<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 26, 1997
REGISTRATION NO. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
U.S. LEGAL SUPPORT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
TEXAS 7338 76-0523238
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NO.)
OF INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
RICHARD O. LOONEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
1001 FANNIN ST., SUITE 650 1001 FANNIN ST., SUITE 650
HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002
(713) 653-7100 (713) 653-7100
(ADDRESS, INCLUDING ZIP CODE, (NAME, ADDRESS, INCLDING ZIP CODE,
AND TELEPHONE NUMBER, INCLUDING AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S AREA CODE, OF AGENT FOR SERVICE)
PRINCIPAL EXECUTIVE OFFICES)
----------------
Copies to:
W. CLELAND DADE DAN BUSBEE
BRACEWELL & PATTERSON, L.L.P. LOCKE PURNELL RAIN HARRELL
711 LOUISIANA STREET, SUITE 2900 (A PROFESSIONAL CORPORATION)
HOUSTON, TEXAS 77002-2781 2200 ROSS AVENUE, SUITE 2200
(713) 221-1314 DALLAS, TEXAS 75201
(214) 740-8000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this 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 Rule 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
===============================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE REGISTRATION FEE
- -------------------------------------------------------------------------------
Common Stock, $.01 par value....... $52,325,000 $15,950
===============================================================================
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 THIS 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 TIMES 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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 1997
3,500,000 SHARES
[LOGO OF U.S. LEGAL SUPPORT, INC. APPEARS HERE]
U.S. LEGAL SUPPORT, INC.
COMMON STOCK
All of the shares of Common Stock offered hereby are being offered by U.S.
Legal Support, Inc. (the "Company").
Prior to this offering (the "Offering"), there has been no public market for
the Common Stock of the Company. It is currently estimated that the initial
public offering price of the Common Stock will be between $ and $ per
share. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price. The Company has applied for
quotation of the Common Stock on the Nasdaq National Market under the symbol
"LEGL," subject to official notice of issuance.
SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------
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>
Price to Underwriting Proceeds to Proceeds to
Public Discount (1) Company (2) Shareholder
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............................. $ $ $ $
Total (3)............................. $ $ $ $
- -----------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $ .
(3) The Company and a shareholder have granted to the Underwriters a 30-day
option to purchase up to 525,000 additional shares of Common Stock solely
to cover over-allotments, if any. If the Underwriters exercise this option
in full, the Price to Public will total $ , the Underwriting Discount
will total $ , the Proceeds to Company will total $ and the Proceeds
to Shareholder will total $ . See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of Montgomery Securities on or about , 1997.
-----------
MONTGOMERY SECURITIES
HAMBRECHT & QUIST
J.C. BRADFORD & CO.
, 1997
<PAGE>
U.S. LEGAL SUPPORT, INC., A LEADING PROVIDER OF LEGAL SUPPORT
AND STAFFING SERVICES
[COLOR MAP OF UNITED STATES WITH COMPANY OFFICE AND NETWORK AFFILIATE
LOCATIONS IDENTIFIED.]
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by independent certified public
accountants and with quarterly reports containing unaudited summary financial
information for each of the first three quarters of each fiscal year.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION
OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
financial statements, including the related notes thereto, appearing elsewhere
in this Prospectus. Simultaneously with the closing of the Offering made by
this Prospectus, the Company will acquire four legal support and staffing
businesses (collectively, the "Pending Acquisitions") in separate transactions
in exchange for shares of Common Stock and cash. Unless the context otherwise
requires, the "Company" refers to U.S. Legal Support, Inc., its subsidiaries
and the Pending Acquisitions. See "The Company--Pending Acquisitions."
Disclosures herein relating to the number of shares of Common Stock to be
outstanding after the Offering are estimated, based upon an assumed initial
public offering price of $ per share (the mid-point of the estimated initial
public offering price range). Unless otherwise indicated, the information in
this Prospectus: (i) has been adjusted to give effect to the Pending
Acquisitions; (ii) assumes no exercise of the Underwriters' over-allotment
option; and (iii) gives effect to the 100-for-one stock split effected on
December 16, 1996.
THE COMPANY
The Company is one of the largest providers of legal support and staffing
services in the United States, providing court reporting, certified record
retrieval, legal placement and staffing, and related services to law firms and
corporations, including insurance companies, through 40 offices in nine states.
The Company seeks to become the leading national, full service provider of
legal support and staffing services through a combination of selective
acquisitions and internal growth. Since commencing operations in January 1997,
the Company has acquired 14 businesses and will acquire four additional
businesses concurrently with the Offering. In 1997, the Company has provided
legal support and staffing services to The Boeing Company, Ford Motor Company,
ITT Hartford, CNA and RJ Reynolds Tobacco Company, among others. For the year
ended December 31, 1996 and the six months ended June 30, 1997, the Company had
pro forma revenues of $43.4 million and $23.8 million, respectively, and pro
forma operating income of $5.1 million and $3.4 million, respectively.
Based on available industry data, the Company estimates that the market for
legal support and staffing services in the United States exceeds $5.0 billion
annually. The industry is highly fragmented, with more than 1,000 court
reporting and record retrieval firms and over 400 legal placement and staffing
firms. The Company believes that the legal support and staffing services market
is growing due to several trends, including: (i) an increase in the outsourcing
of legal support services by law firms and corporations, including insurance
providers, to companies that specialize in providing such services at a lower
cost; (ii) an increase in the use of attorneys on a temporary basis by law
firms and corporations; (iii) an increase in the volume and complexity of
litigation; and (iv) an increase in the national scope of litigation,
particularly in class action and product liability lawsuits.
Legal support and staffing services traditionally have been marketed to law
firms. Increasingly, corporations, especially insurance providers, who
ultimately pay the costs of legal support and staffing services, are seeking to
control and reduce the costs associated with lawsuits, centralize their
purchasing decisions and ensure consistent service quality. As a result, the
Company believes that these companies are more frequently selecting the
providers of legal support services, rather than delegating that selection to
the law firms engaged to represent them. The legal support and staffing
services industry consists primarily of local and regional firms that typically
provide a single or limited number of legal support and staffing services. The
Company believes that many legal support businesses lack: (i) a full range of
legal support services; (ii) regional or national coverage; and (iii) access to
capital and effective marketing programs. As a result, the Company believes
that many legal support and staffing companies are unable to effectively
service large, geographically dispersed clients.
The Company is implementing a focused business strategy that includes
establishing full service operations in multiple metropolitan areas, adopting
best practices, policies and procedures, achieving operating efficiencies,
3
<PAGE>
and managing its business on a decentralized basis, with local management
retaining primary responsibility for day-to-day operations and local marketing.
The Company believes that allowing local management to retain appropriate
autonomy will preserve existing client relationships, provide opportunities for
internal growth and enhance the Company's competitiveness in attracting
acquisition candidates.
The Company has implemented a strategy designed to continue its growth in
existing and new markets based on the following key elements: (i) actively
pursue strategic acquisitions; (ii) establish an effective national marketing
program; (iii) capitalize on cross-selling opportunities; and (iv) develop new
and expand existing client relationships. The Company's acquisition strategy is
to identify, acquire and integrate independent companies with strong
management, profitable operating results and recognized local or regional
market presence. The Company typically pursues acquisitions that will allow it
to accomplish one or more of the following: (i) expand the geographic markets
served by the Company; (ii) increase the Company's penetration of existing
markets; (iii) establish or enhance customer relationships; and (iv) offer
services complementary to those offered by the Company. The Company believes
that there are numerous attractive acquisition candidates due to the large size
and fragmentation of the legal support and staffing services industry,
including participants in the Company's referral network of over 130 court
reporting affiliates, through which the Company supplies court reporting
services to its clients in locations not served directly by the Company.
The Company is a Texas corporation. Its principal executive offices are
located at 1001 Fannin Street, Suite 650, Houston, Texas 77002 and its
telephone number at that location is (713) 653-7100.
THE OFFERING
Common Stock offered by the 3,500,000 shares
Company.............................
Common Stock to be outstanding
after the Offering.................
7,814,136 shares (1) (2)
Use of proceeds..................... To repay indebtedness, to pay a portion
of the purchase price associated with
the Pending Acquisitions and to redeem
shares of the Company's Series C
Preferred Stock. See "Use of Proceeds."
Proposed Nasdaq National Market LEGL
symbol..............................
- --------
(1) Includes 609,268 shares to be issued in connection with the Pending
Acquisitions and gives effect to the conversion of (i) 1,000,000 shares of
Series A Convertible Preferred Stock into 1,560,000 shares of Common Stock;
(ii) 2,046,667 shares of Series B Preferred Stock into 183,393 shares of
Common Stock; and (iii) $1.8 million principal amount of Convertible
Subordinated Promissory Notes (Note 2) into 226,764 shares of Common Stock,
in each case to be effected concurrently with the Offering. See "Certain
Transactions" and Note 8 of Notes to Historical Financial Statements.
(2) Excludes 900,000 shares of Common Stock reserved for issuance under the
Company's 1997 Stock Incentive Plan and the Company's Stock Option Plan for
Non-Employee Directors and 131,856 shares of Common Stock issuable upon
exercise of options granted in connection with completed acquisitions. See
"Management," "Certain Transactions" and "Principal Shareholders."
4
<PAGE>
SUMMARY FINANCIAL DATA (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED
DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
--------------------- --------------- ------------ -----------------------
PRO FORMA AS PRO FORMA PRO FORMA
ADJUSTED AS ADJUSTED AS ADJUSTED
1994 1995 1996 1996 1997 (2) 1996 (3)(4) 1996 (3)(4) 1997 (3)(4)
------ ------ ------ ------ -------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Revenues................ $8,363 $9,104 $7,667 $4,044 $8,754 $43,404 $20,693 $23,777
Cost of services........ 5,589 5,763 4,839 2,572 5,665 25,475 12,275 13,751
------ ------ ------ ------ ------ ------- ------- -------
Gross profit............ 2,774 3,341 2,828 1,472 3,089 17,929 8,418 10,026
Selling, general and
administrative
expenses (5)........... 3,043 1,970 2,352 875 2,146 11,194 5,421 5,869
Depreciation and
amortization (4)....... 224 231 212 134 156 1,634 833 790
------ ------ ------ ------ ------ ------- ------- -------
Operating income
(loss)................. (493) 1,140 264 463 787 5,101 2,164 3,367
Interest expense........ 185 230 238 118 708 653 433 666
------ ------ ------ ------ ------ ------- ------- -------
Income (loss) before
taxes.................. (678) 910 26 345 79 4,448 1,731 2,701
Provisions (benefit) for
income taxes........... (183) 327 10 117 53 1,874 724 1,107
------ ------ ------ ------ ------ ------- ------- -------
Net income (loss)....... $ (495) $ 583 $ 16 $ 228 $ 26 $2,574 $ 1,007 $ 1,594
====== ====== ====== ====== ====== ======= ======= =======
Net income per common
share.................. $ 0.32 $ 0.13 $ 0.20
======= ======= =======
Weighted average shares
outstanding (6)........ 8,002 8,002 8,002
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------
PRO FORMA
ACTUAL AS ADJUSTED (3) (5)
------- -------------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash............................................... $ -- $ 511
Total assets....................................... 14,113 62,006
Long-term debt (net of current portion)............ 12,572 9,139
Redeemable preferred stock......................... 3,278 --
Total shareholders' equity (deficit)............... $(5,778) $46,749
</TABLE>
- --------
(1) Prior to January 17, 1997, the Company had no business operations.
Therefore, the business of Looney & Company, for financial statement
purposes, represents the predecessor business.
(2) The Company's acquisitions have been, and the Pending Acquisitions will be,
accounted for as purchases, and therefore, the operations of the acquired
businesses are included in the statement of income data from the respective
dates of acquisition. See the Company's Historical Financial Statements
included herein.
(3) Pro forma as adjusted information gives effect to: (i) the completed
acquisitions and completion of the Pending Acquisitions; (ii) an adjustment
to compensation expense for the difference between actual compensation paid
to certain officers of businesses acquired or to be acquired and the
employment contract compensation negotiated in conjunction with the
completed acquisitions and the Pending Acquisitions; (iii) amortization
expense relating to intangible assets recorded in conjunction with the
completed acquisitions and to be recorded in the Pending Acquisitions; and
(iv) the sale of the shares offered hereby and the application of the net
proceeds thereof, as if they had occurred on January 1, 1996 (for statement
of income data) and as of June 30, 1997 (for balance sheet data). The pro
forma as adjusted results of operations are not necessarily indicative of
the results that would have occurred had these transactions been completed
as of such date or the results that may be attained in the future.
(4) Pro forma depreciation and amortization amounts consist primarily of
amortization of goodwill totaling $1,194,000 and $597,000 for December 31,
1996 and June 30, 1997, respectively recorded or to be recorded as a result
of the completed acquisitions and the Pending Acquisitions. Goodwill is
amortized over periods ranging from ten to 40 years and computed on the
basis described in Note 2 of Notes to Unaudited Consolidated Financial
Statements.
(5) Includes a non-recurring charge of $360,000 in the fourth quarter 1996 for
the Founding Company representing the estimated fair value of ownership
interests granted to certain employees by the Founding Company's
shareholder.
(6) Gives effect to shares: (i) outstanding prior to the Offering; (ii) issued
in the Offering; (iii) to be issued in the Pending Acquisitions; (iv)
issued upon conversion of preferred stock and convertible promissory notes;
and (v) issuable upon exercise of all outstanding stock options. See
"Capitalization."
5
<PAGE>
SUMMARY OF INDIVIDUAL COMPANY REVENUES (1)
(IN THOUSANDS)
Since commencing operations in January 1997, the Company has acquired 14
businesses and will acquire four others in the Pending Acquisitions. The
following table sets forth a summary of the revenues attributable to the
principal businesses acquired and to be acquired in the Pending Acquisitions
for the fiscal years ended December 31, 1995 and 1996 and for the six month
periods ended June 30, 1996 and 1997.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------- -----------------
1995 1996 1996 1997
------- ------- -------- --------
<S> <C> <C> <C> <C>
Klein Bury (2)................................ $ 7,302 $ 8,526 $ 4,081 $ 4,258
Looney (3).................................... 9,104 7,667 4,044 4,241
Elaine Dine (4)............................... 3,503 4,658 1,663 2,365
Legal Enterprise.............................. 2,756 3,707 1,719 2,231
Reporting Service (5)......................... 1,906 3,012 1,352 2,169
Jilio (5)..................................... 3,366 4,022 1,626 1,991
Johnson Group (6)............................. 1,714 2,155 1,068 1,228
Ziskind Greene................................ 1,442 1,841 1,027 1,179
Amicus One.................................... 1,642 1,882 997 969
Kirby Kennedy (5)............................. 1,629 1,866 1,031 947
G&G........................................... 1,544 1,517 745 773
San Francisco Reporting....................... 1,105 1,140 587 612
Block......................................... 1,025 1,317 690 518
Commander Wilson (5).......................... 578 94 63 296
------- ------- -------- --------
Total....................................... $38,616 $43,404 $20,693 $23,777
======= ======= ======== ========
</TABLE>
- --------
(1) See "The Company" for the full names and additional information concerning
the completed acquisitions and the Pending Acquisitions. The table does not
include the operations of Rocca, Preferred Records, Inc. or Encore
Reporting.
(2) Revenues for 1995 are for the twelve months ended September 30, 1995.
(3) The revenues of Looney include the revenues of Cindi Rogers & Associates
from April 19, 1997, but do not include the revenues of Encore Reporting or
Preferred Records, Inc.
(4) The revenues for the six months ended June 30, 1997 include the revenues of
Elaine Dine Temporary Attorneys, L.L.C., a wholly owned subsidiary.
Revenues for 1995 and 1996 represent results for the twelve months ended
March 31, 1996 and 1997, respectively.
(5) To be acquired in a Pending Acquisition concurrently with the completion of
the Offering.
(6) The revenues of Johnson Group include the combined revenues of Johnson
Court Reporting, Medtext, Inc. and Rapidtext, Inc.
6
<PAGE>
RISK FACTORS
The factors set forth below should be considered carefully in evaluating an
investment in the shares of Common Stock offered by this Prospectus. Further,
this Prospectus contains certain forward-looking statements. These forward-
looking statements are subject to certain assumptions, risks and uncertainties
which may cause actual results to be materially different from those expressed
in or implied by such statements.
ABSENCE OF COMBINED OPERATING HISTORY; RISKS OF INTEGRATING ACQUIRED COMPANIES
The Company commenced operations in January 1997 and since that time has
acquired 14 businesses. The Company also has entered into agreements to
acquire four additional businesses in the Pending Acquisitions. While the
Company intends to continue to emphasize decentralized management of
operations and marketing in the acquired businesses, its success will depend,
to a large extent, upon its ability to integrate effectively the operations of
the acquired businesses. There can be no assurance that the recently assembled
management group will be able to implement successfully the Company's business
and growth strategies or manage successfully the combined operations of the
Company and the businesses acquired. Most of the businesses acquired or to be
acquired in the Pending Acquisitions historically have operated with limited
financial and other reporting systems, which will be inadequate for the
combined businesses. The Company is currently developing centralized financial
reporting, accounting and other systems to assist management in the
integration of acquired businesses, but there can be no assurance that
integration of the acquired businesses can be accomplished successfully. If
the Company does not implement such systems in a timely manner or is required
to rely on the existing financial reporting and accounting control systems of
the businesses acquired, the Company's ability to manage effectively the
combined enterprise could be adversely affected. The pro forma combined
historical financial results included herein cover periods during which the
businesses acquired were not under common control and may not be indicative of
the Company's future financial or operating results. See "Business--
Acquisition and Integration Strategy" and "Management."
RISKS ASSOCIATED WITH ACQUISITIONS
The Company's growth strategy is dependent upon a program of continuing
acquisitions. However, there can be no assurance the Company will be able to
identify attractive acquisition candidates or to negotiate acquisition terms
acceptable to the Company, and the failure to do so could have a material
adverse effect on the Company's results of operations or its ability to
sustain growth. The Company's acquisition strategy involves a number of risks,
each of which could affect adversely the Company's reported operating results,
including the diversion of management attention from operation of the
business, loss of key personnel from acquired companies and the failure of an
acquired business to achieve targeted financial results. In addition, the
Company could encounter unanticipated business risks or unanticipated
liabilities with respect to the acquired businesses, and significant
amortization of acquired intangible assets is likely to be required in most
acquisitions. Further, there can be no assurance that the Company's strategy
to become a national, full service provider of legal support services will be
successful, or that the Company's clients will accept the Company as a
provider of such services. The legal support and staffing industry is
undergoing consolidation, and the resulting increase in the competition for
acquisition candidates could limit the Company's acquisition opportunities or
increase the cost of acquisitions. See "Business--Growth Strategy."
The Company will require additional financing for future acquisitions, which
may not be available on terms favorable to the Company, if at all. The Company
currently intends to finance future acquisitions using shares of its Common
Stock for a significant portion of the purchase price. In the event the
Company's Common Stock does not maintain sufficient value or potential
acquisition candidates are unwilling to accept Common Stock as consideration
for the sale of their businesses, the Company may be required to utilize more
of its cash resources, if available, in order to continue its acquisition
program. The net proceeds of the Offering will be used primarily to repay
existing indebtedness and to partially fund the cash portion of the purchase
price of the Pending Acquisitions, and none of such proceeds will be available
for future acquisitions. If the Company does not have sufficient cash
resources, is unable to borrow the funds required to make acquisitions or is
not able to use its Common Stock as consideration for acquisitions, its growth
through acquisitions could be limited. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
7
<PAGE>
RISKS ASSOCIATED WITH RAPID GROWTH
The Company has experienced rapid growth through acquisitions since it
commenced operations in January 1997, which has placed demands on its
management, operational capacity and financial resources. The Company's growth
strategy provides for a continuing acquisition program, which will place
further demands on its management, operational capacity and financial
resources and systems. The increased management requirements will necessitate
the recruitment and retention of additional qualified management personnel,
and there can be no assurance that the Company will be able to recruit and
retain qualified personnel or expand and manage its operations effectively and
profitably. The failure to manage growth effectively could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business."
REGULATORY INITIATIVES
The Company derives most of its revenues from operations in California,
Florida, New York, Pennsylvania and Texas. Legislation or regulations enacted
in any of these states or at the federal level relating to lawsuits or other
dispute resolution proceedings, or to the provision of court reporting or
other legal support and staffing services provided by the Company, could have
a material effect on the Company's business and results of operations. A key
component of the Company's business strategy is the pursuit of arrangements
with insurance providers and major corporations under which the Company is
designated as the exclusive or preferred provider of court reporting and
certified record retrieval services. Legislation recently was proposed in the
State of Texas that could have prohibited such arrangements by making illegal
the provision of services by a court reporter under any agreement other than
on a case-by-case basis. The proposed legislation also would have prohibited a
court reporter from being employed by or serving as an independent contractor
for a court reporting firm unless a majority of the firm is owned by certified
shorthand reporters. While the foregoing provisions were not included in the
Texas legislation as enacted, the Company expects that efforts will continue
to sponsor the adoption of similar prohibitions in legislative or regulatory
action or through the ethics codes governing the conduct of court reporters or
attorneys. If enacted, these prohibitions would represent a significant
impediment to the implementation of the Company's current business strategy
and could have a material adverse effect on the Company's business and results
of operations. Other states have enacted or considered such legislation and
may do so in the future. West Virginia recently has enacted legislation that
prohibits a court reporter from entering into a contract for the provision of
court reporting services directly with a party to a lawsuit. In addition,
recent federal and certain state legislative proposals have included
limitations on the number and length of depositions or proposed the
substitution of videotaped reporting for stenographic transcription of certain
legal proceedings.
State and national bar associations and committees on legal ethics and
professional responsibility have from time to time issued opinions regarding
the ethical implications of arrangements involving temporary attorneys. These
opinions have suggested that the payment of fees to agencies that place
temporary attorneys may constitute in certain circumstances the improper
splitting of legal fees with a non-lawyer. The applicability of these opinions
to the Company's business is uncertain and there can be no assurance that a
state will not determine that the business as conducted by the Company
violates ethical or professional responsibility regulations for attorneys. In
addition, the practice of placing temporary lawyers with a number of firms may
raise conflict of interest issues under applicable ethics codes, particularly
when attorneys from a placement firm are placed with opposing parties, or law
firms representing such parties, in a lawsuit or business transaction.
The Company cannot determine whether legislative or regulatory proposals
affecting the Company's operations will be initiated, reproposed or enacted;
however, if adopted, certain of such proposals could require the Company to
alter the way in which it conducts its business and could materially and
adversely affect its business and results of operations. See "Business--
Regulation."
8
<PAGE>
COMPETITION
The legal support and staffing services business is highly competitive and
fragmented, and limited barriers to entry exist with respect to each component
of the Company's business. The Company's court reporting and certified record
retrieval businesses compete locally and regionally with numerous firms. In
its legal staffing business, the Company competes with national, regional and
local firms, some of which have substantially greater resources, offer more
diversified services and operate in broader geographic areas than the Company.
As the Company seeks to expand into new geographic markets, its growth in
those markets will depend upon its ability to gain market share from
competitors, and there can be no assurance that additional market share will
be obtained. Prices for legal support services generally have remained stable
or have declined in many markets over the past several years as law firms,
insurance providers and corporations have increased their efforts to reduce
expenses by centralizing their purchasing decisions and negotiating lower
rates with vendors. As this trend and the related consolidation among legal
support service companies continue, the Company anticipates that it will
encounter more intense price-based competition which could adversely affect
the Company's profitability. See "Business--Competition."
STATUS OF INDEPENDENT CONTRACTORS
The Company typically provides court reporting services through independent
contractors and therefore does not pay federal or state employment taxes or
withhold income taxes for such persons. Further, the Company does not include
these independent contractors in its employee benefit plans. From time to time
persons engaged as independent contractors are determined to be employees as a
result of challenges by the federal Internal Revenue Service ("IRS") and state
authorities asserted in administrative proceedings or court action. In certain
instances, persons engaged to be independent contractors also could initiate
court proceedings asserting that they are employees under state law and should
be included in employee benefit plans. Such determinations of employee status
under these challenges are made on a case-by-case basis and are based upon the
particular facts of each case. In the event persons engaged by the Company as
independent contractors are determined to be employees by the IRS or any state
taxation department, the Company would be required to pay federal and/or state
employment taxes and withhold income taxes with respect to such persons and
could become liable for amounts required to be paid or withheld in prior
periods. In addition, the Company could be required to include such persons in
its employee benefit plans on a retroactive as well as a current basis. At
September 15, 1997, approximately 500 court reporters were engaged by the
Company as independent contractors, and any challenge by the IRS, state
authorities or private litigants resulting in a determination that such
persons are employees would have a material adverse effect on the Company's
business, results of operations and financial condition. See "Business--Legal
Support and Staffing Services" and "--Independent Contractors."
DEPENDENCE UPON KEY PERSONNEL
The Company is dependent on the continuing services of Richard O. Looney,
other executive officers and the senior management of the acquired businesses,
and the Company likely will depend on the senior management of any significant
business it acquires in the future. The business or prospects of the Company
could be affected adversely if any of these persons does not continue in his
or her management role and the Company is unable to attract and retain
qualified replacements. The Company does not currently maintain key-man life
insurance on any executive officer. See "Management."
ABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL
The Company is dependent on the availability of a sufficient number of
licensed court reporters. From time to time, there are shortages of qualified
court reporters, and there can be no assurance that the Company will be able
to maintain an adequate force of licensed court reporters or that the
Company's expenses will not increase as a result of such a shortage. The
Company competes with other legal staffing companies, as well as its clients,
for qualified attorneys. The Company expects that a substantial number of the
Company's temporary legal staffing personnel will terminate their temporary
assignments to accept full-time employment with Company
9
<PAGE>
clients. The Company also may encounter difficulty in recruiting a sufficient
number of qualified attorneys. In addition, during periods of high demand for
the Company's services, the Company may incur increased expense associated
with recruiting qualified temporary attorneys. The Company's inability to
attract and retain a sufficient number of qualified temporary attorneys, or
the loss of a significant number of qualified temporary attorneys to clients,
could adversely affect the Company's operating results and business strategy.
See "Business--Business Strategy."
POTENTIAL LIABILITY TO CLIENTS
The provision of personnel in the legal support and staffing business
entails an inherent risk of professional malpractice and similar claims. The
Company currently does not maintain malpractice insurance for attorneys placed
with clients in the Company's legal staffing business, and the Company could
be named as a defendant in legal malpractice litigation in connection with
services rendered by attorneys placed with clients. There can be no assurance
that, if named, the Company would be able to defend such claims successfully.
The Company's business also involves the handling of clients' documents
containing confidential and other sensitive information. There can be no
assurance that unauthorized disclosures will not occur, or that clients'
documents will not be mishandled or lost, which could have a material adverse
effect on the Company's business reputation or results of operations. The
Company may also be subject to discrimination and harassment claims for the
acts of legal staffing personnel who are placed with the Company's clients.
See "Business--Regulation."
TECHNOLOGICAL ADVANCES
The Company's business is subject to changes in technology, which may result
in the introduction of new products or services that are competitive with,
superior to or render obsolete the services currently provided by the Company.
Voice recognition technology is designed to eliminate the need for manual
transcription of oral testimony and has been under development for several
years. There can be no assurance that substantial advances will not be made in
the area of voice recognition technology or that other technology will not be
developed that renders the Company's services obsolete or impractical. These
changes in technology could also include conducting certified document
retrieval electronically, with deposition notices and subpoenas being
transmitted electronically to document custodians and witnesses who similarly
would return responses electronically. The Company's ability to compete
effectively will depend upon its ability to adapt to such changes and to
develop services to satisfy evolving client requirements. There can be no
assurance that current technologies, or technologies developed in the future,
will not compete with or replace services provided by the Company, or that any
technological advances made by the Company will be responsive to client
requirements or will be the best available technology to meet its clients'
needs.
CONTROL BY OFFICERS, DIRECTORS AND SHAREHOLDERS
Upon completion of the Offering, the Company's officers, directors and
current principal shareholders will beneficially own approximately 38.8% of
the outstanding Common Stock. These persons, if acting together, will have
substantial control over matters requiring approval of the shareholders of the
Company, including the election of directors. See "--Anti-Takeover Effect of
Certain Charter Provisions," "Management" and "Principal Shareholders."
RISKS ASSOCIATED WITH FIRE AND NATURAL DISASTERS
In the event of the partial or total destruction of the Company's certified
record retrieval facilities by fire, explosion or other accidental disaster,
or by earthquake or other natural disaster, the Company's business could be
materially and adversely affected.
DILUTION
Purchasers of Common Stock in the Offering will experience immediate
dilution in net tangible book value per share of Common Stock of $ from the
initial public offering price per share and may experience
10
<PAGE>
further dilution in that value from issuances of Common Stock in connection
with future acquisitions. See "Dilution."
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock.
There can be no assurance that an active trading market for the Common Stock
will develop or be sustained after the Offering or that purchasers of the
Common Stock will be able to resell their shares at prices equal to or greater
than the initial public offering price. The initial public offering price has
been determined through negotiations between the Company and the
representatives of the Underwriters and may not be indicative of the prices
that may prevail in the public market after the Offering. Numerous factors,
including fluctuations in the operating results of the Company or its
competitors, fluctuations in the demand for the Company's services or business
services in general, and the timing and announcement of acquisitions by the
Company or its competitors, could have a significant impact on the price of
the Common Stock. In addition, the stock markets have experienced significant
price and volume fluctuations in recent years that often have been unrelated
or disproportionate to the operating performance of companies. These
fluctuations may adversely affect the market price of the Common Stock. See
"Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 7,814,136 shares of
Common Stock outstanding. Of these shares, all of the shares sold in this
Offering will be freely transferable without restriction or limitation under
the Securities Act of 1933, as amended (the "Securities Act"), except for any
shares purchased by "affiliates" of the Company, as such term is defined in
Rule 144 under the Securities Act. The remaining 4,314,136 shares constitute
"restricted securities" within the meaning of Rule 144 and the resale of such
shares is restricted for one year from the date they were acquired. The
holders of such shares have certain rights to have shares registered in the
future under the Securities Act pursuant to the terms of agreements between
such holders and the Company. The Company, its executive officers, directors
and principal shareholders have agreed not to offer or sell any shares of
Common Stock for a period of 180 days following the date of this Prospectus
without the prior written consent of Montgomery Securities, except that the
Company may issue shares of Common Stock in connection with acquisitions and
pursuant to the exercise of stock options described in this Prospectus. At
September 25, 1997, there were outstanding options to purchase 596,100 shares
of Common Stock which become exercisable on various dates commencing upon
completion of the Offering. The Company intends to register shares of Common
Stock reserved for issuance pursuant to the exercise of options under the
Securities Act for public resale. Sales of substantial amounts of shares of
Common Stock in the public market after this Offering or the perception that
such sales could occur may adversely affect the market price of the Common
Stock. See "Shares Eligible for Future Sale."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
The Board of Directors of the Company is empowered to issue preferred stock
in one or more series without shareholder action, which could render more
difficult or discourage an attempt to obtain control of the Company by means
of a tender offer, business combination, proxy contest or otherwise. In
addition, certain provisions of the Texas Business Corporation Act may also
discourage takeover attempts that have not been approved by the Board of
Directors. See "Description of Capital Stock."
11
<PAGE>
THE COMPANY
The Company was founded in October 1996 to create a leading provider of
legal support and staffing services to law firms, insurance providers and
major corporations. The Company completed the acquisition of 14 businesses
prior to the Offering and will acquire four additional businesses concurrently
with the Offering. Prior to the acquisition of Looney & Company, the Company
did not conduct any operations. The following is a brief description of each
of the completed acquisitions and Pending Acquisitions.
COMPLETED ACQUISITIONS
Looney & Company. Looney & Company (the "Founding Company" or "Looney")
provides court reporting and certified record retrieval services through
operations in Houston, Dallas, San Antonio, Austin, Corpus Christi and
Harlingen, Texas. In addition, through U.S. Court Reporters, Inc., formed by
Looney in 1995, the Company provides court reporting services through a
network of over 130 affiliated court reporting firms located throughout the
United States to customers in locations not directly served by the Company. In
April 1997, Looney acquired Cindi Rogers & Associates, a Houston-based court
reporting company. In August 1997, Looney acquired Encore Reporting, a
Harlingen-based court reporting and record retrieval company, and Preferred
Records, Inc., a Dallas court reporting and certified record retrieval
company. Mr. Richard O. Looney, the President of Looney, serves as Chairman,
President and Chief Executive Officer of the Company. Headquartered in
Houston, Texas, Looney had 1996 revenues of $7.7 million.
Klein, Bury & Associates. Klein, Bury & Associates ("Klein Bury") provides
court reporting services through operations in Miami, Fort Lauderdale, West
Palm Beach, Orlando, Jacksonville and Tampa, Florida and was previously a U.S.
Court Reporters network affiliate. Michael Klein, President of Klein Bury,
serves on the Board of Directors of the Company. Headquartered in Miami,
Florida, Klein Bury had 1996 revenues of $8.5 million.
G&G Court Reporters. G&G Court Reporters ("G&G") provides court reporting
services in southern California. Headquartered in Los Angeles, G&G had 1996
revenues of $1.5 million.
San Francisco Reporting Service. San Francisco Reporting Service ("San
Francisco Reporting") provides court reporting services in the San Francisco
and northern California markets and was previously a U.S. Court Reporters
network affiliate. Headquartered in San Francisco, California, San Francisco
Reporting had 1996 revenues of $1.1 million.
Johnson Court Reporting Group. The Johnson Court Reporting Group ("Johnson
Group"), through Johnson Court Reporting, Rapidtext, Inc. and Medtext, Inc.,
provides court reporting services, closed-captioning services for the hearing
impaired, remote classroom captioning services, medical transcription
services, and scanning and imaging services primarily in southern California.
Headquartered in Los Angeles, California, Johnson Group had 1996 revenues of
$2.2 million.
Legal Enterprise, Inc. Legal Enterprise, Inc. ("Legal Enterprise") provides
certified record retrieval services as well as digital scanning capabilities,
reproduction services and automated subpoena preparation services through
seven offices in California. Tony Maddocks, President of Legal Enterprise,
serves as Vice President of Sales and Marketing for the Company. Headquartered
in Los Angeles, California, Legal Enterprise had 1996 revenues of $3.7
million.
Amicus One Legal Support Services, Inc. Amicus One Legal Support Services,
Inc. ("Amicus One") provides court reporting, computer and still board
animation exhibit preparation and image scanning services with operations in
Manhattan, White Plains and Brooklyn, New York. Headquartered in New York, New
York, Amicus One had 1996 revenues of $1.9 million.
Block Court Reporting, Inc. Block Court Reporting, Inc. and its subsidiary
("Block") provide court reporting services to the Washington, D.C. and
northern Virginia markets. Block was previously a U.S. Court Reporters network
affiliate. Headquartered in Washington, D.C., Block had 1996 revenues of $1.3
million.
12
<PAGE>
Ziskind Greene Watanabe & Nason. Ziskind Greene Watanabe & Nason ("Ziskind
Greene") provides permanent legal search services to national and California
law firms and legal departments of major corporations through offices in
Orange County, San Diego and San Francisco, California. Headquartered in Los
Angeles, California, Ziskind Greene had 1996 revenues of $1.8 million.
Rocca Reporting Service. Rocca Reporting Service ("Rocca") provides court
reporting services and is headquartered in the Chicago, Illinois metropolitan
area.
Elaine P. Dine, Inc. Elaine P. Dine, Inc. ("Elaine Dine") provides permanent
legal search services to national and New York law firms and legal departments
of major corporations nationwide. In addition, Elaine Dine, through Elaine
Dine Temporary Attorneys, L.L.C., provides temporary lawyer services to its
clients. Headquartered in New York, New York, Elaine Dine had revenues of $4.7
million for the twelve months ended March 31, 1997.
The consideration paid by the Company in the acquisitions completed prior to
the Offering consisted of: (i) $21.9 million in cash; (ii) 2,046,667 shares of
Series B Preferred Stock; (iii) 231,250 shares of Series C Preferred Stock;
(iv) $5.1 million aggregate principal amount of Subordinated Convertible
Promissory Notes ("Subordinated Promissory Notes"); and (v) $1.9 million
principal amount of Subordinated Convertible Promissory Notes (Note 2). In
addition, with respect to certain of the businesses acquired, the Company may
be obligated to pay contingent consideration based on improvements in the
financial performance of the businesses during specified periods after their
acquisition. The Company also granted options to purchase a total of 144,336
shares of Common Stock to the owners or employees of the businesses acquired.
These options expire five years after their respective dates of grant and may
be exercised for nominal consideration. See "Use of Proceeds" and Note 10 of
Notes to the Historical Financial Statements of the Company.
PENDING ACQUISITIONS
Jilio & Associates. Jilio & Associates ("Jilio") provides court reporting
services in the Southern California market. Headquartered in Los Angeles,
California, Jilio had 1996 revenues of $4.0 million.
Kirby A. Kennedy & Associates. Kirby A. Kennedy & Associates ("Kirby
Kennedy") provides court reporting services in the Minneapolis and St. Paul,
Minnesota markets and is a U.S. Court Reporters network affiliate.
Headquartered in Minneapolis, Minnesota, Kirby Kennedy had 1996 revenues of
$1.9 million.
Reporting Service Associates. Reporting Service Associates ("Reporting
Service") provides court reporting services in the mid-Atlantic markets.
Headquartered in Philadelphia, Pennsylvania, Reporting Service had 1996
revenues of $3.0 million.
Commander Wilson, Inc. Commander Wilson, Inc. ("Commander Wilson") provides
permanent legal search services to national and Texas law firms and legal
departments of major corporations. James Wilson, the owner of Commander
Wilson, became Vice President, Legal Staffing of the Company on September 25,
1997. Headquartered in Houston, Texas, Commander Wilson had 1996 revenues of
$94,000.
The aggregate purchase price to be paid by the Company in connection with
the Pending Acquisitions is approximately $16.9 million in cash and 609,268
shares of Common Stock.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $ million ($ million
if the Underwriters' over-allotment option is exercised in full), assuming an
initial public offering price of $ per share and after deducting the
estimated underwriting discount and estimated expenses payable by the Company.
The net proceeds of the Offering will be utilized by the Company as follows:
(i) approximately $16.0 million will be used to repay short-term bank
indebtedness; (ii) approximately $9.1 million will be used to repay the
outstanding principal of and accrued interest on the Company's 12% Senior
Subordinated Notes due 2004 (the "Senior Subordinated Notes"); (iii)
approximately $5.1 million will be used to repay Subordinated Promissory Notes
issued by subsidiaries of the Company; and (iv) $231,250 will be used to
redeem 231,250 shares of Series C Preferred Stock issued in connection with
the acquisition of San Francisco Reporting. The remaining net proceeds will be
used to pay approximately $ million of the $16.9 million required to pay
the cash portion of the purchase price for the Pending Acquisitions. The
additional $ million required for the Pending Acquisitions is expected to
be financed through borrowings under a new credit facility currently being
negotiated. The Senior Subordinated Notes were issued in January 1997 to
finance a portion of the purchase price of the Company's first four
acquisitions and have a stated maturity of January 17, 2004; however, the
Senior Subordinated Notes will become due and payable upon completion of the
Offering. Indebtedness under the existing bank credit facility is required to
be prepaid upon completion of the Offering and currently bears interest at the
rate of 8.25% per annum. The Convertible Subordinated Promissory Notes were
issued to the sellers of certain businesses acquired prior to the Offering,
become due and payable upon completion of the Offering and bear interest at
rates ranging from 6.375% to 10.0% per annum. Approximately $1.7 million
principal amount of the Subordinated Promissory Notes are held by two
executive officers of the Company. See "Capitalization," "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Certain Transactions."
DIVIDEND POLICY
The Company has not paid a cash dividend on the Common Stock since its
incorporation and does not anticipate paying any dividends on Common Stock in
the foreseeable future. The Company intends to retain future earnings, if any,
to finance its operations and to fund the growth of its business, to repay
indebtedness and for general corporate purposes. Any payment of future
dividends will be at the discretion of the Board of Directors and will depend
upon, among other things, the Company's earnings, financial condition, capital
requirements, level of indebtedness, contractual restrictions with respect to
the payment of dividends and other relevant factors. The Fourth Amended and
Restated Credit Agreement among the Company, its subsidiaries and Texas
Commerce Bank, National Association (the "Bank Credit Agreement"), which
terminates on May 14, 2000, prohibits the payment of dividends. The Company is
currently negotiating a new facility with a bank and such agreement may
contain provisions restricting the payment of dividends. See "Description of
Capital Stock."
14
<PAGE>
CAPITALIZATION
The following table sets forth, as of June 30, 1997: (i) the historical
consolidated capitalization of the Company; (ii) the consolidated
capitalization of the Company on a pro forma basis giving effect to the
acquisition of the businesses completed subsequent to June 30, 1997; and (iii)
the pro forma consolidated capitalization of the Company as further adjusted
to reflect the sale of the Common Stock in the Offering, the application of
the estimated net proceeds therefrom and the Pending Acquisitions. See "Use of
Proceeds." This presentation should be read in conjunction with the historical
and pro forma consolidated financial statements and related notes thereto
included elsewhere herein.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt (including current portion of
long-term debt)............................. $ 601 $ 886 $
======= ======= ======
Long-term debt, excluding current portion:
Bank indebtedness.......................... 1,850 13,850
12% Senior Subordinated Notes.............. 9,000 9,000 --
Convertible Subordinated Promissory Notes.. 1,722 7,966 (1)
------- ------- ------
Total long-term debt..................... 12,572 30,816
------- ------- ------
Redeemable Preferred Stock:
Series A Convertible Preferred Stock,
1,000,000 shares
outstanding (2)........................... 1,000 1,000 --
Series B Convertible Preferred Stock,
2,046,667 shares
outstanding (3)........................... 2,047 2,047 --
Series C Convertible Preferred Stock,
231,250 shares outstanding................ 231 231 --
Shareholders' equity:
Preferred Stock, $1.00 par value,
10,000,000 shares authorized.............. -- -- --
Common Stock, $.01 par value, 100,000,000
shares authorized: 1,225,048 shares
outstanding, actual; 1,722,231 shares, pro
forma; and 7,801,657 shares, pro forma as
adjusted (4).............................. 12 17
Additional paid-in capital................. 90 4,286
Accumulated deficit........................ (5,880) (5,880)
------- ------- ------
Total shareholders' equity............... (5,778) (1,577)
------- ------- ------
Total capitalization......................... $ 6,794 $29,239 $
======= ======= ======
</TABLE>
- --------
(1) Includes $5.1 million Subordinated Promissory Notes. Also includes
approximately $1.8 million Convertible Subordinated Promissory Notes (Note
2) issued by subsidiaries of the Company, which will be converted into an
aggregate of 226,764 shares of Common Stock.
(2) The Series A Convertible Preferred Stock will be converted into an
aggregate of 1,560,000 shares of Common Stock upon completion of the
Offering. See Note 8 of Notes to Historical Financial Statements of the
Company.
(3) The Series B Preferred Stock will be converted into an aggregate of
183,393 shares of Common Stock upon completion of the Offering.
(4) Excludes 900,000 shares of Common Stock reserved for issuance under the
Company's 1997 Stock Incentive Plan and the Company's Stock Option Plan
for Non-Employee Directors and 131,856 shares of Common Stock issuable
upon exercise of options granted in connection with completed
acquisitions. See "Management," "Certain Transactions" and "Principal
Shareholders."
15
<PAGE>
DILUTION
The net tangible book value of the Company at June 30, 1997 was
approximately $ million. The net tangible book value of the Company at
June 30, 1997, giving effect to the acquisitions completed prior to the
Offering was approximately $ million or $ per share of Common Stock.
Net tangible book value per share represents the Company's total tangible
assets less its total liabilities, divided by 1,722,231 shares of Common Stock
outstanding as of June 30, 1997, after giving effect to the completed
acquisitions. After giving effect to the sale of the 3,500,000 shares of
Common Stock offered hereby (after deducting the underwriting discount and
estimated offering expenses) and the application of the estimated net proceeds
therefrom (including $ of the net proceeds to be used to pay cash portion
of the purchase price of the Pending Acquisitions), the pro forma net tangible
book value of the Company at June 30, 1997 would have been approximately
$ million, or $ per share. This represents an immediate increase in
such net tangible book value of $ per share to existing shareholders and
immediate dilution of $ per share to investors purchasing the shares in
the Offering. The following table illustrates pro forma dilution to new
investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share......... $
Deficit in pro forma net tangible book value before
the Offering......................................... $( )
Increase in pro forma net tangible book value attrib-
utable to the
Offering.............................................
---------
Pro forma net tangible book value per share after the
Offering...............................................
--------
Dilution per share to new investors..................... $
========
</TABLE>
The following table presents, after giving effect to the Offering, the
difference between existing shareholders and new investors with respect to the
number of shares purchased from the Company and the total consideration and
average price per share paid to the Company, before deducting the underwriting
discounts and estimated Offering expenses.
<TABLE>
<CAPTION>
SHARES TOTAL PURCHASE
PURCHASED CONSIDERATION PRICE
-------------- ---------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------ ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Existing shareholders.................. % $ % $
New investors..........................
---- --- -------- ---
Total................................ 100% $ 100%
==== === ======== ===
</TABLE>
The foregoing tables assume no exercise of outstanding options. As of the
date of this Prospectus, there are shares of Common Stock issuable upon
the exercise of stock options at an average exercise price of $ per share.
See "Management."
16
<PAGE>
SELECTED FINANCIAL DATA
The financial data set forth below as of and for each of the years in the
three year period ended December 31, 1996 were derived from audited financial
statements of Looney. The financial data for the year ended December 31, 1992
and 1993 and as of and for the six months ended June 30, 1996 and 1997 were
derived from the unaudited financial statements of Looney and the Company,
respectively, which include all adjustments (consisting only of normal
recurring adjustments) that, in the opinion of management, are necessary to
present fairly the information set forth therein.
The pro forma financial data as of and for the six months ended June 30,
1997, and the year ended December 31, 1996, were derived from the pro forma
financial statements of the Company appearing elsewhere in this Prospectus.
Such pro forma combined financial statements give effect to the completed
acquisitions and the Pending Acquisitions, the Offering and the application of
the proceeds therefrom, and the related conversion of outstanding securities
as if each of these events had occurred on January 1, 1996. The pro forma
financial information of the Company does not purport to represent what the
Company's results of operations or financial position actually would have been
had the completed acquisitions and the Pending Acquisitions occurred on the
dates specified, nor is it a projection of the Company's results of operations
or financial position for any future period or date. The data presented below
should be read in conjunction with the Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Company, the financial
statements and pro forma combined financial statements and the notes thereto
included elsewhere herein.
17
<PAGE>
SELECTED FINANCIAL DATA (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------- ---------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL
STATEMENT OF INCOME
DATA:
Revenues................ $6,706 $7,722 $8,363 $9,104 $ 7,667 $ 4,044 $ 8,754
Cost of services........ 3,802 4,595 5,589 5,763 4,839 2,572 5,665
------ ------ ------ ------ ------- ------- -------
Gross profit............ 2,904 3,127 2,774 3,341 2,828 1,472 3,089
Selling, general and
administrative
expenses (2)........... 2,612 2,824 3,043 1,970 2,352 875 2,146
Depreciation and
amortization (3)....... 95 110 224 231 212 134 156
------ ------ ------ ------ ------- ------- -------
Operating income
(loss)................. 197 193 (493) 1,140 264 463 787
Interest expense........ 101 181 185 230 238 118 708
------ ------ ------ ------ ------- ------- -------
Income (loss) before
taxes.................. 96 12 (678) 910 26 345 79
Provisions (benefit) for
income taxes........... 0 35 (183) 327 10 117 53
------ ------ ------ ------ ------- ------- -------
Net income (loss)....... $ 96 $ (23) $ (495) $ 583 $ 16 $ 228 $ 26
====== ====== ====== ====== ======= ======= =======
<CAPTION>
PRO FORMA AS ADJUSTED
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
(4) (5):
Revenues............................................ $43,404 $20,693 $23,777
Cost of services.................................... 25,475 12,275 13,751
------- ------- -------
Gross profit........................................ 17,929 8,418 10,026
Selling, general and administrative expenses (2).... 11,194 5,421 5,869
Depreciation and amortization (3)................... 1,634 833 790
------- ------- -------
Operating income.................................... 5,101 2,164 3,367
Interest expense.................................... 653 433 666
------- ------- -------
Income before taxes................................. 4,448 1,731 2,701
Provisions for income taxes......................... 1,874 724 1,107
------- ------- -------
Net income.......................................... $ 2,574 $ 1,007 $ 1,594
======= ======= =======
Net income per common share......................... $ 0.32 $ 0.13 $ 0.20
======= ======= =======
Weighted average shares outstanding(6).............. 8,002 8,002 8,002
======= ======= =======
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------
PRO FORMA (2) (5)
ACTUAL AS ADJUSTED
------- -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash................................................. $ -- $ 511
Total assets......................................... 14,113 62,006
Long-term debt (net of current portion).............. 12,572 9,139
Redeemable preferred stock........................... 3,278 --
Total shareholders' equity (deficit)................. (5,778) 46,749
</TABLE>
- --------
(1) Prior to January 17, 1997, the Company had no business operations.
Therefore, the business of the Founding Company, for financial statement
purposes, represents the predecessor business.
(2) Includes a non-recurring charge of $360,000 in the fourth quarter of 1996
representing the estimated fair value of ownership interests granted to
certain employees by the Company's shareholder.
(3) Pro forma depreciation and amortization amounts consist primarily of
amortization of goodwill totaling $1,194,000 and $597,000 for December 31,
1996 and June 30, 1997, respectively recorded or to be recorded as a
result of the completed acquisitions and the Pending Acquisitions.
Goodwill is amortized over periods ranging from ten to 40 years and
computed on the Note 2 of Notes to Historical Financial Statements.
(4) The Company's acquisitions have been, and the Pending Acquisitions will
be, accounted for as purchases and therefore, the operations of the
acquired businesses therefore are included in the statement of income data
from the respective dates of acquisition. See the Company's Pro Forma
Combined Financial Statements included herein.
(5) Pro forma information gives effect to: (i) the completed acquisitions and
completion of Pending Acquisitions; (ii) an adjustment to compensation
expense for the difference between actual compensation paid to certain
officers of businesses acquired or to be acquired and the employment
contract compensation negotiated in conjunction with the completed
acquisitions and the Pending Acquisitions; (iii) amortization expense
relating to intangible assets recorded in conjunction with the completed
acquisitions and to be recorded in the Pending Acquisitions; and (iv) the
sale of the shares offered hereby and the application of the net proceeds
thereof, as if they had occurred on January 1, 1996 (for statement of
income data) and as of June 30, 1997 (for balance sheet data). The pro
forma results of operations are not necessarily indicative of the results
that would have occurred had these transactions been completed as of such
date or the results that may be attained in the future.
(6) Gives effect to the shares: (i) outstanding prior to the Offering; (ii)
issued in the Offering; (iii) to be issued in the Pending Acquisitions;
(iv) issued upon conversion of preferred stock and convertible promissory
notes; and (v) issuable upon exercise of all outstanding stock options.
See "Capitalization."
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the historical
financial statements and related notes and the pro forma financial statements
and related notes included elsewhere in this Prospectus.
OVERVIEW
The Company is one of the largest providers of legal support and staffing
services in the United States, providing court reporting, certified record
retrieval, legal placement and staffing, and other related services to law
firms, and major corporations, including insurance companies, through 40
offices in nine states. The Company seeks to become the leading national, full
service provider of legal support and staffing services in the United States
through a combination of selective acquisitions and internal growth. Since
commencing operations in January 1997, the Company has acquired 14 businesses
and will acquire four additional businesses concurrently with the Offering.
For 1996, the Company had pro forma revenues and operating income of $43.4
million and $5.1 million, respectively. For the six months ended June 30, 1997
the Company had pro forma revenues and operating income of $23.8 million and
$3.4 million, respectively.
The Company derived approximately 64.0% of its pro forma 1996 revenues from
court reporting services, 18.0% from certified record retrieval services,
15.0% from permanent placement and temporary legal staffing and 3.0% from
other services. For the six months ended June 30, 1997, the Company derived
64.0% of its pro forma revenues from court reporting, 17.0% from certified
record retrieval, 16.0%, from permanent placement and temporary legal staffing
and 3.0% from other services. Although prices for legal support services may
vary among local markets, the Company believes that prices for court reporting
and certified record retrieval services have remained stable or have declined
in many markets over the past several years. At the same time, the Company
believes that rates for permanent placement and temporary legal staffing have
remained relatively constant over the past several years. The Company also
believes that law firms and corporations have increased their efforts to
reduce legal expenses by centralizing their purchasing decisions and
negotiating lower rates with vendors. As these trends and the related
consolidation among legal support companies continue, the Company believes
that the industry will experience more intense price-based competition. The
Company's strategy, however, is to capitalize on the centralization of
purchasing decisions by increasing its share of the market represented by
these larger accounts and expanding the geographic markets in which it
operates.
Charges for court reporting services typically are based upon the number of
pages transcribed, with a significant portion of revenues being derived from
the production of additional copies. Substantially all of the Company's court
reporting services are performed by independent contractors. Under its
standard arrangements with independent court reporters, the Company retains a
portion, typically averaging 40.0% of the total court reporting fee, and the
individual court reporter receives the balance. The Company also derives court
reporting revenues from its network of over 130 affiliated court reporting
firms in locations not directly served by the Company as of the date of this
Prospectus. Under these arrangements, the Company refers court reporting
assignments to network participants and, upon completion of the assignment,
bills the client directly and retains a referral fee ranging from 5.0% to
10.0% of the total court reporting fees. The Company anticipates that its
reliance on its network of court reporting affiliates will diminish as the
Company acquires additional court reporting businesses, including certain
network affiliates in market areas not currently served by the Company.
Charges for certified record retrieval services are based upon the number of
subpoenas or other notices initiated and the volume of documents generated in
response to these subpoenas. Certified record retrieval services generally are
used in personal injury and medical malpractice litigation. Fees for
successful placement of an attorney typically are based upon a percentage,
approximately 25.0%-30.0% of the attorney's compensation earned during the
year following the placement, of which 40.0%-50.0% is customarily paid to the
individual recruiter. This fee is subject to a partial refund if the new
employment arrangement is terminated prior to the expiration of a negotiated
period, usually three to six months. The Company charges its clients an hourly
fee for the number of hours worked by temporary staffing attorneys.
20
<PAGE>
Cost of services consists primarily of amounts due to the Company's
independent contractors, payroll for field agents, commissions for recruiters,
production equipment rental and costs associated with delivery of documents.
Selling, general and administrative expenses include payroll for management
and administrative employees, office occupancy costs, sales and marketing
expenses and other general and administrative costs. Depreciation and
amortization relates primarily to depreciation of office furniture and
equipment and amortization of intangible assets. The Company pays fees to its
independent contractors based on a percentage of the fees billed to clients.
Similarly, the Company compensates its temporary staffing attorneys only for
the hours actually worked. Consequently, the compensation for such personnel
is a variable cost that increases or decreases in proportion to revenues.
The completed acquisitions have been, and the Pending Acquisitions will be,
accounted for under the purchase method of accounting, with the results of
operations of businesses acquired being included in the Company's results of
operations beginning on the date of acquisition. Upon completion of the
Offering, the Company will have recorded approximately $51.5 million as
goodwill, representing the excess of the fair value of the consideration paid
over the fair value of the assets to be acquired. Goodwill, most of which is
deductible for federal income tax purposes, is amortized over periods ranging
from ten to 40 years. The pro forma effect of this amortization expense is
expected to be approximately $1.2 million annually. Certain owners and
employees of the businesses acquired and to be acquired in the Pending
Acquisitions, have agreed to reductions totaling $1.3 million from the levels
of their 1996 compensation. These reductions have been reflected in the pro
forma financial statements included herein.
COMBINED AND PRO FORMA OPERATING DATA
The combined operating data of the Company for the periods presented do not
represent combined results of operations prepared in accordance with generally
accepted accounting principles, but are only a summation of the revenues, cost
of services and gross profit of the individual businesses on a historical
basis. The combined results of operations assume that each of the businesses
was combined from the beginning of each period presented. The combined results
also exclude the effect of pro forma adjustments and may be neither comparable
to, nor indicative of, the Company's results of operations in future periods.
The pro forma operating data for the year ended December 31, 1996 and the
six months ended June 30, 1997 assumes that the acquisitions of businesses
prior to the Offering, including the Pending Acquisitions, were consummated as
of January 1, 1996. Pro forma adjustments include a reduction in compensation
expense to reflect amounts to be paid under the terms of employment agreements
entered into in connection with certain of the acquisitions. Pro forma
adjustments also have been made to reflect the amortization of the goodwill
recorded in connection with each acquisition.
The following table sets forth certain combined and pro forma operating data
for the indicated periods:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
1995 1996 1996 1997
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Combined:
Revenue................ $38,617 100.0% $43,404 100.0% $20,693 100.0% $23,777 100.0%
Cost of services....... 23,200 60.1 25,475 58.7 12,275 59.3 13,751 57.8
------- ----- ------- ----- ------- ----- ------- -----
Gross profit........... 15,417 39.9 17,929 41.3 8,418 40.7 10,026 42.2
Pro Forma:
Selling, general and
administrative
expenses.............. 11,194 25.8 5,421 26.2 5,869 24.7
Depreciation and
amortization.......... 1,634 3.8 833 4.0 790 3.3
------- ----- ------- ----- ------- -----
Operating income....... $ 5,101 11.8 2,164 10.5 $ 3,367 14.2
</TABLE>
21
<PAGE>
RESULTS OF OPERATIONS--COMBINED
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenue. Revenue increased $3.1 million, or 14.9%, to $23.8 million for the
six months ended June 30, 1997, from $20.7 million for the six months ended
June 30, 1996. The increase in revenue was a result of an increase in the
following: (i) court reporting services, primarily in Pennsylvania and
California; (ii) permanent legal search services resulting from several
significant retained searches; and (iii) certified record retrieval services
resulting from several new insurance clients.
Gross Profit. Gross profit increased $1.6 million, or 19.1%, to $10.0
million for the six months ended June 30, 1997 from $8.4 million for the six
months ended June 30, 1996. The gross margin percentage improved to 42.2%
during the six months ended June 30, 1997 from 40.7% during the six months
ended June 30, 1996. The improvement in the gross margin percentage was
primarily the result of a reduction in the percentage of court reporting fees
paid to court reporters at one of the Company's locations.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenue. Revenue increased $4.8 million, or 12.4%, to $43.4 million in 1996
from $38.6 million in 1995. The increase in revenue was a result of an
increase in the following: (i) the Company's court reporting services,
primarily in Florida, Pennsylvania and California; (ii) the Company's
permanent legal search services resulting from several significant retained
searches; and (iii) certified record retrieval services resulting from several
new insurance clients. The increase in revenue was partially offset by lower
court reporting revenues in Texas resulting from the settlement of a number of
large litigation cases.
Gross Profit. Gross profit increased $2.5 million, or 16.3%, to $17.9
million in 1996 from $15.4 million in 1995. The gross margin percentage
improved to 41.3% in 1996 from 39.9% in 1995. The improvement in the gross
margin percentage was primarily the result of a reduction in the percentage of
court reporting fees paid to court reporters at one of the Company's locations
and improved pricing due to increased volume resulting from new insurance
clients in its certified record retrieval services in California.
RESULTS OF OPERATIONS--THE COMPANY AND LOONEY
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
The Company acquired Klein Bury and two other businesses during the six
months ended June 30, 1997. Consequently, certain aspects of the Company's
results of operations in that period are not comparable to the results of
Looney for the six months ended June 30, 1996.
Revenue. Revenue increased $4.7 million, or 116.5%, to $8.8 million for the
six months ended June 30,1997 from $4.0 million for the six months ended June
30, 1996. The increase in revenue was primarily the result of acquisitions
made by the Company during the six months ended June 30, 1997, which
contributed $4.6 million of additional revenues.
Gross Profit. Gross profit increased $1.6 million, or 109.9%, to $3.1
million for the six months ended June 30, 1997 from $1.5 million for the six
months ended June 30, 1996. The gross margin percentage decreased by 1.1% to
35.3% for the six months ended June 30, 1997 from 36.4% for the six months
ended June 30, 1996. The decrease in the gross margin percentage was primarily
the result of a slight increase in fees paid to court reporters in the six
months ended June 30, 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.3 million, or 145.2%, to $2.1 million for
the six months ended June 30, 1997 from $875,000 for the six months ended June
30, 1996. Approximately $838,000 of the increase was attributable to
acquisitions and $330,000 was the result of higher expenses related to
additional corporate personnel to facilitate anticipated future growth.
Selling, general and administrative expenses as a percentage of revenue was
24.5% for the six months ended June 30, 1997 as compared with 21.6% for the
six months ended June 30, 1996 as the result of additional corporate office
personnel.
22
<PAGE>
Depreciation and Amortization. Depreciation and amortization increased by
$22,000, or 16.1%, to $156,000 for the six months ended June 30, 1997 from
$134,000 for the six months ended June 30, 1996. The increase was due to
amortization of goodwill incurred in connection with the formation of the
Company and four acquisitions made during the six months ended June 30, 1997.
Operating Income. As a result of the foregoing, operating income increased
by $325,000, or 70.3%, to $788,000 for the six months ended June 30, 1997 from
$462,000 for the comparable period in 1996. The operating margin percentage
decreased 2.4% to 9.0% for the six months ended June 30, 1997 from 11.4% for
the six months ended June 30, 1996.
Year Ended December 31, 1996 Compared To Year Ended December 31, 1995
Revenue. Revenue decreased $1.4 million, or 15.8%, to $7.7 million in 1996
from $9.1 million in 1995. The decrease in revenue was primarily a result of
the bankruptcy of a major client and the settlement of a number of significant
lawsuits in late 1995 and early 1996.
Gross Profit. Gross profit decreased $512,000, or 15.3%, to $2.8 million in
1996, from $3.3 million in 1995. The gross margin percentage remained
relatively constant at 36.9% in 1996 compared with 36.7% in 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $381,000, or 19.4%, to $2.4 million in 1996
from $2.0 million in 1995. The increase was due to a non-recurring charge of
$360,000 related to an equity interest in the Company that was granted to
certain employees. Excluding this non-recurring charge, selling, general and
administrative costs remained relatively constant from 1995 to 1996. Selling,
general and administrative expenses as a percentage of sales increased 9.1% to
30.7% at December 31, 1996 from 21.6% for December 31, 1995.
Depreciation and Amortization. Depreciation and amortization decreased
$18,000, or 7.8%, to $212,000 in 1996 from $230,000 in 1995 due to certain
assets becoming fully depreciated.
Operating Income. As a result of the foregoing, operating income decreased
by $875,000, or 76.8%, to $265,000 in 1996 from $1.1 million in 1995. The
operating margin percentage decreased 9.0% to 3.5% in 1996 as compared to
12.5% in 1995.
Year Ended December 31, 1995 Compared To Year Ended December 31, 1994
Revenue. Revenue increased by $741,000, or 8.9%, to $9.1 million in 1995
from $8.4 million in 1994 as the result of higher business activity
attributable to two major lawsuits for which the Company was providing both
court reporting and certified record retrieval services.
Gross Profit. Gross profit increased $567,000, or 20.5%, to $3.3 million in
1995 from $2.8 million in 1994. The gross margin percentage increased 3.5% to
36.7% in 1995 from 33.2% in 1994 as a result of improved margins related to
major multi-party litigation cases.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by $1.1 million, or 35.3%, to $2.0 million
in 1995 from $3.0 million in 1994. The decrease was the result of reduced
expenses resulting from cost containment actions in 1995. In addition, in 1994
the Company recorded non-recurring charges totaling $611,000 related to the
settlement of certain employee-related litigation and elimination of certain
document copying services. Selling, general and administrative expenses as a
percentage of revenue decreased 14.8% to 21.6% in 1995 from 36.4% in 1994 due
to the factors discussed above.
Depreciation and Amortization. Depreciation and amortization increased
$7,000, or 3.0%, to $230,000 in 1995 from $224,000 in 1994.
Operating Income. As a result of the foregoing, operating income increased
$1.6 million to $1.1 million in 1995 from an operating loss of $493,000 in
1994.
23
<PAGE>
RESULTS OF OPERATIONS--KLEIN BURY
Klein Bury provides court reporting services and derives its revenues from
court reporting fees.
Twelve Month Period ended December 31, 1996 Compared To the Twelve Month
Period Ended September 30, 1995
Revenue. Revenue increased $1.2 million, or 16.7%, to $8.5 million in 1996
from $7.3 million, for the fiscal year ended September 30, 1995. The increase
in revenue was a result of higher demand for Klein Bury's court reporting
services attributable to Klein Bury obtaining additional clients in the
insurance and health care industry, the expansion of services statewide for
certain existing clients and the addition of court reporting services for
municipal courts in Dade County, Florida which were previously performed by
municipal employees. In addition, Klein Bury derived additional revenue from a
new office which opened in 1995.
Gross Profit. Gross profit increased $475,000, or 19.3%, to $2.9 million in
1996 from $2.5 million in 1995. The gross margin percentage increased slightly
to 34.5% in 1996 from 33.7% at September 30, 1995. The improvement in gross
margin percentage was the result of slightly lower independent contractor
costs in 1996.
Operating Expenses. Operating expenses increased $515,000, or 22.6%, to $2.8
million in 1996 from $2.3 million for the fiscal year ended September 30,
1995. The increase in operating expenses was the result of increased revenue
and increased compensation to executive officers. Operating expenses as a
percentage of sales increased to 32.7% in 1996 from 31.2% in fiscal year ended
September 30, 1995.
Operating Income. As a result of the foregoing, operating income decreased
$41,000, or 22.1%, to $144,000 in 1996 from $185,000 for the fiscal year ended
September 30, 1995. Operating margin percentage decreased to 1.7% in 1996 from
2.5% in 1995.
RESULTS OF OPERATIONS--REPORTING SERVICE
Reporting Service provides court reporting services and derives its revenues
from court reporting fees.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenue. Revenue for the six months ended June 30, 1997 increased $817,000,
or 60.4%, to $2.2 million from $1.4 million for the six months ended June 30,
1996. The increase in revenue was the result of increased demand from existing
clients,more multi-party lawsuits and improved pricing.
Gross Profit. Gross profit for the six months ended June 30, 1997 increased
$726,000, or 130.2%, to $1.3 million, from $558,000 for the six months ended
June 30, 1996. The gross margin percentage improved 17.9% to 59.2% at June 30,
1997 compared with 41.3% at June 30, 1996. The improvement in gross margin was
due to cost containment actions and improved pricing.
Operating Expenses. Operating expenses for the six months ended June 30,
1997 increased $71,000, or 26.1%, to $342,000 from $267,679 for the six months
ended June 30, 1996 as the result of additional administrative personnel and
other costs attributable to increased demand for Reporting Service's court
reporting services. Operating expenses as a percentage of sales decreased 4.3%
to 15.8% at June 30, 1997 from 20.1% at June 30, 1996 as Reporting Service
achieved operating leverage.
Operating Income. As a result of the foregoing, operating income for the six
months ended June 30, 1997 increased $655,000, or 228.5%, to $942,000 from
$287,000 for the six months ended June 30, 1996. The operating margin
percentage improved 22.3% to 43.5% for the six months ended June 30, 1997 from
21.2% for the six months ended June 30, 1996.
24
<PAGE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenue. Revenue increased $1.1 million, or 58.0%, to $3.0 million in 1996
from $1.9 million in 1995. The increase was due to increased demand from
existing clients, more multi-party lawsuits and improved pricing.
Gross Profit. Gross profit increased $581,000, or 77.5%, to $1.3 million in
1996 from $749,000 million in 1995. The gross margin percentage increased 4.9%
to 44.2% in 1996 from 39.3% in 1995. The improvement in the gross margin
percentage was due to cost containment actions and improved pricing.
Operating Expenses. Operating expenses increased $162,000, or 38.2%, to
$586,000 in 1996 from $424,000 in 1995 as a result of additional
administrative personnel and increased demand for Reporting Service's court
reporting services. Operating expenses as a percentage of revenue decreased
2.7% to 19.5% at December 31, 1996 from 22.2% at December 31, 1995.
Operating Income. As a result of the foregoing, operating income increased
$419,000, or 128.8%, in 1996, to $744,000 from $325,000 in 1995. Operating
margin percentage improved 7.6% to 24.7% in 1996 from 17.1% in 1995.
RESULTS OF OPERATIONS--JILIO
Jilio provides court reporting services and derives its revenues from court
reporting fees.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenue. Revenue for the six months ended June 30, 1997 increased $366,000,
or 22.5%, to $2.0 million from $1.6 million for the six months ended June 30,
1996. The increase in revenue was the result of an increase in the number of
clients, additional services from existing clients and the number of multi-
party lawsuits.
Gross Profit. Gross profit for the six months ended June 30, 1997 increased
$131,000, or 16.0%, to $951,000 from $820,000 for the six months ended June
30, 1996. Gross margin percentage declined 2.7% to 47.7% for the six months
ended June 30, 1997 from 50.4% for the six months ended June 30, 1996
primarily as a result of volume pricing discounts related to certain large
multi-party lawsuits.
Operating Expenses. Operating expenses increased $165,000, or 35.7%, to
$626,000 for the six months ended June 30, 1997 from $461,000 for the six
months ended June 30, 1996. Operating expenses as a percentage of sales
increased 3.0% to 31.4% at June 30, 1997 from 28.4% at June 30, 1996. The
increases in operating expenses and operating expenses as a percentage of
revenue were the result of additional personnel and increased costs related to
initiation of new document depository services.
Operating Income. As a result of the foregoing, operating income for the six
months ended June 30, 1997 decreased $34,000, or 9.5%, to $325,000 from
$359,000 for the six months ended June 30, 1996. Operating margin percentage
declined 5.8% to 16.3% for the six months ended June 30, 1997 from 22.1% at
June 30, 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenue. Revenue increased $657,000, or 19.5%, to $4.0 million in 1996 from
$3.4 million in 1995. The increase in revenue was the result of an increase in
the number of clients, additional services from existing clients and the
number of multi-party lawsuits.
Gross Profit. Gross profit increased $384,000, or 23.0%, to $2.1 million in
1996 from $1.7 million in 1996. Gross margin percentage increased slightly to
51.0% in 1996 from 49.6% in 1995. The improvement in the gross margin
percentage was the result of cost containment actions.
25
<PAGE>
Operating Expenses. Operating expenses increased $188,000, or 21.1%, to $1.1
million in 1996 from $891,000 in 1995 as the result of the higher level of
business activity. Operating expenses as a percentage of sales increased
slightly from 26.8% in 1996 from 26.5% in 1995.
Operating Income. As a result of the foregoing, operating income increased
$196,000, or 25.2%, to $973,000 in 1996 from $777,000 in 1995. Operating
margin percentage increased to 24.2% in 1996 from 23.1% in 1995.
RESULTS OF OPERATIONS--ELAINE DINE
Elaine Dine provides permanent placement and temporary legal staffing and
derives its revenues from legal placement and staffing fees which are based
upon a percentage of the attorney's compensation earned during the year
following the placement.
Historically, the operations of Elaine Dine have been focused on the
permanent placement of attorneys. In April 1997, Elaine Dine created Elaine
Dine Temporaries LLC which provides temporary legal staffing services.
Revenues from temporary staffing services are derived from hourly fees charged
to clients for the number of hours worked by temporary staffing attorneys.
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
Revenue. Revenue for the three months ended June 30, 1997 increased
$488,000, or 70.2%, to $1.2 million from $695,000 for the three months ended
June 30, 1996. The increase was the result of the addition of several new
corporate clients and a higher number of searches for corporate in-house
attorneys.
Gross Profit. Gross profit for the three months ended June 30, 1997
increased $210,000, or 62.3%, to $546,000 from $337,000 for the three months
ended June 30, 1996. During the three months ended June 30, 1997, the gross
margin percentage declined 2.3% to 46.2% at June 30, 1997 from 48.5% at June
30, 1996. The decrease in gross margin percentage was the result of an
increase in the commission percentages paid to staff recruiters.
Operating Expenses. Operating expenses increased $58,000, or 35.2%, to
$222,000 for the three months ended June 30, 1997 from $164,000 for the three
months ended June 30, 1996. Operating expenses as a percentage of revenue
decreased 4.8% to 18.8% for the three months ended June 30, 1997 from 23.6%
for the three months ended June 30, 1996.
Operating Income. As a result of the foregoing, operating income increased
$152,000, or 88.0%, to $325,000 for the three months ended June 30, 1997 from
$173,000 for the three months ended June 30, 1996. During the three months
ended June 30, 1997, the operating margin percentage improved 2.6% to 27.5%
for the three months ended June 30, 1997 from 24.9% for the three months ended
June 30, 1996.
Year Ended March 31, 1997 Compared to Year Ended March 31, 1996
Revenue. Revenue increased $1.2 million, or 32.9%, to $4.7 million for the
year ended March 31, 1997 from $3.5 million for the year ended March 31, 1996.
The increase in revenue was due to favorable economic conditions in the
financial services industry which created a need for additional attorneys for
both law firms and large corporations. In 1996, Elaine Dine added new clients
and was awarded several large retained searches, including searches for in-
house attorneys.
Gross Profit. Gross profit increased $544,000, or 36.9%, to $2.0 million in
1997 from $1.5 million in 1996. Gross margin percentage increased slightly to
43.3% in 1997 from 42.1% in 1996.
Operating Expenses. Operating expenses decreased $116,000, or 9.2%, to $1.1
million in 1997 from $1.3 million in 1996. The reduction in operating expenses
in 1997 was due to lower professional fees, health insurance
26
<PAGE>
costs and officer compensation as compared with 1996. Operating expenses as a
percentage of revenue decreased 11.4% to 24.6% in 1997 from 36.0% in 1996.
Operating Income. As a result of the foregoing, operating income increased
$660,000, or 313.1%, to $870,000 in 1997 from $211,000 in 1996. Operating
margin percentage improved 12.7% to 18.7% in 1997 from 6.0% in 1996.
RESULTS OF OPERATIONS--LEGAL ENTERPRISE, INC.
Legal Enterprise provides certified record retrieval services and derives
its revenues from fees generated from such services, which typically are based
upon the number of subpoenas or other notices initiated and the volume of
documents generated in response to these subpoenas.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenue. Revenue increased $512,000, or 29.8%, to $2.2 million for the six
months ended June 30, 1997 from $1.7 million for the six months ended June 30,
1996. The increase in revenue was attributable to several new clients during
1996 and early 1997, including several large insurance companies. In addition,
Legal Enterprise opened a new office in northern California.
Gross Profit. Gross profit increased $80,000, or 12.5%, to $722,000 for the
six months ended June 30, 1997 from $642,000 for the six months ended June 30,
1996. Gross margin percentage declined 5.0% to 32.4% from 37.4% for the six
months ended June 30, 1996. The decline in gross margin percentage was the
result of increased costs attributable to hiring additional personnel and
training costs associated therewith which were incurred in connection with the
initiation of record retrieval services to be provided to new clients. In
addition, Legal Enterprise was negatively impacted by servicing clients
outside its core geographic area in the six months ended June 30, 1997.
Operating Expenses. Operating expenses increased $13,000, or 2.4%, to
$584,000 for the six months ended June 30, 1997 from $571,000 for the six
months ended June 30, 1996. Operating expenses as a percentage of revenue
decreased 7.0% to 26.2% for the six months ended June 30, 1997 from 33.2% for
the six months ended June 30, 1996 as a result of achieving operating
leverage.
Operating Income. As a result of the foregoing, operating income increased
$67,000, or 93.5%, to $138,000 for the six months ended June 30, 1997 from
$71,000 for the six months ended June 30, 1996. Operating margin percentage
improved 2.1% to 6.2% for the six months ended June 30, 1997 from 4.1% for the
six months ended June 30, 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenue. Revenue increased $950,000, or 34.5%, to $3.7 million in 1996 from
$2.8 million in 1995. During 1996, Legal Enterprise obtained several new
insurance company clients and expanded its business into northern California.
Gross Profit. Gross profit increased $444,000, or 45.8%, to $1.4 million in
1996 from $971,000 in 1995. Gross margin percentage increased 3.0% to 38.2% in
1996 from 35.2% in 1995. The increase in the gross margin percentage was the
result of the impact of greater revenue on the fixed component of cost of
services.
Operating Expenses. Operating expenses increased $377,000, or 43.3%, to $1.2
million in 1996 from $870,000 in 1995. Operating expenses as a percentage of
revenues increased 2.0% to 33.6% in 1996 from 31.6% in 1995, primarily as the
result of costs associated with relocating the headquarters and the opening of
additional locations in 1996.
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<PAGE>
Operating Income. As a result of the foregoing, operating income increased
$67,000, or 66.7%, to $167,000 in 1996 from $100,000 in 1995. Operating margin
percentage improved 0.9% to 4.5% in 1996 from 3.6% in 1995.
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
Revenues from the Company's services historically have shown no significant
seasonal variations. Revenues can vary from period to period due to the
effects of the timing of acquisitions and the timing and magnitude of costs
related to such acquisitions, as well as the timing of the commencement,
settlement or completion of major lawsuits. The increase in corporate overhead
associated with the acquisitions completed prior to the Offering and the
Pending Acquisitions will be reflected in the Company's results of operations
in the periods immediately following the Offering, while the realization of
benefits, if any, from such acquisitions may not be reflected until future
periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements have been primarily to fund the cash portion
of the purchase prices of the acquisitions. The Company has obtained these
funds principally through borrowings under the Bank Credit Agreement, the
proceeds from the placement of $10.0 million of Senior Subordinated Notes and
Preferred Stock, and cash provided by operations. Prior to June 30, 1997, the
aggregate cash consideration paid to sellers in acquisitions was approximately
$10.0 million. The aggregate cash consideration paid to sellers for
acquisitions completed from June 30, 1997 to the date of this Prospectus was
approximately $11.9 million, prior to giving effect to any associated working
capital adjustments. The cash portion of the purchase price for the Pending
Acquisitions will be approximately $16.9 million, which will be provided from
approximately $ million of the net proceeds of the Offering and
borrowings of approximately $ million under a new credit facility to be
entered into prior to the completion of the Offering.
The Company's existing Bank Credit Agreement provides for a $2.0 million
revolving line of credit of which approximately $1.7 million had been utilized
at September 25, 1997, and a $14.0 million acquisition line of credit which
has been fully utilized. Borrowings under the Bank Credit Agreement bear
interest at a base rate plus 0.75%, or LIBOR plus 2.5%, at the Company's
option. As of August 31, 1997, the average annual interest rate on borrowings
under the credit facilities was 8.25% and such borrowings are secured by
substantially all of the assets of the Company, including the stock of
subsidiaries. The Bank Credit Agreement contains various covenants that, among
other matters, restrict or limit the Company's ability to pay dividends, incur
indebtedness, make capital expenditures and repurchase capital stock. The
Company must also maintain minimum fixed charge coverage and other ratios. All
borrowings under the Bank Credit Agreement are required to be repaid
concurrently with the completion of the Offering. The Company will apply
approximately $16.0 million of the net proceeds from the Offering to repay
indebtedness under the Bank Credit Agreement.
The Company anticipates that it will require significant amounts of cash to
support its acquisition strategy after the Offering. The Company expects to
fulfill these requirements for cash primarily through bank borrowings, cash
from operations, and from the sale of debt or equity securities of the
Company. The Company has initiated discussions with a commercial bank to
establish the terms of a new credit facility. Based on those discussions, the
Company expects to enter into a new credit facility prior to the consummation
of the Offering, with initial borrowing availability of up to $40.0 million.
There is no assurance, however, that such facility will be available in these
amounts or on terms acceptable to the Company, if at all. The Company
anticipates that bank borrowings, cash from operations and sales of securities
will be sufficient to meet the Company's capital requirements through the end
of 1998.
The Company's business has not typically required substantial capital
expenditures, and during the six months ended June 30, 1997, capital
expenditures were approximately $50,000. However, the Company anticipates that
capital expenditures will increase to approximately $150,000 for the remainder
of 1997 and approximately $500,000 in 1998. These amounts include
approximately $250,000 expected to be incurred to
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acquire and implement a centralized management information system designed to
standardize financial reporting and accounting controls.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS
128"). SFAS 128 changes the computation of earnings per share and requires
dual presentation of basic and diluted earnings per share. SFAS 128 is
effective for financial statements issued for periods ending after December
15, 1997, including interim periods. The Company will adopt SFAS 128 in the
fourth quarter of 1997 as required.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130") and Statement of
Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS 131").
SFAS 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. It requires: (i) classification of
the components other comprehensive income by their nature in a financial
statement and (ii) the display of the accumulated balance of the components
other comprehensive income separate from retained earnings and additional
paid-in-capital in the equity section of a statement of financial position.
SFAS 130 is effective for years beginning after December 15, 1997 and is not
expected to have a material impact on financial position or results of
operations.
SFAS 131 establishes standards for reporting information about operating
segments in annual financial statements and requires selected information
about operating segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about products and
services, geographic areas and major customers. The Company has not determined
the impact of SFAS 131 on its financial reporting practices.
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BUSINESS
GENERAL
The Company is one of the largest providers of legal support and staffing
services in the United States, providing court reporting, certified record
retrieval, legal placement and staffing, and other related services to law
firms, insurance providers and major corporations through 40 offices in nine
states. The Company seeks to become the leading national, full service
provider of legal support and staffing services through a combination of
selective acquisitions and internal growth. Since commencing operations in
January 1997, the Company has acquired 14 businesses, and will acquire four
additional businesses concurrently with the Offering. In 1997, the Company has
provided court reporting and certified record retrieval services to clients
such as The Boeing Company, Ford Motor Company, ITT Hartford, CNA and RJ
Reynolds Tobacco Company. For the year ended December 31, 1996, and the six
months ended June 30, 1997, the Company had pro forma revenues of $43.4
million and $23.8 million, respectively, and pro forma operating income of
$5.1 million and $3.4 million, respectively.
Legal support and staffing services are frequently used by the participants
in civil litigation and other dispute resolution proceedings such as
arbitration or mediation, particularly in cases involving personal injury,
products liability, workers' compensation and property casualty claims. While
most civil proceedings are resolved by settlement or are otherwise terminated
prior to trial, most legal support services are required in the pre-trial
period. The following presents the general progression of a civil lawsuit or
other proceeding:
[Flowchart of basic steps in the progression of a lawsuit or other legal
proceeding
identifying Company's services at each step as follows:]
[Claimant Retains Counsel--Legal Staffing and Placement]--[File Lawsuit]--
[Defendant Retains Counsel--Legal Staffing and Placement]--[Gather & Prepare
Documents--Certified Record Retrieval]--[Examine Witnesses by Deposition--
Court Reporting]--[Trial or Other Proceeding Occurs].
Legal Placement and Staffing. During the course of litigation, particularly
in the pre-trial phase of complex, multi-party cases, law firms and corporate
legal departments may hire additional attorneys on a permanent or temporary
basis to assist in the preparation of the case for trial. In addition, law
firms and corporations increasingly are utilizing temporary lawyers in other
areas of practice to more effectively manage fluctuating work loads.
Certified Record Retrieval. After the initiation of a lawsuit or other legal
proceeding, the parties typically seek medical, employment, financial or other
records to assist in the evaluation, furtherance or defense of the claims
asserted. These records must be obtained through the issuance of subpoenas or
other notices directed to hospitals, physicians, employers, banks or others in
accordance with applicable federal and state rules of procedure to ensure the
admissibility of the records in the lawsuit. The Company prepares and delivers
subpoenas and other document request notices, monitors the recipient's
response and coordinates the retrieval and dissemination of documents for
litigation.
Court Reporting. Prior to commencement of a trial or other proceeding,
attorneys for the parties to the dispute and their insurance providers often
seek sworn oral testimony of witnesses. Oral testimony is generally obtained
through a deposition transcribed by a court reporter. The persons deposed may
include the parties to the proceeding as well as expert witnesses and others,
and the depositions may include testimony concerning the content of documents
previously obtained through certified record retrieval. Licensed court
reporters typically transcribe the testimony given in deposition and written
copies are made available to the parties. Testimony given during a deposition
often leads to further depositions and to additional certified document
retrieval assignments.
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INDUSTRY OVERVIEW
The Company believes that legal support and staffing services in the United
States represent a multi-billion dollar annual market. The industry is highly
fragmented, with more than 1,000 court reporting and record retrieval firms
and over 400 legal placement and staffing firms. The Company believes that the
legal support and staffing services market is growing due to several trends,
including: (i) an increase in efforts by law firms and corporations,
especially insurance providers, to reduce legal expenses; (ii) an increase in
the outsourcing of legal support services to companies that specialize in
providing such services at a lower cost; (iii) an increase in the use of
lawyers on a temporary basis by law firms and corporations; (iv) an increase
in the volume and complexity of litigation; and (v) an increase in the
national scope of litigation, particularly in class action and product
liability lawsuits.
Legal support services, such as court reporting and certified record
retrieval, traditionally have been marketed to law firms. Increasingly,
insurance providers and major corporations, who ultimately pay the costs of
legal support and staffing services, are seeking to: (i) control and reduce
the costs associated with lawsuits; (ii) centralize their purchasing
decisions; and (iii) ensure consistent service quality. As a result, these
companies are more frequently selecting the providers of legal support
services themselves, rather than delegating that decision to the law firms
engaged to represent them.
The legal support and staffing services industry is highly fragmented and
consists primarily of local and regional firms that typically provide a single
or limited number of legal support and staffing services. The Company believes
that many legal support and staffing businesses lack: (i) a full range of
legal support services; (ii) regional or national coverage; (iii) access to
capital; or (iv) effective marketing programs, and are therefore unable to
meet the needs of large, geographically dispersed clients. In addition, there
are limited opportunities for owners of local legal support and staffing firms
to obtain liquidity or to sell their businesses. The Company consequently
believes that many owners of such businesses will be receptive to
consolidation.
BUSINESS STRATEGY
The Company seeks to become the leading national, full-service provider of
legal support and staffing services in the United States. To achieve this
goal, the Company is implementing a focused business strategy that includes
the following key elements:
Establish Full Service Operations in Multiple Metropolitan Areas. The
Company seeks to capitalize on the trend toward vendor consolidation in the
legal support and staffing services industry. The Company believes that
national and regional accounts are increasingly contracting with vendors such
as the Company that are capable of delivering a full range of high-quality
legal support and staffing services on a broad geographic basis. The Company
offers an array of complementary services that includes court reporting,
certified record retrieval, legal placement and staffing, and related services
through 40 offices, located in or near major metropolitan markets in the
United States. The Company expects to continue to increase the variety and
geographic scope of its services in targeted metropolitan areas throughout the
United States through selected acquisitions and expansion of its existing
businesses.
Adopt Best Practices, Policies and Procedures. The Company evaluates its
operating policies and procedures and intends to implement practices that best
serve the objectives of the Company and its clients. The Company intends to
integrate these best practices, including marketing, sales, field operations,
human resources policies and recruiting and training programs into the
operations of acquired businesses. The Company also intends to evaluate the
practices of each acquired company and to implement selected practices of the
acquired companies on a Company-wide basis.
Achieve Operating Efficiencies. The Company seeks to be a low-cost provider
of legal support services through operating efficiencies and cost savings,
which the Company believes can be achieved by combining a number of general
and administrative functions at the corporate level and by reducing or
replacing redundant
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functions and facilities of acquired companies. In addition, the Company
believes that it will be able to reduce costs in the purchase of insurance,
management information systems, advertising and other services.
Maintain Decentralized Management. Many of the businesses the Company will
seek to acquire operate on a local or regional basis. To take advantage of
existing relationships between the acquired companies and their clients, the
Company intends to manage its business on a decentralized basis, with
acquired-company management retaining primary responsibility for day-to-day
operations and local marketing. The Company believes that allowing local
management to retain appropriate autonomy will provide opportunities for
internal growth, enhance competitiveness in attracting acquisition candidates
and assist in preserving the entrepreneurial spirit of the acquired-company
management.
GROWTH STRATEGY
The Company has implemented a strategy designed to continue its growth in
existing and new markets based on the following key elements:
Actively Pursue Strategic Acquisitions. The Company intends to pursue an
aggressive strategy of acquiring companies in the fragmented legal support and
staffing services industry. Through strategic acquisitions, the Company will
seek to serve new geographic markets, expand its presence in existing markets
and add complementary services. One source of acquisition candidates has been
the court reporting firms that have been affiliated with the Company's
national court reporting network, through which the Company provides court
reporting services to customers in locations not directly served by the
Company. Since inception, the Company has acquired four network affiliates.
Establish Effective National Marketing Program. Insurance providers and
major corporations, which ultimately pay the cost of legal support and
staffing services, are increasingly seeking to centralize their purchasing
decisions on a national and regional level and to control or reduce the costs
associated with lawsuits. The Company seeks to capitalize on these initiatives
by marketing its services directly to these companies and has established a
national sales force to pursue these opportunities. The Company seeks to be
designated as the exclusive or preferred provider of legal support services on
a regional or national basis, which may result in assignments substantially
larger than those obtained through local accounts.
Capitalize on Cross-Selling Opportunities. The Company believes that
significant cross-selling opportunities exist which could enhance the
Company's revenue growth. Many of the acquired companies are local or regional
and specialize in one segment of the legal support services market. The
Company believes that its acquisition of such companies will enable it to
become a full-service provider of legal support services nationwide and to
leverage its existing client relationships by selling such clients a full
range of legal support and staffing services. For example, as a result of the
Company's acquisition of a certified record retrieval business in California,
the Company recently obtained the California certified record retrieval
business from a national insurance provider, who previously had utilized only
the Company's court reporting services. In addition, the Company works closely
with its clients to identify cost-savings opportunities and to develop
solutions to their legal support needs.
Develop New and Expand Existing Client Relationships. The Company intends to
develop new client relationships and expand existing relationships with law
firms, insurance providers and major corporations through aggressive sales and
marketing of its services. Sales and marketing efforts are conducted on both a
local and national level and are designed to focus potential clients on the
Company's: (i) ability to provide a broad range of complementary legal support
and staffing services; (ii) national geographic coverage through 40 offices
and its network of more than 130 affiliated court reporting firms; and (iii)
high-quality services and programs.
ACQUISITION AND INTEGRATION STRATEGY
The Company's acquisition strategy is to identify, acquire and integrate
companies with strong management, profitable operating results and recognized
local or regional market presence. The Company typically pursues
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acquisitions that will allow it to accomplish one or more of the following:
(i) expand the geographic markets served by the Company; (ii) increase the
Company's penetration of existing markets; (iii) establish or enhance customer
relationships; and (iv) offer services complementary to those offered by the
Company.
The Company believes that there are numerous attractive acquisition
candidates due to the large size and fragmentation of the legal support and
staffing services industry, including participants in the Company's referral
network of over 130 affiliated court reporting firms, through whom the Company
supplies court reporting services to its clients in locations not served
directly by the Company. The Company has acquired four businesses that were
previously part of its affiliated network and the Company believes that others
in the affiliated network may be likely acquisition candidates. The Company
also pursues smaller "tuck-in" businesses that can be easily assimilated into
the Company's existing operations. Such tuck-in acquisitions are intended to
enable the Company to benefit from the operating leverage of its existing
business by adding market share while eliminating or reducing certain general
administrative and operating costs. The Company has made three such
acquisitions of court reporting businesses in Texas.
The Company's corporate officers are responsible for identifying acquisition
prospects, conducting due diligence, negotiating the terms of acquisitions and
integrating acquired companies. The Company expects that the management of
acquired companies will actively assist the Company in identifying additional
acquisition candidates. The Company also utilizes the services of The GulfStar
Group, Inc. ("GulfStar"), an investment banking firm, in evaluating
acquisition candidates and negotiating acquisition terms. The Company's policy
is to include Common Stock as part of the consideration for acquisitions to
more closely align the interests of the shareholders and managers of acquired
companies with those of the Company. See "Certain Transactions."
The Company has relied on the existing accounting, financial and computer
systems of certain of the acquired companies for a transition period following
completion of their acquisition. However, the systems currently in place will
not be adequate for the operation of the Company on a combined basis. The
Company currently is evaluating management information systems designed to
address the needs of the combined businesses and intends to standardize and
centralize accounting and financial procedures of acquired companies and to
establish a uniform system of accounts and standardized budgeting and
reporting processes. The marketing, sales, field operations and personnel
programs of the acquired companies also will be evaluated and integrated with
those of the Company under its best practices program. Further, the Company
seeks to identify any practices of an acquired company that could be
beneficial if implemented on a Company-wide basis. Management of each of the
acquired companies meet regularly to discuss the assimilation of acquired
companies, as well as cross-selling and other opportunities to improve
operating efficiency and increase revenue and profitability. The Company has
entered into employment agreements with certain of the principal executives of
each acquired business and intends to continue to seek to enter into such
arrangements with key executives of companies acquired in the future.
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Since March 1997, the Company has acquired 14 businesses and will acquire
four additional businesses concurrently with the Offering. Certain information
relating to the Company's acquisitions is summarized in the following table:
<TABLE>
<CAPTION>
NUMBER OF
SERVICES ACQUIRED COMPANY HEADQUARTERS LOCATIONS
- ------------------- ----------------------- ---------------- ---------
<S> <C> <C> <C>
Court Reporting Amicus One New York 3
Block Washington, D.C. 3
G&G Los Angeles 1
Jilio (1) Los Angeles 1
Johnson Group Los Angeles 1
Kirby Kennedy (1) Minneapolis 1
Klein Bury Miami 6
Looney (2) Houston 8
Reporting Service(1) Philadelphia 1
Rocca Chicago 1
San Francisco Reporting San Francisco 1
---
27
Certified Record
Retrieval Legal Enterprise Los Angeles 7
Legal Placement and
Staffing Elaine Dine New York 1
Ziskind Greene Los Angeles 4
Commander Wilson (1) Houston 1
---
6
Total: 40
===
</TABLE>
- --------
(1) Pending Acquisition to be completed concurrently with the Offering.
(2) Looney also provides certified record retrieval services. Excludes the
operations of Cindi Rogers & Associates, Encore Reporting and Preferred
Records, Inc., which were acquired in 1997.
LEGAL SUPPORT AND STAFFING SERVICES
The Company provides court reporting, certified record retrieval, legal
placement and staffing and other services, as described below.
Court Reporting. Court reporting is the verbatim transcription of sworn oral
testimony, generally for use in legal proceedings. While the transcription of
legal proceedings held in a courtroom generally is performed by personnel
employed by the federal court system or by state agencies, counties or
municipalities, court reporting performed outside a courtroom is generally
conducted by private court reporters who transcribe depositions, mediations,
arbitrations and certain other proceedings. Most states require court
reporters to be licensed under regulations that require each candidate to
attend a certified court reporting school, pass a written examination and
demonstrate transcription proficiency using machine shorthand equipment. Court
reporters are officers of the court and subject to ethical codes governing
their professional conduct.
The Company believes that its court reporters utilize state-of-the-art
technology, including computer-aided transcription ("CAT") systems. CAT
systems allow the testimony transcribed by a court reporter to be
simultaneously recorded on computer disk. In addition to CAT systems, the
Company utilizes the following technologies to provide high-quality court
reporting services:
. Transcription on a Real-Time Basis. The Company's court reporters provide
instant transcripts of testimony on computer monitors, which may be
located where the testimony is taking place, as well as at remote
locations. This system also allows attorneys to receive a transcript of
the testimony on diskette at the conclusion of the proceeding.
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. Search and Retrieval Programs. Through the use of computers, court
reporters can search, store, index and manage transcripts and other
documents. In particular, a search through a transcript for a particular
reference in the text can be accomplished quickly.
. Compressed Transcripts. Compressed transcripts contain an index listing
all words in the transcript as well as the frequency and location of the
words, thereby simplifying the summarizing of transcripts. This technique
also reduces transcript bulk by organizing the text in block and columns.
. Video Services. Video services include the taping of depositions and
other testimony on videotape while the court reporter simultaneously
transcribes the testimony on a CAT system. Videotaped testimony is
sometimes used in legal proceedings when a witness is unable to appear in
person at trial or when capturing the demeanor of a witness is important.
The Company believes that voice recognition technologies currently do not
represent a practicable alternative to the Company's court reporting services
because of the extremely high accuracy required in the transcription of legal
proceedings, the difficulties associated with the electronic recognition of
multiple voices, variances in dialect and regional accents and the higher cost
of the application of voice recognition technology.
Certified Record Retrieval. The parties to civil lawsuits, arbitrations,
mediations and other dispute resolution proceedings frequently use certified
record retrieval services. Certified record retrieval services are labor-
intensive and involve the preparation, handling, tracking and delivery of
large numbers of written documents. A significant portion of the record
retrieval business involves medical records acquired on behalf of insurance
companies and their counsel. The Company's record retrieval services include
the preparation and delivery of written deposition notices and subpoenas, the
monitoring of the recipient's response and the coordination of document
retrieval and production for litigation or other legal proceedings.
The Company has developed customized computer software to link record
retrieval directly to law firms. This software permits instant communication
and promotes efficient litigation management. The Company anticipates that
certified document retrieval will increasingly be conducted electronically,
with deposition notices and subpoenas being transmitted electronically to
document custodians and witnesses, and responses similarly returned
electronically.
Legal Placement and Staffing. The Company provides clients with qualified
permanent and temporary attorneys through a team of 14 recruiters located in
six major metropolitan markets. The Company believes it is able to attract
clients based on the reputation and relationships of its recruiting personnel,
its emphasis on client service and its extensive legal staffing databases,
which allow it to match qualified personnel with its clients' needs. The
Company's databases include more than 50,000 attorneys and include individuals
with practices encompassing a broad range of legal specialties. The Company's
permanent search activities consist primarily of the recruitment and placement
of attorneys on a permanent basis with law firms and corporate legal
departments. The Company also has been engaged from time to time on
assignments to establish entire departments or offices. The Company is engaged
and paid by the hiring firm or corporation on either an exclusive or non-
exclusive basis pursuant to arrangements that may include a non-refundable
retainer paid to the Company or entitle the Company to a fee only upon the
successful placement of a candidate with the client.
Law firms and corporate legal departments are increasingly using temporary
legal personnel to enable them to respond more effectively to fluctuations in
work load. In response to this trend, the Company recently has begun to expand
its services beyond permanent placement services and supplies attorneys to
clients on a temporary basis. Temporary attorney assignments may range from
one day to more than a year and may involve one attorney or a team composed of
numerous lawyers. The lawyers engaged by clients on a temporary basis are
employees of the Company who work under the supervision of client personnel.
The Company does not maintain malpractice insurance to cover the performance
of services by its temporary attorneys. Instead, the Company's clients agree
to include temporary attorneys under their policies and to indemnify the
Company from losses associated with the provision of legal services by
temporary attorneys.
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<PAGE>
Other Ancillary Services. The Company also offers its clients transcription,
closed captioning, translation and document management services, either
directly or through relationships or alliances with other companies. Document
management services include the electronic recording, storage, coding,
indexing and automated retrieval of documents, as well as database management
services. The Company markets these services to legal support applications.
CLIENT RELATIONSHIPS
The Company's client base is composed primarily of over 9,000 law firms,
insurance providers and corporations. The Company has a broad customer base,
and no customer of the Company accounted for more than 5% of the Company's pro
forma revenues for 1996 or for the six months ended June 30, 1997. Clients
typically engage the Company on a case-by-case basis, although the Company
intends to market its services increasingly to general counsels, regional or
national litigation managers, or other corporate officers in an effort to
persuade such persons to retain the Company to provide services on an
exclusive or "preferred provider" basis. The Company also works closely with
its clients to identify cost-savings opportunities and to develop solutions to
their legal support needs.
SALES AND MARKETING
The Company markets its services through management and sales personnel
located in 40 offices. Because the Company derives a majority of its revenues
from local or regional accounts, the managers of the Company's individual
offices are primarily responsible for sales and marketing in their respective
markets. These managers seek to identify leads, qualify prospects and close
sales. The Company obtains new clients in local markets primarily through
direct sales, client referrals and a variety of local media, including direct
mail, Yellow Pages and trade publications. In response to the trend among
insurance providers and major corporations to centralize their purchasing
decisions and to engage legal support and staffing services on a regional or
national basis, the Company also has established a national sales force
consisting of six salespersons. These national sales personnel focus on
national accounts and seek to have the Company designated as the exclusive or
preferred provider of legal support and staffing services. Company operating
personnel also participate in marketing efforts by providing advice regarding
the Company's operational capabilities. Because the Company offers a variety
of services and is seeking to establish national market coverage, sales and
operating personnel also seek to capitalize on cross-selling opportunities.
The Company is developing a marketing and advertising program to establish a
national brand identification, while preserving the value of the established
trade names and customer relationships of the acquired companies. The
Company's logo and identifying marks will be featured in promotional materials
of the Company, in a manner designed not to detract from the local recognition
of an acquired business.
COMPETITION
The market for legal support and staffing services is highly competitive.
The Company competes with a large number of local and regional court reporting
and certified record retrieval companies, as well as with permanent and
temporary legal staffing companies, including national temporary staffing
firms. A significant source of competition is also the in-house provision of
legal support and staffing services by law firms, insurance providers and
major corporations. There can be no assurance that these businesses will
continue to increase their outsourcing of legal support and staffing services
needs or that such businesses will not bring in-house services that they
currently outsource. Certain of the Company's competitors have substantially
greater resources and operate in broader geographic areas than the Company.
Many larger clients retain multiple legal support and placement and staffing
service providers, which exposes the Company to continuous competition. The
Company competes primarily on the basis of the quality, breadth and timeliness
of service, geographic coverage and price.
The Company believes that further consolidation among legal support and
staffing services providers will continue during the next few years and that
there will be significant competition for attractive acquisition
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<PAGE>
candidates. This competition could lead to higher prices being paid for
businesses. The Company believes that it will have certain advantages in
completing acquisitions, including: (i) management's personal relationships
with existing legal support and staffing companies; (ii) its decentralized,
entrepreneurial management strategy; (iii) its greater size and scope of
services and (iv) its visibility and resources as a public company. However,
there can be no assurance that the Company's acquisition program will be
successful or that the Company will be able to compete effectively for
acquisitions.
INDEPENDENT CONTRACTORS
The Company provides court reporting services through the use of independent
contractors who are not employees of the Company. The Company does not pay
federal or state employment taxes or withhold income taxes with respect to
these independent contractors or include such persons in the Company's
employee benefit plans. Independent court reporters are responsible for owning
and operating their court reporting equipment. The use of independent
contractors as court reporters is widespread industry practice and allows the
Company to control costs. In the event the Company were required to treat
these court reporters as its employees, the Company could become responsible
for the taxes required to be paid or withheld and could incur additional costs
associated with employee benefits and other employee costs on both a current
and a retroactive basis.
EMPLOYEES
The Company currently employs approximately 300 persons and believes that
its relationships with employees are good.
FACILITIES
The Company maintains 40 leased office locations in nine states. The initial
terms of most of the Company's leases range from one to five years and do not
contain renewal terms. The Company's leases generally specify a fixed annual
rent with fixed increases, or increases based on changes in the Consumer Price
Index, at various intervals during the lease term. Generally, the leases are
net leases which require the Company to pay all or a portion of the cost of
insurance, maintenance and utilities. The Company believes that these
facilities are adequate to serve its current level of operations. If
additional facilities are required, the Company believes that suitable
additional or alternative space will be available as needed on commercially
reasonable terms. Substantially all of the leasehold interests and personal
property of the Company are subject to a lien under its Bank Credit Agreement.
See "Certain Transactions."
REGULATION
Court reporters are subject to significant regulation under state licensing
programs. The conduct of court reporters is also subject to ethical and other
restrictions imposed by state laws and regulations. While these regulations
are not directly applicable to the Company, they affect the Company's court
reporting business. In addition, attorneys are subject to significant
regulation by committees on legal ethics and professional responsibility of
the various state and national bar associations, who from time to time,
examine and issue opinions regarding attorney services, including the use of
temporary attorneys through a placement agency. Changes in these laws and
regulations, particularly in California, New York, Florida, Pennsylvania or
Texas, the states from which the Company derives most of its revenues, could
have a material effect on the Company, its business, operations and
profitability.
LEGAL PROCEEDINGS
The Company is involved in legal proceedings from time to time in the
ordinary course of its business. Management believes that no pending legal
proceeding will have a material adverse effect on the financial condition or
results of operations of the Company.
37
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the executive
officers and directors of the Company and certain persons who will become
directors or executive officers upon completion of the Offering:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------- --- ------------------------------------------------
<S> <C> <C>
Richard O. Looney............... 40 Chairman of the Board, President and Chief
Executive Officer
David W. Pfleghar............... 50 Vice President, Chief Financial Officer and
Treasurer
Tony L. Maddocks................ 40 Vice President, Sales and Marketing
James M. Wilson................. 48 Vice President, Legal Staffing
Michael A. Klein................ 52 Director; President--Klein Bury
Fentress Bracewell.............. 75 Director
Robert J. Cresci................ 53 Director
G. Kent Kahle................... 46 Director
</TABLE>
Richard O. Looney has served as Chairman of the Board, President and Chief
Executive Officer of the Company since January 1997. Mr. Looney founded Looney
& Company in 1988 and has served as its President since that time. Mr. Looney
is an active member of the National Court Reporters Association and the Texas
Court Reporters Association.
David W. Pfleghar joined the Company in February 1997 as Vice President,
Chief Financial Officer and Treasurer. From October 1995 until February 1997,
Mr. Pfleghar served as Vice President and Controller of U.S. Delivery Systems,
Inc., a nationwide consolidator of same day local delivery services. From 1984
until September 1995, he served as Vice President and Controller of Moorco
International Inc., a manufacturer of flow measurement and control products.
Tony L. Maddocks joined the Company in August 1997 as Vice President, Sales
and Marketing. From June 1993 until August 1997, Mr. Maddocks served as
President and Chief Executive Officer of Legal Enterprise, a certified record
retrieval company. The Company purchased substantially all of the assets of
Legal Enterprise in August 1997. From 1981 until June 1993, Mr. Maddocks
served as Vice President of Sales and Marketing of Compex, Inc., a document
management and record retrieval firm.
James M. Wilson joined the Company as Vice President, Legal Staffing on
September 25, 1997. Since 1986, Mr. Wilson has operated the attorney search
and consulting firm of Commander Wilson, Inc. Mr. Wilson has served on the
Board of Directors of the National Association of Legal Search Consultants, as
well as serving as the organization's Ethics Committee Chairman. In May 1996,
Mr. Wilson filed a voluntary petition for Chapter XIII bankruptcy relief
following the initiation of a lawsuit filed by a former independent contractor
engaged by Commander Wilson. Mr. Wilson has submitted a Chapter XIII plan
which has not yet been confirmed by the presiding bankruptcy court.
Michael A. Klein has been a director of the Company since January 1997. Mr.
Klein is the founder and President of Klein Bury, the Company's Florida-based
subsidiary, and has been directly involved in the court reporting industry for
over twenty-nine years. The Company purchased all of the capital stock of
Klein Bury in January 1997. See "Certain Transactions."
Fentress Bracewell has agreed to serve as a director of the Company
effective upon the closing of the Offering. Mr. Bracewell is a founder of and
Senior Counsel to the law firm of Bracewell & Patterson, L.L.P. He also serves
as the Chairman of the Board of Directors of First Investors Financial
Services, Inc., an automobile finance company and is a member of the Board of
Trustees of the Institute of International Education. Mr. Bracewell served as
the Chairman of the Port of Houston Authority from 1970 to 1985.
38
<PAGE>
Robert J. Cresci has served as a director of the Company since January 1997.
Since September 1990, Mr. Cresci has been a Managing Partner of Pecks
Management Partners Ltd., an investment firm. Mr. Cresci currently serves on
the boards of Bridgeport Machines, Inc., EIS International, Inc., Sepracor,
Inc., Garnet Resources Corporation, HarCor Energy, Inc., Meris Laboratories,
Inc., Westbrae Natural, Inc. Arcadia Financial, Ltd., Hitox, Inc. Film Roman,
Inc., Educational Medical, Inc., Source Media, Inc. and NetPower, Inc. See
"Certain Transactions."
G. Kent Kahle has served as a director of the Company since its formation.
Mr. Kahle has been a Managing Director of GulfStar since 1990. Prior to
joining GulfStar he was a Senior Vice President and Director of Rotan Mosle,
Inc., a subsidiary of PaineWebber Inc. Mr. Kahle currently serves on the board
of Castle Dental Centers, Inc. See "Certain Transactions."
BOARD OF DIRECTORS
Directors serve for one-year terms and are elected annually by the Company's
shareholders. Mr. Klein serves as a director of the Company pursuant to an
agreement with the Company entered into in connection with the Company's
acquisition of all of the capital stock of Klein Bury. Mr. Cresci serves as a
director of the Company pursuant to the terms of the Securities Purchase
Agreement between the Company and the purchasers of the Senior Subordinated
Notes and the Series A Preferred Stock.
The Board of Directors has established two committees, the Audit Committee
and the Compensation Committee. Pursuant to resolutions of the Board, these
committees have the following responsibilities and authority.
Audit Committee. The Audit Committee has the responsibility, among other
things, to: (i) recommend the selection of the Company's independent public
accountants; (ii) review and approve the scope of the independent public
accountants' audit activity and extent of non-audit services; (iii) review
with management and the Company's independent public accountants the adequacy
of the Company's basic accounting system and the effectiveness of the
Company's internal audit plan and activities; (iv) review with management and
the independent public accountants the Company's financial statements and
exercise general oversight of the Company's financial reporting process; and
(v) review litigation and other legal matters that may affect the Company's
financial condition. The Board of Directors will select the members of the
Audit Committee upon completion of the Offering.
Compensation Committee. The Compensation Committee has the responsibility,
among other things, to: (i) recommend to the Board the salary rates of
officers of the Company and its subsidiaries; (ii) examine periodically the
compensation structure of the Company; and (iii) supervise the welfare and
pension plans and compensation plans of the Company. The Compensation
Committee is composed of all of the non-employee directors, currently Messrs.
Kahle (Chair) and Cresci.
The Company's Board also may establish other committees.
DIRECTOR COMPENSATION
Prior to the date of this Prospectus, directors of the Company did not
receive compensation for their services as directors or for attending board
meetings. Upon completion of the Offering, non-employee directors of the
Company will receive options to purchase 25,000 shares of Common Stock at the
initial public offering price. In addition, each non-employee director will
receive an annual fee of $6,000, a fee of $1,000 for each meeting of the Board
attended and $500 for each meeting of a Board committee attended. Each
director also will be reimbursed for travel expenses incurred for each non-
telephonic meeting of the Board or any committee thereof attended.
39
<PAGE>
EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS
Prior to January, 1997, the Company did not conduct any operations, other
than activities related to the acquisition of Looney and Klein Bury, and did
not pay any compensation. The Company anticipates that during 1997 its most
highly compensated executive officers (the "Named Executive Officers") and
their annualized base salaries will be: Richard O. Looney, $250,000; David W.
Pfleghar, $150,000; Tony Maddocks, $162,500; James M. Wilson, $150,000; and
Michael A. Klein, $175,000. None of the executive officers has received
perquisites the value of which exceeded the lesser of $50,000 or 10% of the
salary and bonus of such executive.
The Company and Mr. Looney have entered into an employment agreement that
provides for an annual base salary of $250,000 and a semi-annual cash bonus
based on a percentage of the annual pre-tax profits of the Company, subject to
an annual maximum of $100,000. Mr. Looney's employment agreement expires on
January 17, 2000. In the event his employment is terminated without cause, Mr.
Looney's annual salary and bonus opportunity will continue until the earlier
to occur of one year from the date of such termination or January 17, 2000.
Mr. Looney has also agreed not to compete with the Company in a court
reporting or litigation support service business within 50 miles of an office
served by the Company until the later to occur of January 17, 2002, or three
years after his employment terminates.
The Company and Mr. Maddocks have entered into an employment agreement which
provides for an annual base salary of $162,500 and an annual cash bonus not
exceeding $60,000, based on annual new national account sales of the Company.
Mr. Maddocks' employment agreement expires on August 29, 2000. In the event
his employment is terminated without cause, Mr. Maddocks' annual salary and
bonus opportunity will continue until the earlier to occur of one year from
the date of termination or August 29, 2000 or upon Mr. Maddocks' death. Mr.
Maddocks has agreed not to compete with the Company until the last to occur of
August 29, 2002, or three years after his employment under the agreement
terminates.
Mr. Wilson will enter into an employment agreement with the Company which
provides for an annual base salary of $150,000 and, commencing in 1998, an
annual cash bonus equal to 10% of the amount by which the annual adjusted net
profit (as defined in the agreement) derived from legal placement and staffing
services exceeds the adjusted net profit in the preceding year. The agreement
will expire three years after its date of execution. In the event his
employment is terminated without cause, Mr. Wilson's annual salary and bonus
opportunity will continue until the earlier to occur of one year from the date
of termination or the expiration of the term of the agreement. In addition,
Mr. Wilson will agree not to compete with the Company until the later of four
and one-half years after the date of the agreement, three years after
termination of his employment or three years after expiration of the
agreement.
Mr. Michael Klein has entered into an employment agreement with the Company
which provides for an annual base salary of $175,000 and entitles Mr. Klein to
a percentage of certain revenues derived from specified clients, a percentage
of court reporting fees billed by Mr. Klein and a cash bonus based on the
increase in the annual net profits of Klein Bury. Under such bonus, Mr. Klein
will receive 10% of the amount, if any, by which the annual net profits of
Klein Bury exceed the prior year's net profits. The agreement expires on
January 17, 2000. In the event his employment is terminated without cause, Mr.
Klein's annual salary, commissions and bonus opportunity will continue until
the earlier to occur of the year from the date of termination or January 17,
2000. In addition, Mr. Klein has agreed not to compete with the Company within
50 miles of any office location operated by the Company until the last to
occur of January 17, 2002, or three years after his employment under the
agreement terminates.
STOCK OPTION PLANS
1997 Stock Incentive Plan
The Company's 1997 Stock Incentive Plan provides for the granting to
eligible employees or directors of the Company and its subsidiaries of options
to purchase shares of Common Stock, which may be incentive stock options
within the meaning of Section 422(b) of the Internal Revenue Code or non-
qualified options. The 1997
40
<PAGE>
Stock Incentive Plan is administered by the Compensation Committee of the
Board of Directors, which designates option recipients, the type of options
granted, the number of shares of Common Stock subject to these options and
their terms and conditions, including their exercise price and vesting
schedule. A total of 750,000 shares of Common Stock have been reserved for
issuance pursuant to options granted under the 1997 Stock Incentive Plan.
Options to purchase a total of 464,244 shares of Common Stock have been
granted under the 1997 Stock Incentive Plan with exercise prices ranging from
$6.41 to the initial public offering price set forth on the cover of this
Prospectus. All options granted under the 1997 Stock Incentive Plan vest 20%
annually, are fully vested on the fifth anniversary of the date of grant and
expire 10 years after the date of grant.
No options were granted pursuant to the Company's 1997 Stock Incentive Plan
in 1996. In September 1997, the Board of Directors and the shareholders of the
Company approved the 1997 Stock Incentive Plan. The Company granted Mr. Looney
options to purchase 200,000 shares of Common Stock at an exercise price per
share equal to the initial public offering price set forth on the cover of
this Prospectus. The Company has granted to Mr. Pfleghar options to purchase
25,000 shares of Common Stock with an exercise price of $6.41 per share. The
Company also has granted options to purchase 25,000 shares of Common Stock at
an exercise price per share equal to the initial public offering price set
forth on the cover of this Prospectus to Messrs. Pfleghar and Wilson. Messrs.
Looney, Pfleghar and Wilson hold no other options to purchase Common Stock.
The Company has not granted options to any other Named Executive Officer.
Stock Option Plan for Non-Employee Directors
The Company also has adopted the U.S. Legal Support, Inc. Stock Option Plan
for Non-Employee Directors (the "Directors' Stock Option Plan"). A total of
150,000 shares of Common Stock have been reserved for issuance under the
Directors' Stock Option Plan, which provides for the grant of options to
purchase 25,000 shares of Common Stock with an exercise price equal to the
fair market value on the date of grant, to each incumbent director and to each
person who becomes a director concurrently with his or her first election to
the Board. Options granted under the Directors' Stock Option Plan vest 20%
annually and are fully vested on the fifth anniversary of the date of grant.
Upon completion of the Offering, each director of the Company will be awarded
options to purchase 25,000 shares of Common Stock.
LIMITATIONS ON DIRECTORS' LIABILITIES AND INDEMNIFICATION
Pursuant to the Company's Restated Articles of Incorporation, as amended,
and under Texas law, the directors of the Company are not liable to the
Company or its shareholders 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 which involve intentional misconduct or a
knowing violation of law, for unlawful dividend payments or stock repurchases
or any transaction in which a director has derived an improper personal
benefit. The Company intends to maintain liability insurance for the benefit
of its directors and its officers.
41
<PAGE>
CERTAIN TRANSACTIONS
In connection with the initial capitalization of the Company on October 2,
1996, the Company issued 843,840 shares of Common Stock to Mr. Looney, the
Chairman of the Board, President and Chief Executive Officer of the Company,
in exchange for services rendered to the Company by Mr. Looney, which were
valued by the Company at $8,483.40 the aggregate par value of the shares
issued. The Company acquired all of the capital stock of Looney & Company and
U.S. Court Reporters from Mr. Looney in January 1997 for consideration
consisting of $3,640,000 in cash and 2,046,667 shares of Series B Preferred
Stock. In connection with the Company's acquisition of Looney, the Company
also reimbursed Mr. Looney $354,361 for professional fees incurred by Looney &
Company. See "Note 8 of Notes to Consolidated Financial Statements of Looney."
On January 17, 1997, the Company acquired all of the outstanding capital
stock of Klein Bury from Michael Klein who became a director of the Company
upon consummation of the sale. The purchase price consisted of: (i) $3,580,004
in cash; (ii) 170,600 shares of Common Stock issued to Mr. Klein; and (iii) a
Convertible Subordinated Promissory Note issued by a subsidiary of the Company
in the adjusted principal amount of $1,424,113, which bears interest at the
rate of 10% annually and is due on February 1, 2002. At the option of Mr.
Klein, the payment of the principal and all accrued interest on the note may
be accelerated at any time after the Offering. The Company expects to repay
the principal and accrued interest on the note with a portion of the proceeds
of the Offering. In addition, Mr. Klein may receive contingent consideration
equal to 50% of the accounts receivable of Klein Bury that were past due as of
January 16, 1997 but which are collected by the Company. Such contingent
consideration is estimated by the Company to be $500,000, which is the
contractual maximum of the contingent consideration the Company is obligated
to pay Mr. Klein. In addition, since 1993, the Klein Bury has leased its
offices in Fort Lauderdale, Florida from Mr. Klein, his wife and Richard Bury.
The lease expires on March 31, 1998 provides for an annual rental of
approximately $50,400. The Company believes that the terms of the lease are no
less favorable to the Company than would be available under a similar lease
entered into with an unaffiliated third party.
On January 17, 1997, the Company sold $9,000,000 principal amount of Senior
Subordinated Notes and 1,000,000 shares of Series A Preferred Stock to three
investors for an aggregate purchase price of $10,000,000. The Company used the
proceeds from the sale to finance a portion of the purchase price for the
acquisition of Looney and Klein Bury. Mr. Robert Cresci, a director of the
Company, is a Managing Partner of Pecks Management Partners Ltd., which
provides investment advisory services to each of the investors. Pecks received
a $35,000 structuring fee paid by the Company in connection with the
transaction. The Senior Subordinated Notes bear interest at an annual interest
rate of 12% and will be due and payable on January 27, 2004, subject to
mandatory prepayment two days following the completion of the Offering. The
Company intends to repay the Senior Subordinated Notes with a portion of the
proceeds of the Offering. The Series A Convertible Preferred Stock will be
converted into a total of 1,560,000 shares of Common Stock upon completion of
the Offering. The Company and the investors also entered in to a Registration
Rights Agreement pursuant to which the Company has agreed in certain
circumstances to register to shares of Common Stock issued on conversion of
the Series A Preferred Stock. See "Note 8 of Notes to Consolidated Financial
Statements of the Company." and "Shares Eligible For Future Sale--Registration
Rights."
On August 29, 1997, the Company acquired substantially all of the assets of
Legal Enterprise. Mr. Maddocks, who serves as Vice President, Sales and
Marketing of the Company, was the President and a 50% shareholder of Legal
Enterprise. The purchase price consisted of: (i) $1,200,000 in cash; (ii) a
Convertible Subordinated Promissory Note in the principal amount of $319,340;
and (iii) a Convertible Subordinated Promissory Note (Note 2) in the principal
amount of $821,160. The promissory notes bear interest at a rate of 6.375% per
annum, are payable on August 31, 2005 and were issued by a subsidiary of the
Company. At the option of Legal Enterprise, the payment of the principal and
all interest accrued on the $319,340 Note may be accelerated at any time after
the Offering. The Company expects to repay the principal and accrued interest
on the $319,340 Note with a portion of the proceeds of the Offering.
Concurrently with the Offering, the $821,160 Note will be converted into
96,607 shares of Common Stock at a conversion rate of $8.50 per share of
Common Stock. Any accrued but unpaid interest on such note will be paid to
Legal Enterprise, in cash, upon the
42
<PAGE>
completion of the Offering. In addition, Legal Enterprise may receive
contingent consideration beginning on February 28, 1998, based on the
operating results of Legal Enterprise for the twelve-month period ending
February 28, 2000. Sixty-five percent of any contingent consideration is
payable in equal parts of cash and shares of Common Stock. The Common Stock
will be valued at the average trading price per share of Common Stock over the
five business days immediately preceding the payment date.
On September 4, 1997, the Company acquired substantially all of the non-cash
assets of Amicus One, a holder of more than 5% of the Common Stock. The
purchase price consisted of (i) $1.9 million in cash; (ii) 116,471 shares of
Common Stock; and (iii) a Convertible Subordinated Promissory Note issued by a
subsidiary of the Company in the principal amount of $560,000, which bears
interest at the rate of 6% annually, and is due on September 5, 2002. The
Company expects to repay the principal and accrued interest on the note with a
portion of the proceeds of the Offering. At the option of Amicus One, the
payment of the principal and all accrued interest on the note may be
accelerated concurrently with the Offering.
The Company has entered into Registration Rights Agreements with Messrs.
Looney, Maddocks and Klein and with Amicus One, pursuant to which the Company
has agreed to include shares of Common Stock held by them in any registration
of securities effected by the Company, subject to certain customary provisions
restricting the number of shares to be included.
The Company and James M. Wilson have entered into an Asset Purchase
Agreement dated September 25, 1997, pursuant to which the Company will acquire
from Mr. Wilson the assets of Commander Wilson. In connection with the
acquisition, Mr. Wilson will become Vice President, Legal Placement and
Staffing of the Company and the Company will pay Mr. Wilson approximately $1.4
million in cash and 56,250 shares of Common Stock, valued at the initial
public offering price, as the purchase price for the assets. The Company and
Mr. Wilson entered into a letter agreement dated May 7, 1997, pursuant to
which Mr. Wilson assisted the Company in identifying acquisition candidates in
the legal placement and staffing industry. Pursuant to this agreement, the
Company paid Mr. Wilson a non-refundable retainer of $50,000 under the Letter
Agreement and reimbursed him for certain expenses. The letter agreement will
be terminated upon completion of the Company's acquisition of Commander
Wilson.
In October 1996, the Company issued 150,000 shares of its Common Stock to
GulfStar Investments, Ltd., an affiliated partnership of Gulfstar, in exchange
for investment banking services rendered to the Company by GulfStar. GulfStar
has provided merger and acquisition advisory services to the Company since its
inception. Mr. Kahle, a director of the Company, is a Managing Director of
GulfStar. In addition, the Company paid investment banking fees aggregating
$450,000 to GulfStar for services in connection with the placement of the
Senior Subordinated Notes and Series A Convertible Preferred Stock,
negotiation of the Company's current Bank Credit Agreement, and the
acquisitions of Looney and Klein Bury in January 1997. Pursuant to the terms
of a letter agreement dated April 24, 1997 (the "Letter Agreement") between
GulfStar and the Company, GulfStar has agreed to provide valuation,
negotiation and other financial advisory services to the Company in connection
with the Company's evaluation of acquisitions and will be paid advisory fees
equal to 1.0% of the total purchase price for each acquisition, as well as
reimbursement of out-of-pocket expenses. GulfStar has received a total of
$52,000 under the Letter Agreement and will be entitled to an additional
$450,000 and reimbursement of expenses upon completion of the Pending
Acquisitions.
43
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of September 25, 1997, certain
information with respect to the ownership of shares of Common Stock, before
and after the Offering and the Pending Acquisitions by: (i) each person who is
expected to be the beneficial owner of 5% or more of the outstanding shares of
Common Stock upon consummation of the Offering; (ii) each director; (iii) each
Named Executive Officer; (iv) the Selling Shareholder; and (v) all officers
and directors of the Company as a group. All persons listed have an address in
care of the Company's principal executive offices at 1001 Fannin Street, Suite
650, Houston, Texas 77002, and have sole voting and investment power with
respect to shares beneficially owned by them, unless otherwise noted.
Information set forth in the table with respect to beneficial ownership of the
Company's equity securities has been provided to the Company by such holders.
<TABLE>
<CAPTION>
PERCENTAGE OWNED
-----------------
BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OFFERING OFFERING
- -------------------------------------------------- --------- -------- --------
<S> <C> <C> <C>
Richard O. Looney (1)............................. 1,027,233 53.6% 13.1%
David W. Pfleghar (2)............................. 25,000 1.4 *
Tony Maddocks (3)................................. 102,847 6.0 1.3
James M. Wilson (4)............................... -- -- *
Michael A. Klein.................................. 170,600 9.8 2.2
Robert J. Cresci (5).............................. 1,560,000 47.3 20.0
G. Kent Kahle (6)................................. 150,000 8.6 1.9
Delaware State Employees' Retirement Fund (7)..... 1,045,200 37.6 13.4
Declaration of Trust for Defined Benefit Plan of
ICI American Holdings Inc. (8).................. 304,200 14.9 3.9
Declaration of Trust for Defined Benefit Plan of
Zeneca Holdings Inc. (9)........................ 210,600 10.8 2.7
GulfStar Investments, Ltd. (10).................. 150,000 8.6 1.9
Greg M. and Susan L. Ziskind (11)................. 158,824 9.2 2.0
Legal Enterprise, Inc. (12)...................... 96,607 5.3 1.2
Amicus One (13)................................... 116,471 6.7 1.5
All executive officers and directors as a group (7
persons) (1)(2)(3)(4)(5)(6)...................... 3,035,680 85.0 38.8
</TABLE>
- --------
* Beneficially owns less than 1% of the outstanding shares of Common Stock.
(1) Excludes 200,000 shares of Common Stock subject to unvested options
granted pursuant to the Company's 1997 Stock Incentive Plan. Mr. Looney
has granted the Underwriters a 30-day option to purchase up to 100,000
shares of Common Stock solely to cover any over-allotments. If this
option is exercised in full, Mr. Looney would hold 927,233 shares of
Common Stock, representing 11.9% of the outstanding Common Stock after
the Offering.
(2) Excludes 50,000 shares of Common Stock subject to unvested options
granted pursuant to the Company's 1997 Stock Incentive Plan.
(3) Includes 96,607 shares of Common Stock issuable upon conversion of a
Subordinated Convertible Promissory Note (Note 2) held by Legal
Enterprise, a corporation of which Mr. Maddocks is President and a 50%
shareholder.
(4) Mr. Wilson owns no shares directly. Includes 56,250 shares of Common
Stock issuable as a portion of the purchase price in a Pending
Acquisition. Excludes 25,000 shares of Common Stock subject to unvested
options granted pursuant to the Company 1997 Stock Incentive Plan to be
awarded upon completion of the Offering.
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<PAGE>
(5) Mr. Cresci owns no shares directly. Includes 1,560,000 shares issuable
upon conversion of an aggregate of 1,000,000 shares of Series A Preferred
Stock, which is held by three pension or defined benefit plans for whom
Pecks Management Partners, Ltd. provides investment management services.
Mr. Cresci is a Managing Director of Pecks Management Partners, Ltd. and
therefore may be deemed to be a beneficial owner of such shares. Mr.
Cresci disclaims beneficial ownership of all such shares. Excludes 25,000
shares of Common Stock subject to unvested options granted pursuant to
the Directors' Stock Option Plan to be awarded upon completion of the
Offering. The shareholders' addresses of record is c/o Pecks Management
Partners Ltd., One Rockefeller Plaza, New York, New York 10020.
(6) Mr. Kahle owns no shares directly. Includes 150,000 shares held by
GulfStar Investments, Ltd., an affiliate of GulfStar. Mr. Kahle serves as
a Managing Director of GulfStar. Excludes 25,000 shares of Common Stock
subject to unvested options to be awarded upon completion of the Offering
pursuant to the Company's Directors' Stock Option Plan.
(7) Represents shares of Common Stock issuable upon conversion of 670,000
shares of Series A Preferred Stock. The shareholder's address of record
is c/o Pecks Management Partners Ltd., One Rockefeller Plaza, New York,
New York 10020.
(8) Represents shares of Common Stock issuable upon conversion of 195,000
shares of Series A Preferred Stock. The shareholder's address of record
is c/o Pecks Management Partners Ltd., One Rockefeller Plaza, New York,
New York 10020.
(9) Represents shares of Common Stock issuable upon conversion of 135,000
shares of Series A Preferred Stock. The shareholder's address of record
is c/o Pecks Management Partners Ltd., One Rockefeller Plaza, New York,
New York 10020.
(10) The shareholder's address of record is 700 Louisiana Street, Suite 3800,
Houston, Texas 77002.
(11) The shareholder's address of record is 2666 Overland Avenue, Suite 600,
Los Angeles, California 90064.
(12) Represents shares of Common Stock issuable upon conversion of a
Subordinated Convertible Promissory Note (Note 2). The shareholder's
address of record is 4232-1 Las Virgenes Road, Suite 100, Calabasas,
California 91302.
(13) The shareholder's address of record is 20 Vesey Street, 9th Floor, New
York, New York 10007.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Under the Company's Articles of Incorporation, as amended (the "Articles"),
the Company has authority to issue 110,000,000 shares of capital stock,
consisting of 10,000,000 shares of Preferred Stock, par value $1.00 per share
(the "Preferred Stock") and 100,000,000 shares of Common Stock, par value $.01
per share. As of September 23, 1997, the Company had outstanding 1,722,231
shares of Common Stock and 3,277,917 shares of Preferred Stock (1,000,000
shares of Series A Preferred Stock, 2,046,667 shares of Series B Preferred
Stock and 231,250 shares of Series C Preferred Stock). All of the outstanding
Preferred Stock will be converted into Common Stock upon completion of the
Offering or will be redeemed with the net proceeds of the Offering. See Note 8
of Notes to Consolidated Financial Statements of the Company for a description
of the terms of each of the outstanding series of Preferred Stock. Shares of
Preferred Stock that are redeemed will return to authorized shares of
Preferred Stock undesignated as to series.
The following summary description of the capital stock of the Company is
intended as a summary only and is qualified in its entirety by reference to
the Articles, a copy of which has been filed as an exhibit to this
Registration Statement.
PREFERRED STOCK
The Articles authorize the issuance of the Preferred Stock, in one or more
series having designations, rights and preferences determined from time to
time by the Board of Directors. One of the effects of undesignated Preferred
Stock may be to enable the Board of Directors, without approval of holders of
Common Stock, to issue Preferred Stock with dividends, liquidation,
conversion, voting or other rights that could adversely affect the voting
power or other rights of the holders of the Common Stock. In the event of
issuance, the Preferred Stock could be used, under certain circumstances, as a
method of discouraging, delaying or preventing a change in control of the
Company. Although the Company has no present intention to issue any additional
shares of its Preferred Stock, there can be no assurance that it will not do
so in the future.
COMMON STOCK
Voting Rights. Holders of Common Stock are entitled to one vote for each
share on all matters on which shareholders generally are entitled to vote,
including elections of directors. The Articles do not provide for cumulative
voting for the election of directors; therefore, the holders of a majority of
the voting power of the total number of outstanding shares of Common Stock are
able to elect the entire Board of Directors of the Company. Holders of Common
Stock have no preemptive, subscription, redemption or conversion rights.
Dividends. Subject to the preferential rights of any outstanding Preferred
Stock created by the Board of Directors under the Articles, dividends may be
paid to holders of Common Stock when, as and if declared by the Board of
Directors out of funds legally available for such purpose. Dividends may be
paid by the Company out of "surplus" (as defined under Article 1.02 of the
Texas Business Corporation Act) or, if there is no surplus, out of net profits
for the fiscal year in which the dividends are declared and/or the preceding
fiscal year. Further, dividends may be paid out of any net profits for the
current and/or prior fiscal year, if any. The declaration and payment of
dividends on Common Stock could be restricted by the terms of any Preferred
Stock issued.
Liquidation. In the event of the dissolution or winding up of the Company,
after payment or provision for payment of debts and other liabilities of the
Company and any other series or class of the Company's securities that rank
senior to the Common Stock, the holders of Common Stock will be entitled to
share ratably in all remaining assets of the Company. All outstanding shares
of Common Stock are, and the shares of Common Stock to be sold by the Company
in this Offering will be, duly and validly issued, fully paid and
nonassessable.
The transfer agent and registrar for the Common Stock is .
46
<PAGE>
STATUTORY BUSINESS COMBINATION PROVISION
The Company is subject to Article 13 of the TBCA ("Article 13") which, with
certain exceptions, prohibits a Texas corporation from engaging in a "business
combination" (as defined in Article 13) with any shareholder who is a
beneficial owner of 20% or more of the corporation's voting power for a period
of three years after such shareholder's acquisition of a 20% ownership,
unless: (i) the board of directors of the corporation approves the transaction
or the shareholder's acquisition of shares prior to the acquisition or (ii)
two-thirds of the unaffiliated shareholders of the corporation approve the
transaction at a shareholders' meeting held no earlier than six months after
the shareholder acquires that ownership. Shares that are issuable pursuant to
options, conversion or exchange rights or other agreements are not considered
outstanding for purposes of Article 13.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
approximately 7,814,136 shares of Common Stock (8,239,136 shares if the
Underwriters' over-allotment option is exercised in full). Of these shares,
the 3,500,000 shares (3,925,000 shares if the Underwriters' over-allotment
option is exercised in full) sold in the Offering will be freely tradable in
the public market without restriction or limitation under the Securities Act,
except for any shares purchased by an "affiliate" (as defined in the
Securities Act) of the Company. The remaining 4,314,136 shares of Common Stock
held by existing shareholders of the Company are "restricted securities"
within the meaning of Rule 144 promulgated under the Securities Act of 1933,
as amended.
The Company's directors, executive officers and certain shareholders, who
hold an aggregate of 3,407,582 shares of Common Stock, have entered into lock-
up agreements with the Representatives of the Underwriters. These persons have
agreed not to offer, sell, contract to sell, grant any option with respect to,
pledge, hypothecate or otherwise dispose of, any shares of Common Stock owned
by them until the date occurring 180 days after the date of this Prospectus
without the prior written consent of the Representatives. All such shares will
become available for sale 180 days after the date of this Prospectus upon
expiration of these lock-up agreements, subject to compliance with Rule 144
promulgated under the Securities Act. In addition, the Company's certain
shareholders have the right to have the shares of Common Stock owned by them
registered by the Company under the Securities Act as described below.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned, for a
least one year, shares of Common Stock that have not been registered under the
Securities Act or that were acquired from an "affiliate" of the Company is
entitled to sell within any three-month period the number of shares of Common
Stock which does not exceed the greater of one percent of the number of the
then outstanding shares or the average weekly reported trading volume during
the four calendar weeks preceding the sale. Sales under Rule 144 are also
subject to certain notice requirements and to the availability of current
public information about the Company and must be made in unsolicited brokers'
transactions or to a market maker. A person (or persons whose shares are
aggregated) who is not an "affiliate" of the Company under the Securities Act
during the three months preceding a sale and who has beneficially owned such
shares for at least two years is entitled to sell such shares under Rule 144
without regard to the volume and notice provisions of such Rule. Commencing
October 2, 1997, approximately 984,480 "restricted" shares of Common Stock
will be eligible for resale pursuant to Rule 144, subject to the volume,
manner of sale and other limitations thereof. The remaining "restricted"
shares will become eligible for resale pursuant to Rule 144 from time to time
thereafter.
On the date of this Prospectus, the Company had outstanding options to
purchase 596,100 shares of Common Stock and options to purchase at least an
additional 435,756 shares of Common Stock are available for grant under the
1997 Stock Incentive Plan and the Non Employee Directors Stock Option Plan.
The Company expects to file a registration statement on Form S-8 under the
Securities Act to register the shares of Common Stock issuable upon exercise
of options granted under the 1997 Stock Incentive Plan and the Non Employee
Directors Stock Option Plan. Accordingly, such shares will be freely tradeable
by holders who are not affiliates of the Company and, subject to the volume
and manner of sale limitations of Rule 144, by holders who are affiliates of
the Company.
Prior to this Offering, there has been no market for the Common Stock. No
predictions can be made of the effect, if any, that market sales of shares of
Common Stock or the availability of such shares for sale will have on the
market price prevailing from time to time. Nevertheless, sales of significant
amounts of Common Stock could adversely affect the prevailing market price of
Common Stock, as well as impair the ability of the Company to raise capital
through the issuance of additional equity securities.
48
<PAGE>
REGISTRATION RIGHTS
Pursuant to several Registration Rights Agreements (the "Registration Rights
Agreements"), the Company has agreed to register under the Securities Act
substantially all of the shares of Common Stock outstanding on the date of
this Prospectus (approximately 1,722,231 shares) and will enter similar
agreements with respect to 609,268 shares of Common Stock to be issued in the
Pending Acquisitions. Pursuant to the Registration Rights Agreements,
shareholders and their permitted transferees will be entitled, subject to
certain limitations, to include their shares of Common Stock ("Registrable
Securities") in a registration of shares of Common Stock under the Securities
Act.
In addition, a Registration Rights Agreement with certain shareholders
provides that following the Offering, any one or more shareholders shall twice
have the right to require the Company to effect registration of all or any
part of the shareholders' shares of Common Stock under the Securities Act. In
order to demand registration of the Common Stock, the holder or holders of
Common Stock requesting such registration must own more than 50% (by number of
shares of the Registrable Securities) and the aggregate market value to be so
registered must be at least $3,000,000. The number of shares included in any
registration are subject to customary provisions providing for a reduction in
the number of shares to be registered if in the opinion of the managing
underwriter such shares would affect the marketing or the selling price of the
securities to be sold.
The Registration Rights Agreements require the Company to pay the expenses
associated with any registration other than sales discounts, commissions,
transfer taxes and amounts to be borne by underwriters or as otherwise
required by law and include customary provisions for indemnification against
liabilities arising under federal securities laws in connection with such
registration.
49
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), have severally agreed,
subject to the terms and conditions in the underwriting agreement (the
"Underwriting Agreement") by and between the Company and the Underwriters, to
purchase from the Company the number of shares of Common Stock indicated below
opposite their respective names, at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters are
committed to purchase all of the shares of Common Stock, if they purchase any.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Montgomery Securities...........................................
Hambrecht & Quist LLC...........................................
J.C. Bradford & Co..............................................
----
Total.........................................................
====
</TABLE>
The Underwriters have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow
selected dealers a concession of not more that $ per share; and the
Underwriters may allow to selected dealers, and such dealers may reallow, a
concession of not more than $ per share to certain other dealers. After
the Offering, the public offering price and other selling terms may be changed
by the Underwriters. The Common Stock is offered subject to receipt and
acceptance by the Underwriters, and to certain other conditions, including the
right to reject orders in whole or in part.
The Company and a shareholder have granted to the Underwriters an option,
exercisable for 30 days from the date of this Prospectus, to purchase up to a
maximum of additional shares of Common Stock to cover over-
allotments, if any, at the same price per share as the initial
shares to be purchased by the Underwriters. To the extent that the
Underwriters exercise this option, each of the Underwriters will be committed,
subject to certain conditions, to purchase such additional shares in
approximately the same proportion as set forth in the above table. The
Underwriters may purchase such shares only to cover over-allotments made in
connection with the Offering.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under
the Securities Act of 1933, as amended, or will contribute to payments the
Underwriters may be required to make in respect thereof.
Certain shareholders of the Company and the Company's executive officers and
directors have agreed that for a period of 180 days after the date of this
Prospectus they will not, without the prior written consent of Montgomery
Securities, offer, sell, or otherwise dispose of any shares of Common Stock,
options or warrants to acquire shares of Common Stock or securities
exchangeable or exercisable for or convertible into shares of Common Stock.
