to 90 days following the effectiveness of such
registration, provided that: (i) all directors, executive officers and holders
of more than five percent of the outstanding CTS Stock agree to the same
restrictions; (ii) with respect to the first public offering of shares of the
CTS Stock within three years following the IPO, the STOCKHOLDERS shall have been
afforded a meaningful opportunity to include shares in such registration after
any reduction by reason of underwriters' advice; and (iii) CTS has not exercised
its rights to delay under this Section 16.5 more than once in any 12 month
period.
17. GENERAL
17.1 Cooperation. The COMPANY, the STOCKHOLDERS, CTS and NEWCO shall each
deliver or cause to be delivered to the other on the Closing Date, and at such
other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The STOCKHOLDERS will cooperate and use their reasonable efforts
to have the present officers, directors and employees of the COMPANY cooperate
with CTS on and after the Closing Date in furnishing information, evidence,
testimony and other assistance in connection with any Tax Return filing
obligations, actions, proceedings, arrangements or disputes of any nature with
respect to matters pertaining to
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all periods prior to the Closing Date.
17.2 Successors and Assigns. During the period payments are to be made to
the STOCKHOLDERS pursuant to Annex III hereof, this Agreement and the rights of
the parties hereunder may not be assigned (including by operation of law) and
shall be binding upon and shall inure to the benefit of the parties hereto, the
successors of CTS, and the heirs and legal representatives of the STOCKHOLDERS;
provided, however, that this Agreement and the rights of the parties hereunder
may be assigned (i) upon receipt of the consent of the STOCKHOLDERS who hold a
majority of the CTS Stock issued and outstanding under this Agreement at such
time of determination, whose consent shall not be unreasonably withheld or (ii)
if the assignee is a company whose capital stock is traded on the Nasdaq Stock
Market, the New York Stock Exchange or the American Stock Exchange..
17.3 Entire Agreement. This Agreement (including the Schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the STOCKHOLDERS, the
COMPANY, NEWCO and CTS and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the STOCKHOLDERS, the COMPANY, NEWCO and CTS,
acting through their respective officers or trustees, duly authorized by their
respective boards of directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the COMPANY and the STOCKHOLDERS shall
make a good faith effort to cross reference disclosure, as necessary or
advisable, between related Schedules.
17.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
17.5 Brokers and Agents. Except as disclosed on Schedule 17.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commissions of
brokers employed or alleged to have been employed by such indemnifying party.
17.6 Expenses.
(a) Whether or not the transactions herein contemplated shall be
consummated, CTS will pay the fees, expenses and disbursements of CTS and
its agents, representatives, accountants and counsel incurred in
connection with the subject matter of this Agreement and any amendments
thereto, including all costs and expenses incurred in the performance and
compliance with all conditions to be performed by CTS under this
Agreement, including the fees and expenses of
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Price Waterhouse LLP, Morgan, Lewis & Bockius LLP, and any other person or
entity retained by CTS, and the costs of preparing the Registration
Statement.
(b) If the transactions herein contemplated shall not be
consummated, the Company shall pay the fees, expenses and disbursements of
the STOCKHOLDERS, the COMPANY and their respective agents,
representatives, accountants and counsel incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all
costs and expenses incurred in the performance and compliance with all
conditions to be performed by the COMPANY and the STOCKHOLDERS under this
Agreement, including the fees and expenses of legal counsel to the COMPANY
and the STOCKHOLDERS.
(c) If the transaction herein contemplated is consummated, CTS will
pay the fees, expenses, and disbursements of the STOCKHOLDERS and the
COMPANY as described in (b), above.
(d) Each STOCKHOLDER shall pay all sales, use, transfer, real
property transfer, recording, gains, stock transfer and other similar
taxes and fees ("Transfer Taxes") imposed in connection with the
transactions contemplated hereby. Each STOCKHOLDER shall file all
necessary documentation and Returns with respect to such Transfer Taxes.
In addition, each STOCKHOLDER acknowledges that he, and not the COMPANY or
CTS, will pay all Taxes due upon receipt of the consideration payable
pursuant to Section 2 hereof, and will assume all Tax risks and
liabilities of such STOCKHOLDER in connection with the transactions
contemplated hereby.
17.7 Notices. All notices or communications required or permitted
hereunder shall be in writing and shall be deemed to have been given when
personally delivered or upon receipt if sent by first class certified mail,
return receipt requested or the next business day if sent by telefax (receipt
confirmed and followed up by one of the other delivery methods discussed herein
as well), or upon delivery if sent by express mail, in each case postage prepaid
and addressed as follows:
(a) If to CTS, or NEWCO:
1650 Tysons Boulevard
Suite 600
McLean, Virginia 22102
with copies to:
The Commonwealth Group
1650 Tysons Boulevard
Suite 600
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McLean, Virginia 22102
and
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Attn: Christopher T. Jensen, Esq.
(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on Annex IV, with copies to such counsel as is set forth with
respect to each STOCKHOLDER on such Annex IV;
(c) If to the COMPANY:
Corporate Access, Inc.
100 School Street
Andover, Massachusetts 01810
Attn: Richard T. Marino
and marked "Personal and Confidential"
with copies to:
Hemenway & Barnes
60 State Street
Boston, Massachusetts 02109
Attn: Frederic J. Marx, Esq.
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 17.7 from time to time.
17.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of New York, except that matters herein within the purview
of the matters covered by the General Corporation Law of the State of Delaware
shall be governed by such General Corporation Law, in each case without
reference to conflicts of laws principles.
17.9 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any
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other breach or default occurring before or after that waiver.
17.10 Time. Time is of the essence with respect to this Agreement.
17.11 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
17.12 Remedies Cumulative. Except as provided in Section 11.4 of this
Agreement, no right, remedy or election given by any term of this Agreement
shall be deemed exclusive but each shall be cumulative with all other rights,
remedies and elections available at law or in equity.
17.13 Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
17.14 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of CTS, NEWCO, the COMPANY and the STOCKHOLDERS who hold a
majority of the CTS Stock issued and outstanding under this Agreement at such
time of determination. Any amendment or waiver effected in accordance with this
Section 17.14 shall be binding upon each of the parties hereto, any other person
receiving CTS Stock in connection with the Merger and each future holder of such
CTS Stock.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
CONDOR TECHNOLOGY SOLUTIONS, INC.
By: /s/ Kennard F. Hill
------------------------------------
Name: Kennard F. Hill
Title: President and Chief Executive
Officer
By: /s/ J. Marshall Coleman
------------------------------------
Name: J. Marshall Coleman
Title: Secretary
ACCESS ACQUISITION CORP.
By: /s/ Kennard F. Hill
------------------------------------
Name: Kennard F. Hill
Title: President and Chief Executive
Officer
By: /s/ J. Marshall Coleman
------------------------------------
Name: J. Marshall Coleman
Title: Secretary
CORPORATE ACCESS, INC.
By: /s/ Richard Marino
------------------------------------
Name: Richard Marino
Title: President
<PAGE>
By: /s/ Margaret Pike
------------------------------------
Name: Margaret Pike
Title: Treasurer
STOCKHOLDERS:
/s/ Richard Marino
----------------------------------------
Name: Richard Marino
/s/ Sebastian Tine
----------------------------------------
Name: Sebastian Tine
/s/ Margaret Pike
----------------------------------------
Name: Margaret Pike
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(b) The COMPANY is not subject to any judgment, order or
decree of any court or Governmental Authority; the COMPANY has
not received any opinion or memorandum from legal counsel to
the effect that it is exposed, from a legal standpoint, to any
liability or disadvantage which may be material to its
business. The COMPANY is not engaged in any legal action to
recover monies due it or for damages sustained by it.
(c) The COMPANY's current insurance is believed in good
faith to be adequate to cover all pending or threatened
Claims, the COMPANY has given all required notice of such
Claims to its appropriate insurance carrier(s) and/or all such
claims have been fully reserved for on the financial
statements of the COMPANY has delivered to CTS pursuant to the
terms of this Agreement. Schedule 5.21 lists the insurer for
each Claim covered by insurance or designates each Claim, or
portion of each Claim, as uninsured and the individual and
aggregate policy limits for the insurance covering each
insured Claim and the applicable policy deductibles for each
insured Claim.
Schedule 5.21 sets forth all closed litigation matters
(other than workers compensation claims) to which the COMPANY
was a party during the three years preceding the Closing, the
date such litigation was commenced and concluded, and the
nature of the resolution thereof (including amounts paid in
settlement or judgment).
5.22 Taxes. Except as set forth on Schedule 5.22:
(a) All Returns required to have been filed by or with
respect to the COMPANY and any affiliated, combined,
consolidated, unitary or similar group of which the COMPANY is
or was a member (a "Relevant Group") with any Taxing Authority
have been duly filed, and each such Return correctly and
completely reflects the Tax liability and all other
information required to be reported thereon. All Taxes
(whether or not shown on any Return) owed by the COMPANY, any
subsidiary and any member of a Relevant Group (individually,
the "Acquired Party" and collectively, the "Acquired Parties")
have been paid.
(b) To the knowledge of the COMPANY and the
STOCKHOLDERS, the provisions for Taxes due by the COMPANY and
any subsidiaries (as opposed to any reserve for deferred Taxes
established to reflect timing differences between book and Tax
income) in the COMPANY Financial Statements are sufficient for
all unpaid Taxes, being current taxes not yet due and payable,
of such Acquired Party.
(c) No Acquired Party is a party to any agreement
extending the time within which to file any Return. No claim
has ever been made by any Taxing Authority in a jurisdiction
in which an Acquired Party does not file Returns that it is or
may be subject to taxation by that jurisdiction that is
unresolved or if
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adversely determined would have a Material Adverse Effect on
such Acquired Party.
(d) Each Acquired Party has withheld and paid all Taxes
required to have been withheld and paid in connection with
amounts paid or owing to any employee, creditor, independent
contractor or other third party.
(e) No Acquired Party expects any Taxing Authority to
assess any additional Taxes against or in respect of it for
any past period. There is no dispute or claim concerning any
Tax liability of any Acquired Party either (i) claimed or
raised by any Taxing Authority or (ii) otherwise known to any
Acquired Party. No issues have been raised in any examination
by any Taxing Authority with respect to any Acquired Party
which, by application of similar principles, reasonably could
be expected to result in a proposed deficiency for any other
period not so examined. Schedule 5.22(v) attached hereto
lists all federal, state, local and foreign income Tax Returns
filed by or with respect to any Acquired Party for all taxable
periods ended on or after January 1, 1991, indicates those
Returns, if any, that have been audited, and indicates those
Returns that currently are the subject of audit. Each
Acquired Party has delivered to CTS complete and correct
copies of all federal, state, local and foreign income Tax
Returns filed by, and all Tax examination reports and
statements of deficiencies assessed against or agreed to by,
such Acquired Party since January 1, 1991.
(f) No Acquired Party has waived any statute of
limitations, the waiver of which remains in effect on the date
hereof, in respect of Taxes or agreed to any extension of time
with respect to any Tax assessment or deficiency.
(g) No Acquired Party has made any payments, is
obligated to make any payments, or is a party to any agreement
that under certain circumstances could require it to make any
payments, that are not deductible (i) under Section 280G of
the Code or (ii) as compensation under Section 162(m) of the
Code or any similar provision under state and/or local law.
(h) No Acquired Party is a party to any Tax allocation
or sharing agreement.
(i) None of the assets of any Acquired Party constitutes
tax-exempt bond financed property or tax-exempt use property,
within the meaning of Section 168 of the Code. No Acquired
Party is a party to any "safe harbor lease" that is subject to
the provisions of Section 168(f)(8) of the Internal Revenue
Code as in effect prior to the Tax Reform Act of 1986, or to
any "long-term contract" within the meaning of Section 460 of
the Code.
(j) No Acquired Party is a "consenting corporation"
within the meaning of Section 341(f)(1) of the Code, or
comparable provisions of any state statutes, and none of the
assets of any Acquired Party is subject to an
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election under Section 341(f) of the Code or comparable
provisions of any state statutes.
(k) No Acquired Party is a party to any joint venture,
partnership or other arrangement that is treated as a
partnership for federal income Tax purposes.
(l) There are no accounting method changes or proposed
or threatened accounting method changes, of any Acquired Party
that could give rise to an adjustment under Section 481 of the
Code for periods after the Closing Date.
(m) No Acquired Party has received any written ruling of
a Taxing Authority related to Taxes or entered into any
written and legally binding agreement with a Taxing Authority
relating to Taxes.
(n) Each Acquired Party has disclosed (in accordance
with Section 6662(d)(2)(B)(ii) of the Code) on its federal
income Tax Returns all positions taken therein that could give
rise to a substantial understatement of federal income Tax
within the meaning of Section 6662(d) of the Code.
(o) No Acquired Party has any liability for Taxes of any
person other than such Acquired Party (i) under Section
1.1502-6 of the Treasury regulations (or any similar provision
of state, local or foreign law), (ii) as a transferee or
successor, (iii) by contract or (iv) otherwise.
(p) The COMPANY made a valid election to be an S
corporation, as defined in Section 1361 of the Code, for
Federal, state and local tax purposes for its taxable year,
beginning on July 1, 1996 under Section 1362(a) of the Code
and corresponding provisions of the laws of the state and
local jurisdictions in which it is subject to tax, and has
qualified and has been taxed as an S corporation for Federal,
state and local tax purposes at all times since such date.
(q) The COMPANY is not an investment company as defined
in Section 351(e)(1) of the Code.
(r) The fair market value of the assets of the COMPANY
exceeds the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
(s) The COMPANY is not under the jurisdiction of a court
in a Title 11 or similar case within the meaning of
Section 351(e)(2) of the Code.
For purposes of this Section 5.22, the following definitions
shall apply:
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax
with any
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Taxing Authority or Governmental Authority.
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, bank shares, withholding, payroll, employment, excise,
property, deed, stamp, alternative or add-on minimum, environmental or other
taxes, assessments, duties, fees, levies or other governmental charges of any
nature whatsoever, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Taxing Authority" means any Governmental Authority, board, bureau,
body, department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
5.23 No Violations. The COMPANY is not in violation of any Charter
Document. Neither the COMPANY nor, to the knowledge of the COMPANY or the
STOCKHOLDERS, any other party thereto, is in default under any Material
Contract; and, except as set forth on Schedule 5.23, (a) the rights and
benefits of the COMPANY under the Material Contracts will not be adversely
affected by the transactions contemplated hereby and (b) the execution of
this Agreement and the performance by the COMPANY and the STOCKHOLDERS of
their obligations hereunder and the consummation by the COMPANY and the
STOCKHOLDERS of the transactions contemplated hereby will not result (i) in
any violation or breach of, or constitute a default under, any of the terms
or provisions of the Material Contracts or the Charter Documents or (ii)
require the consent, approval, waiver of any acceleration, termination or
other right or remedy or action of or by, or make any filing with or give any
notice to, any other party. Except as set forth on Schedule 5.23, none of
the Material Contracts requires notice to, or the consent or approval of, any
Governmental Authority or other third party with respect to any of the
transactions contemplated hereby in order to remain in full force and effect
and consummation of the transactions contemplated hereby will not give rise
to any right to termination, cancellation or acceleration or loss of any
material right or benefit. Except as set forth on Schedule 5.23, none of the
Material Contracts prohibits the use or publication by the COMPANY, CTS or
NEWCO of the name of any other party to such Material Contracts, and none of
the Material Contracts prohibits or restricts the COMPANY from freely
providing services to any other customer or potential customer of the
COMPANY, CTS, NEWCO or any Other Founding Company.
5.24 Government Contracts. Except as set forth on Schedule 5.24, the
COMPANY is not a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 Business Conduct. Except as set forth on Schedule 5.25, since
December 31, 1996, the COMPANY has conducted its business only in the
ordinary course consistent with past custom and practices and has incurred no
liabilities
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other than in the ordinary course of business consistent with past custom and
practices. Except as forth on Schedule 5.25, since December 31, 1996, there
has not been any:
(a) Material adverse change in the COMPANY's operations,
condition (financial or otherwise), operating results, assets,
liabilities, employee, customer or supplier relations or
business prospects;
(b) Damage, destruction or loss of any property owned by
the COMPANY or used in the operation of the business, whether
or not covered by insurance, having a replacement cost or fair
market value in excess of $50,000 affecting the COMPANY's
property, financial status or the Business;
(c) Voluntary or involuntary sale, transfer, surrender,
abandonment or other disposition of any kind by the COMPANY of
any assets or property rights (tangible or intangible), having
a replacement cost or fair market value in excess of $50,000,
except in each case the sale of inventory and collection of
accounts in the ordinary course of business consistent with
past custom and practices;
(d) Loan or advance by the COMPANY to any party other
than sales to customers on credit in the ordinary course of
business consistent with past custom and practices;
(e) Declaration, setting aside, or payment of any
dividend or other distribution in respect to the COMPANY's
capital stock, any direct or indirect redemption, purchase, or
other acquisition of such stock, or the payment of principal
or interest on any note, bond, debt instrument or debt to any
Affiliate;
(f) Incurrence of debts, liabilities or obligations
except current liabilities incurred in connection with or for
services rendered or goods supplied in the ordinary course of
business consistent with past custom and practices,
liabilities on account of taxes and governmental charges but
not penalties, interest or fines in respect thereof, and
obligations or liabilities incurred by virtue of the execution
of this Agreement;
(g) Issuance by the COMPANY of any notes, bonds, or
other debt securities or any equity securities or securities
convertible into or exchangeable for any equity securities;
(h) Cancellation, waiver or release by the COMPANY of
any debts, rights or claims, except in each case in the
ordinary course of business consistent with past custom and
practices;
(i) Amendment of the COMPANY's Articles of Organization
or
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By-Laws;
(j) Amendment or termination of any Material Contract,
other than expiration of such contract in accordance with its
terms;
(k) Change in accounting principles, methods or
practices (including, without limitation, any change in
depreciation or amortization policies or rates) utilized by
the COMPANY;
(l) Discharge or satisfaction of any material liability,
encumbrance or payment of any material obligation or
liability, other than current liabilities paid in the ordinary
course of business consistent with past custom and practices
or cancellation of any debts or claims;
(m) Sale or assignment by the COMPANY of any tangible
assets other than in the ordinary course of business;
(n) Capital expenditures or commitments therefor by the
COMPANY other than in the ordinary course of business in
excess of $100,000 in the aggregate;
(o) Charitable contributions or pledges by the COMPANY
in excess of $25,000 per year in the aggregate;
(p) Mortgage, pledge or other encumbrance of any asset
of the COMPANY other than in the ordinary course of business;
(q) Adoption, amendment or termination of any Benefit
Plan;
(r) Increase in the benefits provided under any Benefit
Plan; or
(s) An occurrence or event not included in clauses (a)
through (r) that has or might be expected to have a Material
Adverse Effect on the COMPANY.
5.26 Deposit Accounts; Powers of Attorney. The COMPANY has delivered
to CTS an accurate schedule (which is set forth on Schedule 5.26) as of the
date of this Agreement of:
(a) the name of each financial institution in which the
COMPANY has accounts or safe deposit boxes;
(b) the names in which the accounts or boxes are held;
(c) the type of account and account number; and
(d) the name of each person authorized to draw thereon
or have access thereto.
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Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY
and a description of the terms of such power of attorney.
5.27 Relations with Governments. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political
party or candidate for government office nor has it otherwise taken any
action which would cause the COMPANY to be in violation of the Foreign
Corrupt Practices Act of 1977, as amended, or any law of similar effect.
5.28 Disclosure.
(a) The representations and warranties of the COMPANY
and the STOCKHOLDERS contained in this Agreement, the
schedules to this Agreement provided by the COMPANY and/or the
STOCKHOLDERS, the certificates and the other documents
furnished by the COMPANY and/or the STOCKHOLDERS to CTS
pursuant hereto and for inclusion in the Registration
Statement (which, for purposes of this Agreement, shall
include the completed Directors and Officers Questionnaires
and Registration Statement Questionnaires), taken as a whole,
present fairly the business and operations of the COMPANY for
the time periods with respect to which such information was
requested. The COMPANY'S rights under the documents delivered
pursuant hereto would not be materially adversely affected by,
and no statement made herein would be rendered untrue in any
material respect by, any other document to which the COMPANY
is a party, or to which its properties are subject, or by any
other fact or circumstance regarding the COMPANY (which fact
or circumstance was, or should reasonably, after due inquiry,
have been known to the COMPANY) that is not disclosed pursuant
hereto or thereto. If, prior to the 25th day after the date
of the final prospectus of CTS utilized in connection with the
IPO, the COMPANY or the STOCKHOLDERS become aware of any fact
or circumstance which would change (or, if after the Closing
Date, would have changed) a representation or warranty of
COMPANY or STOCKHOLDERS in this Agreement or would affect any
document delivered pursuant hereto in any material respect,
the COMPANY and the STOCKHOLDERS shall immediately give notice
of such fact or circumstance to CTS. However, subject to the
provisions of Section 7.8, such notification shall not relieve
either the COMPANY or the STOCKHOLDERS of their respective
obligations under this Agreement.
(b) The COMPANY and the STOCKHOLDERS acknowledge and
agree (i) that there exists no firm commitment, binding
agreement, or promise or other assurance of any kind, whether
express or implied, oral or written, that a Registration
Statement will become effective or that the IPO pursuant
thereto will occur at a particular price or within a
particular range of prices or occur at all; (ii) that neither
CTS or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability
to the COMPANY,
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the STOCKHOLDERS or any other person affiliated or associated
with the COMPANY for any failure of the Registration Statement
to become effective, the IPO to occur at a particular price or
within a particular range of prices or to occur at all; and
(iii) that the decision of the STOCKHOLDERS to enter into this
Agreement, or to vote in favor of or consent to the proposed
Merger, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications,
or due diligence investigations which have been or will be
made or performed by any prospective Underwriter, relative
to CTS or the prospective IPO.
5.29 Prohibited Activities. Except as set forth on Schedule 5.29, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken
any of the actions set forth in Section 7.3.
5.30 Affiliate Transactions. Schedule 5.30 sets forth the parties to
and the date, nature and amount of (A) each transaction or series of similar
transactions (other than payments of salary and bonus which are reflected as
line items in the Financial Statements) involving the transfer of any cash,
property or rights in which the amount involved individually or collectively
exceeded $60,000 to or from the COMPANY from, to, or for the benefit of any
Affiliate or former Affiliate of the COMPANY ("Affiliate Transactions")
during the period commencing January 1, 1994 through the date hereof and (B)
any existing commitments of the COMPANY to engage in the future in any
Affiliate Transactions. Each Affiliate Transaction was effected on terms
equivalent to those which would have been established in an arms'-length
negotiation, except as disclosed on Schedule 5.30.
5.31 Misrepresentation. To the knowledge of the COMPANY and the
STOCKHOLDERS, none of the representations and warranties set forth in this
Agreement, the certificates and the other documents furnished by the COMPANY
to CTS pursuant hereto and for inclusion in the Registration Statement, taken
as a whole, contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements contained herein or therein
not misleading.
(B) Representations and Warranties of the STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants to CTS and NEWCO that
the representations and warranties set forth below with respect to such
STOCKHOLDER are true and correct as of the date of this Agreement and,
subject to Section 7.8 hereof, shall be true and correct at the time of the
Pre-Closing and on the Closing Date.
5.32 Securities Act Representations. Each STOCKHOLDER alone, or
together with such STOCKHOLDER's "purchaser representative" (as defined in
Rule 501(h) promulgated under the 1933 Act):
(a) acknowledges and agrees that (x) the shares of CTS Stock to be
delivered to such STOCKHOLDER pursuant to this Agreement have not been and
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will not be registered under the 1933 Act, and therefore may not be sold,
transferred or otherwise conveyed without compliance with the 1933 Act or
pursuant to an exemption therefrom and (y) the CTS Stock to be acquired by
such STOCKHOLDER pursuant to this Agreement is being acquired solely for its
own account, for investment purposes only, and with no present intention of
distributing, selling or otherwise disposing of the CTS Stock in connection
with a distribution;
(b) acknowledges and agrees that it knows and understands that an
investment in the CTS Stock is a speculative investment which involves a high
degree of risk of loss;
(c) represents and warrants that it is able to bear the economic risk of
an investment in the CTS Stock acquired pursuant to this Agreement, can
afford to sustain a total loss of such investment and has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of the proposed investment in the CTS Stock;
(d) represents and warrants that it has had an adequate opportunity to
review and to ask questions and receive answers concerning any and all
matters relating to the transactions described in (i) CTS's private placement
memorandum and (ii) this Agreement;
(e) represents and warrants that it has had an adequate opportunity to
ask questions and receive answers concerning (i) the background and
experience of the current and proposed officers and directors of CTS, (ii)
the plans for the operations of the business of CTS, (iii) the business,
operations and financial condition of the Other Founding Companies, and (iv)
any plans for additional acquisitions and the like;
(f) represents and warrants that it is either an "accredited investor"
(as defined in Rule 501(a) promulgated under the 1933 Act) or, after taking
into consideration the information and advice provided to such STOCKHOLDER,
has the requisite knowledge and experience in financial and business matters
to be capable of evaluating the merits and risks of an investment in the CTS
Stock;
(g) represents and warrants that, to its knowledge, there have been no
general or public solicitations or advertisements or other broadly
disseminated disclosures (including, without limitation, any advertisement,
article, notice or other communication published in any newspaper, magazine
or similar media or broadcast over television or radio, or any seminar or
meeting whose attendees have been invited by any general solicitation or
advertising) by or on behalf of CTS regarding an investment in the CTS Stock;
and
(h) acknowledges and agrees that the CTS Stock shall bear the following
legend in addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
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REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS AND, IF REQUIRED BY CONDOR TECHNOLOGY SOLUTIONS, INC., AN
OPINION OF COUNSEL TO CONDOR TECHNOLOGY SOLUTIONS, INC.
STATING THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
Such STOCKHOLDER acknowledges that the effect of the foregoing legend, among
other things, is or may be to limit or destroy the value of the certificate
for purposes of sale or use as loan collateral. Such STOCKHOLDER consents
that "stop transfer" instructions may be noted against the CTS Stock.
5.33 Authority; Ownership. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY Stock identified
on Annex IV as being owned by such STOCKHOLDER, and, except as set forth on
Schedule 5.33, such COMPANY Stock is owned free and clear of all liens,
security interests, pledges, charges, voting trusts, restrictions,
encumbrances and claims of every kind.
5.34 Preemptive Rights. Such STOCKHOLDER does not have, or hereby
waives, any preemptive or other right to acquire shares of COMPANY Stock or
CTS Stock that such STOCKHOLDER has or may have had other than rights of any
STOCKHOLDER to acquire CTS Stock pursuant to (i) this Agreement or (ii) any
option granted by CTS.
5.35 No Intention to Dispose of CTS Stock. No STOCKHOLDER has any
current plan or intention, or is under any binding commitment or contract, to
sell, exchange or otherwise dispose of shares of CTS Stock received pursuant
to Section 3.1.
5.36 Questionnaires. The Completed Directors and Officers
Questionnaires and Registration Statement Questionnaires attached hereto as
schedule 5.36, present fairly the business and operations of the COMPANY for
the time periods with respect to which such information was requested. If,
prior to the 25th day after the date of the final prospectus of CTS utilized
in connection with the IPO, the STOCKHOLDERS become aware of any fact or
circumstance which would affect the information disclosed in their Directors
and Officers Questionnaires or their Registration Statement Questionnaires in
any material respect, then the relevant STOCKHOLDER shall immediately give
notice of such fact or circumstance to CTS. However, subject to the
provisions of Section 7.8, such notification shall not relieve
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the relevant STOCKHOLDER of his or its obligations under this Agreement.
6. REPRESENTATIONS OF CTS AND NEWCO
CTS and NEWCO jointly and severally represent and warrant to the COMPANY
and the STOCKHOLDERS that all of the following representations and warranties
in this Section 6 are true and correct at the date of this Agreement and,
subject to Section 7.8 hereof, shall be true and correct at the time of the
Pre-Closing and on the Closing Date, and that such representations and
warranties shall survive the Closing Date for a period of eighteen months.
6.1 Due Organization. CTS and NEWCO are each corporations duly
incorporated, validly existing and in good standing under the laws of the
state of their incorporation, and are duly authorized and qualified to do
business under all applicable laws, regulations, ordinances and orders of
public authorities to carry on their businesses in the places and in the
manner as now conducted, to own or hold under lease the properties and assets
they now own or hold under lease, and to perform all of their obligations
under any material agreement to which they are a party or by which their
properties are bound. CTS and NEWCO are not qualified to do business as
foreign corporations in any jurisdiction, and there is no jurisdiction in
which the conduct of CTS's and NEWCO's business or activities or their
ownership of assets requires qualification under applicable law, the absence
of which would have a Material Adverse Effect on either CTS or NEWCO. True,
complete and correct copies of the Certificate or Articles of Incorporation
and By-laws, each as amended, of CTS and NEWCO (the "CTS Charter Documents")
are all attached hereto as Annex II. The minute books and stock records of
each of CTS and NEWCO as heretofore made available to the COMPANY, are
correct and complete in all material respects. The most recent minutes of
each CTS and NEWCO, which are dated no earlier than 10 business days prior to
the date hereof, affirm and ratify all prior acts of CTS and NEWCO, as the
case may be, and of their respective officers and directors.
6.2 Authorization. The respective representatives of CTS and NEWCO
executing this Agreement have the authority to execute and deliver this
Agreement and to bind CTS and NEWCO to perform their respective obligations
hereunder. The execution and delivery of this Agreement by CTS and NEWCO and
the performance by CTS and NEWCO of their respective obligations under this
Agreement and the consummation by CTS and NEWCO of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action by each in accordance with applicable law and the Certificate or
Articles of Incorporation and By-Laws of CTS and NEWCO, as the case may be.
Each share of CTS Stock to be issued to the STOCKHOLDERS on the Closing Date
will be duly and validly authorized and issued, free and clear of all liens,
claims and other encumbrances and fully paid and nonassessable. This
Agreement constitutes the valid and binding obligation of CTS and NEWCO,
enforceable in accordance with its
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terms.
6.3 Transaction Not a Breach. Neither the execution and delivery of
this Agreement nor their performance will violate, conflict with, or result
in a breach of any provision of any Law, rule, regulation, order, permit,
judgment, injunction, decree or other decision of any court or other tribunal
or any Governmental Authority binding on CTS or NEWCO or conflict with or
result in the breach of any of the terms, conditions or provisions of the
Certificate or Articles of Incorporation or the By-laws of CTS or NEWCO or of
any contract, agreement, mortgage or other instrument or obligation of any
nature to which CTS or NEWCO is a party or by which CTS or NEWCO is bound.
6.4 Misrepresentation. None of the representations and warranties set
forth in this Agreement or in any of the certificates, schedules, exhibits,
lists, documents, exhibits, or other instruments delivered, or to be
delivered, to the COMPANY as contemplated by any provision hereof, contains
any untrue statement of a material fact or omits to state a material fact
necessary to make the statements contained herein or therein not misleading.
6.5 Capital Stock. The entire authorized capital stock of CTS will
consist of 50,000,000 shares. Except as disclosed on Schedule 6.5, there are
no outstanding options, rights (preemptive or otherwise), warrants, calls,
convertible securities or commitments or any other arrangements to which CTS
is a party requiring issuance, sale or transfer of any equity securities of
CTS or any securities convertible directly or indirectly into equity
securities of CTS, or evidencing the right to subscribe for any equity
securities of CTS, or giving any person other than the Founding Companies any
rights with respect to the capital stock of CTS. Except as contemplated by
this Agreement or disclosed on Schedule 6.5, there are no voting agreements,
voting trusts, other agreements (including cumulative voting rights),
commitments or understandings with respect to the CTS Stock.
6.6 Subsidiaries. Schedule 6.6 attached hereto lists the name of each
of CTS's and NEWCO's subsidiaries and sets forth the number and class of the
authorized capital stock of CTS's and NEWCO's subsidiaries and the number of
shares of each of CTS's and NEWCO's subsidiaries which are issued and
outstanding prior to the Merger, all of which shares (except as set forth on
Schedule 6.6) are owned by CTS and NEWCO, as the case may be, free and clear
of all liens, security interests, pledges, voting trusts, equities,
restrictions, encumbrances and claims of every kind. Except as set forth on
Schedule 6.6, CTS and NEWCO do not presently own, of record or beneficially,
or control, directly or indirectly, any capital stock, securities convertible
into capital stock or any other equity interest in any corporation,
association or business entity nor is CTS or NEWCO, as the case may be,
directly or indirectly, a participant in any joint venture, partnership or
other non-corporate entity.
6.7 Conformity with Law; Litigation. Except as set forth on Schedule
6.7,
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CTS and NEWCO have complied with all Laws applicable to them or to the
operation of their businesses and have not received any notice of any alleged
claim or threatened claim, violation of, liability or potential
responsibility under, any Law which has not heretofore been cured and for
which there is no remaining liability other than, in each case, those not
having a Material Adverse Effect on CTS or NEWCO, taken as a whole. Without
limiting the generality of the foregoing, CTS and NEWCO have each complied
with all applicable Federal, state and local Laws relating to antitrust and
trade regulations.
Except to the extent set forth on Schedule 6.7 (which shall disclose the
parties to, nature of, and relief sought for each matter):
(a) There is no suit, action, proceeding, investigation,
claim or order pending or, to the knowledge of CTS and NEWCO,
threatened against either of CTS or NEWCO, or any Plan, or any
fiduciary of any such Plan or, to the knowledge of CTS and
NEWCO, pending or threatened against any of the officers,
directors or employees of CTS or NEWCO with respect to their
businesses or proposed business activities which are material
to CTS or NEWCO, or to which CTS or NEWCO are otherwise a
party, or which may affect either CTS or NEWCO, their assets
or their businesses, before any court, or before any
Governmental Authority.
(b) CTS and NEWCO are not subject to any judgment, order
or decree of any court or Governmental Authority; CTS and
NEWCO have not received any opinion or memorandum from legal
counsel to the effect that either is exposed, from a legal
standpoint, to any liability or disadvantage which may be
material to their businesses. Neither CTS nor NEWCO are
engaged in any legal action to recover monies due it or them
for damages sustained by either of them.
7. COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation; Due Diligence.
(a) Between the date of this Agreement and the Closing
Date, the COMPANY will afford to the officers and authorized
representatives of CTS and the Other Founding Companies access
during business hours to all of the COMPANY's sites,
properties, books and records and will furnish CTS with such
additional financial and operating data and other information
as to the business and properties of the COMPANY as CTS or the
Other Founding Companies may from time to time reasonably
request. The COMPANY will cooperate with CTS and the Other
Founding Companies and their respective representatives,
including CTS's auditors and counsel, in the preparation of
any documents or other material (including the Registration
Statement) which may be required in connection with the
transactions contemplated by this Agreement. CTS, NEWCO, the
STOCKHOLDERS and the COMPANY will
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treat all information obtained in connection with the negotiation
and performance of this Agreement or the due diligence
investigations conducted with respect to the Other Founding
Companies as confidential in accordance with the provisions of
Section 14 hereof. In addition, CTS will cause each of the
Other Agreements, binding each of the Other Founding Companies,
to contain a provision similar to this Section 7.1 requiring
each such Other Founding Company, its stockholders, directors,
officers, representatives, employees and agents to keep
confidential any information obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Closing
Date, CTS will afford to the officers and authorized
representatives of the COMPANY access during business hours to
all of CTS's and NEWCO's sites, properties, books and records
and will furnish the COMPANY with such additional financial
and operating data and other information as to the business
and properties of CTS and NEWCO as the COMPANY may from time
to time reasonably request. CTS and NEWCO will cooperate with
the COMPANY, its representatives, auditors and counsel in the
preparation of any documents or other material which may be
required in connection with the transactions contemplated by
this Agreement. The COMPANY will cause all information
obtained in connection with the negotiation and performance of
this Agreement to be treated as confidential in accordance
with the provisions of Section 14 hereof.
7.2 Conduct of Business Pending Closing. Between the date of this
Agreement and the Closing Date, the COMPANY will, except as set forth on
Schedule 7.2:
(a) carry on its business in the ordinary course
substantially as conducted heretofore and not introduce any
new method of management, operation or accounting;
(b) maintain its properties and facilities, including
those held under leases, in as good working order and
condition as at present, ordinary wear and tear excepted;
(c) perform in all material respects its obligations
under agreements relating to or affecting its assets,
properties or rights;
(d) keep in full force and effect present insurance
policies or other comparable insurance coverage;
(e) maintain and preserve its business organization
intact and use its best efforts to retain its present key
employees and relationships with suppliers, customers and
others having business relations with the COMPANY;
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(f) maintain compliance with all permits, laws, rules
and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar
Governmental Authorities; and
(g) maintain present debt and lease instruments in
accordance with their respective terms and not enter into new
or amended debt or lease instruments, provided that debt
and/or lease instruments may be replaced if such replacement
instruments are on terms at least as favorable to the COMPANY
as the instruments being replaced.
7.3 Prohibited Activities. Except as disclosed on Schedule 7.3 or
otherwise permitted by Section 7.14 or 7.15 of this Agreement, between the
date hereof and the Closing Date, the COMPANY will not, without the prior
written consent of CTS:
(a) make any change in its Articles or Certificate of
Incorporation or By-laws;
(b) grant or issue any securities, options, warrants,
calls, conversion rights or commitments of any kind relating
to its securities of any kind other than in connection with
the exercise of options or warrants listed on Schedule 5.4;
(c) declare or pay any dividend, or make any
distribution in respect of its stock whether now or hereafter
outstanding, or purchase, redeem or otherwise acquire or
retire for value any shares of its stock or engage in any
transaction that will significantly affect the cash reflected
on the balance sheet of the COMPANY as of December 31, 1996.
(d) enter into any contract or commitment or incur or
agree to incur any liability or make any capital expenditure,
except if it is in the ordinary course of business (consistent
with past practice) or involves an amount not in excess of
$10,000;
(e) create, assume or permit to exist any mortgage,
pledge or other lien or encumbrance upon any assets or
properties whether now owned or hereafter acquired, except (1)
with respect to purchase money liens incurred in connection
with the acquisition of equipment with an aggregate cost not
in excess of $10,000 necessary or desirable for the conduct of
the business of the COMPANY, (2)(A) liens for Taxes either not
yet due or being contested in good faith and by appropriate
proceedings (and for which adequate reserves have been
established and are being maintained) or (B) materialmen's,
mechanics', workers', repairmen's, employees' or other like
liens arising in the ordinary course of business (the liens
set forth in clause (2) being referred to herein as "Statutory
Liens"), or (3) liens set forth on Schedule 5.10 or 5.15
hereto;
(f) sell, assign, lease or otherwise transfer or dispose
of any property
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or equipment except in the ordinary course of business;
(g) negotiate for the acquisition of any business or the
start-up of any new business;
(h) merge or consolidate or agree to merge or
consolidate with or into any other corporation;
(i) waive any material right or claim of the COMPANY,
provided that the COMPANY may negotiate and adjust bills in
the course of good faith disputes with customers in a manner
consistent with past practice, provided, further, that such
adjustments shall not be deemed to be included on Schedule
5.11 unless specifically listed thereon;
(j) commit a material breach, materially amend or
terminate any Material Contract;
(k) enter into any other transaction outside the
ordinary course of its business or prohibited hereunder; or
(l) except in the ordinary course of business or as
required by Law or contractual obligations or other
understandings or arrangements existing on the date hereof,
the COMPANY will not (i) increase in any manner the base
compensation of, or enter into any new bonus or incentive
agreement or arrangement with, any of the employees engaged in
the COMPANY's business, (ii) pay or agree to pay any
additional pension, retirement allowance or other employee
benefit to any such employee, whether past or present, (iii)
enter into any new employment, severance, consulting, or other
compensation agreement with any existing employee engaged in
the COMPANY's business, (iv) amend or enter into a new Benefit
Plan (except as required by Law) or amend or enter into a new
collective bargaining agreement (except as required by this
Agreement), or (v) engage in any Affiliate Transaction.
7.4 No Shop. In consideration of the substantial expenditure of time,
effort and expense undertaken by CTS in connection with its due diligence
review and the preparation and execution of this Agreement, the COMPANY and
the STOCKHOLDERS agree that neither they nor their representatives, agents or
employees will, after the execution of this Agreement until the earlier of
(i) the termination of this Agreement or (ii) the Closing, directly or
indirectly, solicit, encourage, negotiate or discuss with any third party
(including by way of furnishing any information concerning the COMPANY) any
acquisition proposal relating to or affecting the COMPANY or any part of it,
or any direct or indirect interests in the COMPANY, whether by purchase of
assets or stock, purchase of interests, merger or other transaction
("Acquisition Transaction"), and that the COMPANY will promptly advise CTS of
the terms of any communications any of the STOCKHOLDERS or the COMPANY may
receive or become aware of relating to
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any bid for all or any part of the COMPANY.
7.5 Notice to Bargaining Agents. Prior to the Closing Date, the
COMPANY shall satisfy any requirement for notice of the transactions
contemplated by this Agreement under applicable collective bargaining
agreements. Set forth on Schedule 7.5 is any and all proof that any such
required notice has been sent.
7.6 Agreements. Except as set forth on Schedule 9.7, the STOCKHOLDERS
and the COMPANY shall terminate (i) any stockholders' agreements, voting
agreements, voting trusts, options, warrants and employment agreements
between the COMPANY and any employee listed on Schedule 9.12 hereto and (ii)
any existing agreement between the COMPANY and any STOCKHOLDER, on or prior
to the Closing Date. A list of such agreements to be terminated is set forth
on Schedule 7.6 and copies of each such agreement to be terminated have been
provided to counsel for CTS.
7.7 Notification of Certain Matters. The STOCKHOLDERS and the COMPANY
shall give prompt notice to CTS of (i) the occurrence or non-occurrence of
any event of which the COMPANY or the STOCKHOLDERS have knowledge, the
occurrence or non-occurrence of which, would cause any representation or
warranty of the COMPANY or the STOCKHOLDERS contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing and (ii) any
material failure of any STOCKHOLDER or the COMPANY to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by such
person hereunder. CTS and NEWCO shall give prompt notice to the COMPANY of
(i) the occurrence or non-occurrence of any event of which CTS or NEWCO have
knowledge, the occurrence or non-occurrence of which, would cause any
representation or warranty of CTS or NEWCO contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing and (ii) any
material failure of CTS or NEWCO to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder. The
delivery of any notice pursuant to this Section 7.7 shall not be deemed to
(i) modify the representations or warranties hereunder of the party
delivering such notice, which modification may only be made pursuant to
Section 7.8, (ii) modify the conditions set forth in Sections 8 and 9, or
(iii) limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
7.8 Amendment of Schedules.
(a) Each party hereto agrees that, with respect to the
representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation
until the Closing Date to supplement or amend promptly the
Schedules hereto with respect to any matter hereafter arising
or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or
described in the Schedules; provided, however, that
supplements and amendments to Schedules 5.10, 5.11, 5.14
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and 5.15 shall only have to be delivered at the Closing Date,
unless such Schedule is to be amended to reflect an event
occurring other than in the ordinary course of business.
(b) Until 24 hours prior to the anticipated
effectiveness of the Registration Statement, and
notwithstanding the foregoing clause (a), the provisions of
this clause (b) shall apply: no amendment or supplement to a
Schedule prepared by the COMPANY or the STOCKHOLDERS that
constitutes or reflects an event or occurrence that would have
a Material Adverse Effect on the COMPANY may be made unless
CTS and a majority of the Founding Companies other than the
COMPANY consent to such amendment or supplement; and provided
further, that no amendment or supplement to a Schedule
prepared by CTS or NEWCO that constitutes or reflects an event
or occurrence that would have a Material Adverse Effect on the
COMPANY may be made unless a majority of the Founding
Companies consent to such amendment or supplement. In the
event that one of the Other Founding Companies seeks to amend
or supplement a Schedule pursuant to Section 7.8 of one of the
Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material
Adverse Effect on such Other Founding Company, CTS shall give
the COMPANY notice promptly after it has knowledge thereof.
If CTS and a majority of the Founding Companies consent to
such amendment or supplement, which consent shall have been
deemed given by CTS or any Founding Company if no response is
received from CTS or any such Founding Company within 24 hours
following receipt of notice by CTS or any Founding Company of
such amendment or supplement (or sooner if required by the
circumstances under which such consent is requested), but the
COMPANY does not give its consent, the COMPANY may terminate
this Agreement pursuant to Section 12.1(d) hereof. In the
event that the COMPANY seeks to amend or supplement a Schedule
pursuant to this Section 7.8 and CTS and a majority of the
Other Founding Companies do not consent to such amendment or
supplement as provided above, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(a)
hereof. In the event that CTS or NEWCO seeks to amend or
supplement a Schedule pursuant to this Section 7.8 and a
majority of the Founding Companies do not consent to such
amendment or supplement, as provided above, this Agreement
shall be deemed terminated by mutual consent as set forth in
Section 12.1(d) hereof.
(c) Between 24 hours prior to the anticipated
effectiveness of the Registration Statement and the Closing
Date, the provisions of this clause (c) shall apply. No
amendment or supplement to a Schedule prepared by the COMPANY
or the STOCKHOLDERS that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on the
COMPANY may be made unless CTS consents to such amendment or
supplement after
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consultation with the Underwriters. CTS and NEWCO hereby
covenant that neither CTS nor NEWCO will amend or
supplement any Schedule prepared by CTS or NEWCO that
constitutes or reflects an event or occurrence that would have
a Material Adverse Effect on CTS or NEWCO, as the case may be,
without consulting with the Underwriters, and CTS shall
provide immediate notice of such amendment or supplement to
the Founding Companies.
(d) For all purposes of this Agreement, including
without limitation for purposes of determining whether the
conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the
Schedules as amended or supplemented pursuant to this Section
7.8. No party to this Agreement shall be liable to any other
party if this Agreement shall be terminated pursuant to the
provisions of this Section 7.8, except that, notwithstanding
anything to the contrary contained in this Agreement, if the
COMPANY or the STOCKHOLDERS on the one hand, or CTS or NEWCO
on the other hand, amends or supplements a Schedule which
results in a termination of this Agreement and such amendment
or supplement arises out of or reflects facts or circumstances
which such party knew about at the time of execution of this
Agreement and knew would result in a termination of this
Agreement or if such amendment or supplement otherwise is
proposed in bad faith, such party shall pay or reimburse CTS
or the COMPANY and the STOCKHOLDERS, as the case may be, for
all of the legal, accounting and other out of pocket costs
reasonably incurred in connection with this Agreement and the
IPO as it relates to the COMPANY and the STOCKHOLDERS.
7.9 Cooperation in Preparation of Registration Statement.
(a) The COMPANY and STOCKHOLDERS shall furnish or cause
to be furnished to CTS and the Underwriters all of the
information concerning the COMPANY and the STOCKHOLDERS
requested by CTS or the Underwriters for inclusion in, and
will cooperate with CTS and the Underwriters in the
preparation of, the Registration Statement and the prospectus
included therein (including audited and unaudited financial
statements, prepared in accordance with GAAP, in form suitable
for inclusion in the Registration Statement). The COMPANY and
the STOCKHOLDERS agree promptly to advise CTS if at any time
during the period in which a prospectus relating to the
offering is required to be delivered under the Securities Act,
any information contained in the prospectus concerning the
COMPANY or the STOCKHOLDERS contains any untrue statement of a
material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and to provide the information needed to correct
such inaccuracy. Insofar as the information relates solely to
the COMPANY or the STOCKHOLDERS, the COMPANY represents and
warrants as to such information furnished by the COMPANY or the
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STOCKHOLDERS for use in the Registration Statement with
respect to itself, and each STOCKHOLDER represents and
warrants, as to such information furnished by the COMPANY or
the STOCKHOLDERS for use in the Registration Statement with
respect to the COMPANY and himself or herself, that the
Registration Statement at its effective date, at the date of
the final Prospectus, each preliminary prospectus and each
amendment to the Registration Statement, and at each closing
date with respect to the IPO under the Underwriting Agreement
(including with respect to any over-allotment option) will not
include an 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 not misleading.
(b) CTS agrees that it will use its best efforts to
provide to the COMPANY and its counsel copies of material
drafts of the Registration Statement as they are prepared and
to the extent practicable in light of the timetable of the IPO
and the potential need to respond promptly to SEC, NASD or
Nasdaq comments, to give the COMPANY sufficient time to review
and comment upon such documents prior to filing with the SEC.
Any objections posed by the COMPANY or its counsel shall state
with specificity the material in question, the reason for the
objection, and the COMPANY's proposed alternative. If the
objection is founded upon a rule promulgated under the
Securities Act, the objection shall cite the rule.
Notwithstanding the foregoing, during the five business days
immediately preceding the date scheduled for the effective
date of the IPO, the COMPANY and the STOCKHOLDERS agree that
(i) two hours from the time the proposed changes are
transmitted to the COMPANY's counsel if such transmission is
during the COMPANY's normal business hours or (ii) four hours
from the time the proposed changes are transmitted to the
COMPANY's counsel if such transmission is not during the
COMPANY's normal business hours, is sufficient time to review
and respond to proposed changes.
7.10 Final Financial Statements. The COMPANY shall provide prior to
the Closing Date, and CTS shall have had sufficient time prior thereto to
review, the unaudited consolidated balance sheets of the COMPANY as of the
end of all fiscal quarters following the Balance Sheet Date, and the
unaudited consolidated statements of income, cash flows and retained earnings
of the COMPANY for all fiscal quarters ended no earlier than 30 days' prior
to the Closing Date, disclosing no material adverse change in the financial
condition of the COMPANY or the results of its operations from the financial
statements as of the Balance Sheet Date. Such financial statements shall
have been prepared in accordance with GAAP applied on a consistent basis
throughout the periods indicated (except as noted therein), but shall not
include all of the footnotes and adjustments required by GAAP for complete
financial statements. Except as noted in such financial statements, all of
such financial statements will present fairly the results of operations of
the COMPANY for the periods indicated thereon.
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7.11 Further Assurances. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or
convenient to carry out the transactions contemplated hereby.
7.12 Approval of Merger Agreement. Each of the STOCKHOLDERS agrees to
vote all of its shares of the COMPANY Stock in favor of the Merger and all
other transactions contemplated by this Agreement.
7.13 Payment of Indebtedness. On or prior to the Closing Date, the
COMPANY shall pay all outstanding Indebtedness as of the Closing Date.
7.14 Distributions. Notwithstanding any other provision of this
Agreement to the contrary, the COMPANY will be permitted to declare dividends
subsequent to the Balance Sheet Date to the STOCKHOLDERS for the purpose of
providing the STOCKHOLDERS with funds to pay their taxes on earnings
attributable to such STOCKHOLDER, in an amount up to 45% of (i) the 1996 net
taxable income the COMPANY taxable to the STOCKHOLDERS, reduced by all prior
distributions for 1996, and (ii) the 1997 net taxable income of the COMPANY
taxable to the STOCKHOLDERS to the Closing Date, reduced by all prior
distributions for 1997. For purposes of this Section 7.14, 45% will be
deemed to be the aggregate Federal, state and local income tax rate of the
STOCKHOLDERS.
7.15 Accumulated Adjustments Account. The COMPANY will be permitted
to distribute to the STOCKHOLDERS, subsequent to the Balance Sheet Date, any
amounts which have accumulated in the COMPANY's Accumulated Adjustments
Account; provided, however, that (i) the maximum amount which can be so
distributed is equal to the aggregate cash portion of the purchase price to
be paid to the STOCKHOLDERS as indicated in Annex III and (ii) the aggregate
indemnification limits will not be altered by any reduction in the total
purchase price caused by a distribution of any amounts from the Accumulated
Adjustments Account.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE
COMPANY
The obligations of the STOCKHOLDERS and the COMPANY with respect to
actions to be taken on the Pre-Closing Date and, to the extent specified in
this Section 8, on the Closing Date are subject to the satisfaction or waiver
on or prior to the Pre-Closing Date and/or the Closing Date, as the case may
be, of all of the conditions set forth in this Section 8. As of the
Pre-Closing Date or the Closing Date, as the case may be, all conditions not
satisfied shall be deemed to have been waived by the COMPANY and the
STOCKHOLDERS unless such parties have objected by notifying CTS in writing of
such objection on or before the Pre-Closing Date or consummation of the
transactions on the Closing Date, respectively, except that no such waiver
shall be deemed to affect the survival of the representations and
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warranties of CTS and NEWCO contained in Section 6 hereof.
8.1 Representations and Warranties. All representations and
warranties of CTS and NEWCO contained in this Agreement shall be true and
correct in all material respects as of the Pre-Closing Date and the Closing
Date as though such representations and warranties had been made on and as of
that date; and a certificate to the foregoing effect dated the Pre-Closing
Date and the Closing Date and signed by the President or any Vice President
of CTS shall have been delivered to the COMPANY and the STOCKHOLDERS.
8.2 Performance of Obligations. All of the terms, covenants and
conditions of this Agreement to be complied with and performed by CTS and
NEWCO on or before each of the Pre-Closing Date and the Closing Date shall
have been duly complied with and performed in all material respects on or
before each of the Pre-Closing Date and the Closing Date, as the case may be;
and certificates to the foregoing effect dated each of the Pre-Closing Date
and the Closing Date and signed by the President or any Vice President of CTS
shall have been delivered to the COMPANY and the STOCKHOLDERS.
8.3 No Litigation. No action or proceeding before a court or any
other Governmental Authority or body shall have been instituted or threatened
to restrain or prohibit the Merger or the IPO.
8.4 Opinion of Counsel. The STOCKHOLDERS shall have received an
opinion from counsel for CTS and NEWCO, dated the Pre-Closing Date and
including a statement to the effect that it may be relied upon as of the
Closing Date, substantially in the form annexed hereto as Annex VI.
8.5 Consents and Approvals. All necessary consents of and filings
required to be obtained or made by CTS or NEWCO with any Governmental
Authority or agency relating to the consummation of the transactions
contemplated herein shall have been obtained and made.
8.6 Good Standing Certificates. CTS and NEWCO each shall have
delivered to the COMPANY a certificate, dated as of a date no earlier than 10
days prior to the Pre-Closing Date, duly issued by the Delaware Secretary of
State and in each state in which CTS or NEWCO is authorized to do business,
showing that each of CTS and NEWCO is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
CTS and NEWCO, respectively, for all periods prior to the Closing have been
filed and paid.
8.7 Consummation of Other Agreements. The Other Agreements shall
have been delivered by each of the Other Companies and each of the Other
Agreements and this Agreement shall be in effect immediately prior to the
Merger.
8.8 Secretary's Certificate. The COMPANY shall have received a
certificate or certificates, dated the Pre-Closing Date and the Closing Date
and signed by the secretary of CTS and of NEWCO, certifying the truth and
correctness of attached
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copies of the CTS's and NEWCO's respective Certificates of Incorporation
(including amendments thereto), By-Laws (including amendments thereto), and
resolutions of the boards of directors and, if required, the stockholders of
CTS and NEWCO approving CTS's and NEWCO's entering into this Agreement and
the consummation of the transactions contemplated hereby.
8.9 Employment Agreements. Each of the persons listed on Schedule
9.12 shall have been afforded the opportunity to enter into an employment
agreement substantially in the form of Annex VIII hereto.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CTS AND NEWCO
The obligations of CTS and NEWCO with respect to actions to be taken on
the Pre-Closing Date and, to the extent specified in this Section 9, on the
Closing Date, are subject to the satisfaction or waiver on or prior to the
Pre-Closing Date and/or the Closing Date, as the case may be, of all of the
conditions set forth in this Section 9. As of the Pre-Closing Date or the
Closing Date, as the case may be, all conditions not satisfied shall be
deemed to have been waived by CTS and NEWCO unless such parties have objected
by notifying the COMPANY and the STOCKHOLDERS in writing of such objection on
or before the Pre-Closing Date or consummation of the transactions on the
Closing Date, respectively, except that no such waiver shall be deemed to
affect the survival of the representations and warranties of the COMPANY and
the STOCKHOLDERS contained in Section 5 hereof.
9.1 Representations and Warranties. All the representations and
warranties of the STOCKHOLDERS and the COMPANY contained in this Agreement
shall be true and correct in all material respects as of the Pre-Closing Date
and the Closing Date with the same effect as though such representations and
warranties had been made on and as of such date; and the STOCKHOLDERS shall
have delivered to CTS certificates dated the Pre-Closing Date and the Closing
Date and signed by them to such effect.
9.2 Performance of Obligations. All of the terms, covenants and
conditions of this Agreement to be complied with or performed by the
STOCKHOLDERS and the COMPANY on or before each of the Pre-Closing Date and
the Closing Date shall have been duly performed or complied with in all
material respects on or before each of the Pre-Closing Date and the Closing
Date, as the case may be; and the STOCKHOLDERS shall have delivered to CTS
certificates dated the Pre-Closing Date and the Closing Date, respectively,
and signed by them to such effect.
9.3 No Litigation. No action or proceeding before a court or any
other Governmental Authority or body shall have been instituted or threatened
to restrain or prohibit the Merger or the IPO.
9.4 Clerk's Certificate. CTS shall have received a certificate or
certificates, dated each of the Pre-Closing Date and the Closing Date and
signed by the clerk of
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the COMPANY, certifying the truth and correctness of attached copies of the
COMPANY's Certificate or Articles of Incorporation (including amendments
thereto), By-Laws (including amendments thereto), and resolutions of the
board of directors and the shareholders approving the COMPANY's entering into
this Agreement and the consummation of the transactions contemplated hereby.
9.5 No Material Adverse Change. As of the Pre-Closing Date and as of
the Closing Date, no event or circumstance shall have occurred with respect
to the COMPANY which would constitute a Material Adverse Effect on the
COMPANY, and the COMPANY shall not have suffered any material loss or damages
to any of its properties or assets, whether or not covered by insurance,
which change, loss or damage materially affects or impairs the ability of the
COMPANY to conduct its business.
9.6 STOCKHOLDERS' Release. The STOCKHOLDERS shall have delivered to
CTS an instrument dated the Closing Date releasing the COMPANY from any and
all (i) claims prior to the Closing Date of the STOCKHOLDERS against the
COMPANY and CTS and (ii) obligations prior to the Closing Date, of the
COMPANY and CTS to the STOCKHOLDERS, except for (x) items specifically
identified on Schedules 5.10 and 5.15 as being claims of or obligations to
the STOCKHOLDERS, (y) continuing obligations to the STOCKHOLDERS relating to
their employment by the COMPANY and (z) obligations arising under this
Agreement or the transactions contemplated hereby.
9.7 Termination of Related Party Agreements. Except as set forth on
Schedule 9.7, all existing agreements between the COMPANY and the
STOCKHOLDERS shall have been canceled effective prior to or as of the Closing
Date.
9.8 Opinion of Counsel. CTS shall have received an opinion from
Counsel to the COMPANY and the STOCKHOLDERS, dated the Pre-Closing Date and
including a statement to the effect that it may be relied upon as of the
Closing Date, substantially in the form annexed hereto as Annex VII, which
form shall be deemed to include any additional opinions by such counsel or
separate counsel retained by the COMPANY covering matters customary under the
circumstances, including without limitation, opinions covering the COMPANY's
intellectual property, and the Underwriters shall have received a copy of the
same opinion addressed to them.
9.9 Consents and Approvals. All necessary consents of and filings
with any Governmental Authority relating to the consummation of the
transactions contemplated herein shall have been obtained and made and all
consents and approvals of third parties listed on Schedule 5.23 shall have
been obtained.
9.10 Good Standing Certificates. The COMPANY shall have delivered to
CTS a certificate, dated as of a date no earlier than five days prior to the
Pre-Closing Date, duly issued by the appropriate Governmental Authority in
the COMPANY's state of incorporation and, unless waived by CTS, in each state
in
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which the COMPANY is authorized to do business, showing the COMPANY is in
good standing and authorized to do business and that all state franchise and
taxes for the COMPANY as of the most recent practicable date have been filed
and paid.
9.11 Registration Statement. The Registration Statement shall have
been declared effective by the SEC and no stop order suspending the
effectiveness of the Registration Statement shall be in effect and no
proceeding therefor shall have been instituted or shall be pending or
contemplated under the 1933 Act, or any state securities laws, and the
Underwriters shall have agreed to acquire on a firm commitment basis, subject
to the conditions set forth in the Underwriting Agreement, shares of CTS
Stock at a price to the public acceptable to CTS.
9.12 Employment Agreements. Each of the persons listed on Schedule
9.12 shall have entered into an employment agreement substantially in the
form of Annex VIII hereto.
9.13 Closing of IPO. The closing of the sale of the CTS Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing
Date hereunder.
9.14 FIRPTA Certificate. Each STOCKHOLDER shall have delivered to CTS
a certificate to the effect that he or she is not a foreign person pursuant
to Section 1.1445-2(b) of the Treasury regulations.
9.15 Consummation of Other Agreements. The Other Agreements shall
have been delivered by each of the Other Companies and each of the Other
Agreements and this Agreement shall be in effect immediately prior to the
Merger.
9.16 A/R Aging Reports. Within ten (10) days prior to Closing, the
COMPANY shall have provided CTS (x) an accurate list of all outstanding
receivables obtained subsequent to the Balance Sheet Date and as of a date
which is within 10 calendar days of the Closing Date and (y) an aging of all
such accounts and notes receivable showing amounts due in 30 day aging
categories (the "A/R Aging Reports").
9.17 Satisfaction. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental hereto and all
other related legal matters shall have been approved by counsel to CTS.
9.18 Payment of Indebtedness. The STOCKHOLDERS and the COMPANY shall
have made arrangements, reasonably satisfactory in form and substance to CTS,
providing for the delivery to CTS of standard and customary payoff, discharge
and release letters, dated as of the Closing Date, from each holder of
Indebtedness, evidencing to the reasonable satisfaction of CTS, their
respective release and discharge of the COMPANY from any obligations or
liabilities in respect of such Indebtedness.
10. COVENANTS OF CTS AND THE STOCKHOLDERS AFTER CLOSING
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10.1 Preservation of Tax and Accounting Treatment. Except as
contemplated by this Agreement or the Registration Statement, after the
Closing Date, CTS shall not and shall not permit any of its subsidiaries to
undertake any act that would jeopardize the tax-free status of the
organization, including liquidating or merging the COMPANY into CTS.
10.2 Preparation and Filing of Tax Returns.
(a) Each STOCKHOLDER shall file or cause to be filed all
Returns of any Acquired Party for all taxable periods that end
on or before the Closing Date and shall pay or cause to be
paid any and all Tax liabilities due and payable with respect
to such periods shown by such Returns to be due. The COMPANY
shall pay any state Taxes assessed against it or any Acquired
Party for all taxable periods that end on or before the
Closing Date.
(b) CTS shall file or cause to be filed all separate
Returns of, or that include, any Acquired Party for all
taxable periods ending after the Closing Date.
(c) Each party hereto shall, and shall cause its
subsidiaries and Affiliates to, provide to each of the other
parties hereto such cooperation and information as any of them
reasonably may request in filing any Return, amended Return or
claim for refund, determining a liability for Taxes or a right
to refund of Taxes or in conducting any audit or other
proceeding in respect of Taxes. Such cooperation and
information shall include providing copies of all relevant
portions of relevant Returns, together with relevant
accompanying schedules and relevant work papers, relevant
documents relating to rulings or other determinations by
Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may
possess. Each party shall make its employees reasonably
available on a mutually convenient basis at its cost to
provide explanation of any documents or information so
provided. Subject to the preceding sentence, each party
required to file Returns pursuant to this Agreement shall bear
all costs of filing such Returns.
(d) Each of the COMPANY, NEWCO, CTS and each STOCKHOLDER
shall comply with the tax reporting requirements of Section
1.351-3 of the Treasury Regulations promulgated under the
Code, and treat the transaction as a tax-free transfer of
property under Section 351(a) of the Code.
10.3 Directors and Officers. The persons named in the Registration
Statement shall be appointed as directors and elected as officers of CTS, as
and to the extent set forth in the Registration Statement, promptly following
the Closing Date.
10.4 Preservation of Employee Benefit Plans. Following the Closing
Date, CTS shall not terminate any health insurance, life insurance, 401(k) or
any other
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Benefit Plan listed in effect at the COMPANY until such time as CTS is able
to replace such Benefit Plan with a Plan that is applicable to CTS and all of
its then existing subsidiaries. CTS shall have no obligation to provide
replacement Plans that have the same terms and provisions as the existing
Benefit Plans, provided, that any new health insurance plan shall provide for
coverage for preexisting conditions.
10.5 Rule 144. For a period of two years after the Closing Date, CTS
shall take all actions that are within its powers and that are reasonably
necessary to make Rule 144 promulgated under the 1933 Act available to the
STOCKHOLDERS.
10.6 Authorization of Shares. CTS agrees to take all actions as may
be necessary from time to time to reserve an adequate number of shares of CTS
Stock to pay the stock portion of the consideration to the STOCKHOLDERS
pursuant to Annex III hereof.
11. INDEMNIFICATION
The STOCKHOLDERS, CTS and NEWCO each make the following covenants that
are applicable to them, respectively:
11.1 General Indemnification by the STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless CTS, NEWCO, the COMPANY and the Surviving
Corporation at all times, from and after the date of this Agreement until the
Expiration Date, from and against all claims, damages, actions, suits,
proceedings, demands, assessments, adjustments, costs and expenses (including
specifically, but without limitation, reasonable attorneys' fees and
reasonable expenses of investigation) incurred by CTS, NEWCO, the COMPANY or
the Surviving Corporation as a result of or arising from (i) any breach of
the representations and warranties of the STOCKHOLDERS or the COMPANY set
forth herein or on the schedules or certificates delivered in connection
herewith, (ii) any breach of any agreement on the part of the STOCKHOLDERS or
the COMPANY under this Agreement, (iii) any liability under the 1933 Act, the
1934 Act or other Federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement or alleged
untrue statement of a material fact relating to the COMPANY or the
STOCKHOLDERS, and provided to CTS or its counsel by the COMPANY or the
STOCKHOLDERS for inclusion in the Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto, or
arising out of or based upon any omission or alleged omission by the COMPANY
and/or the STOCKHOLDERS to state therein a material fact relating to the
COMPANY or the STOCKHOLDERS required to be stated therein or necessary to
make the statements therein not misleading, (iv) the matters described on
Schedule 11.1(iv) or (v) any Tax imposed upon or relating to any third party
or Acquired Party for a pre-Closing Date period, including, in each case, any
such Tax arising out of or in connection with the transactions effected
pursuant to
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this Agreement or any such Tax for which an Acquired Party may be liable
under Section 1.1502-6 of the Treasury Regulations (or any similar provisions
of state, local of foreign law), as a transferee or successor, by contract or
otherwise; provided, however, (A) that in the case of any indemnity arising
pursuant to clause (iii) such indemnity shall not inure to the benefit of
CTS, NEWCO, the COMPANY or the Surviving Corporation to the extent that such
untrue statement (or alleged untrue statement) was made in, or omission (or
alleged omission) occurred in, any preliminary prospectus and the
STOCKHOLDERS provided, in writing, corrected information to CTS counsel and
to CTS for inclusion in the final prospectus, and such information was not so
included or properly delivered, and (B) that no STOCKHOLDER shall be liable
for any indemnification obligation pursuant to this Section 11.1 to the
extent attributable to a breach of any representation, warranty or agreement
made herein individually by any other STOCKHOLDER.
11.2 Indemnification by CTS. CTS covenants and agrees that it will
indemnify, defend, protect and hold harmless the STOCKHOLDERS at all times
from and after the date of this Agreement until the eighteenth month
anniversary of the Closing Date, from and against all claims, damages,
actions, suits, proceedings, demands, assessments, adjustments, costs and
expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by the STOCKHOLDERS
as a result of or arising from (i) any breach by CTS or NEWCO of its
representations and warranties set forth herein or on the schedules or
certificates delivered in connection herewith, (ii) any breach of any
agreement on the part of CTS or NEWCO under this Agreement, (iii) any
liability which the STOCKHOLDERS may incur due to CTS's or NEWCO's failure to
be responsible for the liabilities and obligations of the COMPANY as provided
in Section 10.1 hereof (except to the extent that CTS or NEWCO has claims
against the STOCKHOLDERS by reason of such liabilities); (iv) any liability
to a Person not a party to this Agreement (a "Third Person") under the 1933
Act, the 1934 Act or other Federal or state law or regulation, at common law
or otherwise, arising out of or based upon any untrue statement or alleged
untrue statement of a material fact relating to CTS or NEWCO for inclusion in
any preliminary prospectus, the Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto, or
arising out of or based upon any omission or alleged omission to state
therein a material fact relating to CTS or NEWCO required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, in the case of any indemnity arising pursuant to clause (iv) such
indemnity shall not inure to the benefit of the STOCKHOLDERS if any such
claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses incurred by any of the STOCKHOLDERS are based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by a STOCKHOLDER
for use in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto unless the
STOCKHOLDERS provided, in writing, corrected information to CTS counsel and
to CTS for inclusion in the final
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prospectus to the Registration Statement, and such information was not so
included or properly delivered by CTS (or its representative).
In the event the breach relates to the representation contained in
Section 6.5 concerning the absence of options, rights (preemptive or
otherwise), warrants, calls, convertible securities or commitments or any
other arrangements dealing with CTS Stock as set forth in Section 6.5 (a "CTS
Security Right") and the existence of an undisclosed CTS Security Right will
dilute the CTS capital, the stockholders of the Founding Company whose
representation caused the breach of Section 6.5 shall suffer such dilution
proportionately to the number of shares of CTS Stock owned by each of them.
11.3 Third Person Claims. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge
of any claim by a Third Person or, of the commencement of any action or
proceeding by a Third Person, the Indemnified Party shall, as a condition
precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right
to defend and settle, at its own expense and by its own counsel, any such
matter so long as the Indemnifying Party pursues the same in good faith and
diligently, provided that the Indemnifying Party shall not settle any
criminal proceeding without the written consent of the Indemnified Party,
such consent not to be unreasonably withheld or delayed. If the Indemnifying
Party undertakes to defend or settle, it shall promptly notify the
Indemnified Party of its intention to do so, and the Indemnified Party shall
cooperate, at the Indemnifying Party's expense, with the Indemnifying Party
and its counsel in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, furnishing the
Indemnifying Party with any books, records or information reasonably
requested by the
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Indemnifying Party that are in the Indemnified Party's possession or control.
All Indemnified Parties shall endeavor to use the same counsel, which shall
be the counsel selected by the Indemnifying Party, provided that if counsel
to the Indemnifying Party shall have a conflict of interest in the opinion of
such counsel that prevents counsel for the Indemnifying Party from
representing the Indemnified Party, the Indemnified Party shall have the
right to participate in such matter through counsel of its own choosing and
the Indemnifying Party will reimburse the Indemnified Party for the
reasonable expenses of its counsel and experts. After the Indemnifying Party
has notified the Indemnified Party of its intention to undertake to defend or
settle any such asserted liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall not be liable
for any additional legal expenses incurred by the Indemnified Party in
connection with any defense or settlement of such asserted liability, except
(i) as set forth in the preceding sentence and (ii) to the extent such
participation is requested by the Indemnifying Party, in which event the
Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any
such Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered
in settlement to said Third Person plus all indemnifiable costs and expenses
incurred to date, the Indemnifying Party shall be relieved of its duty to
defend and shall tender the Third Person claim back to the Indemnified Party,
who shall thereafter, at its own expense, be responsible for the defense and
negotiation of such Third Person claim. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice,
at the cost and expense of the Indemnifying Party, and the Indemnified Party
may settle such matter, and the Indemnifying Party shall reimburse the
Indemnified Party for the amount paid in such settlement and any other
liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the
Indemnified Party settle any Third Person claim without the written consent
of the Indemnifying Party, which consent shall not be unreasonably withheld
or delayed. All settlements hereunder shall effect a complete release of the
Indemnified Party, unless the Indemnified Party otherwise agrees in writing.
The parties hereto will make appropriate adjustments for any Tax benefits,
Tax detriments or insurance proceeds in determining the amount of any
indemnification obligation under this Section, provided that no Indemnifying
Party shall be obligated to seek any payment pursuant to the terms of any
insurance policy.
11.4 Exclusive Remedy. Except as provided in Section 11.5(b) or
Section 14.3 hereof, the indemnification provided for in this Section 11
shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided that nothing herein shall be
construed to limit the right of a party, in a proper case, to seek injunctive
relief for a breach of this Agreement or to seek relief for a breach of any
employment agreement with, or any stock option issued by, CTS.
11.5 Limitations on Indemnification. (a) CTS, NEWCO, the Surviving
Corporation and the other Persons or entities indemnified pursuant to Section
11.1 (other than the STOCKHOLDERS) shall not assert any claim other than a
Third Person claim for indemnification hereunder against the STOCKHOLDERS
until such time as, and solely to the extent that, the aggregate of all
claims which such Persons may have against the STOCKHOLDERS shall exceed 1.0%
of the sum of (i) the cash paid to the STOCKHOLDERS plus (ii) the value
(determined in accordance with Section 11.5(c) hereof) of the CTS Stock
delivered to the STOCKHOLDERS (the "Indemnification Threshold"); provided,
however, that CTS, NEWCO, the Surviving Corporation and the other Persons or
entities indemnified pursuant to Section 11.1 (other than the STOCKHOLDERS)
may assert and shall be indemnified for any claim under (i) Section 11.1(iv)
or 11.1(v) or (ii) the Purchase Price Adjustment at any time, regardless of
whether the aggregate of all claims which such Persons may have against any
STOCKHOLDER or all STOCKHOLDERS exceeds the Indemnification Threshold, it
being understood that the amount of any such claim under (i) Section 11.1(iv)
or 11.1(v) or (ii) the Purchase Price Adjustment shall not be counted towards
the Indemnification Threshold. The STOCKHOLDERS shall not assert any claim
for indemnification hereunder against CTS, NEWCO, the Surviving Corporation
or the other Persons set forth in Section 11.1 (other than the STOCKHOLDERS)
until such time as, and solely to the extent that, the aggregate of all
claims which STOCKHOLDERS may have against any of such Persons exceeds
$100,000. No Person shall be entitled to indemnification under this Section
11 if and to the extent that such Person's claim for indemnification is
directly or indirectly related to a breach by such Person of any
representation, warranty, covenant or other agreement set forth in this
Agreement.
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(b) CTS shall have the right, upon written notice, to offset
indemnification amounts due to it pursuant to this Agreement
against payments due to the STOCKHOLDERS under (i) this Agreement
(including, without limitation, the consideration set forth on
Annex III hereto) and/or (ii) any contract contemplated by, or
referred to in, this Agreement.
(c) Indemnity obligations hereunder may be satisfied through
the payment of cash or the delivery of CTS Stock, or a combination
thereof. For purposes of calculating the value of the CTS Stock
received or delivered by a STOCKHOLDER (for purposes of determining
the Indemnification Threshold and the amount of any indemnity
paid), the CTS Stock shall be valued at its initial public offering
price as set forth in the Registration Statement.
(d) Notwithstanding any other term of this Agreement (except
the proviso to this sentence), no STOCKHOLDER shall be liable under
this Section 11 for an amount which exceeds the amount of proceeds
received by such STOCKHOLDER in connection with the Merger, such
proceeds to be equal to the sum of (i) the cash paid to the
STOCKHOLDER (ii) the additional consideration, if any, earned by
such STOCKHOLDER pursuant to Annex III hereof, and (iii) the value
of the CTS Stock delivered to the STOCKHOLDER (determined in
accordance with Section 11.5(c) hereof); provided, that a
STOCKHOLDER's indemnification obligations pursuant to Sections
11.1(iv) and (v) shall not be limited.
12. TERMINATION OF AGREEMENT
12.1 Termination. This Agreement may be terminated at any
time prior to the Closing Date solely:
(a) by mutual consent of the boards of directors of CTS
and the COMPANY;
(b) by the STOCKHOLDERS or the COMPANY (acting through
its board of directors), on the one hand, or by CTS (acting
through its board of directors), on the other hand, if the
transactions contemplated by this Agreement to take place at
the Closing shall not have been consummated by December 31,
1997, unless the failure of such transactions to be
consummated is due to the willful failure of the party seeking
to terminate this Agreement to perform any of its obligations
under this Agreement to the extent required to be performed by
it prior to or on the Closing Date;
(c) by the STOCKHOLDERS or the COMPANY, on the one hand,
or by CTS, on the other hand, if a material breach or default
shall be made by the other party in the observance or in the
due and timely performance of any of the covenants, agreements
or conditions contained herein, and the curing of such default
shall not have been made on or before the Closing Date; or
(d) pursuant to Section 7.8 hereof.
12.2 Liabilities in Event of Termination. Except as provided
in Section 7.8 hereof, the termination of this Agreement will in no
way limit any obligation or liability
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of any party based on or arising from a breach or default by such party with
respect to any of its representations, warranties, covenants or agreements
contained in this Agreement including, but not limited to, legal and audit
costs and out of pocket expenses.
13. NONCOMPETITION
13.1 Prohibited Activities. The STOCKHOLDERS will not, for a
period of four (4) years following the Closing Date, for any reason
whatsoever, directly or indirectly, for themselves or on behalf of
or in conjunction with any other person, company, partnership,
corporation or business of whatever nature:
(a) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether
as an employee, independent contractor, consultant or advisor,
or as a sales representative, in any business selling any
products or services in direct competition with CTS or any of
the subsidiaries thereof, within 100 miles of where the
COMPANY or any of its subsidiaries or any of the Other
Founding Companies conducted business prior to the
effectiveness of the Merger (the "Territory") ;
(b) call upon any person who is, at that time, within
the Territory, an employee of CTS (including the subsidiaries
thereof) in a sales representative or managerial capacity for
the purpose or with the intent of enticing such employee away
from or out of the employ of CTS (including the subsidiaries
thereof), provided that each STOCKHOLDER shall be permitted to
call upon and hire any member of his or her immediate family;
(c) call upon any person or entity which is, at that
time, or which has been, within one (1) year prior to the
Closing Date, a customer of CTS (including the subsidiaries
thereof), of the COMPANY or of any of the Other Founding
Companies within the Territory for the purpose of soliciting
or selling products or services in direct competition with CTS
within the Territory;
(d) call upon any prospective acquisition candidate, on
any STOCKHOLDER's own behalf or on behalf of any competitor in
similar or incidental businesses or activities described in
the Registration Statement, which candidate, to the actual
knowledge of such STOCKHOLDER after due inquiry, was called
upon by CTS (including the subsidiaries thereof) or for which,
to the actual knowledge of such STOCKHOLDER after due inquiry,
CTS (or any subsidiary thereof) made an acquisition analysis,
for the purpose of acquiring such entity; or
(e) disclose customers, whether in existence or
proposed, of the COMPANY to any person, firm, partnership,
corporation or business for any reason or purpose whatsoever
except to the extent that the COMPANY has in the past
disclosed such information to the public for valid business
reasons or disclosure is specifically required by law;
provided, however, in the event
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disclosure is required by law, the STOCKHOLDERS shall provide
CTS with prompt notice of such requirement prior to making any
disclosure so that CTS may seek a protective order.
Notwithstanding the above, the foregoing covenant shall not be
deemed to prohibit any STOCKHOLDER from acquiring as an investment
not more than one percent (1%) of the capital stock of a competing
business whose stock is traded on a national securities exchange or
over-the-counter so long as the STOCKHOLDER does not consult with
or is not employed by such competitor.
13.2 Damages. Because of the difficulty of measuring economic
losses to CTS as a result of a breach of the foregoing covenant,
and because of the immediate and irreparable damage that could be
caused to CTS for which it would have no other adequate remedy,
each STOCKHOLDER agrees that, in the event of breach by such
STOCKHOLDER, the foregoing covenant may be enforced by CTS by
injunctions and restraining orders.
13.3 Reasonable Restraint. It is agreed by the parties hereto
that it is the intent of CTS and the STOCKHOLDERS that the
foregoing covenants in this Section 13 be construed and enforced in
accordance with the changing activities and business of CTS
(including the subsidiaries thereof) throughout the term of this
covenant. It is further agreed by the parties hereto that, in the
event that any STOCKHOLDER who has entered into an employment
agreement with CTS and/or any subsidiary thereof as set forth in
Sections 8.10 and 9.12 hereto, shall thereafter cease to be
employed thereunder, and such STOCKHOLDER shall enter into a
business or pursue other activities not in competition with CTS
and/or any subsidiary thereof, or similar activities or business in
locations the operations of which, under such circumstances, does
not violate this Article 13 and in any event such new business,
activities or location are not in violation of this Article 13 or
such STOCKHOLDER's obligations under this Article 13, such
STOCKHOLDER shall not be chargeable with a violation of this
Article 13 if CTS and/or any subsidiary thereof shall thereafter
enter the same, similar or a competitive (i) business (ii) course
of activities, or (iii) location, as applicable.
13.4 Severability; Reformation. The covenants in this Section
13 are severable and separate, and the unenforceability of any
specific covenant shall not affect the provisions of any other
covenant. Moreover, in the event any court of competent
jurisdiction shall determine that the scope, time or territorial
restrictions set forth are unreasonable, then it is the intention
of the parties that such restrictions be enforced to the fullest
extent which the court deems reasonable, and this Agreement shall
thereby be reformed.
13.5 Independent Covenant. All of the covenants in this
Section 13 shall be construed as an agreement independent of any
other provision in this Agreement, and the existence of any claim
or cause of action of any STOCKHOLDER against CTS (including the
subsidiaries thereof), whether predicated on this Agreement or
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otherwise, shall not constitute a defense to the enforcement by CTS
of such covenants. It is specifically agreed that the period of
four (4) years stated at the beginning of this Section 13, during
which the agreements and covenants of each STOCKHOLDER made in this
Section 13 shall be effective, shall be computed by excluding from
such computation any time during which such STOCKHOLDER is in
violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any
other provision hereof by any party hereto and shall have no effect
if the transactions contemplated by this Agreement are not
consummated.
13.6 Materiality. The COMPANY and the STOCKHOLDERS hereby
agree that this covenant is a material and substantial part of this
transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 Stockholders. The STOCKHOLDERS recognize and acknowledge
that they had in the past, currently have, and in the future may
have, access to certain confidential information of the COMPANY,
the Other Founding Companies, and/or CTS, such as operational
policies, and pricing and cost policies that are valuable, special
and unique assets of the COMPANY's, the Other Founding Companies'
and/or CTS's respective businesses. The STOCKHOLDERS agree that
they will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or
reason whatsoever, except (a) to authorized representatives of CTS
or the Other Founding Companies who need to know information in
connection with the transactions contemplated hereby, who have been
informed of the confidential nature of such information and who
have agreed to keep such information confidential as provided
hereby, (b) following the Closing, such information may be
disclosed by the STOCKHOLDERS as is required in the course of
performing their duties for CTS or the Surviving Corporation and
(c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of
this Section 14.1, unless (i) such information becomes known to the
public generally through no fault of any such STOCKHOLDERS, (ii)
disclosure is required by law or the order of any Governmental
Authority under color of law; provided, that prior to disclosing
any information pursuant to this clause (ii), the STOCKHOLDERS
shall, if possible, give prior written notice thereof to CTS and
provide CTS with the opportunity to contest such disclosure, or
(iii) the disclosing party reasonably believes that such disclosure
is required in connection with the defense of a lawsuit against the
disclosing party. In the event the transactions contemplated by
this Agreement are not consummated, the STOCKHOLDERS shall have
none of the above-mentioned restrictions on their ability to
disseminate confidential information with respect to the COMPANY.
14.2 CTS AND NEWCO. CTS and NEWCO recognize and acknowledge
that they had in the past, currently have, and in the future may
have, access to certain confidential information of the COMPANY,
such as operational policies, and pricing
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and cost policies that are valuable, special and unique assets of the
COMPANY's business. CTS and NEWCO agree that, prior to the Closing, or if the
Transactions contemplated by this Agreement are not consummated, they will
not disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a)
to the STOCKHOLDERS and to authorized representatives of the COMPANY, (b) to
counsel and other advisers, provided that such advisors (other than counsel)
agree to the confidentiality provisions of this Section 14.2 and (c) to the
Other Founding Companies and their representatives pursuant to Section
7.1(a), unless (i) such information becomes known to the public generally
through no fault of CTS or NEWCO, (ii) disclosure is required by law or the
order of any Governmental Authority under color of law; provided, that, prior
to disclosing any information pursuant to this clause (ii), CTS and NEWCO
shall, if possible, give prior written notice thereof to the COMPANY and the
STOCKHOLDERS and provide the COMPANY and the STOCKHOLDERS with the
opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach
or threatened breach by CTS or NEWCO of the provisions of this Section, the
COMPANY and the STOCKHOLDERS shall be entitled to an injunction restraining
CTS and NEWCO from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting the COMPANY
and the STOCKHOLDERS from pursuing any other available remedy for such breach
or threatened breach, including the recovery of damages.
14.3 Damages. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants in
Sections 14.1 and 14.2, and because of the immediate and
irreparable damage that would be caused for which they would have
no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the
covenant may be enforced against the other parties by injunctions
and restraining orders. Nothing herein shall be construed as
prohibiting a party hereto from pursuing any other available remedy
for such breach or threatened breach of Sections 14.1 and 14.2,
including the recovery of damages.
14.4 Survival. The obligations of the parties under this
Article 14 shall survive the termination of this Agreement for a
period of five years from the Closing Date.
15. TRANSFER RESTRICTIONS
15.1 Transfer Restrictions. For a period of one year from the
Closing Date, except pursuant to Section 16 hereof, none of the
STOCKHOLDERS shall (i) sell, assign, exchange, transfer, encumber,
pledge, distribute, appoint or otherwise dispose of (a) any shares
of CTS Stock received by the STOCKHOLDERS pursuant to the terms
hereunder or (b) any interest (including, without limitation, an
option to buy or sell) in any such shares of CTS Stock, in whole or
in part, and no such attempted transfer shall be treated as
effective for any purpose; or (ii) engage in any
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transaction, whether or not with respect to any shares of CTS Stock or any
interest therein, the intent or effect of which is to reduce the risk of
owning the shares of CTS Stock acquired pursuant to Section 2 hereof
(including, by way of example and not limitation, engaging in put, call,
short-sale, straddle or similar market transactions). Notwithstanding the
foregoing, the STOCKHOLDERS may (x) transfer to immediate family members (or
trusts for the benefit of the STOCKHOLDERS or family members), (y) encumber
or pledge any of such shares of CTS Stock or (z) transfer or invest in hedge
funds, other private investment funds, or other hedging activities approved
in writing by the Underwriters; provided, that in each case the trustee,
pledgee or other beneficiary of such transfer, encumbrance or pledge or the
trust, transferee hedge fund, investment fund or other Underwriter approved
hedging vehicle, as the case may be, agrees in writing prior to such
transaction to be bound by (1) the provisions of this Section as if a
STOCKHOLDER and party hereto and (2) the indemnification provisions set forth
in this Agreement as if a STOCKHOLDER and party hereto. The certificates
evidencing the CTS Stock delivered to the STOCKHOLDERS pursuant to Section 3
of this Agreement will bear a legend substantially in the form set forth
below and containing such other information as CTS may deem necessary or
appropriate:
EXCEPT AS PROVIDED BY THAT CERTAIN AGREEMENT AND PLAN OF
ORGANIZATION, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE COMPANY FOR PUBLIC INSPECTION,
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF,
AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO
ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER,
ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION PRIOR TO THE FIRST ANNIVERSARY OF THE CLOSING
DATE. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS
CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE
LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
16. REGISTRATION RIGHTS
16.1 Piggyback Registration Rights. At any time following the
Closing Date, whenever CTS proposes to register any CTS Stock for
its own or others' account under the 1933 Act for a public
offering, other than (i) any shelf registration of shares to be
used as consideration for acquisitions of additional businesses by
CTS, (ii) registrations relating to Plans and (iii) registrations
relating to rights offerings made to the stockholders of CTS, CTS
shall give each of the STOCKHOLDERS prompt written notice of its
intent to do so. Upon the written request of any of the
STOCKHOLDERS given within 30 days after receipt of such notice, CTS
shall cause to be included in such registration all of the CTS
Stock issued to the STOCKHOLDERS pursuant to this Agreement which
any such STOCKHOLDER
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requests, provided that CTS shall have the right to reduce the number of
shares included in such registration to the extent that inclusion of such
shares could, in the opinion of tax counsel to CTS or its independent
auditors, jeopardize the status of the transactions contemplated hereby and
by the Registration Statement as a tax-free organization. In addition, if
CTS is advised in writing in good faith by any managing underwriter of an
underwritten offering of the securities being offered pursuant to any
registration statement under this Section 16.1 that the number of shares to
be sold by persons other than CTS is greater than the number of such shares
which can be offered without adversely affecting the offering, CTS may reduce
pro rata the number of shares offered for the accounts of such persons (based
upon the number of shares proposed to be sold by each such person) to a
number deemed satisfactory by such managing underwriter, provided, that, for
each such offering made by CTS after the IPO, such reduction shall be made
first by reducing the number of shares to be sold by persons other than CTS,
the STOCKHOLDERS and the stockholders of the Other Founding Companies
(collectively, the STOCKHOLDERS and the stockholders of the Other Founding
Companies being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing pro rata the
number of shares to be sold by the Founding Stockholders.
16.2 Registration Procedures. All expenses incurred in
connection with the registrations under this Section 16 (including
all registration, filing, qualification, legal, printer and
accounting fees, but excluding underwriting commissions and
discounts with respect to any CTS Stock sold on behalf of any
STOCKHOLDER), shall be borne by CTS. In connection with
registrations under Section 16.1, CTS shall (i) use its best
efforts to prepare and file with the SEC as soon as reasonably
practicable, a registration statement with respect to the CTS Stock
and use its best efforts to cause such registration to promptly
become and remain effective for a period of at least 120 days (or
such shorter period during which stockholders of the Founding
Companies shall have sold all CTS Stock which they requested to be
registered); (ii) use its best efforts to register and qualify the
CTS Stock covered by such registration statement under applicable
state securities laws as the holders shall reasonably request for
the distribution of the CTS Stock; (iii) take all actions necessary
to have the CTS Stock covered by such registration listed or quoted
on the exchange or automated quotation system on which the CTS
Stock trades at the time of registration; (iv) take such other
actions as are reasonable and necessary to comply with the
requirements of the 1933 Act and the regulations thereunder; and
(v) make available its general counsel to advise each STOCKHOLDER
and provide the legal opinions required under the purchase
agreement used in connection with the registrations under this
Section 16.
16.3 Underwriting Agreement. In connection with each
registration pursuant to Section 16.1 covering an underwritten
registered public offering, CTS and each participating holder agree
to enter into a written agreement with the managing underwriters in
such form and containing such provisions as are customary in the
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securities business for such an arrangement between such managing
underwriters and companies of CTS's size and investment stature,
including indemnification provisions.
16.4 Availability of Rule 144. CTS shall not be obligated to
register shares of CTS Stock held by any STOCKHOLDER at any time
when the resale provisions of Rule 144(k) (or any successor
provision) promulgated under the 1933 Act are available to such
STOCKHOLDER for such shares.
16.5 Market Standoff. In consideration of the granting to the
STOCKHOLDERS of the registration rights under this Section 16, the
STOCKHOLDERS agree that they will not sell, transfer or otherwise
dispose of, including without limitation through put or short sale
arrangements, shares of CTS Stock in the 10 days prior to the
effectiveness of any registration of CTS Stock for sale to the
public and for up to 90 days following the effectiveness of such
registration, provided that: (i) all directors, executive officers
and holders of more than five percent of the outstanding CTS Stock
agree to the same restrictions; (ii) with respect to the first
public offering of shares of the CTS Stock within three years
following the IPO, the STOCKHOLDERS shall have been afforded a
meaningful opportunity to include shares in such registration after
any reduction by reason of underwriters' advice; and (iii) CTS has
not exercised its rights to delay under this Section 16.5 more than
once in any 12 month period.
17. GENERAL
17.1 Cooperation. The COMPANY, the STOCKHOLDERS, CTS and
NEWCO shall each deliver or cause to be delivered to the other on
the Closing Date, and at such other times and places as shall be
reasonably agreed to, such additional instruments as the other may
reasonably request for the purpose of carrying out this Agreement.
The STOCKHOLDERS will cooperate and use their reasonable efforts to
have the present officers, directors and employees of the COMPANY
cooperate with CTS on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection
with any Tax Return filing obligations, actions, proceedings,
arrangements or disputes of any nature with respect to matters
pertaining to all periods prior to the Closing Date.
17.2 Successors and Assigns. During the period payments are
to be made to the STOCKHOLDERS pursuant to Annex III hereof, this
Agreement and the rights of the parties hereunder may not be
assigned (including by operation of law) and shall be binding upon
and shall inure to the benefit of the parties hereto, the
successors of CTS, and the heirs and legal representatives of the
STOCKHOLDERS; provided, however, that this Agreement and the rights
of the parties hereunder may be assigned (i) upon receipt of the
consent of the STOCKHOLDERS who hold a majority of the CTS Stock
issued and outstanding under this Agreement at such time of
determination, whose consent shall not be unreasonably withheld or
(ii) if the assignee is a company whose capital stock is
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traded on the Nasdaq Stock Market, the New York Stock Exchange or the
American Stock Exchange..
17.3 Entire Agreement. This Agreement (including the
Schedules, exhibits and annexes attached hereto) and the documents
delivered pursuant hereto constitute the entire agreement and
understanding among the STOCKHOLDERS, the COMPANY, NEWCO and CTS
and supersede any prior agreement and understanding relating to the
subject matter of this Agreement. This Agreement, upon execution,
constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or
amended only by a written instrument executed by the STOCKHOLDERS,
the COMPANY, NEWCO and CTS, acting through their respective
officers or trustees, duly authorized by their respective boards of
directors. Any disclosure made on any Schedule delivered pursuant
hereto shall be deemed to have been disclosed for purposes of any
other Schedule required hereby, provided that the COMPANY and the
STOCKHOLDERS shall make a good faith effort to cross reference
disclosure, as necessary or advisable, between related Schedules.
17.4 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be
deemed an original and all of which together shall constitute but
one and the same instrument.
17.5 Brokers and Agents. Except as disclosed on Schedule
17.5, each party represents and warrants that it employed no broker
or agent in connection with this transaction and agrees to
indemnify the other parties hereto against all loss, cost, damages
or expense arising out of claims for fees or commissions of brokers
employed or alleged to have been employed by such indemnifying
party.
17.6 Expenses.
(a) Whether or not the transactions herein contemplated
shall be consummated, CTS will pay the fees, expenses and
disbursements of CTS and its agents, representatives,
accountants and counsel incurred in connection with the
subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance
and compliance with all conditions to be performed by CTS
under this Agreement, including the fees and expenses of Price
Waterhouse LLP, Morgan, Lewis & Bockius LLP, and any other
person or entity retained by CTS, and the costs of preparing
the Registration Statement.
(b) If the transactions herein contemplated shall not
be consummated, the Company shall pay the fees, expenses and
disbursements of the STOCKHOLDERS, the COMPANY and their
respective agents, representatives, accountants and counsel
incurred in connection with the subject matter of this
Agreement and any amendments thereto, including all costs and
expenses incurred in the performance and compliance with all
conditions to be performed by the COMPANY and the STOCKHOLDERS
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under this Agreement, including the fees and expenses of legal
counsel to the COMPANY and the STOCKHOLDERS.
(c) If the transaction herein contemplated is
consummated, CTS will pay the fees, expenses, and
disbursements of the STOCKHOLDERS and the COMPANY as described
in (b), above.
(d) Each STOCKHOLDER shall pay all sales, use, transfer,
real property transfer, recording, gains, stock transfer and
other similar taxes and fees ("Transfer Taxes") imposed in
connection with the transactions contemplated hereby. Each
STOCKHOLDER shall file all necessary documentation and Returns
with respect to such Transfer Taxes. In addition, each
STOCKHOLDER acknowledges that he, and not the COMPANY or CTS,
will pay all Taxes due upon receipt of the consideration
payable pursuant to Section 2 hereof, and will assume all Tax
risks and liabilities of such STOCKHOLDER in connection with
the transactions contemplated hereby.
17.7 Notices. All notices or communications required or
permitted hereunder shall be in writing and shall be deemed to have
been given when personally delivered or upon receipt if sent by
first class certified mail, return receipt requested or the next
business day if sent by telefax (receipt confirmed and followed up
by one of the other delivery methods discussed herein as well), or
upon delivery if sent by express mail, in each case postage prepaid
and addressed as follows:
(a) If to CTS, or NEWCO:
1650 Tysons Boulevard
Suite 600
McLean, Virginia 22102
with copies to:
The Commonwealth Group
1650 Tysons Boulevard
Suite 600
McLean, Virginia 22102
and
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Attn: Christopher T. Jensen, Esq.
(b) If to the STOCKHOLDERS, addressed to them at their
addresses
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set forth on Annex IV, with copies to such counsel
as is set forth with respect to each STOCKHOLDER on such Annex
IV;
(c) If to the COMPANY:
Corporate Access, Inc.
100 School Street
Andover, Massachusetts 01810
Attn: Richard T. Marino
and marked "Personal and Confidential"
with copies to:
Hemenway & Barnes
60 State Street
Boston, Massachusetts 02109
Attn: Frederic J. Marx, Esq.
or to such other address or counsel as any party hereto shall
specify pursuant to this Section 17.7 from time to time.
17.8 Governing Law. This Agreement shall be construed in
accordance with the laws of the State of New York, except that
matters herein within the purview of the matters covered by the
General Corporation Law of the State of Delaware shall be governed
by such General Corporation Law, in each case without reference to
conflicts of laws principles.
17.9 Exercise of Rights and Remedies. Except as otherwise
provided herein, no delay of or omission in the exercise of any
right, power or remedy accruing to any party as a result of any
breach or default by any other party under this Agreement shall
impair any such right, power or remedy, nor shall it be construed
as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver
of any single breach or default be deemed a waiver of any other
breach or default occurring before or after that waiver.
17.10 Time. Time is of the essence with respect to this
Agreement.
17.11 Reformation and Severability. In case any provision of
this Agreement shall be invalid, illegal or unenforceable, it
shall, to the extent possible, be modified in such manner as to be
valid, legal and enforceable but so as to most nearly retain the
intent of the parties, and if such modification is not possible,
such provision shall be severed from this Agreement, and in either
case the validity, legality and
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enforceability of the remaining provisions of this Agreement shall not
in any way be affected or impaired thereby.
17.12 Remedies Cumulative. Except as provided in Section 11.4
of this Agreement, no right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be
cumulative with all other rights, remedies and elections available
at law or in equity.
17.13 Captions. The headings of this Agreement are inserted
for convenience only, shall not constitute a part of this Agreement
or be used to construe or interpret any provision hereof.
17.14 Amendments and Waivers. Any term of this Agreement may
be amended and the observance of any term of this Agreement may be
waived only with the written consent of CTS, NEWCO, the COMPANY and
the STOCKHOLDERS who hold a majority of the CTS Stock issued and
outstanding under this Agreement at such time of determination.
Any amendment or waiver effected in accordance with this Section
17.14 shall be binding upon each of the parties hereto, any other
person receiving CTS Stock in connection with the Merger and each
future holder of such CTS Stock.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
CONDOR TECHNOLOGY SOLUTIONS, INC.
By: /s/ Kennard F. Hill
-----------------------------
Name: Kennard F. Hill
Title: President and Chief Executive Officer
By: /s/ J. Marshall Coleman
------------------------------
Name: J. Marshall Coleman
Title: Secretary
ACCESS ACQUISITION CORP.
By: /s/ Kennard F. Hill
------------------------------
Name: Kennard F. Hill
Title: President and Chief Executive Officer
By: /s/ J. Marshall Coleman
------------------------------
Name: J. Marshall Coleman
Title: Secretary
CORPORATE ACCESS, INC.