The Company has also agreed not to issue, offer, sell, grant options to
purchase or otherwise dispose of any of the Company's equity securities for a
period of 180 days after the date of this Prospectus without the prior written
consent of Montgomery Securities, except for: (i) securities which may be
issued in connection with acquisitions and (ii) shares of Common Stock granted
under the Stock Option Plan and exercises of stock options, subject in each
case to any remaining portion of the 180-day period applying to shares issued
or transferred.
Certain persons participating in this Offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the
open market. Such transactions may include stabilizing bids, effecting
syndicate covering transactions or imposing penalty bids. A stabilizing bid
means the placing of any bid or effecting any purchase for the purpose of
pegging, fixing or maintaining the price of the Common Stock. A syndicate
covering transaction means the
50
<PAGE>
placing of any bid on behalf of the underwriting syndicate or the effecting of
any purchase to reduce a short position created in connection with the
Offering. A penalty bid means an arrangement that permits the Underwriters to
reclaim a selling concession from a syndicate member in connection with the
Offering when shares of Common Stock sold by the syndicate member are
purchased in syndicate covering transactions. Such transactions may be
effected on the Nasdaq National Market, in the over-the-counter market, or
otherwise.
The Underwriters have informed the Company that the Underwriters do not
expect to make sales of Common Stock offered by this Prospectus to accounts
over which they exercise discretionary authority in excess of 5% of the number
of shares of Common Stock offered hereby.
Prior to the Offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price of the Common
Stock has been determined by negotiations between the Company and the
Underwriters. Among the factors considered in such negotiations were the
results of operations of the businesses acquired 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 the Offering and the market prices of and demand for publicly
traded common stock of comparable companies in recent periods.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Bracewell & Patterson, L.L.P., Houston, Texas, and for the
Underwriters by Locke Purnell Rain Harrell (A Professional Corporation),
Dallas, Texas.
EXPERTS
The financial statements and schedules of Looney, Klein Bury, G&G, San
Francisco Reporting, Legal Enterprise, Elaine Dine, Ziskind Greene, Jilio,
Reporting Service, Kirby Kennedy, Johnson Group, Amicus One, Block and
Commander Wilson included in this Prospectus and elsewhere in the Registration
Statement, to the extent and for the periods indicated in their reports, have
been audited by Coopers & Lybrand L.L.P., independent accountants, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing.
51
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement (which
term encompasses any and all amendments thereto) under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus, which is filed as
part of the Registration Statement, does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain items of which were omitted in accordance with the rules and
regulations of the Commission. Statements made in this Prospectus concerning
the contents of any contract, agreement or other document referred to are
summaries of the terms of such contract, agreement or other document and are
not necessarily complete. With respect to each such contract, agreement or
other document filed as an exhibit to the Registration Statement, reference is
hereby made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. For further information with respect to the Company, reference
is hereby made to the Registration Statement and such exhibits and schedules
filed as a part thereof, which may be inspected, without charge, at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following regional
offices of the Commission: 7 World Trade Center, Suite 1300, New York, New
York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of all or any portion of the Registration Statement may
be obtained from the Public Reference facilities of the Commission, upon
payment of the prescribed fees. The Registration Statement is also available
on the Internet at the Commission's World Wide Web site at http://www.sec.gov.
As a result of the Offering, the Company will be subject to the reporting
requirements under the Exchange Act and, in accordance therewith, will file
reports, proxy statements, information statements and other information with
the Commission. The Company intends to furnish annual reports to its
shareholders containing audited financial statements reported on by an
independent certified public accounting firm.
52
<PAGE>
INDEX TO FINANCIAL STATEMENTS
U.S. LEGAL SUPPORT, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
U.S. LEGAL SUPPORT, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION:
Basis of Presentation..................................................... F-5
Unaudited Pro Forma Combined Balance Sheet as of June 30, 1997............ F-7
Notes to Unaudited Pro Forma Combined Balance Sheet....................... F-8
Unaudited Pro Forma Combined Statement of Operations for the Six Months
Ended June 30, 1997...................................................... F-10
Unaudited Pro Forma Combined Statement of Operations for the Six Months
Ended June 30, 1996...................................................... F-10
Unaudited Pro Forma Combined Statement of Operations for the Year Ended
December 31, 1996........................................................ F-11
Notes to Unaudited Pro Forma Combined Statement of Operations............. F-12
UNAUDITED HISTORICAL FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of June 30, 1997 (Unaudited)................ F-13
Consolidated Statement of Income for the Six Months Ended June 30, 1997
(Unaudited).............................................................. F-14
Consolidated Statement of Stockholders' Equity for the Six Months Ended
June 30, 1997 (Unaudited)................................................ F-15
Consolidated Statement of Cash Flows for the Six Months Ended June 30,
1997 (Unaudited)......................................................... F-16
Notes to Consolidated Financial Statements (Unaudited).................... F-17
LOONEY & COMPANY
Report of Independent Accountants......................................... F-28
Balance Sheet as of December 31, 1995 and 1996............................ F-29
Statement of Operations for the Years Ended December 31, 1994, 1995 and
1996 and for the Six Months Ended June 30, 1996 (Unaudited).............. F-30
Statement of Stockholder's Equity for the Years Ended December 31, 1994,
1995 and 1996............................................................ F-31
Statement of Cash Flows for the Years Ended December 31, 1994, 1995 and
1996 and for the Six Months Ended June 30, 1996 (Unaudited).............. F-32
Notes to Financial Statements............................................. F-33
KLEIN, BURY & ASSOCIATES
Report of Independent Accountants......................................... F-38
Balance Sheet as of September 30, 1995 and December 31, 1996.............. F-39
Statement of Income for the Years Ended September 30, 1995 and December
31, 1996................................................................. F-40
Statement of Stockholders' Equity for the Years Ended September 30, 1995
and December 31, 1996.................................................... F-41
Statement of Cash Flows for the Years Ended September 30, 1995 and
December 31, 1996........................................................ F-42
Notes to Financial Statements............................................. F-43
G&G COURT REPORTERS
Report of Independent Accountants......................................... F-46
Balance Sheet as of December 31, 1995 and 1996............................ F-47
Statement of Income for the Years Ended December 31, 1995 and 1996 and for
the Six Months Ended June 30, 1996 and the Period from January 1, 1997
through Date of Acquisition, May 19, 1997 (Unaudited).................... F-48
Statement of Owner's Equity for the Years Ended December 31, 1995 and 1996
and the Period from January 1, 1997 through Date of Acquisition, May 19,
1997 (Unaudited)......................................................... F-49
Statements of Cash Flows for the Years Ended December 31, 1995 and 1996
and the Period from January 1, 1997 through Date of Acquisition, May 19,
1997 (Unaudited)......................................................... F-50
Notes to Financial Statements............................................. F-51
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SAN FRANCISCO REPORTING SERVICE
Report of Independent Accountants......................................... F-53
Balance Sheet as of December 31, 1996..................................... F-54
Statement of Income for the Year Ended December 31, 1996 and for the Six
Months Ended June 30, 1996 and for the Period from January 1, 1997
through Date of Acquisition, May 14, 1997 (Unaudited).................... F-55
Statement of Partners' Capital for the Year Ended December 31, 1996 and
for the Period from January 1, 1997 through Date of Acquisition, May 14,
1997 (Unaudited)......................................................... F-56
Statement of Cash Flows for the Year Ended December 31, 1996 and for the
Period from January 1, 1997 through Date of Acquisition, May 14, 1997
(Unaudited).............................................................. F-57
Notes to Financial Statements............................................. F-58
LEGAL ENTERPRISE, INC.
Report of Independent Accountants......................................... F-61
Balance Sheet as of December 31, 1996 and June 30, 1997 (Unaudited)....... F-62
Statement of Income for the Years Ended December 31, 1995 and 1996 and the
Six Months Ended June 30, 1996 and 1997 (Unaudited)...................... F-63
Statement of Stockholders' Equity for the Years Ended December 31, 1995
and 1996 and the Six Months Ended June 30, 1996 and 1997 (Unaudited)..... F-64
Statement of Cash Flows for the Years Ended December 31, 1995 and 1996 and
the Six Months Ended June 30, 1996 and 1997 (Unaudited).................. F-65
Notes to Financial Statements............................................. F-66
ELAINE P. DINE, INC.
Report of Independent Accountants......................................... F-68
Balance Sheet as of March 31, 1996 and 1997 and June 30, 1997
(Unaudited).............................................................. F-69
Statement of Income for the Years Ended March 31, 1996 and 1997 and for
the Three Months Ended June 30, 1996 and 1997 (Unaudited)................ F-70
Statement of Stockholder's Equity for the Years Ended March 31, 1996 and
1997 and the Three Months Ended June 30, 1997 (Unaudited)................ F-71
Statement of Cash Flows for the Years Ended March 31, 1996 and 1997 and
the Three Months Ended June 30, 1996 and 1997 (Unaudited)................ F-72
Notes to Financial Statements............................................. F-73
BURTON HOUSE, INC.
D.B.A. ZISKIND, GREENE, WATANABE & NASON
Report of Independent Accountants......................................... F-75
Balance Sheet as of December 31, 1995 and 1996 and June 30, 1997
(Unaudited).............................................................. F-76
Statement of Operations for the Years Ended December 31, 1995 and 1996 and
the Six Months Ended June 30, 1996 and 1997 (Unaudited).................. F-77
Statement of Stockholder's Deficit for the Years Ended December 31, 1995
and 1996 and the Six Months Ended June 30, 1997 (Unaudited).............. F-78
Statement of Cash Flows for the Years Ended December 31, 1995 and 1996 and
the Six Months Ended June 30, 1996 and 1997 (Unaudited).................. F-79
Notes to Financial Statements............................................. F-80
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
JILIO & ASSOCIATES
Report of Independent Accountants........................................ F-83
Balance Sheet as of December 31, 1995 and 1996 and June 30, 1997
(Unaudited)............................................................. F-84
Statement of Operations for the Years Ended December 31, 1995 and 1996
and the Six Months Ended June 30, 1996 and 1997 (Unaudited)............. F-85
Statement of Owner's Equity for the Years Ended December 31, 1995 and
1996 and the Six Months Ended June 30, 1997 (Unaudited)................. F-86
Statement of Cash Flows for the Years Ended December 31, 1995 and 1996
and the Six Months Ended June 30, 1996 and 1997 (Unaudited)............. F-87
Notes to Financial Statements............................................ F-88
REPORTING SERVICE ASSOCIATES, INC.
Report of Independent Accountants........................................ F-91
Balance Sheet as of December 31, 1995 and 1996 and June 30, 1997
(Unaudited)............................................................. F-92
Statement of Income for the Years Ended December 31, 1995 and 1996 and
the Six Months Ended June 30, 1996 and 1997 (Unaudited)................. F-93
Statement of Stockholder's Equity for the Years Ended December 31, 1995
and 1996 and the Six Months ended June 30, 1996 and 1997 (Unaudited).... F-94
Statement of Cash Flows for the Years Ended December 31, 1995 and 1996
and the Six Months Ended June 30, 1996 and 1997 (Unaudited)............. F-95
Notes to Financial Statements............................................ F-96
KIRBY A. KENNEDY & ASSOCIATES
Report of Independent Accountants........................................ F-98
Balance Sheet as of December 31, 1995 and 1996 and June 30, 1997
(Unaudited)............................................................. F-99
Statement of Income for the Years Ended December 31, 1995 and 1996 and
the Six Months Ended June 30, 1996 and 1997 (Unaudited)................. F-100
Statement of Partners' Capital for the Years Ended December 31, 1995 and
1996 and the Six Months Ended June 30, 1997 (Unaudited)................. F-101
Statement of Cash Flows for the Years Ended December 31, 1995 and 1996
and the Six Months Ended June 30, 1996 and 1997 (Unaudited)............. F-102
Notes to Financial Statements............................................ F-103
JOHNSON COURT REPORTING GROUP
Report of Independent Accountants........................................ F-105
Combined Balance Sheet as of December 31, 1995 and 1996 and June 30, 1997
(Unaudited)............................................................. F-106
Combined Statement of Income for the Years Ended December 31, 1995 and
1996 and for the Six Months Ended June 30, 1996 and 1997 (Unaudited).... F-107
Combined Statement of Shareholder's Equity for the Years Ended December
31, 1995 and 1996 and for the Six Months Ended June 30, 1997
(Unaudited)............................................................. F-108
Combined Statement of Cash Flows for the Years Ended December 31, 1995
and 1996 and for the Six Months Ended June 30, 1996 and 1997
(Unaudited)............................................................. F-109
Notes to Combined Financial Statements................................... F-110
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AMICUS ONE LEGAL SUPPORT SERVICES, INC.
Report of Independent Accountants........................................ F-113
Balance Sheet as of December 31, 1996 and June 30, 1997 (Unaudited)...... F-114
Statement of Income for the Year Ended December 31, 1996 and the Six
Months Ended June 30, 1997 (Unaudited).................................. F-115
Statement of Stockholders' Equity for the Year Ended December 31, 1996
and the Six Months Ended June 30, 1997 (Unaudited)...................... F-116
Statement of Cash Flows for the Year Ended December 31, 1996 and the Six
Months Ended June 30, 1997 (Unaudited).................................. F-117
Notes to Financial Statements............................................ F-118
BLOCK COURT REPORTING, INC.
Report of Independent Accountants........................................ F-121
Balance Sheet as of December 31, 1995 and 1996 and June 30, 1997
(Unaudited)............................................................. F-122
Statement of Operations for the Years Ended December 31, 1995 and 1996
and the Six Months Ended June 30, 1997 (Unaudited)...................... F-123
Statement of Stockholder's Equity (Deficit) for the Years Ended December
31, 1995 and 1996 and the Six Months Ended June 30, 1997 (Unaudited).... F-124
Statement of Cash Flows for the Years Ended December 31, 1995 and 1996
and the Six Months Ended June 30, 1997 (Unaudited)...................... F-125
Notes to Financial Statements............................................ F-126
COMMANDER WILSON, INC.
Report of Independent Accountants........................................ F-129
Balance Sheet as of December 31, 1995 and 1996 and June 30, 1997
(Unaudited)............................................................. F-130
Statement of Income for the Years Ended December 31, 1995 and 1996 and
the Six Months Ended June 30, 1996 and 1997 (Unaudited)................. F-131
Statement of Owner's Deficit for the Years Ended December 31, 1995 and
1996 and the Six Months Ended June 30, 1997 (Unaudited)................. F-132
Statement of Cash Flows for the Years Ended December 31, 1995 and 1996
and the Six Months Ended June 30, 1996 and 1997 (Unaudited)............. F-133
Notes to Financial Statements............................................ F-134
</TABLE>
F-4
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION BASIS OF PRESENTATION
The following Unaudited Pro Forma Combined Balance Sheet as of June 30, 1997
and the Unaudited Pro Forma Combined Statements of Operations for the year
ended December 31, 1996 and the six months ended June 30, 1997 and 1996 have
been prepared to reflect adjustments to the Company's historical financial
position and results of operations to give effect to the transactions
described below. The Unaudited Pro Forma Combined Balance Sheet reflects such
transactions as if they had occurred as of June 30, 1997, and the Unaudited
Pro Forma Combined Statements of Operations for the year ended December 31,
1996 and the six months ended June 30, 1997 and 1996 reflect such transactions
as if they had occurred as of January 1, 1996.
In January 1997, the Company acquired all the outstanding stock of Looney &
Company, a Texas Corporation. In connection with the Looney acquisition, the
Company entered into a Securities Purchase Agreement (the "Securities Purchase
Agreement") with three investors represented by Pecks Management Partners Ltd.
("Pecks Investors") pursuant to which the Company issued 1,000,000 shares of
Series A Convertible Preferred Stock ("Series A") and $9,000,000 of 12% Senior
Subordinated Notes (the "Senior Subordinated Notes"). Concurrently, the
Company entered into the Bank Credit Facility with a commercial bank, which
provided for a revolving credit facility of $4.0 million. The Company amended
the Bank Credit Facility to, among other things, reduce the revolving credit
facility to $2.0 million and to provide for term loans up to $14.0 million,
for acquisitions. See Note 7 to the Company's financial statements.
In January 1997, the Company acquired the assets and assumed certain
liabilities of Klein, Bury & Associates, Inc. headquartered in Miami, Florida
with offices in various locations within the state of Florida. In May 1997,
the Company increased its operations by acquiring the assets and assuming
certain liabilities of G & G Court Reporters and San Francisco Reporting
Service headquartered in Los Angeles and San Francisco, California,
respectively.
In August 1997, the Company acquired the common stock of Johnson Court
Reporting Group and acquired the assets and assumed certain liabilities of
Legal Enterprise, Inc. Both companies are headquartered in California.
Additionally, the Company acquired the common stock of Block Court Reporting,
Inc. and acquired the assets and assumed certain liabilities of Amicus One
Legal Support Services, Inc. headquartered in Washington, D.C. and New York,
respectively.
In September 1997, the Company acquired the assets and assumed certain
liabilities of Elaine P. Dine, Inc. and acquired the common stock of Burton
House, Inc. d.b.a. Ziskind, Greene, Co. headquartered in New York, and
California, respectively.
The Company intends to sell approximately 3,500,000 shares of common stock
(at an assumed initial price of $ per share) ("the Offering") to the
public. The businesses acquired prior to the Offering ("Completed
Acquisitions") were acquired using a combination of cash, preferred stock,
common stock and subordinated promissory notes. The preferred stock will be
either converted into common stock or redeemed by the Company for cash at the
closing of the Offering. The aggregate consideration paid by the Company for
the Completed Acquisitions consisted of: (i) $21,800,000 in cash, (ii)
2,046,667 shares of Series B Convertible Preferred Stock ("Series B"); (iii)
231,250 shares of Series C Preferred Stock ("Series C"), and (iv) $6,895,000
of Subordinated Convertible Promissory Notes.
Additionally, the Company has entered into definitive agreements with
respect to acquisitions of Jilio & Associates, Kirby A. Kennedy & Associates,
Reporting Service Associates, Inc. and Commander Wilson, Inc. ("Pending
Acquisitions" collectively with the Completed Acquisitions, the
"Acquisitions"). All of Pending Acquisitions are expected to close
contemporaneously with, and are conditional upon, the closing of this
Offering.
The Unaudited Pro Forma Combined Balance Sheet as of June 30, 1997 gives
effect to: (i) the sale of 3,500,000 shares of Common Stock offered by the
Company hereby (at an assumed initial public offering price of $ per
share) and the application of the net proceeds therefrom, as described in "Use
of Proceeds," (ii)
F-5
<PAGE>
the repayment of $9,000,000 of Senior Subordinated Notes, $16,000,000 of bank
indebtedness and $5,050,000 of Subordinated Convertible Notes; (iii) the
conversion of 1,000,000 shares of the Series A preferred stock and $1,845,000
of Subordinated Convertible Notes into common stock; (iv) the conversion of
2,046,667 shares of Series B preferred stock into common stock; (v) the
redemption of 231,250 shares of Series C preferred stock for cash; and (vi)
the August and September 1997 completed acquisitions and the Pending
Acquisitions, as if each of such transactions had occurred as of June 30,
1997. The Unaudited Pro Forma Combined Statements of Operations for the year
ended December 31, 1996, and the six months ended June 30, 1996 and 1997, give
effect to: (i) the sale of 3,500,000 shares of Common Stock offered by the
Company hereby (at an assumed initial public offering price of $ per
share) and the application of net proceeds therefrom as described in "Use of
Proceeds," (ii) the conversion of $1,845,000 of Subordinate Convertible Notes
and (iii) the Acquisitions as if each of such transactions had occurred as of
January 1, 1996.
The pro forma combined financial statements have been prepared by the
Company based on the historical financial statements of the Company and the
companies acquired or to be acquired, the financial statements of which are
included elsewhere in this Prospectus. These pro forma combined financial
statements are presented for illustrative purposes only and are not
necessarily indicative of the results that would have been obtained if the
transactions had occurred on the dates indicated or that may be realized in
the future. The pro forma information should be read in conjunction with the
Company's Audited Financial Statements and the Unaudited Condensed
Consolidated Interim Financial Statements and the Notes thereto and the
historical financial statements of the companies acquired or to be acquired
and the notes thereto included elsewhere in this Prospectus.
F-6
<PAGE>
U.S. LEGAL SUPPORT, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
--------------------- --------------------------------- ------------ ---------------------
COMPLETED OFFERING PENDING PENDING
COMPANY ACQUISITIONS ADJUSTMENTS ADJUSTMENTS ACQUISITIONS ACQUISITIONS AS
ASSETS (A) (B) (B) COMBINED (C) (D) ADJUSTMENTS ADJUSTED
------ ------- ------------ ----------- -------- ----------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash................... $ -- $ 323 $ (188) $ 135 $ 7,279 $ 228 $ (228) $ 511
(6,903)
Accounts receivable
Trade.................. 4,153 2,774 -- 6,927 -- 1,943 (1,362) 7,508
Affiliates............. 28 16 -- 44 -- -- -- 44
Prepaid expenses and
other current assets.. 202 180 -- 382 -- 10 (5) 387
Deferred income taxes.. -- 3 -- 3 -- -- -- 3
------- ------ ------- ------- ------- ------ ------- -------
Total current
assets.............. 4,383 3,296 (188) 7,491 7,279 2,181 (8,498) 8,453
Property and equipment,
net.................... 538 717 (87) 1,168 -- 134 -- 1,302
Intangibles............. 8,583 675 19,236 28,494 -- -- 22,962 51,456
Other assets............ 609 774 (100) 1,283 (488) -- -- 795
------- ------ ------- ------- ------- ------ ------- -------
Total assets......... $14,113 $5,462 $18,861 $38,436 $ 6,791 $2,315 $14,464 $62,006
======= ====== ======= ======= ======= ====== ======= =======
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current liabilities:
Accounts payable
Trade.................. $ 2,090 $ 718 $ -- $ 2,808 $ -- $ 315 $ (146) $ 2,977
Accrued liabilities.... 1,183 578 -- 1,761 -- 30 -- 1,791
Income taxes payable... 40 164 -- 204 -- -- -- 204
Deferred income taxes.. 127 119 -- 246 -- -- -- 246
Current maturities of
long-term
obligations........... 601 625 (340) 886 -- 200 (200) 886
------- ------ ------- ------- ------- ------ ------- -------
Total current
liabilities......... 4,041 2,204 (340) 5,905 -- 545 (346) 6,104
Long-term obligations,
net of current
maturities............. 12,572 1,698 16,546 30,816 (31,895) -- 10,000 9,139
218
Deferred income taxes... -- 14 -- 14 -- -- -- 14
------- ------ ------- ------- ------- ------ ------- -------
Total liabilities.... 16,613 3,916 16,206 36,735 (31,677) 545 9,654 15,257
Commitments and
contingencies
Redeemable preferred
stock
Series A Convertible
Preferred Stock....... 1,000 -- -- 1,000 (1,000) -- -- --
Series B Convertible
Preferred Stock....... 2,047 -- -- 2,047 (2,047) -- -- --
Series C Convertible
Preferred Stock....... 231 -- -- 231 (231) -- -- --
------- ------ ------- ------- ------- ------ ------- -------
Total redeemable
preferred stock..... 3,278 -- -- 3,278 (3,278) -- -- --
Stockholders' equity
(deficit):
Common stock........... 12 227 (227) 17 55 -- 6 78
5
Additional paid-in
capital............... 90 91 (91) 4,286 42,397 -- 6,574 53,257
4,196
Retained earnings
(deficit)............. (5,880) 1,228 (1,228) (5,880) (488) 1,770 (1,770) (6,586)
(218)
------- ------ ------- ------- ------- ------ ------- -------
Total stockholders'
equity (deficit): (5,778) 1,546 2,655 (1,577) 41,746 1,770 4,810 46,749
------- ------ ------- ------- ------- ------ ------- -------
Total liabilities and
stockholders'
equity.............. $14,113 $5,462 $18,861 $38,436 $ 6,791 $2,315 $14,464 $62,006
======= ====== ======= ======= ======= ====== ======= =======
</TABLE>
F-7
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(A) Represents the June 30, 1997 historical consolidated balance sheet of
the Company.
(B) Represents the June 30, 1997 historical combined balance sheet of the
companies acquired in August and September and the purchase adjustments
thereto.
The estimated fair value of the assets acquired in the Completed
Acquisitions are summarized, as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
<S> <C>
Cash......................................................... $ 135
Accounts receivable, net..................................... 2,790
Prepaid expenses and other current assets.................... 183
Property and equipment, net.................................. 630
Excess of cost over fair value of net assets acquired........ 19,911
Other assets................................................. 674
Accounts payable and accrued liabilities..................... (1,296)
Income taxes payable......................................... (164)
Deferred income taxes........................................ (133)
Current maturities of long-term obligations.................. (285)
Long-term obligations, net of current maturities............. (1,698)
-------
$20,747
=======
</TABLE>
The aggregate acquisition price of the Completed Acquisitions was funded as
follows:
<TABLE>
<CAPTION>
IN THOUSANDS
<S> <C>
Fair market value of
494,242 shares of
Common Stock........... $ 4,201
Subordinated convertible
promissory notes, net
of discount............ 4,546
Long-term obligations... 12,000
-------
$20,747
=======
</TABLE>
The fair market value of the Common Stock issued was based upon management's
estimate of the fair market value thereof as of the date of the purchase
agreement relating to each acquisitions. The excess of cost over fair value of
the net assets acquired will be amortized over 10 to 40 years.
(C) Represents the issuance of 3,500,000 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $ per
share and the use of proceeds therefrom as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
<S> <C>
Gross proceeds of the Offering..............................
Underwriting discounts and commissions......................
Expenses related to the Offering............................
-------
Net proceeds..............................................
Repayment of long-term debt, including current portion...... 30,050
Redemption of 231,250 shares of Series C preferred stock at
$1.00 per share............................................ 231
-------
Net increase in cash and cash equivalents................. $ 7,279
=======
</TABLE>
The Company intends to convert $1,845,000 of Subordinated Convertible
Promissory Notes, 1,000,000 shares of Series A preferred stock and the
2,046,667 shares of the Series B preferred stock into common stock. The
convertible subordinated promissory notes convert at a price ranging from
$7.56 to $8.50 per share for principal amount outstanding. The 1,000,000
shares of Series A convert into 1,560,000 shares of common stock. The Series B
converts at 93% of the assumed initial public offering price.
F-8
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET--(CONTINUED)
The Offering and the conversion of the subordinated convertible promissory
notes, Series A and Series B will affect the pro forma equity, as follows (in
thousands):
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN-
STOCK CAPITAL TOTAL
------ ---------- -------
<S> <C> <C> <C>
Offering....................................... $35 $37,525 $37,560
Subordinated convertible promissory notes...... 2 1,843 1,845
Series A preferred stock....................... 16 984 1,000
Series B preferred stock....................... 2 2,045 2,047
--- ------- -------
$55 $42,397 $42,452
=== ======= =======
</TABLE>
The net repayment of long-term obligations is calculated, as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
<S> <C>
Other current assets....................................... $ --
Other assets............................................... 488(a)
Long-term obligations...................................... 31,895
Common stock............................................... (2)
Additional paid-in capital................................. (1,843)
Retained earnings.......................................... (706)(b)
-------
Cash paid.................................................. $30,050
=======
</TABLE>
- --------
(a) To write off deferred financing costs related to the retirement of the
Senior Subordinated Notes.
(b) To reflect the reduction in retained earnings for the extraordinary loss
on the retirement of the Senior Subordinated Notes.
The Company anticipates recording a $1.3 million non-cash dividend on the
Series A Preferred Stock upon conversion in connection with the offering. The
dividend recorded estimates the accretion of the Series A Preferred Stock to
its fair value at the date of redemption.
(D) Represents the June 30, 1996 historical combined balance sheets of
companies to be acquired in the Pending Acquisitions, and the purchase
adjustments thereto.
The estimated fair value of the assets to be acquired in the Pending
Acquisitions is summarized below:
<TABLE>
<CAPTION>
IN THOUSANDS
<S> <C>
Accounts receivables, net.................................... $ 581
Prepaid expenses and other current assets.................... 5
Property and equipment, net.................................. 134
Excess of cost over fair value of net assets acquired........ 22,962
Accounts payable and accrued liabilities..................... (199)
--------
$ 23,483
========
</TABLE>
The aggregate acquisition price for the Pending Acquisitions will be funded
as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
<S> <C>
Cash......................................................... $ 6,903
Long-term obligations........................................ 10,000
Fair market value of 609,269 shares of Common Stock.......... 6,580
--------
$ 23,483
========
</TABLE>
The value of the Common Stock to be issued is based upon an assumed initial
public offering price of $ per share. The excess of cost over the fair
value of the net assets acquired will be amortized over 10 to 40 years.
F-9
<PAGE>
U.S. LEGAL SUPPORT, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
-------------------- ----------------------------------- ------------ -----------------------
COMPLETED PENDING PENDING
COMPANY ACQUISITIONS OFFERING ACQUISITIONS ACQUISITIONS AS
(A) (B) ADJUSTMENTS COMBINED ADJUSTMENTS (C) ADJUSTMENTS ADJUSTED
------- ------------ ----------- -------- ----------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $8,754 $9,620 $ -- $18,374 $ -- $5,403 $ -- $23,777
Cost of services........ 5,665 5,626 -- 11,291 -- 2,460 -- 13,751
------ ------ ------- ------- ------ ------ ------- -------
Gross profit............ 3,089 3,994 -- 7,083 -- 2,943 -- 10,026
Selling, general and
administrative
expenses............... 2,146 2,515 112 (E) 4,773 -- 1,096 5,869
Depreciation and
amortization........... 156 107 240 (F) 503 -- -- 287 (F) 790
------ ------ ------- ------- ------ ------ ------- -------
Operating income........ 787 1,372 (352) 1,807 -- 1,847 (287) 3,367
Interest expense........ 708 49 1,198 (G) 1,955 (1,699)(H) 10 400 (G) 666
------ ------ ------- ------- ------ ------ ------- -------
Income (loss) before
income taxes........... 79 1,323 (1,550) (148) 1,699 1,837 (687) 2,701
Provision for income
taxes.................. 53 102 (216)(I) (61) 679 (I) -- 489 (I) 1,107
------ ------ ------- ------- ------ ------ ------- -------
Net (loss) income....... $ 26 $1,221 $(1,334) $ (87) $1,020 $1,837 $(1,176) $ 1,594
====== ====== ======= ======= ====== ====== ======= =======
Net income per share.... $ 0.01 $ 0.20
====== =======
Weighted average
outstanding shares(J).. 3,395 8,002
====== =======
</TABLE>
U.S. LEGAL SUPPORT, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
-------------------- ----------------------------------- ------------ ----------------------
COMPLETED PENDING PENDING
COMPANY ACQUISITIONS OFFERING ACQUISITIONS ACQUISITIONS AS
(A) (B) ADJUSTMENTS COMBINED ADJUSTMENTS (C) ADJUSTMENTS ADJUSTED
------- ------------ ----------- -------- ----------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $4,044 $12,577 $ -- $16,621 $ -- $4,072 $ -- $20,693
Cost of services........ 2,572 7,460 -- 10,032 -- 2,243 -- 12,275
------ ------- ------- ------- ------- ------ ----- -------
Gross profit............ 1,472 5,117 -- 6,589 -- 1,829 -- 8,418
Selling, general and
administrative
expenses............... 875 4,081 (553)(D) 4,845 -- 865 (289)(D) 5,421
442 (E)
Depreciation and
amortization........... 134 75 309 (F) 518 -- 28 287 (F) 833
------ ------- ------- ------- ------- ------ ----- -------
Operating income........ 463 961 (198) 1,226 -- 936 2 2,164
Interest expense........ 118 28 1,755 (G) 1,901 (1,879)(H) 11 400 (G) 433
------ ------- ------- ------- ------- ------ ----- -------
Income (loss) before
income taxes........... 345 933 (1,953) (675) 1,879 925 (398) 1,731
Provision (benefit) for
income taxes........... 117 307 (669)(I) (245) 752 (I) -- 217 (H) 724
------ ------- ------- ------- ------- ------ ----- -------
Net income (loss)....... $ 228 $ 626 $(1,284) $ (430) $ 1,127 $ 925 $(615) $ 1,007
====== ======= ======= ======= ======= ====== ===== =======
Net income per share.... $ 0.07 $ 0.13
====== =======
Weighted average shares
outstanding(J)......... 3,062 8,002
====== =======
</TABLE>
F-10
<PAGE>
U.S. LEGAL SUPPORT, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
-------------------- ----------------------------------- ------------ -----------------------
COMPLETED PENDING PENDING
COMPANY ACQUISITIONS OFFERING ACQUISITIONS ACQUISITIONS AS
(A) (B) ADJUSTMENTS COMBINED ADJUSTMENTS (C) ADJUSTMENTS ADJUSTED
------- ------------ ----------- -------- ----------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $7,667 $26,743 $ -- $34,410 $ -- $8,994 $ -- $43,404
Cost of services........ 4,839 15,819 -- 20,658 -- 4,817 -- 25,475
------ ------- ------- ------- ------ ------ ------- -------
Gross profit............ 2,828 10,924 -- 13,752 -- 4,177 -- 17,929
Selling, general and
administrative
expenses............... 2,352 8,846 (2,280)(D) 9,802 -- 1,971 (579)(D) 11,194
884 (E)
Depreciation and
amortization........... 212 172 620 (F) 1,004 -- 56 574 (F) 1,634
------ ------- ------- ------- ------ ------ ------- -------
Operating income........ 264 1,906 776 2,946 -- 2,150 5 5,101
Interest expense........ 238 63 3,510 (G) 3,811 (3,978)(H) 20 800 (G) 653
------ ------- ------- ------- ------ ------ ------- -------
Income (loss) before
income taxes........... 26 1,843 (2,734) (865) 3,978 2,130 (795) 4,448
Provision (benefit) for
income taxes........... 10 166 (442)(I) (266) 1,591 (I) -- 549 (I) 1,874
------ ------- ------- ------- ------ ------ ------- -------
Net income (loss)....... $ 16 $ 1,677 $(2,292) $ (599) $2,387 $2,130 $(1,344) $ 2,574
====== ======= ======= ======= ====== ====== ======= =======
Net income per share.... $ 0.32
=======
Weighted average
outstanding shares(J).. 8,002
=======
</TABLE>
F-11
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(A) Represents the historical Consolidated Statement of Operations data of
the Company, which includes the operations of the Completed
Acquisitions, from the dates of acquisition.
(B) Represents the combined historical statement of operations data for the
Completed Acquisitions. Results for the six months ended June 30, 1997
in the period from January 1, 1997 through the date of acquisition for
those acquired prior to June 30, 1997 and for the six months ended June
30, 1997 for those acquired subsequent to June 30, 1997.
(C) Represents the combined historical statements of operations data of the
Pending Acquisitions.
(D) Represents adjustments to historical compensation paid to the owner of
the companies acquired in the Acquisitions in excess of amounts that
would have been paid under the terms of employment agreements entered
into in connection with the acquisition of each company.
(E) Represents adjustments to corporate compensation and other corporate
expenses to reflect the expenses that would have been incurred under
the terms of current agreements.
(F) Represents an increase in amortization of goodwill associated with the
Acquisition Transactions. The excess of cost over the fair value of the
net assets acquired will be amortized over a period of 10 to 40 years.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
----------- DECEMBER 31,
1997 1996 1996
----- ----- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Completed Acquisitions......................... $ 240 $ 309 $ 620
Pending Acquisitions........................... 287 287 574
----- ----- ------
$ 527 $596 $1,194
===== ===== ======
</TABLE>
(G) Represents an adjustment to accrue interest expense on debt issued in
connection with Completed and Pending Acquisitions. The interest
expense was computed based on fixed or variable interest rates, as
appropriate, at the time the Company entered into each agreement.
(H) Represents an adjustment to reduce interest expense on debt that will
be repaid from the proceeds of the Offering.
(I) Represents adjustments to accrue income taxes on earnings for certain
acquisitions not previously taxed at the corporate level and to reflect
the tax effects of adjustments based on estimated combined federal and
state statutory tax rates of 40%. The Company's total effective tax
rate approximates 41% and 43% for the six months ended June 30, 1997
and 1996, and 42% for the year ended December 31, 1996, respectively
because of non-deductible goodwill acquired in connection with the
Acquisitions.
(J) Represents the following (i) 1,225,000 shares outstanding at June 30,
1997, (ii) 1,104,000 shares issued in the Completed and Pending
Acquisitions, (iii) 3,500,000 shares issued in the Offering, (iv)
183,000 shares converted from Subordinated Convertible Promissory
Notes, (v) 1,560,000 shares from the conversion of the Series A
preferred stock and (vi) 430,000 shares applicable to dilution stock
option based on treasury stock method.
F-12
<PAGE>
U.S. LEGAL SUPPORT, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
ASSETS 1997
<S> <C>
Current assets:
Accounts receivable:
Trade, net of allowance of $621,359................................ $ 4,152,784
Affiliate.......................................................... 27,983
Prepaid expenses and other current assets............................ 202,259
-----------
Total current assets............................................. 4,383,026
Property and equipment, net............................................ 537,731
Goodwill, net.......................................................... 8,583,164
Other assets........................................................... 609,315
-----------
Total assets..................................................... $14,113,236
===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C>
Current liabilities:
Accounts payable..................................................... $ 2,089,639
Accrued liabilities.................................................. 1,183,392
Income taxes payable................................................. 40,000
Current maturities of long-term obligations.......................... 601,528
Deferred income taxes................................................ 126,436
-----------
Total current liabilities........................................ 4,040,995
Long-term obligations, net of current maturities....................... 12,571,745
Redeemable preferred stock:
Series A convertible preferred stock, $1.00 par value, 2,000,000
shares authorized; 1,000,000 shares issued and outstanding.......... 1,000,000
Series B convertible preferred stock, $1.00 par value, 2,500,000
shares authorized; 2,046,667 shares issued and outstanding.......... 2,046,667
Series C convertible preferred stock, $1.00 par value, 231,250 shares
authorized, issued and outstanding.................................. 231,250
-----------
Total redeemable preferred stock................................. 3,277,917
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $1.00 par value, 5,268,750 authorized, no shares
issued or outstanding............................................... --
Common stock, $.01 par value, 100,000,000 shares authorized;
1,225,048 shares issued and outstanding............................. 12,250
Additional paid-in capital........................................... 90,171
Accumulated deficit.................................................. (5,879,842)
-----------
Total stockholders' deficit...................................... (5,777,421)
-----------
Total liabilities and stockholders' deficit...................... $14,113,236
===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-13
<PAGE>
U.S. LEGAL SUPPORT, INC.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
1997
<S> <C>
Revenues........................................................... $8,754,198
Cost of services................................................... 5,665,109
----------
Gross profit................................................... 3,089,089
Selling, general and administrative expenses....................... 2,145,893
Depreciation and amortization...................................... 155,541
----------
Operating income............................................... 787,655
Interest expense................................................... 708,832
----------
Income before income taxes......................................... 78,823
Provision for income taxes......................................... 53,000
----------
Net income......................................................... $ 25,823
==========
Net income per share............................................... $ .01
==========
Weighted average shares outstanding................................ 3,061,296
==========
If the shares necessary to fund the distribution to the owner were
outstanding for the entire period, net income per share and
weighted average shares outstanding would have been as follows:
Pro forma net income per share................................... $ .01
==========
Weighted average number of common and common equivalent shares
outstanding..................................................... 3,394,129
==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-14
<PAGE>
U.S. LEGAL SUPPORT, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
--------- ------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance as of January 1,
1997................... 993,840 $ 9,938 -- $ (72,761) $ (62,823)
Net assets acquired in
connection with
reorganization of the
Company and Looney &
Company ............... -- -- -- 207,763 207,763
Distribution in
connection with
reorganization of the
Company and Looney &
Company................ -- -- -- (6,040,667) (6,040,667)
Issuance of common
stock.................. 231,208 2,312 $90,171 -- 92,483
Net income.............. -- -- -- 25,823 25,823
--------- ------- ------- ----------- -----------
Balance as of June 30,
1997................... 1,225,048 $12,250 $90,171 $(5,879,842) $(5,777,421)
========= ======= ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-15
<PAGE>
U.S. LEGAL SUPPORT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
1997
<S> <C>
Cash flows from operating activities:
Net income....................................................... $ 25,823
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................... 155,541
Amortization of debt issue costs and debt discount.............. 113,854
Provision for doubtful accounts................................. 137,705
Deferred tax benefit............................................ (227,000)
Changes in operating assets and liabilities:
Accounts receivable............................................ (152,565)
Prepaid expenses and other current assets...................... (147,541)
Accounts payable and accrued liabilities....................... 40,492
Income taxes payable........................................... (100,482)
Other assets................................................... (94,885)
-----------
Net cash used in operating activities....................... (249,058)
-----------
Cash flows from investing activities:
Capital expenditures............................................. (56,250)
Acquisitions, net of cash acquired............................... (6,160,034)
-----------
Net cash used in investing activities....................... (6,216,284)
-----------
Cash flows from financing activities:
Issuance of preferred stock...................................... 1,000,000
Debt issuance costs.............................................. (545,989)
Borrowings under senior credit agreement......................... 1,850,000
Issuance of subordinated debt.................................... 9,000,000
Principal payments on long-term obligations...................... (915,583)
Distribution to shareholder...................................... (3,994,000)
Other............................................................ 50,309
-----------
Net cash provided by financing activities................... 6,444,737
-----------
Decrease in cash and cash equivalents............................. (20,605)
Cash and cash equivalents at beginning of period.................. 20,605
-----------
Cash and cash equivalents at end of period........................ $ --
===========
Supplemental cash flow information:
Cash paid for interest........................................... $ 554,669
Cash paid for income taxes....................................... 360,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-16
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. THE COMPANY:
U.S. Legal Support, Inc. (the "Company") was founded in 1996 by Richard O.
Looney and GulfStar Investments, Ltd. to continue the business of Looney &
Company ("Looney") and create a leading provider of legal support services,
including court reporting, certified record retrieval, legal placement and
staffing, to law firms, insurance providers and major corporations throughout
the United States. The Company operates in one business segment. The Company
has completed the acquisition of 14 companies, including Looney, and has
entered into definitive agreements to acquire an additional four companies.
The Company is planning an initial public offering of its common stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Unless the context requires otherwise, the term
"Company" refers to U.S. Legal Support, Inc. and its consolidated
subsidiaries. All significant intercompany balances and transactions have been
eliminated.
Preparation of Interim Financial Statements
The financial statements for the six-month period ended June 30, 1997
reflect all adjustments that are, in the opinion of management, necessary for
a fair presentation of the results for the period. Such adjustments are
considered to be of a normal recurring nature unless otherwise identified.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain 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
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid debt instruments purchased
with original maturities of three months or less. The Company maintains cash
deposits in banks. The balance, at times, may exceed federally insured amounts
although management believes the risk of loss is minimal.
Property and Equipment
Property and equipment is recorded at cost and is depreciated on the
straight-line basis over the estimated useful lives of the assets.
Expenditures for improvements that extend the life of such assets are
capitalized, while maintenance and repairs are charged to expense as incurred.
When property and equipment is retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the related accounts and any
resulting gain or loss is included in operations.
Intangible Assets
Goodwill is amortized on a straight line basis over the estimated useful
life of 10 to 40 years. Accumulated amortization of goodwill was $70,158 at
June 30, 1997. The Company evaluates, for impairment, the carrying value of
intangible assets by comparing the carrying value to the anticipated future
undiscounted cash flows from the businesses whose acquisition gave rise to the
asset. If the intangible asset is impaired, the asset is written down to fair
value.
F-17
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
Debt Issue Costs
Debt issue costs relating to long-term debt are included in other assets and
are amortized to interest expense over the scheduled maturity of the debt
utilizing the interest method.
Income Taxes
The Company utilizes the liability method of accounting for income taxes.
Deferred income taxes are recognized for the tax consequences of differences
in the tax bases of assets and liabilities and their financial reporting
amounts based on enacted tax laws and statutory tax rates applicable to the
periods in which the differences are expected to affect taxable income. A
valuation allowance is established, when necessary, to reduce deferred income
tax assets to the amount expected to be realized.
Revenue Recognition
The Company recognizes revenues as documents or records are delivered to
customers and when candidates accept a job offer. An allowance is provided for
anticipated bad debts, based primarily on historical experience and current
estimates.
Concentration of Credit Risk
The Company grants credit, primarily to law firms, insurance companies, and
major corporations. The Company maintains allowances for potential credit
losses, and such losses have been within management's estimates.
Earnings per Share Data
Earnings per share data is computed using the weighted average number of
common and common equivalent shares outstanding during each year presented.
Common equivalent shares consist of convertible debt, convertible preferred
stock, and stock options and are computed using the treasury stock method. Pro
forma earnings per share have been presented for the six months ended June 30,
1997 to reflect issuance of the number of shares that would have been
necessary to fund the $6,040,667 distribution to the Company's owner in
January 1997 (at an assumed public offering price of $ per share). Fully
diluted earnings per share are not presented because such amounts would be the
same as amounts computed for primary earnings per share.
Stock-based Compensation
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its stock-based
compensation plans.
Financial Instruments
For all financial instruments, including cash and cash equivalents, amounts
receivable, amounts payable, and long-term debt, the carrying value is
considered to approximate fair value.
New Accounting Standards
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS 128"). SFAS 128 changes the computation of earnings per share and
requires dual presentation of basic and diluted earnings per share. SFAS 128
is effective for financial statements issued for periods ending after December
15, 1997, including interim periods.
F-18
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130") and Statement of
Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS 131").
SFAS 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. It requires (a) classification of the
components of other comprehensive income by their nature in a financial
statement and (b) the display of the accumulated balance of the other
comprehensive income separate from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. SFAS 130
is effective for years beginning after December 15, 1997 and is not expected
to have a material impact on financial position or results of operations.
SFAS 131 establishes standards for reporting information about operating
segments in annual financial statements and requires selected information
about operating segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about products and
services, geographic areas and major customers. The Company has not determined
the impact of SFAS 131 on its financial reporting practices.
3. REORGANIZATION AND BUSINESS COMBINATIONS:
Completed through June 30, 1997
In a reorganization in January 1997, the Company acquired 100% of the
outstanding stock of Looney & Company ("Looney"), a Texas based court
reporting and certified records retrieval company. The purchase price
consisted of approximately $3,994,000 in cash which includes a cash
reimbursement in the amount of $354,000 as payment for professional fees
through December 31, 1996, and 2,046,667 shares of the Company's Series B
redeemable convertible preferred stock, $1.00 par value. Looney has been
deemed to be the accounting acquiror, and therefore, the net assets of Looney
have been recorded at their historical cost basis. The consideration paid for
the net assets of Looney was recorded as a capital distribution to Looney's
shareholder.
In January 1997, the Company acquired 100% of the outstanding stock of
Klein, Bury and Associates, Inc. ("KBA"), a Florida based court reporting
company. The purchase price consisted of approximately $3,580,000 in cash,
170,600 shares of the Company's common stock, a $1,424,113 promissory note
payable over 5 years with interest at 10% and 50% of the accounts receivable
over 120 days old as of the closing date, up to a maximum of $500,000, that
are collected during the Company's normal course of business. The acquisition
was accounted for under the purchase method of accounting. The results of
operations of KBA are included from the date of the acquisition. The excess of
the cost over the fair values of the assets acquired and liabilities assumed
amounted to approximately $5,742,000 and is being amortized over 40 years.
In May 1997, the Company acquired the assets of San Francisco Reporting
Service ("SFRS"), a California based court reporting company. The purchase
price consisted of approximately $506,000 in cash, 30,608 shares of the
Company's common stock and 231,250 shares of Series C redeemable convertible
preferred stock having a par value and issue price of $1.00. The acquisition
was accounted for under the purchase method of accounting. The results of
operations of SFRS are included from the date of acquisition. The excess of
the cost over the fair values of the assets acquired and liabilities assumed
approximates $736,000 and is being amortized over 40 years.
F-19
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
In May 1997, the Company acquired the assets of G & G Court Reporters
("G&G"), a California based court reporting company. The purchase price
consisted of approximately $1,268,100 in cash and two (2) subordinated
promissory notes in the aggregate amount of $995,568. The acquisition was
accounted for under the purchase method of accounting. The results of
operations of G&G are included from the date of acquisition. The excess of the
cost over the fair values of the assets acquired and liabilities assumed
approximates $2,196,000 and is being amortized over 40 years.
The following unaudited pro forma summary presents consolidated results of
operations information as if all the aforementioned completed acquisitions had
been completed at the beginning of the period presented and does not purport
to be indicative of the results of operations of the Company that might have
occurred nor are they indicative of future results.
<TABLE>
<S> <C>
Revenues....................................................... $9,764,000
Net income..................................................... $ 178,000
Earnings per share............................................. $ .06
</TABLE>
Adjustments made in arriving at the pro forma unaudited results of
operations include interest expense on acquisition debt, amortization of
goodwill, compensation reductions and related tax adjustments. No effect has
been given to synergistic benefits which may be realized from the acquisition
or of the use of proceeds from the planned initial public offering.
Completed since July 1, 1997
In August 1997, the Company acquired the stock of the Johnson Court
Reporting Group, three California-based companies involved in court reporting,
closed captioning, and medical transcription. The purchase price consisted of
approximately $983,100 in cash, $245,760 in subordinated notes and 142,476
shares of the Company's common stock.
In August 1997, the Company acquired the assets of Legal Enterprise, Inc., a
California based document retrieval and data management company. The purchase
price consisted of approximately $1,210,000 in cash and $1,140,500 in
subordinated notes. Concurrently with a public offering, one of the notes for
$821,160 converts into 96,607 shares of common stock at a conversion rate of
$8.50 per share of common stock.
In September 1997, the Company acquired the assets of Amicus One Legal
Support Services, Inc., a New York based court reporting company. The purchase
price was approximately $1,881,000 in cash, $560,000 in subordinated notes and
116,471 shares of the Company's common stock.
In September 1997, the Company acquired the stock of Block Court Reporting,
a court reporting company serving Washington, D.C., Northern Virginia, and
Baltimore. The purchase price was approximately $610,000 in cash and $600,000
in subordinated notes.
In September 1997, the Company acquired the stock of Ziskind, Greene,
Watanabe and Nason, a California based company providing permanent legal
search services. The purchase price was approximately $1,150,000 in cash and
158,824 shares of the Company's common stock.
In September 1997, the Company acquired the assets of Elaine P. Dine, Inc.,
a New York based company providing permanent legal search services. The
purchase price was approximately $6,010,000 in cash, $2,000,000 in
subordinated notes and 117,647 shares of the Company's common stock.
F-20
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
These acquisitions will be accounted for under the purchase method of
accounting. The results of operations will be included from date of
acquisition. The excess of the purchase price over the fair values of the
assets acquired and liabilities assumed will be recorded as goodwill.
In addition, with respect to certain of the businesses acquired, the Company
may be obligated to pay contingent consideration. In most cases, the
contingent consideration is cash equal to a percentage of the amount by which
the businesses' revenues exceed targeted operating results. With respect to
one of the businesses acquired, the Company is obligated to pay, in equal
parts cash and common stock, contingent consideration equal to six times the
amount by which pre-tax earnings exceed a specified amount.
Pending Consummation of Initial Public Offering ("Offering")
Upon completion of the Offering, the Company will acquire the assets of
Reporting Service Associates, a Philadelphia based court reporting services
firm serving the mid-Atlantic markets. The purchase price will be
approximately $7,400,000 in cash and 231,481 shares of the Company's common
stock.
Upon completion of the Offering, the Company will acquire the assets of
Jilio & Associates, a Southern California based court reporting services firm
which is a member of the U.S. Court Reporters affiliated network. The purchase
price will be approximately $5,600,000 in cash and 222,222 shares of the
Company's common stock.
Upon completion of the Offering, the Company will acquire the assets of
Kirby Kennedy & Associates, a court reporting services firm which serves the
Minneapolis and St. Paul, Minnesota markets. The purchase price will be
approximately $2,503,000 in cash and 99,315 shares of the Company's common
stock.
Upon completion of the Offering, the Company will acquire the assets of
Commander Wilson, Inc., a firm that provides permanent legal search services
to national and Texas law firms and legal departments of major corporations.
The purchase price will be approximately $1,400,000 in cash and 56,250 shares
of the Company's common stock.
4. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
USEFUL LIVES 1997
<S> <C> <C>
Leasehold improvements.......................... 5 years $ 26,622
Furniture, fixtures and equipment............... 5 to 7 years 1,610,753
Vehicles........................................ 5 years 21,782
-----------
1,659,157
Less accumulated depreciation................... (1,121,426)
-----------
$ 537,731
===========
</TABLE>
The Company has entered into various capital leases. The leases were
recorded upon their inception using the interest rate implicit in the lease
agreements. The capitalized cost of leased office equipment and related
accumulated depreciation was approximately $324,000 and $219,000,
respectively, at June 30, 1997.
F-21
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
5. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
1997
<S> <C>
Payroll........................................................ $ 506,672
Customer overpayments.......................................... 507,151
Other.......................................................... 169,569
----------
$1,183,392
==========
</TABLE>
Customer overpayments arise primarily when customers make duplicate payments
or payments in excess of billed amounts. The customers have generally denied
the Company's refund attempts, which the management of the Company believes is
due to the significant volume and relatively small amount of each individual
billing. Legal counsel has advised the Company that any claims by third
parties for overpayments are subject to statute-of-limitation laws and related
interpretations, which vary by state, and the ultimate resolution of any such
third-party claims, if made, is not certain.
6. INCOME TAXES:
The provision for income taxes consisted of the following for the six months
ended June 30, 1997:
<TABLE>
<S> <C>
Current........................................................ $ 280,000
Deferred....................................................... (227,000)
---------
$ 53,000
=========
</TABLE>
A reconciliation of the differences between income taxes computed at the
U.S. federal statutory rate of 34% and the Company's reported provision for
income taxes for the six months ended June 30, 1997 is:
<TABLE>
<S> <C>
Income tax provision at statutory rate............................ $26,800
State tax provision, net of federal income tax benefit............ 3,153
Nondeductible expenses and other.................................. 23,047
-------
$53,000
=======
</TABLE>
The components of deferred income tax assets and liabilities were as follows
at June 30, 1997:
<TABLE>
<S> <C>
Deferred tax assets:
Accrued liabilities......................................... $ 38,000
Allowance for doubtful accounts............................. 111,180
---------
Deferred tax assets...................................... 149,180
---------
Deferred tax liabilities:
Conversion from cash to accrual basis for tax reporting
purposes................................................... (252,239)
Other....................................................... (23,377)
---------
Deferred tax liability................................... (275,616)
---------
Net deferred income taxes................................ $(126,436)
=========
</TABLE>
F-22
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
7. LONG-TERM DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
1997
<S> <C>
Bank notes payable:
Revolving credit loan........................................... $ 100,000
Term loan....................................................... 1,750,000
Senior subordinated notes, interest at 12% payable quarterly,
principal due in three annual installments beginning January 2002
but must be repaid within two days of an initial public offering
of common stock or a change of control........................... 9,000,000
Subordinated promissory note, interest at 10% with an effective
interest rate of 15%, quarterly principal and interest payments
of $71,206 through February 1, 2002 but must be repaid within two
days of an initial public offering of common stock or a change of
control.......................................................... 1,352,907
Convertible subordinated note, interest at 7.5% payable quarterly
beginning August 1997 with an effective interest rate of 15%,
principal payments payable quarterly beginning August 1998,
maturing in 2002, convertible at the holder's option into common
stock at the issuance price in and on the closing date of an
initial public offering or a change of control................... 328,149
Convertible subordinated note, interest at 6.375% payable monthly,
principal due in 2005, convertible at the holder's option into
common stock at the conversion price of $7.56, automatically
converts into common stock on the closing date of an initial
public offering or a change of control........................... 663,795
Capital lease obligations......................................... 181,422
-----------
Total debt........................................................ 13,376,273
Less discount on debt............................................. 203,000
-----------
Long term debt, net of discount................................... 13,173,273
Less current maturities........................................... 601,528
-----------
$12,571,745
===========
</TABLE>
Revolving Credit and Term Loan Agreements
The Company's bank credit agreement provides for a revolving line of credit
of $2,000,000, of which approximately $1,700,000 had been utilized at
September 24, 1997. The bank credit agreement also provides for an acquisition
line of credit of $14,000,000, all of which had been utilized at September 24,
1997. Borrowings under this agreement bear interest at the base rate plus
0.75%, or LIBOR, plus 2.5%, at the Company's option. At June 30, 1997, the
average interest rate under the credit facility was 8.2%. Borrowings under the
facility are collateralized by substantially all the assets of the Company.
The credit agreement contains various financial covenants including the
maintenance of certain financial ratios, restrictions on capital expenditures,
and a prohibition against the payment of dividends.
Maturities of long-term debt and capital lease obligations are as follows:
<TABLE>
<CAPTION>
NOTES CAPITAL
PAYABLE LEASES
----------- --------
<S> <C> <C>
1997 (six months).................................... $ 171,578 $ 44,623
1998................................................. 777,046 71,003
1999................................................. 721,265 56,909
2000................................................. 1,392,086 8,887
2001................................................. 371,261 --
2002................................................. 3,097,820 --
Thereafter........................................... 6,663,795 --
----------- --------
$13,194,851 $181,422
=========== ========
</TABLE>
F-23
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
8. PREFERRED STOCK:
Series A Preferred Stock
Pursuant to the terms of the Articles of Incorporation, the Board of
Directors has created a series of Preferred Stock consisting of 2,000,000
shares of Series A Convertible Preferred Stock (the "Series A Preferred
Stock"). As of June 30, 1997, 1,000,000 shares of Series A Preferred Stock
were issued and outstanding. The Series A Preferred Stock (a) has a
liquidation preference of $1.00 per share, plus accrued but unpaid dividends
and (b) entitles the holder, concurrently with each dividend paid on the
Common Stock, to dividends in the same amount payable on the number of shares
of Common Stock then issuable on conversion of the Series A Preferred Stock.
Holders of Series A Preferred Stock vote together with the Common Stock on all
matters submitted to a vote of the shareholders, and each share of Series A
Preferred Stock entitles the holder to one vote for each share of Common Stock
issuable on conversion thereof. The Series A Preferred Stock ranks on a parity
with the Common Stock with respect to dividends and senior to Common Stock and
the Series B Preferred Stock described below as to distributions of assets
upon liquidation. Shares of Series A Preferred Stock may be converted into
Common Stock, at the option of the holder, at an initial conversion rate of
1.56 shares of Common Stock for each share of Series A Preferred Stock,
subject to adjustment. The Company may elect to convert all outstanding Series
A Preferred Stock into shares of Common Stock at the foregoing conversion
rate, at any time after the closing of an underwritten public offering of
equity securities of the Company resulting in gross proceeds of at least
$15,000,000 (a "Qualifying Public Offering"), provided the $9,000,000
principal amount of 12% Senior Subordinated Notes issued by a subsidiary of
the Company are no longer outstanding. Under the terms of the Security
Purchase Agreement pursuant to which the Series A Preferred Stock was issued,
the holders have the right to require the Company to redeem any or all shares
of Series A Preferred Stock upon the occurrence of a Change of Control (as
defined in the Agreement). The redemption price is payable in cash in an
amount equal to the Market Price (as defined) at the time notice of the Change
of Control is given, together with a premium in the maximum aggregate amount
of $2,700,000. If at any time after January 17, 2003, there is no Liquid
Secondary Market (as defined), the holders of the Series A Preferred Stock
shall have the right to require the Company to redeem any or all of the
outstanding shares of Series A Preferred Stock in three annual installments,
at a redemption price equal to the Fair Market Value (as defined) of the
shares of Common Stock into which the Series A Preferred Stock are then
convertible, together with interest on the unpaid balance at an annual rate of
12.0%. Subject to the rights of the holders of the Series A Preferred Stock to
convert their shares into Common Stock, the Company may redeem the Series A
Preferred Stock, in whole but not in part, at any time on or after a
Qualifying Public Offering, provided the Senior Subordinated Notes are no
longer outstanding. The redemption price for shares redeemed at the option of
the Company shall be $.001 for each share of Common Stock issuable upon
conversion of the Series A Preferred Stock so redeemed (subject to
adjustments).
Series B Preferred Stock
Pursuant to the terms of the Articles of Incorporation, the Board of
Directors has created a series of Preferred Stock consisting of 2,500,000
shares of Series B Convertible Preferred Stock (the "Series B Preferred
Stock"). As of June 30, 1997, 2,046,667 shares of Series B Preferred Stock
were issued and outstanding. The Series B Preferred Stock (a) has a
liquidation preference of $1.00 per share, (b) ranks junior to the Series A
Preferred Stock with respect to distributions of assets on liquidation and (c)
is convertible into Common Stock in the event of a Qualifying Public Offering
at a conversion price equal to 93% of the price at which shares of Common
Stock are offered to the public in the Qualifying Public Offering. Holders of
Series B Preferred Stock are not entitled to receive any dividends. Within
five business days after the receipt of notice from the Company that the
Company has filed a Registration Statement with the Securities and Exchange
Commission (the "Commission") related to a Qualifying Public Offering, the
holder is required to notify the Company if such holder elects to cause the
Company to redeem all or part of the Series B Preferred Stock for a cash
redemption price of $1.00 per share or to convert such shares into Common
Stock at the rate specified above. In the event
F-24
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
the holder fails to give the Company notice of its election, all conversion
and redemption rights shall immediately terminate. Any shares of Series B
Preferred Stock not redeemed or converted into Common Stock, must be redeemed
by the Company quarterly, during the 20 fiscal quarters following the quarter
in which a Qualifying Public Offering occurs. The Series B Preferred Stock
does not entitle the holders to vote on any matter submitted to the Company's
shareholders, except as required by law.
Series C Preferred Stock
The Board of Directors has created a series of Preferred Stock consisting of
231,250 shares of Series C Convertible Preferred Stock (the "Series C
Preferred Stock"). As of June 30, 1997, 231,250 shares of Series C Preferred
Stock were issued and outstanding. The Series C Preferred Stock has a
liquidation preference of $1.00 per share, plus accrued and unpaid dividends.
The Series C Preferred Stock ranks senior to the Series A Preferred Stock and
the Common Stock with respect to dividends and distributions of assets upon
liquidation, and ranks senior to the Series B Preferred Stock with respect to
distributions of assets on liquidation. The Series C Preferred Stock carries
an annual dividend equal to $.06 per share, payable quarterly in respect of
any quarter in which aggregate net income before taxes, depreciation, and
amortization of the business represented by SFRS exceeds $160,000. No
dividends were accrued or paid on the Series C Preferred Stock in the six
months ended June 30, 1997. The Series C Preferred Stock is convertible into
Common Stock upon the occurrence of a Qualifying Public Offering, at a
conversion rate equal to the initial public offering price. Within 10 business
days after the receipt of notice from the Company that the Company has filed a
Registration Statement with the Commission related to a Qualifying Public
Offering, the holder is required to notify the Company if such holder elects
to cause the Company to redeem all or part of the Series C Preferred Stock for
a cash redemption price of $1.00 per share or to convert such shares into
Common Stock at the rate specified above. In the event the holder fails to
give the Company notice of its election, all conversion and redemption rights
shall immediately terminate. On or after May 15, 1998, any holder of Series C
Preferred Stock may require the Company to redeem all such holders of shares
of Series C Preferred Stock quarterly over the 16 fiscal quarters ended after
notice of such election is delivered to the Company. The Series C Preferred
Stock does not entitle the holders to vote on any matter submitted to the
Company's shareholders, except as required by law.
9. COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases various office space under noncancelable operating leases
with remaining terms of up to 4 years. The Company also leases certain office
and computer equipment under operating leases. Rental expense associated with
these operating leases for the six months ended June 30, 1997 was $206,965.
The future minimum rental payments under noncancelable operating leases for
1997 through 2002 are as follows (in thousands):
<TABLE>
<S> <C>
1997 (six months).............................................. $ 244,971
1998........................................................... 452,892
1999........................................................... 365,849
2000........................................................... 285,380
2001........................................................... 98,756
2002........................................................... 44,000
----------
$1,491,848
==========
</TABLE>
F-25
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
Independent Contractors
The Company, like most court reporting firms, provides court reporting
services through the use of independent contractors, who are not employees of
the Company. The Company does not pay or withhold federal or state employment
taxes with respect to these independent contractors. Independent court
reporters are responsible for acquiring and operating their court reporting
equipment. The use of independent contractors as court reporters is consistent
with industry practice and allows the Company to control costs. In the event
the Company were required to treat these court reporters as its employees, the
Company could become responsible for the taxes required to be withheld and
could incur additional costs associated with employee benefits and other
employee costs.
Legal Proceedings
The Company is involved in certain lawsuits and claims arising in the normal
course of business. In the opinion of management, uninsured losses, if any,
resulting from the ultimate resolution of these matters will not have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
10. STOCK OPTION PLANS:
1997 Stock Incentive Plan
The Company's 1997 Stock Incentive Plan provides for the granting to
eligible employees or directors of the Company and its subsidiaries options to
purchase shares of Common Stock, which may be incentive stock options within
the meaning of Section 422(b) of the Internal Revenue Code or non-qualified
options. The 1997 Stock Incentive Plan is administered by the Compensation
Committee of the Board of Directors, which designates the employees who will
receive options, the type of options, the number of shares of Common Stock
subject to these options and their terms and conditions, including their
exercise price and vesting schedule. A total of 750,000 shares of Common Stock
have been reserved for issuance pursuant to options granted under the 1997
Stock Incentive Plan. Options to purchase a total of 464,244 shares of Common
Stock have been granted under the 1997 Stock Incentive Plan with exercise
prices ranging from $6.41 to the initial public offering price set forth on
the cover of this Prospectus. All options granted under the 1997 Stock
Incentive Plan vest 20% annually, are fully vested on the fifth anniversary of
the date of grant and expire 10 years after the date of grant.
Stock Option Plan for Non-Employee Directors
The Company also has adopted the U.S. Legal Support, Inc. Stock Option Plan
for Non-Employee Directors (the "Directors' Stock Option Plan"). A total of
150,000 shares of Common Stock have been reserved for issuance under the
Directors' Stock Option Plan which provides for the grant of options to
purchase 25,000 shares of Common Stock, with an exercise price equal to the
fair market value on the date of grant, to each incumbent director and to each
person who becomes a director concurrently with his or her first election to
the Board. Options granted under the Directors' Stock Option Plan vest 20%
annually and are fully vested on the fifth anniversary of the date of grant.
Upon completion of the Offering, each director of the Company will be awarded
options to purchase 25,000 shares of Common Stock with an exercise price equal
to the per share price set forth on the cover page of this Prospectus.
11. RELATED PARTY TRANSACTIONS:
To finance the acquisitions of Looney and KBA, the Company issued $9,000,000
principal amount of Senior Subordinated Notes to three investors managed by
Pecks Management Partners Ltd. on January 1997. A director of the Company
serves as a Managing Partner of Pecks Management Partners Ltd.
F-26
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
The GulfStar Group, Inc. ("GulfStar") has provided merger and acquisition
advisory services to the Company since its inception. A director of the
Company is a Managing Director of GulfStar. In October 1996, GulfStar
Investments, Ltd., an affiliate of GulfStar, purchased 150,000 shares of
Common Stock at a price of $.01 per share in exchange for services rendered to
the Company. GulfStar also received an investment banking fee aggregating
$450,000 in exchange for services in connection with the placement of
$9,000,000 of Senior Subordinated Notes, the placement of the Series A
Convertible Preferred Stock, the negotiation of the bank credit agreement and
the acquisition of Looney and KBA in January 1997. Pursuant to the terms of a
letter agreement dated April 24, 1997, between GulfStar and the Company,
GulfStar agreed to provide valuation, negotiation and other financial advisory
services to the Company in connection with the Company's evaluation of
acquisitions and will be paid advisory fees equal to 1.0% of the total
purchase price of each acquisition as well as reimbursement of out-of-pocket
expenses. GulfStar has received a total of $40,000 under the letter agreement
and will be entitled to an additional $450,000 upon completion of the pending
acquisitions.
The Company leases offices from entities controlled by certain former
shareholders of acquired companies who are now employees. The aggregate annual
base rent to be paid under these leases is approximately $70,000.
12. SUPPLEMENTAL CASH FLOW INFORMATION:
The following represents supplemental noncash investing and financing
activities for the six months ended June 30, 1997:
<TABLE>
<S> <C>
Acquisition of Looney
Net assets acquired in connection with reorganization........... $ 207,763
Issuance of Series B Redeemable Preferred Stock................. 2,046,667
Acquisition of KBA
Net assets acquired, net of cash................................ 510,521
Issuance of a note payable...................................... 1,424,113
Issuance of common stock........................................ 68,240
Acquisition of SFRS
Net assets acquired, net of cash................................ 112,814
Issuance of preferred stock..................................... 231,250
Issuance of common stock........................................ 12,243
Acquisition of G&G
Net assets acquired, net of cash................................ 152,012
Issuance of notes payable....................................... 995,568
Other acquisitions................................................ 2,000
</TABLE>
F-27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
U.S. Legal Support, Inc.:
We have audited the accompanying balance sheet of Looney & Company as of
December 31, 1995 and 1996, and the related statements of operations,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
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 financial position of Looney & Company as of
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.
COOPERS & LYBRAND L.L.P.
Houston, Texas
September 5, 1997
F-28
<PAGE>
LOONEY & COMPANY
BALANCE SHEET
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
ASSETS ---------- ----------
<S> <C> <C>
Current assets:
Cash.................................................... $ 20,605
Accounts receivable:
Trade, net of allowance of $142,581 and $223,331,
respectively.......................................... $2,095,032 1,307,330
Related parties........................................ 69,531 319,302
Prepaid expenses and other current assets............... 56,049 45,926
Deferred income taxes................................... 26,742
---------- ----------
Total current assets............................... 2,220,612 1,719,905
Property and equipment, net.............................. 590,101 426,296
Other assets............................................. 51,041 27,500
Deferred income taxes.................................... 18,500
---------- ----------
Total assets....................................... $2,861,754 $2,192,201
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable........................................ $ 452,125 $ 183,389
Accrued liabilities..................................... 897,265 1,140,163
Income taxes payable.................................... 123,303
Deferred income taxes................................... 15,188
Current maturities of long-term obligations............. 832,157 529,413
---------- ----------
Total current liabilities.......................... 2,320,038 1,852,965
Long-term obligations, net of current maturities......... 227,378 131,473
Deferred income taxes.................................... 122,274
Commitments and contingencies
Stockholder's equity:
Common stock, $1 par value, 100,000 shares authorized,
1,000 shares issued and outstanding................... 1,000 1,000
Retained earnings...................................... 191,064 206,763
---------- ----------
Total stockholder's equity......................... 192,064 207,763
---------- ----------
Total liabilities and stockholder's equity......... $2,861,754 $2,192,201
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-29
<PAGE>
LOONEY & COMPANY
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
JUNE 30,
1994 1995 1996 1996
---------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues........................ $8,362,920 $9,103,728 $7,667,539 $4,044,190
Cost of services................ 5,589,599 5,763,195 4,838,932 2,572,481
---------- ---------- ---------- ----------
Gross profit................ 2,773,321 3,340,533 2,828,607 1,471,709
Selling, general and
administrative expenses........ 3,042,999 1,970,310 2,351,669 875,318
Depreciation.................... 223,680 230,353 212,277 134,016
---------- ---------- ---------- ----------
Operating income (loss)..... (493,358) 1,139,870 264,661 462,375
Interest expense................ 184,414 229,969 238,251 117,601
---------- ---------- ---------- ----------
Income (loss) before income
taxes.......................... (677,772) 909,901 26,410 344,774
Income tax (benefit) expense.... (182,979) 327,177 10,711 117,169
---------- ---------- ---------- ----------
Net income (loss)............... $ (494,793) $ 582,724 $ 15,699 $ 227,605
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-30
<PAGE>
LOONEY & COMPANY
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDER'S
STOCK EARNINGS EQUITY
------ --------- -------------
<S> <C> <C> <C>
Balance as of January 1, 1994................... $1,000 $ 103,133 $ 104,133
Net loss........................................ (494,793) (494,793)
------ --------- ---------
Balance as of December 31, 1994................. 1,000 (391,660) (390,660)
Net income...................................... 582,724 582,724
------ --------- ---------
Balance as of December 31, 1995................. 1,000 191,064 192,064
Net income...................................... 15,699 15,699
------ --------- ---------
Balance as of December 31, 1996................. $1,000 $ 206,763 $ 207,763
====== ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-31
<PAGE>
LOONEY & COMPANY
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
JUNE 30,
1994 1995 1996 1996
----------- --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss).............. $ (494,793) $ 582,724 $ 15,699 $ 227,605
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation.................. 223,680 230,353 212,277 134,016
Provision for doubtful
accounts..................... 28,566 82,773 80,750 42,037
Deferred income taxes......... 40,263 75,272 (182,704) 59,925
Loss on disposal of
equipment.................... 47,345
Changes in operating assets
and liabilities:
Accounts receivable.......... (161,513) (256,538) 706,952 319,477
Other receivables, related
parties..................... 34,407 (249,771) (41,185)
Prepaid expenses and other
current assets.............. (12,116) (1,199) 10,123 (23,219)
Accounts payable and accrued
liabilities................. 275,578 (305,706) 76,138 (287,778)
Income taxes payable......... 123,303 (123,303)
Other assets................. 148,305 3,010 23,541 (3,393)
----------- --------- --------- ---------
Net cash provided by
operating activities..... 95,315 568,399 569,702 427,485
----------- --------- --------- ---------
Cash flows from investing
activities:
Purchase of property and
equipment..................... (182,331) (7,654) (51,028) (32,040)
----------- --------- --------- ---------
Net cash used in investing
activities .............. (182,331) (7,654) (51,028) (32,040)
----------- --------- --------- ---------
Cash flows from financing
activities:
Proceeds from borrowings....... 972,517
Principal payments on long-term
obligations................... (1,013,769) (491,404) (396,093) (228,379)
Other.......................... 128,268 (69,341) (101,976) (101,976)
----------- --------- --------- ---------
Net cash provided by (used
in) financing activities
......................... 87,016 (560,745) (498,069) (330,355)
----------- --------- --------- ---------
Increase in cash................ -- -- 20,605 65,090
Cash at beginning of period..... -- -- -- --
----------- --------- --------- ---------
Cash at end of period........... $ -- $ -- $ 20,605 $ 65,090
=========== ========= ========= =========
Cash paid for interest.......... $ 252,906 $ 229,969 $ 238,251 119,125
Cash paid for income taxes...... -- 120,000 297,590 212,590
Non cash investing and financing
activities:
Equipment acquired under
capital leases................ $ 123,126 $ 44,504 $ 13,051
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-32
<PAGE>
LOONEY & COMPANY
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS:
Looney & Company (the "Company"), a Texas corporation, was founded in 1988
and operates in six Texas offices, providing litigation support services
primarily to insurance companies, law firms and large corporations. The
Company's primary business is court reporting, the transcription of spoken
legal testimony into the written word, the retrieval of records used in
conjunction with the investigation and litigation of legal proceedings, and
copying services. Looney is the predecessor to U.S. Legal Support, Inc.
("USLS"). The interim financial statements for the six months ended June 30,
1996 should be read in conjunction with the interim financial statements of
USLS included elsewhere herein.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Preparation of Interim Financial Statements
The financial statements for the six months ended June 30, 1996, reflect all
adjustments that are, in the opinion of management, necessary or a fair
presentation of the results for the period. Such adjustments are considered to
be of a normal recurring nature unless otherwise identified.
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 amount 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
reporting period. Actual results could differ from those estimates.
Cash
Cash is maintained in two banks. The balances, at times, may exceed
federally insured amounts although management believes that risk of loss is
minimal.
Property and Equipment
Property and equipment is recorded at cost and is depreciated on the
straight-line basis over the estimated useful lives of the assets.
Expenditures for improvements that extend the life of such assets are
capitalized while maintenance and repairs are charged to expense as incurred.
When property and equipment is retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the related accounts and any
resulting gain or loss is included in the statement of operations.
Revenue Recognition
The Company recognizes revenue as the documents or records are delivered to
its customers. An allowance is provided for anticipated bad debts based
primarily on historical experience and current estimates.
Concentration of Credit Risk
The Company grants credit to various companies primarily in the legal and
insurance industries which may be affected by economic or other external
conditions. The Company maintains allowances for potential credit losses, and
such losses have been within management's expectations.
Income Taxes
Deferred income taxes are provided for the accumulated temporary differences
in the bases of assets and liabilities for financial reporting and income tax
purposes using enacted tax rates and laws in effect in the years in which the
differences are expected to reverse.
F-33
<PAGE>
LOONEY & COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. RECEIVABLES, RELATED PARTIES:
Receivables, related parties, consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
------- --------
<S> <C> <C>
Shareholder............................................. $69,531
U.S. Legal Support, Inc................................. $258,988
Klein, Bury & Associates................................ 60,314
------- --------
$69,531 $319,302
======= ========
</TABLE>
In 1996, the Company paid on behalf of Klein, Bury & Associates ("Klein
Bury") and U.S. Legal Support, Inc. ("USLS") costs incurred related to the
January 1997 acquisitions of the Company and Klein Bury by USLS (see Note 9).
4. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
USEFUL LIVES 1995 1996
------------ ---------- ----------
<S> <C> <C> <C>
Furniture, fixtures and
equipment.............. 5 to 7 years $1,304,264 $1,367,342
Vehicles................ 5 years 56,640 21,782
------------ ---------- ----------
1,360,904 1,389,124
Less accumulated
depreciation........... (770,803) (962,828)
---------- ----------
$ 590,101 $ 426,296
========== ==========
</TABLE>
The Company has entered into various capital leases. The leases were
recorded upon their inception using the interest rate implicit in the lease
agreements. The capitalized cost of leased office equipment was approximately
$581,000 and $594,000 at December 31, 1995 and 1996, respectively.
F-34
<PAGE>
LOONEY & COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. LONG-TERM OBLIGATIONS:
Long-term obligations consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
--------- --------
<S> <C> <C>
Note payable to a bank under line of credit, providing
borrowings up to $1,500,000, with interest at the prime
rate plus 2.25%, collateralized by substantially all
assets of the Company not otherwise pledged............. $ 657,422 $438,853
Obligations under capital leases of certain equipment,
due in monthly installments through July 2000, with
implicit interest rates ranging from 8.0% to 20%........ 319,024 218,533
Notes payable to bank, due in monthly installments,
including interest at 7% to 9.25%, through January 1997,
collateralized by certain equipment..................... 83,089 3,500
--------- --------
1,059,535 660,886
Less current maturities.................................. (832,157) (529,413)
--------- --------
$ 227,378 $131,473
========= ========
</TABLE>
At December 31, 1996, future minimum payments under long-term obligations
were as follows:
<TABLE>
<CAPTION>
NOTE CAPITAL
YEAR ENDED PAYABLE LEASES
---------- -------- --------
<S> <C> <C>
1997................................................... $442,353 $109,516
1998................................................... 83,560
1999................................................... 59,179
2000................................................... 9,093
-------- --------
442,353 261,348
Less amounts representing interest..................... 42,815
-------- --------
$442,353 $218,533
======== ========
</TABLE>
6. INCOME TAXES:
The provision for income taxes consisted of the following for the years ended
December 31:
<TABLE>
<CAPTION>
1994 1995 1996
--------- -------- --------
<S> <C> <C> <C>
Current..................................... $(223,242) $251,905 $193,415
Deferred.................................... 40,263 75,272 (182,704)
--------- -------- --------
$(182,979) $327,177 $ 10,711
========= ======== ========
</TABLE>
F-35
<PAGE>
LOONEY & COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of the differences between income taxes computed at the
U.S. federal statutory rate of 34% and the Company's reported provision
(benefit) for income taxes follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- -------- -------
<S> <C> <C> <C>
Income tax provision (benefit) at statutory
rate............................................ $(230,442) $309,366 $ 8,979
State tax provision, net of federal income tax
benefit......................................... 20,333 27,297 792
Nondeductible expenses and other................. 27,130 (9,486) 940
--------- -------- -------
$(182,979) $327,177 $10,711
========= ======== =======
</TABLE>
The components of deferred income tax assets and liabilities were as follows
at December 31:
<TABLE>
<CAPTION>
1995 1996
--------- --------
<S> <C> <C>
Deferred tax assets:
Accrued liabilities...................................... $ 54,331 $ 84,884
Allowance for doubtful accounts.......................... 52,755 82,632
--------- --------
Deferred tax assets.................................... 107,086 167,516
Deferred tax liabilities:
Conversion from cash to accrual basis for tax reporting
purposes................................................ 244,548 122,274
--------- --------
Net deferred tax asset (liability)..................... $(137,462) $ 45,242
========= ========
</TABLE>
7. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following of December 31:
<TABLE>
<CAPTION>
1995 1996
-------- ----------
<S> <C> <C>
Customer overpayments................................ $602,361 $ 519,711
Payroll.............................................. 154,904 160,452
Litigation settlements and other..................... 140,000 100,000
Ownership interests.................................. 360,000
-------- ----------
$897,265 $1,140,163
======== ==========
</TABLE>
The Company recorded a charge of $360,000 in the fourth quarter of 1996 for
the fair value of ownership interests granted to certain employees by the
Company's shareholder. The obligation was satisfied in January 1997 in
connection with the acquisition of the Company's stock (Note 9).
Customer overpayments arise primarily when customers make duplicate payments
or payments in excess of billed amounts. The customers have generally denied
the Company's refund attempts, which the management of the Company believes is
due to the significant volume and relatively small amount of each individual
billing. Legal counsel has advised the Company that any claims by third
parties for overpayments are subject to statute-of-limitation laws and related
interpretations, which vary by state, and the ultimate resolution of any such
third-party claims, if made, is not certain.
In 1997, the Company paid all outstanding amounts owed under litigation
settlements.
F-36
<PAGE>
LOONEY & COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. COMMITMENTS AND CONTINGENCIES:
Independent Contractors
The Company, like most court reporting firms, provides court reporting
services through the use of independent contractors, who are not employees of
the Company. The Company does not pay or withhold federal or state employment
taxes with respect to these independent contractors, and such persons.
Independent court reporters are responsible for acquiring and operating their
court reporting equipment. The use of independent contractors as court
reporters is consistent with industry practice and allows the Company to
control costs. In the event the Company were required to treat these court
reporters as its employees, the Company could become responsible for the taxes
required to be withheld and could incur additional costs associated with
employee benefits and other employee costs.
Operating Leases
Aggregate minimum rental commitments under noncancelable operating leases
with lease terms in excess of one year are as follows:
<TABLE>
<S> <C>
1997............................................................. $274,314
1998............................................................. 242,035
1999............................................................. 197,163
2000............................................................. 143,637
2001............................................................. 73,110
--------
$930,259
========
</TABLE>
Rent expense recorded in 1995 and 1996 totaled approximately $295,000 and
$260,000, respectively. Certain rental agreements provide for additional rent
based on the lessors' operating expenses.
Legal Proceedings
The Company is involved in certain lawsuits and claims arising in the normal
course of business. In the opinion of management, uninsured losses, if any,
resulting from the ultimate resolution of these matters will not have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
9. FORMATION OF NEW COMPANY:
In October 1996, the Company's shareholder, along with an investment firm,
formed U.S. Legal Support, Inc. ("USLS") to create a nationwide a leading
provider of legal support and staffing services to law firms, insurance
providers and major corporations. Effective January 1, 1997, the Company's
stock was acquired by USLS.
F-37
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
U.S. Legal Support, Inc.:
We have audited the accompanying balance sheet of Klein, Bury & Associates,
Inc. as of September 30, 1995 and December 31, 1996, and the related
statements of income, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of 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 financial position of Klein, Bury & Associates,
Inc. as of September 30, 1995 and December 31, 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Houston, Texas
August 15, 1997
F-38
<PAGE>
KLEIN, BURY & ASSOCIATES, INC.
BALANCE SHEET
SEPTEMBER 30, 1995 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1996
ASSETS ------------- ------------
<S> <C> <C>
Current assets:
Cash.............................................. $ 315,437
Accounts receivable, net of allowance of $216,619
and $235,823, respectively....................... $1,908,325 2,120,265
---------- -----------
Total current assets............................ 1,908,325 2,435,702
Property and equipment, net......................... 61,278 30,411
Other assets........................................ 4,405 4,405
---------- -----------
Total assets.................................... $1,974,008 $ 2,470,518
========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable.................................. $ 843,577 $ 1,167,787
Accrued liabilities............................... 4,296 4,638
Income taxes payable.............................. 140,482
Deferred income taxes............................. 425,407 358,474
---------- -----------
Total current liabilities....................... 1,273,280 1,671,381
Deferred income taxes............................... 25,605 26,507
Commitments and contingencies
Stockholders' equity:
Common stock, $1 par value, 500 shares authorized,
issued and outstanding........................... 500 500
Additional paid-in capital........................ 30,000 30,000
Retained earnings................................. 644,623 742,130
---------- -----------
Total stockholders' equity...................... 675,123 772,630
---------- -----------
Total liabilities and stockholders' equity...... $1,974,008 $ 2,470,518
========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-39
<PAGE>
KLEIN, BURY & ASSOCIATES, INC.
STATEMENT OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1996
------------- ------------
<S> <C> <C>
Revenues............................................. $7,302,368 $8,525,386
Cost of services..................................... 4,837,854 5,586,241
---------- ----------
Gross profit....................................... 2,464,514 2,939,145
Selling, general and administrative expenses......... 2,263,112 2,779,564
Depreciation......................................... 16,343 15,367
---------- ----------
Income before income taxes........................... 185,059 144,214
Income taxes......................................... 76,901 55,065
---------- ----------
Net income......................................... $ 108,158 $ 89,149
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-40
<PAGE>
KLEIN, BURY & ASSOCIATES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- -------- -------------
<S> <C> <C> <C> <C>
October 1, 1994...................... $500 $536,465 $536,965
Capital contributions................ $ 30,000 30,000
Net income........................... 108,158 108,158
---- -------- -------- --------
September 30, 1995................... 500 30,000 644,623 675,123
Net income, three months ended
December 31, 1995................... 8,358 8,358
---- -------- -------- --------
December 31, 1995.................... 500 30,000 652,981 683,481
Net income........................... 89,149 89,149
---- -------- -------- --------
December 31, 1996.................... $500 $ 30,000 $742,130 $772,630
==== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-41
<PAGE>
KLEIN, BURY & ASSOCIATES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1996
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 108,158 $ 89,149
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation...................................... 16,343 15,367
Provision for doubtful accounts................... 86,801 64,366
Deferred tax expense.............................. 76,901 92,528
Changes in operating assets and liabilities:
Accounts receivable.............................. (453,406) (428,690)
Accounts payable................................. 12,451 244,132
Accrued liabilities.............................. 141,336 (63,740)
--------- ---------
Net cash provided by operating activities..... (11,416) 13,112
--------- ---------
Cash flows from investing activities:
Capital expenditures............................... (2,261)
--------- ---------
Net cash used in investing activities......... -- (2,261)
--------- ---------
Cash flows from financing activities:
Capital contribution............................... 30,000
Cash overdraft..................................... (18,616)
--------- ---------
Net cash provided by financing activities..... 11,384 --
--------- ---------
Increase (decrease) in cash......................... (32) 10,851
Cash at beginning of year........................... 32 304,586
--------- ---------
Cash at end of year................................. $ -- $ 315,437
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-42
<PAGE>
KLEIN, BURY & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS:
Klein, Bury & Associates, Inc., (the "Company"), a Florida corporation, was
founded in 1977 as a court reporting business based in Miami, Florida, with
four additional offices in Florida. The Company provides general court
reporting services, the transcription of spoken legal testimony into the
written word, and has particular expertise in handling cases involving medical
malpractice.
The Company changed its fiscal year end for reporting purposes from
September 30 to December 31. The results of operations for the three months
ended December 31, 1996 have been included in the statement of stockholders'
equity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 amount 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
reporting period. Actual results could differ from those estimates.
Cash
Cash is maintained at one bank. The balances, at times, may exceed federally
insured amounts, although management believes that risk of loss is minimal.
Property and Equipment
Property and equipment is recorded at cost and is depreciated on the
straight-line basis over the estimated useful lives of the assets.
Expenditures for improvements that extend the life of such assets are
capitalized while maintenance and repairs are charged to expense as incurred.
When property and equipment is retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the related accounts and any
resulting gain or loss is included in the statement of income.
Revenue Recognition
The Company recognizes revenue as the documents or records are delivered to
its customers. An allowance is provided for anticipated bad debts, based
primarily on historical experience and current estimates.
Concentration of Credit Risk
The Company grants credit to various companies primarily in the legal and
insurance industries which may be affected by economic or other external
conditions. The Company maintains allowances for potential credit losses, and
such losses have been within management's expectations.
Income Taxes
Deferred income taxes are provided for the accumulated temporary differences
in the bases of assets and liabilities for financial reporting and income tax
purposes using enacted tax rates and laws in effect in the years in which the
differences are expected to reverse.
F-43
<PAGE>
KLEIN, BURY & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
USEFUL LIVES 1995 1996
------------ ------------- ------------
<S> <C> <C> <C>
Leasehold improvements.......... 5 years $ 26,085 $ 26,085
Furniture, fixtures and
equipment...................... 5 to 7 years 116,393 118,654
-------- ---------
142,478 144,739
Less accumulated depreciation... (81,200) (114,328)
-------- ---------
$ 61,278 $ 30,411
======== =========
</TABLE>
4. INCOME TAXES:
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1996
------------- ------------
<S> <C> <C>
Current........................................ $(37,463)
Deferred....................................... $76,901 92,528
------- --------
$76,901 $ 55,065
======= ========
</TABLE>
A reconciliation of the differences between income taxes computed at the
U.S. federal statutory rate of 34% and the Company's reported provision for
income taxes follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1996
------------- ------------
<S> <C> <C>
Income tax provision at statutory rate....... $ 62,920 $ 49,033
State tax provision, net of federal income
tax benefit................................. 6,847 5,336
Nondeductible expenses and other............. 7,134 696
-------- --------
$ 76,901 $ 55,065
======== ========
</TABLE>
The components of deferred income tax assets and liabilities were as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1996
------------- ------------
<S> <C> <C>
Deferred tax liabilities:
Conversion from accrual to cash basis........ $ 425,407 $ 358,474
Property and equipment....................... 25,605 26,507
--------- ---------
$ 451,012 $ 384,981
========= =========
</TABLE>
5. RELATED-PARTY TRANSACTIONS:
During the years ended September 30, 1995 and December 31, 1996, the Company
incurred rent expense of approximately $41,000 and $45,600, respectively, for
office space leased from a partnership in which an interest is held by the
Company's president and majority shareholder.
F-44
<PAGE>
KLEIN, BURY & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. COMMITMENTS AND CONTINGENCIES:
Independent Contractors
The Company, like most court reporting firms, provides court reporting
services through the use of independent contractors, who are not employees of
the Company. The Company does not pay or withhold federal or state employment
taxes with respect to these independent contractors. Independent court
reporters are responsible for acquiring and operating their court reporting
equipment. The use of independent contractors as court reporters is consistent
with industry practice and allows the Company to control costs. In the event
the Company were required to treat these court reporters as its employees, the
Company could become responsible for the taxes required to be withheld and
could incur additional costs associated with employee benefits and other
employee costs.
Operating Leases
Aggregate minimum rental commitments under noncancelable operating leases
with lease terms in excess of one year are as follows:
<TABLE>
<S> <C>
1997.......................................................... $ 281,398
1998.......................................................... 244,222
1999.......................................................... 225,855
2000.......................................................... 232,702
2001.......................................................... 177,381
----------
$1,161,558
==========
</TABLE>
Rent expense for the years ended September 30, 1995 and December 31, 1996
totaled approximately $240,000 and $276,000, respectively. Certain rental
agreements provide for additional rent based on the lessors' operating
expenses.
Legal Proceedings
The Company is involved in certain lawsuits and claims arising in the normal
course of business. In the opinion of management, uninsured losses, if any,
resulting from the ultimate resolution of these matters will not have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
7. SALE OF THE COMPANY:
In January 1997, the Company's stock was acquired by U.S. Legal Support,
Inc.
F-45
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
U.S. Legal Support, Inc.:
We have audited the accompanying balance sheet of G & G Court Reporters (a
Sole Proprietorship) as of December 31, 1995 and 1996, and the related
statements of income, owner's equity and cash flows for the years then ended.
These financial statements are the responsibility of 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 financial position of G & G Court Reporters as
of December 31, 1995 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Houston, Texas
September 4, 1997
F-46
<PAGE>
G & G COURT REPORTERS
BALANCE SHEET
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
ASSETS ------------ ------------
<S> <C> <C>
Current assets:
Accounts receivable, net of allowance of $15,500 in
1995 and 1996..................................... $281,925 $251,103
-------- --------
Total current assets............................. 281,925 251,103
Property and equipment, net.......................... 1,693 1,403
-------- --------
Total assets..................................... $283,618 $252,506
======== ========
<CAPTION>
LIABILITIES AND OWNER'S EQUITY
<S> <C> <C>
Current liabilities:
Cash overdraft..................................... $ 23,193 $ 709
Accounts payable................................... 4,218 3,163
Accrued liabilities................................ 4,451 11,754
-------- --------
Total current liabilities........................ 31,862 15,626
Commitments and contingencies
Owner's equity....................................... 251,756 236,880
-------- --------
Total liabilities and owner's equity............. $283,618 $252,506
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-47
<PAGE>
G & G COURT REPORTERS
STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE SIX
MONTHS ENDED JUNE 30, 1996 AND THE PERIOD FROM
JANUARY 1, 1997 THROUGH DATE OF ACQUISITION, MAY 19, 1997
<TABLE>
<CAPTION>
JANUARY 1,
1997
THROUGH
DECEMBER 31, DECEMBER 31, JUNE 30, MAY 19,
1995 1996 1996 1997
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.................... $1,544,379 $1,517,377 $745,412 $543,282
Cost of services............ 813,646 837,774 412,850 321,716
---------- ---------- -------- --------
Gross profit.............. 730,733 679,603 332,562 221,566
Selling, general and
administrative expenses.... 281,725 286,861 138,900 98,112
Depreciation................ 318 290 145 145
---------- ---------- -------- --------
Net income................ $ 448,690 $ 392,452 $193,517 $123,309
========== ========== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-48
<PAGE>
G & G COURT REPORTERS
STATEMENT OF OWNER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE PERIOD FROM
JANUARY 1, 1997 THROUGH DATE OF ACQUISITION, MAY 19, 1997
<TABLE>
<S> <C>
Balance, January 1, 1995............................................. $ 265,153
Distributions........................................................ (462,087)
Net income........................................................... 448,690
---------
Balance, December 31, 1995........................................... 251,756
Distributions........................................................ (407,328)
Net income........................................................... 392,452
---------
Balance, December 31, 1996........................................... 236,880
Distributions (unaudited)............................................ (199,594)
Net income (unaudited)............................................... 123,309
---------
Balance, May 19, 1997 (unaudited).................................... $ 160,595
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-49
<PAGE>
G & G COURT REPORTERS
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND THE PERIOD FROM JANUARY 1, 1997 THROUGH
DATE OF ACQUISITION, MAY 19, 1997
<TABLE>
<CAPTION>
JANUARY 1,
1997
DECEMBER 31, DECEMBER 31, JUNE 30, THROUGH MAY
1995 1996 1996 19, 1997
------------ ------------ ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income.................. $ 448,690 $ 392,452 $ 193,517 $ 123,309
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation............... 318 290 145 145
Changes in operating assets
and liabilities:
Accounts receivable....... 22,479 30,822 73,191 29,636
Accounts payable and
accrued liabilities...... 4,203 6,248 4,619 45,795
--------- --------- --------- ---------
Net cash provided by
operating activities.. 475,690 429,812 271,472 198,885
--------- --------- --------- ---------
Cash flows from financing
activities:
Cash overdraft.............. (13,603) (22,484) 9,670 709
Distributions............... (462,087) (407,328) (281,142) (199,594)
--------- --------- --------- ---------
Net cash used in
financing activities.. (475,690) (429,812) (271,472) (198,885)
--------- --------- --------- ---------
Change in cash............... -- -- -- --
Cash at beginning of period.. -- -- -- --
--------- --------- --------- ---------
Cash at end of period........ $ -- $ -- $ -- $ --
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-50
<PAGE>
G & G COURT REPORTERS
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS:
G & G Court Reporters, a Sole Proprietorship (the "Company"), operates in
California, providing litigation support services primarily for insurance
companies, law firms and large corporations. The Company's primary business is
court reporting, the transcription of spoken legal testimony into the written
word.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Preparation of Interim Financial Statements
The unaudited financial statements for the periods ended June 30, 1996 and
May 19, 1997 reflect all adjustments that are, in the opinion of management,
necessary for a fair presentation of the results for the periods. Such
adjustments are considered to be of a normal recurring nature unless otherwise
identified.
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 amount 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
reporting period. Actual results could differ from those estimates.
Cash
Cash is maintained primarily in one bank. The balances, at times, may exceed
federally insured amounts, although management believes that risk of loss is
minimal.
Property and Equipment
Property and equipment is recorded at cost and depreciated on the straight-
line basis over the estimated useful lives of the assets. Expenditures for
improvements that extend the life of such assets are capitalized while
maintenance and repairs are charged to expense as incurred. When property and
equipment is retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the related accounts and any resulting gain or
loss is included in the statements of income.
Income Taxes
The Company is organized as a sole proprietorship. No provision for federal
income taxes is provided in these financial statements because the Company's
income is included in the owner's separate income tax return.
Revenue Recognition
The Company recognizes revenue as the documents or records are delivered to
its customers. An allowance is provided for anticipated bad debts, based
primarily on historical experience and current estimates.
Concentration of Credit Risk
The Company grants credit to various companies primarily in the legal and
insurance industries which may be affected by economic or other external
conditions. The Company maintains allowances for potential credit losses, and
such losses have been within management's expectations.
F-51
<PAGE>
G & G COURT REPORTERS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
USEFUL LIVES 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Furniture, fixtures and
equipment...................... 5 to 7 years $ 55,700 $ 51,181
Less accumulated depreciation... (54,007) (49,778)
-------- --------
$ 1,693 $ 1,403
======== ========
</TABLE>
4. COMMITMENTS AND CONTINGENCIES:
Independent Contractors
The Company, like most court reporting firms, provides court reporting
services through the use of independent contractors, who are not employees of
the Company. The Company does not pay or withhold federal or state employment
taxes with respect to these independent contractors. Independent court
reporters are responsible for acquiring and operating their court reporting
equipment. The use of independent contractors as court reporters is consistent
with industry practice and allows the Company to control costs. In the event
the Company were required to treat these court reporters as its employees, the
Company could become responsible for the taxes required to be withheld and
could incur additional costs associated with employee benefits and other
employee costs.
Operating Leases
Rent expense totaled approximately $59,000 and $56,000 for the years ended
December 31, 1995 and 1996, respectively. The Company's office lease expired
in June 1997. The Company entered a new office lease in June 1997 expiring
July 2002 with annual rent of approximately $44,000.
Legal Proceedings
The Company is involved in certain lawsuits and claims arising in the normal
course of business. In the opinion of management, uninsured losses, if any,
resulting from the ultimate resolution of these matters will not have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
5. SALE OF THE BUSINESS:
On May 19, 1997, certain of the Company's net assets were sold to U.S. Legal
Support, Inc.
F-52
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
U.S. Legal Support, Inc.:
We have audited the accompanying balance sheet of San Francisco Reporting
Service (a California Partnership) as of December 31, 1996, and the related
statements of income, partners' capital and cash flows for the year then
ended. These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of San Francisco Reporting
Service as of 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.
COOPERS & LYBRAND L.L.P.
Houston, Texas
September 19, 1997
F-53
<PAGE>
SAN FRANCISCO REPORTING SERVICE
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Accounts receivable, net of allowance of $4,000...................... $112,772
Prepaid expenses and other current assets............................ 5,296
--------
Total current assets............................................... 118,068
Property and equipment, net............................................ 42,939
--------
Total assets....................................................... $161,007
========
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
<S> <C>
Current liabilities:
Note payable to bank................................................. $ 21,195
Accounts payable, including $11,000 due related parties.............. 76,703
Cash overdraft....................................................... 28,709
Current maturities of capital lease obligation....................... 2,477
--------
Total current liabilities.......................................... 129,084
Capital lease obligation............................................... 3,580
Commitments and contingencies
Partners' capital...................................................... 28,343
--------
Total liabilities and partners' capital............................ $161,007
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-54
<PAGE>
SAN FRANCISCO REPORTING SERVICE
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE
SIX MONTHS ENDED JUNE 30, 1996 AND FOR THE PERIOD FROM
JANUARY 1, 1997 THROUGH DATE OF ACQUISITION, MAY 14, 1997
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, MAY 14,
1996 1996 1997
------------ ----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues................................. $1,139,538 $586,754 $467,424
Cost of services......................... 745,336 406,321 289,842
---------- -------- --------
Gross profit........................... 394,202 180,433 177,582
Selling, general and administrative
expenses................................ 356,284 168,696 141,682
Depreciation............................. 11,800 5,900 4,717
---------- -------- --------
Operating income....................... 26,118 5,837 31,183
Interest expense......................... 4,993 3,571 2,344
---------- -------- --------
Net income............................. $ 21,125 $ 2,266 $ 28,839
========== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-55
<PAGE>
SAN FRANCISCO REPORTING SERVICE
STATEMENT OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR THE
PERIOD FROM JANUARY 1, 1997 THROUGH DATE OF ACQUISITION, MAY 14, 1997
<TABLE>
<S> <C>
Balance as of January 1, 1996......................................... $ 26,218
Distributions......................................................... (19,000)
Net income............................................................ 21,125
--------
Balance as of December 31, 1996....................................... 28,343
Distributions (unaudited)............................................. (6,000)
Net income (unaudited)................................................ 28,839
--------
Balance as of May 14, 1997 (unaudited)................................ $ 51,182
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-56
<PAGE>
SAN FRANCISCO REPORTING SERVICE
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE
SIX MONTHS ENDED JUNE 30, 1996 AND FOR THE PERIOD
FROM JANUARY 1, 1997 THROUGH DATE OF ACQUISITION, MAY 14, 1997
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, MAY 14,
1996 1996 1997
------------ ----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................... $ 21,125 $ 2,266 $ 28,839
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation............................ 11,800 5,900 4,717
Provision for doubtful accounts......... 2,000
Changes in operating assets and
liabilities:
Accounts receivable.................... 63,171 19,543 (84,771)
Prepaid expenses and other current
assets................................ (176) (133) (3,466)
Accounts payable....................... (47,687) (12,903) 67,463
-------- -------- --------
Net cash provided by operating
activities......................... 50,233 14,673 12,782
-------- -------- --------
Cash flows from investing activities:
Capital expenditures..................... (18,573) (18,573) --
-------- -------- --------
Net cash used in investing
activities......................... (18,573) (18,573) --
-------- -------- --------
Cash flows from financing activities:
Change in note payable to bank........... (39,412) 15,002 42,230
Payments on capital lease obligation..... (1,660) (536) (994)
Distributions to partners................ (19,000) (14,000) (6,000)
Cash overdraft........................... 28,412 3,434 (28,709)
-------- -------- --------
Net cash provided by (used in)
financing activities............... (31,660) 3,900 6,527
-------- -------- --------
Increase in cash.......................... -- -- 19,309
Cash at beginning of period............... -- -- --
-------- -------- --------
Cash at end of period..................... $ -- $ -- $ 19,309
======== ======== ========
Cash paid for interest.................... $ 4,993 $3,571 $ 2,344
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-57
<PAGE>
SAN FRANCISCO REPORTING SERVICE
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS:
San Francisco Reporting Service (the "Company"), a California partnership,
operates in California, providing litigation support services primarily for
insurance companies, law firms and large corporations. The Company's primary
business is court reporting, the transcription of spoken legal testimony into
the written word. An additional component of the Company's litigation support
services is the retrieval of records used in conjunction with the
investigation and litigation of legal proceedings. The Company also provides
copying services. On May 14, 1997, certain of the Company's net assets were
sold to U.S. Legal Support, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Preparation of Interim Financial Statements
The financial statements for the six-month period ended June 30, 1996, and
for the period of January 1, 1997, through date of acquisition, May 14, 1997,
reflect all adjustments that are, in the opinion of management, necessary for
a fair presentation of the results for the periods. Such adjustments are
considered to be of a normal recurring nature unless otherwise identified.
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 amount 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
reporting period. Actual results could differ from those estimates.
Cash
Cash is maintained in one bank. The balances, at times, may exceed federally
insured amounts although management believes the risk of loss is minimal.
Property and Equipment
Property and equipment is recorded at cost and depreciated on the straight-
line basis over the estimated useful lives of the assets. Expenditures for
improvements that extend the life of such assets are capitalized, while
maintenance and repairs are charged to expense as incurred. When property and
equipment is retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the related accounts and any resulting gain or
loss is included in the statement of operations.
Revenue Recognition
The Company recognizes revenue as the documents or records are delivered to
its customers. An allowance is provided for anticipated bad debts, based
primarily on historical experience and current estimates.
Concentration of Credit Risk
The Company grants credit to various companies primarily in the legal and
insurance industries which may be affected by economic or other external
conditions. The Company maintains allowances for potential credit losses, and
such losses have been within management's expectations.
Income Taxes
No provision for federal income taxes is provided in these financial
statements, because the Company's income or loss is included in the partners'
separate income tax returns.
F-58
<PAGE>
SAN FRANCISCO REPORTING SERVICE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31, 1996:
<TABLE>
<CAPTION>
USEFUL LIVES
------------
<S> <C> <C>
Furniture, fixtures and equipment.................. 5 to 7 years $ 60,603
Less accumulated depreciation...................... (17,664)
--------
$ 42,939
========
</TABLE>
4. NOTE PAYABLE TO BANK:
At December 31, 1996, the note payable to bank represented amounts borrowed
under a $75,000 revolving line of credit agreement with interest at 3.75%
above the bank's prime rate (8.25% at December 31, 1996), maturing in December
1997. The note was guaranteed by the partners. The note was repaid in May
1997.
5. CAPITAL LEASE OBLIGATION:
In 1996, the Company acquired office equipment for $7,717 financed by a
long-term capital lease. Future minimum lease payments under the capital lease
are as follows:
<TABLE>
<S> <C>
1997.............................................................. $3,116
1998.............................................................. 3,116
1999.............................................................. 779
------
7,011
Less: Amount representing interest................................ (954)
------
Present value of net minimum capital lease payments............... 6,057
Less: Current portion............................................. (2,477)
------
Long-term portion................................................. $3,580
======
</TABLE>
6 . COMMITMENTS AND CONTINGENCIES:
Independent Contractors
The Company, like most court reporting firms, provides court reporting
services through the use of independent contractors, who are not employees of
the Company. The Company does not pay or withhold federal or state employment
taxes with respect to these independent contractors. Independent court
reporters are responsible for acquiring and operating their court reporting
equipment. The use of independent contractors as court reporters is consistent
with industry practice and allows the Company to control costs. In the event
the Company were required to treat these court reporters as its employees, the
Company could become responsible for the taxes required to be withheld and
could incur additional costs associated with employee benefits and other
employee costs.
F-59
<PAGE>
SAN FRANCISCO REPORTING SERVICE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Operating Leases
Aggregate minimum rental commitments under noncancelable operating leases
and negotiated renewal options with lease terms in excess of one year as of
December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997............................................................. $ 31,464
1998............................................................. 36,156
1999............................................................. 37,326
2000............................................................. 28,602
--------
$133,548
========
</TABLE>
Rent expense totaled approximately $30,000 for the year ended December 31,
1996.
7. RELATED PARTY TRANSACTIONS:
For the year ended December 31, 1996, the Company paid the partners
approximately $95,000 for court reporting services. The balance due to the
partners for court reporting services at December 31, 1996, of approximately
$11,000 was included in accounts payable.
F-60
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
U.S. Legal Support, Inc.:
We have audited the accompanying balance sheet of Legal Enterprise, Inc. as
of December 31, 1995 and 1996, and the related statements of income,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of 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 financial position of Legal Enterprise, Inc. as
of December 31, 1995 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Houston, Texas
September 5, 1997
F-61
<PAGE>
LEGAL ENTERPRISE, INC.
BALANCE SHEET
DECEMBER 31, 1995 AND 1996 AND JUNE 30, 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................... $ $ 27,958 $ 47,368
Accounts receivable, net of allowance
of $9,640, $20,960 and $18,086,
respectively.......................... 339,414 513,365 528,039
Prepaid expenses and other current
assets................................ 11,808 15,536 13,860
-------- -------- --------
Total current assets................. 351,222 556,859 589,267
Property and equipment, net.............. 161,386 193,559 252,301
Other assets............................. 13,492 14,351 14,376
-------- -------- --------
Total assets......................... $526,100 $764,769 $855,944
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................... $ 48,494 $ 68,193 $ 50,102
Accrued liabilities.................... 20,959 43,084 56,606
Notes payable--shareholder............. 354,270 411,315 345,319
-------- -------- --------
Total current liabilities............ 423,723 522,592 452,027
Notes payable--shareholder............... 38,615
Commitments and contingencies
Stockholders' equity:
Common stock, $1 par value, 75,000
shares authorized, 2,000 shares issued
and outstanding....................... 2,000 2,000 2,000
Paid-in-capital........................ 48,000 48,000 48,000
Retained earnings...................... 52,377 192,177 315,302
-------- -------- --------
Total stockholders' equity........... 102,377 242,177 365,302
-------- -------- --------
Total liabilities and stockholders'
equity............................ $526,100 $764,769 $855,944
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-62
<PAGE>
LEGAL ENTERPRISE, INC.
STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE SIX MONTHS ENDED JUNE
30, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1996 1997
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.................... $2,756,466 $3,706,782 $1,718,985 $2,231,106
Cost of services............ 1,785,906 2,292,138 1,076,707 1,508,737
---------- ---------- ---------- ----------
Gross profit............ 970,560 1,414,644 642,278 722,369
Selling, general and
administrative expenses.... 830,261 1,206,578 554,495 559,412
Depreciation................ 39,826 40,579 16,487 25,000
---------- ---------- ---------- ----------
Operating income........ 100,473 167,487 71,296 137,957
Interest expense............ 10,767 27,687 14,888 14,832
---------- ---------- ---------- ----------
Net income.............. $ 89,706 $ 139,800 $ 56,408 $ 123,125
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-63
<PAGE>
LEGAL ENTERPRISE, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PAID- TOTAL
COMMON IN- RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ------- -------- -------------
<S> <C> <C> <C> <C>
Balance as of January 1, 1994.......... $2,000 $48,000 $(37,329) $ 12,671
Net income............................. 89,706 89,706
------ ------- -------- --------
Balance as of December 31, 1995........ 2,000 48,000 52,377 102,377
Net income............................. 139,800 139,800
------ ------- -------- --------
Balance as of December 31, 1996........ 2,000 48,000 192,177 242,177
Net income (unaudited)................. 123,125 123,125
------ ------- -------- --------
Balance as of June 30, 1997
(unaudited)........................... $2,000 $48,000 $315,302 $365,302
====== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-64
<PAGE>
LEGAL ENTERPRISE, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1996 1997
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income................ $ 89,706 $ 139,800 $ 56,408 $123,125
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation............ 39,826 40,579 16,487 25,000
Provision for doubtful
accounts............... 11,320 11,320 (2,874)
Changes in operating
assets and liabilities:
Accounts receivable... (166,197) (185,271) (93,382) (11,800)
Prepaid expenses and
other current
assets............... (915) (3,728) (3,750) 1,676
Accounts payable and
accrued liabilities.. (4,460) 82,935 65,148 2,667
Other assets.......... (13,392) (859) (25)
--------- --------- -------- --------
Net cash provided by
(used in) operating
activities......... (55,432) 84,776 52,231 137,769
--------- --------- -------- --------
Cash flows from investing
activities:
Capital expenditures...... (64,904) (72,752) (22,700) (83,742)
--------- --------- -------- --------
Net cash used in
investing
activities......... (64,904) (72,752) (22,700) (83,742)
--------- --------- -------- --------
Cash flows from financing
activities:
Principal payments on
notes payable--
shareholder.............. (62,037) (43,326) (81,002)
Proceeds from notes
payable--shareholder..... 95,733 95,000 46,385
Other..................... 17,029 (17,029) 13,795
--------- --------- -------- --------
Net cash provided by
(used in) financing
activities......... 112,762 15,934 (29,531) (34,617)
--------- --------- -------- --------
Increase (decrease) in
cash....................... (7,574) 27,958 -- 19,410
Cash at beginning of
period..................... 7,574 -- -- 27,958
--------- --------- -------- --------
Cash at end of period....... $ -- $ 27,958 $ -- $ 47,368
========= ========= ======== ========
Cash paid for interest...... $ 10,767 $ 3,605 $ 2,847 $ 7,596
========= ========= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-65
<PAGE>
LEGAL ENTERPRISE, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS:
Legal Enterprise, Inc. (the "Company"), a California corporation, operates
in California offices, providing litigation support services primarily for
insurance companies, law firms and large corporations. The Company's primary
business is court reporting, the transcription of spoken legal testimony into
the written word. An additional component of the Company's litigation support
services is the retrieval of records used in conjunction with the
investigation and litigation of legal proceedings. The Company also provides
copying services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Preparation of Interim Financial Statements
The financial statements for the six-month periods ended June 30, 1996 and
1997 reflect all adjustments that are, in the opinion of management, necessary
for a fair presentation of the results for the periods. Such adjustments are
considered to be of a normal recurring nature unless otherwise identified.
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 amount 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
reporting period. Actual results could differ from those estimates.
Cash
Cash is maintained in one bank. The balances, at times, may exceed federally
insured amounts although management believes the risk of loss is minimal.
Property and Equipment
Property and equipment is recorded at cost and depreciated on the straight-
line basis over the estimated useful lives of the assets. Expenditures for
improvements that extend the life of such assets are capitalized while
maintenance and repairs are charged to expense as incurred. When property and
equipment is retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the related accounts and any resulting gain or
loss is included in the statements of operations.
Revenue Recognition
The Company recognizes revenue as the documents or records are delivered to
its customers. An allowance is provided for anticipated bad debts, based
primarily on historical experience and current estimates.
Concentration of Credit Risk
The Company grants credit to various companies primarily in the legal and
insurance industries which may be affected by economic or other external
conditions. The Company maintains allowances for potential credit losses, and
such losses have been within management's expectations.
Income Taxes
The Company is an S corporation under the Internal Revenue Code and thus for
federal tax purposes is not considered to be a tax paying entity but instead
taxes are paid at the shareholder level. The provision for income taxes
consists of California state income taxes.
F-66
<PAGE>
LEGAL ENTERPRISE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
USEFUL LIVES 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Furniture, fixtures and equipment... 5 to 7 years $218,213 $283,592
Less accumulated depreciation....... (56,827) (90,033)
-------- --------
$161,386 $193,559
======== ========
</TABLE>
4. NOTES PAYABLE--SHAREHOLDER:
At December 31, 1996, the note payable--shareholder is due on demand. The
interest rate on the loan is prime rate plus 1%.
In May 1997, the Company obtained an additional loan from a shareholder in
the amount of $46,385 related to the purchase of certain equipment which is
pledged as collateral for the loan. The loan bears interest at 9.5% and is
payable in monthly principal and interest installments to May 2002.
5. COMMITMENTS AND CONTINGENCIES:
Operating Leases
Aggregate minimum rental commitments under noncancelable operating leases
with lease terms in excess of one year are as follows:
<TABLE>
<S> <C>
1997.......................................... $101,016
1998.......................................... 101,016
1999.......................................... 101,016
2000.......................................... 101,016
2001.......................................... 53,495
--------
$457,559
========
</TABLE>
Rent expense totaled approximately $100,000 for the years ended December 31,
1995 and 1996. Certain rental agreements provide for additional rent based on
the lessors' operating expenses.
6. EMPLOYEE BENEFITS:
The Company has adopted a contributory profit sharing plan pursuant to
Internal Revenue Code Section 401(k) covering substantially all employees.
Each year the Company determines, at its discretion, the amount of matching
contributions. Contributions charged to operations was $7,327 for the year
ended December 31, 1996. There were no contributions charged to operations for
the year ended December 31, 1995.
7. SALE OF THE BUSINESS:
In August 1997, certain of the Company's net assets were sold to U.S. Legal
Support, Inc.
F-67
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
U.S. Legal Support, Inc.:
We have audited the accompanying balance sheet of Elaine P. Dine, Inc. as of
March 31, 1996 and 1997, and the related statements of income, changes in
stockholder's equity and cash flows for the years then ended. These financial
statements are the responsibility of 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 financial position of Elaine P. Dine, Inc. as of
March 31, 1996 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Houston, Texas
August 29, 1997
F-68
<PAGE>
ELAINE P. DINE, INC.
BALANCE SHEET
MARCH 31, 1996 AND 1997 AND JUNE 30, 1997
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, JUNE 30,
1996 1997 1997
--------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................... $245,394 $ 336,321 $ 125,648
Accounts receivable......................... 295,907 1,227,258 1,075,126
Prepaid expenses and other current assets... 5,893
-------- ---------- ----------
Total current assets...................... 547,194 1,563,579 1,200,774
Property and equipment, net................... 125,821 123,044 112,195
Other assets.................................. 302 74,803 263,083
-------- ---------- ----------
Total assets.............................. $673,317 $1,761,426 $1,576,052
======== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable............................ $165,383 $ 529,871 $ 550,846
Accrued liabilities......................... 45,037 158,059 96,921
-------- ---------- ----------
Total current liabilities................. 210,420 687,930 647,767
Commitments and contingencies
Stockholder's equity
Capital stock, no par value; 11,612 shares
authorized issued and outstanding.......... 13,112 13,112 13,112
Retained earnings........................... 449,785 1,060,384 915,173
-------- ---------- ----------
Total stockholder's equity................ 462,897 1,073,496 928,285
-------- ---------- ----------
Total liabilities and stockholder's
equity................................. $673,317 $1,761,426 $1,576,052
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-69
<PAGE>
ELAINE P. DINE, INC.
STATEMENT OF INCOME
FOR THE YEARS ENDED MARCH 31, 1996 AND 1997 ANDTHE THREE MONTHS ENDED JUNE 30,
1996 AND 1997
<TABLE>
<CAPTION>
MARCH 31, 1996 MARCH 31, 1997 JUNE 30, 1996 JUNE 30, 1997
-------------- -------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues................ $3,503,580 $4,657,760 $694,650 $1,182,334
Cost of services........ 2,030,058 2,640,374 357,959 635,942
---------- ---------- -------- ----------
Gross profit........ 1,473,522 2,017,386 336,691 546,392
Selling, general and
administrative
expenses............... 1,210,636 1,120,540 153,380 210,923
Depreciation............ 52,183 26,461 10,628 10,849
---------- ---------- -------- ----------
Income before income
taxes.................. 210,703 870,385 172,683 324,620
State income taxes...... 22,621 96,563 18,539 33,089
---------- ---------- -------- ----------
Net income.......... $ 188,082 $ 773,822 $154,144 $ 291,531
========== ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-70
<PAGE>
ELAINE P. DINE, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED MARCH 31, 1996 AND 1997 ANDTHE THREE MONTHS ENDED JUNE 30,
1997
<TABLE>
<CAPTION>
TOTAL
CAPITAL RETAINED STOCKHOLDER'S
STOCK EARNINGS EQUITY
------- ---------- -------------
<S> <C> <C> <C>
Balance on April 1, 1995..................... $13,112 $ 458,534 $ 471,646
Distributions to stockholder................. (196,831) (196,831)
Net income................................... 188,082 188,082
------- ---------- ----------
Balance on March 31, 1996.................... 13,112 449,785 462,897
Distributions to stockholder................. (163,223) (163,223)
Net income................................... 773,822 773,822
------- ---------- ----------
Balance on March 31, 1997.................... 13,112 1,060,384 1,073,496
Distributions to stockholder (unaudited)..... (436,742) (436,742)
Net income (unaudited)....................... 291,531 291,531
------- ---------- ----------
Balance on June 30, 1997 (unaudited)......... $13,112 $ 915,173 $ 928,285
======= ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-71
<PAGE>
ELAINE P. DINE, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1996 AND 1997 AND THE THREE MONTHS ENDED JUNE 30,
1996 AND 1997
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, JUNE 30, JUNE 30,
1996 1997 1996 1997
--------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income..................... $ 188,082 $ 773,822 $ 154,144 $ 291,531
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation................. 52,183 26,461 10,628 10,849
Change in operating assets
and liabilities:
Accounts receivable........ 189,229 (931,351) 14,105 152,132
Other assets............... (5,195) (73,768) (73,468) (188,280)
Accounts payable........... 2,864 364,488 (165,383) 20,975
Accrued liabilities........ 14,018 113,022 (28,180) (61,138)
--------- --------- --------- ---------
Net cash provided by
(used in) operating
activities.............. 441,181 272,674 (88,154) 226,069
Cash flows from investing
activities:
Capital expenditures........... (1,758) (18,524) (6,367)
--------- --------- --------- ---------
Net cash used in
investing activities.... (1,758) (18,524) (6,367) --
--------- --------- --------- ---------
Cash flows from financing
activities:
Cash overdraft................. 20,385
Distributions to stockholder... (196,831) (163,223) (171,258) (436,742)
--------- --------- --------- ---------
Net cash used in
financing activities.... (196,831) (163,223) (150,873) (436,742)
--------- --------- --------- ---------
Increase (decrease) in cash and
cash equivalents................ 242,592 90,927 (245,394) (210,673)
Cash and cash equivalents at the
beginning of period............. 2,802 245,394 245,394 336,321
--------- --------- --------- ---------
Cash and cash equivalents at the
end of the period............... $ 245,394 $ 336,321 $ -- $ 125,648
========= ========= ========= =========
Cash paid for income taxes....... $ 26,860 $ 26,470 $ 6,615 $ 8,306
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-72
<PAGE>
ELAINE P. DINE, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS:
Elaine P. Dine, Inc. (the "Company"), a New York corporation, founded in
1983, provides litigation recruitment services primarily to law firms and
large corporations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Preparation of Interim Financial Statements
The unaudited financial statements for the periods ended June 30, 1996 and
1997 reflect all adjustments that are in the opinion of management, necessary
for a fair presentation of the results for the periods. Such adjustments are
considered to be of a normal recurring nature unless otherwise identified.
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 amount 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
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash is maintained in one bank. The balance, at times, may exceed federally
insured amounts although management believes the risk of loss is minimal. Cash
equivalents are short-term highly liquid investments with maturities of 90
days or less.
Property and Equipment
Property and equipment is recorded at cost and is depreciated on the
straight-line basis over the estimated useful lives of the assets. Art work
which is included in property and equipment is not depreciated. Expenditures
for improvements that extend the life of such assets are capitalized, while
maintenance and repairs are charged to expense as incurred. When property and
equipment is retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the related accounts and any resulting gain or
loss is included in operations.
Revenue Recognition
The Company records revenue when candidates accept a job offer. An allowance
is provided for bad debts, based primarily on historical experience and
current estimates.
Concentration of Credit Risk
The Company grants credit to primarily law firms and large corporations
which may be affected by economic or other external conditions. The Company
maintains allowances for potential credit losses and such losses have been
within management's expectations.
Income Taxes
The Company is an S corporation under Internal Revenue Code and thus for
federal tax purposes is not considered to be a tax paying entity. Income taxes
are paid at the shareholder level. Section 7519 of the Internal Revenue Code
requires prepayment of taxes if a company elects to pay taxes for a period
other than the required taxable calendar year. As the Company has elected not
to pay taxes based on a calendar year, it has deposited $74,201 for related
prepayments as of March 31, 1997. No such deposits were made as of March 31,
1996.
Deferred state income taxes are provided for the accumulated temporary
differences in the bases of assets and liabilities for financial reporting and
income tax purposes using enacted tax rates and laws in effect in the years in
which the differences are expected to reverse.
F-73
<PAGE>
ELAINE P. DINE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Employee Benefit Plan
The Company has adopted a contributory profit sharing plan pursuant to
Internal Revenue Code Section 401(k) covering substantially all employees.
Each year the Company determines, at its discretion, the amount of matching
contributions. Contributions charged to operations for the years ended March
31, 1996 and 1997 were $5,253 and $6,494, respectively.
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
USEFUL LIVES 1996 1997
------------ --------- ---------
<S> <C> <C> <C>
Furniture and fixtures.................... 5 to 7 years $ 289,076 $ 293,531
Art....................................... 46,925 52,085
Office equipment.......................... 5 to 7 years 107,549 121,619
Leasehold improvements.................... 5 years 531,436 531,436
--------- ---------
974,986 998,671
Less accumulated depreciation............. (849,165) (875,627)
--------- ---------
$ 125,821 $ 123,044
========= =========
</TABLE>
4. INCOME TAXES:
The provision for income taxes consisted of New York state income taxes as
follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1997
--------- ---------
<S> <C> <C>
Current.................................................. $28,514 $31,058
Deferred................................................. (5,893) 65,505
------- -------
$22,621 $96,563
======= =======
</TABLE>
Temporary differences arise primarily from the conversion from accrual to
cash basis of accounting and depreciation.
5. COMMITMENTS AND CONTINGENCIES:
Operating Leases
At March 31, 1997, aggregate minimum rental commitments under noncancelable
operating leases with lease terms in excess of one year are as follows:
<TABLE>
<S> <C>
1998.......................................... $ 82,223
1999.......................................... 82,223
2000.......................................... 54,815
--------
$219,261
========
</TABLE>
6. SALE OF THE BUSINESS:
In September 1997, certain of the Company's net assets were sold to U.S.
Legal Support, Inc.
F-74
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
U.S. Legal Support, Inc.:
We have audited the accompanying balance sheet of Burton House, Inc., d.b.a.
Ziskind, Greene, Watanabe, & Nason, as of December 31, 1995 and 1996, and the
related statements of operations, stockholder's deficit and cash flows for the
years then ended. These financial statements are the responsibility of
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 financial position of Burton House, Inc., d.b.a.
Ziskind, Greene, Watanabe & Nason, as of December 31, 1995 and 1996 and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Houston, Texas
September 5, 1997
F-75
<PAGE>
BURTON HOUSE, INC., D.B.A. ZISKIND, GREENE, WATANABE, & NASON
BALANCE SHEET
DECEMBER 31, 1995 AND 1996 AND JUNE 30, 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................... $ 1,936 $ 22,901 $116,514
Accounts receivable, net of allowance
of $0, $27,500 and $27,500,
respectively.......................... 92,000 18,750 240,792
Deferred income taxes.................. 16,170 3,941 2,730
Prepaid expenses and other current
assets................................ 800 800 800
--------- --------- --------
Total current assets................. 110,906 46,392 360,836
Other assets............................. 9,360 9,735 9,735
--------- --------- --------
Total assets......................... $ 120,266 $ 56,127 $370,571
========= ========= ========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable....................... $ 49,125 $ 19,698 $ 38,948
Accrued liabilities.................... 111,973 89,354 209,644
Income taxes payable................... 1,712 62,548
--------- --------- --------
Total current liabilities............ 161,098 110,764 311,140
Note payable to bank..................... 100,000 100,000 100,000
Commitments and contingencies
Stockholder's deficit:
Common stock, no par value, 1,000,000
shares authorized, 8,500 shares issued
and outstanding....................... 18,493 18,493 18,493
Accumulated deficit...................... (159,325) (173,130) (59,062)
--------- --------- --------
Total stockholder's deficit.......... (140,832) (154,637) (40,569)
--------- --------- --------
Total liabilities and stockholder's
deficit........................... $ 120,266 $ 56,127 $370,571
========= ========= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-76
<PAGE>
BURTON HOUSE, INC., D.B.A. ZISKIND, GREENE, WATANABE, & NASON
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 ANDTHE SIX MONTHS ENDED JUNE 30,
1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1996 1997
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.................... $1,442,257 $1,841,309 $1,026,686 $1,178,643
Cost of services............ 964,069 1,125,329 654,674 636,005
---------- ---------- ---------- ----------
Gross profit............ 478,188 715,980 372,012 542,638
Selling, general and
administrative expenses.... 588,039 704,785 348,282 357,393
---------- ---------- ---------- ----------
Operating income
(loss)................. (109,851) 11,195 23,730 185,245
Interest expense............ 7,644 10,259 5,438 7,419
---------- ---------- ---------- ----------
Income (loss) before income
taxes...................... (117,495) 936 18,292 177,826
Income tax expense
(benefit).................. (23,644) 14,741 7,317 63,758
---------- ---------- ---------- ----------
Net income (loss)....... $ (93,851) $ (13,805) $ 10,975 $ 114,068
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-77
<PAGE>
BURTON HOUSE, INC., D.B.A. ZISKIND, GREENE, WATANABE, & NASON
STATEMENT OF STOCKHOLDER'S DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THESIX MONTHS ENDED JUNE 30,
1997
<TABLE>
<CAPTION>
TOTAL
COMMON STOCKHOLDER'S
STOCK DEFICIT DEFICIT
------- --------- -------------
<S> <C> <C> <C>
Balance as of January 1, 1995................. $18,493 $ (65,474) $ (46,981)
Net loss...................................... (93,851) (93,851)
------- --------- ---------
Balance as of December 31, 1995............... 18,493 (159,325) (140,832)
Net loss...................................... (13,805) (13,805)
------- --------- ---------
Balance as of December 31, 1996............... 18,493 (173,130) (154,637)
Net income (unaudited)........................ 114,068 114,068
------- --------- ---------
Balance as of June 30, 1997 (unaudited)....... $18,493 $ (59,062) $ (40,569)
======= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-78
<PAGE>
BURTON HOUSE, INC., D.B.A. ZISKIND, GREENE, WATANABE, & NASON
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1996 1997
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss).......... $ (93,851) $(13,805) $ 10,975 $ 114,068
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Provision for doubtful
accounts................ 27,500
Changes in operating
assets and liabilities:
Accounts receivable.... 122,162 45,750 (50,000) (222,042)
Deferred income taxes.. (16,170) 12,229 1,211
Income taxes payable... (9,340) 1,712 60,836
Prepaid expenses and
other current assets.. (375)
Accounts payable and
accrued liabilities... (101,407) (52,046) 46,030 139,540
--------- -------- -------- ---------
Net cash provided by
(used in) operating
activities.......... (98,606) 20,965 7,005 93,613
Cash flows from investing
activities.................. -- -- -- --
Cash flows from financing
activities:
Proceeds from note
payable................... 100,000 -- -- --
--------- -------- -------- ---------
Increase in cash............. 1,394 20,965 7,005 93,613
Cash at beginning of period.. 542 1,936 1,936 22,901
--------- -------- -------- ---------
Cash at end of period........ $ 1,936 $ 22,901 $ 8,941 $ 116,514
========= ======== ======== =========
Cash paid for interest....... $ 7,644 $ 10,259 $ 5,438 $ 7,419
========= ======== ======== =========
Cash paid for taxes.......... $ 800 $ 800 $ 8,957
======== ======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-79
<PAGE>
BURTON HOUSE, INC., D.B.A. ZISKIND, GREENE, WATANABE, & NASON
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS:
Burton House, Inc., d.b.a. Ziskind, Greene, Watanabe, & Nason (the
"Company"), a California corporation, was founded in 1982 and operates in
California, providing placement services primarily for law firms and
corporations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Preparation of Interim Financial Statements
The unaudited financial statements for six months ended June 30, 1996 and
1997 reflect all adjustments that, in the opinion of management, are necessary
for a fair presentation of the results for the periods. Such adjustments are
considered to be of a normal recurring nature unless otherwise identified.
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 amount 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
reporting period. Actual results could differ from those estimates.
Cash
Cash is maintained in one bank. The balance, at times, may exceed federally
insured amounts although management believes the risk of loss is minimal.
Property and Equipment
Property and equipment is recorded at cost and is depreciated on the
straight-line basis over the estimated useful lives of the assets which was 5
years. Expenditures for improvements that extend the life of such assets are
capitalized while maintenance and repairs are charged to expense as incurred.
When property and equipment is retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the related accounts and any
resulting gain or loss is included in operations. All property and equipment
is fully depreciated.
Revenue Recognition
The Company recognizes revenue when candidates accept a job offer. An
allowance is provided for anticipated bad debts, based primarily on historical
experience and current estimates.
Concentration of Credit Risk
The Company grants credit primarily to law firms and major corporations
which may be affected by economic or other external conditions. The Company
maintains allowances for potential credit losses, and such losses have been
within management's expectations.
Federal Income Taxes
Deferred income taxes are provided for the accumulated temporary differences
in the bases of assets and liabilities for financial reporting and income tax
purposes using enacted tax rates and laws in effect in the years in which the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
F-80
<PAGE>
BURTON HOUSE, INC., D.B.A. ZISKIND, GREENE, WATANABE, & NASON
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
USEFUL LIVES 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Furniture and fixtures................ 5 years $ 47,429 $ 47,429
Office equipment...................... 5 years 33,734 34,234
Leasehold improvements................ 5 years 7,576 7,576
-------- --------
88,739 89,239
Less accumulated depreciation......... (88,739) (89,239)
-------- --------
$ -- $ --
======== ========
</TABLE>
4. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Commissions........................................ $ 89,075 $10,313
Compensation--stockholder.......................... 22,898 79,041
-------- -------
$111,973 $89,354
======== =======
</TABLE>
5. NOTE PAYABLE TO BANK:
The note payable to a bank under a line of credit provides borrowings up to
$100,000 with interest at the prime rate plus 1.50%, collateralized by the
assets of the Company. The line of credit has no set maturity date. Based on
the terms of the agreement, the principal balance of the line of credit must
be fully repaid in twenty-four equal consecutive monthly installments,
together with accrued monthly interest and any other charges, beginning
approximately 30 days after the bank terminates the Company's right to obtain
loans under the existing agreement. Until terminated, the Company is required
only to pay interest.
F-81
<PAGE>
BURTON HOUSE, INC., D.B.A. ZISKIND, GREENE, WATANABE, & NASON
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. INCOME TAXES:
The significant components of the Company's deferred tax assets and
liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Allowance for bad debts.......................... $ 9,625
Accounts payable................................. $17,194 6,894
Accrued liabilities.............................. 31,176 3,610
------- -------
Total deferred tax assets...................... 48,370 20,129
------- -------
Deferred tax liabilities:
Accounts receivable.............................. 32,200 16,188
------- -------
Total deferred tax liabilities................. 32,200 16,188
------- -------
Net deferred income taxes...................... $16,170 $ 3,941
======= =======
</TABLE>
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Current............................................ $ 1,866 $ 2,512
Deferred........................................... (25,510) 12,229
-------- -------
Total............................................ $(23,644) $14,741
======== =======
</TABLE>
The reconciliation of the provision (benefit) for income taxes to the income
tax expense (benefit) resulting from the application of the federal statutory
tax rate to pretax income is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Tax at statutory rate.............................. $(41,123) $ 328
Nondeductible travel and entertainment............. 6,341 13,893
State income taxes................................. 800 520
Nondeductible life insurance premiums.............. 1,325
Other.............................................. 9,013
-------- -------
Total.......................................... $(23,644) $14,741
======== =======
</TABLE>
7. SALE OF THE BUSINESS:
In August 1997, the Company signed a letter of intent to sell certain of its
net assets to U.S. Legal Support, Inc.
F-82
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
U.S. Legal Support, Inc.:
We have audited the accompanying balance sheet of Jilio & Associates (a Sole
Proprietorship) as of December 31, 1995 and 1996, and the related statements
of operations, owner's equity and cash flows for the years then ended. These
financial statements are the responsibility of 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 financial position of Jilio & Associates as of
December 31, 1995 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P
Houston, Texas
September 5, 1997
F-83
<PAGE>
JILIO & ASSOCIATES
BALANCE SHEET
AS OF DECEMBER 31, 1995 AND 1996 AND JUNE 30, 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................... $ 22,982 $ 40,142
Accounts receivable, net of allowance
of $41,256, $106,177 and $178,941,
respectively.......................... 601,039 $1,101,415 777,926
Prepaid expenses and other current
assets................................ 10,205 2,808 7,043
-------- ---------- --------
Total current assets................. 634,226 1,104,223 825,111
Property and equipment, net.............. 61,026 32,688 26,305
-------- ---------- --------
Total assets......................... $695,252 $1,136,911 $851,416
======== ========== ========
LIABILITIES AND OWNER'S EQUITY
Current liabilities:
Cash overdraft......................... $ 68,088
Accounts payable....................... $ 29,367 38,897 $ 41,164
Accrued liabilities.................... 4,572 34,913 27,148
-------- ---------- --------
Total current liabilities............ 33,939 141,898 68,312
Commitments and contingencies
Owner's equity........................... 661,313 995,013 783,104
-------- ---------- --------
Total liabilities and owner's
equity.............................. $695,252 $1,136,911 $851,416
======== ========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-84
<PAGE>
JILIO & ASSOCIATES
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1996 1997
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.................... $3,365,754 $4,022,445 $1,625,522 $1,991,326
Cost of services............ 1,697,290 1,970,094 805,659 1,040,655
---------- ---------- ---------- ----------
Gross profit............ 1,668,464 2,052,351 819,863 950,671
Selling, general and
administrative expenses.... 874,734 1,062,058 452,591 619,760
Depreciation................ 16,706 17,401 8,701 6,383
---------- ---------- ---------- ----------
Net income.............. $ 777,024 $ 972,892 $ 358,571 $ 324,528
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-85
<PAGE>
JILIO & ASSOCIATES
STATEMENT OF OWNER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<S> <C>
Balance as of January 1, 1995........................................ $ 671,702
Owner's distributions................................................ (787,413)
Net income........................................................... 777,024
---------
Balance as of December 31, 1995...................................... 661,313
Owner's distributions................................................ (639,192)
Net income........................................................... 972,892
---------
Balance as of December 31, 1996...................................... 995,013
Owner's distributions (unaudited).................................... (536,437)
Net income (unaudited)............................................... 324,528
---------
Balance as of June 30, 1997 (unaudited).............................. $ 783,104
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-86
<PAGE>
JILIO & ASSOCIATES
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1996 1997
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income................ $ 777,024 $ 972,892 $ 358,571 $ 324,528
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation............ 16,706 17,401 8,701 6,383
Provision for doubtful
accounts............... 41,256 64,921 26,123 72,764
Loss on disposal of
property and
equipment.............. 13,428 2,066
Changes in operating
assets and liabilities:
Accounts receivable... (5,291) (565,297) (94,059) 250,725
Prepaid expenses and
other current
assets............... (5,301) 7,397 (703) (4,235)
Accounts payable...... (372) 9,530 11,787 2,267
Accrued liabilities... 4,572 30,341 (7,765)
--------- --------- --------- ---------
Net cash provided by
operating
activities......... 828,594 550,613 312,486 644,667
--------- --------- --------- ---------
Cash flows from investing
activities:
Capital expenditures...... (20,931) (2,491) (1,112) --
--------- --------- --------- ---------
Net cash used in
investing
activities......... (20,931) (2,491) (1,112) --
--------- --------- --------- ---------
Cash flows from financing
activities:
Owner distributions....... (787,413) (639,192) (353,041) (536,437)
Cash overdraft............ 68,088 18,685 (68,088)
--------- --------- --------- ---------
Net cash used in
financing
activities......... (787,413) (571,104) (334,356) (604,525)
--------- --------- --------- ---------
Increase (decrease) in
cash....................... 20,250 (22,982) (22,982) 40,142
Cash at beginning of
period..................... 2,732 22,982 22,982 --
--------- --------- --------- ---------
Cash at end of period....... $ 22,982 $ -- $ -- $ 40,142
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-87
<PAGE>
JILIO & ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS:
Jilio & Associates (the "Company"), a California sole proprietorship, was
founded in 1984 and operates in Costa Mesa, California, providing litigation
support services primarily for insurance companies and law firms. The
Company's primary business is court reporting, the transcription of spoken
legal testimony into the written word.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Preparation of Interim Financial Statements
The financial statements for the six-month periods ended June 30, 1996 and
1997 reflect all adjustments which are, in the opinion of management,
necessary for a fair presentation of the results for the periods. Such
adjustments are considered to be of a normal recurring nature unless otherwise
identified.
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 amount 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
reporting period. Actual results could differ from those estimates.
Cash
Cash is maintained in one bank. The balance, at times, may exceed federally
insured amounts although management believes that risk of loss is minimal.
Property and Equipment
Property and equipment is recorded at cost and is depreciated on the
straight-line basis over the estimated useful lives of the assets.
Expenditures for improvements that extend the life of such assets are
capitalized while maintenance and repairs are charged to expense as incurred.
When property and equipment is retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the related accounts and any
resulting gain or loss is included in the statement of operations.