By: /s/ Richard Marino
------------------------------
Name: Richard Marino
Title: President
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By: /s/ Margaret Pike
------------------------------
Name: Margaret Pike
Title: Treasurer
STOCKHOLDERS:
/s/ Richard Marino
------------------------------
Name: Richard Marino
/s/ Sebastian Tine
------------------------------
Name: Sebastian Tine
/s/ Margaret Pike
-------------------------------
Name: Margaret Pike
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ANNEX III
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
Total consideration to be paid to the STOCKHOLDERS on the Closing Date:(1)
Name Shares of CTS Common Stock Cash
- ---- -------------------------- ----
Richard T. Marino $2,080,000\IPO Price per share $3,864,800
Sebastian D. Tine, III $390,000\IPO Price per share $724,650
Margaret A. Pike $130,000\IPO Price per share $241,550
TOTALS: $2,600,000\IPO Price per share $4,831,000
(1) Assumes the payment by Condor of $369,000 to Ross Crossland
Weston & Co., Inc. (the "Broker") on behalf of the COMPANY as
payment for all of the fees and expenses owed by the COMPANY
pursuant to that certain Exclusive Mergers and Acquisitions
Advisory Agreement, dated as of May 15, 1996, by and between
the COMPANY and the Broker.
<PAGE>
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AGREEMENT AND PLAN OF ORGANIZATION
dated as of October 1, 1997
by and among
CONDOR TECHNOLOGY SOLUTIONS, INC.
INTERACTIVE SOFTWARE ACQUISITION CORP.
(a subsidiary of Condor Technology Solutions, Inc.)
INTERACTIVE SOFTWARE SYSTEMS, INC.
and
the STOCKHOLDERS named herein
- -----------------------------------------------------------------
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TABLE OF CONTENTS
Page
1. THE MERGER.......................................................6
1.1 Delivery and Filing of Articles of Merger..................6
1.2 Effective Time of the Merger...............................6
1.3 Certificate of Incorporation, By-laws and Board of
Directors of Surviving Corporation.........................6
1.4 Certain Information With Respect to the Capital Stock of
the COMPANY, CTS and NEWCO.................................7
2. CONVERSION OF STOCK..............................................7
2.1 Manner of Conversion.......................................7
2.2 Assumption and Conversion of Stock Options.................8
3. DELIVERY OF MERGER CONSIDERATION.................................8
4. CLOSING..........................................................9
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND
STOCKHOLDERS....................................................10
5.1 Due Organization..........................................10
5.2 Authorization.............................................11
5.3 Capital Stock of the COMPANY.............................11
5.4 Transactions in Capital Stock; Organization Accounting....11
5.5 No Bonus Shares...........................................12
5.6 Subsidiaries..............................................12
5.7 Predecessor Status; etc...................................12
5.8 Spin-off by the COMPANY...................................12
5.9 Financial Statements......................................12
5.10 Liabilities and Obligations...............................13
5.11 Accounts and Notes Receivable.............................13
5.12 Intellectual Property; Permits and Intangibles............14
5.13 Environmental Matters.....................................15
5.14 Personal Property.........................................16
5.15 Significant Customers; Material Contracts and Commitments.16
5.16 Real Property.............................................18
5.17 Insurance.................................................18
5.18 Compensation; Employment Agreements; Organized Labor
Matters...................................................20
5.19 Employee Plans............................................21
5.20 Compliance with ERISA.....................................21
5.21 Conformity with Law; Litigation...........................23
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5.22 Taxes.....................................................24
5.23 No Violations.............................................27
5.24 Government Contracts......................................27
5.25 Business Conduct..........................................27
5.26 Deposit Accounts; Powers of Attorney......................29
5.27 Relations with Governments................................29
5.28 Disclosure................................................30
5.29 Prohibited Activities.....................................31
5.30 Affiliate Transactions....................................31
5.31 Misrepresentation.........................................31
5.32 Securities Act Representations............................31
5.33 Authority; Ownership......................................33
5.34 Preemptive Rights.........................................33
5.35 No Intention to Dispose of CTS Stock......................33
5.36 Questionnaires............................................33
6. REPRESENTATIONS OF CTS and NEWCO................................34
6.1 Due Organization..........................................34
6.2 Authorization.............................................34
6.3 Transaction Not a Breach..................................34
6.4 Misrepresentation.........................................35
6.5 Capital Stock.............................................35
7. COVENANTS PRIOR TO CLOSING......................................36
7.1 Access and Cooperation; Due Diligence.....................36
7.2 Conduct of Business Pending Closing.......................37
7.3 Prohibited Activities.....................................38
7.4 No Shop...................................................39
7.5 Notice to Bargaining Agents...............................39
7.6 Agreements................................................39
7.7 Notification of Certain Matters...........................40
7.8 Amendment of Schedules....................................40
7.9 Cooperation in Preparation of Registration Statement......42
7.10 Final Financial Statements................................43
7.11 Further Assurances........................................43
7.12 Approval of Merger Agreement..............................43
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS
AND THE COMPANY.................................................44
8.1 Representations and Warranties............................44
8.2 Performance of Obligations................................44
8.3 No Litigation.............................................44
8.4 Opinion of Counsel........................................44
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8.5 Consents and Approvals....................................44
8.6 Good Standing Certificates................................45
8.7 Consummation of Other Agreements..........................45
8.8 Secretary's Certificate...................................45
8.9 Employment Agreements.....................................45
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CTS AND NEWCO............45
9.1 Representations and Warranties............................45
9.2 Performance of Obligations................................46
9.3 No Litigation.............................................46
9.4 Secretary's Certificate...................................46
9.5 No Material Adverse Change................................46
9.6 Stockholders' Release.....................................46
9.7 Termination of Related Party Agreements...................46
9.8 Opinion of Counsel........................................46
9.9 Consents and Approvals....................................47
9.10 Good Standing Certificates................................47
9.11 Registration Statement....................................47
9.12 Employment Agreements.....................................47
9.13 Closing of IPO............................................47
9.14 FIRPTA Certificate........................................47
9.15 Consummation of Other Agreements..........................47
9.16 A/R Aging Reports.........................................47
9.17 Satisfaction..............................................48
10. COVENANTS OF CTS AND THE STOCKHOLDERS AFTER CLOSING.............48
10.1 Release From Guarantees; Repayment of Certain Obligations.48
10.2 Preservation of Tax and Accounting Treatment..............48
10.3 Preparation and Filing of Tax Returns.....................48
10.4 Directors and Officers....................................49
10.5 Preservation of Employee Benefit Plans....................49
11. INDEMNIFICATION.................................................49
11.1 General Indemnification by the Stockholders...............49
11.2 Indemnification by CTS....................................50
11.3 Third Person Claims.......................................51
11.4 Exclusive Remedy..........................................52
11.5 Limitations on Indemnification............................53
12. TERMINATION OF AGREEMENT........................................54
12.1 Termination...............................................54
12.2 Liabilities in Event of Termination.......................54
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13. NONCOMPETITION..................................................54
13.1 Prohibited Activities.....................................54
13.2 Damages...................................................55
13.3 Reasonable Restraint......................................56
13.4 Severability; Reformation.................................56
13.5 Independent Covenant......................................56
13.6 Materiality...............................................57
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.......................57
14.1 STOCKHOLDERS..............................................57
14.2 CTS AND NEWCO.............................................57
14.3 Damages...................................................58
14.4 Survival..................................................58
15. TRANSFER RESTRICTIONS...........................................58
15.1 Transfer Restrictions.....................................58
16. REGISTRATION RIGHTS.............................................59
16.1 Piggyback Registration Rights.............................59
16.2 Registration Procedures...................................60
16.3 Underwriting Agreement....................................60
16.4 Availability of Rule 144..................................60
16.5 Market Standoff...........................................60
17. GENERAL.........................................................61
17.1 Cooperation...............................................61
17.2 Successors and Assigns....................................61
17.3 Entire Agreement..........................................61
17.4 Counterparts..............................................62
17.5 Brokers and Agents........................................62
17.6 Expenses..................................................62
17.7 Notices...................................................63
17.8 Governing Law.............................................64
17.9 Exercise of Rights and Remedies...........................64
17.10 Time......................................................64
17.11 Reformation and Severability..............................64
17.12 Remedies Cumulative.......................................64
17.13 Captions..................................................64
17.14 Amendments and Waivers....................................64
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ANNEX I FORM OF ARTICLES OF MERGER
ANNEX II CERTIFICATE OF INCORPORATION AND BY-LAWS OF
CTS AND NEWCO
ANNEX III CONSIDERATION TO BE PAID TO STOCKHOLDERS
ANNEX IV STOCKHOLDERS AND STOCK OWNERSHIP OF THE
COMPANY
ANNEX V [INTENTIONALLY OMITTED]
ANNEX VI FORM OF OPINION OF COUNSEL TO CTS
ANNEX VII FORM OF OPINION OF COUNSEL TO COMPANY AND
STOCKHOLDERS
ANNEX VIII FORM OF EMPLOYMENT AGREEMENT
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (this "Agreement") is made as of
September __, 1997, by and among (i) CONDOR TECHNOLOGY SOLUTIONS, INC., a
Delaware corporation ("CTS"), (ii) INTERACTIVE SOFTWARE ACQUISITION CORP., a
Delaware corporation ("NEWCO"), (iii) INTERACTIVE SOFTWARE SYSTEMS, INC., a
Colorado corporation (the "COMPANY"), and (iv) Robert L. Karulf, Randolph J.
Reece, Summit Ventures II, L.P., a Delaware limited partnership, and Summit
Investors, L.P., a Delaware limited partnership (collectively, the
"STOCKHOLDERS"). The STOCKHOLDERS are all of the stockholders of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing under the laws
of the State of Delaware, having been incorporated on July 7, 1997, solely for
the purpose of completing the transactions set forth herein, and is a
wholly-owned subsidiary of CTS;
WHEREAS, the respective Boards of Directors of NEWCO and the COMPANY
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the Constituent
Corporations and their respective stockholders that NEWCO merge with and into
the COMPANY pursuant to this Agreement and the applicable provisions of the laws
of the States of Delaware and Colorado (the "Merger"), and in furtherance
thereof have approved the Merger;
WHEREAS, CTS is entering into other separate agreements substantially
similar to this Agreement (the "Other Agreements"), each of which is entitled
"Agreement and Plan of Organization," with companies in the information
technology industry (collectively, the "Other Founding Companies"), and their
respective stockholders in order to acquire additional information technology
companies. The COMPANY, together with each of the entities with which CTS has
entered into the Other Agreements, are collectively referred to herein as the
"Founding Companies;"
WHEREAS, this Agreement, the Other Agreements and the IPO (as hereinafter
defined) of CTS Stock (as hereinafter defined) constitute the "CTS Plan of
Organization;"
WHEREAS, the Boards of Directors of CTS and each of the Founding Companies
have approved and adopted the CTS Plan of Organization as an integrated plan to
transfer the capital stock of the Founding Companies to CTS and the cash raised
in the IPO of CTS Stock to CTS as a transfer of property under Section 351 of
the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the STOCKHOLDERS and the Board of
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Directors of the COMPANY and the stockholders and the boards of directors of
each of CTS and NEWCO have approved this Agreement and the transactions
contemplated hereby;
WHEREAS, unless the context otherwise requires, capitalized terms used in
this Agreement or in any schedule attached hereto and not otherwise defined
herein shall have the following meanings for all purposes of this Agreement:
"Acquired Party" means the COMPANY, any subsidiary and any member of a
Relevant Group.
"Acquisition Companies" means NEWCO and each of the other Delaware
companies wholly-owned by CTS prior to the Closing Date.
"Acquisition Transaction" has the meaning set forth in Section 7.4.
"Affiliates" has the meaning set forth in Section 5.8.
"A/R Aging Reports" has the meaning set forth in Section 9.16.
"Articles of Merger" means those Articles or Certificates of Merger with
respect to the Merger substantially in the forms attached as Annex I hereto or
with such changes therein as may be required by applicable state laws.
"Balance Sheet Date" means December 31, 1996.
"Benefit Plan" means any Plan, existing at the Closing Date or prior
thereto, established or to which contributions have at any time been made by the
COMPANY, any ERISA Affiliate, or any predecessor of any of the foregoing, under
which any employee or former employee of the COMPANY, or any beneficiary
thereof, is covered, is eligible for coverage or has benefit rights.
"CTS" has the meaning set forth in the first paragraph of this Agreement.
"CTS Charter Documents" has the meaning set forth in Section 6.1.
"CTS Plan of Organization" has the meaning set forth in the fourth recital
of this Agreement.
"CTS Stock" means the common stock, par value $.01 per share, of CTS.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" means the consummation of the transactions contemplated by this
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Agreement on the Closing Date.
"Closing Date" has the meaning set forth in Section 4.
"Code" has the meaning set forth in the fifth recital of this Agreement.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Delaware Law" has the meaning set forth in Section 1.2.
"Effective Time of the Merger" means the time as of which the Merger
becomes effective, which the parties hereto contemplate to occur on the Closing
Date.
"Environmental Requirements" has the meaning set forth in Section 5.13.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any Person who is, or at any time was, a member of
a controlled group (within the meaning of Section 412(n)(6) of the Code) that
includes, or at any time included, the COMPANY or any predecessor of the
COMPANY.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" has the meaning set forth in the third recital of
this Agreement.
"GAAP" means generally accepted accounting principles of the United States
applied in a manner consistent with the past practices of the COMPANY.
"Governmental Authority" means any governmental, regulatory or
administrative body, agency, subdivision or authority, any court or judicial
authority, or any public, private or industry regulatory authority, whether
national, Federal, state, local or otherwise.
"Hazardous Materials" has the meaning set forth in Section 5.13(b).
"Intellectual Property" means all trademarks, service marks, trade dress,
trade names, patents and copyrights and any registration or application for any
of the
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foregoing, and any trade secret, invention, process, know-how, computer software
or technology systems.
"IPO" means the initial public offering of CTS Stock pursuant to the
Registration Statement.
"Laws" has the meaning set forth in Section 5.21.
"Management STOCKHOLDERS" means Messrs. Robert L. Karulf and
Randolph J. Reece.
"Material Adverse Effect" means with respect to any Person, any event or
occurrence which would have a material adverse effect on such Person's business,
condition (financial or other), properties, business prospects or financial
results.
"Material Contract" means any lease, instrument, agreement, license or
permit set forth on Schedule 5.12, 5.13, 5.14, 5.15, 5.16, 5.18 or 5.19 or any
other material agreement to which the COMPANY is a party or by which its
properties are bound.
"Merger" means the merger of NEWCO with and into the COMPANY pursuant to
this Agreement and the applicable provisions of the laws of the States of
Delaware and Colorado.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO STOCK" means the common stock, par value $.01 per share, of
NEWCO.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Other Agreements" has the meaning set forth in the third recital of this
Agreement.
"Other Founding Companies" has the meaning set forth in the third recital
of this Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means any natural person, corporation, partnership,
proprietorship, other business organization, trust, union, association or
Governmental Authority.
"Plan" means any bonus, incentive compensation, deferred compensation,
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pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance, severance,
separation or other employee benefit plan, practice, policy or arrangement of
any kind, whether written or oral, or whether for the benefit of a single
individual or more than one individual including, but not limited to, any
"employee benefit plan" within the meaning of Section 3(3) of ERISA.
"Pre-Closing Date" has the meaning set forth in Section 4.
"Pricing" means the date of determination by CTS and the Underwriters of
the public offering price of the shares of CTS Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on or immediately prior to
the Pre-Closing Date.
"Registration Statement" means that certain registration statement of CTS
on Form S-1 covering the shares of CTS Stock to be issued in the IPO.
"Relevant Group" has the meaning set forth in Section 5.22(a).
"Returns" has the meaning set forth at the end of Section 5.22.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 7.3(e).
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Stock Option" has the meaning set forth in Section 2.02(a).
"Surviving Corporation" shall mean the COMPANY as the surviving party in
the Merger.
"Tax" or "Taxes" has the meaning set forth at the end of Section 5.22.
"Taxing Authority" has the meaning set forth at the end of Section 5.22.
"Third Person" has the meaning set forth in Section 11.2.
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"Transfer Taxes" has the meaning set forth in Section 17.6.
"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
"Underwriting Agreement " means the Underwriting Agreement dated the
Closing Date between the Underwriters and CTS in respect of the IPO.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 Delivery and Filing of Articles of Merger. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and filed
with the Secretary of State of the State of Delaware and the Secretary of State
of the State of Colorado and stamped receipt copies of each such filing to be
delivered to CTS on or before the Closing Date.
1.2 Effective Time of the Merger. At the Effective Time of the Merger and
subject to the terms and conditions of this Agreement and the applicable
provisions of the Delaware General Corporation Law (the "Delaware Law"), NEWCO
shall be merged with and into the COMPANY in accordance with the Articles of
Merger, the separate existence of NEWCO shall cease and the COMPANY shall be the
surviving party in the Merger. At the Effective Time of the Merger, the effect
of the Merger otherwise shall be as provided in the applicable provisions of
Delaware Law and the law of the State of Colorado. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time of the
Merger, all the property, rights, privileges, powers and franchises of the
COMPANY and NEWCO shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the COMPANY and NEWCO shall become the debts,
liabilities and duties of the Surviving Corporation. The Merger will be effected
in a single transaction.
1.3 Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(a) the Certificate or Articles of Incorporation of the COMPANY then
in effect shall be the Certificate or Articles of Incorporation of the
Surviving Corporation until amended as provided by law;
(b) the By-laws of COMPANY then in effect shall be the By-laws of
the Surviving Corporation until amended as provided by law;
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(c) a director of NEWCO and two nominees of the COMPANY shall be the
directors of the Surviving Corporation until their respective successors
are elected or appointed and qualified in accordance with the terms the
By-laws of the Surviving Corporation; the Board of Directors of the
Surviving Corporation shall hold office subject to the provisions of the
laws of the State of Colorado and of the Certificate of Incorporation and
By-laws of the Surviving Corporation; and
(d) the officers of the COMPANY immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities, and effective upon the
Effective Time of the Merger, J. Marshall Coleman shall be appointed as a
vice president and assistant secretary of the Surviving Corporation and
shall not be entitled to any compensation from the COMPANY as a result of
such appointment and his serving in such capacity, such officers to serve,
subject to the provisions of the Certificate or Articles of Incorporation
and By-laws of the Surviving Corporation, until his or her successor is
duly elected and qualified.
1.4 Certain Information With Respect to the Capital Stock of the COMPANY,
CTS and NEWCO. The respective designations and numbers of outstanding shares and
voting rights of each class of outstanding capital stock of the COMPANY, CTS and
NEWCO as of the date of this Agreement are as follows:
(a) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 1.4 hereto;
(b) immediately prior to the Closing Date, the authorized capital
stock of CTS will consist of 50,000,000 shares; and
(c) as of the date of this Agreement, the authorized capital stock
of NEWCO consists of 3,000 shares of NEWCO Stock, of which ten (10) shares
are issued and outstanding and beneficially owned by CTS.
2. CONVERSION OF STOCK
2.1 Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) CTS Stock and (y) common stock of the Surviving
Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
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(a) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger will be canceled and
extinguished and, by virtue of the Merger and without any action on the
part of the holder thereof, automatically shall be deemed to represent,
with respect to each STOCKHOLDER, (1) the right to receive the number of
shares of CTS Stock set forth on Annex III hereto with respect to such
STOCKHOLDER and (2) the right to receive the amount of cash set forth on
Annex III hereto with respect to such STOCKHOLDER;
(b) all shares of COMPANY Stock that are held by the COMPANY as
treasury stock shall be canceled and retired and no shares of CTS Stock or
other consideration shall be delivered or paid in exchange therefor; and
(c) each share of NEWCO Stock issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger
and without any action on the part of CTS, automatically be converted into
one fully paid and non-assessable share of common stock of the Surviving
Corporation, which shall constitute all of the issued and outstanding
shares of common stock of the Surviving Corporation immediately after the
Effective Time of the Merger.
All CTS Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 5 and
15 hereof and the registration rights described in Section 16 hereof, have the
same rights as all the other shares of outstanding CTS Stock by reason of the
provisions of the Certificate of Incorporation of CTS or as otherwise provided
by the Delaware Law. All voting rights of such CTS Stock received by the
STOCKHOLDERS shall be fully exercisable by the STOCKHOLDERS and the STOCKHOLDERS
shall not be deprived nor restricted in exercising those rights. At the
Effective Time of the Merger, CTS shall have no class of capital stock issued
and outstanding other than the CTS Stock.
2.2 Assumption and Conversion of Stock Options. (a) At the Effective Time
of the Merger, each outstanding option (a "Stock Option") to purchase COMPANY
Stock listed on Schedule 5.4, whether or not then exercisable or vested, and all
obligations of the COMPANY with respect to such Stock Options shall be assumed
by CTS and shall constitute an option to acquire CTS Stock in accordance with
the terms and provisions of that certain Stock Option Assumption and Conversion
Agreement, substantially in the form of Annex IX.
(b) CTS shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of CTS Stock for issuance upon exercise of the
Stock Option.
(c) Subject to the provisions of the 1933 Act, and the rules and
regulations thereunder, CTS shall file a Registration Statement on Form S-8 (or
any successor form) with respect to the shares of CTS Stock issuable upon
exercise of the Stock Options as
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soon as practicable following the Closing Date, and shall use its reasonable
efforts to maintain the effectiveness of such Registration Statement for so long
as the Stock Options remain outstanding.
3. DELIVERY OF MERGER CONSIDERATION
3.1 At the Effective Time of the Merger and on the Closing Date the
STOCKHOLDERS, who are the holders of all outstanding certificates representing
shares of COMPANY Stock, shall, upon surrender of such certificates, receive (i)
the respective number of shares of CTS Stock and (ii) the amount of cash set,
all as forth on Annex III hereto with respect to such STOCKHOLDER, provided that
such cash shall be paid out of the net proceeds from the IPO. The cash payable
pursuant to clause (ii) shall be paid by wire transfer.
3.2 The STOCKHOLDERS shall deliver in trust to Morgan, Lewis & Bockius
LLP, counsel to CTS, at the Pre-Closing the certificates representing COMPANY
Stock, duly endorsed in blank by the STOCKHOLDERS, or accompanied by stock
powers duly endorsed in blank, with signatures guaranteed by a national or state
chartered bank or other financial institution, and with all necessary Transfer
Tax and other revenue stamps, acquired at the STOCKHOLDERS' expense, affixed and
canceled. The STOCKHOLDERS agree promptly to cure any deficiencies with respect
to the endorsement of the stock certificates or other documents of conveyance
with respect to such COMPANY Stock or with respect to the stock powers
accompanying any COMPANY Stock. Upon consummation of the IPO and the
transactions contemplated to occur on the Closing Date, all of such certificates
shall be deemed released by such counsel to CTS without any further action on
the part of such counsel.
4. CLOSING
At or prior to the Pre-Closing, the parties shall take all actions
necessary to prepare to (i) effect the Merger (including, if permitted by
applicable state law, the advance filing with the appropriate state authorities
of the Articles of Merger, which shall become effective at the Effective Time of
the Merger) and (ii) effect the conversion and delivery of shares referred to in
Section 2 hereof; provided, that such actions shall not include the actual
completion of the Merger for purposes of this Agreement or the conversion and
delivery of the shares and transmission of funds by wire referred to in Section
3 hereof, each of which actions shall only be taken upon the Closing Date as
herein provided. In the event that there is no Closing and this Agreement
terminates, CTS hereby covenants and agrees to do all things required by
Delaware Law and all things which counsel for the COMPANY advise CTS are
required by applicable laws of the State of Colorado in order to rescind any
merger or other actions effected by the advance filing of the Articles of Merger
as described in this Section. The taking of the actions described in clauses (i)
and (ii) above (the "Pre-Closing") shall take place on the date of the execution
of the underwriting agreement to be used in connection with the
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IPO (the "Pre-Closing Date") at the offices of Morgan, Lewis & Bockius LLP, 101
Park Avenue, New York, New York 10178. On the Closing Date (x) the Articles of
Merger shall be or shall have been filed with the appropriate state authorities
so that they shall be or, as of 8:00 a.m. New York City time on the Closing
Date, shall become effective and the Merger shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares, the transmission of funds by wire in an amount equal to the
cash portion of the consideration which the STOCKHOLDERS shall be entitled to
receive pursuant to the Merger referred to in Section 3 hereof shall be
completed and (z) the closing with respect to the IPO shall occur and be deemed
to be completed. The date on which the actions described in the preceding
clauses (x), (y) and (z) occur shall be referred to as the "Closing Date."
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) Representations and Warranties of the COMPANY and the STOCKHOLDERS.
Each of the COMPANY and the STOCKHOLDERS jointly and severally represents
and warrants to CTS and NEWCO that all of the following representations and
warranties in this Section 5(A) are true and correct at the date of this
Agreement and, subject to Section 7.8 hereof, shall be true and correct at the
time of the Pre-Closing and the Closing Date, and that such representations and
warranties shall survive the Closing Date for a period of eighteen months (the
last day of such period being the "Expiration Date"), except that (i) the
representations and warranties set forth in Section 5.22 hereof shall survive
until such time as the statute of limitations period has run for all tax periods
ended on or prior to the Closing Date, which shall be deemed to be the
Expiration Date for Section 5.22, and (ii) solely for purposes of Section
11.1(iii) hereof and solely to the extent that, in connection with the IPO, CTS
actually incurs liability under the 1933 Act, the 1934 Act, or any other Federal
or state securities laws, the representations and warranties set forth in this
Section 5(A) shall survive until the expiration of any applicable statute of
limitations period, which shall be deemed to be the Expiration Date for such
purposes. For purposes of this Section 5 and for the opinion referred to in
Section 9.8 of this Agreement, the term "COMPANY" shall mean and refer to the
COMPANY and all of its subsidiaries, if any.
5.1 Due Organization. The COMPANY is a corporation duly incorporated,
validly existing and in good standing under the laws of the state of its
incorporation, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted, to own
or hold under lease the properties and assets it now owns or holds under lease,
and to perform all of its obligations under the Material Contracts; is duly
qualified in the jurisdictions listed in Schedule 5.1 and there are no other
jurisdictions in which the conduct of the COMPANY's business or activities or
its
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ownership of assets requires any other qualification under applicable law, the
absence of which would have a Material Adverse Effect on the COMPANY. True,
complete and correct copies of the Certificate, Deed, or Articles of
Incorporation and By-laws, each as amended, of the COMPANY (the "Charter
Documents") are all attached to Schedule 5.1. The minute books and stock records
of the COMPANY, as heretofore made available to CTS, are correct and complete in
all material respects. The most recent minutes of the COMPANY, which are dated
no earlier than 10 business days prior to the date hereof, affirm and ratify all
prior acts of the COMPANY and of its officers and directors on behalf of the
COMPANY.
5.2 Authorization. The representatives of the COMPANY executing this
Agreement have the authority to execute and deliver this Agreement and to
perform its obligations hereunder. The execution and delivery of this Agreement
by the COMPANY and performance by the COMPANY of its obligations under this
Agreement and the consummation by the COMPANY of the transactions contemplated
hereby have been duly authorized by all necessary corporate and stockholder
action in accordance with applicable law and the Articles of Incorporation and
By-Laws of the COMPANY on the part of the COMPANY and the STOCKHOLDERS. This
Agreement constitutes the valid and binding obligation of the COMPANY,
enforceable in accordance with its terms.
5.3 Capital Stock of the COMPANY. The authorized capital stock of the
COMPANY is as set forth in Schedule 1.4. All of the issued and outstanding
shares of capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex IV and, except as set forth on Schedule 5.3, are
owned free and clear of all liens, security interests, pledges, charges, voting
trusts, restrictions, encumbrances and claims of every kind. All of the issued
and outstanding shares of capital stock of the COMPANY have been duly authorized
and validly issued, are fully paid and nonassessable, are owned of record and
beneficially by the STOCKHOLDERS and were offered, issued, sold and delivered by
the COMPANY in compliance with all applicable state and Federal laws concerning
the issuance of securities. The COMPANY and the STOCKHOLDERS have full right,
power and authority to exchange the COMPANY Stock as provided herein without
obtaining the consent or approval of any other person or Governmental Authority.
Further, none of such shares were issued in violation of the preemptive
rights of any past or present stockholder.
5.4 Transactions in Capital Stock; Organization Accounting. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock since
January 1, 1994. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
COMPANY to issue any of its authorized but unissued capital stock or its
treasury stock; (ii) the COMPANY has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make
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any distribution in respect thereof; and (iii) neither the voting stock
structure of the COMPANY nor the relative ownership of shares among any of the
STOCKHOLDERS has been altered or changed in contemplation of the Merger and/or
the CTS Plan of Organization. Schedule 5.4 also includes complete and accurate
copies of all stock option or stock purchase plans, including a list of all
outstanding options, warrants or other rights to acquire shares of the COMPANY
Stock and a description of the material terms of such outstanding options,
warrants or other rights.
5.5 No Bonus Shares. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
5.6 Subsidiaries. Schedule 5.6 attached hereto lists the name of each of
the COMPANY's subsidiaries and sets forth the number and class of the authorized
capital stock of each of the COMPANY's subsidiaries and the number of shares of
each of the COMPANY's subsidiaries which are issued and outstanding, all of
which shares (except as set forth on Schedule 5.6) are owned by the COMPANY,
free and clear of all liens, security interests, pledges, voting trusts,
equities, restrictions, encumbrances and claims of every kind. Except as set
forth on Schedule 5.6, the COMPANY does not presently own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity nor is the COMPANY, directly or indirectly, a
participant in any joint venture, partnership or other non-corporate entity.
5.7 Predecessor Status; etc. Set forth on Schedule 5.7 is a list of all
names of all predecessor companies of the COMPANY, including the names of any
entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from which the COMPANY previously acquired material
assets. Except as disclosed on Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
5.8 Spin-off by the COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1994.
5.9 Financial Statements. The COMPANY has delivered to CTS copies of
the following financial statements (the "Financial Statements").
(a) Audited Balance Sheets, Income Statements, Statements of
Stockholders' Equity and Statements of Cash Flows at and for the years
ended December 31, 1994, 1995 and 1996.
(b) Unaudited Balance Sheets, Income Statements, Statements of
Stockholders' Equity, and Statements of Cash Flows for the six months
ended
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June 30, 1996 and 1997.
Each of the Financial Statements is consistent with the books and records
of the COMPANY (which, in turn, are accurate and complete in all material
respects) and fairly presents the COMPANY's financial condition, assets and
liabilities as of their respective dates and the results of operations and cash
flows for the periods related thereto in accordance with GAAP, consistently
applied among the periods which are the subject of the Financial Statements,
except unaudited interim financial statements which were or are subject to
normal year-end adjustments which were not and are not expected to be material
in amount and the addition of required footnotes thereto.
5.10 Liabilities and Obligations. The COMPANY has delivered to CTS an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY in excess of $10,000 which are not
reflected on the balance sheet of the COMPANY at the Balance Sheet Date or
otherwise reflected in the COMPANY Financial Statements at the Balance Sheet
Date and (ii) all loan agreements, indemnity or guaranty agreements, bonds,
mortgages, liens, pledges or other security agreements to which the COMPANY is a
party. Except as set forth on Schedule 5.10, since the Balance Sheet Date, the
COMPANY has not incurred any material liabilities of any kind, character and
description, whether accrued, absolute, secured or unsecured, contingent or
otherwise, other than liabilities incurred in the ordinary course of business.
The COMPANY has also set forth on Schedule 5.10, in the case of those contingent
liabilities related to pending or threatened litigation, or other liabilities
which are not fixed or are being contested, the following information:
(a) a summary description of the liability and has provided CTS's
counsel with: (i) copies of all relevant documentation relating thereto;
(ii) amounts claimed and any other action or relief sought; and (iii) name
of claimant and all other parties to the claim, suit or proceeding;
(b) the name of each court or agency before which such claim, suit
or proceeding is pending;
(c) the date such claim, suit or proceeding was instituted; and
(d) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such
liability. If no estimate is provided, the estimate shall for purposes of
this Agreement be deemed to be zero.
5.11 Accounts and Notes Receivable. The COMPANY has delivered to CTS an
accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY as of the Balance Sheet Date, including any such
amounts which are not reflected in the balance sheet as of the Balance Sheet
Date, and including receivables from and advances to employees and the
STOCKHOLDERS. Except to the extent
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reflected on Schedule 5.11 or as disclosed by the COMPANY to CTS in a writing
accompanying the A/R Aging Reports, as the case may be, the accounts, notes and
other receivables shown on Schedule 5.11 and on the A/R Aging Reports are and
shall be, and the COMPANY has no reason to believe that any such account
receivable is not or shall not be, collectible in the amounts shown (in the case
of the accounts and notes receivable set forth on Schedule 5.11, net of reserves
reflected in the balance sheet calculated consistent with reserves as of the
Balance Sheet Date).
5.12 Intellectual Property; Permits and Intangibles.
(a) The COMPANY owns or has licenses to all Intellectual Property
the absence of any of which would have a Material Adverse Effect on the
COMPANY, and the COMPANY has delivered to CTS an accurate list (which is
set forth on Schedule 5.12(a)) of all Intellectual Property owned or used
by the COMPANY. Each item of Intellectual Property owned by or licensed by
the COMPANY is valid and in full force and effect. Except as set forth on
Schedule 5.12(a), all right, title and interest in and to each item of
Intellectual Property is owned by the COMPANY and is not subject to any
license except as set forth on Schedule 5.12(a), royalty arrangement or
pending or threatened claim or dispute. To the COMPANY's knowledge, none
of the Intellectual Property owned by or licensed by the COMPANY nor any
product sold or licensed by the COMPANY, infringes any Intellectual
Property right of any other entity and to the COMPANY's knowledge, no
Intellectual Property owned by the COMPANY is infringed upon by any other
entity.
(b) The COMPANY holds all licenses, franchises, permits and other
governmental authorizations the absence of any of which could have a
Material Adverse Effect on the COMPANY, and the COMPANY has delivered to
CTS an accurate list and summary description (which is set forth on
Schedule 5.12(b)) of all governmental licenses, franchises, permits and
other governmental authorizations, including permits, titles, licenses,
franchises and certificates (it being understood and agreed that a list of
all environmental permits and other environmental approvals is set forth
on Schedule 5.13). To the knowledge of the COMPANY, the licenses,
franchises, permits and other governmental authorizations listed on
Schedules 5.12(b) and 5.13 are valid, and the COMPANY has not received any
notice that any Governmental Authority intends to cancel, terminate or not
renew any such license, franchise, permit or other governmental
authorization. The COMPANY has conducted and is conducting its business in
compliance with the requirements, standards, criteria and conditions set
forth in the licenses, franchises, permits and other governmental
authorizations listed on Schedules 5.12(b) and 5.13 and is not in
violation of any of the foregoing except where such non-compliance or
violation would not have a Material Adverse Effect on the COMPANY. Except
as specifically provided in Schedule 5.12(a) or 5.12(b), the transactions
contemplated by this Agreement will not (i) to the
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COMPANY's knowledge, result in the infringement by the COMPANY of any
Intellectual Property right of any other entity, (ii) infringe any
Intellectual Property listed on Schedule 5.12(a), or (iii) result in a
default under or a breach or violation of, or adversely affect the rights
and benefits afforded to the COMPANY by, any licenses, franchises, permits
or government authorizations listed on Schedule 5.12(b).
5.13 Environmental Matters.
(a) Except as set forth on Schedule 5.13,
(i) the COMPANY is and at all times has been in compliance
in all material respects with, and has not been in
violation of or liable under, all Environmental
Requirements, and
(ii) the COMPANY possesses all permits, licenses and
certificates required by all Environmental Requirements,
and has filed all notices or applications required
thereby.
As used herein, "Environmental Requirements" shall mean all applicable federal,
state and local laws, rules, regulations, ordinances and requirements relating
to pollution and protection of the environment, all as amended to date.
(b) Except as disclosed on Schedule 5.13:
(i) the COMPANY has not been subject to, or received any
notice of any private, administrative or judicial
action, or notice of any intended private,
administrative or judicial action relating to the
presence or alleged presence of Hazardous Materials in,
under or upon any real property currently or formerly
owned, leased or used by (A) the COMPANY or (B) any
other person that has, at any time, disposed of
Hazardous Materials on behalf of the COMPANY;
(ii) the COMPANY does not have any basis for any such notice
or action; and
(iii) there are no pending or, to the knowledge of the
COMPANY, threatened actions or proceedings (or notices
of potential actions or proceedings) from any
Governmental Authority or any other entity regarding any
matter relating to health, safety or protection of the
environment against the COMPANY.
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"Hazardous Materials" for purposes of this Agreement shall include,
without limitation: (A) hazardous materials, hazardous substances,
extremely hazardous substances or hazardous wastes, as those terms are
defined by the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. ss.9601 et seq. ("CERCLA"), the Resource
Conservation and Recovery Act, 42 U.S.C. ss.6901 et seq. ("RCRA"), and any
other Environmental and Safety Requirements; (B) petroleum, including,
without limitation, crude oil or any fraction thereof which is liquid at
standard conditions of temperature and pressure (60 degrees Fahrenheit and
14.7 pounds per square inch absolute); (C) any radioactive material,
including, without limitation, any source, special nuclear, or by-product
material as defined in 42 U.S.C. ss.2011 et seq.; and (D) asbestos in any
form or condition.
(c) To the Company's knowledge, there are and have been no past or
present events, conditions, circumstances, activities, practices,
incidents or actions which could reasonably be expected to interfere with
or prevent continued compliance with any Environmental Requirements, give
rise to any legal obligation or liability, or otherwise form the basis of
any claim, action, suit, proceeding, hearing or investigation against or
involving the COMPANY or any real property presently or previously owned
or used by the COMPANY under any Environmental Requirements or related
common law theories, except as identified on Schedule 5.13.
(d) Schedule 5.13 sets forth the name and principal place of
business of every off-site waste disposal organization, and each of the
haulers, transporters or cartage organization engaged now or in the
preceding three years by the COMPANY to dispose of Hazardous Materials to
any such off-site waste disposal location on behalf of the COMPANY or any
of its predecessors.
5.14 Personal Property. The COMPANY has delivered to CTS an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property with a fair
market value in excess of $10,000 which is included (or that will be included)
in "depreciable plant, property and equipment" (or similarly named line item) on
the balance sheet of the COMPANY as of the Balance Sheet Date, (y) all other
personal property owned by the COMPANY with a value individually in excess of
$10,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date and (z) all leases and agreements in respect of personal property,
including, in the case of each of (x), (y) and (z), (1) true, complete and
correct copies of all such leases which have been provided to CTS's counsel, (2)
a listing of the capital costs of all such assets which are subject to capital
leases and (3) an indication as to which assets are currently owned, or, to the
COMPANY's knowledge, were formerly owned, by STOCKHOLDERS or Affiliates of the
COMPANY or STOCKHOLDERS. Except as set forth on Schedule 5.14, (i) all personal
property with a value individually in excess of $10,000 used by the COMPANY in
its business is either owned by the COMPANY or leased by the COMPANY pursuant
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to a lease included on Schedule 5.14, (ii) all of the personal property listed
on Schedule 5.14 is in good working order and condition, ordinary wear and tear
excepted, and (iii) all leases and agreements included on Schedule 5.14 are in
full force and effect and constitute valid and binding agreements of the
COMPANY, and to the COMPANY's knowledge, of the other parties (and their
successors) thereto in accordance with their respective terms.
5.15 Significant Customers; Material Contracts and Commitments. The
COMPANY has delivered to CTS an accurate list (which is set forth on Schedule
5.15) of all significant customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person or entity) representing 5% or more of the COMPANY's annual revenues as of
the Balance Sheet Date. Except to the extent set forth on Schedule 5.15, none of
the COMPANY's significant customers has canceled or substantially reduced or, to
the knowledge of the COMPANY, is currently attempting or threatening to cancel a
contract or substantially reduce utilization of the services provided by the
COMPANY.
Except as listed or described on Schedule 5.15, as of or on the date
hereof, neither the COMPANY is a party to or bound by, nor do there exist any,
Contracts relating to or in any way affecting the operation or ownership of the
COMPANY's business that are of a type described below:
(a) any collective bargaining arrangement with any labor union or
any such agreement currently in negotiation or proposed;
(b) any contract for capital expenditures or the acquisition or
construction of fixed assets for or in respect to real property other than
in the COMPANY's ordinary course of business in excess of $50,000;
(c) any contract with a term in excess of one year for the purchase,
maintenance, acquisition, sale or furnishing of materials, supplies,
merchandise, machinery, equipment, parts or other property or services
(except that the COMPANY need not list any such contract made in the
ordinary course of business) which requires aggregate future payments of
greater than $100,000;
(d) any contract relating to the borrowing of money, or the guaranty
of another person's borrowing of money, including, without limitation, all
notes, mortgages, indentures and other obligations, agreements and other
instruments for or relating to any lending or borrowing, including assumed
indebtedness;
(e) any contract granting any person a lien on any of the assets of
the COMPANY, in whole or in part;
(f) any contract for the cleanup, abatement or other actions in
connection with Hazardous Materials (as defined in Section 5.13), the
remediation
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of any existing environmental liabilities or relating to the performance
of any environmental audit or study;
(g) any contract granting to any person a first-refusal, first-offer
or similar preferential right to purchase or acquire any of the assets of
the COMPANY's business other than in the ordinary course of business;
(h) any contract under which the COMPANY is
(i) a lessee or sublessee of any machinery, equipment,
vehicle or other tangible personal property or real
property, or
(ii) a lessor of any real property or tangible personal
property owned by the COMPANY,
in either case having an original value in excess of $50,000;
(i) any contract providing for the indemnification of any officer,
director, employee or other person, where such indemnification may exceed
the sum of $50,000;
(j) any joint venture or partnership contract; and
(k) any other contract with a term in excess of one year, whether or
not made in the ordinary course of business, which involves payments in
excess of $100,000.
The COMPANY has provided CTS with a true and complete copy of each written
Material Contract, including all amendments or other modifications thereto.
Except as set forth on Schedule 5.15, each Material Contract is a valid and
binding obligation of the COMPANY, enforceable against the COMPANY in accordance
with its terms, and is in full force and effect. Except as set forth on Schedule
5.15, the COMPANY has performed all obligations required to be performed by it
under each Material Contract and neither the COMPANY nor, to the knowledge of
the COMPANY, any other party to any Contract, is (with or without the lapse of
time or the giving of notice or both) in breach or default in any material
respect thereunder; and there exists no condition which, to the knowledge of the
COMPANY, would constitute a breach or default thereunder. The COMPANY has not
been notified that any party to any Material Contract intends to cancel,
terminate, not renew or exercise an option under any Material Contract, whether
in connection with the transactions contemplated hereby or otherwise.
5.16 Real Property. (a) The Company owns no real property.
(b) Schedule 5.16(b) includes an accurate list of real property
leases to which the COMPANY is a party and an indication as to which such
properties, if any, are currently owned, or were formerly owned, by STOCKHOLDERS
or Affiliates of the
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COMPANY or STOCKHOLDERS. Counsel to CTS has been provided with true, complete
and correct copies of all leases and agreements in respect of such real property
leased by the COMPANY. Except as set forth on Schedule 5.16(b), all of such
leases included on Schedule 5.16(b) are in full force and effect and constitute
valid and binding agreements of the COMPANY and, to the COMPANY'S knowledge, of
the parties (and their successors) thereto in accordance with their respective
terms.
5.17 Insurance.
(a) The COMPANY has delivered to CTS:
(i) true and complete copies of all policies of insurance to
which the COMPANY is a party or under which the COMPANY,
or any director of the COMPANY, is or has been covered
at any time within two years preceding the date of this
Agreement;
(ii) true and complete copies of all pending applications for
policies of insurance; and
(iii) any statement by the auditor of the COMPANY's financial
statements with regard to the adequacy of such entity's
coverage or of the reserves for claims.
(b) Schedule 5.17(b) describes:
(i) any self-insurance arrangement by or affecting the
COMPANY, including any reserves established thereunder;
(ii) any contract or arrangement, other than a policy of
insurance, for the transfer or sharing of any risk by
the COMPANY; and
(iii) all obligations of the COMPANY to third parties with
respect to insurance (including such obligations under
leases and service agreements), and identifies the
policy under which such coverage is provided.
(c) Schedule 5.17(c) sets forth, by year, for the current policy
year and each of the preceding two policy years:
(i) a summary of the loss experience under each policy;
(ii) a statement describing each claim under an insurance
policy for an amount in excess of $25,000, which sets
forth:
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a) the name of the claimant;
b) a description of the policy by insurer, type of
insurance and period of coverage; and
c) the amount and a brief description of the claim;
and
(iii) a statement describing the loss experience for all
claims that were self-insured, including the number and
aggregate cost of such claims.
(d) Except as set forth on Schedule 5.17(d):
(i) All policies to which the COMPANY is a party or that
provide coverage to the COMPANY:
a) are valid, outstanding and enforceable;
b) are issued by an insurer that is financially sound
and reputable;
c) taken together, provide adequate insurance for the
assets and the operations of the COMPANY for all
risks normally insured against by a person
carrying on the same business or businesses of the
COMPANY;
d) are sufficient for compliance with all legal
requirements and Material Contracts to which the
COMPANY is a party or by which it is bound;
e) will continue in full force and effect following
the Closing in accordance with their respective
terms;
(ii) the COMPANY has not received (A) any refusal of coverage
or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation
or any other indication that any insurance policy is no
longer in full force or effect or will not be renewed or
that the issuer of any policy is not willing or able to
perform its obligations thereunder;
(iii) the COMPANY has paid all premiums due, and has otherwise
performed all of its obligations, under each policy to
which it is a party or that provides coverage to it or
any director thereof.
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(iv) the COMPANY has given notice to the insurer of all
claims known by it to be insured thereby.
5.18 Compensation; Employment Agreements; Organized Labor Matters. The
COMPANY has delivered to CTS an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the COMPANY, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons as of (i) the
Balance Sheet Date and (ii) the date hereof. The COMPANY has provided to CTS
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
increases in the compensation payable or any special bonuses to any officer,
director, key employee or other employee, except ordinary salary increases
implemented on a basis consistent with past practices.
Except as set forth on Schedule 5.18, there is no, and within the last
three years the COMPANY has not experienced any, strike, picketing, boycott,
work stoppage or slowdown, other labor dispute, union organizational activity,
allegation, charge or complaint of unfair labor practice, employment
discrimination or other matters relating to the employment of labor, pending or,
to the COMPANY's knowledge, threatened against the COMPANY; nor is there, to the
knowledge of the COMPANY, any basis for any such allegation, charge or
complaint. Except as set forth on Schedule 5.18, to the knowledge of the
COMPANY, none of the employees of any critical subcontractor utilized by the
COMPANY are represented by a labor union. There is no request directed to the
COMPANY for union or similar representation pending and, to the COMPANY's
knowledge, no question concerning representation has been raised. To the
COMPANY's knowledge, there is no grievance pending which might have a Material
Adverse Effect on the COMPANY nor any which might have a Material Adverse Effect
on any arbitration proceeding arising out of any union agreement. There are no
arbitration awards, court orders, orders of the National Labor Relations Board
or private settlement agreements which in any way alter, amend or clarify any
union agreement or which restrict or otherwise impact the COMPANY's ability to
act with respect to the employees covered by any union agreement in the future.
To the COMPANY's knowledge, no key employee and no group of employees has any
plans to terminate employment with the COMPANY. The COMPANY has complied in all
material respects with all applicable laws relating to the employment of labor,
including provisions thereof relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and other taxes. The
COMPANY is not liable for any arrearages of wages or any taxes or penalties for
failure to comply with any such laws, ordinances or regulation.
5.19 Employee Plans. The COMPANY has delivered to CTS an accurate
schedule (which is set forth on Schedule 5.19) showing all Benefit Plans of the
COMPANY, together with true, complete and correct copies of such Benefit Plans,
agreements and any trusts related thereto, and classifications of employees
covered
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thereby as of the Balance Sheet Date. The COMPANY is not required to contribute
to any Benefit Plan pursuant to the provisions of any collective bargaining
agreement establishing the terms and conditions of employment of any of
COMPANY's employees.
5.20 Compliance with ERISA. All Benefit Plans that are intended to qualify
under Section 401(a) of the Code are and have been so qualified and have been
determined by the Internal Revenue Service to be so qualified, and copies of
such determination letters are included as part of Schedule 5.19 hereof. Except
as disclosed on Schedule 5.20, all reports and other documents required to be
filed with any Governmental Authority or distributed to Plan participants or
beneficiaries (including, but not limited to, actuarial reports, audits or tax
returns) have been timely filed or distributed, and copies thereof are included
as part of Schedule 5.19 hereof other than those reports required to be
distributed to Plan participants and beneficiaries. None of the STOCKHOLDERS,
any such Benefit Plan, nor the COMPANY has engaged in any transaction prohibited
under the provisions of Section 4975 of the Code or Section 406 of ERISA. No
Benefit Plan has incurred an accumulated funding deficiency, as defined in
Section 412(a) of the Code and Section 302(1) of ERISA; and the COMPANY has not
incurred any liability for excise tax or penalty due to the Internal Revenue
Service nor any liability to the PBGC. The COMPANY further represents that:
(a) there have been no terminations, partial terminations or
discontinuance of contributions to any such Benefit Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(b) no such Benefit Plan subject to the provisions of Title IV of
ERISA has been terminated;
(c) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any Benefit Plan;
(d) the COMPANY has not incurred liability under Section 4062 of
ERISA;
(e) no circumstances exist pursuant to which the COMPANY could have
any direct or indirect liability whatsoever (including, but not limited
to, any liability to any multiemployer plan or the PBGC under Title IV of
ERISA or to the Internal Revenue Service for any excise tax or penalty, or
being subject to any statutory lien to secure payment of any such
liability) with respect to any Benefit Plan now or heretofore maintained
or contributed to by any entity other than the COMPANY that is, or at any
time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the COMPANY;
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(f) the COMPANY is not now, nor can it as a result of its past
activities become, liable to the PBGC or to any multiemployer employee
pension benefit plan under the provisions of Title IV of ERISA;
(g) all Benefit Plans listed on Schedule 5.19 and the administration
thereof are in substantial compliance with their terms and all applicable
provisions of ERISA and the regulations issued thereunder, as well as with
all other applicable federal, state and local statutes, ordinances and
regulations; and
(h) all accrued contribution obligations of the COMPANY with respect
to any Benefit Plan have either been fulfilled in their entirety or are
fully reflected on the balance sheet of the COMPANY as of the Balance
Sheet Date.
5.21 Conformity with Law; Litigation. Except as set forth on Schedule 5.13
or 5.21, the COMPANY has complied with all laws, rules, regulations, writs,
injunctions, decrees, and orders applicable to it or to the operation of its
Business (collectively, "Laws") and has not received any notice of any alleged
claim or threatened claim, violation of, liability or potential responsibility
under, any such Law which has not heretofore been cured and for which there is
no remaining liability other than, in each case, those not having a Material
Adverse Effect on the COMPANY. Without limiting the generality of the foregoing,
the COMPANY has complied with all applicable federal, state and local Laws
relating to antitrust and trade regulations.
Except to the extent set forth on Schedule 5.10 or 5.13 or as set forth on
Schedule 5.21 (which shall disclose the parties to, nature of, and relief sought
for each matter to be disclosed on Schedule 5.21) :
(a) There is no suit, action, proceeding, claim, order or, to the
Company's knowledge, investigation pending or, to the COMPANY's knowledge,
threatened against either the COMPANY or any Benefit Plan, or any
fiduciary of any such Benefit Plan or, to the knowledge of the COMPANY,
pending or threatened against any of the officers, directors or employees
of the COMPANY with respect to its business or proposed business
activities or to which the COMPANY is otherwise a party, which would have
a Material Adverse Effect on the COMPANY, before any court, or before any
Governmental Authority (collectively, "Claims"); nor, to the COMPANY's
knowledge, is there any basis for any such Claims.
(b) The COMPANY is not subject to any judgment, order or decree of
any court or Governmental Authority; the COMPANY has not received any
opinion or memorandum from legal counsel to the effect that it is exposed,
from a legal standpoint, to any liability or disadvantage which may be
material to its business. The COMPANY is not engaged in any legal action
to recover monies due it or for damages sustained by it.
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(c) The COMPANY's current insurance is believed in good faith to be
adequate to cover all pending or threatened Claims, the COMPANY has given
all required notice of such Claims to its appropriate insurance carrier(s)
and/or all such claims have been fully reserved for on the financial
statements of the COMPANY as delivered to CTS pursuant to the terms of
this Agreement. Schedule 5.21 lists the insurer for each Claim covered by
insurance or designates each Claim, or portion of each Claim, as uninsured
and the individual and aggregate policy limits for the insurance covering
each insured Claim and the applicable policy deductibles for each insured
Claim.
Schedule 5.21 sets forth all closed litigation matters (other than workers
compensation claims) to which the COMPANY was a party during the three
years preceding the Closing, the date such litigation was commenced and
concluded, and the nature of the resolution thereof (including amounts
paid in settlement or judgment).
5.22 Taxes. Except as set forth on Schedule 5.22:
(a) All Returns required to have been filed by or with respect to
the COMPANY and any affiliated, combined, consolidated, unitary or similar
group of which the COMPANY is or was a member (a "Relevant Group") with
any Taxing Authority have been duly filed, and each such Return correctly
and completely reflects the Tax liability and all other information
required to be reported thereon. All Taxes (whether or not shown on any
Return) owed by the COMPANY, any subsidiary and any member of a Relevant
Group (individually, the "Acquired Party" and collectively, the "Acquired
Parties") have been paid.
(b) To the knowledge of the COMPANY and the STOCKHOLDERS, the
provisions for Taxes due by the COMPANY and any subsidiaries (as opposed
to any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) in the COMPANY Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of such Acquired Party.
(c) No Acquired Party is a party to any agreement extending the time
within which to file any Return. No claim has ever been made by any Taxing
Authority in a jurisdiction in which an Acquired Party does not file
Returns that it is or may be subject to taxation by that jurisdiction that
is unresolved or if adversely determined would have a Material Adverse
Effect on such Acquired Party.
(d) Each Acquired Party has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to
any employee, creditor, independent contractor or other third party.
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(e) No Acquired Party expects any Taxing Authority to assess any
additional Taxes against or in respect of it for any past period. There is
no dispute or claim concerning any Tax liability of any Acquired Party
either (i) claimed or raised by any Taxing Authority or (ii) otherwise
known to any Acquired Party. No issues have been raised in any examination
by any Taxing Authority with respect to any Acquired Party which, by
application of similar principles, reasonably could be expected to result
in a proposed deficiency for any other period not so examined. Schedule
5.22(v) attached hereto lists all federal, state, local and foreign income
Tax Returns filed by or with respect to any Acquired Party for all taxable
periods ended on or after January 1, 1991, indicates those Returns, if
any, that have been audited, and indicates those Returns that currently
are the subject of audit. Each Acquired Party has delivered to CTS
complete and correct copies of all federal, state, local and foreign
income Tax Returns filed by, and all Tax examination reports and
statements of deficiencies assessed against or agreed to by, such Acquired
Party since January 1, 1991.
(f) No Acquired Party has waived any statute of limitations, the
waiver of which remains in effect on the date hereof, in respect of Taxes
or agreed to any extension of time with respect to any Tax assessment or
deficiency.
(g) No Acquired Party has made any payments, is obligated to make
any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not
deductible (i) under Section 280G of the Code or (ii) for Federal, state
and/or local income Tax purposes.
(h) No Acquired Party is a party to any Tax allocation or sharing
agreement.
(i) None of the assets of any Acquired Party constitutes tax-exempt
bond financed property or tax-exempt use property, within the meaning of
Section 168 of the Code. No Acquired Party is a party to any "safe harbor
lease" that is subject to the provisions of Section 168(f)(8) of the
Internal Revenue Code as in effect prior to the Tax Reform Act of 1986, or
to any "long-term contract" within the meaning of Section 460 of the Code.
(j) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of any
state statutes, and none of the assets of any Acquired Party is subject to
an election under Section 341(f) of the Code or comparable provisions of
any state statutes.
(k) No Acquired Party is a party to any joint venture, partnership
or other arrangement that is treated as a partnership for federal income
Tax purposes.
(l) There are no accounting method changes or proposed or threatened
accounting method changes, of any Acquired Party that could give rise to
an
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adjustment under Section 481 of the Code for periods after the Closing
Date.
(m) No Acquired Party has received any written ruling of a Taxing
Authority related to Taxes or entered into any written and legally binding
agreement with a Taxing Authority relating to Taxes.
(n) Each Acquired Party has disclosed (in accordance with Section
6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns all
positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Section 6662(d)
of the Code.
(o) No Acquired Party has any liability for Taxes of any person
other than such Acquired Party (i) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign law),
(ii) as a transferee or successor, (iii) by contract or (iv) otherwise.
(p) Prior to CTS's acquisition of the COMPANY pursuant to this
Agreement, there currently are no limitations on the utilization of the
net operating losses, built-in losses, capital losses, Tax credits or
other similar items of any Acquired Party (collectively, the "Tax Losses")
under (i) Section 382 of the Code, (ii) Section 383 of the Code, (iii)
Section 384 of the Code, (iv) Section 269 of the Code, (v) Section
1.1502-15 and Section 1.1502-15A of the Treasury regulations, (vi) Section
1.1502-21 and Section 1.1502-21A of the Treasury regulations or (vii)
Sections 1.1502-91 through 1.1502-99 of the Treasury regulations, in each
case as in effect both prior to and following the Tax Reform Act of 1986.
(q) At the Balance Sheet Date, the Acquired Parties had aggregate
Tax Losses for federal income Tax purposes as described on Schedule
5.22(g) attached hereto.
(r) The COMPANY is not an investment company as defined in Section
351(e)(1) of the Code.
(s) The fair market value of the assets of the COMPANY exceeds the
sum of its liabilities, plus the amount of liabilities, if any, to which
the assets are subject.
(t) The COMPANY is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 351(e)(2) of the Code.
For purposes of this Section 5.22, the following definitions shall
apply:
"Returns" means any returns, reports or statements (including any
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information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or Governmental Authority.
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatsoever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Taxing Authority" means any Governmental Authority, board, bureau,
body, department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
5.23 No Violations. The COMPANY is not in violation of any Charter
Document. Neither the COMPANY nor, to the knowledge of the COMPANY or the
STOCKHOLDERS, any other party thereto, is in default under any Material
Contract; and, except as set forth on Schedule 5.23, (a) the rights and benefits
of the COMPANY under the Material Contracts will not be adversely affected by
the transactions contemplated hereby and (b) the execution of this Agreement and
the performance by the COMPANY and the STOCKHOLDERS of their obligations
hereunder and the consummation by the COMPANY and the STOCKHOLDERS of the
transactions contemplated hereby will not (i) result in any violation or breach
of, or constitute a default under, any of the terms or provisions of the
Material Contracts or the Charter Documents or (ii) require the consent,
approval, waiver of any acceleration, termination or other right or remedy or
action of or by, or make any filing with or give any notice to, any other party.
Except as set forth on Schedule 5.23, none of the Material Contracts requires
notice to, or the consent or approval of, any Governmental Authority or other
third party with respect to any of the transactions contemplated hereby in order
to remain in full force and effect and consummation of the transactions
contemplated hereby will not give rise to any right to termination, cancellation
or acceleration or loss of any material right or benefit. Except as set forth on
Schedule 5.23, none of the Material Contracts prohibits the use or publication
by the COMPANY, CTS or NEWCO of the name of any other party to such Material
Contracts, and none of the Material Contracts prohibits or restricts the COMPANY
from freely providing services to any other customer or potential customer of
the COMPANY, CTS, NEWCO or any Other Founding Company.
5.24 Government Contracts. Except as set forth on Schedule 5.24, the
COMPANY is not a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 Business Conduct. Except as set forth on Schedule 5.25, since
December 31, 1996, the COMPANY has conducted its business only in the ordinary
course consistent with past custom and practices and has incurred no liabilities
other than in the
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ordinary course of business consistent with past custom and practices. Except as
forth on Schedule 5.25, since December 31, 1996, there has not been any:
(a) Material adverse change in the COMPANY's operations, condition
(financial or otherwise), operating results, assets, liabilities,
employee, customer or supplier relations or business prospects;
(b) Damage, destruction or loss of any property owned by the COMPANY
or used in the operation of the business, whether or not covered by
insurance, having a replacement cost or fair market value in excess of
$50,000 affecting the COMPANY's property, financial status or the
Business;
(c) Voluntary or involuntary sale, transfer, surrender, abandonment
or other disposition of any kind by the COMPANY of any assets or property
rights (tangible or intangible), having a replacement cost or fair market
value in excess of $50,000, except in each case the sale of inventory and
collection of accounts in the ordinary course of business consistent with
past custom and practices;
(d) Loan or advance by the COMPANY to any party other than sales to
customers on credit in the ordinary course of business consistent with
past custom and practices;
(e) Declaration, setting aside, or payment of any dividend or other
distribution in respect to the COMPANY's capital stock, any direct or
indirect redemption, purchase, or other acquisition of such stock, or the
payment of principal or interest on any note, bond, debt instrument or
debt to any Affiliate;
(f) Incurrence of debts, liabilities or obligations except current
liabilities incurred in connection with or for services rendered or goods
supplied in the ordinary course of business consistent with past custom
and practices, liabilities on account of taxes and governmental charges
but not penalties, interest or fines in respect thereof, and obligations
or liabilities incurred by virtue of the execution of this Agreement;
(g) Issuance by the COMPANY of any notes, bonds, or other debt
securities or any equity securities or securities convertible into or
exchangeable for any equity securities;
(h) Cancellation, waiver or release by the COMPANY of any debts,
rights or claims, except in each case in the ordinary course of business
consistent with past custom and practices;
(i) Amendment of the COMPANY's Articles or Certificate of
Incorporation or By-Laws;
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(j) Amendment or termination of any Material Contract, other than
expiration of such contract in accordance with its terms;
(k) Change in accounting principles, methods or practices
(including, without limitation, any change in depreciation or amortization
policies or rates) utilized by the COMPANY;
(l) Discharge or satisfaction of any material liability, encumbrance
or payment of any material obligation or liability, other than current
liabilities paid in the ordinary course of business consistent with past
custom and practices or cancellation of any debts or claims;
(m) Sale or assignment by the COMPANY of any tangible assets other
than in the ordinary course of business;
(n) Capital expenditures or commitments therefor by the COMPANY
other than in the ordinary course of business in excess of $100,000 in the
aggregate;
(o) Charitable contributions or pledges by the COMPANY in excess of
$25,000 per year in the aggregate;
(p) Mortgage, pledge or other encumbrance of any asset of the
COMPANY other than in the ordinary course of business;
(q) Adoption, amendment or termination of any Benefit Plan;
(r) Increase in the benefits provided under any Benefit Plan; or
(s) An occurrence or event not included in clauses (a) through (r)
that has resulted or might be expected to have a Material Adverse Effect
on the COMPANY.
5.26 Deposit Accounts; Powers of Attorney. The COMPANY has delivered to
CTS an accurate schedule (which is set forth on Schedule 5.26) as of the date of
this Agreement of:
(a) the name of each financial institution in which the COMPANY has
accounts or safe deposit boxes;
(b) the names in which the accounts or boxes are held;
(c) the type of account and account number; and
(d) the name of each person authorized to draw thereon or have
access thereto.
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Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY and
a description of the terms of such power of attorney.
5.27 Relations with Governments. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause the COMPANY to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.28 Disclosure.
(a) The representations and warranties of the COMPANY and the
STOCKHOLDERS contained in this Agreement, the schedules to this Agreement
provided by the Company and/or the STOCKHOLDERS, the certificates and the
other documents furnished by the COMPANY and/or the STOCKHOLDERS to CTS
pursuant hereto and for inclusion in the Registration Statement (which,
for purposes of this Agreement, shall include the completed Directors and
Officers Questionnaires and Registration Statement Questionnaires), taken
as a whole, present fairly the business and operations of the COMPANY for
the time periods with respect to which such information was requested. The
COMPANY'S rights under the documents delivered pursuant hereto would not
be materially adversely affected by, and no statement made herein would be
rendered untrue in any material respect by, any other document to which
the COMPANY is a party, or to which its properties are subject, or by any
other fact or circumstance regarding the COMPANY (which fact or
circumstance was, or should reasonably, after due inquiry, have been known
to the COMPANY) that is not disclosed pursuant hereto or thereto. If,
prior to the 25th day after the date of the final prospectus of CTS
utilized in connection with the IPO, the COMPANY or the STOCKHOLDERS
become aware of any fact or circumstance which would change (or, if after
the Closing Date, would have changed) a representation or warranty of
COMPANY or STOCKHOLDERS in this Agreement or would affect any document
delivered pursuant hereto in any material respect, the COMPANY and the
STOCKHOLDERS shall immediately give notice of such fact or circumstance to
CTS. However, subject to the provisions of Section 7.8, such notification
shall not relieve either the COMPANY or the STOCKHOLDERS of their
respective obligations under this Agreement.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i) that
there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant
thereto will occur at a particular price or within a particular range of
prices or occur at all; (ii) that neither CTS or any of its officers,
directors, agents or representatives nor any Underwriter shall have any
liability to the COMPANY, the STOCKHOLDERS or
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any other person affiliated or associated with the COMPANY for any
failure of the Registration Statement to become effective, the IPO to
occur at a particular price or within a particular range of prices or to
occur at all; and (iii) that the decision of the STOCKHOLDERS to enter
into this Agreement, or to vote in favor of or consent to the proposed
Merger, has been or will be made independent of, and without reliance
upon, any statements, opinions or other communications, or due diligence
investigations which have been or will be made or performed by any
prospective Underwriter, relative to CTS or the prospective IPO.
5.29 Prohibited Activities. Except as set forth on Schedule 5.29, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions set forth in Section 7.3.
5.30 Affiliate Transactions. Schedule 5.30 sets forth the parties to and
the date, nature and amount of (A) each transaction or series of similar
transactions (other than payments of salary and bonus which are reflected as
line items in the Financial Statements) involving the transfer of any cash,
property or rights in which the amount involved individually or collectively
exceeded $60,000 to or from the COMPANY from, to, or for the benefit of any
Affiliate or former Affiliate of the COMPANY ("Affiliate Transactions") during
the period commencing January 1, 1994 through the date hereof and (B) any
existing commitments of the COMPANY to engage in the future in any Affiliate
Transactions. Each Affiliate Transaction was effected on terms equivalent to
those which would have been established in an arms'-length negotiation, except
as disclosed on Schedule 5.30.
5.31 Misrepresentation. To the knowledge of the COMPANY and the
STOCKHOLDERS, none of the representations and warranties set forth in this
Agreement, the certificates and the other documents furnished by the COMPANY to
CTS pursuant hereto and for inclusion in the Registration Statement, taken as a
whole, contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements contained herein or therein not
misleading.
(B) Representations and Warranties of the STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants to CTS and NEWCO
that the representations and warranties set forth below with respect to such
STOCKHOLDER are true and correct as of the date of this Agreement and, subject
to Section 7.8 hereof, shall be true and correct at the time of the Pre-Closing
and on the Closing Date.
5.32 Securities Act Representations. Each STOCKHOLDER alone, or
together with such STOCKHOLDER's "purchaser representative" (as defined in Rule
501(h) promulgated under the 1933 Act):
(a) acknowledges and agrees that (x) the shares of CTS Stock to be
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delivered to such STOCKHOLDER pursuant to this Agreement have not been and
will not be registered under the 1933 Act, and therefore may not be sold,
transferred or otherwise conveyed without compliance with the 1933 Act or
pursuant to an exemption therefrom and (y) the CTS Stock to be acquired by
such STOCKHOLDER pursuant to this Agreement is being acquired solely for
its own account, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of the CTS Stock
in connection with a distribution;
(b) acknowledges and agrees that it knows and understands that an
investment in the CTS Stock is a speculative investment which involves a
high degree of risk of loss;
(c) represents and warrants that it is able to bear the economic
risk of an investment in the CTS Stock acquired pursuant to this
Agreement, can afford to sustain a total loss of such investment and has
such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the proposed investment in
the CTS Stock;
(d) represents and warrants that it has had an adequate opportunity
to review and to ask questions and receive answers concerning any and all
matters relating to the transactions described in (i) CTS's private
placement memorandum and (ii) this Agreement;
(e) represents and warrants that it has had an adequate opportunity
to ask questions and receive answers concerning (i) the background and
experience of the current and proposed officers and directors of CTS, (ii)
the plans for the operations of the business of CTS, (iii) the business,
operations and financial condition of the Other Founding Companies, and
(iv) any plans for additional acquisitions and the like;
(f) represents and warrants that it is either an "accredited
investor" (as defined in Rule 501(a) promulgated under the 1933 Act) or,
after taking into consideration the information and advice provided to
such STOCKHOLDER, has the requisite knowledge and experience in financial
and business matters to be capable of evaluating the merits and risks of
an investment in the CTS Stock;
(g) represents and warrants that, to its knowledge, there have been
no general or public solicitations or advertisements or other broadly
disseminated disclosures (including, without limitation, any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or
radio, or any seminar or meeting whose attendees have been invited by any
general solicitation or advertising) by or on behalf of CTS regarding an
investment in the CTS Stock; and
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(h) acknowledges and agrees that the CTS Stock shall bear the
following legend in addition to the legend required under Section 15 of
this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND, IF REQUIRED BY
CONDOR TECHNOLOGY SOLUTIONS, INC., AN OPINION OF COUNSEL TO CONDOR
TECHNOLOGY SOLUTIONS, INC. STATING THAT REGISTRATION IS NOT REQUIRED UNDER
THE ACT.
Such STOCKHOLDER acknowledges that the effect of the foregoing legend, among
other things, is or may be to limit or destroy the value of the certificate for
purposes of sale or use as loan collateral. Such STOCKHOLDER consents that "stop
transfer" instructions may be noted against the CTS Stock.
5.33 Authority; Ownership. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY Stock identified on
Annex IV as being owned by such STOCKHOLDER, and, except as set forth on
Schedule 5.33, such COMPANY Stock is owned free and clear of all liens, security
interests, pledges, charges, voting trusts, restrictions, encumbrances and
claims of every kind.
5.34 Preemptive Rights. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of COMPANY Stock or CTS Stock
that such STOCKHOLDER has or may have had other than rights of any STOCKHOLDER
to acquire CTS Stock pursuant to (i) this Agreement or (ii) any option granted
by CTS.
5.35 No Intention to Dispose of CTS Stock. No STOCKHOLDER has any current
plan or intention, or is under any binding commitment or contract to sell,
exchange or otherwise dispose of shares of CTS Stock received pursuant to
Section 3.1.
5.36 Questionnaires. The completed Directors and Officers Questionnaires
and Registration Statement Questionnaires attached hereto as Schedule 5.36,
present fairly the business and operations of the COMPANY for the time periods
with respect to which such information was requested. If, prior to the 25th day
after the date of the final prospectus of CTS utilized in connection with the
IPO, the STOCKHOLDERS become aware of any fact or circumstance which would
affect the information disclosed in their
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Directors and Officers Questionnaires or their Registration Statement
Questionnaires in any material respect, then the relevant STOCKHOLDER shall
immediately give notice of such fact or circumstance to CTS. However, subject to
the provisions of Section 7.8, such notification shall not relieve the relevant
STOCKHOLDER of his or its obligation under this Agreement.
6. REPRESENTATIONS OF CTS and NEWCO
CTS and NEWCO jointly and severally represent and warrant to the COMPANY
and the STOCKHOLDERS that all of the following representations and warranties in
this Section 6 are true and correct at the date of this Agreement and, subject
to Section 7.8 hereof, shall be true and correct at the time of the Pre-Closing
and on the Closing Date, and that such representations and warranties shall
survive the Closing Date for a period of eighteen months.
6.1 Due Organization. CTS and NEWCO are each corporations duly
incorporated, validly existing and in good standing under the laws of the state
of their incorporation, and are duly authorized and qualified to do business
under all applicable laws, regulations, ordinances and orders of public
authorities to carry on their business in the places and in the manner as now
conducted, to own or hold under lease the properties and assets they now own or
hold under lease, and to perform all of their obligations under any material
agreement to which they are a party by which their properties are bound. CTS and
NEWCO are not qualified to do business as foreign corporations in any
jurisdiction, and there is no jurisdiction in which the conduct of CTS's and
NEWCO's business or activities or their ownership of assets requires
qualification under applicable law, the absence of which would have a Material
Adverse Effect on either CTS or NEWCO. True, complete and correct copies of the
Certificate or Articles of Incorporation and By-laws, each as amended, of CTS
and NEWCO (the "CTS Charter Documents") are all attached hereto as Annex II. The
minute books and stock records of each of CTS and NEWCO as heretofore made
available to the COMPANY, are correct and complete in all material respects. The
most recent minutes of each of CTS and NEWCO, which are dated no earlier than 10
business days prior to the date hereof, affirm and ratify all prior acts of CTS
and NEWCO, as the case may be, and of their respective officers and directors.
6.2 Authorization. The respective representatives of CTS and NEWCO
executing this Agreement have the authority to execute and deliver this
Agreement and to bind CTS and NEWCO to perform their respective obligations
hereunder. The execution and delivery of this Agreement by CTS and NEWCO and the
performance by CTS and NEWCO of their respective obligations under this
Agreement and the consummation by CTS and NEWCO of the transactions contemplated
hereby have been duly authorized by all necessary corporate action by each in
accordance with applicable law and the Certificate or Articles of Incorporation
and By-Laws of CTS and NEWCO, as the case may be. Each share of CTS Stock to be
issued to the STOCKHOLDERS on the Closing Date will be duly and validly
authorized and issued, free and clear of all liens, claims and
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other encumbrances and fully paid and nonassessable. This Agreement constitutes
the valid and binding obligation of CTS and NEWCO, enforceable in accordance
with its terms.
6.3 Transaction Not a Breach. Neither the execution and delivery of this
Agreement nor their performance will violate, conflict with, or result in a
breach of any provision of any Law, rule, regulation, order, permit, judgment,
injunction, decree or other decision of any court or other tribunal or any
Governmental Authority binding on CTS or NEWCO or conflict with or result in the
breach of any of the terms, conditions or provisions of the Certificate or
Articles of Incorporation or the By-laws of CTS or NEWCO or of any contract,
agreement, mortgage or other instrument or obligation of any nature to which CTS
or NEWCO is a party or by which CTS or NEWCO is bound.
6.4 Misrepresentation. None of the representations and warranties set
forth in this Agreement or in any of the certificates, schedules, exhibits,
lists, documents, exhibits, or other instruments delivered, or to be delivered,
to the COMPANY as contemplated by any provision hereof, contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading.
6.5 Capital Stock. The entire authorized capital stock of CTS will consist
of 50,000,000 shares. Except as disclosed on Schedule 6.5, there are no
outstanding options, rights (preemptive or otherwise), warrants, calls,
convertible securities or commitments or any other arrangements to which CTS is
a party requiring issuance, sale or transfer of any equity securities of CTS or
any securities convertible directly or indirectly into equity securities of CTS,
or evidencing the right to subscribe for any equity securities of CTS, or giving
any person other than the Founding Companies any rights with respect to the
capital stock of CTS. Except as contemplated by this Agreement or disclosed on
Schedule 6.5, there are no voting agreements, voting trusts, other agreements
(including cumulative voting rights), commitments or understandings with respect
to the CTS Stock.
6.6 Subsidiaries. Schedule 6.6 attached hereto lists the name of each of
CTS's and NEWCO's subsidiaries and sets forth the number and class of the
authorized capital stock of each of CTS's and NEWCO's subsidiaries and the
number of shares of each of CTS's and NEWCO's subsidiaries which are issued and
outstanding prior to the Merger, all of which shares (except as set forth on
Schedule 6.6) are owned by CTS and NEWCO as the case may be, free and clear of
all liens, security interests, pledges, voting trusts, equities, restrictions,
encumbrances and claims of every kind. Except as set forth on Schedule 6.6, CTS
and NEWCO do not presently own, of record or beneficially, or control, directly
or indirectly, any capital stock, securities convertible into capital stock or
any other equity interest in any corporation, association or business entity nor
is CTS or NEWCO, as the case may be, directly or indirectly, a participant in
any joint venture, partnership or other non-corporate entity.
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6.7 Conformity with Law; Litigation. Except as set forth on Schedule 6.7,
CTS and NEWCO have complied with all Laws, applicable to them or to the
operation of their businesses and have not received any notice of any alleged
claim or threatened claim, violation of, liability or potential responsibility
under, any Law which has not heretofore been cured and for which there is no
remaining liability other than, in each case, those not having a Material
Adverse Effect on CTS or NEWCO, taken as a whole. Without limiting the
generality of the foregoing, CTS and NEWCO have each complied with all
applicable Federal, state and local Laws relating to antitrust and trade
regulations.
Except to the extent set forth on Schedule 6.7 (which shall disclose the
parties to, nature of, and relief sought for each matter):
(a) There is no suit, action, proceeding, investigation, claim or
order pending or, to the knowledge of CTS and NEWCO, threatened against
either of CTS or NEWCO or any Plan, or any fiduciary of any such Plan or,
to the knowledge of CTS and NEWCO, pending or threatened against any of
the officers, directors or employees of CTS or NEWCO with respect to their
businesses or proposed business activities which are material to CTS or
NEWCO, or to which CTS or NEWCO are otherwise a party, or which may affect
either CTS or NEWCO, their assets or their businesses, before any court,
or before any Governmental Authority.
(b) CTS and NEWCO are not subject to any judgment, order or decree
of any court or Governmental Authority; CTS and NEWCO have not received
any opinion or memorandum from legal counsel to the effect that either is
exposed, from a legal standpoint, to any liability or disadvantage which
may be material to their businesses. Neither CTS nor NEWCO are engaged in
any legal action to recover monies due it or them for damages sustained by
either of them.
7. COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation; Due Diligence.
(a) Between the date of this Agreement and the Closing Date, the
COMPANY will afford to the officers and authorized representatives of CTS
and the Other Founding Companies access during business hours to all of
the COMPANY's sites, properties, books and records and will furnish CTS
with such additional financial and operating data and other information as
to the business and properties of the COMPANY as CTS or the Other Founding
Companies may from time to time reasonably request. The COMPANY will
cooperate with CTS and the Other Founding Companies and their respective
representatives, including CTS's auditors and counsel, in the preparation
of any documents or other material (including the Registration Statement)
which may be required in connection with the transactions contemplated by
this Agreement. CTS, NEWCO, the STOCKHOLDERS and the COMPANY will treat
all information obtained in connection with the negotiation and
performance of this Agreement or the due
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diligence investigations conducted with respect to the Other Founding
Companies as confidential in accordance with the provisions of Section 14
hereof. In addition, CTS will cause each of the Other Agreements, binding
each of the Other Founding Companies, to contain a provision similar to
this Section 7.1 requiring each such Other Founding Company, its
stockholders, directors, officers, representatives, employees and agents
to keep confidential any information obtained by such Other Founding
Company.
(b) Between the date of this Agreement and the Closing Date, CTS
will afford to the officers and authorized representatives of the COMPANY
access during business hours to all of CTS's and NEWCO's sites,
properties, books and records and will furnish the COMPANY with such
additional financial and operating data and other information as to the
business and properties of CTS and NEWCO as the COMPANY may from time to
time reasonably request. CTS and NEWCO will cooperate with the COMPANY,
its representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection with the
transactions contemplated by this Agreement. The COMPANY will cause all
information obtained in connection with the negotiation and performance of
this Agreement to be treated as confidential in accordance with the
provisions of Section 14 hereof.
7.2 Conduct of Business Pending Closing. Between the date of this
Agreement and the Closing Date, the COMPANY will, except as set forth on
Schedule 7.2:
(a) carry on its business in the ordinary course substantially as
conducted heretofore and not introduce any new method of management,
operation or accounting;
(b) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(c) perform in all material respects its obligations under
agreements relating to or affecting its assets, properties or rights;
(d) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(e) maintain and preserve its business organization intact and use
its best efforts to retain its present key employees and relationships
with suppliers, customers and others having business relations with the
COMPANY;
(f) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and
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similar Governmental Authorities; and
(g) maintain present debt and lease instruments in accordance with
their respective terms and not enter into new or amended debt or lease
instruments, provided that debt and/or lease instruments may be replaced
if such replacement instruments are on terms at least as favorable to the
COMPANY as the instruments being replaced.
7.3 Prohibited Activities. Except as disclosed on Schedule 7.3 or
otherwise permitted by Sections 7.11 or 7.12 of this Agreement, between the date
hereof and the Closing Date, the COMPANY will not, without the prior written
consent of CTS:
(a) make any change in its Articles or Certificate of Incorporation
or By-laws;
(b) grant or issue any securities, options, warrants, calls,
conversion rights or commitments of any kind relating to its securities of
any kind other than in connection with the exercise of options or warrants
listed on Schedule 5.4;
(c) declare or pay any dividend, or make any distribution in respect
of its stock whether now or hereafter outstanding, or purchase, redeem or
otherwise acquire or retire for value any shares of its stock or engage in
any transaction that will significantly affect the cash reflected on the
balance sheet of the COMPANY as of December 31, 1996.
(d) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditure, except if it is in the
ordinary course of business (consistent with past practice) or involves an
amount not in excess of $10,000 ;
(e) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $10,000 necessary or desirable for the conduct of
the business of the COMPANY, (2) (A) liens for Taxes either not yet due or
being contested in good faith and by appropriate proceedings (and for
which adequate reserves have been established and are being maintained) or
(B) materialmen's, mechanics', workers', repairmen's, employees' or other
like liens arising in the ordinary course of business (the liens set forth
in clause (2) being referred to herein as "Statutory Liens"), or (3) liens
set forth on Schedule 5.10 or 5.15 hereto;
(f) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the ordinary course of business;
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(g) negotiate for the acquisition of any business or the start-up of
any new business;
(h) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(i) waive any material right or claim of the COMPANY, provided that
the COMPANY may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be
included on Schedule 5.11 unless specifically listed thereon;
(j) commit a material breach, materially amend or terminate any
Material Contract;
(k) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder; or
(l) except in the ordinary course of business or as required by Law
or contractual obligations or other understandings or arrangements
existing on the date hereof, the COMPANY will not (i) increase in any
manner the base compensation of, or enter into any new bonus or incentive
agreement or arrangement with, any of the employees engaged in the
COMPANY's business, (ii) pay or agree to pay any additional pension,
retirement allowance or other employee benefit to any such employee,
whether past or present, (iii) enter into any new employment, severance,
consulting, or other compensation agreement with any existing employee
engaged in the COMPANY's business, (iv) amend or enter into a new Plan
(except as required by Law) or amend or enter into a new collective
bargaining agreement (except as required by this Agreement), or (v) engage
in any Affiliate Transaction.
7.4 No Shop. In consideration of the substantial expenditure of time,
effort and expense undertaken by CTS in connection with its due diligence review
and the preparation and execution of this Agreement, the COMPANY and the
STOCKHOLDERS agree that neither they nor their representatives, agents or
employees will, after the execution of this Agreement until the earlier of (i)
the termination of this Agreement or (ii) the Closing, directly or indirectly,
solicit, encourage, negotiate or discuss with any third party (including by way
of furnishing any information concerning the COMPANY) any acquisition proposal
relating to or affecting the COMPANY or any part of it, or any direct or
indirect interests in the COMPANY, whether by purchase of assets or stock,
purchase of interests, merger or other transaction ("Acquisition Transaction"),
and that the COMPANY will promptly advise CTS of the terms of any communications
any of the STOCKHOLDERS or the COMPANY may receive or become aware of relating
to any bid for all or any part of the COMPANY.
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7.5 Notice to Bargaining Agents. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements. Set forth on
Schedule 7.5 is any and all proof that any such required notice has been sent.
7.6 Agreements. Except as set forth on Schedule 9.7, the STOCKHOLDERS and
the COMPANY shall terminate (i) any stockholders' agreements, voting agreements,
voting trusts, options, warrants and employment agreements between the COMPANY
and any employee listed on Schedule 9.12 hereto and (ii) any existing agreement
between the COMPANY and any STOCKHOLDER, on or prior to the Closing Date. A list
of such agreements to be terminated is set forth on Schedule 7.6 and copies of
each such agreement to be terminated have been provided to counsel for CTS.
7.7 Notification of Certain Matters. The STOCKHOLDERS and the COMPANY
shall give prompt notice to CTS of (i) the occurrence or non-occurrence of any
event of which the COMPANY or the STOCKHOLDERS have knowledge, the occurrence or
non-occurrence of which, would cause any representation or warranty of the
COMPANY or the STOCKHOLDERS contained herein to be untrue or inaccurate in any
material respect at or prior to the Closing and (ii) any material failure of any
STOCKHOLDER or the COMPANY to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. CTS and
NEWCO shall give prompt notice to the COMPANY of (i) the occurrence or
non-occurrence of any event of which CTS or NEWCO have knowledge, the occurrence
or non-occurrence of which, would cause any representation or warranty of CTS or
NEWCO contained herein to be untrue or inaccurate in any material respect at or
prior to the Closing and (ii) any material failure of CTS or NEWCO to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder. The delivery of any notice pursuant to this Section
7.7 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.8, (ii) modify the conditions set forth in Sections 8
and 9, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
7.8 Amendment of Schedules.
(a) Each party hereto agrees that, with respect to the
representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing Date to
supplement or amend promptly the Schedules hereto with respect to any
matter hereafter arising or discovered which, if existing or known at the
date of this Agreement, would have been required to be set forth or
described in the Schedules; provided, however, that supplements and
amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall only have to be
delivered at the Closing Date, unless such Schedule is to be amended to
reflect an event occurring other than in the ordinary course of business.
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(b) Until 24 hours prior to the anticipated effectiveness of the
Registration Statement, and notwithstanding the foregoing clause (a), the
provisions of this clause (b) shall apply: no amendment or supplement to a
Schedule prepared by the COMPANY or the STOCKHOLDERS that constitutes or
reflects an event or occurrence that would have a Material Adverse Effect
on the COMPANY may be made unless CTS and a majority of the Founding
Companies other than the COMPANY consent to such amendment or supplement;
and provided further, that no amendment or supplement to a Schedule
prepared by CTS or NEWCO that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on the COMPANY may be
made unless a majority of the Founding Companies consent to such amendment
or supplement. In the event that one of the Other Founding Companies seeks
to amend or supplement a Schedule pursuant to Section 7.8 of one of the
Other Agreements, and such amendment or supplement constitutes or reflects
an event or occurrence that would have a Material Adverse Effect on such
Other Founding Company, CTS shall give the COMPANY notice promptly after
it has knowledge thereof. If CTS and a majority of the Founding Companies
consent to such amendment or supplement, which consent shall have been
deemed given by CTS or any Founding Company if no response is received
from CTS or any such Founding Company within 24 hours following receipt of
notice by CTS or any Founding Company of such amendment or supplement (or
sooner if required by the circumstances under which such consent is
requested), but the COMPANY does not give its consent, the COMPANY may
terminate this Agreement pursuant to Section 12.1(d) hereof. In the event
that the COMPANY seeks to amend or supplement a Schedule pursuant to this
Section 7.8 and CTS and a majority of the Other Founding Companies do not
consent to such amendment or supplement, as provided above, this Agreement
shall be deemed terminated by mutual consent as set forth in Section
12.1(a) hereof. In the event that CTS or NEWCO seeks to amend or
supplement a Schedule pursuant to this Section 7.8 and a majority of the
Founding Companies do not consent to such amendment or supplement, as
provided above, this Agreement shall be deemed terminated by mutual
consent as set forth in Section 12.1(d) hereof.
(c) Between 24 hours prior to the anticipated effectiveness of the
Registration Statement and the Closing Date, the provisions of this clause
(c) shall apply. No amendment or supplement to a Schedule prepared by the
COMPANY or the STOCKHOLDERS that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on the COMPANY may be
made unless CTS consents to such amendment or supplement after
consultation with the Underwriters. CTS and NEWCO hereby covenant that
neither CTS nor NEWCO will amend or supplement any Schedule prepared by
CTS or NEWCO that constitutes or reflects an event or occurrence that
would have a Material Adverse Effect on CTS or NEWCO, as the case may be,
without consulting with the
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Underwriters, and CTS shall provide immediate notice of such amendment or
supplement to the Founding Companies.
(d) For all purposes of this Agreement, including without limitation
for purposes of determining whether the conditions set forth in Sections
8.1 and 9.1 have been fulfilled, the Schedules hereto shall be deemed to
be the Schedules as amended or supplemented pursuant to this Section 7.8.
No party to this Agreement shall be liable to any other party if this
Agreement shall be terminated pursuant to the provisions of this Section
7.8, except that, notwithstanding anything to the contrary contained in
this Agreement, if the COMPANY or the STOCKHOLDERS on the one hand, or CTS
or NEWCO on the other hand, amends or supplements a Schedule which results
in a termination of this Agreement and such amendment or supplement arises
out of or reflects facts or circumstances which such party knew about at
the time of execution of this Agreement and knew would result in a
termination of this Agreement or if such amendment or supplement otherwise
is proposed in bad faith, such party shall pay or reimburse CTS or the
COMPANY and the STOCKHOLDERS, as the case may be, for all of the legal,
accounting and other out of pocket costs reasonably incurred in connection
with this Agreement and the IPO as it relates to the COMPANY and the
STOCKHOLDERS.
7.9 Cooperation in Preparation of Registration Statement.
(a) The COMPANY and STOCKHOLDERS shall furnish or cause to be
furnished to CTS and the Underwriters all of the information concerning
the COMPANY and the STOCKHOLDERS requested by CTS or the Underwriters for
inclusion in, and will cooperate with CTS and the Underwriters in the
preparation of, the Registration Statement and the prospectus included
therein (including audited and unaudited financial statements, prepared in
accordance with GAAP, in form suitable for inclusion in the Registration
Statement). The COMPANY and the STOCKHOLDERS agree promptly to advise CTS
if at any time during the period in which a prospectus relating to the
offering is required to be delivered under the Securities Act, any
information contained in the prospectus concerning the COMPANY or the
STOCKHOLDERS contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and to provide the information
needed to correct such inaccuracy. Insofar as the information relates
solely to the COMPANY or the STOCKHOLDERS, the COMPANY represents and
warrants as to such information furnished by the COMPANY or the
STOCKHOLDERS for use in the Registration Statement with respect to itself,
and each STOCKHOLDER represents and warrants, as to such information
furnished by the COMPANY or the STOCKHOLDERS for use in the Registration
Statement with respect to the COMPANY and himself or herself, that the
Registration Statement at its effective date, at the date of the final
Prospectus, each preliminary prospectus and each amendment to the
Registration Statement,
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and at each closing date with respect to the IPO under the Underwriting
Agreement (including with respect to any over-allotment option) will not
include an 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 not misleading.
(b) CTS agrees that it will use its best efforts to provide to the
COMPANY and its counsel copies of material drafts of the Registration
Statement as they are prepared and to the extent practicable in light of
the timetable of the IPO and the potential need to respond promptly to
SEC, NASD or Nasdaq comments, to give the COMPANY sufficient time to
review and comment upon such documents prior to filing with the SEC. Any
objections posed by the COMPANY or its counsel shall state with
specificity the material in question, the reason for the objection, and
the COMPANY's proposed alternative. If the objection is founded upon a
rule promulgated under the Securities Act, the objection shall cite the
rule. Notwithstanding the foregoing, during the five business days
immediately preceding the date scheduled for the effective date of the
IPO, the COMPANY and the STOCKHOLDERS agree that (i) two hours from the
time the proposed changes are transmitted to the COMPANY's counsel if such
transmission is during the COMPANY's normal business hours or (ii) four
hours from the time the proposed changes are transmitted to the COMPANY's
counsel if such transmission is not during the COMPANY's normal business
hours, is sufficient time to review and respond to proposed changes.
7.10 Final Financial Statements. The COMPANY shall provide prior to the
Closing Date, and CTS shall have had sufficient time prior thereto to review,
the unaudited consolidated balance sheets of the COMPANY as of the end of all
fiscal quarters following the Balance Sheet Date, and the unaudited consolidated
statements of income, cash flows and retained earnings of the COMPANY for all
fiscal quarters ended no earlier than 30 days' prior to the Closing Date,
disclosing no material adverse change in the financial condition of the COMPANY
or the results of its operations from the financial statements as of the Balance
Sheet Date. Such financial statements shall have been prepared in accordance
with GAAP applied on a consistent basis throughout the periods indicated (except
as noted therein), but shall not include all of the footnotes and adjustments
required by GAAP for complete financial statements. Except as noted in such
financial statements, all of such financial statements will present fairly the
results of operations of the COMPANY for the periods indicated thereon.
7.11 Further Assurances. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 Approval of Merger Agreement. Each of the STOCKHOLDERS agrees to vote
all of its shares of the COMPANY Stock in favor of the Merger and all other
transactions contemplated by this Agreement.
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8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY
The obligations of the STOCKHOLDERS and the COMPANY with respect to
actions to be taken on the Pre-Closing Date and, to the extent specified in this
Section 8, on the Closing Date are subject to the satisfaction or waiver on or
prior to the Pre-Closing Date and/or the Closing Date, as the case may be, of
all of the conditions set forth in this Section 8. As of the Pre-Closing Date or
the Closing Date, as the case may be, all conditions not satisfied shall be
deemed to have been waived by the COMPANY and the STOCKHOLDERS unless such
parties have objected by notifying CTS in writing of such objection on or before
the Pre-Closing Date or consummation of the transactions on the Closing Date,
respectively, except that no such waiver shall be deemed to affect the survival
of the representations and warranties of CTS and NEWCO contained in Section 6
hereof.
8.1 Representations and Warranties. All representations and warranties of
CTS and NEWCO contained in this Agreement shall be true and correct in all
material respects as of the Pre-Closing Date and the Closing Date as though such
representations and warranties had been made on and as of that date; and a
certificate to the foregoing effect dated the Pre-Closing Date and the Closing
Date and signed by the President or any Vice President of CTS shall have been
delivered to the COMPANY and the STOCKHOLDERS.
8.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with and performed by CTS and NEWCO on or
before each of the Pre-Closing Date and the Closing Date shall have been duly
complied with and performed in all material respects on or before each of the
Pre-Closing Date and the Closing Date, as the case may be; and certificates to
the foregoing effect dated each of the Pre-Closing Date and the Closing Date and
signed by the President or any Vice President of CTS shall have been delivered
to the COMPANY and the STOCKHOLDERS.
8.3 No Litigation. No action or proceeding before a court or any other
Governmental Authority or body shall have been instituted or threatened to
restrain or prohibit the Merger or the IPO.
8.4 Opinion of Counsel. The STOCKHOLDERS shall have received an opinion
from counsel for CTS and NEWCO, dated the Pre-Closing Date and including a
statement to the effect that it may be relied upon as of the Closing Date,
substantially in the form annexed hereto as Annex VI.
8.5 Consents and Approvals. All necessary consents of and filings required
to be obtained or made by CTS or NEWCO with any Governmental Authority or agency
relating to the consummation of the transactions contemplated herein shall have
been obtained and made.
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8.6 Good Standing Certificates. CTS and NEWCO each shall have delivered to
the COMPANY a certificate, dated as of a date no earlier than 10 days prior to
the Pre-Closing Date, duly issued by the Delaware Secretary of State and in each
state in which CTS or NEWCO is authorized to do business, showing that each of
CTS and NEWCO is in good standing and authorized to do business and that all
state franchise and/or income tax returns and taxes for CTS and NEWCO,
respectively, for all periods prior to the Closing have been filed and paid.
8.7 Consummation of Other Agreements. The Other Agreements shall have been
delivered by each of the Other Companies and each of the Other Agreements and
this Agreement shall be in effect immediately prior to the Merger.
8.8 Secretary's Certificate. The COMPANY shall have received a certificate
or certificates, dated the Pre-Closing Date and the Closing Date and signed by
the secretary of CTS and of NEWCO, certifying the truth and correctness of
attached copies of the CTS's and NEWCO's respective Certificates of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the boards of directors and, if required, the
stockholders of CTS and NEWCO approving CTS's and NEWCO's entering into this
Agreement and the consummation of the transactions contemplated hereby.
8.9 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VIII hereto.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CTS AND NEWCO
The obligations of CTS and NEWCO with respect to actions to be taken on
the Pre-Closing Date and, to the extent specified in this Section 9, on the
Closing Date, are subject to the satisfaction or waiver on or prior to the
Pre-Closing Date and/or the Closing Date, as the case may be, of all of the
conditions set forth in this Section 9. As of the Pre-Closing Date or the
Closing Date, as the case may be, all conditions not satisfied shall be deemed
to have been waived by CTS and NEWCO unless such parties have objected by
notifying the COMPANY and the STOCKHOLDERS in writing of such objection on or
before the Pre-Closing Date or consummation of the transactions on the Closing
Date, respectively, except that no such waiver shall be deemed to affect the
survival of the representations and warranties of the COMPANY and the
STOCKHOLDERS contained in Section 5 hereof.
9.1 Representations and Warranties. All the representations and warranties
of the STOCKHOLDERS and the COMPANY contained in this Agreement shall be true
and correct in all material respects as of the Pre-Closing Date and the Closing
Date with the same effect as though such representations and warranties had been
made on and as of such date; and the STOCKHOLDERS shall have delivered to CTS
certificates dated the Pre-Closing Date and the Closing Date and signed by them
to such effect.
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9.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with or performed by the STOCKHOLDERS and the
COMPANY on or before each of the Pre-Closing Date and the Closing Date shall
have been duly performed or complied with in all material respects on or before
each of the Pre-Closing Date and the Closing Date, as the case may be; and the
STOCKHOLDERS shall have delivered to CTS certificates dated the Pre-Closing Date
and the Closing Date, respectively, and signed by them to such effect.
9.3 No Litigation. No action or proceeding before a court or any other
Governmental Authority or body shall have been instituted or threatened to
restrain or prohibit the Merger or the IPO.
9.4 Secretary's Certificate. CTS shall have received a certificate or
certificates, dated each of the Pre-Closing Date and the Closing Date and signed
by the secretary of the COMPANY, certifying the truth and correctness of
attached copies of the COMPANY's Certificate or Articles of Incorporation
(including amendments thereto), By-Laws (including amendments thereto), and
resolutions of the board of directors and the shareholders approving the
COMPANY's entering into this Agreement and the consummation of the transactions
contemplated hereby.
9.5 No Material Adverse Change. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred with respect to the
COMPANY which would constitute a Material Adverse Effect on the COMPANY, and the
COMPANY shall not have suffered any material loss or damages to any of its
properties or assets, whether or not covered by insurance, which change, loss or
damage materially affects or impairs the ability of the COMPANY to conduct its
business.
9.6 Stockholders' Release. The STOCKHOLDERS shall have delivered to CTS an
instrument dated the Closing Date releasing the COMPANY from any and all (i)
claims prior to the Closing Date of the STOCKHOLDERS against the COMPANY and CTS
and (ii) obligations prior to the Closing Date, of the COMPANY and CTS to the
STOCKHOLDERS, except for (x) items specifically identified on Schedules 5.10 and
5.15 as being claims of or obligations to the STOCKHOLDERS, (y) continuing
obligations to the STOCKHOLDERS relating to their employment by the COMPANY and
(z) obligations arising under this Agreement or the transactions contemplated
hereby.
9.7 Termination of Related Party Agreements. Except as set forth on
Schedule 9.7, all existing agreements between the COMPANY and the STOCKHOLDERS
shall have been canceled effective prior to or as of the Closing Date.
9.8 Opinion of Counsel. CTS shall have received an opinion from Counsel to
the COMPANY and the STOCKHOLDERS, dated the Pre-Closing Date and including a
statement to the effect that it may be relied upon as of the Closing Date,
substantially in the form annexed hereto as Annex VII, which form shall be
deemed to include any additional opinions by such counsel or separate counsel
retained by the COMPANY covering matters customary under the circumstances,
including without limitation,
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opinions covering the COMPANY's intellectual property, and the Underwriters
shall have received a copy of the same opinion addressed to them.
9.9 Consents and Approvals. All necessary consents of and filings with any
Governmental Authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained.
9.10 Good Standing Certificates. The COMPANY shall have delivered to CTS a
certificate, dated as of a date no earlier than five days prior to the
Pre-Closing Date, duly issued by the appropriate Governmental Authority in the
COMPANY's state of incorporation and, unless waived by CTS, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the COMPANY for all periods prior to the
Closing have been filed and paid.