Revenue Recognition
The Company recognizes revenue after the documents or records have been
shipped. An allowance is provided for anticipated bad debts based primarily on
historical experience and current estimates.
Income Taxes
The Company is a sole proprietorship and thus is not a tax-paying entity.
Income taxes on the Company's earnings are paid by the owner.
Concentration of Credit Risk
The Company grants credit to various companies primarily in the legal and
insurance industries which may be affected by economic or other external
conditions. The Company maintains allowances for credit losses, and such
losses have been within management's expectations.
F-88
<PAGE>
JILIO & ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
USEFUL LIVES 1995 1996
------------ -------- --------
<S> <C> <C> <C>
Property and equipment:
Furniture and fixtures.................... 5 to 7 years $ 73,476 $ 71,585
Office equipment and computers............ 5 years 71,277 18,982
-------- --------
144,753 90,567
Less accumulated depreciation............... (83,727) (57,879)
-------- --------
Total................................... $ 61,026 $ 32,688
======== ========
</TABLE>
The Company had fully depreciated assets totaling approximately $31,000 and
$2,000 at December 31, 1995 and 1996, respectively.
4. COMMITMENTS AND CONTINGENCIES:
Independent Contractors
The Company, like most court reporting firms, provides court reporting
services through the use of independent contractors, who are not employees of
the Company. The Company does not pay or withhold federal or state employment
taxes with respect to these independent contractors. Independent court
reporters are responsible for acquiring and operating their court reporting
equipment. The use of independent contractors as court reporters is consistent
with industry practice and allows the Company to control costs. In the event
the Company were required to treat these court reporters as its employees, the
Company could become responsible for the taxes required to be withheld and
could incur additional costs associated with employee benefits and other
employee costs.
Operating Leases
Aggregate minimum rental commitments under noncancelable operating leases
with lease terms in excess of one year are as follows:
<TABLE>
<S> <C>
1997.......................................... $130,727
1998.......................................... 60,546
1999.......................................... 10,416
2000.......................................... 10,416
2001.......................................... 7,812
--------
$219,917
========
</TABLE>
Rent expense in 1995 and 1996 totaled approximately $94,000 and $140,000,
respectively. Certain rental agreements provide for additional rent based on
the lessors' operating expenses.
Legal Proceedings
The Company is involved in certain lawsuits and claims arising in the normal
course of business. In the opinion of management, uninsured losses, if any,
resulting from the ultimate resolution of these matters will not have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
F-89
<PAGE>
JILIO & ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. LINE OF CREDIT:
The Company has a line of credit with a bank for up to $100,000 at an
interest rate of 10%. As of December 31, 1995 and 1996, there were no funds
drawn on the line of credit.
6 SALE OF THE BUSINESS:
In August 1997, the Company's owner signed a letter of intent to sell
certain of the Company's net assets to U.S. Legal Support, Inc.
F-90
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
U.S. Legal Support, Inc.:
We have audited the accompanying balance sheet of Reporting Service
Associates, Inc. as of December 31, 1995 and 1996, and the related statements
of income, stockholder's equity and cash flows for the years then ended. These
financial statements are the responsibility of 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 financial position of Reporting Service
Associates, Inc. as of December 31, 1995 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Houston, Texas
August 29, 1997, except as to the informationpresented in Notes 4 and 6, for
which the date is September 12, 1997
F-91
<PAGE>
REPORTING SERVICE ASSOCIATES, INC.
BALANCE SHEET
DECEMBER 31, 1995, 1996 AND JUNE 30, 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash................................... $ 54,304 $268,118 $ 151,571
Accounts receivable, net of allowance
of $6,200, $16,000 and $24,000,
respectively.......................... 343,050 656,168 973,512
Prepaid expenses and other current
assets................................ 2,570
-------- -------- ----------
Total current assets................. 397,354 924,286 1,127,653
Property and equipment, net.............. 22,242 38,782 43,109
-------- -------- ----------
Total assets....................... $419,596 $963,068 $1,170,762
======== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................... $154,633 $198,075 $ 145,992
Note payable........................... 200,000 200,000 200,000
-------- -------- ----------
Total current liabilities............ 354,633 398,075 345,992
-------- -------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock, $10 par value, 100 shares
authorized, issued and outstanding.... 1,000 1,000 1,000
Retained earnings...................... 63,963 563,993 823,770
-------- -------- ----------
Total stockholder's equity........... 64,963 564,993 824,770
-------- -------- ----------
Total liabilities and stockholder's
equity............................ $419,596 $963,068 $1,170,762
======== ======== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-92
<PAGE>
REPORTING SERVICE ASSOCIATES, INC.
STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE SIX MONTHS ENDED JUNE
30, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1996 1997
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.................... $1,905,831 $3,012,153 $1,352,179 $2,168,684
Cost of services............ 1,156,566 1,682,021 794,151 884,364
---------- ---------- ---------- ----------
Gross profit............ 749,265 1,330,132 558,028 1,284,320
Selling, general and
administrative expenses.... 420,994 578,957 267,679 337,934
Depreciation................ 3,006 6,965 3,482 4,083
---------- ---------- ---------- ----------
Operating income........ 325,265 744,210 286,867 942,303
Interest expense............ 19,902 18,922 9,517 9,445
---------- ---------- ---------- ----------
Net income.............. $ 305,363 $ 725,288 $ 277,350 $ 932,858
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-93
<PAGE>
REPORTING SERVICE ASSOCIATES, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE SIX MONTHS ENDED JUNE
30, 1996 AND 1997
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDER'S
STOCK EARNINGS EQUITY
------ --------- -------------
<S> <C> <C> <C>
Balance as of January 1, 1995................... $1,000 $ 30,923 $ 31,923
Net income...................................... 305,363 305,363
Distributions................................... (272,323) (272,323)
------ --------- ---------
Balance as of December 31, 1995................. 1,000 63,963 64,963
Net income...................................... 725,288 725,288
Distributions................................... (225,258) (225,258)
------ --------- ---------
Balance as of December 31, 1996................. 1,000 563,993 564,993
Net income (unaudited).......................... 932,858 932,858
Distributions (unaudited)....................... (673,081) (673,081)
------ --------- ---------
Balance as of June 30, 1997 (unaudited)......... $1,000 $ 823,770 $ 824,770
====== ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-94
<PAGE>
REPORTING SERVICE ASSOCIATES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE SIX MONTHS ENDED JUNE
30, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1996 1997
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income................... $ 305,363 $ 725,288 $ 277,350 $ 932,858
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation............... 3,006 6,965 3,482 4,083
Provision for doubtful
accounts.................. 6,200 9,800 2,200 8,000
Changes in operating assets
and liabilities:
Accounts receivable...... (63,575) (322,918) (126,438) (325,344)
Prepaid expenses and
other current assets.... (2,570)
Accounts payable......... 10,533 43,442 (14,755) (52,083)
--------- --------- --------- ---------
Net cash provided by
operating activities.. 261,527 462,577 141,839 564,944
Cash flows from investing
activities:
Capital expenditures......... (25,248) (23,505) (12,081) (8,410)
Cash flows from financing
activities:
Stockholder distributions.... (272,323) (225,258) (107,133) (673,081)
--------- --------- --------- ---------
Increase (decrease) in cash.... (36,044) 213,814 22,625 (116,547)
Cash at the beginning of
period........................ 90,348 54,304 54,304 268,118
--------- --------- --------- ---------
Cash at the end of the period.. $ 54,304 $ 268,118 $ 76,929 $ 151,571
========= ========= ========= =========
Cash paid for interest......... $ 19,902 $ 18,922 $ 9,517 $ 9,445
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-95
<PAGE>
REPORTING SERVICE ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS:
Reporting Service Associates, Inc. (the "Company"), a Pennsylvania
corporation founded in 1982 and located in Philadelphia, provides litigation
support services primarily for insurance companies, law firms and large
corporations in the Philadelphia and Southern New Jersey areas. The Company's
primary business is court reporting, the transcription of spoken legal
testimony into the written word. An additional component of the Company's
litigation support services is the retrieval of records used in conjunction
with the investigation and litigation of legal proceedings. The Company also
provides copying and videotaping services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Preparation of Interim Financial Statements
The financial statements for the six month periods ended June 30, 1996 and
1997 reflect all adjustments that are, in the opinion of management, necessary
for a fair presentation of the results for the periods. Such adjustments are
considered to be of a normal recurring nature unless otherwise identified.
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 amount 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
reporting period. Actual results could differ from those estimates.
Cash
Cash is maintained in one bank. The balance, at times, may exceed federally
insured amounts although management believes the risk of loss is minimal.
Property and Equipment
Property and equipment is recorded at cost and is depreciated on the
straight-line basis over the estimated useful lives of the assets.
Expenditures for improvements that extend the life of such assets are
capitalized, while maintenance and repairs are charged to expense as incurred.
When property and equipment is retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the related accounts and any
resulting gain or loss is included in the statement of income.
Revenue Recognition
The Company recognizes revenue as the documents or records are delivered to
its customers. An allowance is provided for anticipated bad debts based
primarily on historical experience and current estimates.
Concentration of Credit Risk
The Company grants credit primarily to insurance companies, law firms and
major corporations which may be affected by economic or other external
conditions. The Company maintains allowances for potential credit losses, and
such losses have been within management's expectations.
Income Taxes
The Company is an S corporation under the Internal Revenue Code and thus for
federal tax purposes is not considered to be a tax paying entity. Income taxes
are paid at the stockholder level.
F-96
<PAGE>
REPORTING SERVICE ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
USEFUL LIVES 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Furniture, fixtures and equipment... 5 to 7 years $23,248 $29,154
Computer hardware and software...... 5 years 2,000 19,599
------- -------
25,248 48,753
Less accumulated depreciation....... (3,006) (9,971)
------- -------
$22,242 $38,782
======= =======
</TABLE>
4. NOTE PAYABLE:
The Company has outstanding a demand promissory note for $200,000. The note
is personally guaranteed by the sole stockholder of the Company, and
collateralized by the stockholder's deposits held at the bank. Interest on
unpaid borrowings accrues at the bank's prime rate and is payable monthly. In
September 1997, the Company repaid the note.
5. COMMITMENTS AND CONTINGENCIES:
Independent Contractors
The Company, like most court reporting firms, provides court reporting
services through the use of independent contractors, who are not employees of
the Company. The Company does not pay or withhold federal or state employment
taxes with respect to these independent contractors. Independent court
reporters are responsible for acquiring and operating their court reporting
equipment. The use of independent contractors as court reporters is consistent
with industry practice and allows the Company to control costs. In the event
the Company were required to treat these court reporters as its employees, the
Company could become responsible for the taxes required to be withheld and
could incur additional costs associated with employee benefits and other
employee costs.
Operating Leases
Aggregate minimum rental commitments under noncancelable operating leases
with lease terms in excess of one year are as follows:
<TABLE>
<S> <C>
1997.......................................... $ 63,860
1998.......................................... 73,148
1999.......................................... 75,724
2000.......................................... 39,660
2001.......................................... 25,783
Thereafter.................................... 1,712
--------
$279,887
========
</TABLE>
Rent expense totaled approximately $35,000 in each of the years ended
December 31, 1995 and 1996.
6. SALE OF THE BUSINESS:
In September 1997, the Company's stockholder agreed to sell certain of the
Company's net assets to U.S. Legal Support, Inc.
F-97
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and ShareholdersU.S. Legal Support, Inc.:
We have audited the accompanying balance sheet of Kirby A. Kennedy &
Associates (a Minnesota Partnership) as of December 31, 1995 and 1996, and the
related statements of income, partners' capital and cash flows for the years
then ended. These financial statements are the responsibility of 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 financial position of Kirby A. Kennedy &
Associates as of December 31, 1995 and 1996, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Houston, Texas August 29, 1997
F-98
<PAGE>
KIRBY A. KENNEDY & ASSOCIATES
BALANCE SHEET
DECEMBER 31, 1995 AND 1996 AND JUNE 30, 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................... $ 36,762
Accounts receivable.................... $133,372 $176,959 191,828
-------- -------- --------
Total current assets................. 133,372 176,959 228,590
Property and equipment, net.............. 73,896 77,719 64,565
-------- -------- --------
Total assets......................... $207,268 $254,678 $293,155
======== ======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Cash overdraft......................... $ 21,943 $ 7,137
Accounts payable....................... 86,692 127,463 $127,566
Accrued liabilities.................... 294 1,138 2,497
Note payable........................... 23,500
-------- -------- --------
Total current liabilities............ 132,429 135,738 130,063
Commitments and contingencies
Partners' capital........................ 74,839 118,940 163,092
-------- -------- --------
Total liabilities and partners'
capital............................. $207,268 $254,678 $293,155
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-99
<PAGE>
KIRBY A. KENNEDY & ASSOCIATES
STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1996 1997
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.................... $1,629,448 $1,866,355 $1,030,801 $946,998
Cost of services............ 1,094,237 1,164,405 643,109 534,786
---------- ---------- ---------- --------
Gross profit............ 535,211 701,950 387,692 412,212
Selling, general and
administrative expenses.... 191,858 261,025 118,902 112,558
Depreciation................ 27,563 32,160 16,080 16,690
---------- ---------- ---------- --------
Operating income........ 315,790 408,765 252,710 282,964
Interest expense............ 1,412 1,527 1,131 356
---------- ---------- ---------- --------
Net income.............. $ 314,378 $ 407,238 $ 251,579 $282,608
========== ========== ========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-100
<PAGE>
KIRBY A. KENNEDY & ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THESIX MONTHS ENDED JUNE 30,
1997
<TABLE>
<S> <C>
Partners' capital, January 1, 1995................................... $ 59,859
Distributions........................................................ (299,398)
Net income........................................................... 314,378
---------
Partners' capital, December 31, 1995................................. 74,839
Distributions........................................................ (363,137)
Net income........................................................... 407,238
---------
Partners' capital, December 31, 1996................................. 118,940
Distributions (unaudited)............................................ (238,456)
Net income for the six months ended June 30, 1997 (unaudited)........ 282,608
---------
Partners' capital, June 30, 1997 (unaudited)......................... $ 163,092
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-101
<PAGE>
KIRBY A. KENNEDY & ASSOCIATE
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1996 1997
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income................ $ 314,378 $ 407,238 $ 251,579 $ 282,608
Adjustments to reconcile
net income to cash
provided by operating
activities:
Depreciation............ 27,563 32,160 16,080 16,690
Changes in operating
assets and liabilities:
Accounts receivable... (14,886) (43,587) (50,071) (14,869)
Accounts payable...... (4,567) 40,771 32,546 103
Accrued liabilities... (6,001) 844 (294) 1,359
--------- --------- --------- ---------
Net cash provided by
operating
activities......... 316,487 437,426 249,840 285,891
--------- --------- --------- ---------
Cash flows from investing
activities:
Capital expenditures...... (27,810) (35,983) (3,681) (3,536)
--------- --------- --------- ---------
Net cash used in
investing
activities......... (27,810) (35,983) (3,681) (3,536)
--------- --------- --------- ---------
Cash flows from financing
activities:
Cash overdraft............ (12,779) (14,806) (14,186) (7,137)
Proceeds from note
payable.................. 23,500 25,000
Principal payments on note
payable.................. (23,500) (23,500) (25,000)
Distributions............. (299,398) (363,137) (208,473) (238,456)
--------- --------- --------- ---------
Net cash used in
financing
activities......... (288,677) (401,443) (246,159) (245,593)
--------- --------- --------- ---------
Increase in cash............ -- -- -- 36,762
Cash at beginning of
period..................... -- -- -- --
--------- --------- --------- ---------
Cash at end of period....... $ -- $ -- $ -- $ 36,762
========= ========= ========= =========
Cash paid for interest...... $ 1,412 $ 1,527 $ 1,131 $ 356
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-102
<PAGE>
KIRBY A. KENNEDY & ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS:
Kirby A. Kennedy & Associates, a Minnesota Partnership (the "Partnership"),
was founded in 1979 and provides litigation support services primarily for law
firms and insurance companies in the United States. The Partnership's primary
business is court reporting, the transcription of the spoken legal testimony
into the written word. The Partnership also provides copying services, video
services, special exhibit handling and complete case management. Income is
allocated 75% to Jeanne Kennedy and 25% to Kirby Kennedy.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Preparation of Interim Financial Statements
The financial statements for the six-month periods ended June 30, 1996 and
1997 reflect all adjustments that are, in the opinion of management, necessary
for a fair presentation of the results for the periods. Such adjustments are
considered to be of a normal recurring nature unless otherwise identified.
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 amount 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
reporting period. Actual results could differ from those estimates.
Cash
Cash in maintained at one bank. The balance, at times, may exceed federally
insured amounts, although management believes the risk of loss is minimal.
Property and Equipment
Property and equipment is recorded at cost and depreciated on the straight-
line basis over the estimated useful lives of the assets. Expenditures for
improvements that extend the life of such assets are capitalized, while
maintenance and repairs are charged to expense as incurred. When property and
equipment is retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the related accounts and any resulting gain or
loss is included in the statement of income.
Income Taxes
No provision for federal income taxes is provided in these financial
statements because the Partnership's income or loss is included in the
partners' separate income tax returns.
Revenue Recognition
The Partnership recognizes revenue as the documents or records are delivered
to its customers. An allowance is provided for anticipated bad debts based
primarily on historical experience and current estimates.
Concentration of Credit Risk
The Partnership grants credit primarily to law firms and insurance companies
which may be affected by economic or other external conditions.
F-103
<PAGE>
KIRBY A. KENNEDY & ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31, 1995 and
1996:
<TABLE>
<CAPTION>
USEFUL LIVES 1995 1996
------------ --------- ---------
<S> <C> <C> <C>
Furniture, fixtures and equipment......... 5 to 7 years $ 230,888 $ 237,061
Vehicles.................................. 5 years 113,944 110,148
--------- ---------
344,832 347,209
Less accumulated depreciation............. (270,936) (269,490)
--------- ---------
$ 73,896 $ 77,719
========= =========
</TABLE>
4. COMMITMENTS AND CONTINGENCIES:
Independent Contractors
The Partnership, like most court reporting firms, provides court reporting
services through the use of independent contractors, who are not employees of
the Partnership. The Partnership does not pay or withhold federal or state
employment taxes with respect to these independent contractors. Independent
court reporters are responsible for acquiring and operating their court
reporting equipment. The use of independent contractors as court reporters is
consistent with industry practice and allows the Partnership to control costs.
In the event the Partnership were required to treat these court reporters as
its employees, the Partnership could become responsible for the taxes required
to be withheld and could incur additional costs associated with employee
benefits and other employee costs.
Operating Leases
Aggregate minimum rental commitments under a noncancelable operating lease
with a term in excess of one year are as follows:
<TABLE>
<S> <C>
1997.......................................... $ 35,127
1998.......................................... 35,127
1999.......................................... 35,127
--------
$105,381
========
</TABLE>
Rent expense totaled approximately $35,000 for the years ended December 31,
1995 and 1996. The rental agreement provides for additional rent based on
yearly increases in the lessors' operating expenses.
5. RELATED PARTY TRANSACTIONS:
Subsequent to June 30, 1997, automobiles having a book value of $20,630 at
December 31, 1996 were distributed to the partners.
6. SALE OF THE BUSINESS:
In August 1997, the Partnership signed a letter of intent to sell certain of
its net assets to U.S. Legal Support, Inc.
F-104
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders U.S. Legal Support, Inc.:
We have audited the accompanying combined balance sheet of the Johnson Court
Reporting Group as of December 31, 1995 and 1996, and the related combined
statements of income, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of 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 combined financial position of the Johnson Court
Reporting Group as of December 31, 1995 and 1996, and the combined results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Houston, Texas
September 19, 1997
F-105
<PAGE>
JOHNSON COURT REPORTING GROUP
COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1995 AND 1996 AND JUNE 30, 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................... $ 22,253 $ 38,905 $ 13,084
Accounts receivable.................... 246,636 252,480 383,399
Prepaid expenses and other current
assets................................ 17,789 10,100 20,431
-------- -------- --------
Total current assets................. 286,678 301,485 416,914
Property and equipment, net.............. 185,821 169,140 168,119
Other assets............................. 16,216 42,050 64,115
-------- -------- --------
Total assets......................... $488,715 $512,675 $649,148
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................... $ 73,121 $ 94,558 $169,121
Income taxes payable................... 9,152 89,027 101,561
Accrued liabilities.................... 88,212 72,289 85,045
Deferred income taxes.................. 63,370 72,077 119,341
-------- -------- --------
Total current liabilities............ 233,855 327,951 475,068
Notes payable, including related parties
of $103,734, $28,995 and $15,911,
respectively............................ 133,099 68,265 77,113
Deferred income taxes.................... 14,866 13,531 13,450
Commitments and contingencies
Stockholders' equity:
Common stock........................... 77,000 77,000 77,000
Retained earnings...................... 29,895 25,928 6,517
-------- -------- --------
Total stockholders' equity........... 106,895 102,928 83,517
-------- -------- --------
Total liabilities and stockholders'
equity............................ $488,715 $512,675 $649,148
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-106
<PAGE>
JOHNSON COURT REPORTING GROUP
COMBINED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE SIX MONTHS ENDED JUNE
30, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1996 1997
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.................... $1,713,593 $2,154,933 $1,068,290 $1,227,628
Cost of services............ 845,694 1,039,876 494,388 586,482
---------- ---------- ---------- ----------
Gross profit............ 867,899 1,115,057 573,902 641,146
Selling, general and admin-
istrative expenses......... 642,756 835,786 469,596 426,558
Depreciation................ 19,670 38,401 35,107 26,080
---------- ---------- ---------- ----------
Operating income........ 205,473 240,870 69,199 188,508
Interest expense............ 11,438 19,023 8,383 5,896
---------- ---------- ---------- ----------
Income before income
taxes.................. 194,035 221,847 60,816 182,612
Income taxes................ 83,498 89,099 24,507 73,045
---------- ---------- ---------- ----------
Net income.............. $ 110,537 $ 132,748 $ 36,309 $ 109,567
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-107
<PAGE>
JOHNSON COURT REPORTING GROUP
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE SIX MONTHS ENDED JUNE
30, 1997
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDERS'
STOCK EARNINGS EQUITY
------- --------- -------------
<S> <C> <C> <C>
Balance as of January 1, 1995................. $77,000 $ 22,923 99,923
Dividends..................................... (103,565) (103,565)
Net income.................................... 110,537 110,537
------- --------- ---------
Balance as of December 31, 1995............... 77,000 29,895 106,895
Dividends..................................... (136,715) (136,715)
Net income.................................... 132,748 132,748
------- --------- ---------
Balance as of December 31, 1996............... 77,000 25,928 102,928
Dividends (unaudited)......................... (128,978) (128,978)
Net income (unaudited)........................ 109,567 109,567
------- --------- ---------
Balance as of June 30, 1997 (unaudited)....... $77,000 $ 6,517 83,517
======= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-108
<PAGE>
JOHNSON COURT REPORTING GROUP
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1996 1997
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income................ $ 110,537 $ 132,748 $ 36,309 $ 109,567
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation............ 19,670 38,401 35,107 26,080
Deferred income taxes... 63,334 7,372 (7,280) 47,183
Changes in operating
assets and liabilities:
Accounts receivable... (142,112) (5,844) (16,062) (130,919)
Prepaid expenses and
other................ (20,481) (18,145) 16,834 (32,396)
Accounts payable...... 35,071 21,437 (10,093) 50,381
Income taxes payable.. 16,400 79,875 3,406 12,534
Accrued liabilities... 65,525 (15,923) 29,398 12,756
--------- --------- -------- ---------
Net cash provided by
operating
activities......... 147,944 239,921 87,619 95,186
--------- --------- -------- ---------
Cash flows from investing
activities:
Capital expenditures...... (102,347) (21,720) (10,813) (25,059)
--------- --------- -------- ---------
Net cash used in
investing
activities......... (102,347) (21,720) (10,813) (25,059)
--------- --------- -------- ---------
Cash flows from financing
activities:
Notes payable............. 62,275 (64,834) (43,444) 8,848
Dividends................. (103,565) (136,715) (67,661) (128,978)
Other..................... 27,872 24,182
--------- --------- -------- ---------
Net cash used in
financing
activities......... (41,290) (201,549) (83,233) (95,948)
--------- --------- -------- ---------
Increase (decrease) in
cash....................... 4,307 16,652 (6,427) (25,821)
Cash at beginning of
period..................... 17,946 22,253 22,253 38,905
--------- --------- -------- ---------
Cash at end of period....... $ 22,253 $ 38,905 $ 15,826 $ 13,084
========= ========= ======== =========
Cash paid for interest...... $ 11,438 $ 19,023 $ 8,383 $ 5,896
========= ========= ======== =========
Cash paid for taxes......... $ 3,764 $ 1,852 $ 1,369 $ 1,289
========= ========= ======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-109
<PAGE>
JOHNSON COURT REPORTING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS:
Johnson Court Reporting Group (the "Company"), operating through Goren of
Newport, Inc., Rapidtext, Inc. and Medtext, Inc., provides litigation support
services, closed-captioning services for the hearing impaired, remote
classroom captioning services, medical transcription services, and scanning
and imaging services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying combined financial statements include the accounts of Goren
of Newport, Inc., Rapidtext, Inc. and Medtext, Inc. all of which are operated
under common management. All intercompany amounts have been eliminated.
Preparation of Interim Financial Statements
The financial statements for the six-month periods ended June 30, 1996 and
1997 reflect all adjustments that are, in the opinion of management, necessary
for a fair presentation of the results for the periods. Such adjustments are
considered to be of a normal recurring nature unless otherwise identified.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount 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
reporting period. Actual results could differ from those estimates.
Cash
Cash is maintained in two banks. The balances, at times, may exceed
federally insured amounts although management believes that risk of loss is
minimal.
Property and Equipment
Property and equipment is recorded at cost and is depreciated on the
straight-line basis over the estimated useful lives of the assets.
Expenditures for improvements that extend the life of such assets are
capitalized while maintenance and repairs are charged to expense as incurred.
When property and equipment is retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the related accounts and any
resulting gain or loss is included in the statement of income.
Income Taxes
The Company provides for deferred income taxes utilizing the liability
method whereby deferred income taxes are recognized for the tax consequences
in future years of differences in the tax bases of assets and liabilities and
their financial reporting amounts 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.
Revenue Recognition
The Company recognizes revenue after the documents or records have been
prepared for shipment or the services have been provided. An allowance is
provided for anticipated bad debts based primarily on historical experience
and current estimates.
Concentration of Credit Risk
The Company grants credit to various companies primarily in the legal,
medical and insurance industries which may be affected by economic or other
external conditions. The Company maintains allowances for potential credit
losses, and such losses have been within management's expectations. During the
six-month period ended June 30, 1997, approximately 16% of revenues was from
one company.
F-110
<PAGE>
JOHNSON COURT REPORTING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
USEFUL LIVES 1995 1996
------------ -------- ---------
<S> <C> <C> <C>
Property and equipment:
Furniture and fixtures................... 5 to 7 years $ 8,098 $ 9,542
Office equipment and computers........... 5 years 258,852 277,265
-------- ---------
266,950 286,807
Less accumulated depreciation.............. (81,129) (117,667)
-------- ---------
Total.................................. $185,821 $ 169,140
======== =========
</TABLE>
4. INCOME TAXES:
The components of deferred income tax assets and liabilities consisted of the
following at December 31:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Deferred income tax assets
Accrued liabilities..................................... $ 35,284 $ 28,916
-------- --------
Total deferred income tax assets...................... 35,284 28,916
-------- --------
Deferred income tax liabilities
Accounts receivable..................................... 98,654 100,993
Property and equipment.................................. 14,866 13,531
-------- --------
Total deferred income tax liabilities................. 113,520 114,524
-------- --------
Net deferred income tax liability..................... $ 78,236 $ 85,608
======== ========
</TABLE>
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Current.................................................... $20,164 $81,727
Deferred................................................... 63,334 7,372
------- -------
$83,498 $89,099
======= =======
</TABLE>
The difference between the Company's provision for income taxes and the
amount that would have been derived by applying the federal statutory tax rate
to pretax income for the years ended December 31, 1995 and 1996 is summarized
as follows:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Tax at federal statutory rate............................... $65,972 $75,427
State income taxes, net of federal tax benefit.............. 9,702 11,092
Other....................................................... 7,824 2,580
------- -------
$83,498 $89,099
======= =======
</TABLE>
F-111
<PAGE>
JOHNSON COURT REPORTING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
5. COMMITMENTS AND CONTINGENCIES:
Independent Contractors
The Company provides court reporting, captioning, transcription, and
scanning and imaging services through the use of independent contractors, who
are not employees of the Company. The Company does not pay or withhold federal
or state employment taxes with respect to these independent contractors.
Independent contractors are responsible for acquiring and operating their
equipment. The use of independent contractors is consistent with industry
practice and allows the Company to control costs. In the event the Company
were required to treat these independent contractors as its employees, the
Company could become responsible for the taxes required to be withheld and
could incur additional costs associated with employee benefits and other
employee costs.
Operating Leases
Aggregate minimum rental commitments under noncancelable operating leases
with lease terms in excess of one year are as follows:
<TABLE>
<S> <C>
1997........................................... $ 5,885
1998........................................... 6,147
1999........................................... 2,832
2000........................................... 2,832
2001........................................... 2,832
-------
$20,528
=======
</TABLE>
Rent expense in 1995 and 1996 totaled $57,030 and $68,967, respectively.
Certain rental agreements provide for additional rent based on the lessors'
operating expenses.
Legal Proceedings
The Company is involved in certain lawsuits and claims arising in the normal
course of business. In the opinion of management, uninsured losses, if any,
resulting from the ultimate resolution of these matters will not have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
6. NOTES PAYABLE:
The Company has lines of credit with two financial institutions for up to
$225,000 at an interest rate of 13%, collateralized by the Company's accounts
receivable. These lines are drawn on when needed and are normally repaid
within the fiscal year. As of December 31, 1995 and 1996, the Company had
$29,365 and $39,270 borrowed under the lines of credit.
The Company has notes payable of $103,734 and $28,995 to shareholders at
December 31, 1995 and 1996.
7. SALE OF COMMON STOCK:
In August 1997, the Company's common stock was acquired by U.S. Legal
Support, Inc.
F-112
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders U.S. Legal Support, Inc.:
We have audited the accompanying balance sheet of the combined predecessors
to Amicus One Legal Support Services, Inc. as of December 31, 1996, and the
related statements of income, stockholders' equity and cash flows for the year
then ended. These financial statements are the responsibility of management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Amicus One Legal
Support Services, Inc. as of 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.
Coopers & Lybrand l.l.p.
Houston, Texas September 17, 1997
F-113
<PAGE>
AMICUS ONE LEGAL SUPPORT SERVICES, INC.
BALANCE SHEET
DECEMBER 31, 1996 AND JUNE 30, 1997
<TABLE>
<CAPTION>
COMBINED
PREDECESSORS COMPANY
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 1,626 $ 15,748
Accounts receivable, net of allowance of $48,240 and
$27,961, respectively.............................. 622,825 407,807
Prepaid expenses and other current assets........... 11,398 1,467
-------- --------
Total current assets.............................. 635,849 425,022
Property and equipment, net........................... 65,334 100,450
Other assets.......................................... 34,014 15,772
-------- --------
Total assets...................................... $735,197 $541,244
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations......... $ 24,400 $216,432
Accounts payable.................................... 30,945 8,812
Accrued liabilities................................. 52,467 73,060
-------- --------
Total current liabilities......................... 107,812 298,304
Long-term obligations................................. 10,423 7,552
Commitments and contingencies
Stockholders' equity:
Common stock........................................ 11,750 158,716
Retained earnings................................... 605,212 76,672
-------- --------
Total stockholders' equity........................ 616,962 235,388
-------- --------
Total liabilities and stockholders' equity...... $735,197 $541,244
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-114
<PAGE>
AMICUS ONE LEGAL SUPPORT SERVICES, INC.
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
COMBINED
PREDECESSORS COMPANY
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Revenues............................................... $1,882,380 $969,272
Cost of services....................................... 890,098 471,493
---------- --------
Gross profit....................................... 992,282 497,779
Selling, general and administrative expenses........... 796,744 368,846
Depreciation........................................... 39,580 19,868
---------- --------
Operating income................................... 155,958 109,065
Interest expense....................................... 6,613 19,768
---------- --------
Income before income taxes............................. 149,345 89,297
Income taxes........................................... 9,879 625
---------- --------
Net income......................................... $ 139,466 $ 88,672
========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-115
<PAGE>
AMICUS ONE LEGAL SUPPORT SERVICES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDERS'
STOCK EARNINGS EQUITY
-------- -------- -------------
<S> <C> <C> <C>
Combined Predecessors:
Balance as of January 1, 1996................. $ 11,750 $500,354 $512,104
Distributions................................. (34,608) (34,608)
Net income.................................... 139,466 139,466
-------- -------- --------
Balance as of December 31, 1996............... 11,750 605,212 616,962
Company:
Reorganization to form new entity and
distribution of certain net assets to owners
(unaudited).................................. 146,966 (605,212) (458,246)
Net income (unaudited)........................ 88,672 88,672
Distributions (unaudited)..................... (12,000) (12,000)
-------- -------- --------
Balance as of June 30, 1997 (unaudited)....... $158,716 $ 76,672 $235,388
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-116
<PAGE>
AMICUS ONE LEGAL SUPPORT SERVICES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
COMBINED
PREDECESSORS
DECEMBER 31, COMPANY
1996 JUNE 30, 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income........................................ $139,466 $ 88,672
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.................................... 39,580 19,868
Changes in operating assets and liabilities:
Accounts receivable........................... (57,614) (211,773)
Prepaid expenses and other current assets..... 1,661 (69)
Other assets.................................. 17,366 (2,633)
Accounts payable.............................. 866 (13,498)
Accrued liabilities........................... 17,339 12,195
-------- --------
Net cash provided by (used in) operating
activities................................. 158,664 (107,238)
-------- --------
Cash flows from investing activities:
Capital expenditures.............................. (85,272) (54,984)
-------- --------
Net cash used in investing activities....... (85,272) (54,984)
-------- --------
Cash flows from financing activities:
Distributions..................................... (34,608) (12,000)
Proceeds from borrowings.......................... 193,840
Repayment of borrowings........................... (38,647) (4,679)
-------- --------
Net cash (used in) provided by financing
activities................................. (73,255) 177,161
-------- --------
Increase in cash.................................... 137 14,939
Cash at beginning of period......................... 1,489 809
-------- --------
Cash at end of period............................... $ 1,626 $ 15,748
======== ========
Cash paid for interest.............................. $ 6,613 $ 15,334
======== ========
Cash paid for income taxes.......................... $ 9,040 $ 825
======== ========
Issuance of common stock for non-cash assets........ $157,906
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-117
<PAGE>
AMICUS ONE LEGAL SUPPORT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS:
Amicus One Legal Support Services, Inc. (the "Company"), a New York
Subchapter S Corporation, was formed on January 1, 1997 through the
contribution of certain assets at predecessor cost by three shareholders who
together owned two court reporting businesses known as Cardinal Reporting Co.,
Inc. ("Cardinal") and AM Court Reporting, Ltd. ("AM"). The owners of the
"combined predecessors" have presented combined financial statements of the
combined predecessor for 1996 to reflect the financial position and results of
operations for the periods on a comparable basis. The Company operates in New
York providing litigation support services primarily for insurance companies
and law firms. The Company's primary business is court reporting, the
transcription of spoken legal testimony into written word.
The Company has 200 shares of no par value capital stock authorized, issued
and outstanding at June 30, 1997. At December 31, 1996, Cardinal and AM were
organized as a C Corporation and a S Corporation, respectively. Cardinal and
AM had 2,500 and 200 shares, respectively, of no par value capital stock
authorized, issued and outstanding at December 31, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Preparation of Interim Financial Statements
The financial statements for the six-month period ended June 30, 1997
reflect all adjustments that are, in the opinion of management, necessary for
a fair presentation of the results for the period. Such adjustments are
considered to be of a normal recurring nature unless otherwise identified.
Information was not available to prepare financial statements for the six-
month period ended June 30, 1996 in accordance with generally accepted
accounting principles.
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 amount 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
reporting period. Actual results could differ from those estimates.
Cash
Cash is maintained in one bank. The balance, at times, may exceed federally
insured amounts although management believes that risk of loss is minimal.
Property and Equipment
Property and equipment is recorded at cost and is depreciated on the
straight-line basis over the estimated useful lives of the assets.
Expenditures for improvements that extend the life of such assets are
capitalized while maintenance and repairs are charged to expense as incurred.
When property and equipment is retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the related accounts and any
resulting gain or loss is included in the statements of operations.
Revenue Recognition
The Company recognizes revenue as the documents or records are delivered to
customers. An allowance is provided for anticipated bad debts, based primarily
on historical experience and current estimates.
Income Taxes
The Company is and AM was an S Corporation under the Internal Revenue Code
and thus, for federal tax purposes, are not considered to be tax paying
entities. Cardinal provided for deferred income taxes utilizing the liability
method whereby deferred income taxes are recognized for the tax consequences
in future years of
F-118
<PAGE>
AMICUS ONE LEGAL SUPPORT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
differences in the tax bases of assets and liabilities and their financial
reporting amounts based on enacted tax laws and statutory tax rates applicable
to the periods in which differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be utilized.
Concentration of Credit Risk
The Company grants credit to various companies primarily in the legal and
insurance industries which may be affected by economic or other external
conditions. The Company maintains allowances for potential credit losses, and
such losses have been within management's expectations.
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIVES 1996
------------ ------------
<S> <C> <C>
Furniture and fixtures............................. 5 to 7 years $112,812
Office equipment and computers..................... 5 years 19,274
--------
132,086
Less accumulated depreciation...................... (66,752)
--------
Total.......................................... $ 65,334
========
</TABLE>
4. COMMITMENTS AND CONTINGENCIES:
Independent Contractors
The Company, like most court reporting firms, provides court reporting
services through the use of independent contractors, who are not employees of
the Company. The Company does not pay or withhold federal or state employment
taxes with respect to these independent contractors. Independent court
reporters are responsible for acquiring and operating their court reporting
equipment. The use of independent contractors as court reporters is consistent
with industry practice and allows the Company to control costs. In the event
the Company were required to treat these court reporters as its employees, the
Company could become responsible for the taxes required to be withheld and
could incur additional costs associated with employee benefits and other
employee costs.
Operating Leases
Aggregate minimum rental commitments under noncancelable operating leases
with lease terms in excess of one year are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997................................................................. $ 69,915
1998................................................................. 71,421
1999................................................................. 64,919
2000................................................................. 42,344
2001 and thereafter.................................................. 44,038
--------
$292,637
========
</TABLE>
Rent expense in 1996 totaled approximately $103,000. Certain rental
agreements provide for additional rent based on the lessors' operating
expenses.
F-119
<PAGE>
AMICUS ONE LEGAL SUPPORT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. LONG-TERM OBLIGATIONS:
Long-term obligations consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Line of credit with a bank for up to $50,000 with
interest at prime plus .25%. The line has no set
maturity date.................................... $ 14,888
Line of credit with a financial institution for up
to $300,000 with interest of 30-day commercial
paper rate plus 3.15% which was 8.77% at June 30,
1997. The line has no set maturity date.......... $ 206,831
Capital lease obligations......................... 19,935 17,153
-------- ---------
34,823 223,984
Less current portion.............................. (24,400) (216,432)
-------- ---------
$ 10,423 $ 7,552
======== =========
</TABLE>
6. SALE OF NET ASSETS:
In September 1997, the Company's net assets were sold to U.S. Legal Support,
Inc.
F-120
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
U.S. Legal Support, Inc.:
We have audited the accompanying balance sheet of Block Court Reporting,
Inc. as of December 31, 1995 and 1996, and the related statements of
operations, stockholder's equity (deficit) and cash flows for the years then
ended. These financial statements are the responsibility of 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 financial position of Block Court Reporting,
Inc. as of December 31, 1995 and 1996, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Houston, Texas
September 19, 1997
F-121
<PAGE>
BLOCK COURT REPORTING, INC.
BALANCE SHEET
AS OF DECEMBER 31, 1995 AND 1996 AND JUNE 30, 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................... $ 994 $ 1,852 $ 4,437
Accounts receivable, net of allowance
of $10,000, $15,000 and $15,000,
respectively.......................... 141,279 207,911 142,214
Deferred income taxes.................. 6,074
-------- -------- --------
Total current assets................. 142,273 209,763 152,725
Property and equipment, net.............. 125,271 89,830 84,489
Other assets............................. 6,568 6,568 6,568
-------- -------- --------
Total assets......................... $274,112 $306,161 $243,782
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
(DEFICIT)
Current liabilities:
Accounts payable....................... $ 7,640 $164,213 $149,921
Accrued liabilities.................... 6,332 17,129 56,228
Long-term obligations, current
portion............................... 109,905 68,218 62,990
Deferred income taxes.................. 45,910 14,107
-------- -------- --------
Total current liabilities............ 169,787 263,667 269,139
Long-term obligations.................... 12,329 15,125
Stockholder's equity (deficit):
Common stock, $.01 par value, 1,000
shares authorized, issued, and
outstanding........................... 10 10 10
Additional paid in capital............. 990 990 990
Retained earnings (accumulated
deficit).............................. 90,996 26,369 (26,357)
-------- -------- --------
Total stockholder's equity
(deficit)........................... 91,996 27,369 (25,357)
-------- -------- --------
Total liabilities and stockholder's
equity (deficit).................... $274,112 $306,161 $243,782
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-122
<PAGE>
BLOCK COURT REPORTING, INC.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE SIX MONTHS ENDED JUNE
30, 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Revenues................................ $1,024,931 $1,316,782 $517,838
Cost of services........................ 496,301 661,838 262,455
---------- ---------- --------
Gross profit........................ 528,630 654,944 255,383
Selling, general and administrative
expenses............................... 524,864 740,279 331,936
---------- ---------- --------
Operating income (loss)............. 3,766 (85,335) (76,553)
Interest expense........................ 14,197 13,302 4,306
---------- ---------- --------
Loss before income taxes................ (10,431) (98,637) (80,859)
Income tax benefit...................... (3,575) (34,010) (28,133)
---------- ---------- --------
Net loss............................ $ (6,856) $ (64,627) $(52,726)
========== ========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-123
<PAGE>
BLOCK COURT REPORTING, INC.
STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
RETAINED TOTAL
ADDITIONAL EARNINGS STOCKHOLDER'S
COMMON PAID-IN (ACCUMULATED EQUITY
STOCK CAPITAL DEFICIT) (DEFICIT)
------ ---------- ------------ -------------
<S> <C> <C> <C> <C>
January 1, 1995.................. $ 100 $ 2,790 $ 97,852 $100,742
Issuance of common stock......... 10 990 1,000
Retirement of common stock....... (100) (2,790) (2,890)
Net loss......................... (6,856) (6,856)
----- ------- -------- --------
December 31, 1995................ 10 990 90,996 91,996
Net loss......................... (64,627) (64,627)
----- ------- -------- --------
December 31, 1996................ 10 990 26,369 27,369
Net loss (Unaudited)............. (52,726) (52,726)
----- ------- -------- --------
June 30, 1997 (Unaudited)........ $ 10 $ 990 $(26,357) $(25,357)
===== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-124
<PAGE>
BLOCK COURT REPORTING, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND
THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................. $ (6,856) $(64,627) $(52,726)
Adjustments to reconcile net income to
net cash (used in) provided by
operating activities:
Depreciation......................... 36,464 35,441 9,388
Changes in operating assets and
liabilities:
Accounts receivable................ (88,025) (66,632) 65,697
Accounts payable................... 33,555 156,573 (14,292)
Accrued liabilities................ (56,414) 10,797 39,099
Deferred income taxes.............. 45,910 (31,803) (20,181)
Other assets....................... (6,568)
-------- -------- --------
Net cash (used in) provided by
operating activities............ (41,934) 39,749 26,985
-------- -------- --------
Cash flows from investing activities:
Capital expenditures................... (21,483) (4,047)
-------- -------- --------
Net cash used in investing
activities...................... (21,483) -- (4,047)
-------- -------- --------
Cash flows from financing activities:
Net payments of long-term obligations.. (414) (38,891) (20,353)
-------- -------- --------
Net cash used in financing
activities...................... (414) (38,891) (20,353)
-------- -------- --------
Net (decrease) increase in cash.......... (63,831) 858 2,585
Cash at beginning of year................ 64,825 994 1,852
-------- -------- --------
Cash at end of year...................... $ 994 1,852 $ 4,437
======== ======== ========
Cash paid for interest................... $ 14,197 $ 13,302 $ 4,306
======== ======== ========
Cash paid for income taxes............... $ 1,000
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-125
<PAGE>
BLOCK COURT REPORTING, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS:
Block Court Reporting, Inc. (the "Company"), a District of Columbia
corporation, is a court reporting business based in Washington, D.C. The
Company provides general court reporting services, the transcription of spoken
legal testimony into the written word as well as video captioning services to
the Washington, D.C., Northern Virginia, and Baltimore, Maryland markets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Preparation of Interim Financial Statements
The financial statements for the six-month period ended June 30, 1997
reflect all adjustments that are, in the opinion of management, necessary for
a fair presentation of the results for the period. Such adjustments are
considered to be of a normal recurring nature unless otherwise identified.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount 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
reporting period. Actual results could differ from those estimates.
Cash
Cash is maintained primarily in one bank. The balance, at times, may exceed
federally insured amounts although management believes that risk of loss is
minimal.
Property and Equipment
Property and equipment is recorded at cost and is depreciated on the
straight-line basis over the estimated useful lives of the assets.
Expenditures for improvements that extend the life of such assets are
capitalized while maintenance and repairs are charged to expense as incurred.
When property and equipment is retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the related accounts and any
resulting gain or loss is included in the statements of operations.
Revenue Recognition
The Company recognizes revenue as the documents or records are delivered to
customers. An allowance is provided for anticipated bad debts, based primarily
on historical experience and current estimates.
Concentration of Credit Risk
The Company grants credit to various companies primarily in the legal
industry which may be affected by economic or other external conditions. The
Company maintains allowance for potential credit losses, and such losses have
been within management's expectations.
F-126
<PAGE>
BLOCK COURT REPORTING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
USEFUL LIVES 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Property and equipment:
Vehicles.......................... 5 years $ 60,538 $ 60,538
Furniture and fixtures............ 7 years 26,063 23,425
Office equipment, computers and
software......................... 3 to 5 years 75,134 75,905
-------- --------
161,735 159,868
Less accumulated depreciation....... (36,464) (70,038)
-------- --------
Total........................... $125,271 $ 89,830
======== ========
</TABLE>
The Company had fully depreciated assets totaling approximately $19,000 at
December 31, 1996.
4. COMMITMENTS AND CONTINGENCIES:
Independent Contractors
The Company, like most court reporting firms, provides court reporting
services through the use of independent contractors, who are not employees of
the Company. The Company does not pay or withhold federal or state employment
taxes with respect to these independent contractors. Independent court
reporters are responsible for acquiring and operating their court reporting
equipment. The use of independent contractors as court reporters is consistent
with industry practice and allows the Company to control costs. In the event
the Company were required to treat these court reporters as its employees, the
Company could become responsible for the taxes required to be withheld and
could incur additional costs associated with employee benefits and other
employee costs.
Operating Lease
The Company leases office space under a noncancelable operating lease which
expires on July 31, 1997. The remaining rental commitment under this lease at
December 31, 1996 was approximately $50,000. Subsequent to year-end, the
Company entered into new noncancelable operating lease for office space
commencing on October 1, 1997 and ending on September 30, 2000. The minimum
rental commitment under this lease for each of the next four years
approximates $10,000, $42,000, $42,000, and $32,000. Both agreements provide
for additional rent based on increases determined from indices specified
within the lease agreements. Additionally, the Company is required to pay its
pro rata share of increases in real estate taxes.
Rent expense in both 1995 and 1996 totaled approximately $97,000.
5. INCOME TAXES:
The benefit for income taxes consisted of the following for the years ended
December 31:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Current.................................................. $(49,485) $ (2,207)
Deferred................................................. 45,910 (31,803)
-------- --------
Total................................................ $ (3,575) $(34,010)
======== ========
</TABLE>
F-127
<PAGE>
BLOCK COURT REPORTING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The components of deferred income tax liabilities and assets are as follows
at December 31:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Accounts payable...................................... $ 2,600 $ 55,832
Deferred tax liabilities:
Accounts receivable................................... 48,510 69,939
-------- --------
Net deferred income taxes........................... $(45,910) $(14,107)
======== ========
</TABLE>
6. LONG-TERM OBLIGATIONS:
The Company has a line of credit with a bank for up to $25,000 at an interest
rate equal to the prime lending rate plus two percentage points. As of December
31, 1996 and June 30, 1997, there was $18,000 and $23,000 drawn on this line of
credit, respectively. These borrowings have been classified as current.
The Company has a promissory note with a bank at an interest rate equal to
the prime lending rate plus one percentage point. At December 31, 1996, the
maturities of the promissory note for each of the next two years approximated
$38,000 and $15,000.
The Company leases vehicles under long-term capital leases which expire
during 1997. At December 31, 1996, future minimum payments under these leases
approximated $13,000.
7. SALE OF THE COMPANY:
In September 1997, the Company's stock was acquired by U.S. Legal Support,
Inc.
8. RELATED PARTY TRANSACTIONS:
The Company subleases certain office space to an affiliate for approximately
$2,000 per month.
F-128
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
U.S. Legal Support, Inc.:
We have audited the accompanying balance sheet of Commander Wilson, Inc. (a
sole proprietorship) as of December 31, 1995 and 1996, and the related
statements of income, owner's deficit and cash flows for the years then ended.
These financial statements are the responsibility of 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 financial position of Commander Wilson, Inc. (a
sole proprietorship) as of December 31, 1995 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Coopers & Lybrand l.l.p.
Houston, Texas
September 22, 1997
F-129
<PAGE>
COMMANDER WILSON, INC.
BALANCE SHEET
DECEMBER 31, 1995 AND 1996 AND JUNE 30, 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Prepaid expenses....................... $ 1,969 $ -- $ --
-------- -------- -----
Total current assets................. 1,969 -- --
-------- -------- -----
Total assets....................... $ 1,969 $ -- $ --
======== ======== =====
LIABILITIES AND OWNER'S DEFICIT
Current liabilities
Accounts payable and accrued
liabilities........................... $ 36,000 $ 37,303 $ 666
-------- -------- -----
Total current liabilities............ 36,000 37,303 666
Commitments and contingencies
Owner's deficit.......................... (34,031) (37,303) (666)
-------- -------- -----
Total liabilities and owner's
deficit........................... $ 1,969 $ -- $ --
======== ======== =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-130
<PAGE>
COMMANDER WILSON, INC.
STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE SIX MONTHS ENDED JUNE
30, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1996 1997
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.................... $577,733 $94,291 $62,916 $295,540
Cost of services............ 100,570
-------- ------- ------- --------
Gross profit............ 477,163 94,291 62,916 295,540
Selling, general and
administrative expenses.... 284,170 68,528 26,244 26,171
-------- ------- ------- --------
Net income.............. $192,993 $25,763 $36,672 $269,369
======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-131
<PAGE>
COMMANDER WILSON, INC.
STATEMENT OF OWNER'S DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THESIX MONTHS ENDED JUNE 30,
1997
<TABLE>
<CAPTION>
OWNER'S
EQUITY
(DEFICIT)
---------
<S> <C>
Balance on January 1, 1995.......................................... $ 5,800
Net income.......................................................... 192,993
Distributions to owner, net......................................... (232,824)
---------
Balance on December 31, 1995........................................ (34,031)
Net income.......................................................... 25,763
Distributions to owner, net......................................... (29,035)
---------
Balance on December 31, 1996........................................ (37,303)
Net income (unaudited).............................................. 269,369
Distributions to owner, net (unaudited)............................. (232,732)
---------
Balance on June 30, 1997 (unaudited)................................ $ (666)
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-132
<PAGE>
COMMANDER WILSON, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE SIX MONTHS ENDED JUNE
30, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1996 1997
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income................ $ 192,993 $ 25,763 $ 36,672 $ 269,369
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Change in operating
assets and liabilities:
Accounts payable...... 41,800 1,303 (36,637)
Prepaid expenses...... (1,969) 1,969
--------- -------- -------- ---------
Net cash provided by
operating
activities......... 232,824 29,035 36,672 232,732
Cash flows from investing
activities................. -- -- -- --
Cash flows from financing
activities:
Distributions to owner.... (232,824) (29,035) (36,672) (232,732)
--------- -------- -------- ---------
Net cash used in
financing
activities......... (232,824) (29,035) (36,672) (232,732)
--------- -------- -------- ---------
Change in cash.............. -- -- -- --
Cash at the beginning of
period..................... -- -- -- --
--------- -------- -------- ---------
Cash at the end of the
period..................... $ -- $ -- $ -- $ --
========= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-133
<PAGE>
COMMANDER WILSON, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS:
Commander Wilson, Inc. (the "Company"), a sole proprietorship, provides
legal recruitment services to law firms and corporations primarily in Texas.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Preparation of Interim Financial Statements
The unaudited financial statements for the periods ended June 30, 1996 and
1997 reflect all adjustments that are, in the opinion of management, necessary
for a fair presentation of the results for the periods. Such adjustments are
considered to be of a normal recurring nature unless otherwise identified.
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 amount 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
reporting period. Actual results could differ from those estimates.
Cash
The Company does not maintain a cash account. All cash receipts are
deposited into the owner's bank account and recorded as distributions to the
owner. All cash disbursements are made from the owner's bank account and
recorded as contributions to the Company.
Property and Equipment
Property and equipment is recorded at cost and is depreciated on the
straight-line basis over the estimated useful lives of the assets.
Expenditures for improvements that extend the life of such assets are
capitalized, while maintenance and repairs are charged to expense as incurred.
When property and equipment is retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the related accounts and any
resulting gain or loss is included in operations. All property and equipment
is fully depreciated.
Revenue Recognition
The Company records revenue when candidates accept a job offer. Non-
refundable retainers to provide recruitment services on an exclusive basis are
earned upon receipt. An allowance is provided for bad debts, based primarily
on historical experience and current estimates.
Concentration of Credit Risk
The Company grants credit to primarily law firms and corporations which may
be affected by economic or other external conditions. The Company maintains
allowances for potential credit losses and such losses have been within
management's expectations. During the years ended December 31, 1995 and 1996
approximately 53% and 93% of revenues was earned from two and five companies,
respectively. During the six months ended June 30, 1997 approximately 48% of
revenues was earned from two companies.
Income Taxes
The Company is organized as a sole proprietorship. No provision for federal
income taxes is provided in these financial statements because the Company's
income is included in the owner's tax return.
F-134
<PAGE>
COMMANDER WILSON, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. COMMITMENTS AND CONTINGENCIES:
Operating Leases
At December 31, 1996, aggregate minimum rental commitments under
noncancelable operating leases with lease terms in excess of one year are as
follows:
<TABLE>
<S> <C>
1997........................................... $22,548
1998........................................... 5,599
-------
$28,147
=======
</TABLE>
4. LITIGATION:
In September 1994, an independent contractor filed a lawsuit against the
Company claiming breach of contract for approximately $600,000. In April 1997,
the Company settled the lawsuit for approximately $36,000. Legal expenses of
approximately $57,000 are included in selling, general and administrative
expenses for the year ended December 31, 1995.
5. SALE OF THE BUSINESS:
In September 1997, the owner signed an agreement to sell the Company's
business to U.S. Legal Support, Inc.
F-135
<PAGE>
U.S. Legal Support, Inc.
A leading provider of court reporting,
certified record retrieval and legal
placement and staffing services
Court reporting is the verbatim
transcription of sworn oral testimony,
generally for use in legal
proceedings. While the transcription
of legal proceedings held in a
courtroom generally is performed by
personnel employed by the federal
court system or by state agencies,
[Photo of court reporter transcribing] counties or municipalities, court
reporting performed outside a
courtroom is generally conducted by
private court reporters who transcribe
depositions, mediations, arbitrations
and certain other proceedings.
The parties to civil lawsuits,
arbitrations, mediations and other
dispute resolution proceedings
frequently use certified record
retrieval services. Certified record
retrieval services are labor-intensive
and involve the preparation, handling,
tracking and delivery of large numbers
of written documents.
[Photo of certified records retrieval center]
Law firms and corporate legal
departments are increasingly using
temporary legal personnel to enable
them to respond more effectively to
[Photo of attorney working] fluctuations in work load.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesman or other person has been authorized to give any information
or to make any representations 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 the solicitation of an offer
to buy any security other than the Common Stock offered by this Prospectus, nor
does it constitute an offer to sell or the solicitation of an offer to buy the
shares of Common Stock to anyone in any jurisdiction in which such offer or
solicitation is not authorized, or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such other or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
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.............................................................. 12
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Financial Data.................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 20
Business................................................................. 30
Management............................................................... 38
Certain Transactions..................................................... 42
Principal Shareholders................................................... 44
Description of Capital Stock............................................. 46
Shares Eligible for Future Sale.......................................... 48
Underwriting............................................................. 50
Legal Matters............................................................ 51
Experts.................................................................. 51
Available Information.................................................... 52
Index to Financial Statements............................................ F-1
</TABLE>
Until , 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Stock offering hereby, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,500,000 SHARES
[LOGO OF U.S. LEGAL SUPPORT APPEARS HERE]
U.S. LEGAL SUPPORT, INC.
COMMON STOCK
-----------------------------------
PROSPECTUS
-----------------------------------
Montgomery Securities
Hambrecht & Quist
J.C. Bradford & Co.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the securities being registered. All amounts are estimates
except for the fees payable to the Commission and the NASD and the listing
fee.
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Securities and Exchange Commission registration fee............. $ 15,950
National Association of Securities Dealers, Inc. filing fee..... 5,732.50
NASDAQ listing fee.............................................. *
Printing and engraving expenses................................. *
Legal fees and expenses......................................... *
Accounting fees and expenses.................................... *
Blue sky fees and expenses...................................... *
Transfer Agent fees............................................. *
Miscellaneous................................................... *
--------
TOTAL....................................................... $
========
</TABLE>
- --------
*To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Registrant's Articles of Incorporation, as amended (the "Articles of
Incorporation") and Bylaws require the Registrant to indemnify officers and
directors of the Registrant to the fullest extent permitted by Article 2.02-1
of the Business Corporation Act of the State of Texas (the "TBCA"). The
Articles of Incorporation and Bylaws are filed as Exhibits 3.1 and 3.2 to the
Registration Statement. Generally, Article 2.02-1 of the TBCA permits a
corporation to indemnify a person who was, is, or is threatened to be made a
named defendant or respondent in a proceeding because the person was or is a
director or officer if it is determined that such person (i) conducted himself
in good faith; (ii) reasonably believed (a) in the case of conduct in his
official capacity as a director or officer of the corporation, that his
conduct was in the corporation's best interests, or (b) in other cases, that
his conduct was at least not opposed to the corporation's best interests; and
(iii) in the case of any criminal proceedings, had no reasonable cause to
believe that his conduct was unlawful. In addition, the TBCA requires a
corporation to indemnify a director or officer for any action that such
director or officer is wholly successful in defending on the merits.
The Articles of Incorporation provide that a director of the Registrant will
not be liable to the corporation for monetary damages for an act or omission
in the director's capacity as a director, except to the extent not permitted
by law. Texas law does not permit exculpation of liability in the case of (i)
a breach of the director's duty of loyalty to the corporation or its
shareholders; (ii) an act or omission not in good faith that involves
intentional misconduct or a knowing violation of the law; (iii) a transaction
from which a director received an improper benefit, whether or not the benefit
resulted from an action taken within the scope of the director's office; (iv)
an act or omission for which the liability of the director is expressly
provided by statute; or (v) an act related to an unlawful stock repurchase or
payment of dividend.
The Form of Underwriting Agreement filed herewith as Exhibit 1.1, under
certain circumstances, provides for indemnification by the Underwriters of the
directors, officers and controlling persons of the Company.
The Company intends to purchase liability insurance policies covering the
directors and officers of the Company, including, to provide protection where
the Company cannot legally indemnify a director or officer
II-1
<PAGE>
and where a claim arises under the Employee Retirement Income Security Act of
1974 against a director or officer based on an alleged breach of fiduciary
duty or other wrongful act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
All information set forth in this Item 15 gives effect to a 100-for-one
stock split with respect to the Common Stock and Preferred Stock of tghe
Company effected on December 16, 1996.
In connection with the initial capitalization of the Company, on October 2,
1996, the Company issued 150,000 shares of Common Stock to GulfStar
Investments, Ltd. at a price of $.01 per share for services rendered valued at
$1,500 and 843,840 shares of Common Stock to Richard O. Looney at a price of
$.01 per share for services rendered valued at $8,438.40. On January 17, 1997,
the Company issued: (i) 135,000 shares of Series A Convertible Preferred Stock
to the Trust for Defined Benefit Plans of Zeneca Holdings Inc. at a price of
$1.00 per share for an aggregate sales price of $135,000; (ii) 670,000 shares
of Series A Convertible Preferred Stock to the Delaware State Employees'
Retirement Fund at a price of $1.00 per share for an aggregate sales price of
$670,000; and (iii) 195,000 shares of Series A Convertible Preferred Stock to
the Trust for Defined Benefit Plans of ICI American Holdings Inc. at a price
of $1.00 per share for an aggregate sales price of $195,000. On July 22, 1997,
the Company issued 25,000 shares to David W. Pfleghar at a price of $.01 per
share for an aggregate sales price of $250.00. All of such sales were
completed without registration under the Securities Act in reliance upon the
exemption provided by Section 4(2) of the Securities Act, no public offering
being involved.
On January 17, 1997, the Company acquired all the issued and outstanding
capital stock of Looney & Company in exchange for cash and the issuance of
2,000,000 (2,046,667 as a result of a post-closing adjustment on June 23,
1997) shares of Series B Convertible Preferred to Richard O. Looney. On that
date, the Company also acquired all the issued and outstanding capital stock
of Klein, Bury & Associates in exchange for cash and the issuance of 170,600
shares of Common Stock to Michael Klein. On April 3, 1997, the Company
acquired all the assets of Cindi Rogers & Associates, Inc. in exchange for the
payment of cash and the issuance of 5,000 shares of Common Stock to Cynthia A.
Rogers. In connection with its acquisition of all the assets of San Francisco
Reporting Service, the Company paid cash and issued 15,304 shares of Common
Stock each to Jay Harbidge and Richard Posner on May 14, 1997, and 115,625
shares of Series C Convertible Preferred Stock each to Jay Harbidge and
Richard Posner on June 23, 1997. On May 19, 1997, the Company acquired all the
assets of G&G Court Reporters in exchange for cash and the issuance of a
$345,750 Convertible Subordinated Promissory Note and a $691,750 Convertible
Subordinated Promissory Note to the Giammanco Family Trust. On August 19,
1997, the Company acquired all the issued and outstanding capital stock of
Goren of Newport, Inc. d/b/a/ Johnson Court Reporting in exchange for cash and
the issuance of a $78,401 Convertible Subordinated Promissory Note and
46,118.117 shares of Common Stock to Glory Johnson. On that date the Company
also acquired all the issued and outstanding capital stock of RapidText, Inc.
in exchange for cash and the issuance of a $22,738 Convertible Subordinated
Promissory Note and 13,375.529 shares of Common Stock to Glory Johnson and a
$37,598 Convertible Subordinated Promissory Note and 22,116.471 shares of
Common Stock to Seaquestor Trust. On that date the Company also acquired all
the issued and outstanding capital stock of MedText, Inc. in exchange for cash
and the issuance of a $107,023 Convertible Subordinated Promissory Note and
60,865.764 shares of Common Stock to Seaquestor Trust. On August 28, 1997, the
Company acquired all the assets of Encore Court Reporting in exchange for cash
and the issuance of 2,941 shares of Common Stock to Jan Coldren. On August 29,
1997, the Company acquired all the assets of Legal Enterprise, Inc. in
exchange for cash and the issuance of a $319,340 Convertible Subordinated
Promissory Note and a $821,160 Convertible Subordinated Promissory Note to
Legal Enterprise, Inc. On September 4, 1997, the Company acquired all the
capital stock of Block Court Reporting, Inc. in exchange for cash and the
issuance of a $240,000 Convertible Subordinated Promissory Note and a $360,000
Convertible Subordinated Promissory Note to Martin H. Block. On that date, the
Company also acquired all the assets of Amicus One Legal Support Services,
Inc. in exchange for cash and the issuance of a $560,000 Convertible
Subordinated Promissory Note and 116,471 shares of Common Stock to Amicus One.
On September 17, 1997, the Company acquired all the issued and outstanding
capital stock of Burton House, Inc. d.b.a. Ziskind, Greene, Watanabe & Nason
in exchange for cash and the issuance of 158,824 shares of Common
II-2
<PAGE>
Stock to Gregg M. Ziskind and Susan L. Ziskind. On that date the Company also
acquired all the assets of Elaine P. Dine, Inc. and Elaine P. Dine Temporary
Attorneys, L.L.C. in exchange for cash and the issuance of a $2,000,000
Convertible Subordinated Promissory Note and 76,471 shares of Common Stock to
such companies. All of such sales were completed without registration under
the Securities Act in reliance upon the exemption provided by Section 4(2) of
the Securities Act, no public offering being involved.
On January 17, 1997, the Company granted options to purchase 96,160 shares
of Common Stock to certain employees or other optionees of Looney & Company
and Klein Bury at exercise prices ranging from $.01 to $.10 in exchange for
options previously granted to such employees and optionees by such companies.
On September 17, 1997, the Company granted options to purchase 41,176 shares
of Common Stock to certain employees of Elaine P. Dine, Inc. at an exercise
price of $.01 per share in exchange for options previously granted to such
employees by such company. On September 25, 1997, options to purchase 12,480
shares of Common Stock were exercised at a price of $.01 per share for an
aggregate sales price of $124.80. All of such sales were completed without
registration under the Securities Act in reliance upon the exemption provided
by Section 4(2) of the Securities Act, no public offering being involved. In
addition, the Company believes that the exemption provided by Rule 701
promulgated under the Securities Act is applicable to such sales.
On September 8, 1997, the Company sold a number of shares of Common Stock
equal to $1,072,604 divided by 90% of the initial public offering price per
share to Kirby A. Kennedy & Associates in connection with a definitive
agreement in which the Company will acquire all of the assets of Kirby A.
Kennedy & Associates in exchange for cash and the issuance of such shares. On
September 15, 1997, the Company sold a number of shares of Common Stock equal
to $2,400,000 divided by 90% of the initial public offering price per share to
Colleen Jilio in connection with a definitive agreement in which the Company
will acquire all of the assets of Jilio & Associates in exchange for cash and
the issuance of such shares. On September 25, 1997, the Company sold a number
of shares of Common Stock equal to $2,500,000 divided by 90% of the initial
public offering price per share to Reporting Services Associates, Inc. in
connection with a definitive agreement in which the Company will acquire all
of the assets of Reporting Service Associates in exchange for cash and the
issuance of such shares. On that date the Company also sold a number of shares
of Common Stock equal to $607,500 divided by 90% of the initial public
offering price per share to James M. Wilson in connection with a definitive
agreement in which the Company will acquire all of the assets of Commander
Wilson Incorporated in exchange for cash and the issuance of such shares. All
of such sales were completed without registration under the Securities Act in
reliance upon the exemption provided by Section 4(2) of the Securities Act, no
public offering being involved. The shares of Common Stock referred to in this
paragraph will be issued and delivered simultaneously with the consummation of
the Offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1* Form of Underwriting Agreement between the Company and the
Underwriters named therein.
3.1 Articles of Incorporation, as amended, of the Company.
3.2 Bylaws of the Company, as amended.
4.1* Form of Certificate representing the Common Stock, par value $.01
per share, of the Company.
4.2 Registration Rights Agreement between the Company and Richard O.
Looney, dated
January 17, 1997.
4.3 Registration Rights Agreement between the Company and Michael
Klein, dated
January 17, 1997.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.4 Registration Rights Agreement between the Company and certain
purchasers, dated
January 17, 1997.
4.5 Form of Registration Rights Agreement among the Company and
certain holders of the Common Stock.
4.6 Securityholders Agreement among Litigation Resources of America,
Inc., the Investors named therein and the Shareholders named
therein, dated January 17, 1997, as amended.
5.1* Opinion of Bracewell & Patterson, L.L.P. as to the validity of the
Common Stock being offered.
10.1 U.S. Legal Support, Inc. 1997 Stock Incentive Plan.
10.2 Form of Option Agreement for 1997 Stock Incentive Plan.
10.3 U.S. Legal Support, Inc. 1997 Non-Employee Directors Stock Option
Plan.
10.4 Form of Option Agreement for Non-Employee Directors Stock Option
Plan.
10.5 Stock Purchase Agreement by and between Litigation Resources of
America, Inc. and Richard O. Looney, dated as of January 17, 1997.
10.6 Stock Purchase Agreement by and between Litigation Resources of
America, Inc. and Michael Klein, dated as of January 17, 1997.
10.7 Securities Purchase Agreement by and among Litigation Resources of
America, Inc. (the "Company"), the Subsidiaries of the Company
listed on the signature pages thereto and the Investors listed on
the signature pages thereto, dated as of January 17, 1997, as
amended.
10.8 Agreement of Purchase and Sale of Assets by and between Litigation
Resources of America--California, Inc. and San Francisco Reporting
Service, dated May 14, 1997.
10.9 Agreement of Purchase and Sale of Assets by and between Litigation
Resources of America--California, Inc., Litigation Resources of
America, Inc., Peter Giammanco and Leslie Giammanco, individuals
d/b/a G&G Court Reporters, and Peter Giammanco and Leslie
Giammanco as Trustees of the Giammanco Family Trust, dated as of
May 19, 1997.
10.10 Letter Agreement by and between Sandra Rocca and Litigation
Resources of America--Midwest, Inc., dated August 15, 1997
10.11 Plan and Agreement of Reorganization and Merger by and among
Litigation Resources of America--California, Inc., Goren of
Newport, Inc. d/b/a Johnson Court Reporting, Glory Johnson and
Litigation Resources of America, dated as of August 19, 1997.
10.12 Plan and Agreement of Reorganization and Merger by and among
Litigation Resources of America--California, Inc., RapidText,
Inc., Seaquestor Trust, Glory Johnson and Litigation Resources of
America, dated as of August 19, 1997.
10.13 Plan and Agreement of Reorganization and Merger by and among
Litigation Resources of America--California, Inc., MedText, Inc.,
Seaquestor Trust and Litigation Resources of America, dated as of
August 19, 1997.
10.14 Agreement of Purchase and Sale of Assets by an among Litigation
Resources of America--California, Inc., Litigation Resources of
America, Inc., Legal Enterprise, Inc., Tony L. Maddocks and Alan
Simon, dated as of August 29, 1997.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.15 Agreement of Purchase and Sale of Assets by an among Litigation
Resources of America--Northeast, Inc., Litigation Resources of
America, Inc., Amicus One Legal Support Services, Inc., Richard A.
Portas, Joseph N. Spinozzi, Carl Anderson and Howard Breshin,
dated as of September 4, 1997.
10.16 Stock Purchase Agreement by and between Litigation Resources of
America, Inc., Litigation Resources of America--Northeast, Inc.,
and Martin H. Block, dated as of September 4, 1997.
10.17 Agreement of Purchase and Sale of Assets by an among Litigation
Resources of America--Midwest, Inc., Litigation Resources of
America, Inc., Kirby A. Kennedy & Associates, Kirby A. Kennedy and
Jeanne M. Kennedy, dated as of September 8, 1997.
10.18 Agreement of Purchase and Sale of Assets by an among Litigation
Resources of America--California, Inc., Litigation Resources of
America, Inc., and Colleen Jilio, a resident of California d.b.a.
Jilio & Associates, dated as of September 15, 1997.
10.19 Agreement of Purchase and Sale of Assets by an among Litigation
Resources of America--Northeast, Inc., Litigation Resources of
America, Inc., Elaine P. Dine, Inc., Elaine P. Dine Temporary
Attorneys, L.L.C., Elaine P. Siegel ane Laurie Becker, dated as of
September 17, 1997.
10.20 Stock Purchase Agreement by and between Litigation Resources of
America, Inc., Litigation Resources of America--California, Inc.,
Gregg M. Ziskind and Susan L. Ziskind, dated as of September 17,
1997.
10.21 Agreement of Purchase and Sale of Assets by an among Looney &
Company, U.S. Legal Support, Inc. and James M. Wilson, a resident
of Houston, Texas d.b.a Commander Wilson, Incorporated, dated as
of September 25, 1997.
10.22 Agreement of Purchase and Sale of Assets by an among Litigation
Resources of America--Northeast, Inc., Litigation Resources of
America, Inc., Reporting Services Associates, Inc. and Lee
Goldstein, dated as of September 25, 1997.
10.23* Employment Agreement by and among the Company, Looney & Company
and Richard O. Looney, dated January 17, 1997, as amended.
10.24* Employment Agreement by and among the Company, Klein, Bury &
Associates and Michael Klein, dated January 17, 1997, as amended.
10.25 Employment Agreement by and among the Company, Litigation
Resources of America--California, Inc. and Tony L. Maddocks, dated
August 29, 1997.
10.26 Employment Agreement dated September 25, 1997 by and among the
Company and James M. Wilson dated September 25, 1997.
10.27 Letter Agreement dated May 7, 1997 by and between James M. Wilson
d.b.a. Commander Wilson, Inc. and the Company.
10.28 Termination of Letter Agreement Dated May 7, 1997, between James
M. Wilson d.b.a. Commander Wilson, Inc. and the Company, dated
September 25, 1997.
10.29 Letter Agreement dated April 24, 1997 by and between the Company
and The GulfStar Group, Inc.
10.30 Fourth Amended and Restated Bank Credit Agreement among the
Company, its subsidiaries and Texas Commerce Bank, National
Association.
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
11.1 Computation of Historical and SAB No. 55 Earnings Per Share.
11.2 Computation of Pro Forma Earnings Per Share.
21.1 Subsidiaries of the Company.
23.1* Consent of Bracewell & Patterson, L.L.P. (included in its opinion
filed as Exhibit 5 hereto).
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Fentress Bracewell.
24.1 Powers of Attorney (See page II-7).
27 Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.
(b) Financial Statement Schedules
The following financial statement schedules are included herein.
Schedule II--Valuation and Qualifying Accounts.
All other schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions,
are inapplicable, or the information is included in the consolidated financial
statements, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to provide to the
Underwriters at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as required
by the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Company pursuant to the provisions described in Item 14, or
otherwise, the Company has been advised that in the opinion of the
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 payment by
the Company of expenses incurred or paid by a director, officer or
controlling person of the Company 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 Company
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.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933 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.
(2) For the purpose of determining any liability under the Securities
Act of 1933, 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 deemed to be the initial bona fide offering
thereof.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, U.S. LEGAL
SUPPORT, INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT OR AMENDMENT THERETO
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
THE CITY OF HOUSTON, STATE OF TEXAS, ON SEPTEMBER 25, 1997.
U.S. Legal Support, Inc.
/s/ Richard O. Looney
By: _________________________________
Richard O. Looney
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Richard O. Looney and David W. Pfleghar, or either of them, the undersigned's
true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for the undersigned and in the undersigned's name, place
and stead, in any and all capacities (until revoked in writing), to sign this
Registration Statement, any Registration Statement filed pursuant to Rule
462(b), and any and all amendments (including post-effective amendments)
thereto, to file the same, together with all exhibits thereto and documents in
connection therewith, with the Securities and Exchange Commission, to sign any
and all applications, registration statements, notices and other documents
necessary or advisable to comply with the applicable state securities
authorities, granting unto said attorney-in-fact and agent, or their
substitute or substitutes, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises in order to effectuate the same as fully to all intents and purposes
as the undersigned might or could do if personally present, thereby ratifying
and confirming all that said attorneys-in-fact and agents, or their substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT OR AMENDMENT THERETO HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE INDICATED CAPACITIES ON SEPTEMBER 25, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ Richard O. Looney
------------------------------------
Richard O. Looney Director, President and Chief Executive Officer
(principal executive officer)
/s/ David W. Pfleghar
------------------------------------
David W. Pfleghar Vice President, Chief Financial Officer and
Treasurer (principal financial and accounting
officer)
/s/ Michael A. Klein
------------------------------------
Michael A. Klein Director
/s/ Robert J. Cresci
------------------------------------
Robert J. Cresci Director
/s/ G. Kent Kahle
------------------------------------
G. Kent Kahle Director
</TABLE>
II-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
U.S. Legal Support, Inc.:
In connection with our audits of the financial statements of Looney &
Company as of December 31, 1995 and 1996, and for each of the three years in
the period December 31, 1996, which financial statements are included in the
Prospectus, we have also audited the financial statement schedule listed on S-
2 herein.
In our opinion, the financial statement schedule, when considered in
relation to the basic financial statements taken as whole, presents fairly, in
all material respects, the information required to be included herein.
COOPERS & LYBRAND L.L.P.
Houston, Texas
September 5, 1997
S-1
<PAGE>
LOONEY & COMPANY
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE CHARGED BALANCE
BEGINNING TO AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OTHER (1) OF PERIOD
----------- --------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1994:
Allowance for
uncollectible accounts... $ 32 $ 28 $-- $ -- $ 60
==== ==== === ==== ====
Year ended December 31,
1995:
Allowance for
uncollectible accounts... $ 60 $ 83 $-- $ -- $143
==== ==== === ==== ====
Year ended December 31,
1996:
Allowance for
uncollectible accounts... $143 $ 80 $-- $ -- $223
==== ==== === ==== ====
Six months ended June 30,
1997 (Unaudited):
Allowance for
uncollectible accounts... $223 $117 $-- $252 $592
==== ==== === ==== ====
</TABLE>
- --------
(1) Acquired allowances for uncollectible accounts in acquisitions.
S-2
<PAGE>
EXHIBIT 3.1
[LOGO OF THE STATE OF TEXAS APPEARS HERE]
THE STATE OF TEXAS
SECRETARY OF STATE
CERTIFICATE OF INCORPORATION
OF
U.S. REPORTING & RECORDS, INC.
CHARTER NUMBER 01417594
THE UNDERSIGNED, AS SECRETARY OF STATE OF THE STATE OF TEXAS, HEREBY
CERTIFIES THAT THE ATTACHED ARTICLES OF INCORPORATION FOR THE ABOVE NAME
CORPORATION HAVE BEEN RECEIVED IN THIS OFFICE AND ARE FOUND TO CONFORM TO LAW.
ACCORDINGLY, THE UNDERSIGNED, AS SECRETARY OF STATE, AND BY VIRTUE OF THE
AUTHORITY VESTED IN THE SECRETARY BY LAW, HEREBY ISSUES THIS CERTIFICATE OF
INCORPORATION.
ISSUANCE OF THIS CERTIFICATE OF INCORPORATION DOES NOT AUTHORIZE THE USE OF
A CORPORATE NAME IN THIS STATE IN VIOLATION OF THE RIGHTS OF ANOTHER UNDER THE
FEDERAL TRADEMARK ACT OF 1946, THE TEXAS TRADEMARK LAW, THE ASSUMED BUSINESS
OR PROFESSIONAL NAME ACT OR THE COMMON LAW.
DATE OCT. 2, 1996
EFFECTIVE OCT. 2, 1996
[LOGO OF THE STATE OF TEXAS APPEARS HERE]
/s/ Antonio O. Garza, Jr.
-----------------------------------------
Antonio O. Garza, Jr., Secretary of State
<PAGE>
ARTICLES OF INCORPORATION
OF
U.S. REPORTING & RECORDS, INC.
The undersigned natural person, being of the age of eighteen (18) years or
more, acting as incorporator of a corporation (the "Corporation") under the
Texas Business Corporation Act, does hereby adopt the following Articles of
Incorporation for the Corporation:
ARTICLE I
Name
----
The name of the Corporation is U. S. Reporting & Records, Inc.
ARTICLE II
Duration
--------
The period of the duration of the Corporation is perpetual.
ARTICLE III
Purpose and Powers
------------------
The purpose or purposes for which the Corporation is organized are:
To transact any and all lawful business for which corporations may be
incorporated under the Texas Business Corporation Act.
ARTICLE IV
Capital Stock
-------------
Section 1. Authorized Shares. The total number of shares of stock which the
-----------------
Corporation shall have authority to issue is 101,000,000, of which stock
(1,000,000 shares of the par value of $1,000,00 each, amounting in the aggregate
to) $1,000,00, shall be designated Preferred Stock (hereinafter referred to as
"Preferred Stock"), and of which stock 100,000,000 shares of the par value of
$1.00 each, shall be designated Common Stock (hereinafter referred to as "Common
Stock").
Section 2. Issuance of Preferred Stock in Series. Shares of Preferred Stock
-------------------------------------
may be issued from time to time in one or more series, each such series to have
distinctive serial designations, as shall hereafter be created and determined in
the resolution or resolutions providing for the issue of such Preferred Stock
from time to time adopted by the Board of Directors of the Corporation pursuant
to authority so to do, which is hereby vested in the Board of Directors of the
Corporation.
Section 3. Characteristics of Preferred Stock. Each series of Preferred
----------------------------------
Stock:
(a) may have such number of shares;
<PAGE>
(b) may have such voting powers, full or limited, or may be without voting
powers;
(c) may be subject to redemption at such time or times and at such prices;
(d) may be entitled to receive dividends (which may be cumulative or
noncumulative) at such rate or rates, on such conditions, from such
date or dates, and at such times, and payable in preference to, or in
such relation to, the dividends payable on any other class or classes
or series of stock;
(e) may have such rights upon the dissolution or liquidation of, or upon
any distribution of the assets of, the Corporation;
(f) may be made convertible into, or exchangeable for, shares of any other
class or classes or of any other series of the same or any other class
or classes of stock of the Corporation at such price or prices or at
such rates of exchange, and with such adjustments;
(g) may be entitled to the benefit of a sinking fund or purchase fund to
be applied to the purchase or redemption of shares of such series in
such amount or amounts;
(h) may be entitled to the benefit of conditions and restrictions upon the
creation of indebtedness of the Corporation or any subsidiary, upon
the issue of any additional stock (including additional shares of such
series or of any other series) and upon the payment of dividends or
the making of other distributions on, and the purchase, redemption or
other acquisition by the Corporation or any subsidiary of any
outstanding stock of the Corporation; and
(i) may have such other relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof;
all as shall be stated in such resolution or resolutions of the Board of
Directors of the Corporation providing for the issue of such Preferred Stock in
one or more series created thereby.
Section 4. Increase or Decrease in Shares of a Series. Except where
------------------------------------------
otherwise adopted by the Board of Directors of the Corporation providing for
the issue of any series of Preferred Stock created thereby, the number of shares
comprising such series may be increased or decreased (but not below the number
of shares then outstanding) from time to time by like action of the Board of
Directors of the Corporation.
Section 5. Reissuance of Shares of Preferred Stock. Shares of any series of
---------------------------------------
Preferred Stock which have been redeemed (whether through the operation of a
sinking fund or otherwise), purchased or otherwise acquired by the Corporation,
or which, if convertible or exchangeable, have been converted into or exchanged
for shares of stock of any other class or classes, shall have the status of
authorized and unissued shares of Preferred Stock and may be reissued as part of
the series of which they were originally a part or may be reclassified or
reissued as part of a new series of Preferred Stock to be created by resolution
or resolutions of the Board of Directors or as part of any other series of
Preferred Stock, all subject to the conditions
-2-
<PAGE>
or restrictions adopted by the Board of Directors of the Corporation providing
for the issue of any series of Preferred Stock and to any filing required by
law.
Section 6. Rights and Voting. Each share of Common Stock shall entitle
-----------------
the holder thereof to one vote, in person or by proxy, at any and all meetings
of the shareholders of the Corporation on all propositions before such meetings.
Section 7. Dividends. Subject to all of the rights of the Preferred
---------
Stock or any series thereof, the holders of Common Stock shall be entitled to
receive, when, as and if by the Board of Directors of the Corporation, out of
funds legally available therefor, dividends payable in cash, stock or otherwise.
Section 8. Liquidation, Dissolution and Winding Up. Upon any
---------------------------------------
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, and after the holders of the Preferred Stock of each series shall
have been paid in full the amounts to which they respectively shall be entitled,
or a sum sufficient for such payments in full shall have been set aside, the
remaining net assets of the Corporation shall be distributed pro rata to the
holders of Common Stock in accordance with their respective rights and
interests, to the exclusion of the holders of the Preferred Stock.
ARTICLE V
Initial Consideration for Issuance of Shares
--------------------------------------------
The Corporation will not commence business until it has received for
the issuance of its shares consideration of the value of One Thousand
Dollars($1,000.00), consisting of money, labor done, or property actually
received.
ARTICLE VI
Initial Registered Office and Agent
-----------------------------------
The post office address of its initial registered office is Nine
Greenway Plaza, Suite 3100, Houston, Texas 77046, and the name of its initial
registered agent at such address is J. Randolph Ewing.
ARTICLE VII
Board of Directors
------------------
The initial Board of Directors consists of one (1) director, and the
name and address of the person to serve as the initial sole director of the
corporation until the first annual meeting of shareholders or until his
successors are elected and qualified is:
NAME ADDRESS
---- -------
Richard O. Looney 1001 Fannin, Suite 650
Houston, Texas 77002
-3-
<PAGE>
The number of directors constituting the Board of Directors shall be
fixed by, or in the manner provided in, the Bylaws or amendments thereto.
ARTICLE VIII
Voting: Cumulative Voting Denied
--------------------------------
No shareholder shall have the right to cumulate his votes for the
election of directors, but each share shall be entitled to one vote in the
election of each director and for all other purposes. A majority is sufficient
for any action which requires the vote or concurrence of shareholders. Any
action required to be taken or which may be taken at a meeting of the
shareholders may be taken without a meeting, without prior notice and without a
vote if a written consent setting forth the action so taken has been signed by
those shareholders holding a majority of the votes entitled to vote on such
action.
ARTICLE IX
Denial of Preemptive Rights
---------------------------
No shareholder of the Corporation or any other person shall have any
preemptive right whatsoever to acquire additional, unissued, or treasury shares
of the Corporation, or securities of the Corporation convertible into or
carrying a right to subscribe to or acquire shares or other securities of the
Corporation.
ARTICLE X
Incorporator
------------
The name and address of the incorporator is as follows:
NAME ADDRESS
---- -------
J. Randolph Ewing 9 Greenway Plaza, Suite 3100
Houston, Texas 77046
ARTICLE XI
Bylaws
------
The initial Bylaws of the Corporation shall be adopted by its Board of
Directors. The power to alter, amend, or repeal the Bylaws or adopt new Bylaws
is vested in the Board of Directors, subject to repeal or change by action of
the shareholders.
ARTICLE XII
Limitation of Liability
-----------------------
A director of the Corporation shall not be liable to the Corporation
or its shareholders for monetary damages for an act or omission made in the
director's capacity as a director, except for the following:
-4-
<PAGE>
(A) a breach of the director's duty of loyalty to the
Corporation or its shareholders;
(B) an act or omission not in good faith or that involves
intentional misconduct or a knowing violation of the law;
(C) a transaction from which the director received an
improper benefit, whether or not the benefit resulted from an
action taken within the scope of the director's office;
(D) an act or omission for which the liability of the
director is expressly provided by statute; or
(E) an act related to an unlawful stock repurchase or
payment of dividend.
Any repeal or amendment of this Article by the shareholders of
the Corporation shall be prospective only, and shall not adversely effect any
limitation on the liability of a director of the Corporation existing at the
time of such repeal or amendment. In addition to the circumstances in which a
director shall not be liable pursuant to the provisions of this Article XII, a
director shall not be liable to the fullest extent permitted by any provision of
the statutes of Texas hereafter enacted that further limits the liability of a
director.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 1st day of October, 1996.
INCORPORATOR:
------------
/s/ J. Randolph Ewing
---------------------------------
J. RANDOLPH EWING
-5-
<PAGE>
[LOGO OF STATE OF TEXAS APPEARS HERE]
THE STATE OF TEXAS
SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
FOR
LITIGATION RESOURCES OF AMERICA, INC.
FORMERLY
U.S. REPORTING & RECORDS, INC.
CHARTER NUMBER 01417594
THE UNDERSIGNED, AS SECRETARY OF STATE OF THE STATE OF TEXAS, HEREBY
CERTIFIES THAT THE ATTACHED ARTICLES OF AMENDMENT FOR THE ABOVE NAMED ENTITY
HAVE BEEN RECEIVED IN THIS OFFICE AND ARE FOUND TO CONFORM TO LAW.
ACCORDINGLY THE UNDERSIGNED, AS SECRETARY OF STATE, AND BY VIRTUE OF THE
AUTHORITY VESTED IN THE SECRETARY BY LAW, HEREBY ISSUES THIS CERTIFICATE OF
AMENDMENT.
DATED DEC. 16, 1996
EFFECTIVE DEC. 16, 1996
[LOGO OF STATE OF TEXAS APPEARS HERE]
/s/ Antonio O. Garza, Jr.,
------------------------------------------
Antonio O. Garza, Jr., Secretary of State
<PAGE>
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
U.S. REPORTING & RECORDS, INC.
*****
PURSUANT to the provisions of the Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation (the "Corporation") adopts the
following Articles of Amendment to its Articles of Incorporation:
ARTICLE ONE
The name of the Corporation is U.S. Reporting & Records, Inc.
ARTICLE TWO
The following amendments to the Articles of Incorporation was adopted
by all the sole shareholder of the Corporation on December 16, 1996:
Article I of the original Articles of Incorporation of the
Corporation is amended in its entirety so that, as
amended, the full text of the amended Article One is as
follows:
"ARTICLE I
Name
The name of the Corporation is Litigation
Resources of America, Inc."
Section 1 of Article IV of the Articles of Incorporation
of the Corporation is amended in its entirety so that, as
amended, the full text of amended Article IV, Section 1,
is as follows:
"Section 1. Authorized Shares. The total
-----------------
number of shares of stock which the Corporation
shall have authority to issue is 110,000,000,
of which stock 10,000,000 shares of the par
value of $1.00 each shall be designated
Preferred Stock (hereinafter referred to as
"Preferred Stock"), and of which stock
100,000,000 shares of the par value of $.01
each, shall be designated Common Stock
(hereinafter referred to as "Common Stock")."
<PAGE>
ARTICLE THREE
Such amendment made by these Articles of Amendment has been effected
in conformity with the Texas Business Corporation Act. The number of shares of
the Corporation outstanding at the time of such adoption was 1,500 shares of
common stock, $1.00 par value per share ("Common Stock"), and the number of
shares entitled to vote thereon was 1,500 shares of Common Stock.
ARTICLE FOUR
Holders of the number of shares of Common Stock required to adopt this
amendment have signed a consent in writing pursuant to Article 9.10 adopting
such amendment.
ARTICLE FIVE
The manner in which any exchange, reclassification or cancellation of
the issued shares provided for in these amendments are effected is as follows:
Each share of the presently issued and outstanding
Common Stock, $1.00 par value per share ("Old Stock"),
without any action on the part of the holder thereof
or the Board of Directors of the Corporation, will
be converted into and constitute one hundred (100)
shares of fully paid and nonassessable shares of
Common Stock, $.01 par value per share ("New Stock").
All certificates representing the shares of Old Stock
will automatically be deemed to represent one hundred
(100) times that number of shares of New Stock.
ARTICLE SIX
This amendment effects no change in the amount of stated capital of
the Corporation.
DATED: December 16, 1996.
U.S. REPORTING & RECORDS, INC.
By:/s/ G. Kent Kahle
-----------------------------
G. Kent Kahle, President
<PAGE>
[LOGO OF STATE OF TEXAS APPEARS HERE]
THE STATE OF TEXAS
SECRETARY OF STATE
CERTIFICATE OF CORRECTION
OF
LITIGATION RESOURCES OF AMERICA, INC.
CHARTER NUMBER 01417594
THE UNDERSIGNED, AS SECRETARY OF STATE OF THE STATE OF TEXAS, HEREBY
CERTIFIES THAT THE ATTACHED ARTICLES OF CORRECTION, DULY SIGNED HAVE BEEN
RECEIVED IN THIS OFFICE AND ARE FOUND TO CONFORM TO LAW.
ACCORDINGLY THE UNDERSIGNED, AS SUCH SECRETARY OF STATE, AND BY VIRTUE OF
THE AUTHORITY VESTED IN THE SECRETARY BY LAW, ISSUES THIS CERTIFICATE AND
ATTACHES HERETO A COPY.
DATED JAN. 14, 1997
[LOGO OF THE STATE OF TEXAS APPEARS HERE]
/s/ Antonio O. Garza, Jr.
------------------------------------------
Antonio O. Garza, Jr., Secretary of State
<PAGE>
ARTICLES OF CORRECTION
----------------------
These Articles of Correction are adopted to correct a document which is an
inaccurate record of the action of a Texas corporation, contains an inaccurate
or erroneous statement or was defectively or erroneously executed, sealed,
acknowledged or verified.
ARTICLE ONE
-----------
The name of the corporation is LITIGATION RESOURCES OF AMERICA, INC.
ARTICLE TWO
-----------
The document to be corrected is the Articles of Amendment of Articles of
Incorporation (the "Articles of Amendment") of U.S. Reporting & Records, Inc.,
a Texas corporation which is now known as Litigation Resources of America, Inc.
(the "Corporation"), which were filed in the Office of the Secretary of State of
Texas on the 16th day of December, 1996.
ARTICLE THREE
-------------
Article Three of the Articles of Amendment stated that the number of shares
outstanding and the number of shares entitled to vote thereon at the time of the
adoption of the Articles of Amendment was 1,500 shares of common stock, when in
fact the number of shares outstanding and entitled to vote thereon was 9,938.40.
ARTICLE FOUR
------------
Article Three of the Articles of Amendment, as corrected, reads as
follows:
" ARTICLE THREE
Such amendment made by these Articles of Amendment has been
effected in conformity with the Texas Business Corporation Act. The
number of shares of the Corporation outstanding at the time of such
adoption was 9,938.40 shares of common stock, $1.00 par value per
share ("Common Stock"), and the number of shares entitled to vote
thereon was 9,938.4 shares of Common Stock."
<PAGE>
LITIGATION RESOURCES OF
AMERICA, INC.
By: /s/ G. Kent Kahle
--------------------------------
G. Kent Kahle, President
<PAGE>
[LOGO OF STATE OF TEXAS APPEARS HERE]
THE STATE OF TEXAS
SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
OF
U.S. LEGAL SUPPORT, INC.
FORMERLY: LITIGATION RESOURCES OF AMERICA, INC.
THE UNDERSIGNED, AS SECRETARY OF STATE OF TEXAS, HEREBY CERTIFIES THAT THE
ATTACHED ARTICLES OF AMENDMENT FOR THE ABOVE NAMED ENTITY HAVE BEEN RECEIVED IN
THIS OFFICE AND ARE FOUND TO CONFORM TO LAW.
ACCORDINGLY THE UNDERSIGNED, AS SECRETARY OF STATE, AND BY VIRTUE OF THE
AUTHORITY VESTED IN THE SECRETARY BY LAW, HEREBY ISSUES THIS CERTIFICATE OF
AMENDMENT.
DATED: SEPTEMBER 25, 1997
EFFECTIVE: SEPTEMBER 25, 1997
[LOGO OF THE STATE OF TEXAS APPEARS HERE]
/s/ Antonio O. Garza, Jr.
---------------------------
Antonio O. Garza, Jr.
Secretary of State
<PAGE>
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF LITIGATION RESOURCES OF AMERICA, INC.
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act ("TBCA"), the undersigned corporation adopts the following
Articles of Amendment to its Articles of Incorporation, as amended:
ARTICLE ONE
The name of the corporation is Litigation Resources of America, Inc.
ARTICLE TWO
The following amendment to the amended Articles of Incorporation was
adopted by a majority of the outstanding shares entitled to vote thereon on
September 24, 1997:
Article I of the amended Articles of Incorporation shall be deleted in
its entirety and is hereby amended to read as follows:
"ARTICLE ONE
The name of the corporation is U.S. Legal Support, Inc."
<PAGE>
ARTICLE THREE
VOTING ON AMENDMENT
- --------------------------------------------------------------------------------
No. of No. of
No. of Shares No. of Shares
Shares Entitled to Shares Voted
Class or Series Outstanding Vote Voted For Against
- --------------------------------------------------------------------------------
Common 2,722,231 2,722,231 2,189,440 0
Stock, par value
$.01 per share,
and Series A
Convertible
Preferred Stock,
par value $1.00
per share
- --------------------------------------------------------------------------------
ARTICLE FOUR
The holders of a majority of the shares outstanding and entitled to vote on
the above amendment have signed a consent in writing pursuant to Article 9.10 of
the TBCA adopting the amendment and any written notice required by Article 9.10
has been given or waived.
Dated: September 24, 1997
LITIGATION RESOURCES OF AMERICA, INC.
/s/ RICHARD O. LOONEY
-------------------------------------
Richard O. Looney, President
-2-
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
U.S. LEGAL SUPPORT, INC.
A TEXAS CORPORATION
Date of Adoption: December 16, 1996
Date of Amendment: September 25, 1997
<PAGE>
BYLAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article I. Offices and Records
-------------------
Section 1. Registered Office ....................................... 1
Section 2. Other Offices............................................ 1
Section 3. Records.................................................. 1
Article II. Shareholders
------------
Section 1. Meetings of Shareholders................................. 1
Section 2. Annual Meeting........................................... 1
Section 3. Special Meetings......................................... 1
Section 4. Notices of Shareholders' Meetings........................ 2
Section 5. Quorum of Shareholders................................... 2
Section 6. Adjournments of Annual and Special Meetings of
Shareholders............................................ 2
Section 7. Procedure at Meetings of Shareholders.................... 2
Section 8. Attendance and Proxies................................... 3
Section 9 Voting of Shares......................................... 4
Section 10. Voting of Shares Owned by Another Corporation............ 4
Section 11. Shares Held by Fiduciaries, Receivers, Pledgees.......... 5
Section 12. Decisions at Meetings of Shareholders.................... 5
Section 13. List of Shareholders..................................... 5
Section 14. Record Date.............................................. 5
Section 15. Action by Written Consent................................ 6
Section 16. Meeting by Telephone or Similar Communications Equipment. 6
Article III. Board of Directors
------------------
Section 1. Board of Directors....................................... 6
Section 2. Number of Directors...................................... 6
Section 3. Election and Term........................................ 7
Section 4. Resignation.............................................. 7
Section 5. Vacancy and Increase..................................... 7
Section 6. Removal.................................................. 7
Section 7. Meeting of Directors..................................... 7
Section 8. First Meeting............................................ 7
Section 9. Election of Officers..................................... 7
Section 10. Regular Meetings......................................... 8
Section 11. Special Meetings......................................... 8
Section 12. Notice................................................... 8
Section 13. Business to be Transacted................................ 8
Section 14. Quorum - Adjournment if Quorum is Not Present............ 8
Section 15 Order of Business........................................ 8
Section 16. Presumption of Asset..................................... 9
Section 17. Compensation............................................. 9
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 18. Action by Unanimous Consent................................................ 9
Section 19. Meeting by Telephone of Similar Communications Equipment................... 9
Section 20. Approval or Ratification of Acts or Contracts by Shareholders.............. 9
Article IV. Officers' and Directors' Services, Conflicting Interests,
Indemnification and Insurance
-----------------------------
Section 1. Services................................................................... 10
Section 2. Directors' and Officers' Interests in Contracts............................ 10
Section 3. Reliance Upon Books, Reports and Records................................... 11
Section 4. Non-Liability of Directors and Officers in Certain Cases................... 11
Section 5. Indemnification of Directors, Officers Employees and Agents................ 11
Article V. Board Committees................................................................ 15
----------------
Article VI. Officers
--------
Section 1. Principal Officers......................................................... 16
Section 2. Additional Officers........................................................ 16
Section 3. Terms of Officers.......................................................... 17
Section 4. Salaries................................................................... 17
Section 5. Removal.................................................................... 17
Section 6. Vacancies.................................................................. 17
Section 7. Powers and Duties of Officers.............................................. 17
Section 8. Chairman of the Board...................................................... 17
Section 9. President.................................................................. 17
Section 10. Vice Presidents............................................................ 17
Section 11. Treasurer.................................................................. 18
Section 12. Assistant Treasurers....................................................... 18
Section 13. Secretary.................................................................. 18
Section 14. Assistant Secretaries...................................................... 18
Section 15. Securities of Other Corporation............................................ 19
Article VII. Books, Documents and Accounts................................................... 19
-----------------------------
Article VIII. Capital Stock
-------------
Section 1. Stock Certificates......................................................... 19
Section 2. Transfers.................................................................. 19
Section 3. Registered Holders......................................................... 20
Section 4. New Certificates........................................................... 20
Section 5. Distributions.............................................................. 20
Section 6. Records Dates and Closing of Transfer Records.............................. 20
Section 7. Regulations................................................................ 21
Article IX. Miscellaneous Provisions
------------------------
Section 1. Fiscal Year................................................................ 21
Section 2. Seal....................................................................... 21
Section 3. Notice and Waiver of Notice................................................ 21
Section 4. Resignations............................................................... 22
Section 5. Depositories............................................................... 22
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
Section 6. Signing of Checks and Notes.......................... 22
Section 7. Gender and Number.................................... 22
Section 8. Laws and Statutes.................................... 22
Section 9. Headings............................................. 22
Article X. Amendments................................................ 23
----------
</TABLE>
(iii)
<PAGE>
U.S. LEGAL SUPPORT, INC.
B Y L A W S
ARTICLE I
OFFICES AND RECORDS
Section 1. Registered Office. Until the Board of Directors otherwise
--------- -----------------
determines, the registered office of the Corporation required by the Texas
Business Corporation Act to be maintained in the State of Texas shall be the
registered office named in the original Articles of Incorporation of the
Corporation, but such registered office may be changed from time to time by the
Board of Directors in the manner provided by law. Should the Corporation
maintain a place of business in Texas, such registered office need not be
identical to the principal place of business of the Corporation.
Section 2. Other Offices. The Corporation may also have offices at such
--------- -------------
other places or locations, within or without the State of Texas, as the Board of
Directors may determine or the business of the Corporation may require.
Section 3. Records. The books and records of the Corporation, except as
--------- -------
otherwise provided by statute or these Bylaws, shall be kept in the offices of
the Corporation or in such other place within or without of the State of Texas
as shall be determined by the Board of Directors.
ARTICLE II
SHAREHOLDERS
Section 1. Meetings of Shareholders. Any meeting of the shareholders,
--------- ------------------------
annual or special, shall be held at the principal place of business of the
Corporation, or at such other place within or without the State of Texas as may
be determined by the Board of Directors. However, any meeting may be held at any
place within or without the State of Texas designated in a waiver or waivers of
notice signed by, or in the aggregate signed by, all of the shareholders.
Section 2. Annual Meeting. An annual meeting of the shareholders shall be
--------- --------------
held at such place, within or without the State of Texas, on such date, and at
such time as the Board of Directors shall fix each year as set forth in the
notice of meeting, which date shall be within thirteen (13) months subsequent to
the later of the date of incorporation or the last annual meeting of
shareholders, for the purpose of electing directors and for the transaction of
any and all such other business as may be properly brought before or submitted
to the meeting. Any and all business of any nature or character whatsoever may
be transacted, and action may be taken thereon, at any annual meeting, except as
otherwise provided by law or by these Bylaws.
Section 3. Special Meetings. Special meetings of the shareholders for any
--------- ----------------
purpose or purposes, unless otherwise prescribed by statute or by law or by the
Articles of Incorporation of the Corporation, may be called by the President,
the Chairman of the Board (if any) or the Board of Directors, and shall be
called by the Chairman of the Board (if any), the President or the Secretary
upon written request therefor, stating the purpose or purposes of the meeting,
delivered to such officer, signed by the then holder(s) of at least ten percent
(10%) of all of the then issued and outstanding shares of the capital stock of
the Corporation entitled to be voted at such meeting.
<PAGE>
Section 4. Notices of Shareholders' Meetings. Written or printed notice
--------- ---------------------------------
stating the place, day and hour of each meeting of the shareholders, and, in
case of a special meeting, the purpose, or purposes for which the meeting is
called, shall be delivered not less than ten (10) days nor more than sixty (60)
days before the date of the meeting, either personally or by mail, by or at the
direction of the President, the Secretary, or the officer or person calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail addressed to the shareholder at his address as it appears on the
share transfer records of the Corporation, with postage thereon prepaid. Any
notice required to be given to any shareholder pursuant to this Section 4 need
not be given to the shareholder if (1) notice of two consecutive annual meetings
and all notices of meetings held during the period between those annual
meetings, if any, or (2) all (but in no event less than two) payments (if sent
by first class mail) by the Corporation of distributions with respect to its
stock or interest on securities during a 12-month period have been mailed to
that person, addressed to his address as shown on the share transfer records of
the Corporation, and have been returned as undeliverable. If a shareholder
described in the immediately preceding sentence delivers to the Corporation a
written notice setting forth his then current address, the requirement that
notice be given to that person shall be reinstated.
Section 5. Quorum of Shareholders. Unless otherwise required by law or
--------- ----------------------
provided in the Articles of Incorporation, the holders of a majority of the
shares entitled to vote, represented in person or by proxy, shall constitute a
quorum at a meeting of shareholders. In no event shall a quorum consist of the
holders of less than a majority of the shares entitled to vote. Except as
provided in Section 12 of this Article II, the vote of the holders of a majority
of the shares entitled to vote and represented at a meeting at which a quorum is
present shall be the act of the shareholders' meeting, unless the vote of a
greater number is required by law, the Articles of Incorporation or these
Bylaws. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the subsequent withdrawal
of enough shareholders to leave less than a quorum or the refusal of any
shareholder present in person or by proxy to vote or participate.
Section 6. Adjournments of Annual and Special Meetings of Shareholders.
--------- -----------------------------------------------------------
If the holders of the amount of shares necessary to constitute a quorum shall
fail to attend any meeting of the shareholders in person or by proxy, then the
holders of a majority of the shares entitled to vote which are represented in
person or by proxy at the meeting may adjourn any such meeting from time to time
without notice, other than by announcement at the meeting of the time and place
at which the meeting will reconvene, until holders of the amount of shares
requisite to constitute a quorum shall be present at the particular meeting or
at any adjournment thereof, in person or by proxy. The holders of a majority of
the shares entitled to vote and which are represented in person or by proxy at a
meeting may also adjourn any annual or special meeting of the shareholders from
time to time and without notice, other than by announcement at the meeting of
the time and place at which the meeting will reconvene, until the transaction of
any and all business submitted or proposed to be submitted to such meeting or
any adjournment thereof shall have been completed. If the adjournment is for
more than 60 days, or if after adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at such meeting. At any such adjourned
meeting at which a quorum is present, in person or by proxy, any business may be
transacted which might have been transacted at the meeting as originally
notified or called.
Section 7. Procedure at Meetings of Shareholders. The President of the
--------- -------------------------------------
Corporation, or in the event of his absence, failure or refusal to act, a Vice
President of the Corporation shall call each meeting of the shareholders to
order and shall act as Chairman of such meeting. If for any
-2-
<PAGE>
reason whatsoever neither the President nor a Vice President of the Corporation
acts or will act as the Chairman of the meeting of shareholders, then the
shareholders present, in person or by proxy, and entitled to vote thereat may by
majority vote appoint a Chairman who shall act as Chairman of the meeting.
The Secretary of the Corporation, or in the event of his absence, failure
or refusal to act, an Assistant Secretary, shall act as Secretary of each
meeting of the shareholders. If for any reason whatsoever neither the Secretary
nor an Assistant Secretary acts or will act as Secretary of the meeting of
shareholders, then the Chairman of the meeting or, if he fails to do so, the
shareholders present, either in person or by proxy, and entitled to vote thereat
may by majority vote appoint any person to act as Secretary of the meeting and
such person shall act as Secretary of the meeting.
The Chairman of any meeting shall determine the order of business and the
procedure at the meeting, including such regulation of the manner of voting and
the conduct of discussion as seem to him in order. Unless the Chairman of the
meeting shall otherwise determine, the order of business shall be as follows:
(a) Calling of meeting to order.
(b) Election of a Chairman and the appointment of Secretary, if
necessary.
(c) Presentation of proof of the due calling of the meeting.
(d) Presentation and examination of proxies and determination of a
quorum.
(e) Reading and settlement of the minutes of the previous meeting.
(f) Reports of officers and committees.
(g) The election of directors if an annual meeting, or a meeting
called for that purpose.
(h) Unfinished business.
(i) New business.
(j) Adjournment.
Section 8. Attendance and Proxies. Each shareholder entitled to vote
--------- ----------------------
at a shareholders' meeting may attend such meeting and vote in person or may
attend such meeting by proxy, and vote by such proxy. Proxies of a shareholder
may only be appointed by an instrument in writing executed by the Shareholder or
by such shareholder's duly authorized attorney-in-fact and filed with the
Secretary of the Corporation before or at the time of the particular meeting,
and the attendance or the vote at any such meeting of a proxy of any such
shareholder so appointed shall for all purposes be considered as the attendance
or vote in person of such shareholder. Telegram, telex, cablegram or similar
transmission by the shareholder, or a photographic, photostatic, facsimile, or
similar reproduction of a writing executed by the shareholder, shall be treated
as an execution in writing of the proxy for purposes of the preceding sentence.
All proxies shall be received and taken charge of and all ballots shall be
received and canvassed by the Secretary of the meeting who shall decide all
questions touching upon the qualification of voters, the validity of the
proxies, and the acceptance or rejection of votes, unless an inspector or
inspectors shall
-3-
<PAGE>
have been appointed by the Chairman of the meeting, in which event such
inspector or inspectors shall decide all such questions. No proxy shall be
valid after eleven (11) months from the date of its execution unless otherwise
expressly provided in the proxy. Each proxy shall be revocable unless expressly
provided therein to be irrevocable and unless otherwise made irrevocable by
law.
Should a proxy designate two or more persons to act as proxies, unless such
instrument shall provide the contrary, a majority of such persons present at any
meeting at which their powers thereunder are to be exercised shall have and may
exercise all of the powers of voting or giving consents thereby conferred, or if
only one be present, then such powers may be exercised by that one or, if any
even number attend and a majority do not agree on any particular issue, each
proxy so attending shall be entitled to exercise such powers with respect to the
percentage of the total shares equal to the percentage reached by dividing the
number one by the total number of proxies representing such shares.
Section 9. Voting of Shares. At each meeting of the shareholders, each
--------- ----------------
outstanding share standing in the shareholder's name on the share transfer
records of the Corporation shall be entitled to one (1) vote on each matter
submitted to vote at such meeting, subject, however, to the provisions of
Section 6 of ARTICLE VIII of these Bylaws, and except to the extent that the
Articles of Incorporation provide for more or less than one vote per share or,
if and to the extent permitted by law, limit or deny voting rights to the
holders of the shares of any class or series, or as otherwise provided by law.
Treasury shares, shares of the Corporation's stock owned by another corporation
the majority of the voting stock of which is owned or controlled by the
Corporation, and shares of the Corporation's stock held by a corporation in a
fiduciary capacity shall not be voted, directly or indirectly, at any meeting,
and shall not be counted in determining the total number of outstanding shares
at any given time.
At each election for directors by the shareholders, every shareholder
entitled to vote at such election shall have the right to vote, in person or by
proxy, the number of shares owned by him for as many persons as there are
directors to be elected and for whose election he has a right to vote, or,
unless expressly prohibited by the Articles of Incorporation of the Corporation,
to cumulate his votes by giving one candidate as many votes as the number of
such directors multiplied by his shares shall equal or by distributing such
votes on the same principle among any number of such candidates. If cumulative
voting of shares of capital stock of the Corporation has not been denied in the
Articles of Incorporation, any shareholder thereby having cumulative voting
rights and who intends to cumulate his votes shall give written notice of such
intention to the Secretary of the Corporation on or before the day preceding the
election at which such shareholder intends to cumulate his votes, and all
shareholders may cumulate their votes if any shareholder gives such written
notice of intention to cumulate his votes as provided for herein.
Section 10. Voting of Shares Owned by Another Corporation. Shares standing
---------- ---------------------------------------------
in the name of another corporation, domestic or foreign, on the books and
records of the Corporation and having voting rights may be voted by such
officer, agent or proxy as the bylaws of such other corporation may authorize
or, in the absence of such authorization, as the board of directors of such
other corporation may determine; provided, however, that when any foreign
corporation without a permit to do business in the State of Texas lawfully owns
or may lawfully own or acquire stock in a Texas corporation, it shall not be
unlawful for such foreign corporation to vote such stock and to participate in
the management and control of the business and affairs of such Texas
corporation, as other shareholders, subject to all laws, rules and regulations
governing Texas corporation, as other shareholders, subject to all laws, rules
and regulations governing Texas corporations and especially subject to the
provisions of the antitrust laws of the State of Texas.
Section 11. Shares Held by Fiduciaries, Receivers, Pledgees. Shares held
---------- -----------------------------------------------
by an administrator, executor, guardian or conservator may be voted by him so
long as such shares
-4-
<PAGE>
forming a part of an estate are in the possession and form a part of the estate
being served by him, either in person or by proxy, without a transfer of such
shares into his name. Shares standing in the name of a trustee may be voted by
him, either in person or by proxy, but no trustee shall be entitled to vote
shares held by him unless such shares shall have been transferred into his name
as trustee. Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without such shares being transferred into his name if authority
so to do is contained in an appropriate order of the court by which such
receiver was appointed. A shareholder whose shares are pledged shall be entitled
to vote such shares until such shares have been transferred on the books and
records of the Corporation into the name of the pledgee, and thereafter the
pledgee shall be entitled to vote the shares so transferred.
Section 12. Decisions at Meetings of Shareholders. At all meetings of the
---------- -------------------------------------
shareholders all elections of Directors shall be determined by a plurality of
the votes of the shareholders entitled to vote represented in person or by
proxy, a quorum being present, and all other questions, business and matters,
except those of which the manner of deciding is otherwise expressly governed by
the Texas Business Corporation Act or by the Articles of Incorporation or by
these Bylaws, shall be decided by the vote of the holders of a majority of the
votes of the shareholders entitled to vote, represented in person or by proxy, a
quorum being present. All voting shall be viva voce, except that upon the
---- ----
determination of the Chairman of the meeting or upon the demand of any qualified
voter or his proxy, voting on any question, matter or business at such meeting
shall be by ballot. In the event any business, question or matter is so voted
upon by ballot, then each ballot shall be signed by the shareholder voting or by
his proxy and shall state the number of shares so voted.
At any meeting at which a vote is taken by ballots, the Chairman of the
meeting shall appoint one or more inspectors who shall subscribe an oath or
affirmation to execute faithfully the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. Such inspector
shall receive the ballots, count the votes and make and sign a certificate of
the result thereof. The Chairman of the meeting may appoint any person to serve
as an inspector, except no candidate for the office of director shall be
appointed as an inspector.
Section 13. List of Shareholders. A complete list of shareholders entitled
---------- --------------------
to vote at each shareholders' meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
shall be prepared by the Secretary and kept on file at the registered office or
principal place of business of the Corporation and shall be subject to
inspection by any shareholder at any time during usual business hours for a
period of at least ten (10) days prior to such meeting and shall be produced and
kept open at such meeting and at all times during such meeting shall be subject
to inspection by any shareholder. The original share transfer records shall be
prima facie evidence as to the identity of the shareholders entitled to examine
such list or share transfer records or to vote at any meeting of the
shareholders.
Section 14. Record Date. The Board of Directors shall have the power to
---------- -----------
close the share transfer records of the Corporation or, in lieu thereof, to fix
a record date for the determination of the shareholders entitled to notice of or
to vote at any meeting of the shareholders and at any adjournment thereof and to
fix a record date for any other purpose as provided in Section 6 of ARTICLE VIII
of these Bylaws.
Section 15. Action by Written Consent. Any action required or which may be
---------- -------------------------
taken at any annual or special meeting of the shareholders may be taken without
a meeting without prior notice and without a vote if a consent or consents in
writing, setting forth the action so taken, shall be signed by those
shareholders holding the number of votes necessary to approve the taking of
such action at a meeting at which all shareholders entitled to vote with respect
to the subject matter
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thereof were present and voting, and such consent shall have the same force and
effect as a vote at a meeting and may be stated as such in any articles or
document filed with the Secretary of State of Texas. No written consent shall be
effective to take the action that is the subject of the consent unless it bears
the date of signature of each shareholder who signs the consent and unless,
within sixty (60) days after the date of the earliest dated consent delivered to
the Corporation, a consent or consents signed by the holder or holders of shares
having not less than the minimum number of votes that would be necessary to take
the action that is the subject of the consent are delivered to the Corporation
by delivery to its registered office, its principal place of business or to the
Secretary or any Assistant Secretary of the Corporation. Delivery of any written
consent to the Corporation pursuant to this paragraph shall be by hand or
certified or registered mail, return receipt requested. Delivery to the
Corporation's principal place of business shall be addressed to the President or
Chief Executive Officer of the Corporation. A telegram, telex, cablegram, or
similar transmission by a shareholder, or a photographic, photostatic,
facsimile, or similar reproduction of a writing signed by a shareholder, shall
be regarded as signed by the shareholder for purposes of this Section 15. Prompt
notice of the taking of any action by shareholders without a meeting by less
than unanimous written consent shall be given to those shareholders who do not
consent in writing to the action.
Section 16. Meeting by Telephone or Similar Communications Equipment.
---------- --------------------------------------------------------
Subject to the provisions required or permitted by the Texas Business
Corporation Act for notice of meetings, unless otherwise restricted by these
Bylaws or the Articles of Incorporation, shareholders may participate in and
hold a meeting by means of conference telephone or other similar communications
equipment by means of which all persons participating in the meeting can hear
each other. Participation in a meeting pursuant to this Section 16 shall
constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Board of Directors. The powers of the Corporation shall be
--------- ------------------
exercised by or under the authority of, and the business, property and affairs
of the Corporation shall be managed under the direction of, the Board of
Directors and, subject to such restrictions, if any, as may be imposed by law,
the Articles of Incorporation or by these Bylaws, the Board of Directors may,
and are fully authorized to, do all such lawful acts and things as may be done
by the Corporation. Directors need not be residents of the State of Texas or
shareholders of the Corporation.
Section 2. Number of Directors. The number of directors which shall
--------- -------------------
constitute the entire Board of Directors shall be determined from time to time
by resolution of the Board of Directors, provided that no decrease shall have
the effect of shortening the term of any incumbent director, and further
provided that the number of directors shall never be less than one (1). If the
Board of Directors makes no such determination, the number of directors shall be
the number set forth in the Articles of Incorporation.
Section 3. Election and Term. Except as otherwise provided in Section 5 of
--------- -----------------
this ARTICLE III, the directors shall be elected each year at the annual meeting
of the shareholders, or at a special meeting of the shareholders held in lieu of
the annual meeting. Each such director shall hold office, unless he is removed
in accordance with the provisions of these Bylaws or he resigns, for the term
for which he is elected and until his successor shall have been elected and
qualified.
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Each director shall qualify by accepting his election to office either expressly
or by acting as a director.
Section 4. Resignation. Any director or officer of the Corporation may
--------- -----------
resign at any time as provided in Section 4 of ARTICLE IX of these Bylaws.
Section 5. Vacancy and Increase. Any vacancy occurring in the Board of
--------- --------------------
Directors may be filled by the affirmative vote of a majority of the remaining
directors though less than a quorum of the Board of Directors. A director
elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office and until his successor shall have been elected and
qualified. A directorship to be filled by reason of an increase in the number of
directors may be filled by the Board of Directors for a term of office
continuing only until the next election of one or more directors by the
shareholders; provided, however, that the Board of Directors may not fill more
than two such directorships during the period between any two successive annual
meetings of shareholders. Any vacancy occurring in the Board of Directors or any
directorship to be filled by reason of an increase in the number of directors
may also be filled by election at an annual or special meeting of shareholders
called for that purpose.
Section 6. Removal. At any meeting of shareholders at which a quorum of
--------- -------
shareholders is present called expressly for that purpose, any director or the
entire Board of Directors may be removed from office, with or without cause, by
a vote of the holders of a majority of the shares then entitled to vote at an
election of directors; provided that, in case the shareholders have the right to
cumulate votes for the election of directors, if less than the entire Board is
to be removed, no director may be removed if the votes cast against his removal
would be sufficient to elect him if then cumulatively voted at any election of
the entire Board of Directors, or if there be classes of directors, at an
election of the class of directors of which such director is a part, and any
vacancy or vacancies in the Board resulting therefrom may be filled by the
remaining directors, though less than a quorum, or by the shareholders,
whichever shall first act thereon.
Section 7. Meeting of Directors. Meetings of the Board of Directors,
--------- --------------------
regular of special, may be held either within or without the State of Texas.
Section 8. First Meeting. Each newly elected Board of Directors may hold
--------- -------------
its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place as the
annual meeting of the shareholders, and no notice of such meeting shall be
necessary.
Section 9. Election of Officers. At the first meeting of the Board of
--------- --------------------
Directors in each year at which a quorum shall be present, the Board of
Directors shall proceed to the election of the officers of the Corporation.
Section 10. Regular Meetings. Regular meetings of the Board of Directors
---------- ----------------
may be held at such times and places as shall be designated or determined by the
Board of Directors. Notice of such regular meetings shall not be required.
Section 11. Special Meetings. Special meetings of the Board of Directors
---------- ----------------
shall be held whenever and wherever called or provided to be held by the
Chairman of the Board (if any), the President or by a majority of the directors
then in office, and at the place, day and hour determined by the officer or such
majority of the directors calling or providing for the holding of the particular
meeting, in each instance, and such determination may be conclusively evidenced
in a call, waiver of notice or other communication signed by the officers or
such majority of the directors.
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Section 12. Notice. The Secretary or an Assistant Secretary shall, but in
---------- ------
the event of the absence of the Secretary or an Assistant Secretary or the
failure, inability, refusal or omission on the part of the Secretary or an
Assistant Secretary so to do, any other officer of the Corporation may, give
notice to each director of each special meeting, and of the place, day and hour
of the particular meeting, in person or by mail, or by telephone, telegraph or
other means of communication, at least twenty-four (24) hours before the
meeting. The attendance of a director at any meeting shall constitute a waiver
of notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
Section 13. Business to be Transacted. Neither the business to be
---------- -------------------------
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice or any waiver of notice of such
meeting. Any and all business of any nature or character whatsoever may be
transacted and action may be taken thereon at any meeting, regular or special,
of the Board of Directors. At any meeting at which every director shall be
present, even though without any notice, any business may be transacted.
Section 14. Quorum - Adjournment if Quorum is Not Present. A majority of
---------- ---------------------------------------------
the number of directors fixed by, or in the manner provided in, the Articles of
Incorporation or these Bylaws shall constitute a quorum for the transaction of
any and all business, unless a greater number is required by law or by the
Articles of Incorporation or these Bylaws. At any meeting, regular or special or
any first meeting, of the Board of Directors, if there be less than a quorum
present, a majority of those present may adjourn the meeting from time to time
without notice, other than by announcement at the meeting of the time and place
at which the meeting will reconvene, until a quorum shall be present at the
meeting. A majority of the directors present at any meeting of the Board of
Directors, or if only one director may be present, then such director, may
adjourn any meeting of the Board from time to time without notice, other than by
announcement at such meeting of the time and place at which the meeting will
reconvene, until the transaction of any and all business submitted or proposed
to be submitted to such meeting or any adjournment thereof shall have been
completed. The act of the majority of the directors present at any meeting of
the Board of Directors at which a quorum is present shall constitute the act of
the Board of Directors, unless the act of a greater number is required by law or
the Articles of Incorporation or these Bylaws.
Section 15. Order of Business. At all meetings of the Board of Directors,
---------- -----------------
business shall be transacted in such order as the Board of Directors may
determine. At all meetings of the Board of Directors, if a Chairman of the Board
has theretofore been elected by the Board of Directors pursuant to the
provisions of Section 8 of ARTICLE VI of these Bylaws, the Chairman of the Board
shall preside, but if a Chairman of the Board has not theretofore been elected
or, if elected, he should be absent, the President shall preside and in the
absence of the President, a Vice President shall preside, but if none of such
officers shall be present or preside at any meeting of the Board, then a
Chairman shall be chosen by the Board from among the directors present and such
Chairman so chosen shall preside at the meeting.
The Secretary of the Corporation, or in his absence, an Assistant
Secretary, shall act as Secretary of the meetings of the Board of Directors, but
in the absence of the Secretary and an Assistant Secretary, or if for any reason
neither acts as Secretary thereof, the presiding officer shall appoint any
person of his choice to act, and such person shall act, as Secretary of the
meeting.
Section 16. Presumption of Assent. A director of the Corporation who is
---------- ---------------------
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent shall be entered in the minutes of
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the meeting or unless he shall file his written dissent to such action with the
person acting as Secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
Section 17. Compensation. Unless otherwise restricted by the Articles of
---------- ------------
Incorporation, the Board of Directors shall have authority to fix the
compensation of directors. Nothing herein contained shall be construed so as to
preclude any director from serving the Corporation in any other capacity or
receiving compensation therefor. Members of special or standing committees may
be allowed a fixed sum and expenses of attendance, if any, at committee
meetings.
Section 18. Action by Unanimous Consent. Any action required or permitted
---------- ---------------------------
to be taken at a meeting of the Board of Directors or any committee may be taken
without a meeting if a consent in writing, setting forth the action so taken, is
signed by all members of the Board of Directors or committee, as the case may
be. Such consent shall have the same force and effect as a unanimous vote at a
meeting, and may be stated as such in any document or instrument filed with the
Secretary of State of the State of Texas.
Section 19. Meeting by Telephone or Similar Communications Equipment.
---------- --------------------------------------------------------
Subject to the provisions required or permitted by the Texas Business
Corporation Act for notice of meetings, unless otherwise restricted by these
Bylaws or the Articles of Incorporation, the Board of Directors or any committee
thereof designated by the Board of Directors, may participate in and hold a
meeting of the Board of Directors or any such committee by means of conference
telephone or other similar communications equipment by means of which all
persons participating in the meeting can hear each other. Participation in a
meeting pursuant to this Section 19 shall constitute presence in person at such
meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
Section 20. Approval or Ratification of Acts or Contracts by Shareholders.
---------- -------------------------------------------------------------
The Board of Directors in its discretion may submit any act or contract for
approval or ratification at any annual meeting of the shareholders, or at any
special meeting of the shareholders called for the purpose of considering any
such act or contract, and any act or contract that shall be approved or be
ratified by the vote of the shareholders holding a majority of the issued and
outstanding shares of stock of the Corporation entitled to vote and present in
person or by proxy at such meeting, provided that a quorum is present, shall be
as valid and as binding upon the Corporation and upon all of the shareholders as
if it has been approved or ratified by every shareholder of the Corporation.
ARTICLE IV
OFFICERS' AND DIRECTORS' SERVICES, CONFLICTING
INTERESTS, INDEMNIFICATION AND INSURANCE
Section 1. Services. No director and, unless otherwise determined by the
--------- --------
Board of Directors, no officer of the Corporation, shall be required to devote
his time or any particular portion of his time or render services or any
particular services exclusively to the Corporation. Every director and, unless
otherwise determined by the Board of Directors, every officer of the Corporation
shall be entirely free to engage, participate and invest in any and all
businesses, enterprises and activities, either similar or dissimilar to the
business, enterprise and activities of the Corporation, without the breach of
any duty to the Corporation or to its shareholders and without accountability or
liability to the Corporation or to its shareholders.
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<PAGE>
Every director and, unless otherwise determined by the Board of Directors,
every officer of the Corporation shall, respectively, be entirely free to act
for, serve and represent any other corporation, any entity or any person, in any
capacity, and be or become a director or officer, or both, of any other
corporation or any entity, irrespective of whether or not the business,
purposes, enterprises and activities, or any of them, thereof be similar or
dissimilar to the business, purposes, enterprises and activities, or any of
them, of the Corporation, without the breach of any duty to the Corporation or
to its shareholders and without accountability or liability to the Corporation
or to its shareholders.
Section 2. Directors' and Officers' Interests in Contracts. No
--------- -----------------------------------------------
contract or transaction between the Corporation and one or more of its directors
or officers, or between the Corporation and any other corporation, partnership,
association, or other organization or entity in which one or more of the
Corporation's directors or officers are directors or officers or have a
financial interest, shall be void or voidable solely for such reason, solely
because the director or officer is present at or participates in the meeting of
the Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose,
if (i) the material facts of his relationship or interest shall be disclosed or
known to the Board of Directors or the committee, and the Board of Directors or
such committee shall in good faith authorize, approve or ratify such contract or
other transaction by a vote of a majority of the disinterested directors
present, even though the disinterested directors be less than a quorum, (ii) the
material facts of such relationship or interest and of such contract or
transaction shall be disclosed or known to the shareholders entitled to vote
thereon and such shareholders shall in good faith authorize, approve or ratify
such contract or other transaction, or (iii) such contract or other transaction
is fair to the Corporation at the time of its authorization, approval or
ratification by the Board of Directors or any committee thereof or the
shareholders; nor shall any director or officer be responsible to, or liable to
account to, the Corporation for any profits realized by or from or through any
such contract or other transaction or the Corporation so authorized, ratified or
approved, by reason of such interest or his being or having been a director or
officer, or both, of the Corporation. Nothing herein contained shall create
responsibility or liability in or in connection with any such event or prevent
the authorization, ratification or approval of such contracts or other
transactions in any other manner permitted by law or by statute. This Section 2
shall not be construed to invalidate any contract or other transaction which
would otherwise be valid under the common or statutory law applicable thereto.
Common or interested directors may be counted in determining the presence of a
quorum at the meeting of the Board of Directors or committee thereof which
authorizes any such contract or transaction.
Section 3. Reliance Upon Books, Reports and Records. Neither a
--------- ----------------------------------------
director nor a member of any committee shall be liable if, acting in good faith
and exercising ordinary care, he (i) relied and acted upon (a) written financial
statements of the Corporation (including without limitation financial statements
that include subsidiary corporations or other corporations accounted for on a
consolidated basis or on the equity method of accounting) that purport to
present the financial condition of the Corporation in accordance with generally
accepted accounting principles, or (b) financial statements prepared on the
basis of accounting used to file the Corporation's federal income tax return or
any other accounting practices and principles that are reasonable in the
circumstances, or (c) any financial information, including without limitation,
condensed or summary financial statements, that are prepared on a basis
consistent with financial statements described pursuant to subclauses (i)(a) and
(i)(b) of this sentence, or (d) a fair valuation or information from any other
method that is reasonable under the circumstances, or (e) any combination of the
statements, valuations or information authorized by this clause (i), (ii) relied
upon the written advice of counsel, (iii) considered the worth of the assets of
the Corporation to be at least equal to their book value, or (iv) in determining
whether the Corporation made adequate provisions for payment, satisfaction or
discharge of all of its liabilities and obligations, relied in good faith with
ordinary care upon financial statements of, or other information
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<PAGE>
concerning, any person who was or became contractually obligated to pay, satisfy
or discharge some or all of those liabilities or obligations.
Section 4. Non-Liability of Directors and Officers in Certain Cases. No
--------- --------------------------------------------------------
director, officer, or member of a committee shall be liable for his acts as such
if he is excused from liability under any present or future provision of the
Texas Business Corporation Act.
Section 5. Indemnification of Directors, Officers, Employees and Agents.
--------- ------------------------------------------------------------
(a) As used in this Section:
(1) "Corporation" includes any domestic or foreign predecessor entity
of the Corporation in a merger, consolidation or other transaction in which
the liabilities of the predecessor are transferred to the Corporation by
operation of law and in any other transaction in which the Corporation
assumes the liabilities of the predecessor but does not specifically
exclude liabilities that are the subject matter of this Section 5.
(2) "Director" means any person who is or was a director of the
Corporation and any person who, while a director of the Corporation, is or
was serving at the request of the Corporation as a director, officer,
partner, venturer, proprietor, trustee, employee, agent or similar
functionary of another foreign or domestic corporation, partnership, joint
venture, sole proprietorship, trust, employee benefit plan or other
enterprise.
(3) "Expenses" include court costs and attorneys' fees.
(4) "Official Capacity" means
(A) when used with respect to a Director, the office of director
in the Corporation, and
(B) when used with respect to a person other than a Director,
the elective or appointive office in the Corporation held by the
officer or the employment or agency relationship undertaken by the
employee or agent on behalf of the Corporation,
but neither A nor B above includes service for any other foreign or
domestic corporation or any partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise.
(5) "Proceeding" means any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative, any appeal in such an action, suit or proceeding, and any
inquiry or investigation that could lead to such an action, suit or
proceeding.
(b) The Corporation may indemnify any person who was, is or is threatened
to be made a named defendant or respondent in any Proceeding because the person
is or was a Director only if it is determined in accordance with paragraph (f)
of this Section 5 that the person:
(1) conducted himself in good faith;
(2) reasonably believed:
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(A) in the case of conduct in his Official Capacity as a
Director of the Corporation, that his conduct was in the Corporation's
best interests, and
(B) in all other cases, that his conduct was at least not
opposed to the Corporation's best interests; and
(3) in the case of any criminal Proceeding, had no reasonable cause
to believe his conduct was unlawful.
(c) Except to the extent permitted by paragraph (e) of this Section 5, a
Director may not be indemnified under subsection 5(b) in respect of a
Proceeding:
(1) in which the person is found liable on the basis that personal
benefit was improperly received by him; or
(2) in which the person is found liable to the Corporation.
(d) The termination of any Proceeding by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the person did not meet the requirements set forth in
subsection 5(b). A person shall be deemed to have been found liable in respect
of any claim, issue or matter only after the person shall have been so adjudged
by a court of competent jurisdiction after exhaustion of all appeals therefrom.
(e) A person may be indemnified under subsection 5(b) against judgments,
penalties (including excise and similar taxes), fines, settlements and
reasonable Expenses actually incurred by the person in connection with the
Proceeding; but if the person is found liable to the Corporation or is found
liable on the basis that personal benefit was improperly received by the
person, the indemnification (i) is limited to reasonable Expenses actually
incurred by the person in connection with the Proceeding, and (2) shall not be
made in respect of any proceeding in which the person shall have been found
liable for willful or intentional misconduct in the performance of his duty to
the Corporation.
(f) No indemnification under subsection 5(b) shall be made by the
Corporation unless authorized in the specific case after a determination has
been made that the Director has met the standard of conduct set forth in
subsection 5(b). Such determination shall be made:
(1) by the Board of Directors by a majority vote of a quorum
consisting of directors who at the time of the vote are not named
defendants or respondents in the Proceeding;
(2) if such quorum cannot be obtained, then by a majority vote of a
committee of the Board of Directors, designated to act in the matter by a
majority vote of the full Board of Directors (in which vote directors who
are named defendants or respondents may participate), which committee shall
consist solely of two or more directors who at the time of the vote are not
named defendants or respondents in the Proceeding; or
(3) by special legal counsel, selected by the Board of Directors or a
committee thereof by vote as set forth in clauses (1) or (2) of this
subsection 5(f), or, if the requisite quorum of the full Board of Directors
cannot be obtained therefor and such a committee cannot be established, by
a majority vote of the full Board of Directors (in which vote directors who
are named defendants or respondents may participate); or
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(4) by the shareholders in a vote that excludes the shares held by
directors who are named defendants or respondents in the Proceeding.
(g) Authorization of indemnification and determination as to
reasonableness of Expenses shall be made in the same manner as the
determination that indemnification is permissible, except that if the
determination that indemnification is permissible is made by special legal
counsel, authorization of indemnification and determination as to reasonableness
of Expenses shall be made in the manner specified in clause (3) in subsection
5(f) for the selection of such counsel. A provision contained in the Articles of
Incorporation, the Bylaws, a resolution of shareholders or directors, or an
agreement that makes mandatory the indemnification permitted under subsection
5(b) shall be deemed to constitute authorization of indemnification in the
manner required by this section even though such provision may not been adopted
or authorized in the same manner as the determination that indemnification is
permissible.
(h) A Director who has been wholly successful, on the merits or otherwise,
in the defense of any Proceeding in which he is a party because he is or was a
Director shall be indemnified by the Corporation against reasonable Expenses
incurred by him in connection with the Proceeding.
(i) If, upon application of a Director, a court of competent jurisdiction
determines, after giving any notice the court considers necessary, that the
Director is fairly and reasonably entitled to indemnification in view of all the
relevant circumstances, whether or not he has met the standard of conduct set
forth in subsection 5(b) or has been found liable in the circumstances described
in subsection 5(c), the court may order such indemnification as the court
determines is proper and equitable. The court by law is required to limit
indemnification to reasonable Expenses if the Proceeding is brought by or on
behalf of the Corporation or if the Director is found liable to the Corporation
or is found liable on the basis of circumstances described in subsection
5(c)(1).
(j) Reasonable Expenses incurred by a Director who was, is, or is
threatened to be made a named defendant or respondent to a Proceeding may be
paid or reimbursed by the Corporation in advance of the final disposition of
such Proceeding and without the determination specified in subsection 5(f) or
the authorization or determination specified in subsection 5(g) after receipt by
the Corporation of a written affirmation by the Director of his good faith
belief that he has met the standard of conduct necessary for indemnification by
the Corporation as authorized in this Section 5, and a written undertaking by or
on behalf of the Director to repay the amount paid or reimbursed if it shall
ultimately be determined that he has not met that standard or if it is
ultimately determined that indemnification of the director against expenses
incurred by him in connection with that proceeding is prohibited by subsection
5(e). A provision contained in the Articles of Incorporation, these Bylaws, a
resolution of shareholders or directors, or an agreement that makes mandatory
the payment or reimbursement permitted hereunder shall be deemed to constitute
authorization of that payment or reimbursement. The written undertaking required
above must be an unlimited general obligation of the Director but need not be
secured. It may be accepted without reference to financial ability to make
repayment.
(k) The indemnification provided by this Section 5 shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any statute, including, but not limited to, Article 2.02-1 of the Texas Business
Corporation Act, Bylaw, agreement, insurance policy, vote of shareholders or
disinterested directors or otherwise, both as to action in their 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; provided, however, no provision for the
Corporation to indemnify or to advance Expenses to a Director who was, is or
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is threatened to be made a named defendant or respondent to a Proceeding,
whether contained in the Articles of Incorporation, these Bylaws, a resolution
of shareholders or directors, an agreement or otherwise (except as contemplated
by subsection (p)), shall be valid unless consistent with this Section 5 or, to
the extent that indemnity hereunder is limited by the Articles of Incorporation,
consistent therewith.
(1) Nothing contained in this Section 5 shall limit the Corporation's
power to pay or reimburse Expenses incurred by a Director in connection with his
appearance as a witness in a Proceeding at a time when he is not a named
defendant or respondent in the Proceeding.
(m) Unless limited by the Articles of Incorporation of the Corporation,
(1) an officer of the Corporation shall be indemnified as and to the
same extent provided in subsection (h) and (i) for a Director and shall be
entitled to the same extent as a Director to seek indemnification pursuant
to the provisions of such subsections; and
(2) the Corporation may indemnify and advance Expenses to an officer,
employee or agent of the Corporation to the same extent that it may
indemnify and advance Expenses to Directors pursuant to this Section 5.
(n) The Corporation may indemnify and advance Expenses to persons who are
not or were not officers, employees, or agents of the Corporation but who are or
were serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent or similar functionary of another
foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, other enterprise, or employee benefit plan to the same
extent that it may indemnify and advance expenses to Directors under this
Section 5.
(o) The Corporation may indemnify and advance Expenses to an officer,
employee, agent or person described pursuant to Section 5(n) and who is not a
Director to such further extent, consistent with law, as may be provided by the
Articles of Incorporation of the Corporation, these Bylaws, general or specific
action of the Board of Directors, or contract or as permitted or required by
common law.
(p) The Corporation may purchase and maintain insurance or another
arrangement on behalf of any person who is or was a director, officer, employee
or agent of the Corporation, or who is or was serving at the request of the
Corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, other
enterprise or employee benefit plan, against any liability asserted against him
and incurred by him in any such a capacity or arising out of his status as such
a person, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of the Texas Business Corporation
Act or this Section 5. If the insurance or other arrangement is with a person or
entity that is not regularly engaged in the business of providing insurance
coverage, the insurance or arrangement may provide for a payment of a liability
with respect to which the Corporation would not have the power to indemnify the
person only if including coverage for the additional liability has been approved
by the shareholders of the Corporation. Without limiting the power of the
Corporation to procure or maintain any kind of insurance or other arrangement, a
Corporation may, for the benefit of persons indemnified by the Corporation, (1)
create a trust fund, (2) establish any form of self-insurance, (3) secure its
indemnity obligation by grant of a security interest or other lien on the assets
of the Corporation, or (4) establish a letter of credit, guaranty, or surety
arrangement. The insurance or other arrangement may be procured, maintained, or
established within the Corporation or with any insurer or other person deemed
appropriate by the Board of Directors regardless of whether all or part of the
stock or other securities of the insurer or other
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<PAGE>
person are owned in whole or in part by the Corporation. In the absence of
fraud, the judgement of the Board of Directors as to the terms and conditions of
the insurance or other arrangement and the identity of the insurer or other
person participating in an arrangement shall be conclusive and the insurance or
arrangement shall not be voidable and shall not subject the directors approving
the insurance or arrangement to liability, on any ground, regardless of whether
directors participating in the approval are beneficiaries of the insurance or
arrangement.
(q) Any indemnification of, or advance of Expenses to a Director in
accordance with this Section 5 shall be reported in writing to the shareholders
with or before the notice or waiver of notice of the next shareholders' meeting
or with or before the next submission to shareholders of a consent to action
without a meeting pursuant to Section A, Article 9.10 of the Texas Business
Corporation Act, and in any case, within the 12-month period immediately
followng the date of the indemnification or advance.
(r) For purposes of this Section 5, the Corporation shall be deemed to
have requested a Director to serve as the trustee of an employee benefit plan
whenever the performance by him of his duties to the Corporation also imposes
duties on, or otherwise involved services by, him to the plan or participants or
beneficiaries of the plan. Excise taxes assessed on a Director with respect to
an employee benefit plan pursuant to applicable law shall be deemed "fines".
Action taken or omitted by him with respect to an employee benefit plan in the
performance of his duties for a purpose reasonably believed by him to be in the
interest of the participants and beneficiaries of the plan shall be deemed to be
for a purpose which is not opposed to the best interests of the Corporation.
ARTICLE V
BOARD COMMITTEES
The Board of Directors, by resolution adopted by a majority of the full
Board of Directors, may designate from among its members one or more committees,
each of which, to the extent provided in such resolution or in the Articles of
Incorporation or in these Bylaws, shall have and may exercise all of the
authority of the Board of Directors, except that no such committee shall have
the authority of the Board of Directors in reference to (1) amending the
Articles of Incorporation, except that a committee may, to the extent provided
in the resolution designating the committee or in the Articles of Incorporation
or these Bylaws, exercise the authority of the Board of Directors vested in it
in accordance with Article 2.13 of the Texas Business Corporation Act, (2)
proposing a reduction in the stated capital of the Corporation in the manner
permitted by Article 4.12 of the Texas Business Corporation Act, (3) approving a
plan of merger or share exchange of the Corporation, (4) recommending to the
shareholders the sale, lease or exchange of all or substantially all of the
property and assets of the Corporation otherwise than in the usual and regular
course of its business, (5) recommending to the shareholders a voluntary
dissolution of the Corporation or a revocation thereof, (6) amending, altering
or repealing these Bylaws or adopting new Bylaws for the Corporation, (7)
filling vacancies in the Board of Directors or any such committee or designating
alternative members thereof, (8) filling any directorship to be filled by reason
of an increase in the number of directors, (9) electing or removing officers or
members or alternative members of any such committee, (10) fixing the
compensation of any member or alternative members of such committee, or (11)
altering or repealing any resolution of the Board of Directors that by its terms
provided that it shall not be so amendable or repealable; and, unless the
resolution establishing the committee or the Articles of Incorporation expressly
so provide, no such committee shall have the power and authority to authorize
any distribution by the Corporation to any of the shareholders or issuance of
shares of the Corporation. A majority of all the members of any such committee
may determine its action and fix the time and place of
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<PAGE>
its meetings, unless the Board of Directors shall otherwise provide. At every
meeting of any such committee, the presence of a majority of all of the members
thereof shall constitute a quorum and the affirmative vote of a majority of the
members present shall be necessary for the adoption by it of any resolution.
The Board of Directors shall have power at any time to change the number and
members of any such committee, to fill vacancies and to discharge any such
committee. The Board of Directors may designate one or more directors as
alternate members of any committee, who may, subject to any limitation imposed
by the Board of Directors, replace any absent or disqualified member of the
committee at any meeting of such committee. In the absence or disqualification
of a member of a committee, the member or members present at any meeting and not
disqualified from voting, whether or not constituting a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of the absent or disqualified member. The designation of such committee
and the delegation thereto of authority shall not operate to relieve the Board
of Directors, or any member thereof, of any responsibility imposed by law.
ARTICLE VI
OFFICERS
Section 1. Principal Officers. The officers of the Corporation shall be
--------- ------------------
chosen by the Board of Directors. The officers shall be a President and a
Secretary and may include one or more Vice Presidents, a Treasure and such
number of Assistant Secretaries and Assistant Treasurers as the Board may from
time to time determine or elect and if elected and so designated by the Board of
Directors, a Chairman of the Board. Any person may hold two or more offices at
the same time.
Section 2. Additional Officers. The Board may appoint such other officers
--------- -------------------
and agents as it shall deem necessary.
Section 3. Terms of Officers. Each officer shall hold his office until his
--------- -----------------
successor shall have been duly elected and qualified or until his death or until
he shall resign or shall have been removed in the manner hereinafter provided.
Section 4. Salaries. The salaries or other compensation of the officers
--------- --------
and agents of the Corporation shall be fixed from time to time by the Board of
Directors.
Section 5. Removal. Any officer or agent or member of any committee
--------- -------
elected or appointed by the Board of Directors may be removed by the Board of
Directors whensoever in its judgment the best interests of the Corporation will
be served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment of an officer
or agent or member of any committee shall not of itself create contract rights.
Section 6. Vacancies. A vacancy in the office of any officer may be filled
--------- ---------
by the vote of a majority of the directors then in office.
Section 7. Powers and Duties of Officers. The officers so chosen shall
--------- -----------------------------
perform the duties and exercise the powers expressly conferred or provided for
in these Bylaws, as well as the usual duties and powers incident to such office,
respectively, and such other duties and powers as may be assigned to them by the
Board of Directors or by the President.
Section 8. Chairman of the Board. The Board of Directors may select from
--------- ---------------------
among its members a Chairman of the Board who may, if so elected, preside at all
meetings of the Board
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<PAGE>
of Directors and approve the minutes of all proceedings thereat, and he shall be
available to consult with and advise the officers of the Corporation with
respect to the conduct of the business and affairs of the Corporation and shall
have such other powers and duties as designated in accordance with these Bylaws
and as from time to time may be assigned to him by the Board of Directors.
Section 9. President. The President, subject to the control of the Board
--------- ---------
of Directors, shall be the Chief Executive Officer, and he shall have general
executive charge, management and control of the affairs, properties and
operations of the Corporation in the ordinary course of its business, with all
such duties, powers and authority with respect to such affairs, properties and
operations as may be reasonably incident to such responsibilities; he may
appoint or employ and discharge employees and agents of the Corporation and fix
their compensation; he may make, execute, acknowledge and deliver any and all
contracts, leases, deeds, conveyances, assignments, bills of sale, transfers,
releases and receipts, and any and all mortgages, deeds of trust, indentures,
pledges, chattel mortgages, liens and hypothecations, and any and all bonds,
debentures, notes, other evidences of indebtedness and any and all other
obligations and encumbrances and any and all other instruments, documents and
papers of any kind or character for and on behalf of and in the name of the
Corporation; and with the Secretary or an Assistant Secretary, he may sign all
certificates for shares of the capital stock of the Corporation; and he shall do
and perform such other duties and have such additional authority and powers as
from time to time may be assigned to or conferred upon him by the Board of
Directors.
Section 10. Vice Presidents. In the absence of the President or in the
---------- ---------------
event of his disability or refusal to act, the Vice President (or in the event
there be more than one Vice President, the Executive Vice President, if any, and
then any other Vice Presidents in the order designated, or in the absence of
any designation, then in the order of their election) shall perform the duties
of the President, and when so acting, shall have all of the powers of and be
subject to all of the restrictions upon the President. Any Vice President shall
perform such other duties as may be assigned to him by the President or by the
Board of Directors of the Corporation. Any action taken by a Vice President in
the performance of the duties of the President shall be conclusive evidence of
the absence or inability to act of the President at the time such action was
taken.
Section 11. Treasurer. The Treasurer shall have custody of all funds and
---------- ---------
securities of the Corporation which come into his hands. When necessary or
proper, he 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 banks or depositories as shall be selected or designated by
or in the manner prescribed by the Board of Directors. He may sign all receipts
and vouchers for payments made to the Corporation, either alone or jointly with
such officer as may be designated by the Board of Directors. Whenever required
by the Board of Directors he shall render a statement of his cash account. He
shall enter or cause to be entered, punctually and regularly, on the books of
the Corporation to be kept by him or under his supervision or direction for that
purpose, full and accurate accounts of all moneys received and paid out by, for
or on account of the Corporation. He shall at all reasonable times exhibit his
books and accounts and other financial records to any director of the
Corporation during business hours. He shall have such other powers and duties as
may be conferred upon or assigned to him by the Board of Directors. The
Treasurer shall perform all acts incident to the position of Treasurer subject
always to control of the Chief Executive Officer and the Board of Directors. He
shall, if required by the Board of Directors, give such bond for the faithful
discharge of his duties in such form and amount as the Board of Directors may
require.
Section 12. Assistant Treasurers. Each Assistant Treasurer shall have the
---------- --------------------
usual powers and duties pertaining to his office, together with such other
powers and duties as may be conferred
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upon or assigned to him by the Board of Directors. The Assistant Treasurers
shall have and exercise the powers of the Treasurer during that officer's
absence or inability or refusal to act.
Section 13. Secretary. The Secretary (1) shall keep the minutes of all
---------- ---------
meetings of the Board of Directors and the minutes of all meetings of the
shareholders, in books provided for that purpose, (2) shall attend to the giving
and serving of all notices, (3) may sign with the President or Vice President in
the name of the Corporation and/or attest the signature of either to, all
contracts, conveyances, transfers, assignments, encumbrances, authorizations and
all other instruments, documents and papers, of any and every description
whatsoever, of or executed for or on behalf of the Corporation and affix the
seal of the Corporation thereto, (4) may sign with the President or a Vice
President all certificates for shares of the capital stock of the Corporation
and affix the corporate seal of the Corporation thereto, (5) shall have charge
of and maintain and keep or supervise and control the maintenance and keeping of
the stock certificate books, share transfer records and such other books and
papers as the Board of Directors may authorize, direct or provide for, all of
which shall at all reasonable times be open to the inspection of any director,
upon request, at the office of the Corporation during business hours, (6) shall
in general perform all of the duties incident to the office of Secretary,
subject to the control of the President and the Board of Directors, and (7)
shall have such other powers and duties as may be conferred upon or assigned to
him by the Board of Directors.
Section 14. Assistant Secretaries. Each Assistant Secretary shall have the
---------- ---------------------
usual powers and duties pertaining to his office, together with such other
powers and duties as may be conferred upon or assigned to him by the Board of
Directors or the Secretary. The Assistant Secretaries shall have and exercise
the powers of the Secretary during that officer's absence or inability or
refusal to act.
Section 15. Securities of Other Corporations. The President or any Vice
---------- --------------------------------
President or the Secretary or the Treasurer of the Corporation shall have power
and authority to transfer, enforce for transfer, vote, consent or take any other
action with respect to any securities of another issuer which may be held or
owned by the Corporation and to make, execute and deliver any waiver, proxy or
consent with respect to any such securities and otherwise to exercise any and
all rights and powers which the Corporation may possess by reason of its
ownership of securities in such other corporation, including the exercise of any
voting rights.
ARTICLE VII
BOOKS, DOCUMENTS AND ACCOUNTS
The Corporation shall keep correct and complete books and records of
account and shall keep minutes of the proceedings of its shareholders. The Board
of Directors shall have power to keep the books, documents and accounts of the
Corporation outside of the State of Texas, except that a record of its
shareholders, giving the names and addresses of all shareholders and the number
and class of shares held by each shall be kept at its registered office or
principal place of business, or at the office of its transfer agent or registrar
and the original or duplicate stock ledger shall at all times be kept within the
State of Texas.
ARTICLE VIII
CAPITAL STOCK
Section 1. Stock Certificates. The certificates for shares of the capital
--------- ------------------
stock of the Corporation shall be in such form, not inconsistent with that
required by law and the Articles of
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Incorporation, as shall be approved by the Board of Directors. They shall be
consecutively numbered and shall be entered in the books of the Corporation as
they are issued and shall exhibit the holder's name and number of shares. Every
holder of stock in the Corporation shall be entitled to have a certificate
signed by, or in the name of, the Corporation by the President or a Vice
President and either the Secretary or an Assistant Secretary of the Corporation,
certifying the number of shares (and, if the stock of the Corporation shall be
divided into classes or series, the class and series of such shares) owned by
him in the Corporation, with the seal of the Corporation or a facsimile thereof
impressed or printed thereon. Where any such certificate is countersigned by a
transfer agent or registered by a registrar, either of which is another than the
Corporation itself or an employee of the Corporation, the signatures of the
President or Vice President and the Secretary or Assistant Secretary upon a
certificate may be facsimiles, engraved or printed. In case any officer who
shall have signed or whose facsimile signature shall have been placed on any
such certificate shall have ceased to be such officer of the Corporation,
whether because of death, resignation or otherwise, before such certificate is
issued, such certificate may nevertheless be issued and delivered by the
Corporation with the same effect as if the person were such officer at the date
of its issuance.
Section 2. Transfers. Stock of the Corporation shall be transferable in
--------- ---------
the manner prescribed by the laws of the State of Texas and in these Bylaws.
Transfers of stock shall be made on the books of the Corporation only by the
person named in the certificate, or by his attorney-in-fact or legal
representative, duly and lawfully authorized in writing, and upon the surrender
of the certificate therefor, which shall be cancelled before the new certificate
for a like number of shares shall be issued. Upon surrender to the Corporation
or a transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
The Board of Directors may appoint a transfer agent or a registrar for each
class of stock, and may require all stock certificates to bear the signature of
such transfer agent and of such registrar or either of them. The stock record
books and the blank stock certificate books shall be kept by the Secretary, or
at the office of such transfer agent or transfer agents as the Board of
Directors may from time to time by resolution determine.
Section 3. Registered Holders. The Corporation shall be entitled to treat
--------- ------------------
the person in whose name any share of stock or any warrant, right or option is
registered as the owner thereof for all purposes and shall not be bound to
recognize any equitable or other claim to, or interest in, such share, warrant,
right or option on the part of any other person, whether or not the Corporation
shall have notice thereof, save as may be expressly provided otherwise by the
laws of the State of Texas.
Section 4. New Certificates. The Corporation may, in its sole discretion,
--------- ----------------
issue a new certificate for shares of its stock in the place of any certificate
theretofore issued by it, alleged to have been lost or destroyed, and the Board
of Directors may, in its discretion, require the owner of the lost or destroyed
certificate, or his legal representative, to give the Corporation such statement
under oath or other evidence of such loss or destruction as the Board may
desire, and a bond in form, amount and with such surety as the Board of
Directors may prescribe or determine, and sufficient, in the sole judgement of
the Board, to indemnify and protect the Corporation against any and all claims,
liabilities, costs and expenses that may be made or asserted against it or which
it may suffer or incur or pay, on account of the alleged loss of any such
certificate or the issuance of such new certificate. A new certificate may be
issued without requiring any bond when, in the sole discretion of the Board, it
is proper so to do.
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Section 5. Distributions. The Board of Directors may declare distributions
--------- -------------
of the assets of the Corporation to its shareholders as the Board deems
expedient and as permitted by law under the provisions of the Texas Business
Corporation Act. Before declaring any distributions there may be reserved out of
the earned surplus such sums as the Board of Directors deems proper for working
capital or as reserve fund to meet contingencies or for equalizing
distributions, or for such other purposes as the Board may deem conducive to the
interests of the Corporation, and the Board may abolish any such reserve in the
manner in which it was created.
Section 6. Record Date and Closing of Share Transfer Records. For the
--------- -------------------------------------------------
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or entitled to receive a
distribution by the Corporation (other than a distribution involving a purchase
or redemption by the Corporation of any of its own shares) or a share dividend,
or in order to make a determination of shareholders for any other proper purpose
(other than determining shareholders entitled to consent to action by
shareholders proposed to be taken without a meeting of shareholders), the Board
of Directors of the Corporation may provide that the share transfer records
shall be closed for a stated period not to exceed, in any case, sixty (60) days.
If the share transfer records shall be closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders, such
books shall be closed for at least ten (10) days immediately preceding such
meeting. In lieu of closing the share transfer records, the Board of Directors
may fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than sixty (60) days and, in
case of a meeting of shareholders, not less than ten (10) days prior to the date
on which the particular action requiring such determination of shareholders is
to be taken. If the share transfer records are not closed and no record date is
fixed for the determination of shareholders entitled to notice of or to vote at
a meeting of shareholders, or shareholders entitled to receive payment of
distribution, the date on which the notice of the meeting is mailed or the date
on which the resolution of the Board of Directors declaring such distribution is
adopted, as the case may be, shall be the record date for such determination of
shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided herein, such determination
shall apply to any adjournment thereof except where the determination has been
made through the closing of share transfer records and the stated period of
closing has expired.
Unless a record date shall have previously been fixed or determined
pursuant to this Section 6, whenever action by shareholders is proposed to be
taken by consent in writing without a meeting of shareholders, the Board of
Directors may fix a record date for the purpose of determining shareholders
entitled to consent to that action, which record date shall not precede, and
shall not be more than ten (10) days after, the date upon which the resolution
fixing the record date is adopted by the Board of Directors. If no record date
has been fixed by the Board of Directors and the prior action of the Board of
Directors is not required by the Texas Business Corporation Act, the record
date for determining shareholders entitled to consent to action in writing
without a meeting shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office, its principal place of
business, or the Secretary or an Assistant Secretary of the Corporation.
Delivery shall be by hand or by certified or registered mail, return receipt
requested. Delivery to the Corporation's principal place of business shall be
addressed to the President or the Chief Executive Officer of the Corporation. If
no record date shall have been fixed by the Board of Directors and prior action
of the Board of Directors is required by the Texas Business Corporation Act, the
record date for determining shareholders entitled to consent to action in
writing without a meeting shall be at the close of business on the date on which
the Board of Directors adopts a resolution taking such prior action.
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Section 7. Regulations. The Board of Directors shall have power and
--------- -----------
authority to make all such rules and regulations as they may deem expedient
concerning the issue, transfer and registration or the replacement of
certificates for shares of the capital stock of the Corporation.
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 1. Fiscal Year. The fiscal year of the Corporation shall be such
--------- -----------
as the Board of Directors shall, by resolution, provide or establish or such as
the President shall determine subject to approval of the Board.
Section 2. Seal. The seal of the Corporation shall be in such form as the
--------- ----
Board of Directors shall prescribe, and may be used by causing it or a facsimile
thereof to be impressed, or printed, or reproduced or in any other manner
affixed. The Secretary shall have charge of the seal. If and when so directed
by the Board of Directors, duplicates of the seal may be kept and used by the
Treasurer or by the Assistant Secretary or Assistant Treasurer.
Section 3. Notice and Waiver of Notice. Whenever any notice is required
--------- ---------------------------
to be given under the provisions of the Texas Business Corporation Act or under
the provisions of these Bylaws or the Articles of Incorporation of the
Corporation, said notice shall be deemed to be sufficient if given by depositing
the same in a post office box in a sealed post-paid wrapper addressed to the
person entitled thereto at his post office address as the same appears on the
books or other records of the Corporation, and such notice shall be deemed to
have been given on the day of such mailing, but said notice shall also be deemed
to be sufficient and to have been given and received if given in any other
manner or by any other means authorized or provided for elsewhere in these
Bylaws. A written waiver of notice, signed by the person or persons entitled to
such notice, whether before or after the time stated therein, shall be
equivalent to the giving of such notice.
Section 4. Resignations. Any director or officer may resign at any time.
--------- ------------
Each such resignation shall be made in writing and shall take effect at the time
specified therein, or, if no time be specified, at the time of its receipt by
either the Board of Directors or the President or the Secretary. The acceptance
of a resignation shall not be necessary to make it effective, unless expressly
so provided in the resignation.
Section 5. Depositories. Funds of the Corporation not otherwise employed
--------- ------------
shall be deposited in such banks or other depositories as either the Board of
Directors or the President or the Treasurer may select or approve.
Section 6. Signing of Checks and Notes. In addition to and cumulative of,
--------- ---------------------------
but in no way limiting or restricting, any other provision of these Bylaws which
confer any authority relative thereto, all checks, drafts and other orders for
the payment of money out of funds of the Corporation and all notes and other
evidences of indebtedness of the Corporation shall be signed on behalf of the
Corporation, in such manner, and by such officer or person as shall be
determined or designated by the Board of Directors; provided, however, that if,
when, after and as authorized or provided for by the Board of Directors, the
signature of any such officer of person may be a facsimile or engraved or
printed, and shall have the same force and effect and bind the Corporation as
though such officer or person had signed the same personally, and, in the event
of the death, disability, removal or resignation of any such officer or person,
if the Board of Directors shall so determine or provide, as though and with the
same effect as if such death, disability, removal or resignation had not
occurred.
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Section 7. Gender and Number. Wherever used or appearing in these Bylaws,
--------- -----------------
pronouns of the masculine gender shall include the persons of the female sex as
well as the neuter gender and the singular shall include the plural wherever
appropriate.
Section 8. Laws and Statutes. Wherever used or appearing in these Bylaws,
--------- -----------------
the words "law" or "laws" or "statute" or "statutes," respectively, shall mean
and refer to laws and statutes, or a law or statute, of the State of Texas, to
the extent only that such is or are expressly applicable, except where otherwise
expressly stated or the context requires that such words not be so limited.
Section 9. Headings. The headings of the Articles and Sections of these
--------- --------
Bylaws are inserted for convenience of reference only and shall not be deemed
to be a part thereof or used in the construction or interpretation thereof.
ARTICLE X
AMENDMENTS
These Bylaws may, from time to time, be added to, changed, altered, amended
or repealed or new Bylaws may be made or adopted by the Board of Directors at
any meeting of the Board of Directors, subject to repeal or change by action of
the shareholders, unless the power to alter, amend or repeal the Bylaws is
reserved to the shareholders in the Articles of Incorporation of the
Corporation.
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EXHIBIT 4.2
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of January 17, 1997
By and Between
LITIGATION RESOURCES OF AMERICA, INC.
and
RICHARD O. LOONEY
================================================================================
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is entered into
and made as of January 17, 1997, by and among LITIGATION RESOURCES OF AMERICA,
INC., a Texas corporation having its headquarters at 3850 Nationsbank Center,
700 Louisiana Street, Houston, Texas 77002-2731 (the "Company"), and RICHARD O.
LOONEY, an individual or entity residing in the State of Texas ("Shareholder").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Shareholder owns 843,840 shares of the Common Stock (as
defined hereinafter);
WHEREAS, pursuant to that certain Registration Rights Agreement dated
as of January 17, 1997 by and between the Company and the Purchasers listed on
the signature pages thereto (the "Purchasers"), the Company has granted certain
demand and piggyback rights to the Purchasers (the "Pecks Registration Rights
Agreement"); and
WHEREAS, the Company has agreed to grant certain piggyback
registration rights to Shareholder relating to such shares of Common Stock.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS. As used in this Agreement, the following terms have the
respective meanings set forth below or set forth in the Section or paragraph
following such term:
ADVICE - Section 3.1.
AFFILIATE - a Person who, with respect to that Person, directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, or is acting as agent on behalf of, or as an
officer or director of, that Person. As used in the definition of Affiliate,
the term "control" (including the terms "controlling," "controlled by," or
"under common control with") means the possession, direct or indirect, of the
power to direct, cause the direction of, or influence the management and
policies of a Person, whether through the ownership of voting securities, by
contract, through the holding of a position as a partner, director or officer of
such Person, as a trustee, or otherwise.
AGENT - Section 5.1.
AGREEMENT- introductory paragraph.
<PAGE>
BUSINESS DAY - day other than a Saturday, Sunday or legal holiday for
commercial banks in the State of Texas.
COMMISSION - the United States Securities and Exchange Commission.
COMMON STOCK - the Company's Common Stock, $.01 par value per share, or any
successor class of the Company's Common Stock.
COMPANY - introductory paragraph.
EXCHANGE ACT - the Securities Exchange Act of 1934, as amended.
HOLDER - Shareholder or any other person that has properly assumed or been
properly assigned Shareholder's rights and obligations hereunder in accordance
with Section 6.12.
INSPECTORS - Section 3.1.
IPO - shall mean the initial public offering of securities of the Company
under registration statement filed and ordered effective under the 1933 Act
pursuant to a managed underwritten offering.
LIABILITIES - Section 5.1.
SHAREHOLDER - introductory paragraph.
1933 ACT - the Securities Act of 1933, as amended.
PERSON - any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or a political subdivision, agency or instrumentality thereof or
other entity or organization of any kind.
PIGGYBACK REGISTRATION - Section 2.1.
RECORDS - Section 3.1.
REGISTRABLE SECURITIES - any (i) shares of Common Stock owned by
Shareholder as of the execution date hereof, and (ii) any securities issued in
exchange for, as a dividend on, or in replacement or upon conversion of, or
otherwise issued in respect of (including securities issued in a stock dividend,
split or recombination or pursuant to the exercise of preemptive rights) any
shares of Common Stock or other securities described in clause (i), until such
time as such securities have been transferred to a Person that does not qualify
as a Holder pursuant to Section 6.12.
REGISTRATION EXPENSES - Section 2.3.
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SECTION 2. REGISTRATION RIGHTS.
2.1 PIGGYBACK REGISTRATION.
(a) If at any time or from time to time prior to the fifth anniversary of
an IPO the Company proposes to file a registration statement under the 1933 Act
with respect to an offering by the Company for its own account or for the
account of any other Person of any class of equity security of the Company,
including any security convertible into or exchangeable for any such equity
security, then the Company shall in each case give written notice of such
proposed filing to the Holder at least thirty days before the anticipated filing
date, and such notice shall offer the Holder the opportunity to register such
number of Registrable Securities as the Holder may request (a "Piggyback
Registration"). The Company shall use reasonable diligence to cause the
managing underwriter or underwriters of a proposed underwritten offering to
permit the Holder to include the Registrable Securities requested by the Holder
to be included in the registration statement and in such offering on the same
terms and conditions as any similar securities of the Company included therein
(except to the extent provided otherwise in the Pecks Registration Rights
Agreement), to the extent permitted by applicable law. Notwithstanding the
foregoing, if the managing underwriter or underwriters of such offering informs
the Company and the Holders requesting such registration by letter of its belief
that the number of securities requested to be included in such registration (the
"Requested Securities") exceeds the number which can be sold in (or during the
time of) such offering or that the inclusion would adversely affect the
marketing or the selling price of the securities to be sold, then the amount or
kind of Requested Securities to be offered for the accounts of all Persons whose
shares of Requested Securities were requested to be included in such offering
shall be reduced pro rata with respect to each such Person to the extent
necessary to reduce the total amount of securities to be included in such
offering to the amount recommended by such managing underwriter, such a
reduction not to include shares of (i) if the registration initially occurs at
the insistence of the Company, the Company, (ii) if such registration occurs
due to a demand registration right, shares of the Person making that demand, or
(iii) the Purchaser under the Pecks Registration Rights Agreement, to the extent
provided otherwise in such Pecks Registration Rights Agreement.
(b) Notwithstanding anything to the contrary contained in Section 2.1(a),
the Company shall not be required to include Registrable Securities in any
registration statement pursuant to this Section 2.1 if the proposed registration
is (i) a registration of a stock option or other employee incentive compensation
plan or of securities issued or issuable pursuant to any such plan, (ii) a
registration of securities issued or issuable pursuant to a stockholder
reinvestment plan or other similar plan, (iii) a registration of securities
issued in exchange for any securities or any assets of, or in connection with a
merger or consolidation with, an unaffiliated company, or (iv) a registration of
securities pursuant to a "rights" or other similar plan designed to protect the
Company's stockholders from a coercive or other attempt to take control of the
Company.
(c) The Company may withdraw any registration statement and abandon any
proposed offering initiated by the Company without the consent of the Holder
notwithstanding the request of the Holder to participate therein in accordance
with this provision, if the Company determines that such action is in the best
interests of the Company and its stockholders (for this purpose, the interests
of the Holder shall not be considered except generally as a stockholder).
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2.2 HOLDBACK AGREEMENTS; REQUIREMENTS OF THE HOLDER.
(a) Restrictions on Public Sale by the Holder. To the extent not
inconsistent with applicable law, the Holder agrees that, he will not effect any
public sale or distribution of the issue being registered or a similar security
of the Company or any securities convertible into or exchangeable or exercisable
for such securities (such agreement, as hereinbefore set forth in this sentence
being sometimes hereinafter referred to as the "Restriction") during the 14
days prior to, and during the 90-day period (or such shorter period as may be
agreed with the managing underwriter) beginning on, the effective date of such
registration statement (except as part of such registration), but only if and to
the extent (i) requested in writing (with reasonable prior notice) by the
managing underwriter or underwriters in the case of an underwritten public
offering by the Company of securities similar to the Registrable Securities, and
(ii) similarly situated shareholders of the Company (e.g. persons who sold their
businesses in exchange for common stock) are required to agree to the
Restriction.
(b) Cooperation by Holder. The offering of Registrable Securities by the
Holder shall comply in all respects with the applicable terms, provisions and
requirements set forth in this Agreement, and the Holder shall timely provide
the Company with all information and materials required to be included in a
registration statement that (a) relate to the offering, (b) are in possession of
the Holder, and (c) relate to the Holder, and to take all such action as may be
reasonably required in order not to delay the registration and offering of the
securities by the Company. The Company shall have no obligation to include in
such registration statement shares of the Holder if the Holder has failed to
furnish such information or materials and if, in the opinion of counsel to the
Company, such information and materials are required in order for the
registration statement to be in compliance with the 1933 Act.
2.3 REGISTRATION EXPENSES. All expenses incident to the Company's
performance of or compliance with this Agreement, including without limitation,
all Commission and securities exchange or National Association of Securities
Dealers, Inc. registration and filing fees, all fees and expenses relating to
compliance with securities or blue sky laws (including fees and disbursements of
counsel in connection with blue sky qualifications of the Registrable
Securities), all printing expenses, messenger and delivery expenses, internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), fees and expenses
incurred in connection with the listing of the securities to be registered on
securities exchanges, fees and disbursements of counsel for the Company and its
independent certified public accountants (including the expenses required for
"cold comfort" letters required by or incident to such performance), and fees
and expenses of any special experts retained by the Company in connection with
such registration (but not including any underwriting fees, discounts or
commissions directly attributable to the sale of Holder's Registrable
Securities) (all such expenses being herein called "Registration Expenses"),
will be borne by the Company; provided, however that, the Company shall not be
obligated to pay (i) the fees and disbursements of any counsel for the Holder or
liability insurance related to the offering (if the Company elects to obtain
such insurance with the Holder's consent) for the Holder, or (ii) any out-of-
pocket expenses of the Holder, which fees, disbursements and expenses described
in clauses (i) and (ii) preceding shall be borne by the Holder.
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SECTION 3. COVENANTS OF THE COMPANY.
3.1 REGISTRATION PROCEDURES. Whenever any Registrable Securities are to be
registered pursuant to Section 2, the Company will use reasonable diligence to
effect the registration of such Registrable Securities in accordance with the
intended method of disposition thereof as quickly as practicable and in
accordance with the provisions of Section 2. In connection with any offering of
Registrable Securities pursuant to the Agreement, the Company shall as
expeditiously as possible:
(a) prepare and file with the Commission a registration statement that
includes the Registrable Securities requested to be included therein in
accordance with Section 2 and use reasonable diligence to cause such
registration statement to become effective; provided, however, that at least
five Business Days before filing a registration statement or prospectus or any
amendment or supplement thereto, including documents incorporated by reference
therein, the Company will furnish to the Holder, and the underwriters, if any,
draft copies of all such documents proposed to be filed, which documents will be
subject to the review of the Holder and such underwriters, and the Company will
not file any registration statement or prospectus or amendment or supplement
thereto (including such documents incorporated by reference) to which the Holder
or the underwriters with respect to such Registrable Securities, if any, shall
reasonably object within five days of receipt of any of such documents; and
provided further, however, that if the Company, in the case of a Piggyback
Registration, despite the reasonable objection of the Holder, desires to proceed
with the registration of its shares, the Holder may withdraw the Registrable
Securities from being included in such offering, using its good-faith efforts to
minimize delay caused by such withdrawal, and the Company may then,
notwithstanding anything to the contrary in the immediately preceding proviso,
proceed with such offering; the Company and the Holder acknowledge that such
withdrawal by the Holder will delay such offering for as much time as is
necessary to amend such registration statement or prospectus to reflect the
withdrawal of such Registrable Securities from such offering;
(b) prepare and file with the Commission such amendments and post-
effective amendments to the registration statement as may be necessary to keep
the registration statement effective for a period of six months (or such shorter
period which will terminate when all Registrable Securities covered by such
registration statement have been sold or withdrawn, but not prior to the
expiration of the 90-day period referred to in Section 4(3) of the 1933 Act and
Rule 174 thereunder, if applicable); cause the prospectus to be supplemented by
any required prospectus supplement, and as so supplemented to be filed pursuant
to Rule 424 under the 1933 Act; and comply with the provisions of the 1933 Act
applicable to it with respect to the disposition of all securities covered by
such registration statement during the applicable period in accordance with the
intended methods of disposition by the sellers thereof set forth in such
registration statement or supplement to the prospectus; the Company shall not be
deemed to have complied with its obligations hereunder to keep a registration
statement effective during the applicable period if it voluntarily takes any
action that would result in the prevention of the Holder from selling such
Registrable Securities during that period unless such action is required under
applicable law;
(c) furnish to the Holder and the underwriter or underwriters, if any,
without charge, such reasonable number of conformed copies of the registration
statement and any post-effective amendment thereto and such reasonable number of
copies of the prospectus (including each
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preliminary prospectus) and any amendments or supplements thereto, and any
documents incorporated by reference therein, as the Holder or underwriter may
request in order to facilitate the disposition of the Registrable Securities
being sold by the Holder (it being understood that the Company consents to the
use of the prospectus and any amendment or supplement thereto by the Holder and
the underwriter or underwriters, if any, in connection with the offering and
sale of the Registrable Securities covered by the prospectus or any amendment or
supplement thereto);
(d) notify the Holder at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act, when the Company becomes aware of
the happening of any event as a result of which the prospectus included in such
registration statement (as then in effect) contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading and, as promptly as practicable thereafter, prepare and file with the
Commission and furnish a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(e) use reasonable diligence to cause all Registrable Securities included
in such registration statement to be listed, by the date of the first sale of
Registrable Securities pursuant to such registration statement, on each
securities exchange on which the Common Stock of the Company is then listed or
proposed to be listed, if any;
(f) make generally available to its security holders an earnings statement
satisfying the provisions of Section 11(a) of the 1933 Act no later than 45 days
after the end of the 12-month period beginning with the first day of the
Company's first fiscal quarter commencing after the effective date of the
registration statement, which earnings statement shall cover said 12-month
period, which requirement will be deemed to be satisfied if the Company timely
files complete and accurate information on such forms and reports as the Company
may be required to file under the Exchange Act and otherwise complies with Rule
158 under the 1933 Act as soon as feasible;
(g) notify the Holder of any stop order issued or threatened by the
Commission in connection therewith and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered, and make every
reasonable effort to obtain the withdrawal of any order suspending the
effectiveness of the registration statement at the earliest possible moment;
(h) if requested by the managing underwriter or underwriters, promptly
incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriter or underwriters or the Holder reasonably
requests to be included therein, including, without limitation, the purchase
price being paid therefor by such underwriter or underwriters and any other
terms of the underwritten offering of such Registrable Securities (excluding,
however, information with respect to the number of Registrable Securities being
sold to such underwriter or underwriters by the Holder), and promptly make all
required filings of such prospectus supplement or post-effective amendment;
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(i) as promptly as practicable after filing with the Commission of any
document which is incorporated by reference into a registration statement,
deliver to the Holder as many copies of that document as may be reasonably
requested by the Holder;
(j) on or prior to the date on which the registration statement is
declared effective, use reasonable diligence to register or qualify, and
cooperate with the Holder the underwriter or underwriters, if any, and their
counsel, in connection with the registration or qualification of the Registrable
Securities covered by the registration statement for offer and sale under the
securities or blue sky laws of each state and other jurisdiction of the United
States as the Holder or underwriter reasonably requests in writing, to use
reasonable diligence to keep each such registration or qualification effective,
including through new filings, or amendments or renewals, during the period such
registration statement is required to be kept effective and to do any and all
other acts or things necessary or advisable to enable the disposition in all
such jurisdictions of the Registrable Securities covered by the applicable
registration statement; provided that the Company will not be required to
qualify generally to do business in any jurisdiction where it is not then so
qualified or to take any action which would subject it to general service of
process in any such jurisdiction where it is not then so subject; and provided,
further, however, that while it is the present intention of the Holder to
cooperate with the Company to keep the costs of compliance with state blue sky
laws to a minimum, the Holder shall have the right to require compliance by the
Company with the blue sky laws of as many states as the managing underwriter
deems reasonably necessary in its good faith judgment to realize the maximum
possible value for the Registrable Securities included in such registration
statement;
(k) cooperate with the Holder and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing securities to be sold under the registration statement
and enable such securities to be in such denominations and registered in such
names as the managing underwriter or underwriters, if any, may request, subject
to the underwriters' obligation to return any certificates representing
securities not sold;
(l) use reasonable diligence to cause the Registrable Securities covered
by the registration statement to be registered with or approved by such other
governmental agencies or authorities within the United States as may be
necessary to enable the seller or sellers thereof or the underwriter or
underwriters, if any, to consummate the disposition of such securities;
(m) enter into such customary agreements (including an underwriting
agreement in customary form) and take all such other reasonable actions as the
Holder or the underwriters retained by the Holder participating in an
underwritten public offering, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities;
(n) make available for inspection by the Holder, any underwriter
participating in any disposition pursuant to such registration statement, and
any attorney, accountant or other agent retained by any such seller or
underwriter (collectively, the "Inspectors"), all financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"Records"), as shall be necessary to enable them to exercise their due diligence
responsibility; and cause the Company's officers, directors and employees to
make available for inspection and/or copying all
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Records reasonably requested by any such Inspector in connection with such
registration statement; and
(o) list such securities on or with a national securities exchange (which
term shall include the NASDAQ National Market System) and comply with all
applicable exchange listing requirements and rules and regulations thereof;
(p) use reasonable diligence to obtain a "cold comfort" letter from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by cold comfort letters covering
registration statements similar to the registration statement at issue as the
Holder reasonably requests.
The Holder, upon receipt of any notice from the Company of the occurrence
of any event of the kind described in subsection (d) of this Section 3.1, will
forthwith discontinue disposition of the Registrable Securities until the
Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by subsection (d) of this Section 3.1 and copies of any additional
or supplemental filings which are incorporated by reference in the prospectus,
or until it is advised in writing (the "Advice") by the Company that the use of
the prospectus may be resumed. If so directed by the Company, the Holder shall
deliver to the Company (at the Company's expense) all copies in its possession
or control, other than permanent file copies then in the Holder's possession, of
the prospectus covering such Registrable Securities. In the event the Company
shall give any such notice, the time periods mentioned in subsection (b) of this
Section 3.1 shall be extended by the number of days during the period from and
including the date of the giving of such notice to and including the date when
each seller of Registrable Securities covered by such registration statement
shall have received the copies of the supplemented or amended prospectus
contemplated by subsection (d) of this Section 3.1 hereof or the Advice.
If such registration statement refers to the Holder by name or otherwise as
the holder of any securities of the Company then the Holder shall have the right
to require (i) the insertion therein of language, in form and substance
satisfactory to the Holder to the effect that the holding by such Holder of such
securities is not to be construed as a recommendation of such Holder of the
investment quality of the Company's securities covered thereby and that such
holding does not imply that the Holder will assist in meeting any future
financial requirements of the Company, or (ii) in the event that such reference
to such Holder by name or otherwise is not required by the Securities Act or any
similar federal statute then in force, the deletion of the reference to such
Holder.
3.2 RULE 144; INFORMATION. The Company covenants that, upon any
registration statement covering Company securities becoming effective, it will
file the reports required to be filed by it under the 1933 Act and the Exchange
Act and the rules and regulations adopted by the Commission thereunder (or, if
the Company is not required to file such reports, it will, upon the request of
the Holder make publicly available other nonconfidential information as is
necessary to permit sales under Rule 144 under the 1933 Act), and it will take
such other action as the Holder may reasonably request, all to the extent
required from time to time to enable the Holder to sell Registrable Securities
without registration under the 1933 Act within the limitation of the exemptions
provided by (a) Rule 144 under the 1933 Act, as such Rule may be amended from
time to time, or (b) any similar rule or
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regulation hereafter adopted by the Commission; provided further that if the
Company is not required to file reports under the 1933 Act and the Exchange Act
and the rules and regulations adopted by the Commission thereunder, the Company
shall, upon the request of the Holder, provide the Holder audited financial
statements and access to the books and records of the Company and, if requested
by the Holder sufficient information to enable the Holder to comply with Rule
144 or Rule 144A under the 1933 Act. Upon the request of the Holder, the Company
will deliver to the Holder a written statement as to whether it has complied
with such requirements.
3.3 FUTURE RIGHTS. From the date of this Agreement until the fifth
anniversary of the IPO, the Company will not grant to any Person (excluding the
Holder) any registration rights with respect to any securities of the Company
other than (i) the registration rights being concurrently granted to the
Investors under the Pecks Registration Rights Agreement, (ii) new registration
rights ("new rights") that are granted in connection with the investment in the
Company by such grantee (or group of grantees) of at least $1,000,000 or (iii)
sale of a court reporting or related business to the Company in a transaction in
which all or part of the consideration is Common Stock or securities convertible
into Common Stock. Such new rights must be of no greater priority or right than
the registration rights granted by the Company under this Agreement, and a copy
thereof must be forwarded in writing by the Holder. Additionally, new rights may
not be granted without expressly providing that the Holder has a piggyback right
upon the exercise of such new rights and shall be included in any related
registration statement on the same terms and conditions as the holders of the
new rights, subject to possible reduction at the initiative of the managing
underwriter or underwriters, on terms substantially equivalent to those set
forth in Section 2.2. Other than as set forth in Pecks Registration Rights
Agreement, the Company shall not grant any rights with respect to the
registration of its capital stock that are in any material respect broader or
superior to the registration rights set forth in this Agreement. The parties
hereto acknowledge and agree that this Section 3.3 is a material provision of
this Registration Rights Agreement.
3.4 REPRESENTATION AND WARRANTY. The Company hereby represents and
warrants to Shareholder that on or prior to the date hereof, (a) the Company has
not granted registration rights to any Person except for the registration rights
granted under this Agreement and except as set forth in the Pecks Registration
Rights Agreement, and (b) no consent, approval, authorization or waiver of any
Person is required to permit the Company to (i) execute or deliver this
Agreement or (ii) perform this Agreement in accordance with its terms other than
with respect to registration under the 1933 Act and comparable registrations
with state securities commissions, and (c) is not inconsistent with the charter,
by-laws or any agreement to which the Company is a party.
SECTION 4. COVENANTS OF HOLDER.
4.1 PARTICIPATION IN UNDERWRITING REGISTRATIONS. Holder may not
participate in any underwritten registration hereunder unless the Holder (a)
agrees to sell his securities on the terms of and on the basis provided in any
underwriting arrangements approved by the Company and (b) completes and executes
all questionnaires, powers of attorney, underwriting agreements and other
documents reasonably required under the terms of such underwriting arrangements.
SECTION 5. INDEMNIFICATION; CONTRIBUTION.
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5.1 INDEMNIFICATION; CONTRIBUTION.
(a) Indemnification by the Company. The Company agrees to indemnify and
hold harmless each Holder of Registrable Securities, its officers, directors,
partners and each Person who controls such Holder (within the meaning of the
1933 Act), and any Agent (as hereinafter defined) or investment advisor thereto
against all losses, claims, damages, liabilities and expenses, joint or several
(including reasonable costs of investigation, and attorneys fees and expenses as
further provided in Section 5.1(c)) (collectively, "Liabilities") arising out of
or based upon any untrue or alleged untrue statement of material fact contained
in any registration statement, and amendment or supplement thereto, or any
prospectus or preliminary prospectus contained therein, or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
any such Liabilities arise out of or are based upon any untrue statement or
omission based upon and in conformity with information regarding such
indemnified Person furnished in writing to the Company by such indemnified
Person expressly for use therein. In connection with an underwritten offering,
the Company will indemnify the underwriters thereof, their officers and
directors and each Person who controls such underwriters (within the meaning of
the 1933 Act) to the same extent as provided above with respect to the
indemnification of the Holders of Registrable Securities or to such other extent
as the Company and such underwriters may agree. For purposes of this Section
5.1(a), an "Agent" of a Holder of Registrable Securities is any Person acting
for or on behalf of such Holder with respect to the holding or sale of such
Registrable Securities.
5.2 INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES. In connection
with any registration statement in which the Holder is participating, the Holder
will furnish to the Company in writing such information with respect to the name
and address of the Holder and the amount of Registrable Securities held by the
Holder and such other information as the Company shall reasonably request for
use in connection with any such registration statement or prospectus, and agrees
to indemnify, to the extent permitted by law, the Company, its directors and
officers and each Person who controls the Company (within the meaning of the
1933 Act) against any losses, claims, damages, liabilities and expenses, joint
or several, resulting from any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission of a material fact required to
be stated in the registration statement or prospectus or any amendment thereof
or supplement thereto or necessary to make the statements therein not
misleading, to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission is based upon and in
conformity with any information regarding the Holder furnished in writing by the
Holder specifically for inclusion in any prospectus or registration statement.
In connection with an underwritten offering, the Holder participating in such
offering will indemnify the underwriters thereof, their officers and directors
and each Person who controls such underwriters (within the meaning of the 1933
Act) to the same extent, and solely to such extent, as provided in the
immediately preceding sentence with respect to indemnification of the Company.
In no event shall the liability of the Holder hereunder be greater in amount
than the dollar amount of the proceeds received by the Holder upon the sale of
the Registrable Securities giving rise to such indemnification obligation.
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5.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to
indemnification hereunder agrees to give prompt written notice to the
indemnifying party after the receipt by such Person of any written notice of the
commencement of any action, suit, proceeding or investigation or threat thereof
made in writing for which such Person may claim indemnification or contribution
pursuant to this Agreement and, unless in the written opinion of counsel for
such indemnified party a conflict of interest may exist between such indemnified
party and the indemnifying party with respect to such claim, permit the
indemnifying party to assume, at the sole cost and expense of the indemnifying
party, the defense of such claim with counsel reasonably satisfactory to such
indemnified party. Whether or not such defense is assumed by the indemnifying
party, neither the indemnifying party nor the indemnified party shall have the
authority to bind the other with respect to any settlement made without the
other's consent. No indemnifying party will consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect of such claim or litigation. If the
indemnifying party is not entitled to, or elects not to, assume the defense of a
claim, the indemnified party shall be entitled to hire counsel reasonably
satisfactory to it, the fees and expenses of which shall be borne by, in their
entirety, the indemnifying party; provided, however, that the indemnifying party
shall not be obligated to pay the fees and expenses of more than one counsel
with respect to such claim, unless in the opinion of counsel for any indemnified
party a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels.
5.4 CONTRIBUTION. If the indemnification provided for in this Section 5
from the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 5.3, any legal or other
fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5.4 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5.4, the Holder shall not be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities of the Holder were offered to the
public exceeds the amount of any damages which the Holder has
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otherwise been required to pay by reason of such untrue statement or omission.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
The obligations of the Company pursuant to this Section 5.4 shall be
further subject to such additional express agreements of the Company as may be
required to facilitate an underwritten offering, provided that no such agreement
shall in any way limit the rights of the Holder under this Agreement, or create
additional obligations of the Holder not set forth herein, except as otherwise
expressly agreed in writing by the Holder.
SECTION 6. MISCELLANEOUS.
6.1 RECAPITALIZATION, EXCHANGES, ETC. The provisions of this Agreement
shall apply, to the full extent set forth herein with respect to the Registrable
Securities, to any and all shares of equity capital of the Company or any
successor or assign of the Company (whether by merger, consolidation, sale of
assets or otherwise) which may be issued in respect of, in exchange for, or in
substitution of the Registrable Securities, in each case as the amounts of such
securities outstanding are appropriately adjusted for any equity dividends,
splits, reverse splits, combinations, recapitalization and the like occurring
after the date of this Agreement.
6.2 OPINIONS. When any legal opinion is required to be delivered
hereunder, such opinion may contain such qualifications as may be customary or
otherwise appropriate for legal opinions in similar circumstances.
6.3 NOTICES. (a) All communications under this Agreement shall be in
writing to the following addresses:
(i) If to Company, to: Litigation Resources of America, Inc.
3850 Nationsbank Center
700 Louisiana Street
Houston, Texas 7002-2731
Attn: G. Kent Kahle, President
with a copy to: Boyer, Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Attn: J. Randolph Ewing
Telefax: (713) 871-2024
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<PAGE>
(ii) If to the Holder, to:
Richard O. Looney
11717 Forest Glen
Houston, Texas 77024
Facsimile No.: (713) 784-1708
with a copy to:
Thomas D. Manford III
Bracewell & Patterson, LLP
South Pennzoil Tower Place
711 Louisiana St STE 2900
Houston, Texas 77002-2781
Facsimile No: (713) 221-1212
or to such other address as any party may furnish to the others in writing in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
(b) Any communication so addressed and mailed by first class registered or
certified mail, postage prepaid, shall be deemed to be received on the third
Business Day after so mailed, and if delivered by personal delivery (including
by courier) or facsimile to such address, upon delivery during normal business
hours.
6.4 APPLICABLE LAW. This contract is entered into under, and shall be
governed for all purposes by, the laws of the State of Texas.
6.5 AMENDMENT AND WAIVER. This Agreement may be amended, and the
provisions hereof may be waived, only by a written instrument signed by the
Holder and the Company. No failure by either party hereto at any time to give
notice of any breach by the other party of, or to require compliance with, any
condition or provision of this Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
6.6 REMEDY FOR BREACH OF CONTRACT; EQUITABLE RELIEF. The parties agree
that in the event there is any breach or asserted breach of the terms, covenants
or conditions of this Agreement, the remedy of the parties hereto shall be in
law and in equity and specific enforcement, injunctive and other equitable
relief shall lie for the enforcement of or relief from any provisions of this
Agreement. If any remedy or relief is sought and obtained by any party against
one of the other parties pursuant to this Section 6.6, the other party shall, in
addition to the remedy of relief so obtained, be liable to the party seeking
such remedy or relief for the reasonable expenses incurred by such party in
successfully obtaining such remedy or relief, including the fees and expenses of
such party's counsel.
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<PAGE>
6.7 SEVERABILITY. It is a desire and intent of the parties that the terms,
provisions. covenants and remedies contained in this Agreement shall be
enforceable to the fullest extent permitted by law. If any such term, provision,
covenant or remedy of this Agreement or the application thereof to any Person or
circumstances shall, to any extent, be construed to be invalid or unenforceable
in whole or in part, then such term, provision, covenant or remedy shall be
construed in a manner so as to permit its enforceability under the applicable
law to the fullest extent permitted by law. In any case, the remaining
provisions of this Agreement or the application thereof to any Person or
circumstances other than those to which they have been held invalid or
unenforceable, shall remain in full force and effect.
6.8 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 Agreement.
6.9 HEADINGS. The section and paragraph headings have been inserted for
purposes of convenience and shall not be used for interpretive purposes.
6.10 BINDING EFFECT. Unless otherwise provided herein, the provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, legal representatives, successors and
permitted assigns, and is not intended to confer upon any other Person any right
or remedies hereunder.
6.11 ENTIRE AGREEMENT. This Agreement, together with the other agreements
referenced herein, constitutes the entire agreement and supersedes all prior
agreements, understandings, both written and oral, among the parties with
respect to the subject matter hereof.
6.12 ASSIGNMENT. This Agreement, and the rights and obligations of the
parties hereunder, are not assignable or transferable to any other Person (other
than by operation of law, will or the laws relating to descent or distribution)
without the prior written consent of all parties to this Agreement.
6.13 WAIVER. Any waiver to be enforceable must be in writing and executed
by the party against whom the waiver is sought to be enforced.
6.14 ARBITRATION. If a dispute arises out of or relates to this Agreement,
or the breach thereof, and if said dispute cannot be settled through
negotiation, the Parties agree first to try in good faith to settle the dispute
by mediation under the Commercial Mediation Rules of the American Arbitration
Association, before resorting to arbitration, litigation, or some other dispute
resolution procedure as required by this Section 6.14. Failing an adequate
resolution by mediation, any controversy or claim arising out of or relating to
this Agreement or the transactions contemplated hereby, including any
controversy or claim arising out of or relating to the Parties' decision to
enter into this Agreement, shall be settled by binding arbitration. There shall
be one arbitrator to be mutually agreed upon by the Parties involved in the
controversy and to be selected from the National Panel of Commercial Arbitrators
(or successor panel, if any). If within 30 days after service of the demand for
arbitration the Parties are unable to agree upon such an arbitrator who is
willing to serve,
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<PAGE>
then an arbitrator shall be appointed by the American Arbitration Association in
accordance with its rules. Except as specifically provided in this Section 6.14,
the arbitration shall be conducted in accordance with the Commercial Arbitration
Rules of the American Arbitration Association. The arbitrator shall not render
an award of punitive damages. Any arbitration hereunder shall be held in
Houston, Texas. Expenses related to the arbitration, including counsel fees,
shall be borne by the Party incurring such expenses except to the extent
otherwise provided in Section 6.14 herein. The fees of the arbitrator and of the
American Arbitration Association, if any, shall be divided equally among the
Parties involved in the controversy. Judgment upon the award rendered by the
arbitrator (which may, if deemed appropriate by the arbitrator, include
equitable or mandatory relief with respect to performance of obligations
hereunder) may be entered in any court of competent jurisdiction. The arbitrator
shall award the prevailing Party in any arbitration proceeding recovery of its
attorneys' fees and other costs in connection with the arbitration from the non-
prevailing Party.
6.15 SUBORDINATION OF REGISTRATION RIGHTS. Notwithstanding any provision
of this Agreement, the Holder acknowledges and agrees that the registration
rights granted to the Holder pursuant to Section 2.1(a) are subordinate to the
registration rights granted to the Purchasers pursuant to the Pecks Registration
Rights Agreement. In the event of any conflict between this Agreement and any
terms or provisions of the Pecks Registration Rights Agreement a copy of which
is attached as Exhibit A, the terms or provision of the Pecks Registration
Rights Agreement shall prevail.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
LITIGATION RESOURCES OF AMERICA, INC.,
a Texas corporation
By: /s/ G. Kent Kahle
---------------------------------
G. Kent Kahle
President
SHAREHOLDER:
/s/ Richard O. Looney
---------------------------------
Name: Richard O. Looney
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<PAGE>
EXHIBIT 4.3
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of January 17, 1997
By and Between
LITIGATION RESOURCES OF AMERICA, INC.
and
MICHAEL KLEIN
================================================================================
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is entered into
and made as of January 17, 1997, by and among LITIGATION RESOURCES OF AMERICA,
INC., a Texas corporation having its headquarters at 3850 Nationsbank Center,
700 Louisiana Street, Houston, Texas 77002-2731 (the "Company"), and MICHAEL
KLEIN, an individual or entity residing in the State of Florida ("Shareholder").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Shareholder owns 170,600 shares of the Common Stock (as
defined hereinafter);
WHEREAS, pursuant to that certain Registration Rights Agreement dated
as of January 17, 1997 by and between the Company and the Purchasers listed on
the signature pages thereto (the "Purchasers"), the Company has granted certain
demand and piggyback rights to the Purchasers (the "Pecks Registration Rights
Agreement"); and
WHEREAS, the Company has agreed to grant certain piggyback
registration rights to Shareholder relating to such shares of Common Stock.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS. As used in this Agreement, the following terms have the
respective meanings set forth below or set forth in the Section or paragraph
following such term:
ADVICE - Section 3.1.
AFFILIATE - a Person who, with respect to that Person, directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, or is acting as agent on behalf of, or as an
officer or director of, that Person. As used in the definition of Affiliate,
the term "control" (including the terms "controlling," "controlled by," or
"under common control with") means the possession, direct or indirect, of the
power to direct, cause the direction of, or influence the management and
policies of a Person, whether through the ownership of voting securities, by
contract, through the holding of a position as a partner, director or officer of
such Person, as a trustee, or otherwise.
AGENT - Section 5.1.
AGREEMENT- introductory paragraph.
<PAGE>
BUSINESS DAY - day other than a Saturday, Sunday or legal holiday for
commercial banks in the State of Texas.
COMMISSION - the United States Securities and Exchange Commission.
COMMON STOCK - the Company's Common Stock, $.01 par value per share, or any
successor class of the Company's Common Stock.
COMPANY - introductory paragraph.
EXCHANGE ACT - the Securities Exchange Act of 1934, as amended.
HOLDER - Shareholder or any other person that has properly assumed or been
properly assigned Shareholder's rights and obligations hereunder in accordance
with Section 6.12.
INSPECTORS - Section 3.1.
IPO - shall mean the initial public offering of securities of the Company
under registration statement filed and ordered effective under the 1933 Act
pursuant to a managed underwritten offering.
LIABILITIES - Section 5.1.
SHAREHOLDER - introductory paragraph.
1933 ACT - the Securities Act of 1933, as amended.
PERSON - any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or a political subdivision, agency or instrumentality thereof or
other entity or organization of any kind.
PIGGYBACK REGISTRATION - Section 2.1.
RECORDS - Section 3.1.
REGISTRABLE SECURITIES - any (i) shares of Common Stock owned by
Shareholder as of the execution date hereof, and (ii) any securities issued in
exchange for, as a dividend on, or in replacement or upon conversion of, or
otherwise issued in respect of (including securities issued in a stock dividend,
split or recombination or pursuant to the exercise of preemptive rights) any
shares of Common Stock or other securities described in clause (i), until such
time as such securities have been transferred to a Person that does not qualify
as a Holder pursuant to Section 6.12.
REGISTRATION EXPENSES - Section 2.3.
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<PAGE>
SECTION 2. REGISTRATION RIGHTS.
2.1 PIGGYBACK REGISTRATION.
(a) If at any time or from time to time prior to the fifth anniversary of
an IPO the Company proposes to file a registration statement under the 1933 Act
with respect to an offering by the Company for its own account or for the
account of any other Person of any class of equity security of the Company,
including any security convertible into or exchangeable for any such equity
security, then the Company shall in each case give written notice of such
proposed filing to the Holder at least thirty days before the anticipated filing
date, and such notice shall offer the Holder the opportunity to register such
number of Registrable Securities as the Holder may request (a "Piggyback
Registration"). The Company shall use reasonable diligence to cause the
managing underwriter or underwriters of a proposed underwritten offering to
permit the Holder to include the Registrable Securities requested by the Holder
to be included in the registration statement and in such offering on the same
terms and conditions as any similar securities of the Company included therein
(except to the extent provided otherwise in the Pecks Registration Rights
Agreement), to the extent permitted by applicable law. Notwithstanding the
foregoing, if the managing underwriter or underwriters of such offering informs
the Company and the Holders requesting such registration by letter of its belief
that the number of securities requested to be included in such registration (the
"Requested Securities") exceeds the number which can be sold in (or during the
time of) such offering or that the inclusion would adversely affect the
marketing or the selling price of the securities to be sold, then the amount or
kind of Requested Securities to be offered for the accounts of all Persons whose
shares of Requested Securities were requested to be included in such offering
shall be reduced pro rata with respect to each such Person to the extent
necessary to reduce the total amount of securities to be included in such
offering to the amount recommended by such managing underwriter, such a
reduction not to include shares of (i) if the registration initially occurs at
the insistence of the Company, the Company, (ii) if such registration occurs
due to a demand registration right, shares of the Person making that demand, or
(iii) the Purchaser under the Pecks Registration Rights Agreement, to the extent
provided otherwise in such Pecks Registration Rights Agreement.
(b) Notwithstanding anything to the contrary contained in Section 2.1(a),
the Company shall not be required to include Registrable Securities in any
registration statement pursuant to this Section 2.1 if the proposed registration
is (i) a registration of a stock option or other employee incentive compensation
plan or of securities issued or issuable pursuant to any such plan, (ii) a
registration of securities issued or issuable pursuant to a stockholder
reinvestment plan or other similar plan, (iii) a registration of securities
issued in exchange for any securities or any assets of, or in connection with a
merger or consolidation with, an unaffiliated company, or (iv) a registration of
securities pursuant to a "rights" or other similar plan designed to protect the
Company's stockholders from a coercive or other attempt to take control of the
Company.
(c) The Company may withdraw any registration statement and abandon any
proposed offering initiated by the Company without the consent of the Holder
notwithstanding the request of the Holder to participate therein in accordance
with this provision, if the Company determines that such action is in the best
interests of the Company and its stockholders (for this purpose, the interests
of the Holder shall not be considered except generally as a stockholder).
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<PAGE>
2.2 HOLDBACK AGREEMENTS; REQUIREMENTS OF THE HOLDER.
(a) Restrictions on Public Sale by the Holder. To the extent not
inconsistent with applicable law, the Holder agrees that, he will not effect any
public sale or distribution of the issue being registered or a similar security
of the Company or any securities convertible into or exchangeable or exercisable
for such securities (such agreement, as hereinbefore set forth in this sentence
being sometimes hereinafter referred to as the "Restriction") during the 14
days prior to, and during the 90-day period (or such shorter period as may be
agreed with the managing underwriter) beginning on, the effective date of such
registration statement (except as part of such registration), but only if and to
the extent (i) requested in writing (with reasonable prior notice) by the
managing underwriter or underwriters in the case of an underwritten public
offering by the Company of securities similar to the Registrable Securities, and
(ii) similarly situated shareholders of the Company (e.g. persons who sold their
businesses in exchange for common stock) are required to agree to the
Restriction.
(b) Cooperation by Holder. The offering of Registrable Securities by the
Holder shall comply in all respects with the applicable terms, provisions and
requirements set forth in this Agreement, and the Holder shall timely provide
the Company with all information and materials required to be included in a
registration statement that (a) relate to the offering, (b) are in possession of
the Holder, and (c) relate to the Holder, and to take all such action as may be
reasonably required in order not to delay the registration and offering of the
securities by the Company. The Company shall have no obligation to include in
such registration statement shares of the Holder if the Holder has failed to
furnish such information or materials and if, in the opinion of counsel to the
Company, such information and materials are required in order for the
registration statement to be in compliance with the 1933 Act.
2.3 REGISTRATION EXPENSES. All expenses incident to the Company's
performance of or compliance with this Agreement, including without limitation,
all Commission and securities exchange or National Association of Securities
Dealers, Inc. registration and filing fees, all fees and expenses relating to
compliance with securities or blue sky laws (including fees and disbursements of
counsel in connection with blue sky qualifications of the Registrable
Securities), all printing expenses, messenger and delivery expenses, internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), fees and expenses
incurred in connection with the listing of the securities to be registered on
securities exchanges, fees and disbursements of counsel for the Company and its
independent certified public accountants (including the expenses required for
"cold comfort" letters required by or incident to such performance), and fees
and expenses of any special experts retained by the Company in connection with
such registration (but not including any underwriting fees, discounts or
commissions directly attributable to the sale of Holder's Registrable
Securities) (all such expenses being herein called "Registration Expenses"),
will be borne by the Company; provided, however that, the Company shall not be
obligated to pay (i) the fees and disbursements of any counsel for the Holder or
liability insurance related to the offering (if the Company elects to obtain
such insurance with the Holder's consent) for the Holder, or (ii) any out-of-
pocket expenses of the Holder, which fees, disbursements and expenses described
in clauses (i) and (ii) preceding shall be borne by the Holder.
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<PAGE>
SECTION 3. COVENANTS OF THE COMPANY.
3.1 REGISTRATION PROCEDURES. Whenever any Registrable Securities are to be
registered pursuant to Section 2, the Company will use reasonable diligence to
effect the registration of such Registrable Securities in accordance with the
intended method of disposition thereof as quickly as practicable and in
accordance with the provisions of Section 2. In connection with any offering of
Registrable Securities pursuant to the Agreement, the Company shall as
expeditiously as possible:
(a) prepare and file with the Commission a registration statement that
includes the Registrable Securities requested to be included therein in
accordance with Section 2 and use reasonable diligence to cause such
registration statement to become effective; provided, however, that at least
five Business Days before filing a registration statement or prospectus or any
amendment or supplement thereto, including documents incorporated by reference
therein, the Company will furnish to the Holder, and the underwriters, if any,
draft copies of all such documents proposed to be filed, which documents will be
subject to the review of the Holder and such underwriters, and the Company will
not file any registration statement or prospectus or amendment or supplement
thereto (including such documents incorporated by reference) to which the Holder
or the underwriters with respect to such Registrable Securities, if any, shall
reasonably object within five days of receipt of any of such documents; and
provided further, however, that if the Company, in the case of a Piggyback
Registration, despite the reasonable objection of the Holder, desires to proceed
with the registration of its shares, the Holder may withdraw the Registrable
Securities from being included in such offering, using its good-faith efforts to
minimize delay caused by such withdrawal, and the Company may then,
notwithstanding anything to the contrary in the immediately preceding proviso,
proceed with such offering; the Company and the Holder acknowledge that such
withdrawal by the Holder will delay such offering for as much time as is
necessary to amend such registration statement or prospectus to reflect the
withdrawal of such Registrable Securities from such offering;
(b) prepare and file with the Commission such amendments and post-
effective amendments to the registration statement as may be necessary to keep
the registration statement effective for a period of six months (or such shorter
period which will terminate when all Registrable Securities covered by such
registration statement have been sold or withdrawn, but not prior to the
expiration of the 90-day period referred to in Section 4(3) of the 1933 Act and
Rule 174 thereunder, if applicable); cause the prospectus to be supplemented by
any required prospectus supplement, and as so supplemented to be filed pursuant
to Rule 424 under the 1933 Act; and comply with the provisions of the 1933 Act
applicable to it with respect to the disposition of all securities covered by
such registration statement during the applicable period in accordance with the
intended methods of disposition by the sellers thereof set forth in such
registration statement or supplement to the prospectus; the Company shall not be
deemed to have complied with its obligations hereunder to keep a registration
statement effective during the applicable period if it voluntarily takes any
action that would result in the prevention of the Holder from selling such
Registrable Securities during that period unless such action is required under
applicable law;
(c) furnish to the Holder and the underwriter or underwriters, if any,
without charge, such reasonable number of conformed copies of the registration
statement and any post-effective amendment thereto and such reasonable number of
copies of the prospectus (including each
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<PAGE>
preliminary prospectus) and any amendments or supplements thereto, and any
documents incorporated by reference therein, as the Holder or underwriter may
request in order to facilitate the disposition of the Registrable Securities
being sold by the Holder (it being understood that the Company consents to the
use of the prospectus and any amendment or supplement thereto by the Holder and
the underwriter or underwriters, if any, in connection with the offering and
sale of the Registrable Securities covered by the prospectus or any amendment or
supplement thereto);
(d) notify the Holder at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act, when the Company becomes aware of
the happening of any event as a result of which the prospectus included in such
registration statement (as then in effect) contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading and, as promptly as practicable thereafter, prepare and file with the
Commission and furnish a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(e) use reasonable diligence to cause all Registrable Securities included
in such registration statement to be listed, by the date of the first sale of
Registrable Securities pursuant to such registration statement, on each
securities exchange on which the Common Stock of the Company is then listed or
proposed to be listed, if any;
(f) make generally available to its security holders an earnings statement
satisfying the provisions of Section 11(a) of the 1933 Act no later than 45 days
after the end of the 12-month period beginning with the first day of the
Company's first fiscal quarter commencing after the effective date of the
registration statement, which earnings statement shall cover said 12-month
period, which requirement will be deemed to be satisfied if the Company timely
files complete and accurate information on such forms and reports as the Company
may be required to file under the Exchange Act and otherwise complies with Rule
158 under the 1933 Act as soon as feasible;
(g) notify the Holder of any stop order issued or threatened by the
Commission in connection therewith and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered, and make every
reasonable effort to obtain the withdrawal of any order suspending the
effectiveness of the registration statement at the earliest possible moment;
(h) if requested by the managing underwriter or underwriters, promptly
incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriter or underwriters or the Holder reasonably
requests to be included therein, including, without limitation, the purchase
price being paid therefor by such underwriter or underwriters and any other
terms of the underwritten offering of such Registrable Securities (excluding,
however, information with respect to the number of Registrable Securities being
sold to such underwriter or underwriters by the Holder), and promptly make all
required filings of such prospectus supplement or post-effective amendment;
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<PAGE>
(i) as promptly as practicable after filing with the Commission of any
document which is incorporated by reference into a registration statement,
deliver to the Holder as many copies of that document as may be reasonably
requested by the Holder;
(j) on or prior to the date on which the registration statement is
declared effective, use reasonable diligence to register or qualify, and
cooperate with the Holder the underwriter or underwriters, if any, and their
counsel, in connection with the registration or qualification of the Registrable
Securities covered by the registration statement for offer and sale under the
securities or blue sky laws of each state and other jurisdiction of the United
States as the Holder or underwriter reasonably requests in writing, to use
reasonable diligence to keep each such registration or qualification effective,
including through new filings, or amendments or renewals, during the period such
registration statement is required to be kept effective and to do any and all
other acts or things necessary or advisable to enable the disposition in all
such jurisdictions of the Registrable Securities covered by the applicable
registration statement; provided that the Company will not be required to
qualify generally to do business in any jurisdiction where it is not then so
qualified or to take any action which would subject it to general service of
process in any such jurisdiction where it is not then so subject; and provided,
further, however, that while it is the present intention of the Holder to
cooperate with the Company to keep the costs of compliance with state blue sky
laws to a minimum, the Holder shall have the right to require compliance by the
Company with the blue sky laws of as many states as the managing underwriter
deems reasonably necessary in its good faith judgment to realize the maximum
possible value for the Registrable Securities included in such registration
statement;
(k) cooperate with the Holder and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing securities to be sold under the registration statement
and enable such securities to be in such denominations and registered in such
names as the managing underwriter or underwriters, if any, may request, subject
to the underwriters' obligation to return any certificates representing
securities not sold;
(l) use reasonable diligence to cause the Registrable Securities covered
by the registration statement to be registered with or approved by such other
governmental agencies or authorities within the United States as may be
necessary to enable the seller or sellers thereof or the underwriter or
underwriters, if any, to consummate the disposition of such securities;
(m) enter into such customary agreements (including an underwriting
agreement in customary form) and take all such other reasonable actions as the
Holder or the underwriters retained by the Holder participating in an
underwritten public offering, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities;
(n) make available for inspection by the Holder, any underwriter
participating in any disposition pursuant to such registration statement, and
any attorney, accountant or other agent retained by any such seller or
underwriter (collectively, the "Inspectors"), all financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"Records"), as shall be necessary to enable them to exercise their due diligence
responsibility; and cause the Company's officers, directors and employees to
make available for inspection and/or copying all
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<PAGE>
Records reasonably requested by any such Inspector in connection with such
registration statement; and
(o) list such securities on or with a national securities exchange (which
term shall include the NASDAQ National Market System) and comply with all
applicable exchange listing requirements and rules and regulations thereof;
(p) use reasonable diligence to obtain a "cold comfort" letter from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by cold comfort letters covering
registration statements similar to the registration statement at issue as the
Holder reasonably requests.
The Holder, upon receipt of any notice from the Company of the occurrence
of any event of the kind described in subsection (d) of this Section 3.1, will
forthwith discontinue disposition of the Registrable Securities until the
Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by subsection (d) of this Section 3.1 and copies of any additional
or supplemental filings which are incorporated by reference in the prospectus,
or until it is advised in writing (the "Advice") by the Company that the use of
the prospectus may be resumed. If so directed by the Company, the Holder shall
deliver to the Company (at the Company's expense) all copies in its possession
or control, other than permanent file copies then in the Holder's possession, of
the prospectus covering such Registrable Securities. In the event the Company
shall give any such notice, the time periods mentioned in subsection (b) of this
Section 3.1 shall be extended by the number of days during the period from and
including the date of the giving of such notice to and including the date when
each seller of Registrable Securities covered by such registration statement
shall have received the copies of the supplemented or amended prospectus
contemplated by subsection (d) of this Section 3.1 hereof or the Advice.
If such registration statement refers to the Holder by name or otherwise as
the holder of any securities of the Company then the Holder shall have the right
to require (i) the insertion therein of language, in form and substance
satisfactory to the Holder to the effect that the holding by such Holder of such
securities is not to be construed as a recommendation of such Holder of the
investment quality of the Company's securities covered thereby and that such
holding does not imply that the Holder will assist in meeting any future
financial requirements of the Company, or (ii) in the event that such reference
to such Holder by name or otherwise is not required by the Securities Act or any
similar federal statute then in force, the deletion of the reference to such
Holder.
3.2 RULE 144; INFORMATION. The Company covenants that, upon any
registration statement covering Company securities becoming effective, it will
file the reports required to be filed by it under the 1933 Act and the Exchange
Act and the rules and regulations adopted by the Commission thereunder (or, if
the Company is not required to file such reports, it will, upon the request of
the Holder make publicly available other nonconfidential information as is
necessary to permit sales under Rule 144 under the 1933 Act), and it will take
such other action as the Holder may reasonably request, all to the extent
required from time to time to enable the Holder to sell Registrable Securities
without registration under the 1933 Act within the limitation of the exemptions
provided by (a) Rule 144 under the 1933 Act, as such Rule may be amended from
time to time, or (b) any similar rule or
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<PAGE>
regulation hereafter adopted by the Commission; provided further that if the
Company is not required to file reports under the 1933 Act and the Exchange Act
and the rules and regulations adopted by the Commission thereunder, the Company
shall, upon the request of the Holder, provide the Holder audited financial
statements and access to the books and records of the Company and, if requested
by the Holder sufficient information to enable the Holder to comply with Rule
144 or Rule 144A under the 1933 Act. Upon the request of the Holder, the Company
will deliver to the Holder a written statement as to whether it has complied
with such requirements.
3.3 FUTURE RIGHTS. From the date of this Agreement until the fifth
anniversary of the IPO, the Company will not grant to any Person (excluding the
Holder) any registration rights with respect to any securities of the Company
other than (i) the registration rights being concurrently granted to the
Investors under the Pecks Registration Rights Agreement, and (ii) new
registration rights ("new rights") that are granted in connection with the
investment in the Company by such grantee (or group of grantees) of at least
$1,000,000 or (iii) sale of a court reporting or related business to the Company
in a transaction in which all or part of the consideration is Common Stock or
securities convertible into Common Stock. Such new rights must be of no greater
priority or right than the registration rights granted by the Company under this
Agreement, and a copy thereof must be forwarded in writing by the Holder.
Additionally, new rights may not be granted without expressly providing that the
Holder has a piggyback right upon the exercise of such new rights and shall be
included in any related registration statement on the same terms and conditions
as the holders of the new rights, subject to possible reduction at the
initiative of the managing underwriter or underwriters, on terms substantially
equivalent to those set forth in Section 2.2. Other than as set forth in Pecks
Registration Rights Agreement, the Company shall not grant any rights with
respect to the registration of its capital stock that are in any material
respect broader or superior to the registration rights set forth in this
Agreement.
3.4 REPRESENTATION AND WARRANTY. The Company hereby represents and
warrants to Shareholder that on or prior to the date hereof, (a) the Company has
not granted registration rights to any Person except for the registration rights
granted under this Agreement and except as set forth in the Pecks Registration
Rights Agreement, and (b) no consent, approval, authorization or waiver of any
Person is required to permit the Company to (i) execute or deliver this
Agreement or (ii) perform this Agreement in accordance with its terms other than
with respect to registration under the 1933 Act and comparable registrations
with state securities commissions, and (c) is not inconsistent with the charter,
by-laws or any agreement to which the Company is a party.
SECTION 4. COVENANTS OF HOLDER.
4.1 PARTICIPATION IN UNDERWRITING REGISTRATIONS. Holder may not
participate in any underwritten registration hereunder unless the Holder (a)
agrees to sell his securities on the terms of and on the basis provided in any
underwriting arrangements approved by the Company and (b) completes and executes
all questionnaires, powers of attorney, underwriting agreements and other
documents reasonably required under the terms of such underwriting arrangements.
SECTION 5. INDEMNIFICATION; CONTRIBUTION.
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<PAGE>
5.1 INDEMNIFICATION; CONTRIBUTION.
(a) Indemnification by the Company. The Company agrees to indemnify and
hold harmless each Holder of Registrable Securities, its officers, directors,
partners and each Person who controls such Holder (within the meaning of the
1933 Act), and any Agent (as hereinafter defined) or investment advisor thereto
against all losses, claims, damages, liabilities and expenses, joint or several
(including reasonable costs of investigation, and attorneys fees and expenses as
further provided in Section 5.1(c)) (collectively, "Liabilities") arising out of
or based upon any untrue or alleged untrue statement of material fact contained
in any registration statement, and amendment or supplement thereto, or any
prospectus or preliminary prospectus contained therein, or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
any such Liabilities arise out of or are based upon any untrue statement or
omission based upon and in conformity with information regarding such
indemnified Person furnished in writing to the Company by such indemnified
Person expressly for use therein. In connection with an underwritten offering,
the Company will indemnify the underwriters thereof, their officers and
directors and each Person who controls such underwriters (within the meaning of
the 1933 Act) to the same extent as provided above with respect to the
indemnification of the Holders of Registrable Securities or to such other extent
as the Company and such underwriters may agree. For purposes of this Section
5.1(a), an "Agent" of a Holder of Registrable Securities is any Person acting
for or on behalf of such Holder with respect to the holding or sale of such
Registrable Securities.
5.2 INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES. In connection
with any registration statement in which the Holder is participating, the Holder
will furnish to the Company in writing such information with respect to the name
and address of the Holder and the amount of Registrable Securities held by the
Holder and such other information as the Company shall reasonably request for
use in connection with any such registration statement or prospectus, and agrees
to indemnify, to the extent permitted by law, the Company, its directors and
officers and each Person who controls the Company (within the meaning of the
1933 Act) against any losses, claims, damages, liabilities and expenses, joint
or several, resulting from any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission of a material fact required to
be stated in the registration statement or prospectus or any amendment thereof
or supplement thereto or necessary to make the statements therein not
misleading, to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission is based upon and in
conformity with any information regarding the Holder furnished in writing by the
Holder specifically for inclusion in any prospectus or registration statement.
In connection with an underwritten offering, the Holder participating in such
offering will indemnify the underwriters thereof, their officers and directors
and each Person who controls such underwriters (within the meaning of the 1933
Act) to the same extent, and solely to such extent, as provided in the
immediately preceding sentence with respect to indemnification of the Company.
In no event shall the liability of the Holder hereunder be greater in amount
than the dollar amount of the proceeds received by the Holder upon the sale of
the Registrable Securities giving rise to such indemnification obligation.
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<PAGE>
5.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to
indemnification hereunder agrees to give prompt written notice to the
indemnifying party after the receipt by such Person of any written notice of the
commencement of any action, suit, proceeding or investigation or threat thereof
made in writing for which such Person may claim indemnification or contribution
pursuant to this Agreement and, unless in the written opinion of counsel for
such indemnified party a conflict of interest may exist between such indemnified
party and the indemnifying party with respect to such claim, permit the
indemnifying party to assume, at the sole cost and expense of the indemnifying
party, the defense of such claim with counsel reasonably satisfactory to such
indemnified party. Whether or not such defense is assumed by the indemnifying
party, neither the indemnifying party nor the indemnified party shall have the
authority to bind the other with respect to any settlement made without the
other's consent. No indemnifying party will consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect of such claim or litigation. If the
indemnifying party is not entitled to, or elects not to, assume the defense of a
claim, the indemnified party shall be entitled to hire counsel reasonably
satisfactory to it, the fees and expenses of which shall be borne by, in their
entirety, the indemnifying party; provided, however, that the indemnifying party
shall not be obligated to pay the fees and expenses of more than one counsel
with respect to such claim, unless in the opinion of counsel for any indemnified
party a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels.
5.4 CONTRIBUTION. If the indemnification provided for in this Section 5
from the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 5.3, any legal or other
fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5.4 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5.4, the Holder shall not be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities of the Holder were offered to the
public exceeds the amount of any damages which the Holder has
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<PAGE>
otherwise been required to pay by reason of such untrue statement or omission.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
The obligations of the Company pursuant to this Section 5.4 shall be
further subject to such additional express agreements of the Company as may be
required to facilitate an underwritten offering, provided that no such agreement
shall in any way limit the rights of the Holder under this Agreement, or create
additional obligations of the Holder not set forth herein, except as otherwise
expressly agreed in writing by the Holder.
SECTION 6. MISCELLANEOUS.
6.1 RECAPITALIZATION, EXCHANGES, ETC. The provisions of this Agreement
shall apply, to the full extent set forth herein with respect to the Registrable
Securities, to any and all shares of equity capital of the Company or any
successor or assign of the Company (whether by merger, consolidation, sale of
assets or otherwise) which may be issued in respect of, in exchange for, or in
substitution of the Registrable Securities, in each case as the amounts of such
securities outstanding are appropriately adjusted for any equity dividends,
splits, reverse splits, combinations, recapitalization and the like occurring
after the date of this Agreement.
6.2 OPINIONS. When any legal opinion is required to be delivered
hereunder, such opinion may contain such qualifications as may be customary or
otherwise appropriate for legal opinions in similar circumstances.
6.3 NOTICES. (a) All communications under this Agreement shall be in
writing to the following addresses:
(i) If to Company, to: Litigation Resources of America, Inc.
3850 Nationsbank Center
700 Louisiana Street
Houston, Texas 7002-2731
Attn: G. Kent Kahle, President
with a copy to: Boyer, Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Attn: J. Randolph Ewing
Telefax: (713) 871-2024
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<PAGE>
(ii) If to the Holder, to:
Michael Klein
c/o Klein, Bury & Associates, Inc.
44 Flagler St., Suite 675
Miami, Florida 33130
Facsimile No.: (305) 358-1427
with a copy to:
Daniel H. Aronson
Greenberg Traurig
515 E. Las Olas Blvd., Suite 1500
Fort Lauderdale, Florida 33301
Facsimile No: (954) 765-1477
or to such other address as any party may furnish to the others in writing in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
(b) Any communication so addressed and mailed by first class registered or
certified mail, postage prepaid, shall be deemed to be received on the third
Business Day after so mailed, and if delivered by personal delivery (including
by courier) or facsimile to such address, upon delivery during normal business
hours.
6.4 APPLICABLE LAW. This contract is entered into under, and shall be
governed for all purposes by, the laws of the State of Texas.
6.5 AMENDMENT AND WAIVER. This Agreement may be amended, and the
provisions hereof may be waived, only by a written instrument signed by the
Holder and the Company. No failure by either party hereto at any time to give
notice of any breach by the other party of, or to require compliance with, any
condition or provision of this Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
6.6 REMEDY FOR BREACH OF CONTRACT; EQUITABLE RELIEF. The parties agree
that in the event there is any breach or asserted breach of the terms, covenants
or conditions of this Agreement, the remedy of the parties hereto shall be in
law and in equity and specific enforcement, injunctive and other equitable
relief shall lie for the enforcement of or relief from any provisions of this
Agreement. If any remedy or relief is sought and obtained by any party against
one of the other parties pursuant to this Section 6.6, the other party shall, in
addition to the remedy of relief so obtained, be liable to the party seeking
such remedy or relief for the reasonable expenses incurred by such party in
successfully obtaining such remedy or relief, including the fees and expenses of
such party's counsel.
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<PAGE>
6.7 SEVERABILITY. It is a desire and intent of the parties that the terms,
provisions. covenants and remedies contained in this Agreement shall be
enforceable to the fullest extent permitted by law. If any such term, provision,
covenant or remedy of this Agreement or the application thereof to any Person or
circumstances shall, to any extent, be construed to be invalid or unenforceable
in whole or in part, then such term, provision, covenant or remedy shall be
construed in a manner so as to permit its enforceability under the applicable
law to the fullest extent permitted by law. In any case, the remaining
provisions of this Agreement or the application thereof to any Person or
circumstances other than those to which they have been held invalid or
unenforceable, shall remain in full force and effect.
6.8 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 Agreement.
6.9 HEADINGS. The section and paragraph headings have been inserted for
purposes of convenience and shall not be used for interpretive purposes.
6.10 BINDING EFFECT. Unless otherwise provided herein, the provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, legal representatives, successors and
permitted assigns, and is not intended to confer upon any other Person any right
or remedies hereunder.
6.11 ENTIRE AGREEMENT. This Agreement, together with the other agreements
referenced herein, constitutes the entire agreement and supersedes all prior
agreements, understandings, both written and oral, among the parties with
respect to the subject matter hereof.
6.12 ASSIGNMENT. This Agreement, and the rights and obligations of the
parties hereunder, are not assignable or transferable to any other Person (other
than by operation of law, will or the laws relating to descent or distribution)
without the prior written consent of all parties to this Agreement.
6.13 WAIVER. Any waiver to be enforceable must be in writing and executed
by the party against whom the waiver is sought to be enforced.
6.14 ARBITRATION. If a dispute arises out of or relates to this Agreement,
or the breach thereof, and if said dispute cannot be settled through
negotiation, the Parties agree first to try in good faith to settle the dispute
by mediation under the Commercial Mediation Rules of the American Arbitration
Association, before resorting to arbitration, litigation, or some other dispute
resolution procedure as required by this Section 6.14. Failing an adequate
resolution by mediation, any controversy or claim arising out of or relating to
this Agreement or the transactions contemplated hereby, including any
controversy or claim arising out of or relating to the Parties' decision to
enter into this Agreement, shall be settled by binding arbitration. There shall
be one arbitrator to be mutually agreed upon by the Parties involved in the
controversy and to be selected from the National Panel of Commercial Arbitrators
(or successor panel, if any). If within 30 days after service of the demand for
arbitration the Parties are unable to agree upon such an arbitrator who is
willing to serve,
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<PAGE>
then an arbitrator shall be appointed by the American Arbitration Association in
accordance with its rules. Except as specifically provided in this Section 6.14,
the arbitration shall be conducted in accordance with the Commercial Arbitration
Rules of the American Arbitration Association. The arbitrator shall not render
an award of punitive damages. Any arbitration hereunder shall be held in
Houston, Texas. Expenses related to the arbitration, including counsel fees,
shall be borne by the Party incurring such expenses except to the extent
otherwise provided in Section 6.14 herein. The fees of the arbitrator and of the
American Arbitration Association, if any, shall be divided equally among the
Parties involved in the controversy. Judgment upon the award rendered by the
arbitrator (which may, if deemed appropriate by the arbitrator, include
equitable or mandatory relief with respect to performance of obligations
hereunder) may be entered in any court of competent jurisdiction. The arbitrator
shall award the prevailing Party in any arbitration proceeding recovery of its
attorneys' fees and other costs in connection with the arbitration from the non-
prevailing Party.
6.15 SUBORDINATION OF REGISTRATION RIGHTS. Notwithstanding any provision
of this Agreement, the Holder acknowledges and agrees that the registration
rights granted to the Holder pursuant to Section 2.1(a) are subordinate to the
registration rights granted to the Purchasers pursuant to the Pecks Registration
Rights Agreement. In the event of any conflict between this Agreement and any
terms or provisions of the Pecks Registration Rights Agreement a copy of which
is attached as Exhibit A, the terms or provision of the Pecks Registration
Rights Agreement shall prevail.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
LITIGATION RESOURCES OF AMERICA, INC.,
a Texas corporation
By: /s/ G. Kent Kahle
------------------------------------
G. Kent Kahle
President
SHAREHOLDER:
/s/ Michael Klein
------------------------------------
Name: Michael Klein
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<PAGE>
EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of January 17, 1997, among
Litigation Resources of America, Inc., a Texas corporation (the "Company") and
the purchasers whose names appear under the heading "Purchasers" (the
"Purchasers") on the signature page hereof.
1. Background. The Company is a party to a securities purchase
----------
agreement, dated the date hereof (the "Securities Purchase Agreement"), entered
into with the Purchasers, and Looney & Company and Klein, Bury and Associates,
Inc., as Guarantors, both wholly owned subsidiaries of the Company, pursuant to
which the Company issued to the Purchasers (i) $9,000,000 of 12% Senior
Subordinated Notes (the "Notes") and (ii) 1,000,000 shares of Series A
Convertible Preferred Stock, par value $1.00 per share (the "Convertible
Preferred Stock").
In connection with the Securities Purchase Agreement, the Company
entered into this Registration Rights Agreement, to which the Purchasers who
received securities under the Securities Purchase Agreement became parties.
2. Registration under Securities Act, etc.
--------------------------------------
2.1. Registration of Registrable Securities on Request. (a) Request.
------------------------------------------------- -------
At any time subsequent to a Qualifying Public Offering, the holder or holders of
more than 50% (by number of shares) of the Registrable Securities shall twice
have the right to request in writing that the Company effect an underwritten
registration under the Securities Act of 1993, as amended (the "Securities
Act"), of all or part of such holders' Registrable Securities; provided, that
--------
the aggregate Fair Market Value (as defined in the Securities Purchase
Agreement) of the Registrable Securities to be so registered is at least
$3,000,000. The Company will promptly give written notice of such requested
registration to all other holders of Registrable Securities and all holders of
Registrable Inside Shareholder Securities, which holders shall be entitled to
include their Registrable Securities in such registration subject to Sections
2.1(b) and 2.1(g). Thereupon the Company will use its best efforts to effect the
registrations under the Securities Act of:
(i) the Registrable Securities which the Company has been so
requested to register by such holders; and
(ii) subject to Sections 2.1(b) and 2.1(g), all other Registrable
Securities and Registrable Inside Shareholder Securities which the
Company has been requested to register by the holders thereof by
written request given to the Company within 30 days after the
<PAGE>
giving of such written notice by the Company (which request shall
specify the intended method of disposition of such Registrable
Securities and Registrable Inside Shareholder Securities) all to the
extent requisite to permit the disposition of the Registrable
Securities and Registrable Inside Shareholder Securities so to be
registered.
(b) Registration of Other Securities. Whenever the Company shall
--------------------------------
effect a registration pursuant to this Section 2.1, no securities other than
Registrable Securities shall be included among the securities covered by such
registration unless the managing underwriter of such offering shall have advised
each holder of Registrable Securities to be covered by such registration in
writing that the inclusion of such other securities would not in the
underwriter's reasonable judgment adversely affect the marketing or the selling
price of the Registrable Securities to be covered by such registration.
(c) Registration Statement Form. Registrations under this Section 2.1
---------------------------
shall be on such appropriate registration form or prospectus of the Commission
(i) as shall be selected by the Company and as shall be reasonably acceptable to
the holders of more than 50% (by number of shares) of the Registrable Securities
so to be registered and (ii) as shall permit the disposition of such Registrable
Securities in accordance with the intended method or methods of disposition
specified in their request for such registration. The Company agrees to include
in any such registration statement all information which holders of Registrable
Securities being registered shall reasonably request.
(d) Expenses. The Company will pay all Registration Expenses in
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connection with the registration requests made pursuant to this Section 2.1.
(e) Effective Registration Statement. A registration requested
--------------------------------
pursuant to this Section 2.1 shall not be deemed to have been effected and shall
not count as a requested registration pursuant to Section 2.1 (a) hereof (i)
unless a registration statement with respect thereto has become effective, (ii)
unless a registration statement has been filed with the Commission and prior to
its becoming effective a majority of holders of the Registrable Securities to be
registered has decided to terminate the registration process, (iii) if after it
has become effective, such registration is interfered with by any stop order,
injunction or other order or requirement of the Commission or other governmental
agency or court for any reason not the fault of a holder of Registrable
Securities and the Registrable Securities covered thereby have not been sold, or
(iv) if the conditions to closing specified in the selling agreement or
underwriting agreement entered into in connection with such registration are not
satisfied or waived by the parties thereto other than a holder of Registrable
Securities.
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<PAGE>
(f) Underwriters. Any registration effected pursuant to this Section
------------
2.1 shall at the election of the holders of at least 50% (by number of shares)
of the Registrable Securities so to be registered be an underwritten public
offering on a firm commitment basis or a best efforts basis. The managing
underwriter or underwriters thereof shall be selected by the Company and such
underwriter as well as the price, terms and provisions of the offering shall be
subject to the approval of the Company and the holders of more than 50% (by
number of share) of the Registrable Securities so to be registered.
(g) Apportionment in Registration Requested. If, in connection with
---------------------------------------
a registration requested pursuant to this Section 2.1, the managing underwriter
shall advise the Company in writing (with a copy to each holder of Registrable
Securities and Registrable Inside Shareholder Securities requesting
registration) that, in its opinion, the number of securities requested to be
included in such registration exceeds the number which can be sold in such
offering within a price range acceptable to the holders of more than 50% (by
number of shares) of the Registrable Securities requested to be included in such
registration, the number of securities that are otherwise entitled to be
included in such registration shall be allocated in the following manner: (i)
all Registrable Inside Shareholder Securities shall be reduced, on a pro rata
basis (based on the number of securities requested to be included in such
registration) and (ii) if, after the exclusion of such securities, further
reductions are still required, the Registrable Securities requested to be
included in such registration shall be reduced pro rata among the holders
thereof requesting such registration on the basis of the percentage of the
Registrable Securities sought to be registered held by such holders of
Registrable Securities which have requested that such Registrable Securities be
included. In connection with any registration as to which the provisions of this
clause (g) apply, no securities other than Registrable or, to the extent not
excluded as set forth above, Registrable Inside Shareholder Securities shall be
covered by such registration and if the pro ration as aforesaid results in the
exclusion of in excess of 15% of the Registrable Securities originally sought to
be registered, the request shall not be counted for purposes of determining the
number of registrations pursuant to Section 2.1 hereof.
2.2 Registrations on Form S-3. Following its initial Public Offering
-------------------------
the Company shall use its best efforts to qualify for registration on Form S-3
promulgated under the Securities Act or any successor form thereto ("Form S-3")
for secondary sales. Anything contained in Section 2.1 to the contrary
notwithstanding, at such time as the Company shall have qualified for the use
of Form S-3, the holder or holders of the Registrable Securities shall have the
right to request in writing an unlimited number of registrations on Form S-3 of
Registrable Securities, which request or requests shall (i) specify the number
of Registrable Securities intended to be sold or disposed
3
<PAGE>
of and the holders thereof and (ii) state the intended method of disposition of
such Registrable Securities. A requested registration on Form S-3 in compliance
with this Section 2.2 shall not count as a registration statement initiated
pursuant to Section 2.1 but shall otherwise be treated as a registration
initiated pursuant to, and shall, except as otherwise expressly provided in this
Section 2.2, be subject to Section 2.1.
2.3. "Piggyback" Registrations. (a) Right to include Registrable
------------------------- ----------------------------
Securities. If the Company at any time proposes to register any of its
- ----------
securities under the Securities Act (other than by a registration on Form S-4,
Form S-8 or any successor or similar form, or in connection with a tender offer,
merger, or other acquisition, and other than pursuant to Section 2.1 or Section
2.2), whether or not for sale for its own account, it will each such time give
prompt written notice to all holders of Registrable Securities of its intention
to do so and of such holders' right under this Section 2.3. Upon the written
request of any such holder made within 10 days after the date of any such notice
given in accordance with Section 7 hereof, the Company will use its best efforts
to effect the registration under the Securities Act of all Registrable
Securities which the Company has been so requested to register by the holders
thereof, to the extent requisite to permit the disposition of the Registrable
Securities so to be registered, provided that if, at any time after giving
--------
written notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay registration of such securities, the Company may, at its election, give
written notice of such determination to each holder of Registrable Securities
and, thereupon, (i) in the case of a determination not to register, shall be
relieved of its obligation to register any Registrable Securities in connection
with such registration (but not from its obligation to pay the Registration
Expenses in connection therewith), without prejudice, however, to the rights of
any holder or holders of Registrable Securities entitled to do so to request
that such registration be effected as a registration under Section 2.1 or
Section 2.2, and (ii) in the case of a determination to delay registering, shall
be permitted to delay registering any Registrable Securities for the same period
as the delay in registering such other securities. No registration effected
under this Section 2.3 shall relieve the Company of its obligation to effect any
registration upon request under Section 2.1 or Section 2.2. The Company will pay
all Registration Expenses in connection with each registration of Registrable
Securities requested pursuant to this Section 2.3.
(b) Apportionment in "Piggyback" Registrations. If (i) a registration
------------------------------------------
pursuant to this Section 2.3 involves an underwritten offering of the securities
being registered, whether or not for sale for the account of the Company, to be
distributed (on a firm commitment basis) by or through one or
4
<PAGE>
more underwriters of recognized national or regional standing under underwriting
terms appropriate for such a transaction, and (ii) the managing underwriter of
such underwritten offering shall inform the Company and the holders of the
Registrable Securities requesting such registration by letter that marketing
considerations require a limitation on the number of securities that can be
included in such registration, then the Company may include all securities
proposed by the Company to be sold for its own account or the maximum amount
that the underwriter considers saleable and such limitation on any remaining
securities that may, in the opinion of the underwriter, be sold will be imposed
(x) first upon holders of securities other than the Investors and their
transferees until the total aggregate proceeds received by all Investors and
their transferees from the sale of equity securities of the Company equals $1.0
million and (y) second, pro rata among all shareholders who are entitled to
include shares in such registration statement according to the number of
Registrable Securities and other securities each such shareholder requested to
be included in such registration statement; provided, however, that instead of
-------- -------
such a pro rata reduction, the holders of the Registrable Securities shall have
the right at their sole option to include in the registration all of the
Registrable Securities and to exclude any and all other securities to the extent
necessary to reduce the number of securities to the level recommended by the
managing underwriter. Any such election by the Investors to exclude any other
securities from the registration in accordance with the preceding sentence shall
constitute the exercise by the Investors of one demand right under Section 2.1.
At such time as the Investors have received proceeds that equal $1.0 million
from the sale of Registrable Securities, clause (x) above in this Section 2.3(b)
shall terminate and clause (y) above in this Section 2.3(b) shall thereafter
govern apportionment in registrations under Section 2.3. To the extent that any
Registrable Securities or other securities are excluded from the registration
pursuant to this Section 2.3(b), no shares of Common Stock issued to management
of the Company after the date hereof pursuant to a stock option (or any other
type of benefit plan) ("Option Shares") shall be included in such registration.
Notwithstanding the foregoing, if the registration referred to herein involves
an underwritten offering of securities being registered for sale by holders of
securities other than Registrable Securities (pursuant to the exercise by such
holders of demand registration rights or otherwise), the Company will include in
such registration the securities proposed by such holders to be sold and may
decrease the number of Registrable Securities and such other securities
exercising "piggyback" registration rights proposed to be sold in such
registration (pro rata on the basis of the percentage of the securities sought
to be registered by such holders of Registrable Securities, and such other
securities exercising "piggyback" registration rights) proposed to be sold in
such registration to the extent necessary to reduce the number of securities to
be included in the registration to the level recommended by the managing
underwriter. In such case, (x) no securities shall be
5
<PAGE>
<PAGE>
offered for sale by the Company and (y) no Option Shares shall be included in
such registration.
2.4. Registration Procedures. If and whenever the Company is required
------------------------
to use its best efforts to effect the registration of any Registrable Securities
and under the Securities Act as provided in Sections 2.1, 2.2 and 2.3, the
Company will as expeditiously as possible:
(i) prepare and (as soon thereafter as possible or in any event
no later than 45 days after the end of the period within which
requests for registration may be given to the Company) file with the
Commission the requisite registration statement to effect such
registration and thereafter use its best efforts to cause such
registraton statement to become effective, provided that the Company
--------
may discontinue any registration of its securities which are not
Registrable Securities (and, under the circumstances specified in
Section 2.3(a), its securities which are Registrable Securities) at
any time prior to the effective date of the registration statement
relating thereto;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all securities
covered by such registration statement until such time as all of such
securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof set forth in
such registration statement or for 6 months, whichever period is
shorter;
(iii) furnish to each seller of Registrable Securities covered by
such registration statement such number of conformed copies of such
registration statement and of each such amendment and supplement
thereto, such number of copies of the prospectus contained in such
registration statement (including each preliminary prospectus and any
summary prospectus) and any other prospectus filed under Rule 424 or
Rule 430A under the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents, as such
seller may reasonably request;
(iv) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement
under such other securities or blue sky laws of such jurisdictions as
each seller thereof shall reasonably request, to keep
6
<PAGE>
such registration or qualification in effect for so long as such
registration statement remains in effect, and take any other action
which may be reasonably necessary to enable such seller to consummate
the disposition in such jurisdictions of the securities owned by such
seller, except that the Company shall not for any such purpose be
required to qualify generally to do business as a foreign corporation
in any jurisdiction wherein it would not but for the requirements of
this subdivision (iv) be obligated to be so qualified or to consent to
general service of process in any such jurisdiction or subject itself
to be required to pay any franchise or income taxes in any such
jurisdiction;
(v) use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof to consummate the
disposition of such Registrable Securities;
(iv) furnish to each seller of Registrable Securities a signed
counterpart, addressed to such seller, except as provided in (y) below
(and the underwriters, if any), of
(x) an opinion of counsel for the Company, dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, dated the
date of the closing under the underwriting agreement), reasonably
satisfactory in form and substance to counsel for all such
sellers or, if such registration includes an underwritten public
offering, to such underwriter, and
(y) a "comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under
the underwriting agreement), signed by the independent public
accountants who have certified the Company's financial statements
included in such registration statement, addressed to each
seller, to the extent the same can be reasonably obtained, and
addressed to the underwriters, if any, covering substantially the
same matters with respect to such registration statement (and the
prospectus included therein) and, in the case of the accountants'
letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in
7
<PAGE>
accountants' letters delivered to the underwriters in
underwritten public offerings of securities and such other
financial matters as such seller or such holder (or the
underwriters, if any) may reasonably request;
(vii) notify each seller of Registrable Securities covered by
such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon
discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances under which they were made, and at the request of any
such seller or holder promptly prepare to furnish to such seller or
holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such
prospectus shall 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 in the light
of the circumstances under which they were made;
(viii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months, but
not more than eighteen months, beginning with the first full calender
month after the effective date of such registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of
the Securities Act, and, in the case of a registration requested
pursuant to Section 2.1 or 2.2 hereof, will furnish to each such
seller at least two business days prior to the filing thereof a copy
of any amendment or supplement to such registration statement or
prospectus and shall not file any thereof to which any such seller
shall have reasonably objected on the grounds that such amendment or
supplement does not comply in all material respects with the
requirements of the Securities Act or of the rules or regulations
thereunder;
(ix) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration
statement from
8
<PAGE>
and after a date not later than the effective date of such
registration statement; and
(x) use its best efforts to list all Registrable Securities
covered by such registration statement on any securities exchange on
which any of the Registrable Securities is then listed.
Notwithstanding the foregoing, the Company may defer its obligations
under Section 2.1 and Section 2.2 to file a registration statement, but not its
obligations to initiate the process of preparing the applicable registration
statement, for a period of no more than (i) 90 days in any 365-day period, if
the Company's Board of Directors determines in good faith based upon a written
opinion of counsel that filing such a registration statement would require a
public disclosure by the Company, which disclosure would interfere with a
material transaction then under consideration by the Company, provided that once
--------
such information has been publicly disclosed, the Company shall promptly proceed
to fulfill its obligations under Section 2.1 and (ii) 180 days from the most
recent effective date of any registration statement of the Company filed under
the Securities Act and pursuant to Section 2.1 occurring prior to the request
for registration made pursuant to Section 2.1.
The Company may require each proposed seller of Registrable Securities
as to which any registration is being effected to promptly furnish the Company,
as a condition precedent to including such holder's Registrable Securities in
any registration, such information regarding such seller and the distribution of
such securities as the Company may from time to time reasonably request in
writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that upon receipt of any notice from the Company of the
happening of any event of the kind described in subdivision (vii) of this
Section 2.4, such holder will forthwith discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (vii) of this
Section 2.4 and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
such holder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
2.5. Underwritten Offerings. (a) Requested Underwritten Offerings.
---------------------- --------------------------------
If requested by the underwriters for any offering by holders of Registrable
Securities pursuant to a registration requested under Section 2.1, the Company
will enter into an underwriting agreement with such underwriters for such
offering, such agreement to be satisfactory in substance and form
9
<PAGE>
to the Company, to holders of more than 50% (by number of shares) of the
Registrable Securities included in such registration and the underwriters and to
contain such representations and warranties by the Company and such other terms
as are generally prevailing in agreements of this type, including, without
limitation, indemnities to the effect and to the extent provided in Section 2.7.
The holders of the Registrable Securities will cooperate with the Company in the
negotiation of the underwriting agreement and will give consideration to the
reasonable requests of the Company regarding the form thereof, provided that
--------
nothing herein contained shall diminish the foregoing obligations of the
Company. The holders of Registrable Securities to be distributed by such
underwriters shall be parties to such underwriting agreement and may, at their
option, require that any or all of the representations and warranties by, and
the other agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such holders of
Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be
conditions precedent to the obligations of such holders of Registrable
Securities. Any such holder of Registrable Securities shall not be required to
make any representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements typical in an
offering of that type, including those regarding such holder, such holder's
Registrable Securities, and such holder's intended method of distribution, any
other information supplied by such holder to the Company for use in the
Registration Statement and any other representation required by law.
(b) Incidental Underwritten Offerings. If the Company at any time
---------------------------------
proposes to register any of its securities under the Securities Act as
contemplated by Section 2.3 and such securities are to be distributed by or
through one or more underwriters, the Company will, if requested by any holder
of Registrable Securities as provided in Section 2.3 and subject to the
provisions of Section 2.3(a), 2.3(b) and 2.4, arrange for such underwriters to
include all the Registrable Securities to be offered and sold by such holder
among the securities to be distributed by such underwriters. The holders of
Registrable Securities to be distributed by such underwriters shall be parties
to the underwriting agreement between the Company and such underwriters and may,
at their option, require that any or all of the representations and warranties
by, and the other agreements on the part of, the Company to and for the benefit
of such underwriters shall also be made to and for the benefit of such holders
of Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to the obligations of such holders of Registrable Securities. Any such
holder of Registrable Securities shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations,
10
<PAGE>
warranties, or agreements typical in an offering of this type, including those
regarding such holder, such holder's Registrable Securities and such holder's
intended method of distribution, any other information supplied by such holder
to the Company for use in the Registration Statement and any other
representation required by law.
2.6. Preparation; Reasonable Investigation. In connection with the
-------------------------------------
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the holders of Registrable
Securities registered under such registration statement, the underwriters, if
any, and their respective counsel (such holders' counsel to be appointed by the
holders of more than 50% (by number of shares) of Registrable Securities so to
be registered, the opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give each
of them such access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of such holders' and such underwriters' respective counsel, to
conduct a reasonable investigation within the meaning of the Securities Act.
2.7. Indemnification. (a) Indemnification by the Company. In the
--------------- ------------------------------
event of any registration of any securities of the Company under the Securities
Act, the Company will, and hereby does, indemnify and hold harmless the seller
of any Registrable Securities covered by such registration statement, its
directors and officers, each other Person who participates as an underwriter in
the offering or sale of such securities and such other Person, if any, who
controls such seller or any such underwriter within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which such seller or any such director or officer or underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatend, in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and the Company will reimburse such seller and each such
director, officer, underwriter and controlling person for any legal or any other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding; provided,
--------
however, that the Company will not be liable in any such case to
- -------
11
<PAGE>
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, said preliminary or final
prospectus or said amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by an instrument duly executed
by such seller, specifically for use in the preparation thereof. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of such seller or any such director, officer, underwriter or
controlling person and shall survive the transfer of such securities by such
seller.
(b) Indemnification by the purchasers. The Purchasers will, and
---------------------------------
hereby do, severally and not jointly, indemnify and hold harmless (in the same
manner and to the same extent as set forth in subdivision (a) of this Section
2.7) the Company, each director of the Company, each officer of the Company and
each other Person, if any, who controls the Company within the meaning of the
Securities Act with respect to any statement or alleged statement in or
omission or alleged omission from such registration statement, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, if such statement or alleged statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by such Purchaser for use in the
preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement. Such indemnity shall
remain in full force and effect, regardless of any investigation made by or on
behalf of the Company or any such director, officer or controlling Person and
shall survive the transfer of such securities by such Purchaser with respect to
information furnished by such Purchaser prior to such transfer.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
----------------------
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this Section 2.7, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action, provided that the failure of any indemnified party to give notice
--------
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding subdivisions of this Section 2.7, except to the extent that
the indemnifying party is prejudiced by such failure to give notice. In case any
such action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified
party and indemnifying parties may exist in respect of such claim, the
indemnifying party shall be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified to the
extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after
12
<PAGE>
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party, shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect to such claim or litigation.
(d) Other Indemnification. Indemnification similar to that specified
---------------------
in the preceding subdivisions of this Section 2.7 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities with respect to any required registration or other qualification of
securities under any Federal or state law or regulation of any governmental
authority other than the Securities Act.
(e) Indemnification Payments. The indemnification required by this
------------------------
Section 2.7 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
2.8. Adjustments Affecting Registrable Securities. The Company will
--------------------------------------------
not effect or permit to occur any combination or subdivision of shares which
would adversely affect the ability of the holders of Registrable Securities to
include such Registrable Securities in any registration of its securities
contemplated by this Section 2 or the marketability of such Registrable
Securities under any such registration.
3. Definitions. As used herein, unless the context otherwise
-----------
requires, the following terms have the following respective meanings:
Commission: The Securities and Exchange Commission or any other Federal
----------
agency at the time administering the Securities Act.
Common Stock: All shares now or hereafter authorized and designated as the
------------
Common Stock of the Company and stock of any other class with which such
shares may hereafter have been exchanged or reclassified.
Convertible Preferred Stock: As defined in Section 1.
---------------------------
Exchange Act: The Securities Exchange Act of 1934, as amended.
------------
Inside Shareholders: Richard O. Looney, and Michael Klein.
-------------------
13
<PAGE>
Person: A corporation, an association, a partnership, a limited liability
------
company, a business, an individual, a governmental or political subdivision
thereof or a governmental agency.
Qualifying Public Offering: The sale by one or more Persons in an
--------------------------
underwritten offering registered under the Securities Act of any equity
securities of the Company (or its successor) which results in aggregate
gross proceeds from such sales (before underwriters' discounts and selling
commissions) to the Company greater than or equal to $15,000,000.
Registrable Inside Shareholder Securities: (a) All shares of Common Stock
-----------------------------------------
held by the Inside Shareholders or any Shareholder Relation on the date
hereof or (b) Common Stock by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise upon any required
adjustments.
As to any particular Registrable Inside Shareholder Securities, such
securities shall cease to be Registrable Inside Shareholder Securities when
(a) a registration statement with respect to the sale of such securities
shall have become effective under the Securities Act and such securities
shall have been disposed of in accordance with such registration statement,
(b) they shall have been distributed to the public pursuant to Rule 144 (or
any successor provision) under the Securities Act, or (c) they shall have
ceased to be outstanding.
Registrable Securities: The Common Stock Issuable upon the conversion of
----------------------
Convertible Preferred Stock held by the Purchasers and any Convertible
Preferred Stock or Common Stock by way of stock dividend or stock split or
in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise upon any required
adjustments.
As to any particular Registrable Securities, such securities shall cease
to be Registrable Securities when (a) a registration statement with respect
to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in
accordance with such registration statement, (b) they shall have been
distributed to the public pursuant to Rule 144 (or any successor provision)
under the Securities Act, or (c) they shall have ceased to be outstanding.
Registration Expenses: All expenses incident to the Company's performance
---------------------
of or compliance with Section 2, including, without limitation, all
registration, filing and National Association of Securities Dealers, Inc.
fees, all
14
<PAGE>
fees and expenses of complying with securities or blue sky laws, all word
processing, duplicating and printing expenses, messenger and delivery
expenses, the reasonable fees and disbursements of counsel for the Company
and of its independent public accountants, including the expenses of any
special audits or "cold comfort" letters required by or incident to such
performance and compliance, the reasonable fees and disbursements of a
single counsel retained by the holder or holders of more than 50% (by
number of shares) of the Registrable Securities being registered, premiums
and other costs of policies of insurance obtained by the Company against
liabilities arising out of the public offering of the Registrable
Securities being registered and any fees and disbursements of underwriters
customarily paid by issuers or sellers of securities, including reasonable
fees of underwriters counsel incurred in the qualification of the
Securities under blue sky laws, but excluding all agency fees and
commissions, underwriting discounts and commissions and transfer taxes, if
any.
Securities Act: The Securities Act of 1933, as amended.
--------------
Shareholder Relation: (i) Any Other Permitted Transferee of an individual
--------------------
Shareholder, (ii) any inter-vivos trust whose principal beneficiary is such
individual Shareholder or any Other Permitted Transferee of such individual
Shareholder created during their respective lifetimes and not as a result
of death, (iii) any family limited partnership in which an individual
Shareholder is a general or limited partner, and (iv) the legal
representative or guardian of such individual Shareholder or any Other
Permitted Transferee of such individual Shareholder appointed during their
respective lifetimes and not as a result of death.
4. Rule 144. If the Company shall have filed a registration
--------
statement pursuant to the requirements of Section 12 of the Exchange Act or a
registration statement pursuant to the requirements of the Securities Act, the
Company will file the reports required to be filed by it, and in the manner
required to be filed by it, under the Securities Act and the Exchange Act (or,
if the Company is not required to file such reports, will, upon the request of
any holder of Registrable Securities, make publicly available other information)
and will take such further action as any holder of Registrable Securities may
reasonably request, all to the extent required from time to time to enable such
holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time or (b) any similar
rule or regulation hereafter adopted by the Commission ("Rule 144"). Upon the
request of any holder of Registrable Securities, the Company will deliver to
such holder a written statement as to whether it has complied with such
requirements.
15
<PAGE>
5. Amendments and Waivers. This Agreement may be amended and the
----------------------
Company may take any action herein prohibited or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the holder or
holders of 66 2/3% or more (by number of shares) of Registrable Securities. Each
holder of any Registrable Securities at the time or thereafter outstanding shall
be bound by any consent authorized by this Section 5, whether or not such
Registrable Securities shall have been marked to indicate such consent.
6. Nominees for Beneficial Owners. In the event that any Registrable
------------------------------
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may upon the giving of written notice to the Company,
at its election, be treated as the holder of such Registrable Securities for
purposes of any request or other action by any holder or holders of Registrable
Securities pursuant to this Agreement or any determination of any number or
percentage of shares of Registrable Securities held by any holder or holders of
Registrable Securities contemplated by this Agreement. The Company may require
assurances reasonably satisfactory to it of such owner's beneficial ownership of
such Registrable Securities.
7. Notices. All communications provided for hereunder shall be sent
-------
by first-class mail or overnight courier and (a) if addressed to a party other
than the Company, addressed to such party in the manner set forth in the
Securities Purchase Agreement, as the case may be, or at such other address as
such party shall have furnished to the Company in writing, or (b) if addressed
to any other holder of Registrable Securities, at the address that such holder
shall have furnished to the Company in writing, or, until any such other holder
so furnishes to the Company an address, then to and at the address of the last
holder of such Registrable Securities who has furnished an address to the
Company, or (c) if addressed to the Company, at Litigation Resources of America,
Inc., 3850 NationsBank Center, 700 Louisiana Street, Houston, Texas 77002-2731,
Attn: G. Kent Kahle, President to the attention of its President, or at such
other address, or to the attention of such other officer, as the Company shall
have furnished to each holder of Registrable Securities at the time outstanding.
8. Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of and be enforceable by the parties hereto and their respective
successors and assigns. In addition, and whether or not any express assignment
shall have been made, the provisions of this Agreement which are for the benefit
of the parties hereto other than the Company shall also be for the benefit of
and enforceable by any subsequent holder of any Registrable Securities or
Registrable Inside Shareholder Securities, subject to the provisions respecting
the minimum numbers or percentages of shares of Registrable Securities
16
<PAGE>
required in order to be entitled to certain rights, or take certain actions,
contained herein.
9. Descriptive Headings. The descriptive headings of the several
--------------------
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
10. Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and the rights of the parties shall be governed by, the laws of
the State of New York.
11. Counterparts. This Agreement may be executed simultaneously in
------------
any number of counterparts, each of which shall be deemed an original, but all
such counterparts shall together constitute one and the same instrument.
17
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
LITIGATION RESOURCES OF AMERICA, INC.
By: /s/ Richard O. Looney
-----------------------------------
Name : Richard O. Looney
Title: CEO
18
<PAGE>
THE PURCHASERS:
DELAWARE STATE EMPLOYEES'
RETIREMENT FUND
By: Pecks Inside Shareholders Partners Ltd.
Its Investment Advisor
By: /s/ Robert J. Cresci
--------------------------------------
Robert J. Cresci
Managing Director
DECLARATION OF TRUST FOR DEFINED
BENEFIT PLAN OF ICI AMERICAN HOLDINGS INC.
By: Pecks Inside Shareholders Partners Ltd.
Its Investment Advisor
By: /s/ Robert J. Cresci
--------------------------------------
Robert J. Cresci
Managing Director
DECLARATION OF TRUST FOR DEFINED
BENEFIT PLAN OF ZENECA HOLDINGS INC.
By: Pecks Inside Shareholders Partners Ltd.
Its Investment Advisor
By: /s/ Robert J. Cresci
--------------------------------------
Robert J. Cresci
Managing Director
19
<PAGE>
EXHIBIT 4.5
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of___________, 1997
By and Among
LITIGATION RESOURCES OF AMERICA, INC.,
and
- --------------------------------------------------------------------------------
================================================================================
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is entered into
and made as of ___________, 1997, by and among LITIGATION RESOURCES OF AMERICA,
INC., a Texas corporation having its headquarters at 1001 Fannin, Suite 650,
Houston, Texas 77002 (the "Company"), and _______________________________ AND
_______________________________ (herein collectively referred to as
"Shareholders" and individually as a "Shareholder").
W I T N E S S E T H:
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WHEREAS, _______________ has been issued _______________ shares of
Common Stock, as such term is hereinafter defined (the " _______ Common Shares")
of the Company in connection with that certain
_____________________________________________ by and between _______________,
the Company, Litigation Resources of America- _______________, Inc., and
_____________________________ ;and
WHEREAS, pursuant to that certain (i) Registration Rights Agreement
dated as of January 17, 1997 by and between the Company and the Purchasers
listed on the signature pages thereto (the "Purchasers"), the Company has
granted certain demand and piggyback rights to the Purchasers (the "Pecks
Registration Rights Agreement"), (ii) Registration Rights Agreement dated as of
January 17, 1997 by and between the Company and Michael Klein, the Company has
granted certain piggyback rights to Michael Klein (the "Klein Registration
Rights Agreement"), (iii) Registration Rights Agreement dated as of January 17,
1997 by and between the Company and Richard O. Looney, the Company has granted
certain piggyback rights to Richard O. Looney (the "Looney Registration Rights
Agreement"), (iv) Registration Rights Agreement dated as of May 14, 1997 by and
among the Company and Jay W. Harbridge and Rick Posner, the Company has granted
certain piggyback rights to Jay W. Harbridge and Rick Posner (the "SFRS
Registration Rights Agreement"), (v) Registration Rights Agreement dated as of
May 19, 1997 by and among the Company and Peter Giammanco and Leslie Giammanco,
individually and as Trustees of the Giammanco Family Trust, the Company has
granted certain piggyback rights to Peter Giammanco and Leslie Giammanco,
individually and as Trustees of the Giammanco Family Trust (the "Giammanco
Registration Rights Agreement"), (vi) Registration Rights Agreement dated as of
August 19, 1997 by and among the Company and Glory Johnson and Seaquestor Trust,
the Company has granted certain piggyback rights to Glory Johnson and Seaquestor
Trust (the "Rapidtext Registration Rights Agreement"), (vii) Registration Rights
Agreement dated as of August 28, 1997, by and among the Company and Coldren
Enterprises, Inc. d/b/a Encore Reporting, the Company has granted certain
piggyback rights to Encore Reporting (the "Encore Reporting Registration Rights
Agreement"), (viii) Registration Rights Agreement dated August 29, 1997, by and
among the Company and Legal Enterprise, Inc., the Company has granted certain
piggyback rights to Legal Enterprise, Inc. ( the "Legal Enterprises Registration
Rights Agreement"), (ix) Registration Rights Agreement dated effective September
4, 1997, by and between the Company and Martin H. Block, the Company has granted
certain piggyback rights to Martin H. Block (the "Block Registration Rights
Agreement") and (x) Registration Rights Agreement dated September 4, 1997, by
and between the Company and Amicus One Support Services, Inc., the Company has
granted certain
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piggyback rights to Amicus One Support Services, Inc. (the "Amicus One
Registration Rights Agreement;
WHEREAS, pursuant to the Purchase Agreement, the Company issued to
Shareholders a % Convertible Junior Subordinated Promissory Note due
_________________________, in the original principal amount of $____________
(the "Note");
WHEREAS, the Note is convertible into shares of common stock of the
Company ("Common Stock") as provided therein (the Common Stock issuable upon
conversion of the Note being referred to as the "Note Shares");
WHEREAS, the Company has agreed to grant certain piggyback
registration rights to Shareholders relating to such Common Shares;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS. As used in this Agreement, the following terms have the
respective meanings set forth below or set forth in the Section or paragraph
following such term:
ADVICE - Section 3.1.
AFFILIATE - a Person who, with respect to that Person, directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, or is acting as agent on behalf of, or as an
officer or director of, that Person. As used in the definition of Affiliate,
the term "control" (including the terms "controlling," "controlled by," or
"under common control with") means the possession, direct or indirect, of the
power to direct, cause the direction of, or influence the management and
policies of a Person, whether through the ownership of voting securities, by
contract, through the holding of a position as a partner, director or officer of
such Person, as a trustee, or otherwise.
AGENT - Section 5.1.
AGREEMENT - introductory paragraph.
BUSINESS DAY - day other than a Saturday, Sunday or legal holiday for
commercial banks in the State of Texas.
COMMISSION - the United States Securities and Exchange Commission.
COMMON SHARES - the _______ Shares.
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COMMON STOCK - the Company's Common Stock, $.01 par value per share, or
any successor class of the Company's Common Stock.
COMPANY - introductory paragraph.
EXCHANGE ACT - the Securities Exchange Act of 1934, as amended.
HOLDER - Shareholder or any other person that has properly assumed or been
properly assigned Shareholder's rights and obligations hereunder in accordance
with Section 6.12.
INSPECTORS - Section 3.1.
IPO - shall mean the initial public offering of securities of the Company
under registration statement filed and ordered effective under the 1933 Act
pursuant to a managed underwritten offering.
LIABILITIES - Section 5.1.
SHAREHOLDER OR SHAREHOLDERS - introductory paragraph.
1933 ACT - the Securities Act of 1933, as amended.
PERSON - any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or a political subdivision, agency or instrumentality
thereof or other entity or organization of any kind.
PIGGYBACK REGISTRATION - Section 2.1.
PRIOR REGISTRATION RIGHTS AGREEMENTS - the Pecks Registration Rights
Agreement, Klein Registration Rights Agreement, Looney Registration Rights
Agreement, SFRS Registration Rights Agreement, Giammanco Registration Rights
Agreement, Rapidtext Registration Rights Agreement, Encore Reporting
Registration Rights Agreement, Legal Enterprise Registration Rights Agreement,
the Block Registration Rights Agreement, and the Amicus One Registration Rights
Agreement, collectively.
RECORDS - Section 3.1.
REGISTRABLE SECURITIES - any (i) Common Shares, (ii) Note Shares as of the
execution date hereof, and (iii) securities issued in exchange for, as a
dividend on, or in replacement or upon conversion of, or otherwise issued in
respect of (including securities issued in a stock dividend, split or
recombination or pursuant to the exercise of preemptive rights) any shares of
Common Stock or other securities described in clause (i), until such time as
such securities have been transferred to a Person that does not qualify as a
Holder pursuant to Section 6.12. In no event shall the Convertible Notes be
deemed to be Registrable Securities.
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REGISTRATION EXPENSES - Section 2.3.
REQUESTED SECURITIES - Section 2.1.
RESTRICTION - Section 2.2.
SELLER REGISTRATION RIGHTS - Section 3.3.
SECTION 2. REGISTRATION RIGHTS.
2.1 PIGGYBACK REGISTRATION.
(a) If at any time or from time to time prior to the fifth anniversary of
an IPO the Company proposes to file a registration statement under the 1933 Act
with respect to an offering by the Company for its own account or for the
account of any other Person of any class of equity security of the Company,
including any security convertible into or exchangeable for any such equity
security, then the Company shall in each case give written notice of such
proposed filing to the Holder at least thirty days before the anticipated filing
date, and such notice shall offer the Holder the opportunity to register such
number of Registrable Securities as the Holder may request (a "Piggyback
Registration"). The Company shall use reasonable diligence to cause the managing
underwriter or underwriters of a proposed underwritten offering to permit the
Holder to include the Registrable Securities requested by the Holder to be
included in the registration statement and in such offering on the same terms
and conditions as any similar securities of the Company included therein (except
to the extent provided otherwise in the Pecks Registration Rights Agreement), to
the extent permitted by applicable law. Notwithstanding the foregoing, if the
managing underwriter or underwriters of such offering informs the Company and
the Holders requesting such registration by letter of its belief that the number
of securities requested to be included in such registration (the "Requested
Securities") exceeds the number which can be sold in (or during the time of)
such offering or that the inclusion would adversely affect the marketing or the
selling price of the securities to be sold, then the amount or kind of Requested
Securities to be offered for the accounts of all Persons whose shares of
Requested Securities were requested to be included in such offering shall be
reduced pro rata with respect to each such Person to the extent necessary to
reduce the total amount of securities to be included in such offering to the
amount recommended by such managing underwriter, such a reduction not to include
(i) if the registration initially occurs at the insistence of the Company,
shares of the Company, (ii) if such registration occurs due to a demand
registration right, shares of the Person making that demand, or (iii) shares of
the Purchaser under the Pecks Registration Rights Agreement, to the extent
provided otherwise in such Pecks Registration Rights Agreement.
(b) Notwithstanding anything to the contrary contained in Section 2.1(a),
the Company shall not be required to include Registrable Securities in any
registration statement pursuant to this Section 2.1 if the proposed registration
is (i) a registration of a stock option or other employee incentive compensation
plan or of securities issued or issuable pursuant to any such plan, (ii) a
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registration of securities issued or issuable pursuant to a stockholder
reinvestment plan or other similar plan, (iii) a registration of securities
issued in exchange for any securities or any assets of, or in connection with a
merger or consolidation with, an unaffiliated company, or (iv) a registration of
securities pursuant to a "rights" or other similar plan designed to protect the
Company's stockholders from a coercive or other attempt to take control of the
Company.
(c) The Company may withdraw any registration statement and abandon any
proposed offering initiated by the Company without the consent of the Holder
notwithstanding the request of the Holder to participate therein in accordance
with this provision, if the Company determines that such action is in the best
interests of the Company and its stockholders (for this purpose, the interests
of the Holder shall not be considered except generally as a stockholder).
2.2 HOLDBACK AGREEMENTS; REQUIREMENTS OF THE HOLDER.
(a) Restrictions on Public Sale by the Holder. To the extent not
inconsistent with applicable law, the Holder agrees that Holder will not effect
any public sale or distribution of the issue being registered or a similar
security of the Company or any securities convertible into or exchangeable or
exercisable for such securities (such agreement, as hereinbefore set forth in
this sentence being sometimes hereinafter referred to as the "Restriction")
during the 14 days prior to, and during the 90-day period (or such shorter
period as may be agreed with the managing underwriter) beginning on, the
effective date of such registration statement (except as part of such
registration), but only if and to the extent (i) requested in writing (with
reasonable prior notice) by the managing underwriter or underwriters in the case
of an underwritten public offering by the Company of securities similar to the
Registrable Securities, and (ii) similarly situated shareholders of the Company
(e.g. persons who sold their businesses in exchange for common stock) are
required to agree to the Restriction.
(b) Cooperation by Holder. The offering of Registrable Securities by the
Holder shall comply in all respects with the applicable terms, provisions and
requirements set forth in this Agreement, and the Holder shall timely convert
such portions of the Convertible Notes so as enable the Registrable Securities
to be sold on a timely basis and provide the Company with all information and
materials required to be included in a registration statement that (a) relate to
the offering, (b) are in possession of the Holder, and (c) relate to the Holder,
and to take all such action as may be reasonably required in order not to delay
the registration and offering of the securities by the Company. The Company
shall have no obligation to include in such registration statement shares of the
Holder if the Holder has failed to furnish such information or materials and if,
in the opinion of counsel to the Company, such information and materials are
required in order for the registration statement to be in compliance with the
1933 Act.
2.3 REGISTRATION EXPENSES. All expenses incident to the Company's
performance of or compliance with this Agreement, including without limitation,
all Commission and securities exchange or National Association of Securities
Dealers, Inc. registration and filing fees, all fees and expenses relating to
compliance with securities or blue sky laws (including fees and disbursements of
counsel in connection with blue sky qualifications of the Registrable
Securities), all printing
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expenses, messenger and delivery expenses, internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), fees and expenses incurred in connection with the
listing of the securities to be registered on securities exchanges, fees and
disbursements of counsel for the Company and its independent certified public
accountants (including the expenses required for "cold comfort" letters required
by or incident to such performance), and fees and expenses of any special
experts retained by the Company in connection with such registration (but not
including any underwriting fees, discounts or commissions directly attributable
to the sale of Holder's Registrable Securities) (all such expenses being herein
called "Registration Expenses"), will be borne by the Company; provided, however
that, the Company shall not be obligated to pay (i) the fees and disbursements
of any counsel for the Holder or liability insurance related to the offering (if
the Company elects to obtain such insurance with the Holder's consent) for the
Holder, or (ii) any out-of-pocket expenses of the Holder, which fees,
disbursements and expenses described in clauses (i) and (ii) preceding shall be
borne by the Holder.
SECTION 3. COVENANTS OF THE COMPANY.
3.1 REGISTRATION PROCEDURES. Whenever any Registrable Securities are to
be registered pursuant to Section 2, the Company will use reasonable diligence
to effect the registration of such Registrable Securities in accordance with the
intended method of disposition thereof as quickly as practicable and in
accordance with the provisions of Section 2. In connection with any offering of
Registrable Securities pursuant to the Agreement, the Company shall as
expeditiously as possible:
(a) prepare and file with the Commission a registration statement that
includes the Registrable Securities requested to be included therein in
accordance with Section 2 and use reasonable diligence to cause such
registration statement to become effective; provided, however, that at least
five Business Days before filing a registration statement or prospectus or any
amendment or supplement thereto, including documents incorporated by reference
therein, the Company will furnish to the Holder, and the underwriters, if any,
draft copies of all such documents proposed to be filed, which documents will be
subject to the review of the Holder and such underwriters, and the Company will
not file any registration statement or prospectus or amendment or supplement
thereto (including such documents incorporated by reference) to which the Holder
or the underwriters with respect to such Registrable Securities, if any, shall
reasonably object within five days of receipt of any of such documents; and
provided further, however, that if the Company, in the case of a Piggyback
Registration, despite the reasonable objection of the Holder, desires to proceed
with the registration of its shares, the Holder may withdraw the Registrable
Securities from being included in such offering, using its good-faith efforts to
minimize delay caused by such withdrawal, and the Company may then,
notwithstanding anything to the contrary in the immediately preceding proviso,
proceed with such offering; the Company and the Holder acknowledge that such
withdrawal by the Holder will delay such offering for as much time as is
necessary to amend such registration statement or prospectus to reflect the
withdrawal of such Registrable Securities from such offering;
(b) prepare and file with the Commission such amendments and post-
effective amendments to the registration statement as may be necessary to keep
the registration statement effective for a period of six months (or such shorter
period which will terminate when all Registrable
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Securities covered by such registration statement have been sold or withdrawn,
but not prior to the expiration of the 90-day period referred to in Section 4(3)
of the 1933 Act and Rule 174 thereunder, if applicable); cause the prospectus to
be supplemented by any required prospectus supplement, and as so supplemented to
be filed pursuant to Rule 424 under the 1933 Act; and comply with the provisions
of the 1933 Act applicable to it with respect to the disposition of all
securities covered by such registration statement during the applicable period
in accordance with the intended methods of disposition by the sellers thereof
set forth in such registration statement or supplement to the prospectus; the
Company shall not be deemed to have complied with its obligations hereunder to
keep a registration statement effective during the applicable period if it
voluntarily takes any action that would result in the prevention of the Holder
from selling such Registrable Securities during that period unless such action
is required under applicable law;
(c) furnish to the Holder and the underwriter or underwriters, if any,
without charge, such reasonable number of conformed copies of the registration
statement and any post-effective amendment thereto and such reasonable number of
copies of the prospectus (including each preliminary prospectus) and any
amendments or supplements thereto, and any documents incorporated by reference
therein, as the Holder or underwriter may request in order to facilitate the
disposition of the Registrable Securities being sold by the Holder (it being
understood that the Company consents to the use of the prospectus and any
amendment or supplement thereto by the Holder and the underwriter or
underwriters, if any, in connection with the offering and sale of the
Registrable Securities covered by the prospectus or any amendment or supplement
thereto);
(d) notify the Holder at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act, when the Company becomes aware of
the happening of any event as a result of which the prospectus included in such
registration statement (as then in effect) contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading and, as promptly as practicable thereafter, prepare and file with the
Commission and furnish a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(e) use reasonable diligence to cause all Registrable Securities included
in such registration statement to be listed, by the date of the first sale of
Registrable Securities pursuant to such registration statement, on each
securities exchange on which the Common Stock of the Company is then listed or
proposed to be listed, if any;
(f) make generally available to its security holders an earnings
statement satisfying the provisions of Section 11(a) of the 1933 Act no later
than 90 days after the end of the 12-month period beginning with the first day
of the Company's first fiscal quarter commencing after the effective date of the
registration statement, which earnings statement shall cover said 12-month
period, which requirement will be deemed to be satisfied if the Company timely
files complete and
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accurate information on such forms and reports as the Company may be required to
file under the Exchange Act and otherwise complies with Rule 158 under the 1933
Act as soon as feasible;
(g) notify the Holder of any stop order issued or threatened by the
Commission in connection therewith and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered, and make every
reasonable effort to obtain the withdrawal of any order suspending the
effectiveness of the registration statement at the earliest possible moment;
(h) if requested by the managing underwriter or underwriters, promptly
incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriter or underwriters or the Holder reasonably
requests to be included therein, including, without limitation, the purchase
price being paid therefor by such underwriter or underwriters and any other
terms of the underwritten offering of such Registrable Securities (excluding,
however, information with respect to the number of Registrable Securities being
sold to such underwriter or underwriters by the Holder), and promptly make all
required filings of such prospectus supplement or post-effective amendment;
(i) as promptly as practicable after filing with the Commission of any
document which is incorporated by reference into a registration statement,
deliver to the Holder as many copies of that document as may be reasonably
requested by the Holder;
(j) on or prior to the date on which the registration statement is
declared effective, use reasonable diligence to register or qualify, and
cooperate with the Holder the underwriter or underwriters, if any, and their
counsel, in connection with the registration or qualification of the Registrable
Securities covered by the registration statement for offer and sale under the
securities or blue sky laws of each state and other jurisdiction of the United
States as the Holder or underwriter reasonably requests in writing, to use
reasonable diligence to keep each such registration or qualification effective,
including through new filings, or amendments or renewals, during the period such
registration statement is required to be kept effective and to do any and all
other acts or things necessary or advisable to enable the disposition in all
such jurisdictions of the Registrable Securities covered by the applicable
registration statement; provided that the Company will not be required to
qualify generally to do business in any jurisdiction where it is not then so
qualified or to take any action which would subject it to general service of
process in any such jurisdiction where it is not then so subject; and provided,
further, however, that while it is the present intention of the Holder to
cooperate with the Company to keep the costs of compliance with state blue sky
laws to a minimum, the Holder shall have the right to require compliance by the
Company with the blue sky laws of as many states as the managing underwriter
deems reasonably necessary in its good faith judgment to realize the maximum
possible value for the Registrable Securities included in such registration
statement;
(k) cooperate with the Holder and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing securities to be sold under the registration statement
and enable such securities to be in such denominations and registered in
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such names as the managing underwriter or underwriters, if any, may request,
subject to the underwriters' obligation to return any certificates representing
securities not sold;
(l) use reasonable diligence to cause the Registrable Securities covered
by the registration statement to be registered with or approved by such other
governmental agencies or authorities within the United States as may be
necessary to enable the seller or sellers thereof or the underwriter or
underwriters, if any, to consummate the disposition of such securities;
(m) enter into such customary agreements (including an underwriting
agreement in customary form) and take all such other reasonable actions as the
Holder or the underwriters retained by the Holder participating in an
underwritten public offering, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities;
(n) make available for inspection by the Holder, any underwriter
participating in any disposition pursuant to such registration statement, and
any attorney, accountant or other agent retained by any such seller or
underwriter (collectively, the "Inspectors"), all financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"Records"), as shall be necessary to enable them to exercise their due diligence
responsibility; and cause the Company's officers, directors and employees to
make available for inspection and/or copying all Records reasonably requested by
any such Inspector in connection with such registration statement; and
(o) list such securities on or with a national securities exchange (which
term shall include the NASDAQ National Market System) and comply with all
applicable exchange listing requirements and rules and regulations thereof;
(p) use reasonable diligence to obtain a "cold comfort" letter from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by cold comfort letters covering
registration statements similar to the registration statement at issue as the
Holder reasonably requests.
The Holder, upon receipt of any notice from the Company of the occurrence
of any event of the kind described in subsection (d) of this Section 3.1, will
forthwith discontinue disposition of the Registrable Securities until the
Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by subsection (d) of this Section 3.1 and copies of any additional
or supplemental filings which are incorporated by reference in the prospectus,
or until Holder is advised in writing (the "Advice") by the Company that the use
of the prospectus may be resumed. If so directed by the Company, the Holder
shall deliver to the Company (at the Company's expense) all copies in Holder's
possession or control, other than permanent file copies then in the Holder's
possession, of the prospectus covering such Registrable Securities. In the event
the Company shall give any such notice, the time periods mentioned in subsection
(b) of this Section 3.1 shall be extended by the number of days during the
period from and including the date of the giving of such notice to and including
the date when each seller of Registrable Securities covered by such
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registration statement shall have received the copies of the supplemented or
amended prospectus contemplated by subsection (d) of this Section 3.1 hereof or
the Advice.
If such registration statement refers to the Holder by name or otherwise as
the holder of any securities of the Company then the Holder shall have the right
to require (i) the insertion therein of language, in form and substance
satisfactory to the Holder to the effect that the holding by such Holder of such
securities is not to be construed as a recommendation of such Holder of the
investment quality of the Company's securities covered thereby and that such
holding does not imply that the Holder will assist in meeting any future
financial requirements of the Company, or (ii) in the event that such reference
to such Holder by name or otherwise is not required by the Securities Act or any
similar federal statute then in force, the deletion of the reference to such
Holder.
3.2 RULE 144; INFORMATION. The Company covenants that, upon any
registration statement covering Company securities becoming effective, it will
file the reports required to be filed by it under the 1933 Act and the Exchange
Act and the rules and regulations adopted by the Commission thereunder (or, if
the Company is not required to file such reports, it will, upon the request of
the Holder make publicly available other nonconfidential information as is
necessary to permit sales under Rule 144 under the 1933 Act), and it will take
such other action as the Holder may reasonably request, all to the extent
required from time to time to enable the Holder to sell Registrable Securities
without registration under the 1933 Act within the limitation of the exemptions
provided by (a) Rule 144 under the 1933 Act, as such Rule may be amended from
time to time, or (b) any similar rule or regulation hereafter adopted by the
Commission; provided further that if the Company is not required to file reports
under the 1933 Act and the Exchange Act and the rules and regulations adopted by
the Commission thereunder, the Company shall, upon the request of the Holder,
provide the Holder audited financial statements and access to the books and
records of the Company and, if requested by the Holder sufficient information to
enable the Holder to comply with Rule 144 or Rule 144A under the 1933 Act. Upon
the request of the Holder, the Company will deliver to the Holder a written
statement as to whether it has complied with such requirements.