9.11 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act or
any state securities laws, and the Underwriters shall have agreed to acquire on
a firm commitment basis, subject to the conditions set forth in the Underwriting
Agreement, shares of CTS Stock at a price to the public acceptable to CTS.
9.12 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have entered into an employment agreement substantially in the form of
Annex VIII hereto.
9.13 Closing of IPO. The closing of the sale of the CTS Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
9.14 FIRPTA Certificate. Each STOCKHOLDER shall have delivered to CTS a
certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
9.15 Consummation of Other Agreements. The Other Agreements shall have
been delivered by each of the Other Companies and each of the Other Agreements
and this Agreement shall be in effect immediately prior to the Merger.
9.16 A/R Aging Reports. Within ten (10) days prior to Closing, the COMPANY
shall have provided CTS (x) an accurate list of all outstanding receivables
obtained subsequent to the Balance Sheet Date and as of a date which is within
10 calendar days of the Closing Date and (y) an aging of all such accounts and
notes receivable showing amounts due in 30 day aging categories (the "A/R Aging
Reports").
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9.17 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall have been approved by counsel to CTS.
10. COVENANTS OF CTS AND THE STOCKHOLDERS AFTER CLOSING
10.1 Release From Guarantees; Repayment of Certain Obligations. CTS shall
use its best efforts to have the STOCKHOLDERS released from any and all
guarantees on any indebtedness that they personally guaranteed and from any and
all pledges of assets that they pledged to secure such indebtedness for the
benefit of the COMPANY, with all such guarantees on indebtedness being assumed
by CTS, if necessary to achieve such releases. In the event that CTS cannot
obtain such releases from the lenders of any such guaranteed indebtedness on or
prior to 180 days subsequent to the Closing Date, CTS shall pay off or otherwise
refinance or retire such indebtedness.
10.2 Preservation of Tax and Accounting Treatment. Except as contemplated
by this Agreement or the Registration Statement, after the Closing Date, CTS
shall not and shall not permit any of its subsidiaries to undertake any act that
would jeopardize the tax-free status of the organization, including liquidating
or merging the COMPANY into CTS.
10.3 Preparation and Filing of Tax Returns.
(a) The COMPANY shall, if possible, file or cause to be filed all
separate Returns of any Acquired Party for all taxable periods that end on
or before the Closing Date. Each STOCKHOLDER shall pay or cause to be paid
all Tax liabilities (in excess of all amounts already paid with respect
thereto or properly accrued or reserved with respect thereto on the
COMPANY Financial Statements) shown by such Returns to be due.
(b) CTS shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Closing Date.
(c) Each party hereto shall, and shall cause its subsidiaries and
Affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any Return, amended Return or claim for refund, determining a
liability for Taxes or a right to refund of Taxes or in conducting any
audit or other proceeding in respect of Taxes. Such cooperation and
information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each
party shall make its employees reasonably available on a mutually
convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the
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preceding sentence, each party required to file Returns pursuant to this
Agreement shall bear all costs of filing such Returns.
(d) Each of the COMPANY, NEWCO, CTS and each STOCKHOLDER shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax free transfer of property under Section 351(a) of the Code.
10.4 Directors and Officers. The persons named in the Registration
Statement shall be appointed as directors and elected as officers of CTS, as and
to the extent set forth in the Registration Statement, promptly following the
Closing Date.
10.5 Preservation of Employee Benefit Plans. Following the Closing Date,
CTS shall not terminate any health insurance, life insurance, 401(k) or any
other Benefit Plan in effect at the COMPANY until such time as CTS is able to
replace such Benefit Plan with a Plan that is applicable to CTS and all of its
then existing subsidiaries. CTS shall have no obligation to provide replacement
Plans that have the same terms and provisions as the existing Benefit Plans,
provided, that any new health insurance plan shall provide for coverage for
preexisting conditions.
10.6 Rule 144. For a period of two years after the Closing Date, CTS shall
take all actions that are within its powers and that are reasonably necessary to
make Rule 144 promulgated under the 1933 Act available to the STOCKHOLDERS.
10.7 Authorization of Shares. CTS agrees to take all actions as may be
necessary from time to time to reserve an adequate number of shares of CTS Stock
to pay the stock portion of the consideration to the STOCKHOLDERS pursuant to
Annex III hereof.
11. INDEMNIFICATION
The STOCKHOLDERS, CTS and NEWCO each make the following covenants that are
applicable to them, respectively:
11.1 General Indemnification by the Stockholders. The STOCKHOLDERS
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless CTS, NEWCO, the COMPANY and the Surviving Corporation
at all times, from and after the date of this Agreement until the Expiration
Date, from and against all claims, damages, actions, suits, proceedings,
demands, assessments, adjustments, costs and expenses (including specifically,
but without limitation, reasonable attorneys' fees and reasonable expenses of
investigation) incurred by CTS, NEWCO, the COMPANY or the Surviving Corporation
as a result of or arising from (i) any breach of the representations and
warranties of the STOCKHOLDERS or the COMPANY set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the STOCKHOLDERS or the COMPANY under this
Agreement, (iii) any liability under the 1933 Act, the 1934 Act or
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other Federal or state law or regulation, at common law or otherwise, arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact relating to the COMPANY or the STOCKHOLDERS, and provided to CTS
or its counsel by the COMPANY or the STOCKHOLDERS for inclusion in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission by the COMPANY and/or the STOCKHOLDERS to state
therein a material fact relating to the COMPANY or the STOCKHOLDERS required to
be stated therein or necessary to make the statements therein not misleading,
(iv) the matters described on Schedule 11.1(iv) or (v) any Tax imposed upon or
relating to any third party or Acquired Party for a pre-Closing Date period,
including, in each case, any such Tax arising out of or in connection with the
transactions effected pursuant to this Agreement or any such Tax for which an
Acquired Party may be liable under Section 1.1502-6 of the Treasury Regulations
(or any similar provisions of state, local or foreign law), as a transferee or
successor, by contract or otherwise, provided; however, (A) that in the case of
any indemnity arising pursuant to clause (iii) such indemnity shall not inure to
the benefit of CTS, NEWCO, the COMPANY or the Surviving Corporation to the
extent that such untrue statement (or alleged untrue statement) was made in, or
omission (or alleged omission) occurred in, any preliminary prospectus and the
STOCKHOLDERS provided, in writing, corrected information to CTS counsel and to
CTS for inclusion in the final prospectus, and such information was not so
included or properly delivered, and (B) that no STOCKHOLDER shall be liable for
any indemnification obligation pursuant to this Section 11.1 to the extent
attributable to a breach of any representation, warranty or agreement made
herein individually by any other STOCKHOLDER.
11.2 Indemnification by CTS. CTS covenants and agrees that it will
indemnify, defend, protect and hold harmless the STOCKHOLDERS at all times from
and after the date of this Agreement until the eighteenth month anniversary of
the Closing Date, from and against all claims, damages, actions, suits,
proceedings, demands, assessments, adjustments, costs and expenses (including
specifically, but without limitation, reasonable attorneys' fees and expenses of
investigation) incurred by the STOCKHOLDERS as a result of or arising from (i)
any breach by CTS or NEWCO of its representations and warranties set forth
herein or on the schedules or certificates delivered in connection herewith,
(ii) any breach of any agreement on the part of CTS or NEWCO under this
Agreement, (iii) any liability which the STOCKHOLDERS may incur due to CTS's or
NEWCO's failure to be responsible for the liabilities and obligations of the
COMPANY as provided in Section 10.1 hereof (except to the extent that CTS or
NEWCO has claims against the STOCKHOLDERS by reason of such liabilities); (iv)
any liability to a Person not a party to this Agreement (a "Third Person") under
the 1933 Act, the 1934 Act or other Federal or state law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact relating to CTS or NEWCO for
inclusion in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission
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or alleged omission to state therein a material fact relating to CTS or NEWCO
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, in the case of any indemnity arising pursuant to
clause (iv) such indemnity shall not inure to the benefit of the STOCKHOLDERS if
any such claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses incurred by any of the STOCKHOLDERS are based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by a STOCKHOLDER for
use in the preliminary prospectus, Registration Statement, or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto unless
the STOCKHOLDERS provided, in writing, corrected information to CTS counsel and
to CTS for inclusion in the final prospectus to the Registration Statement, and
such information was not so included or properly delivered by CTS (or its
representative)..
In the event the breach relates to the representation contained in Section
6.5 concerning the absence of options, rights (preemptive or otherwise),
warrants, calls, convertible securities or commitments or any other arrangements
dealing with CTS Stock as set forth in Section 6.5 (a "CTS Security Right") and
the existence of an undisclosed CTS Security Right will dilute the CTS capital,
the stockholders of the Founding Company whose representation caused the breach
of Section 6.5 shall suffer such dilution proportionately to the number of
shares of CTS Stock owned by each of them.
11.3 Third Person Claims. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
Third Person or of the commencement of any action or proceeding by a Third
Person, the Indemnified Party shall, as a condition precedent to a claim with
respect thereto being made against any party obligated to provide
indemnification pursuant to Section 11.1 or 11.2 hereof (hereinafter the
"Indemnifying Party"), give the Indemnifying Party written notice of such claim
or the commencement of such action or proceeding. Such notice shall state the
nature and the basis of such claim and a reasonable estimate of the amount
thereof. The Indemnifying Party shall have the right to defend and settle, at
its own expense and by its own counsel, any such matter so long as the
Indemnifying Party pursues the same in good faith and diligently, provided that
the Indemnifying Party shall not settle any criminal proceeding without the
written consent of the Indemnified Party, such consent not to be unreasonably
withheld or delayed. If the Indemnifying Party undertakes to defend or settle,
it shall promptly notify the Indemnified Party of its intention to do so, and
the Indemnified Party shall cooperate, at the Indemnifying Party's expense, with
the Indemnifying Party and its counsel in the defense thereof and in any
settlement thereof. Such cooperation shall include, but shall not be limited to,
furnishing the Indemnifying Party with any books, records or information
reasonably requested by the Indemnifying Party that are in the Indemnified
Party's possession or control. All Indemnified Parties shall endeavor to use the
same counsel, which shall be the counsel selected by the Indemnifying Party,
provided that if counsel to the Indemnifying Party shall have a conflict of
interest in the opinion of such counsel that prevents counsel for the
Indemnifying Party from representing the Indemnified Party, the Indemnified
Party
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shall have the right to participate in such matter through counsel of its own
choosing and the Indemnifying Party will reimburse the Indemnified Party for the
reasonable expenses of its counsel and experts. After the Indemnifying Party has
notified the Indemnified Party of its intention to undertake to defend or settle
any such asserted liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall not be liable for
any additional legal expenses incurred by the Indemnified Party in connection
with any defense or settlement of such asserted liability, except (i) as set
forth in the preceding sentence and (ii) to the extent such participation is
requested by the Indemnifying Party, in which event the Indemnified Party shall
be reimbursed by the Indemnifying Party for reasonable additional legal expenses
and out-of-pocket expenses. If the Indemnifying Party desires to accept a final
and complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement to said Third Person plus all indemnifiable
costs and expenses incurred to date, the Indemnifying Party shall be relieved of
its duty to defend and shall tender the Third Person claim back to the
Indemnified Party, who shall thereafter, at its own expense, be responsible for
the defense and negotiation of such Third Person claim. If the Indemnifying
Party does not undertake to defend such matter to which the Indemnified Party is
entitled to indemnification hereunder, or fails diligently to pursue such
defense, the Indemnified Party may undertake such defense through counsel of its
choice, at the cost and expense of the Indemnifying Party, and the Indemnified
Party may settle such matter, and the Indemnifying Party shall reimburse the
Indemnified Party for the amount paid in such settlement and any other
liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for any Tax benefits, Tax detriments or
insurance proceeds in determining the amount of any indemnification obligation
under this Section, provided that no Indemnifying Party shall be obligated to
seek any payment pursuant to the terms of any insurance policy.
11.4 Exclusive Remedy. Except as provided in Section 11.5(b) or Section
14.3 hereof, the indemnification provided for in this Section 11 shall (except
as prohibited by ERISA) be the exclusive remedy in any action seeking damages or
any other form of monetary relief brought by any party to this Agreement against
another party, provided that nothing herein shall be construed to limit the
right of a party, in a proper case, to seek injunctive relief for a breach of
this Agreement or to seek relief for a breach of any employment agreement with,
or any stock option issued by, CTS.
11.5 Limitations on Indemnification. (a) CTS, NEWCO, the Surviving
Corporation and the other Persons or entities indemnified pursuant to Section
11.1 (other than the STOCKHOLDERS) shall not assert any claim other than a Third
Person claim
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for indemnification hereunder against the STOCKHOLDERS until such time as, and
solely to the extent that, the aggregate of all claims which such Persons may
have against the STOCKHOLDERS shall exceed 1.0% of the sum of (i) the cash paid
to the STOCKHOLDERS plus (ii) the value (determined in accordance with Section
11.5(c) hereof) of the CTS Stock delivered to the STOCKHOLDERS (the
"Indemnification Threshold"); provided, however, that CTS, NEWCO, the Surviving
Corporation and the other Persons or entities indemnified pursuant to Section
11.1 (other than the STOCKHOLDERS) may assert and shall be indemnified for any
claim under Section 11.1(iv) or 11.1(v) at any time, regardless of whether the
aggregate of all claims which such Persons may have against any STOCKHOLDER or
all STOCKHOLDERS exceeds the Indemnification Threshold, it being understood that
the amount of any such claim under Section 11.1(iv) or 11.1(v) shall not be
counted towards the Indemnification Threshold. The STOCKHOLDERS shall not assert
any claim for indemnification hereunder against CTS, NEWCO, the Surviving
Corporation or the other Persons set forth in Section 11.1 (other than the
STOCKHOLDERS) until such time as, and solely to the extent that, the aggregate
of all claims which STOCKHOLDERS may have against any of such Persons exceeds
$100,000. No Person shall be entitled to indemnification under this Section 11
if and to the extent that such Person's claim for indemnification is directly or
indirectly related to a breach by such Person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
(b) CTS shall have the right, upon written notice, to offset
indemnification amounts due to it pursuant to this Agreement against payments
due to the STOCKHOLDERS under (i) this Agreement (including, without limitation,
the consideration set forth on Annex III hereto) and/or (ii) any contract
contemplated by, or referred to in, this Agreement.
(c) Indemnity obligations hereunder may be satisfied through the payment
of cash or the delivery of CTS Stock, or a combination thereof. For purposes of
calculating the value of the CTS Stock received or delivered by a STOCKHOLDER
(for purposes of determining the Indemnification Threshold and the amount of any
indemnity paid), CTS Stock shall be valued at its initial public offering price
as set forth in the Registration Statement.
(d) Notwithstanding any other term of this Agreement (except the proviso
to this sentence), no STOCKHOLDER shall be liable under this Section 11 for an
amount which exceeds the amount of proceeds received by such STOCKHOLDER in
connection with the Merger, such proceeds to be equal to the sum of (i) the cash
paid to the STOCKHOLDER, (ii) the additional consideration, if any, earned by
such STOCKHOLDER pursuant to Annex III hereof, and (iii) the value of the CTS
Stock delivered to the STOCKHOLDER (determined in accordance with Section
11.5(c) hereof); provided, that a STOCKHOLDER's indemnification obligations
pursuant to Sections 11.1(iv) and (v) shall not be limited.
12. TERMINATION OF AGREEMENT
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12.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date solely:
(a) by mutual consent of the boards of directors of CTS and the
COMPANY;
(b) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by CTS (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, unless the failure of such transactions to be
consummated is due to the willful failure of the party seeking to
terminate this Agreement to perform any of its obligations under this
Agreement to the extent required to be performed by it prior to or on the
Closing Date;
(c) by the STOCKHOLDERS or the COMPANY, on the one hand, or by CTS,
on the other hand, if a material breach or default shall be made by the
other party in the observance or in the due and timely performance of any
of the covenants, agreements or conditions contained herein, and the
curing of such default shall not have been made on or before the Closing
Date; or
(d) pursuant to Section 7.8 hereof.
12.2 Liabilities in Event of Termination. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 Prohibited Activities. The Management STOCKHOLDERS will not, for a
period of four (4) years following the Closing Date, for any reason whatsoever,
directly or indirectly, for themselves or on behalf of or in conjunction with
any other person, company, partnership, corporation or business of whatever
nature:
(a) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in direct
competition with CTS or any of the subsidiaries thereof, within 100 miles
of where the COMPANY or any of its subsidiaries or any of the Other
Founding Companies conducted business prior to the effectiveness of the
Merger (the "Territory");
(b) call upon any person who is, at that time, within the Territory,
an employee of CTS (including the subsidiaries thereof) in a sales
representative or
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managerial capacity for the purpose or with the intent of enticing such
employee away from or out of the employ of CTS (including the subsidiaries
thereof), provided that each Management STOCKHOLDER shall be permitted to
call upon and hire any member of his or her immediate family;
(c) call upon any person or entity which is, at that time, or which
has been, within one (1) year prior to the Closing Date, a customer of CTS
(including the subsidiaries thereof), of the COMPANY or of any of the
Other Founding Companies within the Territory for the purpose of
soliciting or selling products or services in direct competition with CTS
within the Territory;
(d) call upon any prospective acquisition candidate, on any
STOCKHOLDER's own behalf or on behalf of any competitor in similar or
incidental businesses or activities described in the Registration
Statement, which candidate, to the actual knowledge of such Management
STOCKHOLDER after due inquiry, was called upon by CTS (including the
subsidiaries thereof) or for which, to the actual knowledge of such
Management STOCKHOLDER after due inquiry, CTS (or any subsidiary thereof)
made an acquisition analysis, for the purpose of acquiring such entity; or
(e) disclose customers, whether in existence or proposed, of the
COMPANY to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever except to the extent that the COMPANY has in
the past disclosed such information to the public for valid business
reasons or disclosure is specifically required by law; provided, however,
in the event disclosure is required by law, the Management STOCKHOLDERS
shall provide CTS with prompt notice of such requirement prior to making
any disclosure so that CTS may seek a protective order.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Management STOCKHOLDER from acquiring as an investment not more
than one percent (1%) of the capital stock of a competing business whose stock
is traded on a national securities exchange or over-the-counter so long as such
Management STOCKHOLDER does not consult with or is not employed by such
competitor.
13.2 Damages. Because of the difficulty of measuring economic losses to
CTS as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to CTS for which it would
have no other adequate remedy, each Management STOCKHOLDER agrees that, in the
event of breach by such Management STOCKHOLDER, the foregoing covenant may be
enforced by CTS by injunctions and restraining orders.
13.3 Reasonable Restraint. It is agreed by the parties hereto that it is
the intent of CTS and the Management STOCKHOLDERS that the foregoing covenants
in this Section 13 be construed and enforced in accordance with the changing
activities and business of CTS (including the subsidiaries thereof) throughout
the term of this covenant.
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It is further agreed by the parties hereto that, in the event that any
STOCKHOLDER who has entered into an employment agreement with CTS and/or any
subsidiary thereof as set forth in Sections 8.10 and 9.12 hereto, shall
thereafter cease to be employed thereunder, and such STOCKHOLDER shall enter
into a business or pursue other activities not in competition with CTS and/or
any subsidiary thereof, or similar activities or business in locations the
operations of which, under such circumstances, does not violate this Article 13
and in any event such new business, activities or location are not in violation
of this Article 13 or such STOCKHOLDER's obligations under this Article 13, such
STOCKHOLDER shall not be chargeable with a violation of this Article 13 if CTS
and/or any subsidiary thereof shall thereafter enter the same, similar or a
competitive (i) business (ii) course of activities, or (iii) location, as
applicable..
13.4 Severability; Reformation. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
13.5 Independent Covenant. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Management
STOCKHOLDER against CTS (including the subsidiaries thereof), whether predicated
on this Agreement or otherwise, shall not constitute a defense to the
enforcement by CTS of such covenants. It is specifically agreed that the period
of four (4) years stated at the beginning of this Section 13, during which the
agreements and covenants of each Management STOCKHOLDER made in this Section 13
shall be effective, shall be computed by excluding from such computation any
time during which such Management STOCKHOLDER is in violation of any provision
of this Section 13. The covenants contained in Section 13 shall not be affected
by any breach of any other provision hereof by any party hereto and shall have
no effect if the transactions contemplated by this Agreement are not
consummated.
13.6 Materiality. The COMPANY and the Management STOCKHOLDERS hereby agree
that this covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The STOCKHOLDERS recognize and acknowledge that they
had in the past, currently have, and in the future may have, access to certain
confidential information of the COMPANY, the Other Founding Companies, and/or
CTS, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the COMPANY's, the Other Founding
Companies' and/or CTS's respective businesses. The STOCKHOLDERS agree that they
will not disclose
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such confidential information to any person, firm, corporation, association or
other entity for any purpose or reason whatsoever, except (a) to authorized
representatives of CTS or the Other Founding Companies who need to know
information in connection with the transactions contemplated hereby, who have
been informed of the confidential nature of such information and who have agreed
to keep such information confidential as provided hereby, (b) following the
Closing, such information may be disclosed by the STOCKHOLDERS as is required in
the course of performing their duties for CTS or the Surviving Corporation and
(c) to counsel and other advisers, provided that such advisers (other than
counsel) agree to the confidentiality provisions of this Section 14.1, unless
(i) such information becomes known to the public generally through no fault of
any such STOCKHOLDERS, (ii) disclosure is required by law or the order of any
Governmental Authority under color of law; provided, that prior to disclosing
any information pursuant to this clause (ii), the STOCKHOLDERS shall, if
possible, give prior written notice thereof to CTS and provide CTS with the
opportunity to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party. In the event the transactions contemplated
by this Agreement are not consummated, the STOCKHOLDERS shall have none of the
above-mentioned restrictions on their ability to disseminate confidential
information with respect to the COMPANY.
14.2 CTS AND NEWCO. CTS and NEWCO recognize and acknowledge that they had
in the past, currently have, and in the future may have, access to certain
confidential information of the COMPANY, such as operational policies, and
pricing and cost policies that are valuable, special and unique assets of the
COMPANY's business. CTS and NEWCO agree that, prior to the Closing, or if the
Transactions contemplated by this Agreement are not consummated, they will not
disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
the STOCKHOLDERS and to authorized representatives of the COMPANY, (b) to
counsel and other advisers, provided that such advisors (other than counsel)
agree to the confidentiality provisions of this Section 14.2 and (c) to the
Other Founding Companies and their representatives pursuant to Section 7.1(a),
unless (i) such information becomes known to the public generally through no
fault of CTS or NEWCO, (ii) disclosure is required by law or the order of any
Governmental Authority under color of law; provided, that, prior to disclosing
any information pursuant to this clause (ii), CTS and NEWCO shall, if possible,
give prior written notice thereof to the COMPANY and the STOCKHOLDERS and
provide the COMPANY and the STOCKHOLDERS with the opportunity to contest such
disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party. In the event of a breach or threatened breach by CTS or NEWCO
of the provisions of this Section, the COMPANY and the STOCKHOLDERS shall be
entitled to an injunction restraining CTS and NEWCO from disclosing, in whole or
in part, such confidential information. Nothing herein shall be construed as
prohibiting the COMPANY and the STOCKHOLDERS from pursuing any other available
remedy for such breach or
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threatened breach, including the recovery of damages.
14.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
Nothing herein shall be construed as prohibiting a party hereto from pursuing
any other available remedy for such breach or threatened breach of Sections 14.1
and 14.2, including the recovery of damages.
14.4 Survival. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Closing Date.
15. TRANSFER RESTRICTIONS
15.1 Transfer Restrictions. For a period of one year from the Closing
Date, except pursuant to Section 16 hereof, none of the STOCKHOLDERS shall (i)
sell, assign, exchange, transfer, encumber, pledge, distribute, appoint or
otherwise dispose of (a) any shares of CTS Stock received by the STOCKHOLDERS
pursuant to the terms hereunder or (b) any interest (including, without
limitation, an option to buy or sell) in any such shares of CTS Stock, in whole
or in part, and no such attempted transfer shall be treated as effective for any
purpose; or (ii) engage in any transaction, whether or not with respect to any
shares of CTS Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of CTS Stock acquired pursuant to Section 2
hereof (including, by way of example and not limitation, engaging in put, call,
short-sale, straddle or similar market transactions). Notwithstanding the
foregoing, the STOCKHOLDERS may transfer shares of CTS Stock to immediate family
members (or trusts for the benefit of the STOCKHOLDERS or family members, the
trustees of which so agree) or (y) encumber or pledge any of such shares of CTS
Stock; provided, that, the family member, trust, trustee, pledgee or other
beneficiary of such transfer, encumbrance or pledge, as the case may be, agrees
in writing prior to such transaction to be bound by (1) the provisions of this
Section as if a STOCKHOLDER and party hereto and (2) the indemnification
provisions set forth in this Agreement as if a STOCKHOLDER and party hereto. The
certificates evidencing the CTS Stock delivered to the STOCKHOLDERS pursuant to
Section 3 of this Agreement will bear a legend substantially in the form set
forth below and containing such other information as CTS may deem necessary or
appropriate:
EXCEPT AS PROVIDED BY THAT CERTAIN AGREEMENT AND PLAN OF ORGANIZATION, A COPY OF
WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY FOR PUBLIC
INSPECTION, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
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DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER,
ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE
FIRST ANNIVERSARY OF THE CLOSING DATE. UPON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY
STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
16. REGISTRATION RIGHTS
16.1 Piggyback Registration Rights. At any time following the Closing
Date, whenever CTS proposes to register any CTS Stock for its own or others'
account under the 1933 Act for a public offering, other than (i) any shelf
registration of shares to be used as consideration for acquisitions of
additional businesses by CTS, (ii) registrations relating to Plans and (iii)
registrations relating to rights offerings made to the stockholders of CTS, CTS
shall give each of the STOCKHOLDERS prompt written notice of its intent to do
so. Upon the written request of any of the STOCKHOLDERS given within 30 days
after receipt of such notice, CTS shall cause to be included in such
registration all of the CTS Stock issued to the STOCKHOLDERS pursuant to this
Agreement which any such STOCKHOLDER requests, provided that CTS shall have the
right to reduce the number of shares included in such registration to the extent
that inclusion of such shares could, in the opinion of tax counsel to CTS or its
independent auditors, jeopardize the status of the transactions contemplated
hereby and by the Registration Statement as a tax-free organization. In
addition, if CTS is advised in writing in good faith by any managing underwriter
of an underwritten offering of the securities being offered pursuant to any
registration statement under this Section 16.1 that the number of shares to be
sold by persons other than CTS is greater than the number of such shares which
can be offered without adversely affecting the offering, CTS may reduce pro rata
the number of shares offered for the accounts of such persons (based upon the
number of shares proposed to be sold by each such person) to a number deemed
satisfactory by such managing underwriter, provided, that, for each such
offering made by CTS after the IPO, such reduction shall be made first by
reducing the number of shares to be sold by persons other than CTS, the
STOCKHOLDERS and the stockholders of the Other Founding Companies (collectively,
the STOCKHOLDERS and the stockholders of the Other Founding Companies being
referred to herein as the "Founding Stockholders"), and thereafter, if a further
reduction is required, by reducing pro rata the number of shares to be sold by
the Founding Stockholders.
16.2 Registration Procedures. All expenses incurred in connection with the
registrations under this Section 16 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts with respect to any CTS Stock sold on behalf of any
STOCKHOLDER), shall be borne by CTS. In connection with registrations under
Section 16.1, CTS shall (i) use its best efforts to prepare and file with the
SEC as soon as reasonably practicable, a registration
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statement with respect to the CTS Stock and use its best efforts to cause such
registration to promptly become and remain effective for a period of at least
120 days (or such shorter period during which stockholders of the Founding
Companies shall have sold all CTS Stock which they requested to be registered);
(ii) use its best efforts to register and qualify the CTS Stock covered by such
registration statement under applicable state securities laws as the holders
shall reasonably request for the distribution of the CTS Stock; (iii) take all
actions necessary to have the CTS Stock covered by such registration listed or
quoted on the exchange or automated quotation system on which the CTS Stock
trades at the time of registration, (iv) take such other actions as are
reasonable and necessary to comply with the requirements of the 1933 Act and the
regulations thereunder; and (v) make available its general counsel to advise
each STOCKHOLDER and provide the legal opinions required under the purchase
agreement used in connection with the registrations under this Section 16.
16.3 Underwriting Agreement. In connection with each registration pursuant
to Sections 16.1 covering an underwritten registered public offering, CTS and
each participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of CTS's size and investment stature,
including indemnification provisions.
16.4 Availability of Rule 144. CTS shall not be obligated to register
shares of CTS Stock held by any STOCKHOLDER at any time when the resale
provisions of Rule 144(k) (or any successor provision) promulgated under the
1933 Act are available to such STOCKHOLDER for such shares.
16.5 Market Standoff. In consideration of the granting to the STOCKHOLDERS
of the registration rights under this Section 16, the STOCKHOLDERS agree that
they will not sell, transfer or otherwise dispose of, including without
limitation through put or short sale arrangements, shares of CTS Stock in the 10
days prior to the effectiveness of any registration of CTS Stock for sale to the
public and for up to 90 days following the effectiveness of such registration,
provided, that: (i) all directors, executive officers and holders of more than
five percent of the outstanding CTS Stock agree to the same restrictions; (ii)
with respect to the first public offering of shares of the CTS Stock within
three years following the IPO, the STOCKHOLDERS shall have been afforded a
meaningful opportunity to include shares in such registration after any
reduction by reason of underwriters' advice; and (iii) CTS has not exercised its
rights to delay under this Section 16.5 more than once in any 12 month period.
17. GENERAL
17.1 Cooperation. The COMPANY, the STOCKHOLDERS, CTS and
NEWCO shall each deliver or cause to be delivered to the other on the Closing
Date, and at such other times and places as shall be reasonably agreed to, such
additional
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instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The STOCKHOLDERS will cooperate and use their reasonable efforts
to have the present officers, directors and employees of the COMPANY cooperate
with CTS on and after the Closing Date in furnishing information, evidence,
testimony and other assistance in connection with any Tax Return filing
obligations, actions, proceedings, arrangements or disputes of any nature with
respect to matters pertaining to all periods prior to the Closing Date.
17.2 Successors and Assigns. During the period that payments are to be
made to the STOCKHOLDERS pursuant to Annex III hereof, this Agreement and the
rights of the parties hereunder may not be assigned (including by operation of
law) and shall be binding upon and shall inure to the benefit of the parties
hereto, the successors of CTS, and the heirs and legal representatives of the
STOCKHOLDERS; provided, however, that this Agreement and the rights of the
parties hereunder may be assigned (i) upon receipt of the consent of the
STOCKHOLDERS who hold a majority of the CTS Stock issued and outstanding under
this Agreement at such time of determination, whose consent shall not be
unreasonably withheld or (ii) if the assignee is a company whose capital stock
is traded on the Nasdaq Stock Market, the New York Stock Exchange or the
American Stock Exchange.
17.3 Entire Agreement. This Agreement (including the Schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the STOCKHOLDERS, the
COMPANY, NEWCO and CTS and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the STOCKHOLDERS, the COMPANY, NEWCO and CTS,
acting through their respective officers or trustees, duly authorized by their
respective boards of directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the COMPANY and the STOCKHOLDERS shall
make a good faith effort to cross reference disclosure, as necessary or
advisable, between related Schedules.
17.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
17.5 Brokers and Agents. Except as disclosed on Schedule 17.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commissions of
brokers employed or alleged to have been employed by such indemnifying party.
17.6 Expenses.
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(a) Whether or not the transactions herein contemplated shall be
consummated, CTS will pay the fees, expenses and disbursements of CTS and
its agents, representatives, accountants and counsel incurred in
connection with the subject matter of this Agreement and any amendments
thereto, including all costs and expenses incurred in the performance and
compliance with all conditions to be performed by CTS under this
Agreement, including the fees and expenses of Price Waterhouse LLP,
Morgan, Lewis & Bockius LLP, and any other person or entity retained by
CTS, and the costs of preparing the Registration Statement.
(b) If the transactions herein contemplated shall not be
consummated, the Company shall pay the fees, expenses and disbursements of
the STOCKHOLDERS, the COMPANY and their respective agents,
representatives, accountants and counsel incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all
costs and expenses incurred in the performance and compliance with all
conditions to be performed by the COMPANY and the STOCKHOLDERS under this
Agreement, including the fees and expenses of legal counsel to the COMPANY
and the STOCKHOLDERS.
(c) If the transaction herein contemplated is consummated, CTS will
pay the fees, expenses, and disbursements of the STOCKHOLDERS and the
COMPANY as described in (b), above.
(d) Each STOCKHOLDER shall pay all sales, use, transfer, real
property transfer, recording, gains, stock transfer and other similar
taxes and fees ("Transfer Taxes") imposed in connection with the
transactions contemplated hereby. Each STOCKHOLDER shall file all
necessary documentation and Returns with respect to such Transfer Taxes.
In addition, each STOCKHOLDER acknowledges that he, and not the COMPANY or
CTS, will pay all Taxes due upon receipt of the consideration payable
pursuant to Section 2 hereof, and will assume all Tax risks and
liabilities of such STOCKHOLDER in connection with the transactions
contemplated hereby.
17.7 Notices. All notices or communications required or permitted
hereunder shall be in writing and shall be deemed to have been given when
personally delivered or upon receipt if sent by first class certified mail,
return receipt requested or the next business day if sent by telefax (receipt
confirmed and followed up by one of the other delivery methods discussed herein
as well), or upon delivery if sent by express mail, in each case postage prepaid
and addressed as follows:
(a) If to CTS, or NEWCO:
1650 Tysons Boulevard
Suite 600
McLean, Virginia 22102
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<PAGE>
with copies to:
The Commonwealth Group
1650 Tysons Boulevard
Suite 600
McLean, Virginia 22102
and
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Attn: Christopher T. Jensen, Esq.
(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on Annex IV, with copies to such counsel as is set forth with
respect to each STOCKHOLDER on such Annex IV;
(c) If to the COMPANY:
Interactive Software Systems, Inc.
7175 West Jefferson Avenue
Denver, CO 80235
Attn: Mr. Robert Karulf
and marked "Personal and Confidential"
with copies to:
Ireland Stapleton
1675 Broadway, Suite 2600
Denver, Colorado 80202
Attn: Ms. Susan L. Oakes, Esq.
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 17.7 from time to time.
17.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of New York, except that matters herein within the purview
of the matters covered by the General Corporation Law of the State of Delaware
shall be governed by such General Corporation Law, in each case without
reference to conflicts of laws principles.
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<PAGE>
17.9 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
17.10 Time. Time is of the essence with respect to this Agreement.
17.11 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
17.12 Remedies Cumulative. Except as provided in Section 11.4 of this
Agreement, no right, remedy or election given by any term of this Agreement
shall be deemed exclusive but each shall be cumulative with all other rights,
remedies and elections available at law or in equity.
17.13 Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
17.14 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of CTS, NEWCO, the COMPANY and the STOCKHOLDERS who hold a
majority of the CTS Stock issued and outstanding under this Agreement at such
time of determination. Any amendment or waiver effected in accordance with this
Section 17.14 shall be binding upon each of the parties hereto, any other person
receiving CTS Stock in connection with the Merger and each future holder of such
CTS Stock.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
CONDOR TECHNOLOGY SOLUTIONS, INC.
By: /s/ Kennard F. Hill
---------------------------------------
Name: Kennard F. Hill
Title: President and Chief Executive Officer
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<PAGE>
INTERACTIVE SOFTWARE ACQUISITION
CORP.
By: /s/ Kennard F. Hill
--------------------------------------
Name: Kennard F. Hill
Title: President and Chief Executive Officer
INTERACTIVE SOFTWARE SYSTEMS, INC.
By: /s/ Robert L. Karulf
-------------------------------------
Name: Robert L. Karulf
Title: President and Chief Executive Officer
STOCKHOLDERS:
/s/ Robert L. Karulf
------------------------------------------
Robert L. Karulf
/s/ Randolph J. Reece
-----------------------------------------
Randolph J. Reece
-65-
<PAGE>
SUMMIT VENTURES II, L.P.
By: Summit Partners II, L.P., its General Partner
By: Stamps, Woodsum & Co. II, its General Partner
By: /s/ Thomas Roberts
------------------------------------
Name: Thomas Roberts
Title: Partner
SUMMIT INVESTORS, L.P.
By: /s/ Thomas Roberts, its General Partner
------------------
Name: Thomas Roberts
Title: Authorized Signatory
-66-
<PAGE>
SCHEDULE 11.1(iv)
SPECIAL INDEMNITY BY THE STOCKHOLDERS
1. Any damages, costs, fees and/or expenses of any type or nature which CTS
and/or the COMPANY is required to pay after the Closing Date from any claim,
suit, proceeding, demand or other type of action by Corum Group Ltd. or any of
its affiliates for services rendered to the COMPANY prior to the Closing Date.
-67-
<PAGE>
ANNEX III
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
(1) Total consideration to be paid to the STOCKHOLDERS on the Closing Date:
$5,000,000 in cash and $7,000,000/IPO price per share shares of
CTS Stock.
(2) Contingent consideration of up to $14,000,000 in cash and shares of CTS
Stock will be paid to the STOCKHOLDERS contingent on the 1998 and
1999 financial performance of the COMPANY. Contingent consideration (if
earned) is being offered herein in view of the differences of opinion
between CTS and the STOCKHOLDERS regarding the value of the COMPANY's
business, including without limitation its growth rate, sustainability
of customer base and operating margins. Accordingly, the contingent
portion of the consideration (if any) will enable the total
consideration to be based on the actual value of the COMPANY's
business.
The following details the potential contingent consideration for the
COMPANY:
% Cash /
Conditions Basis of Earnout Calculation (1) % Equity(2)
---------- -------------------------------- -----------
1998 earn-out Consideration 4.0 x Pre-tax Income over 30.0%
cannot exceed $2,986,000 70.0%
$7,500,000
1999 earn-out Consideration 4.0 x Pre-tax Income over 30.0%
cannot exceed $3,635,000 70.0%
$7,000,000
(1) Pre-tax Income shall be calculated as follows:
(i) January 1, 1998 through December 31, 1998: Pre-tax Income shall equal
the COMPANY's earnings after interest, depreciation and amortization, but
before Federal and state taxes for the period from January 1, 1998 through
December 31, 1998, calculated in accordance with GAAP in the manner applied
in the audited financial statements of the COMPANY included in the
Registration Statement, but without giving effect to (x) any intercompany
costs or charges imposed by CTS for services provided to the COMPANY (other
than charges for services provided by CTS that were previously arranged
for and independently paid by the COMPANY, including, without limitation,
<PAGE>
audit fees, insurance costs, and general overhead) or (y) the amortization
of intangible assets resulting from the transactions contemplated by the
Agreement. Notwithstanding the foregoing, Pre-tax Income for such period
shall include all costs or other charges imposed for services or products
provided by CTS to the COMPANY for use in connection with the servicing of
the COMPANY's customers.
(ii) January 1, 1999 through December 31, 1999: Pre-tax Income shall equal
the COMPANY's earnings after interest, depreciation and amortization, but
before Federal and state taxes for the period from January 1, 1999 through
December 31, 1999, calculated in accordance with GAAP in the manner applied
in the audited financial statements of the COMPANY included in the
Registration Statement, but without giving effect to (x) any intercompany
costs or charges imposed by CTS for services provided to the COMPANY (other
than charges for services provided by CTS that were previously arranged for
and independently paid by the COMPANY, including, without limitation, audit
fees, insurance costs, and general overhead) or (y) the amortization of
intangible assets resulting from the transactions contemplated by the
Agreement. Notwithstanding the foregoing, Pre-tax Income for such period
shall include all costs or other charges imposed for services or products
provided by CTS to the COMPANY for use in connection with the servicing of
the COMPANY's customers.
(2) The equity to be delivered hereunder shall be valued at a per share price
equal to one-tenth (1/10) of the sum of the closing price per share of
CTS Stock as reported by the "Exchange" (as defined in Section 3(a)(1) of
the 1934 Act) on which the CTS Stock is traded at the close of each of the
last ten business days immediately prior to the date the contingent
consideration is paid. If the CTS Stock is not traded on any Exchange, then
the value of the equity shall be determined by one appraiser selected upon
mutual agreement of CTS and the STOCKHOLDERS who hold a majority of the CTS
Stock issued and outstanding under the Agreement at such time of
determination, whose fees and expenses shall be paid one-half by CTS and
one-half by such STOCKHOLDERS.
(3) The equity and cash delivered hereunder shall be delivered to the
STOCKHOLDERS, pro rata in accordance with their share ownership set forth
in Annex IV hereof, no later than 30 days after CTS has received from its
independent accountants audited consolidated financial statements for CTS.
<PAGE>
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF ORGANIZATION
dated as of October 1, 1997
by and among
CONDOR TECHNOLOGY SOLUTIONS, INC.
USCOMM ACQUISITION CORP.
(a subsidiary of Condor Technology Solutions, Inc.)
U.S. COMMUNICATIONS, INC.
and
the STOCKHOLDER named herein
- --------------------------------------------------------------------------------
<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (this "Agreement") is made as of
September __, 1997, by and among CONDOR TECHNOLOGY SOLUTIONS, INC., a Delaware
corporation ("CTS"), USCOMM ACQUISITION CORP., a Delaware corporation ("NEWCO"),
U.S. COMMUNICATIONS, INC., a Maryland corporation (the "COMPANY") and Patricia
A. Bednarik (the "STOCKHOLDER"). The STOCKHOLDER is the sole stockholder of the
COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing under
the laws of the State of Delaware, having been incorporated on July 7,
1997, solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of CTS;
WHEREAS, the respective Boards of Directors of NEWCO and the COMPANY
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective stockholders that NEWCO
merge with and into the COMPANY pursuant to this Agreement and the
applicable provisions of the laws of the States of Delaware and Maryland
(the "Merger"), and in furtherance thereof have approved the Merger;
WHEREAS, CTS is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with companies in
the information technology industry (collectively, the "Other Founding
Companies"), and their respective stockholders in order to acquire
additional information technology companies. The COMPANY, together with
each of the entities with which CTS has entered into the Other Agreements,
are collectively referred to herein as the "Founding Companies;"
WHEREAS, this Agreement, the Other Agreements and the IPO (as
hereinafter defined) of CTS Stock (as hereinafter defined) constitute the
"CTS Plan of Organization;"
WHEREAS, the Boards of Directors of CTS and each of the Founding
Companies have approved and adopted the CTS Plan of Organization as an
integrated plan to transfer the capital stock of the Founding Companies to
CTS and the cash raised in the IPO of CTS Stock to CTS as a transfer of
property under Section 351 of the Internal Revenue Code of 1986, as
amended (the "Code");
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<PAGE>
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the STOCKHOLDER and the Board
of Directors of the COMPANY and the stockholders and the boards of
directors of each of CTS and NEWCO have approved this Agreement and the
transactions contemplated hereby;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined herein shall have the following meanings for all
purposes of this Agreement:
"Acquired Party" means the COMPANY, any subsidiary and any member of a
Relevant Group.
"Acquisition Companies" means NEWCO and each of the other Delaware
companies wholly-owned by CTS prior to the Closing Date.
"Acquisition Transaction" has the meaning set forth in Section 7.4.
"Affiliates" has the meaning set forth in Section 5.8.
"A/R Aging Reports" has the meaning set forth in Section 9.16.
"Articles of Merger" means those Articles or Certificates of Merger with
respect to the Merger substantially in the form[s] attached as Annex I hereto or
with such changes therein as may be required by applicable state laws.
"Balance Sheet Date" means December 31, 1996.
"Benefit Plan" means any Plan, existing at the Closing Date or prior
thereto, established or to which contributions have at any time been made by the
COMPANY, any ERISA Affiliate, or any predecessor of any of the foregoing, under
which any employee or former employee of the COMPANY, or any beneficiary
thereof, is covered, is eligible for coverage or has benefit rights.
"CTS" has the meaning set forth in the first paragraph of this Agreement.
"CTS Charter Documents" has the meaning set forth in Section 6.1.
"CTS Plan of Organization" has the meaning set forth in the fourth recital
of this Agreement.
"CTS Stock" means the common stock, par value $.0l per share, of CTS.
-3-
<PAGE>
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" means the consummation of the transactions contemplated by this
Agreement on the Closing Date.
"Closing Date" has the meaning set forth in Section 4.
"Code" has the meaning set forth in the fifth recital of this Agreement.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Delaware Law" has the meaning set forth in Section 1.2.
"Effective Time of the Merger" means the time as of which the Merger
becomes effective, which the parties hereto contemplate to occur on the Closing
Date.
"Environmental Requirements" has the meaning set forth in Section 5.13.
"ERISA Affiliate" means any Person who is, or at any time was, a member of
a controlled group (within the meaning of Section 412(n)(6) of the Code) that
includes, or at any time included, the COMPANY or any predecessor of the
COMPANY.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" has the meaning set forth in the third recital of
this Agreement.
"GAAP" means generally accepted accounting principles of the United States
applied in a manner consistent with the past practices of the COMPANY.
"Governmental Authority" means any governmental, regulatory or
administrative body, agency, subdivision or authority, any court or judicial
authority, or any public, private or industry regulatory authority, whether
national, Federal, state, local or otherwise.
-4-
<PAGE>
"Hazardous Materials" has the meaning set forth in Section 5.13(b).
"Intellectual Property" means all trademarks, service marks, trade dress,
trade names, patents and copyrights and any registration or application for any
of the foregoing, and any trade secret, invention, process, know-how, computer
software or technology systems.
"IPO" means the initial public offering of CTS Stock pursuant to the
Registration Statement.
"Laws" has the meaning set forth in Section 5.21.
"Material Adverse Effect" means, with respect to any Person, any event or
occurrence which would have a material adverse effect on such Person's business,
condition (financial or other), properties, business prospects or financial
results.
"Material Contract" means any lease, instrument, agreement, license or
permit set forth on Schedule 5.12, 5.13, 5.14, 5.15, 5.16, 5.18 or 5.19 or any
other material agreement to which the COMPANY is a party or by which its
properties are bound.
"Merger" means the merger of NEWCO with and into the COMPANY pursuant to
this Agreement and the applicable provisions of the laws of the States of
Delaware and Maryland.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO STOCK" means the common stock, par value $.0l per share, of NEWCO.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Other Agreements" has the meaning set forth in the third recital of this
Agreement.
"Other Founding Companies" has the meaning set forth in the third recital
of this Agreement.
"Person" means any natural person, corporation, partnership,
proprietorship, other business organization, trust, union, association or
Governmental Authority.
-5-
<PAGE>
"Plan" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance, severance,
separation or other employee benefit plan, practice, policy or arrangement of
any kind, whether written or oral, or whether for the benefit of a single
individual or more than one individual including, but not limited to, any
"employee benefit plan" within the meaning of Section 3(3) of ERISA.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pre-Closing Date" has the meaning set forth in Section 4.
"Pricing" means the date of determination by CTS and the Underwriters of
the public offering price of the shares of CTS Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on or immediately prior to
the Pre-Closing Date.
"Registration Statement" means that certain registration statement of CTS
on Form S-1 covering the shares of CTS Stock to be issued in the IPO.
"Relevant Group" has the meaning set forth in Section 5.22(a).
"Returns" has the meaning set forth at the end of Section 5.22.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 7.3(e).
"STOCKHOLDER" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" shall mean the COMPANY as the surviving party in
the Merger.
"Tax" or "Taxes" has the meaning set forth at the end of Section 5.22.
"Taxing Authority" has the meaning set forth at the end of Section 5.22.
-6-
<PAGE>
"Third Person" has the meaning set forth in Section 11.2.
"Transfer Taxes" has the meaning set forth in Section 17.6.
"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
"Underwriting Agreement" means the Underwriting Agreement dated the
Closing Date between the Underwriters and CTS in respect of the IPO.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 Delivery and Filing of Articles of Merger. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and filed
with the Secretary of State of the State of Maryland, and stamped receipt copies
of each such filing to be delivered to CTS on or before the Closing Date.
1.2 Effective Time of the Merger. At the Effective Time of the Merger and
subject to the terms and conditions of this Agreement and the applicable
provisions of the Delaware General Corporation Law (the "Delaware Law") and the
laws of the State of Maryland, NEWCO shall be merged with and into the COMPANY
in accordance with the Articles of Merger, the separate existence of NEWCO shall
cease and the COMPANY shall be the surviving party in the Merger. At the
Effective Time of the Merger, the effect of the Merger otherwise shall be as
provided in the applicable provisions of Delaware Law and the laws of the State
of Maryland. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time of the Merger, all the property, rights,
privileges, powers and franchises of the COMPANY and NEWCO shall vest in the
Surviving Corporation, and all debts, liabilities and duties of the COMPANY and
NEWCO shall become the debts, liabilities and duties of the Surviving
Corporation. The Merger will be effected in a single transaction.
1.3 Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(a) the Certificate or Articles of Incorporation of the COMPANY then
in effect shall be the Certificate or Articles of Incorporation of the
Surviving Corporation until amended as provided by law;
-7-
<PAGE>
(b) the By-laws of the COMPANY then in effect shall be the By-laws
of the Surviving Corporation until amended as provided by law;
(c) a director of NEWCO and two nominees of the COMPANY shall be the
directors of the Surviving Corporation until their respective successors
are elected or appointed and qualified in accordance with the terms the
By-laws of the Surviving Corporation; the Board of Directors of the
Surviving Corporation shall hold office subject to the provisions of the
laws of the State of __________ and of the Certificate of Incorporation
and By-laws of the Surviving Corporation; and
(d) the officers of the COMPANY immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities, and effective upon the
Effective Time of the Merger, J. Marshall Coleman shall be appointed as a
vice president and assistant secretary of the Surviving Corporation and
shall not be entitled to any compensation from the COMPANY as a result of
such appointment and his serving in such capacity, such officers to serve,
subject to the provisions of the Certificate or Articles of Incorporation
and By-laws of the Surviving Corporation, until his or her successor is
duly elected and qualified.
1.4 Certain Information With Respect to the Capital Stock of the COMPANY,
CTS and NEWCO. The respective designations and numbers of outstanding shares and
voting rights of each class of outstanding capital stock of the COMPANY, CTS and
NEWCO as of the date of this Agreement are as follows:
(a) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 1.4 hereto;
(b) immediately prior to the Closing Date, the authorized capital
stock of CTS will consist of 50,000,000 shares; and
(c) as of the date of this Agreement, the authorized capital stock
of NEWCO consists of 3,000 shares of NEWCO Stock, of which ten (10) shares
are issued and outstanding and beneficially owned by CTS.
2. CONVERSION OF STOCK
2.1 Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) CTS Stock and (y) common stock of the Surviving
Corporation, respectively, shall be as follows:
-8-
<PAGE>
As of the Effective Time of the Merger:
(a) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger will be canceled and
extinguished and, by virtue of the Merger and without any action on the
part of the holder thereof, automatically shall be deemed to represent,
with respect to the STOCKHOLDER, (1) the right to receive the number of
shares of CTS Stock set forth on Annex III hereto with respect to the
STOCKHOLDER and (2) the right to receive the amount of cash set forth on
Annex III hereto with respect to the STOCKHOLDER;
(b) all shares of COMPANY Stock that are held by the COMPANY as
treasury stock shall be canceled and retired and no shares of CTS Stock or
other consideration shall be delivered or paid in exchange therefor; and
(c) each share of NEWCO Stock issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger
and without any action on the part of CTS, automatically be converted into
one fully paid and non-assessable share of common stock of the Surviving
Corporation, which shall constitute all of the issued and outstanding
shares of common stock of the Surviving Corporation immediately after the
Effective Time of the Merger.
All CTS Stock received by the STOCKHOLDER pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 5 and
15 hereof and the registration rights described in Section 16 hereof, have the
same rights as all the other shares of outstanding CTS Stock by reason of the
provisions of the Certificate of Incorporation of CTS or as otherwise provided
by the Delaware Law. All voting rights of such CTS Stock received by the
STOCKHOLDER shall be fully exercisable by the STOCKHOLDER and the STOCKHOLDER
shall not be deprived nor restricted in exercising those rights. At the
Effective Time of the Merger, CTS shall have no class of capital stock issued
and outstanding other than the CTS Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 At the Effective Time of the Merger and on the Closing Date the
STOCKHOLDER, who is the holder of all outstanding certificates representing
shares of COMPANY Stock, shall, upon surrender of such certificates, receive (i)
the respective number of shares of CTS Stock and (ii) the amount of cash, all as
set forth on Annex III hereto with respect to the STOCKHOLDER, provided that
such cash shall be paid out of the net proceeds from the IPO. The cash payable
pursuant to clause (ii) shall be paid by wire transfer.
-9-
<PAGE>
3.2 The STOCKHOLDER shall deliver in trust to Morgan, Lewis & Bockius LLP,
counsel to CTS, at the Pre-Closing the certificates representing COMPANY Stock,
duly endorsed in blank by the STOCKHOLDER, or accompanied by stock powers duly
endorsed in blank, with signatures guaranteed by a national or state chartered
bank or other financial institution, and with all necessary Transfer Tax and
other revenue stamps, acquired at the STOCKHOLDER'S expense, affixed and
canceled. The STOCKHOLDER agrees promptly to cure any deficiencies with respect
to the endorsement of the stock certificates or other documents of conveyance
with respect to such COMPANY Stock or with respect to the stock powers
accompanying any COMPANY Stock. Upon consummation of the IPO and the
transactions contemplated to occur on the Closing Date, all of such certificates
shall be deemed released by such counsel to CTS without any further action on
the part of such counsel.
4. CLOSING
At or prior to the Pre-Closing, the parties shall take all actions
necessary to prepare to (i) effect the Merger (including, if permitted by
applicable state law, the advance filing with the appropriate state authorities
of the Articles of Merger, which shall become effective at the Effective Time of
the Merger) and (ii) effect the conversion and delivery of shares referred to in
Section 2 hereof; provided, that such actions shall not include the actual
completion of the Merger for purposes of this Agreement or the conversion and
delivery of the shares and transmission of funds by wire referred to in Section
3 hereof, each of which actions shall only be taken upon the Closing Date as
herein provided. In the event that there is no Closing and this Agreement
terminates, CTS hereby covenants and agrees to do all things required by
Delaware Law and all things which counsel for the COMPANY advise CTS are
required by applicable laws of the State of Maryland in order to rescind any
merger or other actions effected by the advance filing of the Articles of Merger
as described in this Section. The taking of the actions described in clauses (i)
and (ii) above (the "Pre-Closing") shall take place on the date of the execution
of the underwriting agreement to be used in connection with the IPO (the
"Pre-Closing Date") at the offices of Morgan, Lewis & Bockius LLP, 101 Park
Avenue, New York, New York 10178. On the Closing Date (x) the Articles of Merger
shall be or shall have been filed with the appropriate state authorities so that
they shall be or, as of 8:00 a.m. New York City time on the Closing Date, shall
become effective and the Merger shall thereby be effected, (y) all transactions
contemplated by this Agreement, including the conversion and delivery of shares,
the transmission of funds by wire in an amount equal to the cash portion of the
consideration which the STOCKHOLDER shall be entitled to receive pursuant to the
Merger referred to in Section 3 hereof shall be completed and (z) the closing
with respect to the IPO shall occur and be deemed to be completed. The date on
which the actions described in the preceding clauses (x), (y) and (z) occur
shall be referred to as the "Closing Date." Time is of the essence.
-10-
<PAGE>
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDER
(A) Representations and Warranties of the COMPANY and the STOCKHOLDER.
Each COMPANY and the STOCKHOLDER jointly and severally represents and
warrants to CTS and NEWCO that all of the following representations and
warranties in this Section 5(A) are true and correct at the date of this
Agreement and, subject to Section 7.8 hereof, shall be true and correct at the
time of the Pre-Closing and the Closing Date, and that such representations and
warranties shall survive the Closing Date for a period of eighteen months (the
last day of such period being the "Expiration Date"), except that (i) the
representations and warranties set forth in Section 5.22 hereof shall survive
until such time as the statute of limitations period has run for all tax periods
ended on or prior to the Closing Date, which shall be deemed to be the
Expiration Date for Section 5.22, and (ii) solely for purposes of Section
11.1(iii) hereof and solely to the extent that, in connection with the IPO, CTS
actually incurs liability under the 1933 Act, the 1934 Act, or any other Federal
or state securities laws, the representations and warranties set forth in this
Section 5(A) shall survive until the expiration of any applicable statute of
limitations period, which shall be deemed to be the Expiration Date for such
purposes. For purposes of this Section 5 and for the opinion referred to in
Section 9.8 of this Agreement, the term "COMPANY" shall mean and refer to the
COMPANY and all of its subsidiaries, if any.
5.1 Due Organization. The COMPANY is a corporation duly incorporated,
validly existing and in good standing under the laws of the state of its
incorporation, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted, to own
or hold under lease the properties and assets it now owns or holds under lease,
and to perform all of its obligations under the Material Contracts; is duly
qualified in the jurisdictions listed in Schedule 5.1 and there are no other
jurisdictions in which the conduct of the COMPANY's business or activities or
its ownership of assets requires any other qualification under applicable law,
the absence of which would have a Materially Adverse Effect on the COMPANY.
True, complete and correct copies of the Certificate or Articles of
Incorporation and By-laws, each as amended, of the COMPANY (the "Charter
Documents") are all attached to Schedule 5.1. The minute books and stock records
of the COMPANY, as heretofore made available to CTS, are correct and complete in
all material respects. The most recent minutes of the COMPANY, which are dated
no earlier than 10 business days prior to the date hereof, affirm and ratify all
prior acts of the COMPANY and of its officers and directors on behalf of the
COMPANY.
5.2 Authorization. The representatives of the COMPANY executing this
Agreement have the authority to execute and deliver this Agreement and to
perform its
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obligations hereunder. The execution and delivery of this Agreement by the
COMPANY and performance by the COMPANY of its obligations under this Agreement
and the consummation by the COMPANY of the transactions contemplated hereby have
been duly authorized by all necessary corporate and stockholder action in
accordance with applicable law and the Articles of Incorporation and By-Laws of
the COMPANY on the part of the COMPANY and the STOCKHOLDER. This Agreement
constitutes the valid and binding obligation of the COMPANY, enforceable in
accordance with its terms.
5.3 Capital Stock of the COMPANY. The authorized capital stock of the
COMPANY is as set forth in Schedule 1.4. All of the issued and outstanding
shares of capital stock of the COMPANY are owned by the STOCKHOLDER in the
amounts set forth in Annex IV and, except as set forth on Schedule 5.3, are
owned free and clear of all liens, security interests, pledges, charges, voting
trusts, restrictions, encumbrances and claims of every kind. All of the issued
and outstanding shares of capital stock of the COMPANY have been duly authorized
and validly issued, are fully paid and nonassessable, are owned of record and
beneficially by the STOCKHOLDER and were offered, issued, sold and delivered by
the COMPANY in compliance with all applicable state and Federal laws concerning
the issuance of securities. The COMPANY and the STOCKHOLDER have full right,
power and authority to exchange the COMPANY Stock as provided herein without
obtaining the consent or approval of any other person or Governmental Authority.
Further, none of such shares were issued in violation of the preemptive
rights of any past or present stockholder.
5.4 Transactions in Capital Stock; Organization Accounting. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock since
January 1, 1994. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
COMPANY to issue any of its authorized but unissued capital stock or its
treasury stock; (ii) the COMPANY has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof; and (iii) the voting stock structure of the COMPANY has not been
altered or changed in contemplation of the Merger and/or the CTS Plan of
Organization. Schedule 5.4 also includes complete and accurate copies of all
stock option or stock purchase plans, including a list of all outstanding
options, warrants or other rights to acquire shares of the COMPANY Stock and a
description of the material terms of such outstanding options, warrants or other
rights.
5.5 No Bonus Shares. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
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5.6 Subsidiaries. Schedule 5.6 attached hereto lists the name of each of
the COMPANY's subsidiaries and sets forth the number and class of the authorized
capital stock of each of the COMPANY's subsidiaries and the number of shares of
each of the COMPANY's subsidiaries which are issued and outstanding, all of
which shares (except as set forth on Schedule 5.6) are owned by the COMPANY,
free and clear of all liens, security interests, pledges, voting trusts,
equities, restrictions, encumbrances and claims of every kind. Except as set
forth on Schedule 5.6, the COMPANY does not presently own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity nor is the COMPANY, directly or indirectly, a
participant in any joint venture, partnership or other non-corporate entity.
5.7 Predecessor Status; etc. Set forth on Schedule 5.7 is a list of all
names of all predecessor companies of the COMPANY, including the names of any
entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from which the COMPANY previously acquired material
assets. Except as disclosed on Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
5.8 Spin-off by the COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1994.
5.9 Financial Statements. The COMPANY has delivered to CTS copies of the
following financial statements (the "Financial Statements"):
(a) Audited Balance Sheets, Income Statements, Statements of
Stockholders' Equity and Statements of Cash Flows at and for the year
ended December 31, 1996.
(b) Unaudited Balance Sheets, Income Statements, Statements of
Stockholders' Equity, and Statements of Cash Flows for the six months
ended June 30, 1996 and 1997.
Each of the Financial Statements is consistent with the books and records
of the COMPANY (which, in turn, are accurate and complete in all material
respects) and fairly presents the COMPANY's financial condition, assets and
liabilities as of their respective dates and the results of operations and cash
flows for the periods related thereto in accordance with GAAP, consistently
applied among the periods which are the subject of the Financial Statements,
except unaudited interim financial statements which were or are
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subject to normal year-end adjustments which were not and are not expected to be
material in amount and the addition of required footnotes thereto.
5.10 Liabilities and Obligations. The COMPANY has delivered to CTS an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY in excess of $10,000 which are not
reflected on the balance sheet of the COMPANY at the Balance Sheet Date or
otherwise reflected in the COMPANY Financial Statements at the Balance Sheet
Date and (ii) all loan agreements, indemnity or guaranty agreements, bonds,
mortgages, liens, pledges or other security agreements to which the COMPANY is a
party. Except as set forth on Schedule 5.10, since the Balance Sheet Date, the
COMPANY has not incurred any material liabilities of any kind, character and
description, whether accrued, absolute, secured or unsecured, contingent or
otherwise, other than liabilities incurred in the ordinary course of business.
The COMPANY has also set forth on Schedule 5.10, in the case of those contingent
liabilities related to pending or threatened litigation, or other liabilities
which are not fixed or are being contested, the following information:
(a) a summary description of the liability and has provided CTS's
counsel with: (i) copies of all relevant documentation relating
thereto;
(ii) amounts claimed and any other action or relief
sought;
(iii) and name of claimant and all other parties to the
claim, suit or proceeding;
(b) the name of each court or agency before which such claim, suit
or proceeding is pending;
(c) the date such claim, suit or proceeding was instituted; and
(d) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such
liability. If no estimate is provided, the estimate shall for purposes of
this Agreement be deemed to be zero.
5.11 Accounts and Notes Receivable. The COMPANY has delivered to CTS an
accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY as of the Balance Sheet Date, including any such
amounts which are not reflected in the balance sheet as of the Balance Sheet
Date, and including receivables from and advances to employees and the
STOCKHOLDER. Except to the extent reflected on Schedule 5.11 or as disclosed by
the COMPANY to CTS in a writing accompanying the A/R Aging Reports, as the case
may be, the accounts, notes and other receivables shown on Schedule 5.11 and on
the A/R Aging Reports are and shall be, and the COMPANY has no reason to believe
that any such account receivable is not or shall not be, collectible in the
amounts shown (in the case of the accounts and notes receivable
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set forth on Schedule 5.11, net of reserves reflected in the balance sheet
calculated consistent with reserves as of the Balance Sheet Date).
5.12 Intellectual Property; Permits and Intangibles.
(a) The COMPANY owns or has licenses to all Intellectual Property
the absence of any of which would have a Material Adverse Effect on the
COMPANY, and the COMPANY has delivered to CTS an accurate list (which is
set forth on Schedule 5.12(a)) of all Intellectual Property owned by or
licensed by the COMPANY. Each item of Intellectual Property owned by or
licensed by the COMPANY is valid and in full force and effect. Except as
set forth on Schedule 5.12(a), all right, title and interest in and to
each item of Intellectual Property is owned by the COMPANY and is not
subject to any license except as set forth on Schedule 5.12(a), royalty
arrangement or pending or threatened claim or dispute. To the COMPANY's
knowledge, none of the Intellectual Property owned by or licensed by the
COMPANY nor any product sold or licensed by the COMPANY, infringes any
Intellectual Property right of any other entity and to the COMPANY's
knowledge, no Intellectual Property owned by the COMPANY is infringed upon
by any other entity.
(b) The COMPANY holds all licenses, franchises, permits and other
governmental authorizations the absence of any of which could have a
Material Adverse Effect on the COMPANY, and the COMPANY has delivered to
CTS an accurate list and summary description (which is set forth on
Schedule 5.12(b)) of all governmental licenses, franchises, permits and
other governmental authorizations, including permits, titles, licenses,
franchises and certificates (it being understood and agreed that a list of
all environmental permits and other environmental approvals is set forth
on Schedule 5.13). To the knowledge of the COMPANY, the licenses,
franchises, permits and other governmental authorizations listed on
Schedules 5.12(b) and 5.13 are valid, and the COMPANY has not received any
notice that any Governmental Authority intends to cancel, terminate or not
renew any such license, franchise, permit or other governmental
authorization. The COMPANY has conducted and is conducting its business in
compliance with the requirements, standards, criteria and conditions set
forth in the licenses, franchises, permits and other governmental
authorizations listed on Schedules 5.12(b) and 5.13 and is not in
violation of any of the foregoing except where such non-compliance or
violation would not have a Material Adverse Effect on the COMPANY. Except
as specifically provided in Schedule 5.12(a) or 5.12(b), the transactions
contemplated by this Agreement will not (i) to the COMPANY's knowledge,
result in the infringement by the COMPANY of any Intellectual Property
right of any other entity, (ii) infringe any Intellectual Property listed
on Schedule 5.12(a), or (iii) result in a default under or a breach or
violation of, or adversely affect the rights and benefits afforded to the
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COMPANY by, any licenses, franchises, permits or government authorizations
listed on Schedule 5.12(b).
5.13 Environmental Matters.
(a) Except as set forth on Schedule 5.13,
(i) the COMPANY is and at all times has been in compliance
in all material respects with, and has not been in
violation of or liable under, all Environmental
Requirements, and
(ii) the COMPANY possesses all permits, licenses and
certificates required by all Environmental Requirements,
and has filed all notices or applications required
thereby.
As used herein, "Environmental Requirements" shall mean all applicable federal,
state and local laws, rules, regulations, ordinances and requirements relating
to pollution and protection of the environment, all as amended to date.
(b) Except as disclosed on Schedule 5.13:
(i) the COMPANY has not been subject to, or received any
notice of any private, administrative or judicial
action, or notice of any intended private,
administrative or judicial action relating to the
presence or alleged presence of Hazardous Materials in,
under or upon any real property currently or formerly
owned, leased or used by (A) the COMPANY or (B) any
other person that has, at any time, disposed of
Hazardous Materials on behalf of the COMPANY;
(ii) the COMPANY does not have any basis for any such notice
or action; and
(iii) there are no pending or, to the knowledge of the
COMPANY, threatened actions or proceedings (or notices
of potential actions or proceedings) from any
Governmental Authority or any other entity regarding any
matter relating to health, safety or protection of the
environment against the COMPANY.
"Hazardous Materials" for purposes of this Agreement shall include,
without limitation: (A) hazardous materials, hazardous substances,
extremely
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hazardous substances or hazardous wastes, as those terms are defined by
the Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. ss.9601 et seq. ("CERCLA"), the Resource Conservation and
Recovery Act, 42 U.S.C. ss.6901 et seq. ("RCRA"), and any other
Environmental and Safety Requirements; (B) petroleum, including, without
limitation, crude oil or any fraction thereof which is liquid at standard
conditions of temperature and pressure (60 degrees Fahrenheit and 14.7
pounds per square inch absolute); (C) any radioactive material, including,
without limitation, any source, special nuclear, or by-product material as
defined in 42 U.S.C. ss. 2011 et seq.; and (D) asbestos in any form or
condition.
(c) To the Company's knowledge, there are and have been no past or
present events, conditions, circumstances, activities, practices,
incidents or actions which could reasonably be expected to interfere with
or prevent continued compliance with any Environmental Requirements, give
rise to any legal obligation or liability, or otherwise form the basis of
any claim, action, suit, proceeding, hearing or investigation against or
involving the COMPANY or any real property presently or previously owned
or used by the COMPANY under any Environmental Requirements or related
common law theories, except as identified on Schedule 5.13.
(d) Schedule 5.13 sets forth the name and principal place of
business of every off-site waste disposal organization, and each of the
haulers, transporters or cartage organization engaged now or in the
preceding three years by the COMPANY to dispose of Hazardous Materials to
any such off-site waste disposal location on behalf of the COMPANY or any
of its predecessors.
5.14 Personal Property. The COMPANY has delivered to CTS an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property with a value
individually in excess of $10,000 which is included (or that will be included)
in "depreciable plant, property and equipment" (or similarly named line item) on
the balance sheet of the COMPANY as of the Balance Sheet Date, (y) all other
personal property owned by the COMPANY with a value individually in excess of
$10,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date and (z) all leases and agreements in respect of personal property
with a value individually in excess of $10,000, including, in the case of each
of (x), (y) and (z), (1) true, complete and correct copies of all such leases
which have been provided to CTS's counsel, (2) a listing of the capital costs of
all such assets which are subject to capital leases and (3) an indication as to
which assets are currently owned, or, to the COMPANY's knowledge, were formerly
owned, by the STOCKHOLDER or Affiliates of the COMPANY or the STOCKHOLDER.
Except as set forth on Schedule 5.14, (i) all personal property with a value
individually in excess of $10,000 used by the COMPANY in its business is either
owned by the COMPANY or leased by the COMPANY pursuant to a lease included on
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Schedule 5.14, (ii) all of the personal property listed on Schedule 5.14 is in
good working order and condition, ordinary wear and tear excepted, and (iii) all
leases and agreements included on Schedule 5.14 are in full force and effect and
constitute valid and binding agreements of the COMPANY, and to the COMPANY's
knowledge, of the other parties (and their successors) thereto in accordance
with their respective terms.
5.15 Significant Customers: Material Contracts and Commitments. The
COMPANY has delivered to CTS an accurate list (which is set forth on Schedule
5.15) of all significant customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person or entity) representing 5% or more of the COMPANY's annual revenues as of
the Balance Sheet Date. Except to the extent set forth on Schedule 5.15, none of
the COMPANY's significant customers has canceled or substantially reduced or, to
the knowledge of the COMPANY, is currently attempting or threatening to cancel a
contract or substantially reduce utilization of the services provided by the
COMPANY.
Except as listed or described on Schedule 5.15, as of or on the date
hereof, neither the COMPANY is a party to or bound by, nor do there exist any,
Contracts relating to or in any way affecting the operation or ownership of the
COMPANY's business that are of a type described below:
(a) any collective bargaining arrangement with any labor union or
any such agreement currently in negotiation or proposed;
(b) any contract for capital expenditures or the acquisition or
construction of fixed assets for or in respect to real property other than
in the COMPANY's ordinary course of business in excess of $50,000;
(c) any contract with a term in excess of one year for the purchase,
maintenance, acquisition, sale or furnishing of materials, supplies,
merchandise, machinery, equipment, parts or other property or services
(except that the COMPANY need not list any such contract made in the
ordinary course of business) which requires aggregate future payments of
greater than $100,000;
(d) any contract relating to the borrowing of money, or the guaranty
of another person's borrowing of money, including, without limitation, all
notes, mortgages, indentures and other obligations, agreements and other
instruments for or relating to any lending or borrowing, including assumed
indebtedness;
(e) any contract granting any person a lien on any of the assets of
the COMPANY, in whole or in part;
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(f) any contract for the cleanup, abatement or other actions in
connection with Hazardous Materials (as defined in Section 5.13), the
remediation of any existing environmental liabilities or relating to the
performance of any environmental audit or study;
(g) any contract granting to any person a first-refusal, first-offer
or similar preferential right to purchase or acquire any of the assets of
the COMPANY's business other than in the ordinary course of business;
(h) any contract under which the COMPANY is
(i) a lessee or sublessee of any machinery, equipment,
vehicle or other tangible personal property or real
property, or
(ii) a lessor of any real property or tangible personal
property owned by the COMPANY,
in either case having an original value in excess of $50,000;
(i) any contract providing for the indemnification of any officer,
director, employee or other person, where such indemnification may exceed
the sum of $50,000;
(j) any joint venture or partnership contract; and
(k) any other contract with a term in excess of one year, whether or
not made in the ordinary course of business, which involves payments in
excess of $100,000.
The COMPANY has provided CTS with a true and complete copy of each written
Material Contract, including all amendments or other modifications thereto.
Except as set forth on Schedule 5.15, each Material Contract is a valid and
binding obligation of the COMPANY, enforceable against the COMPANY in accordance
with its terms, and is in full force and effect. Except as set forth on Schedule
5.15, the COMPANY has performed all obligations required to be performed by it
under each Material Contract and neither the COMPANY nor, to the knowledge of
the COMPANY, any other party to any Contract, is (with or without the lapse of
time or the giving of notice or both) in breach or default in any material
respect thereunder; and there exists no condition which, to the knowledge of the
COMPANY, would constitute a breach or default thereunder. The COMPANY has not
been notified that any party to any Material Contract intends to cancel,
terminate, not renew or exercise an option under any Material Contract, whether
in connection with the transactions contemplated hereby or otherwise.
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5.16 Real Property. (a) Schedule 5.16(a) includes a list of all real
property owned by the COMPANY (i) as of the Balance Sheet Date and (ii) acquired
since the Balance Sheet Date, and all other real property, if any, used by the
COMPANY in the conduct of its business. The COMPANY has good and insurable title
to the real property owned by it, including that reflected on Schedule 5.14,
subject to no mortgage, pledge, lien, conditional sale agreement, encumbrance or
charge, except for:
(i) liens reflected on Schedule 5.10 or 5.15 as securing
specified liabilities (with respect to which no default
by the COMPANY exists);
(ii) liens for current taxes not yet due and payable and
assessments not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other
exceptions to title shown of record in the office of the
County Clerks in which the properties, assets and
leasehold estates are located which do not adversely
affect the current use of the property.
Attached to Schedule 5.16(a) are true, complete and correct copies of all title
reports and title insurance policies currently in possession of the COMPANY with
respect to real property owned by the COMPANY.
(b) Schedule 5.16(b) includes an accurate list of real property leases to
which the COMPANY is a party and an indication as to which such properties, if
any, are currently owned, or were formerly owned, by the STOCKHOLDER or
Affiliates of the COMPANY or the STOCKHOLDER. Counsel to CTS has been provided
with true, complete and correct copies of all leases and agreements in respect
of such real property leased by the COMPANY. Except as set forth on Schedule
5.16(b), all of such leases included on Schedule 5.16(b) are in full force and
effect and constitute valid and binding agreements of the COMPANY and, to the
COMPANY'S knowledge, of the parties (and their successors) thereto in accordance
with their respective terms.
5.17 Insurance.
(a) The COMPANY has delivered to CTS:
(i) true and complete copies of all policies of insurance to
which the COMPANY is a party or under which the COMPANY,
or any director of the COMPANY, is or has
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been covered at any time within two years preceding the
date of this Agreement;
(ii) true and complete copies of all pending applications for
policies of insurance; and
(iii) any statement by the auditor of the COMPANY's financial
statements with regard to the adequacy of such entity's
coverage or of the reserves for claims.
(b) Schedule 5.17(b) describes:
(i) any self-insurance arrangement by or affecting the
COMPANY, including any reserves established thereunder;
(ii) any contract or arrangement, other than a policy of
insurance, for the transfer or sharing of any risk by
the COMPANY; and
(iii) all obligations of the COMPANY to third parties with
respect to insurance (including such obligations under
leases and service agreements), and identifies the
policy under which such coverage is provided.
(c) Schedule 5.17(c) sets forth, by year, for the current policy
year and each of the preceding two policy years:
(i) a summary of the loss experience under each policy;
(ii) a statement describing each claim under an insurance
policy for an amount in excess of $25,000, which sets
forth:
a) the name of the claimant;
b) a description of the policy by insurer, type of
insurance and period of coverage; and
c) the amount and a brief description of the claim;
and
(iii) a statement describing the loss experience for all
claims that were self-insured, including the number and
aggregate cost of such claims.
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(d) Except as set forth on Schedule 5.17(d):
(i) All policies to which the COMPANY is a party or that
provide coverage to the COMPANY:
a) are valid, outstanding and enforceable;
b) are issued by an insurer that is financially sound
and reputable;
c) taken together, provide adequate insurance for the
assets and the operations of the COMPANY for all
risks normally insured against by a person
carrying on the same business or businesses of the
COMPANY;
d) are sufficient for compliance with all legal
requirements and Material Contracts to which the
COMPANY is a party or by which it is bound;
e) will continue in full force and effect following
the Closing in accordance with their respective
terms;
(ii) the COMPANY has not received (A) any refusal of coverage
or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation
or any other indication that any insurance policy is no
longer in full force or effect or will not be renewed or
that the issuer of any policy is not willing or able to
perform its obligations thereunder;
(iii) the COMPANY has paid all premiums due, and has otherwise
performed all of its obligations, under each policy to
which it is a party or that provides coverage to it or
any director thereof.
(iv) the COMPANY has given notice to the insurer of all
claims known by it to be insured thereby.
5.18 Compensation; Employment Agreements; Organized Labor Matters. The
COMPANY has delivered to CTS an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the COMPANY, listing
all employment agreements with such officers, directors and key employees and
the rate of
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compensation (and the portions thereof attributable to salary, bonus and other
compensation, respectively) of each of such persons as of (i) the Balance Sheet
Date and (ii) the date hereof. The COMPANY has provided to CTS true, complete
and correct copies of any employment agreements for persons listed on Schedule
5.18. Since the Balance Sheet Date, there have been no increases in the
compensation payable or any special bonuses to any officer, director, key
employee or other employee, except ordinary salary increases implemented on a
basis consistent with past practices.
Except as set forth on Schedule 5.18, there is no, and within the last
three years the COMPANY has not experienced any, strike, picketing, boycott,
work stoppage or slowdown, other labor dispute, union organizational activity,
allegation, charge or complaint of unfair labor practice, employment
discrimination or other matters relating to the employment of labor, pending or,
to the COMPANY's knowledge, threatened against the COMPANY; nor is there, to the
knowledge of the COMPANY, any basis for any such allegation, charge or
complaint. Except as set forth on Schedule 5.18, to the knowledge of the
COMPANY, none of the employees of any critical subcontractor utilized by the
COMPANY are represented by a labor union. There is no request directed to the
COMPANY for union or similar representation pending and, to the COMPANY's
knowledge, no question concerning representation has been raised. To the
COMPANY's knowledge, there is no grievance pending which might have a Material
Adverse Effect on the COMPANY nor any which might have a Material Adverse Effect
on any arbitration proceeding arising out of any union agreement. There are no
arbitration awards, court orders, orders of the National Labor Relations Board
or private settlement agreements which in any way alter, amend or clarify any
union agreement or which restrict or otherwise impact the COMPANY's ability to
act with respect to the employees covered by any union agreement in the future.
To the COMPANY's knowledge, no key employee and no group of employees has any
plans to terminate employment with the COMPANY. The COMPANY has complied in all
material respects with all applicable laws relating to the employment of labor,
including provisions thereof relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and other taxes. The
COMPANY is not liable for any arrearages of wages or any taxes or penalties for
failure to comply with any such laws, ordinances or regulation.
5.19 Employee Plans. The COMPANY has delivered to CTS an accurate schedule
(which is set forth on Schedule 5.19) showing all Benefit Plans of the COMPANY,
together with true, complete and correct copies of such Benefit Plans,
agreements and any trusts related thereto, and classifications of employees
covered thereby as of the Balance Sheet Date. The COMPANY is not required to
contribute to any Benefit Plan pursuant to the provisions of any collective
bargaining agreement establishing the terms and conditions of employment of any
of COMPANY's employees.
5.20 Compliance with ERISA. All Benefit Plans listed on Schedule 5.19 that
are intended to qualify (the "Qualified Plans") under Section 401 (a) of the
Code are and
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have been so qualified and have been determined by the Internal Revenue Service
to be so qualified, and copies of such determination letters are included as
part of Schedule 5.19 hereof. Except as disclosed on Schedule 5.20, all reports
and other documents required to be filed with any Governmental Authority or
distributed to Plan participants or beneficiaries (including, but not limited
to, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof are included as part of Schedule 5.19 hereof
other than those reports required to be distributed to Plan participants and
beneficiaries. Neither the STOCKHOLDER, any Benefit Plan, nor the COMPANY has
engaged in any transaction prohibited under the provisions of Section 4975 of
the Code or Section 406 of ERISA. No Benefit Plan has incurred an accumulated
funding deficiency, as defined in Section 412(a) of the Code and Section 302(l)
of ERISA; and the COMPANY has not incurred any liability for excise tax or
penalty due to the Internal Revenue Service nor any liability to the PBGC. The
COMPANY further represents that:
(a) there have been no terminations, partial terminations or
discontinuance of contributions to any such Benefit Plan intended to
qualify under Section 401 (a) of the Code without notice to and approval
by the Internal Revenue Service;
(b) no Benefit Plan listed on Schedule 5.19 subject to the
provisions of Title IV of ERISA has been terminated;
(c) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any Benefit Plan;
(d) the COMPANY has not incurred liability under Section 4062 of
ERISA;
(e) no circumstances exist pursuant to which the COMPANY could have
any direct or indirect liability whatsoever (including, but not limited
to, any liability to any multiemployer plan or the PBGC under Title IV of
ERISA or to the Internal Revenue Service for any excise tax or penalty, or
being subject to any statutory lien to secure payment of any such
liability) with respect to any Benefit Plan now or heretofore maintained
or contributed to by any entity other than the COMPANY that is, or at any
time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the COMPANY;
(f) the COMPANY is not now, nor can it as a result of its past
activities become, liable to the PBGC or to any multiemployer employee
pension benefit plan under the provisions of Title IV of ERISA;
(g) all Benefit Plans listed on Schedule 5.19 and the administration
thereof are in substantial compliance with their terms and all applicable
provisions
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of ERISA and the regulations issued thereunder, as well as with all other
applicable federal, state and local statutes, ordinances and regulations;
and
(h) all accrued contribution obligations of the COMPANY with respect
to any Benefit Plan have either been fulfilled in their entirety or are
fully reflected on the balance sheet of the COMPANY as of the Balance
Sheet Date.
5.21 Conformity with Law; Litigation. Except as set forth on Schedule 5.13
or 5.21, the COMPANY has complied with all laws, rules, regulations, writs,
injunctions, decrees, and orders applicable to it or to the operation of its
Business (collectively, "Laws") and has not received any notice of any alleged
claim or threatened claim, violation of, liability or potential responsibility
under, any such Law which has not heretofore been cured and for which there is
no remaining liability other than, in each case, those not having a Material
Adverse Effect on the COMPANY. Without limiting the generality of the foregoing,
the COMPANY has complied with all applicable federal, state and local Laws
relating to antitrust and trade regulations.
Except to the extent set forth on Schedule 5.10 or 5.13 or as set forth on
Schedule 5.21 (which shall disclose the parties to, nature of, and relief sought
for each matter to be disclosed on Schedule 5.21) :
(a) There is no suit, action, proceeding, claim, order or, to the
Company's knowledge, investigation pending or, to the COMPANY's knowledge,
threatened against either the COMPANY or any Benefit Plan, or any
fiduciary of any such Benefit Plan or, to the knowledge of the COMPANY,
pending or threatened against any of the officers, directors or employees
of the COMPANY with respect to its business or proposed business
activities or to which the COMPANY is otherwise a party, which would have
a Material Adverse Effect on the COMPANY, before any court, or before any
Governmental Authority (collectively, "Claims"); nor, to the COMPANY's
knowledge, is there any basis for any such Claims.
(b) The COMPANY is not subject to any judgment, order or decree of
any court or Governmental Authority; the COMPANY has not received any
opinion or memorandum from legal counsel to the effect that it is exposed,
from a legal standpoint, to any liability or disadvantage which may be
material to its business. The COMPANY is not engaged in any legal action
to recover monies due it or for damages sustained by it.
(c) The COMPANY's current insurance is believed in good faith to be
adequate to cover all pending or threatened Claims, the COMPANY has given
all required notice of such Claims to its appropriate insurance carrier(s)
and/or all such claims have been fully reserved for on the financial
statements of the
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COMPANY has delivered to CTS pursuant to the terms of this Agreement.
Schedule 5.21 lists the insurer for each Claim covered by insurance or
designates each Claim, or portion of each Claim, as uninsured and the
individual and aggregate policy limits for the insurance covering each
insured Claim and the applicable policy deductibles for each insured
Claim.
Schedule 5.21 sets forth all closed litigation matters (other than workers
compensation claims) to which the COMPANY was a party during the three
years preceding the Closing, the date such litigation was commenced and
concluded, and the nature of the resolution thereof (including amounts
paid in settlement or judgment).
5.22 Taxes. Except as set forth on Schedule 5.22:
(a) All Returns required to have been filed by or with respect to
the COMPANY and any affiliated, combined, consolidated, unitary or similar
group of which the COMPANY is or was a member (a "Relevant Group") with
any Taxing Authority have been duly filed, and each such Return correctly
and completely reflects the Tax liability and all other information
required to be reported thereon. All Taxes (whether or not shown on any
Return) owed by the COMPANY, any subsidiary and any member of a Relevant
Group (individually, the "Acquired Party" and collectively, the "Acquired
Parties") have been paid.
(b) To the knowledge of the COMPANY and the STOCKHOLDER, the
provisions for Taxes due by the COMPANY and any subsidiaries (as opposed
to any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) in the COMPANY Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of such Acquired Party.
(c) No Acquired Party is a party to any agreement extending the time
within which to file any Return. No claim has ever been made by any Taxing
Authority in a jurisdiction in which an Acquired Party does not file
Returns that it is or may be subject to taxation by that jurisdiction that
is unresolved or if adversely determined would have a Material Adverse
Effect on such Acquired Party.
(d) Each Acquired Party has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to
any employee, creditor, independent contractor or other third party.
(e) No Acquired Party expects any Taxing Authority to assess any
additional Taxes against or in respect of it for any past period. There is
no dispute
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or claim concerning any Tax liability of any Acquired Party either (i)
claimed or raised by any Taxing Authority or (ii) otherwise known to any
Acquired Party. No issues have been raised in any examination by any
Taxing Authority with respect to any Acquired Party which, by application
of similar principles, reasonably could be expected to result in a
proposed deficiency for any other period not so examined. Schedule 5.22(v)
attached hereto lists all federal, state, local and foreign income Tax
Returns filed by or with respect to any Acquired Party for all taxable
periods ended on or after January 1, 1991, indicates those Returns, if
any, that have been audited, and indicates those Returns that currently
are the subject of audit. Each Acquired Party has delivered to CTS
complete and correct copies of all federal, state, local and foreign
income Tax Returns filed by, and all Tax examination reports and
statements of deficiencies assessed against or agreed to by, such Acquired
Party since January 1, 1991.
(f) No Acquired Party has waived any statute of limitations, the
waiver of which remains in effect on the date hereof, in respect of Taxes
or agreed to any extension of time with respect to any Tax assessment or
deficiency.
(g) No Acquired Party has made any payments, is obligated to make
any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not
deductible (i) under Section 280G of the Code or (ii) as compensation
under Section 162(m) of the Code or any similar provision under state
and/or local law.
(h) No Acquired Party is a party to any Tax allocation or sharing
agreement.
(i) None of the assets of any Acquired Party constitutes tax-exempt
bond financed property or tax-exempt use property, within the meaning of
Section 168 of the Code. No Acquired Party is a party to any "safe harbor
lease" that is subject to the provisions of Section 168(f)(8) of the
Internal Revenue Code as in effect prior to the Tax Reform Act of 1986, or
to any " long-term contract" within the meaning of Section 460 of the
Code.
(j) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of any
state statutes, and none of the assets of any Acquired Party is subject to
an election under Section 341(f) of the Code or comparable provisions of
any state statutes.
(k) No Acquired Party is a party to any joint venture, partnership
or other arrangement that is treated as a partnership for federal income
Tax purposes.
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(l) There are no accounting method changes or proposed or threatened
accounting method changes, of any Acquired Party that could give rise to
an adjustment under Section 481 of the Code for periods after the Closing
Date.
(m) No Acquired Party has received any written ruling of a Taxing
Authority related to Taxes or entered into any written and legally binding
agreement with a Taxing Authority relating to Taxes.
(n) Each Acquired Party has disclosed (in accordance with Section
6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns all
positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Section 6662(d)
of the Code.
(o) No Acquired Party has any liability for Taxes of any person
other than such Acquired Party (i) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign law),
(ii) as a transferee or successor, (iii) by contract or (iv) otherwise.
(p) Prior to CTS's acquisition of the COMPANY pursuant to this
Agreement, there currently are no limitations on the utilization of the
net operating losses, built-in losses, capital losses, Tax credits or
other similar items of any Acquired Party (collectively, the "Tax Losses")
under (i) Section 382 of the Code, (ii) Section 383 of the Code, (iii)
Section 384 of the Code, (iv) Section 269 of the Code, (v) Section
1.1502-15 and Section 1.1 502-15A of the Treasury regulations, (vi)
Section 1.1502-21 and Section 1.1502-21A of the Treasury regulations or
(vii) Sections 1.1502-91 through 1.1502-99 of the Treasury regulations, in
each case as in effect both prior to and following the Tax Reform Act of
1986.
(q) At the Balance Sheet Date, the Acquired Parties had aggregate
Tax Losses for federal income Tax purposes as described on Schedule
5.22(9) attached hereto.
(r) The COMPANY is not an investment company as defined in Section
351(e)(1) of the Code.
(s) The fair market value of the assets of the COMPANY exceeds the
sum of its liabilities, plus the amount of liabilities, if any, to which
the assets are subject.
(t) The COMPANY is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 351(e)(2) of the Code.
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For purposes of this Section 5.22, the following definitions shall
apply:
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or Governmental Authority.
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatsoever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Taxing Authority" means any Governmental Authority, board, bureau,
body, department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
5.23 No Violations. The COMPANY is not in violation of any Charter
Document. Neither the COMPANY nor, to the knowledge of the COMPANY or the
STOCKHOLDER, any other party thereto, is in default under any Material Contract;
and, except as set forth on Schedule 5.23, (a) the rights and benefits of the
COMPANY under the Material Contracts will not be adversely affected by the
transactions contemplated hereby and (b) the execution of this Agreement and the
performance by the COMPANY and the STOCKHOLDER of their obligations hereunder
and the consummation by the COMPANY and the STOCKHOLDER of the transactions
contemplated hereby will not (i) result in any violation or breach of, or
constitute a default under, any of the terms or provisions of the Material
Contracts or the Charter Documents or (ii) require the consent, approval, waiver
of any acceleration, termination or other right or remedy or action of or by, or
make any filing with or give any notice to, any other party. Except as set forth
on Schedule 5.23, none of the Material Contracts requires notice to, or the
consent or approval of, any Governmental Authority or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect and consummation of the transactions contemplated hereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any material right or benefit. Except as set forth on Schedule 5.23,
none of the Material Contracts prohibits the use or publication by the COMPANY,
CTS or NEWCO of the name of any other party to such Material Contracts, and none
of the Material Contracts prohibits or restricts the COMPANY from freely
providing services to any other customer or potential customer of the COMPANY,
CTS, NEWCO or any Other Founding Company.
5.24 Government Contracts. Except as set forth on Schedule 5.24, the
COMPANY is not a party to any governmental contract subject to price
redetermination or renegotiation.
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5.25 Business Conduct. Except as set forth on Schedule 5.25, since
December 31, 1996, the COMPANY has conducted its business only in the ordinary
course consistent with past custom and practices and has incurred no liabilities
other than in the ordinary course of business consistent with past custom and
practices. Except as forth on Schedule 5.25, since December 31, 1996, there has
not been any:
(a) Material adverse change in the COMPANY's operations, condition
(financial or otherwise), operating results, assets, liabilities,
employee, customer or supplier relations or business prospects;
(b) Damage, destruction or loss of any property owned by the COMPANY
or used in the operation of the business, whether or not covered by
insurance, having a replacement cost or fair market value in excess of
$50,000 affecting the COMPANY's property, financial status or the
Business;
(c) Voluntary or involuntary sale, transfer, surrender, abandonment
or other disposition of any kind by the COMPANY of any assets or property
rights (tangible or intangible), having a replacement cost or fair market
value in excess of $50,000, except in each case the sale of inventory and
collection of accounts in the ordinary course of business consistent with
past custom and practices;
(d) Loan or advance by the COMPANY to any party other than sales to
customers on credit in the ordinary course of business consistent with
past custom and practices;
(e) Declaration, setting aside, or payment of any dividend or other
distribution in respect to the COMPANY's capital stock, any direct or
indirect redemption, purchase, or other acquisition of such stock, or the
payment of principal or interest on any note, bond, debt instrument or
debt to any Affiliate;
(f) Incurrence of debts, liabilities or obligations except current
liabilities incurred in connection with or for services rendered or goods
supplied in the ordinary course of business consistent with past custom
and practices, liabilities on account of taxes and governmental charges
but not penalties, interest or fines in respect thereof, and obligations
or liabilities incurred by virtue of the execution of this Agreement;
(g) Issuance by the COMPANY of any notes, bonds, or other debt
securities or any equity securities or securities convertible into or
exchangeable for any equity securities;
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(h) Cancellation, waiver or release by the COMPANY of any debts,
rights or claims, except in each case in the ordinary course of business
consistent with past custom and practices;
(i) Amendment of the COMPANY's Articles or Certificate of
Incorporation or By-Laws;
(j) Amendment or termination of any Material Contract, other than
expiration of such contract in accordance with its terms;
(k) Change in accounting principles, methods or practices
(including, without limitation, any change in depreciation or amortization
policies or rates) utilized by the COMPANY;
(l) Discharge or satisfaction of any material liability, encumbrance
or payment of any material obligation or liability, other than current
liabilities paid in the ordinary course of business consistent with past
custom and practices or cancellation of any debts or claims;
(m) Sale or assignment by the COMPANY of any tangible assets other
than in the ordinary course of business;
(n) Capital expenditures or commitments therefor by the COMPANY
other than in the ordinary course of business in excess of $100,000 in the
aggregate;
(o) Charitable contributions or pledges by the COMPANY in excess of
$25,000 per year in the aggregate;
(p) Mortgage, pledge or other encumbrance of any asset of the
COMPANY other than in the ordinary course of business;
(q) Adoption, amendment or termination of any Benefit Plan;
(r) Increase in the benefits provided under any Benefit Plan; or
(s) An occurrence or event not included in clauses (a) through (t)
that has or might be expected to have a Material Adverse Effect on the
COMPANY.
5.26 Deposit Accounts; Powers of Attorney. The COMPANY has delivered to
CTS an accurate schedule (which is set forth on Schedule 5.26) as of the date of
this Agreement of:
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(a) the name of each financial institution in which the COMPANY has
accounts or safe deposit boxes;
(b) the names in which the accounts or boxes are held;
(c) the type of account and account number; and
(d) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY and
a description of the terms of such power of attorney.
5.27 Relations with Governments. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause the COMPANY to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.28 Disclosure.
(a) The representations and warranties of the COMPANY and the
STOCKHOLDER contained in this Agreement, the schedules to this Agreement
provided by the COMPANY and/or the STOCKHOLDER, the certificates and the
other documents furnished by the COMPANY and/or the STOCKHOLDER to CTS
pursuant hereto and for inclusion in the Registration Statement (which,
for purposes of this Agreement, shall include the completed Directors and
Officers Questionnaires and Registration Statement Questionnaires), taken
as a whole, present fairly the business and operations of the COMPANY for
the time periods with respect to which such information was requested. The
COMPANY'S rights under the documents delivered pursuant hereto would not
be materially adversely affected by, and no statement made herein would be
rendered untrue in any material respect by, any other document to which
the COMPANY is a party, or to which its properties are subject, or by any
other fact or circumstance regarding the COMPANY (which fact or
circumstance was, or should reasonably, after due inquiry, have been known
to the COMPANY) that is not disclosed pursuant hereto or thereto. If,
prior to the 25th day after the date of the final prospectus of CTS
utilized in connection with the IPO, the COMPANY or the STOCKHOLDER
becomes aware of any fact or circumstance which would change (or, if after
the Closing Date, would have changed) a representation or warranty of
COMPANY or the STOCKHOLDER in this Agreement or would affect any document
delivered pursuant hereto in any material respect, the
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COMPANY and the STOCKHOLDER shall immediately give notice of such fact or
circumstance to CTS. However, subject to the provisions of Section 7.8,
such notification shall not relieve either the COMPANY or the STOCKHOLDER
of their respective obligations under this Agreement.
(b) The COMPANY and the STOCKHOLDER acknowledge and agree (i) that
there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant
thereto will occur at a particular price or within a particular range of
prices or occur at all; (ii) that neither CTS or any of its officers,
directors, agents or representatives nor any Underwriter shall have any
liability to the COMPANY, the STOCKHOLDER or any other person affiliated
or associated with the COMPANY for any failure of the Registration
Statement to become effective, the IPO to occur at a particular price or
within a particular range of prices or to occur at all; and (iii) that the
decision of the STOCKHOLDER to enter into this Agreement, or to vote in
favor of or consent to the proposed Merger, has been or will be made
independent of, and without reliance upon, any statements, opinions or
other communications, or due diligence investigations which have been or
will be made or performed by any prospective Underwriter, relative to CTS
or the prospective IPO.
5.29 Prohibited Activities. Except as set forth on Schedule 5.29, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions set forth in Section 7.3.
5.30 Affiliate Transactions. Schedule 5.30 sets forth the parties to and
the date, nature and amount of (A) each transaction or series of similar
transactions (other than payments of salary and bonus which are reflected as
line items in the Financial Statements) involving the transfer of any cash,
property or rights in which the amount involved individually or collectively
exceeded $60,000 to or from the COMPANY from, to, or for the benefit of any
Affiliate or former Affiliate of the COMPANY ("Affiliate Transactions") during
the period commencing January 1, 1994 through the date hereof and (B) any
existing commitments of the COMPANY to engage in the future in any Affiliate
Transactions. Each Affiliate Transaction was effected on terms equivalent to
those which would have been established in an arms'-length negotiation, except
as disclosed on Schedule 5.30.
5.31 Misrepresentation. To the knowledge of the COMPANY and the
STOCKHOLDER, none of the representations and warranties set forth in this
Agreement, the certificates and the other documents furnished by the COMPANY to
CTS pursuant hereto and for inclusion in the Registration Statement, taken as a
whole, contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements contained herein or therein not
misleading.
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(B) Representations and Warranties of the STOCKHOLDER
The STOCKHOLDER represents and warrants to CTS and NEWCO that the
representations and warranties set forth below with respect to such STOCKHOLDER
are true and correct as of the date of this Agreement and, subject to Section
7.8 hereof, shall be true and correct at the time of the Pre-Closing and on the
Closing Date.