3.3 FUTURE RIGHTS. From the date of this Agreement until the fifth
anniversary of the IPO, the Company will not grant to any Person (excluding the
Holder) any registration rights with respect to any securities of the Company
other than (i) the registration rights previously granted under the Prior
Registration Rights Agreements or (ii) new registration rights that are granted
in connection with (A) the investment in the Company by such grantee (or group
of grantees) of at least $1,000,000 or (B) the acquisition of a court reporting
or related business by the Company or any Affiliate in a transaction in which
all or part of the consideration is Common Stock or securities convertible into
Common Stock (such rights granted in connection with such sale of a business
being referred to herein as "Seller Registration Rights"). Such Seller
Registration Rights must be of no greater priority or right than, nor be broader
than or superior to, the registration rights granted by the Company under this
Agreement, and a copy of the agreements granting such Seller Registration Rights
must be made available to the Holder upon request to the Company. Additionally,
Seller Registration Rights may not be granted without expressly providing that
the Holder has a piggyback right upon the exercise of such Seller Registration
Rights and shall be included in any related
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registration statement on the same terms and conditions as the holders of the
Seller Registration Rights, subject to possible reduction at the initiative of
the managing underwriter or underwriters, on terms substantially equivalent to
those set forth in Section 2.2.
3.4 REPRESENTATION AND WARRANTY. The Company hereby represents and
warrants to Shareholder that on or prior to the date hereof, (a) the Company has
not granted registration rights to any Person except for the registration rights
granted under this Agreement and the Prior Registration Rights Agreements and
except as set forth in the Pecks Registration Rights Agreement, and (b) no
consent, approval, authorization or waiver of any Person is required to permit
the Company to (i) execute or deliver this Agreement or (ii) perform this
Agreement in accordance with its terms other than with respect to registration
under the 1933 Act and comparable registrations with state securities
commissions, and (c) the execution, delivery and performance of this Agreement
by the Company is not inconsistent with its charter or by-laws or any agreement
to which the Company is a party.
SECTION 4. COVENANTS OF HOLDER.
4.1 PARTICIPATION IN UNDERWRITING REGISTRATIONS. Holder may not
participate in any underwritten registration hereunder unless the Holder (a)
agrees to sell Holder's securities on the terms of and on the basis provided in
any underwriting arrangements approved by the Company and (b) completes and
executes all questionnaires, powers of attorney, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements.
SECTION 5. INDEMNIFICATION; CONTRIBUTION.
5.1 INDEMNIFICATION; CONTRIBUTION.
(a) Indemnification by the Company. The Company agrees to indemnify and
hold harmless each Holder of Registrable Securities, its officers, directors,
partners and each Person who controls such Holder (within the meaning of the
1933 Act), and any Agent (as hereinafter defined) or investment advisor thereto
against all losses, claims, damages, liabilities and expenses, joint or several
(including reasonable costs of investigation, and attorneys fees and expenses as
further provided in Section 5.1(c)) (collectively, "Liabilities") arising out of
or based upon any untrue or alleged untrue statement of material fact contained
in any registration statement, and amendment or supplement thereto, or any
prospectus or preliminary prospectus contained therein, or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
any such Liabilities arise out of or are based upon any untrue statement or
omission based upon and in conformity with information regarding such
indemnified Person furnished in writing to the Company by such indemnified
Person expressly for use therein. In connection with an underwritten offering,
the Company will indemnify the underwriters thereof, their officers and
directors and each Person who controls such underwriters (within the meaning of
the 1933 Act) to the same extent as provided above with respect to the
indemnification of the Holders of Registrable Securities or to such other extent
as the Company and such underwriters may agree. For purposes of this Section
5.1(a), an "Agent" of a Holder of
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<PAGE>
Registrable Securities is any Person acting for or on behalf of such Holder with
respect to the holding or sale of such Registrable Securities.
5.2 INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES. In connection
with any registration statement in which the Holder is participating, the Holder
will furnish to the Company in writing such information with respect to the name
and address of the Holder and the amount of Registrable Securities held by the
Holder and such other information as the Company shall reasonably request for
use in connection with any such registration statement or prospectus, and agrees
to indemnify, to the extent permitted by law, the Company, its directors and
officers and each Person who controls the Company (within the meaning of the
1933 Act) against any losses, claims, damages, liabilities and expenses, joint
or several, resulting from any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission of a material fact required to
be stated in the registration statement or prospectus or any amendment thereof
or supplement thereto or necessary to make the statements therein not
misleading, to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission is based upon and in
conformity with any information regarding the Holder furnished in writing by the
Holder specifically for inclusion in any prospectus or registration statement.
In connection with an underwritten offering, the Holder participating in such
offering will indemnify the underwriters thereof, their officers and directors
and each Person who controls such underwriters (within the meaning of the 1933
Act) to the same extent, and solely to such extent, as provided in the
immediately preceding sentence with respect to indemnification of the Company.
In no event shall the liability of the Holder hereunder be greater in amount
than the dollar amount of the proceeds received by the Holder upon the sale of
the Registrable Securities giving rise to such indemnification obligation.
5.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to
indemnification hereunder agrees to give prompt written notice to the
indemnifying party after the receipt by such Person of any written notice of the
commencement of any action, suit, proceeding or investigation or threat thereof
made in writing for which such Person may claim indemnification or contribution
pursuant to this Agreement and, unless in the written opinion of counsel for
such indemnified party a conflict of interest may exist between such indemnified
party and the indemnifying party with respect to such claim, permit the
indemnifying party to assume, at the sole cost and expense of the indemnifying
party, the defense of such claim with counsel reasonably satisfactory to such
indemnified party. Whether or not such defense is assumed by the indemnifying
party, neither the indemnifying party nor the indemnified party shall have the
authority to bind the other with respect to any settlement made without the
other's consent. No indemnifying party will consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect of such claim or litigation. If the
indemnifying party is not entitled to, or elects not to, assume the defense of a
claim, the indemnified party shall be entitled to hire counsel reasonably
satisfactory to it, the fees and expenses of which shall be borne by, in their
entirety, the indemnifying party; provided, however, that the indemnifying party
shall not be obligated to pay the fees and expenses of more than one counsel
with respect to such claim, unless in the opinion of counsel for any indemnified
party a conflict of interest may exist between such indemnified party and any
other
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<PAGE>
of such indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels.
5.4 CONTRIBUTION. If the indemnification provided for in this Section 5
from the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 5.3, any legal or other
fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5.4 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5.4, the Holder shall not be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities of the Holder were offered to the
public exceeds the amount of any damages which the Holder has otherwise been
required to pay by reason of such untrue statement or omission. No Person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any Person who was not guilty of
such fraudulent misrepresentation.
The obligations of the Company pursuant to this Section 5.4 shall be
further subject to such additional express agreements of the Company as may be
required to facilitate an underwritten offering, provided that no such agreement
shall in any way limit the rights of the Holder under this Agreement, or create
additional obligations of the Holder not set forth herein, except as otherwise
expressly agreed in writing by the Holder.
SECTION 6. MISCELLANEOUS.
6.1 RECAPITALIZATION, EXCHANGES, ETC. The provisions of this Agreement
shall apply, to the full extent set forth herein with respect to the Registrable
Securities, to any and all shares of equity capital of the Company or any
successor or assign of the Company (whether by merger, consolidation, sale of
assets or otherwise) which may be issued in respect of, in exchange for, or in
substitution of the Registrable Securities, in each case as the amounts of such
securities outstanding
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<PAGE>
are appropriately adjusted for any equity dividends, splits, reverse splits,
combinations, recapitalization and the like occurring after the date of this
Agreement.
6.2 OPINIONS. When any legal opinion is required to be delivered
hereunder, such opinion may contain such qualifications as may be customary or
otherwise appropriate for legal opinions in similar circumstances.
6.3 NOTICES. (a) All communications under this Agreement shall be in
writing to the following addresses:
<TABLE>
<S> <C> <C>
(i) If to Company, to: Litigation Resources of America , Inc.
650 First City Tower, 1001 Fannin
Houston, Texas 77002
Attn: President
Phone: 713/653-7100
Fax: 713/653-7172
with a copy to: Boyer, Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Attn: J. Randolph Ewing
Phone: 713/871-2025
Fax: (713) 871-2024
(ii) If to the Holders, to:
--------------------------
--------------------------
--------------------------
</TABLE>
or to such other address as any party may furnish to the others in writing in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
(b) Any communication so addressed and mailed by first class registered
or certified mail, postage prepaid, shall be deemed to be received on the third
Business Day after so mailed, and if delivered by personal delivery (including
by courier) or facsimile to such address, upon delivery during normal business
hours.
6.4 APPLICABLE LAW. This contract is entered into under, and shall be
governed for all purposes by, the laws of the State of Texas.
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<PAGE>
6.5 AMENDMENT AND WAIVER. This Agreement may be amended, and the
provisions hereof may be waived, only by a written instrument signed by the
Holder and the Company. No failure by either party hereto at any time to give
notice of any breach by the other party of, or to require compliance with, any
condition or provision of this Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
6.6 REMEDY FOR BREACH OF CONTRACT; EQUITABLE RELIEF. The parties agree
that in the event there is any breach or asserted breach of the terms, covenants
or conditions of this Agreement, the remedy of the parties hereto shall be in
law and in equity and specific enforcement, injunctive and other equitable
relief shall lie for the enforcement of or relief from any provisions of this
Agreement. If any remedy or relief is sought and obtained by any party against
one of the other parties pursuant to this Section 6.6, the other party shall, in
addition to the remedy of relief so obtained, be liable to the party seeking
such remedy or relief for the reasonable expenses incurred by such party in
successfully obtaining such remedy or relief, including the fees and expenses of
such party's counsel.
6.7 SEVERABILITY. It is a desire and intent of the parties that the
terms, provisions. covenants and remedies contained in this Agreement shall be
enforceable to the fullest extent permitted by law. If any such term, provision,
covenant or remedy of this Agreement or the application thereof to any Person or
circumstances shall, to any extent, be construed to be invalid or unenforceable
in whole or in part, then such term, provision, covenant or remedy shall be
construed in a manner so as to permit its enforceability under the applicable
law to the fullest extent permitted by law. In any case, the remaining
provisions of this Agreement or the application thereof to any Person or
circumstances other than those to which they have been held invalid or
unenforceable, shall remain in full force and effect.
6.8 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 Agreement.
6.9 HEADINGS. The section and paragraph headings have been inserted for
purposes of convenience and shall not be used for interpretive purposes.
6.10 BINDING EFFECT. Unless otherwise provided herein, the provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, legal representatives, successors and
permitted assigns, and are not intended to confer upon any other Person any
right or remedies hereunder.
6.11 ENTIRE AGREEMENT. This Agreement, together with the other agreements
referenced herein, constitutes the entire agreement and supersedes all prior
agreements, understandings, both written and oral, among the parties with
respect to the subject matter hereof.
6.12 ASSIGNMENT. This Agreement, and the rights and obligations of the
parties hereunder, are not assignable or transferable to any other Person (other
than by operation of law, will or the laws relating to descent or distribution)
without the prior written consent of all parties to this Agreement.
-15-
<PAGE>
6.13 WAIVER. Any waiver to be enforceable must be in writing and executed
by the party against whom the waiver is sought to be enforced.
6.14 ARBITRATION. Any controversy, dispute or claim arising out of, in
connection with, or in relation to, the interpretation, performance or breach of
this Agreement, including, without limitation, the validity, scope and
enforceability of this Section which cannot first be settled through ordinary
negotiation between the Parties shall be submitted in good faith to mediation by
and in accordance with the Commercial Mediation Rules of the American
Arbitration Association or any successor organization. In the event that
mediation of such controversy, dispute or claim cannot be settled through the
mediation proceeding, the Parties agree that the controversy, dispute or claim
shall be submitted to binding and final arbitration conducted in Los Angeles,
California by and in accordance with the then existing Rules for Commercial
Arbitration of the American Arbitration Association or any successor
organization. Any such arbitration shall be to a three member panel selected
through the rules governing selection and appointment of such panels of the
American Arbitration Association or any successor organization. The award
rendered by the arbitrators may be confirmed, entered and enforced as a judgment
in any court of competent jurisdiction; however, the Parties otherwise waive any
rights to appeal the award except with regard to fraud by the panel. Any such
action must be brought within two years of the date the cause of action accrues.
The arbitrators shall award the Party which substantially prevails in any
arbitration proceeding recovery of that Party's attorneys' fees, the
arbitrators' fees and all costs in connection with the arbitration from the
Party who does not substantially prevail. The Parties' remedies are limited
solely to the specific remedies provided in this Agreement or in the other. The
parties waive any entitlement to punitive damages, consequential damages and
lost profits and will limit any damage claim to actual economic damages
incurred. Nothing in this Section 6.14 shall restrict any Parties' ability to
seek injunctive or other equitable relief in any court of competent jurisdiction
prior to initiating mediation or arbitration. In the event that such injunctive
or equitable relief is sought by any Party, such Party is specifically entitled
to enforce the appropriate provisions of the Agreement in obtaining such relief
in any court of competent jurisdiction and, thereafter, submit the remaining
controversy, dispute or claim to arbitration in accordance with this Section
6.14.
6.15 SUBORDINATION OF REGISTRATION RIGHTS. Notwithstanding any provision
of this Agreement, the Holder acknowledges and agrees that the registration
rights granted to the Holder pursuant to Section 2.1(a) are subordinate to the
registration rights granted to the Purchasers pursuant to the Pecks Registration
Rights Agreement. In the event of any conflict between this Agreement and any
terms or provisions of the Pecks Registration Rights Agreement a copy of which
is attached as Exhibit A, the terms or provision of the Pecks Registration
Rights Agreement shall prevail.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
LITIGATION RESOURCES OF AMERICA, INC.,
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<PAGE>
a Texas corporation
By:
--------------------------------------
Dave Pfleghar, Chief Financial Officer
SHAREHOLDERS:
-------------------------------------------
-------------------------------------------
-17-
<PAGE>
EXHIBIT 4.6
SECURITYHOLDERS AGREEMENT
AGREEMENT, dated as of January 17, 1997, among Litigation Resources of
America, Inc., a Texas corporation (the "Company"), the investors listed on
Exhibit I.A hereto (the "Investors") and the shareholders of the Company listed
on Exhibit I.B hereto (the "Shareholder").
RECITALS
--------
WHEREAS, the Company is concurrently herewith entering into a
Securities Purchase Agreement with the Investors, and Looney & Company and
Klein, Bury and Associates, Inc., as Guarantors, both wholly owned subsidiaries
of the Company, dated as of the date hereof (the "Securities Purchase
Agreement"), authorizing the issuance and delivery of (i) $9,000,000 of 12%
Senior Subordinated Notes (the "Notes") and (ii) 1,000,000 shares of the
Company's Series A Convertible Preferred Stock, par value $1.00 per share (the
"Convertible Preferred Stock").
WHEREAS, it is a condition to the execution of the Securities Purchase
Agreement that the parties hereto enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and mutual
covenants and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. Capitalized terms used but not defined
-----------
herein shall have the meaning ascribed to them in the Securities Purchase
Agreement. As used herein, the following terms shall have the following
meanings:
"AFFILIATE" shall mean, with respect to any person or entity, (i) any
---------
other person or entity which, directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with such
person or entity, (ii) any other person or entity which, directly or indirectly,
beneficially owns or holds 5% or more of any class of voting stock of such
person or entity, or (iii) any person or entity of which, directly or
indirectly, such person or entity owns or holds 5% or more of any equity
security (as defined in the Securities Act). The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a person or entity, whether by
virtue of the ownership of voting stock, by contract or otherwise.
<PAGE>
"COMPANY" shall have the meaning set forth in the preamble.
-------
"CONVERTIBLE PREFERRED STOCK" shall have the meaning set forth in the
---------------------------
first recital.
"INITIATING SHAREHOLDER" shall have the meaning specified in Section
----------------------
2.4 (a).
"INVESTORS" shall have the meaning set forth in the preamble.
---------
"NOTES" shall have the meaning set forth in the first recital.
-----
"OTHER PERMITTED TRANSFEREE" shall mean with respect to any
--------------------------
Shareholder who is a natural person:
(i) Any person related by lineal or collateral consanguinity to
such Shareholder or to the spouse of such Shareholder;
(ii) the spouse of such Shareholder or of any person described
in clause (i) above; and
(iii) all persons related to those persons described in clause
(i) or clause (ii) by lineal or collateral consanguinity.
For purposes of this definition of Other Permitted Transferee (i) adopted
persons shall be considered the natural born child of their adoptive parents;
(ii) lineal consanguinity is that relationship that exists between persons of
whom one is descended (or ascended) in a direct line from the other, as between
son, father, grandfather, great-grandfather; and (iii) collateral consanguinity
is that relationship that exists between persons who have the same ancestors,
but who do not descend (or ascend) from the other, as between uncle and nephew,
or cousin and cousin.
"OWNED" as to any Shares shall mean all Shares as to which any Person
-----
would be deemed to be a beneficial owner, within the meaning of Rule 13d-3 of
the Exchange Act.
"PARTICIPATING OFFEREE" shall have the meaning specified in Section
---------------------
2.4 (a).
"PARTICIPATION NOTICE" shall have the meaning specified in Section 2.4
--------------------
(a).
"PARTICIPATION SECURITIES" shall have the meaning specified in Section
------------------------
2.4 (a).
2
<PAGE>
"PARTICIPATION TRANSFER" shall have the meaning specified in Section
----------------------
2.4 (a).
"SECURITIES" shall mean the Notes and the Convertible Preferred Stock.
----------
"SECURITIES PURCHASE AGREEMENT" shall have the meaning set forth in
-----------------------------
the first recital.
"SHAREHOLDER" shall have the meaning set forth in the preamble.
-----------
"SHAREHOLDER RELATION" shall mean (i) any Other Permitted Transferee
--------------------
of an individual Shareholder, (ii) any inter-vivos trust whose principal
beneficiary is such individual Shareholder or any Other Permitted Transferee of
such individual Shareholder created during their respective lifetimes and not as
a result of death, (iii) any family limited partnership in which an individual
Shareholder is a general or limited partner, and (iv) the legal representative
or guardian of such individual Shareholder or any Other Permitted Transferee of
such individual Shareholder appointed during their respective lifetimes and not
as a result of death.
"SHARES" shall mean the shares of Common Stock and any other shares of
------
capital stock of the Company.
"TRANSFER" shall have the meaning set forth in Section 2.1 hereof.
--------
"TRANSFEREE" shall mean any Person acquiring Shares from the
----------
Shareholder and any subsequent transferee of any such Person herein referred to
as a "Transferee" of such Person.
ARTICLE II
RESTRICTIONS ON TRANSFER
Section 2.1 Transfer of Shares. During the term of this Agreement, the
------------------
Shareholder shall not, directly or indirectly, offer, sell, assign, transfer,
grant a participation interest in, pledge (excluding any pledge pursuant to the
Stock Pledge Agreement by and between the Company and the Shareholder), encumber
or otherwise dispose of, or place in trust (voting or otherwise) (each such
transaction being herein called a "Transfer") any Shares Owned by the
Shareholder unless such transfer is in accordance with the provisions of this
Agreement.
Section 2.2 Agreement to be Bound. No Transfer of Shares by the
---------------------
Shareholder shall be effective unless (i) the certificates representing such
Shares issued to the Transferee shall bear the legend provided in Section 2.3
and (ii) the Transferee (if not already a party hereto) shall have executed and
delivered to each Investor and Shareholder, as a condition
3
<PAGE>
precedent to such Transfer, an instrument or instruments reasonably satisfactory
to such parties confirming that the Transferee agrees to be bound by the terms
of this Agreement in the same manner as such Transferee's transferor, except as
otherwise provide in this Agreement.
Section 2.3 Restrictive Legend. Each certificate evidencing Shares
------------------
Owned by the Shareholder shall be conspicuously stamped or otherwise imprinted
with a legend in substantially the following form:
THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND CAN
BE TRANSFERRED ONLY PURSUANT TO THE TERMS OF A
SECURITYHOLDERS AGREEMENT DATED AS OF JANUARY 17, 1997 AMONG
THE COMPANY AND CERTAIN HOLDERS OF ITS SECURITIES. A COPY OF
SUCH AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE
COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST.
Section 2.4 Participation Rights. As long as any Notes remain
--------------------
outstanding, the Shareholder shall not Transfer any Shares Owned by such
Shareholder (including any Shares which may be acquired after the date hereof).
The provisions of the preceding sentence of this Section 2.4 shall not apply to
a transfer of any Shares owned by the Shareholder, either during his lifetime or
on death by will or intestacy to a Shareholder Relation, provided, in each such
case, a transferee shall receive and hold such Shares subject to the provisions
of this Article II, including Section 2.2, and there shall be no further
transfer of such Shares in accordance herewith. Thereafter and until such time
as the Company has made a Qualifying Public Offering, the Shareholder hereto
shall not Transfer any shares of Common Stock Owned by such Shareholder (except
pursuant to Rule 144) unless the following terms and conditions have been
satisfied:
(a) The Shareholder (the "Initiating Shareholder") shall give notice
of any intended Transfer (each, a "Participation Transfer") to each Investor
(each, a "Participating Offeree"). Such notice (the "Participation Notice")
shall set forth the terms and conditions of such proposed Participation
Transfer, including the name of the prospective transferee, the number of Shares
proposed to be Transferred (the "Participation Securities"), the purchase price
per share proposed to be paid therefor, the payment terms and type of
Participation Transfer to be effectuated, and any other material terms and
conditions of such proposed Participation Transfer. Within 20 days following the
delivery of the Participation Notice by the Initiating Shareholder, each
Participating Offeree shall have the right, but not the obligation, to
participate in such Participation Transfer by Transferring (up to the number of
shares of Common Stock Owned by such Participating Offeree), that number of
shares equal to the product obtained by multiplying (i) the total number of
shares of
4
<PAGE>
Common Stock proposed to be Transferred in the Participation Transfer times (ii)
a fraction, the numerator of which shall be equal to the aggregate number of
shares of Common Stock Owned by such Participating Offeree (or issuable upon
conversion in full of any Convertible Preferred Stock held thereby) immediately
prior to the Participation Transfer and the denominator of which is equal to the
sum of (x) the aggregate number of shares of Common Stock Owned by the
Initiating Shareholder immediately prior to the Participation Transfer plus (y)
the aggregate number of shares of Common Stock Owned by all other Participating
Offerees (or issuable upon conversion in full of any Convertible Preferred Stock
held thereby) immediately prior to the participation Transfer and (z) the
aggregate number of shares of Common Stock comprising the numerator. In the
event that a participating Offeree elects not to participate in the
participation Transfer, then the other Participating Offerees may sell
additional shares pro rata to the extent of such Participating Offeree's
--- ----
non-participation. Any such Participation Transfers shall be on the same terms
and conditions as the proposed Participation Transfer by the Initiating
Shareholder.
(b) The closing of any proposed Participating Transfer in respect of
which a Participation Notice has been delivered shall occur not earlier than 30
days nor more than 90 days after the date the last Participation Notice has been
given. The closing shall be held at 10.00 a.m., local time, on the date of
closing at the principal office of the Company, or at such other time or place
as the parties to such transaction mutually agree. At the closing, the
Initiating Shareholder, together with all Participating Offerees electing to
transfer shares of Common Stock, shall deliver to the proposed Transferee (i)
certificates evidencing the shares of Common Stock to be transferred pursuant
thereto, free and clear of any lien, claim or encumbrance and (ii) such other
documents, including, without limitation, executed stock powers and evidence of
ownership and authority, as the Transferees shall reasonably request, and shall
receive in exchange therefor the consideration to be paid or delivered by the
proposed Transferee in respect of such shares as described in the Participation
Notice.
(c) Notwithstanding anything contained in this Section 2.4, the
Transfers permitted by this Section 2.4 shall not include pledges or
encumbrances of Shares.
Section 2.5 Improper Transfer. Any attempt to Transfer any Shares not
-----------------
in compliance with this Agreement shall be null and void and neither the Company
nor any transfer agent shall give any effect in the Company's stock records to
such attempted Transfer.
Section 2.6 Adjustment of Time Periods. The closing referred to in
--------------------------
Section 2.4(b) shall be extended for such amount of time as is necessary for
expiration of all regulatory holding
5
<PAGE>
periods and to obtain any governmental and regulatory consents and approvals
necessary in respect of the purchase or sale of Shares to take place at such
closing.
ARTICLE III
MISCELLANEOUS
Section 3.1 Board of Directors. (a) As long as (i) any of the Notes
------------------
are outstanding or (ii) the Investors hold at least 10% of the Convertible
Preferred Stock held by them on the date hereof or at least 10% of the Common
Stock obtained through conversion of the Convertible Preferred Stock held by
them on date hereof, the Company and the Shareholder shall take all action
within their respective power, including, but not limited to, the voting of
capital stock of the Company Owned by them, required to (i) cause the Board of
Directors of the Company to at all times consist of that number of nominees
designated by the Investors elected to the Board of Directors of the Company
that would constitute a majority of the Board of Directors of the Company (the
"Designees") and (ii) cause the number and composition of directors of the Board
of Directors of any Subsidiary to be identical to the number of directors of the
Board of Directors of the Company; provided, however, that if the number of
-------- -------
directors or the composition of the Board of Directors of any Subsidiary differs
from the number of directors or the composition of the Board of Directors of the
Company, then and in addition to the requirement of clause (i) above, the
Company and the Shareholder shall, and shall cause such Subsidiary to, use its
best efforts to, have that number of nominees designated by the Investors
elected to the Board of Directors of such Subsidiary as the Investors request.
The Shareholder and the Company agree to vote any of their Shares which are
outstanding at all meetings of stockholders of the Company (or any written
consents in lieu thereof) in which directors are elected in favor of the
Designees.
(b) In the event that any Designee (the "Withdrawing Director"),
designated in the manner set forth in Section 3.1(a) above is unable to serve,
or once having commenced to serve, is removed or withdraws from the Board of
Directors of the Company such Withdrawing Director's replacement (the
"Substitute Director") on the Board of Directors of the Company will be
designated by the Investors. The Company and the Shareholder agree to take all
action within their respective power, including, but not limited to, the voting
of outstanding capital stock of the Company to cause the election of such
Substitute Director as soon as practicable following his designation.
(c) In the event the Investors entitled to designate a Director
pursuant to this Agreement cease to be entitled, the vacancy resulting therefrom
shall be filled by the remaining directors or by the stockholders in the manner
provided by applicable law or the number of directors constituting the Board
6
<PAGE>
shall be reduced. In the event the Investors entitled to designate a Director
pursuant to this Agreement choose not to designate a Director such directorship
shall remain vacant.
Section 3.2 Termination of Agreement. This Agreement shall terminate
------------------------
as follows:
(a) upon the agreement of the Company, the Shareholders and the
Investors;
(b) on such date as there are no longer any Notes or Convertible
Preferred Stock (or any securities issued upon conversion of the
Convertible Preferred Stock) outstanding and all shares of Common
Stock which may be issued upon conversion of the Convertible Preferred
Stock shall be free of any volume restrictions on transfer, including,
but not limited to, any restrictions pursuant to Rule 144 (other than
as a result of the shareholder's affiliation with a director of the
Company), as such rule may be amended from time to time; or
(c) after ten (10) years from the date hereof; provided,
--------
however, that if this Agreement is terminated pursuant to this Section
-------
3.2(c) the parties agree to use their respective best efforts to enter
into a new agreement containing the same terms as set forth herein.
Section 3.3 Representations. Each party hereto represents that (i)
---------------
the execution and delivery of this Agreement and the performance of such party's
obligations hereunder will not violate or conflict with any material agreement
to which such party is a party or any law, rule, license, regulation, judgment,
order, ruling or decree governing or affecting such party; (ii) no consents or
filings with any governmental authority or any other person are required to be
obtained or made in connection with such party's execution, delivery and
performance of this Agreement; and (iii) this Agreement constitutes the valid
and binding obligation of such party, enforceable against such party in
accordance with its terms.
Section 3.4 Representations, Warranties and Covenants of the
------------------------------------------------
Shareholder. The Shareholder represents and warrants to the Investors that all
- -----------
the shareholders of the Company who are Affiliates of such Shareholder are
parties to this Agreement. The Shareholder represents and warrants that this
Agreement does not violate any material agreement, instrument, order, writ,
judgment or decree to which it is a party, or by which any of his properties or
assets are bound. The Shareholder covenants that if after the date hereof any
person or entity who is or becomes a shareholder of the Company is or becomes
an Affiliate of such Shareholder, then such Shareholder shall use all reasonable
7
<PAGE>
efforts to cause such person or entity to become a party to this Agreement.
Section 3.5 Company Covenant. The Company covenants and agrees that
----------------
it will promptly cause the Notes to be fully paid at such time as the Company
has sufficient funds to fully pay the Notes, to the extent such funds (i) are
permitted to be used to pay the Notes under applicable law and are not otherwise
legally or contractually restricted (e.g. because they are restricted under bank
loan covenants or because they are proceeds of a public offering the use of
which proceeds has otherwise been designated in the offering) and (ii) are not
reasonably needed or better utilized for other proper corporate purposes as
determined by the Board of Directors of the Company.
Section 3.6 Successors and Assigns. All agreements contained herein
----------------------
by or on behalf of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not, including, without limitation, any Person who acquires any Securities (or
any securities issued in exchange for any of the Notes or upon conversion of any
Convertible Preferred Stock) from any party.
Section 3.7 Notices. All communications provided for hereunder shall
-------
be sent by first class mail or overnight courier and, if to any Investor,
addressed to the Investor in the manner in which its address appears on Exhibit
I.A hereto, with a copy to William J. Grant, Jr., Esq., at Willkie Farr &
Gallagher, 153 East 53rd Street, New York, New York 10022; if to the
Shareholder, addressed to the Shareholder at the address set forth below such
Shareholder's name on Exhibit I.B hereto; and if to the Company, addressed to it
at Litigation Resources of America, Inc., 3850 Nationsbank Center, 700 Louisiana
Street, Houston, Texas 77002-2731, Attn: G. Kent Kahle, President, Attention:
Office of the President, or to such other address with respect to any party as
such party shall notify the other in writing.
Section 3.8 Descriptive Headings. The descriptive headings of the
--------------------
several paragraphs of this Agreement are inserted for convenience only and do
not constitute a part of this Agreement.
Section 3.9 Governing Law. The corporate law of the State of New York
-------------
will govern all issues concerning the relative rights of the Company, on the one
hand, and the Shareholder and the Investors, on the other hand. All other
questions concerning the construction, validity and interpretation of this
Agreement will be governed by, and construed and enforced in accordance with,
the law of the State of New York without regard to the conflicts of laws
principals thereof.
Section 3.10 Remedies. In case any one or more of the provisions set
--------
forth in this Agreement shall have been breached
8
<PAGE>
by the Company or the Shareholder or Investor, the Company or the Shareholder or
Investors (or any of them), as applicable, may proceed to protect and enforce
its or their rights either by suit in equity and/or by action at law
including, but not limited to, an action for damages as a result of any such
breach and/or an action for specific performance of any such provision contained
in this Agreement. The Company, or any Investor acting pursuant to this Section
3.10 shall be indemnified against all liability, loss or damage, together with
all reasonable costs and expenses related thereto (including reasonable legal
and accounting fees and expenses) in accordance with paragraph 12B of the
Securities Purchase Agreement.
Section 3.11 Entire Agreement. This Agreement, the Securities
----------------
Purchase Agreement, the Registration Rights Agreement, the Subsidiary Guarantee
and the other writings referred to herein or therein or delivered pursuant
hereto or thereto contain the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior and contemporaneous
arrangements or understandings with respect thereto. This Agreement shall not
constitute a valid and binding agreement, enforceable in accordance with its
terms, until it has been executed and delivered by duly authorized
representatives of each party hereto.
Section 3.12 Severability. Any provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provision hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdicition.
Section 3.13 Amendments. This Agreement may not be changed orally,
but
----------
only by an agreement in writing signed by the party against whom enforcement of
any waiver, change, modification or discharge is sought.
Section 3.14 Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute, one and the same instrument, and it
shall not be necessary in making proof of this Agreement to produce or account
for more than one such counterpart.
9
<PAGE>
IN WITNESS WHEREOF the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
LITIGATION RESOURCES OF AMERICA, INC.
By: /s/ Richard O. Looney
---------------------------------
Name: Richard O. Looney
Title: CEO
SHAREHOLDER:
/s/ Richard O. Looney
-------------------------------------
Richard O. Looney
10
<PAGE>
INVESTORS:
DELAWARE STATE EMPLOYEES'
RETIREMENT FUND
By: Pecks Management Partners Ltd.
Its Investment Advisor
By: /s/ Robert J. Cresci
------------------------------
Robert J. Cresci
Managing Director
DECLARATION OF TRUST FOR DEFINED BENEFIT
PLAN OF ICI AMERICAN HOLDING INC.
By: Pecks Management Partners Ltd.
Its Investment Advisor
By: /s/ Robert J. Cresci
------------------------------
Robert J. Cresci
Managing Director
DECLARATION OF TRUST FOR DEFINED BENEFIT
PLAN OF ZENECA HOLDING INC.
By: Pecks Management Partners Ltd.
Its Investment Advisor
By: /s/ Robert J. Cresci
------------------------------
Robert J. Cresci
Managing Director
11
<PAGE>
EXHIBIT I.A (INVESTORS)
-----------------------
DELAWARE STATE EMPLOYEES'
RETIREMENT FUND
c/o Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, NY 10020
DECLARATION OF TRUST FOR
DEFINED BENEFIT PLAN OF ICI
AMERICAN HOLDINGS INC.
c/o Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, NY 10020
DECLARATION OF TRUST FOR
DEFINED BENEFIT PLAN OF
ZENECA HOLDINGS INC.
c/o Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, NY 10020
<PAGE>
EXHIBIT I.B (SHAREHOLDER)
-------------------------
Name and Addresses Shares Owned of Record
- ------------------ ----------------------
Richard O. Looney
<PAGE>
AMENDMENT TO SECURITYHOLDERS AGREEMENT
This Amendment to the Securityholders Agreement is made and entered into as
of the 24th day of September, 1997.
The Securityholders Agreement dated as of January 17, 1997 (the
"Securityholders Agreement"), among Litigation Resources of America, Inc., a
Texas corporation (the "Company"), Delaware State Employees' Retirement Fund,
Declaration of Trust for Defined Benefit Plan of ICI American Holding Inc. and
Declaration of Trust for Defined Benefit Plan of Zeneca Holding Inc.
(collectively, the "Investors"), and Richard O. Looney (the "Shareholders") is
hereby amended as follows:
1. Section 3.2 of the Securityholders Agreement is amended to read in its
entirety as follows:
Section 3.2 Termination of Agreement. This Agreement shall
terminate as follows:
(a) Upon the agreement of the Company, the Shareholders and the
Investors;
(b) Immediately prior to the closing of a firm commitment
initial public offering of equity securities of the Company
that generates net proceeds to the Company of not less than
$15 million; or
(c) After ten (10) years from the date hereof; provided,
however, that if this Agreement is terminated pursuant to
this Section 3.2(c) the parties agree to use their
respective best efforts to enter into a new agreement
containing the same terms as set forth herein.
<PAGE>
Dated as of this 24th day of September, 1997.
LITIGATION RESOURCES OF AMERICA, INC.
By: /s/ Richard O. Looney
-----------------------------------------
Richard O. Looney
President
/s/ Richard O. Looney
-----------------------------------------
Richard O. Looney
DELAWARE STATE EMPLOYEES' RETIREMENT FUND
By: Pecks Management Partners Ltd.
Its Investment Advisor
By: /s/ Robert J. Cresci
-----------------------------------------
Name: Robert J. Cresci
Title: Managing Director,
Pecks Management Partners, Ltd.,
Investment Advisor
DECLARATION OF TRUST FOR DEFINED BENEFIT
PLAN OF ICI AMERICAN HOLDINGS INC.
By: Pecks Management Partners Ltd.
Its Investment Advisor
By: /s/ Robert J. Cresci
-----------------------------------------
Name: Robert J. Cresci
Title: Managing Director,
Pecks Management Partners, Ltd.,
Investment Advisor
-2-
<PAGE>
DECLARATION OF TRUST FOR DEFINED BENEFIT
PLAN OF ZENECA HOLDINGS INC.
By: Pecks Management Partners Ltd.
Its Investment Advisor
By: /s/ Robert J. Cresci
-----------------------------------------
Name: Robert J. Cresci
Title: Managing Director,
Pecks Management Partners, Ltd.,
Investment Advisor
-3-
<PAGE>
EXHIBIT 10.1
U.S. LEGAL SUPPORT, INC.
1997 STOCK INCENTIVE PLAN
I. PURPOSE
The purpose of the U.S. LEGAL SUPPORT, INC. 1997 STOCK INCENTIVE PLAN (the
"Plan") is to provide a means through which U.S. Legal Support, Inc., a Texas
corporation (the "Company"), and its subsidiaries, may attract able persons to
enter the employ of or provide services to the Company and its subsidiaries and
to provide a means whereby those persons upon whom the responsibilities of the
successful administration and management of the Company and its subsidiaries
rest, and whose present and potential contributions to the welfare of the
Company and its subsidiaries are of importance, can acquire and maintain stock
ownership, thereby strengthening their concern for the welfare of the Company
and its subsidiaries and their desire to remain in the Company's and its
subsidiaries' employ or continue to provide services thereto. A further purpose
of the Plan is to provide employees, non-employee directors, and consultants
with additional incentive and reward opportunities designed to enhance the
profitable growth of the Company. The Plan provides for granting Incentive
Stock Options and Nonqualified Stock Options, as is best suited to the
circumstances of the particular employee, non-employee director or consultant
as provided herein.
II. DEFINITIONS
The following definitions shall be applicable throughout the Plan unless
specifically modified by any paragraph:
(a) "Award" means, individually or collectively, any Incentive Stock Option
or Nonqualified Stock Option.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" shall mean (i) Grantee's willful, material and irreparable
breach of any agreement which governs the terms and conditions of his
employment; (ii) Grantee's gross negligence or gross incompetence in the
performance or intentional nonperformance (continuing for ten (10) days after
receipt of written notice of need to cure) of any of Grantee's material duties
and responsibilities; (iii) Grantee's willful dishonesty, fraud or misconduct
with respect to the business or affairs of the Company any Subsidiary which
materially and adversely affects the operations or reputation of the Company or
any Subsidiary; (iv) Grantee's conviction of a felony crime; or (v) chronic
alcohol abuse or illegal drug abuse by Grantee.
(d) "Change of Control" means the occurrence of any of the following
events: (i) the Company shall not be the surviving entity in any merger,
consolidation or other reorganization (or
<PAGE>
survives only as a subsidiary of an entity other than a previously wholly-owned
subsidiary of the Company), (ii) the Company sells, leases or exchanges all or
substantially all of its assets to any other person or entity (other than a
wholly-owned subsidiary of the Company), (iii) the Company is to be dissolved
and liquidated, (iv) any person or entity, including a "group" as contemplated
by Section 13(d)(3) of the 1934 Act, acquires or gains ownership or control
(including, without limitation, power to vote) of more than 50% of the
outstanding shares of the Company's voting stock (based upon voting power), or
(v) as a result of or in connection with a contested election of directors, the
persons who were directors of the Company before such election shall cease to
constitute a majority of the Board.
(e) "Code" means the Internal Revenue Code of 1986, as amended. Reference
in the Plan to any section of the Code shall be deemed to include any amendments
or successor provisions to any section and any regulations under such section.
(f) "Committee" means the Compensation Committee of the Board which shall
be (i) constituted so as to permit the Plan to comply with Rule 16b-3 and (ii)
constituted solely of "outside directors," within the meaning of section 162(m)
of the Code and applicable interpretive authority thereunder.
(g) "Company" means U.S. Legal Support, Inc. and any successor thereto.
(h) "Consultant" means any person who is engaged to perform services for
the Company or its Subsidiaries, other than as an employee or Director.
(i) "Director" means an individual elected to the Board by the stockholders
of the Company or by the Board under applicable corporate law who is serving on
the Board on the date the Plan is adopted by the Board or is elected to the
Board after such date.
(j) An "employee" means any person (including an officer or a Director) in
an employment relationship with the Employer.
(k) "Employer" means the Company or any Subsidiary.
(l) "Fair Market Value" of the Stock on a given date shall be based upon:
(i) if the Stock is listed on a national securities exchange or quoted in an
interdealer quotation system, 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 provided by one of
such organizations; or (ii) if the Stock is not listed on a national stock
exchange or quoted in an interdealer quotation system, as
-2-
<PAGE>
determined by the Committee in good faith in its sole discretion; provided,
however, that the "fair market value" of Stock on the date on which shares of
Stock are first issued and sold pursuant to a registration statement filed with
and declared effective by the Securities and Exchange Commission (the
"Registration Statement") shall be the Initial Public Offering price of the
shares so issued and sold, as set forth in the first final prospectus used in
such offering.
(m) "Grantee" means an employee, Director or Consultant who has been
granted an Award.
(n) "Incentive Stock Option" means an incentive stock option within the
meaning of section 422(b) of the Code.
(o) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(p) "Nonqualified Stock Option" means an option granted under Paragraph VII
of the Plan to purchase Stock which does not constitute an Incentive Stock
Option.
(q) "Option" means an Award granted under Paragraph VII of the Plan and
includes both Incentive Stock Options to purchase Stock and Nonqualified Stock
Options to purchase Stock.
(r) "Option Agreement" means a written agreement between the Company and a
Grantee with respect to an Option.
(s) "Plan" means the U.S. Legal Support, Inc. 1997 Stock Incentive Plan, as
amended from time to time.
(t) "Rule 16b-3" means SEC Rule 16b-3 promulgated under the 1934 Act, as
such may be amended from time to time, and any successor rule, regulation or
statute fulfilling the same or a similar function.
(u) "Stock" means the common stock, $0.01 par value of the Company.
(v) "Subsidiary" means any corporation or entity of which more than 50% of
the outstanding securities or ownership interests having ordinary voting power
to elect a majority of the members of the Board of Directors, or persons in
similar capacity of such corporation or entity, is, directly or indirectly owned
by the Company.
-3-
<PAGE>
III. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall be effective upon the date of its adoption by the Board,
provided that the Plan is approved by the stockholders of the Company within
twelve months thereafter. No further Awards may be granted under the Plan after
the expiration of ten years from the date of its adoption by the Board. The
Plan shall remain in effect until all Awards granted under the Plan have been
satisfied or expired.
IV. ADMINISTRATION
(a) Committee. The Plan shall be administered by the Committee.
(b) Powers. Subject to the provisions of the Plan, the Committee shall
have sole authority, in its discretion, to determine which employees, Directors
or Consultants shall receive an Award, the time or times when such Award shall
be made, whether an Incentive Stock Option or Nonqualified Stock Option shall be
granted and the number of shares of Stock which may be issued under each Option.
In making such determinations the Committee may take into account the nature of
the services rendered by the respective employees, Directors or Consultants,
their present and potential contributions to the Employer's success and such
other factors as the Committee in its discretion shall deem relevant.
(c) Additional Powers. The Committee shall have such additional powers as
are delegated to it by the other provisions of the Plan. Subject to the express
provisions of the Plan, the Committee is authorized to construe the Plan and the
respective agreements executed thereunder, to prescribe such rules and
regulations relating to the Plan as it may deem advisable to carry out the Plan,
and to determine the terms, restrictions and provisions of each Award, including
such terms, restrictions and provisions as shall be requisite in the judgment of
the Committee to cause designated Options to qualify as Incentive Stock Options,
and to make all other determinations necessary or advisable for administering
the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in any agreement relating to an Award in the manner
and to the extent it shall deem expedient to carry it into effect. The
determinations of the Committee on the matters referred to in this Article IV
shall be conclusive.
(d) Expenses. All expenses and liabilities incurred by the Committee in
the administration of this Plan shall be borne by the Company. The Committee may
employ attorneys, consultants, accountants or other persons to assist the
Committee in the carrying out of its duties hereunder.
-4-
<PAGE>
V. STOCK SUBJECT TO THE PLAN
(a) Stock Grant and Award Limits. The Committee may from time to time
grant Awards to one or more employees, Directors or Consultants determined by it
to be eligible for participation in the Plan in accordance with the provisions
of Paragraph VI. Subject to Paragraph IX, the aggregate number of shares of
Stock that may be issued under the Plan shall not exceed 750,000 shares. Shares
of Stock shall be deemed to have been issued under the Plan only to the extent
actually issued and delivered pursuant to an Award. To the extent that an Award
lapses or the rights of its Grantee terminate, any shares of Stock subject to
such Award shall again be available for the grant of an Award. Separate stock
certificates shall be issued by the Company for those shares acquired pursuant
the exercise of an Incentive Stock Option and for those shares acquired pursuant
to the exercise of a Nonqualified Stock Option.
(b) Stock Offered. The stock to be offered pursuant to the grant of an
Award may be authorized but unissued Stock or Stock previously issued and
outstanding and reacquired by the Company.
VI. ELIGIBILITY
Awards may be granted only to persons who, at the time of grant, are
employees, Directors or Consultants. An Award may be granted on more than one
occasion to the same person, and, subject to the limitations set forth in the
Plan, such Award may include an Incentive Stock Option or a Nonqualified Stock
Option.
VII. STOCK OPTIONS
(a) Option Period. The term of each Option shall be as specified by the
Committee at the date of grant.
(b) Limitations on Exercise of Option. An Option shall be exercisable in
whole or in such installments and at such times as determined by the Committee.
(c) Special Limitations on Incentive Stock Options. To the extent that the
aggregate Fair Market Value (determined at the time the respective Incentive
Stock Option is granted) of Stock with respect to which Incentive Stock Options
are exercisable for the first time by an individual during any calendar year
under all incentive stock option plans of the Company and its Subsidiaries
exceeds $100,000, such Incentive Stock Options shall be treated as Nonqualified
Stock Options as determined by the Committee. The Committee shall determine, in
accordance with applicable provisions of the Code, Treasury Regulations and
other administrative pronouncements, which of
-5-
<PAGE>
an optionee's Incentive Stock Options will not constitute Incentive Stock
Options because of such limitation and shall notify the optionee of such
determination as soon as practicable after such determination. No Incentive
Stock Option shall be granted to an individual if, at the time the Option is
granted, such individual owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of its parent or
subsidiary corporation, within the meaning of section 422(b)(6) of the Code,
unless (i) at the time such Option is granted the option price is at least 110%
of the Fair Market Value of the Stock subject to the Option and (ii) such Option
by its terms is not exercisable after the expiration of five years from the date
of grant.
(d) Option Agreement. Each Option shall be evidenced by an Option
Agreement in such form and containing such provisions not inconsistent with the
provisions of the Plan as the Committee from time to time shall approve,
including, without limitation, provisions to qualify an Incentive Stock Option
under section 422 of the Code. An Option Agreement may provide for the payment
of the option price, in whole or in part, in cash or by the delivery of a number
of shares of Stock (plus cash if necessary) having a Fair Market Value equal to
such option price. Moreover, an Option Agreement may provide for a "cashless
exercise" of the Option by establishing procedures whereby the Grantee, by a
properly-executed written notice, directs (i) an immediate market sale or margin
loan respecting all or a part of the shares of Stock to which he is entitled
upon exercise pursuant to an extension of credit by the Company to the Grantee
of the option price, (ii) the delivery of the shares of Stock from the Company
directly to a brokerage firm and (iii) the delivery of the option price from the
sale or margin loan proceeds from the brokerage firm directly to the Company.
Such Option Agreement may also include, without limitation, provisions relating
to (i) vesting of Options, subject to the provisions hereof accelerating such
vesting on a Change of Control, (ii) tax matters (including provisions (y)
permitting the delivery of additional shares of Stock or the withholding of
shares of Stock from those acquired upon exercise to satisfy federal or state
income tax withholding requirements and (z) dealing with any other applicable
employee wage withholding requirements), and (iii) any other matters not
inconsistent with the terms and provisions of this Plan that the Committee shall
in its sole discretion determine. The terms and conditions of the respective
Option Agreements need not be identical.
(e) Option Price and Payment. The price at which a share of Stock may be
purchased upon exercise of an Option shall be determined by the Committee, but
(i) such purchase price shall not be less than the Fair Market Value of Stock
subject to an Incentive Stock Option on the date the Incentive Stock Option is
granted and (ii) such purchase price shall be subject to adjustment as provided
in Paragraph IX. The Option or portion thereof may be exercised by delivery of
an irrevocable notice of exercise to the Company. The purchase price of the
Option or portion thereof shall be paid in full in the manner prescribed by the
Committee.
-6-
<PAGE>
(f) Stockholder Rights and Privileges. The Grantee shall be entitled to
all the privileges and rights of a stockholder only with respect to such shares
of Stock as have been purchased under the Option and for which certificates of
stock have been registered in the Grantee's name.
(g) Options in Substitution for Stock Options Granted by Other
Corporations. Options may be granted under the Plan from time to time in
substitution for stock options held by individuals employed by corporations who
become employees as a result of a merger or consolidation of the employing
corporation with the Company or any Subsidiary, or the acquisition by the
Company or a Subsidiary of the assets of the employing corporation, or the
acquisition by the Company or a Subsidiary of stock of the employing corporation
with the result that such employing corporation becomes a Subsidiary.
VIII. EXERCISE OF OPTIONS UPON TERMINATION
(a) Upon the termination of a Grantee's relationship with the Company and
its Subsidiaries, the period during which such Grantee may exercise any
outstanding and then exercisable installments of his Options shall not exceed:
(i) if such termination is due to death or permanent and total disability
(within the meaning of Section 22(3)(3) of the Code), one year from the date of
such termination, and (ii) in all other cases, three months (six months for Non-
Employee Directors) from the date of such termination, provided, however, that
in no event shall the period extend beyond the expiration of the Option term.
Notwithstanding the foregoing, all Options shall immediately terminate upon a
termination of a Grantee's employment if the Committee determines, in its sole
discretion, that such termination is for Cause.
(b) In no event shall any Option be exercisable for more than the maximum
number of shares that the Grantee was entitled to purchase at the date of
termination of the relationship with the Company and its Subsidiaries.
(c) The Committee may, in its discretion, extend the period of
exercisability set forth in clause (i) and (ii) in paragraph (a) above,
provided, however, that such period may not be extended for Options to Non-
Employee Directors.
(d) The sale of any Subsidiary shall be treated as a termination of
employment with respect to any Grantee employed by such Subsidiary.
(e) Subject to the foregoing, in the event of death, Options may be
exercised by a Grantee's legal representative.
-7-
<PAGE>
IX. RECAPITALIZATION OR REORGANIZATION
(a) The shares with respect to which Awards may be granted are shares of
Stock as presently constituted, but if, and whenever, prior to the expiration of
an Award theretofore granted, the Company shall effect a subdivision or
consolidation by the Company, the number of shares of Stock with respect to
which such Award may thereafter be exercised or satisfied, as applicable, (i) in
the event of an increase in the number of outstanding shares shall be
proportionately increased, and the purchase price per share shall be
proportionately reduced, and (ii) in the event of a reduction in the number of
outstanding shares shall be proportionately reduced, and the purchase price per
share shall be proportionately increased.
(b) If the Company recapitalizes or otherwise changes its capital
structure, thereafter upon any exercise of an Award theretofore granted the
Grantee shall be entitled to (or entitled to purchase, if applicable) under such
Award, in lieu of the number of shares of Stock then covered by such Award, the
number and class of shares of stock and securities to which the Grantee would
have been entitled pursuant to the terms of the recapitalization if, immediately
prior to such recapitalization, the Grantee had been the holder of record of the
number of shares of Stock then covered by such Award.
(c) The Board, in its sole discretion, may allow all outstanding Options of
a Grantee to immediately vest and become exercisable in the event of a Change of
Control.
(d) In the event of changes in the outstanding Stock by reason of
recapitalization, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the date
of the grant of any Award and not otherwise provided for by this Paragraph IX,
any outstanding Awards and any agreements evidencing such Awards shall be
subject to adjustment by the Committee at its discretion as to the number and
price of shares of Stock subject to such Awards. In the event of any such
change in the outstanding Stock, the aggregate number of shares available under
the Plan may be appropriately adjusted by the Committee, whose determination
shall be conclusive.
(e) The existence of the Plan and the Awards granted hereunder shall not
affect in any way the right or power of the Board or the stockholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities ahead of or
affecting Stock or the rights thereof, the dissolution or liquidation of the
Company or any sale, lease, exchange or other disposition of all or any part of
its assets or business or any other corporate act or proceeding.
-8-
<PAGE>
(f) Any adjustment provided for in Subparagraphs (a), (b), (c) or (d) above
shall be subject to any required stockholder action.
(g) Except as hereinbefore expressly provided, the issuance by the Company
of shares of stock of any class or securities convertible into shares of stock
of any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares of obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number of
shares of Stock subject to Awards theretofore granted or the purchase price per
share, if applicable.
X. AMENDMENT AND TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with respect
to any shares for which Awards have not theretofore been granted. The Board
shall have the right to alter or amend the Plan or any part thereof from time to
time; provided that no change in any Award theretofore granted may be made which
would impair the rights of the Grantee without the consent of the Grantee
(unless such change is required in order to cause the benefits under the Plan to
qualify as performance-based compensation within the meaning of section 162(m)
of the Code and applicable interpretive authority thereunder), and provided,
further, that the Board may not, without approval of the stockholders, amend the
Plan:
(a) to increase the maximum number of shares which may be issued on
exercise of an Award, except as provided in Paragraph IX;
(b) to change the class of employees eligible to receive Awards or
materially increase the benefits accruing to employees under the Plan;
(c) to extend the maximum period during which Awards may be granted under
the Plan;
(d) to modify materially the requirements as to eligibility for
participation in the Plan; or
(e) to decrease any authority granted to the Committee hereunder in
contravention of Rule 16b-3.
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<PAGE>
XI. MISCELLANEOUS
(a) No Right to An Award. Neither the adoption of the Plan by the Company
nor any action of the Board or the Committee shall be deemed to give an employee
any right to be granted an Award to purchase Stock, or any of the rights
hereunder except as may be evidenced by an Option Agreement on behalf of the
Company, and then only to the extent and on the terms and conditions expressly
set forth therein.
(b) No Employment Rights Conferred. Nothing contained in the Plan shall
(i) confer upon any employee any right with respect to continuation of
employment with any Employer or (ii) interfere in any way with the right of any
Employer to terminate an employee's employment at any time.
(c) Other Laws; Withholding. The Plan, the grant and exercise of an
Option, and the obligation of the Company to sell and deliver shares shall be
subject to all applicable federal and state laws, rules and regulations and to
such approvals by any governmental or regulatory agency as may be required. The
Company shall not be obligated to issue any Stock pursuant to any Award granted
under the Plan at any time when the shares covered by such Award have not been
registered under the Securities Act of 1933 and such other state and federal
laws, rules or regulations as the Company or the Committee deems applicable and,
in the opinion of legal counsel for the Company, there is no exemption from the
registration requirements of such laws, rules or regulations available for the
issuance and sale of such shares. Unless the Awards and Stock covered by this
Plan have been registered under the Securities Act of 1993, or the Company has
determined that such registration is unnecessary, each Grantee exercising an
Award under this Plan may be required by the Company to give representation in
writing that such Grantee is acquiring such shares for his or her own account
for investment and not with a view to, or for sale in connection with, the
distribution of any part thereof. No fractional shares of Stock shall be
delivered, nor shall any cash in lieu of fractional shares be paid. The Company
shall have the right to deduct in connection with all Awards any taxes required
by law to be withheld and to require any payments required to enable it to
satisfy its withholding obligations.
(d) No Restriction on Corporate Action. Nothing contained in the Plan
shall be construed to prevent the Company, an Affiliate or any Subsidiary from
taking any corporate action which is deemed by the Company, an Affiliate or any
Subsidiary to be appropriate or in its best interest, whether or not such action
would have an adverse effect on the Plan or any Award made under the Plan. No
employee, beneficiary or other person shall have any claim against the Company,
an Affiliate or any Subsidiary as a result of any such action.
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<PAGE>
(e) Restrictions on Transfer. An Award shall not be transferable otherwise
than by will or the laws of descent and distribution and shall be exercisable
during the Grantee's lifetime only by such Grantee or the Grantee's guardian or
legal representative.
(f) Beneficiary Designation. Each Grantee may name, from time to time, any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death before
he or she receives any or all of such benefit. Each designation will revoke all
prior designations by the same Grantee, shall be in a form prescribed by the
Committee, and will be effective only when filed by the Grantee in writing with
the Committee during his lifetime. In the absence of any such designation,
benefits remaining unpaid at the Grantee's death shall be paid to his estate.
(g) Rule 16b-3. It is intended that the Plan and any grant of an Award
made to a person subject to Section 16 of the 1934 Act meet all of the
requirements of Rule 16b-3. If any provision of the Plan or any such Award
would disqualify the Plan or such Award under, or would otherwise not comply
with, Rule 16b-3, such provision or Award shall be construed or deemed amended
to conform to Rule 16b-3.
(h) Section 162(m). If the Plan is subject to Section 162(m) of the Code,
it is intended that the Plan comply fully with and meet all the requirements of
Section 162(m) of the Code so that Options granted hereunder shall constitute
"performance-based" compensation within the meaning of such section. If any
provision of the Plan would disqualify the Plan or would not otherwise permit
the Plan to comply with Section 162(m) as so intended, such provision shall be
construed or deemed amended to conform to the requirements or provisions of
Section 162(m); provided that no such construction or amendment shall have an
adverse effect on the economic value to a Grantee of any Award previously
granted hereunder.
(i) Indemnification. Each person who is or shall have been a member of the
Committee or of the Board shall be indemnified and held harmless by the Company
against and from any loss, cost, liability, or expense that may be imposed upon
or reasonably incurred by him in connection with or resulting from any claim,
action, suit, or proceeding to which he may be a party or in which he may be
involved by reason of any action taken or failure to act under the Plan and
against and from any and all amounts paid by him in settlement thereof, with the
Company's approval, or paid by him in satisfaction of any judgment in any such
action, suit, or proceeding against him, provided he shall give the Company an
opportunity, at its own expense, to handle and defend the same before he
undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights or indemnification to
which such persons may be entitled under the Company's Articles of Incorporation
or Bylaws, as a matter of law, or otherwise, or any power that the Company may
have to indemnify them or hold them harmless.
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<PAGE>
(j) Governing Law. This Plan shall be construed in accordance with the
laws of the State of Texas.
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing by the Board, _________________________________________________ has
caused this document to be duly executed in its name and behalf by its proper
officer thereunto duly authorized as of this ____ day of _________, 1997.
U.S. LEGAL SUPPORT, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
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<PAGE>
EXHIBIT 10.2
U.S. LEGAL SUPPORT, INC.
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT dated ______________________________________, and
delivered by U.S. LEGAL SUPPORT, INC., a Texas corporation (the "Company"), to
_____________________________________ (the "Grantee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company has adopted the Litigation Resources of America, Inc.
1997 Stock Incentive Plan (the "Plan") pursuant to which the Company may grant
Options to eligible individuals to purchase Common Stock of the Company pursuant
to the terms and conditions as set forth in the Plan; and
WHEREAS, the Company has determined that it would further the purposes of
the Plan to grant an Option to the Grantee;
NOW, THEREFORE, the Company hereby grants to the Grantee a Nonqualified
Stock Option (as defined in the Plan) to purchase ________________________
(_______________) shares of Company's Common Stock, $.01 par value, at a price
of $____________ per share. Twenty percent (20%) of the number of shares
subject to the Option shall be exercisable on each of the next five
anniversaries of the date hereof.
This Option shall be subject to and governed by the terms and conditions of
the Plan, a copy of which is attached hereto. This Option shall expire on
________________________ unless it shall terminate prior thereto in accordance
with the provisions of the Plan.
IN WITNESS WHEREOF, this Stock Option Agreement has been executed on behalf
of the Company by its officer thereunto duly authorized and by the Grantee in
acceptance of the above-mentioned Option, subject to the terms and conditions of
the Plan, all as of the day and year first above written.
U.S. LEGAL SUPPORT, INC.
By:___________________________________
Chief Executive Officer
GRANTEE:
--------------------------------------
<PAGE>
EXHIBIT 10.3
U.S. LEGAL SUPPORT, INC.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
SECTION 1. Purpose. The purpose of this U.S. Legal Support, Inc. Non-
Employee Directors Stock Option Plan ("Plan") is to encourage ownership of
common stock, $.01 par value ("Common Stock"), of U.S. Legal Support, Inc., a
Texas corporation (the "Company"), by eligible non-employee directors of the
Company and to provide increased incentive for such directors to render services
and to exert maximum effort for the business success of the Company. In
addition, the Company expects that this Plan will further strengthen the
identification of directors with the stockholders. Options to be granted under
this Plan will be nonqualified options which are not intended to qualify as
Incentive Stock Options pursuant to Section 422 of the Internal Revenue Code of
1986, as amended ("Code"), as provided in the agreements evidencing the options
as provided in Section 6 hereof. As used in this Plan, the term "Affiliates"
means any "subsidiary corporation" of the Company within the meaning of Section
424(f) of the Code.
SECTION 2. Administration.
(a) Administrator. This Plan shall be administered by the Board of
Directors of the Company (the "Board"). The Board while administering the Plan
shall hereinafter be referred to as the "Committee".
(b) Committee Action. The Committee shall hold its meetings at such times
and places as it may determine. A majority of its members shall constitute a
quorum, and all determinations of the Committee shall be made by not less than a
majority of its members. Any decision or determination reduced to writing and
signed by a majority of the members shall be fully effective as if it had been
made by a majority vote of its members at a meeting duly called and held. The
Committee may designate the Secretary of the Company or other Company employees
to assist the Committee in the administration of this Plan, and may grant
authority to such persons to execute award agreements or other documents on
behalf of the Committee and the Company.
(c) Committee Expenses. All expenses and liabilities incurred by the
Committee in the administration of this Plan shall be borne by the Company. The
Committee may employ attorneys, consultants, accountants or other persons.
SECTION 3. Stock Reserved. Subject to adjustment as provided in Section
6(j) hereof, the aggregate number of shares of Common Stock that may be optioned
under this Plan is 150,000. The shares subject to this Plan shall consist of
authorized but unissued shares of Common Stock and such number of shares shall
be and is hereby reserved for sale for such purpose. Any of such shares which
may remain unsold and which are not subject to outstanding options at the
termination of this Plan shall cease to be reserved for the purpose of this
Plan, but until termination of this Plan or the termination of the last of the
options granted under this Plan, whichever last occurs, the Company shall at all
times reserve a sufficient number of shares to meet the requirements of this
Plan. Should
<PAGE>
any option expire or be canceled prior to its exercise in full, the shares
theretofore subject to such option may again be made subject to an option under
this Plan.
SECTION 4. Eligibility. The persons eligible to participate in this Plan as
a recipient of options ("Optionee") shall include only non-employee directors of
the Company.
SECTION 5. Grant of Options. Upon (i) the election of a non-employee
individual to the Board, or (ii) in the case of a non-employee director serving
on the Board on the date this Plan is adopted by the Board, the date of such
adoption, such non-employee director shall receive a grant of an option to
purchase 25,000 shares of Common Stock. A non-employee director who has been
granted an option to purchase 25,000 shares of Common Stock in accordance with
this Plan shall not be granted another option to purchase any shares of Common
Stock under this Plan.
SECTION 6. Terms and Conditions. Each option granted under this Plan shall
be evidenced by an agreement, in a form approved by the Committee, which shall
be subject to the following express terms and conditions and to such other terms
and conditions as the Committee may deem appropriate.
(a) Option Period. The Committee shall promptly notify the Optionee of the
option grant and a written agreement shall promptly be executed and delivered by
and on behalf of the Company and the Optionee. The date of grant shall be the
date the option is actually granted by the Committee, even though the written
agreement may be executed and delivered by the Company and the Optionee after
that date. Each option agreement shall provide that the option shall expire ten
years from the date of grant.
(b) Exercise Price. The exercise price of each share of Common Stock
subject to each option granted pursuant to this Plan shall be the fair market
value of a share of Common Stock on the date of grant.
For all purposes under this Plan, the fair market value of a share of
Common Stock on a particular date shall be equal to the mean of the reported
high and low sales prices of the Common Stock on the NASDAQ Composite Tape on
that date, or if no prices are reported on that date, on the last preceding date
on which such prices of the Common Stock are so reported. If the Common Stock is
not traded on the NASDAQ at the time a determination of its fair market value is
required to be made hereunder, its fair market value shall be deemed to be equal
to the average between the closing bid and ask prices of the Common Stock on the
most recent date the Common Stock was publicly traded. In the event the Common
Stock is not publicly traded at the time a determination of its value is
required to be made hereunder, the determination of its fair market value shall
be made by the Committee in such manner as it deems appropriate. Notwithstanding
the foregoing, however, the exercise price of all options granted prior to or
contemporaneously with the Company's initial public offering shall be the
initial public offering price of the Company's Common Stock, prior to
application of discounts or commissions.
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<PAGE>
(c) Exercise Period. The option agreement shall provide that all options
granted upon the election of a non-employee director to the Board in accordance
with Section 5 may be exercised by an Optionee in whole or in part at any time
during a ten year period, subject to the limitation that the option shall not be
exercisable for more than a percentage of the aggregate number of shares under
such option determined by the number of years of service the Optionee has served
on the Board as a non-employee director to the date of exercise, in accordance
with the following schedule:
Schedule of Vesting
-------------------
Number of Full Years Percentage of Shares Purchasable
-------------------- --------------------------------
Less than 1 year 0%
1 year 20%
2 years 40%
3 years 60%
4 years 80%
5 years 100%
NOTWITHSTANDING THE ABOVE, NO OPTION SHALL BE EXERCISABLE PRIOR TO SIX (6)
MONTHS AFTER THE DATE OF GRANT OF SUCH OPTION.
(d) Procedure for Exercise. Options shall be exercised by the delivery by
the Optionee of written notice to the Secretary of the Company setting forth the
number of shares of Common Stock with respect to which the option is being
exercised. The notice shall be accompanied by, at the election of the Optionee,
(i) cash, cashier's check, bank draft, or postal or express money order payable
to the order of the Company, (ii) certificates representing shares of Common
Stock theretofore owned by the Optionee duly endorsed for transfer to the
Company, (iii) an election by the Optionee to have the Company withhold the
number of shares of Common Stock the fair market value of which is equal to the
aggregate exercise price of the shares of Common Stock issuable upon exercise of
the option, or (iv) any combination of the preceding, equal in value to the full
amount of the exercise price. Notice may also be delivered by telecopy provided
that the exercise price of such shares is received by the Company via wire
transfer on the same day the telecopy transmission is received by the Company.
The notice shall specify the address to which the certificates for such shares
are to be mailed. An option to purchase shares of Common Stock in accordance
with this Plan shall be deemed to have been exercised immediately prior to the
close of business on the date (i) written notice of such exercise and (ii)
payment in full of the exercise price for the number of share for which options
are being exercised, are both received by the Company and the Optionee shall be
treated for all purposes as the record holder of such shares of Common Stock as
of such date.
As promptly as practicable after receipt of such written notice and
payment, the Company shall deliver to the Optionee certificates for the number
of shares with respect to which such option has been so exercised, issued in the
Optionee's name or such other name as Optionee directs;
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<PAGE>
provided, however, that such delivery shall be deemed effected for all purposes
when a stock transfer agent of the Company shall have deposited such
certificates in the United States mail, addressed to the Optionee at the address
specified pursuant to this Section 6(d).
(e) Termination of Service from the Board. If an Optionee ceases to serve
on the Board for any reason other than death, disability or an involuntarily
"for cause" termination, the rights under such option which are not vested and
exercisable (in accordance with Section 6(c)) shall terminate upon the
Optionee's cessation of service on the Board and the rights under such option
which are vested and exercisable (in accordance with Section 6(c)) shall
terminate upon the expiration date of the option. If the Optionee's service on
the Board is involuntarily terminated by the Company "for cause", rights under
all options, whether vested or not, shall terminate immediately upon such
cessation of service. An Optionee's service on the Board is involuntarily
terminated "for cause" if the Optionee (i) divulges without the consent of the
Company any secret or confidential information belonging to the Company or an
Affiliate, (ii) has been dishonest or fraudulent in any manner affecting the
Company or an Affiliate, or (iii) has committed any act that, in the sole
judgment of the Committee, has been substantially detrimental to the interest of
the Company or an Affiliate.
(f) Disability or Death. In the event the Optionee dies or is determined
under this Plan to be disabled while the Optionee serves on the Board, all
options previously granted to the Optionee, whether vested or not, may be
exercised at any time and from time to time, after such death or determination
of disability, by the Optionee, the Optionee's authorized legal representative,
the guardian of the Optionee's estate, the executor or administrator of the
Optionee's estate or by the person or persons to whom the Optionee's rights
under the option shall pass by will or the laws of descent and distribution, but
in no event may the option be exercised after its expiration under the terms of
the option agreement. An Optionee shall be deemed to be disabled if, in the
opinion of a physician selected by the Committee, the Optionee is incapable of
performing services for the Company of the kind the Optionee was performing at
the time the disability occurred by reason of any medically determinable
physical or mental impairment which can be expected to result in death or to be
of long, continued and indefinite duration. The date of determination of
disability for purposes hereof shall be the date of such determination by such
physician.
(g) Transferability. An option granted pursuant to this Plan shall not be
assignable or otherwise transferable by the Optionee otherwise than by
Optionee's will or by the laws of descent and distribution. During the lifetime
of an Optionee, an option shall be exercisable only by such Optionee or the
Optionee's legal representative. Any heir or legatee of the Optionee shall take
rights granted herein and in the option agreement subject to the terms and
conditions hereof and thereof. No such transfer of any option to heirs or
legatees of the Optionee shall be effective to bind the Company unless the
Company shall have been furnished with written notice thereof and a copy of such
evidence as the Committee may deem necessary to establish the validity of the
transfer and the acceptance by the transferee or transferees of the terms and
conditions hereof.
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<PAGE>
(h) No Rights as Stockholder. No Optionee shall have any rights as a
stockholder with respect to shares covered by an option until the option is
exercised by written notice and accompanied by payment as provided in Section
6(d) above.
(i) Extraordinary Corporate Transactions. The existence of outstanding
options shall not affect in any way the right or power of the Company or its
stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations, exchanges, or other changes in the Company's capital structure
or its business, or any merger or consolidation of the Company, or any issuance
of Common Stock or other securities or subscription rights thereto, or any
issuance of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Common Stock or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise. If the Company recapitalizes or otherwise
changes its capital structure, or merges, consolidates, sells all of its assets
or dissolves (each of the foregoing a "Fundamental Change"), then thereafter
upon any exercise of an option theretofore granted the Optionee shall be
entitled to purchase under such option, in lieu of the number of shares of
Common Stock as to which option shall then be exercisable, the number and class
of shares of stock and securities to which the Optionee would have been entitled
pursuant to the terms of the Fundamental Change if, immediately prior to such
Fundamental Change, the Optionee had been the holder of record of the number of
shares of Common Stock as to which such option is then exercisable.
(j) Changes in Capital Structure. If the outstanding shares of Common Stock
or other securities of the Company, or both, for which an option is then
exercisable shall at any time be changed or exchanged by declaration of a stock
dividend, stock split, combination of shares or recapitalization, the number and
kind of shares of Common Stock or other securities which are subject to this
Plan or subject to any options theretofore granted, and the exercise prices,
shall be appropriately and equitably adjusted so as to maintain the
proportionate number of shares or other securities without changing the
aggregate exercise price.
(k) Acceleration of Options. Except as hereinbefore expressly provided, (i)
the issuance by the Company of shares of stock of any class of securities
convertible into shares of stock of any class, for cash, property, labor or
services, upon direct sale, upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company convertible
into such shares or other securities, (ii) the payment of a dividend in property
other than Common Stock, or (iii) the occurrence of any similar transaction, and
in any case whether or not for fair value, shall not affect, and no adjustment
by reason thereof shall be made with respect to, the number of shares of Common
Stock subject to options theretofore granted or the purchase price per share,
unless the Committee shall determine in its sole discretion that an adjustment
is necessary to provide equitable treatment to Optionee.
(l) Corporate Change. If (i) the Company shall not be the surviving entity
in any merger or consolidation (or survives only as a subsidiary of another
entity), (ii) the Company sells all or substantially all of its assets to any
other person or entity (other than to an Affiliate), (iii) any person or entity
(including a "group" as contemplated by Section 13(d)(3) of the Exchange Act)
acquires
-5-
<PAGE>
or gains ownership or control of (including, without limitation, power to vote)
more than 50 percent of the outstanding shares of Common Stock, (iv) the Company
is to be dissolved and liquidated, or (v) as a result or in connection with a
contested election of directors, the persons who were directors of the Company
before such election shall cease to constitute a majority of the Board (each
such event in clauses (i) through (v) above is referred to herein as a
"Corporate Change"), all outstanding options under this Plan, whether vested or
not, shall become fully vested and exercisable.
SECTION 7. Amendments or Termination. The Board may amend, alter or
discontinue this Plan; provided, however, no amendment or alteration shall be
made which would impair the rights of any Optionee, without the Optionee's
consent, under any option theretofore granted. Notwithstanding the above, no
action of the Board, without the approval of the stockholders, may (i) except as
otherwise provided in Section 6 of the Plan, increase the total number of shares
of Common Stock which may be issued under the Plan, (ii) change the class of
persons eligible to participate in the Plan, (iii) change the provisions of the
Plan regarding the exercise price of an option as set forth in Section 6, or
(iv) withdraw the administration of the Plan from the Board.
SECTION 8. Compliance With Other Laws and Regulations. This Plan, the grant
and exercise of options thereunder, and the obligation of the Company to sell
and deliver shares under such options, shall be subject to all applicable
federal and state laws, rules and regulations and to such approvals by any
governmental or regulatory agency as may be required. The Company shall not be
required to issue or deliver any certificates for shares of Common Stock prior
to the completion of any registration or qualification of such shares under any
federal or state law or issuance of any ruling or regulation of any government
body which the Company shall, in its sole discretion, determine to be necessary
or advisable. Any adjustments provided for in Sections 6(j), (k) and (l) of this
Plan shall be subject to any shareholder action required by Texas corporate law.
SECTION 9. Purchase for Investment. Unless the options and shares of Common
Stock covered by this Plan have been registered under the Securities Act of
1933, as amended, or the Company has determined that such registration is
unnecessary, each person exercising an option under this Plan may be required by
the Company to give a representation in writing that such person is acquiring
such shares for his or her own account for investment and not with a view to, or
for sale in connection with, the distribution of any part thereof.
SECTION 10. Taxes.
(a) The Company may make such provisions as it may deem appropriate for the
withholding of any taxes which it determines is required in connection with any
options granted under this Plan.
(b) Notwithstanding the terms of Section 11(a), any Optionee may pay all or
any portion of the taxes required to be withheld by the Company or paid by the
Optionee in connection with the exercise of an option by electing to have the
Company withhold shares of Common Stock, or by delivering previously owned
shares of Common Stock, having a fair market value, determined in accordance
with Section 6(b), equal to the amount required to be withheld or paid; provided
that
-6-
<PAGE>
such tax withholding or stock delivery right was specifically pre-approved
by the Committee as a feature of the option or is otherwise approved in
accordance with Rule 16b-3. An Optionee must make the foregoing election on or
before the date that the amount of tax to be withheld is determined ("Tax
Date"). All such elections are irrevocable and subject to disapproval by the
Committee. Where the Optionee elects share withholding, the full amount of
shares of Common Stock will be issued or transferred to the Optionee upon
exercise of the option, but the Optionee shall be unconditionally obligated to
tender back to the Company the number of shares necessary to discharge the
Company's withholding obligation or the Optionee's estimated tax obligation on
the Tax Date.
SECTION 11. Liability of Company for Non-Issuance of Shares and Tax
Consequences. The Company and any Affiliate which is in existence or hereafter
comes into existence shall not be liable to an Optionee or other persons as to:
(a) The non-issuance or sale of shares as to which the Company has been
unable to obtain from any regulatory body having jurisdiction the authority
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any shares hereunder; and
(b) Any tax consequence expected, but not realized, by any Optionee or
other person due to the exercise of any option granted hereunder.
SECTION 12. Effectiveness and Expiration of Plan. This Plan shall be
effective on the date of adoption by the Board. This Plan shall expire ten years
after the date the Board adopts this Plan and thereafter no option shall be
granted pursuant to this Plan.
SECTION 13. Non-Exclusivity of this Plan. Neither the adoption by the Board
nor the submission for approval of this Plan to the stockholders of the Company
shall be construed as creating any limitations on the power of the Board to
adopt such other incentive arrangements as it may deem desirable, including
without limitation, the granting of restricted stock or stock options otherwise
than under this Plan, and such arrangements may be either generally applicable
or applicable only in specific cases.
SECTION 14. Governing Law. This Plan and any agreements hereunder shall be
interpreted and construed in accordance with the laws of the State of Texas and
applicable federal law.
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<PAGE>
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing by directors of the Company, U.S. Legal Support, Inc. has caused these
presents to be duly executed in its name and behalf by its proper officers
thereunto duly authorized as of this _____ day of ______________, 19____.
U.S. LEGAL SUPPORT, INC.
By: ________________________________
Name: ______________________________
Title: _____________________________
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<PAGE>
EXHIBIT 10.4
U.S. LEGAL SUPPORT, INC.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
This Nonqualified Stock Option Agreement ("Option Agreement") is between
U.S. Legal Support, Inc. (the "Company"), and ___________________________
("Optionee"), who agree as follows:
Section 1. Introduction. The Company has heretofore adopted the U.S. Legal
Support, Inc. Non-Employee Directors Stock Option Plan (the "Plan") for the
purpose of providing increased incentive for non-employee directors to render
services and to exert maximum effort for the business success of the Company and
providing such non-employee directors an opportunity for ownership of common
stock, $.01 par value ("Common Stock") of the Company. The Company, acting
through its Board of Directors (the "Board"), has determined that its interests
will be advanced by the issuance to Optionee of a nonqualified stock option
under the Plan.
Section 2. Option. Subject to the terms and conditions contained herein,
the Company hereby irrevocably grants to Optionee the right and option
("Option") to purchase from the Company 25,000 shares of Common Stock, at a
price of $______ per share.
Section 3. Option Period. The Option herein granted may be exercised by
Optionee in whole or in part at any time during a ten year period (the "Option
Period") beginning on _______________ (the "Date of Grant"), subject to the
limitation that said Option shall not be exercisable for more than a percentage
of the aggregate number of shares offered by this Option determined by the
number of years of service Optionee has served on the Board as a non-employee
director to the date of exercise, in accordance with the following schedule:
Schedule of Vesting
-------------------
Number of Full Years Percentage of Shares Purchasable
-------------------- --------------------------------
Less than 1 year 0%
1 year 20%
2 years 40%
3 years 60%
4 years 80%
5 years 100%
Notwithstanding the above, the Option shall be not exercisable prior to six (6)
months after the Date of Grant.
Section 4. Procedure for Exercise. The Option herein granted may be
exercised by the delivery by Optionee of written notice to the Secretary of the
Company setting forth the number of shares of Common Stock with respect to which
the Option is being exercised. The notice shall be
<PAGE>
accompanied by, at the election of the Optionee, (i) cash, cashier's check, bank
draft, or postal or express money order payable to the order of the Company,
(ii) certificates representing shares of Common Stock theretofore owned by
Optionee duly endorsed for transfer to the Company, (iii) an election by
Optionee to have the Company withhold the number of shares of Common Stock the
fair market value of which is equal to the aggregate exercise price of the
shares of Common Stock issuable upon exercise of the Option, or (iv) any
combination of the preceding, equal in value to the aggregate exercise price.
Notice may also be delivered by telecopy provided that the exercise price of
such shares is received by the Company via wire transfer on the same day the
telecopy transmission is received by the Company. The notice shall specify the
address to which the certificates for such shares are to be mailed. An option
to purchase shares of Common Stock in accordance with this Plan, shall be deemed
to have been exercised immediately prior to the close of business on the date
(i) written notice of such exercise and (ii) payment in full of the exercise
price for the number of share for which Options are being exercised, are both
received by the Company and Optionee shall be treated for all purposes as the
record holder of such shares of Common Stock as of such date.
As promptly as practicable after receipt of such written notice and
payment, the Company shall deliver to Optionee certificates for the number of
shares with respect to which such Option has been so exercised, issued in
Optionee's name or such other name as Optionee directs; provided, however, that
such delivery shall be deemed effected for all purposes when a stock transfer
agent of the Company shall have deposited such certificates in the United States
mail, addressed to Optionee at the address specified pursuant to this Section 4.
Section 5. Termination of Service. If Optionee ceases to serve on the Board
for any reason other than death, disability or an involuntarily "for cause"
termination, the rights under this Option which are not vested and exercisable
shall terminate upon Optionee's cessation of service on the Board and the rights
under such option which are vested and exercisable shall terminate upon the
expiration date of the Option. If Optionee's service on the Board is
involuntarily terminated by the Company "for cause", rights under the Option,
whether vested or not, shall terminate immediately upon such cessation of
service. Optionee's service on the Board is involuntarily terminated "for cause"
if Optionee (i) divulges without the consent of the Company any secret or
confidential information belonging to the Company or an Affiliate, (ii) has been
dishonest or fraudulent in any manner affecting the Company or an Affiliate, or
(iii) has committed any act that, in the sole judgment of the Committee, has
been substantially detrimental to the interest of the Company or an Affiliate.
Section 6. Disability or Death. In the event Optionee dies or is determined
to be disabled while Optionee serves on the Board, all options previously
granted to Optionee, whether vested or not, may be exercised at any time and
from time to time, after such death or determination of disability, by Optionee,
Optionee's authorized legal representative, the guardian of Optionee's estate,
the executor or administrator of Optionee's estate or by the person or persons
to whom Optionee's rights under the option shall pass by will or the laws of
descent and distribution, but in no event may the Option be exercised after its
expiration under the terms of this Option Agreement. Optionee shall be deemed to
be disabled if, in the opinion of a physician selected by the Committee,
Optionee is
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incapable of performing services for the Company of the kind Optionee was
performing at the time the disability occurred by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or to be of long, continued and indefinite duration. The date of
determination of disability for purposes hereof shall be the date of such
determination by such physician.
Section 7. Transferability. This Option shall not be transferable by
Optionee otherwise than by Optionee's will or by the laws of descent and
distribution. During the lifetime of Optionee, the Option shall be exercisable
only by Optionee or his authorized legal representative. Any heir or legatee of
Optionee shall take rights herein granted subject to the terms and conditions
hereof. No such transfer of this Option Agreement to heirs or legatees of
Optionee shall be effective to bind the Company unless the Company shall have
been furnished with written notice thereof and a copy of such evidence as the
Board may deem necessary to establish the validity of the transfer and the
acceptance by the transferee or transferees of the terms and conditions hereof.
Section 8. No Rights as Shareholder. Optionee shall have no rights as a
shareholder with respect to any shares of Common Stock covered by this Option
Agreement until the Option is exercised by written notice and accompanied by
payment as provided in Section 4 of this Option Agreement.
Section 9. Extraordinary Corporate Transactions. The existence of
outstanding Options shall not affect in any way the right or power of the
Company or its shareholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issuance of Common Stock or subscription rights thereto, or any issuance of
bonds, debentures, preferred or prior preference stock ahead of or affecting the
Common Stock or the rights thereof, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceedings, whether of a similar character or
otherwise. If the Company goes through a "Fundamental Change" (as defined in
subparagraph 6(i) of the Plan), the Options granted hereunder shall be governed
by subparagraph 6(i) of the Plan. If the Company undergoes a "Corporate Change"
(as defined in subparagraph 6(l) of the Plan), the Options granted hereunder
shall be governed by subparagraph 6(l) of the Plan.
Section 10. Changes in Capital Structure. If the outstanding shares of
Common Stock or other securities of the Company, or both, for which the Option
is then exercisable shall at any time be changed or exchanged by declaration of
a stock dividend, stock split, combination of shares, or recapitalization, the
number and kind of shares of Common Stock or other securities subject to the
Plan or subject to the Option and the exercise price, shall be appropriately and
equitably adjusted so as to maintain the proportionate number of shares or other
securities without changing the aggregate exercise price.
Section 11. Compliance With Laws. Notwithstanding any of the other
provisions hereof, Optionee agrees that he or she will not exercise the Option
granted hereby, and that the Company will not be obligated to issue any shares
pursuant to this Option Agreement, if the exercise of the
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Option or the issuance of such shares of Common Stock would constitute a
violation by Optionee or by the Company of any provision of any law or
regulation of any governmental authority.
Section 12. Withholding of Tax. To the extent that the exercise of this
Option or the disposition of shares of Common Stock acquired by exercise of this
Option results in compensation income to Optionee for federal or state income
tax purposes, payment of the withholding tax shall be made in accordance with
Section 10 of the Plan.
Section 13. No Right to Directorship. Optionee shall be considered to be in
service on the Board so long as he or she remains a director of the Company. Any
questions as to whether and when there has been a termination of such service on
the Board and the cause of such termination shall be determined by the Board,
and its determination shall be final. Nothing contained herein shall be
construed as conferring upon Optionee the right to continue service on the
Board.
Section 14. Resolution of Disputes. As a condition of the granting of the
Option hereby, Optionee, and Optionee's heirs, personal representatives and
successors agree that any dispute or disagreement which may arise hereunder
shall be determined by the Board in its sole discretion and judgment, and that
any such determination and any interpretation by the Board of the terms of this
Option Agreement shall be final and shall be binding and conclusive, for all
purposes, upon the Company, Optionee, and Optionee's heirs, personal
representatives and successors.
Section 15. Legends on Certificate. The certificates representing the
shares of Common Stock purchased by exercise of the Option will be stamped or
otherwise imprinted with legends in such form as the Company or its counsel may
require with respect to any applicable restrictions on sale or transfer and the
stock transfer records of the Company will reflect stop-transfer instructions
with respect to such shares.
Section 16. Notices. Every notice hereunder shall be in writing and
shall be given by registered or certified mail. All notices of the exercise
of any Option hereunder shall be directed to U.S. Legal Support, Inc.,
________________________________________________, Attention: Secretary. Any
notice given by the Company to Optionee directed to Optionee at the address on
file with the Company shall be effective to bind Optionee and any other person
who shall acquire rights hereunder. The Company shall be under no obligation
whatsoever to advise Optionee of the existence, maturity or termination of any
of Optionee's rights hereunder and Optionee shall be deemed to have familiarized
himself or herself with all matters contained herein and in the Plan which may
affect any of Optionee's rights or privileges hereunder.
Section 17. Construction and Interpretation. Whenever the term "Optionee"
is used herein under circumstances applicable to any other person or persons to
whom this award, in accordance with the provisions of Section 7 hereof, may be
transferred, the word "Optionee" shall be deemed to include such person or
persons.
Section 18. Agreement Subject to Plan. This Option Agreement is subject to
the Plan. The terms and provisions of the Plan (including any subsequent
amendments thereto) are hereby
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incorporated herein by reference thereto. In the event of a conflict between any
term or provision contained herein and a term or provision of the Plan, the
applicable terms and provisions of the Plan will govern and prevail. All
definitions of words and terms contained in the Plan shall be applicable to this
Option Agreement.
Section 19. Binding Effect. This Option Agreement shall be binding upon and
inure to the benefit of any successors to the Company and all persons lawfully
claiming under Optionee as provided herein.
IN WITNESS WHEREOF, this Nonqualified Stock Option Agreement has been
executed as of the ____ day of ___________, 19____.
U.S. LEGAL SUPPORT, INC.
By:_________________________________
Name: ______________________________
Title: _____________________________
OPTIONEE
____________________________________
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EXHIBIT 10.5
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is entered into as of
January 17, 1997 by and between Litigation Resources of America, Inc., a Texas
corporation (the "Buyer"), and Richard O. Looney, an individual residing in the
State of Texas (the "Seller"), who is the sole shareholder of Looney & Company,
a Texas corporation (the "Company").
This Agreement contemplates a transaction in which the Buyer will purchase
from the Seller and the Seller will sell to the Buyer all of the outstanding
capital stock of the Company for the consideration set forth in (S) 2(b) below.
The transactions as contemplated by this Agreement are part of a common
plan intended to constitute a reorganization of the Company under Internal
Revenue Code Section 351 pursuant to which (i) all of the Company Shares, as
hereinafter defined, will be issued to the Buyer; and (ii) all of the
outstanding common stock of Klein, Bury, as hereinafter defined, will be
transferred to the Buyer, for and in consideration of the issuance of Buyer
Shares to the Seller, Pecks, as hereinafter defined, and the owner of Klein,
Bury.
In consideration of the premises and the mutual promises herein made, and
in consideration of the representations, warranties, and covenants herein
contained, the Parties agree as follows.
1. CERTAIN DEFINITIONS.
"Accounts Payable Report" means a report as of a given time period
containing a summary of the outstanding accounts payable of Company, which
report shall reflect such accounts payable on an aged basis and shall set forth
the amounts due and owing by Company to each of its suppliers, creditors or
court reporters.
"Accounts Receivable Report" means a report as of a given time period
containing a summary of the outstanding accounts receivable of Company, which
shall set forth the amounts due and owing to Company by each of its customers.
"Accredited Investor" has the meaning set forth in Regulation D promulgated
under the Securities Act.
"Actual Knowledge" means actual knowledge after reasonable investigation
under the circumstances involved.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
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"Asset Purchase Agreement" shall mean that certain Asset Purchase Agreement
by and between the Company and U. S. Court Reporters, Inc., a Texas corporation,
as of even date herewith.
"Assumption of Obligations-Looney" shall mean that certain Assumption of
Obligations by and among Long, Rice and the Buyer.
"Assumption of Obligations-Reporters" shall mean that certain Assumption of
Obligations by and among Legal Enterprise, Long, Maddocks, Simon, the Company
and the Buyer.
"Balance Sheet" means a statement of financial position of the Company,
disclosing as at a given moment of time, the value of its assets, liabilities,
and equity of the owners in conformity with generally accepted accounting
principles subject to routine audit adjustments.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or is reasonably likely to form the
basis for any specified consequences.
"Buyer" shall mean Litigation Resources of America, Inc., a Texas
corporation.
"Buyer's Disclosure Schedule" has the meaning set forth in Section 4B
below.
"Buyer Financial Statements" has the meaning set forth in (S) 4B(d) below.
"Buyer Indemnified Parties" has the meaning set forth in (S) 8(b).
"Buyer Preferred Shares" has the meaning set forth in (S) 2(b) below.
"Buyer Preferred Shares Value" shall mean $1.00 per Buyer Preferred Share.
"Buyer Shares" shall mean 843,840 shares of common stock of Buyer, par
value $.01 per share.
"Buyer Shares Value" shall mean $6.41 per Buyer Share; provided, however,
that if the Buyer has successfully consummated a public offering of its shares
of common stock, then it shall mean the average closing public trading price of
each Buyer Share over the five (5) most recent business days.
"Cash Purchase Price" has the meaning set forth in (S) 2(b) below.
"Cash Reimbursement" has the meaning set forth in (S) 2(b) below.
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"Charges" shall mean all federal, state, county, city, municipal, local,
foreign or other governmental taxes at the time due and payable, levies,
assessments, charges, liens, claims or encumbrances upon or relating to (i) any
of a corporation's employees, payroll, income or gross receipts, (ii) any of a
corporation's ownership or use of any of its assets, or (iii) any other aspect
of a corporation's business.
"Closing" has the meaning set forth in (S) 2(c) below.
"Closing Date" has the meaning set forth in (S) 2(c) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" shall mean Looney & Company, a Texas corporation.
"Company Share" means any share of the common stock of the Company as set
forth in Section 4A(b) of the Disclosure Schedule.
"Confidential Information" means any information concerning the businesses
and affairs of the Company and its Subsidiaries that is not (a) generally known
or available to the public; (b) after the date of this Agreement, generally
known or readily available through no violation of this Agreement; or (c) is in
or hereafter becomes a part of the public domain through no violation of this
Agreement.
"Controlled Group" means the Company, its Subsidiaries, and any trade or
business (whether or not incorporated) which together with Company or any
Subsidiary of a Company would be deemed to be a "single employer" within the
meaning of ERISA Section 4001(b)(1) or subsections (b), (c), (m) or (o) of Code
Section 414.
"Customarily Permitted Liens" shall mean:
(a) Liens for ad valorem taxes, assessments or other governmental Charges
or levies, not yet due and payable;
(b) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other like Liens imposed by law, created in the
ordinary course of business and for amounts not yet due (or which are being
contested in good faith by appropriate proceedings or other appropriate actions
which are sufficient to prevent imminent foreclosure of such Liens); and
(c) easements (including, without limitation, reciprocal easement
agreements and utility agreements), encroachments, variations and other
restrictions, Charges or encumbrances customary to the type of real property
affected and which do not impair the current use, occupancy, value or the
marketability of title of the real property subject thereto.
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"Damages" has the meaning set forth in (S)8(b).
"Effective Date" shall mean 12:01 a.m. on the Closing Date.
"Effective Date Accounts Payable Report" means the Accounts Payable Report
as of the Effective Date.
"Effective Date Accounts Receivable Report" means the Accounts Receivable
Report as of the Effective Date.
"Effective Date Balance Sheet" means the Balance Sheet as of the Effective
Date.
"Employee Benefit Plan" means any (a) Employee Pension Benefit Plan, (b)
Employee Welfare Benefit Plan, or (c) personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement, incentive award plan
or arrangement, vacation policy, severance pay plan, policy or agreement,
deferred compensation agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement, employment agreement and
each other employee benefit plan, agreement, arrangement, program, practice or
understanding which is not described in clause (a) or (b) of this sentence.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Section
3(2), including, but not limited to, employee pension benefit plans, such as
foreign plans, which are not subject to the provisions of ERISA.
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Section
3(1), including, but not limited to, employee welfare benefit plans, such as
foreign plans, which are not subject to the provisions of ERISA.
"Employment Agreement" means that certain Employment Agreement by and
between the Company, the Buyer and Seller.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Final Net Worth" means the Net Worth as of the Effective Date as
determined in accordance with Section 2(e) below.
"Financial Statements" has the meaning set forth in (S) 4A(e) below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
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"Guaranteed Net Worth" means the Net Worth as shown on the Balance Sheet
(excluding loans to shareholders of the Company in the amount of $70,119 as of
September 30, 1996) which is $735,846.00.
"Income Statement" means a statement of revenues, expenses, gains, and
losses for the period ending with net income (or loss) as of a given date
prepared in accordance with GAAP and subject to routine audit adjustments.
"IRS" means the United States Internal Revenue Service or such equivalent
successor agency of the United States with the responsibility of assessing
and/or collecting Taxes.
"Investors" shall mean certain trusts, benefit plans, and other
institutional entities, all of which are represented by Pecks, as more fully
described in that certain Securities Purchase Agreement dated as of January __,
1997 by and among Buyer, the Company, Klein, Bury, and Pecks (the "Securities
Purchase Agreement").
"Klein, Bury" shall mean Klein, Bury & Associates, Inc., a Florida
corporation.
"Klein, Bury Acquisition" shall mean the acquisition by Buyer of all of the
issued and outstanding shares of capital stock of Klein, Bury.
"Legal Enterprise" shall mean Legal Enterprise, Inc., a California
corporation.
"Liability" means any liability (whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
"Liens" means any mortgages, deeds of trust, liens, security interests,
pledges, claims, charges, liabilities, obligations, or other encumbrances.
"Long" shall mean Larry Long, currently an employee of the Company.
"Maddocks" shall mean Tony Maddocks, a shareholder in Legal Enterprise.
"Long Employment Agreement" shall mean that certain Employment Agreement by
and between Long and the Company.
"Net Worth" means the dollar amount of shareholders' equity of the Company
as of a given time period as shown on any given Balance Sheet.
"Notice of Action" has the meaning set forth in (S) 8(b).
"Notice of Election" has the meaning set forth in (S) 8(b).
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"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" shall mean, individually, the Buyer or the Seller.
"Parties" shall mean, collectively, the Buyer and the Seller.
"Pecks" shall mean Pecks Management Partners Ltd., a New York limited
partnership.
"Permitted Encumbrances" with respect to property of a Party shall mean (i)
Security Interests expressly permitted, or consented in writing to by the other
Party as to the grant of such Security Interest; (ii) Purchase Money Liens;
(iii) Customarily Permitted Liens; and (iv) Liens of judgment creditors,
provided such Liens do not exceed $5,000 individually or $25,000 in the
aggregate (other than Liens bonded or insured to the reasonable satisfaction of
the other Party).
"Person" means an individual, a partnership, a limited liability company, a
corporation, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"Pledge Agreement" has the meaning set forth in (S) 7(a)(ix).
"Professional Fees" means any accounting, legal, investment banking, and
any other proper fee paid by the Company in order to facilitate the acquisition
by the Company or any of its Affiliates of a court reporting business, but
specifically excluding any type of fees incurred by the Seller in order to
consummate this Agreement, the Asset Purchase Agreement and the transactions
contemplated thereby.
"Prohibited Transaction" has the meaning set forth in ERISA Section 406 and
Code Section 4975.
"Purchase Money Liens" shall mean Liens incurred in connection with the
acquisition of any asset; provided that (i) each such Lien shall attach only to
the asset to be acquired, (ii) a description of the asset so acquired is
furnished to the other Party, and (iii) the indebtedness incurred in connection
with such acquisitions shall not individually exceed $5,000 or in the aggregate
exceed $25,000.
"Purchase Price" has the meaning described in (S) 2(b).
"Registration Rights Agreement" has the meaning set forth in (S) 7(a)(x)
below.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Rice" shall mean Scott Rice, currently an employee of the Company.
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"Rice Employment Agreement" shall mean that certain Employment Agreement by
and between Rice and the Company.
"Securityholders Agreement" shall mean that certain Securityholders
Agreement by and among the Buyer, Pecks, and all of the other shareholders of
the Buyer.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's and similar
liens, (b) liens for Taxes not yet due and payable or for Taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
Purchase Money Liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Seller" shall mean Richard O. Looney.
"Seller's Disclosure Schedule" has the meaning set forth in (S) 4A below.
"Settlement Agreement - Looney" shall mean that certain Settlement
Agreement by and among Long, Rice and Company.
"Settlement Agreement - Reporters" shall mean that certain Settlement
Agreement by and among Legal Enterprise, Long, Maddocks, Simon, Reporters and
the Company.
"Senior Lender" shall mean Texas Commerce Bank, N.A.
"Shareholders' Agreement" shall mean that certain Shareholders' Agreement
by and between the Buyer and all of the shareholders of the Buyer other than
Pecks.
"Simon" shall mean Alan Simon, a shareholder in Legal Enterprise.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors thereof.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium
windfall profits, environmental (including taxes under Code Section 5(A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
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"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Term Sheets" has the meaning set forth in (S) 4B(f).
2. PURCHASE AND SALE OF COMPANY SHARES.
(a) BASIC TRANSACTION. On and subject to the terms and conditions of
this Agreement, the Buyer agrees to purchase from the Seller, and the Seller
agrees to sell to the Buyer, all of his Company Shares for the consideration
specified below in this (S) 2.
(b) PURCHASE PRICE. The purchase price is $5,640,000 to be paid and
delivered by the Buyer to the Seller on the Closing Date as follows
(collectively the "Purchase Price"):
(i) Delivery to the Seller of 2,000,000 shares of Series B Convertible
Preferred Stock of Buyer, par value $1.00 per share, to be issued to Seller for
the same consideration on a per share basis as paid by the Investors of $1.00
per share as will constitute a value of $2,000,000 (the "Buyer Preferred
Shares");
(ii) Delivery of cash in the amount of $3,640,000 payable by wire
transfer or delivery of other immediately available funds to the Seller on the
Closing Date in accordance with wiring instructions delivered by the Seller to
the Buyer at least three business days prior to Closing (the "Cash Purchase
Price"); and
(iii) Delivery of cash in the amount of $200,000 as partial
reimbursement to the Seller for all Professional Fees through December 31, 1996
(the "Cash Reimbursement").
(c) THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Boyer, Ewing &
Harris in Houston, Texas, unless otherwise mutually agreed, commencing on
January __, 1997 at 9:00 a.m. local time, or at such other time or place as the
Parties mutually agree (the "Closing Date").
(d) DELIVERIES AT THE CLOSING. At the Closing, (i) the Seller will
deliver to the Buyer the various certificates, instruments, and documents
referred to in (S) 7(a) below, (ii) the Buyer will deliver to the Seller the
various certificates, instruments, and documents referred to in (S) 7(b) below,
(iii) the Seller will deliver to the Buyer stock certificates representing all
of the Company Shares, endorsed in blank or accompanied by duly executed
assignment documents, and (iv) the Buyer will deliver to the Seller the Buyer
Preferred Shares, the Cash Purchase Price, and the Cash Reimbursement.
(e) DETERMINATION OF FINAL NET WORTH. The Effective Date Balance Sheet of
the Company, the Effective Date Accounts Receivable Report and the Effective
Date Accounts Payable Report shall be prepared by the Seller with the
cooperation of the Company on a
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consistent basis as before, as promptly as possible after the Closing, and shall
be delivered to the Buyer within thirty (30) days after the Closing Date. The
Buyer shall review the Effective Date Balance Sheet, the Effective Date Accounts
Receivable Report and the Effective Date Accounts Payable Report and report to
the Seller in writing within fifteen (15) days of receipt thereof of any
discrepancy therein. If Seller and Buyer cannot resolve any such discrepancy
within thirty (30) days after Seller's receipt of such response, then an
independent public accounting firm acceptable to the Seller and the Buyer shall
be retained to review the Effective Date Balance Sheet, the Effective Date
Accounts Receivable Report and the Effective Date Accounts Payable Report and to
make a final determination thereof no later than thirty (30) days after their
receipt thereof. Such firm's conclusions as to the carrying values to appear on
the Effective Date Balance Sheet, the Effective Date Accounts Receivable Report
and the Effective Date Accounts Payable Report for purposes of determining the
Final Net Worth of the Company shall be conclusive. The Seller and the Buyer
shall share equally in the expenses of retaining such accounting firm.
(f) POST-CLOSING ADJUSTMENT OF PURCHASE PRICE. After the Closing Date,
the Purchase Price set forth in Section 2(b) shall be adjusted as follows: (i)
if the Final Net Worth of the Company as finally determined pursuant to Section
2(e) shall be more than the Guaranteed Net Worth, then the cash portion of the
Purchase Price shall be increased by an amount equal to 66.7% of the amount of
such excess, and the amount of the Buyer Preferred Shares based on the Buyer
Preferred Shares Value shall be increased by an amount equal to 33.3% of the
amount of such excess. In such event, the Buyer shall promptly pay Seller the
amount of such cash difference, and promptly issue additional Buyer Preferred
Shares in the amount of such difference based on the Buyer Preferred Shares
Value, and such additional Buyer Preferred Shares shall be pledged pursuant to
the Pledge Agreement. If the Final Net Worth of the Company as finally
determined pursuant to Section 2(e) shall be less than the Guaranteed Net Worth,
then the cash portion of the Purchase Price shall be reduced by an amount equal
to 66.7% of the amount of such shortfall, and the amount of the Buyer Preferred
Shares based on the Buyer Preferred Shares Value shall be reduced by an amount
equal to 33.3% of the amount of such shortfall. In such event, the Seller shall
promptly pay Buyer the amount of such cash difference, and the existing Buyer
Preferred Shares certificate shall be cancelled and a new one issued in the
reduced amount of Buyer Preferred Shares based on the Buyer Preferred Shares
Value, and such reduced Buyer Preferred Shares shall be pledged pursuant to the
Pledge Agreement. In addition to the foregoing, the amount of any additional
unpaid Professional Fees not paid at the Closing shall constitute an additional
adjustment to the Purchase Price, and shall be paid in cash by the Buyer to the
Seller at the time of finalization of the post-closing adjustment to the
Purchase Price.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller represents
and warrants to the Buyer that the statements contained in this (S) 3(a) are
correct as of the date of this Agreement and will be correct as of the Closing
Date as though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this (S) 3(a), except
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as set forth in or qualified by the schedules of exceptions attached hereto as
Schedule 3A of the Seller's Disclosure Schedule and except as any
representations and warranties are as to a specific date.
(i) AUTHORIZATION OF TRANSACTION. The Seller has full power and
authority to execute and deliver this Agreement and all other documents and
agreements contemplated hereby or thereby to which Seller is a party
contemplated hereby, and to perform his obligations hereunder. This
Agreement and all other documents and agreements to which he is a party
contemplated hereby or thereby, constitute the valid and legally binding
obligations of the Seller, enforceable in accordance with its terms and
conditions, except to the extent that enforcement thereof may be limited by
applicable bankruptcy, reorganization, insolvency or moratorium laws or
other laws or principles of equity effecting the enforcement of creditors'
rights. The Seller represents and warrants that he need not give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order to consummate
the transactions contemplated by this Agreement.
(ii) NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement by the Seller, nor the consummation of the transactions by
the Seller as contemplated hereby, will (A) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling,
charge, or other restriction of any government, governmental agency, or
court to which the Seller is subject or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Seller is a party or by which
he is bound or to which any of his assets is subject.
(iii) BROKERS' FEES. The Seller has no Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which the Buyer could
become liable or obligated.
(iv) INVESTMENT. The Seller (A) understands that the Buyer
Preferred Shares have been registered under the Securities Act, or under
any state securities laws, and are being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public
offering, (B) is acquiring the Buyer Preferred Shares solely for his own
account for investment purposes, and not with a view to the distribution
thereof, (C) is a sophisticated investor with knowledge and experience in
business and financial matters, (D) has received certain information
specified on Schedule 3A concerning the Buyer and has had the opportunity
to obtain additional information as desired in order to evaluate the merits
and the risks inherent in holding the Buyer Preferred Shares, (E) is able
to bear the economic risk and lack of liquidity inherent in holding the
Buyer Preferred Shares, and (F) is an Accredited Investor.
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(v) COMPANY SHARES. The Seller holds of record and owns beneficially
the number of Company Shares set forth next to his name in (S) 4A(b) of
the Disclosure Schedule, free and clear of any restrictions on transfer
(other than any restrictions under the Securities Act and state securities
laws), Taxes, Security Interests, options, warrants, purchase rights, or
other contracts or commitments that could require the Seller to sell,
transfer, or otherwise dispose of any capital stock of the applicable
Company(s) (other than this Agreement). The Seller is not a party to any
voting trust, proxy, or other agreement or understanding with respect to
the voting of any capital stock of the Company.
(vi) BUYER SHARES. The Seller holds of record and owns beneficially
the Buyer Shares, free and clear of any restrictions on transfer (other
than any restrictions under the Securities Act and state securities laws),
Taxes, Security Interests, options, warrants, purchase rights, or other
contracts or commitments that could require the Seller to sell, transfer,
or otherwise dispose of any capital stock of the Buyer. Except for other
agreements to be executed in connection herewith, the Seller is not a party
to any voting trust, proxy, or other agreement or understanding with
respect to the voting of any capital stock of the Buyer.
(b) REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and
warrants to the Seller that the statements contained in this (S) 3(b) are
correct as of the date of this Agreement and will be correct as of the Closing
Date (as though made then and as though the Closing Date were substituted for
the date of this Agreement throughout this (S) 3(b)), except as set forth in the
schedule of exceptions attached hereto as Schedule 3B.
(i) ORGANIZATION OF THE BUYER. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation. The Buyer is qualified to do business
in each jurisdiction in which the nature of its business, the ownership of
its assets or the lease of its properties require it to be so qualified.
(ii) AUTHORIZATION OF TRANSACTION. The Buyer has full power and
authority (including full corporate power and authority) to execute and
deliver this Agreement, the Employment Agreement and all other documents
and agreements contemplated hereby or thereby to which it is a party, and
to perform its obligations hereunder, including without limitation the
issuance of the Buyer Preferred Shares . The Board of Directors of the
Buyer has duly authorized the execution, delivery and performance of this
Agreement and the other agreements and transactions contemplated hereby,
including, without limitation, the issuance of the Buyer Preferred Shares ,
and no other corporate proceedings on the Buyer's part are necessary to
authorize this Agreement or the transactions contemplated hereby,
including, without limitation, the issuance of the Buyer Preferred Shares
and the Employment Agreement. Upon execution and delivery of this
Agreement by the Parties hereto this Agreement and all other documents and
agreements contemplated hereby or thereby to which it is a party shall,
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and upon issuance of the Buyer Preferred Shares in accordance with the
provisions hereof the Buyer Preferred Shares shall, constitute legal, valid
and binding obligations of the Buyer, enforceable against the Buyer in
accordance with their respective terms, except to the extent that
enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws or other laws or principles
of equity effecting the enforcement of creditors' rights. The Buyer
represents and warrants that it need not give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by this Agreement.
(iii) NONCONTRAVENTION. The Board of Directors of the Buyer has
duly authorized the execution, delivery and performance of this Agreement
and the other agreements and transactions contemplated hereby, including,
without limitation, the issuance of the Buyer Preferred Shares , and no
other corporate proceedings on the Buyer's part are necessary to authorize
this Agreement or the transactions contemplated hereby or thereby,
including, without limitation, the issuance of the Buyer Preferred Shares.
Upon execution and delivery of this Agreement by the Parties hereto this
Agreement shall, and upon issuance of the Buyer Preferred Shares in
accordance with the Agreement shall, constitute legal, valid and binding
obligations of the Buyer, enforceable against the Buyer in accordance with
their respective terms, except to the extent that enforcement thereof may
be limited by applicable bankruptcy, reorganization, insolvency or
moratorium laws or other laws or principles of equity affecting the
enforcement of creditor's rights. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will: (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which the Buyer is
subject; (ii) conflict with any of, or require the consent of any person or
entity under, the terms, conditions or provisions of the charter documents
or bylaws or equivalent governing instruments of the Buyer; or (iii)
conflict with, result in a breach of, constitute a default under (whether
with notice or the lapse of time or both), or accelerate or permit the
acceleration of the performance required by, or require any consent,
authorization or approval under, any indenture, mortgage, lien, agreement,
contract, commitment or instrument to which the Buyer is a party or by
which it is bound.
(v) LITIGATION. There are no actions, suits, proceedings or
governmental investigations or inquiries pending against the Buyer or its
properties, assets, operations or business which might delay or prevent the
consummation of the transactions contemplated hereby.
(vi) BROKERS' FEES. The Buyer has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Seller could
become liable or obligated.
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(vii) INVESTMENT. The Buyer (A) understands that the Company Shares
have not been registered under the Securities Act, or under any state
securities laws, and are being offered and sold in reliance upon federal
and state exemptions for transactions not involving any public offering,
(B) is acquiring the Company Shares solely for its own account for
investment purposes, and not with a view to the distribution thereof, (C)
is a sophisticated investor with knowledge and experience in business and
financial matters, (D) has received certain information specified on
Schedule 3B concerning the Seller and has had the opportunity to obtain
additional information as desired in order to evaluate the merits and the
risks inherent in holding the Company Shares, (E) is able to bear the
economic risk and lack of liquidity inherent in holding the Company Shares,
and (F) is an Accredited Investor.
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE PARTIES.
A. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY AND ITS
RESPECTIVE SUBSIDIARIES.
The Seller represents and warrants to the Buyer that the statements
contained in this (S) 4 are completely correct as of the date of this Agreement
and will be completely correct as of the Closing Date (as though made then and
as though the Closing Date were substituted for the date of this Agreement
throughout this (S) 4), except as set forth in Seller's disclosure schedule
attached hereto as Schedule 4A ("Seller's Disclosure Schedule") and except as
such representations and warranties are as to a specific date.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of Texas. The Company is not qualified to do business in any other
jurisdiction, nor does the nature of its business require such qualification.
The Company has full corporate power and authority and all material licenses,
permits, and authorizations necessary to carry on the businesses in which it is
engaged and to own and use the properties owned and used by it. (S) 4A(a) of the
Seller's Disclosure Schedule lists the directors and officers of the Company.
The Seller has delivered to the Buyer correct and complete copies of the
articles of incorporation and bylaws of each of the Company and its Subsidiaries
(as amended to date). The minute books (containing the records of meetings of
the stockholders, the board of directors, and any committees of the board of
directors), the stock certificate books, and the stock record books of the
Company are correct and complete in all material respects. The Company is not
in default under or in violation of any provision of its articles of
incorporation or bylaws.
(b) CAPITALIZATION. The entire authorized capital stock, the issued and
outstanding shares and the treasury shares of the Company are accurately set
forth in (S) 4A(b) of the Seller's Disclosure Schedule. All of the issued and
outstanding Company Shares have been duly authorized, are validly issued, fully
paid, and nonassessable, and are held of record by the Seller as set forth in
(S) 4A(b) of the Seller's Disclosure Schedule. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights,
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exchange rights, or other contracts or commitments that would require the
Company to issue, sell, or otherwise cause to become outstanding any of its
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to the
Company. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of the Company.
(c) NONCONTRAVENTION. Except as provided in (S) 4A(c) of the Seller's
Disclosure Schedule, neither the execution and the delivery of this Agreement
nor any other document or agreements contemplated hereby or thereby, nor the
consummation of the transactions contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which the Company is subject, (ii) violate any provision of the
articles of incorporation or bylaws of the Company, or (iii) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license, instrument,
or other arrangement to which Company is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets). The Company does not need to give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement without causing a violation of any
law, regulation, license or permit of any governmental entity or authority.
(d) SUBSIDIARIES. The Company does not have any ownership interest in any
Subsidiaries. The Company does not control directly or indirectly or have any
direct or indirect equity participation in any corporation, partnership, trust,
or other business association which is not a Subsidiary.
(e) FINANCIAL STATEMENTS. The Seller has previously furnished the Buyer
the following financial statements (collectively the "Financial Statements"):
(i) a Balance Sheet and an Income Statement for the fiscal year ended December
31, 1995 audited by the Company's accountants; and (ii) unaudited Balance
Sheets and Income Statements for the three month periods ended March 31, 1996,
June 30, 1996, and September 30, 1996, and for the two month period ended
November 30, 1996 compiled by the Company's accountants, and (iii) an Accounts
Receivable Report dated as of November 30, 1996. The Financial Statements
(including the notes thereto) have been prepared on an accrual basis and are
consistently reported throughout the periods covered thereby, present fairly the
financial condition of Company as of such dates and the results of operations of
Company for such periods (subject to routine audit adjustments), are correct and
complete in all material respects, and are consistent in all material respects
with the books and records of Company (which books and records are correct and
complete in all material respects).
(f) EVENTS SUBSEQUENT TO DECEMBER 31, 1995. Except as disclosed on (S)
4A(f) of the Seller's Disclosure Schedule, since December 31, 1995, there has
not been any material
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adverse change in the business, financial condition, operations, results of
operations, or future prospects of the Company. Without limiting the generality
of the foregoing, except as described on Schedule 4A(f) since that date:
--------------
(i) the Company has not sold, leased, transferred, or assigned any
of its assets, tangible or intangible, other than for a fair consideration
in the Ordinary Course of Business;
(ii) the Company has not entered into any agreement, contract,
lease, or license (or series of related agreements, contracts, lease, and
licenses) either involving more than $10,000 singly or $50,000 in the
aggregate or outside the Ordinary Course of Business;
(iii) the Company has not accelerated, terminated, modified, or
canceled any agreement, contract, lease, or license (or series of related
agreements, contracts, leases, and licenses) involving more than $20,000
singly or $50,000 in the aggregate to which any the Company is a party or
by which it is bound;
(iv) the Company has not imposed any Security Interest upon any of
its assets, tangible or intangible except for Permitted Liens;
(v) the Company has not made any capital expenditure (or series of
related capital expenditures) either involving more than $20,000 singly or
$50,000 in the aggregate or outside the Ordinary Course of Business;
(vi) the Company has not made any capital investment in, any loan
to, or any acquisition of the securities or assets of, any other Person (or
series or related capital investments, loans, and acquisitions) either
involving more than $5,000 singly or $25,000 in the aggregate;
(vii) the Company has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation either involving more than
$5,000 singly or $25,000 in the aggregate;
(viii) the Company has not delayed or postponed the payment of
accounts payable and other Liabilities for a period of more than sixty (60)
days after the date of invoice;
(ix) the Company has not canceled, compromised, waived, or released
any right or claim (or series of related rights and claims) either
involving more than $5,000 singly or $25,000 in the aggregate or outside
the Ordinary Course of Business;
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(x) there has been no change made or authorized in the articles of
incorporation or bylaws of the Company;
(xi) the Company has not issued, sold, or otherwise disposed of any
of its capital stock, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any
of its capital stock;
(xii) the Company has not declared, set aside, or paid any dividend
or made any distribution with respect to its capital stock (whether in cash
or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock;
(xiii) the Company has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to its property valued,
individually or in the aggregate, in excess of (i) $10,000 for all property
which, at the time of such damage or destruction, was subject to or covered
by property, casualty or any other form of insurance, and (ii) $5,000 for
all property which, at the time of such damage or destruction, was not
subject to or covered by property, casualty or any other form of insurance;
(xiv) the Company has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and employees;
(xv) the Company has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of
any such existing contract or agreement;
(xvi) the Company has not granted any increase in the base
compensation of any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xvii) the Company has not adopted, amended, modified, or terminated
any bonus, profit-sharing, incentive, severance, or other plan, contract,
or commitment for the benefit of any of its directors, officers, and
employees (or taken any such action with respect to any other Employee
Benefit Plan);
(xviii) the Company has not made any other change in employment terms
for any of its directors, officers, and employees outside the Ordinary
Course of Business;
(xix) the Company has not made or pledged to make any charitable or
other capital contribution outside the Ordinary Course of Business;
(xx) there has not been any other adverse occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving the Company of any of its Subsidiaries which
exceeds $5,000 individually $25,000 in the aggregate; and
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(xxi) the Company has not committed to any of the foregoing except
as contemplated by this Agreement or as requested by Buyer.
(g) UNDISCLOSED LIABILITIES. Except as disclosed on (S) 4A(g) of the
Seller's Disclosure Schedule, the Company does not have any Liability (and, to
the best of the Seller's Actual Knowledge, there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any Liability), except for
(i) Liabilities reflected in the then most current Financial Statements
(including any notes thereto) and (ii) Liabilities which have arisen after the
December 31, 1995 in the Ordinary Course of Business (none of which results
from, arises, out of, relates to, is in the nature of, or was caused by any
breach of contract, breach of warranty, tort, infringement, or violation of
law). It is agreed and understood by the Seller that this (S) 4A(g) does not
negate or qualify in any respect any other representation or warranty of the
Seller made in this Agreement.
(h) LEGAL COMPLIANCE. To the Actual Knowledge of Seller, the Company, and
its predecessors and Affiliates, have complied with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and, to the best of the Seller's Actual
Knowledge, no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against any of
them alleging any failure so to comply.
(i) TAX MATTERS. Except as disclosed on (S) 4A(i) of the Seller's
Disclosure Schedule:
(i) The Company has filed all Tax Returns that it was required to
file as of the respective due dates thereof. All such Tax Returns were
correct and complete in all material respects. All Taxes shown to be due on
the Tax Returns have been paid. The Company is not currently the
beneficiary of any extension of time within which to file any Tax Return.
No claim has ever been made by a Tax authority in a jurisdiction where the
Company does not file Tax Returns that it is or may be subject to taxation
by that jurisdiction. There are no Security Interests on the assets of the
Company that arose in connection with any failure (or alleged failure) to
pay any Tax.
(ii) The Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, creditor, stockholder, or other third party for applicable tax
periods.
(iii) There is no dispute or claim concerning any Tax Liability of
the Company either (A) claimed or raised by any Tax authority in writing or
(B) as to which the Seller and the directors and officers (and employees
responsible for Tax matters) of the Company have Actual Knowledge based
upon personal contact with any agent of such authority. (S) 4A(i) of the
Seller's Disclosure Schedule lists all federal,
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state, local, and foreign income Tax Returns filed with respect to the
Company for taxable periods ended on or after December 31, 1995, indicates
those Tax Returns that have been audited, and indicates those Tax Returns
that currently are the subject of an audit. The Seller has delivered to the
Buyer correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against or
agreed to by the Company.
(iv) The Company has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) The Company has not made an election under section 341(f) of the
Code.
(j) TITLE TO ASSETS. The Company has good and marketable title to, or a
valid leasehold interest in, the properties and assets used by it, or shown in
the Financial Statements or acquired after the date thereof, free and clear of
all Security Interests, except for properties and assets disposed of in the
Ordinary Course of Business since December 31, 1995, and except for Permitted
Encumbrances.
(k) REAL PROPERTY. The Company does not own any real property. (S) 4A(k)
of the Seller's Disclosure Schedule lists and describes briefly all real
property leased or subleased to the Company. The Seller has delivered to the
Buyer correct and complete copies of the leases and subleases listed in (S)
4A(k) of the Seller's Disclosure Schedule (as amended to date). With respect to
each lease and sublease listed in (S) 4A(k) of the Seller's Disclosure Schedule:
(A) The lease or sublease is a legal, valid, binding, enforceable
obligation of the Company, and is in full force and effect as to the
Company, and as to Seller's Actual Knowledge, is in full force and
effect as to any third parties thereto;
(B) The consummation of the transactions contemplated by the
Agreement will not affect the legal, valid, binding, and enforceable
nature of the lease or sublease.
(C) The Company is not in material breach or default of any
lease or sublease, and to the Seller's Actual Knowledge, no third
party to any such lease or sublease is in material breach or material
default, and to the Seller's Actual Knowledge, no event has occurred
which, with notice or lapse of time, would constitute a material
breach or material default or permit termination, modification, or
acceleration thereunder;
(D) with respect to each sublease, to the Sellers' Actual
Knowledge, the representations and warranties set forth in subsections
(A) through (C) above are true and correct with respect to the
underlying lease; and
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(E) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold, except Customarily Permitted Liens.
(l) TANGIBLE ASSETS. The Company owns or leases all buildings, machinery,
equipment, and other tangible assets necessary for the conduct of its businesses
as presently conducted. Each such tangible asset is suitable for the purpose
for which it is presently is used.
(m) INVENTORY. The Company does not carry or maintain any inventory
material to the financial operations of the Company.
(n) CONTRACTS. (S) 4A(n) of the Seller's Disclosure Schedule lists the
following contracts and other agreements currently in effect to which the
Company is a party:
(i) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in
excess of $25,000 per annum;
(ii) any agreement (or group of related agreements) for the
furnishing or receipt of services, the performance of which will extend
over a period of more than one year or involve consideration in excess of
$25,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, in excess of $25,000 or under
which it has imposed a Security Interest on any of its assets, tangible or
intangible;
(v) any agreement concerning confidentiality or noncompetition;
(vi) any agreement with the Seller and his Affiliates (other than
the Company);
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers,
and employees;
(viii) any written agreement for the employment of any individual on
a full-time, part-time, consulting, or other basis providing annual
compensation in excess of $25,000 or providing severance benefits;
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(ix) any agreement under which it has advanced or loaned any amount
to any of its directors, officers, and employees outside the Ordinary
Course of Business;
(x) any agreement under which the consequences of a default or
termination would reasonably be expected to have a material adverse effect
on the business, financial condition, operations, results of operations, or
future prospects of the Company or any of its Subsidiaries; or
(xi) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $25,000.
The Seller has delivered to the Buyer a correct and complete copy of each
written agreement listed in (S) 4A(n) of the Seller's Disclosure Schedule (as
amended to date) and a written summary setting forth the terms and conditions of
each oral agreement referred to in (S) 4A(n) of the Seller's Disclosure
Schedule. With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect; (B) the Company is
not in breach or default of any such contract, nor to the Seller's Actual
Knowledge is any other party in breach or default, and to the Seller's Actual
Knowledge, no event has occurred which with notice or lapse of time would
constitute a breach or default, or permit termination, modification, or
acceleration, under the agreement, and (C) the Company has not repudiated any
provision of any such agreement nor to the Seller's Actual Knowledge has any
other party repudiated any provision of any such agreement.
(o) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable of
the Company are collectible subject to the Company's historical allowance for
bad debts in amounts consistent with past practices of the Company, are properly
recorded on each Accounts Receivable Report delivered to the Buyer, reflected
properly on the Company's books and records and are valid receivables.
(p) POWERS OF ATTORNEY. Except as disclosed on (S) 4A(p) of the Seller's
Disclosure Schedule, there are no outstanding powers of attorney executed on
behalf of the Company.
(q) INSURANCE. (S) 4A(q) of the Seller's Disclosure Schedule lists each
insurance policy (including policies providing property, casualty, liability,
and workers' compensation coverage and bond and surety arrangements) to which
the Company is currently a party, copies of which have been furnished to the
Buyer.
(r) LITIGATION. (S) 4A(r) of the Seller's Disclosure Schedule sets forth
each instance in which the Company (i) is subject to any outstanding injunction,
judgment, order, decree, ruling, or charge or (ii) is a party or, to the Actual
Knowledge of the Seller, is threatened to be made a party to any action, suit,
proceeding, hearing, or investigation of, in, or before any court of quasi-
judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator.
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(s) CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY. Except as disclosed
on (S) 4A(s) of the Seller's Disclosure Schedule, neither the Seller nor his
Affiliates have been involved in any business arrangement or relationship with
the Company within the past 12 months, and neither the Seller nor any of his
Affiliates owns any asset, tangible or intangible, which is used in the business
of any of the Company.
(t) GUARANTIES. The Company is not a guarantor or otherwise liable for
any Liability or obligation (including indebtedness) of any other Person.
(u) EMPLOYEES. To the Seller's Actual Knowledge, no executive, key
employee, or group of employees has any plans to terminate employment with the
Company. To the Seller's Actual Knowledge, the Company has not committed any
unfair labor practice. The Seller does not have any Actual Knowledge of any
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of the Company. (S) 4A(u) of the Seller's
Disclosure Schedule sets forth by number and employment classification the
approximate numbers of employees employed by Company as of the date of this
Agreement, and none of said employees are subject to union or collective
bargaining agreements with the Company.
(v) EMPLOYEE BENEFITS.
(i) (S) 4A(v) of the Seller's Disclosure Schedule lists each Employee
Benefit Plan that the Company maintains or to which it contributes.
(A) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all
material respects with the applicable requirements of ERISA, the Code, and
other applicable laws.
(B) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed appropriately with
respect to each such Employee Benefit Plan. The requirements of Part
6 of Subtitle B of Title I of ERISA and of Code Section 4980B have
been complied with in all material respects to each such Employee
Benefit Plan which is a "group health plan," as defined under ERISA or
the Code.
(C) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid
to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each such
Employee Pension Benefit Plan or accrued in accordance with the past
custom and practice of the Company. All premiums
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or other payments for all periods ending on or before the Closing Date
have been paid with respect to each such Employee Benefit Plan.
(D) The Company has substantially performed all obligations,
whether arising by operation of law or by contract, required to be
performed by it in connection with such Employee Benefit Plans, and to
Seller's Actual Knowledge, there has been no default or violation by
any other party to such Employee Benefit Plans.
(E) The Seller has delivered to the Buyer correct and complete
copies of the plan documents and summary plan descriptions, the most
recent Form 5500 Annual Report, and all related trust agreements,
insurance contracts, and other funding agreements which relate to each
such Employee Benefit Plan.
(ii) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby will not (A) require the Company to
make a larger contribution to, or pay greater benefits under, any Employee
Benefit Plan than it otherwise would or (B) create or give rise to any
additional vested rights or service credits under any Employee Benefit
Plan.
(w) BROKERS' FEES. The Company does not have any Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement.
(x) OPERATION OF BUSINESS. To the Seller's Actual Knowledge (i) all court
reporters that are or have been hired (directly or indirectly through court
reporting services, including independent contractors) by the Company are duly
certified to perform the jobs that they are hired to perform, (ii) all documents
that the Company is or has been required to maintain, store or handle in
connection with conducting its business are or have been maintained, stored or
handled in the manner agreed to between the Company and its representative
clients or in conformity with prevailing standards regarding such matters that
prevail in the Company's industry, and (iii) the Company performs all aspects
and operations of its business at or above the prevailing standards for the
Company's industry.
(y) DISCLOSURE. The representations and warranties contained in this
(S) 4A do not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements and information
contained in this (S) 4A not misleading.
B. REPRESENTATIONS AND WARRANTIES CONCERNING THE BUYER.
The Buyer represents and warrants to the Seller that the statements
contained in this (S) 4B are completely correct as of the date of this
Agreement and will be completely correct as of the Closing Date (as though made
then and as though the Closing Date were substituted for the date of this
Agreement throughout this (S) 4B), except as set forth in the Buyer's
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Disclosure Schedule attached hereto as Schedule 4B (the "Buyer's Disclosure
Schedule") and except as such representations and warranties are as to a
specific date.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The Buyer is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. The Buyer is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required. Each of the Buyer and its Subsidiaries
has full corporate power and authority and all material licenses, permits, and
authorizations necessary to carry on the businesses in which it is engaged and
to own and use the properties owned and used by it. (S) 4B(a) of the Buyer's
Disclosure Schedule lists the directors and officers of the Buyer. The Buyer
has delivered to the Seller correct and complete copies of the charter and
bylaws of the Buyer (as amended to date). The minute books (containing the
records of meetings of the stockholders, the board of directors, and any
committees of the board of directors), the stock certificate books, and the
stock record books of the Buyer are correct and complete in all material
respects. The Buyer is not in default under or in violation of any provision of
its charter or bylaws.
(b) CAPITALIZATION. The entire authorized capital stock, the issued and
outstanding shares and the treasury shares of the Buyer are accurately set forth
in (S) 4B(b) of the Buyer's Disclosure Schedule together with the changes
thereto contemplated by the acquisition of the Company and other acquisitions
scheduled to be consummated by the Buyer contemporaneously herewith. All of the
issued and outstanding shares of the Buyer have been duly authorized, are
validly issued, fully paid, and nonassessable, and are held of record by the
respective parties as set forth in (S) 4B(b) of the Buyer's Disclosure Schedule.
There are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts or
commitments that could require the Buyer to issue, sell, or otherwise cause to
become outstanding any of its capital stock except those set forth in Schedule
(S) 4B(b) of the Buyer's Disclosure Schedule. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or similar
rights with respect to the Buyer except as set forth in Schedule (S) 4B(b) of
the Buyer's Disclosure Schedule. There are no voting trusts, proxies, or other
agreements or understandings with respect to the voting of the capital stock of
the Buyer.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement nor any other documents or agreements contemplated hereby or thereby,
nor the consummation of the transactions contemplated hereby, will (i) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which the Buyer is subject or any provision of the articles
of incorporation or bylaws of the Buyer or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which the Buyer or any of its Subsidiaries is a party or by which
it is bound or to which any of its assets is subject (or result in the
imposition of any Security Interest upon any of its assets). Neither the Buyer
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nor its Subsidiaries needs to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or governmental
agency in order for the Parties to consummate the transactions contemplated by
this Agreement without causing a violation of any law, regulation, license or
permit of any governmental entity or authority.
(d) CONTRACTS. Except as disclosed on Schedule (S) 4B(d) of the Buyer's
Disclosure Schedule, Buyer does not have any contracts.
(e) BROKERS' FEES. Except for that certain fee payable to The Gulfstar
Group, Inc., the Buyer has no Liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement.
(f) DISCLOSURE. The representations and warranties contained in this
(S) 4B do not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements and information
contained in this (S) 4B not misleading. Buyer has previously delivered Seller
copies of term sheet from Senior Lender and Pecks (the "Commitment Letters").
5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to
the periods preceding the Closing.
(a) CONDUCT OF BUSINESS. Between the date of this Agreement and the
Closing Date, the Seller will use reasonable efforts to cause the Company to:
(i) conduct its business only in the Ordinary Course of Business and
refrain from changing or introducing any new method of management or operations
except in the Ordinary Course of Business and consistent with prior practices;
(ii) except as disclosed on Schedule 5(a), refrain from taking any
-------------
action which is described in Section 4A(f) et seq., including without limiting
-- ---
the generality of the foregoing: (A) making any purchase, sale or disposition
of any asset or property other than in the Ordinary Course of Business, (B)
purchasing any capital asset costing more than $5,000 singly or $25,000 in the
aggregate; (C) mortgaging, pledging, subjecting to a lien or otherwise
encumbering any of such assets other than in the Ordinary Course of Business and
other than Permitted Encumbrances; (D) incurring any contingent liability as a
guarantor or otherwise with respect to the obligations of others, and from
incurring any other contingent or fixed obligations or liabilities except those
that are in the Ordinary Course of Business; (E) making any change or incurring
any obligation to make a change in its charter, bylaws or authorized or issued
capital stock; and (F) declaring, setting aside or paying any dividend, making
any other distribution in respect to its capital stock or making any direct or
indirect redemption, purchase or other acquisition of its stock;
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(iii) prevent any change with respect to its management and
supervisory personnel and banking arrangements, except as Seller reasonably
deems in the best interests of the Company which change shall promptly be
disclosed to Buyer;
(iv) keep intact its business organization, to keep available its
present officers and employees employed and to preserve the goodwill of all
suppliers, customers, distributors, independent contractors and others having
business relations with it;
(v) have in effect and maintain at all times all insurance of the
kind, in the amount and with the insurers presently in force or equivalent
insurance with any substitute insurers or insurance policies approved by the
Buyer in writing prior to such change of insurer or issuance of new insurance
policy;
(vi) on or before the Closing Date, furnish the Buyer with Financial
Statements dated as of September 30, 1996 that comply with all of the
requirements contained in Section 4(A)(e); and
(vii) permit the Buyer and its authorized representatives to have
full access during normal business hours upon reasonable prior notice to all of
its properties, assets, records, Tax Returns, contracts and documents and
furnish to the Buyer or its authorized representatives such financial and other
information with respect to its business or properties as the Buyer may
reasonably request.
(b) NO SOLICITATION OF OTHER OFFERS BY THE SELLER. Neither the
Seller nor any of his agents or representatives will, directly or indirectly,
(i) solicit, initiate discussions or engage in negotiations or any transaction
with any Person other than the Buyer relating to the possible acquisition of the
Company; or (ii) provide, or cause any other Person to provide, any information
concerning the Company to any Person, other than the Buyer (and officers,
directors, employees, other agents and representatives and advisors), relating
to the possible acquisition of the Company.
(c) AUTHORIZATION FROM OTHERS. Prior to the Closing Date, each of
the Parties will use reasonable best efforts to obtain all authorizations,
consents, and permits of others required to permit the consummation of the
transactions contemplated hereby.
(d) BREACH OF REPRESENTATION AND WARRANTIES. Neither of the Parties
shall take any action that would result in (i) a failure to comply in any
material respect with such Party's agreements hereunder or (ii) any of the
representations and warranties of such Party being inaccurate in any material
respect; and in the event of any such breach or default by a Party, such Party
shall give detailed written notice thereof to the other Party and shall use his
or its reasonable best efforts to promptly cure the same.
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(e) CONSUMMATION OF AGREEMENT. Each of the Parties shall use his or
its reasonable best efforts to perform and fulfill all conditions and
obligations on his or its parts to be performed and fulfilled under this
Agreement.
(f) COOPERATION. Each Party shall cooperate with all reasonable
requests of the other Party and his or its counsel in order to effect the
consummation of the transactions pursuant to and as contemplated in this
Agreement.
(g) CONFIDENTIALITY. Each of the Parties agrees that (i) he or it,
and his or its officers, directors, agents and representatives, will treat and
hold in strict confidence, and will not use, any data and information obtained
in connection with this transaction or Agreement with respect to the business of
the other Party, except for the purpose of the internal evaluation of the
transactions contemplated by this Agreement; (ii) if the transactions
contemplated by this Agreement are not consummated, he or it will return to the
other Party all copies of such data and information, including but not limited
to worksheets, test reports, manuals, lists, memoranda, and other documents
prepared by or made available to him or it in connection with this transaction;
and (iii) he or it will treat the existence of this Agreement and the
transactions contemplated hereby as strictly confidential and will not disclose
them to any Person without the prior written consent of the other Party, which
consent may be withheld for any or no reason. For purposes of this (S) 5(g),
the Company shall be deemed a Party.
(h) NO SOLICITATION OF OTHER OFFERS BY BUYER. Neither the Buyer nor
any of its officers, directors, clients, agents or representatives will,
directly or indirectly, (i) solicit, initiate discussions or engage in
negotiations or any transaction with any Person other than the Seller relating
to the possible acquisition of a company or other entity in any location within
the State of Texas that engages in the same type of business as that of the
Company except as disclosed on Schedule 5(h) or (ii) provide, or cause any other
Person to provide, any information concerning the Company to any Person, other
than the Seller, the Company (or its officers, directors, employees, other
agents and representatives) and their respective advisors. The Buyer will
notify the Seller immediately if any Person makes any proposal, offer, inquiry
or contact with respect to any of the foregoing.
(i) EMPLOYEE BENEFIT PLANS. Except where the Parties otherwise
mutually agree, each Employee Benefit Plan shall remain in effect after the
Closing until the Buyer is able to enter into health plans that provide
substantially similar benefits.
6. POST-CLOSING COVENANTS. The Parties agree as follows with respect to
the period following the Closing:
(a) GENERAL. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request all at the sole cost and expense of the
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requesting Party (unless the requesting Party is entitled to indemnification
therefor under (S) 8 below).
(b) LITIGATION SUPPORT. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand to which the other
Party is not subject (either by virtue of the indemnification provisions
contained in Section 8 of this Agreement or otherwise) in connection with (i)
any transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving the Company, the other Party will cooperate with him or it and his or
its counsel in the contest or defense, make available their personnel, and
provide such testimony and access to their books and records as shall be
reasonably necessary in connection with the contest or defense, all at the sole
cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under (S) 8 below). The
Buyer acknowledges and agrees that if the Seller is individually brought into
any litigation in connection with the Company, he shall be indemnified to the
maximum extent that directors and officers of corporations are permitted to be
indemnified under Texas law both for all costs of litigation as well as any
judgments or settlement amounts paid. Notwithstanding the foregoing, the Seller
shall not be entitled to indemnification to the extent of any of the following:
(i) suit against the Seller is with respect to a matter for which the
Seller is required to indemnify the Buyer pursuant to this Agreement; or
(ii) to the extent that the Seller is found by a court of competent
jurisdiction and by a nonappealable judgment of such court to have engaged in
gross negligence or willful misconduct.
(c) CONFIDENTIALITY. The Seller will treat and hold as such all of the
Confidential Information and refrain from using any of the Confidential
Information except in connection with this Agreement and all of the other
agreements executed in connection herewith and except in connection with
handling all of the litigation described on Section 4A(r) of the Seller's
Disclosure Schedule. In the event that the Seller is requested or required (by
oral question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar process) to
disclose any Confidential Information, the Seller will notify the Buyer promptly
of the request or requirement so that the Buyer may seek an appropriate
protective order or waive compliance with the provisions of this (S) 6(c). If,
in the absence of a protective order or the receipt of a waiver hereunder, the
Seller is, on the advice of counsel, compelled to disclose any Confidential
Information to any tribunal or else stand liable for contempt, the Seller may
disclose the Confidential Information to the tribunal; PROVIDED, HOWEVER, that
the Seller shall use his reasonable best efforts to obtain, at the reasonable
request of the Buyer, an order or other assurance that confidential treatment
will be accorded to such portion of the Confidential Information required to be
disclosed as the Buyer shall designate; provided, however that all of the
Seller's costs including but not limited
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to legal fees shall be paid by the Buyer. The foregoing provisions shall not
apply to any Confidential Information which is generally available to the public
immediately prior to the time of disclosure.
(d) LITIGATION. The Seller shall be solely responsible for handling, and
for liability resulting from, the Law Cypress-Distributing Co. and the Exchange
Corp., L.C. Litigation (as identified and defined in (S) 4A(r) of the Seller's
Disclosure Schedule) and shall indemnify the Buyer from any Damages the Buyer or
the Company may incur therefrom . The foregoing indemnification obligation
shall be outside of the indemnification provisions in Section 8 of this
Agreement. Buyer shall assume all liability for all other litigation involving
the Company which is disclosed in the Seller's Disclosure Schedule. Buyer's
liability for any and all litigation involving the Company remains subject to
the terms and provisions of Section 8 of this Agreement.
(e) THE SELLER AS DIRECTOR. Upon the occurrence of the Closing, Seller
shall be appointed to the Board of Directors of the Buyer, and Seller agrees to
serve on the Board of Directors of the Buyer for so long as he remains employed
by the Company and/or the Buyer.
(f) THE SELLER AS GUARANTOR. The Company and Buyer will use their best
efforts to obtain the full and final release of Seller from any guaranty by
Seller of and debt or obligations of the Company as more fully specified on
(S) 6(f) of the Seller's Disclosure Schedule. In the event any such release is
not procured and Seller suffers Damages then Buyer shall indemnify Seller from
any Damages. The foregoing indemnification obligation shall be outside of the
indemnification obligations of the Buyer contained in Section 8 of this
Agreement.
7. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of the Buyer to
proceed with the Closing and consummate the transactions to be performed by it
in connection with the Closing is subject to satisfaction of the following
conditions (any or all which may be waived in writing, by the Buyer):
(i) the representations and warranties set forth in (S) 3(a) and
(S) 4A above shall be true and correct in all material respects at and as
of the Closing Date;
(ii) the Seller shall have performed and complied with all of their
covenants hereunder in all material respects at and as of the Closing Date;
(iii) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions
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contemplated by this Agreement to be rescinded following consummation,
(C) affect adversely the right of the Buyer to own the Company Shares and
to control the Company, or (D) materially and adversely affect in any
material respect the right of the Company to own its assets and to operate
its business (and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
(iv) the Seller shall have delivered to the Buyer a certificate to
the effect that each of the conditions specified above in (S) 7(a)(i)-(iii)
is satisfied in all respects; provided, however, that with respect to (S) 7
(a)(iii), Seller shall certify only as to its Actual Knowledge;
(v) the Buyer shall have received from counsel to the Seller an
opinion, addressed to the Buyer, and dated as of the Closing Date
containing such assumptions and qualifications as may be reasonably
acceptable to the Buyer's legal counsel;
(vi) the Buyer shall have received the resignations, effective as of
the Closing, of each director and officer of the Company other than the
Seller and those whom the Buyer shall have specified in writing prior to
the Closing;
(vii) the Buyer shall have obtained on terms and conditions
reasonably satisfactory to it and Seller all of the financing it reasonably
needs in accordance with the Commitment Letters in order to consummate the
transactions contemplated hereby;
(viii) the Seller shall have entered into an Employment Agreement
with the Company and the Buyer in the form of EXHIBIT A attached hereto
(the "Employment Agreement');
(ix) the Seller shall have entered into the Stock Pledge Agreement
with the Buyer in the form of EXHIBIT B attached hereto (the "Pledge
Agreement");
(x) the Seller shall have entered into a certain Shareholders'
Agreement, a certain Securityholders Agreement and a certain Registration
Rights Agreement which shall grant to the Seller certain piggyback rights
with respect to the Buyer Shares and shall provide that, to the extent any
greater registration rights are ever granted to any seller of a company
acquired by the Buyer, the Seller shall be granted the same or equivalent
registration rights (the "Registration Rights Agreement") each on terms and
conditions reasonably satisfactory to it;
(xi) each of the appropriate parties shall have executed and
delivered the Asset Purchase Agreement, the Assumption of Obligations -
Reporters, the Assumption of Obligations - Looney, the Settlement
Agreement - Reporters, the Long Employment Agreement, the Settlement
Agreement -Looney, and the Rice Employment Agreement; and
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(xii) the Klein, Bury Acquisition shall have been simultaneously
consummated.
The Buyer may waive any condition specified in this (S) 7(a) if it executes a
writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF THE SELLER. The obligation of the Seller
to proceed with Closing and consummate the transactions to be performed by them
in connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in (S) 3(b) and
(S) 4B above shall be true and correct in all material respects at and as
of the Closing Date;
(ii) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation, (C) affect adversely the right of
the Seller to own the Buyer Shares, or (D) affect adversely in any material
respect the right of the Buyer and its Subsidiaries to own its assets and
to operate its business (and no such injunction, judgment, order, decree,
ruling, or charge shall be in effect);
(iv) the Buyer shall have delivered to the Seller a certificate to
the effect that each of the conditions specified above in (S) 7(b)(i)-(iii)
is satisfied in all respects; provided, however, that with respect to (S)
7(a)(iii), Buyer shall certify only as to its Actual Knowledge;
(v) the Seller shall have obtained the full and final releases (a)
of any guaranty of the Seller of the debt of the Company or any of its
Subsidiaries and (b) of any collateral pledged by the Seller securing such
debt or guarantees; provided, however, that the foregoing releases will not
require the payment by the Buyer of any additional consideration in excess
of the Purchase Price by the Buyer;
(vi) Buyer shall have entered into and caused the Company to enter
into the Employment Agreement with the Seller;
(vii) the Seller shall have received from counsel to the Buyer an
opinion addressed to the Seller and dated as of the Closing Date containing
such assumptions and qualifications as may be reasonably acceptable to the
Seller's legal counsel;
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(viii) the election of the Seller as a member of the Board of
Directors of the Buyer;
(ix) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby, and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Seller;
(x) the Buyer shall have entered into the Shareholders' Agreement,
the Securityholders Agreement, and the Registration Rights Agreement on
terms and conditions reasonably satisfactory to Seller;
(xi) the terms and provisions of the Securities Purchase Agreement,
including all other agreements and documents executed by Buyer and/or
Seller in connection therewith, shall be satisfactory to Seller in all
respects in his sole discretion;
(xii) each of the appropriate parties shall have executed and
delivered the Asset Purchase Agreement, the Assumption of Obligations -
Reporters, the Assumption of Obligations - Legal Enterprise, the Settlement
Agreement - Looney, the Long Employment Agreement, the Settlement
Agreement - Reporters, and the Rice Employment Agreement; and
(xiii) the Klein, Bury Acquisition shall have been simultaneously
consummated.
The Seller may waive any condition specified in this (S) 7(b) if he executes a
writing so stating at or prior to the Closing.
8. INDEMNIFICATION.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All of the representations and warranties of the Parties contained in this
Agreement shall survive the Closing hereunder and continue in full force and
effect for two years thereafter except for: (i) any representations and
warranties of title contained as part of (S)4 A(j), which shall survive until
the expiration of the applicable statute of limitation, and (ii) the
representations and warranties contained as in (S)4 A(i) regarding tax matters,
which shall survive until the expiration of the applicable statute of
limitation.
(b) INDEMNIFICATION PROVISIONS.
(I) BY THE SELLER. The Seller shall indemnify, save, defend and
hold harmless the Buyer and the Buyer's shareholders, directors, officers,
partners, agents and employees (and in the event the Buyer assigns its right,
title and interest hereunder to a
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corporation, which shall be permitted hereunder, such assignee) (collectively,
the "Buyer Indemnified Parties") from and against any and all costs, lawsuits,
losses, damages, Liabilities, deficiencies, claims and expenses, including
interest, penalties, reasonable attorneys' fees and all reasonable amounts paid
in investigation, defense or settlement of any of the foregoing (collectively
referred to herein as "Damages"), incurred in connection with or arising out of
or resulting from or incident to any breach (or in the event any third party
alleges facts that, if true, would mean the Seller has breached), of any
covenant, warranty or representation (subject to applicable survival periods)
made by the Seller in or pursuant to this Agreement or any other agreement
delivered pursuant to this Agreement or in any schedule, certificate, exhibit,
or other instrument furnished or to be furnished by the Seller or his Affiliates
pursuant to the terms of this Agreement; provided, however, that the Seller
shall not be liable for any such Damages to the extent, if any, such Damages
result from or arise out of a breach or violation of this Agreement by any Buyer
Indemnified Parties.
(ii) BY THE BUYER. The Buyer shall indemnify, save, defend and hold
harmless the Seller and his heirs, successors and assigns (collectively, the
"Seller Indemnified Parties") from and against any and all Damages incurred in
connection with or arising out of or resulting from or incident to any breach
(or in the event any third party alleges facts that, if true, would mean the
Buyer has breached), of any covenant, warranty or representation (subject to
applicable survival periods) made by the Buyer in or pursuant to this Agreement
or any other agreement delivered pursuant to this Agreement contemplated hereby
or in any schedule, certificate, exhibit, or other instrument furnished or to be
furnished by the Buyer under this Agreement; provided, however, that the Buyer
shall not be liable for any such Damages to the extent, if any, such Damages
result from or arise out of a breach or violation of this Agreement by any
Seller Indemnified Parties.
(iii) DEFENSE OF CLAIMS. If any claim is filed against any Party
entitled to the benefit of indemnity hereunder, written notice thereof
describing such claim in reasonable detail and indicating the amount (estimated,
if necessary) or good faith estimate of the reasonably foreseeable estimated
amount of Damages (which estimate shall in no way limit the amount of
indemnification the indemnified Party is entitled to receive hereunder), shall
be given to the indemnifying Party as promptly as practicable (and in any event
within ten (10) days, after the service of the citation or summons) ("Notice of
Action"); provided that the failure of any indemnified Party to give timely
notice shall not affect its rights to indemnification hereunder to the extent
that the indemnified Party demonstrates that the amount the indemnified Party is
entitled to recover exceeds the actual damages to the indemnifying Party caused
by such failure to so notify within ten (10) days. The indemnifying Party may
elect to compromise or defend any such asserted liability and to assume all
obligations contained in this Section 8(b) to indemnify the indemnified Party by
a delivery of notice of such election ("Notice of Election") within ten (10)
days after delivery of the Notice of Action. Upon delivery of the Notice of
Election, the indemnifying Party shall be entitled to take control of the
defense and investigation of such lawsuit or action and to employ and engage
attorneys of its own choice to handle and defend the same, at the indemnifying
Party's sole cost, risk and expense, and such indemnified Party shall cooperate
in all reasonable
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respects, at the indemnifying Party's sole cost, risk and expense, with the
indemnifying Party and such attorneys in the investigation, trial, and defense
of such lawsuit or action and any appeal arising therefrom; provided, however,
that the indemnified Party may, at its own cost, risk and expense, participate
in such investigation, trial and defense of such lawsuit or action and any
appeal arising therefrom. If the Notice of Election is delivered to the
indemnified Party, the indemnified Party shall not pay, settle or compromise
such claim without the indemnifying Party's consent, which consent shall not be
unreasonably withheld. If the indemnifying Party elects not to defend the claim
of the indemnified Party or does not deliver to the indemnified Party a Notice
of Election within ten (10) days after delivery of the Notice of Action, the
indemnified Party may, but shall not be obligated to defend, or the indemnified
Party may compromise or settle (exercising reasonable business judgment) the
claim or other matter on behalf, for the account, and at the risk, of the
indemnifying Party.
(iv) THIRD PARTY CLAIMS. The provisions of this Section 7.1 are not
limited to matters asserted by the Parties, but cover Damages incurred.
(v) LIMITATION ON INDEMNIFICATION. Notwithstanding any provision
of this Agreement, except for claims by the Buyer against the Seller under (S)
6(d) of this Agreement or by the Seller against the Buyer under (S) 6(f) of this
Agreement, neither the Buyer nor the Seller or any Affiliate of either shall be
required to pay an indemnified Party or any Affiliate thereof any amount with
respect to any claim for Damages under this Section 8(b) until the Damages which
the Indemnified Party and its or his Affiliates suffered under this Agreement
aggregate at least $50,000 (the "Threshold"), at which time and in such event
the indemnified Party or Affiliate shall be entitled to receive payment for the
entire amount of aggregate Damages to the extent they exceed $50,000; provided,
however, that such Threshold amount shall not limit any Party's liability for a
knowing and intended breach of a representation, warranty or covenant of such
Party hereunder. Any amounts owed by Seller under this Section 8(b)(v) shall be
satisfied first by reduction of the value of the Buyer Preferred Shares and then
against the Buyer Shares as provided in Section 9(c). Neither Party (considered
collectively with such Party's Affiliates) shall be liable to indemnify the
other Party in an amount in excess of one-half of the Purchase Price plus
$3,060,000.00 including any and all amounts due and owing under (S) 6(d) and (S)
6(f) of this Agreement.
9. TERMINATION AND REMEDIES.
(a) TERMINATION.
(i) This Agreement may be terminated at any time prior to the Closing:
(A) by the mutual consent of the Seller and the Buyer; or (B) by the Seller or
the Buyer, at any time after the date hereof and prior to the occurrence of the
Closing, if any of the conditions precedent to its obligations hereunder have
not been fulfilled, in any material respect, as of the Closing Date, other than
as a result of such terminating party's breach or negligence; or (C) if any bona
fide action or proceeding shall be pending against either Party as of the
Closing Date that might reasonably be expected to result in an unfavorable
judgment, decree
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or order that would prevent or make unlawful the carrying out of this Agreement
or if any agency of the federal or of any state government shall have objected
at or before the Closing to this acquisition or to any other action required by
or in connection with this Agreement and such objection shall not have been
removed by the Closing Date.
(ii) This Agreement may be terminated by the Buyer at any time prior
to the Closing if the representations or warranties of the Seller herein shall
prove to have been inaccurate in any material respect when made, provided that,
the Buyer shall give the Seller a reasonable period of time, but only if there
is any such time prior to the scheduled Closing Date, to cure any default
hereunder, by the payment of compensation (if the matter is reasonably capable
of rectification by that means) or by the rectification of the matter before the
Closing.
(iii) This Agreement may be terminated by the Seller at any time
prior to the Closing if representations or warranties of the Buyer herein shall
prove to have been inaccurate in any material respect when made, provided that,
the Seller shall give the Buyer a reasonable period of time, but only if there
is any such time prior to the scheduled Closing Date, to cure any default
hereunder, by the payment of compensation (if the matter is reasonably capable
of rectification by that means) or by the rectification of the matter before the
Closing.
(iv) Nothing in this (S) 9(a) shall be deemed to release either
Party from any liability for any breach by such Party of the terms and
provisions of this Agreement; provided, however that such Party shall not be
liable in the event the Agreement is terminated pursuant to (S) 9(a)(i), or
pursuant to (S) 9(a)(ii) or (S) 9(a)(iii) if the default is not intentional, and
reasonable and good faith efforts are made to rectify the matter but it is not
resolved.
(v) For purposes only of determining whether termination of this
Agreement is permissible pursuant to (S) 9(a)(ii) or (S) 9(a)(iii), the
representations or warranties herein shall not be deemed to be inaccurate in any
material respect, unless such failure to comply or inaccuracy might reasonably
be expected to result in Damages to the other Party of in excess of $150,000.
(b) SPECIFIC PERFORMANCE. Each of the Parties hereby agrees that the
transactions contemplated by this Agreement are unique, and that each Party
shall have, in addition to any other legal or equitable remedy available to it,
the right to enforce this Agreement by decree of specific performance. If any
legal action or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing Party or Parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or proceeding
in addition to any other remedies to which it, he or they may be entitled at law
or equity. The rights and remedies granted herein are cumulative and not
exclusive of any other right or remedy granted herein or provided by law.
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(c) OFFSET. To the extent not otherwise prohibited by applicable law,
the Buyer Shares, the Buyer Preferred Shares and all amounts due and owing by
the Buyer to the Seller under this Agreement, shall be subject to offset by the
Buyer to the extent of any Damages incurred by the Buyer which permits the Buyer
to make an indemnification claim against the Seller. In the event the Buyer
elects to offset any damages incurred as a result of any such breach, the Buyer
shall furnish the Seller notice containing detailed information about the
breach, the magnitude of the Damages that the Buyer has or reasonably expects to
incur (the act of offsetting by the Buyer shall be referred to as an "Offset").
All Offsets shall first be against the Buyer Preferred Shares based on the Buyer
Preferred Shares Value in accordance with the Pledge Agreement. Any additional
Damages shall be Offset against the Buyer Shares. For purposes hereof, the
Buyer Shares shall be deemed to have the Buyer Shares Value. The Buyer Shares
shall have a restrictive legend typed on the back thereof specifying that the
Buyer Shares are subject to a right of Offset as specified in this Agreement.
The Seller acknowledges and agrees that but for the right of Offset contained in
this Agreement, the Buyer would not have entered into this Agreement or any of
the transactions contemplated herein. If any legal action or other proceeding
is brought for the enforcement of this Agreement, or any document, instrument,
or agreement executed in connection herewith, or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions of
this Agreement or any document, instrument, or agreement executed in connection
herewith, the successful or prevailing Party shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or proceeding
in addition to any other remedies to which it or they may be entitled at law or
equity. The rights and remedies granted herein are cumulative and not exclusive
of any other right or remedy granted herein or provided by law. Notwithstanding
anything to the contrary contained herein, Seller shall have the right to negate
an Offset in whole or in part, to the extent he elects to pay any Damages in
cash.
10. MISCELLANEOUS.
(a) PUBLIC ANNOUNCEMENTS. No Party shall issue any press release or make
any public announcement relating to the subject matter of this Agreement
(including the documents referred to herein) without the prior written approval
of the Buyer and the Sellers; provided, however, that any Party may make any
public disclosure it believes in good faith upon the advice of legal counsel it
is required by applicable law (in which case the disclosing Party will use its
best efforts to advise the other Party prior to making the disclosure).
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) ENTIRE AGREEMENT. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
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(d) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the Buyer and the Seller; provided, however, that the Buyer may (i)
assign any or all of its rights and interests hereunder (x) to one or more of
its Affiliates, and (y) to one or more financial institutions lending funds to
the Buyer for the purpose of financing the purchase of the Company Shares
hereunder and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
(e) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to the Seller: Richard O. Looney
11717 Forest Glen
Houston, Texas 77024
Telefax: (713) 653-7172
Copy to: Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Attn: Thomas D. Manford III
Telefax: (713) 221-1212
If to the Buyer: Litigation Resources of America, Inc.
3850 Nationsbank Center
700 Louisiana Street
Houston, Texas 77002-2731
Attn: G. Kent Kahle, President
Telefax: (713) 238-4999
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Copy to: Boyer Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Attn: J. Randolph Ewing
Telefax: (713) 871-2024
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO
ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF TEXAS
OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF TEXAS.
(i) AMENDMENTS AND WAIVERS. No amendments or waivers of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
the Buyer and the Seller. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(j) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) EXPENSES. Each of the Parties, the Company, and its Subsidiaries
will bear his or its own costs and expenses (including legal fees and expenses)
incurred in connection with this Agreement and the transactions contemplated
hereby.
(l) CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations
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promulgated thereunder, unless the context requires otherwise. The word
"including" shall mean including without limitation. The Parties intend that
each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(m) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(n) ARBITRATION. If a dispute arises out of or relates to this
Agreement, or the breach thereof, and if said dispute cannot be settled through
negotiation, the Parties agree first to try in good faith to settle the dispute
by mediation under the Commercial Mediation Rules of the American Arbitration
Association, before resorting to arbitration, litigation, or some other dispute
resolution procedure as required by this Section 10(n). Failing an adequate
resolution by mediation, any controversy or claim arising out of or relating to
this Agreement or the transactions contemplated hereby, including any
controversy or claim arising out of or relating to the Parties' decision to
enter into this Agreement, shall be settled by binding arbitration. There shall
be one arbitrator to be mutually agreed upon by the Parties involved in the
controversy and to be selected from the National Panel of Commercial Arbitrators
(or successor panel, if any). If within 45 days after service of the demand for
arbitration the Parties are unable to agree upon such an arbitrator who is
willing to serve, then an arbitrator shall be appointed by the American
Arbitration Association in accordance with its rules. Except as specifically
provided in this Section 10(n), the arbitration shall be conducted in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
The arbitrator shall not render an award of punitive damages. Any arbitration
hereunder shall be held in Houston, Texas. Expenses related to the arbitration,
including counsel fees, shall be borne by the Party incurring such expenses
except to the extent otherwise provided herein. The fees of the arbitrator and
of the American Arbitration Association, if any, shall be divided equally among
the Parties involved in the controversy. Judgment upon the award rendered by the
arbitrator (which may, if deemed appropriate by the arbitrator, include
equitable or mandatory relief with respect to performance of obligations
hereunder) may be entered in any court of competent jurisdiction. The arbitrator
shall award the prevailing Party in any arbitration proceeding recovery of its
attorneys' fees and other costs in connection with the arbitration from the non-
prevailing Party.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on as
of the date first above written.
BUYER:
LITIGATION RESOURCES OF AMERICA, INC.,
a Texas corporation
By: /s/ G. Kent Kahle
--------------------------
G. Kent Kahle
President
SELLER:
By: /s/ Richard O. Looney
--------------------------
Richard O. Looney
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SCHEDULES AND EXHIBITS
SCHEDULES
- ---------
3A Exceptions to the Seller's Representations and Warranties
3B Exceptions to the Buyer's Representations and Warranties
4A Seller's Disclosure Schedule
4A(a) Director and Officer of Seller
4A(b) Company Share
4A(c) Noncontravention
4A(f) Events Subsequent to Most Recent Fiscal Year End
4A(g) Undisclosed Liabilities
4A(i) Tax Matters
4A(k) Real Property
4A(n) Contracts
4A(p) Powers of Attorney
4A(q) Insurance
4A(r) Litigation
4A(s) Certain Business Relationship with Company
4A(u) Employees
4A(v) Employee Benefit Plan
4B Buyer's Disclosure Schedule
4B(a) Directors and Officers of Buyer
4B(b) Capitalization
4B(d) Contracts
5(a) Conduct of Business
5(h) No Solicitation of Other Offers by the Buyer
6(f) Seller as Guarantor
EXHIBITS
- --------
A Employment Agreement
B Pledge Agreement
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EXHIBIT 10.6
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is entered into as of
January 17, 1997 by and between Litigation Resources of America, Inc., a Texas
corporation (the "Buyer"), and Michael Klein, an individual (the "Seller");
Seller is the sole shareholder of Klein, Bury and Associates, Inc., a Florida
corporation (the "Company").
This Agreement contemplates a transaction in which the Buyer will purchase
from the Seller and the Seller will sell to the Buyer all of the outstanding
capital stock of the Company in return for cash and the other consideration set
forth in (S) 2(b) below.
The transactions as contemplated by this Agreement are part of a common
plan intended to constitute a reorganization of the Company under Internal
Revenue Code Section 351 pursuant to which (1) all of the Company Shares will be
transferred to the Buyer; and (2) all of the outstanding common stock of Looney
will be transferred to Buyer; for and in consideration of the issuance of stock
of the Buyer to the Seller, Pecks, as hereinafter defined, and the owner of
Looney, as hereinafter defined.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. CERTAIN DEFINITIONS.
"Accounts Payable Report" means a report as of a given time period
containing a summary of the outstanding accounts payable of Company which report
shall reflect such accounts payable on an aged basis and shall set forth the
amounts due and owing by Company to each of its suppliers, creditors or court
reporters.
"Accounts Receivable" means all amounts due and owing to Company by each of
its customers.
"Accounts Receivable Report" means a report as of a given time period
containing a summary of the outstanding accounts receivable of Company, which
report shall reflect such accounts receivable and shall set forth the amounts
due and owing to Company by each of its customers.
"Accredited Investor" has the meaning set forth in Regulation D promulgated
under the Securities Act.
"Actual Knowledge" means actual knowledge after reasonable investigation.
<PAGE>
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Balance Sheet Report" means the cash basis balance sheet of the Company as
of a given date showing the assets, liabilities and equity of the Company
prepared by the Company on a consistent basis as with prior time periods.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or is reasonably likely to form the
basis for any specified consequences.
"Buyer" shall mean Litigation Resources of America, Inc., a Texas
corporation.
"Buyer's Accountants" shall mean the independent certified public
accounting firm of Arthur Andersen & Co. of Houston, Texas.
"Buyer's Disclosure Schedule" has the meaning set forth in (S) 4B below.
"Buyer Financial Statements" has the meaning set forth in (S) 4B(d) below.
"Buyer Indemnified Parties" has the meaning set forth in (S) 8(b) below.
"Buyer Note" has the meaning set forth in (S) 2(b) below.
"Buyer Shares" has the meaning set forth in (S) 2(b) below.
"Buyer Shares Value" shall mean $6.41 per Buyer Share; provided however,
that if the Buyer has successfully consummated a public offering of its shares
of common stock, then it shall mean the average public trading price of each
Buyer Share over the five (5) most recent business days.
"Cash Purchase Price" has the meaning set forth in (S) 2(b) below.
"Charges" shall mean all federal, state, county, city, municipal, local,
foreign or other governmental taxes at the time due and payable, levies,
assessments, charges, liens, claims or encumbrances upon or relating to (i) any
of a corporation's employees, payroll, income or gross receipts, (ii) any of a
corporation's ownership or use of any of its assets, or (iii) any other aspect
of a corporation's business.
"Closing" has the meaning set forth in (S) 2(c) below.
"Closing Date" has the meaning set forth in (S) 2(c) below.
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"Code" means the Internal Revenue Code of 1986, as amended.
"Company" shall mean Klein, Bury & Associates, Inc., a Florida corporation.
"Company Distribution" shall mean the distribution of all amounts contained
in the Company's City National Bank account to Seller as of the Closing Date.
"Company's Accountants" shall mean the independent certified public
accounting firm of Gelber/Appel & Company of Miami, Florida.
"Company Share" means any share of the common stock of the Company as set
forth in Section 4A(b) of the Seller's Disclosure Schedule.
"Confidential Information" means any information concerning the businesses
and affairs of the Company and its Subsidiaries that is not (a) generally known
or available to the public; (b) after the date of this Agreement, generally
known or readily available through no violation of this Agreement; or (c) in or
does not hereafter become a part of the public domain through no violation of
this Agreement.
"Controlled Group" means the Company, its Subsidiaries, and any trade or
business (whether or not incorporated) which together with the Company or any
Subsidiary of the Company would be deemed to be a "single employer" within the
meaning of ERISA Section 4001(b)(1) or subsections (b), (c), (m) or (o) of Code
Section 414.
"Customarily Permitted Liens" shall mean:
(a) Liens for ad valorem taxes, assessments or other governmental Charges
or levies, not yet due and payable;
(b) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other like Liens imposed by law, created in the
ordinary course of business and for amounts not yet due (or which are being
contested in good faith by appropriate proceedings or other appropriate actions
which are sufficient to prevent imminent foreclosure of such Liens) ; and
(c) easements (including, without limitation, reciprocal easement
agreements and utility agreements), encroachments, variations and other
restrictions, Charges or encumbrances customary to the type of real property
affected and which do not impair the current use, occupancy, value or the
marketability of title of the real property subject thereto.
"Damages" has the meaning set forth in (S) 8(b) below.
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"Effective Date' shall mean 12:01 a.m. on the Closing Date.
"Effective Date Accounts Payable Report" means the Accounts Payable Report
as of the Effective Date.
"Effective Date Accounts Receivable" shall mean the entire amount of
Accounts Receivable as of the Effective Date.
"Effective Date Accounts Receivable Report" means the Accounts Receivable
Report as of the Effective Date.
"Effective Date Balance Sheet Report" means the Balance Sheet Report as of
the close of the Effective Date.
"Employee Benefit Plan" means any (a) Employee Pension Benefit Plan, (b)
Employee Welfare Benefit Plan, or (c) personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement, incentive award plan
or arrangement, vacation policy, severance pay plan, policy or agreement,
deferred compensation agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement, employment agreement and
each other employee benefit plan, agreement, arrangement, program, practice or
understanding which is not described in clause (a) or (b) of this sentence.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Section
3(2), including, but not limited to, employee pension benefit plans, such as
foreign plans, which are not subject to the provisions of ERISA.
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Section
3(1), including, but not limited to, employee welfare benefit plans, such as
foreign plans, which are not subject to the provisions of ERISA.
"Employment Agreement" means that certain Employment Agreement by and
between the Company and Seller.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Final Net Worth" means the Net Worth as of the Effective Date as
determined in accordance with (S) 2(e) below.
"Financial Statements" has the meaning set forth in (S) 4A(e) below.
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"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Guaranteed Net Worth" means $1,856,996.15 which is equal to (i) the Net
Worth as of October 31, 1996 ($295,283.89), plus (ii) the accounts receivable of
the Company as of October 14, 1996, ($2,298,381.74), plus (iii) all accumulated
depreciation as of October 31, 1996 ($143,425.08), minus (iv) the accounts
payable and other current liabilities of the Company as of October 31, 1996
($661,661.28), minus (v) cash balances at City National Bank as of October 31,
1996 ($236,758.81), minus (vi) stockholder loans borrowed by the Seller from the
Company as of October 31, 1996 (($18,325.53)), minus (vii) the gross book value
of automobiles as of October 31, 1996 ($0.00).
"Income Statement Reports" means a statement of revenues and expenses of
the Company as of a given date prepared by the Company on a cash basis and on a
consistent basis as with prior time periods.
"IRS" means the United States Internal Revenue Service or such equivalent
successor agency of the United States with the responsibility of assessing
and/or collecting Taxes.
"Investors" shall mean Pecks.
"Liability" means any liability (whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
"Liens" means any mortgages, deeds of trust, liens, security interests,
pledges, claims, charges, liabilities, obligations, or other encumbrances.
"Looney" shall mean Looney & Company, a Texas corporation.
"Looney Acquisition" shall mean the acquisition by the Buyer of all of the
issued and outstanding shares of common stock of Looney.
"Net Worth" means the dollar amount of equity of the Company as of a given
time period as determined by the Balance Sheet Report.
"Notice of Action" has the meaning set forth in (S) 8(b) below.
"Notice of Election" has the meaning set forth in (S) 8(b) below.
"Offset" has the meaning set forth in (S) 9(c).
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"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" shall mean, individually, the Buyer or the Seller.
"Parties" shall mean, collectively, the Buyer and the Seller.
"Past Due Accounts Receivable" means those accounts receivable of the
Company whose age is more than 120 days from the date of invoice as of the
Effective Date.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pecks" shall mean Pecks Management Partners Ltd., a New York limited
partnership.
"Permitted Encumbrances" with respect to property of a Party shall mean (i)
Security Interests expressly permitted, or consented in writing to by the other
Party; (ii) Purchase Money Liens; (iii) Customarily Permitted Liens; and (iv)
Liens of judgment creditors provided such Liens do not exceed $5,000
individually or $25,000 in the aggregate (other than Liens bonded or insured to
the reasonable satisfaction of the other Party).
"Person" means an individual, a partnership, a limited liability company, a
corporation, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"Pledge Agreement" has the meaning set forth in (S) 9(c) below.
"Prohibited Transaction" has the meaning set forth in ERISA Section 406 and
Code Section 4975.
"Purchase Money Liens" shall mean Liens incurred in connection with the
acquisition of any asset; provided that (i) each such Lien shall attach only to
the asset to be acquired, (ii) a description of the asset so acquired is
furnished to the other Party, and (iii) the indebtedness incurred in connection
with such acquisitions shall not individually exceed $5,000 or in the aggregate
exceed $25,000.
"Purchase Price" has the meaning described in (S) 2(b) below.
"Registration Rights Agreements" has the meaning set forth in (S) 7(a)(ix)
below.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Securities Act" means the Securities Act of 1933, as amended.
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"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Securityholders Agreement" shall mean that certain Securityholders
Agreement by and between the Buyer, Pecks and the other shareholders of the
Buyer other than the Seller.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's and similar
liens, (b) liens for Taxes not yet due and payable or for Taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
Purchase Money Liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Seller" shall mean Michael Klein.
"Seller's Disclosure Schedule" has the meaning set forth in (S) 4A below.
"Senior Lender" shall mean Texas Commerce Bank, N.A.
"Shareholders' Agreement" shall mean that certain Shareholders' Agreement
by and between the Buyer and all of the shareholders of the Buyer other than
Pecks.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors thereof.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium
windfall profits, environmental (including taxes under Code Section 5(A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
2. PURCHASE AND SALE OF COMPANY SHARES.
(a) BASIC TRANSACTION. On and subject to the terms and conditions of this
Agreement, the Buyer agrees to purchase from the Seller, and the Seller agrees
to sell to the Buyer, all of his Company Shares for the consideration specified
below in this (S) 2.
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(b) PURCHASE PRICE. The purchase price is up to $6,660,396 to be paid
and delivered by the Buyer to the Seller on the Closing Date, subject to
adjustments thereto under this Agreement, as follows (collectively, the
"Purchase Price"):
(i) Delivery to the Seller of 170,600.00 shares of common stock of the
Buyer, $.01 par value per share (the "Buyer Shares") as will constitute an
agreed upon value of $1,093,546 and at a per share value of $6.41;
(ii) Delivery to the Seller of the Buyer's 10% Subordinated Promissory
Note in the principal amount of $1,486,846 in the form attached hereto as
Exhibit A (the "Buyer Note"), which Buyer Note shall provide that it is
immediately accelerated should the Buyer consummate a public offering of shares
of its common stock;
(iii) Delivery of cash in the amount of $3,580,004 payable by wire
transfer or delivery of other immediately available funds to the Seller on the
Closing Date in accordance with wiring instructions delivered by the Seller to
the Buyer at least three business days prior to Closing (the "Cash Purchase
Price"); and
(iv) In addition, the Buyer shall deliver to the Seller, as collected in
the Ordinary Course of Business, 50% of Past Due Accounts Receivable up to a
maximum of $500,000 in payments by the Buyer to the Seller hereunder.
(c) THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Boyer, Ewing &
Harris in Houston, Texas, unless otherwise mutually agreed, commencing on
January 17, 1997 at 9:00 a.m. local time, or at such other time or place as the
Parties mutually agree (the "Closing Date").
(d) DELIVERIES AT THE CLOSING. At the Closing, (i) the Seller will
deliver to the Buyer the various certificates, instruments, and documents
referred to in (S) 7(a) below, (ii) the Buyer will deliver to the Seller the
various certificates, instruments, and documents referred to in (S) 7(b) below,
(iii) the Seller will deliver to the Buyer stock certificates representing all
of the Company Shares, endorsed in blank or accompanied by duly executed
assignment documents, and (iv) the Buyer will deliver to the Seller the Buyer
Shares, the Buyer Note and the Cash Purchase Price.
(e) DETERMINATION OF FINAL NET WORTH. The Effective Date Balance Sheet
Report of the Company, the Effective Date Accounts Receivable Report and the
Effective Date Accounts Payable Report shall be prepared by the Company, as
promptly as possible after the Closing. Company's Accountants shall then
compile the Effective Date Balance Sheet Report, and the Seller shall prepare
the Effective Date Accounts Receivable Report and the Effective Date Accounts
Payable Report, and deliver the Effective Date Balance Sheet Report, the
Effective Date Accounts Receivable Report and the Effective Date Accounts
Payable Report
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to the Buyer and the Buyer's Accountants within 30 days after the Closing Date.
The Buyer's Accountants shall review the Effective Date Balance Sheet Report,
the Effective Date Accounts Receivable Report and the Effective Date Accounts
Payable Report (including any corresponding work papers of Company's
Accountants) and report to the Seller's Accountants in writing within 15 days of
receipt thereof of any discrepancy. If Company's Accountants and the Buyer's
Accountants cannot resolve such discrepancy within 15 days after Company's
Accountants receipt of such report, then they shall so notify the Seller and the
Buyer, and the Seller and the Buyer shall attempt to resolve the discrepancy
within 15 days of such notice. If the Seller and the Buyer cannot resolve the
discrepancy to their mutual satisfaction, another independent public accounting
firm acceptable to the Seller and the Buyer shall be retained to review the
Effective Date Balance Sheet Report, the Effective Date Accounts Receivable
Report and the Effective Date Accounts Payable Report. Such firm's conclusions
as to the carrying values to appear on the Effective Date Balance Sheet Report,
the Effective Date Accounts Receivable Report and the Effective Date Accounts
Payable Report for purposes of determining the Final Net Worth of the Company
shall be conclusive. The Seller and the Buyer shall share equally in the
expenses of retaining such accounting firm. The Buyer shall pay the expenses of
the Buyer's Accountants for their review of the Effective Date Balance Sheet
Report, the Effective Date Accounts Receivable Report and the Effective Date
Accounts Payable Report, and the Seller shall pay the expenses of Company's
Accountants for their review of the Effective Date Balance Sheet Report, the
Effective Date Accounts Receivable Report and the Effective Date Accounts
Payable Report. The Parties acknowledge and agree that any obligations paid or
payable to Richard Applebaum, Richard Bury, Nancy Hirsch or Gary Reif under
their respective Bonus Agreements shall not be deducted from the determination
of the Final Net Worth.
(f) POST-CLOSING ADJUSTMENT OF PURCHASE PRICE. After the Closing Date, the
Purchase Price set forth in Section 2(b), shall be adjusted as follows: (i) if
the Final Net Worth of the Company as finally determined pursuant to Section
2(e) shall be more than the Guaranteed Net Worth, then the cash portion of the
Purchase Price shall be increased by an amount equal to 71.6% of the amount of
such excess, and the principal amount of the Buyer Note shall be increased by an
amount equal to 28.4% of the amount of such excess, and (ii) if the Final Net
Worth of the Company as finally determined pursuant to Section 2(e) shall be
less than the Guaranteed Net Worth, then the cash portion of the Purchase Price
shall be reduced by an amount equal to 71.6% of the amount of such shortfall,
and the principal amount of the Buyer Note shall be reduced by an amount equal
to 28.4% of the amount of such shortfall. In the event that any principal
payments on the Buyer Note are made by the Buyer prior to the determination of
the final principal balance as a result of the determination of the Final Net
Worth, then the amount of any such principal payments shall reduce the amount of
the principal balance of the revised Buyer Note. In addition, the Buyer Note
executed and delivered by the Buyer to the Seller at the Closing shall be
promptly returned to the Buyer marked "CANCELLED" upon the Buyer's delivery of
the revised Buyer Note to the Seller upon determination of the Final Net Worth.
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3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller represents
and warrants to the Buyer that the statements contained in this (S) 3(a) are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this (S) 3(a),
except as set forth in the schedules of exceptions attached hereto as Schedule
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3A.
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(i) AUTHORIZATION OF TRANSACTION. The Seller has full power and
authority to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Seller, enforceable in accordance with its terms
and conditions, except to the extent that enforcement thereof may be
limited by applicable bankruptcy, reorganization, insolvency or moratorium
laws or other laws or principles of equity effecting the enforcement of
creditors' rights. The Seller represents and warrants that he need not
give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement.
(ii) NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement by the Seller, nor the consummation of the transactions by
the Seller as contemplated hereby, will (A) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling,
charge, or other restriction of any government, governmental agency, or
court to which the Seller is subject or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Seller is a party or by which
he is bound or to which any of his assets is subject.
(iii) BROKERS' FEES. The Seller has no Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which the Buyer could
become liable or obligated.
(iv) INVESTMENT. The Seller (A) understands that neither the Buyer
Note nor the Buyer Shares have been registered under the Securities Act, or
under any state securities laws, and are being offered and sold in reliance
upon federal and state exemptions for transactions not involving any public
offering, (B) is acquiring the Buyer Note and the Buyer Shares solely for
his own account for investment purposes, and not with a view to the
distribution thereof, (C) is a sophisticated investor with knowledge and
experience in business and financial matters, (D) has received certain
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information specified on Schedule 3A concerning the Buyer and has had the
-----------
opportunity to obtain additional information as desired in order to
evaluate the merits and the risks inherent in holding the Buyer Note and
the Buyer Shares, (E) is able to bear the economic risk and lack of
liquidity inherent in holding the Buyer Note and the Buyer Shares, and (F)
is an Accredited Investor.
(v) COMPANY SHARES. The Seller holds of record and owns beneficially
the number of Company Shares set forth next to his name in (S) 4A(b) of
the Seller's Disclosure Schedule, free and clear of any restrictions on
transfer (other than any restrictions under the Securities Act and state
securities laws, Taxes, Security Interests, options, warrants, purchase
rights, or other contracts or commitments that could require the Seller to
sell, transfer, or otherwise dispose of any capital stock of the applicable
Company(s) (other than this Agreement)). The Seller is not a party to any
voting trust, proxy, or other agreement or understanding with respect to
the voting of any capital stock of the Company.
(b) REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and
warrants to the Seller that the statements contained in this (S) 3(b) are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this (S) 3(b)),
except as set forth in the schedule of exceptions attached hereto as Schedule
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3B.
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(i) ORGANIZATION OF THE BUYER. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of Texas.
The Buyer is qualified to do business in each jurisdiction in which the
nature of its business, the ownership of its assets or the lease of its
properties require it to be so qualified.
(ii) AUTHORIZATION OF TRANSACTION. The Buyer has full power and
authority (including full corporate power and authority) to execute and
deliver this Agreement and the Employment Agreement, and to perform its
obligations hereunder, including without limitation the issuance of the
Buyer Shares and the Buyer Note. The Board of Directors of the Buyer has
duly authorized the execution, delivery and performance of this Agreement,
the Employment Agreement and the other agreements and transactions
contemplated hereby, including, without limitation, the issuance of the
Buyer Shares and the Buyer Note, and no other corporate proceedings on the
Buyer's part are necessary to authorize this Agreement, the Employment
Agreement or the transactions contemplated hereby, including, without
limitation, the issuance of the Buyer Shares and the Buyer Note. Upon
execution and delivery of this Agreement and the Employment Agreement by
the Parties hereto, this Agreement and the Employment Agreement shall, and
upon issuance of the Buyer Note in accordance with the provisions hereof
the Buyer Note shall, constitute legal, valid and binding obligations
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of the Buyer, enforceable against the Buyer in accordance with their
respective terms, except to the extent that enforcement thereof may be
limited by applicable bankruptcy, reorganization, insolvency or moratorium
laws or other laws or principles of equity effecting the enforcement of
creditors' rights. The Buyer represents and warrants that it need not give
any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency in order to consummate
the transactions contemplated by this Agreement.
(iii) ISSUANCE OF THE BUYER STOCK. The Buyer Shares shall, upon
issuance and delivery, be duly authorized, validly issued, fully paid and
non-assessable.
(iv) NONCONTRAVENTION. The Board of Directors of the Buyer has duly
authorized the execution, delivery and performance of this Agreement, the
Employment Agreement and the other agreements and transactions contemplated
hereby, including, without limitation, the issuance of the Buyer Shares and
the Buyer Note, and no other corporate proceedings on the Buyer's part are
necessary to authorize this Agreement or the transactions contemplated
hereby, including, without limitation, the issuance of the Buyer Shares and
the Buyer Note. Upon execution and delivery of this Agreement and the
Employment Agreement by the Parties hereto this Agreement and the
Employment Agreement shall, and upon issuance of the Buyer Note in
accordance with the provisions hereof the Buyer Note shall, constitute
legal, valid and binding obligations of the Buyer, enforceable against the
Buyer in accordance with their respective terms, except to the extent that
enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws or other laws or principles
of equity affecting the enforcement of creditor's rights. Neither the
execution and the delivery of this Agreement or the Employment Agreement,
nor the consummation of the transactions contemplated hereby, will violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Buyer is subject or any
provision of its charter or bylaws.
(v) BROKERS' FEES. The Buyer has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Seller could
become liable or obligated.
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE PARTIES.
A. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY.
The Seller represents and warrants to the Buyer that the statements
contained in this (S) 4 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for
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the date of this Agreement throughout this (S) 4), except as set forth in
Seller's disclosure schedule attached hereto as Schedule 4A ("Seller's
-----------
Disclosure Schedule"). Nothing in the Seller's Disclosure Schedule shall be
deemed adequate to disclose an exception to a representation or warranty made
herein, however, unless the Seller's Disclosure Schedule identifies the
exception with reasonable particularity and describes the relevant facts in
reasonable detail.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of Florida. The Company is not qualified to do business in any other
jurisdiction, nor does the nature of its business require such qualification.
The Company has full corporate power and authority and all material licenses,
permits, and authorizations necessary to carry on the businesses in which it is
engaged and to own and use the properties owned and used by it. (S) 4A(a) of the
Seller's Disclosure Schedule lists the directors and officers of the Company.
The Seller has delivered to the Buyer correct and complete copies of the
articles of incorporation and bylaws of each of the Company and its Subsidiaries
(as amended to date). The minute books (containing the records of meetings of
the stockholders, the board of directors, and any committees of the board of
directors), the stock certificate books, and the stock record books of the
Company are correct and complete in all material respects. The Company is not
in default under or in violation of any provision of its articles of
incorporation or bylaws.
(b) CAPITALIZATION. The entire authorized capital stock, the issued and
outstanding shares and the treasury shares of the Company are accurately set
forth in (S) 4A(b) of the Seller's Disclosure Schedule. All of the issued and
outstanding Company Shares have been duly authorized, are validly issued, fully
paid, and nonassessable, and are held of record by the Seller as set forth in
(S) 4A(b) of the Seller's Disclosure Schedule. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that would require
the Company to issue, sell, or otherwise cause to become outstanding any of its
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to the
Company. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of the Company.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Company is subject, (ii) violate any
provision of the articles of incorporation or bylaws of the Company, or (iii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which Company is a party or by which it is
bound or to which any of its assets is subject (or
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result in the imposition of any Security Interest upon any of its assets). The
Company does not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement.
(d) SUBSIDIARIES. The Company does not have any ownership interest in
any Subsidiaries. The Company does not control directly or indirectly or have
any direct or indirect equity participation in any corporation, partnership,
trust, or other business association which is not a Subsidiary.
(e) FINANCIAL STATEMENTS. The Seller has previously furnished the Buyer
with the following financial statements (collectively the "Financial
Statements"): (i) a Balance Sheet Report and an Income Statement Report for the
fiscal years ended September 30, 1995 and September 30, 1996 compiled by
Company's Accountants; and (ii) Balance Sheet Reports and Income Statement
Reports for the three month periods ended December 31, 1995, March 31, 1996,
June 30, 1996 and September 30, 1996 compiled by Company's Accountants and a
Balance Sheet dated October 31, 1996 prepared by the Company's Accountants,
(iii) an Accounts Receivable Report dated as of February 1, 1996 and as of
October 14, 1996, and (iv) an Accounts Payable Report dated October 31, 1996.
The Financial Statements (including the notes thereto) have been prepared on a
cash basis and are consistently reported throughout the periods covered thereby,
present fairly the financial condition of Company as of such dates and the
results of operations of Company for such periods, are correct and complete in
all material respects, and are consistent in all material respects with the
books and records of Company (which books and records are correct and complete
in all material respects).
(f) EVENTS SUBSEQUENT TO DECEMBER 31, 1995. Except as disclosed on (S)
4A(f) of the Seller's Disclosure Schedule, since December 31, 1995, there has
not been any material change in the business, financial condition, operations,
results of operations, or future prospects of the Company. Without limiting the
generality of the foregoing, since that date:
(i) the Company has not sold, leased, transferred, or assigned any
of its assets, tangible or intangible, other than for a fair consideration
in the Ordinary Course of Business;
(ii) the Company has not entered into any agreement, contract,
lease, or license (or series of related agreements, contracts, lease, and
licenses) either involving more than $5,000 singly or $25,000 in the
aggregate or outside the Ordinary Course of Business;
(iii) the Company has not accelerated, terminated, modified, or
canceled any agreement, contract, lease, or license (or series of related
agreements, contracts,
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leases, and licenses) involving more than $5,000 singly or $25,000 in the
aggregate to which any the Company is a party or by which it is bound;
(iv) the Company has not imposed any Security Interest upon any of
its assets, tangible or intangible, except for Permitted Liens;
(v) the Company has not made any capital expenditure (or series of
related capital expenditures) either involving more than $5,000 singly or
$25,000 in the aggregate or outside the Ordinary Course of Business;
(vi) the Company has not made any capital investment in, any loan
to, or any acquisition of the securities or assets of, any other Person (or
series or related capital investments, loans, and acquisitions) either
involving more than $5,000 singly or $25,000 in the aggregate;
(vii) the Company has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation either involving more than
$5,000 singly or $25,000 in the aggregate;
(viii) the Company has not delayed or postponed the payment of
accounts payable and other Liabilities for a period of more than sixty (60)
days after the date of invoice;
(ix) the Company has not canceled, compromised, waived, or released
any right or claim (or series of related rights and claims) either
involving more than $5,000 singly or $25,000 in the aggregate or outside
the Ordinary Course of Business;
(x) there has been no change made or authorized in the articles of
incorporation or bylaws of the Company;
(xi) the Company has not issued, sold, or otherwise disposed of any
of its capital stock, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any
of its capital stock;
(xii) the Company has not declared, set aside, or paid any dividend
or made any distribution with respect to its capital stock (whether in cash
or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock;
(xiii) the Company has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to its property valued,
individually or in the aggregate, in excess of (i) $10,000 for all property
which, at the time of such damage
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or destruction, was subject to or covered by property, casualty or any
other form of insurance, and (ii) $5,000 for all property which, at the
time of such damage or destruction, was not subject to or covered by
property, casualty or any other form of insurance;
(xiv) the Company has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and employees;
(xv) the Company has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of
any such existing contract or agreement;
(xvi) the Company has not granted any increase in the base
compensation of any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xvii) the Company has not adopted, amended, modified, or terminated
any bonus, profit-sharing, incentive, severance, or other plan, contract,
or commitment for the benefit of any of its directors, officers, and
employees (or taken any such action with respect to any other Employee
Benefit Plan);
(xviii) the Company has not made any other change in employment terms
for any of its directors, officers, and employees outside the Ordinary
Course of Business;
(xix) the Company has not made or pledged to make any charitable or
other capital contribution outside the Ordinary Course of Business;
(xx) there has not been any other adverse occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving the Company of any of its Subsidiaries which
exceeds $5,000 individually $25,000 in the aggregate; and
(xxi) the Company has not committed to any of the foregoing.
(g) UNDISCLOSED LIABILITIES. Except as disclosed on (S) 4A(g) of the
Seller's Disclosure Schedule, the Company does not have any Liability (and, to
the best of the Seller's Actual Knowledge, there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any Liability), except for
(i) Liabilities reflected in the then most current Financial Statements
(including any notes thereto) and (ii) Liabilities which have arisen after the
December 31, 1995 in the Ordinary Course of Business (none of which results
from, arises, out of, relates to, is in the nature of, or was caused by any
breach of contract, breach of warranty, tort, infringement, or violation of
law).
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(h) LEGAL COMPLIANCE. To the Actual Knowledge of Seller, the Company, and
its predecessors and Affiliates, have complied with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and, to the Seller's Actual Knowledge,
no action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them alleging any
failure so to comply.
(i) TAX MATTERS. Except as disclosed on (S) 4A(i) of the Seller's
Disclosure Schedule:
(i) The Company has filed all Tax Returns that it was required to
file. All such Tax Returns were correct and complete in all material
respects. All Taxes shown to be due on the Tax Returns have been paid.
The Company is not currently the beneficiary of any extension of time
within which to file any Tax Return. No claim has ever been made by a Tax
authority in a jurisdiction where the Company does not file Tax Returns
that it is or may be subject to taxation by that jurisdiction. There are
no Security Interests on the assets of the Company that arose in connection
with any failure (or alleged failure) to pay any Tax.
(ii) The Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, creditor, stockholder, or other third party, except for the
unlikely event that Taxes may be incurred in connection with an independent
contractor of the Company being characterized as an employee (which matters
are addressed solely in Section 9(d) hereof).
(iii) There is no dispute or claim concerning any Tax Liability of
the Company either (A) claimed or raised by any Tax authority in writing or
(B) as to which the Seller and the directors and officers (and employees
responsible for Tax matters) of the Company has Actual Knowledge based upon
personal contact with any agent of such authority. (S) 4A(i) of the
Seller's Disclosure Schedule lists all federal, state, local, and foreign
income Tax Returns filed with respect to the Company for taxable periods
ended on or after December 31, 1995, indicates those Tax Returns that have
been audited, and indicates those Tax Returns that currently are the
subject of an audit. The Seller has delivered to the Buyer correct and
complete copies of all federal income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by the Company.
(iv) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
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(v) The Company has not made an election under section 341(f) of the
Code.
(j) TITLE TO ASSETS. The Company has good and marketable title to, or a
valid leasehold interest in, the properties and assets used by it, or shown in
the Financial Statements or acquired after the date thereof, free and clear of
all Security Interests, except for properties and assets disposed of in the
Ordinary Course of Business since December 31, 1995, and except for Permitted
Encumbrances.
(k) REAL PROPERTY. The Company does not own any real property. (S) 4A(k)
of the Seller's Disclosure Schedule lists and describes briefly all real
property leased or subleased to the Company. The Seller has delivered to the
Buyer correct and complete copies of the leases and subleases listed in (S)
4A(k) of the Seller's Disclosure Schedule (as amended to date). Except as
disclosed on (S) 4A(k) of the Seller's Disclosure Schedule, with respect to each
lease and sublease listed in (S) 4A(k) of the Seller's Disclosure Schedule:
(A) The lease or sublease is legal, valid, binding, enforceable,
and in full force and effect;
(B) The lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby
except for the leased premises covered by the New Lease;
(C) The Company is not in material breach or default of any
lease or sublease, and to the Seller's Actual Knowledge, no third
party to any such lease or sublease is in material breach or material
default, and to the Seller's Actual Knowledge, no event has occurred
which, with notice or lapse of time, would constitute a material
breach or material default or permit termination, modification, or
acceleration thereunder;
(D) with respect to each sublease, to the Sellers' Actual
Knowledge, the representations and warranties set forth in subsections
(A) through (C) above are true and correct with respect to the
underlying lease; and
(E) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold, except Customarily Permitted Liens.
(l) TANGIBLE ASSETS. The Company owns or leases all buildings, machinery,
equipment, and other tangible assets necessary for the conduct of its businesses
as presently conducted. Each such tangible asset is suitable for the purpose
for which it is presently used.
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(m) INVENTORY. The Company does not carry or maintain any inventory.
(n) CONTRACTS. (S) 4A(n) of the Seller's Disclosure Schedule lists the
following contracts and other agreements currently in effect to which the
Company is a party:
(i) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in
excess of $25,000 per annum;
(ii) any agreement (or group of related agreements) for the
furnishing or receipt of services, the performance of which will extend
over a period of more than one year or involve consideration in excess of
$25,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, in excess of $25,000 or under
which it has imposed a Security Interest on any of its assets, tangible or
intangible;
(v) any agreement concerning confidentiality or noncompetition;
(vi) any agreement among the Seller and his Affiliates (other than
the Company);
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers,
and employees;
(viii) any written agreement for the employment of any individual on
a full-time, part-time, consulting, or other basis providing annual
compensation in excess of $25,000 or providing severance benefits;
(ix) any agreement under which it has advanced or loaned any amount
to any of its directors, officers, and employees outside the Ordinary
Course of Business;
(x) any agreement under which the consequences of a default or
termination would reasonably be expected to have a material adverse effect
on the business, financial condition, operations, results of operations, or
future prospects of the Company; or
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(xi) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $25,000.
The Seller has delivered to the Buyer a correct and complete copy of each
written agreement listed in (S) 4A(n) of the Seller's Disclosure Schedule (as
amended to date) and a written summary setting forth the terms and conditions of
each oral agreement referred to in (S) 4A(n) of the Seller's Disclosure
Schedule. With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect; (B) the Company is
not a party nor to the Seller's Actual Knowledge is any other party in breach or
default, and to the Seller's Actual Knowledge, no event has occurred which with
notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under the agreement, and (C) the
Company has not repudiated any provision of any such agreement nor to the
Seller's Actual Knowledge has any other party repudiated any provision of any
such agreement.
(o) NOTES AND ACCOUNTS RECEIVABLE. To the Seller's Actual Knowledge, all
notes and accounts receivable of the Company are properly recorded on each
Accounts Receivable Report delivered to the Buyer, reflected properly on the
Company's books and records and are valid receivables.
(p) POWERS OF ATTORNEY. Except as disclosed on (S) 4A(p) of the Seller's
Disclosure Schedule, there are no outstanding powers of attorney executed on
behalf of the Company.
(q) INSURANCE. (S) 4A(q) of the Seller's Disclosure Schedule lists each
insurance policy (including policies providing property, casualty, liability,
and workers' compensation coverage and bond and surety arrangements) to which
the Company is currently a party, copies of which have been furnished to the
Buyer.
(r) LITIGATION. (S) 4A(r) of the Seller's Disclosure Schedule sets forth
each instance in which the Company (i) is subject to any outstanding injunction,
judgment, order, decree, ruling, or charge or (ii) is a party or, to the Actual
Knowledge of the Seller, is threatened to be made a party to any action, suit,
proceeding, hearing, or investigation of, in, or before any court of quasi-
judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator.
(s) CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY. Except as disclosed
on (S) 4A(s) of the Seller's Disclosure Schedule, neither the Seller nor his
Affiliates have been involved in any business arrangement or relationship with
the Company within the past 12 months, and neither the Seller nor any of his
Affiliates owns any asset, tangible or intangible, which is used in the business
of any of the Company.
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(t) GUARANTIES. The Company is not a guarantor or otherwise liable for
any Liability or obligation (including indebtedness) of any other Person.
(u) EMPLOYEES. To the Seller's Actual Knowledge, no executive, key
employee, or group of employees has any plans to terminate employment with the
Company. To the Seller's Actual Knowledge, the Company has not committed any
unfair labor practice. The Seller does not have any Actual Knowledge of any
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of the Company. (S) 4A(u) of the Seller's
Disclosure Schedule sets forth by number and employment classification the
approximate numbers of employees employed by Company as of the date of this
Agreement, and none of said employees are subject to union or collective
bargaining agreements with the Company.
(v) EMPLOYEE BENEFITS.
(i) (S) 4A(v) of the Seller's Disclosure Schedule lists each Employee
Benefit Plan that the Company maintains or to which it contributes.
(A) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all
material respects with the applicable requirements of ERISA, the Code,
and other applicable laws.
(B) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed appropriately with respect
to each such Employee Benefit Plan. The requirements of Part 6 of
Subtitle B of Title I of ERISA and of Code Section 4980B have been met
with respect to each such Employee Benefit Plan which is an Employee
Welfare Benefit Plan.
(C) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid
to each such Employee Benefit Plan which is an Employee Pension Benefit
Plan and all contributions for any period ending on or before the
Closing Date which are not yet due have been paid to each such Employee
Pension Benefit Plan or accrued in accordance with the past custom and
practice of the Company. All premiums or other payments for all periods
ending on or before the Closing Date have been paid with respect to
each such Employee Benefit Plan.
(D) The Company has substantially performed all obligations,
whether arising by operation of law or by contract, required to be
performed by it in connection with such Employee Benefit Plans, and to
Seller's Actual
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Knowledge, there has been no default or violation by any other party to
such Employee Benefit Plans.
(E) The Seller has delivered to the Buyer correct and complete
copies of the plan documents and summary plan descriptions, the most
recent Form 5500 Annual Report, and all related trust agreements,
insurance contracts, and other funding agreements which relate to each
such Employee Benefit Plan.
(ii) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby will not (A) require the Company to
make a larger contribution to, or pay greater benefits under, any Employee
Benefit Plan than it otherwise would or (B) create or give rise to any
additional vested rights or service credits under any Employee Benefit
Plan.
(iii) Each such Employee Benefit Plan has been terminated by the
Company in compliance with all applicable laws on or before the Closing
Date.
(w) BROKERS' FEES. The Company does not have any Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement.
(x) OPERATION OF BUSINESS. To the Seller's Actual Knowledge (i) all court
reporters that are or have been hired (including independent contractors) by the
Company are qualified to perform the jobs that they are hired to perform and
they are not required by law to obtain any certification to perform their jobs,
(ii) all documents that the Company is or has been required to maintain, store
or handle in connection with conducting its business are or have been
maintained, stored or handled in the manner agreed to between the Company and
its respective clients or in material conformity with prevailing standards
regarding such matters in the Company's industry, and (iii) the Company performs
all aspects and operations of its business at or above the prevailing standards
for the Company's industry.
(y) DISCLOSURE. The representations and warranties contained in this (S)
4A do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements and information
contained in this (S) 4A not misleading.
B. REPRESENTATIONS AND WARRANTIES CONCERNING THE BUYER AND LOONEY.
The Buyer represents and warrants to the Seller that the statements
contained in this (S) 4B are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this (S) 4B), except as set forth in the Buyer's Disclosure
Schedule attached hereto as Schedule 4B (the "Buyer's Disclosure
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Schedule"). Nothing in the Buyer's Disclosure Schedule shall be deemed adequate
to disclose an exception to a representation or warranty made herein, however,
unless the Buyer's Disclosure Schedule identifies the exception with reasonable
particularity and describes the relevant facts in reasonable detail.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The Buyer is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. The Buyer is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required. Each of the Buyer and its Subsidiaries
has full corporate power and authority and all material licenses, permits, and
authorizations necessary to carry on the businesses in which it is engaged and
to own and use the properties owned and used by it. (S) 4B(a) of the Buyer's
Dis closure Schedule lists the directors and officers of the Buyer. The Buyer
has delivered to the Seller correct and complete copies of the charter and
bylaws of the Buyer (as amended to date). The minute books (containing the
records of meetings of the stockholders, the board of directors, and any
committees of the board of directors), the stock certificate books, and the
stock record books of the Buyer are correct and complete in all material
respects. The Buyer is not in default under or in violation of any provision of
its charter or bylaws.
(b) CAPITALIZATION. The entire authorized capital stock, the issued
and outstanding shares and the treasury shares of the Buyer are accurately set
forth in (S) 4B(b) of the Buyer's Disclosure Schedule together with the changes
thereto contemplated by the acquisition of the Company and other acquisitions
scheduled to be consummated by the Buyer contemporaneously herewith. All of the
issued and outstanding shares of the Buyer have been duly authorized, are
validly issued, fully paid, and nonassessable, and are held of record by the
respective parties as set forth in (S) 4B(b) of the Buyer's Disclosure Schedule.
There are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts or
commitments that could require the Buyer to issue, sell, or otherwise cause to
become outstanding any of its capital stock except those set forth in Schedule
(S) 4B(b) of the Buyer's Disclosure Schedule. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or similar
rights with respect to the Buyer except as set forth in Schedule (S) 4B(b) of
the Buyer's Disclosure Schedule. There are no voting trusts, proxies, or other
agreements or understandings with respect to the voting of the capital stock of
the Buyer. The Buyer does not own any Subsidiaries prior to the Closing.
(c) NO OPERATIONS. The Buyer has not engaged and will not engage in
any active business operations prior to the Closing.
(d) SAME PRICE PAID BY INVESTORS FOR BUYER SHARES. The price of $6.41
per Buyer Share is the same price as that paid by the Investors.
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(e) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Buyer is subject, (ii) violate any
provision of the charter or bylaws of the Buyer, or (iii) conflict with, result
in a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license, instrument, or
other arrangement to which the Buyer is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets). The Buyer does not need to give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(f) CONTRACTS. Except as disclosed on Schedule (S) 4B(f), Buyer does
not have any contracts.
(g) OWNERSHIP AND CONTROL. Immediately after the consummation of the
transactions contemplated by this Agreement (including, but not limited to the
Closing, the closing of the Looney Acquisition and the closing of the Investor's
acquisition of stock of the Buyer), the Seller, the Investor and the former
owner of Looney, combined, shall own: (i) at least eighty percent (80%) of the
total combined voting power of all outstanding classes of stock of the Buyer
that are entitled to vote; and (ii) at least eighty percent (80%) of the total
number of shares outstanding of all other classes of stock of the Buyer.
(h) BROKERS' FEES. The Buyer does not have any Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement other than to The GulfStar
Group, Inc.
(i) DISCLOSURE. The representations and warranties contained in this
(S) 4B do not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements and information
contained in this (S) 4B not misleading.
5. PRE-CLOSING. The Parties agree as follows with respect to the
periods preceding the Closing.
(a) CONDUCT OF BUSINESS. Between the date of this Agreement and the
Closing Date, the Seller will use reasonable efforts to cause the Company to:
(i) conduct its business only in the Ordinary Course of Business
and refrain from changing or introducing any new method of management or
operations except in the Ordinary Course of Business and consistent with prior
practices;
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(ii) except as disclosed on Schedule 5(a), refrain from taking
-------------
any action which is described in Section 4A(f) et seq., including without
-- ---
limiting the generality of the foregoing: (A) making any purchase, sale or
disposition of any asset or property other than in the Ordinary Course of
Business, (B) purchasing any capital asset costing more than $5,000 singly or
$25,000 in the aggregate; (C) mortgaging, pledging, subjecting to a lien or
otherwise encumbering any of such assets other than in the Ordinary Course of
Business and other than Permitted Encumbrances; (D) incurring any contingent
liability as a guarantor or otherwise with respect to the obligations of others,
and from incurring any other contingent or fixed obligations or liabilities
except those that are in the Ordinary Course of Business; (E) making any change
or incurring any obligation to make a change in its charter, bylaws or
authorized or issued capital stock; and (F) declaring, setting aside or paying
any dividend, making any other distribution in respect to its capital stock or
making any direct or indirect redemption, purchase or other acquisition of its
stock;
(iii) prevent any change with respect to its management and
supervisory personnel and banking arrangements;
(iv) keep intact its business organization, to keep available its
present officers and employees employed and to preserve the goodwill of all
suppliers, customers, distributors, independent contractors and others having
business relations with it;
(v) have in effect and maintain at all times all insurance of
the kind, in the amount and with the insurers presently in force or equivalent
insurance with any substitute insurers or insurance policies approved by the
Buyer in writing prior to such change of insurer or issuance of new insurance
policy;
(vi) permit the Buyer and its authorized representatives to have
full access during normal business hours upon reasonable prior notice to all of
its properties, assets, records, Tax Returns, contracts and documents and
furnish to the Buyer or its authorized representatives such financial and other
information with respect to its business or properties as the Buyer may
reasonably request:
(b) NO SOLICITATION OF OTHER OFFERS BY THE SELLER. Neither the
Seller nor any of his agents or representatives will, directly or indirectly,
(i) solicit, initiate discussions or engage in negotiations or any transaction
with any Person other than the Buyer relating to the possible acquisition of the
Company; or (ii) provide, or cause any other Person to provide, any information
to any Person, other than the Buyer and Looney (and their officers, directors,
employees, other agents and representatives and advisors), relating to the
possible acquisition of the Company. The Seller will notify the Buyer
immediately if any Person makes any proposal, offer, inquiry or contact with
respect to any of the foregoing.
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(c) AUTHORIZATION FROM OTHERS. Prior to the Closing Date, each of the
Parties will use reasonable best efforts to obtain all authorizations, consents,
and permits of others required to permit the consummation of the transactions
contemplated hereby.
(d) BREACH OF REPRESENTATION AND WARRANTIES. Neither of the Parties
shall take any action that would result in (i) a failure to comply in any
material respect with such Party's agreements hereunder or (ii) any of the
representations and warranties of such Party being inaccurate in any material
respect; and in the event of any such breach or default by a Party, such Party
shall give detailed written notice thereof to other Party and shall use his or
its reasonable best efforts to promptly cure the same.
(e) CONSUMMATION OF AGREEMENT. Each of the Parties shall use his or
its reasonable best efforts to perform and fulfill all conditions and
obligations on his or its parts to be performed and fulfilled under this
Agreement.
(f) COOPERATION. Each Party shall cooperate with all reasonable
requests of the other Party and his or its counsel in connection with the
consummation of the transactions contemplated hereby.
(g) CONFIDENTIALITY. Each of the Parties agrees that (i) he or it,
and his or its officers, directors, agents and representatives, will treat and
hold in strict confidence, and will not use, any data and information obtained
in connection with this transaction or Agreement with respect to the business of
the other Party, except for the purpose of the internal evaluation of the
transactions contemplated by this Agreement; (ii) if the transactions
contemplated by this Agreement are not consummated, he or it will return to the
other Party all copies of such data and information, including but not limited
to worksheets, test reports, manuals, lists memoranda, and other documents
prepared by or made available to him or it in connection with this transaction;
and (iii) he or it will treat the existence of this Agreement and the
transactions contemplated hereby as strictly confidential and will not disclose
them to any Person without the prior written consent of the other Party, which
consent may be withheld for any or no reason.
(h) NO SOLICITATION OF OTHER OFFERS BY BUYER. Neither the Buyer nor
any of its officers, directors, clients, agents or representatives will,
directly or indirectly, (i) solicit, initiate discussions or engage in
negotiations or any transaction with any Person other than the Seller relating
to the possible acquisition of a company or other entity in any location within
the State of Florida that engages in the same type of business as that of the
Company except as disclosed on Schedule 5(h) or (ii) provide, or cause any other
Person to provide, any information relating to the planned acquisition of the
Company to any Person, other than the Seller, the Company (or its officers,
directors, employees, other agents and representatives) and their respective
advisors). The Buyer will notify the Seller immediately if any Person makes any
proposal, offer, inquiry or contact with respect to any of the foregoing.
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6. POST-CLOSING COVENANTS. The Parties agree as follows with respect
to the period following the Closing:
(a) GENERAL. In case at any time after the Closing any further action
is necessary or desirable to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other Party reasonably may
request all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under (S) 8 below).
(b) LITIGATION SUPPORT. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand to which the other
Party is not subject (either by virtue of the indemnification provisions
contained in (S) 8 below or otherwise) in connection with (i) any transaction
contemplated under this Agreement or (ii) any fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction on or prior to the Closing Date involving
the Company, the other Party will cooperate with him or it and his or its
counsel in the contest or defense, make available their personnel, and provide
such testimony and access to their books and records as shall be necessary in
connection with the contest or defense, all at the sole cost and expense of the
contesting or defending Party (unless the contesting or defending Party is
entitled to indemnifi cation therefor under (S) 8 below). The Buyer
acknowledges and agrees that if the Seller is individually brought into any
litigation in connection with the Company, he shall be indemnified to the
maximum extent that directors and officers of corporations are permitted to be
indemnified under Florida law both for all costs of litigation as well as any
judgments or settlement amounts paid. Notwithstanding the foregoing, the Seller
shall not be entitled to indemnification to the extent of any of the following:
(i) suit against the Seller with respect to a matter for which the
Seller is required to indemnify the Buyer pursuant to this Agreement; or
(ii) to the extent that the Seller is found to have engaged in gross
negligence or willful misconduct.
(c) CONFIDENTIALITY. The Seller will treat and hold as such all of the
Confidential Information and refrain from using any of the Confidential
Information except in connection with this Agreement and all of the other
agreements executed in connection herewith and except in connection with
handling all of the litigation described on (S) 4A(r) of the Seller's Disclosure
Schedule. In the event that the Seller is requested or required (by oral
question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar process) to
disclose any Confidential Information, the Seller will notify the Buyer promptly
of the request or requirement so that the Buyer may seek an
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appropriate protective order or waive compliance with the provisions of this (S)
6(c). If, in the absence of a protective order or the receipt of a waiver
hereunder, the Seller is, on the advice of counsel, compelled to disclose any
Confidential Information to any tribunal or else stand liable for contempt, the
Seller may disclose the Confidential Information to the tribunal; PROVIDED,
HOWEVER, that the Seller shall use his reasonable best efforts to obtain, at the
reasonable request of the Buyer, an order or other assurance that confidential
treatment will be accorded to such portion of the Confidential Information
required to be disclosed as the Buyer shall designate; provided, however that
all of the Seller's costs including but not limited to legal fees shall be paid
by the Buyer. The foregoing provisions shall not apply to any Confidential
Information which is generally available to the public immediately prior to the
time of disclosure.
(d) ACCOUNTS RECEIVABLE. Seller shall, during the term of his
employment by the Company use reasonable efforts to collect the Accounts
Receivable in the Ordinary Course of Business. Seller represents and warrants
that all Effective Date Accounts Receivable less an allowance for doubtful
accounts not to exceed ten percent (10%) of the total balance of the Effective
Date Accounts Receivable shall be collectible in their full amounts within
thirty (30) months of the Effective Date. Buyer shall make a good faith effort
to cause the Company to collect the Effective Date Accounts Receivable. Any
payments not accompanied by a specific reference to an invoice or other payment
application received by Buyer or the Company from customers with respect to the
Business shall be first applied to the Effective Date Accounts Receivable,
otherwise such payment shall be applied as specified. If any Effective Date
Accounts Receivable, or part thereof, shall be uncollected even after thirty
(30) months after the Effective Date, and the total of such uncollected
Effective Date Accounts Receivable exceeds ten percent (10%) of the aggregate
amount of Effective Date Accounts Receivable, then Buyer's sole remedy shall be
to offset all amounts by which such uncollected Effective Date Accounts
Receivable exceed ten percent (10%) of the aggregate amount of Effective Date
Accounts Receivable equally against the Buyer Shares and the Buyer Note until
both are exhausted; provided, however, that Buyer shall have no remedy for
recovery from excess uncollected Effective Date Accounts Receivable other than
offset against the Buyer Shares and the Buyer Note as stated in this (S) 6(d).
In the event of such offset, Seller shall have the option of purchasing such
portion of the uncollected Effective Date Accounts Receivable equal to the
amount of its payment to Buyer. For purposes of offset described in this
(S)6(d), the Buyer Shares shall be valued in an amount equal to the Buyer Shares
Value.
(e) LITIGATION. The Seller shall be solely responsible for handling,
and for liability resulting from, the Vining Litigation (as identified and
defined in (S)4A(r) of the Seller's Disclosure Schedule) and shall indemnify the
Buyer from any Damages the Buyer or the Company may incur therefrom. The
foregoing indemnification obligation shall be outside of the indemnification
provisions in Section 8 of this Agreement. Buyer shall assume all liability for
all other litigation involving the Company which is disclosed in the Seller's
Disclosure Schedule. Buyer's liability for any and all litigation involving the
Company remains subject to the terms and provisions of Section 8 of this
Agreement.
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(f) THE SELLER AS DIRECTOR. Upon the Seller's written request to the
Buyer, the Seller shall be appointed to the Board of Directors of the Buyer for
a term or terms not to extend beyond the date on which the Buyer Note has been
repaid in full. Prior thereto, Seller shall, upon his written request, serve as
an advisory member of the board of directors of the Buyer until such time as the
Buyer Note has been repaid in full.
7. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of the Buyer
to proceed with the Closing and consummate the transactions to be performed by
it in connection with the Closing is subject to satisfaction of the following
conditions (any or all which may be waived in writing, by the Buyer):
(i) the representations and warranties set forth in (S) 3(a)
and (S) 4A above shall be true and correct in all material respects at
and as of the Closing Date;
(ii) the Seller shall have performed and complied with all of
his covenants hereunder in all material respects at and as of the
Closing Date;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, (C) affect adversely the right of the Buyer to own the
Company Shares and to control the Company, or (D) materially and
adversely affect in any material respect the right of the Company to own
its assets and to operate its business (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect);
(iv) the Seller shall have delivered to the Buyer a certificate
to the effect that each of the conditions specified above in
(S) 7(a)(i)-(iii) is satisfied in all respects;
(v) the Buyer shall have received from counsel to the Seller an
opinion in form and substance reasonably acceptable to both the Buyer
and the Seller, addressed to the Buyer, and dated as of the Closing Date
containing such assumptions and qualifications as may be reasonably
acceptable to the Buyer's legal counsel;
(vi) the Buyer shall have received the resignations, effective
as of the Closing, of each director and officer of the Company other
than the Seller and those whom the Buyer shall have specified in writing
prior to the Closing;
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(vii) the Buyer shall have obtained on terms and conditions
reasonably satisfactory to it and Seller all of the financing it needs
in order to consummate the transactions contemplated hereby;
(viii) The Seller shall have entered into an Employment Agreement
with the Company and the Buyer in the form of EXHIBIT B attached hereto
(the "Employment Agreement");
(ix) The Seller shall have entered into a certain Shareholders'
Agreement ("the Shareholders' Agreement") on terms and conditions
reasonably satisfactory to it, and a Registration Rights Agreement which
shall grant to the Seller certain piggyback rights with respect to the
Buyer Shares and shall provide that, to the extent any greater
registration rights are ever granted to any seller of a company acquired
by the Buyer, the Seller shall be granted the same or equivalent
registration rights (the "Registration Rights Agreement");
(x) all Employee Benefit Plans shall have been terminated by
the Seller to the extent Buyer has implemented substitute Employee
Benefit Plans, and neither the Buyer nor Company shall have any further
liability with respect thereto other than completion of the routine
winding up thereof;
(xi) Richard Bury shall have entered into a Services Agreement,
a Bonus Agreement, an Assumption Agreement, and a Stock Option Agreement
on terms and conditions reasonably acceptable to the Buyer;
(xii) Gary Reif shall have entered into a Services Agreement, a
Bonus Agreement, an Assumption Agreement, and a Stock Option Agreement
on terms and conditions reasonably acceptable to the Buyer;
(xiii) Richard Applebaum shall have entered into a Services
Agreement a, Bonus Agreement, an Assumption Agreement, and a Stock
Option Agreement on terms and conditions reasonably acceptable to the
Buyer;
(xiv) Nancy Hirsch shall have entered into an Employment
Agreement, a Bonus Agreement, an Assumption Agreement and a Stock Option
Agreement on terms and conditions reasonably acceptable to the Buyer;
(xv) the Company Distribution to Klein shall have occurred and
all actions to be taken by the Seller in connection with consummation of
the transactions contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and
substance to the Buyer;
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(xvi) the Seller shall have entered into the Pledge Agreement
and the Residual Stock Option Agreement with the Buyer;
(xvii) the Buyer, the Company, the Seller and the Senior Lender
shall have entered into a Subordination Agreement;
(xviii) the Buyer, the Company, the Seller and Pecks shall have
entered into a Subordination Agreement; and
(xix) the Buyer shall have simultaneously consummated the Looney
Acquisition.
(b) CONDITIONS TO OBLIGATION OF THE SELLER. The obligation of the
Seller to proceed with Closing and consummate the transactions to be performed
by them in connection with the Closing is subject to satisfaction of the
following conditions (any or all of which may be waived in writing by Seller):
(i) the representations and warranties set forth in (S) 3(b)
and (S) 4B above shall be true and correct in all material respects at
and as of the Closing Date;
(ii) the Buyer shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, (C) affect adversely the right of the Seller to own the
Buyer Shares, or (D) affect adversely in any material respect the right
of the Buyer and Looney to own their respective assets and to operate
their respective businesses (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
(iv) the Buyer shall have delivered to the Seller a certificate
to the effect that each of the conditions specified above in
(S) 7(b)(i)-(iii) is satisfied in all respects;
(v) the Seller shall have obtained the full and final releases
(a) of any guaranty of the Seller of the debt of the Company or any of
its Subsidiaries and (b) of any collateral pledged by the Seller
securing such debt or guarantees; provided, however, that the foregoing
releases will not require the payment of any additional consideration in
excess of the Purchase Price by the Buyer;
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(vi) the Buyer shall have obtained on terms and conditions
reasonably satisfactory to it and Seller all of the financing it needs
in order to consummate the transactions contemplated hereby;
(vii) the Company and the Buyer shall have entered into the
Employment Agreement with the Seller;
(ix) the Seller shall have received from counsel to the Buyer an
opinion in form and substance acceptable to the Seller, addressed to the
Seller, and dated as of the Closing Date containing such assumptions and
qualifications as may be reasonably acceptable to the Seller's legal
counsel;
(x) the designation of the Seller as an advisory member of the
Board of Directors of the Buyer which shall permit Seller to attend all
meetings of the Board of Directors of the Buyer and to receive copies of
all written documents with respect thereto, but shall not permit him to
vote at such meetings except that if the Buyer obtains directors' and
officers' (errors and omissions) insurance, or upon the Seller's written
request to the Buyer, the Seller shall be appointed to the Board of
Directors of the Buyer for a term or terms not to extend beyond the date
on which the Buyer Note has been repaid in full;
(xi) Richard Bury shall have entered into a Services Agreement,
a Bonus Agreement, an Assumption Agreement and a Stock Option Agreement
on terms and conditions reasonably acceptable to the Seller;
(xii) Gary Reif shall have entered into a Services Agreement, a
Bonus Agreement, an Assumption Agreement and a Stock Option Agreement
on terms and conditions reasonably acceptable to the Seller;
(xiii) Richard Abblebaum shall have entered into a Services
Agreement, a Bonus Agreement, an Assumption Agreement, and a Stock
Option Agreement on terms and conditions reasonably acceptable to the
Seller;
(xiv) Nancy Hirsch shall have entered into an Employment
Agreement, a Bonus Agreement, an Assumption Agreement and a Stock Option
Agreement on terms and conditions reasonably acceptable to the Seller;
(xv) the Company Distribution to Klein shall have occurred and
all actions to be taken by the Seller in connection with consummation of
the transactions contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and
substance to the Buyer;
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(xvi) the Buyer shall have entered into the Securityholders'
Agreement, the Shareholders' Agreement, the Registration Rights Agreement
and a separate Registration Rights Agreement with Pecks on terms and
conditions reasonably satisfactory to Seller;
(xvii) the Looney Acquisition shall have been simultaneously
consummated;
(xviii) the Buyer shall have entered into the Pledge Agreement and
the Residual Stock Option Agreement with the Seller;
(xix) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby, and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Seller;
(xx) the Buyer, the Company, the Seller and the Senior Lender shall
have entered into a Subordination Agreement; and
(xxi) the Buyer, the Company, the Seller and Pecks shall have
entered into a Subordination Agreement.
8. INDEMNIFICATION.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All of the representations and warranties of the Parties contained in this
Agreement shall survive the Closing hereunder and continue in full force and
effect for two years thereafter except that the representations and warranties
contained in (S) 4 A(i), and (S) 4 A(j) which shall survive for three years
after the Closing.
(b) INDEMNIFICATION PROVISIONS.
(i) BY THE SELLER. The Seller shall indemnify, save, defend and
hold harmless the Buyer and the Buyer's shareholders, directors, officers,
partners, agents and employees (and in the event the Buyer assigns its right,
title and interest hereunder to a corporation, which shall be permitted
hereunder, such assignee) (collectively, the "Buyer Indemnified Parties") from
and against any and all costs, lawsuits, losses, Liabilities, deficiencies,
claims and expenses, including interest, penalties, reasonable attorneys' fees
and all reasonable amounts paid in investigation, defense or settlement of any
of the foregoing (collectively referred to herein as "Damages"), incurred in
connection with or arising out of or resulting from or incident to any breach
(or in the event any third party alleges facts that, if true, would mean the
Seller has breached), of any covenant, warranty or representation
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made by the Seller in or pursuant to this Agreement or any other agreement
delivered pursuant to this Agreement or in any schedule, certificate, exhibit,
or other instrument furnished or to be furnished by the Seller or his Affiliates
pursuant to the terms of this Agreement; provided, however, that the Seller
shall not be liable for any such Damages to the extent, if any, such Damages
result from or arise out of a breach or violation of this Agreement by any Buyer
Indemnified Parties. Notwithstanding anything to the contrary contained herein,
Seller shall not have any liability or indemnification obligation arising out of
any Damages that might arise out of the failure to obtain consents from the
landlords of the various real property leases set forth in (S)4A(c) of the
Seller's Disclosure Schedule.
(ii) BY THE BUYER. The Buyer shall indemnify, save, defend and
hold harmless the Seller from and against any and all Damages incurred in
connection with or arising out of or resulting from or incident to any breach
(or in the event any third party alleges facts that, if true, would mean the
Buyer has breached), of any covenant, warranty or representation made by the
Buyer in or pursuant to this Agreement or any other agreement delivered pursuant
to this Agreement contemplated hereby or in any schedule, certificate, exhibit,
or other instrument furnished or to be furnished by the Buyer under this
Agreement; provided, however, that the Buyer shall not be liable for any such
Damages to the extent, if any, such Damages result from or arise out of a breach
or violation of this Agreement by the Seller.
(iii) DEFENSE OF CLAIMS. If any lawsuit or enforcement action is
filed against any Party entitled to the benefit of indemnity hereunder, written
notice thereof describing such lawsuit or enforcement action in reasonable
detail and indicating the amount (estimated, if necessary) or good faith
estimate of the reasonably foreseeable estimated amount of Damages (which
estimate shall in no way limit the amount of indemnification the indemnified
Party is entitled to receive hereunder), shall be given to the indemnifying
Party as promptly as practicable (and in any event within ten (10) days, after
the service of the citation or summons) ("Notice of Action"); provided that the
failure of any indemnified Party to give timely notice shall not affect its
rights to indemnification hereunder to the extent that the indemnified Party
demonstrates that the amount the indemnified Party is entitled to recover
exceeds the actual damages to the indemnifying Party caused by such failure to
so notify within ten (10) days; provided further that a Notice of Action must be
sent to the indemnifying Party within the applicable survival period as provided
in Section 8(a) of this Agreement. The indemnifying Party may elect to
compromise or defend any such asserted liability and to assume all obligations
contained in this (S) 8(b) to indemnify the indemnified Party by a delivery of
notice of such election ("Notice of Election") within ten (10) days after
delivery of the Notice of Action. Upon delivery of the Notice of Election, the
indemnifying Party shall be entitled to take control of the defense and
investigation of such lawsuit or action and to employ and engage attorneys of
its own choice to handle and defend the same, at the indemnifying Party's sole
cost, risk and expense, and such indemnified Party shall cooperate in all
reasonable respects, at the indemnifying Party's sole cost, risk and expense,
with the
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indemnifying Party and such attorneys in the investigation, trial, and
defense of such lawsuit or action and any appeal arising therefrom; provided,
however, that the indemnified Party may, at its own cost, risk and expense,
participate in such investigation, trial and defense of such lawsuit or action
and any appeal arising therefrom. If the Notice of Election is delivered to the
indemnified Party, the indemnified Party shall not pay, settle or compromise
such claim without the indemnifying Party's consent, which consent shall not be
unreasonably withheld. If the indemnifying Party elects not to defend the claim
of the indemnified Party or does not deliver to the indemnified Party a Notice
of Election within ten (10) days after delivery of the Notice of Action, the
indemnified Party may, but shall not be obligated to defend, or the indemnified
Party may compromise or settle (exercising reasonable business judgment) the
claim or other matter on behalf, for the account, and at the risk, of the
indemnifying Party.
(iv) THIRD PARTY CLAIMS. The provisions of this (S) 8 are not
limited to matters asserted by the Parties, but cover costs, losses,
liabilities, damages, lawsuits, claims and expenses incurred in connection with
third party claims.
(v) LIMITATION ON INDEMNIFICATION. Notwithstanding any provision
of this Agreement except for claims by the Buyer against the Seller under (S)
6(d) of this Agreement , neither the Buyer nor the Seller or any Affiliate of
either shall be required to pay an indemnified Party or any Affiliate thereof
any amount with respect to any claim for Damages under this (S) 8(b) until the
Damages which the indemnified Party and its Affiliates suffered under this
Agreement aggregate at least $50,000 (the "Threshold"), at which time and in
such event the indemnified Party or Affiliate shall be entitled to receive
payment for the entire amount of aggregate Damages to the extent they exceed
$50,000. Neither Party shall be liable to indemnify the other Party in an amount
in excess of one-half ( 1/2) of the Purchase Price including any and all amounts
due and owing under (S) 6(d) and (S) 9(d) of this Agreement.
9. TERMINATION AND REMEDIES.
(a) TERMINATION.
(i) This Agreement may be terminated at any time prior to the
Closing: (A) by the mutual consent of the Seller and the Buyer; or (B) by the
Seller or the Buyer, at any time prior to Closing, if any of the conditions
precedent to its obligations hereunder have not been fulfilled, in any material
respect, as of the Closing Date, other than as a result of such terminating
party's breach or negligence; or (C) if any bona fide action or proceeding shall
be pending against either Party as of the Closing Date that might reasonably be
expected to result in an unfavorable judgment, decree or order that would
prevent or make unlawful the carrying out of this Agreement or if any agency of
the federal or of any state government shall have objected at or before the
Closing to this acquisition or to any other action required by or in connection
with this Agreement and such objection shall not have been removed by the
Closing Date.
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(ii) This Agreement may be terminated by the Buyer at any time
prior to the Closing if the representations or warranties of the Seller herein
shall prove to have been inaccurate in any material respect when made, provided
that, the Buyer shall give the Seller a reasonable period of time, but only if
there is any such time prior to the scheduled Closing Date, to cure any default
hereunder, by the payment of compensation (if the matter is reasonably capable
of rectification by that means) or by the rectification of the matter before the
Closing.
(iii) This Agreement may be terminated by the Seller at any time
prior to the Closing if representations or warranties of the Buyer herein shall
prove to have been inaccurate in any material respect when made, provided that,
the Seller shall give the Buyer a reasonable period of time, but only if there
is any such time prior to the scheduled Closing Date, to cure any default
hereunder, by the payment of compensation (if the matter is reasonably capable
of rectification by that means) or by the rectification of the matter before the
Closing.
(iv) Nothing in this (S) 9(a) shall be deemed to release either
Party from any liability for any breach by such Party of the terms and
provisions of this Agreement; provided, however that such Party shall not be
liable in the event the Agreement is terminated pursuant to (S) 9(a)(i), or
pursuant to (S) 9(a)(ii) or (S) 9(a)(iii) if the default is not intentional, and
reasonable and good faith efforts are made to rectify the matter but it is not
resolved.
(v) For purposes only of determining whether termination of this
Agreement is permissible pursuant to (S) 9(a)(ii) or (S) 9(a)(iii), the
representations or warranties herein shall not be deemed to be inaccurate in any
material respect, unless such failure to comply or inaccuracy might reasonably
be expected to result in Damages to the other Party of in excess of $150,000.
(b) SPECIFIC PERFORMANCE. Each of the Parties hereby agrees that the
transactions contemplated by this Agreement are unique, and that each Party
shall have, in addition to any other legal or equitable remedy available to it,
the right to enforce this Agreement by decree of specific performance. If any
legal action or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing Party or Parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or proceeding
in addition to any other remedies to which it, he or they may be entitled at law
or equity. The rights and remedies granted herein are cumulative and not
exclusive of any other right or remedy granted herein or provided by law.
(c) OFFSET. Any and all Damages incurred by the Buyer which permit the
Buyer to make an indemnification claim against the Seller and to the extent not
otherwise prohibited by applicable law, shall be subject to mandatory offset by
the Buyer against all amounts due
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and owing by the Buyer to the Seller under this Agreement, the Buyer Note, or
any document, instrument, or agreement executed in connection herewith. The
foregoing shall constitute the sole remedy of Buyer against Seller in connection
with breaches of the representations, warranties, covenants and obligations of
the Seller contained in this Agreement except to the extent of any remaining
unpaid claims to the extent permitted under (S) 8 of this Agreement if there is
not a Buyer Note or any Buyer Shares remaining pledged to offset against in
which event Buyer may proceed against the Seller but only for any amounts not
offset and not exceeding one-half ( 1/2) of the Purchase Price. In the event of
an offset of any Damages incurred as a result of any such breach, the Buyer
shall furnish the Seller notice containing detailed information about the
breach, the magnitude of the Damages that the Buyer has or reasonably expects to
incur (the act of offsetting by the Buyer shall be referred to as an "Offset").
All Offsets shall be one-half ( 1/2) against the Buyer Note, and one-half ( 1/2)
against the Buyer Shares. In the event there is not any principal balance
remaining due and owing on the Buyer Note, then, any additional Damages shall be
Offset against the Buyer Shares. In the event the Buyer Shares are no longer
pledged to Buyer, in order to permit Buyer to offset any of its Damages, than
the entire amount of the Offset shall be against the principal balance of the
Buyer Note. For purposes hereof, the Buyer Shares shall be deemed to have a
value equivalent to the Buyer Shares Value. In order to secure the Buyer's
Offset rights against the Buyer Shares, the Buyer and the Seller shall execute a
certain Stock Pledge Agreement in the form attached hereto as EXHIBIT C (the
"Pledge Agreement"). The Buyer Shares shall have a restrictive legend typed on
the back thereof specifying that the Buyer Shares are subject to a right of
Offset as specified in this Agreement. The Seller acknowledges and agrees that
but for the right of Offset contained in this Agreement, the Buyer would not
have entered into this Agreement or any of the transactions contemplated herein.
If any legal action or other proceeding is brought for the enforcement of this
Agreement, or any document, instrument, or agreement executed in connection
herewith, or because of an alleged dispute, breach, default or misrepresentation
in connection with any of the provisions of this Agreement or any document,
instrument, or agreement executed in connection herewith, the successful or
prevailing Party shall be entitled to recover reasonable attorneys' fees and
other costs incurred in that action or proceeding.
(d) INDEPENDENT CONTRACTORS. The Parties acknowledge that the Company has
engaged numerous independent contractors to perform court reporting services,
and that there is some possibility that the IRS may attempt to assess taxes
against the Company in connection with such independent contractors being
reclassified by the IRS as employees of the Company. In the event that the IRS
assesses any such tax deficiencies against the Company covering any time period
prior to the Effective Date, Buyer and Seller shall initially cooperate on
selecting legal counsel and/or a certified public accounting firm to defend such
claim. Buyer and Seller shall each be liable for fifty percent (50%) of the cost
incurred in defending such claim. Any final, non-appealable assessments of
liability by the IRS shall be paid one hundred percent (100%) by the Seller to
the extent allocable to any time period prior to the Effective Date, and one
hundred percent (100%) by the Company to the extent it is applicable to any time
period on or after the Effective Date. All such amounts due pursuant to this
(S)9(d) are subject to (S)8 of this Agreement.
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Neither Buyer nor Seller may settle any such claims by the IRS without the
written consent of the other Party, such consent not be unreasonably withheld.
10. MISCELLANEOUS.
(a) THE SELLER AS DIRECTOR. If the Buyer obtains directors' and officers'
(errors and omissions) insurance, or upon the Seller's written request to the
Buyer, the Seller shall be appointed to the Board of Directors of the Buyer for
a term or terms not to extend beyond the date on which the Buyer Note has been
repaid in full.
(b) PUBLIC ANNOUNCEMENTS. No Party shall issue any press release or make
any public announcement relating to the subject matter of this Agreement
(including the documents referred to herein) without the prior written approval
of the Buyer and the Seller; provided, however, that any Party may make any
public disclosure it believes in good faith upon the advise of legal counsel it
is required by applicable law (in which case the disclosing Party will use its
best efforts to advise the other Party prior to making the disclosure).
(c) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(d) ENTIRE AGREEMENT. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
(e) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the Buyer and the Seller; provided, however, that the Buyer may (i)
assign any or all of its rights and interests hereunder (x) to one or more of
its Affiliates, and (y) to one or more financial institutions lending funds to
the Buyer for the purpose of financing the purchase of the Company Shares
hereunder and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
(f) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
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(g) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
<TABLE>
<S> <C>
If to the Seller:
Michael Klein
c/o Klein, Bury & Associates, Inc.
44 W. Flagler St., Suite 675
Miami, Florida 33130
Telefax: (305) 358-1427
Copy to: Daniel H. Aronson
Greenberg Traurig
515 E. Las Olas Blvd., Suite 1500
Fort Lauderdale, FL, 33301
Phone: (954) 765-0500
Telefax: (954) 765-1477
If to the Buyer:
Litigation Resources of America, Inc.
3850 Nationsbank Center
Houston, Texas 77002-2731
Telefax (713) 238-4999
Attn: Mr. G. Kent Kahle
President
Copy to: Boyer Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Telefax (713) 871-2024
Attn: J. Randolph Ewing
</TABLE>
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim or other communication shall be
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deemed to have been duly given unless and until it actually is received by the
intended recipient. Any Party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by
giving the other Parties notice in the manner herein set forth.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO
ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF TEXAS
OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF TEXAS.
(j) AMENDMENTS AND WAIVERS. No amendments of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Seller. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(k) SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) EXPENSES. Each of the Parties and the Company will bear his or its
own costs and expenses (including legal fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby.
(m) CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
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(n) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(o) ARBITRATION. If a dispute arises out of or relates to this Agreement,
or the breach thereof, and if said dispute cannot be settled through
negotiation, the Parties agree first to try in good faith to settle the dispute
by mediation under the Commercial Mediation Rules of the American Arbitration
Association, before resorting to arbitration, litigation, or some other dispute
resolution procedure as required by this (S) 10(o). Failing an adequate
resolution by mediation, any controversy or claim arising out of or relating to
this Agreement or the transactions contemplated hereby, including any
controversy or claim arising out of or relating to the Parties' decision to
enter into this Agreement, shall be settled by binding arbitration. There shall
be one arbitrator to be mutually agreed upon by the Parties involved in the
controversy and to be selected from the National Panel of Commercial Arbitrators
(or successor panel, if any). If within 45 days after service of the demand for
arbitration the Parties are unable to agree upon such an arbitrator who is
willing to serve, then an arbitrator shall be appointed by the American
Arbitration Association in accordance with its rules. Except as specifically
provided in this (S) 10(o), the arbitration shall be conducted in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
The arbitrator shall not render an award of punitive damages. Any arbitration
hereunder shall be held in Dade County, Florida. Expenses related to the
arbitration, including counsel fees, shall be borne by the Party incurring such
expenses except to the extent otherwise provided herein. The fees of the
arbitrator and of the American Arbitration Association, if any, shall be divided
equally among the Parties involved in the controversy. Judgment upon the award
rendered by the arbitrator (which may, if deemed appropriate by the arbitrator,
include equitable or mandatory relief with respect to performance of obligations
hereunder) may be entered in any court of competent jurisdiction. The arbitrator
shall award the prevailing Party in any arbitration proceeding recovery of its
attorneys' fees and other costs in connection with the arbitration from the non-
prevailing Party.
-41-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on as
of the date first above written.
BUYER:
LITIGATION RESOURCES OF AMERICA, INC.,
a Texas corporation
By:/s/ G. Kent Kahle
---------------------
G. Kent Kahle
President
SELLER:
/s/ Michael Klein
------------------------
Michael Klein
-42-
<PAGE>
SCHEDULES AND EXHIBITS
<TABLE>
<S> <C> <C>
Schedule 3A - Exceptions to the Seller's Representations and Warranties
Schedule 3B - Exceptions to the Buyer's Representations and Warranties
Schedule 4A - Seller's Disclosure Schedule
Schedule 4B - Buyer's Disclosure Schedule
Schedule 5(a) - Conduct of Business
Schedule 5(h) - No Solicitation of Other Offers by the Buyer
Exhibit A - Form of Buyer Note
Exhibit B - Employment Agreement
Exhibit C - Pledge Agreement
</TABLE>
-43-
<PAGE>
EXHIBIT 10.7
================================================================================
LITIGATION RESOURCES OF AMERICA, INC.
$10,000,000
12% Senior Subordinated Notes due 2004
and
Series A Convertible Preferred Stock
_____________________________
SECURITIES PURCHASE AGREEMENT
_____________________________
Dated as of January 17, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
-------
<S> <C>
1. AUTHORIZATION OF ISSUE OF SECURITIES....................................................... 1
1A. Senior Subordinated Notes........................................................... 1
1B. Convertible Preferred Stock......................................................... 2
2. PURCHASE AND SALE OF SECURITIES............................................................ 2
2A. Purchase and Sale................................................................... 2
2B. Closing............................................................................. 2
3. CONDITIONS OF CLOSING...................................................................... 3
3A. Opinion of Counsel to the Company................................................... 3
3B. Representations and Warranties...................................................... 3
3C. Articles of Incorporation and By-laws............................................... 3
3D. Purchase Permitted by Applicable Laws............................................... 4
3E. Securityholders Agreement........................................................... 4
3F. Registration Rights Agreement....................................................... 4
3G. Subsidiary Guarantee................................................................ 4
3H. Compliance with Securities Laws..................................................... 4
3I. Proceedings......................................................................... 4
3J. No Adverse U.S. Legislation, Action or Decision..................................... 4
3K. Approval and Consents............................................................... 5
3L. Material Changes.................................................................... 5
3M. Board Nominees...................................................................... 5
3N. Use of Proceeds..................................................................... 6
3O. Bank Debt Agreement................................................................. 6
3P. Seller Subordinated Promissory Note................................................. 6
3Q. Certificate of Designation.......................................................... 6
3R. Structuring Fee..................................................................... 6
4. PAYMENTS AND PREPAYMENTS OF THE SENIOR SUBORDINATED NOTES.................................. 6
4A. General............................................................................. 6
4B. Mandatory Payments and Prepayments of the Senior
Subordinated Notes............................................................... 6
4C. Prepayments of the Senior Subordinated Notes upon
a Change of Control.............................................................. 7
4D. Optional Prepayments of the Senior Subordinated
Notes............................................................................ 8
4E. Notice of Prepayments............................................................... 8
4F. Mandatory Payments and Partial Prepayments Pro Rata................................. 8
5. REQUIRED REDEMPTION AND OPTIONAL REDEMPTION OF THE
CONVERTIBLE PREFERRED STOCK................................................................ 8
5A. Option of Holders to Put Convertible Preferred
Stock upon a Change of Control................................................... 8
5B. Exercise of the Change of Control Put Option........................................ 9
5C. Put Option of Holders of Shares of Convertible
Preferred Stock upon the Absence of a Liquid
Secondary Market................................................................. 9
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
5D. Exercise of the Put Option......................................................... 10
5E. Fair Market Value.................................................................. 10
5F. Market Price....................................................................... 11
5G. Optional Redemption of the Convertible Preferred Stock............................. 11
5H. Notice of Redemption............................................................... 11
6. AFFIRMATIVE COVENANTS..................................................................... 12
6A. Financial Statements............................................................... 12
6B. Use of Proceeds.................................................................... 15
6C. Books and Records; Inspection of Property.......................................... 15
6D. Covenant to Secure Senior Subordinated Notes Equally............................... 15
6E. Additional Covenants Pending the Closing........................................... 15
6F. Stock to be Reserved............................................................... 16
6G. Compliance With Laws, etc.......................................................... 16
6H. ERISA.............................................................................. 16
6I. Corporate Existence; Maintenance of Properties..................................... 17
6J. Insurance.......................................................................... 17
6K. Further Assurances................................................................. 18
6L. Filing of Reports Under the Exchange Act........................................... 18
6M. Securities Act Registration Statements............................................. 18
6N. Notices of Certain Events.......................................................... 19
6O. Board Nominees..................................................................... 20
6P. Listing of Common Stock............................................................ 20
6Q. Environmental Laws................................................................. 21
6R. Guarantee By Subsidiary............................................................ 22
6S. Issuance of Convertible Preferred Stock with Interest Notes........................ 22
6T. Management Composition and Compensation............................................ 22
6U. Conduct of Business................................................................ 23
7. NEGATIVE COVENANTS........................................................................ 23
7A. Financial Covenants................................................................ 23
7B. Restrictions on Indebtedness and Repayment of Indebtedness......................... 24
7C. Restrictions on Liens.............................................................. 24
7D. Restricted Payments................................................................ 25
7E. Loans, Advances and Investments.................................................... 25
7F. Leases............................................................................. 26
7G. Transactions With Affiliates....................................................... 26
7H. Merger............................................................................. 26
7I. Disposition of Substantial Assets.................................................. 27
7J. Sale of Stock and Debt of Subsidiaries............................................. 27
7K. Certain Contracts.................................................................. 27
7L. Conduct of Business................................................................ 28
7M. No Amendments...................................................................... 28
7N. Registration Rights................................................................ 28
7O. Offering of Securities............................................................. 28
7P. Issuance of Securities............................................................. 28
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
8. SUBORDINATION............................................................................. 29
8A. Subordinated Debt Subordinate to Senior Debt....................................... 29
8B. Suspension of Right to Receive Payments of
Subordinated Debt............................................................... 29
8B(1). Failure to Pay Principal of or Interest on
Senior Debt.............................................................. 29
8B(2). Bankruptcy or Insolvency.................................................. 31
8C. Rights of Holders of Senior Debt Not to Be Impaired................................ 31
8D. Company's Obligation Unconditional................................................. 32
8E. Payments Held in Trust............................................................. 32
8F. Subrogation........................................................................ 32
8G. Reliance by Holders on Final Order or Decree....................................... 33
8H. Legend............................................................................. 33
8I. Remedies........................................................................... 33
8J. Senior Debt Not Affected........................................................... 33
8K. Reinstatement...................................................................... 34
8L. Representations and Warranties..................................................... 34
8M. Expenses........................................................................... 34
8N. No Waiver, Remedies................................................................ 35
8O. Subordination of Liens............................................................. 35
8P. Provisions Specific to Section 8................................................... 35
9. EVENTS OF DEFAULT......................................................................... 37
9A. General............................................................................ 37
9B. Other Remedies..................................................................... 41
10. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................. 41
10A. Organization, Qualification and Authority.......................................... 41
10B. Financial Statements............................................................... 42
10C. Capital Stock and Related Matters.................................................. 42
10D. Actions Pending.................................................................... 43
10E. Outstanding Debt; Defaults......................................................... 43
10F. Title to Properties................................................................ 44
10G. Taxes.............................................................................. 44
10H. Conflicting Agreements............................................................. 44
10I. Offering of Securities............................................................. 45
10J. Broker's or Finder's Commissions................................................... 45
10K. Regulation G, etc.................................................................. 45
10L. Environmental Matters.............................................................. 45
10M. ERISA.............................................................................. 46
10N. Possession of Franchises, Licenses, etc............................................ 47
10O. Patents, etc....................................................................... 47
10P. Holding Company and Investment Company Status...................................... 47
10Q. Governmental Consents.............................................................. 47
10R. Insurance Coverage................................................................. 48
10S. Subsidiaries....................................................................... 48
10T. Disclosure......................................................................... 48
10U. Related Party Transactions......................................................... 48
10V. Registration Rights................................................................ 49
10W. Absence of Foreign or Enemy Status................................................. 49
10X. Agreements with Affiliates......................................................... 49
10Y. Convertible Preferred Stock and Equity of the Company.............................. 49
</TABLE>
(iii)
<PAGE>
<TABLE>
<S> <C>
10Z. Consummation of Related Transactions.............................................. 49
10AA. Conduct of Business............................................................... 49
11. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.......................................... 50
12. DEFINITIONS.............................................................................. 50
13. MISCELLANEOUS............................................................................ 62
13A. Home Office Payment............................................................... 62
13B. Indemnification................................................................... 63
13C. Consent to Amendments............................................................. 64
13D. Form, Registration, Transfer and Exchange of
Senior Subordinated Notes; Lost Senior
Subordinated Notes.............................................................. 64
13E. Provisions Applicable if any of the Securities are Sold........................... 65
13F. Restrictive Legends............................................................... 66
13G. Persons Deemed Owners............................................................. 66
13H. Survival of Representations and Warranties........................................ 66
13I. Successors and Assigns............................................................ 66
13J. Notices........................................................................... 66
13K. Descriptive Headings.............................................................. 67
13L. Governing Law; Consent To Jurisdiction............................................ 67
13M. Delay Fees........................................................................ 67
13N. Remedies.......................................................................... 68
13O. Entire Agreement.................................................................. 68
13P. Severability...................................................................... 68
13Q. Amendments........................................................................ 69
13R. Payment Date...................................................................... 69
13S. Waiver of Trial By Jury........................................................... 69
13T. Counterparts...................................................................... 69
</TABLE>
EXHIBITS
Exhibit A Form of Senior Subordinated Note and Interest Note
Exhibit B Form of Guarantee
Exhibit C Form of Certificate of Designation
Exhibit D Form of Opinion of Counsel to the Company
Exhibit E Form of Registration Rights Agreement
Exhibit F Form of Securityholders Agreement
(iv)
<PAGE>
LITIGATION RESOURCES OF AMERICA, INC.
SECURITIES PURCHASE AGREEMENT
___________________
Dated as of
January 17, 1997
___________________
To the Investors named on the signature pages hereto:
The undersigned, Litigation Resources of America, Inc. (the
"Company"), a Texas corporation, each of the other undersigned Subsidiaries (as
-------
defined below) of the Company (each a "Guarantor" and collectively, the
---------
"Guarantor"), and each of the investors named on the signature pages hereto
----------
(the "Investors"), hereby agree as follows:
---------
1. AUTHORIZATION OF ISSUE OF SECURITIES.
1A. Senior Subordinated Notes. The Company will authorize the
-------------------------
issuance, sale and delivery to the Investors of its senior subordinated notes
("Senior Subordinated Notes" and individually called a "Senior Subordinated
------------------------- -------------------
Note") in the aggregate principal amount of $9,000,000, to be dated the date of
- ----
issue thereof, to mature (subject to Section 4 hereof) on the seventh
anniversary of such date of issue and to bear interest on the unpaid balances
thereof from the date thereof at the rate of 12% per annum until the principal
thereof shall become due and payable. Such Senior Subordinated Notes shall be
substantially in the form of Exhibit A attached hereto. Interest will be payable
quarterly in arrears in cash on the last day of March, June, September and
December, in each year, commencing on March 31, 1997; provided, however, that
-------- -------
the Company may, at the sole option of the holders of the Senior Subordinated
Notes, issue interest notes ("Interest Notes" and individually called an
--------------
"Interest Note"), together with additional shares of Convertible Preferred Stock
-------------
(as defined below) to the extent provided in paragraph 6S hereof, in lieu of a
cash payment of any or all interest due during such period. Such Interest Notes
shall be substantially in the form of Exhibit A attached hereto. For purposes of
this Agreement, all references to the Senior Subordinated Notes shall be deemed
to include any and all Interest Notes. The Senior Subordinated Notes will be
jointly and severally unconditionally guaranteed, on a subordinated basis, by
Looney & Company, Inc. ("Looney") and Klein, Bury and Associates, Inc.
("Klein"), and each other Person that becomes a Subsidiary of the Company,
pursuant to a guarantee substantially in the form of Exhibit B attached hereto
(the "Subsidiary Guarantee"). The Senior Subordinated Notes shall bear a legend
--------------------
on their face, indicating that the Senior Subordinated Notes have been issued
with original issue discount and the name and address of the Company's
representative who, upon the request of a
<PAGE>
holder, can supply information about such original issue discount.
1B. Convertible Preferred Stock. The Company will also authorize the
---------------------------
issuance, sale and delivery to the Investors of 1,000,000 shares representing
52.27% (such percentage shall be reduced to 52% in the event a transaction with
George Leonard is consummated) of fully diluted Common Stock shares of its
Series A Convertible Preferred Stock, par value $1.00 per share (herein called
the "Convertible Preferred Stock", and the Senior Subordinated Notes and the
---------------------------
Convertible Preferred Stock shall be referred to herein collectively as the
"Securities"). The powers, designations, preferences and relative participating,
----------
optional or other special rights, and the qualifications, limitations or
restrictions thereof, of the Convertible Preferred Stock are set forth in the
Certificate of Designation of the Convertible Preferred Stock in the form of
Exhibit C attached hereto (the "Certificate of Designation").
--------------------------
2. PURCHASE AND SALE OF SECURITIES.
-------------------------------
2A. Purchase and Sale. The Company hereby agrees to sell to the
-----------------
Investors and, subject to the terms and conditions herein set forth, the
Investors severally agree to purchase from the Company, the Securities set forth
opposite the name of each of the Investors on the signature pages hereof. The
parties hereby agree that the aggregate purchase price for the Securities is
$10,000,000.
2B. Closing. The purchase and delivery of the Securities to be
-------
purchased by the Investors shall take place at a closing (the "Closing") at the
-------
offices of Willkie Farr & Gallagher, One Citicorp Center, 153 EAst 53rd Street,
New York, New York, 10022, at 10:00 a.m., local time, on January 17, 1997 (or at
such other time and place or on such other Business Day thereafter as the
parties hereto shall agree) (herein called the "Closing Date"). On the Closing
------------
Date, the Company will deliver the Securities to be purchased by the Investors
payable to or registered in the names of the Investors and/or the Investors'
nominees or other designees specified on the signature pages hereof in the
amounts set forth opposite the name of the Investors on the signature pages
hereof, against receipt of the purchase price therefor by wire transfer to the
account of: Litigation Resources of America, Inc., Texas Commerce Bank National
Association, Account No. 30801023704, ABA Routing No. 113000609, Notification:
Darl Petty, (713) 640-7814. If at the Closing, the Company shall, in breach of
this Agreement, fail to tender to the Investors any of the Securities to be
purchased by them or if any of the conditions specified in Section 3 hereof
shall not have been satisfied or waived by the Investors, the Investors shall,
at their election, be relieved of all further obligations under this Agreement
without thereby waiving any other rights they may have by reason of such failure
or such non-fulfillment. Notwithstanding anything to the contrary, the
2
<PAGE>
obligation of the Company to deliver any Securities to any Investor at the
Closing shall be conditioned on its concurrent receipt of the purchase price of
all of the Securities from the Investors.
3. CONDITIONS OF CLOSING. The Investors' obligation to purchase and pay
---------------------
for the Securities to be purchased by them hereunder is subject to the
satisfaction, on or before the Closing Date, of the following conditions:
3A. Opinion of Counsel to the Company. The Investors shall have received
---------------------------------
from Boyer, Ewing & Harris, counsel to the Company and the Guarantors, a legal
opinion addressed to the Investors and dated the Closing Date, substantially in
the form of Exhibit D attached hereto. Such opinion shall also cover such other
matters incident to the matters herein contemplated as the Investors may
reasonably request, including the form of all papers and the validity of all
proceedings.
3B. Representations and Warranties. Each of the representations and
------------------------------
warranties contained in Section 10 hereof and those otherwise made in writing by
or on behalf of the Company or any Guarantor and contained in any document,
certificate or other written statement provided to the Investors, in connection
with the transactions contemplated by this Agreement shall be true and correct
in all material respects when made and on and as of the Closing Date, without
giving effect to any qualification as to materiality contained therein and
except to the extent of changes caused by the transactions herein contemplated;
all of the covenants and obligations of the Company hereunder to be performed
or observed on or prior to the Closing shall have been duly performed or
observed; there shall exist on the Closing Date and after giving effect to such
transactions no Default or Event of Default; and the Company and each Guarantor
shall have delivered to the Investors an Officer's Certificate, dated the
Closing Date, to the foregoing effects.
3C. Articles of Incorporation and By-laws. The Investors shall have
-------------------------------------
received certificates, dated the Closing Date, of the Secretary of the Company
and its Subsidiaries attaching (i) true and complete copies of the Articles of
Incorporation of the Company and its Subsidiaries as filed with the appropriate
state officials of its jurisdiction of incorporation with all amendments
thereto, (ii) true and complete copies of the By-laws of the Company and its
Subsidiaries in effect as of such date, (iii) certificates of good standing of
the appropriate officials of the jurisdiction of incorporation of the Company
and its Subsidiaries and of each state in which each of the Company and its
Subsidiaries is required to be qualified to do business as a foreign
corporation, (iv) resolutions of the Board of Directors of the Company
authorizing (a) the execution, delivery and performance of the Related
Documents, (b) the issuance and delivery of the Securities and (c) the
reservation for issuance of a sufficient number of shares of Common Stock
3
<PAGE>
into which the Convertible Preferred Stock may be converted to permit such
conversion, (v) resolutions of the Board of Directors of each Guarantor
authorizing the execution, delivery and performance of the Related Documents to
which it is a party, and (vi) certificates as to the incumbency of the officers
of the Company and each Guarantor executing this Agreement or any other
Related Document.
3D. Purchase Permitted by Applicable Laws. The purchase of and
-------------------------------------
payment for the Securities shall not be prohibited by any applicable law or
governmental regulation (including, without limitation, Regulation G, T and X of
the Board of Governors of the Federal Reserve System) and shall not subject the
Investors to any tax, penalty, liability or other onerous condition under or
pursuant to any applicable law or governmental regulation, and the Investors
shall have received such certificates or other evidence as they may request to
establish compliance with this condition.
3E. Securityholders Agreement. The Investors shall have received a
-------------------------
fully executed counterpart of the Securityholders Agreement and such
Securityholders Agreement shall be in full force and effect and no term or
condition thereof shall have been amended, modified or waived.
3F. Registration Rights Agreement. The Investors shall have received
-----------------------------
a fully executed counterpart of the Registration Rights Agreement and such
Registration Rights Agreement shall be in full force and effect and no term or
condition thereof shall have been amended, modified or waived.
3G. Subsidiary Guarantee. The Investors shall have received a fully
--------------------
executed counterpart of the Subsidiary Guarantee and such Subsidiary Guarantee
shall be in full force and effect and no term or condition thereof shall have
been amended, modified or waived.
3H. Compliance with Securities Laws. The offering and sale of the
-------------------------------
Securities under this Agreement shall have complied with all applicable
requirements of federal and state securities laws, and the Investors shall have
received evidence of such compliance in form and substance satisfactory to them.
3I. Proceedings. All required corporate and other proceedings taken
-----------
or required to be taken in connection with the transactions contemplated hereby
and all documents incident thereto shall be reasonably satisfactory in form and
substance to the Investors and their counsel, and the Investors and their
counsel shall have received all such counterpart originals or certified or other
copies of such documents as they may reasonably request.
3J. No Adverse U.S. Legislation, Action or Decision. No legislation,
-----------------------------------------------
order, rule, ruling or regulation shall have been
4
<PAGE>
enacted or made by or on behalf of any governmental body, department or agency
of the United States, nor shall any legislation have been introduced and
favorably reported for passage to either House of Congress by any committee of
either such House to which such legislation has been referred for consideration,
nor shall any decision of any court of competent jurisdiction within the United
States have been rendered which, in the Investors' reasonable judgment, would
materially and adversely affect their investment in the Securities. There shall
be no action, suit, investigation or proceeding, pending or threatened, against
or affecting the Company, its Subsidiaries or any of their respective properties
or rights, or any of their respective affiliates, associates, officers or
directors, before any court, arbitrator or administrative or governmental body
which (i) seeks to restrain, enjoin, prevent the consummation of or otherwise
affect the transactions contemplated by any of the Related Documents or (ii)
questions the validity or legality of any such transaction or seeks to recover
damages or to obtain other relief in connection with any such transaction, and
there shall be no valid basis for any such action, proceeding or investigation.
3K. Approval and Consents. The Company and each Guarantor shall have
---------------------
duly received all authorizations, consents, approvals, licenses, franchises,
permits and certificates by or of all federal, state and local governmental
authorities necessary or advisable for the issuance of the Securities and the
consummation of the transactions contemplated hereby and by the Related
Documents, and all thereof shall be in full force and effect at the time of the
Closing. The Company and each Guarantor shall have delivered to the Investors an
Officer's Certificate, dated the Closing Date, to such effect.
3L. Material Changes. Since September 30, 1995, with respect to
----------------
Klein, and December 31, 1995, with respect to Looney, there shall not have been
any changes in the business of the Company, Looney and Klein or any of their
respective Subsidiaries which have or could reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect, nor shall
there have been any development or discovery or any material contingency or
other liability which could have such effect. There shall exist no defaults
under the provisions of any instrument evidencing Indebtedness of the Company or
any of its Subsidiaries and the Company and each Guarantor shall have delivered
to the Investors an Officer's Certificate, dated the Closing Date, to such
effect.
3M. Board Nominees. The Board of Directors of the Company shall be
--------------
constituted as contemplated by Section 3.1 of the Securityholders Agreement and
the nominees designated by the Investors shall have been appointed to the Board
of Directors effective upon the Closing.
5
<PAGE>
[_]3N. Use of Proceeds. The Investors shall have received evidence
---------------
in form and substance reasonably satisfactory to them with respect to the use
of proceeds by the Company in accordance with paragraph 6B.
3O. Bank Debt Agreement. The Company shall have simultaneously
-------------------
received the funding pursuant to the Bank Debt Agreement and the Bank Debt
Agreement shall be in full force and effect; and the Investors shall have
received an Officer's Certificate, dated the Closing Date, to the foregoing
effect and to the effect that no default or event of default exists under the
Bank Debt Agreement.
3P. Seller Subordinated Promissory Note. The Investors shall
-----------------------------------
have received a fully executed copy of the Company's 10% Subordinated Promissory
Note due February 1, 2002 in the aggregate principal amount of $1,486,846.00
(the "Seller Notes") which shall provide (i) that such Note shall be subject and
------------
subordinate to the prior payment in full of the obligations of the Guarantors
under the Subsidiary Guarantee Agreement in accordance with the terms and
conditions of that certain Subordination Agreement dated the date hereof by and
among the Company, the Guarantors, the Investors and Michael Klein, and (ii)
that the interest rate on such Notes shall not exceed 10%.
3Q. Certificate of Designation. The Certificate of Designation
--------------------------
shall have been filed with the Secretary of State of the State of Texas and the
Investors shall have received a certificate, dated the Closing Date, of the
Secretary of the Company attaching a true and complete copy of the Certificate
of Designation as filed with the Secretary of State of the State of Texas.
3R. Structuring Fee. The Company shall have paid to Pecks
---------------
Management Partners Ltd. a structuring and due diligence fee of $35,000.
4. PAYMENTS AND REPAYMENTS OF THE SENIOR SUBORDINATED NOTES
--------------------------------------------------------
4A. General. The Senior Subordinated Notes shall be subject to
-------
mandatory payments as specified in paragraph 4B and to the optional prepayments
under the circumstances set forth in paragraphs 4C and 4D. No partial
prepayment of the Senior Subordinated Notes pursuant to paragraph 4F shall
relieve the Company of its obligations to make any of the required prepayments
pursuant to paragraph 4B.
4B Mandatory Payments and Prepayments of the Senior Subordinated
-------------------------------------------------------------
Notes. (a) On or prior to the fifth anniversary of the Closing Date, 33 1/3% of
- -----
the principal amount of the Senior Subordinated Notes then outstanding, together
with all accrued and unpaid interest thereon to and including such date, shall
become immediately due and payable and shall be paid by the
6
<PAGE>
Company to the holders of the Senior Subordinated Notes. On or prior to the
sixth anniversary of the Closing Date, 33 1/3% of the principal amount of the
Senior Subordinated Notes then outstanding, together with all accrued and unpaid
interest thereon to and including such date, shall become immediately due and
payable by the Company and shall be paid by the Company to the holders of the
Senior Subordinated Notes. On the seventh anniversary of the Closing Date, the
principal amount of all Senior Subordinated Notes then outstanding, together
with all accrued and unpaid interest thereon to and including such date, shall
become immediately due and payable and shall be paid by the Company to the
holders of the Senior Subordinated Notes.
(b) Two (2) days after the Company's closing of any Qualifying Public
Offering, the principal amount of the Senior Subordinated Notes outstanding,
together with all accrued and unpaid interest thereon to and including such
date, shall become due and payable and shall be paid by the Company to the
holders of the Senior Subordinated Notes. No later than 30 days prior to any
Public Offering, the Company shall provide written notice to the holders of
Senior Subordinated Notes setting forth estimates of the proceeds to the
Company from such Public Offering.
4C. Prepayments of the Senior Subordinated Notes upon a Change of
-------------------------------------------------------------
Control. Upon a Change of Control the principal amount of the Senior
- -------
Subordinated Notes outstanding, together with all accrued and unpaid interest
thereon to the Repayment Date shall become due and payable on the Repayment Date
and shall be paid by the Company to the holders of the Senior Subordinated
Notes. Upon the occurrence of a Change of Control Event, the notice furnished to
each holder of Senior Subordinated Notes under paragraph 6N shall (i) refer
specifically to paragraph 4C, (ii) state that the Company will prepay the
principal amount of all of the Senior Subordinated Notes outstanding held by
each holder of Senior Subordinated Notes, together with all accrued and unpaid
interest to the date of prepayment and (iii) indicate that the Company will
prepay the Senior Subordinated Notes as provided in clause (ii) above
simultaneously with such Change of Control (the "Repayment Date"). If a proposed
--------------
Change of Control shall not occur, (i) the Company shall have no obligation
under this paragraph 4C to prepay any Senior Subordinated Notes notwithstanding
the fact that the notice required pursuant to paragraph 6N had previously been
delivered in connection with such proposed Change of Control, (ii) the
obligations of the Company under this paragraph 4C shall not be affected with
respect to any subsequent Change of Control, and (iii) if any holder of
Convertible Preferred Stock shall have converted all or any shares of
Convertible Preferred Stock after receiving the notice referred to in this
paragraph 4C, the Company shall be required, at the election of such holder, to
issue new shares of Convertible Preferred Stock in exchange for the Common Stock
issued upon conversion of such shares of Convertible Preferred Stock.
7
<PAGE>
4D. Optional Prepayments of the Senior Subordinated Notes. The Senior
-----------------------------------------------------
Subordinated notes shall be subject to prepayment, in whole or in part, at the
option of the Company at any time and from time to time at a price equal to (x)
the outstanding principal amount of the Senior Subordinated Notes to be prepaid
plus (y) all accrued and unpaid interest thereon up to and including the date
- ----
of prepayment.
4E. Notice of Prepayments. In the event of prepayment pursuant to
---------------------
paragraph 4D, written notice of such prepayment shall be given by the Company by
first-class, certified mail, return receipt requested, postage prepaid to the
holders of the Senior Subordinated Notes at their respective addresses as the
same appear on the records of the Company, 30 days prior to the prepayment date,
specifying the prepayment date, the principal amount of the Senior Subordinated
Notes to be prepaid on such date and that such prepayment is to be made pursuant
to paragraph 4D. Notice of prepayment having been given as foresaid, the
principal amount of the Senior Subordinated Notes specified in such notice,
together with interest thereon to the prepayment date, shall become due and
payable on such prepayment date.
4F. Mandatory Payments and Partial Prepayments Pro Rata. If there is
---------------------------------------------------
more than one holder of the Senior Subordinated Notes, the aggregate principal
amount of each partial prepayment of the Senior Subordinated Notes shall be
allocated among the holders of the Senior Subordinated Notes at the time
outstanding in proportion to the unpaid principal amounts of the Senior
Subordinated Notes respectively held by each such holder. For purposes of
allocation pursuant to this paragraph 4F only, each Senior Subordinated Note (to
the extent possible) shall be rounded to the nearest $1,000.
5. REQUIRED REDEMPTION AND OPTIONAL REDEMPTION OF THE CONVERTIBLE
--------------------------------------------------------------
PREFERRED STOCK.
- ---------------
5A. Option of Holders to Put Convertible Preferred Stock upon a Change
------------------------------------------------------------------
of Control. Upon the occurrence of a Change of Control, any holder of shares of
- ----------
Convertible Preferred Stock shall have the right upon written notice as
hereinafter provided in paragraph 5B to require the Company to redeem at the
Option Closing (as hereinafter defined), and the Company agrees to so purchase
out of funds legally available therefor, all or any of the shares of Convertible
Preferred Stock. The redemption price for such shares of Convertible Preferred
Stock shall be paid by certified check at the Option Closing or by wire transfer
of immediately available funds denominated in U.S. dollars to one or more
accounts designated by the holders of such shares of Convertible Preferred Stock
to the Company prior to the Option Closing in an amount equal to the greater of
(i) the Market Price, if any (as calculated in accordance with paragraph 5F
below) at the time of the Change of Control Notice of the Common Stock into
which such shares of Convertible Preferred Stock are convertible, and (ii) the
Premium Amount.
8
<PAGE>
5B. Exercise of the Change of Control Put Option. Upon the occurrence
---------------------------------------------
of a Change of Control Event, the notice furnished to each holder of Securities
under clause (iv) of paragraph 6N (the "Change of Control Notice") shall (i)
------------------------
refer specifically to this paragraph 5B, (ii) state that the Company may be
required to redeem all of the outstanding shares of Convertible Preferred Stock,
(iii) contain the Company's calculation of the redemption price for the shares
of Convertible Preferred Stock to be redeemed (including a detail of the Fair
Market Value of the Common Stock at the time of the Change of Control Notice),
(iv) indicate that the Company will redeem the shares of Convertible Preferred
Stock as provided in clause (ii) above at the Option Closing upon written notice
of the exercise of an option by a holder of shares of Convertible Preferred
Stock, (v) indicate that a closing (the "Option Closing") for such purchase and
--------------
sale shall take place on a date specified in the notice, which date shall be a
date occurring not earlier than 30 days nor more than 60 days after the date on
which the notice is delivered, (vi) indicate where the Option Closing shall take
place and (vii) be delivered by certificate mail return receipt requested. A
holder of shares of Convertible Preferred Stock shall furnish written notice to
the Company of the exercise of an option pursuant to paragraph 5B within at
least 10 days prior to the Option Closing. At the Option Closing, the Company
shall pay the redemption price for the securities being redeemed determined as
described above against delivery of the securities being purchased. No waiver by
a holder of any shares of Convertible Preferred Stock of its right under this
paragraph 5B to required the redemption of any or all of the shares of
Convertible Preferred Stock held by such holder in respect of a Change of
Control shall affect the rights of such holder under this paragraph 5B in
respect of any subsequent Change of Control.
5C. Put Option of Holders of Shares of Convertible Preferred Stock
--------------------------------------------------------------
upon the Absence of a Liquid Secondary Market. If at any time after the sixth
- ---------------------------------------------
anniversary of the Closing Date, there is no Liquid Secondary Market, any holder
of shares of Convertible Preferred Stock shall have the right (the "Put Right")
upon delivery of a Put Notice (as hereinafter defined in paragraph 5D), to
require the Company to redeem at the Put Option Closing (as hereinafter defined
in paragraph 5D), and the Company agrees to so purchase out of funds legally
available therefor, all or any of the shares of Convertible Preferred Stock. The
redemption price for the shares of Convertible Preferred Stock shall be paid in
three (3) equal annual installments commencing with the Put Option Closing (each
such payment, an "Installment") by certified check or by wire transfer of
-----------
immediately available funds denominated in U.S. dollars to one or more accounts
designated by the holders of the shares of Convertible Preferred Stock to the
Company prior to the Put Option Closing in an amount equal to the Fair Market
Value at the time of the Put Notice relating to the Common Stock into which the
shares of Convertible Preferred Stock subject to the Put Right are convertible.
The redemption price for the Convertible Preferred Stock shall bear
9
<PAGE>
interest on the unpaid balances thereof at the rate of 12% per annum from and
after the Put Option Closing until the balance thereof shall have been paid in
full.
5D. Exercise of the Put Option. To exercise its Put Right, any holder
--------------------------
of shares of Convertible Preferred Stock shall deliver to the Company a written
notice (the "Put Notice") which shall (i) refer specifically to this paragraph
----------
5D, (ii) state the number of shares of Convertible Preferred Stock held by such
holder that the Company is required to redeem, (iii) contain such holder's
request that the Company determine the Fair Market Value at the time of the Put
Notice of the Common Stock into which the shares of Convertible Preferred Stock
are convertible, (iv) indicate that a closing (the "Put Option Closing") for
------------------
such redemption shall take place on a date specified in the notice, which date
shall be a date occurring not earlier than 45 days nor more than 60 days after
the date on which the notice is delivered, (v) indicate where the Put Option
Closing shall take place and (vi) be delivered by certified mail return receipt
requested. The Company covenants that it will promptly (and in any event no
later than 25 days after receipt of the Put Notice) determine, and notify in
writing the holders of shares of Convertible Preferred Stock who have delivered
a Put Notice of the Fair Market Value at the time of the Put Notice of the
Common Stock in accordance with paragraph 5E below; provided, however, that in
-------- -------
the event that any holder of shares of Convertible Preferred Stock exercises its
right to refer the question of valuation to an investment banking firm, the Put
Option Closing shall take place on the later of (1) the date specified in the
Put Notice and (2) 5 Business Days after the determination of the Fair Market
Value has been completed in accordance with paragraph 5E below. At the Put
Option Closing, the Company shall pay the first installment of the redemption
price for the securities being purchased determined as described in paragraph 5E
below against delivery of the securities being redeemed.
5E. Fair Market Value. The term "Fair Market Value" means either (i)
----------------- -----------------
the Market Price, if any (as calculated in accordance with paragraph 5F below),
of the Common Stock, or (ii) if no Market Price exits, the value (which shall
not take into effect any minority discounts) of the Common Stock as determined
by a nationally recognized investment banking firm designated by the Investors
and reasonably acceptable to the Company; and provided, further, that if the
-------- -------
parties cannot agree on such a firm each party shall choose a nationally
recognized investment banking firm, which shall choose a third firm which shall
be nationally recognized and that third firm shall determine the Fair Market
Value, which determination shall be final and binding. The cost relating to
retaining any investment banking firm(s) pursuant to this paragraph 5E shall be
borne by the Company.
10
<PAGE>
5F. Market Price. As used in this Section 5, the term "Market Price"
------------ ------------
of any security shall mean the value determined in accordance with the following
provisions:
(i) if such security is listed on a national securities exchange
registered under the Exchange Act, a price equal to the average of the
closing sales prices for such security on such exchange for each day during
the 20 trading days preceding the day of the Change of Control Notice; and
(ii) if not so listed under clause (i) above and such security is
quoted on the NASDAQ system, a price equal to the average of the average of
the closing bid and asked prices for such security quoted on such system
each day during the 20 trading days preceding the day of the Change of
Control Notice.
5G. Optional Redemption of the Convertible Preferred Stock. (a)
------------------------------------------------------
Subject to the rights of holders of shares of Convertible Preferred Stock to
convert such shares of Convertible Preferred Stock pursuant to the provisions of
the Certificate of Designation and the rights of holders of shares of
Convertible Preferred Stock pursuant to paragraphs 5A or 5C hereof, the shares
of Convertible Preferred Stock shall be subject to redemption at the Company's
option, in whole but not in part, at any time on or after a Qualifying Public
Offering of Common Stock; provided, however, that the Company shall not have the
-------- -------
right to redeem the Convertible Preferred Stock in any event pursuant to this
section 5G as long as any Senior Subordinated Notes are outstanding.
(b) The redemption price for the Shares of Convertible Preferred
Stock shall be payable immediately upon redemption, by certified or bank
cashier's check, and shall be $.001 (subject to appropriate adjustments for
stock splits, combinations, recapitalizations, stock dividends and similar
events) multiplied by the number of shares of Common Stock issuable upon
conversion of the shares of Convertible Preferred Stock so redeemed.
5H. Notice of Redemption. The Company shall give each holder of
--------------------
shares of Convertible Preferred Stock written notice of the redemption pursuant
to paragraph 5G not less than 60 days prior to the redemption date, specifying
such redemption date, that all of the outstanding shares of Convertible
Preferred Stock are to be redeemed on such date and that such redemption is to
be made pursuant to paragraph 5G. Such notice shall be accompanied by an
Officer's Certificate stating that the applicable conditions set forth in
paragraph 5G have been fulfilled. Notice of redemption having been given as
aforesaid, the redemption amount due in respect of all of the shares of
Convertible Preferred Stock and as calculated in paragraph 5G(b), shall become
due and payable on such redemption date unless the holder of such shares of
Convertible Preferred Stock (i) shall have
11
<PAGE>
converted such shares of Convertible Preferred Stock, in whole or in part, prior
to such redemption date pursuant to the terms of the Certificate of Designation,
(ii) shall have put such shares of the Convertible Preferred Stock, in whole or
in part, pursuant to paragraph 5A or 5C or (iii) unless the filing by the
Company of a registration statement under the Securities Act relating to the
Common Stock obtainable upon conversion of the shares of Convertible Preferred
Stock shall have been requested by a holder thereof (either before or after
receipt of such notice) pursuant to the Registration Rights Agreement, in which
case the redemption shall be effected 30 days after the declaration of
effectiveness of such registration statement by the Commission. Should the
shares of Convertible Preferred Stock not be redeemed on such redemption date
due to the Company's failure to perform its obligations under this paragraph 5H,
such redemption may be effected only after compliance with the provisions of
this Section 5 from and after such redemption date.
6. AFFIRMATIVE COVENANTS. All covenants contained herein shall be
---------------------
given independent effect so that if a particular action or condition is not
permitted by any such covenant, the fact that such action or condition would be
permitted by an exception to, or otherwise be within the limitations of, another
covenant shall not avoid the occurrence of a Default if such action is taken or
condition exists. The provisions of this Section 6 are for the benefit of the
Investors so long as they hold any of the Securities and, to the extent set
forth herein, for the benefit of each other holder of the Securities; provided,
--------
however, that upon the later to occur of (x) the consummation of a Qualifying
- -------
Public Offering and (y) repayment in full of any and all amounts (including,
without limitation, principal and interest) due under the Senior Subordinated
Notes outstanding, the Company and its Subsidiaries shall no longer be bound by
the covenants set forth in paragraphs 6A (other than 6A (ii) and (iii), (v) and
(vi) and (vi)), 6B, 6D, 6E, 6H, 6N, and 6R.
6A. Financial Statements. The Company will deliver to each holder of
--------------------
Securities (excluding any holder that is a direct competitor of the Company and
its Subsidiaries in the region in which the Company then conducts its business):
(i) as soon as practicable and in any event within 30 days after the
end of each month in each fiscal year commencing with January, 1997,
unaudited management reports of the Company and its Subsidiaries setting
forth the financial, operational and other performance data of the Company
and its Subsidiaries in reasonable detail and reasonably satisfactory to
the Investors, which shall include at least a consolidated statement of
operations, a consolidated statement of cash flows and a consolidated
balance sheet for or as at end of such month, in each case setting forth,
in comparative form, comparable information from the same month in the
preceding fiscal year and management's budget, all as such reports are then
12
<PAGE>
prepared by management of the Company in the conduct of its business;
(ii) as soon as practicable and in any event within 45 days after
the end of each quarterly period in each fiscal year, consolidated and
consolidating statements of income, changes in stockholders' equity and
cash flow of the Company and its Subsidiaries for such quarterly period and
for the period from the beginning of the current fiscal year to the end of
such quarterly period and a consolidated and consolidating balance sheet of
the Company and its Subsidiaries as at the end of the most recent year and
at the end of such quarterly period, setting forth in each case in
comparative form figures for the corresponding period in the preceding
fiscal year, all in reasonable detail and reasonably satisfactory in scope
to the holders of Securities and prepared in accordance with GAAP (except
for footnote disclosure) on a basis consistent with past practice and
certified by the chief financial officer or chief executive officer of the
Company as fairly presenting the financial condition of the Company and its
Subsidiaries, subject to the changes resulting from audit and year-end
adjustments;
(iii) as soon as practicable and in any event within 120 days
after the end of each fiscal year, consolidated and consolidating
statements of income, changes in stockholders' equity and cash flow of the
Company and its Subsidiaries for such year, and a consolidated and
consolidating balance sheet of the Company and its Subsidiaries as at the
end of such year, setting forth in each case in comparative form
corresponding figures from the preceding annual audit, all in reasonable
detail and reasonably satisfactory in scope to the holders of Securities,
and in each case audited by Arthur Anderson & Co. or such other independent
public accountants of recognized national standing selected by the Company,
and reasonably satisfactory to the holders of Securities, whose report in
each case shall state that such consolidated financial statements present
fairly the results of operations and cash flows of the Company and its
Subsidiaries, in accordance with GAAP on a basis consistent with prior
years and that the examination by such accountants has been made in
accordance with generally accepted auditing standards then in effect in the
United States;
(iv) as soon as practicable and in any event by the end of each
fiscal year beginning with fiscal year 1996, a budget for the Company and
its Subsidiaries, as approved by the Board of Directors of the Company and
each Subsidiary, for the following fiscal year setting forth in comparative
form corresponding figures from the preceding fiscal year, in reasonable
detail and certified as to its good-faith
13
<PAGE>
preparation by the chief financial officer or chief executive officer of
the Company and each Subsidiary;
(v) promptly upon transmission thereof, copies of all financial
statements, information circulars, proxy statements and reports as the
Company or any Subsidiary shall send to its stockholders that are material
to the business of the Company and its Subsidiaries, taken as a whole, and
copies of all registration statements and prospectuses and all reports
which it or any of its officers or directors file with the Commission (or
any governmental body or agency succeeding to the functions of the
Commission) or with any securities exchange on which any of its securities
are listed or with NASDAQ, and copies of all press releases and other
statements made available generally by the Company or its Subsidiaries to
the public concerning material developments in the business of the Company
and its Subsidiaries;
(vi) promptly upon receipt thereof, a copy of each other report
submitted to the Company or any of its Subsidiaries by independent
accountants in connection with any annual, interim or special audit made by
them of the books of the Company or any of its Subsidiaries; and
(vii) with reasonable promptness, such other financial and/or
operating data as the holders of Securities may reasonably request.
Together with each delivery of the financial statements required by clauses (ii)
and (iii) above, the Company, on behalf of itself and each Guarantor, will
deliver to each holder of Securities an Officer's Certificate (a) demonstrating
(with computations in reasonable detail) compliance by the Company and its
Subsidiaries with the provisions of paragraph 7A, (b) stating that the Company
and its Subsidiaries are in compliance with the provisions of paragraphs 7B, 7C,
7D and 7E, and (c) stating that there exists no Default or Event of Default or,
if any Default or Event of Default exists, specifying the nature thereof, the
period of existence thereof and what action the Company proposes to take with
respect thereto. Together with each delivery of financial statements required by
clause (iii) above, the Company will deliver to each holder of Securities a
certificate of the accountants referred to in such clause (iii) stating that, in
making the audit necessary to the certification of such financial statements,
they have obtained no knowledge of any Default or Event of Default or, if, to
their knowledge any such Default or Event of Default exists, specifying the
nature and period of existence thereof; provided, however, that such accountants
-------- -------
shall not be liable to anyone by reason of their failure to obtain knowledge of
any such Default or Event of Default which would not be disclosed in the course
of an audit conducted in accordance with generally accepted auditing standards
then in effect in the United States. Each holder of Securities is hereby
authorized to
14
<PAGE>
deliver a copy of any financial statement or certificate delivered pursuant to
this paragraph 6A to any regulatory body having jurisdiction over such holder
that requests or requires delivery of such information.
6B. Use of Proceeds. The proceeds of the sale of the Securities shall
---------------
be used for the cash portion of the acquisition of Looney and Klein, pursuant to
the Looney Purchase Agreement and the Klein Purchase Agreement, respectively
(such agreements, together with any related agreements (including but not
limited to Notes, Management and Pledge Agreements, shall collectively be
referred to as the "Purchase Agreements"), and for the acquisition of other
-------------------
court reporting companies the ownership of which is consistent with the
Company's strategic development and business plans.