5.32 Securities Act Representations. The STOCKHOLDER alone, or together
with such STOCKHOLDER's "purchaser representative" (as defined in Rule 501(h)
promulgated under the 1933 Act):
(a) acknowledges and agrees that (x) the shares of CTS Stock to be
delivered to the STOCKHOLDER pursuant to this Agreement have not been and will
not be registered under the 1933 Act, and therefore may not be sold, transferred
or otherwise conveyed without compliance with the 1933 Act or pursuant to an
exemption therefrom and (y) the CTS Stock to be acquired by the STOCKHOLDER
pursuant to this Agreement is being acquired solely for its own account, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of the CTS Stock in connection with a distribution;
(b) acknowledges and agrees that it knows and understands that an
investment in the CTS Stock is a speculative investment which involves a high
degree of risk of loss;
(c) represents and warrants that it is able to bear the economic risk of
an investment in the CTS Stock acquired pursuant to this Agreement, can afford
to sustain a total loss of such investment and has such knowledge and experience
in financial and business matters that it is capable of evaluating the merits
and risks of the proposed investment in the CTS Stock;
(d) represents and warrants that it has had an adequate opportunity to
review and to ask questions and receive answers concerning any and all matters
relating to the transactions described in (i) CTS's private placement memorandum
and (ii) this Agreement;
(e) represents and warrants that it has had an adequate opportunity to ask
questions and received answers concerning (i) the background and experience of
the current and proposed officers and directors of CTS, (ii) the plans for the
operations of the business of CTS, (iii) the business, operations and financial
condition of the Other Founding Companies, and (iv) any plans for additional
acquisitions and the like;
(f) represents and warrants that it is either an "accredited investor" (as
defined in Rule 501(a) promulgated under the 1933 Act) or, after taking into
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consideration the information and advice provided to the STOCKHOLDER, has the
requisite knowledge and experience in financial and business matters to be
capable of evaluating the merits and risks of an investment in the CTS Stock;
(g) represents and warrants that, to its knowledge, there have been no
general or public solicitations or advertisements or other broadly disseminated
disclosures (including, without limitation, any advertisement, article, notice
or other communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or advertising) by or on behalf of
CTS regarding an investment in the CTS Stock; and
(h) acknowledges and agrees that the CTS Stock shall bear the following
legend in addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND, IF REQUIRED BY
CONDOR TECHNOLOGY SOLUTIONS, INC., AN OPINION OF COUNSEL TO CONDOR
TECHNOLOGY SOLUTIONS, INC. STATING THAT REGISTRATION IS NOT REQUIRED UNDER
THE ACT.
The STOCKHOLDER acknowledges that the effect of the foregoing legend, among
other things, is or may be to limit or destroy the value of the certificate for
purposes of sale or use as loan collateral. The STOCKHOLDER consents that "stop
transfer" instructions may be noted against the CTS Stock.
5.33 Authority; Ownership. The STOCKHOLDER has the full legal right, power
and authority to enter into this Agreement. The STOCKHOLDER owns beneficially
and of record all of the shares of the COMPANY Stock identified on Annex IV as
being owned by the STOCKHOLDER, and, except as set forth on Schedule 5.33, such
COMPANY Stock is owned free and clear of all liens, security interests, pledges,
charges, voting trusts, restrictions, encumbrances and claims of every kind.
5.34 Preemptive Rights. The STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of COMPANY Stock or CTS Stock
that the STOCKHOLDER has or may have had other than rights of the
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STOCKHOLDER to acquire CTS Stock pursuant to (i) this Agreement or (ii) any
option granted by CTS.
5.35 No Intention to Dispose of CTS Stock. The STOCKHOLDER does not have
any current plan or intention, or is under any binding commitment or contract,
to sell, exchange or otherwise dispose of shares of CTS Stock received pursuant
to Section 3.1.
5.36 Questionnaires. The Completed Directors and Officers Questionnaires
and Registration Statement Questionnaires attached hereto as Schedule 5.36,
present fairly the business and operations of the COMPANY for the time periods
with respect to which such information was requested. If, prior to the 25th day
after the date of the final prospectus of CTS utilized in connection with the
IPO, the STOCKHOLDER becomes aware of any fact or circumstance which would
affect the information disclosed in its Directors and Officers Questionnaires or
their Registration Statement Questionnaires in any material respect, then the
STOCKHOLDER shall immediately give notice of such fact or circumstance to CTS.
However, subject to the provisions of Section 7.8, such notification shall not
relieve the STOCKHOLDER of its obligations under this Agreement.
6. REPRESENTATIONS OF CTS and NEWCO
CTS and NEWCO jointly and severally represent and warrant to the COMPANY
and the STOCKHOLDER that all of the following representations and warranties in
this Section 6 are true and correct at the date of this Agreement and, subject
to Section 7.8 hereof, shall be true and correct at the time of the Pre-Closing
and on the Closing Date, and that such representations and warranties shall
survive the Closing Date for a period of eighteen months.
6.1 Due Organization. CTS and NEWCO are each corporations duly
incorporated, validly existing and in good standing under the laws of the state
of their incorporation, and are duly authorized and qualified to do business
under all applicable laws, regulations, ordinances and orders of public
authorities to carry on their business in the places and in the manner as now
conducted, to own or hold under lease the properties and assets they now own or
hold under lease, and to perform all of their obligations under any material
agreement to which they are a party or by which their properties are bound. CTS
and NEWCO are not qualified to do business as foreign corporations in any
jurisdiction, and there is no jurisdiction in which the conduct of CTS's and
NEWCO's business or activities or their ownership of assets requires
qualification under applicable law, the absence of which would have a Material
Adverse Effect on either CTS or NEWCO. True, complete and correct copies of the
Certificate or Articles of Incorporation and By-Laws, each as amended, of CTS
and NEWCO (the "CTS Charter Documents") are all attached hereto as Annex II. The
minute books and stock records of
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each of CTS and NEWCO as heretofore made available to the COMPANY, are correct
and complete in all material respects. The most recent minutes of each of CTS
and NEWCO, which are dated no earlier than 10 business days prior to the date
hereof, affirm and ratify all prior acts of CTS and NEWCO, as the case may be,
and of their respective officers and directors.
6.2 Authorization. The respective representatives of CTS and NEWCO
executing this Agreement have the authority to execute and deliver this
Agreement and to bind CTS and NEWCO to perform their respective obligations
hereunder. The execution and delivery of this Agreement by CTS and NEWCO and the
performance by CTS and NEWCO of their respective obligations under this
Agreement and the consummation by CTS and NEWCO of the transactions contemplated
hereby have been duly authorized by all necessary corporate action by each in
accordance with applicable law and the Certificate or Articles of Incorporation
and By-Laws of CTS and NEWCO, as the case may be. Each share of CTS Stock to be
issued to the STOCKHOLDER on the Closing Date will be duly and validly
authorized and issued, free and clear of all liens, claims and other
encumbrances and fully paid and nonassessable. This Agreement constitutes the
valid and binding obligation of CTS and NEWCO, enforceable in accordance with
its terms.
6.3 Transaction Not a Breach. Neither the execution and delivery of this
Agreement nor their performance will violate, conflict with, or result in a
breach of any provision of any Law, rule, regulation, order, permit, judgment,
injunction, decree or other decision of any court or other tribunal or any
Governmental Authority binding on CTS or NEWCO or conflict with or result in the
breach of any of the terms, conditions or provisions of the Certificate or
Articles of Incorporation or the By-laws of CTS or NEWCO or of any contract,
agreement, mortgage or other instrument or obligation of any nature to which CTS
or NEWCO is a party or by which CTS or NEWCO is bound.
6.4 Misrepresentation. None of the representations and warranties set
forth in this Agreement or in any of the certificates, schedules, exhibits,
lists, documents, exhibits, or other instruments delivered, or to be delivered,
to the COMPANY as contemplated by any provision hereof, contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading.
6.5 Capital Stock. The entire authorized capital stock of CTS will consist
of 50,000,000 shares. Except as disclosed on Schedule 6.5, there are no
outstanding options, rights (preemptive or otherwise), warrants, calls,
convertible securities or commitments or any other arrangements to which CTS is
a party requiring issuance, sale or transfer of any equity securities of CTS or
any securities convertible directly or indirectly into equity securities of CTS,
or evidencing the right to subscribe for any equity securities of CTS, or giving
any person other than the Founding Companies any
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rights with respect to the capital stock of CTS. Except as contemplated by this
Agreement or disclosed on Schedule 6.5, there are no voting agreements, voting
trusts, other agreements (including cumulative voting rights), commitments or
understandings with respect to the CTS Stock.
6.6 Subsidiaries. Schedule 6.6 attached hereto lists the name of each of
CTS's and NEWCO's subsidiaries and sets forth the number and class of the
authorized capital stock of CTS's and NEWCO's subsidiaries and the number of
shares of each of CTS's and NEWCO's subsidiaries which are issued and
outstanding prior to the Merger, all of which shares (except as set forth on
Schedule 6.6) are owned by CTS and NEWCO, as the case may be, free and clear of
all liens, security interests, pledges, voting trusts, equities, restrictions,
encumbrances and claims of every kind. Except as set forth on Schedule 6.6, CTS
and NEWCO do not presently own, of record or beneficially, or control, directly
or indirectly, any capital stock, securities convertible into capital stock or
any other equity interest in any corporation, association or business entity nor
is CTS or NEWCO, as the case may be, directly or indirectly, a participant in
any joint venture, partnership or other non-corporate entity.
6.7 Conformity with Law; Litigation. Except as set forth on Schedule 6.7,
CTS and NEWCO have complied with all Laws applicable to them or to the operation
of their businesses and have not received any notice of any alleged claim or
threatened claim, violation of, liability or potential responsibility under, any
Law which has not heretofore been cured and for which there is no remaining
liability other than, in each case, those not having a Material Adverse Effect
on CTS or NEWCO, taken as a whole. Without limiting the generality of the
foregoing, CTS and NEWCO have each complied with all applicable Federal, state
and local Laws relating to antitrust and trade regulations.
Except to the extent set forth on Schedule 6.7 (which shall disclose the
parties to, nature of, and relief sought for each matter):
(a) There is no suit, action, proceeding, investigation, claim or
order pending or, to the knowledge of CTS and NEWCO, threatened against
either of CTS or NEWCO, or any Plan, or any fiduciary of any such Plan or,
to the knowledge of CTS and NEWCO, pending or threatened against any of
the officers, directors or employees of CTS or NEWCO with respect to their
businesses or proposed business activities which are material to CTS or
NEWCO, or to which CTS or NEWCO is otherwise a party, or which may affect
either CTS or NEWCO, their assets or their businesses, before any court,
or before any Governmental Authority.
(b) CTS and NEWCO are not subject to any judgment, order or decree
of any court or Governmental Authority; CTS and NEWCO have not received
any opinion or memorandum from legal counsel to the effect that either is
exposed,
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from a legal standpoint, to any liability or disadvantage which may be
material to their businesses. Neither CTS nor NEWCO are engaged in any
legal action to recover monies due it or them for damages sustained by
either of them.
7. COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation; Due Diligence.
(a) Between the date of this Agreement and the Closing Date, the
COMPANY will afford to the officers and authorized representatives of CTS
and the Other Founding Companies access during business hours to all of
the COMPANY's sites, properties, books and records and will furnish CTS
with such additional financial and operating data and other information as
to the business and properties of the COMPANY as CTS or the Other Founding
Companies may from time to time reasonably request. The COMPANY will
cooperate with CTS and the Other Founding Companies and their respective
representatives, including CTS's auditors and counsel, in the preparation
of any documents or other material (including the Registration Statement)
which may be required in connection with the transactions contemplated by
this Agreement. CTS, NEWCO, the STOCKHOLDER and the COMPANY will treat all
information obtained in connection with the negotiation and performance of
this Agreement or the due diligence investigations conducted with respect
to the Other Founding Companies as confidential in accordance with the
provisions of Section 14 hereof. In addition, CTS will cause each of the
Other Agreements, binding each of the Other Founding Companies, to contain
a provision similar to this Section 7.1 requiring each such Other Founding
Company, its stockholders, directors, officers, representatives, employees
and agents to keep confidential any information obtained by such Other
Founding Company.
(b) Between the date of this Agreement and the Closing Date, CTS
will afford to the officers and authorized representatives of the COMPANY
access during business hours to all of CTS's and NEWCO's sites,
properties, books and records and will furnish the COMPANY with such
additional financial and operating data and other information as to the
business and properties of CTS and NEWCO as the COMPANY may from time to
time reasonably request. CTS and NEWCO will cooperate with the COMPANY,
its representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection with the
transactions contemplated by this Agreement. The COMPANY will cause all
information obtained in connection with the negotiation and performance of
this Agreement to be treated as confidential in accordance with the
provisions of Section 14 hereof.
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7.2 Conduct of Business Pending Closing. Between the date of this
Agreement and the Closing Date, the COMPANY will, except as set forth on
Schedule 7.2:
(a) carry on its business in the ordinary course substantially as
conducted heretofore and not introduce any new method of management,
operation or accounting;
(b) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(c) perform in all material respects its obligations under
agreements relating to or affecting its assets, properties or rights;
(d) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(e) maintain and preserve its business organization intact and use
its best efforts to retain its present key employees and relationships
with suppliers, customers and others having business relations with the
COMPANY;
(f) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar Governmental Authorities; and
(g) maintain present debt and lease instruments in accordance with
their respective terms and not enter into new or amended debt or lease
instruments, provided that debt and/or lease instruments may be replaced
if such replacement instruments are on terms at least as favorable to the
COMPANY as the instruments being replaced.
7.3 Prohibited Activities. Except as disclosed on Schedule 7.3, between
the date hereof and the Closing Date, the COMPANY will not, without the prior
written consent of CTS:
(a) make any change in its Articles or Certificate of Incorporation
or By-laws;
(b) grant or issue any securities, options, warrants, calls,
conversion rights or commitments of any kind relating to its securities of
any kind other than in connection with the exercise of options or warrants
listed on Schedule 5.4;
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(c) declare or pay any dividend, or make any distribution in respect
of its stock whether now or hereafter outstanding, or purchase, redeem or
otherwise acquire or retire for value any shares of its stock or engage in
any transaction that will significantly affect the cash reflected on the
balance sheet of the COMPANY as of December 31, 1996.
(d) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditure, except if it is in the
ordinary course of business (consistent with past practice) or involves an
amount not in excess of $10,000;
(e) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $10,000 necessary or desirable for the conduct of
the business of the COMPANY, (2)(A) liens for Taxes either not yet due or
being contested in good faith and by appropriate proceedings (and for
which adequate reserves have been established and are being maintained) or
(B) materialmen's, mechanics', workers', repairmen's, employees' or other
like liens arising in the ordinary course of business (the liens set forth
in clause (2) being referred to herein as "Statutory Liens"), or (3) liens
set forth on Schedule 5.10 or 5.15 hereto;
(f) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the ordinary course of business;
(g) negotiate for the acquisition of any business or the start-up of
any new business;
(h) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(i) waive any material right or claim of the COMPANY, provided that
the COMPANY may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be
included on Schedule 5.11 unless specifically listed thereon;
(j) commit a material breach, materially amend or terminate any
Material Contract;
(k) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder; or
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(l) except in the ordinary course of business or as required by Law
or contractual obligations or other understandings or arrangements
existing on the date hereof, the COMPANY will not (i) increase in any
manner the base compensation of, or enter into any new bonus or incentive
agreement or arrangement with, any of the employees engaged in the
COMPANY's business, (ii) pay or agree to pay any additional pension,
retirement allowance or other employee benefit to any such employee,
whether past or present, (iii) enter into any new employment, severance,
consulting, or other compensation agreement with any existing employee
engaged in the COMPANY's business, (iv) amend or enter into a new Benefit
Plan (except as required by Law) or amend or enter into a new collective
bargaining agreement (except as required by this Agreement), or (v) engage
in any Affiliate Transaction.
7.4 No Shop. In consideration of the substantial expenditure of time,
effort and expense undertaken by CTS in connection with its due diligence review
and the preparation and execution of this Agreement, the COMPANY and the
STOCKHOLDER agree that neither they nor their representatives, agents or
employees will, after the execution of this Agreement until the earlier of (i)
the termination of this Agreement or (ii) the Closing, directly or indirectly,
solicit, encourage, negotiate or discuss with any third party (including by way
of furnishing any information concerning the COMPANY) any acquisition proposal
relating to or affecting the COMPANY or any part of it, or any direct or
indirect interests in the COMPANY, whether by purchase of assets or stock,
purchase of interests, merger or other transaction ("Acquisition Transaction"),
and that the COMPANY will promptly advise CTS of the terms of any communications
the STOCKHOLDER or the COMPANY may receive or become aware of relating to any
bid for all or any part of the COMPANY.
7.5 Notice to Bargaining Agents. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements. Set forth on
Schedule 7.5 is any and all proof that any such required notice has been sent.
7.6 Agreements. Except as set forth on Schedule 9.7, the STOCKHOLDER and
the COMPANY shall terminate (i) any stockholders' agreements, voting agreements,
voting trusts, options, warrants and employment agreements between the COMPANY
and any employee listed on Schedule 9.12 hereto and (ii) any existing agreement
between the COMPANY and the STOCKHOLDER, on or prior to the Closing Date. A list
of such agreements to be terminated is set forth on Schedule 7.6 and copies of
each such agreement to be terminated have been provided to counsel for CTS.
7.7 Notification of Certain Matters. The STOCKHOLDER and the COMPANY shall
give prompt notice to CTS of (i) the occurrence or non-occurrence of
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any event of which the COMPANY or the STOCKHOLDER have knowledge, the occurrence
or non-occurrence of which, would cause any representation or warranty of the
COMPANY or the STOCKHOLDER contained herein to be untrue or inaccurate in any
material respect at or prior to the Closing and (ii) any material failure of the
STOCKHOLDER or the COMPANY to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. CTS and
NEWCO shall give prompt notice to the COMPANY of (i) the occurrence or
non-occurrence of any event of which CTS or NEWCO have knowledge, the occurrence
or non-occurrence of which, would cause any representation or warranty of CTS or
NEWCO contained herein to be untrue or inaccurate in any material respect at or
prior to the Closing and (ii) any material failure of CTS or NEWCO to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder. The delivery of any notice pursuant to this Section
7.7 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.8, (ii) modify the conditions set forth in Sections 8
and 9, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
7.8 Amendment of Schedules.
(a) Each party hereto agrees that, with respect to the
representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing Date to
supplement or amend promptly the Schedules hereto with respect to any
matter hereafter arising or discovered which, if existing or known at the
date of this Agreement, would have been required to be set forth or
described in the Schedules; provided, however. that supplements and
amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall only have to be
delivered at the Closing Date, unless such Schedule is to be amended to
reflect an event occurring other than in the ordinary course of business.
(b) Until 24 hours prior to the anticipated effectiveness of the
Registration Statement, and notwithstanding the foregoing clause (a), the
provisions of this clause (b) shall apply: no amendment or supplement to a
Schedule prepared by the COMPANY or the STOCKHOLDER that constitutes or
reflects an event or occurrence that would have a Material Adverse Effect
on the COMPANY may be made unless CTS and a majority of the Founding
Companies other than the COMPANY consent to such amendment or supplement;
and provided further, that no amendment or supplement to a Schedule
prepared by CTS or NEWCO that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on the COMPANY may be
made unless a majority of the Founding Companies consent to such amendment
or supplement. In the event that one of the Other Founding Companies seeks
to amend or supplement a Schedule pursuant to Section 7.8 of one of the
Other Agreements,
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and such amendment or supplement constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on such Other
Founding Company, CTS shall give the COMPANY notice promptly after it has
knowledge thereof. If CTS and a majority of the Founding Companies consent
to such amendment or supplement, which consent shall have been deemed
given by CTS or any Founding Company if no response is received from CTS
or any such Founding Company within 24 hours following receipt of notice
by CTS or any Founding Company of such amendment or supplement (or sooner
if required by the circumstances under which such consent is requested),
but the COMPANY does not give its consent, the COMPANY may terminate this
Agreement pursuant to Section 12.1(d) hereof. In the event that the
COMPANY seeks to amend or supplement a Schedule pursuant to this Section
7.8 and CTS and a majority of the Other Founding Companies do not consent
to such amendment or supplement as provided above, this Agreement shall be
deemed terminated by mutual consent as set forth in Section 12.1(a)
hereof. In the event that CTS or NEWCO seeks to amend or supplement a
Schedule pursuant to this Section 7.8 and a majority of the Founding
Companies do not consent to such amendment or supplement as provided
above, this Agreement shall be deemed terminated by mutual consent as set
forth in Section 12.1(d) hereof.
(c) Between 24 hours prior to the anticipated effectiveness of the
Registration Statement and the Closing Date, the provisions of this clause
(c) shall apply. No amendment or supplement to a Schedule prepared by the
COMPANY or the STOCKHOLDER that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may on the COMPANY be
made unless CTS consents to such amendment or supplement after
consultation with the Underwriters. CTS and NEWCO hereby covenant that
neither CTS nor NEWCO will amend or supplement any Schedule prepared by
CTS or NEWCO that constitutes or reflects an event or occurrence that
would have a Material Adverse Effect on CTS or NEWCO, as the case may be,
without consulting with the Underwriters, and CTS shall provide immediate
notice of such amendment or supplement to the Founding Companies.
(d) For all purposes of this Agreement, including without limitation
for purposes of determining whether the conditions set forth in Sections
8.1 and 9.1 have been fulfilled, the Schedules hereto shall be deemed to
be the Schedules as amended or supplemented pursuant to this Section 7.8.
No party to this Agreement shall be liable to any other party if this
Agreement shall be terminated pursuant to the provisions of this Section
7.8, except that, notwithstanding anything to the contrary contained in
this Agreement, if the COMPANY or the STOCKHOLDER on the one hand, or CTS
or NEWCO on the other hand, amends or supplements a Schedule which results
in a termination of this Agreement and such amendment or supplement arises
out of or reflects facts or
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circumstances which such party knew about at the time of execution of this
Agreement and knew would result in a termination of this Agreement or if
such amendment or supplement otherwise is proposed in bad faith, such
party shall pay or reimburse CTS or the COMPANY and the STOCKHOLDER, as
the case may be, for all of the legal, accounting and other out of pocket
costs reasonably incurred in connection with this Agreement and the IPO as
it relates to the COMPANY and the STOCKHOLDER.
7.9 Cooperation in Preparation of Registration Statement.
(a) The COMPANY and STOCKHOLDER shall furnish or cause to be
furnished to CTS and the Underwriters all of the information concerning
the COMPANY and the STOCKHOLDER requested by CTS or the Underwriters for
inclusion in, and will cooperate with CTS and the Underwriters in the
preparation of, the Registration Statement and the prospectus included
therein (including audited and unaudited financial statements, prepared in
accordance with GAAP, in form suitable for inclusion in the Registration
Statement). The COMPANY and the STOCKHOLDER agree promptly to advise CTS
if at any time during the period in which a prospectus relating to the
offering is required to be delivered under the Securities Act, any
information contained in the prospectus concerning the COMPANY or the
STOCKHOLDER contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and to provide the information
needed to correct such inaccuracy. Insofar as the information relates
solely to the COMPANY or the STOCKHOLDER, the COMPANY represents and
warrants as to such information with respect to itself, and the
STOCKHOLDER represents and warrants, as to such information furnished by
the COMPANY or the STOCKHOLDER for use in the Registration Statement with
respect to the COMPANY and itself, that the Registration Statement at its
effective date, at the date of the final Prospectus, each preliminary
prospectus and each amendment to the Registration Statement, and at each
closing date with respect to the IPO under the Underwriting Agreement
(including with respect to any over-allotment option) will not include an
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
not misleading.
(b) CTS agrees that it will use its best efforts to provide to the
COMPANY and its counsel copies of material drafts of the Registration
Statement as they are prepared and to the extent practicable in light of
the timetable of the IPO and the potential need to respond promptly to
SEC, NASD or Nasdaq comments, to give the COMPANY sufficient time to
review and comment upon such documents prior to filing with the SEC. Any
objections
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posed by the COMPANY or its counsel shall state with specificity the
material in question, the reason for the objection, and the COMPANY's
proposed alternative. If the objection is founded upon a rule promulgated
under the Securities Act, the objection shall cite the rule.
Notwithstanding the foregoing, during the five business days immediately
preceding the date scheduled for the effective date of the IPO, the
COMPANY and the STOCKHOLDER agree that (i) two hours from the time the
proposed changes are transmitted to the COMPANY's counsel if such
transmission is during the COMPANY's normal business hours or (ii) four
hours from the time the proposed changes are transmitted to the COMPANY's
counsel if such transmission is not during the COMPANY's normal business
hours, is sufficient time to review and respond to proposed changes.
7.10 Final Financial Statements. The COMPANY shall provide prior to the
Closing Date, and CTS shall have had sufficient time prior thereto to review,
the unaudited consolidated balance sheets of the COMPANY as of the end of all
fiscal quarters following the Balance Sheet Date, and the unaudited consolidated
statements of income, cash flows and retained earnings of the COMPANY for all
fiscal quarters ended no earlier than 30 days prior to the Closing Date,
disclosing no material adverse change in the financial condition of the COMPANY
or the results of its operations from the financial statements as of the Balance
Sheet Date. Such financial statements shall have been prepared in accordance
with GAAP applied on a consistent basis throughout the periods indicated (except
as noted therein), but shall not include all of the footnotes and adjustments
required by GAAP for complete financial statements. Except as noted in such
financial statements, all of such financial statements will present fairly the
results of operations of the COMPANY for the periods indicated thereon.
7.11 Further Assurances. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 Approval of Merger Agreement. The STOCKHOLDER agrees to vote all of
its shares of the COMPANY Stock in favor of the Merger and all other
transactions contemplated by this Agreement.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDER AND THE COMPANY
The obligations of the STOCKHOLDER and the COMPANY with respect to actions
to be taken on the Pre-Closing Date and, to the extent specified in this Section
8, on the Closing Date are subject to the satisfaction or waiver on or prior to
the Pre-Closing Date and/or the Closing Date, as the case may be, of all of the
conditions set forth in this Section 8. As of the Pre-Closing Date or the
Closing Date, as the case may be, all
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conditions not satisfied shall be deemed to have been waived by the COMPANY and
the STOCKHOLDER unless such parties have objected by notifying CTS in writing of
such objection on or before the Pre-Closing Date or consummation of the
transactions on the Closing Date, respectively, except that no such waiver shall
be deemed to affect the survival of the representations and warranties of CTS
and NEWCO contained in Section 6 hereof.
8.1 Representations and Warranties. All representations and warranties of
CTS and NEWCO contained in this Agreement shall be true and correct in all
material respects as of the Pre-Closing Date and the Closing Date as though such
representations and warranties had been made on and as of that date; and a
certificate to the foregoing effect dated the Pre-Closing Date and the Closing
Date and signed by the President or any Vice President of CTS shall have been
delivered to the COMPANY and the STOCKHOLDER.
8.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with and performed by CTS and NEWCO on or
before each of the Pre-Closing Date and the Closing Date shall have been duly
complied with and performed in all material respects on or before each of the
Pre-Closing Date and the Closing Date, as the case may be; and certificates to
the foregoing effect dated each of the Pre-Closing Date and the Closing Date and
signed by the President or any Vice President of CTS shall have been delivered
to the COMPANY and the STOCKHOLDER.
8.3 No Litigation. No action or proceeding before a court or any other
Governmental Authority or body shall have been instituted or threatened to
restrain or prohibit the Merger or the IPO.
8.4 Opinion of Counsel. The STOCKHOLDER shall have received an opinion
from counsel for CTS and NEWCO, dated the Pre-Closing Date and including a
statement to the effect that it may be relied upon as of the Closing Date,
substantially in the form annexed hereto as Annex VI.
8.5 Consents and Approvals. All necessary consents of and filings required
to be obtained or made by CTS or NEWCO with any Governmental Authority or agency
relating to the consummation of the transactions contemplated herein shall have
been obtained and made.
8.6 Good Standing Certificates. CTS and NEWCO each shall have delivered to
the COMPANY a certificate, dated as of a date no earlier than 10 days prior to
the Pre-Closing Date, duly issued by the Delaware Secretary of State and in each
state in which CTS or NEWCO is authorized to do business, showing that each of
CTS and NEWCO is in good standing and authorized to do business and that all
state franchise
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and/or income tax returns and taxes for CTS and NEWCO, respectively, for all
periods prior to the Closing have been filed and paid.
8.7 Consummation of Other Agreements. The Other Agreements shall have been
delivered by each of the Other Companies and each of the Other Agreements and
this Agreement shall be in effect immediately prior to the Merger.
8.8 Secretary's Certificate. The COMPANY shall have received a certificate
or certificates, dated the Pre-Closing Date and the Closing Date and signed by
the secretary of CTS and of NEWCO, certifying the truth and correctness of
attached copies of the CTS's and NEWCO's respective Certificates of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the boards of directors and, if required, the
stockholders of CTS and NEWCO approving CTS's and NEWCO's entering into this
Agreement and the consummation of the transactions contemplated hereby.
8.9 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VIII hereto.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CTS AND NEWCO
The obligations of CTS and NEWCO with respect to actions to be taken on
the Pre-Closing Date and, to the extent specified in this Section 9, on the
Closing Date, are subject to the satisfaction or waiver on or prior to the
Pre-Closing Date and/or the Closing Date, as the case may be, of all of the
conditions set forth in this Section 9. As of the Pre-Closing Date or the
Closing Date, as the case may be, all conditions not satisfied shall be deemed
to have been waived by CTS and NEWCO unless such parties have objected by
notifying the COMPANY and the STOCKHOLDER in writing of such objection on or
before the Pre-Closing Date or consummation of the transactions on the Closing
Date, respectively, except that no such waiver shall be deemed to affect the
survival of the representations and warranties of the COMPANY and the
STOCKHOLDER contained in Section 5 hereof.
9.1 Representations and Warranties. All the representations and warranties
of the STOCKHOLDER and the COMPANY contained in this Agreement shall be true and
correct in all material respects as of the Pre-Closing Date and the Closing Date
with the same effect as though such representations and warranties had been made
on and as of such date; and the STOCKHOLDER shall have delivered to CTS
certificates dated the Pre-Closing Date and the Closing Date and signed by them
to such effect.
9.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with or performed by the STOCKHOLDER and the
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COMPANY on or before each of the Pre-Closing Date and the Closing Date shall
have been duly performed or complied with in all material respects on or before
each of the Pre-Closing Date and the Closing Date, as the case may be; and the
STOCKHOLDER shall have delivered to CTS certificates dated the Pre-Closing Date
and the Closing Date, respectively, and signed by them to such effect.
9.3 No Litigation. No action or proceeding before a court or any other
Governmental Authority or body shall have been instituted or threatened to
restrain or prohibit the Merger or the IPO.
9.4 Secretary's Certificate. CTS shall have received a certificate or
certificates, dated each of the Pre-Closing Date and the Closing Date and signed
by the secretary of the COMPANY, certifying the truth and correctness of
attached copies of the COMPANY's Certificate or Articles of Incorporation
(including amendments thereto), By-Laws (including amendments thereto), and
resolutions of the board of directors and the shareholders approving the
COMPANY's entering into this Agreement and the consummation of the transactions
contemplated hereby.
9.5 No Material Adverse Change. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred with respect to the
COMPANY which would constitute a Material Adverse Effect on the COMPANY, and the
COMPANY shall not have suffered any material loss or damages to any of its
properties or assets, whether or not covered by insurance, which change, loss or
damage materially affects or impairs the ability of the COMPANY to conduct its
business.
9.6 STOCKHOLDER'S Release. The STOCKHOLDER shall have delivered to CTS an
instrument dated the Closing Date releasing the COMPANY from any and all (i)
claims prior to the Closing Date of the STOCKHOLDER against the COMPANY and CTS
and (ii) obligations prior to the Closing Date, of the COMPANY and CTS to the
STOCKHOLDER, except for (x) items specifically identified on Schedules 5.10 and
5.15 as being claims of or obligations to the STOCKHOLDER, (y) continuing
obligations to the STOCKHOLDER relating to its employment by the COMPANY and (z)
obligations arising under this Agreement or the transactions contemplated
hereby.
9.7 Termination of Related Party Agreements. Except as set forth on
Schedule 9.7, all existing agreements between the COMPANY and the STOCKHOLDER
shall have been canceled effective prior to or as of the Closing Date.
9.8 Opinion of Counsel. CTS shall have received an opinion from Counsel to
the COMPANY and the STOCKHOLDER, dated the Pre-Closing Date and including a
statement to the effect that it may be relied upon as of the Closing Date,
substantially in the form annexed hereto as Annex VII, which form shall be
deemed to include any
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additional opinions by such counsel or separate counsel retained by the COMPANY
covering matters customary under the circumstances, including, without
limitation, opinions covering the COMPANY's intellectual property, and the
Underwriters shall have received a copy of the same opinion addressed to them.
9.9 Consents and Approvals. All necessary consents of and filings with any
Governmental Authority relating to the consummation of the transactions
contemplated herein shall have been obtained and made and all consents and
approvals of third parties listed on Schedule 5.23 shall have been obtained.
9.10 Good Standing Certificates. The COMPANY shall have delivered to CTS a
certificate, dated as of a date no earlier than five days prior to the
Pre-Closing Date, duly issued by the appropriate Governmental Authority in the
COMPANY's state of incorporation and, unless waived by CTS, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the COMPANY for all periods prior to the
Closing have been filed and paid.
9.11 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act, or
any state securities laws, and the Underwriters shall have agreed to acquire on
a firm commitment basis, subject to the conditions set forth in the Underwriting
Agreement, shares of CTS Stock at a price to the public acceptable to CTS.
9.12 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have entered into an employment agreement substantially in the form of
Annex VIII hereto.
9.13 Closing of IPO. The closing of the sale of the CTS Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
9.14 FIRPTA Certificate. The STOCKHOLDER shall have delivered to CTS a
certificate to the effect that he or she is not a foreign person pursuant to
Section 1. 1445-2(b) of the Treasury regulations.
9.15 Consummation of Other Agreements. The Other Agreements shall have
been delivered by each of the Other Companies and each of the Other Agreements
and this Agreement shall be in effect immediately prior to the Merger.
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9.16 A/R Aging Reports Within ten (10) days prior to Closing, the COMPANY
shall have provided CTS (x) an accurate list of all outstanding receivables
obtained subsequent to the Balance Sheet Date and as of a date which is within
10 calendar days of the Closing Date and (y) an aging of all such accounts and
notes receivable showing amounts due in 30 day aging categories (the "A/R Aging
Reports").
9.17 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall have been approved by counsel to CTS.
10. COVENANTS OF CTS AND THE STOCKHOLDER AFTER CLOSING
10.1 Release From Guarantees; Repayment of Certain Obligations. CTS shall
use its best efforts to have the STOCKHOLDER released from any and all
guarantees on any indebtedness that they personally guaranteed and from any and
all pledges of assets that they pledged to secure such indebtedness for the
benefit of the COMPANY, with all such guarantees on indebtedness being assumed
by CTS, if necessary to achieve such releases. In the event that CTS cannot
obtain such releases from the lenders of any such guaranteed indebtedness on or
prior to 180 days subsequent to the Closing Date, CTS shall pay off or otherwise
refinance or retire such indebtedness.
10.2 Preservation of Tax and Accounting Treatment. Except as contemplated
by this Agreement or the Registration Statement, after the Closing Date, CTS
shall not and shall not permit any of its subsidiaries to undertake any act that
would jeopardize the tax-free status of the organization, including liquidating
or merging the COMPANY into CTS.
10.3 Preparation and Filing of Tax Returns.
(a) The COMPANY shall, if possible, file or cause to be filed all
separate Returns of any Acquired Party for all taxable periods that end on
or before the Closing Date. The STOCKHOLDER shall pay or cause to be paid
all Tax liabilities (in excess of all amounts already paid with respect
thereto or properly accrued or reserved with respect thereto on the
COMPANY Financial Statements) shown by such Returns to be due.
(b) CTS shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Closing Date.
(c) Each party hereto shall, and shall cause its subsidiaries and
Affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any Return, amended Return or claim for refund, determining a
liability for Taxes or a right to refund of
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Taxes or in conducting any audit or other proceeding in respect of Taxes.
Such cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings
or other determinations by Taxing Authorities and relevant records
concerning the ownership and Tax basis of property, which such party may
possess. Each party shall make its employees reasonably available on a
mutually convenient basis at its cost to provide explanation of any
documents or information so provided. Subject to the preceding sentence,
each party required to file Returns pursuant to this Agreement shall bear
all costs of filing such Returns.
(d) Each of the COMPANY, NEWCO, CTS and the STOCKHOLDER shall comply
with the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and treat the transaction as a tax
free transfer of property under Section 351(a) of the Code.
10.4 Directors and Officers. The persons named in the Registration
Statement shall be appointed as directors and elected as officers of CTS, as and
to the extent set forth in the Registration Statement, promptly following the
Closing Date.
10.5 Preservation of Employee Benefit Plans. Following the Closing Date,
CTS shall not terminate any health insurance, life insurance, 401(k) or any
other Benefit Plan in effect at the COMPANY until such time as CTS is able to
replace such Benefit Plan with a Plan that is applicable to CTS and all of its
then existing subsidiaries. CTS shall have no obligation to provide replacement
Plans that have the same terms and provisions as the existing Benefit Plans,
provided, that any new health insurance plan shall provide for coverage for
preexisting conditions.
10.6 Rule 144. For a period of two years after the Closing Date, CTS shall
take all actions that are within its powers and that are reasonably necessary to
make Rule 144 promulgated under the 1933 Act available to the STOCKHOLDER.
10.7 Authorization of Shares. CTS agrees to take all actions as may be
necessary from time to time to reserve an adequate number of shares of CTS Stock
to pay the stock portion of the consideration to the STOCKHOLDER pursuant to
Annex III hereof.
11. INDEMNIFICATION
The STOCKHOLDER, CTS and NEWCO each make the following covenants that are
applicable to them, respectively:
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11.1 General Indemnification by the STOCKHOLDER. The STOCKHOLDER covenants
and agrees that it will indemnify, defend, protect and hold harmless CTS, NEWCO,
the COMPANY and the Surviving Corporation at all times, from and after the date
of this Agreement until the Expiration Date, from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and reasonable expenses of investigation) incurred by CTS,
NEWCO, the COMPANY or the Surviving Corporation as a result of or arising from
(i) any breach of the representations and warranties of the STOCKHOLDER or the
COMPANY set forth herein or on the schedules or certificates delivered in
connection herewith, (ii) any breach of any agreement on the part of the
STOCKHOLDER or the COMPANY under this Agreement, (iii) any liability under the
1933 Act, the 1934 Act or other Federal or state law or regulation, at common
law or otherwise, arising out of or based upon any untrue statement or alleged
untrue statement of a material fact relating to the COMPANY or the STOCKHOLDER,
and provided to CTS or its counsel by the COMPANY or the STOCKHOLDER for
inclusion in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission by the COMPANY and/or the
STOCKHOLDER to state therein a material fact relating to the COMPANY or the
STOCKHOLDER required to be stated therein or necessary to make the statements
therein not misleading, (iv) the matters described on Schedule 11.1(iv) or (v)
any Tax imposed upon or relating to any third party for a pre-Closing Date
period, including, in each case, any such Tax arising out of or in connection
with the transactions effected pursuant to this Agreement or any such Tax for
which an Acquired Party may be liable under Section 1.1502-6 of the Treasury
Regulations (or any similar provisions of state, local or foreign law), as a
transferee or successor, by contract or otherwise; provided, however, that in
the case of any indemnity arising pursuant to clause (iii) such indemnity shall
not inure to the benefit of CTS, NEWCO, the COMPANY or the Surviving Corporation
to the extent that such untrue statement (or alleged untrue statement) was made
in, or omission (or alleged omission) occurred in, any preliminary prospectus
and the STOCKHOLDER provided, in writing, corrected information to CTS counsel
and to CTS for inclusion in the final prospectus, and such information was not
so included or properly delivered.
11.2 Indemnification by CTS. CTS covenants and agrees that it will
indemnify, defend, protect and hold harmless the STOCKHOLDER at all times from
and after the date of this Agreement until the eighteenth month anniversary of
the Closing Date, from and against all claims, damages, actions, suits,
proceedings, demands, assessments, adjustments, costs and expenses (including
specifically, but without limitation, reasonable attorneys' fees and expenses of
investigation) incurred by the STOCKHOLDER as a result of or arising from (i)
any breach by CTS or NEWCO of its representations and warranties set forth
herein or on the schedules or certificates delivered in connection herewith,
(ii) any breach of any agreement on the part of CTS or NEWCO under this
Agreement, (iii) any liability which the STOCKHOLDER may incur
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due to CTS's or NEWCO's failure to be responsible for the liabilities and
obligations of the COMPANY as provided in Section 10.1 hereof (except to the
extent that CTS or NEWCO has claims against the STOCKHOLDER by reason of such
liabilities); (iv) any liability to a Person not a party to this Agreement (a
"Third Person") under the 1933 Act, the 1934 Act or other Federal or state law
or regulation, at common law or otherwise, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact relating to CTS
or NEWCO for inclusion in any preliminary prospectus, the Registration Statement
or any prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to CTS or NEWCO required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, in the case of any indemnity arising pursuant to clause (iv) such
indemnity shall not inure to the benefit of the STOCKHOLDER if any such claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses incurred by the STOCKHOLDER are based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity
with information furnished by the STOCKHOLDER for use in the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto unless the STOCKHOLDER provided, in writing, corrected
information to CTS counsel and to CTS for inclusion in the final prospectus to
the Registration Statement, and such information was not so included or properly
delivered by CTS (or its representative).
In the event the breach relates to the representation contained in Section
6.5 concerning the absence of options, rights (preemptive or otherwise),
warrants, calls, convertible securities or commitments or any other arrangements
dealing with CTS Stock as set forth in Section 6.5 (a "CTS Security Right") and
the existence of an undisclosed CTS Security Right will dilute the CTS capital,
the stockholders of the Founding Company whose representation caused the breach
of Section 6.5 shall suffer such dilution proportionately to the number of
shares of CTS Stock owned by each of them.
11.3 Third Person Claims. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
Third Person or, of the commencement of any action or proceeding by a Third
Person, the Indemnified Party shall, as a condition precedent to a claim with
respect thereto being made against any party obligated to provide
indemnification pursuant to Section 11.1 or 11.2 hereof (hereinafter the
"Indemnifying Party"), give the Indemnifying Party written notice of such claim
or the commencement of such action or proceeding. Such notice shall state the
nature and the basis of such claim and a reasonable estimate of the amount
thereof. The Indemnifying Party shall have the right to defend and settle, at
its own expense and by its own counsel, any such matter so long as the
Indemnifying Party pursues the same in good faith and diligently, provided that
the Indemnifying Party shall not settle any criminal proceeding without the
written consent of the Indemnified Party, such consent not to be unreasonably
withheld or delayed. If the Indemnifying Party
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undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate, at the
Indemnifying Party's expense, with the Indemnifying Party and its counsel in the
defense thereof and in any settlement thereof. Such cooperation shall include,
but shall not be limited to, furnishing the Indemnifying Party with any books,
records or information reasonably requested by the Indemnifying Party that are
in the Indemnified Party's possession or control. All Indemnified Parties shall
endeavor to use the same counsel, which shall be the counsel selected by the
Indemnifying Party, provided that if counsel to the Indemnifying Party shall
have a conflict of interest in the opinion of such counsel that prevents counsel
for the Indemnifying Party from representing the Indemnified Party, the
Indemnified Party shall have the right to participate in such matter through
counsel of its own choosing and the Indemnifying Party will reimburse the
Indemnified Party for the reasonable expenses of its counsel and experts. After
the Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except (i) as set forth in the preceding sentence and (ii) to the
extent such participation is requested by the Indemnifying Party, in which event
the Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any such
Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement to said Third Person, plus all indemnifiable costs and expenses
incurred to date, the Indemnifying Party shall be relieved of its duty to defend
and shall tender the Third Person claim back to the Indemnified Party, who shall
thereafter, at its own expense, be responsible for the defense and negotiation
of such Third Person claim. If the Indemnifying Party does not undertake to
defend such matter to which the Indemnified Party is entitled to indemnification
hereunder, or fails diligently to pursue such defense, the Indemnified Party may
undertake such defense through counsel of its choice, at the cost and expense of
the Indemnifying Party, and the Indemnified Party may settle such matter, and
the Indemnifying Party shall reimburse the Indemnified Party for the amount paid
in such settlement and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. All settlements hereunder shall effect a
complete release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. The parties hereto will make appropriate
adjustments for any Tax benefits, Tax detriments or insurance proceeds in
determining the amount of any indemnification obligation under this Section,
provided that no Indemnifying Party shall be obligated to seek any payment
pursuant to the terms of any insurance policy.
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11.4 Exclusive Remedy. Except as provided in Section 11.5(b) or Section
14.3 hereof, the indemnification provided for in this Section 11 shall (except
as prohibited by ERISA) be the exclusive remedy in any action seeking damages or
any other form of monetary relief brought by any party to this Agreement against
another party, provided that nothing herein shall be construed to limit the
right of a party, in a proper case, to seek injunctive relief for a breach of
this Agreement or to seek relief for a breach of any employment agreement with,
or any stock option issued by, CTS.
11.5 Limitations on Indemnification. (a) CTS, NEWCO, the Surviving
Corporation and the other Persons or entities indemnified pursuant to Section
11.1 (other than the STOCKHOLDER) shall not assert any claim other than a Third
Person claim for indemnification hereunder against the STOCKHOLDER until such
time as, and solely to the extent that, the aggregate of all claims which such
Persons may have against the STOCKHOLDER shall exceed 1.0% of the sum of (i) the
cash paid to the STOCKHOLDER plus (ii) the value (determined in accordance with
Section 11.5(c) hereof) of the CTS Stock delivered to the STOCKHOLDER (the
"Indemnification Threshold"); provided, however, that CTS, NEWCO, the Surviving
Corporation and the other Persons or entities indemnified pursuant to Section
11.1 (other than the STOCKHOLDER) may assert and shall be indemnified for any
claim under Section 11.1(iv) or 11.1(v) at any time, regardless of whether the
aggregate of all claims which such Persons may have against the STOCKHOLDER
exceeds the Indemnification Threshold, it being understood that the amount of
any such claim under Section 11.1(iv) or 11.1(v) shall not be counted towards
the Indemnification Threshold. The STOCKHOLDER shall not assert any claim for
indemnification hereunder against CTS, NEWCO, the Surviving Corporation or the
other Persons set forth in Section 11.1 (other than the STOCKHOLDER) until such
time as, and solely to the extent that, the aggregate of all claims which the
STOCKHOLDER may have against any of such Persons exceeds $100,000. No Person
shall be entitled to indemnification under this Section 11 if and to the extent
that such Person's claim for indemnification is directly or indirectly related
to a breach by such Person of any representation, warranty, covenant or other
agreement set forth in this Agreement.
(b) CTS shall have the right, upon written notice, to offset
indemnification amounts due to it pursuant to this Agreement against payments
due to the STOCKHOLDER under (i) this Agreement (including, without limitation,
the consideration set forth on Annex III hereto) and/or (ii) any contract
contemplated by, or referred to in, this Agreement.
(c) Indemnity obligations hereunder may be satisfied through the payment
of cash or the delivery of CTS Stock, or a combination thereof. For purposes of
calculating the value of the CTS Stock received or delivered by the STOCKHOLDER
(for purposes of determining the Indemnification Threshold and the amount of any
indemnity paid),
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CTS Stock shall be valued at its initial public offering price as set forth in
the Registration Statement.
(d) Notwithstanding any other term of this Agreement (except the proviso
to this sentence), the STOCKHOLDER shall not be liable under this Section 11 for
an amount which exceeds the amount of proceeds received by the STOCKHOLDER in
connection with the Merger, such proceeds to be equal to the sum of (i) the cash
paid to the STOCKHOLDER (ii) the additional consideration, if any, earned by the
STOCKHOLDER pursuant to Annex III hereof, and (iii) the value of the CTS Stock
delivered to the STOCKHOLDER (determined in accordance with Section 11.5(c)
hereof); provided, that the STOCKHOLDER'S indemnification obligations pursuant
to Sections 11.1(iv) and (v) shall not be limited.
12. TERMINATION OF AGREEMENT
12.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date solely:
(a) by mutual consent of the boards of directors of CTS and the
COMPANY;
(b) by the STOCKHOLDER or the COMPANY (acting through its board of
directors), on the one hand, or by CTS (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, unless the failure of such transactions to be
consummated is due to the willful failure of the party seeking to
terminate this Agreement to perform any of its obligations under this
Agreement to the extent required to be performed by it prior to or on the
Closing Date;
(c) by the STOCKHOLDER or the COMPANY, on the one hand, or by CTS,
on the other hand, if a material breach or default shall be made by the
other party in the observance or in the due and timely performance of any
of the covenants, agreements or conditions contained herein, and the
curing of such default shall not have been made on or before the Closing
Date; or
(d) pursuant to Section 7.8 hereof.
12.2 Liabilities in Event of Termination. Except as provided in Section
7.8 hereof. the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
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13. NONCOMPETITION
13.1 Prohibited Activities. The STOCKHOLDER will not, for a period of four
(4) years following the Closing Date, for any reason whatsoever, directly or
indirectly, for themself or on behalf of or in conjunction with any other
person, company, partnership, corporation or business of whatever nature;
(a) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in direct
competition with CTS or any of the subsidiaries thereof, within 100 miles
of where the COMPANY or any of its subsidiaries or any of the Other
Founding Companies conducted business prior to the effectiveness of the
Merger (the "Territory");
(b) call upon any person who is, at that time, within the Territory,
an employee of CTS (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent
of enticing such employee away from or out of the employ of CTS (including
the subsidiaries thereof), provided that the STOCKHOLDER shall be
permitted to call upon and hire any member of his or her immediate family;
(c) call upon any person or entity which is, at that time, or which
has been, within one (1) year prior to the Closing Date, a customer of CTS
(including the subsidiaries thereof), of the COMPANY or of any of the
Other Founding Companies within the Territory for the purpose of
soliciting or selling products or services in direct competition with CTS
within the Territory;
(d) call upon any prospective acquisition candidate, on the
STOCKHOLDER's own behalf or on behalf of any competitor in similar or
incidental businesses or activities described in the Registration
Statement, which candidate, to the actual knowledge of the STOCKHOLDER
after due inquiry, was called upon by CTS (including the subsidiaries
thereof) or for which, to the actual knowledge of the STOCKHOLDER after
due inquiry, CTS (or any subsidiary thereof) made an acquisition analysis,
for the purpose of acquiring such entity; or
(e) disclose customers, whether in existence or proposed, of the
COMPANY to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever except to the extent that the COMPANY has in
the past disclosed such information to the public for valid business
reasons or disclosure is specifically required by law; provided, however,
in the event disclosure is required by law, the STOCKHOLDER shall provide
CTS with
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prompt notice of such requirement prior to making any disclosure so that
CTS may seek a protective order.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit the STOCKHOLDER from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter so long as the STOCKHOLDER
does not consult with or is not employed by such competitor.
13.2 Damages. Because of the difficulty of measuring economic losses to
CTS as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to CTS for which it would
have no other adequate remedy, the STOCKHOLDER agrees that, in the event of
breach by the STOCKHOLDER, the foregoing covenant may be enforced by CTS by
injunctions and restraining orders.
13.3 Reasonable Restraint. It is agreed by the parties hereto that it is
the intent of CTS and the STOCKHOLDER that the foregoing covenants in this
Section 13 be construed and enforced in accordance with the changing activities
and business of CTS (including the subsidiaries thereof) throughout the term of
this covenant. It is further agreed by the parties hereto that, in the event
that the Stockholder has entered into an employment agreement with CTS and/or
any subsidiary thereof as set forth in Sections 8.10 and 9.12 hereto, shall
thereafter cease to be employed thereunder, and the STOCKHOLDER shall enter into
a business or pursue other activities not in competition with CTS and/or any
subsidiary thereof, or similar activities or business in locations the
operations of which, under such circumstances, does not violate this Article 13
and in any event such new business, activities or location are not in violation
of this Article 13 or the STOCKHOLDER's obligations under this Article 13, the
STOCKHOLDER shall not be chargeable with a violation of this Article 13 if CTS
and/or any subsidiary thereof shall thereafter enter the same, similar or a
competitive (i) business (ii) course of activities, or (iii) location, as
applicable.
13.4 Severability; Reformation. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
13.5 Independent Covenant. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of the STOCKHOLDER
against CTS (including
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the subsidiaries thereof), whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement by CTS of such covenants. It
is specifically agreed that the period of four (4) years stated at the beginning
of this Section 13, during which the agreements and covenants of the STOCKHOLDER
made in this Section 13 shall be effective, shall be computed by excluding from
such computation any time during which the STOCKHOLDER is in violation of any
provision of this Section 13. The covenants contained in Section 13 shall not be
affected by any breach of any other provision hereof by any party hereto and
shall have no effect if the transactions contemplated by this Agreement are not
consummated.
13.6 Materiality. The COMPANY and the STOCKHOLDER hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDER. The STOCKHOLDER recognizes and acknowledges that it had
in the past, currently have, and in the future may have, access to certain
confidential information of the COMPANY, the Other Founding Companies, and/or
CTS, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the COMPANY'S, the Other Founding
Companies' and/or CTS's respective businesses. The STOCKHOLDER agrees that it
will not disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of CTS or the Other Founding Companies
who need to know information in connection with the transactions contemplated
hereby, who have been informed of the confidential nature of such information
and who have agreed to keep such information confidential as provided hereby,
(b) following the Closing, such information may be disclosed by the STOCKHOLDER
as is required in the course of performing its duties for CTS or the Surviving
Corporation and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of the STOCKHOLDER, (ii) disclosure is required by law or the order of
any Governmental Authority under color of law; provided, that, prior to
disclosing any information pursuant to this clause (ii), the STOCKHOLDER shall,
if possible, give prior written notice thereof to CTS and provide CTS with the
opportunity to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party. In the event the transactions contemplated
by this Agreement are not consummated, the STOCKHOLDER shall have none of the
above-mentioned restrictions on their ability to disseminate confidential
information with respect to the COMPANY.
14.2 CTS AND NEWCO. CTS and NEWCO recognize and acknowledge that they had
in the past, currently have, and in the future may have, access to certain
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confidential information of the COMPANY, such as operational policies, and
pricing and cost policies that are valuable, special and unique assets of the
COMPANY's business. CTS and NEWCO agree that, prior to the Closing, or if the
Transactions contemplated by this Agreement are not consummated, they will not
disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
the STOCKHOLDER and to authorized representatives of the COMPANY, (b) to counsel
and other advisers, provided that such advisors (other than counsel) agree to
the confidentiality provisions of this Section 14.2 and (c) to the Other
Founding Companies and their representatives pursuant to Section 7. 1 (a),
unless (i) such information becomes known to the public generally through no
fault of CTS or NEWCO, (ii) disclosure is required by law or the order of any
Governmental Authority under color of law; provided, that, prior to disclosing
any information pursuant to this clause (ii), CTS and NEWCO shall, if possible,
give prior written notice thereof to the COMPANY and the STOCKHOLDER and provide
the COMPANY and the STOCKHOLDER with the opportunity to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party. In the event of a breach or threatened breach by CTS or NEWCO of the
provisions of this Section, the COMPANY and the STOCKHOLDER shall be entitled to
an injunction restraining CTS and NEWCO from disclosing, in whole or in part,
such confidential information. Nothing herein shall be construed as prohibiting
the COMPANY and the STOCKHOLDER from pursuing any other available remedy for
such breach or threatened breach, including the recovery of damages.
14.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
Nothing herein shall be construed as prohibiting a party hereto from pursuing
any other available remedy for such breach or threatened breach of Sections 14.1
and 14.2, including the recovery of damages.
14.4 Survival. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Closing Date.
15. TRANSFER RESTRICTIONS
15.1 Transfer Restrictions. For a period of one year from the Closing
Date, except pursuant to Section 16 hereof, the STOCKHOLDER shall not (i) sell,
assign, exchange, transfer, encumber, pledge, distribute, appoint or otherwise
dispose of (a) any shares of CTS Stock received by the STOCKHOLDER pursuant to
the terms hereunder or (b) any interest (including, without limitation, an
option to buy or sell) in any such
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shares of CTS Stock, in whole or in part, and no such attempted transfer shall
be treated as effective for any purpose; or (ii) engage in any transaction,
whether or not with respect to any shares of CTS Stock or any interest therein,
the intent or effect of which is to reduce the risk of owning the shares of CTS
Stock acquired pursuant to Section 2 hereof (including, by way of example and
not limitation, engaging in put, call, short-sale, straddle or similar market
transactions). Notwithstanding the foregoing, the STOCKHOLDER may (x) transfer
shares of CTS Stock to immediate family members (or trusts for the benefit of
the STOCKHOLDER or family members, the trustees of which so agree) or (y)
encumber or pledge any of such shares of CTS Stock; provided, that the family
member, trust, trustee, pledgee or other beneficiary of such transfer,
encumbrance or pledge, as the case my be, agrees in writing prior to such
transaction to be bound by (1) the provisions of this Section as if a
STOCKHOLDER and party hereto and (2) the indemnification provisions set forth in
this Agreement as if a STOCKHOLDER and party hereto. The certificates evidencing
the CTS Stock delivered to the STOCKHOLDER pursuant to Section 3 of this
Agreement will bear a legend substantially in the form set forth below and
containing such other information as CTS may deem necessary or appropriate:
EXCEPT AS PROVIDED BY THAT CERTAIN AGREEMENT AND PLAN OF ORGANIZATION, A COPY OF
WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY FOR PUBLIC
INSPECTION, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO
ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE FIRST ANNIVERSARY OF
THE CLOSING DATE. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE,
THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED
WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
16. REGISTRATION RIGHTS
16.1 Piggyback Registration Rights. At any time following the Closing
Date, whenever CTS proposes to register any CTS Stock for its own or others'
account under the 1933 Act for a public offering, other than (i) any shelf
registration of shares to be used as consideration for acquisitions of
additional businesses by CTS, (ii) registrations relating to Plans and (iii)
registrations relating to rights offerings made to the stockholders of CTS, CTS
shall give the STOCKHOLDER prompt written notice of its intent to do so. Upon
the written request of the STOCKHOLDER given within 30 days after receipt of
such notice, CTS shall cause to be included in such registration all of the CTS
Stock issued to the STOCKHOLDER pursuant to this Agreement, provided that
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CTS shall have the right to reduce the number of shares included in such
registration to the extent that inclusion of such shares could, in the opinion
of tax counsel to CTS or its independent auditors, jeopardize the status of the
transactions contemplated hereby and by the Registration Statement as a tax-free
organization. In addition, if CTS is advised in writing in good faith by any
managing underwriter of an underwritten offering of the securities being offered
pursuant to any registration statement under this Section 16.1 that the number
of shares to be sold by persons other than CTS is greater than the number of
such shares which can be offered without adversely affecting the offering, CTS
may reduce pro rata the number of shares offered for the accounts of such
persons (based upon the number of shares proposed to be sold by each such
person) to a number deemed satisfactory by such managing underwriter, provided,
that, for each such offering made by CTS after the IPO, such reduction shall be
made first by reducing the number of shares to be sold by persons other than
CTS, the STOCKHOLDER and the stockholders of the Other Founding Companies
(collectively, the STOCKHOLDER and the stockholders of the Other Founding
Companies being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing pro rata the number
of shares to be sold by the Founding Stockholders.
16.2 Registration Procedures. All expenses incurred in connection with the
registrations under this Section 16 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts with respect to any CTS Stock sold on behalf of the
STOCKHOLDER), shall be borne by CTS. In connection with registrations under
Section 16.1, CTS shall (i) use its best efforts to prepare and file with the
SEC as soon as reasonably practicable, a registration statement with respect to
the CTS Stock and use its best efforts to cause such registration to promptly
become and remain effective for a period of at least 120 days (or such shorter
period during which stockholders of the Founding Companies shall have sold all
CTS Stock which they requested to be registered); (ii) use its best efforts to
register and qualify the CTS Stock covered by such registration statement under
applicable state securities laws as the holders shall reasonably request for the
distribution of the CTS Stock; (iii) take all actions necessary to have the CTS
Stock covered by such registration listed or quoted on the exchange or automated
quotation system on which the CTS Stock trades at the time of registration; and
(iv) take such other actions as are reasonable and necessary to comply with the
requirements of the 1933 Act and the regulations thereunder; and (v) make
available its general counsel to advise the STOCKHOLDER and provide the legal
opinions required under the purchase agreement used in connection with the
registrations under this Section 16.
16.3 Underwriting Agreement. In connection with each registration pursuant
to Section 16.1 covering an underwritten registered public offering, CTS and
each participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the
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securities business for such an arrangement between such managing underwriters
and companies of CTS's size and investment stature, including indemnification
provisions.
16.4 Availability of Rule 144. CTS shall not be obligated to register
shares of CTS Stock held by the STOCKHOLDER at any time when the resale
provisions of Rule 144(k) (or any successor provision) promulgated under the
1933 Act are available to the STOCKHOLDER for such shares.
16.5 Market Standoff. In consideration of the granting to the STOCK HOLDER
of the registration rights under this Section 16, the STOCKHOLDER agrees that
they will not sell, transfer or otherwise dispose of, including without
limitation through put or short sale arrangements, shares of CTS Stock in the 10
days prior to the effectiveness of any registration of CTS Stock for sale to the
public and for up to 90 days following the effectiveness of such registration,
provided, that: (i) all directors, executive officers and holders of more than
five percent of the outstanding CTS Stock agree to the same restrictions; (ii)
with respect to the first public offering of shares of the CTS Stock within
three years following the IPO, the STOCKHOLDER shall have been afforded a
meaningful opportunity to include shares in such registration after any
reduction by reason of underwriters' advice; and (iii) CTS has not exercised its
rights to delay under this Section 16.5 more than once in any 12 month period.
17. GENERAL
17.1 Cooperation. The COMPANY, the STOCKHOLDER, CTS and NEWCO shall each
deliver or cause to be delivered to the other on the Closing Date, and at such
other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The STOCKHOLDER will cooperate and use their reasonable efforts
to have the present officers, directors and employees of the COMPANY cooperate
with CTS on and after the Closing Date in furnishing information, evidence,
testimony and other assistance in connection with any Tax Return filing
obligations, actions, proceedings, arrangements or disputes of any nature with
respect to matters pertaining to all periods prior to the Closing Date.
17.2 Successors and Assigns. During the period payments are to be made to
the STOCKHOLDER pursuant to Annex III hereof, this Agreement and the rights of
the parties hereunder may not be assigned (including by operation of law) and
shall be binding upon and shall inure to the benefit of the parties hereto, the
successors of CTS, and the heirs and legal representatives of the STOCKHOLDER;
provided, however, that this Agreement and the rights of the parties hereunder
may be assigned if the assignee is a company whose capital stock is traded on
the Nasdaq Stock Market, the New York Stock Exchange or the American Stock
Exchange.
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17.3 Entire Agreement. This Agreement (including the Schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the STOCKHOLDER, the
COMPANY, NEWCO and CTS and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the STOCKHOLDER, the COMPANY, NEWCO and CTS,
acting through their respective officers or trustees, duly authorized by their
respective boards of directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the COMPANY and the STOCKHOLDER shall
make a good faith effort to cross reference disclosure, as necessary or
advisable, between related Schedules.
17.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
17.5 Brokers and Agents. Except as disclosed on Schedule 17.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commissions of
brokers employed or alleged to have been employed by such indemnifying party.
17.6 Expenses.
(a) Whether or not the transactions herein contemplated shall be
consummated, CTS will pay the fees, expenses and disbursements of CTS and
its agents, representatives, accountants and counsel incurred in
connection with the subject matter of this Agreement and any amendments
thereto, including all costs and expenses incurred in the performance and
compliance with all conditions to be performed by CTS under this
Agreement, including the fees and expenses of Price Waterhouse LLP,
Morgan, Lewis & Bockius LLP, and any other person or entity retained by
CTS, and the costs of preparing the Registration Statement.
(b) If the transactions herein contemplated shall not be
consummated, the Company shall pay the fees, expenses and disbursements of
the STOCKHOLDER, the COMPANY and their respective agents, representatives,
accountants and counsel incurred in connection with the subject matter of
this Agreement and any amendments thereto, including all costs and
expenses incurred in the performance and compliance with all conditions to
be performed by the COMPANY and the STOCKHOLDER under this Agreement,
including
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the fees and expenses of legal counsel to the COMPANY and the STOCKHOLDER.
(c) If the transaction herein contemplated is consummated, CTS will
pay the fees, expenses, and disbursements of the STOCKHOLDER and the
COMPANY as described in (b), above.
(d) The STOCKHOLDER shall pay all sales, use, transfer, real
property transfer, recording, gains, stock transfer and other similar
taxes and fees ("Transfer Taxes") imposed in connection with the
transactions contemplated hereby. The STOCKHOLDER shall file all necessary
documentation and Returns with respect to such Transfer Taxes. In
addition, the STOCKHOLDER acknowledges that he, and not the COMPANY or
CTS, will pay all Taxes due upon receipt of the consideration payable
pursuant to Section 2 hereof, and will assume all Tax risks and
liabilities of the STOCKHOLDER in connection with the transactions
contemplated hereby.
17.7 Notices. All notices or communications required or permitted
hereunder shall be in writing and shall be deemed to have been given when
personally delivered or upon receipt if sent by first class certified mail,
return receipt requested or the next business day if sent by telefax (receipt
confirmed and followed up by one of the other delivery methods discussed herein
as well), or upon delivery if sent by express mail, in each case postage prepaid
and addressed as follows:
(a) If to CTS, or NEWCO:
1650 Tysons Boulevard
Suite 600
McLean, Virginia 22102
with copies to:
The Commonwealth Group
1650 Tysons Boulevard
Suite 600
McLean, Virginia 22102
and
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Attn: Christopher T. Jensen, Esq.
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(b) If to the STOCKHOLDER, addressed to it at its address set forth
on Annex IV, with copies to its counsel as is set forth with respect to
the STOCKHOLDER on such Annex IV;
(c) If to the COMPANY:
U.S. Communications, Inc.
801 Compass Way, Suite 205
Annapolis, Maryland 21401
Attn: Ms. Patricia Bednarik
and marked "Personal and Confidential"
with copies to:
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 17.7 from time to time.
17.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of New York, except that matters herein within the purview
of the matters covered by the General Corporation Law of the State of Delaware
shall be governed by such General Corporation Law, in each case without
reference to conflicts of laws principles.
17.9 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
17.10 Time. Time is of the essence with respect to this Agreement.
17.11 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
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17.12 Remedies Cumulative. Except as provided in Section 11.4 of this
Agreement, no right, remedy or election given by any term of this Agreement
shall be deemed exclusive but each shall be cumulative with all other rights,
remedies and elections available at law or in equity.
17.13 Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
17.14 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of CTS, NEWCO, the COMPANY and the STOCKHOLDER. Any amendment or
waiver effected in accordance with this Section 17.14 shall be binding upon each
of the parties hereto, any other person receiving CTS Stock in connection with
the Merger and each future holder of such CTS Stock.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
CONDOR TECHNOLOGY SOLUTIONS, INC.
By: /s/ Kennard F. Hill
------------------------------------
Name: Kennard F. Hill
Title: President and Chief Executive
Officer
USCOMM ACQUISITION CORP.
By: /s/ Kennard F. Hill
------------------------------------
Name: Kennard F. Hill
Title: President and Chief Executive
Officer
U.S. COMMUNICATIONS, INC.
By: /s/ Patricia A. Bednarik
------------------------------------
Name: Patricia A. Bednarik
Title: President
STOCKHOLDER:
/s/ Patricia A. Bednarik
----------------------------------------
Name: Patricia A. Bednarik
<PAGE>
ANNEX III
CONSIDERATION TO BE PAID TO THE STOCKHOLDER
(1) Total consideration to be paid to the STOCKHOLDER on the Closing Date:
$600,000 in cash and $600,000/IPO price per share shares of CTS
Stock.
(2) Contingent consideration of up to $7,000,000 in cash and shares of CTS
Stock will be paid to the STOCKHOLDER contingent on the 1997, 1998 and
1999 financial performance of the COMPANY. Contingent consideration
(if earned) is being offered herein in view of the differences of
opinion between CTS and the STOCKHOLDER regarding the value of the
COMPANY's business, including without limitation its growth rate,
sustainability of customer base and operating margins. Accordingly,
the contingent portion of the consideration (if any) will enable the
total consideration to be based on the actual value of the COMPANY's
business.
The following details the potential contingent consideration for the
COMPANY:
% Cash/
Conditions Basis of Earnout Calculation (1) % Equity(2)
---------------------------------------------------------------
1997 earn-out Consideration 6.0 x Pre-tax Income over 50.0%
cannot exceed $232,000 50.0%
$2,000,000
1998 earn-out Consideration 6.0 x Pre-tax Income over 30.0%
cannot exceed $380,000 70.0%
$2,500,000
1999 earn-out Consideration 5.0 x Pre-tax Income over 30.0%
cannot exceed $615,000 70.0%
$2,500,000
(1) Pre-tax Income shall be calculated as follows:
(i) January 1, 1997 through December 31, 1997: Pre-tax Income shall equal
the sum of (x) the COMPANY's earnings after interest, depreciation and
amortization, but before Federal and state Taxes for the period from January
1, 1997 through the Closing Date, calculated in accordance with GAAP in the
manner applied in the audited financial statements of the COMPANY included
in the Registration Statement and (y) the COMPANY's earnings after interest,
depreciation and amortization, but before Federal and state Taxes for the
period from the Closing Date through December 31, 1997, calculated in
accordance with GAAP in the manner applied in the audited financial
statements of the COMPANY included in the Registration Statement, but
without giving effect to (x) any intercompany costs or charges imposed by
CTS for services provided to the COMPANY (other than charges for services
provided by CTS that were previously arranged for and independently paid by
the COMPANY, including, without limitation,
<PAGE>
audit fees, insurance costs, and general overhead) or (y) the amortization
of intangible assets resulting from the transactions contemplated by the
Agreement. Notwithstanding the foregoing, Pre-tax Income for such period
shall include all costs or other charges imposed for services or products
provided by CTS to the COMPANY for use in connection with the servicing of
the COMPANY's customers.
(ii) January 1, 1998 through December 31, 1998: Pre-tax Income shall equal
the COMPANY's earnings after interest, depreciation and amortization, but
before Federal and state taxes for the period from January 1, 1998 through
December 31, 1998, calculated in accordance with GAAP in the manner applied
in the audited financial statements of the COMPANY included in the
Registration Statement, but without giving effect to (x) any intercompany
costs or charges imposed by CTS for services provided to the COMPANY (other
than charges for services provided by CTS that were previously arranged for
and independently paid by the COMPANY, including, without limitation, audit
fees, insurance costs, and general overhead) or (y) the amortization of
intangible assets resulting from the transactions contemplated by the
Agreement. Notwithstanding the foregoing, Pre-tax Income for such period
shall include all costs or other charges imposed for services or products
provided by CTS to the COMPANY for use in connection with the servicing of
the COMPANY's customers.
(iii) January 1, 1999 through December 31, 1999: Pre-tax Income shall equal
the COMPANY's earnings after interest, depreciation and amortization, but
before Federal and state taxes for the period from January 1, 1999 through
December 31, 1999, calculated in accordance with GAAP in the manner applied
in the audited financial statements of the COMPANY included in the
Registration Statement, but without giving effect to (x) any intercompany
costs or charges imposed by CTS for services provided to the COMPANY (other
than charges for services provided by CTS that were previously arranged for
and independently paid by the COMPANY, including, without limitation, audit
fees, insurance costs, and general overhead) or (y) the amortization of
intangible assets resulting from the transactions contemplated by the
Agreement. Notwithstanding the foregoing, Pre-tax Income for such period
shall include all costs or other charges imposed for services or products
provided by CTS to the COMPANY for use in connection with the servicing of
the COMPANY's customers.
(2) The equity to be delivered hereunder shall be valued at a per share price
equal to one-tenth (1/10) of the sum of the closing price per share of the
CTS Stock as reported by the "Exchange" (as defined in Section 3(a)(1) of
the 1934 Act) on which the CTS Stock is traded at the close of each of the
last ten business days immediately prior to the date the contingent
consideration is paid. If the CTS Stock is not traded on any Exchange, then
the value of the equity shall be determined by one appraiser selected upon
mutual agreement of CTS and the STOCKHOLDER, whose fees and expenses shall
be paid one-half by CTS and one-half by the STOCKHOLDER.
(3) The equity and cash delivered hereunder shall be delivered to the
STOCKHOLDER no later than 30 days after CTS has received from its
independent accountants audited consolidated financial statements for CTS.
<PAGE>
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AGREEMENT AND PLAN OF ORGANIZATION
dated as of October 1, 1997
by and among
CONDOR TECHNOLOGY SOLUTIONS, INC.
INVENTURE ACQUISITION CORP.
(a subsidiary of Condor Technology Solutions, Inc.)
INVENTURE GROUP, INC.
and
the STOCKHOLDERS named herein
-----------------------------------------------------------------
<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (this "Agreement") is made as of
September __, 1997, by and among CONDOR TECHNOLOGY SOLUTIONS, INC., a Delaware
corporation ("CTS"), INVENTURE ACQUISITION CORP., a Delaware corporation
("NEWCO"), INVENTURE GROUP, INC., a Delaware corporation (the "COMPANY"), Howard
Schapiro and Molly M. Menegay (the "STOCKHOLDERS"). The STOCKHOLDERS are all the
stockholders of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing under
the laws of the State of Delaware, having been incorporated on July 7,
1997, solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of CTS;
WHEREAS, the respective Boards of Directors of NEWCO and the COMPANY
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective stockholders that NEWCO
merge with and into the COMPANY pursuant to this Agreement and the
applicable provisions of the laws of the State of Delaware (the "Merger"),
and in furtherance thereof have approved the Merger;
WHEREAS, CTS is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with companies in
the information technology industry (collectively, the "Other Founding
Companies"), and their respective stockholders in order to acquire
additional information technology companies. The COMPANY, together with
each of the entities with which CTS has entered into the Other Agreements,
are collectively referred to herein as the "Founding Companies;"
WHEREAS, this Agreement, the Other Agreements and the IPO (as
hereinafter defined) of CTS Stock (as hereinafter defined) constitute the
"CTS Plan of Organization;"
WHEREAS, the Boards of Directors of CTS and each of the Founding
Companies have approved and adopted the CTS Plan of Organization as an
integrated plan to transfer the capital stock of the Founding Companies to
CTS and the cash raised in the IPO of CTS Stock to CTS as a transfer of
property under Section 351 of the Internal Revenue Code of 1986, as
amended (the "Code");
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WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the STOCKHOLDERS and the Board
of Directors of the COMPANY and the stockholders and the boards of
directors of each of CTS and NEWCO have approved this Agreement and the
transactions contemplated hereby;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined herein shall have the following meanings for all
purposes of this Agreement:
"Acquired Party" means the COMPANY, any subsidiary and any member of a
Relevant Group.
"Acquisition Companies" means NEWCO and each of the other Delaware
companies wholly-owned by CTS prior to the Closing Date.
"Acquisition Transaction" has the meaning set forth in Section 7.4.
"Affiliates" has the meaning set forth in Section 5.8.
"A/R Aging Reports" has the meaning set forth in Section 9.16.
"Articles of Merger" means those Articles or Certificates of Merger with
respect to the Merger substantially in the form[s] attached as Annex I hereto or
with such changes therein as may be required by applicable state laws.
"Balance Sheet Date" means December 31, 1996.
"Benefit Plan" means any Plan, existing at the Closing Date or prior
thereto, established or to which contributions have at any time been made by the
COMPANY, any ERISA Affiliate, or any predecessor of any of the foregoing, under
which any employee or former employee of the COMPANY, or any beneficiary
thereof, is covered, is eligible for coverage or has benefit rights.
"CTS" has the meaning set forth in the first paragraph of this Agreement.
"CTS Charter Documents" has the meaning set forth in Section 6.1.
"CTS Plan of Organization" has the meaning set forth in the fourth recital
of this Agreement.
"CTS Stock" means the common stock, par value $.0l per share, of CTS.
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"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" means the consummation of the transactions contemplated by this
Agreement on the Closing Date.
"Closing Date" has the meaning set forth in Section 4.
"Code" has the meaning set forth in the fifth recital of this Agreement.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Delaware Law" has the meaning set forth in Section 1.2.
"Effective Time of the Merger" means the time as of which the Merger
becomes effective, which the parties hereto contemplate to occur on the Closing
Date.
"Environmental Requirements" has the meaning set forth in Section 5.13.
"ERISA Affiliate" means any Person who is, or at any time was, a member of
a controlled group (within the meaning of Section 412(n)(6) of the Code) that
includes, or at any time included, the COMPANY or any predecessor of the
COMPANY.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" has the meaning set forth in the third recital of
this Agreement.
"GAAP" means generally accepted accounting principles of the United States
applied in a manner consistent with the past practices of the COMPANY.
"Governmental Authority" means any governmental, regulatory or
administrative body, agency, subdivision or authority, any court or judicial
authority, or any public, private or industry regulatory authority, whether
national, Federal, state, local or otherwise.
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"Hazardous Materials" has the meaning set forth in Section 5.13(b).
"Intellectual Property" means all trademarks, service marks, trade dress,
trade names, patents and copyrights and any registration or application for any
of the foregoing, and any trade secret, invention, process, know-how, computer
software or technology systems.
"IPO" means the initial public offering of CTS Stock pursuant to the
Registration Statement.
"Laws" has the meaning set forth in Section 5.21.
"Material Adverse Effect" means, with respect to any Person, any event or
occurrence which would have a material adverse effect on such Person's business,
condition (financial or other), properties, business prospects or financial
results.
"Material Contract" means any lease, instrument, agreement, license or
permit set forth on Schedule 5.12, 5.13, 5.14, 5.15, 5.16, 5.18 or 5.19 or any
other material agreement to which the COMPANY is a party or by which its
properties are bound.
"Merger" means the merger of NEWCO with and into the COMPANY pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO STOCK" means the common stock, par value $.0l per share, of NEWCO.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Other Agreements" has the meaning set forth in the third recital of this
Agreement.
"Other Founding Companies" has the meaning set forth in the third recital
of this Agreement.
"Person" means any natural person, corporation, partnership,
proprietorship, other business organization, trust, union, association or
Governmental Authority.
"Plan" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock
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appreciation rights, phantom stock, leave of absence, layoff, vacation, day or
dependent care, legal services, cafeteria, life, health, accident, disability,
workmen's compensation or other insurance, severance, separation or other
employee benefit plan, practice, policy or arrangement of any kind, whether
written or oral, or whether for the benefit of a single individual or more than
one individual including, but not limited to, any "employee benefit plan" within
the meaning of Section 3(3) of ERISA.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pre-Closing Date" has the meaning set forth in Section 4.
"Pricing" means the date of determination by CTS and the Underwriters of
the public offering price of the shares of CTS Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on or immediately prior to
the Pre-Closing Date.
"Registration Statement" means that certain registration statement of CTS
on Form S-1 covering the shares of CTS Stock to be issued in the IPO.
"Relevant Group" has the meaning set forth in Section 5.22(a).
"Returns" has the meaning set forth at the end of Section 5.22.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 7.3(e).
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" shall mean the COMPANY as the surviving party in
the Merger.
"Tax" or "Taxes" has the meaning set forth at the end of Section 5.22.
"Taxing Authority" has the meaning set forth at the end of Section 5.22.
"Third Person" has the meaning set forth in Section 11.2.
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"Transfer Taxes" has the meaning set forth in Section 17.6.
"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
"Underwriting Agreement" means the Underwriting Agreement dated the
Closing Date between the Underwriters and CTS in respect of the IPO.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 Delivery and Filing of Articles of Merger. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and filed
with the Secretary of State of the State of Delaware, and stamped receipt copies
of each such filing to be delivered to CTS on or before the Closing Date.
1.2 Effective Time of the Merger. At the Effective Time of the Merger and
subject to the terms and conditions of this Agreement and the applicable
provisions of the Delaware General Corporation Law (the "Delaware Law"), NEWCO
shall be merged with and into the COMPANY in accordance with the Articles of
Merger, the separate existence of NEWCO shall cease and the COMPANY shall be the
surviving party in the Merger. At the Effective Time of the Merger, the effect
of the Merger otherwise shall be as provided in the applicable provisions of
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time of the Merger, all the property, rights,
privileges, powers and franchises of the COMPANY and NEWCO shall vest in the
Surviving Corporation, and all debts, liabilities and duties of the COMPANY and
NEWCO shall become the debts, liabilities and duties of the Surviving
Corporation. The Merger will be effected in a single transaction.
1.3 Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(a) the Certificate or Articles of Incorporation of the COMPANY then
in effect shall be the Certificate or Articles of Incorporation of the
Surviving Corporation until amended as provided by law;
(b) the By-laws of the COMPANY then in effect shall be the By-laws
of the Surviving Corporation until amended as provided by law;
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(c) a director of NEWCO and two nominees of the COMPANY shall be the
directors of the Surviving Corporation until their respective successors
are elected or appointed and qualified in accordance with the terms the
By-laws of the Surviving Corporation; the Board of Directors of the
Surviving Corporation shall hold office subject to the provisions of the
laws of the Commonwealth of Pennsylvania and of the Certificate of
Incorporation and By-laws of the Surviving Corporation; and
(d) the officers of the COMPANY immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities, and effective upon the
Effective Time of the Merger, J. Marshall Coleman shall be appointed as a
vice president and assistant secretary of the Surviving Corporation and
shall not be entitled to any compensation from the COMPANY as a result of
such appointment and his serving in such capacity, such officers to serve,
subject to the provisions of the Certificate or Articles of Incorporation
and By-laws of the Surviving Corporation, until his or her successor is
duly elected and qualified.
1.4 Certain Information With Respect to the Capital Stock of the COMPANY,
CTS and NEWCO. The respective designations and numbers of outstanding shares and
voting rights of each class of outstanding capital stock of the COMPANY, CTS and
NEWCO as of the date of this Agreement are as follows:
(a) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 1.4 hereto;
(b) immediately prior to the Closing Date, the authorized capital
stock of CTS will consist of 50,000,000 shares; and
(c) as of the date of this Agreement, the authorized capital stock
of NEWCO consists of 3,000 shares of NEWCO Stock, of which ten (10) shares
are issued and outstanding and beneficially owned by CTS.
2. CONVERSION OF STOCK
2.1 Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) CTS Stock and (y) common stock of the Surviving
Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
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(a) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger will be canceled and
extinguished and, by virtue of the Merger and without any action on the
part of the holder thereof, automatically shall be deemed to represent,
with respect to each STOCKHOLDER, (1) the right to receive the number of
shares of CTS Stock set forth on Annex III hereto with respect to such
STOCKHOLDER and (2) the right to receive the amount of cash set forth on
Annex III hereto with respect to such STOCKHOLDER;
(b) all shares of COMPANY Stock that are held by the COMPANY as
treasury stock shall be canceled and retired and no shares of CTS Stock or
other consideration shall be delivered or paid in exchange therefor; and
(c) each share of NEWCO Stock issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger
and without any action on the part of CTS, automatically be converted into
one fully paid and non-assessable share of common stock of the Surviving
Corporation, which shall constitute all of the issued and outstanding
shares of common stock of the Surviving Corporation immediately after the
Effective Time of the Merger.
All CTS Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 5 and
15 hereof and the registration rights described in Section 16 hereof, have the
same rights as all the other shares of outstanding CTS Stock by reason of the
provisions of the Certificate of Incorporation of CTS or as otherwise provided
by the Delaware Law. All voting rights of such CTS Stock received by the
STOCKHOLDERS shall be fully exercisable by the STOCKHOLDERS and the STOCKHOLDERS
shall not be deprived nor restricted in exercising those rights. At the
Effective Time of the Merger, CTS shall have no class of capital stock issued
and outstanding other than the CTS Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 At the Effective Time of the Merger and on the Closing Date the
STOCKHOLDERS, who are the holders of all outstanding certificates representing
shares of COMPANY Stock, shall, upon surrender of such certificates, receive (i)
the respective number of shares of CTS Stock and (ii) the amount of cash, all as
set forth on Annex III hereto with respect to such STOCKHOLDER, provided that
such cash shall be paid out of the net proceeds from the IPO. The cash payable
pursuant to clause (ii) shall be paid by wire transfer.
3.2 The STOCKHOLDERS shall deliver in trust to Morgan, Lewis & Bockius
LLP, counsel to CTS, at the Pre-Closing the certificates representing COMPANY
Stock, duly endorsed in blank by the STOCKHOLDERS, or accompanied by stock
powers duly
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endorsed in blank, with signatures guaranteed by a national or state chartered
bank or other financial institution, and with all necessary Transfer Tax and
other revenue stamps, acquired at the STOCKHOLDERS' expense, affixed and
canceled. The STOCKHOLDERS agree promptly to cure any deficiencies with respect
to the endorsement of the stock certificates or other documents of conveyance
with respect to such COMPANY Stock or with respect to the stock powers
accompanying any COMPANY Stock. Upon consummation of the IPO and the
transactions contemplated to occur on the Closing Date, all of such certificates
shall be deemed released by such counsel to CTS without any further action on
the part of such counsel.
4. CLOSING
At or prior to the Pre-Closing, the parties shall take all actions
necessary to prepare to (i) effect the Merger (including, if permitted by
applicable state law, the advance filing with the appropriate state authorities
of the Articles of Merger, which shall become effective at the Effective Time of
the Merger) and (ii) effect the conversion and delivery of shares referred to in
Section 2 hereof; provided, that such actions shall not include the actual
completion of the Merger for purposes of this Agreement or the conversion and
delivery of the shares and transmission of funds by wire referred to in Section
3 hereof, each of which actions shall only be taken upon the Closing Date as
herein provided. In the event that there is no Closing and this Agreement
terminates, CTS hereby covenants and agrees to do all things required by
Delaware Law and all things which counsel for the COMPANY advise CTS are
required by applicable laws of the State of Delaware in order to rescind any
merger or other actions effected by the advance filing of the Articles of Merger
as described in this Section. The taking of the actions described in clauses (i)
and (ii) above (the "Pre-Closing") shall take place on the date of the execution
of the underwriting agreement to be used in connection with the IPO (the
"Pre-Closing Date") at the offices of Morgan, Lewis & Bockius LLP, 101 Park
Avenue, New York, New York 10178. On the Closing Date (x) the Articles of Merger
shall be or shall have been filed with the appropriate state authorities so that
they shall be or, as of 8:00 a.m. New York City time on the Closing Date, shall
become effective and the Merger shall thereby be effected, (y) all transactions
contemplated by this Agreement, including the conversion and delivery of shares,
the transmission of funds by wire in an amount equal to the cash portion of the
consideration which the STOCKHOLDERS shall be entitled to receive pursuant to
the Merger referred to in Section 3 hereof shall be completed and (z) the
closing with respect to the IPO shall occur and be deemed to be completed. The
date on which the actions described in the preceding clauses (x), (y) and (z)
occur shall be referred to as the "Closing Date." Time is of the essence.
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5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) Representations and Warranties of the COMPANY and the STOCKHOLDERS.
Each of the COMPANY and the STOCKHOLDERS jointly and severally represents
and warrants to CTS and NEWCO that all of the following representations and
warranties in this Section 5(A) are true and correct at the date of this
Agreement and, subject to Section 7.8 hereof, shall be true and correct at the
time of the Pre-Closing and the Closing Date, and that such representations and
warranties shall survive the Closing Date for a period of eighteen months (the
last day of such period being the "Expiration Date"), except that (i) the
representations and warranties set forth in Section 5.22 hereof shall survive
until such time as the statute of limitations period has run for all tax periods
ended on or prior to the Closing Date, which shall be deemed to be the
Expiration Date for Section 5.22, and (ii) solely for purposes of Section
11.1(iii) hereof and solely to the extent that, in connection with the IPO, CTS
actually incurs liability under the 1933 Act, the 1934 Act, or any other Federal
or state securities laws, the representations and warranties set forth in this
Section 5(A) shall survive until the expiration of any applicable statute of
limitations period, which shall be deemed to be the Expiration Date for such
purposes. For purposes of this Section 5 and for the opinion referred to in
Section 9.8 of this Agreement, the term "COMPANY" shall mean and refer to the
COMPANY and all of its subsidiaries, if any.
5.1 Due Organization. The COMPANY is a corporation duly incorporated,
validly existing and in good standing under the laws of the state of its
incorporation, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted, to own
or hold under lease the properties and assets it now owns or holds under lease,
and to perform all of its obligations under the Material Contracts; is duly
qualified in the jurisdictions listed in Schedule 5.1 and there are no other
jurisdictions in which the conduct of the COMPANY's business or activities or
its ownership of assets requires any other qualification under applicable law,
the absence of which would have a Material Adverse Effect on the COMPANY. True,
complete and correct copies of the Certificate or Articles of Incorporation and
By-laws, each as amended, of the COMPANY (the "Charter Documents") are all
attached to Schedule 5.1. The minute books and stock records of the COMPANY, as
heretofore made available to CTS, are correct and complete in all material
respects. The most recent minutes of the COMPANY, which are dated no earlier
than 10 business days prior to the date hereof, affirm and ratify all prior acts
of the COMPANY and of its officers and directors on behalf of the COMPANY.
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5.2 Authorization. The representatives of the COMPANY executing this
Agreement have the authority to execute and deliver this Agreement and to
perform its obligations hereunder. The execution and delivery of this Agreement
by the COMPANY and performance by the COMPANY of its obligations under this
Agreement and the consummation by the COMPANY of the transactions contemplated
hereby have been duly authorized by all necessary corporate and stockholder
action in accordance with applicable law and the Articles of Incorporation and
By-Laws of the COMPANY on the part of the COMPANY and the STOCKHOLDERS. This
Agreement constitutes the valid and binding obligation of the COMPANY,
enforceable in accordance with its terms.
5.3 Capital Stock of the COMPANY. The authorized capital stock of the
COMPANY is as set forth in Schedule 1.4. All of the issued and outstanding
shares of capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex IV and, except as set forth on Schedule 5.3, are
owned free and clear of all liens, security interests, pledges, charges, voting
trusts, restrictions, encumbrances and claims of every kind. All of the issued
and outstanding shares of capital stock of the COMPANY have been duly authorized
and validly issued, are fully paid and nonassessable, are owned of record and
beneficially by the STOCKHOLDERS and were offered, issued, sold and delivered by
the COMPANY in compliance with all applicable state and Federal laws concerning
the issuance of securities. The COMPANY and the STOCKHOLDERS have full right,
power and authority to exchange the COMPANY Stock as provided herein without
obtaining the consent or approval of any other person or Governmental Authority.
Further, none of such shares were issued in violation of the preemptive
rights of any past or present stockholder.
5.4 Transactions in Capital Stock; Organization Accounting. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock since
January 1, 1994. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
COMPANY to issue any of its authorized but unissued capital stock or its
treasury stock; (ii) the COMPANY has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof; and (iii) neither the voting stock structure of the COMPANY nor the
relative ownership of shares among any of the STOCKHOLDERS has been altered or
changed in contemplation of the Merger and/or the CTS Plan of Organization.
Schedule 5.4 also includes complete and accurate copies of all stock option or
stock purchase plans, including a list of all outstanding options, warrants or
other rights to acquire shares of the COMPANY Stock and a description of the
material terms of such outstanding options, warrants or other rights.
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5.5 No Bonus Shares. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
5.6 Subsidiaries. Schedule 5.6 attached hereto lists the name of each of
the COMPANY's subsidiaries and sets forth the number and class of the authorized
capital stock of each of the COMPANY's subsidiaries and the number of shares of
each of the COMPANY's subsidiaries which are issued and outstanding, all of
which shares (except as set forth on Schedule 5.6) are owned by the COMPANY,
free and clear of all liens, security interests, pledges, voting trusts,
equities, restrictions, encumbrances and claims of every kind. Except as set
forth on Schedule 5.6, the COMPANY does not presently own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity nor is the COMPANY, directly or indirectly, a
participant in any joint venture, partnership or other non-corporate entity.
5.7 Predecessor Status; etc. Set forth on Schedule 5.7 is a list of all
names of all predecessor companies of the COMPANY, including the names of any
entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from which the COMPANY previously acquired material
assets. Except as disclosed on Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
5.8 Spin-off by the COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1994.
5.9 Financial Statements. The COMPANY has delivered to CTS copies of the
following financial statements (the "Financial Statements"):
(a) Balance Sheets, Income Statements, Statements of Stockholders'
Equity and Statements of Cash Flows at and for the years ended December
31, 1994 and 1995.
(b) Audited Balance Sheets, Income Statements, Statements of
Stockholders' Equity and Statements of Cash Flows at and for the year
ended December 31, 1996.
(c) Unaudited Balance Sheets, Income Statements, Statements of
Stockholders' Equity, and Statements of Cash Flows for the six months
ended June 30, 1996 and 1997.
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Each of the Financial Statements is consistent with the books and records
of the COMPANY (which, in turn, are accurate and complete in all material
respects) and fairly presents the COMPANY's financial condition, assets and
liabilities as of their respective dates and the results of operations and cash
flows for the periods related thereto in accordance with GAAP, consistently
applied among the periods which are the subject of the Financial Statements,
except unaudited interim financial statements which were or are subject to
normal year-end adjustments which were not and are not expected to be material
in amount and the addition of required footnotes thereto.
5.10 Liabilities and Obligations. The COMPANY has delivered to CTS an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY in excess of $10,000 which are not
reflected on the balance sheet of the COMPANY at the Balance Sheet Date or
otherwise reflected in the COMPANY Financial Statements at the Balance Sheet
Date and (ii) all loan agreements, indemnity or guaranty agreements, bonds,
mortgages, liens, pledges or other security agreements to which the COMPANY is a
party. Except as set forth on Schedule 5.10, since the Balance Sheet Date, the
COMPANY has not incurred any material liabilities of any kind, character and
description, whether accrued, absolute, secured or unsecured, contingent or
otherwise, other than liabilities incurred in the ordinary course of business.
The COMPANY has also set forth on Schedule 5.10, in the case of those contingent
liabilities related to pending or threatened litigation, or other liabilities
which are not fixed or are being contested, the following information:
(a) a summary description of the liability and has provided CTS's
counsel with: (i) copies of all relevant documentation relating
thereto;
(ii) amounts claimed and any other action or relief
sought;
(iii) and name of claimant and all other parties to the
claim, suit or proceeding;
(b) the name of each court or agency before which such claim, suit
or proceeding is pending;
(c) the date such claim, suit or proceeding was instituted; and
(d) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such
liability. If no estimate is provided, the estimate shall for purposes of
this Agreement be deemed to be zero.
5.11 Accounts and Notes Receivable. The COMPANY has delivered to CTS an
accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY as of the Balance Sheet Date, including any such
amounts which are not reflected in the balance sheet as of the Balance Sheet
Date, and including receivables
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from and advances to employees and the STOCKHOLDERS. Except to the extent
reflected on Schedule 5.11 or as disclosed by the COMPANY to CTS in a writing
accompanying the A/R Aging Reports, as the case may be, the accounts, notes and
other receivables shown on Schedule 5.11 and on the A/R Aging Reports are and
shall be, and the COMPANY has no reason to believe that any such account
receivable is not or shall not be, collectible in the amounts shown (in the case
of the accounts and notes receivable set forth on Schedule 5.11, net of reserves
reflected in the balance sheet calculated consistent with reserves as of the
Balance Sheet Date).
5.12 Intellectual Property; Permits and Intangibles.
(a) The COMPANY owns or has licenses to all Intellectual Property
the absence of any of which would have a Material Adverse Effect on the
COMPANY, and the COMPANY has delivered to CTS an accurate list (which is
set forth on Schedule 5.12(a)) of all Intellectual Property owned by or
licensed by the COMPANY. Each item of Intellectual Property owned by or
licensed by the COMPANY is valid and in full force and effect. Except as
set forth on Schedule 5.12(a), all right, title and interest in and to
each item of Intellectual Property is owned by the COMPANY and is not
subject to any license except as set forth on Schedule 5.12(a), royalty
arrangement or pending or threatened claim or dispute. To the COMPANY's
knowledge, none of the Intellectual Property owned by or licensed by the
COMPANY nor any product sold or licensed by the COMPANY, infringes any
Intellectual Property right of any other entity and to the COMPANY's
knowledge, no Intellectual Property owned by the COMPANY is infringed upon
by any other entity.
(b) The COMPANY holds all licenses, franchises, permits and other
governmental authorizations the absence of any of which could have a
Material Adverse Effect on the COMPANY, and the COMPANY has delivered to
CTS an accurate list and summary description (which is set forth on
Schedule 5.12(b)) of all governmental licenses, franchises, permits and
other governmental authorizations, including permits, titles, licenses,
franchises and certificates (it being understood and agreed that a list of
all environmental permits and other environmental approvals is set forth
on Schedule 5.13). To the knowledge of the COMPANY, the licenses,
franchises, permits and other governmental authorizations listed on
Schedules 5.12(b) and 5.13 are valid, and the COMPANY has not received any
notice that any Governmental Authority intends to cancel, terminate or not
renew any such license, franchise, permit or other governmental
authorization. The COMPANY has conducted and is conducting its business in
compliance with the requirements, standards, criteria and conditions set
forth in the licenses, franchises, permits and other governmental
authorizations listed on Schedules 5.12(b) and 5.13 and is not in
violation of any of the foregoing except where such non-compliance or
violation would not have a Material Adverse
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Effect on the COMPANY. Except as specifically provided in Schedule 5.12(a)
or 5.12(b), the transactions contemplated by this Agreement will not (i)
to the COMPANY's knowledge, result in the infringement by the COMPANY of
any Intellectual Property right of any other entity, (ii) infringe any
Intellectual Property listed on Schedule 5.12(a), or (iii) result in a
default under or a breach or violation of, or adversely affect the rights
and benefits afforded to the COMPANY by, any licenses, franchises, permits
or government authorizations listed on Schedule 5.12(b).
5.13 Environmental Matters.
(a) Except as set forth on Schedule 5.13,
(i) the COMPANY is and at all times has been in compliance
in all material respects with, and has not been in
violation of or liable under, all Environmental
Requirements, and
(ii) the COMPANY possesses all permits, licenses and
certificates required by all Environmental Requirements,
and has filed all notices or applications required
thereby.
As used herein, "Environmental Requirements" shall mean all applicable
federal, state and local laws, rules, regulations, ordinances and
requirements relating to pollution and protection of the environment, all
as amended to date.
(b) Except as disclosed on Schedule 5.13:
(i) the COMPANY has not been subject to, or received any
notice of any private, administrative or judicial
action, or notice of any intended private,
administrative or judicial action relating to the
presence or alleged presence of Hazardous Materials in,
under or upon any real property currently or formerly
owned, leased or used by (A) the COMPANY or (B) any
other person that has, at any time, disposed of
Hazardous Materials on behalf of the COMPANY;
(ii) the COMPANY does not have any basis for any such notice
or action; and
(iii) there are no pending or, to the knowledge of the
COMPANY, threatened actions or proceedings (or notices
of potential actions or proceedings) from any
Governmental
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Authority or any other entity regarding any matter
relating to health, safety or protection of the
environment against the COMPANY.
"Hazardous Materials" for purposes of this Agreement shall include,
without limitation: (A) hazardous materials, hazardous substances,
extremely hazardous substances or hazardous wastes, as those terms are
defined by the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. ss.9601 et seq. ("CERCLA"), the Resource
Conservation and Recovery Act, 42 U.S.C. ss.6901 et seq. ("RCRA"), and any
other Environmental and Safety Requirements; (B) petroleum, including,
without limitation, crude oil or any fraction thereof which is liquid at
standard conditions of temperature and pressure (60 degrees Fahrenheit and
14.7 pounds per square inch absolute); (C) any radioactive material,
including, without limitation, any source, special nuclear, or by-product
material as defined in 42 U.S.C. ss. 2011 et seq.; and (D) asbestos in any
form or condition.
(c) To the Company's knowledge, there are and have been no past or
present events, conditions, circumstances, activities, practices,
incidents or actions which could reasonably be expected to interfere with
or prevent continued compliance with any Environmental Requirements, give
rise to any legal obligation or liability, or otherwise form the basis of
any claim, action, suit, proceeding, hearing or investigation against or
involving the COMPANY or any real property presently or previously owned
or used by the COMPANY under any Environmental Requirements or related
common law theories, except as identified on Schedule 5.13.
(d) Schedule 5.13 sets forth the name and principal place of
business of every off-site waste disposal organization, and each of the
haulers, transporters or cartage organization engaged now or in the
preceding three years by the COMPANY to dispose of Hazardous Materials to
any such off-site waste disposal location on behalf of the COMPANY or any
of its predecessors.