6C. Books and Records; Inspection of Property. The Company will keep,
-----------------------------------------
and will cause each of its Subsidiaries to keep, proper books of record and
account in which full, true and correct entries in conformity in all material
respects with GAAP shall be made of all material dealings and transactions in
relation to their business and activities. The Company will, upon reasonable
advance notice, permit any Person representing any Investor and designated in
writing by such holder, at such holder's expense, to visit and inspect any of
the properties of the Company and its Subsidiaries during normal business hours
in a manner which does not unduly interrupt the normal course of business, to
examine the corporate, financial and operating records of the Company or any of
its Subsidiaries and make copies thereof or extracts therefrom and to discuss
the affairs, finances and accounts of any of such corporations with the
directors, officers and independent accountants of the Company and its
Sudsidiaries, all at such reasonable times and as often as the holders may
reasonably request.
6D. Covenant to Secure Senior Subordinated Notes Equally. If the
----------------------------------------------------
Company or any of its Subsidiaries shall create or assume any Lien upon any of
its property or assets, whether now owned or hereafter acquired, other than
Liens permitted by the provisions of paragraph 7C hereof, it will make or cause
to be made effective provisions whereby the Senior Subordinated Notes will be
secured by such Lien senior to any and all other Indebtedness (other than Senior
Debt) thereby secured as long as any such other Indebtedness shall be so
secured.
6E. Additional Covenant Pending the Closing. Pending the Closing,
---------------------------------------
neither the Company nor any Guarantor will, without the prior written consent of
the Investors, take any action which would result (i) in any of the
representations or warranties contained in this Agreement not being true and
correct in all material respects (without giving effect to any qualification as
to materiality contained therein) at and as of the time immediately after such
action or (ii) in any of the covenants contained in this Agreement becoming
incapable of performance.
15
<PAGE>
Pending the Closing, the Company and each Guarantor will promptly advise the
Investors of any action or event of which either becomes aware which has the
effect of making incorrect, in any material respect, any of such representations
or warranties or which has the effect of rendering any of such covenants
incapable of performance. The Company and each Guarantor will duly perform, in
all material respects, all of its respective obligations required to be
performed under each of the Related Documents to which it is a party.
6F. Stock to be Reserved. The Company covenants that all shares of
--------------------
Common Stock that may be issued upon conversion of the Convertible Preferred
Stock will, upon issuance, be validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issuance thereof. The
Company further covenants that during the period within which the Convertible
Preferred Stock may be converted, the Company will at all times have authorized
and reserved a sufficient number of shares of Common Stock to permit the
conversion of all of the outstanding shares of Convertible Preferred Stock.
6G. Compliance With Laws, etc. The Company will, and will cause each
-------------------------
of its Subsidiaries to, comply with the requirements of all applicable laws,
rules, regulations and orders of any Governmental Authority, and obtain and
maintain in good standing all licenses, permits and approvals from any and all
governments, governmental commissions, boards or agencies of jurisdictions in
which they carry on business required in respect of the operations of the
Company and its Subsidiaries, except for those with which the failure to comply
or maintain would not have a Material Adverse Effect.
6H. ERISA. Promptly (and in any event within 30 days) after the
-----
Company or any of its Subsidiaries knows that a Reportable Event with respect to
any Pension Plan has occurred, that any Pension Plan is or may be terminated,
reorganized, partitioned or declared insolvent under Title IV of ERISA or that
the Company or any of its Subsidiaries will or may incur any liability under
Section 4062, 4063, 4064, 4201 or 4204 of ERISA or promptly upon becoming aware
of the occurrence of any (i) event requiring the Company or any of its
Subsidiaries to provide security to a Pension Plan under Section 401 (a) (29) of
the Code, (ii) "prohibited transaction", as such term is defined in Section 4975
of the Code or in Section 406 of ERISA, in connection with any employee benefit
plan maintained or contributed to by the Company or any of its Subsidiaries or
any trust created thereunder for which a statutory or administrative exemption
is not available, (iii) notice of intent to terminate a Pension Plan or Pension
Plans having been filed under Title IV of ERISA by the Company, any Subsidiary
or any ERISA Affiliate, any Pension Plan administrator or any combination of the
foregoing, (iv) institution of proceedings by the PBGC to terminate or to cause
a trustee to be appointed to administer any Pension Plan, (v) partial or
complete withdrawal by the Company, any Subsidiary
16
<PAGE>
or any ERISA Affiliate from any Multiemployer Pension Plan, (vi) institution of
proceedings by a fiduciary of any Multiemployer Pension Plan against the Company
or any of its Subsidiaries to enforce Section 515 of ERISA and such proceeding
shall not have been dismissed within 30 days thereafter, (vii) failure of the
Company, any Subsidiary or any ERISA Affiliate to make a required installment
under Section 412(m) of the Code or any other payment required under Section 412
of the Code or to pay any amount which it shall have become liable to pay to the
PBGC or to a Pension Plan under Title IV of ERISA on or before the due date,
(viii) application by the Company, any Subsidiary or any ERISA Affiliate for a
waiver of the minimum funding standard under Section 412 of the Code or Section
302 of ERISA, or (ix) "reorganization" (as defined in Section 418 of the Code or
Title IV of ERISA) of any Multiemployer Pension Plan, the Company will deliver
to each holder of Securities, a certificate of the chief financial officer of
the Company, setting forth information as to such occurrence and what action, if
any, the Company is required or proposes to take with respect thereto. The
Company shall also deliver to each holder of Securities any notices concerning
such occurrences which are (a) required to be filed by the Company or the plan
administrator of any such Pension Plan controlled by the Company or any of its
Subsidiaries with the PBGC, or (b) received by the Company or any of its
Subsidiaries from any plan administrator of a Multiemployer Pension Plan not
under their control. The Company shall furnish to each holder of Securities a
copy of each annual report (Form 5500 Series, excluding Schedule SSA) of any
Pension Plan received or prepared by it or any of its Subsidiaries. Each annual
report and any notice required to be delivered hereunder shall be delivered no
later than 30 days after the later of the date such report or notice is filed
with the Internal Revenue Service or the PBGC or the date such report or notice
is received by the Company or any of its Subsidiaries, as the case may be.
6I. Corporate Existence; Maintenance of Properties. The Company
-----------------------------------------------
(i) will do or cause to be done all things reasonably necessary to preserve and
keep in full force and effect its corporate existence, rights and franchises and
the corporate existence, rights and franchises of its Subsidiaries (except as
specifically permitted by paragraphs 7H and 7I hereof), (ii) will cause its
material properties and the material properties of its Subsidiaries to be
maintained and kept in good condition, repair and working order (ordinary wear
and tear excepted) and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereto, and (iii) will, and will
cause each of its Subsidiaries to, qualify and remain qualified to conduct
business in each jurisdiction where the nature of the business of or ownership
of property by the Company or such Subsidiary may require such qualification.
6J. Insurance. The Company will maintain, and will cause each of its
---------
Subsidiaries to maintain, with financially sound and reputable insurance
companies, funds or underwriters,
17
<PAGE>
insurance for itself and its Subsidiaries of the kinds, covering the risks and
in the relative proportionate amounts usually carried by companies conducting
business activities similar to those of the Company and its Subsidiaries. From
and after a Public Offering, the Company will use its best efforts to obtain and
maintain directors and officers liability insurance similar to the insurance
usually carried by companies conducting business activities similar to those of
the Company and its Subsidiaries.
6K. Further Assurances. The Company and each Guarantor shall
------------------
cooperate with any of the Investors and execute such further instruments and
documents as the Investors shall reasonably request to carry out to the
satisfaction of such Investors the transactions contemplated by this Agreement.
6L. Filing of Reports Under the Exchange Act. The Company shall, and
----------------------------------------
shall cause each of its Subsidiaries to, give prompt notice to each Investor of
the filing of any registration statement (an "Exchange Act Registration
-------------------------
Statement") pursuant to the Exchange Act relating to any class of securities of
- ---------
the Company or any of its Subsidiaries and the effectiveness of such Exchange
Act Registration Statement and, with respect to equity securities, the number of
shares of such class of equity security outstanding as reported in such Exchange
Act Registration Statement. If and for so long as the Company or any of its
Subsidiaries has a class of equity securities required to be registered under
the Exchange Act, the Company and such Subsidiaries shall (i) comply in all
material respects with the reporting requirements of the Exchange Act, and (ii)
comply in all material respects with all other public information reporting
requirements of the Commission that are a condition to the availability of an
exemption from the Securities Act (under Rule 144 thereof, as amended from time
to time, or successor rule thereto or otherwise) for the sale of shares of
Common Stock by any Investor. The Company shall, and shall cause each of its
Subsidiaries to, cooperate with each Investor in supplying such information as
may be reasonably necessary for such Investor to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to there availability of an exemption from the Securities Act (under
Rule 144 thereunder or otherwise) for the sale of shares of Common Stock by any
Investor.
6M. Securities Act Registration Statements. The Company covenants
--------------------------------------
that it shall not, and shall cause each of its Subsidiaries not to, file any
registration statement under the Securities Act covering any securities unless
it shall first have given to each Investor 20 days written notice thereof. The
Company further covenants that each Investor shall have the right, at any time
when it may reasonably be deemed by such Investor or the Company or any of its
Subsidiaries to be a controlling person of the Company or any of its
Subsidiaries, to participate in the preparation of such registration statement
(regardless of whether or not an Investor will be a selling
18
<PAGE>
security holder in connection with such registration statement) and to request
the insertion therein of material furnished to the Company or any of its
Subsidiaries in writing which in such Investor's reasonable judgment should be
included. In connection with any registration statement referred to in this
paragraph 6M, the Company will indemnify each Investor, its partners, officers
and directors and each person, if any, who controls such Investor within the
meaning of Section 15 of the Securities Act (collectively, the "Investor
--------
Parties"), against all losses, claims, damages, liabilities and expenses caused
- -------
by any untrue statement or alleged untrue statement of a material fact contained
in any registration statement or prospectus or any preliminary prospectus or any
amendment thereof or supplement thereto or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses are caused by any untrue
statement or alleged untrue statement or omission or alleged omission contained
in written information furnished to the Company or any of its Subsidiaries by
such Investor Parties expressly for use in such registration statement. If, in
connection with any such registration statement, such Investor Parties shall
furnish written information to the Company or any of its Subsidiaries expressly
for use in the registration statement, such Investor will indemnify the Company,
its directors, each of its officers who signs such registration statement and
each person, if any, who controls the Company within the meaning of the
Securities Act against all losses, claims, damages, liabilities and expenses
caused by any untrue statement or alleged omission of a material fact required
to be stated in the registration statement or prospectus or any preliminary
prospectus or any amendment thereof or supplement thereto or necessary to make
the statements therein not misleading, but only to the extent that such untrue
statement or alleged untrue statement or such omission or alleged omission is
contained in information so furnished in writing by such Investor for use
therein. The provisions of this paragraph 6M are in addition to, and not in
limitation of, the provision of the registration Rights Agreement.
6N. Notices of Certain Events. The Company shall promptly give
-------------------------
notice to each holder of Securities (i) of the occurrence of any Default or
Event of Default, (ii) of any default or event of default under any contractual
obligation of the Company or any of its Subsidiaries if such default or event of
default, individually or in the aggregate, relates to a contractual obligation
equal to or in excess of $100,000, (iii) of any pending or threatened
litigation, investigation or proceeding to which the Company or any of its
Subsidiaries is or is threatened to be a party which, if such pending or
threatened litigation, investigation or proceeding were adversely determined,
would create a liability of the Company or its Subsidiaries equal to or in
excess of $100,000 that is not fully
19
<PAGE>
covered by insurance held by the Company or its Subsidiaries, or (iv) of a
Change of Control Event. Any notice delivered pursuant to this paragraph 6N
shall accompanied by an Officer's Certificate specifying the details of the
occurrence referred to therein and stating what action the Company proposes to
take with respect thereto. In addition to the foregoing, in the case
contemplated by clause (iv) of the first sentence of this paragraph 6N, the
Company will also comply with the provisions of paragraphs 4C hereof.
6O. Board Nominees. As long as (x) any Senior Subordinated Notes are
--------------
outstanding or (y) the Investors hold at least 10% of the Convertible Preferred
Stock or Common Stock obtained through conversion of the Convertible Preferred
Stock held by them on the date hereof, the Company will use its best efforts to
(i) have that number of nominees designated by the Investors elected to the
Board of Directors of the Company that would constitute a majority of the Board
of Directors of the Company, (ii) cause the number and composition of directors
of the Board of Directors of any Subsidiary to be identical to the number of
directors of the Board of Directors of the Company; provided, however, that if
-------- -------
the number of directors or the composition of the Board of Directors of any
Subsidiary differs from the number of directors or the composition of the Board
of Directors of the Company, then and in addition to the requirement of clause
(i) above, the Company will, and will cause such Subsidiary to, use its best
efforts to, have that number of nominees designated by the Investors elected to
the Board of Directors of such Subsidiary as the Investors request. Any director
designated by the Investors shall receive (A) all materials distributed to the
Board of Directors of the Company or any Subsidiary, as the case may be, whether
provided to directors in advance of, during or after, any meeting of the
applicable Board of Directors, regardless of whether such director shall be in
attendance at any such meeting, (B) the same compensation other outside members
of the Board of Directors of the Company or any Subsidiary, as the case may be,
shall receive in his or her capacity as a director and (C) reimbursement of the
reasonable out-of-pocket expenses of such director incurred in attending the
meetings of the Board of Directors of the Company or any Subsidiary, as the case
may be.
6P. Listing of Common Stock. The Company covenants and agrees for
-----------------------
the benefit of the Investors and each holder of any Common Stock issued upon
conversion of the Convertible Preferred Stock, that at the time of and in
connection with the listing of Common Stock or any other equity securities of
the Company on any national securities exchange, it will, at its expense, use
its best efforts to cause the shares of Common Stock issuable from time to time
upon conversion of the Convertible Preferred Stock to be approved for listing,
subject to notice of issuance, and will provide prompt notice to each such
exchange of the issuance thereof from time to time.
20
<PAGE>
6Q. Environmental Laws. (i) The Company will comply with, and will
------------------
cause each of its Subsidiaries to comply with, and use its best efforts to
ensure compliance by all tenants and subtenants and with respect to all of its
assets with, all licenses, permits and other authorizations required under all
applicable laws, regulations, orders, notices and other requirements of
Governmental Authorities relating to public health and safety, pollution or to
the protection of the environment (the "Environmental Laws") and obtain and
------------------
comply with and maintain, and use its best efforts to ensure that all tenants
and subtenants obtain and comply with and maintain, any and all licenses,
approvals, registrations or permits required by Environmental Laws, except to
the extent that failure to so comply or to obtain and comply with and maintain
such licenses, approvals, registrations and permits does not have, and could not
reasonably be expected to result in, a Material Adverse Effect.
(ii) The Company will, and will cause each of its Subsidiaries to,
conduct and complete all investigations, studies, sampling and testing, and all
remedial, removal and other actions, required under Environmental Laws and
promptly comply with all lawful orders and directives of all Governmental
Authorities with respect to Environmental Laws, except to the extent that the
same are being contested in good faith by appropriate proceedings or the
pendency of such proceedings would not have a Material Adverse Effect.
(iii) The Company will, and will cause each of its Subsidiaries to,
notify the holders of the Securities of any of the following that is reasonably
likely to have a Material Adverse Effect.
(a) any claim with respect to any Environmental Law that the Company
or any of its Subsidiaries receives, including one to take or pay for any
remedial, removal, response or cleanup or other action with respect to any
hazardous substance, hazardous waste, contaminant, pollutant or toxic
substance (as such terms are defined in any applicable Environmental Law)
(collectively, "Hazardous Substances") contained on or generated from any
--------------------
property owned or leased by the Company or any of its Subsidiaries;
(b) any notice of any alleged violation of or knowledge by the
Company or any of its Subsidiaries of a condition that might reasonably
result in a violation of any Environmental Law; and
(c) any commencement of or receipt of written intent to commence any
judicial or administrative proceeding or investigation alleging a violation or
potential violation of any requirement of any Environmental Law by the Company
or any of its Subsidiaries.
21
<PAGE>
(iv) Without limiting the generality of paragraph 13B, the Company
will, and will cause each of its Subsidiaries to, indemnify the Investors and
each holder from time to time of the Securities and each of their respective
directors, officers, employees, agents, partners and Affiliates (each such
person being called an "Indemnitee" and collectively the "Indemnitees") against,
---------- -----------
and hold each Indemnitee harmless from, any claims, demands, penalties, fines,
liabilities, settlements, damages, costs and expenses (including reasonable
counsel fees, charges and disbursements) of whatever kind or nature arising out
of, or in any way relating to, the violation of, noncompliance with or liability
under any Environmental Laws applicable to the operations of the Company, any
orders, requirements or demands of Governmental Authorities related thereto
including, without limitation, attorneys' and consultants' fees, investigation
and laboratory fees, Response Costs (as such term is defined in CERCLA), court
costs and litigation expenses, except to the extent that any of the foregoing
are found by a final and nonappealable decision of a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct of
the Indemnitee seeking indemnification therefor. The obligation of the Company
under this paragraph 6Q shall survive the payment of the Senior Subordinated
Notes and the conversion of the Convertible Preferred Stock.
(v) Neither the Company's nor any of its Subsidiaries' plants and
facilities will use, manage, treat, store or dispose of any Hazardous Substances
in violation of any Environmental Laws.
6R. Guarantee By Subsidiary. Promptly upon any Person becoming a
-----------------------
Subsidiary of the Company, the Company covenants that it will cause such
Subsidiary to execute and deliver to the Investors such appropriate documents,
including this Agreement and the Subsidiary Guarantee, to become a guarantor
under this Agreement and the Subsidiary Guarantee.
6S. Issuance of Convertible Preferred Stock with Interest Notes.
-----------------------------------------------------------
The Company agrees to issue, together with any Interest Notes, that number of
shares of Convertible Preferred Stock equal to 100 shares per $1,000 principal
amount of Interest Notes (as adjusted for stock splits, recombinations,
dividends and other similar events). All such shares shall be registered in the
name of the recipient of the Interest Notes or its designee and shall be, upon
issuance, duly and validly issued, fully paid, nonassessable and free from all
taxes, liens and charges with respect to the issuance thereof.
6T. Management Composition and Compensation. As soon as possible
---------------------------------------
and in any event within 120 days after the Closing Date, the Company shall fill
key management positions. The composition and compensation of the management of
the Company will be mutually agreed upon between the Company and the
22
<PAGE>
Investors, to be determined based upon what is customary for the Company's
industry and size.
6U. Conduct of Business. To the Company agrees (i) to cause all
-------------------
court reporters that are hired (directly or indirectly through court reporting
services, including independent contractors) by the Company to be duly
certified to perform the jobs that they are hired to perform, (ii) to cause all
documents that the Company is required to maintain, store or handle in
connection with conducting its business to be maintained, stored or handled in
the manner agreed to between the Company and its respective clients or in
conformity with standards regarding such matters that prevail in the Company's
industry, and (iii) to perform all aspects and operations of its business at or
above the prevailing standards for the Company's industry.
7. NEGATIVE COVENANTS. All covenants contained herein shall be
------------------
given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that such action or condition would
be permitted by an exception to, or otherwise be within the limitations of,
another covenant shall not avoid the occurrence of a Default if such action is
taken or condition exists. The provisions of this Section 7 are for the benefit
of the Investors so long as they hold any of the Securities and for the benefit
of each other holder of Securities; provided, however, that upon repayment in
-------- -------
full of any and all amounts (including, without limitation, principal and
interest) due under the Senior Subordinated Notes, the Company or any of its
Subsidiaries, as the case may be, shall no longer be bound by the covenants
contained in paragraphs 7A through 7F, 7H through 7M and 7P.
7A. Financial Covenants.
-------------------
The Company and its Subsidiaries, on a consolidated basis, shall maintain
the following covenants:
(i) Funded Debt Ratio. As of the date hereof, the Company and its
-----------------
Subsidiaries, on a consolidated basis, shall have and thereafter maintain, for
each quarter annual period ending March 31, 1997, June 30, 1997, September 30,
1997, and December 31, 1997, a Funded Debt Ratio not exceeding 5.50:1.00. As of
January 1, 1998, and for each quarter-annual period ending March 31, 1998 and
June 30, 1998, the Company and its Subsidiaries, on a consolidated basis, shall
have and maintain a Funded Debt Ratio not exceeding 5.00:1.00.
(ii) Fixed Charge Coverage Ratio. As of the date hereof, and for each
---------------------------
quarter-annual period ending March 31, 1997, June 30, 1997, September 30, 1997
and December 31, 1997, the Company and its Subsidiaries, on a consolidated
basis, will have a Fixed Charge Coverage Ratio of at least 1.00:1.00. For the
first two quarter-annual periods ending March 31, 1997, and June 30, 1997, the
Company and its Subsidiaries, on a consolidated
23
<PAGE>
basis, will not permit the Fixed Charge Coverage Ratio to be less than
1.10:1.00. For the quarter-annual periods ending March 31, 1998, and June 30,
1998, the Company and its Subsidiaries, on a consolidated basis, will not permit
the Fixed Charge Coverage consolidated basis, will not permit the Fixed Charge
Coverage Ratio to be less than 1.15:1.00.
(ii) Certificate of Compliance. As of the date hereof, the Company
-------------------------
and its Subsidiaries, on a consolidated basis, and within forty-five (45) days
after the end of each month during the period ending March 31, 1997 and
thereafter within thirty (30) days after the end of each month, the Company will
provide to the Investors a Certificate of Compliance in the same form as
provided to the Bank, signed by a financial officer of the Company (i)
calculating or stating the financial covenants set out in this Section 7A, (ii)
certifying that no Events of Default have occurred, and (iii) that the Company
is, and its Subsidiaries are, in compliance with the covenants set out in this
Section.
7B. Restrictions on Indebtedness and Repayment of Indebtedness. The
----------------------------------------------------------
Company covenants that it will not incur, create, assume or suffer to exist any
Indebtedness or permit any of its Subsidiaries to do any of the foregoing,
other than the following:
(i) Senior Debt in an amount not to exceed $10,000,000;
(ii) Indebtedness represented by the Senior Subordinated Notes
and this Agreement;
(iii) Indebtedness of the Company which by its terms is
subordinated (to the same extent as the Senior Subordinated Notes are
subordinated to any Senior Debt) to the Senior Subordinated Notes,
provided that no such Indebtedness is guaranteed or incurred by any
Subsidiary of the Company; and
(iv) Indebtedness secured by Liens permitted pursuant to
paragraph 7C.
In addition, the Company covenants that it will not, and will not
permit any Subsidiary to, prepay any Indebtedness junior to the Senior
Subordinated Notes.
7C. Restrictions on Liens. The Company covenants that it will not
---------------------
and will not permit any Subsidiary to create, assume or suffer to exist any Lien
upon any of its property or assets, whether now owned or hereafter acquired,
except:
(i) Liens for taxes not yet due which are being contested in
good faith by appropriate proceedings and for which adequate reserves
have been established in accordance with GAAP;
24
<PAGE>
(ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar Persons and
other Liens imposed by law incurred in the ordinary course of business
for sums not yet delinquent or being contested in good faith, if such
reserve or other appropriate provision, if any, as shall be required
by GAAP shall have been made therefor;
(iii) Liens made to secure Senior Debt;
(iv) Liens incurred through Purchase Money Security Interests
in amounts which do not exceed the fair market value of the asset
securing such Liens; and
(v) Liens or deposits made to secure payment of workers'
compensation, or in connection with the participation in any fund in
connection with workers' compensation, unemployment insurance,
pensions or other social security programs.
7D. Restricted Payments. The Company covenants that it will not make,
-------------------
and will not permit any Subsidiary to make, any Restricted Payments.
7E. Loans, Advances and Investments. The Company covenants that it
-------------------------------
will not, and will not permit any of its Subsidiaries to, make or permit to
remain outstanding any loan or advance to, or guarantee, endorse or otherwise be
or become contingently liable, directly or indirectly, in connection with the
obligations, stock or dividends of, or own, purchase or acquire any stock,
obligations or securities of, or make any Investment in, any Person except that
the Company or any of its Subsidiaries may:
(i) own, purchase or acquire Permitted Investments;
(ii) endorse negotiable instruments for collection in the
ordinary course of business, make or permit to remain outstanding
travel, moving and other like advances to officers, employees and
consultants in the ordinary course of business or make or permit to
remain outstanding lease, utility and other similar deposits in the
ordinary course of business;
(iii) make an Investment in a Person not otherwise permitted
pursuant to this paragraph 7E, provided the amount of such Investment
(including the amount of any guarantee, endorsement or other liability
with respect thereto) shall not exceed $25,000 individually or $50,000
in the aggregate;
25
<PAGE>
(iv) make an Investment in a Person that becomes a Subsidiary
as a result of such Investment or in assets of a Person that become
assets of the Company or any Subsidiary; provided that such
Investment: (a) relate to the acquisition of court reporting
companies; (b) the Company shall deliver to the Investors pro forma
financial statements reflecting the proposed acquisition and related
calculations demonstrating compliance with all covenants contained
herein, relating to financial and accounting matters, together with a
description in reasonable detail of the nature and reasons for the
proposed transaction; (c) immediately after giving effect to such
transaction, no Default or Event of Default shall exist and be
continuing; (d) does not exceed $6,000,000 in purchase price for the
Company and its Subsidiaries in any one fiscal year; and (c) such
Person executes a quarantee in Substantially the form of Exhibit B
hereto; and
(v) make or permit to remain outstanding loans or advances to
any wholly owned Subsidiary (now existing or hereafter created) or, as
to a Subsidiary, any such loan or advance to the Company.
7F. Leases. The Company covenants that it will not enter into, or
------
permit any of its Subsidiaries to enter into, any leases of real or personal
property (except in the normal course of business at reasonable rents comparable
to those paid for similar leasehold interests in the area, or at comparable
amounts payable by companies in the same business as the Company or such
Subsidiary which are similarly situated) as lessee or sublessee, with initial
terms (excluding options to renew or extend any term, whether or not exercised)
of more than 12 years.
7G. Transactions with Affiliates. The Company covenants that it will
----------------------------
not, and will not permit any of its Subsidiaries to, directly or indirectly,
enter into or permit to exist any transactions (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service), with any holder of 5% or more of any class of equity securities of the
Company or of any such holder on terms that are less favorable to such
Subsidiary or the Company than those that would be obtainable at the time in an
arms-length transaction from any Person who is not such a holder or Affiliate.
7H. Merger. The Company covenants that it will not, and will not
------
permit any of its Subsidiaries to, enter into any transaction of merger or
consolidation (which does not constitute a Change of Control) or liquidate, wind
up or dissolve itself (or suffer any liquidation or dissolution) (other than any
sales or transfers by a Subsidiary to the Company or to another Subsidiary or
by the Company to a Subsidiary), except that the Company or a
26
<PAGE>
wholly owned Subsidiary may (i) enter into or permit a transaction of purchase,
merger or consolidation if the merger or consolidation is between two or more
wholly owned Subsidiaries of the Company or between the Company and one or more
wholly owned Subsidiaries of the Company and (ii) enter into a merger in
connection with an investment permitted by paragraph 7E.
7I. Disposition of Substantial Assets. The Company covenants that it
---------------------------------
will not, and will not permit any of its Subsidiaries to, sell, dispose of or
otherwise convey (by merger, consolidation, sale of stock or otherwise)
(collectively, a "Transfer"), in any single or related series of sales,
--------
dispositions or conveyances, any assets of the Company or any Subsidiary except:
(i) if such Transfer is made in the ordinary course of business consistent with
past practice; (ii) if the net proceeds of such Transfer is applied to the
prepayment of the Senior Subordinated Notes pursuant to paragraph 4D; (iii) if
the net proceeds of such Transfer are reinvested in the business of the Company
or are otherwise invested pursuant to paragraph 7E(iv); or (iv) if in the
aggregate all of the Transfers made since the Closing Date and not otherwise
permitted by clause (i), (ii) or (iii) above amounts to less than $200,000.
Notwithstanding this paragraph 7I, no assets of the Company or its Subsidiaries
shall be sold, disposed of or otherwise conveyed (i) at less than fair market
value (determined in good faith by the Board of Directors of the Company) nor
(ii) if any Default or Event of Default shall have occurred and then be
continuing or shall result from such sale or disposition.
7J. Sale of Stock and Debt of Subsidiaries. Except with respect to
--------------------------------------
the Senior Debt, the Company covenants that it will not, and will not permit any
of its Subsidiaries to sell or otherwise dispose of, or part with control of,
any shares of stock or Indebtedness of any Subsidiary, except to the Company or
another wholly owned Subsidiary.
7K. Certain Contracts. Except as otherwise specifically permitted by
-----------------
any other provision of this Section 7, the Company covenants that it will not,
and will not permit any of its Subsidiaries to, enter into or be a party to (i)
any contract for the purchase of materials, supplies or other property or
services if such contract (or any related document) requires that payment for
such materials, supplies or other property or services shall be made regardless
of whether or not delivery of such materials, supplies or other property or
services is ever made or tendered, (ii) any contract to rent or lease (as
lessee) any real or personal property if such contract (or any related document)
requires that the lessee purchase or otherwise acquire securities or obligations
of the lessor (unrelated to the lease in question), (iii) any contract for the
sale or use of materials, supplies or other property, or the rendering of
services, if such contract (or any related document) provides that payment for
such materials, supplies or other property, or the use thereof, or payment for
such services, shall
27
<PAGE>
be subordinated to any indebtedness (of the purchaser or user of such materials,
supplies or other property or the Person entitled to the benefit of such
services) owed or to be owed to any Person, (iv) any other contract which is,
or, in economic effect, is substantially equivalent to, a guarantee or (v) any
contract providing for the making of loans, advances or capital contributions to
any Person other than a Subsidiary, or for the purchase of any property from any
Person, in each case primarily in order to enable such Person to maintain
working capital, net worth or any other balance sheet condition or to pay debts,
dividends or expenses.
7L. Conduct of Business. The Company covenants that it will not, and
-------------------
will not permit any of its Subsidiaries to, engage in any business other than
the business engaged in by the Company and its Subsidiaries on the date hereof
(or as previously engaged in by Looney and Klein).
7M. No Amendments. The Company covenants that it will not, and will
-------------
not permit any of its Subsidiaries to, amend (i) the Company's or any of its
Subsidiaries' Articles of Incorporation or By-laws in a manner which impairs the
rights, privileges or preferences of the Securities, (ii) the Related Documents
in any manner that impairs any right or privilege of the holders of the Senior
Subordinated Notes (including, without limitation, enlarging the rights or
privileges of any other Persons at the expense of the holders of the Senior
Subordinated Notes), (iii) the Bank Debt Agreement (or any other Senior Debt
Agreement) in any manner that impairs any right of the Senior Subordinated
Notes, including without limitation, the right to payments of principal and
interest when due in accordance with paragraph 4B.
7N. Registration Rights. The Company covenants that it will not
-------------------
hereafter enter into any agreement with respect to its securities any provision
of which is inconsistent with or as favorable as the rights granted to the
Investors in the Registration Rights Agreement.
7O. Offering of Securities. The Company will not take any action
----------------------
which would subject the issuance or sale of any of the Securities to the
provisions of Section 5 of the Securities Act or violate the provisions of any
securities or Blue Sky Law of any applicable jurisdiction.
7P. Issuance of Securities. (a) The Company covenants that it will
----------------------
not issue, sell or otherwise dispose of or part with any shares of capital
stock, Indebtedness or other securities of the Company which by its terms is
senior to the Senior Subordinated Notes, other than, subject to paragraph 7B(i),
Senior Debt.
(b) The Company covenants that it will not permit any of its
Subsidiaries to issue, sell or otherwise dispose of or
28
<PAGE>
part with any shares of capital stock, Indebtedness or other securities of the
Company which by its terms is senior to the Senior Subordinated Notes, or which
results, directly or indirectly, in such capital stock, Indebtedness or other
securities being senior to the Senior Subordinated Notes, other than Senior
Debt.
(c) The Company covenants that it will not, and will not permit any
of its Subsidiaries to, issue, sell or otherwise dispose of or part with any
shares of capital stock, Indebtedness or other Securities of the Company or any
of its Subsidiaries which by its terms is pari-passu to the Senior Subordinated
Notes.
8. SUBORDINATION.
-------------
8A. Subordinated Debt Subordinate to Senior Debt. The Senior
--------------------------------------------
Subordinated Notes and any and all Subsidiary Guarantees shall be junior and
subordinate to all Senior Debt to the extent and in the manner provided in this
Section 8 and each holder of a Senior Subordinated Note and a Subsidiary
Guarantee, by its acceptance thereof, agrees to be bound by the provisions of
this Section 8. The Company, the Subsidiaries and each holder of Subordinated
Debt agree that the payment of the principal of, and interest on, and all other
amounts owing in respect of the Subordinated Debt is and shall be expressly
subordinated, to the extent and in the manner hereinafter set forth, to the
prior payment in full of all Senior Debt. The Senior Subordinated Notes shall
not be junior or subordinate to any Indebtedness of the Company other than the
Senior Debt. For purposes hereof, all Indebtedness evidenced by the Senior
Subordinated Notes, including any refinancing, extension or modification
thereof, and the Company's obligation to pay the redemption price in respect of
an exercise of the Put Right, the Subsidiary Guarantees, and any and all other
obligations of the Company and/or any of the Subsidiaries owing to any of the
holders of Subordinated Debt howsoever created or arising shall constitute
"Subordinated Debt".
-----------------
The Senior Creditor is the holder of the Senior Debt, a third party
beneficiary of Section 8 of this Agreement, and is entitled to rely on the terms
and provisions hereof, limited however, to the provisions of this Section 8, and
to enforce the terms and provisions of this Section 8 in respect of the Senior
Debt and the Subordinated Debt against the Company, the Subsidiaries and the
holders of any of the Subordinated Debt.
8B. Suspension of Right to Receive Payments of Subordinated Debt.
------------------------------------------------------------
8B(1). Failure to Pay Principal of or Interest on Senior Debt. (a)
------------------------------------------------------
Upon (i) the maturity of Senior Debt by lapse of time, acceleration or
otherwise, (ii) any failure by the Company to make any payment of principal or
interest when due
29
<PAGE>
with respect to Senior Debt or (iii) any default in the payment by the Company
of any interest or other amounts due with respect to Subordinated Debt, all
principal of the Senior Debt and all interest thereon and other amounts due in
connection therewith, shall first be paid in full, or such payment duly provided
for in cash or in a manner satisfactory to the holders of such Senior Debt,
before any payment or distribution of any kind or character, whether in cash,
property or securities, shall be paid or delivered with respect to Subordinated
Debt. Any payment or distribution of any kind or character, whether in cash,
property or securities, which may be payable or deliverable with respect to the
Subordinated Debt shall be paid or delivered directly to the holders of Senior
Debt, ratably, for application in payment thereof, unless and until all Senior
Debt shall have been paid in full and in cash.
(b) Upon the occurrence of any event of default under any Senior Debt
(excluding any event of default arising as a result of a breach of any covenant
contained in Section 7.1 of the Bank Debt Agreement except for Section 7.1.G.
thereof) which would, with the giving of notice or the passage of time, or both,
permit the holders of such Senior Debt to accelerate the maturity thereof upon
written notice thereof given to the Company and to the Investment Advisor for
the Investors by the holder of such Senior Debt or their representatives (a
"Default Notice"), then, unless and until such event of default with respect to
--------------
Senior Debt shall have been cured or waived in writing by the holders of such
Senior Debt, no payment shall be made by the Company or any Subsidiary with
respect to the principal of or interest or other amounts due with respect to
Subordinated Debt; provided, however, this paragraph shall not prevent the
-------- -------
making of any payment for longer than 180 days after the giving of a Default
Notice unless a default shall be declared by the holder of the Senior Debt, in
which event no payment of Subordinated Debt shall be made by the Company or any
Subsidiary with respect to the principal of or interest or other amounts due, in
which event the provisions of Section 8B(1) (a) shall control. Amounts of the
Subordinated Debt which become due during any period during which Senior Debt in
respect of which a Default Notice has been given will be deferred and payable
only after all Senior Debt shall have been paid in full.
(c) Upon the occurrence of (i) any default as set out in paragraph
8B(1)(a), or (ii) the giving of any Default Notice as set out in paragraph
8B(1)(b), the Company shall not make any payments, and the holders of the
Subordinated Debt shall not receive, ask, demand, sue for any payment or take
any action to enforce, take or receive, directly or indirectly, in cash or other
property, by sale, setoff or in any other manner whatsoever, or otherwise
exercise remedies against the Company or any Subsidiary with respect to the
principal of, interest on, premium on, or otherwise owing in respect of, the
Subordinated Debt or this Agreement, unless and until such default with respect
to Senior Debt has been cured or waived in writing by the
30
<PAGE>
holder of the Senior Debt or this Agreement, unless and until such default with
respect to Senior Debt has been cured or waived in writing by the holder of the
Senior Debt.
8B(2). Bankruptcy or Insolvency. In the event of (a) any insolvency,
------------------------
bankruptcy, liquidation, reorganization or other similar proceedings, or any
receivership proceedings in connection therewith, relative to the Company or any
Subsidiary, or (b) any proceedings for voluntary liquidation, dissolution or
other winding-up of the Company or any Subsidiary, whether or not involving
insolvency or bankruptcy proceedings (collectively, the foregoing being
"Proceedings", or individually, a "Proceeding"), then all Senior Debt, including
the principal thereof, premium, if any, and interest, including post-petition
interest due thereon, shall first be paid in full, or such payment shall have
been duly provided for, before any further payment is made with respect to
Subordinated Debt. In any Proceedings, any payment or distribution of any kind
or character, whether in cash, property or securities, which may be payable or
deliverable with respect to Subordinated Debt shall be paid or delivered
directly to the holders of Senior Debt, ratably, for application in payment
thereof, unless and until all Senior Debt shall have been paid in full. In any
Proceeding, the holders of Subordinated Debt shall not have any right to setoff
against the Subordinated Debt any Indebtedness owed by any of the holders of
Subordinated Debt to the Company or any of the Subsidiaries (including, without
limitation, any right of setoff under (S)553 of the Bankruptcy Code). Anything
in this Section 8 to the contrary notwithstanding, no payment or delivery shall
be made to holders of Senior Debt of securities that are issued and delivered to
holders of Subordinated Debt pursuant to liquidation or dissolution of the
Company or in a Proceeding, or upon any merger, consolidation, sale, lease,
transfer or other disposal not prohibited by the provisions of this Agreement,
by the Company, as reorganized, or by the corporation succeeding to the Company
or acquiring its property and assets, if (i) such securities are subordinated
and junior at least to the extent provided in this Section 8 to the payment of
all Senior Debt then outstanding and to the payment of any securities that are
issued in exchange or substitution for any Senior Debt then outstanding and (ii)
such securities mature no earlier than six (6) months after the scheduled
maturity of the indebtedness under the Bank Debt Agreement.
8C. Rights of Holders of Senior Debt Not to Be Impaired. No right
---------------------------------------------------
of any present or future holder of any Senior Debt to enforce subordination as
herein provided shall at any time be in any way prejudiced or impaired by any
act or failure to act by any such holder, or by any noncompliance by the Company
with the terms and provisions and covenants herein contained, regardless of any
knowledge thereof any such holder may have or otherwise be charged with. The
provisions of this Section 8 are intended to be for the benefit of, and shall be
enforceable
31
<PAGE>
directly by, any one or more of the holders from time to time of the Senior
Debt. Each of the holders of the Subordinated Debt waives notice of or proof of
reliance on this Agreement and (except as set out in Section 8B(1) (b)) protest,
demand for payment and notice of default by the holders of Senior Debt.
8D. Company's Obligation Unconditional. The provisions of this
----------------------------------
Section 8 are solely for the purpose of defining the relative rights of the
holders of Senior Debt, on the one hand, and the holders of Subordinated Debt,
on the other hand, against the Company, the Subsidiaries and their property.
Nothing herein shall impair, as between the Company and the holders of
Subordinated Debt, the obligation of the Company, which is unconditional and
absolute, to pay to the holders thereof the full amount of Subordinated Debt in
accordance with the terms thereof and the provisions hereof and, except as
expressly provided in paragraph 8B, nothing herein shall prevent the holder of
any Subordinated Debt from exercising all remedies otherwise permitted by
applicable law or hereunder upon Default hereunder or under any Subordinated
Debt (including, without limitation, the right to demand and sue for payment and
performance hereof of the Subordinated Debt and to accelerate the maturity
hereof as provided in Section 9 hereof), subject to the rights under this
Section 8 of holders of Senior Debt to receive cash, property or securities
otherwise payable or deliverable to the holders of Subordinated Debt. The
failure to make any payment with respect to Subordinated Debt by reason of any
provision of this Section 8 shall not be construed as preventing the occurrence
of an Event of Default under Section 9.
8E. Payments Held in Trust. If the holder of any Subordinated Debt
----------------------
shall receive any payment or delivery of cash, property or securities in respect
of such Subordinated Debt which such holder is not entitled to receive under the
provisions of this Section 8, such holder will hold any amount so received in
trust for the holders of Senior Debt and will forthwith turn over to the holders
of Senior Debt such payment or delivery in the form received to be applied in
payment or prepayment of Senior Debt; provided, however, that no holder of
-------- -------
Subordinated Debt shall be obligated to determine whether a payment received by
it was appropriately made by the Company.
8F. Subrogation. Upon the payment in full of all Senior Debt and
-----------
termination of any Senior Debt Agreement, the holders of Subordinated Debt shall
be subrogated to the rights of the holders of Senior Debt to receive payments or
distributions of assets of the Company applicable to Senior Debt, until all
Subordinated Debt shall have been paid in full. For the purpose of subrogation,
no payments to the holders of Senior Debt of any cash, property or securities
that the holders of Subordinated Debt would be entitled to receive and retain
but for the provisions of this Section 8, and no payment over pursuant to the
provisions of this Section 8 to holders of Senior Debt by holders of
Subordinated Debt, shall, as between the Company and its
32
<PAGE>
creditors (other than the holders of Senior Debt), on the one hand, and the
holders of Subordinated Debt, on the other, be deemed to be a payment by the
Company with respect to the Senior Debt.
8G. Reliance by Holders on Final Order or Decree. In the event that
--------------------------------------------
delivery of any securities to any holders of Subordinated Debt is authorized by
a final non-appealable order or decree giving effect to the subordination of the
Indebtedness represented by Subordinated Debt to Senior Debt, and made by a
court of competent jurisdiction in a liquidation of dissolution of the Company
or in a bankruptcy, reorganization, insolvency, receivership or similar
proceedings under any applicable law, securities deliverable with respect to the
Indebtedness represented by Subordinated Debt may be made by the Company, as
reorganized, or by the corporation succeeding to the Company or acquiring its
properties and assets, to the holders of Subordinated Debt, if (i) such
securities are subordinate and junior at least to the extent provided in this
Section 8 to the payment of all Senior Debt then outstanding and to the payment
of any securities that are issued in exchange or substitution for any Senior
Debt then outstanding and (ii) such securities mature no earlier than the
scheduled maturity of the Indebtedness under the Bank Debt Agreement.
8H. Legend. The Senior Subordinated Notes shall be conspicuously
------
legended indicating that their payment is subordinated to Senior Debt pursuant
to the terms of this Agreement with the following:
"THE INDEBTEDNESS EVIDENCED BY THIS SENIOR SUBORDINATED NOTE IS SUBORDINATED TO
THE SENIOR DEBT, AS DEFINED IN SECTION 8 OF THAT CERTAIN SECURITIES PURCHASE
AGREEMENT DATED JANUARY 17, 1997, WHICH SENIOR DEBT IS HELD BY TEXAS COMMERCE
BANK NATIONAL ASSOCIATION, PURSUANT TO, AND TO THE EXTENT PROVIDED IN SECTION 8
OF THE SECURITIES PURCHASE AGREEMENT (AS AMENDED, SUPPLEMENTED OR OTHERWISE
MODIFIED FROM TIME TO TIME PURSUANT TO THE TERMS THEREOF), AMONG LITIGATION
RESOURCES OF AMERICA, INC., LOONEY & COMPANY, AND KLEIN, BURY & ASSOCIATES,
INC. AND THE INVESTORS NAMED ON THE SIGNATURE PAGES THEREOF."
8I. Remedies. The Senior Creditor is authorized to demand specific
--------
performance of Section 8 of this Agreement, whether or not the Company or any of
the Subsidiaries shall have complied with any of the provisions hereof
applicable to them, respectively, at any time when any of the holders of
Subordinated Debt shall have failed to comply with any of the provisions of this
Agreement applicable to them. Each of the holders of Subordinated Debt
irrevocably waives any defense based on the adequacy of a remedy at law, which
might be asserted as a bar to such remedy of specific performance.
8J. Senior Debt Not Affected. All rights and interests of the Senior
------------------------
Creditor hereunder, and all agreements
33
<PAGE>
and obligations of the Company, the Subsidiaries and the holders of Subordinated
Debt under this Agreement, shall remain in full force and effect irrespective
of, (i) any lack of validity or enforceability of all or any portion of this
Agreement, (ii) any change in the amount of interest rate accruing on, time,
manner or place of payment of, or in any other term of, all or any of the Senior
Debt, or any other amendment or waiver of any consent to departure from any of
loan documents, including, without limitation, changes in the terms of
disbursement of the loan proceeds under the Bank Debt Agreement or repayment
thereof, modifications, extensions or renewals of payment dates, changes in
interest rate or the advancement of additional funds by the Senior Creditor in
the Senior Creditor's discretion, (iii) any exchange, release or non-perfection
of any collateral or any release or amendment or waiver of or consent to
departure from any guaranty for all or any of the Senior Debt, or (iv) any other
circumstance in respect of this Agreement which might otherwise constitute a
defense available to, or a discharge of, the Company or any of the Subsidiaries
of or in respect of the Senior Debt or the holders of Subordinated Debt.
8K. Reinstatement. The provisions of this Section 8 shall continue to
-------------
be effective or be reinstated, as the case may be, if at any time any payment of
any of the Senior Debt is rescinded or must otherwise be returned by the Senior
Creditor upon the insolvency, bankruptcy or reorganization of the Company or any
of the Subsidiaries or otherwise, all as though such payment had not been made.
8L. Representations and Warranties. Each of the holders of
------------------------------
Subordinated Debt represents and warrants that (i) it owns the Subordinated Debt
now outstanding free and clear of any lien, security interest, charge or
encumbrance or any rights of others, (ii) the execution, delivery and
performance by the holders of Subordinated Debt of this Agreement do not and
will not contravene any law or governmental regulation or any contractual
restriction binding on or affecting any of the holders of Subordinated Debt or
the properties of any of the holders of Subordinated Debt, (iii) this Agreement
is a legal, valid and binding obligation of the holders of Subordinated Debt,
enforceable against each of the holders of Subordinated Debt in accordance with
its terms, and (iv) to the knowledge of the holders of Subordinated Debt, there
exists no default in respect of any Subordinated Debt.
8M. Expenses. If any of the holders of Subordinated Debt shall fail
--------
to comply with the provisions of this Section 8 applicable to it, such holder
of the Subordinated Debt agrees to pay, upon demand, to the Senior Creditor the
amount of any and all reasonable expenses, including the reasonable fees and
expenses of the Senior Creditor's counsel, which may be incurred in connection
with the exercise or enforcement against such holder of Subordinated Debt of any
of the rights or interests of the holders of the Senior Debt hereunder.
34
<PAGE>
8N. No Waiver, Remedies. No failure on the part of the Senior
-------------------
Creditor to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof, or shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
8O. Subordination of Liens. Each of the holders of Subordinated Debt
----------------------
agrees that none of the holders of Subordinated Debt will hold any lien or
security interest in any real or personal property as security for any of the
Subordinated Debt unless the Senior Creditor has given prior written consent to
the creation thereof. All such liens and security interest and, in the event
any of the holders of Subordinated Debt shall acquire any lien or security
interest in the future as security for the Subordinated Debt, the Subordinated
Creditor will hold such lien or security interest in accordance with the terms
of this Agreement for the benefit of the Senior Creditor. Any cash or other
property received in violation of this Agreement on account of any lien or
security interest securing the Subordinated Debt shall be delivered to the
Senior Creditor and, in the case of cash, applied to, or, in the case of other
property, held as collateral for, the Senior Debt. To the extent that any
Subordinated Debt is now or hereafter secured by a lien or security interest (a
"Subordinate Lien") against any real or personal property that is also subject
----------------
to a lien or security interest securing the Senior Debt (a "Senior Lien"), each
-----------
of the holders of Subordinated Debt agrees that such Subordinate Lien shall be
second, junior and subordinate to such Senior Lien and such Senior Lien shall be
first and prior to such Subordinate Lien. It is agreed that the priorities
specified in the preceding sentence are applicable irrespective of the time or
order of attachment or perfection of liens and security interests, or the time
or order of filing of liens and security interests, or the time or order of
filing of financing statements, or the giving or failure to give notice of the
acquisition or expected acquisition of purchase money or other security
interests.
8P. Provisions Specific to Section 8. The following provisions are
--------------------------------
applicable only to the provisions of this Section 8.
(1) THIS AGREEMENT, AS TO THE SUBORDINATION PROVISIONS HEREOF, IS BEING
EXECUTED AND DELIVERED, AND IS INTENDED TO BE PERFORMED IN THE STATE OF
TEXAS, AND THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING
EFFECT TO THE CONFLICTS-OF-LAW RULES AND PRINCIPLES OF THE STATE OF TEXAS,
AND THE APPLICABLE LAWS OF THE UNITED STATES SHALL GOVERN THE VALIDITY,
CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT.
35
<PAGE>
(2) Any suit, action or proceeding with respect to the interpretation or
enforcement of this Agreement, or the enforcement of any judgment entered
by any court in respect thereof, shall be brought in the courts of the
State of Texas, Harris County, Texas, or in the U.S. courts located in
Southern District of Texas as the Senior Creditor, in the Senior Creditor's
sole discretion, may elect. The parties submit to the nonexclusive
jurisdiction of such courts for the purpose of any such suit, action or
proceeding.
(a) The parties waive, in connection with any such suit, action or
proceeding, any objection, including, without limitation, any objection to
the laying of venue or based on the grounds of forum non conveniens, which
it may now or hereafter have to the bringing of any such action or
proceeding in such respective jurisdictions.
(b) The parties consent to the service of process of any of the
aforementioned courts in any such action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to each
such Person, as the case may be, at its address set forth below.
(c) Nothing herein shall affect the right of any party to serve process in
any other manner permitted by law.
(3) Each party hereto waives any right it may have to a trial by jury in
respect of any legal proceeding directly or indirectly arising out of,
under or in connection with or relating to this Agreement. Except as
prohibited by law, each party hereto waives any right it may have to claim
or recover in any litigation referred to in this Section any special,
exemplary, punitive or consequential damages or any damages other than, or
in addition to, actual damages. Each party hereto (i) certifies that no
representative, agent or attorney of the Senior Creditor has represented,
expressly or otherwise, that the Senior Creditor would not, in the event
of litigation, seek to enforce the foregoing waivers, and (ii) acknowledges
that it has been induced to enter into this Agreement and the other Loan
Documents, as applicable, by, among other things, the mutual waivers and
certifications herein.
(4) Any notice required or permitted to be given under this Section 8 shall be
in writing, shall be addressed to the parties hereto at the respective
addresses set out below, which may be changed by the giving of written
notice to that effect pursuant hereto, and shall be deemed effectively
given if (i) delivered personally, or (ii) upon being deposited with the
United States Postal Service, postage prepaid, certified mail, return
receipt requested.
36
<PAGE>
If to the Company: LITIGATION RESOURCES OF
AMERICA, INC.
3850 Nationsbank Center
700 Louisiana Street
Houston, Texas 77002-2731
If to any holder of
Subordinated Debt: c/o PECKS MANAGEMENT
PARTNERS LTD.
One Rockefeller Plaza
New York, New York 10020
Attn: Robert J. Cresci
If to the Senior Creditor: TEXAS COMMERCE BANK
NATIONAL ASSOCIATION
712 Main Street
P.O. Box 2558
Houston, Texas 77252-2558
9. EVENTS OF DEFAULT.
-----------------
9A. General. So long as any Senior Subordinated Notes remain
-------
outstanding, if any of the following events shall occur and be continuing for
any reason whatsoever (and whether such occurrence shall be voluntary of
involuntary or come about or be effected by operation of law or otherwise):
(i) the Company defaults in the payment of any principal of or
interest or premium (if any) on any Senior Subordinated Notes when the
same shall become due, either by the terms thereof or otherwise as
herein provided;
(ii) the Company defaults in the payment when due, either by
the terms thereof or otherwise as herein provided, of any other
amounts on any Senior Subordinated Notes and such default shall
continue unremedied for five or more days;
(iii) the Company or any of its Subsidiaries (x) defaults in any
payment of principal of or interest on the Seller Note or any other
obligation for money borrowed (or any Capitalized Lease Obligation,
any obligation under a conditional sale or other title retention
agreement, any obligation issued or assumed as full or partial payment
for property whether or not secured by a Purchase Money Security
Interest or any obligation under notes payable or drafts accepted
representing extensions of credit) and such default shall continue
beyond any applicable grace period or (y) fails to perform or observe
any other agreement, term or condition contained in any agreement
under which any such obligation is created (or if any other event
thereunder or under any such agreement shall
37
<PAGE>
occur and be continuing), and in the case of (y) above, the effect of
such default, failure or other event is to cause, or, with respect to
any Indebtedness other than the Bank Debt Agreement, to permit the
holder or holders such obligation (or a trustee on behalf of such
holder or holders) to cause an obligation of more than $100,000 to
become due prior to any stated maturity;
(iv) any representation or warranty made by the Company or
any Guarantor herein or in any writing furnished in connection with or
pursuant to this Agreement or any other Related Agreement shall be
false in any material respect on the date as of which made;
(v) the Company defaults, or any Subsidiary thereof shall
cause the Company to default, in the performance or observance of any
of its agreements contained in paragraph 6D;
(vi) the Company defaults, or any Subsidiary thereof shall
cause the Company to default, in the performance or observance of any
of its agreements contained in paragraph 7A;
(vii) the Company defaults, or any Subsidiary thereof shall
cause the Company to default, in the performance or observance of any
of the agreements contained in Section 6 or 7 in the performance or
observance of any other agreement, term or condition contained herein
or in the Related Documents and any such default shall not have been
remedied within 20 days after such default shall first become known to
any officer of the Company, or such Subsidiary;
(viii) the Company or any of its Subsidiaries makes an
assignment for the benefit of creditors generally or is generally not
paying its debts as such debts become due;
(ix) any decree or order for relief in respect of the
Company or any of its Subsidiaries is entered under any bankruptcy Law
of any jurisdiction;
(x) the Company or any of its Subsidiaries petitions or
applies to any tribunal for, or consents to, the appointment of, or
taking possession by, a trustee, receiver, custodian, liquidator or
similar official of the Company or any of its Subsidiaries, of any
substantial part of the assets of the Company or any of its
Subsidiaries, or commences a voluntary case under the bankruptcy Law
of the United States or any proceedings (other than proceedings for
the voluntary liquidation and dissolution of a Subsidiary) relating
38
<PAGE>
to the Company or any of its Subsidiaries under the bankruptcy Law of any other
jurisdiction;
(xi) any such petition or application is filed, or any such proceedings
are commenced, against the Company or any its Subsidiaries and the Company or
such Subsidiary by any act indicates its approval thereof, consent thereto or
acquiescence therein, or an order, judgment or decree is entered appointing any
such trustee, receiver, custodian, liquidator or similar official, or approving
the petition in any such proceedings, and such order, judgment or decree remains
unstayed and in effect for more than 45 days;
(xii) any order, judgment or decree is entered in any proceedings against
the Company or any of its Subsidiaries decreeing the dissolution of the Company
and such Subsidiary and such order, judgment or decree remains unstayed and in
effect for more than 60 days;
(xiii) any order, judgment or decree is entered in any proceedings against
the Company or any of its Subsidiaries decreeing a split-up of the Company or
such Subsidiary which requires the divestiture of substantial assets of the
Company and its Subsidiaries, taken as a whole, and such order, judgment or
decree remains unstayed and in effect for more than 60 days;
(xiv) a final judgment in an amount in excess of $250,000; is rendered
against the Company or any of its Subsidiaries and, within 30 days after entry
thereof, such judgment is not discharged or execution thereof stayed pending
appeal, or within 60 days after expiration of any such stay, judgment is not
discharged; or
(xv) the Company, any Subsidiary or any ERISA Affiliate fails to meet its
obligations under the minimum funding standard provided for in Section 412 of
the Code for any plan year or in the case of a single employer-plan a waiver of
such standard is sought or granted under Section 412(d) of the Code, or any
Pension Plan subject to Title IV of ERISA is, has been or is likely to be
terminated or the subject or termination proceedings under ERISA, or the
Company, any Subsidiary or an ERISA Affiliate has incurred or is likely to incur
a liability under Section 4062, 4063, 4064,4201 or 4204 of ERISA, and there
results from any such event or events a liability or a material risk of
incurring a liability to the PBGC, any Multiemployer Pension Plan or any Pension
Plan which, if incurred would have a Material Adverse Effect, or the Company or
any of its Subsidiaries has engaged in a prohibited transaction that would
result in a liability, penalty
39
<PAGE>
or tax under ERISA or Section 4975 of the Code, as the case may be,
which would have a Material Adverse Effect.
then (a) upon the occurrence of any Event of Default described in the foregoing
clause (vii), solely as such clause relates to a breach of clause (i), (ii) or
(iii) or the Officer's Certificate delivery requirements of paragraph 6A, or
clauses (viii), (ix), (x), (xi) or (xii), the unpaid principal amount of and
accrued interest on the Senior Subordinated Notes outstanding shall
automatically become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by the Company, and (b) upon the occurrence and during the continuation
of any other Event of Default, the holders of a majority of the aggregate unpaid
principal amount of the Senior Subordinated Notes may, at their option and in
addition to any right, power or remedy permitted by law or equity, by notice in
writing to the Company, declare all of the Senior Subordinated Notes to be, and
all of the Senior Subordinated Notes shall thereupon be and become, forthwith
due and payable together with interest accrued thereon.
At any time after any declaration of acceleration is made as provided
above, the holders of at least a majority of the aggregate unpaid principal
amount of the Senior Subordinated Notes may, by written instrument filed with
the Company, rescind and annul such declaration and the consequences thereof,
provided, however, that at the time any such declaration is annulled and
- -------- -------
rescinded:
(i) no judgment or decree shall have been entered for the
payment of any monies due pursuant to the Senior Subordinated Notes
and the other Related Documents;
(ii) all arrears of interest upon all the Senior Subordinated
Notes and all other sums payable under the Senior Subordinated Notes
and the other Related Documents (except any principal, interest or
premium on the Senior Subordinated Notes which has become due and
payable solely by reason of such declaration under this paragraph 9A)
shall have been duly paid or waived;
(iii) the Company shall not have paid any amounts which have
become due solely by reason of such declaration; and
(iv) each and every other Event of Default shall have been
waived or otherwise made good or cured;
and provided, further, that no such rescission and annulment shall extend to or
-------- -------
after any subsequent Default or Event of Default or impair any right consequent
thereon.
40
<PAGE>
9B. Other Remedies. If any Event of Default shall occur and be
--------------
continuing, the holder of any Security may proceed to protect and enforce its
rights under this Agreement and such Security by exercising such remedies as are
available to such holder in respect thereof under applicable law, either by suit
in equity or by action at law, or both, whether for specific performance of any
covenant or other agreement contained in this Agreement or in aid of the
exercise of any power granted in this Agreement. No remedy conferred in this
Agreement upon the Investors or any other holder of any Security is intended to
be exclusive of any other remedy, and each and every such remedy shall be
cumulative and shall be in addition to every other remedy conferred herein or
now or hereafter existing at law or in equity or by statute or otherwise.
10. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company and
---------------------------------------------
each Guarantor represents and warrants to each Investor that:
10A. Organization, Qualification and Authority. The Company and each
-----------------------------------------
of its Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and is
duly qualified to do business as a foreign corporation and in good standing in
each jurisdiction in which the character of its properties or the nature of its
business makes such qualification necessary, except where the failure to so
qualify would not have a Material Adverse Effect. The Company and each of its
Subsidiaries has the corporate power to own its properties and to carry on its
business as now being conducted. The Company has all requisite corporate power
and authority to enter into each of the Related Documents and the Purchase
Agreements, to issue and sell the Securities hereunder, and to issue the shares
of Common Stock upon conversion of the Convertible Preferred Stock, and has the
requisite corporate power and authority to carry out the transactions
contemplated hereby and thereby to be performed by it, and the execution,
delivery and performance hereof and thereof have been duly authorized by all
necessary corporate action. Each Guarantor has all requisite corporate power and
authority to enter into each of the Related Documents to which it is a party and
has the requisite corporate power and authority to carry out the transactions
contemplated hereby and thereby to be performed by it, and the execution,
delivery and performance hereof and thereof have been duly authorized by all
necessary corporate action. This Agreement constitutes, and each other agreement
(including the Related Documents and the Purchase Agreements) or instrument
(including the Securities) executed and delivered by the Company, Looney and
Klein and each Guarantor pursuant hereto or thereto or in connection herewith or
therewith will constitute, legal, valid and binding obligations of the Company,
Looney and Klein and each Guarantor enforceable against the Company, Looney and
Klein and each Guarantor in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
arrangement,
41
<PAGE>
moratorium or other similar laws or by the application of principles of equity.
10B. Financial Statements. With respect to the Guarantors, the Company
--------------------
has furnished the Investors with (a) a combined audited balance sheet as of
September 30, 1995 with respect to Klein and December 31, 1995 with respect to
Looney, together with the related statements of income, changes in stockholders'
equity and cash flow for the Guarantors' for each of the periods then ended,
respectively, and (b) an unaudited balance sheet as of (i) September 30, 1996
and October 31, 1996 with respect to Klein, together with an unaudited statement
of income for the 12-month and 1-month periods then ended, respectively and (ii)
November 30, 1996, with respect to Looney, together with an unaudited statement
of income for the 11-month period then ended (collectively, the "Interim
-------
Financials"). Such financial statements (including any related schedules and
- ----------
notes) have been prepared in accordance with GAAP consistently applied
throughout the period or periods in question and show all material liabilities,
direct or contingent, required to be shown in accordance with GAAP consistently
applied throughout the period or periods in question and fairly present, in all
material respects, the financial condition of the Company for the periods
indicated therein, except for normal audit adjustments in the case of the
Interim Financials. There has been no material adverse change in the business,
condition (financial or other), assets, properties, rights, operations or
prospects of Klein or Looney and their Subsidiaries since September 30, 1995 and
December 31, 1995, respectively.
10C. Capital Stock and Related Matters. As of the Closing Date, and
---------------------------------
after giving effect to the transactions contemplated hereby and pursuant to the
Related Documents, (i) the authorized capital stock of the Company will consist
of a total of 110,000,000 shares as follows: (a) 100,000,000 shares of Common
Stock, par value $.01 per share, of which 1,164,440 shares are issued and
outstanding, the ownership and the consideration paid for such shares is as set
forth on Schedule 10C and (1) 259,960 shares of which are reserved for for the
exercise of options to purchase such shares issued or issuable to officers,
directors, consultants, independents contractors and employees of the Company
and its Subsidiaries and other providers of services to the Company and its
Subsidiaries and (2) 1,560,000 shares of which are reserved for issuance upon
conversion of the Series A Convertible Preferred Stock; (b) 10,000,000 shares of
Convertible Preferred Stock, par value $1.00 per share, of which (x) 2,000,000
shares are designated Series A Convertible Preferred Stock, of which 1,000,000
shares are issued and outstanding and (y) 2,500,000 shares are designated Series
B Convertible Preferred Stock, of which 2,000,000 shares are issued and
outstanding; (ii) all issued and outstanding shares shall have been duly and
validly issued, fully paid and non-assessable; (iii) no shares of capital stock
of the Company will be owned or held by or for the account of the Company or any
of its
42
<PAGE>
Subsidiaries; (iv) except as set forth on Schedule 10C, neither the Company nor
any of its Subsidiaries will have outstanding any securities convertible into or
exchangeable for any shares of capital stock or any rights (either preemptive or
other) to subscribe for or to purchase, or any options for the purchase of, or
any agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any other character relating to the issuance
of, any capital stock, or any stock or securities convertible into or
exchangeable for any capital stock; (v) except as set forth on Schedule 10C,
neither the Company nor any of its Subsidiaries will be subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock or warrants or options to purchase shares
of its capital stock; (vi) neither the Company nor any of its Subsidiaries is a
party to any agreement (other than this Agreement, the Securityholders Agreement
and the Shareholders Agreement) restricting the transfer of any shares of its
capital stock; and (vii) neither the Company nor any of its Subsidiaries will
have filed or be required to file, pursuant to Section 12 of the Exchange Act, a
registration statement relating to any class of debt or equity securities as of
the date hereof.
10D. Actions Pending. There is no action, suit, investigation or
---------------
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any Subsidiary or any of their properties or rights, by or before any
court, arbitrator or administrative or governmental body, which if adversely
decided, could have a Material Adverse Effect.
10E. Outstanding Debt; Defaults. Neither the Company nor its
--------------------------
Subsidiary (i) has outstanding Indebtedness, except as permitted by paragraph
7B, and there exist no material defaults under the provisions of any instrument
evidencing such Indebtedness or of any agreement relating thereto, (ii) is in
default under its Articles of Incorporation (as amended to date) or By-laws,
(iii) is in violation of or in default under or with respect to any indenture,
mortgage, lease or any other contract or agreement to which it is a party or by
which it or any of its property is bound or affected in any respect which could
have a Material Adverse Effect, (iv) has any material debts, liabilities,
obligations (whether absolute, accrued, contingent or otherwise) of any nature
whatsoever other than (A) liabilities appearing on the financial statements, (B)
liabilities incurred in the ordinary course of business since September 30,
1995; with respect to Klein, and December 31, 1995 with respect to Looney, and
(C) liabilities under contracts to which the Company is a party and which are
listed on Schedule 10E hereto or which have an obligation thereunder of less
than $10,000 and which were entered into in the ordinary course of business or
(D) liabilities described on the other schedules hereto or (v) is in material
default with respect to any order, writ, injunction or decree of any court or
any Federal, state, municipal or other domestic or foreign governmental
department, commission, board, bureau, agency or instrumentality, and there
exists no condition,
43
<PAGE>
event or act which constitutes, or which after notice, lapse of time, or both,
would constitute, such a violation or default under any of the foregoing.
10F. Title to Properties. Each of the Company and its Subsidiaries has
-------------------
(i) indefeasible, sufficient and legal title to its real property (other than
real properties which it leases from others), subject to no Lien of any kind
except Liens permitted by paragraph 7C and (ii) good title to all of its other
properties and assets (other than properties and assets which it leases from
others), subject to no Lien of any kind except Liens permitted by paragraph 7C.
Each of the Company and its Subsidiaries enjoys peaceful and undisturbed
possession under all leases necessary in any material respect for the operation
of its properties and assets and all such leases are valid and subsisting and in
full force and effect.
10G. Taxes. Each of the Company and its Subsidiaries has filed all
-----
Federal, state and other income tax returns which are required to be filed, and
each has paid all taxes as shown on said returns and on all assessments received
by it to the extent that such taxes have become due, or except such as any of
the foregoing are being contested in good faith by appropriate proceedings for
which adequate reserves have been established in accordance with GAAP; and no
tax lien has been filed and no claim is being asserted with respect to any tax
or other similar charge.
10H. Conflicting Agreements. Neither the execution or delivery of the
----------------------
Related Documents or the Purchase Agreements, nor the offering, issuance and
sale of the Securities or the shares of Common Stock issuable upon conversion of
the Convertible Preferred Stock, nor fulfillment of or compliance with the terms
and provisions hereof and thereof, will conflict with, or result in a breach of
the terms, conditions or provisions of, or constitute a default under, or result
in any violation of, or result in the creation of any Lien upon any of the
properties or assets of the Company or any of its Subsidiaries pursuant to (i)
the Articles of Incorporation or By-laws of the Company or any of its
Subsidiaries, or (ii) any award of any arbitrator or any agreement (including
any agreement with stockholders), instrument, order, judgment, decree, statute,
law, rule or regulation to which the Company or any of its Subsidiaries is
subject. Except as set forth on Schedule 10H, neither the Company nor any of its
Subsidiaries is a party to, or otherwise subject to any provision contained in,
any instrument evidencing Indebtedness of the Company or any of its
Subsidiaries, any agreement relating thereto or any other contract or agreement
(including its Articles of Incorporation and By-laws) which limits the amount
of, or otherwise imposes restrictions on the incurring of, Indebtedness of the
type to be evidenced by the Senior Subordinated Notes, or contains dividend or
redemption limitations on any capital stock of the Company or any of its
44
<PAGE>
Subsidiaries, except for the Related Documents and the Bank Debt Agreement.
10I. Offering of Securities. The offer, sale and issuance of the
----------------------
Securities pursuant to this Agreement and the issuance of the Common Stock upon
conversion of the Convertible Preferred Stock, do not require registration of
such securities under the Securities Act or registration or qualification under
any applicable state "blue sky" or securities laws (or if so required, has been
so registered or qualified). The Company has not taken any action which would
subject the issuance or sale of any of the Securities or the Common Stock to
the provisions of Section 5 of the Securities Act or violate the provisions of
any securities or Blue Sky law of any applicable jurisdiction.
10J. Broker's or Finder's Commissions. Except for The GulfStar
--------------------------------
Group, Inc., which shall receive $450,000, no broker's or finder's fee or
commission will be payable by the Company or any of its Subsidiaries with
respect to the issuance and sale of the Securities or the transactions
contemplated hereby or under the Related Documents. The fee of The GulfStar
Group, Inc. will be paid by the Company.
10K. Regulation G, etc. Neither the Company nor any of its
-----------------
Subsidiaries owns or has any present intention of acquiring, any "margin stock"
as defined in Regulation G (12 CFR Part 207) of the Board of Governors of the
Federal Reserve System (herein called a "margin Stock"). None of the proceeds
------------
resulting from the sale of the Securities will be used, directly or indirectly,
for the purpose of purchasing or carrying any margin stock or for the purpose of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry margin stock or for any other purpose which might constitute this
transaction a "purpose credit" within the meaning of Regulation G. Neither the
Company nor any of its Subsidiaries nor any agent acting on its behalf has taken
or will take any action which might cause this Agreement or the Securities to
violate Regulation G, Regulation T, Regulation X or any other regulation of the
Board of Governors of the Federal Reserve System or to violate the Exchange Act,
in each case as in effect now or as the same may hereafter be in effect.
10L. Environmental Matters. (i) The Company, Looney and Klein and
---------------------
each of their Subsidiaries has obtained and is in compliance with all licenses,
permits and other authorizations required under all Environmental Laws, with the
exceptions of instances that will not in the aggregate result in any Material
Adverse Effect.
(ii) Neither the Company, Looney nor Klein, nor any of their
respective Subsidiaries has received written notice of any failure to comply
with, nor has any such notice been issued that into full compliance with, all
Environmental Laws.
45
<PAGE>
(iii) All licenses, permits or registrations (or any extensions
thereof) required under any Environmental Law for the business of the Company,
Looney and Klein or any of their respective Subsidiaries have been obtained and
the Company, Looney and Klein and their respective Subsidiaries, as the case may
be, will be in compliance therewith, except in such instances as will not in the
aggregate result in a Material Adverse Effect.
(iv) Neither the Company, Looney and Klein nor any of their
respective Subsidiaries is in noncompliance with, breach of or default under any
applicable writ, order, judgment, injunction or decree where such noncompliance,
breach or default would materially and adversely affect the ability of the
Company or any of its Subsidiaries to operate any real property owned or leased
by them and no event has occurred and is continuing that, with the passage of
time or the giving of notice or both, would constitute such noncompliance,
breach or default thereunder.
(v) No Hazardous Substance has been Released (as such term is
defined in CERCLA) (and no oral or written notification of such Release has been
filed) (whether or not in a reportable or threshold planning quantity) at, on or
under any property owned or leased by the Company, Looney and Klein or any of
their respective Subsidiaries, or to be acquired or leased by the Company or any
of its Subsidiaries, during the period of the Company, Looney and Klein or any
of their respective Subsidiaries' ownership or lease of such property, or at any
time previous to such ownership or lease, under conditions that require remedial
action under applicable Environmental Laws, no property now or previously owned
or leased by the Company, Looney and Klein or any of their respective
Subsidiaries has, directly or indirectly, transported or arranged for the
transportation of any Hazardous Substances to any site listed, or proposed for
listing, on the National Priorities List promulgated pursuant to CERCLA, on
CERCLIS (as defined in CERCLA) or on any similar Federal, state or foreign list
of sites requiring investigation or cleanup. Neither the Company nor any of its
Subsidiaries is aware of any event, condition or circumstance involving
environmental pollution or contamination, or employee safety or health relating
to the use or handling of, or exposure to, Hazardous Substances, that could
result in a Material Adverse Effect.
10M. ERISA. None of the Company, any Subsidiary or any ERISA
-----
Affiliate maintains or has an obligation to contribute to any Pension Plan or
any Multiemployer Pension Plan. None of the Company, any Subsidiary or any ERISA
Affiliate has incurred any liability to the PBGC (other than annual premiums due
to the PBGC), a Pension Plan under Title IV of ERISA or a Multiemployer Pension
Plan under Title IV of ERISA. The execution and delivery by the Company of this
Agreement and the purchase and delivery of the Securities will not involve any
prohibited transaction within the meaning of ERISA or Section 4975 of the Code.
The Company has delivered to the Investors a complete list and accurate
46
<PAGE>
description of each Pension Plan and each other employee benefit plan covered by
ERISA maintained or contributed to by the Company, any Subsidiary and any ERISA
Affiliate.
10N. Possession of Franchises, Licenses etc. The Company and each
--------------------------------------
of its Subsidiaries possesses all franchises, certificates, licenses, permits
and other authorizations from governmental political subdivisions or regulatory
authorities, that are necessary for the ownership, maintenance and operation of
its properties and assets, except where the failure to be in such compliance
would not have a Material Adverse Effect, and the Company and each of its
Subsidiaries is not in violation of any thereof in any material respect.
10O. Patents, etc. The Company and each of its Subsidiaries owns or
------------
has the right to use all patents, trademarks, service marks, trade names,
copyrights, industrial designs, licenses and other rights, free from
non-customary burdensome restrictions, which are necessary for the operation of
its business substantially as presently conducted. No product, process, method,
substance, part or other material presently sold by or employed by the Company
in connection with its business infringes any patent, trademark, service mark,
trade name, copyright, industrial design, license or other right owned by any
other Person. No claim or litigation is pending or, to the Company's knowledge,
threatened against or affecting the Company or any of its Subsidiaries
contesting their right to sell or use any such product, process, method,
substance, part or other material which would prevent, inhibit or render
obsolete the production or sale of any products of, or substantially reduce the
projected revenues of, the Company or any of its Subsidiaries, or otherwise have
a Material Adverse Effect.
10P. Holding Company and Investment Company Status. Neither the
---------------------------------------------
Company nor any of its Subsidiaries is a "holding company", or a "subsidiary
company" of a "holding company", or an "affiliate" of a "holding company" or of
a "subsidiary company" of a "holding company", or a "public utility", within the
meaning of the Public Utility Holding Company Act of 1935, as amended, or a
"public utility" within the meaning of the Federal Power Act, as amended.
Neither the Company nor any of its Subsidiaries is an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or an "investment adviser" within
the meaning of the Investment Advisers Act of 1940, as amended.
10Q. Governmental Consents. Neither the nature of the Company or any
---------------------
of its Subsidiaries nor any of their businesses or properties, nor any
relationship between the Company or any of its Subsidiaries and any other
Person, nor any circumstance in connection with the offer, issue, sale or
delivery of the Securities being purchased by the Investors hereunder is such as
to require on behalf of the Company or any of its Subsidiaries any consent,
approval or other action by or any notice to or
47
<PAGE>
filing with any court or administrative or governmental body in connection with
the execution, delivery and performance of this Agreement, the other Related
Documents, the offer, issue, sale or delivery of the Securities being purchased
hereunder, the issuance of the shares of Common Stock upon conversion of the
Convertible Preferred Stock or fulfillment of or compliance with the terms and
provisions hereof or the Securities being purchased thereunder, except for such
filings or consents all of which have been heretofore made or obtained.
10R. Insurance Coverage. The business and properties of the
------------------
Company and each of its Subsidiaries are insured for the benefit of the Company
and each of its Subsidiaries in amounts deemed adequate by the Company's
management against risks usually insured against by Persons operating businesses
similar to those of the Company and each of its Subsidiaries in the localities
where such properties are located.
10S. Subsidiaries. The Subsidiaries set forth on Schedule 10S
------------
hereto are the only Subsidiaries of the Company. All the outstanding shares of
stock of such Subsidiaries have been validly issued and are fully paid and
non-assessable and are owned by the Company free and clear of any Lien or claim.
No such Subsidiary has outstanding stock or securities convertible into or
exchangeable or exercisable for any shares of capital stock, nor does it have
outstanding any rights to subscribe for or to purchase, any options for the
purchase of, any agreements providing for the issuance (contingent or otherwise)
of, or any calls, commitments or claims of any other character relating to the
issuance of, any shares of capital stock or any securities convertible into or
exchangeable or exercisable for any shares of capital stock.
10T. Disclosure. This Agreement and the other Related Documents,
----------
and the other documents, certificates and written statements furnished to the
Investors by or on behalf of the Company in connection herewith or therewith do
not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements contained herein and therein not
misleading.
10U. Related Party Transactions. Except as described on Schedule
--------------------------
10U, no current or former stockholder, director, officer of the Company, nor any
"Associate" (as defined in Rule 405 promulgated under the Securities Act) of any
such Person, is presently, directly or indirectly through his affiliation with
any other Person, a party to any transaction with the Company and any Subsidiary
providing for the furnishing of services by or to, or rental of real or personal
property from or to, or otherwise requiring cash payments to or by any such
Person. Except as described on Schedule 10U, in addition, there is no current
relationship or transaction, or presently contemplated relationship or
transaction, involving the Company and any Subsidiary which is described in Item
404 of Regulation S-K
48
<PAGE>
promulgated under the Securities Act (but for purposes of this representation
not limited by any dollar amount).
10V. Registration Rights. Except as contemplated by the Registration
-------------------
Rights Agreement or as specified on Schedule 10V, no Person has the right to
cause the Company or any of its Subsidiaries to effect the registration under
the Securities Act of any shares of Common Stock or any other securities
(including debt securities) of the Company or any of its Subsidiaries.
10W. Absence of Foreign or Enemy Status. Neither the Company nor
----------------------------------
any of its Subsidiaries is (i) a "national" of a foreign country designated in
Executive Order No. 8389, as amended, or of any "designated enemy country" as
defined in Executive Order No. 9193, as amended, of the President of the United
States of America within the meaning of said Executive Orders, as amended, or of
any regulation issued thereunder, or a "national" of any "designated foreign
country" within the meaning of the Foreign Assets Control regulations, 31 CFR,
Part 500, as amended, or of the Cuban Assets Control Regulations, 31 CFR, Part
515, as amended, of the United States Treasury Department, or (ii) an "Iranian
entity" or a "person subject to the jurisdiction of the United States" in which
an "Iranian entity" has any "interest" within the meaning of the Iranian Assets
Control Regulations, 31 CFR, Part 535, as amended.
10X. Agreements with Affiliates. Except as set forth on Schedule 10X,
--------------------------
neither the Company nor any of its Subsidiaries is a party to any contract or
agreement with, or any other commitment to, an Affiliate of the Company or any
of its Subsidiaries.
10Y. Convertible Preferred Stock and Equity of the Company. As of
------------------------------------------------------
the Closing Date, upon conversion of the Convertible Preferred Stock held by
the Investors, the shares of Common Stock obtained through such exercise would
represent in the aggregate the percentage of the Fully Diluted Outstanding
Shares of the Company's Common Stock set forth on Schedule 10Y hereto.
10Z. Consummation of Related Transactions. The Company has provided
------------------------------------
the Investors with a fully executed copy of each of the Bank Debt Agreement, the
Purchase Agreements and any other related Notes, Management, and Pledge
Agreements and the transactions contemplated by each such document or agreement
has been consummated without the modification or waiver of any term thereof.
10AA. Conduct of Business. To the Company's knowledge after reasonable
-------------------
investigation (i) all court reporters that are or have been hired (directly or
indirectly through court reporting services, including independent contractors)
by the Company are duly certified to perform the jobs that they are hired to
perform, (ii) all documents that the Company is or has
49
<PAGE>
been required to maintain, store or handle in connection with conducting its
business are or have been maintained, stored or handled in the manner agreed to
between the Company and its respective clients or in conformity with prevailing
standards regarding such matters that prevail in the Company's industry, and
(iii) the Company performs all aspects and operations of its business at or
above the prevailing standards for the Company's industry.
11. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each Investor
-----------------------------------------------
represents and warrants that it is acquiring the Securities to be purchased by
it hereunder for its own account for the purpose of investment and not with a
view to or for sale in connection with any distribution thereof in violation of
the Securities Act; provided, however, that nothing herein contained shall
-------- -------
prevent the Investors from selling or transferring any Securities in any
transaction that, in the opinion of their special counsel, is exempt from the
registration provisions of the Securities Act and applicable state securities
laws. In addition, each Investor represents and warrants that it has full power
and authority to enter into and perform its obligations under this Agreement and
that this Agreement has been duly authorized, executed and delivered by a
Person authorized to do so. In addition, each Investor represents and warrants
that it is an "accredited investor" as defined in Rule 501 of the General Rules
and Regulations under the Securities Act.
12. DEFINITIONS. For the purpose of this Agreement and in addition
-----------
to terms defined elsewhere in this Agreement, the following terms shall have the
following meanings. In addition, all terms of an accounting character not
specifically defined herein shall have the meanings assigned thereto by
accounting principles generally accepted in the United States of America.
"Acceptable Controlling Person" shall mean any of Michael Klein and/or
-----------------------------
Richard O. Looney, or any Person controlled by any of them.
"Affiliate" shall mean, with respect to any Person, a Person directly
---------
or indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. A Person shall be deemed to control a corporation if
such Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such corporation, whether through
the ownership of voting securities, by contract or otherwise. The Investors
shall not be deemed to be an Affiliate of the Company or any of its
Subsidiaries.
"Bank Debt" shall mean Indebtedness incurred pursuant to the Bank Debt
---------
Agreement or any renewals, extensions, amendments or modifications thereof.
"Bank Debt Agreement" shall mean the Credit Agreement, dated the date
-------------------
hereof, by and among the Company, Looney and Klein
50
<PAGE>
and the Company Subsidiaries and the Bank, as the same may be amended from time
to time in accordance with its terms.
"Bankruptcy Law" shall mean any bankruptcy, reorganization,
--------------
compromise, arrangement, insolvency, readjustment of debt, dissolution or
liquidation or similar law, whether now or hereafter in effect.
"Business Day" shall mean any day which is not a Saturday, Sunday or
------------
day on which banks are authorized by law to close in the State of New York.
"Capital Lease" shall mean any lease of any Property (whether real,
-------------
personal, or mixed) that, in conformity with GAAP, is accounted for as a capital
lease on the balance sheet of the lessee.
"Capitalized Lease Obligations" of any Person means all obligations of
-----------------------------
such Person, as lessee, under leases which should, in accordance with GAAP, be
recorded as Capital Leases.
"Cash Interest Expense" shall mean, for any period, total Interest
---------------------
Expense to the extent paid in cash (including the interest component of
Capitalized Lease Obligations) of the Company and its Subsidiaries for such
period all as determined in conformity with GAAP.
"Cash Tax Expense" shall mean, for any period, total Tax Expense paid
----------------
in cash of the Company and its Subsidiaries for such period all as determined in
conformity with GAAP.
"CERCLA" shall mean the Comprehensive Environmental Response,
------
Compensation, and Liability Act of 1980, as amended (42 U.S.C. (S)(S) 9601 et
--
seq.), and any regulations promulgated thereunder.
- ---
"Certificate of Compliance" shall have the meaning set forth in
-------------------------
Section 7A (iii).
"Certificate of Designation" shall have the meaning set forth in
--------------------------
paragraph 1B.
"Change of Control" shall mean the occurrence of any of the following:
-----------------
(a) the acquisition or holding by
(i) any person (as such term is used in section 13(d) and
section 14(d) (2) of the Exchange Act as in effect on the Closing
Date) other than an Acceptable Controlling Person or the
Investors, or
51
<PAGE>
(ii) related Persons constituting a group (as such term is
used in Rule 13d-5 under the Exchange Act as in effect on the
Closing Date) other than related Acceptable Controlling Persons
or Investors constituting such a group,
of legal and/or beneficial ownership of more than 25% of the Common
Stock or any securities convertible into more than 25% of the Common
Stock of the Company or any Guarantor outstanding at such time if at
such time the Investors beneficially own in the aggregate less than a
majority of the Common Stock or any securities convertible into less
than a majority of the Common Stock of the Company or any Guarantor
(excluding for such purpose persons who own shares through
any employee benefit plan of the Company in connection therewith);
(b) all or substantially all of the assets of the Company or any
Guarantor are sold or otherwise transferred, in a single transaction
or in a series of related transactions, to any other Person;
(c) any merger, consolidation or other similar transaction of, or
in respect of, the Company or any Guarantor which results in the
failure by the owners of Common Stock (or Common Stock of such
Guarantor) on the Closing Date to, directly or indirectly in the
aggregate, maintain beneficial ownership and voting control of at
least fifty percent (50%) of the outstanding Common Stock of the
surviving entity in such merger, consolidation or similar transaction;
(d) any liquidation or dissolution of the Company, or action
taken by the Board of Directors of the Company to authorize any such
liquidation or dissolution; or
(e) the first day on which a majority of the members of the Board
of Directors of the Company are not the designees of the Investors as
a result of the ownership of Common Stock or securities convertible
into Common Stock by a person other than an Acceptable Controlling
Person.
Any transaction permitted under the provisions of paragraph 7H hereof
shall not constitute a "Change of Control."
"Change of Control Event" shall mean the earlier of the occurrence of
-----------------------
a Change of Control or the Company acquiring knowledge of a pending Change of
Control.
"Change of Control Notice" shall have the meaning set forth in
------------------------
paragraph 5B.
52
<PAGE>
"Closing" shall have the meaning specified in paragraph 2B.
-------
"Closing Date" shall have the meaning specified in paragraph 2B.
------------
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Commission" shall mean the United States Securities and Exchange
----------
Commission.
"Common Stock" shall mean the shares of Common Stock, par value $0.01
------------
per share, of the Company.
"Company" shall have the meaning specified in the preamble.
-------
"Convertible Preferred Stock" shall have the meaning specified in
---------------------------
paragraph 1B.
"Default" shall mean any of the events specified in Section 9 hereof,
-------
whether or not any requirement for the giving of notice, the lapse of time, or
both, or any of these conditions, event or act has been satisfied.
"Default Notice" shall have the meaning specified in paragraph
--------------
8B(1)(b).
"EBDIT" shall mean, for any period, the sum of net earnings (plus or
-----
minus any material recurring charges or credits) of the Company and its
Subsidiaries plus each of the following, to the extent actually deducted in
----
arriving at such net earning: (a) depreciation and amortization, (b) Interest
Expense and (c) Tax Expense.
"Environmental Laws" shall have the meaning specified in paragraph 6Q.
------------------
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"ERISA Affiliate" shall mean each trade or business (whether or not
---------------
incorporated) which together with the Company or a Subsidiary would be deemed
to be a "single employer" within the meaning of Section 4001 of ERISA.
"Event of Default" shall mean any of the events specified in Section
----------------
9, provided that there has been satisfied any requirement in connection with
such event for the giving of notice, or the lapse of time, or the happening of
any further condition, event or act.
53
<PAGE>
"Exchange Act" shall mean the United States Securities Exchange Act of
------------
1934, as amended.
"Exchange Act Registration Statement" shall have the meaning specified
-----------------------------------
in paragraph 6L.
"Fair Market Value" shall have the meaning specified in paragraph 5E.
-----------------
"Financing Agreements" shall mean all agreements, instruments and
--------------------
documents, including, without limitation, the Bank Debt Agreement and any other
agreement evidencing Senior Debt and all security agreements, loan agreements,
promissory notes, letter of credit applications, guarantees, mortgages, deeds of
trust, subordination agreements, pledges, powers of attorney, consents,
assignments, contracts, notices, leases, financing statements, intercreditor
agreements, and all other written matter whether heretofore, now, or hereafter
executed by or on behalf of the Company or its Subsidiaries and delivered to any
bank and between the Company and any bank; together referred to therein or
contemplated thereby.
"Fixing Charge Coverage Ratio" shall mean, for any period, the
----------------------------
quotient obtained by dividing (a) EBDIT less Cash Tax Expense by (b) Fixed
Charges.
"Fixing Charges" shall mean, without duplication, for any period, (a)
--------------
the amounts for such period of Cash Interest Expense, plus (b) the amounts of
----
scheduled principal payments on Funded Debt and, without duplication, payments
made to effect reductions in the Revolving Loan Commitment (as defined in the
Bank Debt Agreement) pursuant to Section 2.4 of the Bank Debt Agreement, plus
----------- ----
(c) Capital Expenditures (as defined in the Bank Debt Agreement) made in such
period and permitted pursuant to the Bank Debt Agreement, plus (d) cash
----
dividends paid during such period to the extent permitted by Section 9.4 of the
-----------
Bank Debt Agreement, plus (e) to the extent not otherwise included in the
----
foregoing, cash payments made on any Indebtedness other than the Senior Debt to
the extent permitted under Section 9.21 of the Bank Debt Agreement.
------------
"Fully Diluted Outstanding Shares" shall mean, when used with
--------------------------------
reference to Common Stock on any date of determination, all shares of Common
Stock or any other capital stock of the Company Outstanding at such date and all
shares of Common Stock or any other capital stock of the Company issuable in
respect of the Convertible Preferred Stock issued pursuant to this Agreement and
any other warrants, options or convertible securities.
"Funded Debt" shall mean all Indebtedness of a Person which matures
-----------
more than one year from the date of creation or matures within one year from
such date but is renewable or extendible, at the option of such Person, by its
terms or by the terms of any instrument or agreement relating thereto, to a
date
54
<PAGE>
more than one year from such date or arises under a revolving credit or similar
agreement which obligates the Bank to extend credit during a period of more than
one year from such date, and includes, without limitation, all amounts of any
Funded Debt required to be paid or prepaid within one year from the date of
determination of the existence of any such Funded Debt. The term "Funded Debt"
also includes the present value (discounted at the implicit rate, if known, or
ten percent (10%) per annum otherwise) of all obligations in respect of
Capitalized Lease Obligations of the Company and its Subsidiaries.
"Funded Debt Ratio" shall have the meaning set forth in Section 7A(i).
-----------------
"GAAP" shall mean generally accepted accounting principles set forth
----
in the opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board, or in such other
statements by such other entity as may be in general use by significant segments
of the accounting profession, which are applicable to the circumstances as of
the date of determination.
"Governmental Authority" shall mean any governmental agency,
----------------------
authority, instrumentality or regulatory body, other than a court or other
tribunal, in each case whether federal, state, local or foreign.
"Governmental Requirement" shall mean any law, statute, code,
------------------------
ordinance, order, determination, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization or other directive or
requirement (whether or not having the force of law), including, without
limitation, Environmental Laws, energy regulations and occupational, safety and
health standards or controls, of any Governmental Authority.
"Guaranty" shall mean, with respect to any Person, any obligation,
--------
contingent or otherwise, of such Person directly or indirectly guaranteeing any
Indebtedness of another Person, including, without limitation, by means of an
agreement to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or to maintain financial covenants, or to assure
the payment of such Indebtedness by an agreement to make payments in respect of
goods or services regardless of whether delivered or otherwise, provided that
-------------
the term "Guaranty" shall not include endorsements for deposit or collection in
the ordinary course of business; and such term when used as a verb shall have a
correlative meaning.
"Hazardous Substances" shall have the meaning specified in paragraph
--------------------
6Q.
"Indebtedness" shall mean (without duplication), for any person, (a)
------------
indebtedness of such Person for borrowed money or
55
<PAGE>
arising out of any extension of credit to or for the account of such Person
(including, without limitation, extensions of credit in the form of
reimbursement or payment obligations of such Person relating to letters of
credit issued for the account of such Person) or for the deferred purchase price
of property or services, except indebtedness which is owing to trade creditors
in the ordinary course of business and which is due within ninety (90) days
after the original invoice date; (b) indebtedness of the kind described in
clause (a) of this definition which is secured by (or for which the holder of
such Indebtedness has any existing right, contingent or otherwise, to be secured
by) any Lien upon or in Property (including, without limitation, accounts and
contract rights) owned by such Person, whether or not such Person has assumed or
become liable for the payment of such indebtedness or obligations; (c)
Capitalized Lease Obligations of such Person; (d) obligations under direct or
indirect Guaranties in respect of, and obligations (contingent or otherwise) to
purchase or otherwise acquire, or otherwise to assure a creditor against loss in
respect of, indebtedness or obligations of others of the kinds referred in
clauses (a) through (c) above, including without limitation, (i) any endorsement
not for collection in the ordinary course of business or discount with recourse
or undertaking substantially equivalent to or having economic effect similar to
a guaranty in respect of any such Indebtedness; (ii) any agreement (1) to
purchase, or to advance or supply funds for the payment or purchase of, any such
Indebtedness, (2) to purchase, sell, or lease property, products, materials,
supplies, transportation, or services, in order to enable such Person to pay any
such Indebtedness or to assure the owner thereof against loss regardless of the
delivery or non-delivery of the property, products, materials, supplies,
transportation, or services or (3) 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 order to enable such Person to satisfy any 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; and (iii) obligations under surety, appeal,
or custom bonds; and (e) liabilities in respect of unfunded vested benefits
under plans covered by Title IV of ERISA.
"Indemnitee" shall have the meaning specified in paragraph 6Q.
----------
"Intangible Assets" shall mean goodwill, business records, inventions,
-----------------
designs, patents, patent applications, trademarks, trade names, trade secrets,
registrations, copyrights, licenses, franchises, customer lists, co-op
memberships, guarantee claims, organization costs, loan costs, tax refunds, tax
refund claims, customs claims, brands, leasehold interests and easements and
contract rights and similar intangible assets which have no material realizable
value.
56
<PAGE>
"Interest Expense" shall mean, for any period, total interest expense,
----------------
whether paid or accrued (including the interest component of Capital Leases), of
the Company and its Subsidiaries for such period, all as determined in
conformity with GAAP.
"Interest Notes" shall have the meaning set forth in paragraph 1A.
--------------
"Interim Financials" shall have the meaning set forth in paragraph
------------------
10B.
"Investment" shall mean any stock, partnership or joint venture
----------
interest or other security, any loan, Guaranty, advance, contribution to
capital, any acquisitions of real or personal property (other than real and
personal property acquired in the ordinary course of business), and any purchase
or commitment or option to purchase stock or other securities of or any interest
in another Person or any integral part of any business or the assets comprising
such business or part thereof whether existing on the date of this Agreement or
hereafter made.
"Investor Parties" shall have the meaning set forth in paragraph 6M.
----------------
"Investors" shall have the meaning set forth in the preamble.
---------
"Klein Purchase Agreement" shall mean the Stock Purchase Agreement
------------------------
dated the date hereof by and among the Company and Michael Klein.
"Liabilities" shall mean any and all liabilities, obligations and
-----------
indebtedness of the Company to any bank of any and every kind and nature,
whether heretofore, now or hereafter owing, arising, due or payable and
howsoever evidenced, created, incurred, acquired or owing whether primary,
secondary, direct, contingent, fixed or otherwise (including obligations of
performance) and whether arising or existing under the Bank Debt Agreement or
any of the other Financing Agreements, or by operation of law.
"Lien" shall mean any mortgage, pledge, security interest,
----
encumbrance, lien or charge of any kind, including, without limitation, any
agreement to give any of the foregoing, any conditional sale or other title
retention agreement, any lease in the nature thereof and the filing of or
agreement to file any financing statement under the Uniform Commercial Code of
any jurisdiction.
"Liquid Secondary Market" shall occur when (i) the Common Stock is
-----------------------
traded on the NASDAQ, the American Stock Exchange, the New York Stock Exchange
or any other national securities exchange or quotation system, (ii) the sale of
any or all of the Common Stock or Convertible Preferred Stock by any
57
<PAGE>
Investor can be traded by the Investors over a six-month period without
adversely affecting the market for the Company's securities, and (iii) the
Company has a market capitalization of at least $50,000,000 and the value of
such shares being traded on such exchange is at least $30,000,000.
"Looney Purchase Agreement" shall mean the Stock Purchase Agreement
-------------------------
dated the date hereof by and among the Company and Richard O. Looney.
"Margin stock" shall have the meaning set forth in paragraph 10K.
------------
"Material Adverse Effect" shall mean (i) a material adverse effect on
-----------------------
the business, condition or prospects (financial or other), assets, properties,
rights or operations of the Company and its Subsidiaries taken as a whole or
(ii) any effect which could materially adversely Affect the ability of the
Company or its Subsidiaries to perform their respective obligations under any of
the Related Documents.
"Multiemployer Pension Plan" shall mean any multiemployer plan, as
--------------------------
defined in Section 4001 of ERISA and subject to Title IV of ERISA, which the
Company, any Subsidiary or any ERISA Affiliate has an obligation to make
contributions (or has had an obligation to make contributions during the five
calendar years preceding the Closing) for the employees of the Company, any of
its Subsidiaries, or any ERISA Affiliates.
"NASDAQ" shall mean the National Association of Securities Dealers
------
Automated Quotations system.
"Officer's Certificate" of a Person shall mean a certificate of the
---------------------
President, one of the Vice Presidents or the Treasurer or Controller of such
Person.
"Option Closing" shall have the meaning set forth in paragraph 5B.
--------------
"Outstanding" shall mean, when used with reference to Common Stock, at
-----------
any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
----
pursuant to Section 4002 of ERISA, or any successor entity thereto.
"Pension Plan" shall mean any single-employer plan, as defined in
------------
Section 4001 of ERISA and subject to Title IV of ERISA, which is maintained or
contributed to (or previously maintained or contributed to during the five
calendar years preceding the Closing) for employees of the Company, any of its
Subsidiaries or any ERISA Affiliates.
58
<PAGE>
"Permitted Acquisitions" shall mean acquisitions of court reporting
----------------------
businesses in accordance with Section 7E.
"Permitted Investments" shall mean (i) direct obligations of the
---------------------
United States, or obligations guaranteed as to principal and interest by the
United States government, (ii) bankers' acceptances and certificates of deposit
issued by any bank or any other bank or trust company or, in the case of any
subsidiary bank of a bank holding company, a bank holding company, having
capital, surplus and undivided profits of at least $500,000,000, the short-term
deposits of which are given an A1 or P1 rating by Standard & Poor's Rating Group
or Moody's Investors Service, Inc., as applicable, (iii) obligations of any bank
or trust company or bank holding company described in clause (ii) above, in
respect of the repurchase of obligations of the type described in clause (i)
hereof, provided that such repurchase obligations shall be fully secured by
obligations of the type described in said clause (i) and the possession of such
obligations shall be transferred to, and segregated from other obligations owned
by, and any such bank's trust company or bank holding company, (iv) commercial
paper given a rating of A1 or P1 by Standard & Poor's Ratings Group or Moody's
Investors Service, Inc., as applicable and (v) money market funds organized
under the laws of the United States or any state thereof that invest
substantially all of their assets in any of the types of investments described
in clauses (i), (ii), (iii) or (iv); provided, however, that no such investment
-------- -------
shall have a maturity longer than 270 days from the date of acquisition by the
Company or any Subsidiary.
"Person" shall mean and include an individual, partnership,
------
corporation (including a business trust), a limited liability company, joint
stock company, trust, unincorporated association, joint venture, or other
entity, or a government, or any political subdivision or agency of any of the
foregoing.
"Premium Amount" shall mean an amount equal to the product of .30
--------------
times the aggregate principal amount of Senior Subordinated Notes purchased by
the Investors at the Closing.
"Proceedings" shall have the meaning set forth in Section 8B(2).
-----------
"Property" shall mean any interest or right in any kind of property or
--------
asset, whether real, personal or mixed, owned or leased, tangible or intangible,
and whether now held or hereafter acquired.
"Public Offering" shall mean the closing of a public offering of
---------------
securities pursuant to a registration statement declared effective under the
Securities Act, except that a Public Offering shall not include an offering made
in connection with a business acquisition or an employee benefit plan.
59
<PAGE>
"Purchase Agreements" shall have the meaning specified in paragraph
-------------------
6B.
"Purchase Money Debt" shall mean debt of the Company and any
-------------------
Subsidiary incurred to finance an acquisition of assets which is secured by a
Purchase Money Security Interest.
"Purchase Money Security Interest" shall mean a purchase money
--------------------------------
security interest within the meaning of Section 9-107 of the New York Uniform
Commercial Code, as in effect on the date hereof.
"Put Notice" shall have the meaning specified in paragraph 5D.
----------
"Put Option Closing" shall have the meaning specified in paragraph 5D.
------------------
"Put Right" shall have the meaning specified in paragraph 5C.
---------
"Qualifying Public Offering" shall mean the sale by one or more
--------------------------
Persons in an underwritten offering registered under the Securities Act of any
equity securities of the Company (or its successor) which results in aggregate
gross proceeds from such sales (before underwriters' discounts and selling
commissions) to the Company greater than or equal to $15,000,000.
"Registration Rights Agreement" shall mean the Registration Rights
-----------------------------
Agreement between the Company and the Investors in the form of Exhibit E
attached hereto.
"Related Documents" shall mean this Agreement, the Senior
------------------
Subordinated Notes, the Securityholders Agreement, the Registration Rights
Agreement, the Certificate of Designation, the Subsidiary Guarantee and the
Subordination Agreement.
"Released" shall have the meaning set forth in paragraph 10L.
--------
"Repayment Date" shall have the meaning set forth in paragraph 4C.
--------------
"Reportable Event" shall mean an event described in Section 4043(c) of
----------------
ERISA with respect to which the 30-day notice requirement has not been waived by
the PBGC.
"Restricted Payment" by any Person shall mean (i) any dividend or
------------------
other distribution on any shares of the capital stock (other than dividends or
distributions payable solely in shares of such capital stock) of such Person,
and (ii) any payment on account of the purchase, redemption, retirement or
acquisition of (a) any shares of the capital stock of such Person or (b) any
option, warrant, convertible or exchangeable security (except the
60
<PAGE>
Convertible Preferred Stock) or other right to acquire shares of the capital
stock of such Person.
"Securities" shall mean "securities" as defined in Section 2(1) of the
----------
Securities Act and includes, with respect to any Person, such Person's capital
stock or other equity interests or any options, warrants or other securities
that are directly or indirectly convertible into, or exercisable or exchangeable
for, such Person's capital stock or other equity interests.
"Securities" shall have the meaning set forth in paragraph 1B.
----------
"Securities Act" shall mean the United States Securities Act of 1933,
--------------
as amended.
"Securityholders Agreement" shall mean the Securityholders Agreement
-------------------------
between the Company, certain shareholders thereof and the Investors in the form
of Exhibit F hereto.
"Seller Notes" shall have the meaning set forth in paragraph 3P.
------------
"Senior Creditor" shall mean Texas Commerce Bank National Association.
---------------
"Senior Debt" shall mean all obligations (whether now outstanding or
-----------
hereafter incurred) for the payment of which the Company or any Subsidiary
thereof is responsible or liable as obligor, guarantor or otherwise in respect
of the principal, premium (if any), and unpaid interest on and all other amounts
due with respect to (i) the Bank Debt and (ii) all renewals and extensions of
any such Indebtedness or obligations; provided, however, that the following
-------- -------
shall not constitute Senior Debt: (a) Indebtedness evidenced by the Senior
Subordinated Notes or any extension or refunding thereof, (b) Indebtedness which
is expressly made equal in right of payment with the Senior Subordinated Notes
or subordinate and subject in right of payment to the Senior Subordinated Notes
or (c) Indebtedness which purports to be senior to subordinated debt, including
the Senior Subordinated Notes, but subordinate to the Indebtedness described in
the first sentence hereof; and further provided that notwithstanding anything
------- --------
else contained in this definition (i) Senior Debt may not exceed $10,000,000,
and (ii) shall be incurred only for (A) Permitted Acquisitions or (B) working
capital purposes.
"Senior Debt Agreement" shall mean any agreement evidencing Senior
---------------------
Debt.
"Senior Funded Debt" shall mean Senior Debt which is Funded Debt.
------------------
61
<PAGE>
"Senior Subordinated Notes" shall have the meaning specified in
-------------------------
paragraph 1A.
"Shareholders Agreement" shall mean the Shareholders Agreement between
----------------------
the Company, Richard O. Looney, Pamala Looney, Michael Klein, Marina Klein,
Gulfstar Investments, Ltd., and the Investors (for the purpose of being bound by
paragraph 8 of the Shareholders Agreement), dated as of the date hereof.
"Subordinated Debt" shall have the meaning specified in paragraph 8A.
-----------------
"Subordinate Lien" shall have the meaning set forth in Section 8M.
----------------
"Subordination Agreement" shall have the meaning specified in Section
-----------------------
3P.
"Subsidiary" as to any Person shall mean a corporation or other entity
----------
of which shares or similar stock having ordinary voting power to elect a
majority of the board of directors or other managers of such corporation or
entity are at the time owned, directly or indirectly, through one or more
intermediaries, by such Person. Except as otherwise expressly indicated herein,
references to Subsidiaries shall mean any Subsidiaries of the Company.
"Tax Expense" shall mean, for any period, total federal and state
-----------
income taxes, before adjustment for extraordinary items, as shown in the
financial statements of the Company and its Subsidiaries for such period, all as
determined in conformity with GAAP.
"UCC" shall mean the Uniform Commercial Code as adopted in the State
---
of New York.
"wholly owned" shall mean with respect to any designated Person that
------------
all of the shares or similar stock having ordinary voting power to elect the
board of directors and Indebtedness in respect of borrowing of such Person is
owned by Indebtedness in respect of borrowing of such Person is owned by the
specified Person or by one or more wholly owned subsidiaries of such specified
Person, or both.
13. MISCELLANEOUS.
-------------
13A. Home Office Payment. The Company agrees that, so long as the
-------------------
Investors shall hold any Senior Subordinated Note, it will make payments of
principal of and interest on such Senior Subordinated Notes not later than 12:00
noon, New York time, on the date such payment is due, by transfer of immediately
available funds for credit to the Investors. Such payments shall be made to the
account of the Investors specified on the attachments to the signature pages
hereto or such other account in the United States as the Investors may designate
in writing,
62
<PAGE>
notwithstanding any contrary provision contained herein or in the Senior
Subordinated Notes or in the Articles of Incorporation of the Company with
respect to the place of payment. Dividends on the shares of Common Stock
issuable upon conversion of the Convertible Preferred Stock shall be paid to
the holders thereof at the registered address of such holders as shown on the
records of the Company. The Company agrees to afford the benefits of this
paragraph 13A to any Person which is the registered transferee of any Security,
and which, in the case of the transferee of any Senior Subordinated Note, has
made the same agreement relating to such Senior Subordinated Note as the
Investors have made in this paragraph 13A.
13b. Indemnification. The Company agrees, whether or not the
---------------
transactions hereby contemplated shall be consummated, to pay, and save the
Indemnitees harmless against liability for the payment of, all reasonable
out-of-pocket expenses arising in connection with the transactions and other
agreements and instruments contemplated by this Agreement, including all taxes,
together in each case with interest and penalties, if any, and any income tax
payable by the Indemnitees in respect of any reimbursement of amounts payable
pursuant to this paragraph 13B (but not if any such income tax is payable by an
Indemnitee solely because it has deducted from income the expenses so reimbursed
to it), which may be payable in respect of the execution and delivery of this
Agreement including reasonable fees, expenses and disbursement of counsel
incurred in connection with the preparation and negotiation of this Agreement,
any other agreement or instrument to be executed and delivered in
connection with this Agreement any subsequent modification hereof or thereof or
consent hereunder or thereunder (regardless of whether any such modifications or
consent becomes effective) or the execution, delivery or acquisition of Senior
Subordinated Note or capital stock issued under or pursuant to this Agreement,
printing, reproduction and similar costs, and the reasonable cost and expenses,
including reasonable attorneys' fees, incurred by any Indemnitee in enforcing
any of its rights hereunder or thereunder, including without limitation
reasonable costs and expenses incurred in any bankruptcy case (including
reasonable fees and expenses of the Indemnitee's counsel in connection with such
bankruptcy case). The fees of counsel to the Investors incurred in connection
with the preparation and negotiation of this Agreement shall be paid at the
Closing. The Company agrees to indemnify the Indemnitees and hold them harmless
from and against any and all liabilities, losses, damages, costs and expenses of
any kind (including, without limitation, the reasonable fees and disbursements
of the Indemnitees' counsel in connection with any investigative, administrative
or judicial proceeding, whether or not the Indemnitees be designated a party
thereto) which may be incurred by the Indemnitees, relating to or arising out of
this Agreement or the Securities or any actual or proposed use of the proceeds
of the sale of Securities hereunder, provided that no Indemnitee shall have the
right to be indemnified hereunder for its own gross negligence or willful
63
<PAGE>
misconduct as finally determined by a court of competent jurisdiction. The
obligations of the Company under this paragraph 13B shall survive the transfer
of any Security or shares of Common Stock issuable upon conversion of the
Convertible Preferred Stock and the payment of any Senior Subordinated Note.
The indemnification required by this paragraph 13B shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as and when bills are received or expense, loss, damage or liabilities
are incurred.
13C. Consent to Amendments. This Agreement may be amended and the
---------------------
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, or take action which by the express terms of
this Agreement requires the consent of the Investors, only if the Company shall
have obtained the prior written consent to such amendment, action or omission to
act after the Closing Date of the holders of a majority of the aggregate unpaid
principal amount of the Senior Subordinated Notes and each holder of any
Security at the time or thereafter outstanding shall be bound by any consent
authorized by this paragraph 13C, whether or not such Security shall have been
marked to indicate such consent, but any Security issued thereafter shall
contain a reference or bear a notation referring to any such consent; provided,
--------
however, that notwithstanding anything in this paragraph 13C to the contrary,
- -------
without the prior written consent of the holder or holders of all Senior
Subordinated Notes at the time outstanding, no consent, amendment or waiver to
or under this Agreement shall extend or reduce the maturity of any Senior
Subordinated Note, or change the principal of, or the rate or time of payment of
interest or any premium payable with respect to any Senior Subordinated Note, or
affect the time, amount or allocation of any required or optional prepayments,
or reduce the proportion of the principal amount of the Senior Subordinated
Notes required with respect to any consent, amendment or waiver, or affect the
provisions of Section 8 or amend the provisions of this paragraph 13C. The
Company shall promptly send copies of any amendment, waiver or consent (and any
request for any such amendment, waiver or consent) relating to this Agreement or
the Securities to each holder of the Securities and shall consult with such
holders in connection with each such amendment, consent and waiver. No course of
dealing between the Company or any Subsidiary and the holder of any Security nor
any delay in exercising any rights hereunder or under any Security shall
operate as a waiver of any rights of any holder of such Security. As used herein
and in the Securities, the term "this Agreement" and references hereto shall
mean this Agreement as it may, from time to time, be amended or supplemented.
Any amendments to this Agreement shall also require the consent of the Company.
13D. Form, Registration, Transfer and Exchange of Senior Subordinated
----------------------------------------------------------------
Notes; Lost Senior Subordinated Notes. The Senior Subordinated Notes are
- -------------------------------------
issuable as registered notes
64
<PAGE>
transferable by endorsement and delivery, each without coupons in denominations
of $1,000 and any larger integral multiple of $1,000. The Company shall keep at
its principal office a register in which the Company shall provide for the
registration of the Senior Subordinated Notes. Upon surrender for registration
of transfer of any registered Senior Subordinated Note at such office, the
Company shall, at its expense, execute and deliver one or more replacing Senior
Subordinated Notes of like tenor and of a like aggregate principal amount which
replacing Senior Subordinated Notes shall be registered Senior Subordinated
Notes. At the option of the holder of any Senior Subordinated Note such Senior
Subordinated Notes may be exchanged, for other Senior Subordinated Notes of any
authorized denominations, of a like tenor and of a like aggregate principal
amount, upon surrender of the Senior Subordinated Note to be exchanged at the
office of the Company. Whenever any Senior Subordinated Notes are so surrendered
for exchange, the Company shall execute and deliver, at its expense, the Senior
Subordinated Notes which the holder thereof making the exchange is entitled to
receive. Every Senior Subordinated Note presented or surrendered for
registration of transfer shall be duly endorsed, or be accompanied by a written
instrument of transfer duly executed, by the holder of such Senior Subordinated
Note, or his attorney duly authorized in writing. Any Senior Subordinated Notes
issued in exchange for or upon transfer shall carry the rights to unpaid
interest and interest to accrue which were carried by the Senior Subordinated
Notes so exchanged or transferred, so that neither gain nor loss of interest
shall result from any such transfer or exchange. Upon receipt of written notice
from the Investors or other evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of any Senior Subordinated Note held
by the Investors and, in the case of any such loss, theft or destruction, upon
receipt of its unsecured indemnity agreement, or other indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Senior Subordinated Note, the Company will
make and deliver a replacement Senior Subordinated Note of like tenor, in lieu
of such lost, stolen, destroyed or mutilated Senior Subordinated Note.
13E. Provisions Applicable if any of the Securities are Sold. The
-------------------------------------------------------
parties acknowledge that, subject to compliance with applicable securities laws,
the Investors shall be free to transfer the Securities without restriction. In
the event that the Investors should sell or otherwise transfer any of the
Securities or any part thereof to any Person other than the Company, if any
Security shall have been transferred to another holder and such holder shall
have designated in writing the address to which communications with respect to
Security shall be mailed, all notices, certificates, requests, statements and
other documents required to be delivered to the Investors by any provision
hereof by reason of the holding of the transferred Security shall also be
delivered to such holder at such address.
65
<PAGE>
13F. Restrictive Legends. Each Senior Subordinated Note shall bear
-------------------
the following (or substantially equivalent) legend on the face or reverse side
thereof:
"The securities represented hereby have not been registered under
the Securities Act of 1933, as amended, or applicable state
securities laws, and the securities may not be sold, transferred
or otherwise disposed of in the absence of such registration or
an exemption therefrom under said Act and such laws and the
respective rules and regulations thereunder."
In addition, the shares of Common Stock issuable upon conversion of the
Convertible Preferred Stock shall bear at the time of issuance a legend in
substantially the form set forth above and any legend required by the state
securities or "Blue Sky" laws of any state in which a registered holder thereof
is resident, unless such shares have been registered under the Securities Act.
13G. Persons Deemed Owners. Prior to due presentment for registration
---------------------
of transfer, the Company may treat the Person in whose name any Security is
registered as the owner and holder of such Security for the purpose of receiving
payment of principal of (and premium, if any) and interest on such Security and
for all other purposes whatsoever, whether or not such Security shall be
overdue, and the Company shall not be affected by notice to the contrary.
13H. Survival of Representations and Warranties. All representations
------------------------------------------
and warranties contained herein or made in writing by or on behalf of any party
to this Agreement in connection herewith shall survive the execution and
delivery of this Agreement, regardless of any investigation made by the
Investors or on their behalf.
13I. Successors and Assigns. Except as otherwise provided herein, all
----------------------
covenants and agreements in this Agreement contained by or on behalf of the
parties hereto shall bind and inure to the benefit of the respective
successors, transferees and assigns of the parties hereto whether so expressed
or not and for greater certainty, a purchaser of Convertible Preferred Stock
from any holder of Convertible Preferred Stock will be entitled to the benefits
of this Agreement and the Company shall be deemed to have received express
notice in writing of any such assignment by a request for registration of the
Convertible Preferred Stock in the name of a subsequent purchaser.
13J. Notices. All communications provided for hereunder shall be sent
-------
by first class mail, overnight courier or by fax with hard copy by first class
mail or overnight courier and, if to the Investors, addressed to the Investors
in the manner (except as otherwise provided in paragraph 13A with respect to
payments of principal of (and premium, if any) and
66
<PAGE>
interest on the Senior Subordinated Notes) in which its address appears on the
signature page hereof, with a copy to William J. Grant, Jr., Esq., at Willkie
Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New York, New York
10022-4677, telecopy number (212) 821-8111, if to the Company or the Guarantor,
addressed to it at 3850 Nationsbank Center, Houston, Texas, 77002-2731, or to
such other address with respect to any party as such party shall notify the
other in writing, and (unless otherwise specified herein) shall be deemed
received 24 hours after it is sent if sent via facsimile (with receipt
confirmed) or overnight courier; provided, however, that any such communication
-------- -------
to the Company or the Guarantor may also, at the option of the Investors, be
either delivered to the Company or the Guarantor at their address set forth
above or to any executive officer of the Company or the Guarantor, as applicable
13K. Descriptive Headings. The descriptive headings of the several
--------------------
Sections and paragraphs of this Agreement are inserted for convenience only and
do not constitute a part of this Agreement.
13L. Governing Law; Consent To Jurisdiction. This Agreement Is Being
--------------------------------------
Delivered And Is Intended To Be Performed In The State Of New York, And Shall Be
Construed And Enforced In Accordance With, And The Rights Of The Parties Shall
Be Governed By, The Law Of Such State Without Giving Effect To The Choice Of Law
Or Conflicts Of Law Principles Thereof. This Agreement Is Effective Only When
Delivered And Entered Into By The Investors In New York. Any Legal Action Or
Proceeding With Respect To This Agreement May Be Brought In The Courts Of The
State Of New York Or Of The United States Of America For The Southern District
Of New York, And, By Execution And Delivery Of This Agreement, The Company
Hereby Accepts For Itself And In Respect Of Its Property, Generally And
Unconditionally, The Jurisdiction Of The Aforesaid Courts. The Company
Irrevocably Consents To The Service Of Process Out Of Any Of The Aforementioned
Courts In Any Such Action Or Proceeding By The Mailing Of Copies Thereof By
Registered Or Certified Mail, Postage Prepaid, To The Company At Its Address Set
Forth In Paragraph 13J, Such Service To Become Effective 30 Days After Such
Mailing. Nothing Herein Shall Affect The Right Of The Investors Or Any Holder Of
A Security To Serve Process In Any Other Manner Permitted By Law Or To Commence
Legal Proceedings Or Otherwise Proceed Against The Company In Any Other
Jurisdiction.
13M. Delay Fees. If the Closing shall not actually occur on any date
----------
on which the Closing is scheduled to occur, and the Company shall have failed
to notify each Investor prior to 10:00 A.M. local time, in the place in which an
Investor is located, on the day prior to such scheduled Closing that such
Closing has been postponed, the Company shall pay to each Investor (as
compensation for such Investor's loss of fund and administrative costs) an
amount equal to interest on the purchase
67
<PAGE>
price for the Securities to have been purchased by each such Investor on such
scheduled date at such Closing, at the rate per annum on the Senior Subordinated
Notes as if the Senior Subordinated Notes had been issued on the scheduled date
of Closing, for each day from and including such scheduled date of Closing to
but not including the earlier of the date on which such Closing actually occurs
or the date on which the amount to be paid by each such Investor as said
purchase price is available to such Investor for reinvestment, but in any case
not less than one day's interest; provided, however, that the Company shall not
-------- -------
owe any Investor any amount under this paragraph 13M if the Company has
fulfilled all of its obligations under this Agreement and such Investor is not
willing or able to fulfill its obligations on the scheduled date of Closing.
13N. Remedies. In case any one or more of the covenants and/or
--------
agreements set forth in this Agreement shall have been breached by the Company
or any holder of Securities, the Company, or any holder of Securities (or any of
them), as applicable, may proceed to protect and enforce its or their rights
either by suit in equity and/or by action at law, including, but not limited to,
an action for damages as a result of any such breach and/or an action for
specific performance of any such covenant or agreement contained in this
Agreement. Without limitation of the foregoing, the Company agrees that failure
to comply with any of the covenants including, without limitation, those
included in paragraphs 6A, 6B, 6C, 6F, 6L, 6M, 6N, 6O AND 6Q and those in
respect of the Senior Subordinated Notes will cause irreparable harm and that
specific performance shall be available in the event of any breach thereof. The
Company, or an Investor acting pursuant to this paragraph 13N, shall be
indemnified against all liability, loss or damage, together with all reasonable
costs and expenses related thereto (including reasonable legal and accounting
fees and expenses) in accordance with paragraph 13B.
13O. Entire Agreement. This Agreement, the other Related Documents
----------------
and the other writings referred to herein or delivered pursuant hereto contain
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior and contemporaneous arrangements or understandings with
respect thereto. This Agreement shall not constitute a valid and binding
agreement, enforceable in accordance with its terms, until it has been executed
and delivered by duly authorized representatives of each party hereto. No
discussions regarding or exchange of drafts of comments in connection with the
transactions contemplated herein shall constitute an agreement among the
parties.
13P. Severability. Any provision of this Agreement that is prohibited
------------
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
68
<PAGE>
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13Q. Amendments. This Agreement may not be changed orally, but
----------
(subject to the provisions of paragraph 13C) only by an agreement in writing
signed by the party against whom enforcement of any waiver, change, modification
or discharge is sought.
13R. Payment Date. Notwithstanding any provision of this Agreement to
------------
the contrary, any payment on account of principal of (and premium, if any) or
interest on any Senior Subordinated Note which is due on a date which is not a
Business Day shall be paid on the next succeeding Business Day, and the amount
of interest included in any such payment shall be computed to the date on which
such payment is actually made.
13S. Waiver Of Trial By Jury. The Company And Each Guarantor Hereby
-----------------------
Knowingly, Voluntarily And Intentionally Waives (To The Extent Permitted By
Applicable Law) Any Right It May Have To A Trial By Jury Of Any Dispute Arising
Under Or Relating To This Agreement Or Any Other Agreement Or Document Referred
To Herein And Agrees That Any Such Dispute Shall, At The Option Of Any Investor
As The Case May Be, Be Tried Before A Judge Sitting Without A Jury.
13T. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, and it shall not be necessary in
making proof of this Agreement to produce or account for more than one such
counterpart.
69
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
LITIGATION RESOURCES OF AMERICA, INC.
By: /s/ Richard O. Looney
-----------------------------------
Name: Richard O. Looney
Title: CEO
GUARANTOR:
LOONEY & COMPANY
By: /s/ Richard O. Looney
-----------------------------------
Name: Richard O. Looney
Title: President
GUARANTOR:
KLEIN, BURY AND ASSOCIATES, INC.
By: /s/ Richard O. Looney
-----------------------------------
Name: Richard O. Looney
Title: CEO
70
<PAGE>
The foregoing Agreement is
hereby accepted as of the
date first above written.
DELAWARE STATE EMPLOYEES'
RETIREMENT FUND
c/o Pecks Management Partners Ltd
One Rockefeller Plaza
New York, New York 10020
Attention: Robert J. Cresci
By: Pecks Management Partners Ltd.,
Its Investment Adviser
By: /s/ Robert J. Cresci
----------------------------
Robert J. Cresci Principal Amount of Senior
Managing Director Subordinated Notes: $6,030,000
670,000 shares of Convertible
Preferred Stock
Tax ID Number: 516-00-0279
Nominee: NAP & CO.
Bank: Mercantile Safe Deposit & Trust Company
2 Hopkins Plaza
Baltimore, MD 21201
Attn: Isabelle Corbett
ABA Routing Number: 052-000618
Account Number: 214380-8 for State of Delaware account.
Physical Delivery
Via Federal Express: Mercantile Safe Deposit
& Trust Company
2 Hopkins Plaza
Baltimore, Maryland 21201
Attn: Connie Philpot,
Incoming Securities
Attn:# 214380-8
<PAGE>
INVESTORS:
The foregoing Agreement is
hereby accepted as of the
date first above written.
DECLARATION OF TRUST
FOR DEFINED BENEFIT PLANS
OF ICI AMERICAN HOLDINGS INC.
c/o Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, New York 10020
Attention: Robert J. Cresci
By: Pecks Management Partners Ltd.,
Its Investment Adviser
By: /s/ Robert J. Cresci
------------------------
Robert J. Cresci Principal Amount of Senior
Managing Director Subordinated Notes: $1,755,000
195,000 shares of
Convertible Preferred Stock
Tax ID Number: 043-171-204
Nominee: NORTHMAN & CO.
Bank: State Street Bank & Trust Company
One Enterprise Drive
Solomon Willard Building, 4A
North Quincy, MA 02171
ABA Routing Number: 0110-00028
Account Number: I510 DDA 34758649
for Master Trust/State Street
Boston, MA 02101
BNF: ICI Americas
Physical Delivery
Via Federal Express: State Street Bank & Trust Company
225 Franklin Street
Incoming Securities, Courthouse
Level
Boston, MA 02101
Attn: David Kay
Account Name: ICI Americas
Acct.# I510
<PAGE>
The foregoing Agreement is
hereby accepted as of the
date first above written.
DECLARATION OF TRUST
FOR DEFINED BENEFIT PLANS
OF ZENECA HOLDINGS INC.
c/o Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, New York 10020
Attention: Robert J. Cresci
By: Pecks Management Partners Ltd.,
Its Investment Adviser
By: /s/ Robert J. Cresci
------------------------
Robert J. Cresci Principal Amount of Senior
Managing Director Subordinated Notes: $1,215,000
135,000 shares of
convertible Preferred Stock
Tax ID Number: 042-809861
Nominee: FUELSHIP & CO.
Bank: State Street Bank & Trust Company
One Enterprise Drive
Solomon Willard Building, 4A
North Quincy, MA 02171
ABA Routing Number: 0110-00028
Account Number: JG10 DDA 34758508
for Master Trust/State Street
Boston, MA 02101
BNF: Zeneca Holdings
Physical Delivery
Via Federal Express: State Street Bank & Trust Company
225 Franklin Street
Incoming Securities, Courthouse
Level
Boston, MA 02101
Attn: David Kay
Account Name: Zeneca Holdings
Acct.# JG10
<PAGE>
AMENDMENT TO SECURITIES PURCHASE AGREEMENT
This Amendment to the Securities Purchase Agreement is made and entered
into as of the 24th day of September, 1997.
The Securities Purchase Agreement dated as of January 17, 1997 (the
"Securities Purchase Agreement"), among Litigation Resources of America, Inc., a
Texas corporation (the "Company"), the Guarantors, as defined therein, and
Delaware State Employees' Retirement Fund, Declaration of Trust for Defined
Benefit Plan of ICI American Holding Inc. and Declaration of Trust for Defined
Benefit Plan of Zeneca Holding Inc. (collectively, the "Investors") is hereby
amended as follows:
1. Section 13U of the Securities Purchase Agreement is added to read in
its entirety as follows:
13U. Termination of Agreement. This Agreement shall terminate as
follows:
(a) Upon the agreement of the Company, the Guarantors and the
Investors; or
(b) Immediately prior to the closing of a firm commitment
initial public offering of equity securities of the Company
that generates net proceeds to the Company of not less than
$15 million.
Dated as of this 24th day of September, 1997.
LITIGATION RESOURCES OF AMERICA, INC.
By:/s/ Richard O. Looney
---------------------------------------
Richard O. Looney
President
<PAGE>
LOONEY & COMPANY
By: /s/ Richard O. Looney
---------------------------------------
Richard O. Looney
President
KLEIN, BURY AND ASSOCIATES, INC.
By: /s/ Richard O. Looney
---------------------------------------
Richard O. Looney
Chief Executive Officer
DELAWARE STATE EMPLOYEES' RETIREMENT FUND
By: Pecks Management Partners Ltd.
Its Investment Advisor
By: /s/ Robert J. Cresci
---------------------------------------
Name: Robert J. Cresci
Title: Managing Director,
Pecks Management Partners, Ltd.,
Investment Advisor
DECLARATION OF TRUST FOR DEFINED BENEFIT
PLAN OF ICI AMERICAN HOLDINGS INC.
By: Pecks Management Partners Ltd.
Its Investment Advisor
By: /s/ Robert J. Cresci
---------------------------------------
Name: Robert J. Cresci
Title: Managing Director,
Pecks Management Partners, Ltd.,
Investment Advisor
DECLARATION OF TRUST FOR DEFINED BENEFIT
PLAN OF ZENECA HOLDINGS INC.
By: Pecks Management Partners Ltd.
Its Investment Advisor
By: /s/ Robert J. Cresci
---------------------------------------
Name: Robert J. Cresci
Title: Managing Director,
Pecks Management Partners, Ltd.,
Investment Advisor
-2-
<PAGE>
EXHIBIT 10.8
AGREEMENT OF PURCHASE AND SALE OF ASSETS
----------------------------------------
THIS AGREEMENT OF PURCHASE AND SALE OF ASSETS (the "Agreement") is
entered into effective the 14th day of May, 1997 (the "Effective Date"), by and
between LITIGATION RESOURCES OF AMERICA-CALIFORNIA, INC., a California
corporation, whose address is 1001 Fannin, Suite 650, Houston, Texas 77002
("Purchaser"), a wholly owned subsidiary of Litigation Resources of America,
Inc., a Texas corporation ("LRA-Texas"), and SAN FRANCISCO REPORTING SERVICE, a
California general partnership whose address is Five Third Street, Suite 815,
San Francisco, California 94103 ("Seller"). Purchaser and Seller may be
hereinafter sometimes referred to collectively as the "Parties" or individually
as a "Party."
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Seller is the sole owner of certain assets associated with
the Business (as hereinafter defined); and
WHEREAS, Purchaser desires to purchase from Seller, and Seller desires
to sell to Purchaser, all or substantially all of the assets of Seller, on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, for and in consideration of the mutual covenants,
agreements, representations and warranties contained in this Agreement, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged and confessed, the Parties hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
-------------------
As used herein, the following terms shall have the meanings set forth
below:
1.1. ACCOUNTS PAYABLE REPORT. The term "Accounts Payable Report"
shall mean a report prepared as of the time specified which shows accounts
payable by creditor and age of each account payable.
1.2. ACCOUNTS RECEIVABLE REPORT. The term "Accounts Receivable
Report" shall mean a report prepared as of the time specified which shows
accounts receivable by client and age of each account receivable.
1.3. ACCRUED LIABILITIES REPORT. The "Accrued Liabilities Report"
shall mean a report prepared as of a given date, showing all of the liabilities
of Seller which do not appear in the balance sheet of Seller due to the fact
that Seller uses the cash method of accounting, but which would be included in
Seller's balance sheet under GAAP.
<PAGE>
1.4. AFFILIATE. The term "Affiliate" of a person or entity shall
mean, with respect to that person or entity, a person or entity who or which
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, or is acting as agent on behalf
of, or as an officer, partner, shareholder or director of, that person or
entity. Specifically, the Seller, Jay W. Harbidge, and Rick Posner are agreed
to be Affiliates of one another.
1.5. BALANCE SHEET REPORT. The term "Balance Sheet Report" shall
mean the cash basis balance sheet of the Seller as of a given date showing the
assets, liabilities and equity of the Seller, adjusted to include accounts
receivable, accounts payable and accrued liabilities, and further adjusted to
exclude the Excluded Assets, prepared by the Seller on a basis consistent with
prior time periods.
1.6. BUSINESS. The term "Business" shall mean the current business
of the Seller of providing court reporting and litigation support services.
1.7. CLOSING. The term "Closing" shall mean the consummation of the
events and transactions to take place on the Closing Date pursuant to ARTICLE VI
herein.
1.8. CLOSING DATE. The term "Closing Date" shall mean the date of
execution of this Agreement.
1.9. CODE. The term "Code" shall mean the Internal Revenue Code of
1986, as amended.
1.10. EMPLOYEE. The term "Employee" shall mean any employee of the
Seller who as of the Effective Date or the Closing Date is employed or otherwise
performs work or provides services in connection with the operation of the
Business, including those, if any, on disability, sick leave, layoff or leave of
absence, who, in accordance with the Seller's applicable policies, are eligible
to return to active status.
1.11. ENVIRONMENTAL, HEALTH & SAFETY LAWS The term "Environmental,
Health & Safety Laws" shall mean all laws (including rules and regulations,
codes, plans, injunctions, judgments, orders, decrees, rulings, and charges
thereunder) of federal, state, local, and foreign governments and all agencies
thereof concerning pollution or protection of the environment, public health and
safety, or employee health and safety.
1.12. EXCLUDED ASSETS. The term "Excluded Assets" shall mean those
assets of Seller which are not being transferred to Purchaser, which are
specifically set forth on SCHEDULE 2.1 hereof.
------------
-2-
<PAGE>
1.13. FINANCIAL STATEMENTS. The term "Financial Statements" shall
mean (i) the unaudited balance sheets and income statements of Seller, together
with Accounts Receivable Reports, for the fiscal years ending December 31, 1994,
December 31, 1995, and December 31, 1996, and the months ending January 31,
1997, February 28, 1997, and March 31, 1997, and (ii) Accrued Liabilities
Reports, Accounts Payable Reports and Balance Sheet Reports for the fiscal year
of Seller ending December 31, 1996, and the months ending January 31, 1997 and
March 31, 1997.
1.14. INDEPENDENT CONTRACTORS. The term "Independent Contractors"
shall mean all independent contractors used by Seller during the preceding one
(1) year, as set forth on SCHEDULE 3.19 (B) hereof.
-----------------
1.15. KNOWLEDGE. The term "knowledge" and words of similar import
with respect to matters "known" to Seller shall mean to the actual knowledge of
any director, partner, officer or shareholder of Seller, after reasonable
investigation and inquiry.
1.16. LEASED ASSETS. The term "Leased Assets" shall have the meaning
ascribed thereto in SECTION 3.6.
1.17. MEASUREMENT DATE. The term "Measurement Date" shall mean
January 31, 1997.
1.18. ORDINARY COURSE OF BUSINESS. The term "Ordinary Course of
Business" shall mean the ordinary course of Seller's business consistent with
past custom and practice (including with respect to quantity and frequency).
1.19. PBGC. The term "PBGC" shall mean the Pension Benefits
Guaranty Corporation.
1.20. PURCHASE PRICE. The term "Purchase Price" shall mean the
consideration payable to the Seller for the Assets as set forth or contemplated
in SECTION 2.2.
ARTICLE II
PURCHASE AND SALE OF ASSETS; PURCHASE PRICE
-------------------------------------------
2.1 SALE OF ASSETS. Subject to the terms and conditions set forth in
this Agreement, Seller agrees to grant, bargain, sell, convey, transfer, assign
and deliver to Purchaser, and Purchaser agrees to purchase from Seller, on the
Closing Date, to be effective as of the Effective Date, all of the assets owned
by Seller (such assets to be referred to herein collectively as the "Assets"),
including without limitation all of the assets set forth on the Balance Sheet
Report dated as of the Measurement Date, subject only to changes occurring in
the Ordinary Course of Business since the Measurement Date, and the following:
-3-
<PAGE>
(a) all tangible personal property (such as office equipment, service
equipment, computer equipment, software, machinery, supplies, furniture,
fixed assets, fixtures and vehicles) owned by the Seller;
(b) all of Seller's patents, patent applications or other patent
rights, service marks, trademarks, trade and assumed names, inventions,
trade secrets and royalty rights and other proprietary intangibles,
licenses and sublicenses, and rights thereunder, and remedies against
infringements thereof, and rights to protection of interests therein under
the laws of all jurisdictions;
(c) all leases, subleases, contracts, contract rights, and agreements
relating to the operation of the Business;
(d) all of Seller's general intangibles, claims, causes of action,
choses in action, rights of recovery, rights of set off, rights of
recoupment and goodwill;
(e) all of Seller's franchises, approvals, permits, licenses, orders,
registrations, certificates, variances, and similar rights obtained from
governments and governmental agencies;
(f) all of Seller's books, records, client and supplier lists,
ledgers, files, documents, correspondence, lists, creative materials,
advertising and promotional materials, studies, reports, and other printed
or written materials;
(g) all of Seller's accounts, accounts receivable, trade receivables,
notes and other receivables, including those outstanding on the Measurement
Date and those arising or accruing thereafter, all of which remain
outstanding as of the Closing Date, other than those which have been
collected by Seller in the Ordinary Course of Business; and
(h) all rights to the name "San Francisco Reporting Service" and all
variations thereof, and Seller's current telephone number;
however, notwithstanding the foregoing or any provision hereof to the contrary,
the term "Assets" shall not include, and Purchaser shall not acquire, any assets
disposed of, used or consumed in the Ordinary Course of Business between the
Measurement Date and the Closing Date, nor any cash or other property to the
extent such cash or other property is specifically disclosed and described as an
"Excluded Asset" on SCHEDULE 2.1 hereof.
------------
2.2 PURCHASE PRICE CONSIDERATION. As consideration for the
purchase of the Assets and the performance by Seller of various other matters as
provided herein, Purchaser shall pay and deliver to Seller at the Closing the
following (the "Purchase Price"):
-4-
<PAGE>
(a) A certified or bank cashier's check, payable to the order of
Seller, or by wire transfer to an account of Seller designated by Seller,
in the amount of Five Hundred Five Thousand Six Hundred Ninety-Four and
No/100 Dollars ($505,694.00); and
(b) Shares of Common Stock issued by LRA-Texas, having a par value of
one-cent ($0.01) per share, issued in the names of Jay W. Harbidge and Rick
Posner, respectively, the general partners of Seller (the "Common Stock"),
in the amounts set forth in Section 6.3, at an issue price of Seven and
56/100 Dollars ($7.56), per share based on the cash flow multiple paid by
the institutional investors in the initial capitalization of LRA-Texas,
adjusted to reflect the pro forma cash flow of LRA-Texas at the Effective
Date; and
(c) Shares of Series C Preferred Stock issued by LRA-Texas, having a
par value of One Dollar ($1.00) per share, issued in the names of Jay W.
Harbidge and Rick Posner, respectively, the general partners of Seller (the
"Preferred Stock"), in the amount set forth in Section 6.3, at an issue
price of One Dollar ($1.00) per share.
2.3 ASSUMPTION OF LIABILITIES. Subject to the exceptions and
exclusions of this SECTION 2.3, Purchaser agrees that on the Closing Date,
Purchaser will assume and agree to perform and pay when due the following
liabilities of Seller (collectively, the "Liabilities"):
(a) All liabilities reflected in the Balance Sheet Report dated as of
the Measurement Date (except as hereinafter expressly set forth);
(b) Liabilities and obligations of the Business incurred in the
Ordinary Course of Business between the Measurement Date and the Closing
Date, which do not otherwise constitute violations of any of the
representations, warranties, covenants, agreements or obligations of Seller
set forth herein;
however, notwithstanding the foregoing or any provisions hereof to the contrary,
the term "Liabilities" shall not include, and Purchaser shall not assume nor be
deemed to have assumed, any other debts, liabilities or obligations, whether
accrued, absolute, contingent or otherwise, in contract or in tort, nor any of
the following: (i) accrued income taxes, (ii) deferred income taxes, (iii)
accrued franchise taxes, (iv) any tax imposed on Seller or any Affiliate of
Seller, as a result of or in connection with the operation of the Business, (v)
any of the liabilities or expenses of Seller incurred in negotiating and
carrying out its obligations under this Agreement; (vi) any obligations of
Seller or any Affiliate of Seller under any employee stock or benefits
agreements; (vii) any obligations incurred by Seller on or before the Closing
Date except as otherwise specifically assumed by Purchaser pursuant to this
SECTION 2.3; (viii) any of the liabilities set forth in SCHEDULE 3.22; (ix) any
--------------
liabilities or obligations incurred by Seller in violation of, or as a result
-5-
<PAGE>
of Seller's violation of, this Agreement; nor (x) any liabilities arising from
sales of products or services on or before the Closing Date.
2.4 ALLOCATION OF PURCHASE PRICE. The Purchase Price of the Assets
shall be allocated in accordance with SCHEDULE 2.4 attached hereto. Each of the
------------
Parties agrees to report this transaction for federal tax purposes in accordance
with the manner set forth in SCHEDULE 2.4, however, the Purchase Price of the
------------
Assets may be reallocated in a manner to be agreed upon by the Parties after
finalization of the Post-Closing Financial Statements.
2.5 TAXES. Payment of the Purchase Price shall include payment for
all sales and use taxes arising out of the sale, transfer or removal of the
Assets, and the assumption of the Liabilities. On or before the Closing Date,
Seller agrees to furnish to Purchaser certificates from the state taxing
authorities, and any related certificates that Purchaser may reasonably request,
as evidence that all sales and use tax liabilities of Seller accruing before the
Effective Date have been fully provided for or satisfied. Purchaser shall not
be responsible for any business, occupation, income, withholding or similar tax,
or any taxes of any kind, of Seller, or otherwise relating to the Business or
the operation thereof for any period before the Effective Date.