5.14 Personal Property. The COMPANY has delivered to CTS an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property with a value
individually in excess of $10,000 which is included (or that will be included)
in "depreciable plant, property and equipment" (or similarly named line item) on
the balance sheet of the COMPANY as of the Balance Sheet Date, (y) all other
personal property owned by the COMPANY with a value individually in excess of
$10,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date and (z) all leases and agreements in respect of personal property
with a value individually in excess of $10,000, including, in the case of each
of (x), (y) and (z), (1) true, complete and correct copies of all such leases
which have been provided to CTS's counsel, (2) a listing of the
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capital costs of all such assets which are subject to capital leases and (3) an
indication as to which assets are currently owned, or, to the COMPANY's
knowledge, were formerly owned, by STOCKHOLDERS or Affiliates of the COMPANY or
STOCKHOLDERS. Except as set forth on Schedule 5.14, (i) all personal property
with a value individually in excess of $10,000 used by the COMPANY in its
business is either owned by the COMPANY or leased by the COMPANY pursuant to a
lease included on Schedule 5.14, (ii) all of the personal property listed on
Schedule 5.14 is in good working order and condition, ordinary wear and tear
excepted, and (iii) all leases and agreements included on Schedule 5.14 are in
full force and effect and constitute valid and binding agreements of the
COMPANY, and to the COMPANY's knowledge, of the other parties (and their
successors) thereto in accordance with their respective terms.
5.15 Significant Customers: Material Contracts and Commitments. The
COMPANY has delivered to CTS an accurate list (which is set forth on Schedule
5.15) of all significant customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person or entity) representing 5% or more of the COMPANY's annual revenues as of
the Balance Sheet Date. Except to the extent set forth on Schedule 5.15, none of
the COMPANY's significant customers has canceled or substantially reduced or, to
the knowledge of the COMPANY, is currently attempting or threatening to cancel a
contract or substantially reduce utilization of the services provided by the
COMPANY.
Except as listed or described on Schedule 5.15, as of or on the date
hereof, neither the COMPANY is a party to or bound by, nor do there exist any,
Contracts relating to or in any way affecting the operation or ownership of the
COMPANY's business that are of a type described below:
(a) any collective bargaining arrangement with any labor union or
any such agreement currently in negotiation or proposed;
(b) any contract for capital expenditures or the acquisition or
construction of fixed assets for or in respect to real property other than
in the COMPANY's ordinary course of business in excess of $50,000;
(c) any contract with a term in excess of one year for the purchase,
maintenance, acquisition, sale or furnishing of materials, supplies,
merchandise, machinery, equipment, parts or other property or services
(except that the COMPANY need not list any such contract made in the
ordinary course of business) which requires aggregate future payments of
greater than $100,000;
(d) any contract relating to the borrowing of money, or the guaranty
of another person's borrowing of money, including, without limitation, all
notes,
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mortgages, indentures and other obligations, agreements and other
instruments for or relating to any lending or borrowing, including assumed
indebtedness;
(e) any contract granting any person a lien on any of the assets of
the COMPANY, in whole or in part;
(f) any contract for the cleanup, abatement or other actions in
connection with Hazardous Materials (as defined in Section 5.13), the
remediation of any existing environmental liabilities or relating to the
performance of any environmental audit or study;
(g) any contract granting to any person a first-refusal, first-offer
or similar preferential right to purchase or acquire any of the assets of
the COMPANY's business other than in the ordinary course of business;
(h) any contract under which the COMPANY is
(i) a lessee or sublessee of any machinery, equipment,
vehicle or other tangible personal property or real
property, or
(ii) a lessor of any real property or tangible personal
property owned by the COMPANY,
in either case having an original value in excess of $50,000;
(i) any contract providing for the indemnification of any officer,
director, employee or other person, where such indemnification may exceed
the sum of $50,000;
(j) any joint venture or partnership contract; and
(k) any other contract with a term in excess of one year, whether or
not made in the ordinary course of business, which involves payments in excess
of $100,000.
The COMPANY has provided CTS with a true and complete copy of each written
Material Contract, including all amendments or other modifications thereto.
Except as set forth on Schedule 5.15, each Material Contract is a valid and
binding obligation of the COMPANY, enforceable against the COMPANY in accordance
with its terms, and is in full force and effect. Except as set forth on Schedule
5.15, the COMPANY has performed all obligations required to be performed by it
under each Material Contract and neither the COMPANY nor, to the knowledge of
the COMPANY, any other party to any Contract, is (with or without the lapse of
time or the giving of notice or both) in breach or default in any material
respect thereunder; and there exists no condition which, to the
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knowledge of the COMPANY, would constitute a breach or default thereunder. The
COMPANY has not been notified that any party to any Material Contract intends to
cancel, terminate, not renew or exercise an option under any Material Contract,
whether in connection with the transactions contemplated hereby or otherwise.
5.16 Real Property. (a) Schedule 5.16(a) includes a list of all real
property owned by the COMPANY (i) as of the Balance Sheet Date and (ii) acquired
since the Balance Sheet Date, and all other real property, if any, used by the
COMPANY in the conduct of its business. The COMPANY has good and insurable title
to the real property owned by it, including that reflected on Schedule 5.14,
subject to no mortgage, pledge, lien, conditional sale agreement, encumbrance or
charge, except for:
(i) liens reflected on Schedule 5.10 or 5.15 as securing
specified liabilities (with respect to which no default
by the COMPANY exists);
(ii) liens for current taxes not yet due and payable and
assessments not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other
exceptions to title shown of record in the office of the
County Clerks in which the properties, assets and
leasehold estates are located which do not adversely
affect the current use of the property.
Attached to Schedule 5.16(a) are true, complete and correct copies of all title
reports and title insurance policies currently in possession of the COMPANY with
respect to real property owned by the COMPANY.
(b) Schedule 5.16(b) includes an accurate list of real property leases to
which the COMPANY is a party and an indication as to which such properties, if
any, are currently owned, or were formerly owned, by STOCKHOLDERS or Affiliates
of the COMPANY or STOCKHOLDERS. Counsel to CTS has been provided with true,
complete and correct copies of all leases and agreements in respect of such real
property leased by the COMPANY. Except as set forth on Schedule 5.16(b), all of
such leases included on Schedule 5.16(b) are in full force and effect and
constitute valid and binding agreements of the COMPANY and, to the COMPANY'S
knowledge, of the parties (and their successors) thereto in accordance with
their respective terms.
5.17 Insurance.
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(a) The COMPANY has delivered to CTS:
(i) true and complete copies of all policies of insurance to
which the COMPANY is a party or under which the COMPANY,
or any director of the COMPANY, is or has been covered
at any time within two years preceding the date of this
Agreement;
(ii) true and complete copies of all pending applications for
policies of insurance; and
(iii) any statement by the auditor of the COMPANY's financial
statements with regard to the adequacy of such entity's
coverage or of the reserves for claims.
(b) Schedule 5.17(b) describes:
(i) any self-insurance arrangement by or affecting the
COMPANY, including any reserves established thereunder;
(ii) any contract or arrangement, other than a policy of
insurance, for the transfer or sharing of any risk by
the COMPANY; and
(iii) all obligations of the COMPANY to third parties with
respect to insurance (including such obligations under
leases and service agreements), and identifies the
policy under which such coverage is provided.
(c) Schedule 5.17(c) sets forth, by year, for the current policy
year and each of the preceding two policy years:
(i) a summary of the loss experience under each policy;
(ii) a statement describing each claim under an insurance
policy for an amount in excess of $25,000, which sets
forth:
a) the name of the claimant;
b) a description of the policy by insurer, type of
insurance and period of coverage; and
c) the amount and a brief description of the claim;
and
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(iii) a statement describing the loss experience for all
claims that were self-insured, including the number and
aggregate cost of such claims.
(d) Except as set forth on Schedule 5.17(d):
(i) All policies to which the COMPANY is a party or that
provide coverage to the COMPANY:
a) are valid, outstanding and enforceable;
b) are issued by an insurer that is financially sound
and reputable;
c) taken together, provide adequate insurance for the
assets and the operations of the COMPANY for all
risks normally insured against by a person
carrying on the same business or businesses of the
COMPANY;
d) are sufficient for compliance with all legal
requirements and Material Contracts to which the
COMPANY is a party or by which it is bound;
e) will continue in full force and effect following
the Closing in accordance with their respective
terms;
(ii) the COMPANY has not received (A) any refusal of coverage
or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation
or any other indication that any insurance policy is no
longer in full force or effect or will not be renewed or
that the issuer of any policy is not willing or able to
perform its obligations thereunder;
(iii) the COMPANY has paid all premiums due, and has otherwise
performed all of its obligations, under each policy to
which it is a party or that provides coverage to it or
any director thereof.
(iv) the COMPANY has given notice to the insurer of all
claims known by it to be insured thereby.
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5.18 Compensation; Employment Agreements; Organized Labor Matters. The
COMPANY has delivered to CTS an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the COMPANY, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons as of (i) the
Balance Sheet Date and (ii) the date hereof. The COMPANY has provided to CTS
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
increases in the compensation payable or any special bonuses to any officer,
director, key employee or other employee, except ordinary salary increases
implemented on a basis consistent with past practices.
Except as set forth on Schedule 5.18, there is no, and within the last
three years the COMPANY has not experienced any, strike, picketing, boycott,
work stoppage or slowdown, other labor dispute, union organizational activity,
allegation, charge or complaint of unfair labor practice, employment
discrimination or other matters relating to the employment of labor, pending or,
to the COMPANY's knowledge, threatened against the COMPANY; nor is there, to the
knowledge of the COMPANY, any basis for any such allegation, charge or
complaint. Except as set forth on Schedule 5.18, to the knowledge of the
COMPANY, none of the employees of any critical subcontractor utilized by the
COMPANY are represented by a labor union. There is no request directed to the
COMPANY for union or similar representation pending and, to the COMPANY's
knowledge, no question concerning representation has been raised. To the
COMPANY's knowledge, there is no grievance pending which might have a Material
Adverse Effect on the COMPANY nor any which might have a Material Adverse Effect
on any arbitration proceeding arising out of any union agreement. There are no
arbitration awards, court orders, orders of the National Labor Relations Board
or private settlement agreements which in any way alter, amend or clarify any
union agreement or which restrict or otherwise impact the COMPANY's ability to
act with respect to the employees covered by any union agreement in the future.
To the COMPANY's knowledge, no key employee and no group of employees has any
plans to terminate employment with the COMPANY. The COMPANY has complied in all
material respects with all applicable laws relating to the employment of labor,
including provisions thereof relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and other taxes. The
COMPANY is not liable for any arrearages of wages or any taxes or penalties for
failure to comply with any such laws, ordinances or regulation.
5.19 Employee Plans. The COMPANY has delivered to CTS an accurate schedule
(which is set forth on Schedule 5.19) showing all Benefit Plans of the COMPANY,
together with true, complete and correct copies of such Benefit Plans,
agreements and any trusts related thereto, and classifications of employees
covered thereby as of the Balance Sheet Date. The COMPANY is not required to
contribute to
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any Benefit Plan pursuant to the provisions of any collective bargaining
agreement establishing the terms and conditions of employment of any of
COMPANY's employees.
5.20 Compliance with ERISA. All Benefit Plans that are intended to qualify
under Section 401 (a) of the Code are and have been so qualified and have been
determined by the Internal Revenue Service to be so qualified, and copies of
such determination letters are included as part of Schedule 5.19 hereof. Except
as disclosed on Schedule 5.20, all reports and other documents required to be
filed with any Governmental Authority or distributed to Plan participants or
beneficiaries (including, but not limited to, actuarial reports, audits or tax
returns) have been timely filed or distributed, and copies thereof are included
as part of Schedule 5.19 hereof other than those reports required to be
distributed to Plan participants and beneficiaries. None of the STOCKHOLDERS,
any Benefit Plan, nor the COMPANY has engaged in any transaction prohibited
under the provisions of Section 4975 of the Code or Section 406 of ERISA. No
Benefit Plan has incurred an accumulated funding deficiency, as defined in
Section 412(a) of the Code and Section 302(l) of ERISA; and the COMPANY has not
incurred any liability for excise tax or penalty due to the Internal Revenue
Service nor any liability to the PBGC. The COMPANY further represents that:
(a) there have been no terminations, partial terminations or
discontinuance of contributions to any such Benefit Plan intended to
qualify under Section 401 (a) of the Code without notice to and approval
by the Internal Revenue Service;
(b) no Benefit Plan subject to the provisions of Title IV of ERISA
has been terminated;
(c) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any Benefit Plan;
(d) the COMPANY has not incurred liability under Section 4062 of
ERISA;
(e) no circumstances exist pursuant to which the COMPANY could have
any direct or indirect liability whatsoever (including, but not limited
to, any liability to any multiemployer plan or the PBGC under Title IV of
ERISA or to the Internal Revenue Service for any excise tax or penalty, or
being subject to any statutory lien to secure payment of any such
liability) with respect to any Benefit Plan now or heretofore maintained
or contributed to by any entity other than the COMPANY that is, or at any
time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the COMPANY;
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(f) the COMPANY is not now, nor can it as a result of its past
activities become, liable to the PBGC or to any multiemployer employee
pension benefit plan under the provisions of Title IV of ERISA;
(g) all Benefit Plans listed on Schedule 5.19 and the administration
thereof are in substantial compliance with their terms and all applicable
provisions of ERISA and the regulations issued thereunder, as well as with
all other applicable federal, state and local statutes, ordinances and
regulations; and
(h) all accrued contribution obligations of the COMPANY with respect
to any Benefit Plan have either been fulfilled in their entirety or are
fully reflected on the balance sheet of the COMPANY as of the Balance
Sheet Date.
5.21 Conformity with Law; Litigation. Except as set forth on Schedule 5.13
or 5.21, the COMPANY has complied with all laws, rules, regulations, writs,
injunctions, decrees, and orders applicable to it or to the operation of its
Business (collectively, "Laws") and has not received any notice of any alleged
claim or threatened claim, violation of, liability or potential responsibility
under, any such Law which has not heretofore been cured and for which there is
no remaining liability other than, in each case, those not having a Material
Adverse Effect on the COMPANY. Without limiting the generality of the foregoing,
the COMPANY has complied with all applicable federal, state and local Laws
relating to antitrust and trade regulations.
Except to the extent set forth on Schedule 5.10 or 5.13 or as set forth on
Schedule 5.21 (which shall disclose the parties to, nature of, and relief sought
for each matter to be disclosed on Schedule 5.21) :
(a) There is no suit, action, proceeding, claim, order or, to the
Company's knowledge, investigation pending or, to the COMPANY's knowledge,
threatened against either the COMPANY or any Benefit Plan, or any
fiduciary of any such Benefit Plan or, to the knowledge of the COMPANY,
pending or threatened against any of the officers, directors or employees
of the COMPANY with respect to its business or proposed business
activities or to which the COMPANY is otherwise a party, which would have
a Material Adverse Effect on the COMPANY, before any court, or before any
Governmental Authority (collectively, "Claims"); nor, to the COMPANY's
knowledge, is there any basis for any such Claims.
(b) The COMPANY is not subject to any judgment, order or decree of
any court or Governmental Authority; the COMPANY has not received any
opinion or memorandum from legal counsel to the effect that it is exposed,
from a legal standpoint, to any liability or disadvantage which may be
material to its
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business. The COMPANY is not engaged in any legal action to recover monies
due it or for damages sustained by it.
(c) The COMPANY's current insurance is believed in good faith to be
adequate to cover all pending or threatened Claims, the COMPANY has given
all required notice of such Claims to its appropriate insurance carrier(s)
and/or all such claims have been fully reserved for on the financial
statements of the COMPANY has delivered to CTS pursuant to the terms of
this Agreement. Schedule 5.21 lists the insurer for each Claim covered by
insurance or designates each Claim, or portion of each Claim, as uninsured
and the individual and aggregate policy limits for the insurance covering
each insured Claim and the applicable policy deductibles for each insured
Claim.
Schedule 5.21 sets forth all closed litigation matters (other than workers
compensation claims) to which the COMPANY was a party during the three
years preceding the Closing, the date such litigation was commenced and
concluded, and the nature of the resolution thereof (including amounts
paid in settlement or judgment).
5.22 Taxes. Except as set forth on Schedule 5.22:
(a) All Returns required to have been filed by or with respect to
the COMPANY and any affiliated, combined, consolidated, unitary or similar
group of which the COMPANY is or was a member (a "Relevant Group") with
any Taxing Authority have been duly filed, and each such Return correctly
and completely reflects the Tax liability and all other information
required to be reported thereon. All Taxes (whether or not shown on any
Return) owed by the COMPANY, any subsidiary and any member of a Relevant
Group (individually, the "Acquired Party" and collectively, the "Acquired
Parties") have been paid.
(b) To the knowledge of the COMPANY and the STOCKHOLDERS, the
provisions for Taxes due by the COMPANY and any subsidiaries (as opposed
to any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) in the COMPANY Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of such Acquired Party.
(c) No Acquired Party is a party to any agreement extending the time
within which to file any Return. No claim has ever been made by any Taxing
Authority in a jurisdiction in which an Acquired Party does not file
Returns that it is or may be subject to taxation by that jurisdiction that
is unresolved or if adversely determined would have a Material Adverse
Effect on such Acquired Party.
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(d) Each Acquired Party has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to
any employee, creditor, independent contractor or other third party.
(e) No Acquired Party expects any Taxing Authority to assess any
additional Taxes against or in respect of it for any past period. There is
no dispute or claim concerning any Tax liability of any Acquired Party
either (i) claimed or raised by any Taxing Authority or (ii) otherwise
known to any Acquired Party. No issues have been raised in any examination
by any Taxing Authority with respect to any Acquired Party which, by
application of similar principles, reasonably could be expected to result
in a proposed deficiency for any other period not so examined. Schedule
5.22(v) attached hereto lists all federal, state, local and foreign income
Tax Returns filed by or with respect to any Acquired Party for all taxable
periods ended on or after January 1, 1991, indicates those Returns, if
any, that have been audited, and indicates those Returns that currently
are the subject of audit. Each Acquired Party has delivered to CTS
complete and correct copies of all federal, state, local and foreign
income Tax Returns filed by, and all Tax examination reports and
statements of deficiencies assessed against or agreed to by, such Acquired
Party since January 1, 1991.
(f) No Acquired Party has waived any statute of limitations, the
waiver of which remains in effect on the date hereof, in respect of Taxes
or agreed to any extension of time with respect to any Tax assessment or
deficiency.
(g) No Acquired Party has made any payments, is obligated to make
any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not
deductible (i) under Section 280G of the Code or (ii) as compensation
under Section 162(m) of the Code or any similar provision under state
and/or local law.
(h) No Acquired Party is a party to any Tax allocation or sharing
agreement.
(i) None of the assets of any Acquired Party constitutes tax-exempt
bond financed property or tax-exempt use property, within the meaning of
Section 168 of the Code. No Acquired Party is a party to any "safe harbor
lease" that is subject to the provisions of Section 168(f)(8) of the
Internal Revenue Code as in effect prior to the Tax Reform Act of 1986, or
to any " long-term contract" within the meaning of Section 460 of the
Code.
(j) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of any
state
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statutes, and none of the assets of any Acquired Party is subject to an
election under Section 341(f) of the Code or comparable provisions of any
state statutes.
(k) No Acquired Party is a party to any joint venture, partnership
or other arrangement that is treated as a partnership for federal income
Tax purposes.
(l) There are no accounting method changes or proposed or threatened
accounting method changes, of any Acquired Party that could give rise to
an adjustment under Section 481 of the Code for periods after the Closing
Date.
(m) No Acquired Party has received any written ruling of a Taxing
Authority related to Taxes or entered into any written and legally binding
agreement with a Taxing Authority relating to Taxes.
(n) Each Acquired Party has disclosed (in accordance with Section
6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns all
positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Section 6662(d)
of the Code.
(o) No Acquired Party has any liability for Taxes of any person
other than such Acquired Party (i) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign law),
(ii) as a transferee or successor, (iii) by contract or (iv) otherwise.
(p) Prior to CTS's acquisition of the COMPANY pursuant to this
Agreement, there currently are no limitations on the utilization of the
net operating losses, built-in losses, capital losses, Tax credits or
other similar items of any Acquired Party (collectively, the "Tax Losses")
under (i) Section 382 of the Code, (ii) Section 383 of the Code, (iii)
Section 384 of the Code, (iv) Section 269 of the Code, (v) Section
1.1502-15 and Section 1.1 502-15A of the Treasury regulations, (vi)
Section 1.1502-21 and Section 1.1502-21A of the Treasury regulations or
(vii) Sections 1.1502-91 through 1.1502-99 of the Treasury regulations, in
each case as in effect both prior to and following the Tax Reform Act of
1986.
(q) At the Balance Sheet Date, the Acquired Parties had aggregate
Tax Losses for federal income Tax purposes as described on Schedule
5.22(9) attached hereto.
(r) The COMPANY is not an investment company as defined in Section
351(e)(1) of the Code.
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(s) The fair market value of the assets of the COMPANY exceeds the
sum of its liabilities, plus the amount of liabilities, if any, to which
the assets are subject.
(t) The COMPANY is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 351(e)(2) of the Code.
For purposes of this Section 5.22, the following definitions shall
apply:
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or Governmental Authority.
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatsoever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Taxing Authority" means any Governmental Authority, board, bureau,
body, department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
5.23 No Violations. The COMPANY is not in violation of any Charter
Document. Neither the COMPANY nor, to the knowledge of the COMPANY or the
STOCKHOLDERS, any other party thereto, is in default under any Material
Contract; and, except as set forth on Schedule 5.23, (a) the rights and benefits
of the COMPANY under the Material Contracts will not be adversely affected by
the transactions contemplated hereby and (b) the execution of this Agreement and
the performance by the COMPANY and the STOCKHOLDERS of their obligations
hereunder and the consummation by the COMPANY and the STOCKHOLDERS of the
transactions contemplated hereby will not (i) result in any violation or breach
of, or constitute a default under, any of the terms or provisions of the
Material Contracts or the Charter Documents or (ii) require the consent,
approval, waiver of any acceleration, termination or other right or remedy or
action of or by, or make any filing with or give any notice to, any other party.
Except as set forth on Schedule 5.23, none of the Material Contracts requires
notice to, or the consent or approval of, any Governmental Authority or other
third party with respect to any of the transactions contemplated hereby in order
to remain in full force and effect and consummation of the transactions
contemplated hereby will not give rise to any right to termination, cancellation
or acceleration or loss of any material right or benefit. Except as set forth on
Schedule 5.23, none of the Material Contracts prohibits the use or publication
by the COMPANY, CTS or NEWCO of the
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name of any other party to such Material Contracts, and none of the Material
Contracts prohibits or restricts the COMPANY from freely providing services to
any other customer or potential customer of the COMPANY, CTS, NEWCO or any Other
Founding Company.
5.24 Government Contracts. Except as set forth on Schedule 5.24, the
COMPANY is not a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 Business Conduct. Except as set forth on Schedule 5.25, since
December 31, 1996, the COMPANY has conducted its business only in the ordinary
course consistent with past custom and practices and has incurred no liabilities
other than in the ordinary course of business consistent with past custom and
practices. Except as forth on Schedule 5.25, since December 31, 1996, there has
not been any:
(a) Material adverse change in the COMPANY's operations, condition
(financial or otherwise), operating results, assets, liabilities,
employee, customer or supplier relations or business prospects;
(b) Damage, destruction or loss of any property owned by the COMPANY
or used in the operation of the business, whether or not covered by
insurance, having a replacement cost or fair market value in excess of
$50,000 affecting the COMPANY's property, financial status or the
Business;
(c) Voluntary or involuntary sale, transfer, surrender, abandonment
or other disposition of any kind by the COMPANY of any assets or property
rights (tangible or intangible), having a replacement cost or fair market
value in excess of $50,000, except in each case the sale of inventory and
collection of accounts in the ordinary course of business consistent with
past custom and practices;
(d) Loan or advance by the COMPANY to any party other than sales to
customers on credit in the ordinary course of business consistent with
past custom and practices;
(e) Declaration, setting aside, or payment of any dividend or other
distribution in respect to the COMPANY's capital stock, any direct or
indirect redemption, purchase, or other acquisition of such stock, or the
payment of principal or interest on any note, bond, debt instrument or
debt to any Affiliate;
(f) Incurrence of debts, liabilities or obligations except current
liabilities incurred in connection with or for services rendered or goods
supplied in the ordinary course of business consistent with past custom
and practices, liabilities on account of taxes and governmental charges
but not penalties, interest
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or fines in respect thereof, and obligations or liabilities incurred by
virtue of the execution of this Agreement;
(g) Issuance by the COMPANY of any notes, bonds, or other debt
securities or any equity securities or securities convertible into or
exchangeable for any equity securities;
(h) Cancellation, waiver or release by the COMPANY of any debts,
rights or claims, except in each case in the ordinary course of business
consistent with past custom and practices;
(i) Amendment of the COMPANY's Articles or Certificate of
Incorporation or By-Laws;
(j) Amendment or termination of any Material Contract, other than
expiration of such contract in accordance with its terms;
(k) Change in accounting principles, methods or practices
(including, without limitation, any change in depreciation or amortization
policies or rates) utilized by the COMPANY;
(l) Discharge or satisfaction of any material liability, encumbrance
or payment of any material obligation or liability, other than current
liabilities paid in the ordinary course of business consistent with past
custom and practices or cancellation of any debts or claims;
(m) Sale or assignment by the COMPANY of any tangible assets other
than in the ordinary course of business;
(n) Capital expenditures or commitments therefor by the COMPANY
other than in the ordinary course of business in excess of $100,000 in the
aggregate;
(o) Charitable contributions or pledges by the COMPANY in excess of
$25,000 per year in the aggregate;
(p) Mortgage, pledge or other encumbrance of any asset of the
COMPANY other than in the ordinary course of business;
(q) Adoption, amendment or termination of any Benefit Plan;
(r) Increase in the benefits provided under any Benefit Plan; or
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(s) An occurrence or event not included in clauses (a) through (r)
that has or might be expected to have a Material Adverse Effect on the
COMPANY.
5.26 Deposit Accounts; Powers of Attorney. The COMPANY has delivered to
CTS an accurate schedule (which is set forth on Schedule 5.26) as of the date of
this Agreement of:
(a) the name of each financial institution in which the COMPANY has
accounts or safe deposit boxes;
(b) the names in which the accounts or boxes are held;
(c) the type of account and account number; and
(d) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY and
a description of the terms of such power of attorney.
5.27 Relations with Governments. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause the COMPANY to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.28 Disclosure.
(a) The representations and warranties of the COMPANY and the
STOCKHOLDERS contained in this Agreement, the schedules to this Agreement
provided by the COMPANY and/or the STOCKHOLDERS, certificates and the
other documents furnished by the COMPANY and/or the STOCKHOLDERS to CTS
pursuant hereto and for inclusion in the Registration Statement (which,
for purposes of this Agreement, shall include the completed Directors and
Officers Questionnaires and Registration Statement Questionnaires), taken
as a whole, present fairly the business and operations of the COMPANY for
the time periods with respect to which such information was requested. The
COMPANY'S rights under the documents delivered pursuant hereto would not
be materially adversely affected by, and no statement made herein would be
rendered untrue in any material respect by, any other document to which
the COMPANY is a party, or to which its properties are subject, or by any
other fact or circumstance regarding the COMPANY (which fact or
circumstance was, or should reasonably, after due
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inquiry, have been known to the COMPANY) that is not disclosed pursuant
hereto or thereto. If, prior to the 25th day after the date of the final
prospectus of CTS utilized in connection with the IPO, the COMPANY or the
STOCKHOLDERS become aware of any fact or circumstance which would change
(or, if after the Closing Date, would have changed) a representation or
warranty of COMPANY or STOCKHOLDERS in this Agreement or would affect any
document delivered pursuant hereto in any material respect, the COMPANY
and the STOCKHOLDERS shall immediately give notice of such fact or
circumstance to CTS. However, subject to the provisions of Section 7.8,
such notification shall not relieve either the COMPANY or the STOCKHOLDERS
of their respective obligations under this Agreement.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i) that
there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant
thereto will occur at a particular price or within a particular range of
prices or occur at all; (ii) that neither CTS or any of its officers,
directors, agents or representatives nor any Underwriter shall have any
liability to the COMPANY, the STOCKHOLDERS or any other person affiliated
or associated with the COMPANY for any failure of the Registration
Statement to become effective, the IPO to occur at a particular price or
within a particular range of prices or to occur at all; and (iii) that the
decision of the STOCKHOLDERS to enter into this Agreement, or to vote in
favor of or consent to the proposed Merger, has been or will be made
independent of, and without reliance upon, any statements, opinions or
other communications, or due diligence investigations which have been or
will be made or performed by any prospective Underwriter, relative to CTS
or the prospective IPO.
5.29 Prohibited Activities. Except as set forth on Schedule 5.29, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions set forth in Section 7.3.
5.30 Affiliate Transactions. Schedule 5.30 sets forth the parties to and
the date, nature and amount of (A) each transaction or series of similar
transactions (other than payments of salary and bonus which are reflected as
line items in the Financial Statements) involving the transfer of any cash,
property or rights in which the amount involved individually or collectively
exceeded $60,000 to or from the COMPANY from, to, or for the benefit of any
Affiliate or former Affiliate of the COMPANY ("Affiliate Transactions") during
the period commencing January 1, 1994 through the date hereof and (B) any
existing commitments of the COMPANY to engage in the future in any Affiliate
Transactions. Each Affiliate Transaction was effected on terms equivalent to
those which would have been established in an arms'-length negotiation, except
as disclosed on Schedule 5.30.
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5.31 Misrepresentation. To the knowledge of the COMPANY and the
STOCKHOLDERS, none of the representations and warranties set forth in this
Agreement, the certificates and the other documents furnished by the COMPANY to
CTS pursuant hereto and for inclusion in the Registration Statement, taken as a
whole, contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements contained herein or therein not
misleading.
(B) Representations and Warranties of the STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants to CTS and NEWCO that
the representations and warranties set forth below with respect to such
STOCKHOLDER are true and correct as of the date of this Agreement and, subject
to Section 7.8 hereof, shall be true and correct at the time of the Pre-Closing
and on the Closing Date.
5.32 Securities Act Representations. Each STOCKHOLDER alone, or together
with such STOCKHOLDER's "purchaser representative" (as defined in Rule 501(h)
promulgated under the 1933 Act):
(a) acknowledges and agrees that (x) the shares of CTS Stock to be
delivered to such STOCKHOLDER pursuant to this Agreement have not been and will
not be registered under the 1933 Act, and therefore may not be sold, transferred
or otherwise conveyed without compliance with the 1933 Act or pursuant to an
exemption therefrom and (y) the CTS Stock to be acquired by such STOCKHOLDER
pursuant to this Agreement is being acquired solely for its own account, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of the CTS Stock in connection with a distribution;
(b) acknowledges and agrees that it knows and understands that an
investment in the CTS Stock is a speculative investment which involves a high
degree of risk of loss;
(c) represents and warrants that it is able to bear the economic risk of
an investment in the CTS Stock acquired pursuant to this Agreement, can afford
to sustain a total loss of such investment and has such knowledge and experience
in financial and business matters that it is capable of evaluating the merits
and risks of the proposed investment in the CTS Stock;
(d) represents and warrants that it has had an adequate opportunity to
review and to ask questions and receive answers concerning any and all matters
relating to the transactions described in (i) CTS's private placement memorandum
and (ii) this Agreement;
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(e) represents and warrants that it has had an adequate opportunity to ask
questions and receive answers concerning (i) the background and experience of
the current and proposed officers and directors of CTS, (ii) the plans for the
operations of the business of CTS, (iii) the business, operations and financial
condition of the Other Founding Companies, and (iv) any plans for additional
acquisitions and the like;
(f) represents and warrants that it is either an "accredited investor" (as
defined in Rule 501(a) promulgated under the 1933 Act) or, after taking into
consideration the information and advice provided to such STOCKHOLDER, has the
requisite knowledge and experience in financial and business matters to be
capable of evaluating the merits and risks of an investment in the CTS Stock;
(g) represents and warrants that, to its knowledge, there have been no
general or public solicitations or advertisements or other broadly disseminated
disclosures (including, without limitation, any advertisement, article, notice
or other communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or advertising) by or on behalf of
CTS regarding an investment in the CTS Stock; and
(h) acknowledges and agrees that the CTS Stock shall bear the following
legend in addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND, IF REQUIRED BY
CONDOR TECHNOLOGY SOLUTIONS, INC., AN OPINION OF COUNSEL TO CONDOR
TECHNOLOGY SOLUTIONS, INC. STATING THAT REGISTRATION IS NOT REQUIRED UNDER
THE ACT.
Such STOCKHOLDER acknowledges that the effect of the foregoing legend, among
other things, is or may be to limit or destroy the value of the certificate for
purposes of sale or use as loan collateral. Such STOCKHOLDER consents that "stop
transfer" instructions may be noted against the CTS Stock.
5.33 Authority; Ownership. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
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beneficially and of record all of the shares of the COMPANY Stock identified on
Annex IV as being owned by such STOCKHOLDER, and, except as set forth on
Schedule 5.33, such COMPANY Stock is owned free and clear of all liens, security
interests, pledges, charges, voting trusts, restrictions, encumbrances and
claims of every kind.
5.34 Preemptive Rights. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of COMPANY Stock or CTS Stock
that such STOCKHOLDER has or may have had other than rights of any STOCKHOLDER
to acquire CTS Stock pursuant to (i) this Agreement or (ii) any option granted
by CTS.
5.35 No Intention to Dispose of CTS Stock. No STOCKHOLDER has any current
plan or intention, or is under any binding commitment or contract, to sell,
exchange or otherwise dispose of shares of CTS Stock received pursuant to
Section 3.1.
5.36 Questionnaires. The Completed Directors and Officers Questionnaires
and Registration Statement Questionnaires attached hereto as Schedule 5.36,
present fairly the business and operations of the COMPANY for the time periods
with respect to which such information was requested. If, prior to the 25th day
after the date of the final prospectus of CTS utilized in connection with the
IPO, the STOCKHOLDERS become aware of any fact or circumstance which would
affect the information disclosed in their Directors and Officers Questionnaires
or their Registration Statement Questionnaires in any material respect, then the
relevant STOCKHOLDER shall immediately give notice of such fact or circumstance
to CTS. However, subject to the provisions of Section 7.8, such notification
shall not relieve the relevant STOCKHOLDER of his or its obligations under this
Agreement.
6. REPRESENTATIONS OF CTS and NEWCO
CTS and NEWCO jointly and severally represent and warrant to the COMPANY
and the STOCKHOLDERS that all of the following representations and warranties in
this Section 6 are true and correct at the date of this Agreement and, subject
to Section 7.8 hereof, shall be true and correct at the time of the Pre-Closing
and on the Closing Date, and that such representations and warranties shall
survive the Closing Date for a period of eighteen months.
6.1 Due Organization. CTS and NEWCO are each corporations duly
incorporated, validly existing and in good standing under the laws of the state
of their incorporation, and are duly authorized and qualified to do business
under all applicable laws, regulations, ordinances and orders of public
authorities to carry on their business in the places and in the manner as now
conducted, to own or hold under lease the properties and assets they now own or
hold under lease, and to perform all of their obligations under any material
agreement to which they are a party or by which their properties are bound.
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CTS and NEWCO are not qualified to do business as foreign corporations in any
jurisdiction, and there is no jurisdiction in which the conduct of CTS'S and
NEWCO's business or activities or their ownership of assets requires
qualification under applicable law, the absence of which would have a Material
Adverse Effect on either CTS or NEWCO. True, complete and correct copies of the
Certificate or Articles of Incorporation and By-Laws, each as amended, of CTS
and NEWCO (the "CTS Charter Documents") are all attached hereto as Annex II. The
minute books and stock records of each of CTS and NEWCO as heretofore made
available to the COMPANY, are correct and complete in all material respects. The
most recent minutes of each of CTS and NEWCO, which are dated no earlier than 10
business days prior to the date hereof, affirm and ratify all prior acts of CTS
and NEWCO, as the case may be, and of their respective officers and directors.
6.2 Authorization. The respective representatives of CTS and NEWCO
executing this Agreement have the authority to execute and deliver this
Agreement and to bind CTS and NEWCO to perform their respective obligations
hereunder. The execution and delivery of this Agreement by CTS and NEWCO and the
performance by CTS and NEWCO of their respective obligations under this
Agreement and the consummation by CTS and NEWCO of the transactions contemplated
hereby have been duly authorized by all necessary corporate action by each in
accordance with applicable law and the Certificate or Articles of Incorporation
and By-Laws of CTS and NEWCO, as the case may be. Each share of CTS Stock to be
issued to the STOCKHOLDERS on the Closing Date will be duly and validly
authorized and issued, free and clear of all liens, claims and other
encumbrances and fully paid and nonassessable. This Agreement constitutes the
valid and binding obligation of CTS and NEWCO, enforceable in accordance with
its terms.
6.3 Transaction Not a Breach. Neither the execution and delivery of this
Agreement nor their performance will violate, conflict with, or result in a
breach of any provision of any Law, rule, regulation, order, permit, judgment,
injunction, decree or other decision of any court or other tribunal or any
Governmental Authority binding on CTS or NEWCO or conflict with or result in the
breach of any of the terms, conditions or provisions of the Certificate or
Articles of Incorporation or the By-laws of CTS or NEWCO or of any contract,
agreement, mortgage or other instrument or obligation of any nature to which CTS
or NEWCO is a party or by which CTS or NEWCO is bound.
6.4 Misrepresentation. None of the representations and warranties set
forth in this Agreement or in any of the certificates, schedules, exhibits,
lists, documents, exhibits, or other instruments delivered, or to be delivered,
to the COMPANY as contemplated by any provision hereof, contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading.
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6.5 Capital Stock. The entire authorized capital stock of CTS will consist
of 50,000,000 shares. Except as disclosed on Schedule 6.5, there are no
outstanding options, rights (preemptive or otherwise), warrants, calls,
convertible securities or commitments or any other arrangements to which CTS is
a party requiring issuance, sale or transfer of any equity securities of CTS or
any securities convertible directly or indirectly into equity securities of CTS,
or evidencing the right to subscribe for any equity securities of CTS, or giving
any person other than the Founding Companies any rights with respect to the
capital stock of CTS. Except as contemplated by this Agreement or disclosed on
Schedule 6.5, there are no voting agreements, voting trusts, other agreements
(including cumulative voting rights), commitments or understandings with respect
to the CTS Stock.
6.6 Subsidiaries. Schedule 6.6 attached hereto lists the name of each of
CTS's and NEWCO's subsidiaries and sets forth the number and class of the
authorized capital stock of CTS's and NEWCO's subsidiaries and the number of
shares of each of CTS's and NEWCO's subsidiaries which are issued and
outstanding prior to the Merger, all of which shares (except as set forth on
Schedule 6.6) are owned by CTS and NEWCO, as the case may be, free and clear of
all liens, security interests, pledges, voting trusts, equities, restrictions,
encumbrances and claims of every kind. Except as set forth on Schedule 6.6, CTS
and NEWCO do not presently own, of record or beneficially, or control, directly
or indirectly, any capital stock, securities convertible into capital stock or
any other equity interest in any corporation, association or business entity nor
is CTS or NEWCO, as the case may be, directly or indirectly, a participant in
any joint venture, partnership or other non-corporate entity.
6.7 Conformity with Law; Litigation. Except as set forth on Schedule 6.7,
CTS and NEWCO have complied with all Laws applicable to them or to the operation
of their businesses and have not received any notice of any alleged claim or
threatened claim, violation of, liability or potential responsibility under, any
Law which has not heretofore been cured and for which there is no remaining
liability other than, in each case, those not having a Material Adverse Effect
on CTS or NEWCO, taken as a whole. Without limiting the generality of the
foregoing, CTS and NEWCO have each complied with all applicable Federal, state
and local Laws relating to antitrust and trade regulations.
Except to the extent set forth on Schedule 6.7 (which shall disclose the
parties to, nature of, and relief sought for each matter):
(a) There is no suit, action, proceeding, investigation, claim or
order pending or, to the knowledge of CTS and NEWCO, threatened against
either of CTS or NEWCO, or any Plan, or any fiduciary of any such Plan or,
to the knowledge of CTS and NEWCO, pending or threatened against any of
the officers, directors or employees of CTS or NEWCO with respect to their
businesses or proposed business activities which are material to CTS or
NEWCO,
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or to which CTS or NEWCO is otherwise a party, or which may affect either
CTS or NEWCO, their assets or their businesses, before any court, or
before any Governmental Authority.
(b) CTS and NEWCO are not subject to any judgment, order or decree
of any court or Governmental Authority; CTS and NEWCO have not received
any opinion or memorandum from legal counsel to the effect that either is
exposed, from a legal standpoint, to any liability or disadvantage which
may be material to their businesses. Neither CTS nor NEWCO are engaged in
any legal action to recover monies due it or them for damages sustained by
either of them.
7. COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation; Due Diligence.
(a) Between the date of this Agreement and the Closing Date, the
COMPANY will afford to the officers and authorized representatives of CTS
and the Other Founding Companies access during business hours to all of
the COMPANY's sites, properties, books and records and will furnish CTS
with such additional financial and operating data and other information as
to the business and properties of the COMPANY as CTS or the Other Founding
Companies may from time to time reasonably request. The COMPANY will
cooperate with CTS and the Other Founding Companies and their respective
representatives, including CTS's auditors and counsel, in the preparation
of any documents or other material (including the Registration Statement)
which may be required in connection with the transactions contemplated by
this Agreement. CTS, NEWCO, the STOCKHOLDERS and the COMPANY will treat
all information obtained in connection with the negotiation and
performance of this Agreement or the due diligence investigations
conducted with respect to the Other Founding Companies as confidential in
accordance with the provisions of Section 14 hereof. In addition, CTS will
cause each of the Other Agreements, binding each of the Other Founding
Companies, to contain a provision similar to this Section 7.1 requiring
each such Other Founding Company, its stockholders, directors, officers,
representatives, employees and agents to keep confidential any information
obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Closing Date, CTS
will afford to the officers and authorized representatives of the COMPANY
access during business hours to all of CTS's and NEWCO's sites,
properties, books and records and will furnish the COMPANY with such
additional financial and operating data and other information as to the
business and properties of CTS and NEWCO as the COMPANY may from time to
time reasonably request. CTS and
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NEWCO will cooperate with the COMPANY, its representatives, auditors and
counsel in the preparation of any documents or other material which may be
required in connection with the transactions contemplated by this
Agreement. The COMPANY will cause all information obtained in connection
with the negotiation and performance of this Agreement to be treated as
confidential in accordance with the provisions of Section 14 hereof.
7.2 Conduct of Business Pending Closing. Between the date of this
Agreement and the Closing Date, the COMPANY will, except as set forth on
Schedule 7.2:
(a) carry on its business in the ordinary course substantially as
conducted heretofore and not introduce any new method of management,
operation or accounting;
(b) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(c) perform in all material respects its obligations under
agreements relating to or affecting its assets, properties or rights;
(d) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(e) maintain and preserve its business organization intact and use
its best efforts to retain its present key employees and relationships
with suppliers, customers and others having business relations with the
COMPANY;
(f) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar Governmental Authorities; and
(g) maintain present debt and lease instruments in accordance with
their respective terms and not enter into new or amended debt or lease
instruments, provided that debt and/or lease instruments may be replaced
if such replacement instruments are on terms at least as favorable to the
COMPANY as the instruments being replaced.
7.3 Prohibited Activities. Except as disclosed on Schedule 7.3, between
the date hereof and the Closing Date, the COMPANY will not, without the prior
written consent of CTS:
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(a) make any change in its Articles or Certificate of Incorporation
or By-laws;
(b) grant or issue any securities, options, warrants, calls,
conversion rights or commitments of any kind relating to its securities of
any kind other than in connection with the exercise of options or warrants
listed on Schedule 5.4;
(c) declare or pay any dividend, or make any distribution in respect
of its stock whether now or hereafter outstanding, or purchase, redeem or
otherwise acquire or retire for value any shares of its stock or engage in
any transaction that will significantly affect the cash reflected on the
balance sheet of the COMPANY as of December 31, 1996.
(d) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditure, except if it is in the
ordinary course of business (consistent with past practice) or involves an
amount not in excess of $10,000;
(e) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $10,000 necessary or desirable for the conduct of
the business of the COMPANY, (2)(A) liens for Taxes either not yet due or
being contested in good faith and by appropriate proceedings (and for
which adequate reserves have been established and are being maintained) or
(B) materialmen's, mechanics', workers', repairmen's, employees' or other
like liens arising in the ordinary course of business (the liens set forth
in clause (2) being referred to herein as "Statutory Liens"), or (3) liens
set forth on Schedule 5.10 or 5.15 hereto;
(f) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the ordinary course of business;
(g) negotiate for the acquisition of any business or the start-up of
any new business;
(h) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(i) waive any material right or claim of the COMPANY, provided that
the COMPANY may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice,
provided, further, that
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such adjustments shall not be deemed to be included on Schedule 5.11
unless specifically listed thereon;
(j) commit a material breach, materially amend or terminate any
Material Contract;
(k) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder; or
(l) except in the ordinary course of business or as required by Law
or contractual obligations or other understandings or arrangements
existing on the date hereof, the COMPANY will not (i) increase in any
manner the base compensation of, or enter into any new bonus or incentive
agreement or arrangement with, any of the employees engaged in the
COMPANY's business, (ii) pay or agree to pay any additional pension,
retirement allowance or other employee benefit to any such employee,
whether past or present, (iii) enter into any new employment, severance,
consulting, or other compensation agreement with any existing employee
engaged in the COMPANY's business, (iv) amend or enter into a new Benefit
Plan (except as required by Law) or amend or enter into a new collective
bargaining agreement (except as required by this Agreement), or (v) engage
in any Affiliate Transaction.
7.4 No Shop. In consideration of the substantial expenditure of time,
effort and expense undertaken by CTS in connection with its due diligence review
and the preparation and execution of this Agreement, the COMPANY and the
STOCKHOLDERS agree that neither they nor their representatives, agents or
employees will, after the execution of this Agreement until the earlier of (i)
the termination of this Agreement or (ii) the Closing, directly or indirectly,
solicit, encourage, negotiate or discuss with any third party (including by way
of furnishing any information concerning the COMPANY) any acquisition proposal
relating to or affecting the COMPANY or any part of it, or any direct or
indirect interests in the COMPANY, whether by purchase of assets or stock,
purchase of interests, merger or other transaction ("Acquisition Transaction"),
and that the COMPANY will promptly advise CTS of the terms of any communications
any of the STOCKHOLDERS or the COMPANY may receive or become aware of relating
to any bid for all or any part of the COMPANY.
7.5 Notice to Bargaining Agents. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements. Set forth on
Schedule 7.5 is any and all proof that any such required notice has been sent.
7.6 Agreements. Except as set forth on Schedule 9.7, the STOCKHOLDERS and
the COMPANY shall terminate (i) any stockholders' agreements, voting agreements,
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voting trusts, options, warrants and employment agreements between the COMPANY
and any employee listed on Schedule 9.12 hereto and (ii) any existing agreement
between the COMPANY and any STOCKHOLDER, on or prior to the Closing Date. A list
of such agreements to be terminated is set forth on Schedule 7.6 and copies of
each such agreement to be terminated have been provided to counsel for CTS.
7.7 Notification of Certain Matters. The STOCKHOLDERS and the COMPANY
shall give prompt notice to CTS of (i) the occurrence or non-occurrence of any
event of which the COMPANY or the STOCKHOLDERS have knowledge, the occurrence or
non-occurrence of which, would cause any representation or warranty of the
COMPANY or the STOCKHOLDERS contained herein to be untrue or inaccurate in any
material respect at or prior to the Closing and (ii) any material failure of any
STOCKHOLDER or the COMPANY to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. CTS and
NEWCO shall give prompt notice to the COMPANY of (i) the occurrence or
non-occurrence of any event of which CTS or NEWCO have knowledge, the occurrence
or non-occurrence of which, would cause any representation or warranty of CTS or
NEWCO contained herein to be untrue or inaccurate in any material respect at or
prior to the Closing and (ii) any material failure of CTS or NEWCO to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder. The delivery of any notice pursuant to this Section
7.7 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.8, (ii) modify the conditions set forth in Sections 8
and 9, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
7.8 Amendment of Schedules.
(a) Each party hereto agrees that, with respect to the
representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing Date to
supplement or amend promptly the Schedules hereto with respect to any
matter hereafter arising or discovered which, if existing or known at the
date of this Agreement, would have been required to be set forth or
described in the Schedules; provided, however, that supplements and
amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall only have to be
delivered at the Closing Date, unless such Schedule is to be amended to
reflect an event occurring other than in the ordinary course of business.
(b) Until 24 hours prior to the anticipated effectiveness of the
Registration Statement, and notwithstanding the foregoing clause (a), the
provisions of this clause (b) shall apply: no amendment or supplement to a
Schedule prepared by the COMPANY or the STOCKHOLDERS that constitutes or
reflects an event or occurrence that would have a Material Adverse Effect
on
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the COMPANY may be made unless CTS and a majority of the Founding
Companies other than the COMPANY consent to such amendment or supplement;
and provided further, that no amendment or supplement to a Schedule
prepared by CTS or NEWCO that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on the COMPANY may be
made unless a majority of the Founding Companies consent to such amendment
or supplement. In the event that one of the Other Founding Companies seeks
to amend or supplement a Schedule pursuant to Section 7.8 of one of the
Other Agreements, and such amendment or supplement constitutes or reflects
an event or occurrence that would have a Material Adverse Effect on such
Other Founding Company, CTS shall give the COMPANY notice promptly after
it has knowledge thereof. If CTS and a majority of the Founding Companies
consent to such amendment or supplement, which consent shall have been
deemed given by CTS or any Founding Company if no response is received
from CTS or any such Founding Company within 24 hours following receipt of
notice by CTS or any Founding Company of such amendment or supplement (or
sooner if required by the circumstances under which such consent is
requested), but the COMPANY does not give its consent, the COMPANY may
terminate this Agreement pursuant to Section 12.1(d) hereof. In the event
that the COMPANY seeks to amend or supplement a Schedule pursuant to this
Section 7.8 and CTS and a majority of the Other Founding Companies do not
consent to such amendment or supplement as provided above, this Agreement
shall be deemed terminated by mutual consent as set forth in Section
12.1(a) hereof. In the event that CTS or NEWCO seeks to amend or
supplement a Schedule pursuant to this Section 7.8 and a majority of the
Founding Companies do not consent to such amendment or supplement as
provided above, this Agreement shall be deemed terminated by mutual
consent as set forth in Section 12.1(d) hereof.
(c) Between 24 hours prior to the anticipated effectiveness of the
Registration Statement and the Closing Date, the provisions of this clause
(c) shall apply. No amendment or supplement to a Schedule prepared by the
COMPANY or the STOCKHOLDERS that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on the COMPANY may be
made unless CTS consents to such amendment or supplement after
consultation with the Underwriters. CTS and NEWCO hereby covenant that
neither CTS nor NEWCO will amend or supplement any Schedule prepared by
CTS or NEWCO that constitutes or reflects an event or occurrence that
would have a Material Adverse Effect on CTS or NEWCO, as the case may be,
without consulting with the Underwriters, and CTS shall provide immediate
notice of such amendment or supplement to the Founding Companies.
(d) For all purposes of this Agreement, including without limitation
for purposes of determining whether the conditions set forth in Sections
8.1 and
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9.1 have been fulfilled, the Schedules hereto shall be deemed to be the
Schedules as amended or supplemented pursuant to this Section 7.8. No
party to this Agreement shall be liable to any other party if this
Agreement shall be terminated pursuant to the provisions of this Section
7.8, except that, notwithstanding anything to the contrary contained in
this Agreement, if the COMPANY or the STOCKHOLDERS on the one hand, or CTS
or NEWCO on the other hand, amends or supplements a Schedule which results
in a termination of this Agreement and such amendment or supplement arises
out of or reflects facts or circumstances which such party knew about at
the time of execution of this Agreement and knew would result in a
termination of this Agreement or if such amendment or supplement otherwise
is proposed in bad faith, such party shall pay or reimburse CTS or the
COMPANY and the STOCKHOLDERS, as the case may be, for all of the legal,
accounting and other out of pocket costs reasonably incurred in connection
with this Agreement and the IPO as it relates to the COMPANY and the
STOCKHOLDERS.
7.9 Cooperation in Preparation of Registration Statement.
(a) The COMPANY and STOCKHOLDERS shall furnish or cause to be
furnished to CTS and the Underwriters all of the information concerning
the COMPANY and the STOCKHOLDERS requested by CTS or the Underwriters for
inclusion in, and will cooperate with CTS and the Underwriters in the
preparation of, the Registration Statement and the prospectus included
therein (including audited and unaudited financial statements, prepared in
accordance with GAAP, in form suitable for inclusion in the Registration
Statement). The COMPANY and the STOCKHOLDERS agree promptly to advise CTS
if at any time during the period in which a prospectus relating to the
offering is required to be delivered under the Securities Act, any
information contained in the prospectus concerning the COMPANY or the
STOCKHOLDERS contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and to provide the information
needed to correct such inaccuracy. Insofar as the information relates
solely to the COMPANY or the STOCKHOLDERS, the COMPANY represents and
warrants as to such information furnished by the COMPANY or the
STOCKHOLDERS for use in the Registration Statement with respect to itself,
and each STOCKHOLDER represents and warrants, as to such information
furnished by the COMPANY or the STOCKHOLDERS for use in the Registration
Statement with respect to the COMPANY and himself or herself, that the
Registration Statement at its effective date, at the date of the final
Prospectus, each preliminary prospectus and each amendment to the
Registration Statement, and at each closing date with respect to the IPO
under the Underwriting Agreement (including with respect to any
over-allotment option) will not include
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an 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
not misleading.
(b) CTS agrees that it will use its best efforts to provide to the
COMPANY and its counsel copies of material drafts of the Registration
Statement as they are prepared and to the extent practicable in light of
the timetable of the IPO and the potential need to respond promptly to
SEC, NASD or Nasdaq comments, to give the COMPANY sufficient time to
review and comment upon such documents prior to filing with the SEC. Any
objections posed by the COMPANY or its counsel shall state with
specificity the material in question, the reason for the objection, and
the COMPANY's proposed alternative. If the objection is founded upon a
rule promulgated under the Securities Act, the objection shall cite the
rule. Notwithstanding the foregoing, during the five business days
immediately preceding the date scheduled for the effective date of the
IPO, the COMPANY and the STOCKHOLDERS agree that (i) two hours from the
time the proposed changes are transmitted to the COMPANY's counsel if such
transmission is during the COMPANY's normal business hours or (ii) four
hours from the time the proposed changes are transmitted to the COMPANY's
counsel if such transmission is not during the COMPANY's normal business
hours, is sufficient time to review and respond to proposed changes.
7.10 Final Financial Statements. The COMPANY shall provide prior to the
Closing Date, and CTS shall have had sufficient time prior thereto to review,
the unaudited consolidated balance sheets of the COMPANY as of the end of all
fiscal quarters following the Balance Sheet Date, and the unaudited consolidated
statements of income, cash flows and retained earnings of the COMPANY for all
fiscal quarters ended no earlier than 30 days prior to the Closing Date,
disclosing no material adverse change in the financial condition of the COMPANY
or the results of its operations from the financial statements as of the Balance
Sheet Date. Such financial statements shall have been prepared in accordance
with GAAP applied on a consistent basis throughout the periods indicated (except
as noted therein), but shall not include all of the footnotes and adjustments
required by GAAP for complete financial statements. Except as noted in such
financial statements, all of such financial statements will present fairly the
results of operations of the COMPANY for the periods indicated thereon.
7.11 Further Assurances. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 Approval of Merger Agreement. Each of the STOCKHOLDERS agrees to vote
all of its shares of the COMPANY Stock in favor of the Merger and all other
transactions contemplated by this Agreement.
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8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY
The obligations of the STOCKHOLDERS and the COMPANY with respect to
actions to be taken on the Pre-Closing Date and, to the extent specified in this
Section 8, on the Closing Date are subject to the satisfaction or waiver on or
prior to the Pre-Closing Date and/or the Closing Date, as the case may be, of
all of the conditions set forth in this Section 8. As of the Pre-Closing Date or
the Closing Date, as the case may be, all conditions not satisfied shall be
deemed to have been waived by the COMPANY and the STOCKHOLDERS unless such
parties have objected by notifying CTS in writing of such objection on or before
the Pre-Closing Date or consummation of the transactions on the Closing Date,
respectively, except that no such waiver shall be deemed to affect the survival
of the representations and warranties of CTS and NEWCO contained in Section 6
hereof.
8.1 Representations and Warranties. All representations and warranties of
CTS and NEWCO contained in this Agreement shall be true and correct in all
material respects as of the Pre-Closing Date and the Closing Date as though such
representations and warranties had been made on and as of that date; and a
certificate to the foregoing effect dated the Pre-Closing Date and the Closing
Date and signed by the President or any Vice President of CTS shall have been
delivered to the COMPANY and the STOCKHOLDERS.
8.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with and performed by CTS and NEWCO on or
before each of the Pre-Closing Date and the Closing Date shall have been duly
complied with and performed in all material respects on or before each of the
Pre-Closing Date and the Closing Date, as the case may be; and certificates to
the foregoing effect dated each of the Pre-Closing Date and the Closing Date and
signed by the President or any Vice President of CTS shall have been delivered
to the COMPANY and the STOCKHOLDERS.
8.3 No Litigation. No action or proceeding before a court or any other
GovernmentalAuthority or body shall have been instituted or threatened to
restrain or prohibit the Merger or the IPO.
8.4 Opinion of Counsel. The STOCKHOLDERS shall have received an opinion
from counsel for CTS and NEWCO, dated the Pre-Closing Date and including a
statement to the effect that it may be relied upon as of the Closing Date,
substantially in the form annexed hereto as Annex VI.
8.5 Consents and Approvals. All necessary consents of and filings required
to be obtained or made by CTS or NEWCO with any Governmental Authority or agency
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relating to the consummation of the transactions contemplated herein shall have
been obtained and made.
8.6 Good Standing Certificates. CTS and NEWCO each shall have delivered to
the COMPANY a certificate, dated as of a date no earlier than 10 days prior to
the Pre-Closing Date, duly issued by the Delaware Secretary of State and in each
state in which CTS or NEWCO is authorized to do business, showing that each of
CTS and NEWCO is in good standing and authorized to do business and that all
state franchise and/or income tax returns and taxes for CTS and NEWCO,
respectively, for all periods prior to the Closing have been filed and paid.
8.7 Consummation of Other Agreements. The Other Agreements shall have been
delivered by each of the Other Companies and each of the Other Agreements and
this Agreement shall be in effect immediately prior to the Merger.
8.8 Secretary's Certificate. The COMPANY shall have received a certificate
or certificates, dated the Pre-Closing Date and the Closing Date and signed by
the secretary of CTS and of NEWCO, certifying the truth and correctness of
attached copies of the CTS's and NEWCO's respective Certificates of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the boards of directors and, if required, the
stockholders of CTS and NEWCO approving CTS's and NEWCO's entering into this
Agreement and the consummation of the transactions contemplated hereby.
8.9 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VIII hereto.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CTS AND NEWCO
The obligations of CTS and NEWCO with respect to actions to be taken on
the Pre-Closing Date and, to the extent specified in this Section 9, on the
Closing Date, are subject to the satisfaction or waiver on or prior to the
Pre-Closing Date and/or the Closing Date, as the case may be, of all of the
conditions set forth in this Section 9. As of the Pre-Closing Date or the
Closing Date, as the case may be, all conditions not satisfied shall be deemed
to have been waived by CTS and NEWCO unless such parties have objected by
notifying the COMPANY and the STOCKHOLDERS in writing of such objection on or
before the Pre-Closing Date or consummation of the transactions on the Closing
Date, respectively, except that no such waiver shall be deemed to affect the
survival of the representations and warranties of the COMPANY and the
STOCKHOLDERS contained in Section 5 hereof.
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9.1 Representations and Warranties. All the representations and warranties
of the STOCKHOLDERS and the COMPANY contained in this Agreement shall be true
and correct in all material respects as of the Pre-Closing Date and the Closing
Date with the same effect as though such representations and warranties had been
made on and as of such date; and the STOCKHOLDERS shall have delivered to CTS
certificates dated the Pre-Closing Date and the Closing Date and signed by them
to such effect.
9.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with or performed by the STOCKHOLDERS and the
COMPANY on or before each of the Pre-Closing Date and the Closing Date shall
have been duly performed or complied with in all material respects on or before
each of the Pre-Closing Date and the Closing Date, as the case may be; and the
STOCKHOLDERS shall have delivered to CTS certificates dated the Pre-Closing Date
and the Closing Date, respectively, and signed by them to such effect.
9.3 No Litigation. No action or proceeding before a court or any other
Governmental Authority or body shall have been instituted or threatened to
restrain or prohibit the Merger or the IPO.
9.4 Secretary's Certificate. CTS shall have received a certificate or
certificates, dated each of the Pre-Closing Date and the Closing Date and signed
by the secretary of the COMPANY, certifying the truth and correctness of
attached copies of the COMPANY's Certificate or Articles of Incorporation
(including amendments thereto), By-Laws (including amendments thereto), and
resolutions of the board of directors and the shareholders approving the
COMPANY's entering into this Agreement and the consummation of the transactions
contemplated hereby.
9.5 No Material Adverse Change. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred with respect to the
COMPANY which would constitute a Material Adverse Effect on the COMPANY, and the
COMPANY shall not have suffered any material loss or damages to any of its
properties or assets, whether or not covered by insurance, which change, loss or
damage materially affects or impairs the ability of the COMPANY to conduct its
business.
9.6 STOCKHOLDERS' Release. The STOCKHOLDERS shall have delivered to CTS an
instrument dated the Closing Date releasing the COMPANY from any and all (i)
claims prior to the Closing Date of the STOCKHOLDERS against the COMPANY and CTS
and (ii) obligations prior to the Closing Date, of the COMPANY and CTS to the
STOCKHOLDERS, except for (x) items specifically identified on Schedules 5.10 and
5.15 as being claims of or obligations to the STOCKHOLDERS, (y) continuing
obligations to the STOCKHOLDERS relating to their employment by the COMPANY and
(z) obligations arising under this Agreement or the transactions contemplated
hereby.
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9.7 Termination of Related Party Agreements. Except as set forth on
Schedule 9.7, all existing agreements between the COMPANY and the STOCKHOLDERS
shall have been canceled effective prior to or as of the Closing Date.
9.8 Opinion of Counsel. CTS shall have received an opinion from one or
more counsel to the COMPANY, its wholly-owned subsidiaries and the STOCKHOLDERS,
dated the Pre-Closing Date and including a statement to the effect that it may
be relied upon as of the Closing Date, substantially in the form annexed hereto
as Annex VII-A and Annex VII-B, respectively, which form shall be deemed to
include any additional opinions by such counsel or separate counsel retained by
the COMPANY covering matters customary under the circumstances; including
without limitation, opinions covering the COMPANY's intellectual property and
the Underwriters shall have received a copy of the same opinion addressed to
them.
9.9 Consents and Approvals. All necessary consents of and filings with any
Governmental Authority relating to the consummation of the transactions
contemplated herein shall have been obtained and made and all consents and
approvals of third parties listed on Schedule 5.23 shall have been obtained.
9.10 Good Standing Certificates. The COMPANY shall have delivered to CTS a
certificate, dated as of a date no earlier than five days prior to the
Pre-Closing Date, duly issued by the appropriate Governmental Authority in the
COMPANY's state of incorporation and, unless waived by CTS, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the COMPANY for all periods prior to the
Closing have been filed and paid.
9.11 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act, or
any state securities laws, and the Underwriters shall have agreed to acquire on
a firm commitment basis, subject to the conditions set forth in the Underwriting
Agreement, shares of CTS Stock at a price to the public acceptable to CTS.
9.12 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have entered into an employment agreement substantially in the form of
Annex VIII hereto.
9.13 Closing of IPO. The closing of the sale of the CTS Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
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9.14 FIRPTA Certificate. Each STOCKHOLDER shall have delivered to CTS a
certificate to the effect that he or she is not a foreign person pursuant to
Section 1. 1445-2(b) of the Treasury regulations.
9.15 Consummation of Other Agreements. The Other Agreements shall have
been delivered by each of the Other Companies and each of the Other Agreements
and this Agreement shall be in effect immediately prior to the Merger.
9.16 A/R Aging Reports. Within ten (10) days prior to Closing, the COMPANY
shall have provided CTS (x) an accurate list of all outstanding receivables
obtained subsequent to the Balance Sheet Date and as of a date which is within
10 calendar days of the Closing Date and (y) an aging of all such accounts and
notes receivable showing amounts due in 30 day aging categories (the "A/R Aging
Reports").
9.17 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall have been approved by counsel to CTS.
10. COVENANTS OF CTS AND THE STOCKHOLDERS AFTER CLOSING
10.1 Release From Guarantees; Repayment of Certain Obligations. CTS shall
use its best efforts to have the STOCKHOLDERS released from any and all
guarantees on any indebtedness that they personally guaranteed and from any and
all pledges of assets that they pledged to secure such indebtedness for the
benefit of the COMPANY, with all such guarantees on indebtedness being assumed
by CTS, if necessary to achieve such releases. In the event that CTS cannot
obtain such releases from the lenders of any such guaranteed indebtedness on or
prior to 180 days subsequent to the Closing Date, CTS shall pay off or otherwise
refinance or retire such indebtedness.
10.2 Preservation of Tax and Accounting Treatment. Except as contemplated
by this Agreement or the Registration Statement, after the Closing Date, CTS
shall not and shall not permit any of its subsidiaries to undertake any act that
would jeopardize the tax-free status of the organization, including liquidating
or merging the COMPANY into CTS.
10.3 Preparation and Filing of Tax Returns.
(a) The COMPANY shall, if possible, file or cause to be filed all
separate Returns of any Acquired Party for all taxable periods that end on
or before the Closing Date. Each STOCKHOLDER shall pay or cause to be paid
all Tax liabilities (in excess of all amounts already paid with respect
thereto or
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properly accrued or reserved with respect thereto on the COMPANY Financial
Statements) shown by such Returns to be due.
(b) CTS shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Closing Date.
(c) Each party hereto shall, and shall cause its subsidiaries and
Affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any Return, amended Return or claim for refund, determining a
liability for Taxes or a right to refund of Taxes or in conducting any
audit or other proceeding in respect of Taxes. Such cooperation and
information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each
party shall make its employees reasonably available on a mutually
convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence, each party
required to file Returns pursuant to this Agreement shall bear all costs
of filing such Returns.
(d) Each of the COMPANY, NEWCO, CTS and each STOCKHOLDER shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax free transfer of property under Section 351(a) of the Code.
10.4 Directors and Officers. The persons named in the Registration
Statement shall be appointed as directors and elected as officers of CTS, as and
to the extent set forth in the Registration Statement, promptly following the
Closing Date.
10.5 Preservation of Employee Benefit Plans. Following the Closing Date,
CTS shall not terminate any health insurance, life insurance, 401(k) or any
other Benefit Plan in effect at the COMPANY until such time as CTS is able to
replace such Benefit Plan with a Plan that is applicable to CTS and all of its
then existing subsidiaries. CTS shall have no obligation to provide replacement
Plans that have the same terms and provisions as the existing Benefit Plans,
provided, that any new health insurance plan shall provide for coverage for
preexisting conditions.
10.6 Rule 144. For a period of two years after the Closing Date, CTS shall
take all actions that are within its powers and that are reasonably necessary to
make Rule 144 promulgated under the 1933 Act available to the STOCKHOLDERS.
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10.7 Authorization of Shares. CTS agrees to take all actions as may be
necessary from time to time to reserve an adequate number of shares of CTS Stock
to pay the stock portion of the consideration to the STOCKHOLDERS pursuant to
Annex III hereof.
11. INDEMNIFICATION
The STOCKHOLDERS, CTS and NEWCO each make the following covenants that are
applicable to them, respectively:
11.1 General Indemnification by the STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless CTS, NEWCO, the COMPANY and the Surviving Corporation
at all times, from and after the date of this Agreement until the Expiration
Date, from and against all claims, damages, actions, suits, proceedings,
demands, assessments, adjustments, costs and expenses (including specifically,
but without limitation, reasonable attorneys' fees and reasonable expenses of
investigation) incurred by CTS, NEWCO, the COMPANY or the Surviving Corporation
as a result of or arising from (i) any breach of the representations and
warranties of the STOCKHOLDERS or the COMPANY set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the STOCKHOLDERS or the COMPANY under this
Agreement, (iii) any liability under the 1933 Act, the 1934 Act or other Federal
or state law or regulation, at common law or otherwise, arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
relating to the COMPANY or the STOCKHOLDERS, and provided to CTS or its counsel
by the COMPANY or the STOCKHOLDERS for inclusion in the Registration Statement
or any prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission by the
COMPANY and/or the STOCKHOLDERS to state therein a material fact relating to the
COMPANY or the STOCKHOLDERS required to be stated therein or necessary to make
the statements therein not misleading, (iv) the matters described on Schedule
11.1(iv) or (v) any Tax imposed upon or relating to any third party for a
pre-Closing Date period, including, in each case, any such Tax arising out of or
in connection with the transactions effected pursuant to this Agreement or any
such Tax for which an Acquired Party may be liable under Section 1.1502-6 of the
Treasury Regulations (or any similar provisions of state, local or foreign law),
as a transferee or successor, by contract or otherwise; provided, however, (A)
that in the case of any indemnity arising pursuant to clause (iii) such
indemnity shall not inure to the benefit of CTS, NEWCO, the COMPANY or the
Surviving Corporation to the extent that such untrue statement (or alleged
untrue statement) was made in, or omission (or alleged omission) occurred in,
any preliminary prospectus and the STOCKHOLDERS provided, in writing, corrected
information to CTS counsel and to CTS for inclusion in the final prospectus, and
such information was not so included or properly delivered, and (B) that no
STOCKHOLDER shall be liable
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for any indemnification obligation pursuant to this Section 11.1 to the extent
attributable to a breach of any representation, warranty or agreement made
herein individually by any other STOCKHOLDER.
11.2 Indemnification by CTS. CTS covenants and agrees that it will
indemnify, defend, protect and hold harmless the STOCKHOLDERS at all times from
and after the date of this Agreement until the eighteenth month anniversary of
the Closing Date, from and against all claims, damages, actions, suits,
proceedings, demands, assessments, adjustments, costs and expenses (including
specifically, but without limitation, reasonable attorneys' fees and expenses of
investigation) incurred by the STOCKHOLDERS as a result of or arising from (i)
any breach by CTS or NEWCO of its representations and warranties set forth
herein or on the schedules or certificates delivered in connection herewith,
(ii) any breach of any agreement on the part of CTS or NEWCO under this
Agreement, (iii) any liability which the STOCKHOLDERS may incur due to CTS's or
NEWCO's failure to be responsible for the liabilities and obligations of the
COMPANY as provided in Section 10.1 hereof (except to the extent that CTS or
NEWCO has claims against the STOCKHOLDERS by reason of such liabilities); (iv)
any liability to a Person not a Party to this Agreement (a "Third Person") under
the 1933 Act, the 1934 Act or other Federal or state law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact relating to CTS or NEWCO for
inclusion in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to CTS or NEWCO required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, in the case of any indemnity arising pursuant to clause (iv) such
indemnity shall not inure to the benefit of the STOCKHOLDERS if any such claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses incurred by any of the STOCKHOLDERS are based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by a STOCKHOLDER for use in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto unless the STOCKHOLDERS provided, in
writing, corrected information to CTS counsel and to CTS for inclusion in the
final prospectus to the Registration Statement, and such information was not so
included or properly delivered by CTS (or its representative).
In the event the breach relates to the representation contained in Section
6.5 concerning the absence of options, rights (preemptive or otherwise),
warrants, calls, convertible securities or commitments or any other arrangements
dealing with CTS Stock as set forth in Section 6.5 (a "CTS Security Right") and
the existence of an undisclosed CTS Security Right will dilute the CTS capital,
the stockholders of the Founding Company whose representation caused the breach
of Section 6.5 shall suffer such dilution proportionately to the number of
shares of CTS Stock owned by each of them.
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11.3 Third Person Claims. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
Third Person or of the commencement of any action or proceeding by a Third
Person, the Indemnified Party shall, as a condition precedent to a claim with
respect thereto being made against any party obligated to provide
indemnification pursuant to Section 11.1 or 11.2 hereof (hereinafter the
"Indemnifying Party"), give the Indemnifying Party written notice of such claim
or the commencement of such action or proceeding. Such notice shall state the
nature and the basis of such claim and a reasonable estimate of the amount
thereof. The Indemnifying Party shall have the right to defend and settle, at
its own expense and by its own counsel, any such matter so long as the
Indemnifying Party pursues the same in good faith and diligently, provided that
the Indemnifying Party shall not settle any criminal proceeding without the
written consent of the Indemnified Party, such consent not to be unreasonably
withheld or delayed. If the Indemnifying Party undertakes to defend or settle,
it shall promptly notify the Indemnified Party of its intention to do so, and
the Indemnified Party shall cooperate, at the Indemnifying Party's expense, with
the Indemnifying Party and its counsel in the defense thereof and in any
settlement thereof. Such cooperation shall include, but shall not be limited to,
furnishing the Indemnifying Party with any books, records or information
reasonably requested by the Indemnifying Party that are in the Indemnified
Party's possession or control. All Indemnified Parties shall endeavor to use the
same counsel, which shall be the counsel selected by the Indemnifying Party,
provided that if counsel to the Indemnifying Party shall have a conflict of
interest in the opinion of such counsel that prevents counsel for the
Indemnifying Party from representing the Indemnified Party, the Indemnified
Party shall have the right to participate in such matter through counsel of its
own choosing and the Indemnifying Party will reimburse the Indemnified Party for
the reasonable expenses of its counsel and experts. After the Indemnifying Party
has notified the Indemnified Party of its intention to undertake to defend or
settle any such asserted liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall not be liable for
any additional legal expenses incurred by the Indemnified Party in connection
with any defense or settlement of such asserted liability, except (i) as set
forth in the preceding sentence and (ii) to the extent such participation is
requested by the Indemnifying Party, in which event the Indemnified Party shall
be reimbursed by the Indemnifying Party for reasonable additional legal expenses
and out-of-pocket expenses. If the Indemnifying Party desires to accept a final
and complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement to said Third Person, plus all indemnifiable
costs and expenses incurred to date, the Indemnifying Party shall be relieved of
its duty to defend and shall tender the Third Person claim back to the
Indemnified Party, who shall thereafter, at its own expense, be responsible for
the defense and negotiation of such Third Person claim. If the Indemnifying
Party does not undertake to defend such matter to which the Indemnified Party is
entitled to indemnification hereunder, or fails diligently to pursue such
defense, the Indemnified Party may
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undertake such defense through counsel of its choice, at the cost and expense of
the Indemnifying Party, and the Indemnified Party may settle such matter, and
the Indemnifying Party shall reimburse the Indemnified Party for the amount paid
in such settlement and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. All settlements hereunder shall effect a
complete release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. The parties hereto will make appropriate
adjustments for any Tax benefits, Tax detriments or insurance proceeds in
determining the amount of any indemnification obligation under this Section,
provided that no Indemnifying Party shall be obligated to seek any payment
pursuant to the terms of any insurance policy.
11.4 Exclusive Remedy. Except as provided in Section 11.5(b) or Section
14.3 hereof, the indemnification provided for in this Section 11 shall (except
as prohibited by ERISA) be the exclusive remedy in any action seeking damages or
any other form of monetary relief brought by any party to this Agreement against
another party, provided that nothing herein shall be construed to limit the
right of a party, in a proper case, to seek injunctive relief for a breach of
this Agreement or to seek relief for a breach of any employment agreement with,
or any stock option issued by, CTS.
11.5 Limitations on Indemnification. (a) CTS, NEWCO, the Surviving
Corporation and the other Persons or entities indemnified pursuant to Section
11.1 (other than the STOCKHOLDERS) shall not assert any claim other than a Third
Person claim for indemnification hereunder against the STOCKHOLDERS until such
time as, and solely to the extent that, the aggregate of all claims which such
Persons may have against the STOCKHOLDERS shall exceed 1.0% of the sum of (i)
the cash paid to the STOCKHOLDERS plus (ii) the value (determined in accordance
with Section 11.5(c) hereof) of the CTS Stock delivered to the STOCKHOLDERS (the
"Indemnification Threshold"); provided, however, that CTS, NEWCO, the Surviving
Corporation and the other Persons or entities indemnified pursuant to Section
11.1 (other than the STOCKHOLDERS) may assert and shall be indemnified for any
claim under Section 11.1(iv) or 11.1(v) at any time, regardless of whether the
aggregate of all claims which such Persons may have against any STOCKHOLDER or
all STOCKHOLDERS exceeds the Indemnification Threshold, it being understood that
the amount of any such claim under Section 11.1(iv) or 11.1(v) shall not be
counted towards the Indemnification Threshold. The STOCKHOLDERS shall not assert
any claim for indemnification hereunder against CTS, NEWCO, the Surviving
Corporation or the other Persons set forth in Section 11.1 (other than the
STOCKHOLDERS) until such time as, and solely to the extent that, the aggregate
of all claims which STOCKHOLDERS may have against any of such Persons exceeds
$100,000. No Person shall be entitled to indemnification under this Section 11
if and to the extent that such Person's claim for indemnification is
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directly or indirectly related to a breach by such Person of any representation,
warranty, covenant or other agreement set forth in this Agreement.
(b) CTS shall have the right, upon written notice, to offset
indemnification amounts due to it pursuant to this Agreement against payments
due to the STOCKHOLDERS under (i) this Agreement (including, without limitation,
the consideration set forth on Annex III hereto) and/or (ii) any contract
contemplated by, or referred to in, this Agreement.
(c) Indemnity obligations hereunder may be satisfied through the payment
of cash or the delivery of CTS Stock, or a combination thereof. For purposes of
calculating the value of the CTS Stock received or delivered by a STOCKHOLDER
(for purposes of determining the Indemnification Threshold and the amount of any
indemnity paid), CTS Stock shall be valued at its initial public offering price
as set forth in the Registration Statement.
(d) Notwithstanding any other term of this Agreement (except the proviso
to this sentence), no STOCKHOLDER shall be liable under this Section 11 for an
amount which exceeds the amount of proceeds received by such STOCKHOLDER in
connection with the Merger, such proceeds to be equal to the sum of (i) the cash
paid to the STOCKHOLDER (ii) the additional consideration, if any, earned by
such STOCKHOLDER pursuant to Annex III hereof, and (iii) the value of the CTS
Stock delivered to the STOCKHOLDER (determined in accordance with Section
11.5(c) hereof); provided, that a STOCKHOLDER's indemnification obligations
pursuant to Sections 11.1(iv) and (v) shall not be limited.
12. TERMINATION OF AGREEMENT
12.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date solely:
(a) by mutual consent of the boards of directors of CTS and the
COMPANY;
(b) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by CTS (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, unless the failure of such transactions to be
consummated is due to the willful failure of the party seeking to
terminate this Agreement to perform any of its obligations under this
Agreement to the extent required to be performed by it prior to or on the
Closing Date;
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(c) by the STOCKHOLDERS or the COMPANY, on the one hand, or by CTS,
on the other hand, if a material breach or default shall be made by the
other party in the observance or in the due and timely performance of any
of the covenants, agreements or conditions contained herein, and the
curing of such default shall not have been made on or before the Closing
Date; or
(d) pursuant to Section 7.8 hereof.
12.2 Liabilities in Event of Termination. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 Prohibited Activities. The STOCKHOLDERS will not, for a period of
four (4) years following the Closing Date, for any reason whatsoever, directly
or indirectly, for themselves or on behalf of or in conjunction with any other
person, company, partnership, corporation or business of whatever nature;
(a) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in direct
competition with CTS or any of the subsidiaries thereof, within 100 miles
of where the COMPANY or any of its subsidiaries or any of the Other
Founding Companies conducted business prior to the effectiveness of the
Merger (the "Territory");
(b) call upon any person who is, at that time, within the Territory,
an employee of CTS (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent
of enticing such employee away from or out of the employ of CTS (including
the subsidiaries thereof), provided that each STOCKHOLDER shall be
permitted to call upon and hire any member of his or her immediate family;
(c) call upon any person or entity which is, at that time, or which
has been, within one (1) year prior to the Closing Date, a customer of CTS
(including the subsidiaries thereof), of the COMPANY or of any of the
Other Founding Companies within the Territory for the purpose of
soliciting or selling products or services in direct competition with CTS
within the Territory;
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(d) call upon any prospective acquisition candidate, on any
STOCKHOLDER's own behalf or on behalf of any competitor in similar or
incidental businesses or activities described in the Registration
Statement, which candidate, to the actual knowledge of such STOCKHOLDER
after due inquiry, was called upon by CTS (including the subsidiaries
thereof) or for which, to the actual knowledge of such STOCKHOLDER after
due inquiry, CTS (or any subsidiary thereof) made an acquisition analysis,
for the purpose of acquiring such entity; or
(e) disclose customers, whether in existence or proposed, of the
COMPANY to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever except to the extent that the COMPANY has in
the past disclosed such information to the public for valid business
reasons or disclosure is specifically required by law; provided, however,
in the event disclosure is required by law, the STOCKHOLDERS shall provide
CTS with prompt notice of such requirement prior to making any disclosure
so that CTS may seek a protective order.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any STOCKHOLDER from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter so long as the STOCKHOLDER
does not consult with or is not employed by such competitor.
13.2 Damages. Because of the difficulty of measuring economic losses to
CTS as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to CTS for which it would
have no other adequate remedy, each STOCKHOLDER agrees that, in the event of
breach by such STOCKHOLDER, the foregoing covenant may be enforced by CTS by
injunctions and restraining orders.
13.3 Reasonable Restraint. It is agreed by the parties hereto that it is
the intent of CTS and the STOCKHOLDERS that the foregoing covenants in this
Section 13 be construed and enforced in accordance with the changing activities
and business of CTS (including the subsidiaries thereof) throughout the term of
this covenant. It is further agreed by the parties hereto that, in the event
that any STOCKHOLDER who has entered into an employment agreement with CTS
and/or any subsidiary thereof as set forth in Sections 8.10 and 9.12 hereto,
shall thereafter cease to be employed thereunder, and such STOCKHOLDER shall
enter into a business or pursue other activities not in competition with CTS
and/or any subsidiary thereof, or similar activities or business in locations
the operations of which, under such circumstances, does not violate this Article
13 and in any event such new business, activities or location are not in
violation of this Article 13 or such STOCKHOLDER's obligations under this
Article 13, such
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STOCKHOLDER shall not be chargeable with a violation of this Article 13 if CTS
and/or any subsidiary thereof shall thereafter enter the same, similar or a
competitive (i) business (ii) course of activities, or (iii) location, as
applicable.
13.4 Severability; Reformation. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
13.5 Independent Covenant. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any STOCKHOLDER
against CTS (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by CTS
of such covenants. It is specifically agreed that the period of four (4) years
stated at the beginning of this Section 13, during which the agreements and
covenants of each STOCKHOLDER made in this Section 13 shall be effective, shall
be computed by excluding from such computation any time during which such
STOCKHOLDER is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 Materiality. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The STOCKHOLDERS recognize and acknowledge that they
had in the past, currently have, and in the future may have, access to certain
confidential information of the COMPANY, the Other Founding Companies, and/or
CTS, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the COMPANY'S, the Other Founding
Companies' and/or CTS's respective businesses. The STOCKHOLDERS agree that they
will not disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of CTS or the Other Founding Companies
who need to know information in connection with the transactions contemplated
hereby, who have been informed of the confidential nature of such information
and who have agreed to keep such information confidential as provided hereby,
(b) following the Closing, such information may be disclosed by the STOCKHOLDERS
as is required in the course of performing their duties for CTS or the
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Surviving Corporation and (c) to counsel and other advisers, provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
Section 14.1, unless (i) such information becomes known to the public generally
through no fault of any such STOCKHOLDERS, (ii) disclosure is required by law or
the order of any Governmental Authority under color of law; provided, that prior
to disclosing any information pursuant to this clause (ii), the STOCKHOLDERS
shall, if possible, give prior written notice thereof to CTS and provide CTS
with the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event the transactions
contemplated by this Agreement are not consummated, the STOCKHOLDERS shall have
none of the above-mentioned restrictions on their ability to disseminate
confidential information with respect to the COMPANY.
14.2 CTS AND NEWCO. CTS and NEWCO recognize and acknowledge that they had
in the past, currently have, and in the future may have, access to certain
confidential information of the COMPANY, such as operational policies, and
pricing and cost policies that are valuable, special and unique assets of the
COMPANY's business. CTS and NEWCO agree that, prior to the Closing, or if the
Transactions contemplated by this Agreement are not consummated, they will not
disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
the STOCKHOLDERS and to authorized representatives of the COMPANY, (b) to
counsel and other advisers, provided that such advisors (other than counsel)
agree to the confidentiality provisions of this Section 14.2 and (c) to the
Other Founding Companies and their representatives pursuant to Section 7. 1 (a),
unless (i) such information becomes known to the public generally through no
fault of CTS or NEWCO, (ii) disclosure is required by law or the order of any
Governmental Authority under color of law; provided, that, prior to disclosing
any information pursuant to this clause (ii), CTS and NEWCO shall, if possible,
give prior written notice thereof to the COMPANY and the STOCKHOLDERS and
provide the COMPANY and the STOCKHOLDERS with the opportunity to contest such
disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party. In the event of a breach or threatened breach by CTS or NEWCO
of the provisions of this Section, the COMPANY and the STOCKHOLDERS shall be
entitled to an injunction restraining CTS and NEWCO from disclosing, in whole or
in part, such confidential information. Nothing herein shall be construed as
prohibiting the COMPANY and the STOCKHOLDERS from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
14.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of
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them of the foregoing covenants, the covenant may be enforced against the other
parties by injunctions and restraining orders. Nothing herein shall be construed
as prohibiting a party hereto from pursuing any other available remedy for such
breach or threatened breach of Sections 14.1 and 14.2, including the recovery of
damages.
14.4 Survival. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Closing Date.
15. TRANSFER RESTRICTIONS
15.1 Transfer Restrictions. For a period of one year from the Closing
Date, except pursuant to Section 16 hereof, none of the STOCKHOLDERS shall (i)
sell, assign, exchange, transfer, encumber, pledge, distribute, appoint or
otherwise dispose of (a) any shares of CTS Stock received by the STOCKHOLDERS
pursuant to the terms hereunder or (b) any interest (including, without
limitation, an option to buy or sell) in any such shares of CTS Stock, in whole
or in part, and no such attempted transfer shall be treated as effective for any
purpose; or (ii) engage in any transaction, whether or not with respect to any
shares of CTS Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of CTS Stock acquired pursuant to Section 2
hereof (including, by way of example and not limitation, engaging in put, call,
short-sale, straddle or similar market transactions). Notwithstanding the
foregoing, the STOCKHOLDERS may (x) transfer shares of CTS Stock to immediate
family members (or trusts for the benefit of the STOCKHOLDERS or family members,
the trustees of which so agree) or (y) encumber or pledge any of such shares of
CTS Stock; provided, that the family member, trust, trustee, pledgee or other
beneficiary of such transfer, encumbrance or pledge, as the case may be, agrees
in writing prior to such transaction to be bound by (1) the provisions of this
Section as if a STOCKHOLDER and party hereto and (2) the indemnification
provisions set forth in this Agreement as if a STOCKHOLDER and party hereto. The
certificates evidencing the CTS Stock delivered to the STOCKHOLDERS pursuant to
Section 3 of this Agreement will bear a legend substantially in the form set
forth below and containing such other information as CTS may deem necessary or
appropriate:
EXCEPT AS PROVIDED BY THAT CERTAIN AGREEMENT AND PLAN OF ORGANIZATION, A COPY OF
WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY FOR PUBLIC
INSPECTION, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO
ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE FIRST ANNIVERSARY OF
THE CLOSING DATE. UPON THE WRITTEN
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REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE
DATE SPECIFIED ABOVE.
16. REGISTRATION RIGHTS
16.1 Piggyback Registration Rights. At any time following the Closing
Date, whenever CTS proposes to register any CTS Stock for its own or others'
account under the 1933 Act for a public offering, other than (i) any shelf
registration of shares to be used as consideration for acquisitions of
additional businesses by CTS, (ii) registrations relating to Plans and (iii)
registrations relating to rights offerings made to the stockholders of CTS, CTS
shall give each of the STOCKHOLDERS prompt written notice of its intent to do
so. Upon the written request of any of the STOCKHOLDERS given within 30 days
after receipt of such notice, CTS shall cause to be included in such
registration all of the CTS Stock issued to the STOCKHOLDERS pursuant to this
Agreement which any such STOCKHOLDER requests, provided that CTS shall have the
right to reduce the number of shares included in such registration to the extent
that inclusion of such shares could, in the opinion of tax counsel to CTS or its
independent auditors, jeopardize the status of the transactions contemplated
hereby and by the Registration Statement as a tax-free organization. In
addition, if CTS is advised in writing in good faith by any managing underwriter
of an underwritten offering of the securities being offered pursuant to any
registration statement under this Section 16.1 that the number of shares to be
sold by persons other than CTS is greater than the number of such shares which
can be offered without adversely affecting the offering, CTS may reduce pro rata
the number of shares offered for the accounts of such persons (based upon the
number of shares proposed to be sold by each such person) to a number deemed
satisfactory by such managing underwriter, provided, that, for each such
offering made by CTS after the IPO, such reduction shall be made first by
reducing the number of shares to be sold by persons other than CTS, the
STOCKHOLDERS and the stockholders of the Other Founding Companies (collectively,
the STOCKHOLDERS and the stockholders of the Other Founding Companies being
referred to herein as the "Founding Stockholders"), and thereafter, if a further
reduction is required, by reducing pro rata the number of shares to be sold by
the Founding Stockholders.
16.2 Registration Procedures. All expenses incurred in connection with the
registrations under this Section 16 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts with respect to any CTS Stock sold on behalf of any
STOCKHOLDER), shall be borne by CTS. In connection with registrations under
Section 16.1, CTS shall (i) use its best efforts to prepare and file with the
SEC as soon as reasonably practicable, a registration statement with respect to
the CTS Stock and use its best efforts to cause such registration to promptly
become and remain effective for a period of at least 120 days (or such shorter
period during which stockholders of the Founding Companies shall have sold all
CTS
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Stock which they requested to be registered); (ii) use its best efforts to
register and qualify the CTS Stock covered by such registration statement under
applicable state securities laws as the holders shall reasonably request for the
distribution of the CTS Stock; (iii) take all actions necessary to have the CTS
Stock covered by such registration listed or quoted on the exchange or automated
quotation system on which the CTS Stock trades at the time of registration; (iv)
take such other actions as are reasonable and necessary to comply with the
requirements of the 1933 Act and the regulations thereunder; and (v) make
available its general counsel to advise each STOCKHOLDER and provide the legal
opinions required under the purchase agreement used in connection with the
registrations under this Section 16.
16.3 Underwriting Agreement. In connection with each registration pursuant
to Section 16.1 covering an underwritten registered public offering, CTS and
each participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of CTS's size and investment stature,
including indemnification provisions.
16.4 Availability of Rule 144. CTS shall not be obligated to register
shares of CTS Stock held by any STOCKHOLDER at any time when the resale
provisions of Rule 144(k) (or any successor provision) promulgated under the
1933 Act are available to such STOCKHOLDER for such shares.
16.5 Market Standoff. In consideration of the granting to the STOCK
HOLDERS of the registration rights under this Section 16, the STOCKHOLDERS agree
that they will not sell, transfer or otherwise dispose of, including without
limitation through put or short sale arrangements, shares of CTS Stock in the 10
days prior to the effectiveness of any registration of CTS Stock for sale to the
public and for up to 90 days following the effectiveness of such registration,
provided, that: (i) all directors, executive officers and holders of more than
five percent of the outstanding CTS Stock agree to the same restrictions; (ii)
with respect to the first public offering of shares of the CTS Stock within
three years following the IPO, the STOCKHOLDERS shall have been afforded a
meaningful opportunity to include shares in such registration after any
reduction by reason of underwriters' advice; and (iii) CTS has not exercised its
rights to delay under this Section 16.5 more than once in any 12 month period.
17. GENERAL
17.1 Cooperation. The COMPANY, the STOCKHOLDERS, CTS and NEWCO shall each
deliver or cause to be delivered to the other on the Closing Date, and at such
other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The STOCKHOLDERS will cooperate and use their reasonable efforts
to
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have the present officers, directors and employees of the COMPANY cooperate with
CTS on and after the Closing Date in furnishing information, evidence, testimony
and other assistance in connection with any Tax Return filing obligations,
actions, proceedings, arrangements or disputes of any nature with respect to
matters pertaining to all periods prior to the Closing Date.
17.2 Successors and Assigns. During the period payments are to be made to
the STOCKHOLDERS pursuant to Annex III hereof, this Agreement and the rights of
the parties hereunder may not be assigned (except by operation of law) and shall
be binding upon and shall inure to the benefit of the parties hereto, the
successors of CTS, and the heirs and legal representatives of the STOCKHOLDERS;
provided, however, that this Agreement and the rights of the parties hereunder
may be assigned (i) upon receipt of the consent of the STOCKHOLDERS who hold a
majority of the CTS Stock issued and outstanding under this Agreement at such
time of determination, whose consent shall not be unreasonably withheld or (ii)
if the assignee is a company whose capital stock is traded on the Nasdaq Stock
Market, the New York Stock Exchange or the American Stock Exchange.
17.3 Entire Agreement. This Agreement (including the Schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the STOCKHOLDERS, the
COMPANY, NEWCO and CTS and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the STOCKHOLDERS, the COMPANY, NEWCO and CTS,
acting through their respective officers or trustees, duly authorized by their
respective boards of directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the COMPANY and the STOCKHOLDERS shall
make a good faith effort to cross reference disclosure, as necessary or
advisable, between related Schedules.
17.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
17.5 Brokers and Agents. Except as disclosed on Schedule 17.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commissions of
brokers employed or alleged to have been employed by such indemnifying party.
17.6 Expenses.
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(a) Whether or not the transactions herein contemplated shall be
consummated, CTS will pay the fees, expenses and disbursements of CTS and
its agents, representatives, accountants and counsel incurred in
connection with the subject matter of this Agreement and any amendments
thereto, including all costs and expenses incurred in the performance and
compliance with all conditions to be performed by CTS under this
Agreement, including the fees and expenses of Price Waterhouse LLP,
Morgan, Lewis & Bockius LLP, and any other person or entity retained by
CTS, and the costs of preparing the Registration Statement.
(b) If the transactions herein contemplated shall not be
consummated, the Company shall pay the fees, expenses and disbursements of
the STOCKHOLDERS, the COMPANY and their respective agents,
representatives, accountants and counsel incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all
costs and expenses incurred in the performance and compliance with all
conditions to be performed by the COMPANY and the STOCKHOLDERS under this
Agreement, including the fees and expenses of legal counsel to the COMPANY
and the STOCKHOLDERS.
(c) If the transaction herein contemplated is consummated, CTS will
pay the fees, expenses, and disbursements of the STOCKHOLDERS and the
COMPANY as described in (b), above.
(d) Each STOCKHOLDER shall pay all sales, use, transfer, real
property transfer, recording, gains, stock transfer and other similar
taxes and fees ("Transfer Taxes") imposed in connection with the
transactions contemplated hereby. Each STOCKHOLDER shall file all
necessary documentation and Returns with respect to such Transfer Taxes.
In addition, each STOCKHOLDER acknowledges that he, and not the COMPANY or
CTS, will pay all Taxes due upon receipt of the consideration payable
pursuant to Section 2 hereof, and will assume all Tax risks and
liabilities of such STOCKHOLDER in connection with the transactions
contemplated hereby.
17.7 Notices. All notices or communications required or permitted
hereunder shall be in writing and shall be deemed to have been given when
personally delivered or upon receipt if sent by first class certified mail,
return receipt requested or the next business day if sent by telefax (receipt
confirmed and followed up by one of the other delivery methods discussed herein
as well), or upon delivery if sent by express mail, in each case postage prepaid
and addressed as follows:
(a) If to CTS, or NEWCO:
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<PAGE>
1650 Tysons Boulevard
Suite 600
McLean, Virginia 22102
with copies to:
The Commonwealth Group
1650 Tysons Boulevard
Suite 600
McLean, Virginia 22102
and
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Attn: Christopher T. Jensen, Esq.
(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on Annex IV, with copies to such counsel as is set forth with
respect to each STOCKHOLDER on such Annex IV;
(c) If to the COMPANY:
InVenture Group, Inc.
650 Washington Road, Suite 600
Pittsburgh, PA 15228
Attn: Mr. Howard Schapiro
and marked "Personal and Confidential"
with copies to:
Harter, Secrest & Emery
One Marine Center, Suite 3550
Buffalo, New York 14203
Attn: Anthony D. Mancinelli
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 17.7 from time to time.
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<PAGE>
17.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of New York, except that matters herein within the purview
of the matters covered by the General Corporation Law of the State of Delaware
shall be governed by such General Corporation Law, in each case without
reference to conflicts of laws principles.
17.9 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
17.10 Time. Time is of the essence with respect to this Agreement.
17.11 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
17.12 Remedies Cumulative. Except as provided in Section 11.4 of this
Agreement, no right, remedy or election given by any term of this Agreement
shall be deemed exclusive but each shall be cumulative with all other rights,
remedies and elections available at law or in equity.
17.13 Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
17.14 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of CTS, NEWCO, the COMPANY and the STOCKHOLDERS hold a majority
of the CTS Stock issued and outstanding under this Agreement at such time of
determination. Any amendment or waiver effected in accordance with this Section
17.14 shall be binding upon each of the parties hereto, any other person
receiving CTS Stock in connection with the Merger and each future holder of such
CTS Stock.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
CONDOR TECHNOLOGY SOLUTIONS, INC.
By: /s/ Kennard F. Hill
--------------------------------------------
Name: Kennard F. Hill
Title: President and Chief Executive Officer
INVENTURE ACQUISITION CORP.
By: /s/ Kennard F. Hill
--------------------------------------------
Name: Kennard F. Hill
Title: President and Chief Executive Officer
INVENTURE GROUP, INC.
By: /s/ Howard Schapiro
--------------------------------------------
Name: Howard Schapiro
Title: President
STOCKHOLDERS:
/s/ Howard Schapiro
-----------------------------------------------
Name: Howard Schapiro
/s/ Molly M. Menegay
-----------------------------------------------
Name: Molly M. Menegay
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<PAGE>
SCHEDULE 11.1(iv)
SPECIAL INDEMNITY
Any Federal, state or local Tax lien of Thompson & Thompson Associates, Inc.
<PAGE>
ANNEX III
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
(1) Total consideration to be paid to the STOCKHOLDERS on the Closing Date:
$750,000 in cash and $1,750,000/IPO price per share shares of
CTS Stock.
(2) Contingent consideration of up to $14,000,000 in cash and shares of CTS
Stock will be paid to the STOCKHOLDERS contingent on the 1997, 1998 and
1999 financial performance of the COMPANY. Contingent consideration
(if earned) is being offered herein in view of the differences of
opinion between CTS and the STOCKHOLDERS regarding the value of the
COMPANY's business, including without limitation its growth rate,
sustainability of customer base and operating margins. Accordingly,
the contingent portion of the consideration (if any) will enable the
total consideration to be based on the actual value of the COMPANY's
business.
The following details the potential contingent consideration for the
COMPANY:
Basis of Earnout % Cash/
Conditions Calculation(1) % Equity(2)
------------- -------------------- -----------
1997 earn-out Consideration 5.5 x Pre-tax Income 33.3%
cannot exceed over $450,000 66.7%
$4,500,000
1998 earn-out Consideration 5.0 x Pre-tax Income 33.3%
cannot exceed over $682,500 66.7%
$5,500,000
1999 earn-out Consideration 5.0 x Pre-tax Income 33.3%
cannot exceed over $1,000,000 66.7%
$4,000,000
(1) Pre-tax Income shall be calculated as follows:
(i) January 1, 1997 through December 31, 1997: Pre-tax Income shall equal
the sum of (x) the COMPANY's earnings after interest, depreciation and
amortization, but before Federal and state Taxes for the period from
January 1, 1997 through the Closing Date, calculated in accordance with
GAAP in the manner applied in the audited financial statements of the
COMPANY included in the Registration Statement and (y) the COMPANY's
earnings after interest, depreciation and amortization, but before Federal
and state Taxes for the period from the Closing Date through December 31,
1997, calculated in accordance with GAAP in the manner applied in the
audited financial statements of the COMPANY included in the Registration
Statement, but without giving effect to (x) any intercompany costs or
charges imposed by CTS for services provided to the COMPANY (other than
charges for services provided by CTS that were previously arranged for and
independently paid by the COMPANY, including, without limitation,
<PAGE>
audit fees, insurance costs, and general overhead) or (y) the amortization
of intangible assets resulting from the transactions contemplated by the
Agreement. Notwithstanding the foregoing, Pre-tax Income for such period
shall include all costs or other charges imposed for services or products
provided by CTS to the COMPANY for use in connection with the servicing of
the COMPANY's customers.
(ii) January 1, 1998 through December 31, 1998: Pre-tax Income shall equal
the COMPANY's earnings after interest, depreciation and amortization, but
before Federal and state taxes for the period from January 1, 1998 through
December 31, 1998, calculated in accordance with GAAP in the manner applied
in the audited financial statements of the COMPANY included in the
Registration Statement, but without giving effect to (x) any intercompany
costs or charges imposed by CTS for services provided to the COMPANY (other
than charges for services provided by CTS that were previously arranged for
and independently paid by the COMPANY, including, without limitation, audit
fees, insurance costs, and general overhead) or (y) the amortization of
intangible assets resulting from the transactions contemplated by the
Agreement. Notwithstanding the foregoing, Pre-tax Income for such period
shall include all costs or other charges imposed for services or products
provided by CTS to the COMPANY for use in connection with the servicing of
the COMPANY's customers.
(iii) January 1, 1999 through December 31, 1999: Pre-tax Income shall equal
the COMPANY's earnings after interest, depreciation and amortization, but
before Federal and state taxes for the period from January 1, 1999 through
December 31, 1999, calculated in accordance with GAAP in the manner applied
in the audited financial statements of the COMPANY included in the
Registration Statement, but without giving effect to (x) any intercompany
costs or charges imposed by CTS for services provided to the COMPANY (other
than charges for services provided by CTS that were previously arranged for
and independently paid by the COMPANY, including, without limitation, audit
fees, insurance costs, and general overhead) or (y) the amortization of
intangible assets resulting from the transactions contemplated by the
Agreement. Notwithstanding the foregoing, Pre-tax Income for such period
shall include all costs or other charges imposed for services or products
provided by CTS to the COMPANY for use in connection with the servicing of
the COMPANY's customers.
(2) The equity to be delivered hereunder shall be valued at a per share price
equal to one-tenth (1/10) of the sum of the closing price per share of CTS
Stock as reported by the "Exchange" (as defined in Section 3(a)(1) of the
1934 Act) on which the CTS Stock is traded at the close of each of the last
ten business days immediately prior to the date the contingent consideration
is paid. If the CTS Stock is not traded on any Exchange, then the value of
the equity shall be determined by one appraiser selected upon mutual
agreement of CTS and the STOCKHOLDERS who hold a majority of the CTS Stock
issued and outstanding under the Agreement at such time of determination,
whose fees and expenses shall be paid one-half by CTS and one-half by such
STOCKHOLDERS.
(3) The equity and cash delivered hereunder shall be delivered to the
STOCKHOLDERS, pro rata in accordance with their share ownership set forth in
Annex IV hereof, no later than 30 days after CTS has received from its
independent accountants audited consolidated financial statements for CTS.
<PAGE>
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF ORGANIZATION
dated as of October 1, 1997
by and among
CONDOR TECHNOLOGY SOLUTIONS, INC.
MIS ACQUISITION CORP.
(a subsidiary of Condor Technology Solutions, Inc.)
MIS TECHNOLOGIES, INC.
and
the STOCKHOLDERS named herein
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
1. THE MERGER.......................................................6
1.1 Delivery and Filing of Articles of Merger..................6
1.2 Effective Time of the Merger...............................6
1.3 Certificate of Incorporation, By-laws and Board of
Directors of Surviving Corporation.........................6
1.4 Certain Information With Respect to the Capital
Stock of the COMPANY, CTS and NEWCO........................7
2. CONVERSION OF STOCK..............................................7
2.1 Manner of Conversion.......................................7
3. DELIVERY OF MERGER CONSIDERATION.................................8
4. CLOSING..........................................................8
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND
STOCKHOLDERS.....................................................9
5.1 Due Organization..........................................10
5.2 Authorization.............................................10
5.3 Capital Stock of the COMPANY..............................10
5.4 Transactions in Capital Stock; Organization Accounting....11
5.5 No Bonus Shares...........................................11
5.6 Subsidiaries..............................................11
5.7 Predecessor Status; etc...................................11
5.8 Spin-off by the COMPANY...................................11
5.9 Financial Statements......................................12
5.10 Liabilities and Obligations...............................12
5.11 Accounts and Notes Receivable.............................13
5.12 Intellectual Property; Permits and Intangibles............13
5.13 Environmental Matters.....................................14
5.14 Personal Property.........................................15
5.15 Significant Customers; Material Contracts and
Commitments...............................................16
5.16 Real Property.............................................18
5.17 Insurance.................................................19
5.18 Compensation; Employment Agreements; Organized
Labor Matters.............................................20
5.19 Employee Plans............................................21
5.20 Compliance with ERISA.....................................21
5.21 Conformity with Law; Litigation...........................23
5.22 Taxes.....................................................24
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<PAGE>
5.23 No Violations.............................................26
5.24 Government Contracts......................................27
5.25 Business Conduct..........................................27
5.26 Deposit Accounts; Powers of Attorney......................29
5.27 Relations with Governments................................29
5.28 Disclosure................................................29
5.29 Prohibited Activities.....................................30
5.30 Affiliate Transactions....................................30
5.31 Misrepresentation.........................................31
5.32 Securities Act Representations............................31
5.33 Authority; Ownership......................................32
5.34 Preemptive Rights.........................................33
5.35 No Intention to Dispose of CTS Stock......................33
5.36 Questionnaires. ..........................................33
6. REPRESENTATIONS OF CTS AND NEWCO................................33
6.1 Due Organization..........................................33
6.2 Authorization.............................................34
6.3 Transaction Not a Breach..................................34
6.4 Misrepresentation.........................................34
6.5 Capital Stock.............................................34
6.6 Subsidiaries..............................................35
6.7 Conformity with Law; Litigation...........................35
7. COVENANTS PRIOR TO CLOSING......................................36
7.1 Access and Cooperation; Due Diligence.....................36
7.2 Conduct of Business Pending Closing.......................36
7.3 Prohibited Activities.....................................37
7.4 No Shop...................................................39
7.5 Notice to Bargaining Agents...............................39
7.6 Agreements................................................39
7.7 Notification of Certain Matters...........................39
7.8 Amendment of Schedules....................................40
7.9 Cooperation in Preparation of Registration Statement......41
7.10 Final Financial Statements................................42
7.11 Further Assurances........................................43
7.12 Approval of Merger Agreement..............................43
7.13 Distributions.............................................43
7.14 Accumulated Adjustments Account...........................43
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS
AND THE COMPANY.................................................43
8.1 Representations and Warranties............................44
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<PAGE>
8.2 Performance of Obligations................................44
8.3 No Litigation.............................................44
8.4 Opinion of Counsel........................................44
8.5 Consents and Approvals....................................44
8.6 Good Standing Certificates................................44
8.8 Secretary's Certificate...................................45
8.9 Employment Agreements.....................................45
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CTS AND NEWCO............45
9.1 Representations and Warranties............................45
9.2 Performance of Obligations................................45
9.3 No Litigation.............................................45
9.4 Secretary's Certificate...................................46
9.5 No Material Adverse Change................................46
9.6 STOCKHOLDERS' Release.....................................46
9.7 Termination of Related Party Agreements...................46
9.8 Opinion of Counsel........................................46
9.9 Consents and Approvals....................................46
9.10 Good Standing Certificates................................46
9.11 Registration Statement....................................47
9.12 Employment Agreements.....................................47
9.13 Closing of IPO............................................47
9.14 FIRPTA Certificate........................................47
9.15 Consummation of Other Agreements..........................47
9.16 A/R Aging Reports.........................................47
9.17 Satisfaction..............................................47
10. COVENANTS OF CTS AND THE STOCKHOLDERS AFTER CLOSING.............48
10.1 Release From Guarantees; Repayment of Certain
Obligations...............................................48
10.2 Preservation of Tax and Accounting Treatment..............48
10.3 Preparation and Filing of Tax Returns.....................48
10.4 Directors and Officers....................................49
10.5 Preservation of Employee Benefit Plans....................49
11. INDEMNIFICATION.................................................49
11.1 General Indemnification by the STOCKHOLDERS...............49
11.2 Indemnification by CTS....................................50
11.3 Third Person Claims.......................................51
11.4 Exclusive Remedy..........................................52
11.5 Limitations on Indemnification............................52
12. TERMINATION OF AGREEMENT........................................53
12.1 Termination...............................................53
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<PAGE>
12.2 Liabilities in Event of Termination.......................54
13. NONCOMPETITION..................................................54
13.1 Prohibited Activities.....................................54
13.2 Damages...................................................55
13.3 Reasonable Restraint......................................55
13.4 Severability; Reformation.................................56
13.5 Independent Covenant......................................56
13.6 Materiality...............................................56
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.......................56
14.1 STOCKHOLDERS..............................................56
14.2 CTS AND NEWCO.............................................57
14.3 Damages...................................................57
14.4 Survival..................................................58
15. TRANSFER RESTRICTIONS...........................................58
15.1 Transfer Restrictions.....................................58
16. REGISTRATION RIGHTS.............................................58
16.1 Piggyback Registration Rights.............................59
16.2 Registration Procedures...................................59
16.3 Underwriting Agreement....................................60
16.4 Availability of Rule 144..................................60
16.5 Market Standoff...........................................60
17. GENERAL.........................................................60
17.1 Cooperation...............................................60
17.2 Successors and Assigns....................................60
17.3 Entire Agreement..........................................61
17.5 Brokers and Agents........................................61
17.6 Expenses..................................................61
17.7 Notices...................................................62
17.8 Governing Law.............................................63
17.9 Exercise of Rights and Remedies...........................64
17.10 Time......................................................64
17.11 Reformation and Severability..............................64
17.12 Remedies Cumulative.......................................64
17.13 Captions..................................................64
17.14 Amendments and Waivers....................................64
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<PAGE>
ANNEX I FORM OF ARTICLES OF MERGER
ANNEX II FORM OF CERTIFICATE OF INCORPORATION AND
BY-LAWS OF CTS AND NEWCO
ANNEX III CONSIDERATION TO BE PAID TO STOCKHOLDERS
ANNEX IV STOCKHOLDERS AND STOCK OWNERSHIP OF
THE COMPANY
ANNEX V [INTENTIONALLY OMITTED]
ANNEX VI FORM OF OPINION OF COUNSEL TO CTS
ANNEX VII FORM OF OPINION OF COUNSEL TO COMPANY AND
STOCKHOLDERS
ANNEX VIII FORM OF EMPLOYMENT AGREEMENT
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<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (this "Agreement") is made as of
September __, 1997, by and among CONDOR TECHNOLOGY SOLUTIONS, INC., a Delaware
corporation ("CTS"), MIS ACQUISITION CORP., a Delaware corporation ("NEWCO"),
MIS TECHNOLOGIES, INC., an Oklahoma corporation (the "COMPANY"), John Yeager and
David Scott Kinnard (the "STOCKHOLDERS"). The STOCKHOLDERS are all of the
stockholders of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing under the laws
of the State of Delaware, having been incorporated on July 7, 1997, solely for
the purpose of completing the transactions set forth herein, and is a
wholly-owned subsidiary of CTS;
WHEREAS, the respective Boards of Directors of NEWCO and the COMPANY
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the Constituent
Corporations and their respective stockholders that NEWCO merge with and into
the COMPANY pursuant to this Agreement and the applicable provisions of the laws
of the State of Delaware and the State of Oklahoma (the "Merger"), and in
furtherance thereof have approved the Merger;
WHEREAS, CTS is entering into other separate agreements substantially
similar to this Agreement (the "Other Agreements"), each of which is entitled
"Agreement and Plan of Organization," with companies in the information
technology industry (collectively, the "Other Founding Companies"), and their
respective stockholders in order to acquire additional information technology
companies. The COMPANY, together with each of the entities with which CTS has
entered into the Other Agreements, are collectively referred to herein as the
"Founding Companies;"
WHEREAS, this Agreement, the Other Agreements and the IPO (as hereinafter
defined) of CTS Stock (as hereinafter defined) constitute the "CTS Plan of
Organization;"
WHEREAS, the Boards of Directors of CTS and each of the Founding Companies
have approved and adopted the CTS Plan of Organization as an integrated plan to
transfer the capital stock of the Founding Companies to CTS and the cash raised
in the IPO of CTS Stock to CTS as a transfer of property under Section 351 of
the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the STOCKHOLDERS and the Board of
Directors of the COMPANY and the stockholders and the boards of directors of
each of
<PAGE>
CTS and NEWCO have approved this Agreement and the transactions contemplated
hereby;
WHEREAS, unless the context otherwise requires, capitalized terms used in
this Agreement or in any schedule attached hereto and not otherwise defined
herein shall have the following meanings for all purposes of this Agreement:
"Accumulated Adjustments Account" means accumulated adjustments account as
defined in Section 1368(e)(1) of the Code.
"Acquired Party" means the COMPANY, any subsidiary and any member of a
Relevant Group.
"Acquisition Companies" means NEWCO and each of the other Delaware
companies wholly-owned by CTS prior to the Closing Date.
"Acquisition Transaction" has the meaning set forth in Section 7.4.
"Affiliates" has the meaning set forth in Section 5.8.
"A/R Aging Reports" has the meaning set forth in Section 9.16.
"Articles of Merger" means those Articles or Certificates of Merger with
respect to the Merger substantially in the form[s] attached as Annex I hereto or
with such changes therein as may be required by applicable state laws.
"Balance Sheet Date" means December 31, 1996.
"Benefit Plan" means any Plan, existing at the Closing Date or prior
thereto, established or to which contributions have at any time been made by the
COMPANY, any ERISA Affiliate, or any predecessor of any of the foregoing, under
which any employee or former employee of the COMPANY, or any beneficiary
thereof, is covered, is eligible for coverage or has benefit rights.
"CTS" has the meaning set forth in the first paragraph of this Agreement.
"CTS Charter Documents" has the meaning set forth in Section 6.1.
"CTS Plan of Organization" has the meaning set forth in the fourth recital
of this Agreement.
"CTS Stock" means the common stock, par value $.01 per share, of CTS.
"Charter Documents" has the meaning set forth in Section 5.1.
2
<PAGE>
"Closing" means the consummation of the transactions contemplated by this
Agreement on the Closing Date.
"Closing Date" has the meaning set forth in Section 4.
"Code" has the meaning set forth in the fifth recital of this Agreement.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Delaware Law" has the meaning set forth in Section 1.2.
"Effective Time of the Merger" means the time as of which the Merger
becomes effective, which the parties hereto contemplate to occur on the Closing
Date.
"Environmental Requirements" has the meaning set forth in Section 5.13.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any Person who is, or at any time was, a member of
a controlled group (within the meaning of Section 412(n)(6) of the Code) that
includes, or at any time included, the COMPANY or any predecessor of the
COMPANY.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" has the meaning set forth in the third recital of
this Agreement.
"GAAP" means generally accepted accounting principles of the United States
applied in a manner consistent with the past practices of the COMPANY.
"Governmental Authority" means any governmental, regulatory or
administrative body, agency, subdivision or authority, any court or judicial
authority, or any public, private or industry regulatory authority, whether
national, Federal, state, local or otherwise.
"Hazardous Materials" has the meaning set forth in Section 5.13(b).
3
<PAGE>
"Intellectual Property" means all trademarks, service marks, trade dress,
trade names, patents and copyrights and any registration or application for any
of the foregoing, and any trade secret, invention, process, know-how, computer
software or technology systems.
"IPO" means the initial public offering of CTS Stock pursuant to the
Registration Statement.
"Laws" has the meaning set forth in Section 5.21.
"Material Adverse Effect" means, with respect to any Person, any event or
occurrence which would have a material adverse effect on such Person's business,
condition (financial or other), properties, business prospects or financial
results.
"Material Contract" means any lease, instrument, agreement, license or
permit set forth on Schedule 5.12, 5.13, 5.14, 5.15, 5.16, 5.18 or 5.19 or any
other material agreement to which the COMPANY is a party or by which its
properties are bound.
"Merger" means the merger of NEWCO with and into the COMPANY pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware and the State of Oklahoma.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO STOCK" means the common stock, par value $.01 per share, of
NEWCO.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Other Agreements" has the meaning set forth in the third recital of this
Agreement.
"Other Founding Companies" has the meaning set forth in the third recital
of this Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means any corporation, partnership, joint venture, organization,
entity, Governmental Authority or natural person.
"Plan" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock
4
<PAGE>
appreciation rights, phantom stock, leave of absence, layoff, vacation, day or
dependent care, legal services, cafeteria, life, health, accident, disability,
workmen's compensation or other insurance, severance, separation or other
employee benefit plan, practice, policy or arrangement of any kind, whether
written or oral, or whether for the benefit of a single individual or more than
one individual including, but not limited to, any "employee benefit plan" within
the meaning of Section 3(3) of ERISA.
"Pre-Closing Date" has the meaning set forth in Section 4.
"Pricing" means the date of determination by CTS and the Underwriters of
the public offering price of the shares of CTS Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on or immediately prior to
the Pre-Closing Date.
"Registration Statement" means that certain registration statement of CTS
on Form S-1 covering the shares of CTS Stock to be issued in the IPO.
"Relevant Group" has the meaning set forth in Section 5.22(a).
"Returns" has the meaning set forth at the end of Section 5.22.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 7.3(e).
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Stockholders' Equity" means the COMPANY's stockholders' equity, including
retained earnings, as set forth on the balance sheet of the COMPANY as of the
Closing Date; provided, that such determination will reflect all reserves,
accruals, and adjustments required by GAAP to be, and/or customarily, reflected
in year-end financial statements.
"Surviving Corporation" shall mean the COMPANY as the surviving party in
the Merger.
"Tax" or "Taxes" has the meaning set forth at the end of Section 5.22.
"Taxing Authority" has the meaning set forth at the end of Section 5.22.
5
<PAGE>
"Third Person" has the meaning set forth in Section 11.2.
"Transfer Taxes" has the meaning set forth in Section 17.6.
"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
"Underwriting Agreement" means the Underwriting Agreement dated the
Closing Date between the Underwriters and CTS in respect of the IPO.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 Delivery and Filing of Articles of Merger. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and filed
with the Secretary of State of the State of Delaware and the Secretary of State
of the State of Oklahoma and stamped receipt copies of each such filing to be
delivered to CTS on or before the Pre-Closing Date.
1.2 Effective Time of the Merger. At the Effective Time of the Merger and
subject to the terms and conditions of this Agreement and the applicable
provisions of the Delaware General Corporation Law (the "Delaware Law"), NEWCO
shall be merged with and into the COMPANY in accordance with the Articles of
Merger, the separate existence of NEWCO shall cease and the COMPANY shall be the
surviving party in the Merger. At the Effective Time of the Merger, the effect
of the Merger otherwise shall be as provided in the applicable provisions of
Delaware Law and the law of the State of Oklahoma. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time of the
Merger, all the property, rights, privileges, powers and franchises of the
COMPANY and NEWCO shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the COMPANY and NEWCO shall become the debts,
liabilities and duties of the Surviving Corporation. The Merger will be effected
in a single transaction.
1.3 Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(a) the Articles of Organization of the COMPANY then in effect shall
be the Certificate or Articles of Incorporation of the Surviving
Corporation until amended as provided by law;
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(b) the By-laws of the COMPANY then in effect shall be the By-laws
of the Surviving Corporation until amended as provided by law;
(c) a director of NEWCO and two nominees of the COMPANY shall be the
directors of the Surviving Corporation until their respective successors
are elected or appointed and qualified in accordance with the terms the
By-laws of the Surviving Corporation; the Board of Directors of the
Surviving Corporation shall hold office subject to the provisions of the
laws of the State of Oklahoma and of the Certificate of Incorporation and
By-laws of the Surviving Corporation; and
(d) the officers of the COMPANY immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities, and effective upon the
Effective Time of the Merger, J. Marshall Coleman shall be appointed as a
vice president and assistant clerk of the Surviving Corporation and shall
not be entitled to any compensation from the COMPANY as a result of such
appointment and his serving in such capacity, such officers to serve,
subject to the provisions of the Articles of Organization and By-laws of
the Surviving Corporation, until his or her successor is duly elected and
qualified.
1.4 Certain Information With Respect to the Capital Stock of the COMPANY,
CTS and NEWCO. The respective designations and numbers of outstanding shares and
voting rights of each class of outstanding capital stock of the COMPANY, CTS and
NEWCO as of the date of this Agreement are as follows:
(a) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 1.4 hereto;
(b) immediately prior to the Closing Date, the authorized capital
stock of CTS will consist of 50,000,000 shares; and
(c) as of the date of this Agreement, the authorized capital stock
of NEWCO consists of 3,000 shares of NEWCO Stock, of which ten (10) shares
are issued and outstanding and beneficially owned by CTS.
2. CONVERSION OF STOCK
2.1 Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) CTS Stock and (y) common stock of the Surviving
Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
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(a) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger will be canceled and
extinguished and, by virtue of the Merger and without any action on the
part of the holder thereof, automatically shall be deemed to represent,
with respect to each STOCKHOLDER, (1) the right to receive the number of
shares of CTS Stock set forth on Annex III hereto with respect to such
STOCKHOLDER and (2) the right to receive the amount of cash set forth on
Annex III hereto with respect to such STOCKHOLDER;
(b) all shares of COMPANY Stock that are held by the COMPANY as
treasury stock shall be canceled and retired and no shares of CTS Stock or
other consideration shall be delivered or paid in exchange therefor; and
(c) each share of NEWCO Stock issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger
and without any action on the part of CTS, automatically be converted into
one fully paid and non-assessable share of common stock of the Surviving
Corporation, which shall constitute all of the issued and outstanding
shares of common stock of the Surviving Corporation immediately after the
Effective Time of the Merger.
All CTS Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 5 and
15 hereof and the registration rights described in Section 16 hereof, have the
same rights as all the other shares of outstanding CTS Stock by reason of the
provisions of the Certificate of Incorporation of CTS or as otherwise provided
by the Delaware Law. All voting rights of such CTS Stock received by the
STOCKHOLDERS shall be fully exercisable by the STOCKHOLDERS and the STOCKHOLDERS
shall not be deprived nor restricted in exercising those rights. At the
Effective Time of the Merger, CTS shall have no class of capital stock issued
and outstanding other than the CTS Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 At the Effective Time of the Merger and on the Closing Date the
STOCKHOLDERS, who are the holders of all outstanding certificates representing
shares of COMPANY Stock, shall, upon surrender of such certificates, receive (i)
the respective number of shares of CTS Stock and (ii) the amount of cash, all as
set forth on Annex III hereto with respect to such STOCKHOLDER, provided that
such cash shall be paid out of the net proceeds from the IPO. The cash payable
pursuant to clause (ii) shall be paid by wire transfer.
3.2 The STOCKHOLDERS shall deliver in trust to Morgan, Lewis & Bockius
LLP, counsel to CTS, at the Pre-Closing the certificates representing COMPANY
Stock, duly endorsed in blank by the STOCKHOLDERS, or accompanied by stock
powers duly endorsed in blank, with signatures guaranteed by a national or state
chartered bank or
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other financial institution, and with all necessary Transfer Tax and other
revenue stamps, acquired at the STOCKHOLDERS' expense, affixed and canceled. The
STOCKHOLDERS agree promptly to cure any deficiencies with respect to the
endorsement of the stock certificates or other documents of conveyance with
respect to such COMPANY Stock or with respect to the stock powers accompanying
any COMPANY Stock. Upon consummation of the IPO and the transactions
contemplated to occur on the Closing Date, all of such certificates shall be
deemed released by such counsel to CTS without any further action on the part of
such counsel.
4. CLOSING
At or prior to the Pre-Closing, the parties shall take all actions
necessary to prepare to (i) effect the Merger (including, if permitted by
applicable state law, the advance filing with the appropriate state authorities
of the Articles of Merger, which shall become effective at the Effective Time of
the Merger) and (ii) effect the conversion and delivery of shares referred to in
Section 2 hereof; provided, that such actions shall not include the actual
completion of the Merger for purposes of this Agreement or the conversion and
delivery of the shares and transmission of funds by wire referred to in Section
3 hereof, each of which actions shall only be taken upon the Closing Date as
herein provided. In the event that there is no Closing and this Agreement
terminates, CTS hereby covenants and agrees to do all things required by
Delaware Law and all things which counsel for the COMPANY advise CTS are
required by applicable laws of the State of Oklahoma in order to rescind any
merger or other actions effected by the advance filing of the Articles of Merger
as described in this Section. The taking of the actions described in clauses (i)
and (ii) above (the "Pre-Closing") shall take place on the date of the execution
of the underwriting agreement to be used in connection with the IPO (the
"Pre-Closing Date") at the offices of Morgan, Lewis & Bockius LLP, 101 Park
Avenue, New York, New York 10178. On the Closing Date (x) the Articles of Merger
shall have been filed with the appropriate state authorities so that they shall
be or, as of 8:00 a.m. New York City time on the Closing Date, shall become
effective and the Merger shall thereby be effected, (y) all transactions
contemplated by this Agreement, including the conversion and delivery of shares,
the transmission of funds by wire in an amount equal to the cash portion of the
consideration which the STOCKHOLDERS shall be entitled to receive pursuant to
the Merger referred to in Section 3 hereof shall be completed and (z) the
closing with respect to the IPO shall occur and be deemed to be completed. The
date on which the actions described in the preceding clauses (x), (y) and (z)
occur shall be referred to as the "Closing Date." Time is of the essence.
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5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) Representations and Warranties of the COMPANY and the STOCKHOLDERS.
Each of the COMPANY and the STOCKHOLDERS jointly and severally represents
and warrants to CTS and NEWCO that all of the following representations and
warranties in this Section 5(A) are true and correct at the date of this
Agreement and, subject to Section 7.8 hereof, shall be true and correct at the
time of the Pre-Closing and the Closing Date, and that such representations and
warranties shall survive the Closing Date for a period of eighteen months (the
last day of such period being the "Expiration Date"), except that (i) the
representations and warranties set forth in Section 5.22 hereof shall survive
until such time as the statute of limitations period has run for all tax periods
ended on or prior to the Closing Date, which shall be deemed to be the
Expiration Date for Section 5.22, and (ii) solely for purposes of Section
11.1(iii) hereof and solely to the extent that, in connection with the IPO, CTS
actually incurs liability under the 1933 Act, the 1934 Act, or any other Federal
or state securities laws, the representations and warranties set forth in this
Section 5(A) shall survive until the expiration of any applicable statute of
limitations period, which shall be deemed to be the Expiration Date for such
purposes. For purposes of this Section 5 and for the opinion referred to in
Section 9.8 of this Agreement, the term "COMPANY" shall mean and refer to the
COMPANY and all of its subsidiaries, if any.
5.1 Due Organization. The COMPANY is a corporation duly incorporated,
validly existing and in good standing under the laws of the state of its
incorporation, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted, to own
or hold under lease the properties and assets it now owns or holds under lease,
and to perform all of its obligations under the Material Contracts; is duly
qualified in the jurisdictions listed in Schedule 5.1 and there are no other
jurisdictions in which the conduct of the COMPANY's business or activities or
its ownership of assets requires any other qualification under applicable law,
the absence of which would have a Material Adverse Effect on the COMPANY. True,
complete and correct copies of the Articles of Organization and By-laws, each as
amended, of the COMPANY (the "Charter Documents") are all attached to Schedule
5.1. The minute books and stock records of the COMPANY, as heretofore made
available to CTS, are correct and complete in all material respects. The most
recent minutes of the COMPANY, which are dated no earlier than 10 business days
prior to the date hereof, affirm and ratify all prior acts of the COMPANY and of
its officers and directors on behalf of the COMPANY.
5.2 Authorization. The representatives of the COMPANY executing this
Agreement have the authority to execute and deliver this Agreement and to
perform its
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obligations hereunder. The execution and delivery of this Agreement by the
COMPANY and performance by the COMPANY of its obligations under this Agreement
and the consummation by the COMPANY of the transactions contemplated hereby have
been duly authorized by all necessary corporate and stockholder action in
accordance with applicable law and the Articles of Incorporation and By-Laws of
the COMPANY on the part of the COMPANY and the STOCKHOLDERS. This Agreement
constitutes the valid and binding obligation of the COMPANY, enforceable in
accordance with its terms.
5.3 Capital Stock of the COMPANY. The authorized capital stock of the
COMPANY is as set forth in Schedule 1.4. All of the issued and outstanding
shares of capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex IV and, except as set forth on Schedule 5.3, are
owned free and clear of all liens, security interests, pledges, charges, voting
trusts, restrictions, encumbrances and claims of every kind. All of the issued
and outstanding shares of capital stock of the COMPANY have been duly authorized
and validly issued, are fully paid and nonassessable, are owned of record and
beneficially by the STOCKHOLDERS and were offered, issued, sold and delivered by
the COMPANY in compliance with all applicable state and Federal laws concerning
the issuance of securities. The COMPANY and the STOCKHOLDERS have full right,
power and authority to exchange the COMPANY Stock as provided herein without
obtaining the consent or approval of any other person or Governmental Authority.
Further, none of such shares were issued in violation of the preemptive
rights of any past or present stockholder.
5.4 Transactions in Capital Stock; Organization Accounting. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock since
January 1, 1994. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
COMPANY to issue any of its authorized but unissued capital stock or its
treasury stock; (ii) the COMPANY has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof; and (iii) neither the voting stock structure of the COMPANY nor the
relative ownership of shares among any of the STOCKHOLDERS has been altered or
changed in contemplation of the Merger and/or the CTS Plan of Organization.
Schedule 5.4 also includes complete and accurate copies of all stock option or
stock purchase plans, including a list of all outstanding options, warrants or
other rights to acquire shares of the COMPANY Stock and a description of the
material terms of such outstanding options, warrants or other rights.
5.5 No Bonus Shares. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
5.6 Subsidiaries. Schedule 5.6 attached hereto lists the name of each of
the
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COMPANY's subsidiaries and sets forth the number and class of the authorized
capital stock of each of the COMPANY's subsidiaries and the number of shares of
each of the COMPANY's subsidiaries which are issued and outstanding, all of
which shares (except as set forth on Schedule 5.6) are owned by the COMPANY,
free and clear of all liens, security interests, pledges, voting trusts,
equities, restrictions, encumbrances and claims of every kind. Except as set
forth on Schedule 5.6, the COMPANY does not presently own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity nor is the COMPANY, directly or indirectly, a
participant in any joint venture, partnership or other non-corporate entity.
5.7 Predecessor Status; etc. Set forth on Schedule 5.7 is a list of all
names of all predecessor companies of the COMPANY, including the names of any
entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from which the COMPANY previously acquired material
assets. Except as disclosed on Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
5.8 Spin-off by the COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1994.
5.9 Financial Statements. The COMPANY has delivered to CTS copies of
the following financial statements (the "Financial Statements"):
(a) Audited Balance Sheets, Income Statements, Statements of
Stockholders' Equity and Statements of Cash Flows at and for the year
ended December 31, 1996.
(b) Unaudited Balance Sheets, Income Statements, Statements of
Stockholders' Equity, and Statements of Cash Flows for the six months
ended June 30, 1996 and 1997.
Each of the Financial Statements is consistent with the books and records
of the COMPANY (which, in turn, are accurate and complete in all material
respects) and fairly presents the COMPANY's financial condition, assets and
liabilities as of their respective dates and the results of operations and cash
flows for the periods related thereto in accordance with GAAP, consistently
applied among the periods which are the subject of the Financial Statements,
except unaudited interim financial statements which were or are subject to
normal year-end adjustments which were not and are not expected to be material
in amount and the addition of required footnotes thereto.
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5.10 Liabilities and Obligations. The COMPANY has delivered to CTS an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY in excess of $10,000 which are not
reflected on the balance sheet of the COMPANY at the Balance Sheet Date or
otherwise reflected in the COMPANY Financial Statements at the Balance Sheet
Date and (ii) all loan agreements, indemnity or guaranty agreements, bonds,
mortgages, liens, pledges or other security agreements to which the COMPANY is a
party. Except as set forth on Schedule 5.10, since the Balance Sheet Date, the
COMPANY has not incurred any material liabilities of any kind, character and
description, whether accrued, absolute, secured or unsecured, contingent or
otherwise, other than liabilities incurred in the ordinary course of business.
The COMPANY has also set forth on Schedule 5.10, in the case of those contingent
liabilities related to pending or threatened litigation, or other liabilities
which are not fixed or are being contested, the following information:
(a) a summary description of the liability and has provided CTS's
counsel with: (i) copies of all relevant documentation relating thereto;
(ii) amounts claimed and any other action or relief sought; and (iii) name
of claimant and all other parties to the claim, suit or proceeding;
(b) the name of each court or agency before which such claim, suit
or proceeding is pending;
(c) the date such claim, suit or proceeding was instituted; and
(d) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such
liability. If no estimate is provided, the estimate shall for purposes of
this Agreement be deemed to be zero.
5.11 Accounts and Notes Receivable. The COMPANY has delivered to CTS an
accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY as of the Balance Sheet Date, including any such
amounts which are not reflected in the balance sheet as of the Balance Sheet
Date, and including receivables from and advances to employees and the
STOCKHOLDERS. Except to the extent reflected on Schedule 5.11 or as disclosed by
the COMPANY to CTS in a writing accompanying the A/R Aging Reports, as the case
may be, the accounts, notes and other receivables shown on Schedule 5.11 and on
the A/R Aging Reports are and shall be, and the COMPANY has no reason to believe
that any such account receivable is not or shall not be, collectible in the
amounts shown (in the case of the accounts and notes receivable set forth on
Schedule 5.11, net of reserves reflected in the balance sheet calculated
consistent with reserves as of the Balance Sheet Date).
5.12 Intellectual Property; Permits and Intangibles.
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(a) The COMPANY owns or has licenses to all Intellectual Property
the absence of any of which would have a Material Adverse Effect on the
COMPANY, and the COMPANY has delivered to CTS an accurate list (which is
set forth on Schedule 5.12(a)) of all Intellectual Property owned by or
licensed by the COMPANY. Each item of Intellectual Property owned by or
licensed by the COMPANY is valid and in full force and effect. Except as
set forth on Schedule 5.12(a), all right, title and interest in and to
each item of Intellectual Property is owned by the COMPANY and is not
subject to any license except as set forth on Schedule 5.12(a), royalty
arrangement or pending or threatened claim or dispute. To the COMPANY's
knowledge, none of the Intellectual Property owned by or licensed by the
COMPANY nor any product sold or licensed by the COMPANY, infringes any
Intellectual Property right of any other entity and to the COMPANY's
knowledge, no Intellectual Property owned by the COMPANY is infringed upon
by any other entity.
(b) The COMPANY holds all licenses, franchises, permits and other
governmental authorizations the absence of any of which could have a
Material Adverse Effect on the COMPANY, and the COMPANY has delivered to
CTS an accurate list and summary description (which is set forth on
Schedule 5.12(b)) of all governmental licenses, franchises, permits and
other governmental authorizations, including permits, titles, licenses,
franchises and certificates (it being understood and agreed that a list of
all environmental permits and other environmental approvals is set forth
on Schedule 5.13). To the knowledge of the COMPANY, the licenses,
franchises, permits and other governmental authorizations listed on
Schedules 5.12(b) and 5.13 are valid, and the COMPANY has not received any
notice that any Governmental Authority intends to cancel, terminate or not
renew any such license, franchise, permit or other governmental
authorization. The COMPANY has conducted and is conducting its business in
compliance with the requirements, standards, criteria and conditions set
forth in the licenses, franchises, permits and other governmental
authorizations listed on Schedules 5.12(b) and 5.13 and is not in
violation of any of the foregoing except where such non-compliance or
violation would not have a Material Adverse Effect on the COMPANY. Except
as specifically provided in Schedule 5.12(a) or 5.12(b), the transactions
contemplated by this Agreement will not (i) to the COMPANY's knowledge,
result in the infringement by the COMPANY of any Intellectual Property
right of any other entity, (ii) infringe any Intellectual Property listed
on Schedule 5.12(a), or (iii) result in a default under or a breach or
violation of, or adversely affect the rights and benefits afforded to the
COMPANY by, any licenses, franchises, permits or government authorizations
listed on Schedule 5.12(b).
5.13 Environmental Matters.
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(a) Except as set forth on Schedule 5.13,
(i) the COMPANY is and at all times has been in compliance
in all material respects with, and has not been in
violation of or liable under, all Environmental
Requirements, and
(ii) the COMPANY possesses all permits, licenses and
certificates required by all Environmental Requirements,
and has filed all notices or applications required
thereby.
As used herein, "Environmental Requirements" shall mean all applicable
federal, state and local laws, rules, regulations, ordinances and
requirements relating to pollution and protection of the environment, all
as amended to date.
(b) Except as disclosed on Schedule 5.13:
(i) the COMPANY has not been subject to, or received any
notice of any private, administrative or judicial
action, or notice of any intended private,
administrative or judicial action relating to the
presence or alleged presence of Hazardous Materials in,
under or upon any real property currently or formerly
owned, leased or used by (A) the COMPANY or (B) any
other person that has, at any time, disposed of
Hazardous Materials on behalf of the COMPANY;
(ii) the COMPANY does not have any basis for any such
notice or action; and
(iii) there are no pending or, to the knowledge of the
COMPANY, threatened actions or proceedings (or notices
of potential actions or proceedings) from any
Governmental Authority or any other entity regarding any
matter relating to health, safety or protection of the
environment against the COMPANY.
"Hazardous Materials" for purposes of this Agreement shall include,
without limitation: (A) hazardous materials, hazardous substances,
extremely hazardous substances or hazardous wastes, as those terms are
defined by the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. ss.9601 et seq. ("CERCLA"), the Resource
Conservation and Recovery Act, 42 U.S.C. ss.6901 et seq. ("RCRA"), and any
other Environmental and Safety Requirements; (B) petroleum, including,
without limitation, crude oil or any fraction thereof which is liquid at
standard conditions of temperature and pressure
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(60 degrees Fahrenheit and 14.7 pounds per square inch absolute); (C) any
radioactive material, including, without limitation, any source, special
nuclear, or by-product material as defined in 42 U.S.C. ss.2011 et seq.;
and (D) asbestos in any form or condition.
(c) To the Company's knowledge, there are and have been no past or
present events, conditions, circumstances, activities, practices,
incidents or actions which could reasonably be expected to interfere with
or prevent continued compliance with any Environmental Requirements, give
rise to any legal obligation or liability, or otherwise form the basis of
any claim, action, suit, proceeding, hearing or investigation against or
involving the COMPANY or any real property presently or previously owned
or used by the COMPANY under any Environmental Requirements or related
common law theories, except as identified on Schedule 5.13.
(d) Schedule 5.13 sets forth the name and principal place of
business of every off-site waste disposal organization, and each of the
haulers, transporters or cartage organization engaged now or in the
preceding three years by the COMPANY to dispose of Hazardous Materials to
any such off-site waste disposal location on behalf of the COMPANY or any
of its predecessors.
5.14 Personal Property. The COMPANY has delivered to CTS an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property with a value
individually in excess of $10,000 which is included (or that will be included)
in "depreciable plant, property and equipment" (or similarly named line item) on
the balance sheet of the COMPANY as of the Balance Sheet Date, (y) all other
personal property owned by the COMPANY with a value individually in excess of
$10,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date and (z) all leases and agreements in respect of personal property
with a value individually in excess of $10,000, including, in the case of each
of (x), (y) and (z), (1) true, complete and correct copies of all such leases
which have been provided to CTS's counsel, (2) a listing of the capital costs of
all such assets which are subject to capital leases and (3) an indication as to
which assets are currently owned, or, to the COMPANY's knowledge, were formerly
owned, by STOCKHOLDERS or Affiliates of the COMPANY or STOCKHOLDERS. Except as
set forth on Schedule 5.14, (i) all personal property with a value individually
in excess of $10,000 used by the COMPANY in its business is either owned by the
COMPANY or leased by the COMPANY pursuant to a lease included on Schedule 5.14,
(ii) all of the personal property listed on Schedule 5.14 is in good working
order and condition, ordinary wear and tear excepted, and (iii) all leases and
agreements included on Schedule 5.14 are in full force and effect and constitute
valid and binding agreements of the COMPANY, and to the COMPANY's knowledge, of
the other parties (and their successors) thereto in accordance with their
respective terms.
5.15 Significant Customers; Material Contracts and Commitments. The
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COMPANY has delivered to CTS an accurate list (which is set forth on Schedule
5.15) of all significant customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person or entity) representing 5% or more of the COMPANY's annual revenues as of
the Balance Sheet Date. Except to the extent set forth on Schedule 5.15, none of
the COMPANY's significant customers has canceled or substantially reduced or, to
the knowledge of the COMPANY, is currently attempting or threatening to cancel a
contract or substantially reduce utilization of the services provided by the
COMPANY.
Except as listed or described on Schedule 5.15 as of or on the date
hereof, neither the COMPANY is a party to or bound by, nor do there exist any,
Contracts relating to or in any way affecting the operation or ownership of the
COMPANY's business that are of a type described below:
(a) any collective bargaining arrangement with any labor union or
any such agreement currently in negotiation or proposed;
(b) any contract for capital expenditures or the acquisition or
construction of fixed assets for or in respect to real property other than
in the COMPANY's ordinary course of business in excess of $50,000;
(c) any contract with a term in excess of one year for the purchase,
maintenance, acquisition, sale or furnishing of materials, supplies,
merchandise, machinery, equipment, parts or other property or services
(except that the COMPANY need not list any such contract made in the
ordinary course of business) which requires aggregate future payments of
greater than $100,000;
(d) any contract relating to the borrowing of money, or the guaranty
of another person's borrowing of money, including, without limitation, all
notes, mortgages, indentures and other obligations, agreements and other
instruments for or relating to any lending or borrowing, including assumed
indebtedness;
(e) any contract granting any person a lien on any of the assets of
the COMPANY, in whole or in part;
(f) any contract for the cleanup, abatement or other actions in
connection with Hazardous Materials (as defined in Section 5.13), the
remediation of any existing environmental liabilities or relating to the
performance of any environmental audit or study;
(g) any contract granting to any person a first-refusal, first-offer
or similar preferential right to purchase or acquire any of the assets of
the COMPANY's business other than in the ordinary course of business;
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(h) any contract under which the COMPANY is
(i) a lessee or sublessee of any machinery, equipment,
vehicle or other tangible personal property or real
property, or
(ii) a lessor of any real property or tangible personal
property owned by the COMPANY,
in either case having an original value in excess of $50,000;
(i) any contract providing for the indemnification of any officer,
director, employee or other person, where such indemnification may exceed
the sum of $50,000;
(j) any joint venture or partnership contract; and
(k) any other contract with a term in excess of one year, whether or
not made in the ordinary course of business, which involves payments in
excess of $100,000.
The COMPANY has provided CTS with a true and complete copy of each written
Material Contract, including all amendments or other modifications thereto.
Except as set forth on Schedule 5.15, each Material Contract is a valid and
binding obligation of the COMPANY, enforceable against the COMPANY in accordance
with its terms, and is in full force and effect. Except as set forth on Schedule
5.15, the COMPANY has performed all obligations required to be performed by it
under each Material Contract and neither the COMPANY nor, to the knowledge of
the COMPANY, any other party to any Contract, is (with or without the lapse of
time or the giving of notice or both) in breach or default in any material
respect thereunder; and there exists no condition which, to the knowledge of the
COMPANY, would constitute a breach or default thereunder. The COMPANY has not
been notified that any party to any Material Contract intends to cancel,
terminate, not renew or exercise an option under any Material Contract, whether
in connection with the transactions contemplated hereby or otherwise.
5.16 Real Property.
(a) Schedule 5.16(a) includes a list of all real property owned by
the COMPANY (i) as of the Balance Sheet Date and (ii) acquired since the
Balance Sheet Date, and all other real property, if any, used by the
COMPANY in the conduct of its business. The COMPANY has good and insurable
title to the real property owned by it, including that reflected on
Schedule 5.14, subject to no mortgage, pledge, lien, conditional sale
agreement, encumbrance or charge, except for:
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(i) liens reflected on Schedule 5.10 or 5.15 as securing
specified liabilities (with respect to which no default
by the COMPANY exists);
(ii) liens for current taxes not yet due and payable and
assessments not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other
exceptions to title shown of record in the office of the
County Clerks in which the properties, assets and
leasehold estates are located which do not adversely
affect the current use of the property.
Attached to Schedule 5.16(a) are true, complete and correct copies of all title
reports and title insurance policies currently in possession of the COMPANY with
respect to real property owned by the COMPANY.
(b) Schedule 5.16(b) includes an accurate list of real property
leases to which the COMPANY is a party and an indication as to which such
properties, if any, are currently owned, or were formerly owned, by
STOCKHOLDERS or Affiliates of the COMPANY or STOCKHOLDERS. Counsel to CTS
has been provided with true, complete and correct copies of all leases and
agreements in respect of such real property leased by the COMPANY. Except
as set forth on Schedule 5.16(b), all of such leases included on Schedule
5.16(b) are in full force and effect and constitute valid and binding
agreements of the COMPANY and, to the COMPANY'S knowledge, of the parties
(and their successors) thereto in accordance with their respective terms.
5.17 Insurance.
(a) The COMPANY has delivered to CTS:
(i) true and complete copies of all policies of insurance to
which the COMPANY is a party or under which the COMPANY,
or any director of the COMPANY, is or has been covered
at any time within two years preceding the date of this
Agreement;
(ii) true and complete copies of all pending applications for
policies of insurance; and
(iii) any statement by the auditor of the COMPANY's financial
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statements with regard to the adequacy of such entity's
coverage or of the reserves for claims.
(b) Schedule 5.17(b) describes:
(i) any self-insurance arrangement by or affecting the
COMPANY, including any reserves established thereunder;
(ii) any contract or arrangement, other than a policy of
insurance, for the transfer or sharing of any risk by
the COMPANY; and
(iii) all obligations of the COMPANY to third parties with
respect to insurance (including such obligations under
leases and service agreements), and identifies the
policy under which such coverage is provided.
(c) Schedule 5.17(c) sets forth, by year, for the current policy
year and each of the preceding two policy years:
(i) a summary of the loss experience under each policy;
(ii) a statement describing each claim under an insurance
policy for an amount in excess of $25,000, which sets
forth:
a) the name of the claimant;
b) a description of the policy by insurer, type of
insurance and period of coverage; and
c) the amount and a brief description of the claim;
and
(iii) a statement describing the loss experience for all
claims that were self-insured, including the number and
aggregate cost of such claims.
(d) Except as set forth on Schedule 5.17(d):
(i) All policies to which the COMPANY is a party or that
provide coverage to the COMPANY:
a) are valid, outstanding and enforceable;
b) are issued by an insurer that is financially sound
and reputable;
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c) taken together, provide adequate insurance for the
assets and the operations of the COMPANY for all
risks normally insured against by a person
carrying on the same business or businesses of the
COMPANY;
d) are sufficient for compliance with all legal
requirements and Material Contracts to which the
COMPANY is a party or by which it is bound;
e) will continue in full force and effect following
the Closing in accordance with their respective
terms;
(ii) the COMPANY has not received (A) any refusal of coverage
or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation
or any other indication that any insurance policy is no
longer in full force or effect or will not be renewed or
that the issuer of any policy is not willing or able to
perform its obligations thereunder;
(iii) the COMPANY has paid all premiums due, and has otherwise
performed all of its obligations, under each policy to
which it is a party or that provides coverage to it or
any director thereof.
(iv) the COMPANY has given notice to the insurer of all
claims known by it to be insured thereby.
5.18 Compensation; Employment Agreements; Organized Labor Matters. The
COMPANY has delivered to CTS an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the COMPANY, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons as of (i) the
Balance Sheet Date and (ii) the date hereof. The COMPANY has provided to CTS
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
increases in the compensation payable or any special bonuses to any officer,
director, key employee or other employee, except ordinary salary increases
implemented on a basis consistent with past practices.
Except as set forth on Schedule 5.18, there is no, and within the last
three years the COMPANY has not experienced any, strike, picketing, boycott,
work stoppage or slowdown, other labor dispute, union organizational activity,
allegation, charge or complaint of unfair labor practice, employment
discrimination or other matters relating to
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the employment of labor, pending or, to the COMPANY's knowledge, threatened
against the COMPANY; nor is there, to the knowledge of the COMPANY, any basis
for any such allegation, charge or complaint. Except as set forth on Schedule
5.18, to the knowledge of the COMPANY, none of the employees of any critical
subcontractor utilized by the COMPANY are represented by a labor union. There is
no request directed to the COMPANY for union or similar representation pending
and, to the COMPANY's knowledge, no question concerning representation has been
raised. To the COMPANY's knowledge, there is no grievance pending which might
have a Material Adverse Effect on the COMPANY nor any which might have a
Material Adverse Effect on any arbitration proceeding arising out of any union
agreement. There are no arbitration awards, court orders, orders of the National
Labor Relations Board or private settlement agreements which in any way alter,
amend or clarify any union agreement or which restrict or otherwise impact the
COMPANY's ability to act with respect to the employees covered by any union
agreement in the future. To the COMPANY's knowledge, no key employee and no
group of employees has any plans to terminate employment with the COMPANY. The
COMPANY has complied in all material respects with all applicable laws relating
to the employment of labor, including provisions thereof relating to wages,
hours, equal opportunity, collective bargaining and the payment of social
security and other taxes. The COMPANY is not liable for any arrearages of wages
or any taxes or penalties for failure to comply with any such laws, ordinances
or regulation.
5.19 Employee Plans. The COMPANY has delivered to CTS an accurate schedule
(which is set forth on Schedule 5.19) showing all Benefit Plans of the COMPANY,
together with true, complete and correct copies of such Benefit Plans,
agreements and any trusts related thereto, and classifications of employees
covered thereby as of the Balance Sheet Date. The COMPANY is not required to
contribute to any Benefit Plan pursuant to the provisions of any collective
bargaining agreement establishing the terms and conditions of employment of any
of COMPANY's employees.
5.20 Compliance with ERISA. All Benefit Plans that are intended to qualify
under Section 401(a) of the Code are and have been so qualified and have been
determined by the Internal Revenue Service to be so qualified, and copies of
such determination letters are included as part of Schedule 5.19 hereof other
than those reports required to be distributed to Plan participants and
beneficiaries. Except as disclosed on Schedule 5.20, all reports and other
documents required to be filed with any Governmental Authority or distributed to
Plan participants or beneficiaries (including, but not limited to, actuarial
reports, audits or tax returns) have been timely filed or distributed, and
copies thereof are included as part of Schedule 5.19 hereof. None of the
STOCKHOLDERS, any such Benefit Plan, nor the COMPANY has engaged in any
transaction prohibited under the provisions of Section 4975 of the Code or
Section 406 of ERISA. No Benefit Plan has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
ERISA; and the COMPANY has not incurred any liability for excise tax or penalty
due to the Internal Revenue Service nor any liability to the PBGC. The COMPANY
further represents that:
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(a) there have been no terminations, partial terminations or
discontinuance of contributions to any such Benefit Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(b) no Benefit Plan subject to the provisions of Title IV of ERISA
has been terminated;
(c) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any Benefit Plan;
(d) the COMPANY has not incurred liability under Section 4062 of
ERISA;
(e) no circumstances exist pursuant to which the COMPANY could have
any direct or indirect liability whatsoever (including, but not limited
to, any liability to any multiemployer plan or the PBGC under Title IV of
ERISA or to the Internal Revenue Service for any excise tax or penalty, or
being subject to any statutory lien to secure payment of any such
liability) with respect to any Benefit Plan now or heretofore maintained
or contributed to by any entity other than the COMPANY that is, or at any
time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the COMPANY;
(f) the COMPANY is not now, nor can it as a result of its past
activities become, liable to the PBGC or to any multiemployer employee
pension benefit plan under the provisions of Title IV of ERISA;
(g) all Benefit Plans listed on Schedule 5.19 and the administration
thereof are in substantial compliance with their terms and all applicable
provisions of ERISA and the regulations issued thereunder, as well as with
all other applicable federal, state and local statutes, ordinances and
regulations; and
(h) all accrued contribution obligations of the COMPANY with respect
to any Benefit Plan have either been fulfilled in their entirety or are
fully reflected on the balance sheet of the COMPANY as of the Balance
Sheet Date.
5.21 Conformity with Law; Litigation. Except as set forth on Schedule 5.13
or 5.21, the COMPANY has complied with all laws, rules, regulations, writs,
injunctions, decrees, and orders applicable to it or to the operation of its
Business (collectively, "Laws") and has not received any notice of any alleged
claim or threatened claim, violation of, liability or potential responsibility
under, any such Law which has not heretofore been cured and for which there is
no remaining liability other than, in each case, those not having a Material
Adverse Effect on the COMPANY. Without limiting the generality of the foregoing,
the COMPANY has complied with all applicable federal, state and local Laws
relating to antitrust and trade regulations.
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Except to the extent set forth on Schedule 5.10 or 5.13 or as set forth on
Schedule 5.21 (which shall disclose the parties to, nature of, and relief sought
for each matter to be disclosed on Schedule 5.21) :
(a) There is no suit, action, proceeding, claim, order or, to the
Company's knowledge, investigation pending or, to the COMPANY's knowledge,
threatened against either the COMPANY or any Benefit Plan, or any
fiduciary of any such Benefit Plan or, to the knowledge of the COMPANY,
pending or threatened against any of the officers, directors or employees
of the COMPANY with respect to its business or proposed business
activities or to which the COMPANY is otherwise a party, which would have
a Material Adverse Effect on the COMPANY, before any court, or before any
Governmental Authority (collectively, "Claims"); nor, to the COMPANY's
knowledge, is there any basis for any such Claims.
(b) The COMPANY is not subject to any judgment, order or decree of
any court or Governmental Authority; the COMPANY has not received any
opinion or memorandum from legal counsel to the effect that it is exposed,
from a legal standpoint, to any liability or disadvantage which may be
material to its business. The COMPANY is not engaged in any legal action
to recover monies due it or for damages sustained by it.
(c) The COMPANY's current insurance is believed in good faith to be
adequate to cover all pending or threatened Claims, the COMPANY has given
all required notice of such Claims to its appropriate insurance carrier(s)
and/or all such claims have been fully reserved for on the financial
statements of the COMPANY has delivered to CTS pursuant to the terms of
this Agreement. Schedule 5.21 lists the insurer for each Claim covered by
insurance or designates each Claim, or portion of each Claim, as uninsured
and the individual and aggregate policy limits for the insurance covering
each insured Claim and the applicable policy deductibles for each insured
Claim.
Schedule 5.21 sets forth all closed litigation matters (other than
workers compensation claims) to which the COMPANY was a party during the
three years preceding the Closing, the date such litigation was commenced
and concluded, and the nature of the resolution thereof (including amounts
paid in settlement or judgment).
5.22 Taxes. Except as set forth on Schedule 5.22:
(a) All Returns required to have been filed by or with respect to
the COMPANY and any affiliated, combined, consolidated, unitary or similar
group of which the COMPANY is or was a member (a "Relevant Group") with
any Taxing Authority have been duly filed, and each such Return correctly
and completely reflects the Tax liability and all other information
required to be
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reported thereon. All Taxes (whether or not shown on any Return) owed by
the COMPANY, any subsidiary and any member of a Relevant Group
(individually, the "Acquired Party" and collectively, the "Acquired
Parties") have been paid.
(b) To the knowledge of the COMPANY and the STOCKHOLDERS, the
provisions for Taxes due by the COMPANY and any subsidiaries (as opposed
to any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) in the COMPANY Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of such Acquired Party.
(c) No Acquired Party is a party to any agreement extending the time
within which to file any Return. No claim has ever been made by any Taxing
Authority in a jurisdiction in which an Acquired Party does not file
Returns that it is or may be subject to taxation by that jurisdiction that
is unresolved or if adversely determined would have a Material Adverse
Effect on such Acquired Party.
(d) Each Acquired Party has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to
any employee, creditor, independent contractor or other third party.
(e) No Acquired Party expects any Taxing Authority to assess any
additional Taxes against or in respect of it for any past period. There is
no dispute or claim concerning any Tax liability of any Acquired Party
either (i) claimed or raised by any Taxing Authority or (ii) otherwise
known to any Acquired Party. No issues have been raised in any examination
by any Taxing Authority with respect to any Acquired Party which, by
application of similar principles, reasonably could be expected to result
in a proposed deficiency for any other period not so examined. Schedule
5.22(v) attached hereto lists all federal, state, local and foreign income
Tax Returns filed by or with respect to any Acquired Party for all taxable
periods ended on or after January 1, 1991, indicates those Returns, if
any, that have been audited, and indicates those Returns that currently
are the subject of audit. Each Acquired Party has delivered to CTS
complete and correct copies of all federal, state, local and foreign
income Tax Returns filed by, and all Tax examination reports and
statements of deficiencies assessed against or agreed to by, such Acquired
Party since January 1, 1991.
(f) No Acquired Party has waived any statute of limitations, the
waiver of which remains in effect on the date hereof, in respect of Taxes
or agreed to any extension of time with respect to any Tax assessment or
deficiency.
(g) No Acquired Party has made any payments, is obligated to make
any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not
deductible (i) under Section
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280G of the Code or (ii) as compensation under Section 162(m) of the Code
or any similar provision under state and/or local law.
(h) No Acquired Party is a party to any Tax allocation or sharing
agreement.
(i) None of the assets of any Acquired Party constitutes tax-exempt
bond financed property or tax-exempt use property, within the meaning of
Section 168 of the Code. No Acquired Party is a party to any "safe harbor
lease" that is subject to the provisions of Section 168(f)(8) of the
Internal Revenue Code as in effect prior to the Tax Reform Act of 1986, or
to any "long-term contract" within the meaning of Section 460 of the Code.
(j) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of any
state statutes, and none of the assets of any Acquired Party is subject to
an election under Section 341(f) of the Code or comparable provisions of
any state statutes.
(k) No Acquired Party is a party to any joint venture, partnership
or other arrangement that is treated as a partnership for federal income
Tax purposes.
(l) There are no accounting method changes or proposed or threatened
accounting method changes, of any Acquired Party that could give rise to
an adjustment under Section 481 of the Code for periods after the Closing
Date.
(m) No Acquired Party has received any written ruling of a Taxing
Authority related to Taxes or entered into any written and legally binding
agreement with a Taxing Authority relating to Taxes.
(n) Each Acquired Party has disclosed (in accordance with Section
6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns all
positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Section 6662(d)
of the Code.
(o) No Acquired Party has any liability for Taxes of any person
other than such Acquired Party (i) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign law),
(ii) as a transferee or successor, (iii) by contract or (iv) otherwise.
(p) The COMPANY made a valid election to be an S corporation, as
defined in Section 1361 of the Code, for Federal, state and local tax
purposes for its taxable year, beginning on [DATE] under Section 1362(a)
of the Code and corresponding provisions of the laws of the state and
local jurisdictions in which it is subject to tax, and has qualified and
has been taxed as an S corporation for Federal, state and local tax
purposes at all times since such date.
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(q) The COMPANY is not an investment company as defined in Section
351(e)(1) of the Code.
(r) The fair market value of the assets of the COMPANY exceeds the
sum of its liabilities, plus the amount of liabilities, if any, to which
the assets are subject.
(s) The COMPANY is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 351(e)(2) of the Code.
For purposes of this Section 5.22, the following definitions shall
apply:
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or Governmental Authority.
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatsoever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Taxing Authority" means any Governmental Authority, board, bureau,
body, department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
5.23 No Violations. The COMPANY is not in violation of any Charter
Document. Neither the COMPANY nor, to the knowledge of the COMPANY or the
STOCKHOLDERS, any other party thereto, is in default under any Material
Contract; and, except as set forth on Schedule 5.23, (a) the rights and benefits
of the COMPANY under the Material Contracts will not be adversely affected by
the transactions contemplated hereby and (b) the execution of this Agreement and
the performance by the COMPANY and the STOCKHOLDERS of their obligations
hereunder and the consummation by the COMPANY and the STOCKHOLDERS of the
transactions contemplated hereby will not (i) result in any violation or breach
of, or constitute a default under, any of the terms or provisions of the
Material Contracts or the Charter Documents or (ii) require the consent,
approval, waiver of any acceleration, termination or other right or remedy or
action of or by, or make any filing with or give any notice to, any other party.
Except as set forth on Schedule 5.23, none of the Material Contracts requires
notice to, or the consent or approval of, any Governmental Authority or other
third party with respect to any of the transactions contemplated hereby in order
to remain in full force and effect and consummation of the transactions
contemplated hereby will not give rise to any right to termination, cancellation
or acceleration or loss of any material right or benefit. Except as set forth on
Schedule 5.23, none of the Material
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Contracts prohibits the use or publication by the COMPANY, CTS or NEWCO of the
name of any other party to such Material Contracts, and none of the Material
Contracts prohibits or restricts the COMPANY from freely providing services to
any other customer or potential customer of the COMPANY, CTS, NEWCO or any Other
Founding Company.
5.24 Government Contracts. Except as set forth on Schedule 5.24, the
COMPANY is not a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 Business Conduct. Except as set forth on Schedule 5.25, since
December 31, 1996, the COMPANY has conducted its business only in the ordinary
course consistent with past custom and practices and has incurred no liabilities
other than in the ordinary course of business consistent with past custom and
practices. Except as forth on Schedule 5.25, since December 31, 1996, there has
not been any:
(a) Material adverse change in the COMPANY's operations, condition
(financial or otherwise), operating results, assets, liabilities,
employee, customer or supplier relations or business prospects;
(b) Damage, destruction or loss of any property owned by the COMPANY
or used in the operation of the business, whether or not covered by
insurance, having a replacement cost or fair market value in excess of
$50,000 affecting the COMPANY's property, financial status or the
Business;
(c) Voluntary or involuntary sale, transfer, surrender, abandonment
or other disposition of any kind by the COMPANY of any assets or property
rights (tangible or intangible), having a replacement cost or fair market
value in excess of $50,000, except in each case the sale of inventory and
collection of accounts in the ordinary course of business consistent with
past custom and practices;
(d) Loan or advance by the COMPANY to any party other than sales to
customers on credit in the ordinary course of business consistent with
past custom and practices;
(e) Declaration, setting aside, or payment of any dividend or other
distribution in respect to the COMPANY's capital stock, any direct or
indirect redemption, purchase, or other acquisition of such stock, or the
payment of principal or interest on any note, bond, debt instrument or
debt to any Affiliate;
(f) Incurrence of debts, liabilities or obligations except current
liabilities incurred in connection with or for services rendered or goods
supplied in the ordinary course of business consistent with past custom
and practices, liabilities on account of taxes and governmental charges
but not penalties, interest
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or fines in respect thereof, and obligations or liabilities incurred by
virtue of the execution of this Agreement;
(g) Issuance by the COMPANY of any notes, bonds, or other debt
securities or any equity securities or securities convertible into or
exchangeable for any equity securities;
(h) Cancellation, waiver or release by the COMPANY of any debts,
rights or claims, except in each case in the ordinary course of business
consistent with past custom and practices;
(i) Amendment of the COMPANY's Articles of Organization or By- Laws;
(j) Amendment or termination of any Material Contract, other than
expiration of such contract in accordance with its terms;
(k) Change in accounting principles, methods or practices
(including, without limitation, any change in depreciation or amortization
policies or rates) utilized by the COMPANY;
(l) Discharge or satisfaction of any material liability, encumbrance
or payment of any material obligation or liability, other than current
liabilities paid in the ordinary course of business consistent with past
custom and practices or cancellation of any debts or claims;
(m) Sale or assignment by the COMPANY of any tangible assets other
than in the ordinary course of business;
(n) Capital expenditures or commitments therefor by the COMPANY
other than in the ordinary course of business in excess of $100,000 in the
aggregate;
(o) Charitable contributions or pledges by the COMPANY in excess of
$25,000 per year in the aggregate;
(p) Mortgage, pledge or other encumbrance of any asset of the
COMPANY other than in the ordinary course of business;
(q) Adoption, amendment or termination of any Benefit Plan;
(r) Increase in the benefits provided under any Benefit Plan; or
(s) An occurrence or event not included in clauses (a) through (r)
that has resulted or might be expected to have a Material Adverse Effect
on the COMPANY.
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5.26 Deposit Accounts; Powers of Attorney. The COMPANY has delivered to
CTS an accurate schedule (which is set forth on Schedule 5.26) as of the date of
this Agreement of:
(a) the name of each financial institution in which the COMPANY has
accounts or safe deposit boxes;
(b) the names in which the accounts or boxes are held;
(c) the type of account and account number; and
(d) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY and
a description of the terms of such power of attorney.
5.27 Relations with Governments. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause the COMPANY to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.28 Disclosure.
(a) The representations and warranties of the COMPANY and the
STOCKHOLDERS contained in this Agreement, the schedules to this Agreement
provided by the COMPANY and/or the STOCKHOLDERS, the certificates and the
other documents furnished by the COMPANY and/or the STOCKHOLDERS to CTS
pursuant hereto and for inclusion in the Registration Statement (which,
for purposes of this Agreement, shall include the completed Directors and
Officers Questionnaires and Registration Statement Questionnaires), taken
as a whole, present fairly the business and operations of the COMPANY for
the time periods with respect to which such information was requested. The
COMPANY'S rights under the documents delivered pursuant hereto would not
be materially adversely affected by, and no statement made herein would be
rendered untrue in any material respect by, any other document to which
the COMPANY is a party, or to which its properties are subject, or by any
other fact or circumstance regarding the COMPANY (which fact or
circumstance was, or should reasonably, after due inquiry, have been known
to the COMPANY) that is not disclosed pursuant hereto or thereto. If,
prior to the 25th day after the date of the final prospectus of CTS
utilized in connection with the IPO, the COMPANY or the STOCKHOLDERS
become aware of any fact or circumstance which would change (or, if after
the Closing Date, would have changed) a representation or
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warranty of the COMPANY or the STOCKHOLDERS in this Agreement or would
affect any document delivered pursuant hereto in any material respect, the
COMPANY and the STOCKHOLDERS shall immediately give notice of such fact or
circumstance to CTS. However, subject to the provisions of Section 7.8,
such notification shall not relieve either the COMPANY or the STOCKHOLDERS
of their respective obligations under this Agreement.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i) that
there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant
thereto will occur at a particular price or within a particular range of
prices or occur at all; (ii) that neither CTS or any of its officers,
directors, agents or representatives nor any Underwriter shall have any
liability to the COMPANY, the STOCKHOLDERS or any other person affiliated
or associated with the COMPANY for any failure of the Registration
Statement to become effective, the IPO to occur at a particular price or
within a particular range of prices or to occur at all; and (iii) that the
decision of the STOCKHOLDERS to enter into this Agreement, or to vote in
favor of or consent to the proposed Merger, has been or will be made
independent of, and without reliance upon, any statements, opinions or
other communications, or due diligence investigations which have been or
will be made or performed by any prospective Underwriter, relative to CTS
or the prospective IPO.
5.29 Prohibited Activities. Except as set forth on Schedule 5.29, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions set forth in Section 7.3.
5.30 Affiliate Transactions. Schedule 5.30 sets forth the parties to and
the date, nature and amount of (A) each transaction or series of similar
transactions (other than payments of salary and bonus which are reflected as
line items in the Financial Statements) involving the transfer of any cash,
property or rights in which the amount involved individually or collectively
exceeded $60,000 to or from the COMPANY from, to, or for the benefit of any
Affiliate or former Affiliate of the COMPANY ("Affiliate Transactions") during
the period commencing January 1, 1994 through the date hereof and (B) any
existing commitments of the COMPANY to engage in the future in any Affiliate
Transactions. Each Affiliate Transaction was effected on terms equivalent to
those which would have been established in an arms'-length negotiation, except
as disclosed on Schedule 5.30.
5.31 Misrepresentation. To the knowledge of the COMPANY and the
STOCKHOLDERS, none of the representations and warranties set forth in this
Agreement, the certificates and the other documents furnished by the COMPANY to
CTS pursuant hereto and for inclusion in the Registration Statement, taken as a
whole, contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements contained herein or therein not
misleading.
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(B) Representations and Warranties of the STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants to CTS and NEWCO that
the representations and warranties set forth below with respect to such
STOCKHOLDER are true and correct as of the date of this Agreement and, subject
to Section 7.8 hereof, shall be true and correct at the time of the Pre-Closing
and on the Closing Date.
5.32 Securities Act Representations. Each STOCKHOLDER alone, or together
with such STOCKHOLDER's "purchaser representative" (as defined in Rule 501(h)
promulgated under the 1933 Act):
(a) acknowledges and agrees that (x) the shares of CTS Stock to be
delivered to such STOCKHOLDER pursuant to this Agreement have not been and will
not be registered under the 1933 Act, and therefore may not be sold, transferred
or otherwise conveyed without compliance with the 1933 Act or pursuant to an
exemption therefrom and (y) the CTS Stock to be acquired by such STOCKHOLDER
pursuant to this Agreement is being acquired solely for its own account, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of the CTS Stock in connection with a distribution;
(b) acknowledges and agrees that it knows and understands that an
investment in the CTS Stock is a speculative investment which involves a high
degree of risk of loss;
(c) represents and warrants that it is able to bear the economic risk of
an investment in the CTS Stock acquired pursuant to this Agreement, can afford
to sustain a total loss of such investment and has such knowledge and experience
in financial and business matters that it is capable of evaluating the merits
and risks of the proposed investment in the CTS Stock;
(d) represents and warrants that it has had an adequate opportunity to
review and to ask questions and receive answers concerning any and all matters
relating to the transactions described in (i) CTS's private placement memorandum
and (ii) this Agreement;
(e) represents and warrants that it has had an adequate opportunity to ask
questions and receive answers concerning (i) the background and experience of
the current and proposed officers and directors of CTS, (ii) the plans for the
operations of the business of CTS, (iii) the business, operations and financial
condition of the Other Founding Companies, and (iv) any plans for additional
acquisitions and the like;
(f) represents and warrants that it is either an "accredited investor" (as
defined in Rule 501(a) promulgated under the 1933 Act) or, after taking into
consideration the
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information and advice provided to such STOCKHOLDER, has the requisite knowledge
and experience in financial and business matters to be capable of evaluating the
merits and risks of an investment in the CTS Stock;
(g) represents and warrants that, to its knowledge, there have been no
general or public solicitations or advertisements or other broadly disseminated
disclosures (including, without limitation, any advertisement, article, notice
or other communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or advertising) by or on behalf of
CTS regarding an investment in the CTS Stock; and
(h) acknowledges and agrees that the CTS Stock shall bear the following
legend in addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND, IF REQUIRED BY
CONDOR TECHNOLOGY SOLUTIONS, INC., AN OPINION OF COUNSEL TO CONDOR
TECHNOLOGY SOLUTIONS, INC. STATING THAT REGISTRATION IS NOT REQUIRED UNDER
THE ACT.
Such STOCKHOLDER acknowledges that the effect of the foregoing legend, among
other things, is or may be to limit or destroy the value of the certificate for
purposes of sale or use as loan collateral. Such STOCKHOLDER consents that "stop
transfer" instructions may be noted against the CTS Stock.
5.33 Authority; Ownership. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY Stock identified on
Annex IV as being owned by such STOCKHOLDER, and, except as set forth on
Schedule 5.33, such COMPANY Stock is owned free and clear of all liens, security
interests, pledges, charges, voting trusts, restrictions, encumbrances and
claims of every kind.
5.34 Preemptive Rights. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of COMPANY Stock or CTS Stock
that such STOCKHOLDER has or may have had other than rights of any STOCKHOLDER
to acquire CTS Stock pursuant to (i) this Agreement or (ii) any option granted
by CTS.
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5.35 No Intention to Dispose of CTS Stock. No STOCKHOLDER has any current
plan or intention, or is under any binding commitment or contract, to sell,
exchange or otherwise dispose of shares of CTS Stock received pursuant to
Section 3.1.
5.36 Questionnaires. The Completed Directors and Officers Questionnaires
and Registration Statement Questionnaires attached hereto as Schedule 5.36,
present fairly the business and operations of the COMPANY for the time periods
with respect to which such information was requested. If, prior to the 25th day
after the date of the final prospectus of CTS utilized in connection with the
IPO, the STOCKHOLDERS become aware of any fact or circumstance which would
affect the information disclosed in their Directors and Officers Questionnaires
or their Registration Statement Questionnaires in any material respect, then the
relevant STOCKHOLDER shall immediately give notice of such fact or circumstance
to CTS. However, subject to the provisions of Section 7.8, such notification
shall not relieve the relevant STOCKHOLDER of his or its obligations under this
Agreement.
6. REPRESENTATIONS OF CTS AND NEWCO
CTS and NEWCO jointly and severally represent and warrant to the COMPANY
and the STOCKHOLDERS that all of the following representations and warranties in
this Section 6 are true and correct at the date of this Agreement and, subject
to Section 7.8 hereof, shall be true and correct at the time of the Pre-Closing
and on the Closing Date, and that such representations and warranties shall
survive the Closing Date for a period of eighteen months.
6.1 Due Organization. CTS and NEWCO are each corporations duly
incorporated, validly existing and in good standing under the laws of the state
of their incorporation, and are duly authorized and qualified to do business
under all applicable laws, regulations, ordinances and orders of public
authorities to carry on their businesses in the places and in the manner as now
conducted, to own or hold under lease the properties and assets they now own or
hold under lease, and to perform all of their obligations under any material
agreement to which they are a party or by which their properties are bound. CTS
and NEWCO are not qualified to do business as foreign corporations in any
jurisdiction, and there is no jurisdiction in which the conduct of CTS's and
NEWCO's business or activities or their ownership of assets requires
qualification under applicable law, the absence of which would have a Material
Adverse Effect on either CTS or NEWCO. True, complete and correct copies of the
Certificate or Articles of Incorporation and By-laws, each as amended, of CTS
and NEWCO (the "CTS Charter Documents") are all attached hereto as Annex II. The
minute books and stock records of each of CTS and NEWCO as heretofore made
available to the COMPANY, are correct and complete in all material respects. The
most recent minutes of each CTS and NEWCO, which are dated no earlier than 10
business days prior to the date hereof, affirm and ratify all prior acts of CTS
and NEWCO, as the case may be, and of their respective officers and directors.
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6.2 Authorization. The respective representatives of CTS and NEWCO
executing this Agreement have the authority to execute and deliver this
Agreement and to bind CTS and NEWCO to perform their respective obligations
hereunder. The execution and delivery of this Agreement by CTS and NEWCO and the
performance by CTS and NEWCO of their respective obligations under this
Agreement and the consummation by CTS and NEWCO of the transactions contemplated
hereby have been duly authorized by all necessary corporate action by each in
accordance with applicable law and the Certificate or Articles of Incorporation
and By-Laws of CTS and NEWCO, as the case may be. Each share of CTS Stock to be
issued to the STOCKHOLDERS on the Closing Date will be duly and validly
authorized and issued, free and clear of all liens, claims and other
encumbrances and fully paid and nonassessable. This Agreement constitutes the
valid and binding obligation of CTS and NEWCO, enforceable in accordance with
its terms.
6.3 Transaction Not a Breach. Neither the execution and delivery of this
Agreement nor their performance will violate, conflict with, or result in a
breach of any provision of any Law, rule, regulation, order, permit, judgment,
injunction, decree or other decision of any court or other tribunal or any
Governmental Authority binding on CTS or NEWCO or conflict with or result in the
breach of any of the terms, conditions or provisions of the Certificate or
Articles of Incorporation or the By-laws of CTS or NEWCO or of any contract,
agreement, mortgage or other instrument or obligation of any nature to which CTS
or NEWCO is a party or by which CTS or NEWCO is bound.
6.4 Misrepresentation. None of the representations and warranties set
forth in this Agreement or in any of the certificates, schedules, exhibits,
lists, documents, exhibits, or other instruments delivered, or to be delivered,
to the COMPANY as contemplated by any provision hereof, contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading.
6.5 Capital Stock. The entire authorized capital stock of CTS will consist
of 50,000,000 shares. Except as disclosed on Schedule 6.5, there are no
outstanding options, rights (preemptive or otherwise), warrants, calls,
convertible securities or commitments or any other arrangements to which CTS is
a party requiring issuance, sale or transfer of any equity securities of CTS or
any securities convertible directly or indirectly into equity securities of CTS,
or evidencing the right to subscribe for any equity securities of CTS, or giving
any person other than the Founding Companies any rights with respect to the
capital stock of CTS. Except as contemplated by this Agreement or disclosed on
Schedule 6.5, there are no voting agreements, voting trusts, other agreements
(including cumulative voting rights), commitments or understandings with respect
to the CTS Stock.
6.6 Subsidiaries. Schedule 6.6 attached hereto lists the name of each of
CTS's and NEWCO's subsidiaries and sets forth the number and class of the
authorized capital stock of CTS's and NEWCO's subsidiaries and the number of
shares of each of
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CTS's and NEWCO's subsidiaries which are issued and outstanding prior to the
Merger, all of which shares (except as set forth on Schedule 6.6) are owned by
CTS and NEWCO, as the case may be, free and clear of all liens, security
interests, pledges, voting trusts, equities, restrictions, encumbrances and
claims of every kind. Except as set forth on Schedule 6.6, CTS and NEWCO do not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is CTS or NEWCO,
as the case may be, directly or indirectly, a participant in any joint venture,
partnership or other non-corporate entity.
6.7 Conformity with Law; Litigation. Except as set forth on Schedule 6.7,
CTS and NEWCO have complied with all Laws applicable to them or to the operation
of their businesses and have not received any notice of any alleged claim or
threatened claim, violation of, liability or potential responsibility under, any
Law which has not heretofore been cured and for which there is no remaining
liability other than, in each case, those not having a Material Adverse Effect
on CTS or NEWCO, taken as a whole. Without limiting the generality of the
foregoing, CTS and NEWCO have each complied with all applicable Federal, state
and local Laws relating to antitrust and trade regulations.
Except to the extent set forth on Schedule 6.7 (which shall disclose the
parties to, nature of, and relief sought for each matter):
(a) There is no suit, action, proceeding, investigation, claim or
order pending or, to the knowledge of CTS and NEWCO, threatened against
either of CTS or NEWCO, or any Plan, or any fiduciary of any such Plan or,
to the knowledge of CTS and NEWCO, pending or threatened against any of
the officers, directors or employees of CTS or NEWCO with respect to their
businesses or proposed business activities which are material to CTS or
NEWCO, or to which CTS or NEWCO is otherwise a party, or which may affect
either CTS or NEWCO, their assets or their businesses, before any court,
or before any Governmental Authority.
(b) CTS and NEWCO are not subject to any judgment, order or decree
of any court or Governmental Authority; CTS and NEWCO have not received
any opinion or memorandum from legal counsel to the effect that either is
exposed, from a legal standpoint, to any liability or disadvantage which
may be material to their business. Neither CTS nor NEWCO are engaged in
any legal action to recover monies due it or for damages sustained by
either of them.
7. COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation; Due Diligence.
(a) Between the date of this Agreement and the Closing Date, the
COMPANY will afford to the officers and authorized representatives of CTS
and
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the Other Founding Companies access during business hours to all of the
COMPANY's sites, properties, books and records and will furnish CTS with
such additional financial and operating data and other information as to
the business and properties of the COMPANY as CTS or the Other Founding
Companies may from time to time reasonably request. The COMPANY will
cooperate with CTS and the Other Founding Companies and their respective
representatives, including CTS's auditors and counsel, in the preparation
of any documents or other material (including the Registration Statement)
which may be required in connection with the transactions contemplated by
this Agreement. CTS, NEWCO, the STOCKHOLDERS and the COMPANY will treat
all information obtained in connection with the negotiation and
performance of this Agreement or the due diligence investigations
conducted with respect to the Other Founding Companies as confidential in
accordance with the provisions of Section 14 hereof. In addition, CTS will
cause each of the Other Agreements, binding each of the Other Founding
Companies, to contain a provision similar to this Section 7.1 requiring
each such Other Founding Company, its stockholders, directors, officers,
representatives, employees and agents to keep confidential any information
obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Closing Date, CTS
will afford to the officers and authorized representatives of the COMPANY
access during business hours to all of CTS's and NEWCO's sites,
properties, books and records and will furnish the COMPANY with such
additional financial and operating data and other information as to the
business and properties of CTS and NEWCO as the COMPANY may from time to
time reasonably request. CTS and NEWCO will cooperate with the COMPANY,
its representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection with the
transactions contemplated by this Agreement. The COMPANY will cause all
information obtained in connection with the negotiation and performance of
this Agreement to be treated as confidential in accordance with the
provisions of Section 14 hereof.
7.2 Conduct of Business Pending Closing. Between the date of this
Agreement and the Closing Date, the COMPANY will, except as set forth on
Schedule 7.2:
(a) carry on its business in the ordinary course substantially as
conducted heretofore and not introduce any new method of management,
operation or accounting;
(b) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(c) perform in all material respects its obligations under
agreements
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relating to or affecting its assets, properties or rights;
(d) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(e) maintain and preserve its business organization intact and use
its best efforts to retain its present key employees and relationships
with suppliers, customers and others having business relations with the
COMPANY;
(f) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar Governmental Authorities; and
(g) maintain present debt and lease instruments in accordance with
their respective terms and not enter into new or amended debt or lease
instruments, provided that debt and/or lease instruments may be replaced
if such replacement instruments are on terms at least as favorable to the
COMPANY as the instruments being replaced.
7.3 Prohibited Activities. Except as disclosed on Schedule 7.3 or
otherwise permitted by Section 7.14 or 7.15 of this Agreement, between the date
hereof and the Closing Date, the COMPANY will not, without the prior written
consent of CTS:
(a) make any change in its Articles or Certificate of Incorporation
or By-laws;
(b) grant or issue any securities, options, warrants, calls,
conversion rights or commitments of any kind relating to its securities of
any kind other than in connection with the exercise of options or warrants
listed on Schedule 5.4;
(c) declare or pay any dividend, or make any distribution in respect
of its stock whether now or hereafter outstanding, or purchase, redeem or
otherwise acquire or retire for value any shares of its stock or engage in
any transaction that will significantly affect the cash reflected on the
balance sheet of the COMPANY as of December 31, 1996.
(d) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditure, except if it is in the
ordinary course of business (consistent with past practice) or involves an
amount not in excess of $10,000;
(e) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $10,000
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necessary or desirable for the conduct of the business of the COMPANY,
(2)(A) liens for Taxes either not yet due or being contested in good faith
and by appropriate proceedings (and for which adequate reserves have been
established and are being maintained) or (B) materialmen's, mechanics',
workers', repairmen's, employees' or other like liens arising in the
ordinary course of business (the liens set forth in clause (2) being
referred to herein as "Statutory Liens"), or (3) liens set forth on
Schedule 5.10 or 5.15 hereto;
(f) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the ordinary course of business;
(g) negotiate for the acquisition of any business or the start-up of
any new business;
(h) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(i) waive any material right or claim of the COMPANY, provided that
the COMPANY may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be
included on Schedule 5.11 unless specifically listed thereon;
(j) commit a material breach, materially amend or terminate any
Material Contract;
(k) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder; or
(l) except in the ordinary course of business or as required by Law
or contractual obligations or other understandings or arrangements
existing on the date hereof, the COMPANY will not (i) increase in any
manner the base compensation of, or enter into any new bonus or incentive
agreement or arrangement with, any of the employees engaged in the
COMPANY's business, (ii) pay or agree to pay any additional pension,
retirement allowance or other employee benefit to any such employee,
whether past or present, (iii) enter into any new employment, severance,
consulting, or other compensation agreement with any existing employee
engaged in the COMPANY's business, (iv) amend or enter into a new Benefit
Plan (except as required by Law) or amend or enter into a new collective
bargaining agreement (except as required by this Agreement), or (v) engage
in any Affiliate Transaction.
7.4 No Shop. In consideration of the substantial expenditure of time,
effort and expense undertaken by CTS in connection with its due diligence review
and the preparation and execution of this Agreement, the COMPANY and the
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STOCKHOLDERS agree that neither they nor their representatives, agents or
employees will, after the execution of this Agreement until the earlier of (i)
the termination of this Agreement or (ii) the Closing, directly or indirectly,
solicit, encourage, negotiate or discuss with any third party (including by way
of furnishing any information concerning the COMPANY) any acquisition proposal
relating to or affecting the COMPANY or any part of it, or any direct or
indirect interests in the COMPANY, whether by purchase of assets or stock,
purchase of interests, merger or other transaction ("Acquisition Transaction"),
and that the COMPANY will promptly advise CTS of the terms of any communications
any of the STOCKHOLDERS or the COMPANY may receive or become aware of relating
to any bid for all or any part of the COMPANY.
7.5 Notice to Bargaining Agents. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements. Set forth on
Schedule 7.5 is any and all proof that any such required notice has been sent.
7.6 Agreements. Except as set forth on Schedule 9.7, the STOCKHOLDERS and
the COMPANY shall terminate (i) any stockholders' agreements, voting agreements,
voting trusts, options, warrants and employment agreements between the COMPANY
and any employee listed on Schedule 9.12 hereto and (ii) any existing agreement
between the COMPANY and any STOCKHOLDER, on or prior to the Closing Date. A list
of such terminated agreements to be terminated is set forth on Schedule 7.6 and
copies of each such agreement have been provided to counsel for CTS.
7.7 Notification of Certain Matters. The STOCKHOLDERS and the COMPANY
shall give prompt notice to CTS of (i) the occurrence or non-occurrence of any
event of which the COMPANY or the STOCKHOLDERS have knowledge, the occurrence or
non-occurrence of which, would cause any representation or warranty of the
COMPANY or the STOCKHOLDERS contained herein to be untrue or inaccurate in any
material respect at or prior to the Closing and (ii) any material failure of any
STOCKHOLDER or the COMPANY to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. CTS and
NEWCO shall give prompt notice to the COMPANY of (i) the occurrence or
non-occurrence of any event of which CTS or NEWCO have knowledge, the occurrence
or non-occurrence of which, would cause any representation or warranty of CTS or
NEWCO contained herein to be untrue or inaccurate in any material respect at or
prior to the Closing and (ii) any material failure of CTS or NEWCO to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder. The delivery of any notice pursuant to this Section
7.7 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.8, (ii) modify the conditions set forth in Sections 8
and 9, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
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7.8 Amendment of Schedules.
(a) Each party hereto agrees that, with respect to the
representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing Date to
supplement or amend promptly the Schedules hereto with respect to any
matter hereafter arising or discovered which, if existing or known at the
date of this Agreement, would have been required to be set forth or
described in the Schedules; provided, however, that supplements and
amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall only have to be
delivered at the Closing Date, unless such Schedule is to be amended to
reflect an event occurring other than in the ordinary course of business.
(b) Until 24 hours prior to the anticipated effectiveness of the
Registration Statement, and notwithstanding the foregoing clause (a), the
provisions of this clause (b) shall apply: no amendment or supplement to a
Schedule prepared by the COMPANY or the STOCKHOLDERS that constitutes or
reflects an event or occurrence that would have a Material Adverse Effect
on the COMPANY may be made unless CTS and a majority of the Founding
Companies other than the COMPANY consent to such amendment or supplement;
and provided further, that no amendment or supplement to a Schedule
prepared by CTS or NEWCO that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on the COMPANY may be
made unless a majority of the Founding Companies consent to such amendment
or supplement. In the event that one of the Other Founding Companies seeks
to amend or supplement a Schedule pursuant to Section 7.8 of one of the
Other Agreements, and such amendment or supplement constitutes or reflects
an event or occurrence that would have a Material Adverse Effect on such
Other Founding Company, CTS shall give the COMPANY notice promptly after
it has knowledge thereof. If CTS and a majority of the Founding Companies
consent to such amendment or supplement, which consent shall have been
deemed given by CTS or any Founding Company if no response is received
from CTS or any such Founding Company within 24 hours following receipt of
notice by CTS or any Founding Company of such amendment or supplement (or
sooner if required by the circumstances under which such consent is
requested), but the COMPANY does not give its consent, the COMPANY may
terminate this Agreement pursuant to Section 12.1(d) hereof. In the event
that the COMPANY seeks to amend or supplement a Schedule pursuant to this
Section 7.8 and CTS and a majority of the Other Founding Companies do not
consent to such amendment or supplement as provided above, this Agreement
shall be deemed terminated by mutual consent as set forth in Section
12.1(a) hereof. In the event that CTS or NEWCO seeks to amend or
supplement a Schedule pursuant to this Section 7.8 and a majority of the
Founding Companies do not consent to such amendment or supplement, as
provided above, this Agreement shall be deemed terminated by mutual
consent as set forth in Section 12.1(d) hereof.
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(c) Between 24 hours prior to the anticipated effectiveness of the
Registration Statement and the Closing Date, the provisions of this clause
(c) shall apply. No amendment or supplement to a Schedule prepared by the
COMPANY or the STOCKHOLDERS that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on the COMPANY may be
made unless CTS consents to such amendment or supplement after
consultation with the Underwriters. CTS and NEWCO hereby covenant that
neither CTS nor NEWCO will amend or supplement any Schedule prepared by
CTS or NEWCO that constitutes or reflects an event or occurrence that
would have a Material Adverse Effect on CTS or NEWCO, as the case may be,
without consulting with the Underwriters, and CTS shall provide immediate
notice of such amendment or supplement to the Founding Companies.
(d) For all purposes of this Agreement, including without limitation
for purposes of determining whether the conditions set forth in Sections
8.1 and 9.1 have been fulfilled, the Schedules hereto shall be deemed to
be the Schedules as amended or supplemented pursuant to this Section 7.8.
No party to this Agreement shall be liable to any other party if this
Agreement shall be terminated pursuant to the provisions of this Section
7.8, except that, notwithstanding anything to the contrary contained in
this Agreement, if the COMPANY or the STOCKHOLDERS on the one hand, or CTS
or NEWCO on the other hand, amends or supplements a Schedule which results
in a termination of this Agreement and such amendment or supplement arises
out of or reflects facts or circumstances which such party knew about at
the time of execution of this Agreement and knew would result in a
termination of this Agreement or if such amendment or supplement otherwise
is proposed in bad faith, such party shall pay or reimburse CTS or the
COMPANY and the STOCKHOLDERS, as the case may be, for all of the legal,
accounting and other out of pocket costs reasonably incurred in connection
with this Agreement and the IPO as it relates to the COMPANY and the
STOCKHOLDERS.
7.9 Cooperation in Preparation of Registration Statement.
(a) The COMPANY and the STOCKHOLDERS shall furnish or cause to be
furnished to CTS and the Underwriters all of the information concerning
the COMPANY and the STOCKHOLDERS requested by CTS or the Underwriters for
inclusion in, and will cooperate with CTS and the Underwriters in the
preparation of, the Registration Statement and the prospectus included
therein (including audited and unaudited financial statements, prepared in
accordance with GAAP, in form suitable for inclusion in the Registration
Statement). The COMPANY and the STOCKHOLDERS agree promptly to advise CTS
if at any time during the period in which a prospectus relating to the
offering is required to be delivered under the Securities Act, any
information contained in the prospectus concerning the COMPANY or the
STOCKHOLDERS contains any untrue
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statement of a material fact or omits to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading, and to provide the information needed to correct such
inaccuracy. Insofar as the information relates solely to the COMPANY or
the STOCKHOLDERS, the COMPANY represents and warrants as to such
information furnished by the COMPANY or the STOCKHOLDERS for use in the
Registration Statement with respect to itself, and each STOCKHOLDER
represents and warrants, as to such information furnished by the COMPANY
or the STOCKHOLDERS for use in the Registration Statement with respect to
the COMPANY and himself or herself, that the Registration Statement at its
effective date, at the date of the final Prospectus, each preliminary
prospectus and each amendment to the Registration Statement, and at each
closing date with respect to the IPO under the Underwriting Agreement
(including with respect to any over-allotment option) will not include an
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
not misleading.
(b) CTS agrees that it will use its best efforts to provide to the
COMPANY and its counsel copies of material drafts of the Registration
Statement as they are prepared and to the extent practicable in light of
the timetable of the IPO and the potential need to respond promptly to
SEC, NASD or Nasdaq comments, to give the COMPANY sufficient time to
review and comment upon such documents prior to filing with the SEC. Any
objections posed by the COMPANY or its counsel shall state with
specificity the material in question, the reason for the objection, and
the COMPANY's proposed alternative. If the objection is founded upon a
rule promulgated under the Securities Act, the objection shall cite the
rule. Notwithstanding the foregoing, during the five business days
immediately preceding the date scheduled for the effective date of the
IPO, the COMPANY and the STOCKHOLDERS agree that (i) two hours from the
time the proposed changes are transmitted to the COMPANY's counsel if such
transmission is during the COMPANY's normal business hours or (ii) four
hours from the time the proposed changes are transmitted to the COMPANY's
counsel if such transmission is not during the COMPANY's normal business
hours, is sufficient time to review and respond to proposed changes.
7.10 Final Financial Statements. The COMPANY shall provide prior to the
Closing Date, and CTS shall have had sufficient time prior thereto to review,
the unaudited consolidated balance sheets of the COMPANY as of the end of all
fiscal quarters following the Balance Sheet Date, and the unaudited consolidated
statements of income, cash flows and retained earnings of the COMPANY for all
fiscal quarters ended no earlier than 30 days prior to the Closing Date,
disclosing no material adverse change in the financial condition of the COMPANY
or the results of its operations from the financial statements as of the Balance
Sheet Date. Such financial statements shall have been prepared in accordance
with GAAP applied on a consistent basis throughout the periods indicated (except
as noted therein), but shall not include all of the footnotes and adjustments
required by GAAP for complete financial statements. Except as noted in
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such financial statements, all of such financial statements will present fairly
the results of operations of the COMPANY for the periods indicated thereon.
7.11 Further Assurances. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 Approval of Merger Agreement. Each of the STOCKHOLDERS agrees to vote
all of its shares of the COMPANY Stock in favor of the Merger and all other
transactions contemplated by this Agreement.
7.13 Distributions. Notwithstanding any other provisions of this
Agreement, the COMPANY will be permitted to declare dividends subsequent to the
Balance Sheet Date to the STOCKHOLDERS for the purpose of providing the
STOCKHOLDERS with funds to pay their taxes on earnings attributable to such
STOCKHOLDER, in an amount up to [ ]% of (i) the 1996 net taxable income the
COMPANY taxable to the STOCKHOLDERS, reduced by all prior distributions for
1996, and (ii) the 1997 net taxable income of the COMPANY taxable to the
STOCKHOLDERS to the Closing Date, reduced by all prior distributions for 1997.
For purposes of this Section 7.14, [ ]% will be deemed to be the aggregate
Federal, State and local income tax rate of the STOCKHOLDERS.
7.14 Accumulated Adjustments Account. The COMPANY will be permitted to
distribute to the STOCKHOLDERS, subsequent to the Balance Sheet Date, any
amounts which have accumulated in the COMPANY'S Accumulated Adjustments Account;
provided, however, that (i) the maximum amount which can be so distributed is
equal to the aggregate cash portion of the purchase price to be paid to the
STOCKHOLDERS as indicated in Annex III and (ii) the aggregate indemnification
limits will not be altered by any reduction in the total purchase price caused
by a distribution of any amounts from the Accumulated Adjustments Account.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY
The obligations of the STOCKHOLDERS and the COMPANY with respect to
actions to be taken on the Pre-Closing Date and, to the extent specified in this
Section 8, on the Closing Date are subject to the satisfaction or waiver on or
prior to the Pre-Closing Date and/or the Closing Date, as the case may be, of
all of the conditions set forth in this Section 8. As of the Pre-Closing Date or
the Closing Date, as the case may be, all conditions not satisfied shall be
deemed to have been waived by the COMPANY and the STOCKHOLDERS unless such
parties have objected by notifying CTS in writing of such objection on or before
the Pre-Closing Date or consummation of the transactions on the Closing Date,
respectively, except that no such waiver shall be deemed to affect the survival
of the representations and warranties of CTS and NEWCO contained in Section 6
hereof.
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8.1 Representations and Warranties. All representations and warranties of
CTS and NEWCO contained in this Agreement shall be true and correct in all
material respects as of the Pre-Closing Date and the Closing Date as though such
representations and warranties had been made on and as of that date; and a
certificate to the foregoing effect dated the Pre-Closing Date and the Closing
Date and signed by the President or any Vice President of CTS shall have been
delivered to the COMPANY and the STOCKHOLDERS.
8.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with and performed by CTS and NEWCO on or
before each of the Pre-Closing Date and the Closing Date shall have been duly
complied with and performed in all material respects on or before each of the
Pre-Closing Date and the Closing Date, as the case may be; and certificates to
the foregoing effect dated each of the Pre-Closing Date and the Closing Date and
signed by the President or any Vice President of CTS shall have been delivered
to the COMPANY and the STOCKHOLDERS.
8.3 No Litigation. No action or proceeding before a court or any other
Governmental Authority or body shall have been instituted or threatened to
restrain or prohibit the Merger or the IPO.
8.4 Opinion of Counsel. The STOCKHOLDERS shall have received an opinion
from counsel for CTS and NEWCO, dated the Pre-Closing Date and including a
statement to the effect that it may be relied upon as of the Closing Date,
substantially in the form annexed hereto as Annex VI.
8.5 Consents and Approvals. All necessary consents of and filings required
to be obtained or made by CTS or NEWCO with any Governmental Authority or agency
relating to the consummation of the transactions contemplated herein shall have
been obtained and made.
8.6 Good Standing Certificates. CTS and NEWCO each shall have delivered to
the COMPANY a certificate, dated as of a date no earlier than 10 days prior to
the Pre-Closing Date, duly issued by the Delaware Secretary of State and in each
state in which CTS or NEWCO is authorized to do business, showing that each of
CTS and NEWCO is in good standing and authorized to do business and that all
state franchise and/or income tax returns and taxes for CTS and NEWCO,
respectively, for all periods prior to the Closing have been filed and paid.
8.7 Consummation of Other Agreements. The Other Agreements shall have been
delivered by each of the Other Companies and each of the Other Agreements and
this Agreement shall be in effect immediately prior to the Merger.
8.8 Secretary's Certificate. The COMPANY shall have received a certificate
or certificates, dated the Pre-Closing Date and the Closing Date and signed by
the
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secretary of CTS and of NEWCO, certifying the truth and correctness of attached
copies of the CTS's and NEWCO's respective Certificates of Incorporation
(including amendments thereto), By-Laws (including amendments thereto), and
resolutions of the boards of directors and, if required, the stockholders of CTS
and NEWCO approving CTS's and NEWCO's entering into this Agreement and the
consummation of the transactions contemplated hereby.
8.9 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VIII hereto.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CTS AND NEWCO
The obligations of CTS and NEWCO with respect to actions to be taken on
the Pre-Closing Date and, to the extent specified in this Section 9, on the
Closing Date, are subject to the satisfaction or waiver on or prior to the
Pre-Closing Date and/or the Closing Date, as the case may be, of all of the
conditions set forth in this Section 9. As of the Pre-Closing Date or the
Closing Date, as the case may be, all conditions not satisfied shall be deemed
to have been waived by CTS and NEWCO unless such parties have objected by
notifying the COMPANY and the STOCKHOLDERS in writing of such objection on or
before the Pre-Closing Date or consummation of the transactions on the Closing
Date, respectively, except that no such waiver shall be deemed to affect the
survival of the representations and warranties of the COMPANY and the
STOCKHOLDERS contained in Section 5 hereof.
9.1 Representations and Warranties. All the representations and warranties
of the STOCKHOLDERS and the COMPANY contained in this Agreement shall be true
and correct in all material respects as of the Pre-Closing Date and the Closing
Date with the same effect as though such representations and warranties had been
made on and as of such date; and the STOCKHOLDERS shall have delivered to CTS
certificates dated the Pre-Closing Date and the Closing Date and signed by them
to such effect.
9.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with or performed by the STOCKHOLDERS and the
COMPANY on or before each of the Pre-Closing Date and the Closing Date shall
have been duly performed or complied with in all material respects on or before
each of the Pre-Closing Date and the Closing Date, as the case may be; and the
STOCKHOLDERS shall have delivered to CTS certificates dated the Pre-Closing Date
and the Closing Date, respectively, and signed by them to such effect.
9.3 No Litigation. No action or proceeding before a court or any other
Governmental Authority or body shall have been instituted or threatened to
restrain or prohibit the Merger or the IPO.
9.4 Secretary's Certificate. CTS shall have received a certificate or
certificates, dated each of the Pre-Closing Date and the Closing Date and signed
by the
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secretary of the COMPANY, certifying the truth and correctness of attached
copies of the COMPANY's Certificate or Articles of Incorporation (including
amendments thereto), By-Laws (including amendments thereto), and resolutions of
the board of directors and the shareholders approving the COMPANY's entering
into this Agreement and the consummation of the transactions contemplated
hereby.
9.5 No Material Adverse Change. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred with respect to the
COMPANY which would constitute a Material Adverse Effect on the COMPANY and the
COMPANY shall not have suffered any material loss or damages to any of its
properties or assets, whether or not covered by insurance, which change, loss or
damage materially affects or impairs the ability of the COMPANY to conduct its
business.
9.6 STOCKHOLDERS' Release. The STOCKHOLDERS shall have delivered to CTS an
instrument dated the Closing Date releasing the COMPANY from any and all (i)
claims prior to the Closing Date of the STOCKHOLDERS against the COMPANY and CTS
and (ii) obligations prior to the Closing Date, of the COMPANY and CTS to the
STOCKHOLDERS, except for (x) items specifically identified on Schedules 5.10 and
5.15 as being claims of or obligations to the STOCKHOLDERS, (y) continuing
obligations to the STOCKHOLDERS relating to their employment by the COMPANY and
(z) obligations arising under this Agreement or the transactions contemplated
hereby.
9.7 Termination of Related Party Agreements. Except as set forth on
Schedule 9.7, all existing agreements between the COMPANY and the STOCKHOLDERS
shall have been canceled effective prior to or as of the Closing Date.
9.8 Opinion of Counsel. CTS shall have received an opinion from Counsel to
the COMPANY and the STOCKHOLDERS, dated the Pre-Closing Date and including a
statement to the effect that it may be relied upon as of the Closing Date,
substantially in the form annexed hereto as Annex VII, which form shall be
deemed to include any additional opinions by such counsel or separate counsel
retained by the COMPANY covering matters customary under the circumstances,
including without limitation, opinions covering the COMPANY's intellectual
property, and the Underwriters shall have received a copy of the same opinion
addressed to them.
9.9 Consents and Approvals. All necessary consents of and filings with any
Governmental Authority relating to the consummation of the transactions
contemplated herein shall have been obtained and made and all consents and
approvals of third parties listed on Schedule 5.23 shall have been obtained.
9.10 Good Standing Certificates. The COMPANY shall have delivered to CTS a
certificate, dated as of a date no earlier than five days prior to the
Pre-Closing Date, duly issued by the appropriate Governmental Authority in the
COMPANY's state of incorporation and, unless waived by CTS, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to
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do business and that all state franchise and/or income tax returns and taxes for
the COMPANY for all periods prior to the Closing have been filed and paid.
9.11 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act, or
any state securities laws, and the Underwriters shall have agreed to acquire on
a firm commitment basis, subject to the conditions set forth in the Underwriting
Agreement, shares of CTS Stock at a price to the public acceptable to CTS.
9.12 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have entered into an employment agreement substantially in the form of
Annex VIII hereto.
9.13 Closing of IPO. The closing of the sale of the CTS Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
9.14 FIRPTA Certificate. Each STOCKHOLDER shall have delivered to CTS a
certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
9.15 Consummation of Other Agreements. The Other Agreements shall have
been delivered by each of the Other Companies and each of the Other Agreements
and this Agreement shall be in effect immediately prior to the Merger.
9.16 A/R Aging Reports. Within ten (10) days prior to Closing, the COMPANY
shall have provided CTS (x) an accurate list of all outstanding receivables
obtained subsequent to the Balance Sheet Date and as of a date which is within
10 calendar days of the Closing Date and (y) an aging of all such accounts and
notes receivable showing amounts due in 30 day aging categories (the "A/R Aging
Reports").
9.17 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall have been approved by counsel to CTS.
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10. COVENANTS OF CTS AND THE STOCKHOLDERS AFTER CLOSING
10.1 Release From Guarantees; Repayment of Certain Obligations. CTS shall
use its best efforts to have the STOCKHOLDERS released from any and all
guarantees on any indebtedness that they personally guaranteed and from any and
all pledges of assets that they pledged to secure such indebtedness for the
benefit of the COMPANY, with all such guarantees on indebtedness being assumed
by CTS, if necessary to achieve such releases. In the event that CTS cannot
obtain such releases from the lenders of any such guaranteed indebtedness on or
prior to 180 days subsequent to the Closing Date, CTS shall pay off or otherwise
refinance or retire such indebtedness.
10.2 Preservation of Tax and Accounting Treatment. Except as contemplated
by this Agreement or the Registration Statement, after the Closing Date, CTS
shall not and shall not permit any of its subsidiaries to undertake any act that
would jeopardize the tax-free status of the organization, including liquidating
or merging the COMPANY into CTS.
10.3 Preparation and Filing of Tax Returns.
(a) Each STOCKHOLDER shall file or cause to be filed all Returns of
any Acquired Party for all taxable periods that end on or before the
Closing Date and shall pay or cause to be paid any and all Tax liabilities
due and payable with respect to such periods shown by such Returns to be
due. The Company shall pay any taxes state Taxes assessed against it or
any Acquired Party for all taxable periods that end on or before the
Closing Date.
(b) CTS shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Closing Date.
(c) Each party hereto shall, and shall cause its subsidiaries and
Affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any Return, amended Return or claim for refund, determining a
liability for Taxes or a right to refund of Taxes or in conducting any
audit or other proceeding in respect of Taxes. Such cooperation and
information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each
party shall make its employees reasonably available on a mutually
convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence, each party
required to file Returns pursuant to this Agreement shall bear all costs
of filing such Returns.
(d) Each of the COMPANY, NEWCO, CTS and each STOCKHOLDER shall
comply with the tax reporting requirements of Section
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1.351-3 of the Treasury Regulations promulgated under the Code, and treat
the transaction as a tax-free transfer of property under Section 351(a) of
the Code.
10.4 Directors and Officers. The persons named in the Registration
Statement shall be appointed as directors and elected as officers of CTS, as and
to the extent set forth in the Registration Statement, promptly following the
Closing Date.
10.5 Preservation of Employee Benefit Plans. Following the Closing Date,
CTS shall not terminate any health insurance, life insurance, 401(k) or any
other Benefit Plan listed on Schedule 5.19 in effect at the COMPANY until such
time as CTS is able to replace such Benefit Plan with a Plan that is applicable
to CTS and all of its then existing subsidiaries. CTS shall have no obligation
to provide replacement Plans that have the same terms and provisions as the
existing Benefit Plans, provided, that any new health insurance plan shall
provide for coverage for preexisting conditions.
10.6 Rule 144. For a period of two years after the Closing Date, CTS shall
take all actions that are within its powers and that are reasonably necessary to
make Rule 144 promulgated under the 1933 Act available to the STOCKHOLDERS.
10.7 Authorization of Shares. CTS agrees to take all actions as may be
necessary from time to time to reserve an adequate number of shares of CTS Stock
to pay the stock portion of the consideration to the STOCKHOLDERS pursuant to
Annex III hereof.
11. INDEMNIFICATION
The STOCKHOLDERS, CTS and NEWCO each make the following covenants that are
applicable to them, respectively:
11.1 General Indemnification by the STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless CTS, NEWCO, the COMPANY and the Surviving Corporation
at all times, from and after the date of this Agreement until the Expiration
Date, from and against all claims, damages, actions, suits, proceedings,
demands, assessments, adjustments, costs and expenses (including specifically,
but without limitation, reasonable attorneys' fees and reasonable expenses of
investigation) incurred by CTS, NEWCO, the COMPANY or the Surviving Corporation
as a result of or arising from (i) any breach of the representations and
warranties of the STOCKHOLDERS or the COMPANY set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the STOCKHOLDERS or the COMPANY under this
Agreement, (iii) any liability under the 1933 Act, the 1934 Act or other Federal
or state law or regulation, at common law or otherwise, arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
relating to the COMPANY or the STOCKHOLDERS, and provided to CTS or its counsel
by the
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COMPANY or the STOCKHOLDERS for inclusion in the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission by the
COMPANY and/or the STOCKHOLDERS to state therein a material fact relating to the
COMPANY or the STOCKHOLDERS required to be stated therein or necessary to make
the statements therein not misleading, (iv) the matters described on Schedule
11.1(iv) or (v) any Tax imposed upon or relating to any third party or Acquired
Party for a pre-Closing Date period, including, in each case, any such Tax
arising out of or in connection with the transactions effected pursuant to this
Agreement or any such Tax for which an Acquired Party may be liable under
Section 1.1502-6 of the Treasury Regulations (or any similar provisions of
state, local or foreign law), as a transferee or successor, by contract or
otherwise; provided, however, (A) that in the case of any indemnity arising
pursuant to clause (iii) such indemnity shall not inure to the benefit of CTS,
NEWCO, the COMPANY or the Surviving Corporation to the extent that such untrue
statement (or alleged untrue statement) was made in, or omission (or alleged
omission) occurred in, any preliminary prospectus and the STOCKHOLDERS provided,
in writing, corrected information to CTS counsel and to CTS for inclusion in the
final prospectus, and such information was not so included or properly
delivered, and (B) that no STOCKHOLDER shall be liable for any indemnification
obligation pursuant to this Section 11.1 to the extent attributable to a breach
of any representation, warranty or agreement made herein individually by any
other STOCKHOLDER.
11.2 Indemnification by CTS. CTS covenants and agrees that it will
indemnify, defend, protect and hold harmless the STOCKHOLDERS at all times from
and after the date of this Agreement until the eighteenth month anniversary of
the Closing Date, from and against all claims, damages, actions, suits,
proceedings, demands, assessments, adjustments, costs and expenses (including
specifically, but without limitation, reasonable attorneys' fees and expenses of
investigation) incurred by the STOCKHOLDERS as a result of or arising from (i)
any breach by CTS or NEWCO of its representations and warranties set forth
herein or on the schedules or certificates delivered in connection herewith,
(ii) any breach of any agreement on the part of CTS or NEWCO under this
Agreement, (iii) any liability which the STOCKHOLDERS may incur due to CTS's or
NEWCO's failure to be responsible for the liabilities and obligations of the
COMPANY as provided in Section 10.1 hereof (except to the extent that CTS or
NEWCO has claims against the STOCKHOLDERS by reason of such liabilities); (iv)
any liability to a Person not a party to this Agreement (a "Third Person") under
the 1933 Act, the 1934 Act or other Federal or state law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact relating to CTS or NEWCO for
inclusion in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to CTS or NEWCO required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, in the case of any indemnity arising pursuant to clause (iv) such
indemnity shall
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not inure to the benefit of the STOCKHOLDERS if any such claims, damages,
actions, suits, proceedings, demands, assessments, adjustments, costs and
expenses incurred by any of the STOCKHOLDERS are based upon an untrue statement
or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by a STOCKHOLDER for use in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto unless the STOCKHOLDERS provided, in
writing, corrected information to CTS counsel and to CTS for inclusion in the
final prospectus to the Registration Statement, and such information was not so
included or properly delivered by CTS (or its representative).
In the event the breach relates to the representation contained in Section
6.5 concerning the absence of options, rights (preemptive or otherwise),
warrants, calls, convertible securities or commitments or any other arrangements
dealing with CTS Stock as set forth in Section 6.5 (a "CTS Security Right") and
the existence of an undisclosed CTS Security Right will dilute the CTS capital,
stockholders of the Founding Company whose representation caused the breach of
Section 6.5 shall suffer such dilution proportionately to the number of shares
of CTS Stock owned by each of them.
11.3 Third Person Claims. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
Third Person or of the commencement of any action or proceeding by a Third
Person, the Indemnified Party shall, as a condition precedent to a claim with
respect thereto being made against any party obligated to provide
indemnification pursuant to Section 11.1 or 11.2 hereof (hereinafter the
"Indemnifying Party"), give the Indemnifying Party written notice of such claim
or the commencement of such action or proceeding. Such notice shall state the
nature and the basis of such claim and a reasonable estimate of the amount
thereof. The Indemnifying Party shall have the right to defend and settle, at
its own expense and by its own counsel, any such matter so long as the
Indemnifying Party pursues the same in good faith and diligently, provided that
the Indemnifying Party shall not settle any criminal proceeding without the
written consent of the Indemnified Party, such consent not to be unreasonably
withheld or delayed. If the Indemnifying Party undertakes to defend or settle,
it shall promptly notify the Indemnified Party of its intention to do so, and
the Indemnified Party shall cooperate, at the Indemnifying Party's expense, with
the Indemnifying Party and its counsel in the defense thereof and in any
settlement thereof. Such cooperation shall include, but shall not be limited to,
furnishing the Indemnifying Party with any books, records or information
reasonably requested by the Indemnifying Party that are in the Indemnified
Party's possession or control. All Indemnified Parties shall endeavor to use the
same counsel, which shall be the counsel selected by the Indemnifying Party,
provided that if counsel to the Indemnifying Party shall have a conflict of
interest in the opinion of such counsel that prevents counsel for the
Indemnifying Party from representing the Indemnified Party, the Indemnified
Party shall have the right to participate in such matter through counsel of its
own choosing and the Indemnifying Party will reimburse the Indemnified Party for
the reasonable expenses of its counsel and experts. After the Indemnifying Party
has notified the Indemnified Party of its intention to undertake to defend or
settle any such asserted liability, and for so
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long as the Indemnifying Party diligently pursues such defense, the Indemnifying
Party shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except (i) as set forth in the preceding sentence and (ii) to the
extent such participation is requested by the Indemnifying Party, in which event
the Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any such
Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement to said Third Person plus all indemnifiable costs and expenses
incurred to date, the Indemnifying Party shall be relieved of its duty to defend
and shall tender the Third Person claim back to the Indemnified Party, who shall
thereafter, at its own expense, be responsible for the defense and negotiation
of such Third Person claim. If the Indemnifying Party does not undertake to
defend such matter to which the Indemnified Party is entitled to indemnification
hereunder, or fails diligently to pursue such defense, the Indemnified Party may
undertake such defense through counsel of its choice, at the cost and expense of
the Indemnifying Party, and the Indemnified Party may settle such matter, and
the Indemnifying Party shall reimburse the Indemnified Party for the amount paid
in such settlement and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. All settlements hereunder shall effect a
complete release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. The parties hereto will make appropriate
adjustments for any Tax benefits, Tax detriments or insurance proceeds in
determining the amount of any indemnification obligation under this Section,
provided that no Indemnifying Party shall be obligated to seek any payment
pursuant to the terms of any insurance policy.
11.4 Exclusive Remedy. Except as provided in Section 11.5(b) or Section
14.3 hereof, the indemnification provided for in this Section 11 shall (except
as prohibited by ERISA) be the exclusive remedy in any action seeking damages or
any other form of monetary relief brought by any party to this Agreement against
another party, provided that nothing herein shall be construed to limit the
right of a party, in a proper case, to seek injunctive relief for a breach of
this Agreement or to seek relief for a breach of any employment agreement with,
or any stock option issued by, CTS.
11.5 Limitations on Indemnification. (a) CTS, NEWCO, the Surviving
Corporation and the other Persons or entities indemnified pursuant to Section
11.1 (other than the STOCKHOLDERS) shall not assert any claim other than a Third
Person claim for indemnification hereunder against the STOCKHOLDERS until such
time as, and solely to the extent that, the aggregate of all claims which such
Persons may have against the STOCKHOLDERS shall exceed 1.0% of the sum of (i)
the cash paid to the STOCKHOLDERS plus (ii) the value (determined in accordance
with Section 11.5(c)
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hereof) of the CTS Stock delivered to the STOCKHOLDERS (the "Indemnification
Threshold"); provided, however, that CTS, NEWCO, the Surviving Corporation and
the other Persons or entities indemnified pursuant to Section 11.1 (other than
the STOCKHOLDERS) may assert and shall be indemnified for any claim under (i)
Section 11.1(iv) or 11.1(v) or (ii) the Purchase Price Adjustment at any time,
regardless of whether the aggregate of all claims which such Persons may have
against any STOCKHOLDER or all STOCKHOLDERS exceeds the Indemnification
Threshold, it being understood that the amount of any such claim under (i)
Section 11.1(iv) or 11.1(v) or (ii) the Purchase Price Adjustment shall not be
counted towards the Indemnification Threshold. The STOCKHOLDERS shall not assert
any claim for indemnification hereunder against CTS, NEWCO, the Surviving
Corporation or the other Persons set forth in Section 11.1 (other than the
STOCKHOLDERS) until such time as, and solely to the extent that, the aggregate
of all claims which the STOCKHOLDERS may have against any of such Persons
exceeds $100,000. No Person shall be entitled to indemnification under this
Section 11 if and to the extent that such Person's claim for indemnification is
directly or indirectly related to a breach by such Person of any representation,
warranty, covenant or other agreement set forth in this Agreement.
(b) CTS shall have the right, upon written notice, to offset
indemnification amounts due to it pursuant to this Agreement against payments
due to the STOCKHOLDERS under (i) this Agreement (including, without limitation,
the consideration set forth on Annex III hereto) and/or (ii) any contract
contemplated by, or referred to in, this Agreement.
(c) Indemnity obligations hereunder may be satisfied through the payment
of cash or the delivery of CTS Stock, or a combination thereof. For purposes of
calculating the value of the CTS Stock received or delivered by a STOCKHOLDER
(for purposes of determining the Indemnification Threshold and the amount of any
indemnity paid), CTS Stock shall be valued at its initial public offering price
as set forth in the Registration Statement.
(d) Notwithstanding any other term of this Agreement (except the proviso
to this sentence), no STOCKHOLDER shall be liable under this Section 11 for an
amount which exceeds the amount of proceeds received by such STOCKHOLDER in
connection with the Merger, such proceeds to be equal to the sum of (i) the cash
paid to the STOCKHOLDER (ii) the additional consideration, if any, earned by
such STOCKHOLDER pursuant to Annex III hereof, and (iii) the value of the CTS
Stock delivered to the STOCKHOLDER (determined in accordance with Section
11.5(c) hereof); provided, that a STOCKHOLDER's indemnification obligations
pursuant to Sections 11.1(iv) and (v) shall not be limited.
12. TERMINATION OF AGREEMENT
12.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date solely:
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(a) by mutual consent of the boards of directors of CTS and the
COMPANY;
(b) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by CTS (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, unless the failure of such transactions to be
consummated is due to the willful failure of the party seeking to
terminate this Agreement to perform any of its obligations under this
Agreement to the extent required to be performed by it prior to or on the
Closing Date;
(c) by the STOCKHOLDERS or the COMPANY, on the one hand, or by CTS,
on the other hand, if a material breach or default shall be made by the
other party in the observance or in the due and timely performance of any
of the covenants, agreements or conditions contained herein, and the
curing of such default shall not have been made on or before the Closing
Date; or
(d) pursuant to Section 7.8 hereof.
12.2 Liabilities in Event of Termination. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 Prohibited Activities. The STOCKHOLDERS will not, for a period of
four (4) years following the Closing Date, for any reason whatsoever, directly
or indirectly, for themselves or on behalf of or in conjunction with any other
person, company, partnership, corporation or business of whatever nature:
(a) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in direct
competition with CTS or any of the subsidiaries thereof, within 100 miles
of where the COMPANY or any of its subsidiaries or any of the Other
Founding Companies conducted business prior to the effectiveness of the
Merger (the "Territory") ;
(b) call upon any person who is, at that time, within the Territory,
an employee of CTS (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent
of enticing such employee away from or out of the employ of CTS (including
the subsidiaries thereof),
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provided that each STOCKHOLDER shall be permitted to call upon and hire
any member of his or her immediate family;
(c) call upon any person or entity which is, at that time, or which
has been, within one (1) year prior to the Closing Date, a customer of CTS
(including the subsidiaries thereof), of the COMPANY or of any of the
Other Founding Companies within the Territory for the purpose of
soliciting or selling products or services in direct competition with CTS
within the Territory;
(d) call upon any prospective acquisition candidate, on any
STOCKHOLDER's own behalf or on behalf of any competitor in similar or
incidental businesses or activities described in the Registration
Statement, which candidate, to the actual knowledge of such STOCKHOLDER
after due inquiry, was called upon by CTS (including the subsidiaries
thereof) or for which, to the actual knowledge of such STOCKHOLDER after
due inquiry, CTS (or any subsidiary thereof) made an acquisition analysis,
for the purpose of acquiring such entity; or
(e) disclose customers, whether in existence or proposed, of the
COMPANY to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever except to the extent that the COMPANY has in
the past disclosed such information to the public for valid business
reasons or disclosure is specifically required by law; provided, however,
in the event disclosure is required by law, the STOCKHOLDERS shall provide
CTS with prompt notice of such requirement prior to making any disclosure
so that CTS may seek a protective order.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any STOCKHOLDER from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter so long as the STOCKHOLDER
does not consult with or is not employed by such competitor.
13.2 Damages. Because of the difficulty of measuring economic losses to
CTS as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to CTS for which it would
have no other adequate remedy, each STOCKHOLDER agrees that, in the event of
breach by such STOCKHOLDER, the foregoing covenant may be enforced by CTS by
injunctions and restraining orders.
13.3 Reasonable Restraint. It is agreed by the parties hereto that it is
the intent of CTS and the STOCKHOLDERS that the foregoing covenants in this
Section 13 be construed and enforced in accordance with the changing activities
and business of CTS (including the subsidiaries thereof) throughout the term of
this covenant.
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It is further agreed by the parties hereto that, in the event that any
STOCKHOLDER who has entered into an employment agreement with CTS and/or any
subsidiary thereof as set forth in Sections 8.10 and 9.12 hereto, shall
thereafter cease to be employed thereunder, and such STOCKHOLDER shall enter
into a business or pursue other activities not in competition with CTS and/or
any subsidiary thereof, or similar activities or business in locations the
operations of which, under such circumstances, does not violate this Article 13
and in any event such new business, activities or location are not in violation
of this Article 13 or such STOCKHOLDER's obligations under this Article 13, such
STOCKHOLDER shall not be chargeable with a violation of this Article 13 if CTS
and/or any subsidiary thereof shall thereafter enter the same, similar or a
competitive (i) business (ii) course of activities, or (iii) location, as
applicable.
13.4 Severability; Reformation. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
13.5 Independent Covenant. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any STOCKHOLDER
against CTS (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by CTS
of such covenants. It is specifically agreed that the period of four (4) years
stated at the beginning of this Section 13, during which the agreements and
covenants of each STOCKHOLDER made in this Section 13 shall be effective, shall
be computed by excluding from such computation any time during which such
STOCKHOLDER is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 Materiality. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The STOCKHOLDERS recognize and
acknowledge that they had in the past, currently have, and in the future may
have, access to certain confidential information of the COMPANY, the Other
Founding Companies, and/or CTS, such as operational policies, and pricing and
cost policies that are valuable, special and unique assets of the COMPANY's, the
Other Founding Companies' and/or CTS's respective businesses. The STOCKHOLDERS
agree that they will not disclose such confidential information to any person,
firm, corporation, association or other entity
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for any purpose or reason whatsoever, except (a) to authorized representatives
of CTS or the Other Founding Companies who need to know information in
connection with the transactions contemplated hereby, who have been informed of
the confidential nature of such information and who have agreed to keep such
information confidential as provided hereby, (b) following the Closing, such
information may be disclosed by the STOCKHOLDERS as is required in the course of
performing their duties for CTS or the Surviving Corporation and (c) to counsel
and other advisers, provided that such advisers (other than counsel) agree to
the confidentiality provisions of this Section 14.1, unless (i) such information
becomes known to the public generally through no fault of any such STOCKHOLDERS,
(ii) disclosure is required by law or the order of any Governmental Authority
under color of law; provided, that prior to disclosing any information pursuant
to this clause (ii), the STOCKHOLDERS shall, if possible, give prior written
notice thereof to CTS and provide CTS with the opportunity to contest such
disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party. In the event the transactions contemplated by this Agreement
are not consummated, the STOCKHOLDERS shall have none of the above-mentioned
restrictions on their ability to disseminate confidential information with
respect to the COMPANY.
14.2 CTS AND NEWCO. CTS and NEWCO recognize and acknowledge that they had
in the past, currently have, and in the future may have, access to certain
confidential information of the COMPANY, such as operational policies, and
pricing and cost policies that are valuable, special and unique assets of the
COMPANY's business. CTS and NEWCO agree that, prior to the Closing, or if the
Transactions contemplated by this Agreement are not consummated, they will not
disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
the STOCKHOLDERS and to authorized representatives of the COMPANY, (b) to
counsel and other advisers, provided that such advisors (other than counsel)
agree to the confidentiality provisions of this Section 14.2 and (c) to the
Other Founding Companies and their representatives pursuant to Section 7.1(a),
unless (i) such information becomes known to the public generally through no
fault of CTS or NEWCO, (ii) disclosure is required by law or the order of any
Governmental Authority under color of law; provided, that, prior to disclosing
any information pursuant to this clause (ii), CTS and NEWCO shall, if possible,
give prior written notice thereof to the COMPANY and the STOCKHOLDERS and
provide the COMPANY and the STOCKHOLDERS with the opportunity to contest such
disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party. In the event of a breach or threatened breach by CTS or NEWCO
of the provisions of this Section, the COMPANY and the STOCKHOLDERS shall be
entitled to an injunction restraining CTS and NEWCO from disclosing, in whole or
in part, such confidential information. Nothing herein shall be construed as
prohibiting the COMPANY and the STOCKHOLDERS from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
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14.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
Nothing herein shall be construed as prohibiting a party hereto from pursuing
any other available remedy for such breach or threatened breach of Sections 14.1
and 14.2, including the recovery of damages.
14.4 Survival. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Closing Date.
15. TRANSFER RESTRICTIONS
15.1 Transfer Restrictions. For a period of one year from the Closing
Date, except pursuant to Section 16 hereof, none of the STOCKHOLDERS shall (i)
sell, assign, exchange, transfer, encumber, pledge, distribute, appoint or
otherwise dispose of (a) any shares of CTS Stock received by the STOCKHOLDERS
pursuant to the terms hereunder or (b) any interest (including, without
limitation, an option to buy or sell) in any such shares of CTS Stock, in whole
or in part, and no such attempted transfer shall be treated as effective for any
purpose; or (ii) engage in any transaction, whether or not with respect to any
shares of CTS Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of CTS Stock acquired pursuant to Section 2
hereof (including, by way of example and not limitation, engaging in put, call,
short-sale, straddle or similar market transactions). Notwithstanding the
foregoing, the STOCKHOLDERS may (x) transfer shares of CTS to immediate family
members (or trusts for the benefit of the STOCKHOLDERS or family members) or (y)
encumber or pledge any of such shares of CTS Stock; provided, that in each case
the trustee, pledgee or other beneficiary of such transfer, encumbrance or
pledge or the trust, as the case may be, agrees in writing prior to such
transaction to be bound by (1) the provisions of this Section as if a
STOCKHOLDER and party hereto and (2) the indemnification provisions set forth in
this Agreement as if a STOCKHOLDER and party hereto. The certificates evidencing
the CTS Stock delivered to the STOCKHOLDERS pursuant to Section 3 of this
Agreement will bear a legend substantially in the form set forth below and
containing such other information as CTS may deem necessary or appropriate:
EXCEPT AS PROVIDED BY THAT CERTAIN AGREEMENT AND PLAN OF ORGANIZATION, A
COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY
FOR PUBLIC INSPECTION, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT
BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT
BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE,
TRANSFER,
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ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR
TO THE FIRST ANNIVERSARY OF THE CLOSING DATE. UPON THE WRITTEN REQUEST OF
THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
16. REGISTRATION RIGHTS
16.1 Piggyback Registration Rights. At any time following the Closing
Date, whenever CTS proposes to register any CTS Stock for its own or others'
account under the 1933 Act for a public offering, other than (i) any shelf
registration of shares to be used as consideration for acquisitions of
additional businesses by CTS, (ii) registrations relating to Plans and (iii)
registrations relating to rights offerings made to the stockholders of CTS, CTS
shall give each of the STOCKHOLDERS prompt written notice of its intent to do
so. Upon the written request of any of the STOCKHOLDERS given within 30 days
after receipt of such notice, CTS shall cause to be included in such
registration all of the CTS Stock issued to the STOCKHOLDERS pursuant to this
Agreement which any such STOCKHOLDER requests, provided that CTS shall have the
right to reduce the number of shares included in such registration to the extent
that inclusion of such shares could, in the opinion of tax counsel to CTS or its
independent auditors, jeopardize the status of the transactions contemplated
hereby and by the Registration Statement as a tax-free organization. In
addition, if CTS is advised in writing in good faith by any managing underwriter
of an underwritten offering of the securities being offered pursuant to any
registration statement under this Section 16.1 that the number of shares to be
sold by persons other than CTS is greater than the number of such shares which
can be offered without adversely affecting the offering, CTS may reduce pro rata
the number of shares offered for the accounts of such persons (based upon the
number of shares proposed to be sold by each such person) to a number deemed
satisfactory by such managing underwriter, provided, that, for each such
offering made by CTS after the IPO, such reduction shall be made first by
reducing the number of shares to be sold by persons other than CTS, the
STOCKHOLDERS and the stockholders of the Other Founding Companies (collectively,
the STOCKHOLDERS and the stockholders of the Other Founding Companies being
referred to herein as the "Founding Stockholders"), and thereafter, if a further
reduction is required, by reducing pro rata the number of shares to be sold by
the Founding Stockholders.
16.2 Registration Procedures. All expenses incurred in connection with the
registrations under this Section 16 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts with respect to any CTS Stock sold on behalf of any
STOCKHOLDER), shall be borne by CTS. In connection with registrations under
Section 16.1, CTS shall (i) use its best efforts to prepare and file with the
SEC as soon as reasonably practicable, a registration statement with respect to
the CTS Stock and use its best efforts to cause such registration
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to promptly become and remain effective for a period of at least 120 days (or
such shorter period during which stockholders of the Founding Companies shall
have sold all CTS Stock which they requested to be registered); (ii) use its
best efforts to register and qualify the CTS Stock covered by such registration
statement under applicable state securities laws as the holders shall reasonably
request for the distribution of the CTS Stock; (iii) take all actions necessary
to have the CTS Stock covered by such registration listed or quoted on the
exchange or automated quotation system on which the CTS Stock trades at the time
of registration; (iv) take such other actions as are reasonable and necessary to
comply with the requirements of the 1933 Act and the regulations thereunder; and
(v) make available its general counsel to advise each STOCKHOLDER and provide
the legal opinions required under the purchase agreement used in connection with
the registrations under this Section 16.
16.3 Underwriting Agreement. In connection with each registration pursuant
to Section 16.1 covering an underwritten registered public offering, CTS and
each participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of CTS's size and investment stature,
including indemnification provisions.
16.4 Availability of Rule 144. CTS shall not be obligated to register
shares of CTS Stock held by any STOCKHOLDER at any time when the resale
provisions of Rule 144(k) (or any successor provision) promulgated under the
1933 Act are available to such STOCKHOLDER for such shares.
16.5 Market Standoff. In consideration of the granting to the STOCKHOLDERS
of the registration rights under this Section 16, the STOCKHOLDERS agree that
they will not sell, transfer or otherwise dispose of, including without
limitation through put or short sale arrangements, shares of CTS Stock
in the 10 days prior to the effectiveness of any registration of CTS Stock for
sale to the public and for up to 90 days following the effectiveness of such
registration, provided that: (i) all directors, executive officers and holders
of more than five percent of the outstanding CTS Stock agree to the same
restrictions; (ii) with respect to the first public offering of shares of the
CTS Stock within three years following the IPO, the STOCKHOLDERS shall have been
afforded a meaningful opportunity to include shares in such registration after
any reduction by reason of underwriters' advice; and (iii) CTS has not exercised
its rights to delay under this Section 16.5 more than once in any 12 month
period.
17. GENERAL
17.1 Cooperation. The COMPANY, the STOCKHOLDERS, CTS and NEWCO shall each
deliver or cause to be delivered to the other on the Closing Date, and at such
other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this
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Agreement. The STOCKHOLDERS will cooperate and use their reasonable efforts to
have the present officers, directors and employees of the COMPANY cooperate with
CTS on and after the Closing Date in furnishing information, evidence, testimony
and other assistance in connection with any Tax Return filing obligations,
actions, proceedings, arrangements or disputes of any nature with respect to
matters pertaining to all periods prior to the Closing Date.
17.2 Successors and Assigns. During the period payments are to be made to
the STOCKHOLDERS pursuant to Annex III hereof, this Agreement and the rights of
the parties hereunder may not be assigned (including by operation of law) and
shall be binding upon and shall inure to the benefit of the parties hereto, the
successors of CTS, and the heirs and legal representatives of the STOCKHOLDERS;
provided, however, that this Agreement and the rights of the parties hereunder
may be assigned (i) upon receipt of the consent of the STOCKHOLDERS who hold a
majority of the CTS Stock issued and outstanding under this Agreement at such
time of determination, whose consent shall not be unreasonably withheld or (ii)
if the assignee is a company whose capital stock is traded on the Nasdaq Stock
Market, the New York Stock Exchange or the American Stock Exchange.
17.3 Entire Agreement. This Agreement (including the Schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the STOCKHOLDERS, the
COMPANY, NEWCO and CTS and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the STOCKHOLDERS, the COMPANY, NEWCO and CTS,
acting through their respective officers or trustees, duly authorized by their
respective boards of directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the COMPANY and the STOCKHOLDERS shall
make a good faith effort to cross reference disclosure, as necessary or
advisable, between related Schedules.
17.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
17.5 Brokers and Agents. Except as disclosed on Schedule 17.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commissions of
brokers employed or alleged to have been employed by such indemnifying party.
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17.6 Expenses.
(a) Whether or not the transactions herein contemplated shall be
consummated, CTS will pay the fees, expenses and disbursements of CTS and
its agents, representatives, accountants and counsel incurred in
connection with the subject matter of this Agreement and any amendments
thereto, including all costs and expenses incurred in the performance and
compliance with all conditions to be performed by CTS under this
Agreement, including the fees and expenses of Price Waterhouse LLP,
Morgan, Lewis & Bockius LLP, and any other person or entity retained by
CTS, and the costs of preparing the Registration Statement.
(b) If the transactions herein contemplated shall not be
consummated, the Company shall pay the fees, expenses and disbursements of
the STOCKHOLDERS, the COMPANY and their respective agents,
representatives, accountants and counsel incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all
costs and expenses incurred in the performance and compliance with all
conditions to be performed by the COMPANY and the STOCKHOLDERS under this
Agreement, including the fees and expenses of legal counsel to the COMPANY
and the STOCKHOLDERS.
(c) If the transaction herein contemplated is consummated, CTS will
pay the fees, expenses, and disbursements of the STOCKHOLDERS and the
COMPANY as described in (b), above.
(d) Each STOCKHOLDER shall pay all sales, use, transfer, real
property transfer, recording, gains, stock transfer and other similar
taxes and fees ("Transfer Taxes") imposed in connection with the
transactions contemplated hereby. Each STOCKHOLDER shall file all
necessary documentation and Returns with respect to such Transfer Taxes.
In addition, each STOCKHOLDER acknowledges that he, and not the COMPANY or
CTS, will pay all Taxes due upon receipt of the consideration payable
pursuant to Section 2 hereof, and will assume all Tax risks and
liabilities of such STOCKHOLDER in connection with the transactions
contemplated hereby.
17.7 Notices. All notices or communications required or permitted
hereunder shall be in writing and shall be deemed to have been given when
personally delivered or upon receipt if sent by first class certified mail,
return receipt requested or the next business day if sent by telefax (receipt
confirmed and followed up by one of the other delivery methods discussed herein
as well), or upon delivery if sent by express mail, in each case postage prepaid
and addressed as follows:
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(a) If to CTS, or NEWCO:
1650 Tysons Boulevard
Suite 600
McLean, Virginia 22102
with copies to:
The Commonwealth Group
1650 Tysons Boulevard
Suite 600
McLean, Virginia 22102
and
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Attn: Christopher T. Jensen, Esq.
(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on Annex IV, with copies to such counsel as is set forth with
respect to each STOCKHOLDER on such Annex IV;
(c) If to the COMPANY:
MIS Technologies, Inc.
9726 East 42nd Street, Suite 201
Tulsa, Oklahoma 74146
Attn: John Yeager
and marked "Personal and Confidential"
with copies to:
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 17.7 from time to time.
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17.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of New York, except that matters herein within the purview
of the matters covered by the General Corporation Law of the State of Delaware
shall be governed by such General Corporation Law, in each case without
reference to conflicts of laws principles.
17.9 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
17.10 Time. Time is of the essence with respect to this Agreement.
17.11 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
17.12 Remedies Cumulative. Except as provided in Section 11.4 of this
Agreement, no right, remedy or election given by any term of this Agreement
shall be deemed exclusive but each shall be cumulative with all other rights,
remedies and elections available at law or in equity.
17.13 Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
17.14 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of CTS, NEWCO, the COMPANY and the STOCKHOLDERS who hold a
majority of the CTS Stock issued and outstanding under this Agreement at such
time of determination. Any amendment or waiver effected in accordance with this
Section 17.14 shall be binding upon each of the parties hereto, any other person
receiving CTS Stock in connection with the Merger and each future holder of such
CTS Stock.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
CONDOR TECHNOLOGY SOLUTIONS, INC.
By: /s/ Kennard F. Hill
------------------------------------
Name: Kennard F. Hill
Title: President and Chief Executive
Officer
MIS ACQUISITION CORP.
By: /s/ Kennard F. Hill
------------------------------------
Name: Kennard F. Hill
Title: President and Chief Executive
Officer
MIS TECHNOLOGIES , INC.
By: /s/ John Yeager
------------------------------------
Name: John Yeager
Title: President
STOCKHOLDERS:
/s/ John Yeager
----------------------------------------
Name: John Yeager
/s/ David Scott Kinnard
----------------------------------------
Name: David Scott Kinnard
<PAGE>
SCHEDULE 11.1(iv)
SPECIAL INDEMNITY
Any direct or indirect Federal, state or local Tax arising out of or in
connection with the acquisition by the COMPANY of Kinnard Technical Resources,
Inc.
<PAGE>
ANNEX III
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
(1) Total consideration to be paid to the STOCKHOLDERS on the Closing Date:
$1,200,000 in cash and $1,800,000/IPO price per share shares
of CTS Stock.
(2) Contingent consideration of up to $5,500,000 in cash and shares of CTS
Stock will be paid to the STOCKHOLDERS contingent on the 1998 and 1999
financial performance of the COMPANY. Contingent consideration (if
earned) is being offered herein in view of the differences of opinion
between CTS and the STOCKHOLDERS regarding the value of the COMPANY's
business, including without limitation its growth rate, sustainability
of customer base and operating margins. Accordingly, the contingent
portion of the consideration (if any) will enable the total
consideration to be based on the actual value of the COMPANY's
business.
The following details the potential contingent consideration for the
COMPANY:
<TABLE>
<CAPTION>
<S> % Cash /
Conditions Basis of Earnout Calculation (1) % Equity(2)
-------------------------------------------------------------------
<S> <C> <C> <C>
1998 earn-out Consideration 6.0 x Pre-tax Income over 40.0%
cannot exceed $800,000 60.0%
$2,500,000
1999 earn-out Consideration 6.0 x Pre-tax Income over 40.0%
cannot exceed $1,200,000 60.0%
$3,000,000
</TABLE>
(1) Pre-tax Income shall be calculated as follows:
(i) January 1, 1998 through December 31, 1998: Pre-tax Income shall
equal the COMPANY's earnings after interest, depreciation and
amortization, but before Federal and state taxes for the period from
January 1, 1998 through December 31, 1998, calculated in accordance
with GAAP in the manner applied in the audited financial statements
of the COMPANY included in the Registration Statement, but without
giving effect to (x) any intercompany costs or charges imposed by CTS
for services provided to the COMPANY (other than charges for services
provided by CTS that were previously arranged for and independently
paid by the COMPANY, including, without limitation, audit fees,
insurance costs, and general overhead) or (y) the amortization of
intangible assets resulting from the transactions contemplated by
the Agreement. Notwithstanding the foregoing, Pre-tax Income for
such period shall include all costs or other charges imposed for
services or products provided by CTS to the COMPANY for use in
connection with the servicing of the COMPANY's customers.
<PAGE>
(ii) January 1, 1999 through December 31, 1999: Pre-tax Income shall
equal the COMPANY's earnings after interest, depreciation and
amortization, but before Federal and state taxes for the period from
January 1, 1999 through December 31, 1999, calculated in accordance
with GAAP in the manner applied in the audited financial statements
of the COMPANY included in the Registration Statement, but without
giving effect to (x) any intercompany costs or charges imposed by CTS
for services provided to the COMPANY (other than charges for services
provided by CTS that were previously arranged for and independently
paid by the COMPANY, including, without limitation, audit fees,
insurance costs, and general overhead) or (y) the amortization of
intangible assets resulting from the transactions contemplated by
the Agreement. Notwithstanding the foregoing, Pre-tax Income for
such period shall include all costs or other charges imposed for
services or products provided by CTS to the COMPANY for use in
connection with the servicing of the COMPANY's customers.
(2) The equity to be delivered hereunder shall be valued at a per share price
equal to one-tenth (1/10) of the sum of the closing price per share of the
CTS Stock as reported by the "Exchange" (as defined in Section 3(a)(1) of
the 1934 Act) on which the CTS Stock is traded at the close of each of the
last ten business days immediately prior to the date the contingent
consideration is paid. If the CTS Stock is not traded on any Exchange,
then the value of the equity shall be determined by one appraiser selected
upon mutual agreement of CTS and the STOCKHOLDER, whose fees and expenses
shall be paid one-half by CTS and one-half by the STOCKHOLDER.
(3) The equity and cash delivered hereunder shall be delivered to the
STOCKHOLDER no later than 30 days after CTS has received from its
independent accountants audited consolidated financial statements for CTS.
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CONDOR TECHNOLOGY, INC.
The undersigned officer of CONDOR TECHNOLOGY, INC., a corporation
organized and existing under the laws of the State of Delaware (the
"Corporation"), does hereby certify on behalf of the Corporation as follows:
FIRST: The name of the Corporation is
Condor Technology, Inc.
SECOND: The Certificate of Incorporation of the Corporation was
originally filed in the Office of the Secretary of State of the State of
Delaware on August 12, 1996 under the name of "The Condor Group, Inc." The
Corporation filed a Certificate of Amendment on November 22, 1996 increasing the
number of authorized shares of Common Stock. The Corporation filed a
Certificate of Amendment on January 8, 1997 changing its name from "The Condor
Group, Inc." to "Condor Technology Group, Inc." The Company filed an Amended
and Restated Certificate of Incorporation in the Office of the Secretary of
State of the State of Delaware on May 9, 1997 changing its name from "Condor
Technology Group, Inc." to "Condor Technology, Inc."
THIRD: This Amended and Restated Certificate of Incorporation was
duly adopted in accordance with the provisions of Sections 242 and 245 of the
Delaware General Corporation Law, the Board of Directors having duly adopted
resolutions setting forth and declaring advisable this Amended and Restated
Certificate of Incorporation, and in lieu of a vote of stockholders, written
consent to this Amended and Restated Certificate of Incorporation having been
given by holders having not less than the minimum number of votes necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted, with prompt notice of the taking of such action
having been given to those holders who have not consented in writing, all in
accordance with Section 228 of the Delaware General Corporation Law.
FOURTH: This Amended and Restated Certificate of Incorporation is
being filed pursuant to Sections 242 and 245 of the Delaware General Corporation
Law in order to amend and restate the Amended and Restated Certificate of
Incorporation of the Corporation.
FIFTH: The Amended and Restated Certificate of Incorporation of the
Corporation is hereby amended and restated in its entirety as follows:
ARTICLE ONE
The name of the Corporation is:
Condor Technology Solutions, Inc.
<PAGE>
ARTICLE TWO
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, Delaware 19801. The name of its
registered agent at such address is The Corporation Trust Company.
ARTICLE THREE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
ARTICLE FOUR
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is fifty million ( 50,000,000)
shares, of which one million (1,000,000) shares, designated as Preferred Stock,
shall have a par value of one cent ($.01) per share (the "Preferred Stock"),
forty-nine million (49,000,000) shares, designated as Common Stock, shall have a
par value of one cent ($.01) per share (the"Common Stock"); of such Common
Stock, five million
(5,000,000) shares shall be designated as Restricted Common Stock (the
"Restricted Common Stock").
A statement of the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, in respect of each class of
stock of the Corporation is as follows:
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of this Amended and Restated Certificate of Incorporation and the limitations
prescribed by law, the Board of Directors is expressly authorized by adopting
resolutions to issue the shares, fix the number of shares and change the number
of shares constituting any series, and to provide for or change the voting
powers, designations, preferences and relative, participating, optional or other
special rights, qualifications, limitations or restrictions thereof, including
dividend rights (and whether dividends are cumulative), dividend rates, terms of
redemption (including sinking fund provisions), redemption prices, conversion
rights and liquidation preferences of the shares constituting any class or
series of the Preferred Stock, without any further action or vote
by the stockholders.
COMMON STOCK
1. Dividends.
Subject to the preferred rights of the holders of shares of any class
or series of Preferred Stock as provided by the Board of Directors with respect
to any such class or series of Preferred Stock, the holders of the Common Stock,
including the Restricted Common Stock,
2
<PAGE>
shall be entitled to receive, as and when declared by the Board of Directors out
of the funds of the Corporation legally available therefor, such dividends
(payable in cash, stock or otherwise) as the Board of Directors may from time to
time determine, payable to stockholders of record on such dates, not exceeding
60 days preceding the dividend payment dates, as shall be fixed for such purpose
by the Board of Directors in advance of payment of each particular dividend.
All dividends on the Common Stock shall be paid pari passu with dividends on the
Restricted Common Stock.
2. Liquidation.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the distribution or payment
to the holders of shares of any class or series of Preferred Stock as provided
by the Board of Directors with respect to any such class or series of Preferred
Stock, the remaining assets of the Corporation available for distribution to
stockholders shall be distributed among and paid to the holders of the Common
Stock and the Restricted Common Stock ratably in proportion to the number of
shares of Common Stock and Restricted Common Stock held by them respectively.
3. Voting Rights.
Except as otherwise required by law or as provided by the Board of
Directors with respect to any class or series of Preferred Stock, the entire
voting power and all voting rights shall be vested exclusively in the Common
Stock and the Restricted Common Stock. Except as otherwise required by law,
each holder of shares of Restricted Common Stock shall be entitled to 0.2 of a
vote for each share of Restricted Common Stock standing in such holder's name on
the books of the Corporation. The holders of shares of Restricted Common Stock
shall have no right to vote separately as a class except as specifically
required by law. Each holder of shares of Common Stock (other than Restricted
Common Stock) shall be entitled to one vote for each share standing in such
holder's name on the books of the Corporation.
4. Conversion of the Restricted Common Stock
Each share of Restricted Common Stock will automatically convert into
Common Stock on a share for share basis (a) in the event of a transfer or sale
of such share of Restricted Common Stock by the holder thereof (other than a
distribution by a holder to its partners or beneficial owners or a transfer to a
related party of such holder (as defined in Sections 267, 707, 318 and/or 4946
of the Internal Revenue Code of 1986)), (b) in the event, following the
Corporation's initial public offering of Common Stock, any person or group of
persons acting in concert acquires beneficial ownership of 15% or more of the
outstanding shares of Common Stock of the Corporation or (c) in the event,
following the Corporation's initial public offering of Common Stock, any person
or group of persons acting in concert offers to acquire 15% or more of the
outstanding shares of Common Stock of the Corporation. After December 1, 1998,
the Corporation may elect to covert any outstanding shares of Restricted Common
Stock into shares of Common Stock in the event 80% or more of the outstanding
shares of Restricted Common Stock have been previously converted into shares of
Common Stock.
3
<PAGE>
ARTICLE FIVE
1. Board of Directors.
Effective upon the closing of the Corporation's initial public
offering of Common Stock, the directors shall be classified with respect to the
time for which they shall severally hold office into three classes as nearly
equal in number as possible. The Class I directors shall be elected to hold
office for an initial term expiring at the 1998 annual meeting of stockholders,
the Class II directors shall be elected to hold office for an initial term
expiring at the 1999 annual meeting of stockholders and the Class III directors
shall be elected to hold office for an initial term expiring at the 2000 annual
meeting of stockholders, with the members of each class of directors to hold
office until their successors have been duly elected and qualified. At each
annual meeting of stockholders, the successors to the class of directors whose
term expires at that meeting shall be elected to hold office for a term expiring
at the annual meeting of stockholders held in the third year following the year
of their election and until their successors have been duly elected and
qualified. At each annual meeting of stockholders at which a quorum is present,
the persons receiving a plurality of the votes cast shall be directors. No
director or class of directors may be removed from office by a vote of the
stockholders at any time except for cause. Election of directors need not be by
written ballot unless the By-Laws of the Corporation so provide.
2. Vacancies.
Any vacancy on the Board of Directors resulting from death,
retirement, resignation, disqualification or removal from office or other cause,
as well as any vacancy resulting from an increase in the number of directors
which occurs between annual meetings of the stockholders at which directors are
elected, shall be filled only by a majority vote of the remaining directors then
in office, though less than a quorum, except that those vacancies resulting from
removal from office by a vote of the stockholders may be filled by a vote of the
stockholders at the same meeting at which such removal occurs. The directors
chosen to fill vacancies shall hold office for a term expiring at the end of the
next annual meeting of stockholders. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
Notwithstanding the foregoing, whenever the holders of one or more
classes or series of Preferred Stock shall have the right, voting separately as
a class or series, to elect directors, the election, term of office, filling of
vacancies, removal and other features of such directorships shall be governed by
the terms of the resolution or resolutions adopted by the Board of Directors
pursuant to ARTICLE FOUR applicable thereto, and each director so elected shall
not be subject to the provisions of this ARTICLE FIVE unless otherwise provided
therein.
4
<PAGE>
3. Amendment and Repeal of ARTICLE FIVE.
Notwithstanding any provision of this Amended and Restated Certificate
of Incorporation and of the By-Laws, and notwithstanding the fact that a lesser
percentage may be specified by Delaware law, unless such action has been
approved by a majority vote of the full Board of Directors, the affirmative vote
of the holders of 66-2/3 percent of the outstanding shares of capital stock of
the Corporation entitled to vote thereon, voting together as a single class,
shall be required to amend or repeal any provision of this ARTICLE FIVE or to
adopt any provision inconsistent with this ARTICLE FIVE. In the event such
action has been previously approved by a majority vote of the full Board of
Directors, the affirmative vote of the holders of a majority of the outstanding
shares of capital stock of the Corporation entitled to vote thereon shall be
sufficient to amend or repeal any provision of this ARTICLE FIVE or adopt any
provision inconsistent with this ARTICLE FIVE.
ARTICLE SIX
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter and
repeal the By-Laws of the Corporation.
ARTICLE SEVEN
No director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for
any transaction from which the director derived an improper personal benefit.
ARTICLE EIGHT
The Corporation shall, to the fullest extent permitted by Section 145
of the Delaware General Corporation Law, as the same may be amended and
supplemented, indemnify each director and officer of the Corporation from and
against any and all of the expenses, liabilities or other matters referred to in
or covered by said section and the indemnification provided for herein shall not
be deemed exclusive of any other rights to which those indemnified may be
entitled under any By-Law, agreement, vote of stockholders, vote of
disinterested directors or otherwise, and shall continue as to a person who has
ceased to be a director or officer and shall inure to the benefit of the heirs,
executors and administrators of such persons, and the Corporation may purchase
and maintain insurance on behalf of any director or officer to the extent
permitted by Section 145 of the Delaware General Corporation Law.
5
<PAGE>
ARTICLE NINE
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
6
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Amended and Restated
Certificate of Incorporation on behalf of the Corporation and does verify and
affirm, under penalty of perjury, that this Amended and Restated Certificate of
Incorporation is the act and deed of the Corporation and that the facts stated
herein are true as of this 1st day of October, 1997.
CONDOR TECHNOLOGY, INC.
By: /s/ J. Marshall Coleman
------------------------------------
Name: J. Marshall Coleman
Title: Chairman
7
<PAGE>
Exhibit 3.2
Amended and Restated as of October 1, 1997
BY-LAWS
OF
CONDOR TECHNOLOGY SOLUTIONS, INC.
ARTICLE I
Stockholders
SECTION 1. Annual Meeting. The annual meeting of the stockholders of
the Corporation shall be held on such date, at such time and at such place
within or without the State of Delaware as may be designated by the Board of
Directors, for the purpose of electing Directors and for the transaction of such
other business as may be properly brought before the meeting.
SECTION 2. Special Meetings. Except as otherwise provided in the
Certificate of Incorporation, a special meeting of the stockholders of the
Corporation may be called at any time by the Board of Directors, the Chairman of
the Board, the Chief Executive Officer or the President. Any special meeting of
the stockholders shall be held on such date, at such time and at such place
within or without the State of Delaware as the Board of Directors or the officer
calling the meeting may designate. At a special meeting of the stockholders, no
business shall be transacted and no corporate action shall be taken other than
that stated in the notice of the
<PAGE>
meeting unless all of the stockholders are present in person or by proxy, in
which case any and all business may be transacted at the meeting even though the
meeting is held without notice.
SECTION 3. Notice of Meetings. Except as otherwise provided in these
By-Laws or by law, a written notice of each meeting of the stockholders shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder of the Corporation entitled to vote at such
meeting at his or her address as it appears on the records of the Corporation.
The notice shall state the place, date and hour of the meeting and, in the case
of a special meeting, the purpose or purposes for which the meeting is called.
SECTION 4. Quorum. At any meeting of the stockholders, the holders
of a majority in number of the total outstanding shares of stock of the
Corporation entitled to vote at such meeting, present in person or represented
by proxy, shall constitute a quorum of the stockholders for all purposes, unless
the representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation or by these By-Laws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that at any meeting of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote separately as a
class, the holders of a majority in number of the total outstanding shares of
such class, present in person or represented by proxy, shall constitute a quorum
for purposes of such class vote unless the representation of a larger number of
shares of such class shall be required by law, by the Certificate of
Incorporation or by these By-Laws.
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<PAGE>
SECTION 5. Adjourned Meetings. Whether or not a quorum shall be
present in person or represented at any meeting of the stockholders, the holders
of a majority in number of the shares of stock of the Corporation present in
person or represented by proxy and entitled to vote at such meeting may adjourn
from time to time; provided, however, that if the holders of any class of stock
of the Corporation are entitled to vote separately as a class upon any matter at
such meeting, any adjournment of the meeting in respect of action by such class
upon such matter shall be determined by the holders of a majority of the shares
of such class present in person or represented by proxy and entitled to vote at
such meeting. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the stockholders, or the holder of any class of stock entitled to vote
separately as a class, as the case may be, may transact any business which might
have been transacted by them at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the adjourned meeting.
SECTION 6. Organization. The Chairman of the Board, or, in his
absence, the Chief Executive Officer, or, in their absence, the President, or,
in the absence of the Chairman of the Board, the Chief Executive Officer and the
President, a Vice President shall call all meetings of the stockholders to
order, and shall act as Chairman of such meetings. In the absence of the
Chairman of the Board, the Chief Executive Officer, the President and all of
the Vice Presidents,
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<PAGE>
the holders of a majority in number of the shares of stock of the Corporation
present in person or represented by proxy and entitled to vote at such meeting
shall elect a Chairman.
The Secretary of the Corporation shall act as Secretary of all
meetings of the stockholders; but in the absence of the Secretary, the Chairman
may appoint any person to act as Secretary of the meeting. It shall be the duty
of the Secretary to prepare and make, at least ten days before every meeting of
stockholders, a complete list of stockholders entitled to vote at such meeting,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list
shall be open, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held, for the ten days next
preceding the meeting, to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, and shall be produced
and kept at the time and place of the meeting during the whole time thereof and
subject to the inspection of any stockholder who may be present.
SECTION 7. Voting. Except as otherwise provided in the Certificate
of Incorporation or by law, each stockholder shall be entitled to one vote for
each share of the capital stock of the Corporation registered in the name of
such stockholder upon the books of the Corporation. Each stockholder entitled
to vote at a meeting of stockholders or to express consent or dissent to
corporate action in writing without a meeting may authorize another person or
persons to act for him or her by proxy, but no such proxy shall be voted or
acted upon after three years from its
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<PAGE>
date, unless the proxy provides for a longer period. When directed by the
presiding officer or upon the demand of any stockholder, the vote upon any
matter before a meeting of stockholders shall be by ballot. Except as otherwise
provided by law or by the Certificate of Incorporation, Directors shall be
elected by a plurality of the votes cast at a meeting of stockholders by the
stockholders entitled to vote in the election and, whenever any corporate
action, other than the election of Directors is to be taken, it shall be
authorized by a majority of the votes cast at a meeting of stockholders by the
stockholders entitled to vote thereon.
Shares of the capital stock of the Corporation belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes.
SECTION 8. Inspectors. When required by law or directed by the
presiding officer or upon the demand of any stockholder entitled to vote, but
not otherwise, the polls shall be opened and closed, the proxies and ballots
shall be received and taken in charge, and all questions touching the
qualification of voters, the validity of proxies and the acceptance or rejection
of votes shall be decided at any meeting of the stockholders by two or more
Inspectors who may be appointed by the Board of Directors before the meeting, or
if not so appointed, shall be appointed by the presiding officer at the meeting.
If any person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner.
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<PAGE>
SECTION 9. Consent of Stockholders in Lieu of Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action required to
be taken or which may be taken at any annual or special meeting of the
stockholders of the Corporation, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of any such corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE II
Board of Directors
SECTION 1. Number, Classification and Tenure. The powers of the
Corporation shall be exercised by or under the authority of, and the business
and affairs of the Corporation shall be managed under the direction of, the
Board of Directors. The Board of Directors shall be divided into three classes
as provided in the Certificate of Incorporation. Each Director shall hold
office for the full term for which such Director is elected and until such
Director's successor shall have been duly elected and qualified or until his
earlier death or resignation or removal in accordance with the Certificate of
Incorporation or these By-Laws.
Within the limits specified in the Certificate of Incorporation, the
number of Directors that shall constitute the whole Board of Directors shall be
fixed by, and may be increased or
-6-
<PAGE>
decreased from time to time by, the Board of Directors. Except as provided in
the Certificate of Incorporation of the Corporation, newly created directorships
resulting from any increase in the number of Directors and any vacancies on the
Board of Directors resulting from death, resignation, disqualification, removal
or other cause shall be filled by the affirmative vote of a majority of the
remaining Directors then in office, even though less than a quorum of the Board
of Directors. Any Director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the class of Directors
in which the new directorship was created or the vacancy occurred and until such
Director's successor shall have been elected and qualified or until his earlier
death, resignation or removal. No decrease in the number of Directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
SECTION 2. Qualifications. Directors need not be residents of the
State of Delaware or stockholders of the Corporation.
SECTION 3. Nomination of Directors. Subject to such rights of the
holders of one or more outstanding series of Preferred Stock of the Corporation
to elect one or more Directors in case of arrearages in the payment of dividends
or other defaults or in other cases as shall be prescribed in the Certificate of
Incorporation or in the resolutions of the Board of Directors providing for the
establishment of any such series, only persons who are nominated in accordance
with the procedures set forth in this Section 3 shall be eligible for election
as, and to serve as, Directors. Nominations of persons for election to the
Board of Directors may be made at a meeting of the stockholders at which
Directors are to be elected (i) by or at the direction of
-7-
<PAGE>
the Board of Directors or (ii) by any stockholder of the Corporation who is a
stockholder of record at the time of the giving of such stockholder's notice
provided for in this Section 3, who shall be entitled to vote at such meeting in
the election of Directors and who complies with the requirements of this Section
3. Such nominations, other than those made by or at the direction of the Board
of Directors, shall be preceded by timely advance notice in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice shall be
delivered to, or mailed and received at, the principal executive offices of the
Corporation (i) with respect to an election to be held at the annual meeting of
the stockholders of the Corporation, not later than the close of business on the
90th day prior to the first anniversary of the preceding year's annual meeting;
provided, however, that with respect to the annual meeting of stockholders to be
held in 1998 or in the event that the date of the annual meeting is more than 30
days before or more than 60 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not later than the close of
business on the later of the 90th day prior to such annual meeting or the 10th
day following the day on which public announcement of the date of such meeting
is first made by the Corporation; and (ii) with respect to an election to be
held at a special meeting of stockholders of the Corporation for the election of
Directors, not later than the close of business on the 10th day following the
day on which notice of the date of the special meeting was mailed to
stockholders of the Corporation as provided in Article 1, Section 3 hereof or
public disclosure of the date of the special meeting was made, whichever first
occurs. Any such stockholder's notice to the Secretary of the Corporation shall
set forth (x) as to each person whom the stockholder proposes to nominate for
election or re-election as a Director, (i) the name, age, business address and
residence address of such person, (ii) the principal occupation or
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employment of such person, (iii) the number of shares of each class of capital
stock of the Corporation beneficially owned by such person, (iv) the total
number of shares of capital stock of the Corporation that will be voted for each
of the proposed nominees, (v) the written consent of such person to having such
persons's name placed in nomination at the meeting and to serve as a Director if
elected and (vi) any other information relating to such person that is required
to be disclosed in solicitations of proxies for election of Directors, or is
otherwise required, pursuant to Regulation 14A under the Exchange Act, and (y)
as to the stockholder giving the notice, (i) the name and address, as they
appear on the Corporation's books, of such stockholder and (ii) the number of
shares of each class of voting stock of the Corporation which are then
beneficially owned by such stockholder. The presiding officer of the meeting of
stockholders shall determine whether the requirements of this Section 3 have
been met with respect to any nomination or intended nomination. If the
presiding officer determines that any nomination was not made in accordance with
the requirements of this Section 3, he shall so declare at the meeting and the
defective nomination shall be disregarded. Notwithstanding the foregoing
provisions of this Section 3, a stockholder shall also comply with all
applicable requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this Section 3.
SECTION 4. Removal, Vacancies and Additional Directors. Except as
otherwise provided in the Certificate of Incorporation, the stockholders may, at
any special meeting the notice of which shall state that it is called for that
purpose, remove, with or without cause, any Director and fill the vacancy;
provided that whenever any Director shall have been elected by the holders of
any class of stock of the Corporation voting separately as a class under the
provisions
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of the Certificate of Incorporation, such Director may be removed and the
vacancy filled only by the holders of that class of stock voting separately as a
class. Except as otherwise provided in the Certificate of Incorporation,
vacancies caused by any such removal and not filled by the stockholders at the
meeting at which such removal shall have been made, or any vacancy caused by the
death or resignation of any Director or for any other reason, and any newly
created directorship resulting from any increase in the authorized number of
Directors, may be filled by the affirmative vote of a majority of the Directors
then in office, although less than a quorum, and any Director so elected to fill
any such vacancy or newly created directorship shall hold office until his or
her successor is elected and qualified or until his or her earlier resignation
or removal.
When one or more Directors shall resign effective at a future date, a
majority of the Directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
Director so chosen shall hold office as herein provided in connection with the
filling of other vacancies.
SECTION 5. Place of Meeting. The Board of Directors may hold its
meetings in such place or places in the State of Delaware or outside the State
of Delaware as the Board from time to time shall determine.
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SECTION 6. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as the Board from time to time
by resolution shall determine. No notice shall be required for any regular
meeting of the Board of Directors; but a copy of every resolution fixing or
changing the time or place of regular meetings shall be mailed to every Director
at least five days before the first meeting held in pursuance thereof.
SECTION 7. Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by direction of the Chairman of the
Board, the President or by any two of the Directors then in office.
Notice of the day, hour and place of holding of each special meeting
shall be given by mailing the same at least two days before the meeting or by
causing the same to be transmitted by facsimile, telegram or telephone at least
one day before the meeting to each Director. Unless otherwise indicated in the
notice thereof, any and all business other than an amendment of these By-Laws
may be transacted at any special meeting, and an amendment of these By-Laws may
be acted upon if the notice of the meeting shall have stated that the amendment
of these By-Laws is one of the purposes of the meeting. At any meeting at which
every Director shall be present, even though without any notice, any business
may be transacted, including the amendment of these By-Laws.
SECTION 8. Quorum. Subject to the provisions of Section 4 of this
Article II, a majority of the members of the Board of Directors in office (but,
unless the Board shall consist
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solely of one Director, in no case less than one-third of the total number of
Directors nor less than two Directors) shall constitute a quorum for the
transaction of business and the vote of the majority of the Directors present at
any meeting of the Board of Directors at which a quorum is present shall be the
act of the Board of Directors. If at any meeting of the Board there is less
than a quorum present, a majority of those present may adjourn the meeting from
time to time.
SECTION 9. Organization. The Chairman of the Board, or, in his
absence, the President shall preside at all meetings of the Board of Directors.
In the absence of both the Chairman of the Board and the President, a Chairman
shall be elected from the Directors present. The Secretary of the Corporation
shall act as Secretary of all meetings of the Directors; but in the absence of
the Secretary, the Chairman may appoint any person to act as Secretary of the
meeting.
SECTION 10. Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the Directors of the Corporation. The
Board may designate one or more Directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided by resolution passed by a majority of the
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whole Board, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and the affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's property and
assets, recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending these By-Laws; and unless such
resolution, these By-laws, or the Certificate of Incorporation expressly so
provide, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock.
SECTION 11. Conference Telephone Meetings. Unless otherwise
restricted by the Certificate of Incorporation or by these By-Laws, the members
of the Board of Directors or any committee designated by the Board, may
participate in a meeting of the Board or such committee, as the case may be, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at such meeting.
SECTION 12. Consent of Directors or Committee in Lieu of Meeting.
Unless otherwise restricted by the Certificate of Incorporation or by these
By-Laws, any action required or permitted to be taken at any meeting of the
Board Directors, or of any committee thereof, may be taken without a meeting if
all members of the Board or committee, as the case may be,
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consent thereto in writing and the writing or writings are filed with the
minutes of proceedings of the Board or committee, as the case may be.
ARTICLE III
Officers
SECTION 1. Officers. The officers of the Corporation shall be a
Chairman of the Board, a Vice Chairman of the Board, a Chief Executive Officer,
a President, one or more Vice Presidents, a Secretary and a Treasurer, and such
additional officers, if any, as shall be elected by the Board of Directors
pursuant to the provisions of Section 7 of this Article III. The Chairman of
the Board, the Vice Chairman of the Board, the Chief Executive Officer, the
President, one or more Vice Presidents, the Secretary and the Treasurer shall be
elected by the Board of Directors at its first meeting after each annual meeting
of the stockholders. The failure to hold such election shall not of itself
terminate the term of office of any officer. All officers shall hold office at
the pleasure of the Board of Directors. Any officer may resign at any time upon
written notice to the Corporation. Officers may, but need not, be Directors.
Any number of offices may be held by the same person.
All officers, agents and employees shall be subject to removal, with
or without cause, at any time by the Board of Directors. The removal of an
officer without cause shall be without prejudice to his or her contract rights,
if any. The election or appointment of an officer shall not of itself create
contract rights. All agents and employees other than officers elected by the
Board
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of Directors shall also be subject to removal, with or without cause, at any
time by the officers appointing them.
Any vacancy caused by the death, resignation or removal of any
officer, or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the
Corporation as set forth in these By-Laws, the officers shall have such
authority and shall perform such duties as from time to time may be determined
by the Board of Directors.
SECTION 2. Powers and Duties of the Chairman of the Board. The
Chairman of the Board shall preside at all meetings of the stockholders and at
all meetings of the Board of Directors and shall have such other powers and
perform such other duties as may from time to time be assigned by these By-Laws
or by the Board of Directors.
SECTION 3. Powers and Duties of the Vice Chairman of the Board. The
Vice Chairman of the Board shall have such powers and perform such duties as may
from time to time be assigned by these By-Laws or by the Chairman of the Board,
the Chief Executive Officer or the President.
SECTION 4. Powers and Duties of the Chief Executive Officer. The
Chief Executive Officer shall be the chief executive officer of the Corporation,
have general charge and control of
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all the Corporation's business and affairs and, subject to the control of the
Board of Directors, shall have all powers and shall perform all duties incident
to the office of Chief Executive Officer. In the absence of the Chairman of the
Board, the Chief Executive Officer shall preside at all meetings of the
stockholders and at all meetings of the Board of Directors.
In addition, the Chief Executive Officer shall have such other powers and
perform such other duties as may from time to time be assigned by these By-Laws
or by the Board of Directors.
SECTION 5. Powers and Duties of the President. The President shall,
subject to the control of the Board of Directors, have all powers and shall
perform all duties incident to the office of President. In the absence of the
Chairman of the Board and the Chief Executive Officer, the President shall
preside at all meetings of the stockholders and at all meetings of the Board of
Directors. In the absence of the Chief Executive Officer, the President shall
be the chief executive officer of the Corporation, have general charge and
control of all the Corporation's business and affairs and shall have such other
powers and perform such other duties as may from time to time be assigned by
these By-Laws or by the Board of Directors.
SECTION 6. Powers and Duties of the Vice Presidents. Each Vice
President shall have all powers and shall perform all duties incident to the
office of Vice President and shall have such other powers and perform such other
duties as may from time to time be assigned by these By-Laws or by the Board of
Directors, the Chairman of the Board, the Chief Executive Officer or the
President.
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SECTION 7. Powers and Duties of the Secretary. The Secretary shall
keep the minutes of all meetings of the Board of Directors and the minutes of
all meetings of the stockholders in books provided for that purpose. The
Secretary shall attend to the giving or serving of all notices of the
Corporation; shall have custody of the corporate seal of the Corporation and
shall affix the same to such documents and other papers as the Board of
Directors, the Chairman of the Board, the Chief Executive Officer or the
President shall authorize and direct; shall have charge of the stock certificate
books, transfer books and stock ledgers and such other books and papers as the
Board of Directors, the Chairman of the Board, the Chief Executive Officer or
the President shall direct, all of which shall at all reasonable times be open
to the examination of any Director, upon application, at the office of the
Corporation during business hours. The Secretary shall have all powers and
shall perform all duties incident to the office of Secretary and shall also have
such other powers and shall perform such other duties as may from time to time
be assigned by these By-Laws or by the Board of Directors, the Chairman of the
Board, the Chief Executive Officer or the President.
SECTION 8. Powers and Duties of the Treasurer. The Treasurer shall
have custody of, and when proper shall pay out, disburse or otherwise dispose
of, all funds and securities of the Corporation. The Treasurer may endorse on
behalf of the Corporation for collection checks, notes and other obligations and
shall deposit the same to the credit of the Corporation in such bank or banks or
depositary or depositaries as the Board of Directors may designate; shall sign
all receipts and vouchers for payments made to the Corporation; shall enter or
cause to be entered regularly in the books of the Corporation kept for the
purpose full and accurate accounts of all
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moneys received or paid or otherwise disposed of and whenever required by the
Board of Directors, the Chairman of the Board, the Chief Executive Officer or
the President shall render statements of such accounts. The Treasurer shall, at
all reasonable times, exhibit the books and accounts to any Director of the
Corporation upon application at the office of the Corporation during business
hours; and shall have all powers and shall perform all duties incident of the
office of Treasurer and shall also have such other powers and shall perform such
other duties as may from time to time be assigned by these By-Laws or by the
Board of Directors, the Chairman of the Board, the Chief Executive Officer or
the President.
SECTION 9. Additional Officers. The Board of Directors may from time
to time elect such other officers (who may but need not be Directors), including
a Controller, Assistant Treasurers, Assistant Secretaries and Assistant
Controllers, as the Board may deem advisable and such officers shall have such
authority and shall perform such duties as may from time to time be assigned by
the Board of Directors, the Chairman of the Board, the Chief Executive Officer
or the President.
The Board of Directors may from time to time by resolution delegate to
any Assistant Treasurer or Assistant Treasurers any of the powers or duties
herein assigned to the Treasurer; and may similarly delegate to any Assistant
Secretary or Assistant Secretaries any of the powers or duties herein assigned
to the Secretary.
SECTION 10. Giving of Bond by Officers. All officers of the
Corporation, if
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required to do so by the Board of Directors, shall furnish bonds to the
Corporation for the faithful performance of their duties, in such penalties and
with such conditions and security as the Board shall require.
SECTION 11. Voting Upon Stocks. Unless otherwise ordered by the
Board of Directors, the Chairman of the Board, the Chief Executive Officer, the
President or any Vice President shall have full power and authority on behalf of
the Corporation to attend and to act and to vote, or in the name of the
Corporation to execute proxies to vote, at any meeting of stockholders of any
corporation in which the Corporation may hold stock, and at any such meeting
shall possess and may exercise, in person or by proxy, any and all rights,
powers and privileges incident to the ownership of such stock. The Board of
Directors may from time to time, by resolution, confer like powers upon any
other person or persons.
SECTION 12. Compensation of Officers. The officers of the
Corporation shall be entitled to receive such compensation for their services as
shall from time to time be determined by the Board of Directors.
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ARTICLE IV
Indemnification of Directors and Officers
Section 1. Nature of Indemnity. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was or has agreed to become a Director or officer of the Corporation, or
is or was serving or has agreed to serve at the request of the Corporation as a
Director or officer of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, and may indemnify any person who was or is a party or
is threatened to be made a party to such an action, suit or proceeding by reason
of the fact that he or she is or was or has agreed to become an employee or
agent of the Corporation, or is or was serving or has agreed to serve at the
request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person or on his or her behalf in
connection with such action, suit or proceeding and any appeal therefrom, if the
person acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful; except that in the case of an action or suit by or in the
right of the Corporation to procure a judgment in its favor (1) such
indemnification shall be limited to expenses (including attorneys' fees)
actually and reasonably incurred by such person in
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the defense or settlement of such action or suit, and (2) no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Corporation unless and only to the
extent that the Delaware Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
Section 2. Successful Defense. To the extent that a Director,
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in Section
1 of this Article IV or in defense of any claim, issue or matter therein, he or
she shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection therewith.
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Section 3. Determination that Indemnification is Proper. Any
indemnification of a Director or officer of the Corporation under Section 1 of
this Article IV (unless ordered by a court) shall be made by the Corporation
unless a determination is made that indemnification of the Director or officer
is not proper in the circumstances because he or she has not met the applicable
standard of conduct set forth in Section 1. Any indemnification of an employee
or agent of the Corporation under Section 1 (unless ordered by a court) may be
made by the Corporation upon a determination that indemnification of the
employee or agent is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in Section 1. Any such determination
shall be made (1) by the Board of Directors by a majority vote of a quorum
consisting of Directors who were not parties to such action, suit or proceeding,
or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested Directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
Section 4. Advance Payment of Expenses. Unless the Board of
Directors otherwise determines in a specific case, expenses incurred by a
Director or officer in defending a civil or criminal action, suit or proceeding
shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
Director or officer to repay such amount if it shall ultimately be determined
that he or she is not entitled to be indemnified by the Corporation as
authorized in this Article IV. Such expenses incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the Board of
Directors deems appropriate. The Board of Directors may authorize the
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Corporation's legal counsel to represent such Director, officer, employee or
agent in any action, suit or proceeding, whether or not the Corporation is a
party to such action, suit or proceeding.
Section 5. Survival; Preservation of Other Rights. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each Director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit, or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a contract right may not be
modified retroactively without the consent of such Director, officer, employee
or agent.
The indemnification provided by this Article IV shall not be deemed
exclusive of any other rights to which a person indemnified may be entitled
under any by-law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person. The
Corporation may enter into an agreement with any of its Directors, officers,
employees or agents providing for indemnification and advancement of expenses,
including attorneys fees, that may change, enhance, qualify or limit any right
to indemnification or advancement of expenses created by this Article IV.
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Section 6. Severability. If this Article IV or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each Director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgment, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article IV that shall not have been invalidated and to the
fullest extent permitted by applicable law.
Section 7. Subrogation. In the event of payment of indemnification
to a person described in Section 1 of this Article IV, the Corporation shall be
subrogated to the extent of such payment to any right of recovery such person
may have and such person, as a condition of receiving indemnification from the
Corporation, shall execute all documents and do all things that the Corporation
may deem necessary or desirable to perfect such right of recovery, including the
execution of such documents necessary to enable the Corporation effectively to
enforce any such recovery.
Section 8. No Duplication of Payments. The Corporation shall not be
liable under this Article IV to make any payment in connection with any claim
made against a person described in Section 1 of this Article IV to the extent
such person has otherwise received payment (under any insurance policy, by-law
or otherwise) of the amounts otherwise payable as indemnity hereunder.
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ARTICLE V
Stock-Seal-Fiscal Year
SECTION 1. Certificates For Shares of Stock. The certificates for
shares of stock of the Corporation shall be in such form, not inconsistent with
the Certificate of Incorporation, as shall be approved by the Board of
Directors. All certificates shall be signed by the Chairman of the Board, the
Chief Executive Officer, the President or a Vice President and by the Secretary
or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and shall
not be valid unless so signed.
In case any officer or officers who shall have signed any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed such certificate or certificates had not ceased
to be such officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively numbered
as the same are issued. The name of the person owning the shares represented
thereby with the number of such shares and the date of issue thereof shall be
entered on the books of the Corporation.
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Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be cancelled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and cancelled.
SECTION 2. Lost, Stolen or Destroyed Certificates. Whenever a person
owning a certificate for shares of stock of the Corporation alleges that it has
been lost, stolen or destroyed, he or she shall file in the office of the
Corporation an affidavit setting forth, to the best of his or her knowledge and
belief, the time, place and circumstances of the loss, theft or destruction,
and, if required by the Board of Directors, a bond of indemnity or other
indemnification sufficient in the opinion of the Board of Directors to indemnify
the Corporation and its agents against any claim that may be made against it or
them on account of the alleged loss, theft or destruction of any such
certificate or the issuance of a new certificate in replacement therefor.
Thereupon the Corporation may cause to be issued to such person a new
certificate in replacement for the certificate alleged to have been lost, stolen
or destroyed. Upon the stub of every new certificate so issued shall be noted
the fact of such issue and the number, date and the name of the registered owner
of the lost, stolen or destroyed certificate in lieu of which the new
certificate is issued.
SECTION 3. Transfer of Shares. Shares of stock of the Corporation
shall be transferred on the books of the Corporation by the holder thereof, in
person or by his or her attorney duly authorized in writing, upon surrender and
cancellation of certificates for the number of shares of stock to be
transferred, except as provided in Section 2 of this Article IV.
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SECTION 4. Regulations. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 5. Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in writing
without a meeting or to receive payment of any dividend or other distribution or
allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
as the case may be, the Board of Directors may fix, in advance, a record date,
which shall not be (i) more than sixty (60) nor less than ten (10) days before
the date of such meeting, or (ii) in the case of corporate action to be taken by
consent in writing without a meeting, prior to, or more than ten (10) days
after, the date upon which the resolution fixing the record date is adopted by
the Board of Directors, or (iii) more than sixty (60) days prior to any other
action.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; the record date for determining
stockholders entitled to express consent to corporate action in writing without
a meeting, when no prior action by the Board of Directors is necessary, shall be
the day on which the first written consent is delivered to the Corporation; and
the record date for determining stockholders for any
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other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
SECTION 6. Dividends. Subject to the provisions of the Certificate
of Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall upon a legal holiday, then
the dividend payable on such date shall be paid on the next day not a legal
holiday.
SECTION 7. Corporate Seal. The Board of Directors shall provide a
suitable seal, containing the name of the Corporation, which seal shall be kept
in the custody of the Secretary. A duplicate of the seal may be kept and be
used by any officer of the Corporation designated by the Board of Directors, the
Chairman of the Board, the Chief Executive Officer or the President.
SECTION 8. Fiscal Year. The fiscal year of the Corporation shall be
such fiscal year as the Board of Directors from time to time by resolution shall
determine.
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ARTICLE VI
Miscellaneous Provisions.
SECTION 1. Checks, Notes, Etc. All checks, drafts, bills of
exchange, acceptances, notes or other obligations or orders for the payment of
money shall be signed and, if so required by the Board of Directors,
countersigned by such officers of the Corporation and/or other persons as the
Board of Directors from time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes, obligations and
orders for the payment of money made payable to the Corporation may be endorsed
for deposit to the credit of the Corporation with a duly authorized depository
by the Treasurer and/or such other officers or persons as the Board of Directors
from time to time may designate.
SECTION 2. Loans. No loans and no renewals of any loans shall be
contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized to do so, any officer or agent of the Corporation
may effect loans and advances for the Corporation from any bank, trust company
or other institution or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other evidences of indebtedness of the Corporation. When authorized so to do,
any officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, any and all stocks, securities and
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other personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
SECTION 3. Contracts. Except as otherwise provided in these By-Laws
or by law or as otherwise directed by the Board of Directors, the Chairman of
the Board, the Chief Executive Officer, the President or any Vice President
shall be authorized to execute and deliver, in the name and on behalf of the
Corporation, all agreements, bonds, contracts, deeds, mortgages, and other
instruments, either for the Corporation's own account or in a fiduciary or other
capacity, and the seal of the Corporation, if appropriate, shall be affixed
thereto by any of such officers or the Secretary or an Assistant Secretary. The
Board of Directors, the Chairman of the Board, the Chief Executive Officer, the
President or any Vice President designated by the Board of Directors may
authorize any other officer, employee or agent to execute and deliver, in the
name and on behalf of the Corporation, agreements, bonds, contracts, deeds,
mortgages, and other instruments, either for the Corporation's own account or in
a fiduciary or other capacity, and, if appropriate, to affix the seal of the
Corporation thereto. The grant of such authority by the Board or any such
officer may be general or confined to specific instances.
SECTION 4. Waivers of Notice. Whenever any notice whatever is
required to be given by law, by the Certificate of Incorporation or by these
By-Laws to any person or persons, a waiver thereof in writing, signed by the
person or persons entitled to the notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
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SECTION 5. Offices Outside of Delaware. Except as otherwise required
by the laws of the State of Delaware, the Corporation may have an office or
offices and keep its books, documents and papers outside of the State of
Delaware at such place or places as from time to time may be determined by the
Board of Directors, the Chairman of the Board, the Chief Executive Officer or
the President.
ARTICLE VII
Amendments
These By-Laws and any amendment thereof may be altered, amended or
repealed, or new By-Laws may be adopted, by the Board of Directors at any
regular or special meeting by the affirmative vote of a majority of all of the
members of the Board, provided in the case of any special meeting at which all
of the members of the Board are not present, that the notice of such meeting
shall have stated that the amendment of these By-Laws was one of the purposes of
the meeting; but these By-Laws and any amendment thereof may be altered, amended
or repealed or new By-Laws may be adopted by the holders of a majority of the
total outstanding stock of the Corporation entitled to vote at any annual
meeting or at any special meeting, provided, in the case of any special meeting,
that notice of such proposed alteration, amendment, repeal or adoption is
included in the notice of the meeting.
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CONDOR TECHNOLOGY SOLUTIONS, INC.
1997 LONG-TERM INCENTIVE PLAN
1. Purpose. The purpose of this 1997 Long-Term Incentive Plan (the "Plan")
of Condor Technology Solutions, Inc., a Delaware corporation (the "Company"), is
to advance the interests of the Company and its stockholders by providing a
means to attract, retain, motivate and reward executive officers, key employees,
directors and consultants of and service providers to the Company and its
subsidiaries (including consultants and others providing services of substantial
value) and to enable such persons to acquire or increase their proprietary
interest in the Company, thereby promoting a closer identity of interests
between such persons and the Company's stockholders.
2. Definitions. The definitions of awards under the Plan, including
Options, SARs (including Limited SARs), Restricted Stock, Deferred Stock, Stock
granted as a bonus or in lieu of other awards, Dividend Equivalents and Other
Stock-Based Awards are set forth in Section 6 of the Plan. Such awards, together
with any other right or interest granted to a Participant under the Plan, are
termed "Awards." For purposes of the Plan, the following additional terms shall
be defined as set forth below:
(a) "Award Agreement" means any written agreement, contract, notice or
other instrument or document evidencing an Award.
(b) "Beneficiary" shall mean the person, persons, trust or trusts which
have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or, if there is no
designated Beneficiary or surviving designated Beneficiary, then the person,
persons, trust or trusts entitled by will or the laws of descent and
distribution to receive such benefits.
(c) "Beneficial Owner" and related terms shall have the meaning ascribed
under Section 13(d) of the Exchange Act, including Rule 13d-3, and any successor
thereto.
(d) "Board" means the Board of Directors of the Company.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee benefit plan
of the Company, acquires a voting security of the Company and thereafter
is, directly or indirectly, the Beneficial Owner of voting securities
representing 50 percent or more of the total voting power of all of the
then-outstanding voting securities of the Company;
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(ii) the following individuals no longer constitute a majority of
the members of the Board: (A) the individuals who, as of the closing date
of the Initial Public Offering, constitute the Board (the "Original
Directors"); (B) the individuals who thereafter are elected to the Board
and whose election, or nomination for election, to the Board was approved
by a vote of at least two-thirds (2/3) of the Original Directors then
still in office (such directors becoming "Additional Original Directors"
immediately following their election); and (C) the individuals who are
elected to the Board and whose election, or nomination for election, to
the Board was approved by a vote of at least two-thirds (2/3) of the
Original Directors and Additional Original Directors then still in office
(such directors also becoming "Additional Original Directors" immediately
following their election);
(iii) the stockholders of the Company approve a merger,
consolidation, recapitalization or reorganization of the Company, or a
reverse stock split of outstanding voting securities, or consummation of
any such transaction if stockholder approval is not obtained, other than
any such transaction which would result in at least 75 percent of the
total voting power represented by the voting securities of the surviving
entity outstanding immediately after such transaction being Beneficially
Owned by at least 75 percent of the holders of outstanding voting
securities of the Company immediately prior to the transaction, with the
voting power of each such continuing holder relative to other such
continuing holders not substantially altered in the transaction; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets.
(f) "Code" means the Internal Revenue Code of 1986, as amended from time
to time. References to any provision of the Code shall be deemed to include
regulations thereunder and successor provisions and regulations thereto.
(g) "Committee" means the Compensation Committee of the Board, or such
other Board committee as may be designated by the Board to administer the Plan;
provided, however, that the Committee shall consist solely of two or more
directors. In appointing members of the Committee, the Board will consider
whether each member will qualify as a "Non-Employee Director" within the meaning
of Rule 16b-3(b)(3) and as an "outside director" within the meaning of Treasury
Regulation 1.162-27(e)(3) under Code Section 162(m), but such members are not
required to so qualify at the time of appointment or during their term of
service on the Committee.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time. References to any provision of the Exchange Act shall be
deemed to include rules thereunder and successor provisions and rules thereto.
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(i) "Fair Market Value" means, with respect to Stock, Awards or other
property, the fair market value of such Stock, Awards or other property
determined by such methods or procedures as shall be established from time to
time by the Committee; provided, however, that (i) if the Stock is listed on a
national securities exchange or quoted in an interdealer quotation system, the
Fair Market Value of such Stock on a given date shall be based upon the last
sales price or, if unavailable, the average of the closing bid and asked prices
per share of the Stock on such date (or, if there was no trading or quotation in
the Stock on such date, on the next preceding date on which there was trading or
quotation) as reported in the Wall Street Journal (or other reporting service
approved by the Committee), (ii) the "Fair Market Value" of Stock subject to
Options granted effective upon commencement of the Initial Public Offering shall
be the Initial Public Offering price of the shares so issued and sold in the
Initial Public Offering, as set forth in the first final prospectus used in such
offering (the provisions of clause (i) notwithstanding) and (iii) the "Fair
Market Value" of Stock prior to the date of the Initial Public Offering shall be
as determined by the Board of Directors.
(j) "Initial Public Offering" shall mean the Company's first public
offering of shares of Stock in a firm commitment underwriting registered with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended.
(k) "ISO" means any Option intended to be and designated as an incentive
stock option within the meaning of Section 422 of the Code.
(l) "Non-Employee Director" means a director of the Company who is not, at
the time an Option is to be granted under Section 8(a) or (b) (or, in the case
of an Option granted under Section 8(a)(i) in connection with the Initial Public
Offering, who is not at the date the Initial Public Offering is closed), an
employee of the Company or any subsidiary of the Company.
(m) "Non-Employee Director Initial Option" or "Annual Option" means an
Option to purchase the number of shares specified in or under Section 8(a) or
(b), subject to adjustment as provided in Section 4(c), granted to a
Non-Employee Director.
(n) "Participant" means a person who, at a time when eligible under
Section 5 hereof, has been granted an Award under the Plan.
(o) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(p) "Stock" means the Common Stock, $.01 par value, of the Company and
such other securities as may be substituted or resubstituted for Stock pursuant
to Section 4.
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3. Administration.
(a) Authority of the Committee. Except as otherwise provided below, the
Plan shall be administered by the Committee. The Committee shall have full and
final authority to take the following actions, in each case subject to and
consistent with the provisions of the Plan:
(i) to select persons to whom Awards may be granted;
(ii) to determine the type or types of Awards to be granted to each
such person;
(iii) to determine the number of Awards to be granted, the number of
shares of Stock to which an Award will relate, the terms and conditions of
any Award granted under the Plan (including, but not limited to, any
exercise price, grant price or purchase price, any restriction or
condition, any schedule for lapse of restrictions or conditions relating
to transferability or forfeiture, exercisability or settlement of an
Award, and waivers or accelerations thereof, performance conditions
relating to an Award (including waivers and modifications thereof), based
in each case on such considerations as the Committee shall determine), and
all other matters to be determined in connection with an Award;
(iv) to determine whether, to what extent and under what
circumstances an Award may be settled, or the exercise price of an Award
may be paid, in cash, Stock, other Awards or other property, or an Award
may be cancelled, forfeited or surrendered;
(v) to determine whether, to what extent and under what
circumstances cash, Stock, other Awards or other property payable with
respect to an Award will be deferred either automatically, at the election
of the Committee or at the election of the Participant;
(vi) to prescribe the form of each Award Agreement, which need not
be identical for each Participant;
(vii) to adopt, amend, suspend, waive and rescind such rules and
regulations and appoint such agents as the Committee may deem necessary or
advisable to administer the Plan;
(viii)to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the Plan and any
Award, rules and regulations, Award Agreement or other instrument
hereunder; and
(ix) to make all other decisions and determinations as may be
required under the terms of the Plan or as the Committee may deem
necessary or advisable for the administration of the Plan.
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Other provisions of the Plan notwithstanding, the Board shall perform the
functions of the Committee for purposes of granting Awards (subject to the
Section 8, which provides for certain automatic grants) to Non-Employee
Directors, and the Board may perform any function of the Committee under the
Plan for any other purpose, including without limitation for the purpose of
ensuring that transactions under the Plan by Participants who are then subject
to Section 16 of the Exchange Act in respect of the Company are exempt under
Rule 16b-3. In any case in which the Board is performing a function of the
Committee under the Plan, each reference to the Committee herein shall be deemed
to refer to the Board, except where the context otherwise requires.
(b) Manner of Exercise of Committee Authority. Any action of the Committee
with respect to the Plan shall be final, conclusive and binding on all persons,
including the Company, subsidiaries of the Company, Participants, any person
claiming any rights under the Plan from or through any Participant and
stockholders, except to the extent the Committee may subsequently modify, or
take further action not consistent with, its prior action. If not specified in
the Plan, the time at which the Committee must or may make any determination
shall be determined by the Committee, and any such determination may thereafter
by modified by the Committee (subject to Section 9(e)). The express grant of any
specific power to the Committee, and the taking of any action by the Committee,
shall not be construed as limiting any power or authority of the Committee. The
Committee may delegate to officers or managers of the Company or any subsidiary
of the Company the authority, subject to such terms as the Committee shall
determine, to perform such functions as the Committee may determine, to the
extent permitted under applicable law.
(c) Limitation of Liability. Each member of the Committee shall be
entitled to, in good faith, rely or act upon any report or other information
furnished to him by any officer or other employee of the Company or any
subsidiary, the Company's independent certified public accountants or any
executive compensation consultant, legal counsel or other professional retained
by the Company to assist in the administration of the Plan. No member of the
Committee, or any officer or employee of the Company acting on behalf of the
Committee, shall be personally liable for any action, determination or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Committee and any officer or employee of the Company acting on
its behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company with respect to any such action, determination or
interpretation.
4. Stock Subject to Plan.
(a) Amount of Stock Reserved. The total amount of Stock that may be
subject to outstanding Awards, determined as of the time immediately after
the grant of any Award, shall not exceed 15% of the total number of shares of
Stock then outstanding, minus the number of shares previously issued pursuant
to awards granted under the Plan. The foregoing notwithstanding, the number
of shares that may be delivered upon the exercise of ISOs shall not exceed
1,000,000 (subject to adjustment as provided in Section 4(c)), provided,
however, that
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shares subject to ISOs, Restricted Stock or Deferred Stock Awards shall not be
deemed delivered if such Awards are forfeited, expire or otherwise terminate
without delivery of shares to the Participant. If an Award valued by reference
to Stock may only be settled in cash, the number of shares to which such Award
relates shall be deemed to be Stock subject to such Award for purposes of this
Section 4(a). Any shares of Stock delivered pursuant to an Award may consist, in
whole or in part, of authorized and unissued shares, treasury shares or shares
acquired in the market for a Participant's Account.
(b) Annual Per-Participant Limitations. During any calendar year, no
Participant may be granted Options and SARs exercisable for more than 400,000
shares of Stock and Awards other than Options and SARs that may be settled by
delivery of more than 200,000 shares of Stock, subject to adjustment as provided
in Section 4(c). In addition, with respect to Awards that may be settled in cash
(in whole or in part), no Participant may be paid during any calendar year cash
amounts relating to such Awards that exceed the greater of the Fair Market Value
of the 200,000 shares of Stock at the date of grant or the date of settlement of
Award. This provision sets forth separate limitations, so that Awards that may
be settled solely by delivery of Stock will not operate to reduce the amount of
cash-only Awards, and vice versa; nevertheless, Awards that may be settled in
Stock or cash must not exceed any applicable limitation.
(c) Adjustments. In the event that the Committee shall determine that any
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase or exchange of Stock or other
securities, Stock dividend or other special, large and non-recurring dividend or
distribution (whether in the form of cash, securities or other property),
liquidation, dissolution or other similar corporate transaction or event,
affects the Stock such that an adjustment is appropriate in order to prevent
dilution or enlargement of the rights of Participants under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number and kind of shares of Stock reserved and available for Awards
under Section 4(a), including shares reserved for ISOs and Restricted and
Deferred Stock, (ii) the number and kind of shares of Stock specified in the
Annual Per-Participant Limitations under Section 4(b), (iii) the number and kind
of shares of Stock to be subject to Non-Employee Director Initial and Annual
Options thereafter granted, (iv) the number and kind of shares of outstanding
Restricted Stock or other outstanding Award in connection with which shares have
been issued, (v) the number and kind of shares that may be issued in respect of
other outstanding Awards and (vi) the exercise price, grant price or purchase
price relating to any Award (or, if deemed appropriate, the Committee may make
provision for a cash payment with respect to any outstanding Award). In
addition, the Committee is authorized to make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, events described in the
preceding sentence) affecting the Company or any subsidiary or the financial
statements of the Company or any subsidiary, or in response to changes in
applicable laws, regulations, or accounting principles. The foregoing
notwithstanding, no adjustments shall be authorized under this Section 4(c) with
respect to ISOs or SARs in tandem therewith to the extent that such authority
would cause the Plan to fail to comply with Section 422(b)(1) of the Code.
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5. Eligibility. Executive officers and key employees of the Company and
its subsidiaries, including any director or officer who is also such an
executive officer or key employee, directors of the Company, and persons who
provide consulting or other services to the
Company deemed by the Committee to be of substantial value to the Company, are
eligible to be granted Awards under the Plan. In addition, a person who has been
offered employment by the Company or its subsidiaries or agreed to become a
director of the Company (including as provided in Section 8(a)(i)) is eligible
to be granted an Award under the Plan; provided, however, that such Award shall
be cancelled if such person fails to commence such employment or service as a
director, and no payment of value may be made in connection with such Award
until such person has commenced such employment or service.
6. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and conditions set forth
in this Section 6. In addition, the Committee may impose on any Award or the
exercise thereof such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine, including terms
requiring forfeiture of Awards in the event of termination of employment or
service of the Participant. The Committee shall retain full power and discretion
to accelerate, waive or modify, at any time, any term or condition of an Award
that is not mandatory under the Plan. Except as expressly provided by the
Committee (including for purposes of complying with requirements of the Delaware
General Corporation Law relating to lawful consideration for issuance of
shares), no consideration other than services will be required for the grant
(but not the exercise) of any Award.
(b) Options. The Committee is authorized to grant Options (including
"reload" options automatically granted to offset specified exercises of Options)
on the following terms and conditions ("Options"):
(i) Exercise Price. The exercise price per share of Stock
purchasable under an Option shall be determined by the Committee;
provided, however, that, except as provided in Section 7(a), such exercise
price shall be not less than the Fair Market Value of a share on the date
of grant of such Option.
(ii) Time and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part, the
methods by which such exercise price may be paid or deemed to be paid, the
form of such payment, including, without limitation, cash, Stock, other
Awards or awards granted under other Company plans or other property
(including notes or other contractual obligations of Participants to make
payment on a deferred basis, such as through "cashless exercise"
arrangements, to the extent permitted by applicable law), and the methods
by which Stock will be delivered or deemed to be delivered to
Participants.
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(iii) ISOs. The terms of any ISO granted under the Plan shall comply
in all respects with the provisions of Section 422 of the Code, including
but not limited to the requirement that no ISO shall be granted more than
10 years after the effective date of the Plan. Anything in the Plan to the
contrary notwithstanding, no term of the Plan relating to ISOs shall be
interpreted, amended, or altered, nor shall any discretion or authority
granted under the Plan be exercised, so as to disqualify either the Plan
or any ISO under Section 422 of the Code, unless requested by the affected
Participant.
(c) Stock Appreciation Rights. The Committee is authorized to grant SARs
on the following terms and conditions ("SARs"):
(i) Right to Payment. An SAR shall confer on the Participant to whom
it is granted a right to receive, upon exercise thereof, the excess of (A)
the Fair Market Value of one share of Stock on the date of exercise (or,
if the Committee shall so determine in the case of any such right other
than one related to an ISO, the Fair Market Value of one share at any time
during a specified period before or after the date of exercise), over (B)
the grant price of the SAR as determined by the Committee as of the date
of grant of the SAR, which, except as provided in Section 7(a), shall be
not less than the Fair Market Value of one share of Stock on the date of
grant.
(ii) Other Terms. The Committee shall determine the time or times at
which an SAR may be exercised in whole or in part, the method of exercise,
method of settlement, form of consideration payable in settlement, method
by which Stock will be delivered or deemed to be delivered to
Participants, whether or not an SAR shall be in tandem with any other
Award, and any other terms and conditions of any SAR. Limited SARs that
may only be exercised upon the occurrence of a Change in Control may be
granted on such terms, not inconsistent with this Section 6(c), as the
Committee may determine. Limited SARs may be either freestanding or in
tandem with other Awards.
(d) Restricted Stock. The Committee is authorized to grant Restricted
Stock on the following terms and conditions ("Restricted Stock"):
(i) Grant and Restrictions. Restricted Stock shall be subject to
such restrictions on transferability and other restrictions, if any, as
the Committee may impose, which restrictions may lapse separately or in
combination at such times, under such circumstances, in such installments,
or otherwise, as the Committee may determine. Except to the extent
restricted under the terms of the Plan and any Award Agreement relating to
the Restricted Stock, a Participant granted Restricted Stock shall have
all of the rights of a stockholder including, without limitation, the
right to vote Restricted Stock or the right to receive dividends thereon.
(ii) Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment or service (as determined under criteria
established by the
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Committee) during the applicable restriction period, Restricted Stock that
is at that time subject to restrictions shall be forfeited and reacquired
by the Company; provided, however, that the Committee may provide, by rule
or regulation or in any Award Agreement, or may determine in any
individual case, that restrictions or forfeiture conditions relating to
Restricted Stock will be waived in whole or in part in the event of
termination resulting from specified causes.
(iii) Certificates for Stock. Restricted Stock granted under the
Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name of
the Participant, such certificates may bear an appropriate legend
referring to the terms, conditions, and restrictions applicable to such
Restricted Stock, the Company may retain physical possession of the
certificate, in which case the Participant shall be required to have
delivered a stock power to the Company, endorsed in blank, relating to the
Restricted Stock.
(iv) Dividends. Dividends paid on Restricted Stock shall be either
paid at the dividend payment date in cash or in shares of unrestricted
Stock having a Fair Market Value equal to the amount of such dividends, or
the payment of such dividends shall be deferred and/or the amount or value
thereof automatically reinvested in additional Restricted Stock, other
Awards, or other investment vehicles, as the Committee shall determine or
permit the Participant to elect. Stock distributed in connection with a
Stock split or Stock dividend, and other property distributed as a
dividend, shall be subject to restrictions and a risk of forfeiture to the
same extent as the Restricted Stock with respect to which such Stock or
other property has been distributed, unless otherwise determined by the
Committee.
(e) Deferred Stock. The Committee is authorized to grant Deferred Stock
subject to the following terms and conditions ("Deferred Stock"):
(i) Award and Restrictions. Delivery of Stock will occur upon
expiration of the deferral period specified for an Award of Deferred Stock
by the Committee (or, if permitted by the Committee, as elected by the
Participant). In addition, Deferred Stock shall be subject to such
restrictions as the Committee may impose, if any, which restrictions may
lapse at the expiration of the deferral period or at earlier specified
times, separately or in combination, in installments or otherwise, as the
Committee may determine.
(ii) Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment or service (as determined under criteria
established by the Committee) during the applicable deferral period or
portion thereof to which forfeiture conditions apply (as provided in the
Award Agreement evidencing the Deferred Stock), all Deferred Stock that is
at that time subject to such forfeiture conditions shall be forfeited;
provided, however, that the Committee may provide, by rule or regulation
or in
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any Award Agreement, or may determine in any individual case, that
restrictions or forfeiture conditions relating to Deferred Stock will be
waived in whole or in part in the event of termination resulting from
specified causes.
(f) Bonus Stock and Awards in Lieu of Cash Obligations. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in lieu
of Company obligations to pay cash under other plans or compensatory
arrangements.
(g) Dividend Equivalents. The Committee is authorized to grant Dividend
Equivalents entitling the Participant to receive cash, Stock, other Awards or
other property equal in value to dividends paid with respect to a specified
number of shares of Stock ("Dividend Equivalents"). Dividend Equivalents may be
awarded on a free-standing basis or in connection with another Award. The
Committee may provide that Dividend Equivalents shall be paid or distributed
when accrued or shall be deemed to have been reinvested in additional Stock,
Awards or other investment vehicles, and subject to such restrictions on
transferability and risks of forfeiture, as the Committee may specify.
(h) Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant such other Awards that may be
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on, or related to, Stock and factors that may influence the
value of Stock, as deemed by the Committee to be consistent with the purposes of
the Plan, including, without limitation, convertible or exchangeable debt
securities, other rights convertible or exchangeable into Stock, purchase rights
for Stock, Awards with value and payment contingent upon performance of the
Company or any other factors designated by the Committee and Awards valued by
reference to the book value of Stock or the value of securities of or the
performance of specified subsidiaries ("Other Stock-Based Awards"). The
Committee shall determine the terms and conditions of such Awards. Stock issued
pursuant to an Award in the nature of a purchase right granted under this
Section 6(h) shall be purchased for such consideration, paid for at such times,
by such methods, and in such forms, including, without limitation, cash, Stock,
other Awards or other property, as the Committee shall determine. Cash awards,
as an element of or supplement to any other Award under the Plan, may be granted
pursuant to this Section 6(h).
7. Certain Provisions Applicable to Awards.
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards granted
under the Plan may, in the discretion of the Committee, be granted either alone
or in addition to, in tandem with or in substitution for any other Award granted
under the Plan or any award granted under any other plan of the Company, any
subsidiary or any business entity to be acquired by the Company or a subsidiary,
or any other right of a Participant to receive payment from the Company or any
subsidiary. Awards granted in addition to or in tandem with other Awards or
awards may be granted either as of the same time as or a different time from the
grant of such other Awards or awards.
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(b) Term of Awards. The term of each Award shall be for such period as may
be determined by the Committee; provided, however, that in no event shall the
term of any ISO or an SAR granted in tandem therewith exceed a period of ten
years from the date of its grant (or such shorter period as may be applicable
under Section 422 of the Code).
(c) Form of Payment Under Awards. Subject to the terms of the Plan and any
applicable Award Agreement, payments to be made by the Company or a subsidiary
upon the grant, exercise or settlement of an Award may be made in such forms as
the Committee shall determine, including, without limitation, cash, Stock, other
Awards or other property, and may be made in a single payment or transfer, in
installments or on a deferred basis. Such payments may include, without
limitation, provisions for the payment or crediting of reasonable interest on
installment or deferred payments or the grant or crediting of Dividend
Equivalents in respect of installment or deferred payments denominated in Stock.
(d) Rule 16b-3 Compliance.
(i) Six-Month Holding Period. Unless a Participant could otherwise
dispose of equity securities, including derivative securities,
acquired under the Plan without incurring liability under
Section 16(b) of the Exchange Act, equity securities acquired
under the Plan must be held for a period of six months
following the date of such acquisition, provided that this
condition shall be satisfied with respect to a derivative
security if at least six months elapse from the date of
acquisition of the derivative security to the date of
disposition of the derivative security (other than upon
exercise or conversion) or its underlying equity security.
(ii) Other Compliance Provisions. With respect to a Participant who
is then subject to Section 16 of the Exchange Act in respect
of the Company, the Committee shall implement transactions
under the Plan and administer the Plan in a manner that will
ensure that each transaction by such a Participant is exempt
from liability under Rule 16b-3, except that such a
Participant may be permitted to engage in a non-exempt
transaction under the Plan if written notice has been given to
the Participant regarding the non-exempt nature of such
transaction. The Committee may authorize the Company to
repurchase any Award or shares of Stock resulting from any
Award in order to prevent a Participant who is subject to
Section 16 of the Exchange Act from incurring liability under
Section 16(b). Unless otherwise specified by the Participant,
equity securities, including derivative securi ties, acquired
under the Plan which are disposed of by a Participant shall be
deemed to be disposed of in the order acquired by the
Participant.
(e) Loan Provisions. With the consent of the Committee, and subject at all
times to, and only to the extent, if any, permitted under and in accordance
with, laws and regulations and
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other binding obligations or provisions applicable to the Company, the Company
may make, guarantee or arrange for a loan or loans to a Participant with respect
to the exercise of any Option or other payment in connection with any Award,
including the payment by a Participant of any or all federal, state or local
income or other taxes due in connection with any Award. Subject to such
limitations, the Committee shall have full authority to decide whether to make a
loan or loans hereunder and to determine the amount, terms and provisions of any
such loan or loans, including the interest rate to be charged in respect of any
such loan or loans, whether the loan or loans are to be with or without recourse
against the borrower, the terms on which the loan is to be repaid and
conditions, if any, under which the loan or loans may be forgiven.
(f) Performance-Based Awards. The Committee may, in its discretion,
designate any Award the exercisability or settlement of which is subject to the
achievement of performance conditions as a performance-based Award subject to
this Section 7(f). The performance objectives for an Award subject to this
Section 7(f) shall consist of one or more business criteria and a targeted level
or levels of performance with respect to such criteria, as specified by the
Committee. Such levels of performance may be expressed in absolute or relative
levels. Achievement of performance objectives with respect to such Awards shall
be measured over a period of not less than one year nor more than five years, as
the Committee may specify. Performance objectives may differ for such Awards to
different Participants. The Committee shall specify the weighting to be given to
each performance objective for purposes of determining the final amount payable
with respect to any such Award. The Committee may, in its discretion, reduce the
amount of a payout otherwise to be made in connection with an Award subject to
this Section 7(f), and the Committee may consider other performance criteria in
exercising such discretion. All determinations by the Committee as to the
achievement of performance objectives shall be in writing.
(g) Acceleration upon a Change of Control. Notwithstanding anything
contained herein to the contrary, unless otherwise provided by the Committee in
an Award Agreement, all conditions and restrictions relating to an Award,
including limitations on exercisability, risks of forfeiture, deferral periods
and conditions and restrictions requiring the continued performance of services
or the achievement of performance objectives with respect to the exercisability
or settlement of such Award, shall immediately lapse upon a Change in Control.
8. Options Granted Automatically to Non-Employee Directors.
(a) Initial Option Grants. A Non-Employee Director Initial Option will be
automatically granted (i) at the commencement of the Initial Public Offering to
each Non-Employee Director at that date and to each other person who has agreed
to become a director and who, if he or she were serving at the date of
commencement of the Initial Public Offering, would qualify as a Non-Employee
Director at that date, and (ii), after the Initial Public Offering, at the
effective date of any other director's initial election to the Board of
Directors if he or she qualifies as a Non-Employee Director at that date. The
foregoing notwithstanding, any Initial Option granted at the commencement of the
Initial Public Offering shall be cancelled and
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forfeited if the Initial Public Offering is not consummated or if, in the case
of an Initial Option granted to a person who has agreed to become a director,
such person does not commence serving as a Non-Employee Director at or promptly
following the closing of the Initial Public Offering.
(b) Annual Option Grants. A Non-Employee Director Annual Option will be
automatically granted, at the close of business on the date of final adjournment
of each annual meeting of stockholders of the Company, to each member of the
Board of Directors who then qualifies as a Non-Employee Director. The foregoing
notwithstanding, any person who has been automatically granted a Non-Employee
Director Initial Option under Section 8(a)(ii) shall not be automatically
granted a Non-Employee Director Annual Option at the first annual meeting of
stockholders following such grant of the Initial Option if such annual meeting
takes place within three months after the effective date of such grant of the
Initial Option.
(c) Number of Shares Subject to Automatic Option Grants. In the case of
any Initial or Annual Option granted on or before the date of the first annual
meeting of stockholders following the Initial Public Offering, the number of
shares of Stock to be subject to each Initial Option shall be 10,000, and the
number of shares of Stock to be subject to each Annual Option shall be 5,000, in
each case subject to adjustment as provided in Section 4(c). In the case of any
Initial or Annual Option granted thereafter, the number of shares of Stock to be
subject to each Initial and Annual Option shall be the applicable number
specified in the preceding sentence or, if so determined by the Board, such
other number of shares specified in the most recent resolution of the Board
adopted on or prior to the date of the annual meeting of stockholders that
coincides with or most recently precedes the date of grant of the Option.
(d) Other Non-Employee Director Initial and Annual Option Terms. Other
terms of Initial and Annual Options shall be as follows:
(i) The exercise price per share of Stock purchasable upon exercise
of a Non-Employee Director Initial or Annual Option will be equal to 100%
of the Fair Market Value of a share of Stock on the date of grant of the
Option.
(ii) A Non-Employee Director Initial or Annual Option will expire at
the earlier of (A) 10 years after the date of grant or (B) one year after
the date the Participant ceases to serve as a director of the Company for
any reason.
(iii) Each Non-Employee Director Initial or Annual Option may be
exercised, prior to its expiration, commencing one year after the date of
grant, or at such earlier date as may be specified by the Board of
Directors; provided, however, that an Option may be exercised following a
Participant's termination of service as a director for reasons other than
death or disability only if the director served for at least 11 months
after the date of grant or the option was otherwise exercisable at the
date of termination of service.
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(e) Method of Exercise. A Participant may exercise a Non-Employee Director
Initial or Annual Option, in whole or in part, at such time as it is exercisable
and prior to its expiration, by giving written notice of exercise to the
Secretary of the Company, specifying the Option to be exercised and the number
of shares to be purchased, and paying in full the exercise price in cash
(including by check) or by surrender of shares already owned by the Participant
(except for shares acquired from the Company by exercise of an option less than
six months before the date of surrender) having a Fair Market Value at the time
of exercise equal to the exercise price, or by a combination of cash and shares.
(f) Availability of Shares. If an automatic grant of Options authorized
under Section 8(a) or (b) cannot be made in full due to the limitation set forth
in Section 4(a), such grant shall be made (together with other automatic grants
to occur at the same time) to the greatest extent then permitted under Section
4(a).
9. General Provisions.
(a) Compliance With Laws and Obligations. The Company shall not be
obligated to issue or deliver Stock in connection with any Award or take any
other action under the Plan in a transaction subject to the registration
requirements of the Securities Act of 1933, as amended, or any other federal or
state securities law, any requirement under any listing agreement between the
Company and any national securities exchange or automated quotation system or
any other law, regulation or contractual obligation of the Company until the
Company is satisfied that such laws, regulations and other obligations of the
Company have been complied with in full. Certificates representing shares of
Stock issued under the Plan will be subject to such stop-transfer orders and
other restrictions as may be applicable under such laws, regulations and other
obligations of the Company, including any requirement that a legend or legends
be placed thereon.
(b) Limitations on Transferability. Awards and other rights under the Plan
will not be transferable by a Participant except by will or the laws of descent
and distribution or to a Beneficiary in the event of the Participant's death,
shall not be pledged, mortgaged, hypothecated or otherwise encumbered, or
otherwise subject to the claims of creditors, and, in the case of ISOs and SARs
in tandem therewith, shall be exercisable during the lifetime of a Participant
only by such Participant or his guardian or legal representative; provided,
however, that such Awards and other rights (other than ISOs and SARs in tandem
therewith) may be transferred to one or more transferees during the lifetime of
the Participant to the extent and on such terms as then may be permitted by the
Committee.
(c) No Right to Continued Employment or Service. Neither the Plan nor any
action taken hereunder shall be construed as giving any employee, director or
other person the right to be retained in the employ or service of the Company or
any of its subsidiaries, nor shall it interfere in any way with the right of the
Company or any of its subsidiaries to terminate any
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employee's employment or other person's service at any time or with the right of
the Board or stockholders to remove any director.
(d) Taxes. The Company and any subsidiary is authorized to withhold from
any Award granted or to be settled, any delivery of Stock in connection with an
Award, any other payment relating to an Award or any payroll or other payment to
a Participant amounts of withholding and other taxes due or potentially payable
in connection with any transaction involving an Award, and to take such other
action as the Committee may deem advisable to enable the Company and
Participants to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to make cash
payments in respect thereof in satisfaction of a Participant's tax obligations.
(e) Changes to the Plan and Awards. The Board may amend, alter, suspend,
discontinue or terminate the Plan or the Committee's authority to grant Awards
under the Plan without the consent of stockholders or Participants, except that
any such action shall be subject to the approval of the Company's stockholders
at or before the next annual meeting of stockholders for which the record date
is after such Board action if such stockholder approval is required by any
federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which the Stock may then be listed or quoted, and
the Board may otherwise, in its discretion, determine to submit other such
changes to the Plan to stockholders for approval; provided, however, that,
without the consent of an affected Participant, no such action may materially
impair the rights of such Participant under any Award theretofore granted to
him. The Committee may waive any conditions or rights under, or amend, alter,
suspend, discontinue, or terminate, any Award theretofore granted and any Award
Agreement relating thereto; provided, however, that, without the consent of an
affected Participant, no such action may materially impair the rights of such
Participant under such Award.
(f) No Rights to Awards; No Stockholder Rights. No Participant or employee
shall have any claim to be granted any Award under the Plan (except for a
director who has become entitled to Options under Section 8), and there is no
obligation for uniformity of treatment of Participants and employees. No Award
shall confer on any Participant any of the rights of a stockholder of the
Company unless and until Stock is duly issued or transferred and delivered to
the Participant in accordance with the terms of the Award or, in the case of an
Option, the Option is duly exercised.
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant pursuant to an Award,
nothing contained in the Plan or any Award shall give any such Participant any
rights that are greater than those of a general creditor of the Company;
provided, however, that the Committee may authorize the creation of trusts or
make other arrangements to meet the Company's obligations under the Plan to
deliver cash, Stock, other Awards or other property pursuant to any Award, which
trusts or other
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arrangements shall be consistent with the "unfunded" status of the Plan unless
the Committee otherwise determines with the consent of each affected
Participant.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor any submission of the Plan or amendments thereto to the stockholders
of the Company for approval shall be construed as creating any limitations on
the power of the Board to adopt such other compensatory arrangements as it may
deem desirable, including, without limitation, the granting of stock options
otherwise than under the Plan, and such arrangements may be either applicable
generally or only in specific cases.
(i) No Fractional Shares. No fractional shares of Stock shall be issued or
delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other Awards or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.
(j) Governing Law. The validity, construction and effect of the Plan, any
rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with the laws of the State of Delaware, without giving
effect to principles of conflicts of laws, and applicable federal law.
(k) Effective Date; Plan Termination. The Plan shall become effective as
of the date of its adoption by the Board, subject to stockholder approval prior
to the commencement of the Initial Public Offering, and shall continue in effect
until terminated by the Board.
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Exhibit 10.2
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement"), dated effective January 2, 1997, by
and between Condor Technology Group, Inc., a Delaware corporation (the
"Company"), and Kennard F. Hill ("Employee").
PRELIMINARY RECITALS
WHEREAS, the Company has been formed to execute a plan to consolidate a
limited number of information technology of companies (the "Business") and to
make an initial public offering ("IPO") common stock of the consolidated company
to the public (the "Plan");
WHEREAS, the Company is in the process of identifying and evaluating
companies that may meet its criteria to join with it in the planned
consolidation, to be followed by negotiations on merger agreements with the
companies;
WHEREAS, Hill has extensive experience in the information technology field;
WHEREAS, the Company desires to employ Hill as its President and
Chief Executive Officer;
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Employment.
1.1 Engagement of Employee. The Company agrees to employ Employee as
its President and Chief Executive Officer of the Company, and Employee
agrees to accept such employment, all in accordance with the terms and
conditions of this Agreement.
1.2 Duties and Powers. At all times during the Employment Period (as
defined herein), the Company agrees that Employee will serve as the
President and Chief Executive Officer; provided, however, that Employee
shall resign as President of the Company effective upon the closing of the
Company's initial public offering of Common Stock. He shall have such other
responsibilities, duties and authorities, and will render such services
for the Company and its affiliates as the Board of Directors of the Company
(the "Board") shall from time to time reasonably direct.
1.3 Employment Period. Employee's employment under this Agreement
shall be for a period of three years commencing January 1, 1997 (the
"Initial Employment Period") unless the Company fails to execute its
planned IPO during 1997, in which case the term of this Agreement will end
at the time the Company ceases its efforts to execute the IPO but not
sooner than December 31, 1997. Provided the Company successfully
consummates the IPO, this Agreement shall automatically renew for
successive one-year periods (each one-year period shall be referred to
herein as a "Renewal Period") unless either the Company or
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Employee, as the case may be, provides written notice within thirty (30) days
prior to the termination of any such period, stating its/his desire to terminate
this Agreement. The Initial Employment Period and each successive Renewal
Period shall be referred to herein together as the "Employment Period".
Notwithstanding anything to the contrary contained herein, the Employment Period
is subject to termination pursuant to Section 1.4 below.
1.4 Termination of Employment.
(a) Termination by Company For Cause . The Company has the right
to terminate Employee's employment under this Agreement, by notice to
Employee in writing at any time, (i) for "Cause" or (ii) due to the
death or the Disability of Employee. Any such termination shall be
effective upon the date of service of such notice pursuant to Section
6.6 hereof, except in the case of the death, in which case such
termination shall become effective immediately upon the death of
Employee.
"Cause," as used herein, means the occurrence of any of the following
events:
(i) willful and material fraud or dishonesty in connection with
the Employee's performance hereunder;
(ii) the failure of Employee to substantially perform his duties
hereunder that results in material harm to the Company;
(iii) the conviction for, or plea or nolo contendere to, a charge
of commission of a felony;;
(iv) subject to (v) below, a material breach by Employee of any
of the terms and conditions of this Agreement after (A) written notice
is delivered to Employee describing such breach and (B) Employee has
failed to cure or take substantial steps to cure such breach after a
reasonable time period, as determined by the Board in its reasonable
discretion (not to be less than 60 days); or
(v) a material breach by Employee of any of the terms,
conditions or covenants set forth in Section 3 of this Agreement.
Employee shall be deemed to have a "Disability" for purposes of this
Agreement if he is unable to perform, by reason of physical or mental
incapacity, his material duties or obligations under this Agreement,
for a total period of 180 days in any 360-day period. The Board shall
determine, according to the facts then available, whether and when the
Disability of the Employee has occurred. Such determination shall not
be arbitrary or unreasonable and the Board will take into
consideration the expert medical opinion of a physician chosen by
the Company as well as a physician chosen by Employee, after such
physician has completed an examination of Employee. Employee agrees
to make himself available for such examination upon the reasonable
request of the Company.
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(b) Termination for Good Reason. Employee shall have the right
at any time to terminate his employment with the Company for any "good
reason." For purposes of this Agreement and subject to the Company's
opportunity to cure as provided in Section 1.4(c) below, the Employee
shall have "good reason" to terminate his employment hereunder if such
termination shall be the result of:
(i) a material breach by the Company of the compensation and
benefits provisions of Section 2 hereof;
(ii) a material breach by the Company of any other term of
this Agreement.
(c) Notice and Opportunity to Cure. Notwithstanding the
foregoing, it shall be a condition precedent to the Company's right to
terminate the Employee's employment for "cause" and the Employee's
right to terminate for "good reason" that (1) the party seeking the
termination shall first have given the other party written notice
stating with specificity the reason for the termination ("breach") and
(2) if such breach is susceptible of cure or remedy, a period of 30
days from and after the giving of such notice shall have elapsed
without the breaching party having effectively cured or remedied such
breach during such 30 day period, unless such breach cannot be cured
or remedied within 30 days, in which case the period for remedy or
cure shall be extended for a reasonable time (not to exceed an
additional 30 days), provided the breaching party as made and
continues to make a diligent effort to effect such remedy or cure.
2. Compensation and Benefits.
2.1 Salary. In consideration of Employee performing his duties under
this Agreement during the Employment Period, the Company will pay Employee
a base salary ("Base Salary") as follows:
(a) Pre-IPO. From the effective date of this Agreement until the
closing of the IPO, Employee shall receive a base salary at a rate of
$216,000 per annum;
(b) Post-IPO. From and after the successful consummation of the
IPO Employee shall receive a base salary at a rate of $300,000 per
annum(the "Base Salary").
The Base Salary shall be payable in accordance with the Company's regular
payroll policy for salaried employees. The Base Salary may be increased
(but not decreased) from time to time during the Employment Period, as
determined by the Board, in its sole discretion.
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2.2 Stock Sale. In consideration for his agreement to accept this
engagement and in consideration of the consulting services provided to date
by Employee, the Company promises to sell to Hill a total of 1,000,000
shares of its common stock, before giving effect to a reverse stock split
to be made in connection with the Company's IPO, as soon as practicable
following the execution of this document.
2.3 Stock Options. Employee shall be granted options to purchase
100,000 shares of common stock of the Company, exercisable at the IPO price
and vesting over three years under the Company's 1997 Long-Term Incentive
Plan.
2.4 Bonus. Employee shall participate in an Executive Compensation
Program to be established by the Company (the "Bonus Program") under which
Employee shall be entitled to a bonus based on the financial performance of
the Company. All bonuses awarded to Employee hereunder shall be payable in
accordance with Company policy.
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2.5 Compensation After Termination During Employment Period.
(a) If the Company shall terminate Employee's employment during
the first twelve months of the Employment Period for any reason (other
than for "Cause" pursuant to Section 1.4 of this Agreement) or
Employee shall terminate his employment during the first twelve months
for good reason as defined in Section 1.4(b), Employee shall be
entitled to receive his accrued benefits and as severance (A) his Base
Salary for the period of time which would have been remaining in the
Initial Employment Period or any Renewal Period (the "Severance
Period"), (B) his pro rated bonus, as determined by the Board in its
good faith judgment, for the period of any fiscal year prior to the
termination date, (C) all options to purchase shares of the Company's
common stock held by Employee immediately prior to termination of
employment shall become immediately vested and exercisable and,
subject to the terms of the Company's Long-Term Incentive Plan, shall
remain exercisable for the duration of the Severance Period and (D) a
continuation for the Severance Period of coverage under the group
medical care, disability and life insurance benefit plans or
arrangements in which the Employee is participating; provided however,
that the Company's obligation to provide such coverage shall be
terminated if the Employee obtains comparable coverage from another
employer at any time during the Severance Period. The Employee shall
be entitled, at the expiration of the Severance Period to elect
continued medical coverage in accordance with section 4980B of the
Internal Revenue Code. If the Company terminates Employee's employment
other than for Cause as defined in Section 1.4 between the twelfth and
thirty-sixth month or during a Renewal Period, or if the Employee
terminates his employment other than for good reason as defined in
Section 1.4(b) between the twelfth and thirty-sixth month or during a
Renewal Period, Employee shall be entitled to receive severance pay
equal to 100% of his Base Salary for the period of time which would
have been remaining in the Initial Employment Period or any Renewal
Period and ("Severance Pay").
(b) If the Company shall terminate Employee's employment during
the Employment Period pursuant to Section 1.4, the Company shall have
no further obligations hereunder or otherwise with respect to
Employee's employment from and after the termination or expiration
date (except payment of Employee's Base Salary accrued through the
date of termination or expiration), and the Company shall continue to
have all other rights available hereunder (including, without
limitation, all rights under Sections 3 and 4 hereof at law or in
equity).
2.6 Benefits, Expenses and Pension Plan. During the Employment
Period, the Company agrees to provide to Employee such vacation and other
health and insurance benefits as are generally provided, from time to time,
to senior officers of the subsidiaries of Condor.
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3. Covenants.
3.1 Employee's Acknowledgment. Employee acknowledges that:
(i) the Company is and will be engaged in the Business during
the Employment Period and thereafter;
(ii) Employee is one of a limited number of persons who will
develop the Business;
(iii) Employee will occupy a position of trust and confidence
with the Company after the date of this Agreement, and during such
period and Employee's employment under this Agreement, Employee will
become familiar with the Company's proprietary and confidential
information concerning the Company and the Business;
(iv) the agreements and covenants contained in this Section 3 are
essential to protect the Company and the goodwill of the Business and
are a condition precedent to the Company entering into this Agreement;
(v) Employee's employment with the Company has special, unique
and extraordinary value to the Company and the Company would be
irreparably damaged if Employee were to provide services to any person
or entity in violation of the provisions of this Agreement.
(vi) Employee has means to support himself and his dependents
other than by engaging in the Business and the provisions of this
Section 3 will not impair such ability.
3.2 Non-Compete. Subject to the provisions of Section 4, Employee
hereby agrees that during the Employment Period and hereafter through the
period ending six months after the last day of the Initial Employment
Period and any Renewal Period during which the termination date occurred,
as the case may be (collectively, the "Restrictive Period"), he shall not,
for any reason whatsoever, directly or indirectly, for himself or on behalf
of or in conjunction with any other person, persons, company, partnership,
corporation or business of whatever nature:
(a) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in the information technology business in direct
competition with the Company in any community in which the Company is
doing business during the term of this Agreement (the "Territory");
(b) call upon any person who is, at that time, within the
Territory, an employee of the Company or any of its subsidiaries in a
managerial capacity for the purpose or with the intent of
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enticing such employee away from or out of the employ of the Company; provided,
that the Employee shall be permitted to call upon and hire any member of his or
her immediate family.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit the Employee from acquiring as an investment not more than one
(1%) percent of the capital stock of a competing business whose stock is
traded on a national securities exchange or over the counter so long as the
Employee does not consult with or is not employed by such competitor.
3.3 Interference with Relationships. Other than in the performance of his
duties hereunder, during the Restrictive Period, Employee shall not, directly or
indirectly, as employee, agent, consultant, stockholder, director, co-partner or
in any other individual or representative capacity solicit or encourage any
present or future customer, supplier or other third party to terminate or
otherwise alter his, her or its relationship with the Company or any of its
subsidiaries with respect to the Business engaged in by the Company and its
subsidiaries in the Territory.
3.4 Confidential Information. Other than in the performance of his duties
hereunder, during the Restrictive Period and thereafter, Employee shall keep
secret and retain in strictest confidence, and shall not, without the prior
written consent of the Company, furnish, make available or disclose to any third
party or use for the benefit of himself or any third party, any Confidential
Information. As used in this Agreement, "Confidential Information" shall mean
any information relating to the business or affairs of the Company or the
Business, including, but not limited to, information relating to financial
statements, employees, suppliers, construction, manufacturing and servicing
methods, equipment, programs, strategies and information, analyses, profit
margins, or other proprietary information used by the Company or any of its
subsidiaries in connection with the Business; provided, however, that
Confidential Information shall not include any information which is in the
public domain or becomes known in the industry through no wrongful act on the
part of Employee. Employee acknowledges that the Confidential Information is
vital, sensitive, confidential and proprietary to the Company.
3.5 Blue-Pencil. If any court of competent jurisdiction shall at any time
deem the term of this Agreement or any particular Restrictive Covenant (as
defined) too lengthy or the Territory too extensive, the other provisions of
this Section 3 shall nevertheless stand, the Restrictive Period herein shall be
deemed to be the longest period permissible by law under the circumstances and
the Territory herein shall be deemed to comprise the largest Territory
permissible by law under the circumstances. The court in each case shall reduce
the time period and/or Territory to permissible duration or size.
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3.6 Remedies. Employee acknowledges and agrees that the covenants set
forth in this Section 3 (collectively, the "Restrictive Covenants") are
reasonable and necessary for the protection of the Company's business interests,
that irreparable injury will result to the Company if Employee breaches any of
the terms of said Restrictive Covenants, and that in the event Employee breaches
or threatens to breach any such Restrictive Covenants, the Company will have no
adequate remedy at law. Employee accordingly agrees that in the event Employee
breaches or threatens to breach any of the Restrictive Covenants, the Company
shall be entitled to immediate temporary injunctive and other equitable relief,
without bond and without the necessity of showing actual monetary damages,
subject to hearing as soon thereafter as possible. Nothing contained herein
shall be construed as prohibiting the Company from pursuing any other remedies
available to it for such breach or the threat of such a breach by Employee,
including the recovery of any damages which it is able to prove.
4. Effect of Termination.
4.1 For Cause or Voluntary Quitting. If the Employee should terminate
Employee's employment during the Employment Period other than for good
reason as defined in Section 1.4(b) or the Company should terminate
Employee's employment for Cause pursuant to Section 1.4(a), then,
notwithstanding such termination, the provisions contained in Sections 3
hereof shall remain in full force and effect.
4.2 Other than for Cause. If the Company should terminate
Employee's employment prior to the passage of twelve months from the
date of this Agreement other than for Cause as defined in Section 1.4
or Employee shall terminate his employment during the first twelve
months for good reason as defined in Section 1.4(b), then
(i) the provisions and covenants of Section 3.2 and 3.3
shall have no effect and shall be unenforceable, and
(ii) Employee shall be entitled to receive all of the
benefits payable under this Agreement for the balance of the
Initial Employment Period.
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<PAGE>
5. Miscellaneous.
5.1 Assignment. No party hereto may assign or delegate any of its
rights or obligations hereunder without the prior written consent of the
other party hereto; provided, however, that the Company shall have the
right to assign all or any part of its rights and obligations under this
Agreement (i) to any affiliate of the Company to which the Business of the
Company is assigned at any time, any subsidiary or affiliate of the Company
or any surviving entity following any merger or consolidation of any of
those entities with any entity other than the Company or (ii) in connection
with the sale of the Business by the Company provided, however, for any
such assignment of obligations Company shall guarantee thereof by such
assignee unless Employee expressly, in writing, releases Company. Except
as otherwise expressly provided herein, all covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto
shall bind and inure to the benefit of the respective legal
representatives, heirs, successors and assigns of the parties hereto
whether so expressed or not.
5.2 Entire Agreement. Except as otherwise expressly set forth
herein, this Agreement and all other agreements entered into by the parties
hereto on the date hereof set forth the entire understanding of the
parties, and supersede and preempt all prior oral or written understandings
and agreements, with respect to the subject matter hereof. In particular,
the agreement between the parties made effective as of October 1, 1996
pursuant to which Hill was appointed to the Board of Directors and all
amendments thereto, herein incorporated by reference, is terminated, and
neither party has any duty or liability under that agreement.
5.3 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
5.4 Amendment; Modification. No amendment or modification of this
Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by the party
against whom enforcement of such amendment, modification or waiver is
sought. No waiver shall be deemed a continuing waiver or a waiver in
respect of any subsequent breach or default, either of a similar or
different nature, unless expressly so stated in writing.
5.5 Governing Law. This Agreement shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the
laws of the State of Delaware, without giving effect to provisions thereof
regarding conflict of laws. To the extent that any provision of this
Agreement is inconsistent with the laws of the State of Delaware, the
parties agree to be governed and abide by the law of the State of Delaware.
5.6 Notices. All notices, demands or other communications to be
given or delivered hereunder or by reason of the provisions of this
Agreement shall be in writing and
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<PAGE>
shall be deemed to have been properly served if (a) delivered personally,
(b) delivered by a recognized overnight courier service, (c) sent by certified
or registered mail, return receipt requested and first class postage prepaid, or
(d) sent by facsimile transmission followed by a confirmation copy delivered by
a recognized overnight courier service the next day. Such notices, demands and
other communications shall be sent to the addresses indicated below:
If to Employee:
Kennard F. Hill
134 Pembroke Lane
Wichita Falls, Texas 76301
(b) If to the Company:
Condor Technology Group, Inc.
1650 Tysons Boulevard
Sixth Floor
McLean, Virginia 22102
Attention: J. Marshall Coleman
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
Date of service of such notice shall be (i) the date such notice is
personally delivered or sent by facsimile transmission (with issuance by
the transmitting machine of a confirmation of successful transmission,
(ii) three days after the date of mailing if sent by certified or
registered mail or (iii) one day after date of delivery to the overnight
courier if sent by overnight courier.
5.7 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement and shall become effective
when one or more counterparts have been executed by each of the parties hereto
and delivered to the other.
5.8 Descriptive Headings; Interpretation. The descriptive headings in
this Agreement are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement. The use of the word "including" in this Agreement shall be by way of
example rather than by limitation. The Preliminary Recitals set forth above are
incorporated by reference into this Agreement.
5.9 No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties hereto to express their mutual
interest, and no rule of strict construction will be applied against any party
hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
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<PAGE>
COMPANY:
By: /s/ J. Marshall Coleman
------------------------------------
J. Marshall Coleman
EMPLOYEE:
/s/ Kennard F. Hill
------------------------------------------
Kennard F. Hill
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<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this _____ day of _____, 1997, between Condor
Technology Solutions, Inc., a Delaware corporation (the "Company"), and C.
Lawrence Meador (the "Executive").
WHEREAS, the Executive is currently the President, Chief Executive Officer and
sole shareholder of Management Support Technology Corp., a Delaware corporation
("MST"); and
WHEREAS, as a result of the proposed business combination (the "Business
Combination") pursuant to that certain Agreement and Plan of Organization among
the Company, its wholly-owned subsidiary MST Acquisition Corp., MST and the
Executive (the "Merger Agreement"), MST will become a wholly-owned subsidiary of
the Company; and
WHEREAS, the parties hereto wish to enter into an employment agreement to
continue the employment of the Executive as the President and Chief Executive
Officer of MST and to employ the Executive as the Vice Chairman of the Company
following the Business Combination, and to set forth certain additional
agreements between the Executive and the Company.
NOW, THEREFORE, in consideration of the mutual covenants and representations
contained herein, the parties hereto agree as follows:
1. TERM.
The Company will employ the Executive and will cause MST to employ the
Executive, and the Executive will serve the Company and MST, under the terms of
this Agreement for an initial term of three (3) years, commencing on the Closing
Date (as defined in the Merger Agreement). Effective as of the expiration of
such initial three-year term and as of each anniversary date thereof, the term
of this Agreement shall be extended for an additional 12-month period unless,
not later than two months prior to each such respective date, either party shall
have given notice to the other party that the term shall not be so extended.
Notwithstanding the foregoing, the Executive's employment hereunder may be
earlier terminated, as provided in Section 4 hereof. The term of this
Agreement, as in effect from time to time in accordance with the foregoing,
shall be referred to herein as the "Term." The period of time between the
commencement and the termination of the Executive's employment hereunder shall
be referred to herein as the "Employment Period."
2. EMPLOYMENT.
(a) Positions. The Company hereby (i) employs the Executive for the
Employment Period as Chief Executive Officer of MST and, effective as of January
1, 1998, as Vice
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Chairman of the Company, (ii) agrees to elect the Executive to serve as a
director of MST, and (iii) agrees to use its best efforts to cause the Executive
to be nominated for election as a director of the Company, all for the
Employment Term and on the terms and conditions set forth in this Agreement and
conditioned on the Executive not being at any applicable time in breach of this
Agreement.
(b) Authority, Duties and Reporting. The Executive shall exercise such
authority, perform such executive duties and functions and discharge such
responsibilities as are reasonably associated with the Executive's positions,
commensurate with the authority vested in the Executive's positions, pursuant to
this Agreement and consistent with the By-Laws of the Company and MST,
respectively. Without limiting the generality of the foregoing, (i) in his
capacity as Vice Chairman of the Company, the Executive shall report directly
and be responsible to the Board of Directors of the Company, and (ii) in his
capacity as President and Chief Executive Officer of MST the Executive shall
report directly and be responsible to the President and Chief Executive Officer
of the Company and the Board of Directors of MST. During the Employment Period,
the Executive shall devote his full business time, skill and efforts to the
business of the Company and MST; provided, however, that so long as Executive
and the Company (acting through its Board of Directors) agree that Executive's
service as Chief Information Officer of CIGNA Property & Casualty ("CIGNA") is
consistent with the Company's objectives, the Company shall not require
Executive to engage in activities that create a conflict of interest with his
duties as Chief Information Officer of CIGNA and the Executive shall continue to
serve in such capacity. Notwithstanding the foregoing, the Executive may (i)
make and manage passive personal business investments of his choice (in the case
of publicly held corporations, not to exceed one percent (1%) of the outstanding
voting stock), serve in any capacity with any civic, educational or charitable
organization (including but not limited to the Massachusetts Institute of
Technology), or any trade association, and attend to other personal matters
without seeking or obtaining approval by the Board of Directors of the Company,
provided such activities and service do not materially interfere or conflict
with the performance of his duties hereunder (it being acknowledged and agreed
that (a) prior to the execution of this Agreement the Executive has spent on
average one day per week on such activities, (b) the continued devotion by the
Executive of on average one day per week to such activities shall not be deemed
to materially interfere or conflict with the performance of his duties
hereunder, (c) on such one day a week, which shall be a day of his choosing, the
Executive will be unavailable to the Company and MST, and (d) the devotion by
the Executive of on average one day per week to such activities shall not reduce
any compensation or benefits to which the Executive is entitled pursuant to this
Agreement, including but not limited to the number of vacation days to which the
Executive is entitled pursuant to Section 3(e) of this Agreement), and (ii) with
the approval of the Board, serve on the boards of directors of other
corporations.
(c) Location of Performance by Executive. The Company agrees that the
executive offices of MST shall remain in the Boston, Massachusetts metropolitan
area for the Term and that the Executive shall perform his duties primarily at
such offices, except to the extent that the Executive performs his duties at
CIGNA's offices. The Executive shall not be
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required to relocate by the Company.
3. COMPENSATION AND BENEFITS.
(a) Salary. During the Employment Period, the Company shall pay or cause
MST to pay to the Executive, as compensation for the performance of his duties
and obligations under this Agreement, a base salary at the rate of $431,815 per
annum, payable in arrears not less frequently than monthly (except as set forth
in the proviso at the end of this sentence) in accordance with the normal
payroll practices of MST; provided, however, that no monthly payments of the
Executive's base salary shall be paid in 1997 and that the Executive's base
salary for 1997 will be payable on January 30, 1998 if MST's 1997 pre-tax
revenues equal or exceed $2,500,000. Such base salary shall be subject to
review each year for possible increase by the Board of Directors of the Company,
but shall in no event be decreased from its then-existing level during the
Employment Period.
(b) Annual Bonus. During the Employment Period, with respect to a given
fiscal year, the Company shall pay the Executive bonuses identical to the
bonuses paid to the Chief Executive Officer of the Company for such fiscal
year. Annual bonuses shall be payable by December 31 of each year.
(c) Special Bonuses. In addition to the bonuses to which the Executive
is entitled pursuant to Section 3(b) of this Agreement, for each potential
acquisition target or a potential joint venture identified by the Executive
that eventually is successfully acquired or consummated by the Company or its
affiliate with the assistance of the Executive as reasonably required by the
Company and as is compatible with the Executive's duties hereunder, the
Company shall pay to the Executive immediately upon consummation of the
transaction cash compensation of one percent (1%) of (i) the total purchase
price (including deferred portions of the purchase price) in the case of an
acquisition or (ii) the total investment by the Company or its affiliate in
the joint venture in the case of a joint venture. In addition, if in 1997
the Executive identifies an acquisition or joint venture candidate that
provides consulting services similar to that of MST, and the Company acquires
such candidate, such candidate's 1997 pre-tax revenues shall be added to
MST's 1997 pre-tax revenues for purposes of calculating MST's 1997 pre-tax
revenues for the purposes of Section 3(a) of this Agreement.
(d) Stock Options. During the Employment Term, the Company shall grant
and deliver to the Executive options to purchase such number of shares of the
Company's common stock as equals the greater of (i) the number of shares
subject to options granted to the Chairman of the Company and (ii) the number
of shares subject to options granted to the Chief Executive Officer of the
Company, such options to vest equally over three years and to have an
exercise price equal to the fair market value of the common stock at the date
of grant.
(e) Other Benefits. During the Employment Period, the Executive shall
be entitled to participate in all of the employee benefit plans, programs and
arrangements of the Company in effect during the Employment Period that are
generally available to senior executives of the
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Company, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans, programs and arrangements. In addition,
during the Employment Period, the Executive shall be entitled to fringe benefits
and perquisites comparable to those of other senior executives of the Company,
including, but not limited to, four weeks of paid vacation per year and the
fringe benefits and perquisites currently provided to the Executive by MST,
other than the provision to the Executive of a Company car.
(f) Business Expenses. During the Employment Period, the Company shall
reimburse the Executive for all documented reasonable business expenses incurred
by the Executive in the performance of his duties under this Agreement, in
accordance with the Company's policies.
(g) Indemnification. During the Employment Period and thereafter, the
Company shall indemnify the Executive to the fullest extent permitted by
applicable law, and the Executive shall be entitled to the protection of any
insurance policies the Company may elect to maintain generally for the benefit
of its directors and officers, with respect to all costs, charges and expenses,
including attorneys' fees, whatsoever incurred or sustained by the Executive in
connection with any action, suit or proceeding (other than any action, suit or
proceeding brought by the Company against the Executive) to which he may be made
a party by reason of being or having been a director, officer or employee of the
Company or MST or his serving or having served any other enterprise as a
director, officer or employee at the request of the Company.
4. TERMINATION OF EMPLOYMENT.
(a) Termination for Cause. The Company may terminate the Executive's
employment hereunder for cause. For purposes of this Agreement and subject to
the Executive's opportunity to cure as provided in Section 4 (c) hereof, the
Company shall have "cause" to terminate the Executive's employment hereunder if
such termination shall be the result of:
(i) willful fraud or dishonesty in connection with the Executive's
performance hereunder that results in material harm to the Company or MST;
(ii) the failure by the Executive to substantially perform (other than
by reason of disability) his duties hereunder that results in material
harm to the Company or MST; or
(iii) the conviction for, or plea of nolo contendere to, a charge
of commission of a felony.
(b) Termination for Good Reason. The Executive shall have the right at
any time to terminate his employment with the Company and MST at any time and
for any good reason. For purposes of this Agreement and subject to the
Company's opportunity to cure as provided
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in Section 4 (c) hereof, the Executive shall have "good reason" to terminate his
employment hereunder if such termination shall be the result of:
(i) a material diminution during the Employment Period in the
Executive's duties or responsibilities as set forth in Section 2 hereof;
(ii) a breach by the Company or MST of the compensation and benefits
provisions set forth in Section 3 hereof, which breach shall not have been
cured within five business days of written notice thereof having been
provided to the Company or MST by the Executive;
(iii) a notice of termination by the Executive under Section 4 (c)
hereof within 12 months following the occurrence of a Change in Control
(as defined in Section 4 (e) hereof);
(iv) the Executive shall not be elected or continue as a member of the
Board of Directors of MST or the Company; or
(v) a material breach by the Company of any other term of this
Agreement.
(c) Notice and Opportunity to Cure. Notwithstanding the foregoing, it
shall be a condition precedent to the Company's right to terminate the
Executive's employment for "cause" and the Executive's right to terminate his
employment for "good reason" that (1) the party seeking the termination shall
first have given the other party written notice stating with specificity the
reason for the termination ("breach"); (2) if the Company is asserting that it
has "cause" to terminate the Executive, the Company shall provide to the
Executive an opportunity to appear before the Board to answer such grounds for
termination; and (3) if such breach is susceptible of cure or remedy, a period
of 30 days from and after the giving of such notice shall have elapsed without
the breaching party having effectively cured or remedied such breach during such
30-day period, unless such breach cannot be cured or remedied within 30 days, in
which case the period for remedy or cure shall be extended for a reasonable time
(not to exceed an additional 30 days), provided the breaching party has made and
continues to make a diligent effort to effect such remedy or cure.
(d) Termination Upon Death or Permanent and Total Disability. The
Employment Period shall be terminated by the death of the Executive. The
Employment Period may be terminated by the Company if the Executive shall be
rendered incapable of performing his duties to the Company by reason of a
"disability," defined as either (i) any medically determined physical or mental
impairment that can be expected to result in death or that can be expected to
last for a period of six or more consecutive months from the first date of the
Executive's absence, or (ii) due to a total and permanent "disability" that can
be expected to last for a period of six or more consecutive months from the
first date of the Executive's absence, as such term is defined in the Company's
long term disability insurance policy or contract as may be in effect from time
to time for the benefit of employees of the
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Company (either, a "Disability"). If the Employment Period is terminated by
reason of a Disability of the Executive, the Company shall give 30 days'
advance written notice to that effect to the Executive. If the existence of
a Disability hereunder is in dispute, it shall be resolved by two physicians,
one appointed by the Executive and one appointed by the Company. If the two
physicians so selected cannot agree as to whether or not the Executive has a
Disability, the two physicians so selected shall designate a third physician
and a majority of the three physicians so selected shall determine whether or
not the Executive has a Disability.
(e) Definition of Change in Control. A "Change in Control" shall be
deemed to have taken place if:
(i) there shall be consummated (x) any consolidation or merger of the
Company in which the Company is not the continuing or surviving corporation
or pursuant to which shares of the Company's capital stock are converted
into cash, securities or other property other than a consolidation or
merger of the Company in which the holders of the Company's voting stock
immediately prior to the consolidation or merger shall, upon consummation
of the consolidation or merger, own at least 50% of the voting stock of the
surviving corporation, or (y) any sale, lease, exchange or other transfer
(in one transaction or a series of transactions contemplated or arranged by
any party as a single plan) of all or substantially all of the assets of
the Company; or
(ii) any person (as such term is used in Sections 13(d) and 14 (d)(2)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
shall after the date hereof become the beneficial owner (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of
securities of the Company representing 35% or more of the voting power of
all then outstanding securities of the Company having the right under
ordinary circumstances to vote in an election of the Board (including,
without limitation, any securities of the Company that any such person has
the right to acquire pursuant to any agreement, or upon exercise of
conversion rights, warrants or options, or otherwise, which shall be deemed
beneficially owned by such person); or
(iii) individuals who at the date hereof constitute the entire
Board and any new directors whose election by the Board, or whose
nomination for election by the Company's stockholders, shall have been
approved by a vote of at least a majority of the directors then in office
who either were directors at the date hereof or whose election or
nomination for election shall have been so approved (the "Continuing
Directors") shall cease for any reason to constitute a majority of the
members of the Board; or
(iv) the sale by the Company of the majority of the capital stock of
MST or all or substantially all of the assets of MST, or the liquidation or
dissolution of MST.
5. CONSEQUENCES OF TERMINATION.
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(a) Termination Without Cause or for Good Reason. In the event of
termination of the Executive's employment or service in any capacity (including
but not limited to service as Vice Chairman of the Company or as a director of
MST or the Company) hereunder by the Company without "cause" (other than upon
death or Disability) or by the Executive for "good reason" (each as defined in
Section 4 hereof), the Executive shall be entitled to the following severance
pay and benefits:
(i) Severance Pay - severance payments in the form of continuation of
the Executive's base salary as in effect immediately prior to such
termination over the longer of: (A) the then-remaining Term hereof;
or (B) 12 months (the "Severance Period").
(ii) Benefits Continuation - continuation for the Severance Period of
coverage under the group medical care, disability and life insurance
benefit plans or arrangements in which the Executive is participating at
the time of termination; provided, however, that the Company's obligation
to provide such coverages shall be terminated if the Executive obtains
comparable substitute coverage from another employer at any time during the
Severance Period. The Executive shall be entitled, at the expiration of
the Severance Period, to elect continued medical coverage in accordance
with section 4980B of the Internal Revenue Code of 1986, as amended (or any
successor provision thereto); and
(iii) Stock Options - all options to purchase shares of the
Company's Common Stock held by the Executive immediately prior to
termination of employment shall become immediately vested and exercisable
and, subject to the terms of the Company's 1997 Long-Term Incentive Plan,
shall remain exercisable for the duration of the Severance Period.
(b) Other Terminations. In the event of termination of the Executive's
employment hereunder for any reason other than those specified in Section 5(a)
hereof, the Executive shall not be entitled to any severance pay, benefits
continuation or stock option rights contemplated by the foregoing, except as may
otherwise be provided under the applicable benefit plans or award agreements
relating to the Executive.
6. CONFIDENTIALITY.
The Executive agrees that he will not at any time during the Term hereof or at
any time thereafter for any reason, in any fashion, form or manner, either
directly or indirectly, divulge, disclose or communicate to any person, firm,
corporation or other business entity, in any manner whatsoever, any confidential
information or trade secrets concerning the business of the Company, including,
without limiting the generality of the foregoing, the techniques, methods or
systems of its operation or management, any information regarding its financial
matters, or any other material information concerning the business of the
Company, its manner
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of operation, its plans or other material data. The provisions of this Section
6 shall not apply to (i) information that is public knowledge other than as a
result of disclosure by the Executive in breach of this Section 6; (ii)
information disseminated by the Company to third parties in the ordinary course
of business; (iii) information lawfully received by the Executive from a third
party who, based upon inquiry by the Executive, is not bound by a confidential
relationship to the Company; or (iv) information disclosed under a requirement
of law or as directed by applicable legal authority having jurisdiction over the
Executive.
7. INVENTIONS.
The Executive is hereby retained in a capacity such that the Executive's
responsibilities include the making of technical and managerial contributions of
value to Company. The Executive hereby assigns to the Company all right, title
and interest in such contributions and inventions made or conceived by the
Executive alone or jointly with others during the Employment Period that relate
to the business of the Company. This assignment shall include (a) the right to
file and prosecute patent applications on such inventions in any and all
countries, (b) the patent applications filed and patents issuing thereon, and
(c) the right to obtain copyright, trademark or trade name protection for any
such work product. The Executive shall promptly and fully disclose all such
contributions and inventions to the Company and assist the Company in obtaining
and protecting the rights therein (including patents thereon) in any and all
countries; provided, however, that said contributions and inventions will be the
property of the Company, whether or not patented or registered for copyright,
trademark or trade name protection, as the case may be. The Executive hereby
agrees to execute any documentation requested by the Company to be so executed
if such request is made in order to carry out the purpose and terms of this
paragraph. Inventions conceived by the Executive that are not related to the
business of the Company will remain the property of the Executive.
8. NON-COMPETITION.
(a) Subject to the limitations set forth in Sections 8(b) and 8(d), the
Executive will not, for a period of four (4) years following the Closing Date,
for any reason whatsoever, directly or indirectly, for himself or on behalf of
or in conjunction with any other person, company, partnership, corporation or
business of whatever nature;
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in direct
competition with the Company or any of the subsidiaries thereof, within 100
miles of where MST or any of the Other Founding Companies (as defined in
the Merger Agreement) conducted business prior to the effectiveness of the
merger (the "Territory");
(ii) call upon any person who is, at that time, within the Territory,
an
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employee of the Company (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of the Company
(including the subsidiaries thereof), provided that the Executive shall be
permitted to call upon and hire any member of his or her immediate family;
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to the Closing Date, a customer
of the Company (including the subsidiaries thereof), of MST or of any of
the Other Founding Companies within the Territory for the purpose of
soliciting or selling products or services in direct competition with the
Company within the Territory;
(iv) call upon any prospective acquisition candidate, on the
Executive's own behalf or on behalf of any competitor in similar or
incidental businesses or activities described in the Registration Statement
(as defined in the Merger Agreement), which candidate, to the actual
knowledge of the Executive after due inquiry, was called upon by the
Company (including the subsidiaries thereof) or for which, to the actual
knowledge of the Executive after due inquiry, the Company (or any
subsidiary thereof) made an acquisition analysis, for the purpose of
acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of MST to
any person, firm, partnership, corporation or business for any reason or
purpose whatsoever except to the extent that MST has in the past disclosed
such information to the public for valid business reasons or disclosure is
specifically required by law; provided, however, in the event disclosure is
required by law, the Executive shall provide the Company with prompt notice
of such requirement prior to making any disclosure so that the Company may
seek a protective order.
(b) Investments in Competing Businesses. Notwithstanding anything to
the contrary in Section 8(a), the foregoing covenant shall not be deemed to
prohibit the Executive from acquiring as an investment not more than one percent
(1%) of the capital stock of a competing business whose stock is traded on a
national securities exchange or over-the-counter so long as the Executive does
not consult with or is not employed by such competitor.
(c) Reasonable Restraint. It is agreed by the parties hereto that the
covenant set forth in Section 8(a) imposes a reasonable restraint on the
Executive in light of the activities and business of the Company (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of the Company; but it is also the intent of the Company and the
Executive that such covenants be construed and enforced in accordance with the
changing activities and business of the Company (including the subsidiaries
thereof) throughout the term of this covenant.
(d) (i) If prior to the fourth anniversary of the date hereof the
employment of the Executive is terminated by the Company other than pursuant to
Section 4(a) or the
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Executive terminates his employment pursuant to Section 4(b), this Section 8
shall be void and cease to be binding on the Executive; provided, however, that
if in such event the Company continues to pay to the Executive the Executive's
base salary pursuant to Section 3(a) at its then-existing level in accordance
with its normal payroll practices through the fourth anniversary of the date
hereof, then this Section 8 shall remain in full force and effect through such
date.
(ii) If the Employment Period is extended beyond the fourth anniversary of
the execution hereof, this Section 8 shall remain in full force and effect so
long as the Executive is employed by the Company and MST in compliance with this
Agreement, and shall cease to be binding on the Executive immediately upon the
termination of the Executive's employment for any reason whatsoever.
(d) Damages. Because of the difficulty of measuring economic losses to
the Company as a result of a breach of the covenant set forth in Section 8(a),
and because of the immediate and irreparable damage that could be caused to the
Company for with it would have no other adequate remedy, the Executive agrees
that, in the event of a breach by the Executive, the covenant set forth in
Section 8(a) may be enforced by the Company by injunctions and restraining
orders.
9. BREACH OF RESTRICTIVE COVENANTS.
The parties agree that a breach or violation of Section 6, 7 or 8 hereof will
result in immediate and irreparable injury and harm to the innocent party, which
party shall have, in addition to any and all remedies of law and other
consequences under this Agreement, the right to an injunction, specific
performance or other equitable relief to prevent the violation of the obligation
hereunder.
10. NOTICES.
For the purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or (unless otherwise specified)
mailed by United States certified or registered mail, return receipt requested,
postage prepaid, addressed as follows:
(a) If to the Company, to:
CONDOR TECHNOLOGY SOLUTIONS, INC.
8133 Leesburg Pike
Suite 620
Vienna, VA 22182
(b) If to the Executive, to:
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C. LAWRENCE MEADOR
3 Windy Hill Lane
Wayland, MA 01778
or to such other address as a party hereto shall designate to the other party by
like notice, provided that notice of a change of address shall be effective only
upon receipt thereof.
11. ARBITRATION: LEGAL FEES.
Except as provided in Section 9 hereof, any dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively by arbitration
in The Commonwealth of Massachusetts in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. The Company shall
reimburse the Executive for all reasonable legal fees and costs and other fees
and expenses that the Executive may incur in respect of any dispute or
controversy arising against the Company under or in connection with this
Agreement; provided, however, that the Company shall not reimburse any such
fees, costs and expenses if the fact finder determines that an action brought by
the Executive was substantially without merit or the Executive is otherwise
unsuccessful in such an action.
12. WAIVER OF BREACH.
Any waiver of any breach of the Agreement shall not be construed to be a
continuing waiver or consent to any subsequent breach on the part of either the
Executive or of the Company.
13. NON-ASSIGNMENT: SUCCESSORS.
Neither party hereto may assign his or its rights or delegate his or its duties
under this Agreement without the prior written consent of the other party;
provided, however, that (i) subject to the rights of the Executive under
Section 4(b) hereof, this Agreement shall inure to the benefit of and be binding
upon the successors and assigns of the Company upon any sale of all or
substantially all of the Company's assets, or upon any merger, consolidation or
reorganization of the Company with or into any other corporation, all as though
such successors and assigns of the Company and their respective successors and
assigns were the Company; and (ii) this Agreement shall inure to the benefit of
and be binding upon the heirs, assigns or designees of the Executive to the
extent of any payments due to the Executive hereunder. As used in this
Agreement, the term "Company" shall be deemed to refer to any such successor or
assign or the Company referred to in the preceding sentence.
14. WITHHOLDING OF TAXES.
All payments required to be made by the Company to the Executive under this
Agreement shall be subject to the withholding of such amounts, if any, relating
to tax, and other payroll deductions as the Company may reasonably determine it
should withhold pursuant to any
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applicable law or regulation.
15. SEVERABILITY.
To the extent any provision of this Agreement or portion thereof shall be
invalid or unenforceable, it shall be considered deleted therefrom and the
remainder of such provision and of this Agreement shall be unaffected and shall
continue in full force and effect.
16. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed to be an original but all of which together will constitute one and
the same instrument.
17. GOVERNING LAW.
This Agreement shall be construed, interpreted and enforced in accordance with
the laws of The Commonwealth of Massachusetts, without giving effect to the
conflict of law principles thereof.
18. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement by the Company and the Executive
with respect to the subject matter hereof and supersedes any and all prior
agreements or understandings between the Executive and the Company with respect
to the subject matter hereof, whether written or oral. This Agreement may be
amended or modified only by a written instrument executed by the Executive and
the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
____________, 1997.
CONDOR TECHNOLOGY SOLUTIONS, INC.
By:
-----------------------------------
Name:
Title:
THE EXECUTIVE
--------------------------------------
C. Lawrence Meador
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EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this ___ day of ___________, 1997, between
Condor Technology Solutions, Inc., a Delaware corporation (the "Company"),
and Daniel J. Roche (the "Executive").
WHEREAS, the parties hereto wish to enter into an employment agreement to
employ the Executive as the Chief Operating Officer of the Company and to set
forth certain additional agreements between the Executive and the Company.
NOW, THEREFORE, in consideration of the mutual covenants and representations
contained herein, the parties hereto agree as follows:
1. TERM.
The Company will employ the Executive, and the Executive will serve the
company, under the terms of this Agreement for an initial term of three (3)
years, commencing on the date hereof. Effective as of the expiration of such
initial three-year term and as of each anniversary date thereof, the term of
this Agreement shall be extended for an additional 12-month period unless,
not later than two months prior to each such respective date, either party
shall have given notice to the other party that the term shall not be so
extended. Notwithstanding the foregoing, the Executive's employment hereunder
may be earlier terminated, as provided in Section 4 hereof. The term of this
Agreement, as in effect from time to time in accordance with the foregoing,
shall be referred to herein as the "Term." The period of time between the
commencement and the termination of the Executive's employment hereunder
shall be referred to herein as the "Employment Period."
2. EMPLOYMENT.
(a) Position and Reporting. The Company hereby employs the Executive for
the Employment Period as Chief Operating Officer of the Company on the terms
and conditions set forth in this Agreement. Effective on the closing date of
the Company's initial public offering of Common Stock, the Executive will be
employed hereunder as the President and Chief Operating Officer.
(b) Authority and Duties. The Executive shall exercise such authority,
perform such executive duties and functions and discharge such
responsibilities as are reasonably associated with the Executive's position,
commensurate with the authority vested in the Executive's position, pursuant
to this Agreement and consistent with the By-Laws of the Company. Without
limiting the generality of the foregoing, the Executive shall report directly
and be responsible to the Chief Executive Officer of the Company. During the
Employment Period, the Executive shall devote his full business time, skill
and efforts to the business of the Company. Notwithstanding the foregoing,
the Executive may (i) make and manage passive personal business investments
of his choice (in the case of publicly-held corporations, not to exceed one
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percent (1%) of the outstanding voting stock) and serve in any capacity with
any civic, educational or charitable organization, or any trade association,
without seeking or obtaining approval by the Board of Directors of the
Company (the "Board"), provided such activities and service do not materially
interfere or conflict with the performance of his duties hereunder and (ii)
with the approval of the Board, which shall not be unreasonably withheld,
serve on the boards of directors of other corporations.
3. COMPENSATION AND BENEFITS.
(a) Salary. During the Employment Period, the Company shall pay to the
Executive, as compensation for the performance of his duties and obligations
under this Agreement, a base salary at the rate of $220,000 per annum,
payable in arrears not less frequently than monthly in accordance with the
normal payroll practices of the Company. Such base salary shall be subject to
review each year for possible increase by the Board, but shall in no event be
decreased from its then-existing level during the Employment Period.
(b) Annual Bonus. During the Employment Period, the Executive shall have
the opportunity to earn an annual bonus in accordance with a Company annual
bonus program to be established by the Board for senior executives of the
company and its subsidiaries. The payment of any annual bonus under any such
program shall be contingent upon the achievement of certain corporate and/or
individual performance goals established by the Board in its discretion and
shall not exceed an amount equal to the Executive's base salary.
(c) Stock Options. The Company has established a 1997 Long-Term Incentive
Plan (the "Plan") in the form attached hereto as Exhibit A that will be in
effect upon the completion of the initial public offering of the Company's
Common Stock. The Plan provides, among other things, for the issuance from
time to time to certain officers, directors and other employees of the
Company of options to purchase shares of the Company's Common Stock. On the
date of the commencement of the initial public offering (the "IPO Date")
under the Securities Act of 1933, as amended (the "Securities Act"), the
Company shall grant to the Executive options to purchase 75,000 shares of the
Company's Common Stock (the "Initial Grant"), exercisable at the initial
public offering price, that shall vest and become exercisable in three equal
annual installments on each of the first, second and third anniversaries of
the closing date of the Company's initial public offering of Common Stock.
(d) Founder's Shares. The Company has sold to the Executive 800,000
unvested shares of the Company's Common Stock before giving effect to a
reverse stock split to be made in connection with the Company's initial
public offering (the "Founder's Shares") in consideration of consulting,
financial advisory and related services provided to the Company by the
Executive.
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(e) Other Benefits. During the Employment Period, the Executive shall be
entitled to participate in all of the employee benefit plans, programs and
arrangements in effect during the Employment Period that are generally
available to senior executives of the Company, subject to and on a basis
consistent with the terms, conditions and overall administration of such
plans, programs and arrangements. In addition, during the Employment Period,
the Executive shall be entitled to fringe benefits and perquisites comparable
to those of other senior executives of the Company, including, but not
limited to, four (4) weeks of paid vacation per year.
(f) Business Expenses. During the Employment Period, the Company shall
reimburse the Executive for all documented reasonable business expenses
incurred by the Executive in the performance of his duties under this
Agreement, in accordance with the Company's policies.
(g) Indemnification. During the Employment Period and thereafter, the
Company shall indemnify the Executive to the fullest extent permitted by
applicable law, and the Executive shall be entitled to the protection of any
insurance policies the Company may elect to maintain generally for the
benefit of the directors and officers of the Company, with respect to all
costs, charges and expenses, including attorneys' fees, whatsoever incurred
or sustained by the Executive in connection with any action, suit or
proceeding (other than any action, suit or proceeding brought by or in the
name of the Company against the Executive) to which he may be made party by
reason of being or having been a director, officer or employee of the Company
or his serving or having served any other enterprise as a director, officer
or employee at the request of the Company.
4. TERMINATION OF EMPLOYMENT.
(a) Termination for Cause. The Company may terminate the Executive's
employment hereunder for cause. For purposes of this Agreement and subject to
the Executive's opportunity to cure as provided in Section 4 (c) hereof, the
Company shall have "cause" to terminate the Executive's employment hereunder
if such termination shall be the result of:
(i) willful fraud or dishonesty in connection with the Executive's
performance hereunder that results in material harm to the Company;
(ii) the failure by the Executive to substantially perform his
duties hereunder that results in material harm to the Company; or
(iii) the conviction for, or plea of nolo contendere to, a charge of
3
<PAGE>
commission of a felony.
(b) Termination for Good Reason. The Executive shall have the right at
any time to terminate his employment with the Company at any time and for any
good reason. For purposes of this Agreement and subject to the Company's
opportunity to cure as provided in Section 4 (c) hereof, the Executive shall
have "good reason" to terminate his employment hereunder if such termination
shall be the result of:
(i) a material diminution during the Employment Period in the
Executive's duties or responsibilities as set forth in Section 2 hereof;
(ii) a material breach by the Company of the compensation and
benefits provisions set forth in Section 3 hereof;
(iii) a notice of termination by the Executive under Section 4 (c)
hereof within 12 months following the occurrence of a Change in Control (as
defined in Section 4 (e) hereof); or
(iv) a material breach by the Company of any other term of this
Agreement.
(c) Notice and Opportunity to Cure. Notwithstanding the foregoing, it
shall be a condition precedent to the Company's right to terminate the
Executive's employment for "cause" and the Executive's right to terminate his
employment for "good reason" that (1) the party seeking the termination shall
first have given the other party written notice stating with specificity the
reason for the termination ("breach"); (2) if the Executive is terminated for
"cause," the Company provides the Executive an opportunity to appear before
the Board to answer such grounds for termination; and (3) if such breach is
susceptible of cure or remedy, a period of 30 days from and after the giving
of such notice shall have elapsed without the breaching party having
effectively cured or remedied such breach during such 30-day period, unless
such breach cannot be cured or remedied within 30 days, in which case the
period for remedy or cure shall be extended for a reasonable time (not to
exceed an additional 30 days), provided the breaching party has made and
continues to make a diligent effort to effect such remedy or cure.
(d) Termination Upon Death or Permanent and Total Disability. The
Employment Period shall be terminated by the death of the Executive. The
Employment Period may be terminated by the Company if the Executive shall be
rendered incapable of performing his duties to the Company by reason of a
"disability," defined as either (i) any medically determined physical or
mental impairment that can be expected to result in death or that can be
expected to last for a period of six or more consecutive months from the
first date of the Executive's absence, or (ii) due to a total and permanent
"disability" that can be expected to last for a period of six or more
4
<PAGE>
consecutive months from the first date of the Executive's absence, as such
term is defined in the Company's long term disability insurance policy or
contract as may be in effect from time to time for the benefit of employees
of the Company (either, a "Disability"). If the Employment Period is
terminated by reason of a Disability of the Executive, the Company shall give
30 days' advance written notice to that effect to the Executive. If the
existence of a Disability hereunder is in dispute, it shall be resolved by
two physicians, one appointed by the Executive and one appointed by the
Company. If the two physicians so selected cannot agree as to whether or not
the Executive has a Disability, the two physicians so selected shall
designate a third physician and a majority of the three physicians so
selected shall determine whether or not the Executive has a Disability.
(e) Definition of Change in Control. A "Change in Control" shall be
deemed to have taken place if:
(i) there shall be consummated any consolidation or merger of
the Company in which the Company is not the continuing or surviving
corporation or pursuant to which shares of the Company's capital stock are
converted into cash, securities or other property other than a
consolidation or merger of the Company in which the holders of the
Company's voting stock immediately prior to the consolidation or merger
shall, upon consummation of the consolidation or merger, own at least 50%
of the voting stock of the surviving corporation, or any sale, lease,
exchange or other transfer (in one transaction or a series of transactions
contemplated or arranged by any party as a single plan) of all or
substantially all of the assets of the Company; or
(ii) any person (as such term is used in Sections 13(d) and 14
(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) shall after the date hereof become the beneficial owner (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly,
of securities of the Company representing 35% or more of the voting power
of all then outstanding securities of the Company having the right under
ordinary circumstances to vote in an election of the Board (including,
without limitation, any securities of the Company that any such person has
the right to acquire pursuant to any agreement, or upon exercise of
conversion rights, warrants or options, or otherwise, which shall be deemed
beneficially owned by such person); or
(iii) individuals who at the date hereof constitute the entire Board
and any new directors whose election by the Board, or whose nomination for
election by the Company's stockholders, shall have been approved by a vote
of at least a majority of the directors then in office who either were
directors at the date hereof or whose election or nomination for election
shall have been so approved (the "Continuing Directors") shall cease for
any reason to constitute a majority of the members of the Board;
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5. CONSEQUENCES OF TERMINATION
(a) Termination Without Cause or for Good Reason. In the event of
termination of the Executive's employment hereunder by the Company without
"cause" (other than upon death or Disability) or by the Executive for
"good reason" (each as defined in Section 4 hereof), the Executive shall
be entitled to the following severance pay and benefits:
(i) Severance Pay - severance payments in the form of continuation
of the Executive's base salary as in effect immediately prior to such
termination over the longer of: (A) the then-remaining Term hereof; or (B)
12 months (the "Severance Period").
(ii) Benefits Continuation - continuation for the Severance
Period of coverage under the group medical care, disability and life
insurance benefit plans or arrangements in which the Executive is
participating at the time of termination; provided, however, that the
Company's obligation to provide or cause to be provided such coverages
shall be terminated if the Executive obtains comparable substitute
coverage from another employer at any time during the Severance Period.
The Executive shall be entitled, at the expiration of the Severance
Period, to elect continued medical coverage in accordance with
section 4980B of the Internal Revenue Code of 1986, as amended (or
any successor provision thereto); and
(iii) Stock Options - all options to purchase shares of the Company's
Common Stock held by the Executive immediately prior to termination of
employment shall become immediately vested and exercisable and, subject
to the terms of the Company's 1997 Long-Term Incentive Plan, shall
remain exercisable for the duration of the Severance Period.
(iv) Founder's Shares - all unvested Founder's Shares shall
immediately vest and be issued to Executive within ten (10) days. The
Founder's Shares will not be subject to any restrictions on transfer,
except those, if any imposed under the applicable securities laws.
(b) Other Terminations. In the event of termination of the
Executive's employment hereunder for any reason other than those
specified in Section 5(a) hereof, the Executive shall not be entitled
to any severance pay, benefits continuation or stock option rights
contemplated by the foregoing, except as may otherwise be provided under
the applicable benefit plans or award agreements relating to the
Executive.
6
<PAGE>
(c) Accrued Rights. Notwithstanding the foregoing provisions of
this Section 5, in the event of termination of the Executive's
employment hereunder for any reason, the Executive shall be entitled to
payment of any unpaid portion of his base salary through the effective
date of termination, and payment of any accrued but unpaid rights solely
in accordance with the terms of any incentive bonus, stock option or
employee benefit plan or program of the Company.
6. CONFIDENTIALITY
The Executive agrees that he will not at any time during the Term hereof or
at any time thereafter for any reason, in any fashion, form or manner, either
directly or indirectly, divulge, disclose or communicate to any person, firm,
corporation or other business entity, in any manner whatsoever, any
confidential information or trade secrets concerning the business of the
Company and its subsidiaries, including, without limiting the generality of
the foregoing, the techniques, methods or systems of its operation or
management, any information regarding its financial matters, or any other
material information concerning the business of the Company and its
subsidiaries, their manner of operation, their plans or other material data.
The provisions of this Section 6 shall not apply to (i) information
that is public knowledge other than as a result of disclosure by the
Executive in breach of this Section 6; (ii) information disseminated
by the Company or any of its subsidiaries to third parties in the ordinary
course of business; (iii) information lawfully received by the Executive
from a third party who, based upon inquiry by the Executive, is not bound by
a confidential relationship to the Company or any of its subsidiaries; or
(iv) information disclosed under a requirement of law or as directed by
applicable legal authority having jurisdiction over the Executive.
7. INVENTIONS.
The Executive is hereby retained in a capacity such that the Executive's
responsibilities include the making of technical and managerial contributions
of value to the Company and its subsidiaries. The Executive hereby assigns
to the Company all right, title and interest in such contributions and
inventions made or conceived by the Executive alone or jointly with others
during the Employment Period that relate to the business of the Company or
any of its subsidiaries. This assignment shall include (a) the right to
file and prosecute patent applications on such inventions in any and all
countries, (b) the patent applications filed and patents issuing thereon,
and (c) the right to obtain copyright, trademark or trade name protection
for any such work product. The Executive shall promptly and fully disclose
all such contributions and inventions to the Company and assist the Company
in obtaining and protecting the rights therein (including patents thereon) in
any and all countries; provided, however, that said contributions and
inventions will be the property of the Company, whether or not patented or
registered for copyright, trademark or trade name protection, as the case may
be. The Executive hereby agrees to execute any documentation requested by
the Company to be so executed if such request is made in order to carry out
the purpose and terms of this paragraph. Inventions conceived by the
Executive that are not related
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to the business of the Company or any of its subsidiaries will remain the
property of the Executive.
8. NON-COMPETITION
The Executive agrees that he shall not during the Employment Period and, if
applicable, the Severance Period, without the approval of the Board, directly
or indirectly, alone or as partner, joint venturer, officer, director,
employee, consultant, agent, independent contractor or stockholder (other
than as provided below) of any company or business, engage in any
"Competitive Business" within the United States. For purposes of the
foregoing, the term "Competitive Business" shall mean any business involved
in providing information technology solutions, including, but not limited to,
desktop services, software development, systems design and integration, large
scale survey research, recruiting and comprehensive marketing and sales,
which is in direct competition with the Company or any of its subsidiaries in
any community in which the Company or any of its subsidiaries is doing
business. Notwithstanding the foregoing, the Executive shall not be
prohibited during the non-competition period applicable above from acting as
a passive investor where he owns not more than one percent (1%) of the issued
and outstanding capital stock of any publicly-held company. During the
period that the above non-competition restriction applies, the Executive
shall not, without the written consent of the Company, solicit or encourage
any employee of the Company or any current or future subsidiary or affiliate
thereof to terminate his or her employment.
9. BREACH OF RESTRICTIVE COVENANTS.
The parties agree that a breach or violation of Section 6, 7 or 8 hereof
will result in immediate and irreparable injury and harm to the innocent
party, which party shall have, in addition to any and all remedies of law and
other consequences under this Agreement, the right to an injunction, specific
performance or other equitable relief to prevent the violation of the
obligation hereunder.
10. NOTICES.
For the purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and shall
be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return
receipt requested, postage prepaid, addressed as follows:
(a) If to the Company, to:
CONDOR TECHNOLOGY SOLUTIONS, INC.
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1650 Tysons Boulevard
Suite 600
McLean, VA 22102
(b) If to the Executive, to:
Daniel J. Roche
c/o CONDOR TECHNOLOGY SOLUTIONS, INC.
1650 Tysons Boulevard
Suite 600
McLean, VA 22102
or to such other address as a party hereto shall designate to the other party
by like notice, provided that notice of a change of address shall be
effective only upon receipt thereof.
11. ARBITRATION: LEGAL FEES.
Except as provided in Section 9 hereof, any dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration in McLean, Virginia in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. The Company shall
reimburse the Executive for all reasonable legal fees and costs and other
fees and expenses that the Executive may incur in respect of any dispute or
controversy arising against the Company under or in connection with this
Agreement; provide, however, that the Company shall not reimburse any such
fees, costs and expenses if the fact finder determines that an action brought
by the Executive was substantially without merit or the Executive is
otherwise unsuccessful in such an action.
12. WAIVER OF BREACH.
Any waiver of any breach of the Agreement shall not be construed to be a
continuing waiver or consent to any subsequent breach on the part of either
the Executive or of the Company.
13. NON-ASSIGNMENT: SUCCESSORS.
Neither part hereto may assign his or its rights or delegate his or its
duties under this Agreement without prior written consent of the other party;
provided, however, that (i) subject to the rights of the Executive under
Section 4(b) hereof, this Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company upon any sale of all
or substantially all of the Company's assets, or upon any merger,
consolidation or reorganization of the Company with or into any other
corporation, all as
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though such successors and assigns of the Company and their respective
successors and assigns were the Company; and (ii) this Agreement shall
inure to the benefit of and be binding upon the heirs, assigns or designees
of the Executive to the extent of any payments due to the Executive
hereunder. As used in this Agreement, the term "Company" shall be deemed
to refer to any such successor or assign or the Company referred to in the
preceding sentence.
14. WITHHOLDING OF TAXES.
All payments required to be made by the Company to the Executive under this
Agreement shall be subject to the withholding of such amounts, if any,
relating to tax, and other payroll deductions as the Company may reasonably
determine it should withhold pursuant to any applicable law or regulation.
15. SEVERABILITY.
To the extent any provision of this Agreement or portion thereof shall be
invalid or unenforceable, it shall be considered deleted therefrom and the
remainder of such provision and of this Agreement shall be unaffected and
shall continue in full force and effect.
16. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original but all of which together will constitute
one and the same instrument.
17. GOVERNING LAW.
This Agreement shall be construed, interpreted and enforced in accordance
with the laws of the State of Virginia.
18. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement by the Company and the
Executive with respect to the subject matter hereof and supersedes any and
all prior agreements or understandings between the Executive and the Company
with respect to the subject matter hereof, whether written or oral. This
Agreement may be amended or modified only by a written instrument executed by
the Executive and the Company.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
_______________, 1997.
CONDOR TECHNOLOGY SOLUTIONS, INC.
By:_________________________________
Name:
Title:
THE EXECUTIVE
_________________________________
Name: Daniel J. Roche
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EXHIBIT 10.5
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT is made this 1st day of July, 1997, between Condor
Technology Solutions, Inc., a Delaware corporation (the "Company"), and
Santanu Sarkar (the "Executive").
WHEREAS, the parties hereto wish to enter into an employment agreement to
employ the Executive as the Chief Financial Officer of the Company and to set
forth certain additional agreements between the Executive and the Company.
NOW, THEREFORE, in consideration of the mutual covenants and representations
contained herein, the parties hereto agree as follows:
1. TERM.
----
The Company will employ the Executive, and the Executive will serve the
Company, under the terms of this Agreement for an initial term of three (3)
years, commencing on the date hereof. Effective as of the expiration of such
initial three-year term and as of each anniversary date thereof, the term of
this Agreement shall be extended for an additional 12-month period unless,
not later than two months prior to each such respective date, either party
shall have given notice to the other party that the term shall not be so
extended. Notwithstanding the foregoing, the Executive's employment hereunder
may be earlier terminated, as provided in Section 4 hereof. The term of this
Agreement, as in effect from time to time in accordance with the foregoing,
shall be referred to herein as the "Term." The period of time between the
commencement and the termination of the Executive's employment hereunder
shall be referred to herein as the "Employment Period."
2. EMPLOYMENT
----------
(a) Position and Reporting. The Company hereby employs the Executive for
the Employment Period as Chief Financial Officer of the Company on the terms
and conditions set forth in this Agreement.
(b) Authority and Duties. The Executive shall exercise such authority,
perform such executive duties and functions and discharge such
responsibilities as are reasonably associated with the Executive's position,
commensurate with the authority vested in the Executive's position, pursuant
to this Agreement and consistent with the By-Laws of the Company. Without
limiting the generality of the foregoing, the Executive shall report directly
and be responsible to the President and Chief Executive Officer of the
Company. During the Employment Period, the Executive shall devote his full
business time, skill and efforts to the business of the Company.
Notwithstanding the foregoing, the Executive may (i) make and manage passive
personal business investments of his choice (in the case of publicly-held
corporations, not to exceed one percent (1%) of the outstanding voting stock)
and serve in any capacity with any civic, educational or charitable
organization, or any trade association, without seeking or obtaining approval
by the Board of Directors of the Company (the "Board"), provided such
activities and service do not materially interfere or conflict with the
<PAGE>
performance of his duties hereunder and (ii) with the approval of the Board,
which shall not be unreasonably withheld, serve on the boards of directors of
other corporations.
3. COMPENSATION AND BENEFITS.
-------------------------
(a) Salary. During the Employment Period, the Company shall pay to the
Executive, as compensation for the performance of his duties and obligations
under this Agreement, a base salary at the rate of $150,000 per annum,
payable in arrears not less frequently than monthly in accordance with the
normal payroll practices of the Company. Such base salary shall be subject to
review each year for possible increase by the Board, but shall in no event be
decreased from its then-existing level during the Employment Period.
(b) Annual Bonus. During the Employment Period, the Executive shall have
the opportunity to earn an annual bonus in accordance with a Company annual
bonus program to be established by the Board for senior executives of the
Company and its subsidiaries. The payment of any annual bonus under any such
program shall be contingent upon the achievement of certain corporate and/or
individual performance goals established by the Board in its direction and
shall not exceed an amount equal to the Executive's base salary.
(c) Other Benefits. During the Employment Period, the Executive shall be
entitled to participate in all of the employee benefit plans, programs and
arrangements in effect during the Employment Period that are generally
available to senior executives of the Company, subject to and on a basis
consistent with the terms, conditions and overall administration of such
plans, programs and arrangements. In addition, during the Employment Period,
the Executive shall be entitled to fringe benefits and perquisites comparable
to those of other senior executives of the Company, including, but not
limited to, four (4) weeks of paid vacation per year.
(d) Business Expenses. During the Employment Period, the Company shall
reimburse the Executive for all documented reasonable business expenses
incurred by the Executive in the performance of his duties under this
Agreement, in accordance with the Company's policies.
(e) Indemnification. During the Employment Period and thereafter, the
Company shall indemnify the executive to the fullest extent permitted by
applicable law, and the Executive shall be entitled to the protection of any
insurance policies the Company may elect to maintain generally for the
benefit of the directors and officers of the Company, with respect to all
costs, charges and expenses, including attorneys' fees, whatsoever incurred
or sustained by the Executive in connection with any action, suit or
proceeding (other than any action, suit or proceeding brought by or in the
name of the Company against the Executive) to which he may be made a party by
reason of being of having been a director, officer or employee of the Company
or his serving or having served any other enterprise as a director, officer
or employee at the request of the Company.
4. TERMINATION OF EMPLOYMENT.
-------------------------
2
<PAGE>
(a) Termination for Cause. The Company may terminate the Executive's
employment hereunder for cause. For purposes of this Agreement and subject to
the Executive's opportunity to cure as provided in Section 4 (c) hereof, the
Company shall have "cause" to terminate the Executive's employment hereunder
if such termination shall be the result of:
(i) willful fraud or dishonesty in connection with the
Executive's performance hereunder that results in material harm to the
Company.
(ii) the failure by the Executive to substantially perform his
duties hereunder that results in material harm to the Company; or
(iii) the conviction for, or plea of nolo contendere to, a
charge of commission of a felony.
(b) Termination for Good Reason. The Executive shall have the right at
any time to terminate his employment with the Company at any time and for any
good reason. For purposes of this Agreement and subject to the Company's
opportunity to cure as provided in Section 4 (c) hereof, the Executive shall
have "good reason" to terminate his employment hereunder if such termination
shall be the result of:
(i) a material diminution during the Employment Period in the
Executive's duties or responsibilities as set forth in Section 2 hereof;
(ii) a material breach by the Company of the compensation and
benefits provisions set forth in Section 3 hereof;
(iii) a notice of termination by the Executive under
Section 4 (c) hereof within 12 months following the occurrence of a Change
in Control (as defined in Section 4 (e) hereof); or
(iv) a material breach by the Company of any other term of this
Agreement.
(c) Notice and Opportunity to Cure. Notwithstanding the foregoing, it
shall be a condition precedent to the Company's right to terminate the
Executive's employment for "cause" and the Executive's right to terminate his
employment for "good reason" that (1) the party seeking the termination shall
first have given the other party written notice stating with specificity the
reason for the termination ("breach"); (2) if the Executive is terminated for
"cause," the Company provides the Executive an opportunity to appear before
the Board to answer such ground for termination; and (3) if such breach is
susceptible of cure or remedy, a period of 30 days from and after the giving
of such notice shall have elapsed without the breaching party having
effectively cured or remedied such breach during such 30-day period, unless
such breach cannot be cured or remedied within 30 days, in which case the
period for remedy or cure shall be extended for a reasonable time (not to
3
<PAGE>
exceed an additional 30 days), provided the breaching party has made and
continues to make a diligent effort to effect such remedy or cure.
(d) Termination Upon Death or Permanent and Total Disability. The
Employment Period shall be terminated by the death of the Executive. The
Employment Period may be terminated by the Company if the Executive shall be
rendered incapable of performing his duties to the Company by reason of a
"disability," defined as either (i) any medically determined physical or
mental impairment that can be expected to result in death or that can be
expected to last for a period of six or more consecutive months from the
first date of the Executive's absence, or (ii) due to a total and permanent
"disability" that can be expected to last for a period of six or more
consecutive months from the first date of the Executive's absence, as such
term is defined in the Company's long term disability insurance policy or
contract as may be in effect from time to time for the benefit of employees
of the Company (either, a "Disability"). If the Employment Period is
terminated by reason of a Disability of the Executive, the Company shall give
30 days' advance written notice to that effect to the Executive. If the
existence of a Disability hereunder is in dispute, it shall be resolved by
two physicians, one appointed by the Executive and one appointed by the
Company. If the two physicians so selected cannot agree as to whether or not
the Executive has a Disability, the two physicians so selected shall
designate a third physician and a majority of the three physicians so
selected shall determine whether or not the Executive has a Disability.
(e) Definition of Change in Control. A "Change in Control" shall be
deemed to have taken place if:
(i) there shall be consummated any consolidation or merger of
the Company in which the Company is not the continuing or surviving
corporation or pursuant to which shares of the Company's capital stock are
converted into cash, securities or other property other than a
consolidation or merger of the Company in which the holders of the
Company's voting stock immediately prior to the consolidation or merger
shall, upon consummation of the consolidation or merger, own at least 50%
of the voting stock of the surviving corporation, or any sale, lease,
exchange or other transfer (in one transaction or a series of transactions
contemplated or arranged by any party as a single plan) of all or
substantially all of the assets of the Company; or
(ii) any person (as such term is used in Sections 13(d) and 14
(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) shall after the date hereof become the beneficial owner (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly,
of securities of the Company representing 35% or more of the voting power
of all then outstanding securities of the Company having the right under
ordinary circumstances to vote in an election of the Board (including,
without limitation, any securities of the Company that any such person has
the right to acquire pursuant to any agreement, or upon exercise of
conversion rights, warrants or options, or otherwise, which shall be deemed
beneficially owned by such person); or
4
<PAGE>
(iii) individuals who at the date hereof constitute the entire
Board and any new directors whose election by the Board, or whose
nomination for election by the Company's stockholders, shall have been
approved by a vote of at least a majority of the directors then in office
who either were directors at the date hereof or whose election or
nomination for election shall have been so approved (the "Continuing
Directors") shall cease for any reason to constitute a majority of the
members of the Board;
5. CONSEQUENCES OF TERMINATION
(a) Termination Without Cause or for Good Reason. In the event of
termination of the Executive's employment hereunder by the Company without
"cause" (other than upon death or Disability) or by the Executive for "good
reason" (each as defined in Section 4 hereof), the Executive shall be
entitled to the following severance pay and benefits:
(i) Severance Pay - severance payments in the form of
continuation of the Executive's base salary as in effect immediately prior
to such termination over the longer of: (A) the then-remaining Term hereof;
or (b) 12 months (the "Severance Period").
(ii) Benefits Continuation - continuation for the Severance
Period of coverage under the group medical care, disability and life
insurance benefit plans or arrangements in which the Executive is
participating at the time of termination; provided, however, that the
Company's obligation to provide or cause to be provided such coverages
shall be terminated if the Executive obtains comparable substitute coverage
from another employer at any time during the Severance Period. The
Executive shall be entitled, at the expiration of the Severance Period, to
elect continued medical coverage in accordance with section 4980B of the
Internal Revenue Code of 1986, as amended (or any successor provision
thereto); and
(iii) Stock Options - all options to purchase shares of the
Company's Common Stock held by the Executive immediately prior to
termination of employment shall become immediately vested and exercisable
and, subject to the terms of the Company's 1997 Long-Term Incentive Plan,
shall remain exercisable for the duration of the Severance Period.
(b) Other Terminations. In the event of termination of the Executive's
employment hereunder for any reason other than those specified in Section
5(a) hereof, the Executive shall not be entitled to any severance pay,
benefits continuation or stock option rights contemplated by the foregoing,
except as may otherwise be provided under the applicable benefit plans or
award agreements relating to the Executive.
(c) Accrued Rights. Notwithstanding the foregoing provisions of this
Section 5, in the event of termination of the Executive's employment
hereunder for any reason, the Executive shall be entitled to payment of any
unpaid portion of his base salary through the effective date of termination,
and payment of any accrued but unpaid rights solely in accordance with the
terms of any incentive bonus, stock option or employee benefit plan or
program of the Company.
5
<PAGE>
6. CONFIDENTIALITY.
The Executive agrees that he will not at any time during the Term hereof or
at any time thereafter for any reason, in any fashion, form or manner, either
directly or indirectly, divulge, disclose or communicate to any person, firm,
corporation or other business entity, in any manner whatsoever, any
confidential information or trade secrets concerning the business of the
Company and its subsidiaries, including, without limiting the generality of
the foregoing, the techniques, methods or systems of its operation or
management, any information regarding its financial matters, or any other
material information concerning the business of the Company and its
subsidiaries, their manner of operation, their plans or other material data.
The provisions of this Section 6 shall not apply to (i) information that is
public knowledge other than as a result of disclosure by the Executive in
breach of this Section 6; (ii) information disseminated by the Company or any
of its subsidiaries to third parties in the ordinary course of business;
(iii) information lawfully received by the Executive from a third party who,
based upon inquiry by the Executive, is not bound by a confidential
relationship to the Company or any of its subsidiaries; or (iv) information
disclosed under a requirement of law or as directed by applicable legal
authority having jurisdiction over the Executive.
7. INVENTIONS.
The Executive is hereby retained in a capacity such that the Executive's
responsibilities include the making of technical and managerial contributions
of value to the Company and its subsidiaries. The Executive hereby assigns to
the Company all right, title and interest in such contributions and
inventions made or conceived by the Executive alone or jointly with others
during the Employment Period that relate to the business of the Company or
any of its subsidiaries. This assignment shall include (a) the right to file
and prosecute patent applications on such inventions in any and all
countries, (b) the patent applications filed and patents issuing thereon, and
(c) the right to obtain copyright, trademark or trade name protection for any
such work product. The Executive shall promptly and fully disclose all such
contributions and inventions to the Company and assist the Company in
obtaining and protecting the rights therein (including patents thereon) in
any and all countries; provided, however, that said contributions and
inventions will be the property of the Company, whether or not patented or
registered for copyright, trademark or trade name protection, as the case may
be. The Executive hereby agrees to execute any documentation requested by the
Company to be so executed if such request is made in order to carry out the
purpose and terms of this paragraph. Inventions conceived by the Executive
that are not related to the business of the Company or any of its
subsidiaries will remain the property of the Executive.
8. NON-COMPETITION.
The Executive agrees that he shall not during the Employment Period and, if
applicable, the Severance Period, without the approval of the Board, directly
or indirectly, alone or as partner, joint venturer, officer, director,
employee, consultant, agent, independent contractor or stockholder (other
than as provided below) of any company or business, engage in any
"Competitive Business" within the United States. For purposes of the
foregoing, the term "Competitive Business" shall mean any
6
<PAGE>
business involved in providing information technology solutions, including,
but not limited to, desktop services, software development, system design and
integration, large scale survey research, recruiting and comprehensive
marketing and sales, which is in direct competition with the Company or any
of its subsidiaries in any community in which the Company or any of its
subsidiaries is doing business. Notwithstanding the foregoing, the Executive
shall not be prohibited during the non-competition period applicable above
from acting as a passive investor where he owns not more than one percent
(1%) of the issued and outstanding capital stock of any publicly-held
company. During the period that the above non-competition restriction
applies, the Executive shall not, without the written consent of the Company,
solicit or encourage any employee of the Company or any current or future
subsidiary or affiliate thereof to terminate his or her employment.
9. BREACH OF RESTRICTIVE COVENANTS.
The parties agree that a breach or violation of Section 6, 7 or 8 hereof will
result in immediate and irreparable injury and harm to the innocent party,
which party shall have, in addition to any and all remedies of law and other
consequences under this Agreement, the right to an injunction, specific
performance or other equitable relief to prevent the violation of the
obligation hereunder.
10. NOTICES.
For the purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and shall
be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return
receipt requested, postage prepaid, addressed as follows:
(a) If to the Company, to:
CONDOR TECHNOLOGY SOLUTIONS, INC.
1650 TYSONS BOULEVARD
SUITE 600
MCLEAN, VA 22102
(b) If to the Executive, to:
SANTANU SARKAR
C/O CONDOR TECHNOLOGY SOLUTIONS, INC.
1650 TYSONS BOULEVARD
SUITE 600
MCLEAN, VA 22102
or to such other address as a party hereto shall designate to the other party
by like notice, provided that notice of a change of address shall be
effective only upon receipt thereof.
7
<PAGE>
11. ARBITRATION: LEGAL FEES.
Except as provided in Section 9 hereof, any dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration in McLean, Virginia in accordance with the rules of the American
Arbitration Association then in effect. Judgement may be entered on the
arbitrator's award in any court having jurisdiction. The Company shall
reimburse the Executive for all reasonable legal fees and costs and other
fees and expenses that the Executive may incur in respect of any dispute or
controversy arising against the Company under or in connection with this
Agreement; provided, however, that the Company shall not reimburse any such
fees, costs and expenses if the fact finder determines that an action brought
by the Executive was substantially without merit or the Executive is
otherwise unsuccessful in such an action.
12. WAIVER OF BREACH
Any waiver of any breach of the Agreement shall not be construed to be a
continuing waiver or consent to any subsequent breach on the part of either
the Executive or of the Company.
13. NON-ASSIGNMENT; SUCCESSORS.
Neither party hereto may assign his or its rights or delegate his or its
duties under this Agreement without the prior written consent of the other
party; provided, however, that (i) subject to the rights of the Executive
under Section 4(b) hereof, this Agreement shall inure to the benefit of and
be binding upon the successors and assigns of the Company upon any sale of
all or substantially all of the Company's assets, or upon any merger,
consolidation or reorganization of the Company with or into any other
corporation, all as though such successors and assigns of the Company and
their respective successors and assigns were the Company; and (ii) this
Agreement shall inure to the benefit of and be binding upon the heirs,
assigns or designees of the Executive to the extent of any payments due to
the Executive hereunder. As used in this Agreement, the term "Company" shall
be deemed to refer to any such successor or assign or the Company referred to
in the preceding sentence.
14. WITHHOLDING OF TAXES.
All payments required to be made by the Company to the Executive under this
Agreement shall be subject to the withholding of such amounts, if any,
relating to tax, and other payroll deductions as the Company may reasonably
determine it should withhold pursuant to any applicable law or regulation.
15. SEVERABILITY.
To the extent any provision of this Agreement or portion thereof shall be
invalid or unenforceable, it shall be considered deleted therefrom and the
remainder of such provision and of this Agreement shall be unaffected and
shall continue in full force and effect.
8
<PAGE>
16. COUNTERPARTS.
This AGreement may be executed in one or more counterparts, each of which
shall be deemed to be an original but all of which together will constitute
one and the same instrument.
17. GOVERNING LAW.
This Agreement shall be construed, interpreted and enforced in accordance
with the laws of the State of Virginia.
18. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement by the Company and the
Executive with respect to the subject matter hereof and supersedes any and all
prior agreements or understandings between the Executive and the Company with
respect to the subject matter hereof, whether written or oral. This
Agreement may be amended or modified only by a written instrument executed by
the Executive and the Company.
9
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
July 1, 1997.
CONDOR TECHNOLOGY SOLUTIONS, INC.
By: /s/ Kennard F. Hill
-----------------------------
Name: Kennard F. Hill
Title: President and Chief
Executive Officer
THE EXECUTIVE
/s/ Santanu Sarkar
---------------------------------
Name: Santanu Sarkar
10
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
(1) Access Acquisition Corp., a Delaware corporation
(2) CHMC Acquisition Corp., a Delaware corporation
(3) Federal Acquisition Corp., a Delaware corporation
(4) Interactive Software Acquisition Corp., a Delaware corporation
(5) InVenture Acquisition Corp., a Delaware corporation
(6) MIS Acquisition Corp., a Delaware corporation
(7) MST Acquisition Corp., a Delaware corporation
(8) USComm Acquisition Corp., a Delaware corporation
<PAGE>
Exhibit 23.1
Consent of Independent Accountants
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our reports as of the dates, and
related to the financial statements of the companies, listed below which
appear in such Prospectus:
Company Date
------- ----
Condor Technology Solutions, Inc. September 30, 1997
Computer Hardware Maintenance Company, Inc. July 15, 1997
Corporate Access, Inc. July 18, 1997
Interactive Software Systems Incorporated April 18, 1997
U.S. Communications, Inc. July 15, 1997
InVenture Group, Inc. July 15, 1997
MIS Technologies, Inc. July 11, 1997
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
October 2, 1997
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
Condor Technology Solutions, Inc. of our report dated January 13, 1997, on
our audits of the consolidated financial statements of Federal Computer
Corporation and Subsidiaries as of October 31, 1995 and 1996 and for each of
the three years in the period ended October 31, 1996. We also consent to the
reference to our firm under the caption "Experts."
Coopers & Lybrand L.L.P.
Washington, D.C.
October 2, 1997
<PAGE>
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Condor Technology
Solutions, Inc. on Form S-1 of our report dated February 14, 1997 (relating
to the financial statements of Management Support Technology Corporation),
appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 1, 1997
<PAGE>
Exhibit 23.5
CONSENT TO BE NAMED AS A DIRECTOR
OF
CONDOR TECHNOLOGY SOLUTIONS, INC.
The undersigned hereby consents to be named in the Registration
Statement on Form S-1 to be filed by Condor Technology Solutions, Inc. (the
"Company") with the Securities and Exchange Commission, as a director of the
Company.
/s/ C. Lawrence Meador
----------------------
C. Lawrence Meador
<PAGE>
Exhibit 23.6
CONSENT TO BE NAMED AS A DIRECTOR
OF
CONDOR TECHNOLOGY SOLUTIONS, INC.
The undersigned hereby consents to be named in the Registration
Statement on Form S-1 to be filed by Condor Technology Solutions, Inc. (the
"Company") with the Securities and Exchange Commission, as a director of the
Company.
/s/ Edward Mathias
----------------------
Edward Mathias
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