2.6 TITLE TO ASSETS AND RISK OF LOSS. Title to the Assets and risk
of loss or damage to the Assets by casualty (whether or not covered by
insurance) will pass to Purchaser immediately upon completion of Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Seller hereby represents and warrants that:
3.1 ORGANIZATION. Seller is a general partnership duly organized and
validly existing under the laws of the State of California, has all necessary
partnership powers to own its properties and to operate the Business as now
owned and operated by it, and is not qualified, nor required to be qualified, to
do business in any other state.
3.2 AUTHORITY. Seller has the full right, power, legal capacity and
authority to execute, deliver and perform Seller's obligations under this
Agreement. The execution, delivery and performance of this Agreement by Seller
has been duly authorized by Seller's partners. Jay W. Harbidge and Rick Posner
are the only partners of Seller.
3.3 CONSENTS AND APPROVALS; NO BREACH OR DEFAULT. Except as set forth
on SCHEDULE 3.3(A), no consent, approval or authorization of, or filing or
---------------
registration with, any governmental or regulatory authority, or any other person
or entity, is required to be made or obtained by Seller in connection with the
execution, delivery or performance of this Agreement, or the consummation by
Seller of the transactions contemplated hereby. Except as set forth on SCHEDULE
--------
-6-
<PAGE>
3.3(B), neither the execution and delivery of this Agreement by Seller, nor the
- ------
consummation of the transactions contemplated herein by Seller, will (A) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency or court to which Seller is, or the Assets are, subject, or (B) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify
or cancel, or require any notice under, any agreement, contract, lease, license,
instrument, promissory note, conditional sales contract, partnership agreement
or other arrangement to which Seller or any of Seller's Affiliates is a party,
or by which Seller is bound, or to which the Assets are subject, or (C) conflict
with or violate the partnership agreement or other charter document of Seller.
3.4 VALID AND BINDING OBLIGATION. Upon execution and delivery, this
Agreement and each document, instrument or agreement to be executed by Seller,
or any of Seller's Affiliates, in connection herewith, will constitute the
legal, valid, and binding obligation of Seller and/or each Affiliate which is a
party thereto, enforceable against Seller and/or each such Affiliate in
accordance with its terms, except as same may be limited by applicable
bankruptcy laws, insolvency laws, or other similar laws affecting the rights of
creditors generally.
3.5 TITLE TO ASSETS. Except as set forth on SCHEDULE 3.5, Seller has
------------
good, indefeasible and marketable title to the Assets, free and clear of
restrictions or conditions to transfer or assignment, or mortgages, liens,
pledges, charges, encumbrances, equities, claims, easements, rights-of-way,
covenants, conditions or restrictions. Seller shall deliver to Purchaser at
Closing good, indefeasible and marketable title to the Assets, free and clear of
restrictions or conditions to transfer or assignment, or mortgages, liens,
pledges, charges, encumbrances, equities, claims, easements, rights-of-way,
covenants, conditions or restrictions.
3.6 POSSESSION OF ASSETS; LEASED ASSETS. Seller is in possession of all
of the Assets, and all of the assets leased to Seller from others. All assets
leased to Seller from others, whether real, personal or mixed, are described on
SCHEDULE 3.6 and SCHEDULE 3.14(B) attached hereto (the "Leased Assets"). The
- ------------ ----------------
Assets and the Leased Assets constitute all of the property, whether real,
personal, mixed, tangible, or intangible, that is owned or used in the Business
by Seller, other than the Excluded Assets. Seller does not own legal or
equitable title to any assets or interests in assets except the Assets and the
Leased Assets. Seller shall deliver to Purchaser on the Closing Date, possession
of and/or control or dominion over all of the Assets and the Leased Assets,
including without limitation all of Seller's accounts receivable, property,
plant and equipment, other personal property, contract rights and general
intangibles, client and supplier lists, and assumed and trade names.
3.7 CONDITION. All of the Assets and the Leased Assets are in good
operating condition and repair for their intended use, ordinary wear and tear
excepted.
3.8 CONTRACTS AND LEASES. All of the contracts, leases, documents,
instruments, agreements, and other written or oral arrangements to which Seller
is a party or by which Seller or the Assets may be bound (collectively, the
"Contracts") are set forth on SCHEDULE 3.8. Except
------------
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as set forth on SCHEDULE 3.8, all of the Contracts are valid and in full force
------------
and effect, and there has not been any default by Seller or any third party to
any of said Contracts, or any event, fact or circumstance which with notice or
lapse of time or both, would constitute a default by Seller or any other party
to any of the Contracts. Seller has not received notice that any party to any of
the Contracts intends to cancel or terminate any of the Contracts or exercise or
not exercise any options that such party might have under any of the Contracts.
3.9 EQUIPMENT. All of the equipment owned by Seller is set forth on
SCHEDULE 3.9.
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3.10 ACCOUNTS RECEIVABLE. All of the accounts receivable of Seller as set
forth in the books and records of Seller (collectively, the "Accounts"), and all
papers and documents relating thereto, are genuine and in all respects what they
purport to be, and each such Account is valid and subsisting and is owed by the
account debtor named in such Account. The amount of each Account represented as
owing as of the date indicated (i) is the correct amount actually and
unconditionally owing as of the date indicated, (ii) is not subject to any set-
offs, credits, disputes, defenses, deductions or countercharges, and (iii) to
the best knowledge of Seller, will be paid in the Ordinary Course of Business.
None of the Accounts has been paid outside of the Ordinary Course of Business,
and neither Seller nor any of its Affiliates has made any efforts to collect any
of the Accounts outside of the Ordinary Course of Business.
3.11 INVENTORIES. Seller does not have any raw materials, work in
process, finished goods or other inventory.
3.12 LICENSES. All licenses owned by Seller or in which Seller has any
rights, licenses or sublicenses (collectively, the "Licenses"), together with a
brief description of each, are set forth on SCHEDULE 3.12. Seller has not
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infringed, and is not now infringing, on any license belonging to any other
person or other entity. Seller owns and holds adequate licenses necessary for
the Business as now conducted by it, and that use does not, and will not,
conflict with, infringe on or otherwise violate any rights of others. Purchaser
is hereby acquiring, and will continue to enjoy the use and benefit of, the
Licenses.
3.13 INTELLECTUAL PROPERTY. All of the intellectual property (the
"Intellectual Property") of Seller is set forth on SCHEDULE 3.13. The
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Intellectual Property constitutes all of the intellectual property necessary to
the lawful conduct of the Business without any infringement or conflict with the
rights of others, and no adverse claims have been asserted against the
Intellectual Property, Seller or the Business with respect thereto.
3.14 REAL PROPERTY; LEASED REAL PROPERTY. Except as set forth in
SCHEDULE 3.14(A) with respect to real property owned by Seller, and SCHEDULE
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3.14(B) with respect to real property leased by Seller (such real property being
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hereinafter referred to collectively as the "Real Property"), Seller neither
owns nor leases any real property or improvements or interests therein. Except
for Seller, there are no parties in possession of any portion of the Real
Property as lessees, tenants at will or at sufferance, trespassers or otherwise.
The heating, electrical, plumbing and
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other building equipment, as of the Closing, will be adequate in quantity and
quality for normal operations of the Business, as presently conducted.
3.15 SUBSIDIARIES. Seller does not own, and has never previously owned,
directly or indirectly, any interest or investment (whether equity or debt) in
any corporation, partnership, business, trust, or other entity.
3.16 INSURANCE. Attached hereto as SCHEDULE 3.16 is a true, complete and
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accurate list of all insurance policies maintained by Seller.
3.17 BANKING. The names and addresses of all banks or other financial
institutions in which Seller has an account, deposit or safe deposit box, with
the names of all persons authorized to draw on these accounts or deposits or
having access to these boxes, are set forth on SCHEDULE 3.17 attached hereto.
-------------
3.18 POWERS OF ATTORNEY. No person or other entity holds a general or
special power of attorney from Seller.
3.19 PERSONNEL. Attached hereto as SCHEDULE 3.19 (A) is a
-----------------
list of the names, addresses, hire dates, dates of birth and job descriptions of
all Employees of Seller, stating their rates of compensation including, if
determined, bonuses payable to each. Attached hereto as SCHEDULE 3.19 (B) is a
-----------------
list of the names, addresses, dates of birth and services provided by all
independent contractors used by Seller during the preceding one (1) year,
stating their rates and methods of compensation.
3.20 EMPLOYEE BENEFITS. SCHEDULE 3.20 is a true, correct and complete
-------------
list of each "employee benefit plan," within the meaning of Section 3(3) of
ERISA, that has ever been maintained or sponsored by Seller or any of its
Affiliates. Each such employee benefit plan (and each related trust, insurance
contract, or fund) is in full force and effect, and complies in form and in
operation in all respects with the applicable requirements of ERISA, the Code,
and other applicable laws. Neither Seller nor any other party is in default
under any of the plans, there have been no claims of default, and to the
Seller's knowledge, there are no facts, conditions or circumstances which if
continued, or on notice, will result in a default, under any plan. None of the
plans will, by its terms or under applicable law, become binding upon or become
an obligation of the Purchaser. No assets of any plan are being transferred to
Purchaser or to any plan of Purchaser. Seller does not contribute to, and has
never contributed to, and has never been required to contribute to, any
multiemployer plan, and Seller does not have, and has never had, any liability
(including withdrawal liability) under any multiemployer plan.
3.21 EMPLOYMENT AGREEMENTS. SCHEDULE 3.21 is a list of all employment
-------------
agreements, consulting agreements, collective bargaining agreements, and
agreements providing for director and officer indemnification or other
agreements or arrangements providing for employee or other remuneration,
severance payments or benefits to which Seller or any of its Affiliates is a
party or
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by which Seller or any of its Affiliates is bound (collectively, the "Employment
Agreements"). Purchaser will not have any duty, liability or obligation with
respect to any of the Employment Agreements. Except as set forth on SCHEDULE
--------
3.21, no Employees are represented by any labor organization.
- -----
3.22 LIABILITIES. Seller does not have any liabilities, obligations or
commitments of any nature, whether accrued, absolute, contingent or otherwise,
and whether due or to become due, except (i) liabilities which are adequately
disclosed or accrued against in the Balance Sheet Reports, (ii) liabilities
which have been incurred in the Ordinary Course of the Business since the
Measurement Date and in accordance with standard, customary and historical
practices and experiences of Seller, and (iii) liabilities expressly set forth,
as to the nature and amount thereof, on SCHEDULE 3.22. Purchaser shall not
-------------
incur any duty, liability or obligation with respect to any liabilities set
forth on SCHEDULE 3.22. In no event shall the Purchaser be liable for (or have
-------------
paid any) legal, accounting or other costs or expenses incurred by Seller in
connection with any of the transactions contemplated in this Agreement.
3.23 LITIGATION. Except as set forth on SCHEDULE 3.23, there is no
-------------
suit, action, arbitration or legal, administrative or other proceeding or
governmental investigation pending or threatened against or affecting Seller,
its Affiliates, the Assets, the Leased Assets or the Business.
3.24 TAX MATTERS. Seller has filed all tax returns that Seller was
required to file, and all such tax returns were correct and complete in all
respects. All taxes owed by Seller (whether or not shown on any tax return) have
been paid. Seller is not the beneficiary of any extension of time within which
to file any tax return, and Seller has not waived any statute of limitations in
respect of taxes or agreed to any extension of time with respect to a tax
assessment or deficiency. Seller has withheld and paid all taxes required to
have been withheld or paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, partner, or other third party.
Neither Seller nor any partner, director or officer (or employee responsible for
tax matters) of Seller has reason to believe that any authority might assess any
additional taxes for any period for which tax returns have been filed. There is
no dispute or claim concerning any tax liability of Seller either (i) claimed or
raised by any authority in writing or (ii) as to which Seller or any partner or
any employee responsible for tax matters has knowledge.
3.25 COMPLIANCE WITH LAWS. Seller has complied with, and is not in
violation of, applicable federal, state or local ordinances, statutes, laws,
rules, restrictions and regulations (including, without limitation, any
applicable Environmental, Health & Safety Laws) that affects, or is likely to
affect, directly or indirectly, the Business, the Assets, the Leased Assets, the
Real Property or the clients, suppliers or financial prospects of Seller. There
are not any uncured violations of federal, state or local laws, ordinances,
statutes, orders, rules, restrictions, regulations or requirements affecting any
portion of the Business, the Real Property, the Assets or the Leased Assets, and
neither any of the Assets, the Leased Assets or the Real Property, nor the
operation thereof nor the conduct of the Business, violates any applicable
federal, state or municipal laws, ordinances, orders, regulations or
requirements. Seller has not received notice of any past, present or future
event, condition, circumstance, activity, practice, incident, action
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or plan which may interfere with or prevent compliance or continued compliance
with the Environmental, Health & Safety Laws or which may give rise to any
common law or legal liability, or otherwise form the basis of any claim, action,
demand, lawsuit, proceeding, hearing, study or investigation, based on, related
to, or alleging any violation of the Environmental Health & Safety Laws.
3.26 FINANCIAL STATEMENTS. The Financial Statements (i) are true,
complete, and correct in all material respects, (ii) fairly and accurately
present the financial position of Seller as of the periods described therein,
and the results of the operations of Seller for the periods indicated, and (iii)
have been prepared consistently and in accordance with the Seller's historical
customs and practices.
3.27 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
SCHEDULE 3.27, since the Measurement Date:
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(A) there has been no: (i) material adverse change in the financial
condition, assets, liabilities, business or prospects of Seller; (ii) loss,
destruction or damage to any property of Seller, whether or not insured;
(iii) labor trouble, pending or threatened, involving Seller, or change in
the personnel of Seller or the terms or conditions of their employment or
other engagement; nor (iv) other event or condition of any character that
has or could have a material adverse effect on the financial condition,
business, liabilities, goodwill or prospects of the Business;
(B) Seller and its Affiliates have used their best efforts to
preserve the business organization of Seller intact, to maintain the
goodwill of the Business, to keep available to the Business the Employees
and the Independent Contractors, and to preserve the present relationships
of Seller with its suppliers, clients, regulatory authorities and others
having business relationships with it;
(C) Seller has maintained and operated the Business in the Ordinary
Course of Business and in accordance with industry practices and Seller's
historical policies;
(D) Seller has not issued or sold, nor directly or indirectly
redeemed or acquired, any of its securities;
(E) Seller has not declared, set aside nor paid a dividend or other
distribution, nor made any payment of any type to the holders of any equity
interest in Seller or any of its Affiliates, other than ordinary salary or
expenses which have been paid in the Ordinary Course of Business and fully
disclosed to Purchaser;
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<PAGE>
(F) Seller has neither waived nor released any material right of or
material claim held by it, nor discounted any of its receivables, nor
revalued any of its assets or liabilities;
(G) Seller has not acquired nor disposed of any assets having a
value of $5,000 individually or $15,000 in the aggregate, and has not
entered into any contract, commitment or arrangement therefor, and has not
entered into any other transaction, other than for value in the Ordinary
Course of Business and in accordance with industry practices;
(H) Seller has not changed the salary or other compensation payable
or to become payable by Seller to any of its partners, employees,
independent contractors, agents or other personnel, and has not declared,
made or committed to any kind of payment of a bonus or other additional
salary or compensation to any such person;
(I) Seller has not made a loan to any person or entity, and has not
guarantied any loan, in an amount in excess of $5,000 individually or
$15,000 in the aggregate;
(J) Seller has not amended nor terminated any material contract,
agreement, permit or license to which Seller is a party, or by which Seller
or any of the Assets or Leased Assets are bound;
(K) Seller has maintained all debt and lease instruments, and has
not entered into any new or amended debt or lease instruments;
(L) Seller has not entered into any agreement or instrument which
would constitute an encumbrance, mortgage or pledge of the Assets, or which
would bind Purchaser or the Assets after Closing, in an amount in excess of
$5,000 individually or $15,000 in the aggregate;
(M) Seller has provided to Purchaser any and all books, records,
contracts, and other documents or data pertaining to the ownership, use,
insurance, operation, renovation and maintenance of the Assets, the Leased
Assets and the Business;
(N) Seller has performed all of Seller's obligations under all
contracts and commitments applicable to Seller, the Assets and the Leased
Assets, and has maintained Seller's books of account and records in the
usual, regular and customary manner;
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<PAGE>
(O) Seller has complied with all statutes, laws, ordinances and
regulations applicable to Seller, the Assets, the Leased Assets and the
conduct of the Business;
(P) Seller has paid all bills and other payments due with respect to
the ownership, use, insurance, operation and maintenance of the Business,
the Assets and the Leased Assets, as and when such bills or other payments
were due, and has taken all action necessary or prudent to prevent liens or
other claims for the same from being filed or asserted against any part of
the Assets or the Leased Assets; provided however, Seller has not made any
expenditures outside the Ordinary Course of Business, nor any capital
expenditures, in excess of $5,000 individually or $15,000 in the aggregate;
(Q) Seller has not made any material changes in its management,
operations, accounting or business practices or methods (including without
limitation, any change in depreciation or amortization policies or rates);
and
(R) all revenues or cash or other receipts from all sources in all
media received by Seller have been deposited in Seller's account.
3.28 CLIENTS. SCHEDULE 3.28 to this Agreement is a true, complete and
-------------
correct list of all clients and customers of Seller, together with summaries of
the sales or services provided to each client during the one (1) year preceding
the Effective Date. Except as indicated in SCHEDULE 3.28, Seller does not have
-------------
any information, nor is it aware of any facts or circumstances, indicating that
any of these clients intend not to do business with Purchaser to the same volume
and extent, and on the same terms, as they have historically done business with
Seller.
3.29 INTERESTS IN CLIENTS, SUPPLIERS AND COMPETITORS. No partner or
employee (nor any former partner or employee) of Seller, nor to the best
knowledge and reasonable belief of Seller any relative of any of them, has any
direct or indirect interest in any competitor, supplier or client of Seller, nor
any person or other entity who has done business with Seller in the one (1) year
preceding the Closing Date.
3.30 PARTNERSHIP DOCUMENTS. Seller has furnished to Purchaser for its
examination (i) a true, complete and correct copy of Seller's partnership
agreement and all other written agreements between the partners of Seller, all
as amended to date; (ii) true, complete and correct copies of the contents of
the minute books of Seller (including proceedings of audit and other
committees), each of which contains all records for all proceedings, consents,
actions and meetings of the partners of Seller since its date of formation.
3.31 BULK SALE WARRANTY FOR SALES TAX PURPOSES. Prior to Closing, Seller
has never sold a substantial or significant part of its assets in any single
transaction or series of transactions. The transaction contemplated herein is
the sale of the entire operating assets of a business, and
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a sale outside the ordinary course of Seller's business, and therefor no sales
tax is due upon the Closing of the purchase of the Assets.
3.32 DISCLOSURE. Seller has provided to Purchaser actual copies of all
Contracts, documents concerning all litigation and administrative proceedings,
employee benefit plans, Licenses, insurance policies, lists of suppliers,
clients, employees and independent contractors, and corporate and partnership
records relating to Seller or its assets and liabilities, the Business and the
Real Property, and such information covers all material commitments and
liabilities of Seller. In addition, (i) Purchaser has been kept fully informed
with respect to all material developments in the business of Seller since the
Measurement Date, (ii) management of Seller has not made any material business
decisions, nor taken any material actions, since the Measurement Date of which
Purchaser has not been advised, and (iii) Purchaser and its agents have been
granted unlimited access to the books and records of Seller (whether retained
electronically, on disc or on paper).
3.33 FULL DISCLOSURE. This Agreement, the schedules and exhibits
hereto, and all other documents and written information furnished by Seller or
its Affiliates to Purchaser or its representatives pursuant hereto or in
connection herewith, are true, complete and correct, and do not include any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements made herein and therein not misleading. There are no
facts or circumstances relating to the Business or Seller's liabilities,
prospects, operations or financial condition, or the Assets, which materially
and adversely affect or, so far as the Seller can now reasonably foresee, will
materially and adversely affect, the Business, Seller or the assets,
liabilities, prospects, operations or financial condition thereof, or the
ability of the Seller to perform this Agreement or the obligations of Seller
hereunder.
ARTICLE IV
PURCHASER'S REPRESENTATIONS AND WARRANTIES
------------------------------------------
Purchaser represents and warrants that:
4.1 ORGANIZATION. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of California,
has all necessary corporate powers to own its properties and to operate its
business as now owned and operated by it, and is qualified to do business in all
of the states in which the ownership of its assets or the operation of its
business require such qualification.
4.2 AUTHORITY. Purchaser has the right, power, legal capacity,
and authority to execute, deliver and perform this Agreement, and no approvals
or consents of any persons or other entities are required to be obtained by
Purchaser in connection herewith which have not been obtained. The execution,
delivery and performance of this Agreement by Purchaser has been duly authorized
by Purchaser's Board of Directors.
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<PAGE>
4.3 CONSENTS AND APPROVALS; NO BREACH OR DEFAULT. No consent,
approval or authorization of, or filing or registration with, any governmental
or regulatory authority, or any other person or entity, is required to be made
or obtained by Purchaser in connection with the execution, delivery or
performance of this Agreement, or the consummation by Purchaser of the
transactions contemplated hereby, except for those which have been made or
obtained. Neither the execution and delivery of this Agreement by Purchaser,
nor the consummation of the transactions contemplated herein by Purchaser, will
(A) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency or court to which Purchaser is subject, or (B) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify
or cancel, or require any notice under any agreement, contract, lease, license,
instrument, promissory note, conditional sales contract, partnership agreement
or other arrangement to which Purchaser is a party, or by which Purchaser is
bound, or (C) conflict with or violate the Articles of Incorporation, Bylaws or
other charter document of Purchaser.
4.4 VALID AND BINDING OBLIGATION. Upon execution and delivery,
this Agreement and each document, instrument or agreement to be executed by
Purchaser in connection herewith will constitute the legal, valid, and binding
obligation of Purchaser, enforceable against Purchaser in accordance with its
terms, except as same may be limited by applicable bankruptcy laws, insolvency
laws, or other similar laws affecting the rights of creditors generally.
ARTICLE V
SELLER'S CLOSING AND POST-CLOSING
---------------------------------
WARRANTIES, COVENANTS AND AGREEMENTS
------------------------------------
5.1 TAXES. Seller has paid, and shall pay when due, or contest in
good faith, and shall be responsible for paying, all federal, state, and local
taxes and charges of any kind whatsoever related thereto, which relate to or
arise from the period on or prior to the Effective Date, whether such taxes and
charges shall be due and payable before or after the Effective Date. All state
and local taxes relating to the ownership of the Assets shall be prorated as of
the Effective Date.
5.2 LIENS ON ASSETS. On the Closing Date, all liens, security
interests or encumbrances of any nature on or affecting the Assets shall be
fully removed and discharged at the sole cost and expense of Seller.
5.3 INSURANCE. Seller shall assist, and shall cause its Affiliates
to assist, Purchaser in transferring to Purchaser any insurance applicable to
the Assets or the Leased Assets which Purchaser elects to maintain in effect.
5.4 HIRING OF EMPLOYEES; ENGAGEMENT OF INDEPENDENT CONTRACTORS. As
of the Closing Date, Seller shall permit Purchaser to offer employment to all of
the Employees. At
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or prior to Closing, Seller has paid or shall pay to the Employees and the
Independent Contractors all compensation and benefits to which they are entitled
by reason of their previous employment or engagement by Seller on such date, and
Purchaser shall have no liability with respect thereto. Seller shall use
Seller's best efforts to assist Purchaser in any reasonable manner in the hiring
by Purchaser of the Employees that Purchaser desires to hire, and in the
engagement by Purchaser of any of the Independent Contractors which it wishes to
engage. Purchaser shall have the right, but not the obligation, to offer
employment to such Employees as it desires to hire in its sole discretion.
Seller shall be solely responsible and liable for all severance pay, if any, to
the extent that any of the Employees are not offered employment with Purchaser
or do not accept an offer of employment. Under no circumstances shall the Seller
or any of Seller's Affiliates be permitted to employ or offer employment to any
of the Employees to whom Purchaser has offered employment, nor to engage any of
the Independent Contractors, for a period of two (2) years after the Closing
Date, without the prior written consent of Purchaser.
5.5 CONSENTS. Seller shall deliver to Purchaser at Closing all
necessary agreements and consents of any parties, including without limitation
all of Seller's vendors, lessors and creditors, to the consummation of the
transactions contemplated by this Agreement, or otherwise pertaining to the
matters covered by this Agreement.
5.6 CONFIDENTIALITY. Seller will not, and will not permit any of its
Affiliates to, disclose any information of a confidential or proprietary nature
concerning the Assets or the Business to any third parties, and in no event
shall Seller use, or allow any of its Affiliates to use, such confidential or
proprietary information for its or his own benefit or to the detriment of
Purchaser or the Business. No public or private announcement shall be made of
the transactions contemplated herein, nor the terms hereof, by Seller or any of
its affiliates, without the prior written approval of Purchaser as to timing,
form and content.
5.7 RECORD RETENTION. Seller acknowledges and agrees that from and
after the Closing, the Purchaser will be entitled to possession of all
documents, books, records, agreements, and financial data of any sort relating
to the Business.
5.8 BROKERS. On the Closing Date, Seller shall pay any and all
brokerage or finders fees or commissions for which Seller is liable in
connection with the consummation of the transactions contemplated by this
Agreement.
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ARTICLE VI
THE CLOSING
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6.1 TIME AND PLACE. Payment of the Purchase Price required to be
made by Purchaser to Seller at the Closing Date, and the transfer of the Assets
by the Seller to Purchaser, and the other transactions contemplated hereby (the
"Closing") shall take place at the offices of Boyer, Ewing & Harris
Incorporated, Nine Greenway Plaza, Suite 3100, Houston, Texas 77046, at or about
11:00 a.m., local time, on the Closing Date.
6.2 SELLER'S DELIVERIES. At Closing, Seller shall deliver or cause
to be delivered to Purchaser in form and content reasonably acceptable to the
Parties and their counsel:
(a) Two (2) counterparts of a Bill of Sale, Assignment and Assumption
Agreement (the "Bill of Sale"), executed by Seller, together with such
other instruments of assignment and transfer or bills of sale or otherwise
as Purchaser shall reasonably request;
(b) Two (2) counterparts of a Confidentiality and Noncompetition Agreement
between the Purchaser and Jay W. Harbidge, executed by Mr. Harbidge (the
"Harbidge Noncompetition Agreement");
(c) Two (2) counterparts of a Confidentiality and Noncompetition Agreement
between the Purchaser and Rick Posner, executed by Mr. Posner (the "Posner
Noncompetition Agreement");
(d) From counsel to the Seller, an opinion in form and substance
acceptable to Purchaser, addressed to the Purchaser, and dated as of the
Closing Date containing such opinions, assumptions and qualifications as
may be reasonably acceptable to Purchaser's legal counsel;
(e) Two (2) counterparts of a Shareholders' Agreement with LRA-Texas
executed by Mr. Harbidge and Mr. Posner in a form similar to those
previously entered into by similarly situated shareholders of LRA-Texas
(the "Shareholders' Agreement);
(f) Two (2) counterparts of a Registration Rights Agreement executed by
Mr. Harbidge and Mr. Posner in a form similar to those previously entered
into by similarly situated shareholders of LRA-Texas (the "Registration
Rights Agreement");
(g) Certified resolutions adopted by all of the partners of the Seller,
authorizing the execution, delivery and performance of this Agreement and
all documents, instruments and agreements contemplated herein to be
executed by the Seller;
(h) Two (2) counterparts of a Preferred Stock Subordination Agreement in
form and content reasonably acceptable to Seller, LRA-Texas and the senior
lender for LRA-Texas, executed by Mr. Harbidge and Mr. Posner (the "TCB
Preferred Stock Subordination Agreement");
(i) Two (2) counterparts of a Preferred Stock Subordination Agreement in
form and content reasonably acceptable to Mr. Harbidge and Mr. Posner, LRA-
Texas and the senior subordinated lender for LRA-Texas, executed by the
Seller and/or any other parties to whom the Preferred Stock is to be issued
at Closing (the "Pecks Preferred Stock Subordination Agreement");
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(j) Two (2) counterparts of a Guaranty of Performance executed by Mr.
Harbidge, pursuant to which Mr. Harbidge guarantees the truth, completeness
and accuracy of the Seller's representations and warranties, and the
performance of the Seller's covenants, agreements and obligations hereunder
(the "Harbidge Guaranty");
(k) Two (2) counterparts of a Guaranty of Performance executed by Mr.
Posner, pursuant to which Mr. Posner guarantees the truth, completeness and
accuracy of the Seller's representations and warranties, and the
performance of the Seller's covenants, agreements and obligations hereunder
(the "Posner Guaranty");
(l) Two (2) counterparts of a Stock Pledge Agreement executed by Mr.
Harbidge pursuant to which Mr. Harbidge pledges the stock of LRA-Texas
received under this Agreement, to secure performance of his obligations
hereunder, and the performance of Mr. Harbidge and Mr. Posner under the
Harbidge Guaranty and the Posner Guaranty, respectively (the "Harbidge
Stock Pledge);
(m) Two (2) counterparts of a Stock Pledge Agreement executed by Mr.
Posner pursuant to which Mr. Posner pledges the stock of LRA-Texas received
under this Agreement, to secure performance of his obligations hereunder,
and the performance of Mr. Posner and Mr. Harbidge under the Posner
Guaranty and the Harbidge Guaranty, respectively (the "Posner Stock
Pledge");
(n) UCC-3 Termination Statements or other appropriate releases, duly
executed by the appropriate secured party or parties, with respect to any
liens, security interests, pledges or encumbrances affecting the Assets;
(o) Investor Representation Letters in form and content reasonably
acceptable to Seller and Purchaser, duly executed by the Seller, Mr.
Harbidge, Mr. Posner and/or any other parties to whom any Preferred Stock
or Common Stock is to be issued at Closing;
(p) Such consents, waivers, estoppel letters or similar documentation as
Purchaser shall request, in Purchaser's sole discretion, in connection with
the transfer of the Assets;
(q) Any tax certificates required to be delivered as set forth in SECTION
2.5 of this Agreement;
(r) Originals of all insurance policies which Purchaser elects to continue
in force, if any, together with appropriate assignments thereof;
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<PAGE>
(s) A current certificate, issued by a company acceptable to Purchaser,
certifying that no Uniform Commercial Code filings, chattel mortgages,
assignments, pledges or other encumbrances have been created or filed in
any jurisdiction in which Seller does business, other than those for which
Seller has produced executed Termination Statements or other appropriate
releases, duly executed by the appropriate secured party or parties; and
(t) All other items required to be delivered hereunder or as may be
requested which are necessary or would reasonably facilitate consummation
of the transactions contemplated hereby.
In addition, Seller will put Purchaser into full and peaceful possession and
enjoyment of the Assets and the Leased Assets immediately upon the occurrence of
the Closing.
6.3 PURCHASER'S OBLIGATIONS. At the Closing, Purchaser shall
deliver or cause to be delivered to Seller, or other designated Affiliate of the
Seller, as appropriate, in form and content reasonably acceptable to the Parties
and their counsel the following:
(a) Certified checks or wire transfers of funds payable to Seller in
payment of the cash portion of the Purchase Price in the aggregate amount
of Five Hundred Five Thousand Six Hundred Ninety-Four Thousand and No/100
Dollars ($505,694.00), as contemplated by SECTION 2.2(A) hereof;
(b) Stock Certificates of LRA-Texas evidencing the issuance to Mr.
Harbidge and Mr. Posner of fifteen thousand three hundred four (15,304)
shares, each, of Common Stock, as contemplated by SECTION 2.2(B) hereof;
(c) Stock Certificates of LRA-Texas issued to Seller evidencing the
issuance to Mr. Harbidge and Mr. Posner of one hundred fifteen thousand
six hundred twenty-five (115,625) shares, each, of Preferred Stock, as
contemplated by SECTION 2.2(C) hereof;
(d) Two (2) counterparts of the Bill of Sale, executed by Purchaser;
(e) Two (2) counterparts of the TCB Preferred Stock Subordination
Agreement, executed by LRA-Texas and the senior lender for LRA-Texas;
(f) Two (2) counterparts of the Pecks Preferred Stock Subordination
Agreement, executed by LRA-Texas and the senior subordinated lender for
LRA-Texas;
(g) Two (2) counterparts of the Harbidge Noncompetition Agreement,
executed by Purchaser;
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(h) Two (2) counterparts of the Posner Noncompetition Agreement, executed
by Purchaser;
(i) Two (2) counterparts of the Company Stock Pledge, executed by
Purchaser;
(j) Two (2) counterparts of the Shareholders' Agreement, executed by LRA-
Texas;
(k) Two (2) counterparts of the Registration Rights Agreement executed by
LRA-Texas;
(l) From counsel to Purchaser, an opinion in form and substance acceptable
to Seller, addressed to the Seller, and dated as of the Closing Date
containing such opinions, assumptions and qualifications as may be
reasonably acceptable to Seller's legal counsel;
(m) Certified resolutions of the Board of Directors of Purchaser,
authorizing the execution, delivery and performance of this Agreement and
all documents, instruments and agreements contemplated herein to be
executed by the Purchaser;
(n) Certified resolutions of the Board of Directors of LRA-Texas,
authorizing the execution, delivery and performance of all documents,
instruments, agreements or obligations to be delivered or performed by LRA-
Texas; and
(o) All other items required to be delivered hereunder or as may be
requested or which are necessary or would reasonably facilitate
consummation of the transactions contemplated hereby.
6.4 NAME CHANGE AND REQUALIFICATION DOCUMENTS. At or prior to the
Closing, the Seller will execute, deliver and file, or cause to be executed,
delivered and filed, all necessary or reasonably requested amendments to
Seller's partnership agreement, and such other documents as may be required to
change Seller's name from "San Francisco Reporting Service" to
"___________________________________________." In addition, Seller shall
concurrently afford an Affiliate of Purchaser the opportunity to incorporate or
to change its corporate name to "San Francisco Reporting Service" or any name
substantially similar thereto, or to file such assumed name certificates as
Purchaser deems reasonable, necessary or appropriate. In addition, at or prior
to Closing, Seller and its Affiliates shall execute and deliver such
assignments, terminations and cancellations of assumed and trade names as
Purchaser may request. Seller shall coordinate all filings relating to the use
of Seller's name or names with any filings that Purchaser may desire to make in
order to effect such name change or otherwise protect such name.
6.5 INSURANCE, AD VALOREM TAXES, INCOME TAXES. The Parties
acknowledge and agree that all insurance premium payments that have been prepaid
by Seller constitute part of the Assets and are being acquired by Purchaser at
Closing. Purchaser shall be entitled to continue such insurance coverage as
Purchaser may elect, and to receive a refund of all insurance
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premiums with respect to which Purchaser elects not to continue coverage. Ad
valorem, intangible or similar taxes on the Assets for the 1997 tax year shall
be prorated as of the Effective Date. The Parties for themselves and for their
respective successors and assigns covenant and agree that they will file
coordinating Form 8594's in accordance with Section 1060 of the Internal Revenue
Code of 1986, as amended, with their respective income tax returns for the
taxable year that includes the Closing Date. Seller shall pay or cause to be
paid all federal and state income, franchise, and net worth tax returns with
respect to the Business or the Assets allocable to the time period on or before
the Effective Date.
6.6 FURTHER ASSURANCES. At and after the Closing, each of the
Parties shall take or cause to be taken all appropriate action, and execute and
deliver or cause to be executed and delivered all documents of any kind, which
may be reasonably necessary or desirable to carry out the transactions
contemplated hereby. Seller, at any time at or after the Closing, will execute,
acknowledge and deliver any further bills of sale, assignments and other
assurances, documents and instruments of transfer reasonably requested by
Purchaser, and will take any other action consistent with the terms of this
Agreement that may reasonably be requested by Purchaser, for the purpose of
assigning and confirming to Purchaser all of the Assets. Purchaser and Seller
each agree to notify the other promptly, and in no event more than ten (10)
business days after receipt, of any tax, environmental or employee benefit
inquiries or notifications relating to the Assets or the Business or the Assets
with respect to any period prior to the Closing Date, and Seller shall assist
Purchaser in any manner reasonably requested in preparing and delivering such
responses to such inquiries as Purchaser deems necessary or appropriate.
6.7 LIABILITIES CONCERNING SALES OF PRODUCTS AND SERVICES. Seller
shall be and remain solely liable for the sale of all products and services sold
through and including the Effective Date, and shall indemnify Purchaser from any
and all Damages arising therefrom, as defined in ARTICLE VII hereof, in the
manner described in ARTICLE VII. Purchaser shall be liable for the sale of all
products and services after the Effective Date, and shall indemnify Seller from
any and all Damages arising therefrom in the manner described in ARTICLE VII
hereof.
6.8 COLLECTION OF ACCOUNTS RECEIVABLE. The Seller's accounts
receivable are included within the Assets. All payments received on or after
the Effective Date shall be and become the exclusive property of Purchaser, and
shall be delivered immediately to Purchaser in the form received.
ARTICLE VII
INDEMNIFICATION, ADJUSTMENT TO
PURCHASE PRICE AND OTHER REMEDIES
---------------------------------
7.1 INDEMNIFICATION.
A. BY SELLER. Seller shall indemnify, save, defend and hold
harmless Purchaser, LRA-Texas and their respective shareholders, directors,
officers, agents and employees (collectively, the "Purchaser Indemnified
Parties") from and against any and all costs, lawsuits,
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losses, liabilities, deficiencies, claims and expenses, including interest,
penalties, attorneys' fees and all amounts paid in investigation, defense or
settlement of any of the foregoing (collectively referred to herein as
"Damages"), (i) incurred in connection with or arising out of or resulting from
or incident to any breach of any covenant or warranty, or the inaccuracy of any
representation, made by Seller in or pursuant to this Agreement or any other
agreement contemplated hereby or in any schedule, certificate, exhibit, or other
instrument furnished or to be furnished by Seller or its Affiliates under this
Agreement, or (ii) based upon, arising out of, or otherwise in respect of any
liability or obligation of the Business or relating to the Assets (a) relating
to any period prior to or as of the Effective Date, other than those Damages
incurred by Purchaser in performing any of the Liabilities assumed by Purchaser
with respect to which Seller was not in default as of the Closing Date, (b)
arising out of facts or circumstances existing prior to or as of the Effective
Date, other than those Damages incurred by Purchaser in performing any of the
Liabilities assumed by Purchaser with respect to which Seller was not in default
as of the Closing Date, or (c) relating to any period after the Effective Date
or arising out of facts or circumstances existing after the Effective Date which
constitute a breach or violation of this Agreement by Seller; provided, however,
that Seller shall not be liable for any such Damages to the extent, if any, such
Damages result from or arise out of a breach or violation of this Agreement by
any Purchaser Indemnified Parties, or (iii) arising out of or resulting from or
incident to Purchaser's and Seller's election not to comply with the applicable
bulk sales laws of the State of California.
B. BY PURCHASER. Purchaser shall indemnify, save,
defend and hold harmless Seller and Seller's shareholders, directors, officers,
agents and employees (collectively, the "Seller Indemnified Parties") from and
against any and all Damages (i) incurred in connection with or arising out of or
resulting from or incident to any breach of any covenant or warranty, or the
inaccuracy of any representation, made by Purchaser in or pursuant to this
Agreement or any other agreement contemplated hereby or in any schedule,
certificate, exhibit, or other instrument furnished or to be furnished by
Purchaser under this Agreement, or (ii) based upon, arising out of or otherwise
in respect of any liability or obligation of the Business or relating to the
Assets (a) arising out of facts or circumstances occurring after the Closing
Date, or (b) arising out of the Liabilities assumed by the Purchaser; provided,
however, that Purchaser shall not be liable for any such Damages if such Damages
result from or arise out of a breach or violation of this Agreement by any
Seller Indemnified Parties.
C. DEFENSE OF CLAIMS. If any lawsuit or enforcement
action is filed against any Purchaser Indemnified Party or any Seller
Indemnified Party (hereinafter referred to as an "Indemnified Party"), written
notice thereof describing such lawsuit or enforcement action in reasonable
detail and indicating the amount or good faith estimate of the reasonably
foreseeable estimated amount of Damages (which estimate shall in no way limit
the amount of indemnification to which the Indemnified Party is entitled
hereunder), shall be given to the indemnifying Party as promptly as practicable
(and in any event within ten days after the service of the citation or summons);
provided that the failure of any Indemnified Party to give timely notice shall
not affect such Indemnified Party's rights to indemnification hereunder to the
extent that the Indemnified Party demonstrates that the amount the Indemnified
Party is entitled to recover exceeds the actual
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<PAGE>
damages to the indemnifying Party caused by such failure to so notify within ten
days. After such notice, if the indemnifying Party elects to compromise or
defend any such asserted liability and to perform its obligations under this
SECTION 7.1, then the indemnifying Party shall be entitled, if it so elects, to
take control of the defense and investigation of such lawsuit or action and to
employ and engage attorneys of its own choice to handle and defend the same, at
the indemnifying Party's sole cost, risk and expense, and such Indemnified Party
shall cooperate in all reasonable respects, at the indemnifying Party's sole
cost, risk and expense, with the indemnifying Party and such attorneys in the
investigation, trial, and defense of such lawsuit or action and any appeal
arising therefrom; provided, however, that the Indemnified Party may, at its own
cost, risk and expense, participate in such investigation, trial and defense of
such lawsuit or action and any appeal arising therefrom. If the indemnifying
Party promptly notifies the Indemnified Party that it intends to defend the
claim and to perform its obligations under this SECTION 7.1, the Indemnified
Party shall not pay, settle or compromise such claim without the indemnifying
Party's consent, which consent shall not be unreasonably withheld. If the
indemnifying Party elects not to defend the claim of the Indemnified Party, the
Indemnified Party may, but shall not be obligated to, defend, or the Indemnified
Party may compromise or settle (exercising reasonable business judgment) the
claim or other matter on behalf, for the account, and at the risk, of the
indemnifying Party.
D. THIRD PARTY CLAIMS. The provisions of this SECTION
7.1 are not limited to matters asserted by the Parties, but cover costs, losses,
liabilities, damages, lawsuits, claims and expenses incurred in connection with
third party claims. The indemnity hereunder is in addition to any and all rights
and remedies of the Parties in connection herewith.
7.2 POST-CLOSING ADJUSTMENT TO PURCHASE PRICE. Within thirty (30) days
after the Closing Date, Seller shall deliver to Purchaser an unaudited Balance
Sheet Report and an income statement of the Business, prepared as of the
Effective Date (the "Post-Closing Financial Statements"), which shall be true,
complete and correct in all respects and prepared in accordance with the
Company's historical policies and procedures, consistently applied, and
certified as true, complete and correct by Seller, Mr. Harbidge and Mr. Posner.
These Post-Closing Financial Statements shall become final and binding on the
Parties on the 15th day following receipt thereof by Purchaser unless Purchaser
furnishes written notice of Purchaser's disagreement ("Notice of Disagreement")
to Seller prior to such date. Any Notice of Disagreement shall specify in
detail the nature of any disagreement so asserted. If a Notice of Disagreement
is sent by Purchaser to Seller in accordance with this SECTION 7.2, then the
Post-Closing Financial Statements shall become final and binding upon the
Parties on the earlier to occur of: (i) the date the Parties resolve in writing
any differences they have with respect to any matter specified in the Notice of
Disagreement, or (ii) the date any disputed matters are finally resolved in
writing by the Arbitrator (as defined below). During the 10-day period
following the delivery of a Notice of Disagreement, the Parties shall seek in
good faith to resolve in writing any differences which they may have with
respect to any matter specified in the Notice of Disagreement. If, at the end
of such 10-day period (or such longer period of time as the Parties may agree
upon in writing), the Parties have not reached agreement on such matters, the
matters which remain in dispute, together with copies of this Agreement, the
Post-Closing Financial Statements, and the Notice of Disagreement, shall be
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submitted, within five (5) days following the expiration of such 10-day period
(or any agreed upon extension thereof), to an arbitrator (the "Arbitrator") for
review and resolution. The Arbitrator shall be such nationally recognized
independent public accounting firm as shall be agreed upon by the Parties in
writing, and all proceedings conducted by the Arbitrator shall be conducted at
the offices of the Arbitrator in San Francisco, California. The Arbitrator
shall render a decision resolving the matters in dispute as soon as practicable
following the date of the submission to the Arbitrator. The cost of any
arbitration (including the fees of the Arbitrator but excluding the fees and
disbursements of each party's independent auditors and counsel) pursuant to this
SECTION 7.2 shall be borne one-half by Purchaser and one-half by Seller. The
fees and disbursements of Seller's independent auditors and counsel incurred in
connection with this SECTION 7.2 shall be borne by Seller, and the fees and
disbursements of Purchaser's independent auditors and counsel incurred in
connection with this SECTION 7.2 shall be borne by Purchaser. The final
determination as described in the procedures set forth hereinabove shall
constitute the "Final Post-Closing Financial Statements". To the extent that
the net worth of Seller, as set forth in the Final Post-Closing Financial
Statements, is less than or greater than Twenty-Seven Thousand Two Hundred
Twenty-Four Dollars ($27,224), then the Purchase Price shall be decreased by the
amount of any deficiency, or increased by the amount of any excess. Any
decrease in the Purchase Price shall be effected by Seller immediately refunding
to Purchaser, in cash or by certified or cashier's check or other immediately
available funds, the amount of such decrease. Any increase in the Purchase
Price shall be effected by Purchaser immediately delivering to Seller, in cash
or by certified or cashier's check or other immediately available funds, the
amount of such increase.
7.3 SPECIFIC PERFORMANCE. Each of the Parties hereby acknowledges and
agrees that the transactions contemplated by this Agreement are unique, and that
it would be impossible to measure the damages which would result if either Party
should default in such Party's obligations under this Agreement; accordingly the
Parties hereby agree that each Party shall have, in addition to any other legal
or equitable remedy available to such Party, the right to enforce this Agreement
by decree of specific performance or other equitable remedy, and each Party
hereby irrevocably waives any defense, claim or assertion that a remedy in
damages will be adequate.
7.4 OFFSET; ATTORNEYS' FEES. To the extent permitted by applicable law,
all amounts due and owing to Seller or any Affiliate of Seller under this
Agreement or any document, instrument, or agreement executed in connection
herewith or therewith, or with respect to the Preferred Stock or the Common
Stock, shall be subject to offset by the Purchaser and/or LRA-Texas to the
extent of any damages incurred as a result of the breach by Seller or any
Affiliate of Seller of this Agreement or any document, instrument, or agreement
executed by Seller or any Affiliate of Seller in connection herewith. Seller
hereby acknowledges and agrees that but for the right of offset contained in
this SECTION 7.4, the Purchaser would not have entered into this Agreement or
any of the transactions contemplated herein. If any legal action or other
proceeding is brought for the enforcement of this Agreement, or because of an
alleged dispute, breach, default or misrepresentation in connection with any of
the provisions of this Agreement, the successful or prevailing Party or Parties
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in that action or proceeding in addition to any other remedies to which such
Party or
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Parties may be entitled at law or equity. The rights and remedies granted herein
are cumulative and not exclusive of any other right or remedy granted herein or
provided by law.
7.5 RIGHTS AND LIABILITIES OF PARTIES. Except as set forth in SECTION
7.1 with respect to certain indemnified third parties, and in Section 7.4 with
respect to offset rights granted to LRA-Texas, nothing in this Agreement,
whether express or implied, is intended to confer any rights or remedies under
or by reason of this Agreement on any persons other than the Parties and their
respective successors and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third persons to any
Party to this Agreement, nor shall any provision give any third person any right
of subrogation or action over against any Party to this Agreement.
7.6 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements contained in this
Agreement shall survive the Closing of the transaction contemplated herein and
the execution and delivery of the documents, instruments and agreements executed
or delivered at Closing, notwithstanding any investigation made by or on behalf
of Seller or Purchaser.
ARTICLE VIII
MISCELLANEOUS
-------------
8.1 BROKERAGE COMMISSIONS AND OTHER FEES. Seller hereby represents
and warrants that Seller has not incurred any liability for, and does not know
of any person or entity entitled to, any commission or finder's fee or similar
fee in connection with this Agreement or the transactions contemplated herein.
Purchaser hereby represents and warrants that Purchaser has not incurred any
liability for, and does not know of any person or entity entitled to, any
commission or finders fee or similar fee in connection with this Agreement or
the transactions contemplated herein. Except as expressly set forth herein to
the contrary, each Party shall be responsible for all costs, fees and expenses
(including attorney and accountant fees and expenses) paid or incurred by such
Party in connection with the preparation, negotiation, execution, delivery and
performance of this Agreement, or otherwise in connection with the transaction
contemplated hereby.
8.2 ATTORNEYS' FEES. If any legal action or other proceeding is
brought for the enforcement of this Agreement, or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions of
this Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or proceeding
in addition to any other remedies to which it may be entitled at law or equity.
8.3 MODIFICATION OF AGREEMENT . This Agreement may be amended or
modified only by written instrument signed by both of the Parties.
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8.4 NOTICES. All notices, consents, demands or other communications
required or permitted to be given pursuant to this Agreement shall be deemed
sufficiently given when delivered personally or telefaxed during regular
business hours during a business day to the appropriate location described
below, or three (3) business days after posting thereof by United States first-
class, registered or certified mail, return receipt requested, with postage and
fees prepaid and addressed as follows:
<TABLE>
<S> <C>
IF TO PURCHASER: Litigation Resources of America-California, Inc.
1001 Fannin, Suite 650
Houston, Texas 77002
Attn: Mr. Richard O. Looney
With copy to: Boyer, Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Attn: Mr. David A. Jones, Jr.
IF TO SELLER: /s/ J. W. Harbidge
-----------------------------------------------
f/k/a San Francisco Reporting Service
#5 Third St. Ste 815
-----------------------------------------------
SF, CA. 94103
-----------------------------------------------
Attn:
------------------------------------------
with copy to: RICK POSNER
-----------------------------------------------
SEPS
-----------------------------------------------
</TABLE>
Either Party may designate a different address for notices or communications by
furnishing notice to the other Party in the manner described above.
8.5 CONSTRUCTION. The Parties and their respective legal counsel have
participated extensively in the preparation, negotiation and drafting of this
Agreement. Accordingly, no presumption will apply in favor of either Purchaser
or Seller in the interpretation of this Agreement or in the resolution of the
ambiguity of any provision hereof. All words used herein shall be construed to
be of such gender or number as the circumstances require. As used herein the
term "this Agreement" shall mean this Agreement as a whole and as the same may,
from time to time hereafter, be amended, supplemented or modified. The words
"herein," "hereof," "hereto," "hereunder," "hereinafter," "hereinabove," and
"hereinbelow," and other words of similar import, refer to this Agreement as a
whole and not to any particular article, section, paragraph, clause or other
subdivision hereof, unless otherwise specifically noted. As used herein, the
words "include" or "including" shall mean "including without limitation. "
8.6 HEADINGS. The headings and subheadings of the Articles and
Sections contained herein or on any Schedule or Exhibit attached hereto are for
convenience of reference
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only and shall not affect the meaning or interpretation of this Agreement or any
provisions hereof. Any reference herein to an Article or Section shall be deemed
to be a reference to the corresponding Article or Section of this Agreement
unless otherwise stated herein.
8.7 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective, valid and
enforceable under applicable law, but if any provision of this Agreement shall
be prohibited by, or invalid or unenforceable under, applicable law, then (i)
the Parties agree that they will amend such provision by the minimal amount
necessary to bring such provision within the ambit of enforceability, and (ii)
the court may, at the request of either Party, revise, reform or reconstruct
such provision in a manner sufficient to cause it to be enforceable. In no
event shall any prohibition against, or the invalidity or unenforceability of,
any provision hereof affect the validity or enforceability of any other
provision hereof.
8.8 ENTIRE AGREEMENT; BINDING EFFECT. This Agreement and the
documents, instruments and agreements executed in connection herewith set forth
the entire agreement between the Parties with respect to the subject matter
hereof and thereof. This Agreement shall be binding upon and shall inure to the
benefit of the Parties and their respective successors and assigns.
8.9 NON-WAIVER. Failure on the part of a Party in any one or more
instances to enforce any of its rights which arise in connection with this
Agreement, or to insist upon the strict performance of any of the terms,
conditions or covenants of this Agreement, shall not be construed as a waiver or
relinquishment for the future of any such rights, terms, conditions or
covenants. No waiver of any condition of this Agreement shall be valid unless it
is in writing, and executed by the Party against whom such waiver is sought to
be enforced. Any valid waiver shall be effective only for the purposes
expressly set forth therein.
8.10 GOVERNING LAW; JURISDICTION; VENUE; SERVICE. This Agreement
shall be construed and enforced in accordance with and governed by the laws of
the State of California, without regard to conflicts of law principles, and the
laws of the United States applicable in California. Venue for any litigation
between the Parties hereto with respect to the subject matter of this Agreement
shall be San Francisco, California. Each Party hereby irrevocably submits to
personal jurisdiction in California. Each Party hereby waives all objections to
personal jurisdiction in California and venue in San Francisco County for
purposes of such litigation. Each Party waives summons or citation and agrees
that delivery of a duly filed complaint or petition as provided in the notice
section of this Agreement will suffice as substitute service of summons or
citation.
8.11 ASSIGNMENT. Neither Party shall assign this Agreement or any
interest herein without the prior written consent of the other Party. Any
attempted assignment by a Party of such Party's rights or obligations without
such consent shall be null and void.
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8.12 SCHEDULES. All of the schedules attached to this Agreement are
hereby incorporated in and made a part of this Agreement.
8.13 FURTHER ASSURANCES. Each of the Parties shall perform such
actions and deliver or cause to be delivered any and all such documents,
instruments and agreements as the other Party may reasonably request for the
purpose of fully and effectively carrying out this Agreement and the
transactions contemplated hereby.
8.14 SURVIVAL. This Agreement, including but not limited to all
covenants, warranties, representations and indemnities contained herein, shall
survive the Closing and the delivery of the Bill of Sale, the Harbidge
Noncompetition Agreement, the Posner Noncompetition Agreement, the Harbidge
Guaranty, the Posner Guaranty, the Shareholders' Agreement, and all other
documents, instruments or agreements relating to the Assets and the transactions
contemplated herein, and shall not be deemed merged therein.
8.15 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall have the force and effect of an original, and
all of which together shall constitute one and the same agreement.
EXECUTED AND DELIVERED in multiple counterparts the ________ day of
May, 1997, to be effective as of the date first written above.
PURCHASER:
----------
LITIGATION RESOURCES OF AMERICA-CALIFORNIA, INC.,
a California corporation
By: /s/ Richard O. Looney
-----------------------------------------------
Richard O. Looney,
President & Chief Executive Officer
SELLER:
-------
SAN FRANCISCO REPORTING SERVICE,
a California general partnership
By: /s/ Jay W. Harbidge
-----------------------------------------------
Jay W. Harbidge,
General Partner
By: /s/ Rick Posner
-----------------------------------------------
Rick Posner,
General Partner
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Jay W. Harbidge and Rick Posner, in their individual capacities, join
in the execution hereof in order to evidence their acknowledgment of, and their
consent and agreement to, the offset provisions contained in SECTION 7.4 hereof.
/s/ Jay W. Harbidge
---------------------------------------
Jay W. Harbidge, Individually
/s/ Rick Posner
---------------------------------------
Rick Posner, Individually
<TABLE>
<CAPTION>
Schedules
- ------------
<S> <C> <C>
2.1 - Excluded Assets
2.4 - Allocation of Purchase Price
3.3(A) - Consents and Approvals
3.3(B) - Breaches or Defaults
3.5 - Exceptions to Title
3.6 - Leased Personal Property
3.8 - Contracts
3.9 - Equipment
3.12 - Licenses
3.13 - Intellectual Property
3.14(A) - Owned Real Property
3.14(B) - Leased Real Property
3.16 - Insurance Policies
3.17 - Banking
3.19(A) - Employees
3.19(B) - Independent Contractors
3.20 - Employee Benefit Plans
3.21 - Employment Agreements
3.22 - Liabilities
3.23 - Litigation
3.27 - Certain Changes or Events
3.28 - Clients
</TABLE>
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EXHIBIT 10.9
AGREEMENT OF PURCHASE AND SALE OF ASSETS
----------------------------------------
This Agreement of Purchase and Sale of Assets (this "Agreement") is entered
into and effective as of May 19, 1997 by and among LITIGATION RESOURCES OF
AMERICA-CALIFORNIA, INC., a California corporation (the "Buyer"), LITIGATION
RESOURCES OF AMERICA, INC., a Texas corporation and the parent of Buyer (the
"Parent"), PETER GIAMMANCO and LESLIE GIAMMANCO, individuals who are husband and
wife residing in the State of California doing business as G & G COURT REPORTERS
(the "Giammancos") and PETER GIAMMANCO and LESLIE GIAMMANCO, Trustees of the
GIAMMANCO FAMILY TRUST established under Declaration of Trust dated August 21,
1996 governed by the law of the State of California, also doing business as G &
G COURT REPORTERS (the "Trust") (the Giammancos and the Trust are herein
collectively referred to as "Seller"). Buyer, Parent and Seller are hereinafter
sometimes referred to collectively as the "Parties" or singularly as a "Party."
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Seller is the owner of various assets associated with the
Business (as hereinafter defined);
WHEREAS, the Buyer desires to purchase all of the Assets (as hereinafter
defined) owned by the Seller and used in the Business, and the Seller desires to
sell such Assets to the Buyer;
WHEREAS, in connection with the purchase and sale of the Assets, the
Parties desire to set forth in this Agreement the terms and conditions with
respect to the transfer of such Assets;
NOW, THEREFORE, for and in consideration of the mutual covenants,
agreements, representations and warranties contained in this Agreement, and
other good and valuable consideration, the receipt, adequacy and sufficiency of
which are hereby acknowledged, the Parties hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
-------------------
As used herein, the following terms shall have the following meanings:
1997 Operational Taxes. The term "1997 Operational Taxes" shall have the
meaning set forth in Section 2.6.
<PAGE>
Accounts Payable Report. The term "Accounts Payable Report" shall mean a
report prepared as of the time specified which shows accounts payable of the
Business by service provider and age of each account payable.
Accounts Receivable. The term "Accounts Receivable" shall mean all accounts
receivable of Seller generated in connection with the operations of the Business
prior to the Effective Date and reflected on the Financial Statements as of the
Effective Date in a manner consistent with Seller's past practices and the
manner in which such information has been provided to Buyer.
Accounts Receivable Report. The term "Accounts Receivable Report" shall
mean a report prepared as of the time specified which shows accounts receivable
of the Business by customer and age of each account receivable.
Affiliate. The term "Affiliate" of a person shall mean, with respect to
that person, a person who directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
or is acting as agent on behalf of, or as an officer or director of that person.
As used in the definition of Affiliate, the term "control" (including the terms
"controlling," "controlled by," or "under common control with") means the
possession, direct or indirect, of management and policies of a person whether
through the ownership of voting securities, by contract, through the holding of
a position as a director or officer of such person, or otherwise. As used in
this definition, the term "person" means an individual, a corporation, a
partnership, an association, a joint stock company, a trust, an incorporated
organization, or a government or political subdivision thereof.
Ancillary Agreements. The term "Ancillary Agreements" shall mean the
Employment Agreement, the Employment Side Letter Agreement, the Bill of Sale,
the Trust Side Letter Agreement, the Registration Rights Agreement, the
Contingent Stock Pledge Agreement, the Subordination Agreements, Note 1 and Note
2.
Assets. The term "Assets" shall have the meaning set forth in Section 2.1.
Assumed Liabilities. The term "Assumed Liabilities" shall have the meaning
as contained in Section 2.6.
Balance Sheet Report. The term "Balance Sheet Report" means the cash basis
balance sheet of the Seller as of a given date showing the assets, liabilities
and equity of the Seller adjusted to include accounts receivable, accounts
payable and accrued liabilities and further adjusted to exclude Excluded Assets
and Retained Liabilities, prepared by the Seller on a consistent basis as with
prior time periods.
Bill of Sale. The term "Bill of Sale" shall have the meaning set forth in
Section 6.2(h).
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<PAGE>
Books and Records. The term "Books and Records" shall have the meaning set
forth in Section 2.1(c).
Business. The term "Business" shall mean the court reporting and litigation
support business of the Seller as presently conducted.
Buyer Indemnified Parties. The term "Buyer Indemnified Parties" shall have
the meaning set forth in Section 7.1(A).
Cash Purchase Price. The term "Cash Purchase Price" shall have the meaning
set forth in Section 2.3(i).
Closing. The term "Closing" shall mean the consummation of the events and
transactions to take place on the Closing Date.
Closing Date. The term "Closing Date" shall mean May 19, 1997.
Closing Date Accounts Payable Report. The term "Closing Date Accounts
Payable Report" shall mean an Accounts Payable Report prepared as of the Closing
Date.
Closing Date Accounts Receivable Report. The term "Closing Date Accounts
Receivable Report" shall mean an Accounts Receivable Report prepared as of the
Closing Date.
Closing Date Balance Sheet Report. The term "Closing Date Balance Sheet
Report" shall mean a Balance Sheet Report prepared as of the Closing Date.
Closing Date Income Statement. The term "Closing Date Income Statement"
shall mean an income statement of the Seller, prepared as of the Closing Date.
Closing Date Reports. The term "Closing Date Reports" shall have the
meaning set forth in Section 2.4.
Closing Date Schedule of Accrued Liabilities. The term "Closing Date
Schedule of Accrued Liabilities" shall mean a Schedule of Accrued Liabilities
prepared as of the Closing Date.
Contracts. The term "Contract" shall have the meaning as contained in
Section 2.1(b).
Customers. The term "Customers" shall have the meaning set forth in Section
3.23.
Damages. The term "Damages" shall have the meaning set forth in Section
7.1(A).
Effective Date. The term "Effective Date" shall mean 12:01 a.m., May 19,
1997.
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<PAGE>
Employee. The term "Employee" shall mean any employee of the Seller who, as
of the Effective Date, is employed or otherwise performs work or provides
services in connection with the operation of the Business, including those, if
any, on disability, sick leave, layoff or leave of absence, who, in accordance
with the Seller's applicable policies, are eligible to return to active status,
but shall not include any independent contractor providing court reporting
services to Seller from time to time. The Employees of Seller are listed on
Schedule 1-A.
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Employment Side Letter Agreement. The term "Employment Side Letter
Agreement" shall mean that certain letter agreement between the Buyer and Pete
Giammanco of even date herewith, relating to salary increases of Pete Giammanco
as an employee of Buyer.
ERISA. The term "ERISA" shall have the meaning as contained in Section
3.16.
Equipment. The term "Equipment" shall have the meaning as contained in
Section 2.1(a).
Excluded Assets. The term "Excluded Assets" shall have the meaning as
contained in Section 2.2.
Final Net Worth. The term "Final Net Worth" means total assets minus total
liabilities, as reflected on the Closing Date Balance Sheet Report.
Financial Statements. The term "Financial Statements" shall mean the
internally compiled financial statements of the Seller as more fully described
in Section 3.15 herein.
GAAP. The term "GAAP" shall mean generally accepted accounting principles,
consistently applied.
Guaranteed Net Worth. The term "Guaranteed Net Worth" shall mean $220,911.
Intellectual Property. The term "Intellectual Property" shall have the
meaning as contained in Section 2.1(g).
Net Worth. The term "Net Worth" means total assets minus total liabilities
as of a given time period as determined by the Balance Sheet Reports as of such
time period.
Note 1. The term "Note 1" shall have the meaning set forth in Section
2.3(ii).
Note 2. The term "Note 2" shall have the meaning set forth in Section
2.3(iii).
Notice of Action. The term "Notice of Action" shall have the meaning set
forth in Section 7.1(C).
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<PAGE>
Notice of Election. The term "Notice of Election" shall have the meaning
set forth in Section 7.1(C).
Offset. The term "Offset" shall have the meaning set forth in Section 9.11.
Offset Claim. The term "Offset Claim" shall have the meaning set forth in
Section 9.11.
Owner. The term "Owner" shall mean the Giammancos and the Trust, the owners
of the Business.
Parent Financial Statements. The term "Parent Financial Statements" shall
have the meaning set forth in Section 4.7.
Parent Shares. The term "Parent Shares" shall mean any of the shares of
common stock of the Parent into which amounts due Seller under Note 1 or Note 2
have been converted, or any other security derived from such shares.
Purchase Price. The term "Purchase Price" shall mean the consideration
payable to the Seller for the Assets as set forth or contemplated in Section
2.3.
Registration Rights Agreement. The term "Registration Rights Agreement"
shall have the meaning as contained in Section 6.2(g).
Retained Liabilities. The term "Retained Liabilities" shall have the
meaning as contained in Section 2.6.
Schedule of Accrued Liabilities. The term "Schedule of Accrued Liabilities"
shall mean a schedule of accrued liabilities prepared for the period and as of
the date specified.
Seller Ancillary Agreements. The term "Seller Ancillary Agreements" shall
have the meaning set forth in Section 3.11.
Seller Indemnified Parties. The term "Seller Indemnified Parties" shall
have the meaning set forth in Section 7.1(B).
Shareholders' Agreement. The term "Shareholders' Agreement" shall have the
meaning set forth in Section 6.10.
Stock Pledge Agreement. The term "Stock Pledge Agreement" shall have the
meaning as contained in Section 6.2(j).
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<PAGE>
Subordination Agreements. The term "Subordination Agreements" shall mean
those certain Subordination Agreements of even date herewith entered into among
Sellers and any of the Company, the Parent, Affiliates, and holders of Senior
Indebtedness (as such item is defined in Note 1).
Trade Payables. The term "Trade Payables" shall mean all of the accounts
payable of the Business incurred in the ordinary course of business existing as
of the Effective Date, as set forth on the Closing Date Balance Sheet Report.
Trust Side Letter Agreement. The term "Trust Side Letter Agreement" shall
mean that certain letter agreement between the Buyer and the Sellers of even
date herewith, relating to trustees of the Trust.
ARTICLE II
PURCHASE OF ASSETS AND PURCHASE PRICE
-------------------------------------
2.1 Sale of Assets. Subject to the terms and conditions set forth in
this Agreement, the Seller agrees to sell, convey, transfer, assign and deliver
to the Buyer, and the Buyer agrees to purchase from the Seller on the Effective
Date, all assets owned by Seller and used in or derived from the Business (other
than those specifically excluded under Section 2.2 below) including the
following (such assets to be referred to herein as the "Assets"):
(a) All office equipment, service equipment, supplies, computer
hardware, computer software, and data processing equipment (the
"Equipment"), including the Equipment described on Schedule 2.1(a);
---------------
(b) All contracts, documents, franchises, licenses, instruments,
agreements and other written or oral agreements relating to the
Business of Seller to which Seller is a party or by which Seller or any
of the Assets may be bound as well as all rights, privileges, claims
and option relating to the foregoing (the "Contracts"), including the
Contracts described on Schedule 2.1(b);
---------------
(c) All customer and supplier files, accounting and financial
records, invoices, and other books and records relating principally to
the Business (the "Books and Records"), including the Books and Records
described on Schedule 2.1(c);
---------------
(d) Employee files for those employees actually hired by Buyer;
(e) All right, title and interest of Seller, in, to and under
all service marks, trademarks, trade and assumed names, principally
related to the Business together with the right to recover for
infringement thereon, if any (the "Intellectual Property"), and other
marks and/or names described on Schedule 2.1(e);
---------------
(f) All advertising materials and all other printed or written
materials related to the conduct of the Business;
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<PAGE>
(g) All of the Seller's general intangibles, claims, rights of
set off, rights of recoupment, goodwill, patents, inventions, trade
secrets and royalty rights and other proprietary intangibles, licenses
and sublicenses granted and obtained with respect thereto, and rights
thereunder, which are used in the Business, and remedies against
infringements thereof, and rights to protection of interests therein
under the laws of all jurisdictions (the "General Intangibles"),
including the General Intangibles described on Schedule 2.1(g); and
---------------
(h) All goodwill and going concern value and all other
intangible properties related to the Business; and
(i) All of Seller's Accounts Receivable.
2.2 Excluded Assets. Seller is not selling and Buyer is not purchasing
any of the following excluded assets related to the Business ("Excluded
Assets"): (i) cash other than customer deposits, if any, (ii) notes receivable,
and (iii) all cash equivalents and other investments, all as more specifically
described on Schedule 2.2.
------------
2.3 Purchase Price. Upon the terms and subject to the conditions
contained herein and as consideration for the sale of the Assets and the
performance by the Seller of various other matters as provided herein, the Buyer
shall pay the Seller, at the Closing, the aggregate amount of the following (the
"Purchase Price"):
(i) One Million Two Hundred Sixty-Seven Thousand Seven Hundred
Fifty Dollars ($1,267,750) (the "Cash Purchase Price"), paid by the
wire transfer of immediately available funds; and
(ii) Subject to the provisions of Section 2.4, a convertible
subordinated promissory note in substantially the form of Exhibit A-1
in the amount of Three Hundred Forty-Five Thousand Seven Hundred Fifty
Dollars and No/100 ($345,750) which shall be subordinated and
convertible into shares of common stock of LRA-Texas as provided
therein ("Note 1"); Note 1 shall, subject to certain cash flow
requirements and certain limitations imposed by the Subordination
Agreements, bear interest at an annual rate of Seven and One-Half
Percent (7.5%), and provide for equal quarterly payments of accrued
interest for the first year and equal quarterly payments of principal
and accrued interest over a four (4) year period commencing with the
fifth quarterly payment date; and
(iii) Subject to the provisions of Section 2.4, a convertible
subordinated promissory note in substantially the form of Exhibit A-2
in the amount of Six Hundred Ninety-One Thousand Seven Hundred Fifty
Dollars and No/100 ($691,750) which shall be subordinated and
convertible into shares of common stock of LRA-Texas as provided
therein ("Note 2"); Note 2 shall bear interest at an annual rate of
Six and Three-Eighths Percent (6.375%), and shall provide for equal
monthly
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<PAGE>
payments of accrued interest for the eight years and a final payment of
principal and all accrued and unpaid interest on the eighth anniversary
of the Closing Date, subject to certain limitations imposed by the
Subordination Agreements.
2.4 Determination of Final Net Worth. Each of the Closing Date
Balance Sheet Report, the Closing Date Accounts Receivable Report, the Closing
Date Accounts Payable Report, the Closing Date Schedule of Accrued Liabilities
and the Closing Date Income Statement (collectively, the "Closing Date Reports")
of the Seller shall be prepared by the Seller, as promptly as possible after the
Closing. Seller's accountants shall then review and certify the Closing Date
Reports, and deliver them to Buyer and Buyer's accountants within 30 days after
the Closing Date. The Buyer's accountants shall review the Closing Date Reports
(including any corresponding work papers of Seller's accountants) and report to
the Seller's accountants in writing within 15 days of receipt thereof of any
discrepancy between the Seller's accountants certification and the Buyer's
accountants results of review. If Seller's accountants and Buyer's accountants
cannot resolve such discrepancy within 15 days after Seller's accountants
receipt of such reported discrepancy, then they shall so notify the Seller and
the Buyer, and the Seller and the Buyer shall attempt to resolve the discrepancy
within 15 days of such notice. If the Seller and the Buyer cannot resolve the
discrepancy to their mutual satisfaction, another independent public accounting
firm acceptable to the Seller and the Buyer shall be retained to review the
Closing Date Reports. Such firm's conclusions as to the carrying values to
appear on the Closing Date Reports for purposes of determining the Final Net
Worth of the Seller shall be conclusive. The Seller and the Buyer shall share
equally in the expenses of retaining such accounting firm. The Buyer shall pay
the expenses of the Buyer's accountants for their review of the Closing Date
Reports, and the Seller shall pay the expenses of Seller's accountants for their
review of the Closing Date Reports.
2.5 Adjustment of Purchase Price. The Purchase Price set forth in
Section 2.3 shall be adjusted as follows. If the Final Net Worth as finally
determined pursuant to Section 2.4 shall be more than the Guaranteed Net Worth,
then the original principal amounts of Note 1 and Note 2 shall be increased as
follows: Note 1 shall be increased by 33 and 1/3% of the amount of the increase
and Note 2 shall be increased by 66 and 2/3% of the amount of the increase. If
the Final Net Worth of Seller as finally determined pursuant to Section 2.4
shall be less than the Guaranteed Net Worth, then the original principal amounts
of Note 1 and Note 2 shall be decreased as follows: Note 1 shall be decreased by
33 and 1/3% of the amount of the increase and Note 2 shall be decreased by 66
and 2/3% of the amount of the increase.
2.6 Assumption of Liabilities. Subject to the exceptions and
exclusions of this Section 2.6, the Buyer agrees that on the Effective Date, it
will assume and agree to perform and pay when due: (i) all Trade Payables, (ii)
all unperformed and unfulfilled obligations under the Contracts set forth on
Schedule 2.1(c), for which the Seller is not in default on or prior to the
- ---------------
Effective Date, (iii) all liabilities pertaining to customer deposits, (iv) a
prorated portion of all franchise, Los Angeles City, business and related taxes
of the Business due with respect to the 1997 calendar year (the "1997
Operational Taxes") and (v) any and all debts, liabilities and obligations
relating to the Business as conducted on and after the Closing Date
(collectively, the "Assumed Liabilities"). Except as otherwise specifically
provided herein, the Assumed Liabilities shall not include any other debts,
-8-
<PAGE>
liabilities or obligations, whether accrued, absolute, contingent or otherwise,
in contract or in tort, of the Seller or the Business, or relating to the Assets
such as and including but not limited to (i) accrued income taxes, (ii) deferred
income taxes, (iii) a pro rated portion of the 1997 Operational Taxes, (iv) any
taxes imposed on the Seller because of the operations of any of their respective
businesses or sale of the Business, (v) any of the liabilities or expenses of
the Seller incurred in negotiating and carrying out its obligations under this
Agreement, (vi) any obligations of the Seller owed to each Employee prior to the
Closing Date under employee benefits agreements, (vii) any obligations incurred
by the Seller before the Effective Date except as otherwise specifically assumed
by Buyer pursuant to this Section 2.6, (viii) any liabilities or obligations
incurred by the Seller in violation of, or as a result of the Seller's violation
of, this Agreement, (ix) liabilities arising from sales of products or services
before the Effective Date, and (x) liabilities, costs, and expenses associated
with the litigation described in Schedule 3.9 hereto (all of the foregoing being
------------
hereinafter collectively referred to as the "Retained Liabilities"). Subject to
Sections 7.1(E), 7.2 and 9.11 hereof, Buyer shall be permitted to recover for
any damages caused by breaches of representations, warranties, covenants and
agreements by Seller relating to the Assumed Liabilities.
2.7 Allocation of Purchase Price. Within 90 days following the date
of this Agreement, Buyer and Seller shall agree in writing upon the proportion
of the consideration to be allocated to each of the Assets purchased pursuant to
this Agreement in the manner proposed by Buyer and reasonably approved by
Seller. Buyer and Seller agree that they will not take any position or action
which is inconsistent with such allocation in the filing of any federal income
tax returns.
2.8 Taxes. Seller shall be liable for the payment of all sales and
use taxes arising out of the sale and transfer or removal of the Assets, if any,
and the assumption of the Assumed Liabilities. The Buyer shall not be
responsible for any business, occupation, withholding or similar tax, or any
taxes of any kind of the Seller, related to any period before the Effective
Date.
2.9 Title to Assets and Risk of Loss. Title to the Assets and risk of
loss or damage to the Assets by casualty (whether or not covered by insurance)
will pass to the Buyer immediately upon completion of the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
The Seller hereby represents and warrants, except as otherwise
set forth on the Schedules attached hereto, that:
3.1 Title to Assets. Up until the Effective Date, the Seller has
good, marketable and indefeasible title to the Assets free and clear of
restrictions or conditions to transfer or assignment, mortgages, liens, pledges,
charges, encumbrances, equities, claims, easements, rights-of-way, covenants,
conditions or restrictions, except with respect to those Assets subject to lease
and as otherwise disclosed on Schedule 3.1. The Seller is in possession of all
------------
property leased to it from others. Except for the Excluded Assets, the Assets
constitute all of the material property, whether real, personal, mixed, tangible
or intangible, that are used in the Business by the Seller.
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<PAGE>
3.2 Tax Returns. Within the times and in the manner prescribed by
law, including extensions permitted thereunder, the Seller has filed and will
file all federal, state and local tax returns required by law and has paid and
will pay all taxes, assessments and penalties, if any, due and payable in
connection with the Business through the Effective Date. There are no pending,
or to Seller's knowledge, threatened disputes as to taxes of any nature payable
by the Seller.
3.3 Contracts. Schedule 2.1(b) lists all of the material contracts,
---------------
agreements, and other written or oral arrangements relating to the Business to
which the Seller is a party, or by which the Seller or the Assets are bound. As
of the Effective Date, each of the Contracts is valid and in full force and
effect, and there has not been any default by the Seller or, to the best of
Seller's knowledge, by any other party to any of the Contracts, or any event
that with notice or lapse of time or both, would constitute a default by the
Seller or, to the best of Seller's knowledge, any other party to any of the
Contracts. Except as shall be disclosed in Schedule 2.1(b), each Contract is
---------------
assignable to the Buyer without the consent of any other party. The Seller will
obtain and deliver at Closing all of the requisite consents relating to the
items set forth on Schedule 2.1(b). Seller has not received notice that any
---------------
party to any of the Contracts intends to cancel or terminate any of the
Contracts or exercise or not exercise any options that they might have under any
of the Contracts. In the event any of the Contracts are, or are later determined
to be, non-assignable, and the other party to any such Contracts refuses to
consent to the assignment of same, then the Seller shall subcontract to the
Buyer or its designee, if the Buyer so desires, the remaining work on such
Contracts, and the Seller shall forward to the Buyer or its designee all
proceeds of such Contracts received by the Seller; provided, however, that
Seller shall be reimbursed for any reasonable out-of-pocket expenses incurred by
it.
3.4 Equipment. All of the Equipment owned or leased by the Seller is
described on Schedule 2.1(a) attached hereto. Except as disclosed on Schedule
--------------- --------
2.1(a), none of the Equipment will be, at the Effective Date, held under any
- ------
security agreement, conditional sales contract, or other title retention or
security arrangement.
3.5 Inventory. The Seller does not carry or maintain any inventory.
3.6 Licenses. Except as set forth on Schedule 3.6, the Business of
------------
Seller does not require any governmental licenses or permits or authorization,
consent or approval of, or filing with, any public body or governmental
authority.
3.7 Employment Contracts. The Seller does not have any employment
contracts, collective bargaining agreements, pension, bonus, or profit sharing
plans providing for employee remuneration or benefits.
3.8 Compliance with Laws. The Seller has complied with, and is not in
violation of, applicable federal, state or local statutes, laws, and regulations
(including, without limitation, any applicable building or other law, ordinance
or regulation) that affect, directly or indirectly, any of the Assets or the
Business, except where the failure to so comply would not have a material
adverse
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<PAGE>
effect. There are not any uncured violations, known to Seller, of federal, state
or municipal laws,ordinances, orders, regulations or requirements affecting any
portion of the Assets or the Business.
3.9 Litigation. Except as disclosed in Schedule 3.9, there is no
------------
suit, action, arbitration or legal, administrative or other proceeding or
governmental investigation pending or, to the best of Seller's knowledge,
threatened against or affecting the Seller, the Assets, or the Business that
could result in a material adverse effect on the Business.
3.10 No Breach or Violation. As of the Effective Date and except as
set forth on Schedule 3.10, the consummation of the transactions contemplated by
-------------
this Agreement will not result in or constitute any of the following: (i) a
default or an event that, with notice or lapse of time or both, would be a
default, breach or violation, or give rise to a right of modification,
termination, cancellation or acceleration of any obligation or to a loss of a
benefit under, except for third party consents described in this Agreement or
any schedule prepared and delivered in connection herewith, of any lease,
license, promissory note, conditional sales contract, commitment, indenture,
mortgage, deed of trust, security agreement, concession, franchise, permit or
other agreement, instrument or arrangement by which the Assets, the Business or
the Seller may be affected, or to which the Assets, the Business or the Seller
may be bound, (ii) the creation or imposition of any lien, charge, or
encumbrance on any of the Assets or the Business, or (iii) a breach of any term
or provision of this Agreement, except for breaches and violations that could
not reasonably be expected to have a material adverse effect on the Business.
3.11 Authority. Each of the Giammancos has the full right, power,
legal capacity and authority to execute, deliver and perform Seller's
obligations under this Agreement and the Employment Agreement, the Employment
Side Letter Agreement, the Bill of Sale, the Registration Rights Agreement, the
Contingent Stock Pledge Agreement, the Trust Side Letter Agreement and the
Subordination Agreements (collectively, the "Seller Ancillary Agreements"). The
Trust has the full right, power, legal capacity and authority to execute,
deliver and perform Seller's obligations under this Agreement and the Seller
Ancillary Agreements. The Giammancos have delivered to Buyer a true and correct
copy of all instruments evidencing or creating the Trust, which has been
properly formed in accordance with the laws of the State of California under the
Declaration of Trust dated August 21, 1996 and has not been amended, modified,
revoked or rescinded since such date. The sole trustees of the Trust are and
have been at all times from August 21, 1996 Peter Giammanco and Leslie Giammanco
(the "Trustees"). The Trustees have full authority to enter into this Agreement
and the Seller Ancillary Agreements on behalf of the Trust. No approvals or
consents of any persons other than the Seller are necessary in connection
herewith, except as set forth on Schedule 2.1(b).
---------------
3.12 Personnel. Schedule 1-A sets forth a complete and accurate list
------------
of all Employees employed by Seller in connection with the Business. At or after
Closing, the Seller shall deliver such additional information as the Buyer shall
reasonably request with respect to such Employees.
3.13 Valid and Binding Obligations. Upon execution and delivery, each
of this Agreement, the Seller Ancillary Agreements and each other document,
instrument and agreement
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<PAGE>
to be executed by the Seller in connection herewith, will constitute the legal,
valid, and binding obligation of the Seller, enforceable in accordance with its
terms, except as limited by bankruptcy laws, insolvency laws, and other similar
laws affecting the rights of creditors generally.
3.14 Leased Assets. Schedule 3.14 contains a description of all of
-------------
the real and personal property leased pursuant to the Contracts, which are the
only assets used in the conduct of the Business which are not owned by the
Seller. The Seller is not in default of any such lease.
3.15 Financial Statements. The financial statements of Seller consist
of an unaudited balance sheet and unaudited income statement for the fiscal
years ending December 31, 1993, December 31, 1994, December 31, 1995 and
December 31, 1996, together with unaudited balance sheets and unaudited income
statements of Seller for the two-month period ended February 28, 1997
(collectively the "Financial Statements"). Each of the Financial Statements (i)
fairly presents the financial position of Seller as of each respective Financial
Statement date, and the results of its operations for the respective periods
indicated, (ii) were true and correct in all material respects as of the
respective dates thereof, and (iii) were prepared consistently and in accordance
with Seller's past practices. In addition, Seller has provided at least four (4)
days prior to Closing the following, all of which are unaudited: (i) a Balance
Sheet Report dated as of February 28, 1997, (ii) Accounts Receivable Reports
dated as of February 28, 1997 and March 31, 1997, (iii) Accounts Payable Reports
dated as of February 28, 1997, (iv) a Schedule of Accrued Liabilities dated as
of February 28, 1997 and (v) an income statement dated as of March 31, 1997.
3.16 Employee Benefits. Seller has no "employee benefit plans" within
the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
3.17 Absence of Certain Changes or Events. Except as disclosed in
Schedule 3.17(a) with regard to the Business and the Assets, since December 31,
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1996, there has been no:
(i) material adverse change in the condition, financial or
otherwise, of the Seller, the Assets or the Business;
(ii) waiver of any right of or claim held by the Seller;
(iii) material loss, destruction or damage to any property of
the Seller, whether or not insured;
(iv) material change in the personnel of the Seller or the
terms or conditions of their compensation or employment;
(v) acquisition or disposition of any assets (or any contract
or arrangement therefor), nor any other transaction by the Seller
otherwise than for value and in the ordinary course of business;
(vi) transaction by the Seller except in the ordinary course of
business;
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(vii) capital expenditure by the Seller exceeding $5,000 except
in the ordinary course of business;
(viii) change in accounting methods or practices (including,
without limitation, any change in depreciation or amortization policies
or rates) by the Seller;
(ix) re-valuation by the Seller of any of its Assets;
(x) amendment, modification or termination of any Contract or
license to which the Seller is a party, except in the ordinary course
of business;
(xi) mortgage, pledge or other encumbrance of any of the
Assets;
(xii) litigation or facts or circumstances that could result
in litigation that, if adversely determined, might reasonably be
expected to have a material adverse effect on Seller, Seller's
financial condition, Seller's prospects, the Business or the Assets;
(xiii) other event or condition of any character that has or
might reasonably be expected to have a material adverse effect on the
Business, Assets or financial condition of the Seller; or
(xiv) agreement by the Seller to do any of the things described
in the preceding clauses (i) through (xiii).
Except as disclosed in Schedule 3.17(b), there have been no contractual
----------------
commitments by Seller to spend more than $10,000 per contractual commitment over
a continuous 12-month period.
3.18 Consents and Approvals. Except as set forth on Schedule 3.18 no
-------------
consent, approval or authorization of, or filing or registration with, any
governmental or regulatory authority, or any other person or entity, is required
to be made or obtained by the Seller in connection with the execution, delivery
or performance of this Agreement by Seller or the consummation of the
transactions contemplated hereby by Seller.
3.19 Brokers. Neither Seller nor any of Seller's Affiliates has
employed any broker, agent, or finder, or incurred any liability for any
brokerage fees, agent's fees, commission or finder's fees in connection with the
transactions contemplated herein.
3.20 Sale of Assets. For purposes of determining whether a sales and
use tax charge is applicable, the sale of the Assets constitutes: (i) the sale
of the entire operating assets of a business or of a separate division, branch,
or identifiable segment of a business, and (ii) a sale outside the ordinary
course of Seller's business, and represents an isolated or occasional sale by a
seller who does not regularly engage in such business. The income and expenses
of the Business can be separately established from the Books and Records in the
same manner as previously provided to Buyer.
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3.21 Absence of Certain Business Practices. Neither the Seller nor
any agent of the Seller, nor to Seller's best knowledge, any other person acting
on Seller's behalf, has, directly or indirectly, within the past five years,
given or agreed to give any gift or similar benefit to any customer, supplier,
government employee of the United States or any state or foreign government, or
other person who is or may be in a position to help or hinder the Business which
(1) would subject the Seller to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (2) if not given in the past, would have
an adverse effect on the Business, or (3) if not continued in the future, would
have a material adverse effect on the Business or the Assets, or which would
subject the Seller to suit or penalty in a private or governmental litigation or
proceeding.
3.22 Liens on Assets. Except as set forth on Schedule 3.22, all liens
-------------
or security interests of any third party as to any of the Assets have been
removed on or before the Effective Date, and the Seller has furnished evidence
thereof to Buyer.
3.23 Customers. To the best of Seller's knowledge, Schedule 3.23
-------------
contains a true and correct list of all customers of the Business within the
period beginning January 1, 1996 and ending on the Effective Date (the
"Customers"). Except as set forth on Schedule 3.23, the Seller has no
-------------
information, nor is the Seller aware of any facts, indicating that any of the
material Customers intend to cease doing business with the Seller.
3.24 Insurance Policies. Schedule 3.24 to this Agreement is a
-------------
description of all insurance policies held by the Seller concerning the Business
and Assets. The Seller has maintained and now maintains insurance protection
against all liabilities, claims and risks against which, with respect to the
Business and the Assets, it is customary to insure.
3.25 Interest in Customers, Suppliers and Competitors. Except as set
forth in Schedule 3.25, neither the Seller, nor any Affiliate, spouse or child
-------------
of the Seller, has any direct or indirect interest in any competitor, supplier
or customer of any of them, has any direct or indirect interest in any
competitor, supplier or customer of the Seller, or in any person from whom or to
whom the Seller leases any property, or in any other person with whom the Seller
is doing business.
3.26 Full Disclosure. This Agreement, the Seller Ancillary
Agreements, the Schedules and Exhibits hereto and thereto, and all other
documents and written information furnished by the Seller to the Buyer pursuant
hereto or in connection herewith, are true, complete and correct, and do not
include any untrue statement of a material fact or omit to state any material
fact necessary to make the statements made herein and therein not misleading. To
the best of Seller's knowledge, there are no facts or circumstances relating to
the Assets or the Business which adversely affect or might reasonably be
expected to adversely affect the Assets, the Business, or the ability of the
Seller to perform this Agreement, the Seller Ancillary Agreements or any of
Seller's obligations hereunder or thereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
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Each of Buyer and Parent represents and warrants, except as
otherwise set forth on the Schedules attached hereto, that:
4.1 Organization. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and has
all the necessary corporate powers to own its properties and to carry on its
business as now owned and operated by it. The Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas and has all the necessary corporate powers to own its properties and to
carry on its business as now owned and operated by it.
4.2 Authority. Each of Buyer and Parent, as applicable, has the
right, power, legal capacity, and authority to execute, deliver and perform this
Agreement and the Ancillary Agreements to which it is a party. The execution,
delivery and performance of this Agreement and the Ancillary Agreements to which
it is a party and the consummation of the transactions contemplated hereby and
thereby by each of Buyer and Parent, as applicable, have been duly authorized by
all necessary corporate action.
4.3 Valid and Binding Obligations. Upon execution and delivery, each
of this Agreement and the Ancillary Agreements to which it is a party will
constitute the legal, valid, and binding obligation of Buyer or Parent, as
applicable, enforceable in accordance with its terms, except as limited by
bankruptcy laws, insolvency laws, and other similar laws affecting the rights of
creditors generally.
4.4 Brokers. Neither Buyer nor any of its respective Affiliates,
officers, directors, or employees, has employed any broker, agent, or finder, or
incurred any liability for any brokerage fees, agent's fees, commissions or
finder's fees in connection with the transactions contemplated herein, except
for the fee payable to The GulfStar Group, Inc., which fee shall be paid solely
by Buyer or its Affiliates in connection with this transaction.
4.5 No Operations. Buyer is a recently formed California corporation,
with no operations to date, and has no liabilities or obligations, except as may
arise under this Agreement and the Ancillary Agreements to which it is a party
and obligations that may be imposed by applicable federal, state or local law.
4.6 Consents, Violations and Authorizations.
(a) Except as set forth on Schedule 4.6, neither the Buyer nor
------------
the Parent is a party to or bound by any mortgage, indenture, lien, deed of
trust, lease, agreement, permit, concession, franchise, license, instrument,
order, judgment or decree which would require the consent of another to the
execution of this Agreement or the Ancillary Agreements to which it is a party
or the consummation of the transactions contemplated hereby or thereby.
(b) Neither the execution and delivery of this Agreement or
the Ancillary Agreements to which it is a party nor the consummation of the
transactions contemplated hereby or
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<PAGE>
thereby will (i) violate any provision of the Articles of Incorporation or
Bylaws of either Buyer or Parent or (ii) conflict with, or result (immediately
or upon the giving of notice or the passage of time or both) in any violation of
or any default under, or give rise to a right of modification, termination,
cancellation or acceleration of any obligation or to a loss of a benefit under,
any mortgage, indenture, lease, instrument, permit, concession, franchise,
license or other agreement which either the Buyer or Parent or its properties or
assets is a party to, beneficiary of, or bound by, or violate any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to either
the Buyer or Parent or its properties or assets, other than such conflicts,
violations or defaults or possible modifications, terminations, cancellations or
accelerations which individually or in the aggregate do not and will not have a
material adverse effect on the Buyer or the Parent.
(c) No authorization, consent or approval of, or filing with,
any public body or governmental authority is necessary for the consummation by
the Buyer or Parent of the transactions contemplated by this Agreement or the
Ancillary Agreements to which it is a party.
4.7 Financial Statements. Buyer has delivered to Seller the unaudited
consolidated balance sheet, unaudited consolidated income statement, and
unaudited consolidated cash flow statement of Parent for the one and one-half
month period ended February 28, 1997 (the "Parent Financial Statements"). Each
of the Parent Financial Statements (i) fairly presents the financial position of
Parent and its consolidated subsidiaries as of each respective Parent Financial
Statement date, and the results of their operations for the respective periods
indicated, and (ii) were true and correct in all material respects as of the
respective dates thereof, subject to finalization of purchase accounting
adjustments in accordance with GAAP.
4.8 Absent Certain Changes. Since February 28, 1997, there have been
no (a) material adverse changes in the business, financial condition, assets,
operations or prospects of Parent, (b) amendments, modifications or terminations
of any material contract applicable to Parent, (c) any changes in the accounting
methods or practices of Parent or (d) any litigation or facts or circumstances
that could result in litigation that, if adversely determined, might reasonably
be expected to have a material adverse effect on Parent or on its business,
financial condition or prospects.
4.9 Full Disclosure. No representation or warranty of the Buyer or
Parent in this Article IV or in any other Article of this Agreement or in the
Ancillary Agreements to which it is a party or any schedule, exhibit,
certificate or other document furnished or to be furnished by the Buyer or
Parent to the Seller pursuant to this Agreement or the Ancillary Agreements to
which it is a party, contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary to make the
statements made herein or therein not misleading.
ARTICLE V
COVENANTS OF THE PARTIES
------------------------
Buyer and Seller covenant and agree as follows:
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5.1 Conduct of the Business. Except as otherwise permitted by this
Agreement or consented to by Buyer in writing, Seller shall conduct the Business
in the ordinary course in substantially the same manner as heretofore, using its
best efforts to preserve intact its present business organization, to keep
available the services of its Employees, and to preserve its relationships with
its customers, suppliers, service providers and others having business dealings
with it.
5.2 Certain Changes. Except as otherwise permitted by this Agreement
or consented to by Buyer in writing, Seller shall not (a) subject any of the
Assets to any lien or encumbrance, (b) dispose of any of the Assets, (c) grant
any increase in compensation or benefits to any Employee, except for periodic
bonuses in the ordinary course consistent with past practices, (d) materially
modify any of the Assumed Liabilities, or (e) with respect to the Business,
perform any act outside the ordinary course of the Business except as otherwise
contemplated by this Agreement.
5.3 Insurance. Seller maintains and shall continue to maintain
through the Closing the insurance coverage set forth in the list previously
provided to Buyer.
5.4 Bulk Sales. It may not be practicable to comply or attempt to
comply with the procedures of Division 6 of the California Commercial Code (the
"California Bulk Sales Laws"). Accordingly, to induce Buyer to waive any
requirements for compliance with any or all of such laws, Seller hereby agrees
that except for the Assumed Liabilities, the indemnity provisions of Article VII
hereof shall apply to any damages of Buyer arising out of or resulting from the
failure of Buyer or Seller to comply with the California Bulk Sales Laws.
ARTICLE VI
THE CLOSING
-----------
6.1 Closing. Payment of the Purchase Price required to be made by the
Buyer to the Seller and the transfer of the Assets by the Seller and the other
transactions contemplated hereby shall take place on the Closing Date at the
offices of Boyer, Ewing and Harris Incorporated, 9 Greenway Plaza, Suite 3100,
Houston, Texas 77046 or by fax unless the time or location is changed by mutual
agreement of the Parties. At the Closing, (a) the Seller will deliver to the
Buyer and Parent the various certificates, instruments, and documents referred
to in Section 6.2 below, (b) the Buyer and Parent will deliver to the Seller the
various certificates, instruments, and documents referred to in Section 6.3
below, and (c) the Buyer will deliver to the Seller the Purchase Price specified
in Section 2.3 above.
6.2 Conditions to Obligations of the Buyer and Parent. The obligation
of the Buyer and Parent to proceed with the Closing and consummate the
transactions to be performed by it in connection with the Closing is subject to
satisfaction of the following conditions:
(a) the representations and warranties of Seller hereunder
shall be true and correct in all material respects at and as of the
Closing Date;
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(b) the Seller shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(c) no action, suit, or proceeding shall be pending before any
court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge
would (i) prevent consummation of any of the transactions contemplated
by this Agreement, (ii) cause any of the transactions contemplated by
this Agreement to be rescinded following consummation, or (iii) affect
adversely in any material respect the rights in and to the Assets (and
no such injunction, judgment, order, decree, ruling, or charge shall be
in effect);
(d) the Seller shall have delivered to the Buyer and Parent a
certificate to the effect that each of the conditions specified above
in Section 6.2(a) -(c) is satisfied in all respects;
(e) the Buyer and Parent shall have received from counsel to
the Seller an opinion in form and substance acceptable to Buyer and
Parent , addressed to the Buyer and Parent, and dated as of the Closing
Date containing such assumptions and qualifications as may be
reasonably acceptable to legal counsel to Buyer and Parent;
(f) Peter Giammanco shall have entered into an Employment
Agreement with Buyer in the form attached hereto as Exhibit B
("Employment Agreement");
(g) Seller shall have entered into with Parent a Registration
Rights Agreement in a form similar to those previously entered into by
similarly situated shareholders of Parent and reasonably acceptable to
Parent and its counsel (the "Registration Rights Agreement");
(h) the Seller shall have delivered to Buyer instruments of
assignment and transfer or bills of sale signed by Seller as the Buyer
shall reasonably request, including the Bill of Sale in substantially
the form attached hereto as Exhibit C (the "Bill of Sale");
(i) Seller shall have delivered to Buyer an Affidavit of Title
and Ownership in form reasonably satisfactory to Buyer and its counsel;
(j) Seller shall have entered into with Buyer a Contingent
Stock Pledge Agreement in substantially the form attached hereto as
Exhibit D (the "Stock Pledge Agreement");
(k) Seller shall have entered into the Subordination
Agreements on terms substantially similar to those contained in
subordination agreements executed by creditors of a similar class of
Parent or its subsidiaries;
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(l) Buyer shall have completed its due diligence review of
Seller and the Business and been satisfied with the results;
(m) the Board of Directors of Buyer and Parent shall have
approved the terms of this transaction;
(n) Seller shall have delivered to Buyer and Parent all other
items required to be delivered hereunder or as may be requested which
are reasonably necessary or would reasonably facilitate consummation of
the transactions contemplated hereby; and
(o) all actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Buyer and Parent.
The Buyer and Parent may waive any condition specified in Section 6.2 if they
execute a writing so stating at or prior to the Closing Date.
6.3 Conditions to Obligations of the Seller. The obligation of the
Seller to proceed with Closing and consummate the transactions to be performed
by it in connection with the Closing is subject to satisfaction of the following
conditions:
(a) the representations and warranties of Buyer and Parent
hereunder shall be true and correct in all material respects at and as
of the Closing Date;
(b) each of Buyer and Parent shall have performed and complied
with all of its covenants hereunder in all material respects through
the Closing;
(c) no action, suit, or proceeding shall be pending before any
court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge
would (A) prevent consummation of any of the transactions contemplated
by this Agreement, or (B) cause any of the transactions contemplated by
this Agreement to be rescinded following consummation (and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(d) each of Buyer and Parent shall have delivered to the
Seller a certificate to the effect that each of the conditions
applicable to it which are specified above in Section 6.3(a)-(c) is
satisfied in all respects;
(e) the Seller shall have received from counsel to the Buyer
an opinion in form and substance acceptable to Seller, addressed to the
Seller, and dated as of the Closing
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<PAGE>
Date containing such assumptions and qualifications as may be
reasonably acceptable to Seller's legal counsel;
(f) Parent shall have entered into the Registration Rights
Agreement in a form similar to those previously entered into by
similarly situated shareholders of Parent;
(g) the Buyer shall have paid the Purchase Price required by
Section 2.3;
(h) the Buyer shall have entered into the Employment Agreement
and the Stock Pledge Agreement, each in a form reasonably acceptable to
Seller and its counsel;
(i) Seller shall have completed its due diligence review of
Buyer and Parent and been satisfied with the results; and
(j) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby, and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Seller.
The Seller may waive any condition specified in this Section 6.3 if Seller
executes a writing so stating at or prior to the Closing.
6.4 Insurance and Ad Valorem Taxes. The Buyer shall be obligated to
procure its own insurance on the Business commencing on the Effective Date.
Seller shall be solely responsible for receiving a refund of any insurance
premium payments that have been prepaid. With regard to ad valorem taxes on the
Assets for the 1997 tax year, the Seller and the Buyer agree that the taxes to
be paid shall be prorated as of the Effective Date.
6.5 Further Assurances. At and after the Closing, each of the Parties
shall take all appropriate action and execute all documents of any kind which
may be reasonably necessary or desirable to carry out the transactions
contemplated hereby. The Seller, at any time at or after the Closing, will
execute, acknowledge and deliver any further bills of sale, assignments and
other assurances, documents and instruments of transfer, reasonably requested by
the Buyer, and will take any other action consistent with the terms of this
Agreement that may reasonably be requested by the Buyer, for the purpose of
assigning and confirming to the Buyer, all of the Assets. The Buyer shall notify
the Seller promptly, and in no event more than ten (10) business days after the
Buyer's receipt, of any tax inquiries or notifications thereof which relate to
any period prior to the Effective Date, and the Seller shall prepare and deliver
responses to such inquiries as the Seller deems necessary or appropriate. In
addition, the Seller shall make available the books and records of the Business
during reasonable business hours and take such other actions as are reasonably
requested by the Buyer to assist the Buyer in the operation of the Business.
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6.6 Availability of Records to the Seller. For a period of three (3)
years following the Closing Date, Buyer shall make available to the Seller such
of the Books and Records relating to the Business prior to the Closing Date as
the Seller may reasonably require after the Closing Date in connection with any
tax determination, defense of any claim against the Seller relating to the
conduct of the Business prior to the Closing Date or for any other reason.
During such time, Buyer agrees not to destroy any files or records which are
subject to this Section 6.6 without giving reasonably notice to the Seller, and
within 15 business days of receipt of such notice, the Buyer may cause to be
delivered to Seller the records intended to be destroyed, at the Seller's
expense.
6.7 Termination of Employment of the Seller's Employees. Buyer may
terminate any Employee at any time. Seller shall pay all wages, benefits,
accrued vacation, sick pay and any other benefits any of the Employees are
entitled to receive before the Closing Date.
6.8 Confidential Information. After the Closing and except as
otherwise specifically permitted in this Agreement, each party to this Agreement
agrees, on behalf of itself and its Affiliates, to use reasonable efforts not to
divulge, communicate, use to the detriment of any other party to this Agreement
or its Affiliates or for the benefit of any other person or persons, any
confidential information or trade secrets of such other party with respect to
the Assets or the Business, including personnel information, secret processes,
know-how, customer lists, formulae, or other technical data; provided, if any
party to this Agreement or any of its Affiliates is compelled to disclose such
information to any tribunal, regulatory or governmental authority or agency or
else stand liable for contempt or suffer other censure and penalty, such party
may so disclose such information without any liability hereunder.
6.9 Assignment of Contracts. On or before the Effective Date, Seller
shall have delivered to Buyer all of the Contracts presently in force and shall
have effected a valid assignment of all of Seller's rights and obligations
thereunder.
6.10 Shareholders' Agreement; Investment Representations. No shares of
Parent Stock can or will be issued upon conversion of Note 1 and Note 2 until
Seller becomes a party to a Shareholders' Agreement in the form required by the
Parent ("Shareholders' Agreement") and gives appropriate investment
representations concerning knowledge about the investment and acknowledgments of
any applicable restrictions on transferability.
6.11 Customer List. On or before 45 days following the Effective Date,
Seller shall deliver to Buyer a new Schedule 3.23, revised to show the total
receipts of the Business attributable to each listed Customer during the period
beginning January 1, 1996 and ending on the Effective Date.
ARTICLE VII
INDEMNIFICATION
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7.1 Indemnification.
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A. By the Seller. Subject to Section 7.1(E) hereof, the Seller,
shall indemnify, save, defend and hold harmless the Buyer and Buyer's
shareholders and the directors, officers, partners, agents and employees of each
(collectively, the "Buyer Indemnified Parties") from and against any and all
costs, lawsuits, losses, liabilities, deficiencies, claims and expenses,
including interest, penalties, attorneys' fees and all amounts paid in
investigation, defense or settlement of any of the foregoing (collectively
referred to herein as "Damages"), (i) incurred in connection with or arising out
of or resulting from or incident to any breach of any covenant, breach of
warranty as of the Effective Date, or the inaccuracy of any representation as of
the Effective Date, made by the Seller in or pursuant to this Agreement or any
other agreement contemplated hereby or in any schedule, certificate, exhibit, or
other instrument furnished or to be furnished by the Seller or its Affiliates
under this Agreement, or (ii) based upon, arising out of, or otherwise in
respect of any liability or obligation of the Business or relating to the Assets
relating to any period prior to the Effective Date, other than those Damages
based upon or arising out of the Assumed Liabilities; provided, however, that
the Seller shall not be liable for any such Damages to the extent, if any, such
Damages result from or arise out of a breach or violation of this Agreement by
any Buyer Indemnified Parties.
B. By the Parent and the Buyer. Subject to Section 7.1(E)
hereof, the Parent and the Buyer, jointly and severally, shall indemnify, save,
defend and hold harmless the Seller and Seller's successors in interest or heirs
(collectively, the "Seller Indemnified Parties") from and against any and all
Damages (i) incurred in connection with or arising out of or resulting from or
incident to any breach of any covenant, breach of warranty as of the Effective
Date, or the inaccuracy of any representation as of the Effective Date, made by
Parent and/or the Buyer in or pursuant to this Agreement or any other agreement
contemplated hereby or in any schedule, certificate, exhibit, or other
instrument furnished or to be furnished by the Parent and/or the Buyer under
this Agreement, or (ii) based upon, arising out of or otherwise in respect of
any liability or obligation of the Business or relating to the Assets (a)
relating to any period on and after the Effective Date, other than those Damages
based upon or arising out of the Retained Liabilities, or (b) arising out of
facts or circumstances existing on and after the Effective Date, other than
those Damages based upon or arising out of the Retained Liabilities; provided,
however, that neither Parent nor Buyer shall be liable for any such Damages if
such Damages result from or arise out of a breach or violation of this Agreement
by any Seller Indemnified Parties.
C. Defense of Claims. If any lawsuit or enforcement action is
filed against any Party entitled to the benefit of indemnity hereunder, written
notice thereof describing such lawsuit or enforcement action in reasonable
detail and indicating the amount (estimated, if necessary) or good faith
estimate of the reasonably foreseeable estimated amount of Damages (which
estimate shall in no way limit the amount of indemnification the indemnified
Party is entitled to receive hereunder), shall be given to the indemnifying
Party as promptly as practicable (and in any event within ten (10) days, after
the service of the citation or summons) ("Notice of Action"); provided that the
failure of any indemnified Party to give timely notice shall not affect its
rights to indemnification hereunder to the extent that the indemnified Party
demonstrates that the amount the indemnified Party is entitled to recover
exceeds the actual damages to the indemnifying Party caused by such failure to
so notify within ten (10) days and so long as the indemnifying Party is not
materially prejudiced by the failure
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to receive such notice. The indemnifying Party may elect to compromise or defend
any such asserted liability and to assume all obligations contained in this
Section 7.1 to indemnify the indemnified Party by a delivery of notice of such
election ("Notice of Election") within ten (10) days after delivery of the
Notice of Action. Upon delivery of the Notice of Election, the indemnifying
Party shall be entitled to take control of the defense and investigation of such
lawsuit or action and to employ and engage attorneys of its own choice to handle
and defend the same, at the indemnifying Party's sole cost, risk and expense,
and such indemnified Party shall cooperate in all reasonable respects, at the
indemnifying Party's sole cost, risk and expense, except with respect to the
fees and expenses of the indemnified Party's attorney, which shall be borne by
the indemnified Party, with the indemnifying Party and such attorneys in the
investigation, trial, and defense of such lawsuit or action and any appeal
arising therefrom; provided, however, that the indemnified Party may, at its own
cost, risk and expense, participate in such investigation, trial and defense of
such lawsuit or action and any appeal arising therefrom. If the Notice of
Election is delivered to the indemnified Party, the indemnified Party shall not
pay, settle or compromise such claim without the indemnifying Party's consent,
which consent shall not be unreasonably withheld. If the indemnifying Party
elects not to defend the claim of the indemnified Party or does not deliver to
the indemnified Party a Notice of Election within ten (10) days after delivery
of the Notice of Action, the indemnified Party may, but shall not be obligated
to defend, provided that in no circumstances shall the indemnified Party
compromise or settle the claim or other matter on behalf or for the account of
the indemnifying Party without the consent of the indemnifying Party, which
shall not be unreasonably withheld.
D. Third Party Claims. The provisions of this Section 7.1 are
not limited to matters asserted by the Parties, but cover Damages incurred in
connection with third party claims. The indemnity hereunder is in addition to
any and all rights and remedies of the Parties in connection herewith.
E. Limitation on Indemnification. Notwithstanding the other
provisions of this Section 7.1, Seller shall not be liable to Buyer Indemnified
Parties, and Parent and Buyer shall not be liable to Seller Indemnified Parties,
for the first $25,000 in aggregate Damages suffered by such indemnified Parties;
provided, however, that once any such indemnified Parties have suffered Damages
aggregating in excess of $25,000, the indemnifying Party shall reimburse the
indemnified Parties for the full amount of such Damages, including the $25,000
in Damages initially excluded. In no event shall the aggregate Damages payable
by an indemnifying Party to indemnified Parties exceed the Purchase Price.
7.2 Survival of Representations and Warranties. All of the
representations, warranties, covenants and agreements contained in this
Agreement shall survive the Closing hereunder and continue in full force and
effect for two (2) years thereafter, except that the representations and
warranties contained in Sections 3.1 and 3.2 shall survive for a period of three
(3) years after Closing.
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ARTICLE VIII
REMEDIES
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8.1 Specific Performance; Remedies. Each of the Parties hereby agrees
that the transactions contemplated by this Agreement are unique, and that each
Party shall have, in addition to any other legal or equitable remedy available
to it, the right to enforce this Agreement by decree of specific performance. If
any legal action or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing Party or Parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or proceeding
in addition to any other remedies to which it, he or they may be entitled at law
or equity. The rights and remedies granted herein are cumulative and not
exclusive of any other right or remedy granted herein or provided by law.
ARTICLE XI
MISCELLANEOUS
-------------
9.1 Fees. Except as expressly set forth herein to the contrary, each
Party shall be responsible for all costs, fees and expenses (including attorney
and accountant fees and expenses) paid or incurred by such Party in connection
with the preparation, negotiation, execution, delivery and performance of this
Agreement, or otherwise in connection with the transaction contemplated hereby.
9.2 Modification of Agreement. This Agreement may be amended or
modified only in writing signed by all of the Parties.
9.3 Notices. All notices, consents, demands or other communications
required or permitted to be given pursuant to this Agreement shall be deemed
sufficiently given when delivered personally or telefaxed with receipt of
transmission confirmed during regular business hours during a business day to
the appropriate location described below, or three (3) business days after
posting thereof by United States first-class, registered or certified mail,
return receipt requested, with postage and fees prepaid and addressed as
follows:
<TABLE>
<S> <C>
IF TO SELLER: Peter and Leslie Giammanco
The Giammanco Family Trust
15250 Ventura Boulevard, Suite 410
Sherman Oaks, California 91403
Phone: 818/995-0600
Fax: 818/995-4248
With a copy to: Timothy F. Sylvester
Riordan & McKinzie
300 S. Grand Ave. 29th Floor
Los Angeles, California 90071
Phone: 213/229-8421
Fax: 213/229-8550
</TABLE>
-24-
<PAGE>
<TABLE>
<S> <C>
IF TO BUYER: Richard O. Looney
Litigation Resources of America-California, Inc.
650 First City Tower, 1001 Fannin
Houston, Texas 77002
Phone: 713/653-7100
IF TO PARENT: Richard O. Looney
Litigation Resources of America, Inc.
650 First City Tower, 1001 Fannin
Houston, Texas 77002
Phone: 713/653-7100
Fax: 713/653-7172
Fax: 713/653-7172
With copy to: J. Randolph Ewing
Boyer, Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Phone: 713/871-2025
Fax: (713) 871-2024
</TABLE>
Any addressee at any time by furnishing notice to the other addressees in the
manner described above may designate additional or different addresses for
subsequent notices or communications.
9.4 Severability. The invalidity or unenforceability of any provision
of this Agreement shall not invalidate or affect the enforceability of any other
provision of this Agreement.
9.5 Entire Agreement; Binding Effect. This Agreement and the
Ancillary Agreements set forth the entire agreement among the Parties with
respect to the subject matter hereof. This Agreement shall be binding upon and
shall inure to the benefit of the Parties and their respective successors and
assigns.
9.6 Waiver. No delay in the exercise of any right under this
Agreement shall waive such rights. Any waiver, to be enforceable, must be in
writing.
9.7 Governing Law. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Texas.
9.8 Assignment. The Seller shall not assign this Agreement or any
interest herein .
9.9 Headings. Headings in this Agreement are for convenience only and
shall not affect the interpretation of this Agreement.
9.10 Schedules and Exhibits. All Schedules and Exhibits attached to
this Agreement or to be delivered by the Seller, upon review and approval by the
Buyer, are and shall be hereby
-25-
<PAGE>
incorporated in and made a part of this Agreement. All Schedules to this
Agreement must be delivered no later than four (4) days prior to Closing, in
order to provide the Buyer ample time to review and evaluate the items described
therein and disclosed thereby. Although the Schedules remain subject to the
review and approval of the Buyer, no such review or approval shall constitute a
waiver by the Buyer of any breach or default caused by the inaccuracy or
incompleteness of any Schedule, the accuracy and completeness of the Schedules
being the sole responsibility of the Seller.
9.11 Offset; Remedies. To the extent not otherwise prohibited by
applicable law, (i) all amounts due and owing by the Buyer to the Seller under
this Agreement, Note 1, Note 2, or any document, instrument, or agreement
executed in connection herewith, and (ii) the Parent Shares, if issued, shall be
subject to offset by the Buyer to the extent of any Damages incurred by Buyer
that have triggered an indemnification obligation of Seller under Section 7.1.A.
In the event Buyer elects to offset any such Damages, Buyer shall furnish Seller
notice containing detailed information with respect to such Damages, the
specific obligation of Seller that triggered such Damages and such other
information as may be reasonably appropriate in respect of Seller's
consideration of such claim (an "Offset Claim"). Seller shall have twenty (20)
days after receipt of such information to dispute any such Offset Claim, and
shall so notify Buyer of the basis for such dispute. If the Parties are unable
to resolve such dispute within fifteen (15) days, the Offset Claim shall be
submitted to arbitration, as further described in Section 9.15. If Seller agrees
to pay such Offset Claim or fails to contact Buyer within such twenty (20) day
period, and pending final resolution of any Offset Claim which has been
submitted to arbitration, the offset shall be applied as follows (the act of
offsetting by Buyer shall be referred to as an "Offset"): (a) First against Note
1 until the full amount of Note 1, both principal and interest, has been repaid,
(b) next against Note 2 until the full amount of Note 2, both principal and
interest, has been repaid, and (c) finally, against the Parent Shares. In order
to secure the Buyer's offset rights against the Parent Shares, Buyer and Seller
shall execute the Stock Pledge Agreement. Upon issuance, the Parent Shares shall
have a restrictive legend typed on the back thereof specifying that the Parent
Shares are subject to a right of offset as specified in the Agreement. The
Seller acknowledges and agrees that but for the right of Offset contained in
this Agreement, the Buyer would not have entered into this Agreement or any of
the transactions contemplated herein. Notwithstanding anything contained herein
to the contrary, the offset rights of Buyer hereunder shall terminate in the
manner set forth in Section 7.2.
9.12 Rights and Liabilities of Parties. Nothing in this Agreement,
whether express or implied, is intended to confer any rights or remedies under
or by reason of this Agreement on any persons other than the Parties and their
respective successors and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third persons to any
Party to this Agreement, nor shall any provision give any third person any right
of subrogation or action over against any Party to this Agreement.
9.13 Survival. Subject to Section 7.2, this Agreement, including but
not limited to all covenants, warranties, representations and indemnities
contained herein, shall survive the Closing, and the Bill of Sale and all other
documents, instruments or agreements relating to the Assets and the transactions
contemplated herein shall not be deemed merged therein.
-26-
<PAGE>
9.14 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall have the force and effect of an original, and
all of which shall constitute one and the same agreement.
9.15 Arbitration. If a dispute arises out of or relates to this
Agreement, or the breach thereof, and if such dispute cannot be settled through
negotiation, the Parties agree first to try in good faith to settle the dispute
by mediation under the Commercial Mediation Rules of the American Arbitration
Association, before resorting to arbitration, litigation, or some other dispute
resolution procedure as required by this Section 9.15. Failing an adequate
resolution by mediation, any controversy or claim arising out of or relating to
this Agreement or the transactions contemplated hereby, including any
controversy or claim arising out of or relating to the Parties' decision to
enter into this Agreement, shall be settled by binding arbitration. There shall
be one arbitrator to be mutually agreed upon by the Parties involved in the
controversy and to be selected from the National Panel of Commercial Arbitrators
(or successor panel, if any). If within 45 days after service of the demand for
arbitration the Parties are unable to agree upon such an arbitrator who is
willing to serve, then an arbitrator shall be appointed by the American
Arbitration Association in accordance with its rules. Except as specifically
provided in this Section 9.15, the arbitration shall be conducted in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
The arbitrator shall not render an award of punitive damages. Any arbitration
hereunder shall be held in Los Angeles, California. Expenses related to the
arbitration, including counsel fees, shall be borne by the Party incurring such
expenses except to the extent otherwise provided in Section 9.16 herein. The
fees of the arbitrator and of the American Arbitration Association, if any,
shall be divided equally among the Parties involved in the controversy. Judgment
upon the award rendered by the arbitrator (which may, if deemed appropriate by
the arbitrator, include equitable or mandatory relief with respect to
performance of obligations hereunder) may be entered in any court of competent
jurisdiction.
9.16 Attorneys' Fees. If any litigation is instituted to enforce or
interpret the provisions of this Agreement or the transactions described herein,
the prevailing Party in such action shall be entitled to recover its reasonable
attorneys' fees from the other Parties hereto.
9.17 Drafting. All Parties hereto acknowledge that each Party was
actively involved in the negotiation and drafting of this Agreement and that no
law or rule of construction shall be raised or used in which the provisions of
this Agreement shall be construed in favor or against any Party hereto because
one is deemed to be the author thereof.
-27-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed and delivered
this Agreement in multiple counterparts effective as of the date first written
above.
BUYER:
-----
LITIGATION RESOURCES OF AMERICA-
CALIFORNIA, INC.,
a California corporation
By: /s/ D. W. Pfleghar
----------------------------------------------------
Name: D. W. Pfleghar
--------------------------------------------------
Title: CEO
-------------------------------------------------
PARENT:
------
LITIGATION RESOURCES OF AMERICA, INC.,
a Texas corporation
By: /s/ D. W. Pfleghar
----------------------------------------------------
Name: D. W. Pfleghar
--------------------------------------------------
Title: CEO
-------------------------------------------------
SELLER:
------
GIAMMANCOS:
/s/ Peter Giammanco
-------------------------------------------------------
PETER GIAMMANCO, Individually
/s/ Leslie Giammanco
-------------------------------------------------------
LESLIE GIAMMANCO, Individually
TRUST:
By:/s/ Peter Giammanco
----------------------------------------------------
Peter Giammanco, as a Trustee of the Giammanco
Family Trust established under Declaration of Trust
dated August 21, 1996 governed by the law of the
State of California
By:/s/ Leslie Giammanco
----------------------------------------------------
Leslie Giammanco, as a Trustee of the Giammanco
Family Trust established under Declaration of Trust
dated August 21, 1996 governed by the law of the
State of California
-28-
<PAGE>
<TABLE>
<CAPTION>
Schedules
- ---------
<S> <C>
1-A Employees of Seller
2.1(a) Equipment
2.1(b) Contracts
2.1(c) Books and Records
2.1(e) Intellectual Property
2.1(g) General Intangibles
2.2 Excluded Assets
3.1 Encumbrances on Assets
3.6 Licenses
3.9 Litigation
3.10 Breaches or Violations
3.14 Leased Assets
3.17(a and b) Certain Changes or Events
3.18 Consents and Approvals
3.22 Liens
3.23 Customers
3.24 Insurance Policies
3.25 Interest in Customers, Suppliers and Competitors
4.6 Consents
Exhibits
- --------
A-1 Note 1
A-2 Note 2
B Employment Agreement
C Bill of Sale, Assignment and Assumption Agreement
D Contingent Stock Pledge Agreement
</TABLE>
Other Documents
- ---------------
Registration Rights Agreement
Subordination Agreements
- --TCB Note 1
- --TCB Note 2
- --Pecks Note 1
- --Pecks Note 2
-29-
<PAGE>
EXHIBIT 10.10
LITIGATION RESOURCES OF AMERICA-MIDWEST, INC.
1001 Fannin, Suite 650
Houston, Texas 77002
August 15, 1997
Ms. Sandra Rocca
Rocca Reporting Service
79 West Monroe Street, Suite 1114
Chicago, Illinois 60603
Re: Purchase of Assets of Rocca Reporting Service
-------------------------------------------------
Dear Ms. Rocca:
This letter agreement (this "Agreement") will evidence the agreement
between SANDRA ROCCA, an individual residing in the State of Illinois (the
"Seller") doing business as a sole proprietor under the name "ROCCA REPORTING
SERVICE" (the "Business"),and LITIGATION RESOURCES OF AMERICA-MIDWEST, INC., an
Illinois corporation (the "Purchaser") whose address is 1001 Fannin, Suite 650,
Houston, Texas 77002, with respect to the sale by the Seller to the Purchaser of
the Assets, as hereinafter defined. Seller and Purchaser are sometimes
hereinafter referred to collectively as the "Parties" and individually as a
"Party." The Parties hereby agree as follows:
1. Purchase and Sale of the Assets. Seller hereby grants, sells,
-------------------------------
conveys, assigns and delivers, and Purchaser hereby purchases, effective as of
the close of business on the date set forth above, the following assets of
Seller used in the Business (collectively, the "Assets"):(a) all of the office
furniture, fixtures, equipment and office supplies of Seller, including the
personal property of Seller set forth on Exhibit A attached hereto and
incorporated herein by reference; (b) all of Seller's goodwill, customer,
client, supplier and vendor lists, and other general intangibles; (c) the right
to the exclusive use of the name "Rocca Reporting Service," and all variations
thereof, (d) Seller's current telephone number; (e) the lease agreement dated
September 1, 1996, executed by Koll-Rubloff Management, as lessor, and Seller,
as lessee, covering Seller's offices at the address set forth above, expiring
August 31, 1997; and (f) the other leases set forth on Exhibit B. Seller shall
retain all of its accounts receivable and accounts payable, and, except for the
obligations of Seller under the agreements set forth in Subsections 1(e) and
1(f) above (collectively, the "Assumed Agreements"), Purchaser is not assuming
any indebtedness or other duty, liability or obligation of Seller in connection
herewith. Contemporaneously with the execution of this Agreement, (a) Purchaser
and Seller shall enter into an Employment Agreement which shall be in form and
content acceptable to the Parties, and (b) Seller shall (i) deliver duly
executed releases or termination statements with respect to all liens covering
the Assets, and (ii) pay all of Seller's outstanding liabilities and
obligations, all of which are set forth by creditor and amount as of the date
hereof and all of Seller's accounts, on Exhibit C. Seller shall from time to
time after the date hereof, without further consideration, execute and deliver
such other instruments of transfer, conveyance and assignment, and shall take
such other action as Purchaser may reasonably request, to more effectively
transfer, convey and assign to and vest in Purchaser, and to put Purchaser in
actual possession and control of, each of the Assets.
2. Purchase Price; Assumption. In consideration for the sale of the
--------------------------
Assets and Seller's performance hereunder, and for services to be performed by
the Seller under the Employment Agreement, Purchaser is (a) paying Seller
Forty-Five Thousand Dollars ($45,000), and (b) hereby assuming Seller's
-1-
<PAGE>
liabilities under the Assumed Agreements. The Parties hereby acknowledge and
agree that except for the Assumed Agreements, Purchaser shall not assume, and
Purchaser is not agreeing to pay or discharge, any debt, contract, commitment,
obligation or liability of Seller, whether now existing or arising in the
future.
3. Representations and Warranties of Seller. Seller represents and
----------------------------------------
warrants to Purchaser as follows: (a) Seller founded the Business on January 1,
1994, has conducted the Business under the name "Rocca Reporting Service"
continuously since such date as a sole proprietorship, has held title to the
Assets as sole owner since such date or the date Seller first acquired them for
the Business, and has all requisite power and authority to execute, deliver and
perform this Agreement without the consent or approval of any third party
(except for those consents which have been obtained and delivered to Purchaser);
(b) on the date hereof, the Seller has and is transferring to the Purchaser,
good and marketable title to all of the Assets, free and clear of any security
interests, liens, pledges, encumbrances or other adverse claims; (c) Seller is
not in default under any of the Assumed Agreements; (d) the Assets are in good
operating condition and repair, ordinary wear and tear excepted; (e) Seller has
complied in all material respects with all applicable federal, state, and local
laws with respect to the ownership of its properties and the conduct of its
business, (f) neither the execution, delivery nor performance of this Agreement
by Seller will result in a violation or breach of, nor constitute a default or
accelerate the performance under, any indenture, security agreement, pledge,
lease, conditional sales contract or other contract or agreement to which the
Seller is a party or by which she or the Assets are bound; (g) there are no
claims, suits, or other proceedings or investigations pending or threatened
against or affecting Seller or any of the Assets before or by any court or other
governmental agency or authority; (h) Seller has filed all tax returns and paid
all taxes owed by Seller on or before the date such returns or payments were
due, and all such returns were true, complete and correct in all material
respects; (i) Seller has no information, and is not aware of any facts,
indicating that any clients of Seller's business intend not to do business with
Purchaser, or to do materially less business with Purchaser than they did
previously with Seller; (j) Seller will use her best efforts to maintain
Seller's existing clients; (k) all creditors of Seller have been fully paid, and
Purchaser need not take any action, or send any notice in order to comply with
the bulk sales laws of Illinois in order to prevent the Assets from being
subject to the claims of any creditors of the Seller; (l) Seller has not
granted, and will not grant, to any third party the right to use, and will not
use, the name "Rocca Reporting Service" or any similar name, for any business
purpose.
4. Representations and Warranties of the Purchaser. Purchaser
-----------------------------------------------
represents and warrants to Seller as follows: (a) Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Illinois and has all requisite power and authority to carry on its
business as now conducted, and to execute, deliver and perform this Agreement
without the consent or approval of any third party; and (b) the execution,
delivery and performance of this Agreement by Purchaser have been duly
authorized by the Board of Directors of Purchaser, and no further corporate
action is necessary on the part of Purchaser to make this Agreement valid and
binding upon Purchaser and enforceable in accordance with its terms.
5. Indemnification of Purchaser. Seller hereby agrees to indemnify,
----------------------------
defend and hold harmless Purchaser and its successors and assigns against any
loss, damage, liability, claim, cost or expense (including reasonable attorneys'
fees) which are based upon or arise out of (i) any claim made against Purchaser
in respect of any liabilities or obligations of Seller or events or conditions
existing or occurring with respect to Seller or the Assets on or before the date
first set forth above, (ii) any breach or default in the performance by Seller
of any covenant or agreement of Seller contained in this Agreement, (iii) any
breach of warranty or inaccurate or erroneous representation made by Seller
herein or in any agreement delivered by or on behalf of Seller in connection
herewith, or (iv) any and all actions, suits, proceedings, claims, demands,
judgments, costs and expenses incident to any of the foregoing.
-2-
<PAGE>
6. Indemnification of Seller. Purchaser shall indemnify and hold
-------------------------
harmless Seller and her successors and assigns against any loss, damage,
liability, claim, cost or expense (including reasonable attorneys' fees) which
are based upon or arise out of (i) any claim made against Seller in respect of
any liabilities or obligations of Purchaser or events or conditions existing or
occurring with respect to the Assets after the date hereof, (ii) any breach or
default in the performance by Purchaser of any covenant or agreement of
Purchaser contained in this Agreement, (iii) any breach of warranty or
inaccurate or erroneous representation made by Purchaser herein or in any
agreement delivered by or on behalf of Purchaser pursuant hereto, or (iv) any
and all actions, suits, proceedings, claims, demands, judgments, costs and
expenses incident to any of the foregoing.
7. Miscellaneous.
-------------
(a) Successors Bound; Amendment; Entire Agreement. This
---------------------------------------------
Agreement shall be binding upon and inure to the benefit of the Parties and
their respective successors and assigns. This Agreement may be amended only by
an instrument in writing executed by all of the Parties. This Agreement and the
documents referred to herein constitute the entire agreement of the Parties, and
supersede all prior understandings with respect to the subject matter hereof and
thereof.
(b) Notices. All notices, consents, demands or other
-------
communications required or permitted to be given pursuant to this Agreement
shall be deemed sufficiently given when delivered personally, or three (3)
business days after posting thereof by United States first-class, registered or
certified mail, return receipt requested, with postage and fees prepaid and
addressed to the appropriate Party at her or its address set forth below.
IN WITNESS WHEREOF, this Agreement has been duly executed in multiple
counterparts (each of which shall be an original and all of which together shall
constitute one and the same instrument) and delivered by the Parties effective
as of the close of business on the date first set forth above.
LITIGATION RESOURCES OF AMERICA-MIDWEST, INC.
By:/s/ Richard O. Looney
-------------------------------------------------
Richard O. Looney, President and CEO
AGREED TO AND ACCEPTED EFFECTIVE as of the close of business
on the date first set forth above.
/s/ Sandra Rocca
--------------------------------------
SANDRA ROCCA, a sole proprietor doing
business as Rocca Reporting Service
Exhibit A - Personal Property
Exhibit B - Existing Leases
Exhibit C - Liabilities
-3-
<PAGE>
Exhibit A
<TABLE>
<S> <C>
ASSETS
Partners Plus Phone System
(includes 7 phones)
City of Chicago License $ 125
State Farm Insurance Policy $ 150 per year
Quicken Software $ 50
Discovery ZX Software $ 120
(3 conversions)
FZ Bill Software $1000
Canon personal copier $ 500
Smith-Corona typewriter $ 150
Sharp fax machine $ 150
microwave oven $ 100
refrigerator $ 150
5 Desks $2000
credenza and 2 hutches $1000
3 bookcases $ 300
2 filing cabinets $ 210
7 chairs $ 750
Reference books $2000
lunch table and 2 chairs $ 50
binders $ 500
Miscellaneous $1542
</TABLE>
<PAGE>
Exhibit B
<TABLE>
<S> <C>
Existing Leases
AT&T Partner Plus Phone System $ 92.10 per month
Pitney Bowes (Postage meter) $ 114.00 every three months
Koll-Rubloff (rent) $1279.79 per month plus elec.
Hinckley-Schmitt (water bottle) $ 10.34 per month
ProNet (pager) $ 24.28 per month
</TABLE>
<PAGE>
Exhibit C
<TABLE>
<S> <C>
Liabilities
First Chicago Credit Line $1000.00
RPM $ 219.24
Pengad $ 285.00
Court Reporters (services incurred to date) $9500.00
Existing Accounts
Federal Express
American Express corporate card
Checking account
Record Copy Service
Purchase Power (postage)
RPM
Pengad
</TABLE>
-6-
<PAGE>
EXHIBIT 10.11
Plan And Agreement of Reorganization And Merger
-----------------------------------------------
THIS PLAN AND AGREEMENT OF REORGANIZATION AND MERGER (this "Agreement") is
dated as of August 19, 1997, by and among LITIGATION RESOURCES OF AMERICA ,
CALIFORNIA, INC., a California corporation ("LRA-CA"), GOREN OF NEWPORT, INC., a
California corporation doing business as JOHNSON COURT REPORTING ("JCR"), GLORY
JOHNSON, an individual (the "Shareholder"), and LITIGATION RESOURCES OF AMERICA,
INC., a Texas corporation and the parent company of LRA-CA ("Parent"). LRA-CA
and JCR are sometimes hereinafter referred to collectively as the "Constituent
Corporations" or individually as a "Constituent Corporation." LRA-CA and Parent
are sometimes hereinafter referred to collectively as the "LRA Companies" or
individually as a "LRA Company." JCR and the LRA Companies are sometimes
hereinafter referred to collectively as the "Corporations" or individually as a
"Corporation." The Corporations and the Shareholder are sometimes referred to
collectively as the "Parties" or individually as a "Party."
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Board of Directors of each Corporation deems it advisable and
in the best interests of such Corporation and of such Corporation's stockholders
that JCR be merged with and into LRA-CA pursuant to the provisions of the
General Corporation Law of California (the "California Act") and this Agreement,
in a transaction whereby all of the currently issued and outstanding shares of
common stock, without par value, of JCR will be canceled and converted into the
right to receive shares of common stock, $.01 par value, of the Parent, together
with cash and other consideration; and
WHEREAS, the Board of Directors of each Corporation has authorized and
approved the merger of JCR with and into LRA-CA (the "Merger") on the terms and
conditions contained in this Agreement, and the Board of Directors of each
Constituent Corporation has submitted the Merger to the stockholders of such
Constituent Corporation for approval, as required by the California Act, and
such approval of the stockholders has been obtained in accordance with the
requirements of the California Act; and
WHEREAS, the Parties intend that the Merger will constitute a
reorganization under the provisions of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"); and
WHEREAS, the Parties desire to set forth certain representations,
warranties and covenants made by each of them to the others as an inducement to
the execution hereof and the consummation of the Merger;
NOW THEREFORE, in consideration of the premises and the mutual agreements,
promises and covenants herein contained, the Parties hereby agree that JCR shall
be, at the "Effective Time"
<PAGE>
of this Agreement (as hereinafter defined in Section 4.02), merged into LRA-CA,
which shall be the surviving corporation (such corporation in its capacity as
such surviving corporation may be hereinafter referred to as the "Surviving
Corporation") and a wholly-owned subsidiary of Parent, organized and existing
under the laws of the State of California, and the Corporations hereby adopt and
agree to the following covenants, terms and conditions relating to the Merger
and the manner of carrying the same into effect.
ARTICLE I
---------
DEFINITIONS
"Accounts Payable Report" means a report as of a given time period
containing a summary of the outstanding accounts payable of JCR which report
shall reflect such accounts payable on an aged basis and shall set forth the
amounts due and owing by JCR to each of its suppliers, creditors or court
reporters.
"Accounts Receivable" means all amounts due and owing to JCR by each of its
customers.
"Accounts Receivable Report" means a report as of a given time period
containing a summary of the outstanding accounts receivable of JCR, which report
shall reflect such accounts receivable and shall set forth the amounts due and
owing to JCR by each of its customers.
"Accredited Investor" has the meaning set forth in Regulation D promulgated
under the Securities Act.
"Additional Parent Shares Value" means $8.50 per Parent Share; provided,
that if the Parent or its Affiliates have subsequently consummated an
acquisition in which Parent Shares are issued, then the value of each Parent
Share as specified in the most recent such acquisition; and further provided
however, that if the Parent has successfully consummated a public offering of
its shares of common stock, then it shall mean the average public trading price
of each Parent Share over the five (5) most recent business days.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Balance Sheet Report" means the balance sheet of JCR as of a given date
showing the assets, liabilities and equity of JCR prepared by JCR in accordance
with GAAP on a consistent basis as with prior time periods.
-2-
<PAGE>
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or is reasonably likely to form the
basis for any specified consequences.
"Cash Payment" has the meaning set forth in Section 2.03(b)(iii) below.
"Charges" shall mean all federal, state, county, city, municipal, local,
foreign or other governmental taxes at the time due and payable, levies,
assessments, charges, liens, claims or encumbrances upon or relating to (i) any
of a corporation's employees, payroll, income or gross receipts, (ii) any of a
corporation's ownership or use of any of its assets, or (iii) any other aspect
of a corporation's business.
"Closing" has the meaning set forth in Section 2.04 below.
"Closing Date" has the meaning set forth in Section 2.04 below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the businesses
and affairs of JCR and its Subsidiaries that is not (a) generally known or
available to the public; (b) after the date of this Agreement, generally known
or readily available through no violation of this Agreement; or (c) in or does
not hereafter become a part of the public domain through no violation of this
Agreement.
"Controlled Group" means JCR, its Subsidiaries, and any trade or business
(whether or not incorporated) which together with JCR or any Subsidiary of JCR
would be deemed to be a "single employer" within the meaning of ERISA Section
4001(b)(1) or subsections (b), (c), (m) or (o) of Code Section 414.
"Customarily Permitted Liens" shall mean:
(a) Liens for ad valorem taxes, assessments or other governmental
Charges or levies, not yet due and payable;
(b) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other like Liens imposed by law, created in the
ordinary course of business and for amounts not yet due (or which are being
contested in good faith by appropriate proceedings or other appropriate
actions which are sufficient to prevent imminent foreclosure of such
Liens); and
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(c) easements (including, without limitation, reciprocal easement
agreements and utility agreements), encroachments, variations and other
restrictions, Charges or encumbrances customary to the type of real
property affected and which do not impair the current use, occupancy, value
or the marketability of title of the real property subject thereto.
"Damages" has the meaning set forth in Section 11.02 below.
"EBITDA" shall mean earnings before interest, taxes, depreciation, and
amortization.
"Effective Date' shall mean 12:01 a.m. on the Closing Date.
"Effective Date Accounts Payable Report" means the Accounts Payable Report
for JCR as of the Effective Date.
"Effective Date Accounts Receivable" shall mean the entire amount of
Accounts Receivable for JCR as of the Effective Date.
"Effective Date Accounts Receivable Report" means the Accounts Receivable
Report for JCR as of the Effective Date.
"Effective Date Balance Sheet Report" means the Balance Sheet Report for
JCR as of the close of the Effective Date.
"Effective Time" has the meaning set forth in Section 4.02.
"Employee Benefit Plan" means any (a) Employee Pension Benefit Plan, (b)
Employee Welfare Benefit Plan, or (c) personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement, incentive award plan
or arrangement, vacation policy, severance pay plan, policy or agreement,
deferred compensation agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement, employment agreement and
each other employee benefit plan, agreement, arrangement, program, practice or
understanding which is not described in clause (a) or (b) of this sentence.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Section
3(2), including, but not limited to, employee pension benefit plans, such as
foreign plans, which are not subject to the provisions of ERISA.
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Section
3(1), including, but not limited to, employee welfare benefit plans, such as
foreign plans, which are not subject to the provisions of ERISA.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Final Net Worth" means the Net Worth as of the Effective Date as
determined in accordance with Section 2.07 below.
"Financial Statements" has the meaning set forth in Section 7.06 below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Guaranteed Net Worth" means $14,100.00.
"Income Statement Reports" means a statement of revenues and expenses of
JCR as of a given date prepared by JCR on an accrual basis and on a consistent
basis as with prior time periods.
"IRS" means the United States Internal Revenue Service or such equivalent
successor agency of the United States with the responsibility of assessing
and/or collecting Taxes.
"JCR's Accountants" shall mean the independent certified public accounting
firm of Metzleur, Skelton & Whitmore.
"JCR Disclosure Schedule" has the meaning set forth in Section 7.0 below.
"JCR Profits" has the meaning set forth in Section 2.03 below.
"JCR Share" means any share of the issued and outstanding common stock of
JCR, without par value.
"Johnson Employment Agreement" means that certain Employment Agreement by
and between LRA-CA and Shareholder dated of even date herewith.
"Knowledge" means an individual will be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
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(b) a prudent individual could be expected to discover or otherwise become
aware of such fact or other matter in the course of conducting a
reasonably comprehensive investigation concerning the existence of
such fact or other matter.
A person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving, or who has at
any time served, as a director, officer, partner, executor, or trustee of such
Person (or in any similar capacity) has, or at any time had, Knowledge of such
fact or other matter.
"Liability" means any liability (whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
"Liens" means any mortgages, deeds of trust, liens, security interests,
pledges, claims, charges, liabilities, obligations, or other encumbrances.
"LRA Companies' Accountants" shall mean the independent certified public
accounting firm of Coopers & Lybrand located in Houston, Texas.
"LRA Companies' Disclosure Schedule" has the meaning set forth in Section
8.0 below.
"LRA Financial Statements" has the meaning set forth in Section 8.08 below.
"LRA Indemnified Parties" has the meaning set forth in Section 11.2 below.
"Net Worth" means the dollar amount of equity of JCR as of a given time
period as determined by the Balance Sheet Report.
"Note" has the meaning set forth in Section 2.03(b)(ii) below.
"Notice of Action" has the meaning set forth in Section 11.02(ii) below.
"Notice of Election" has the meaning set forth in Section 11.02(ii) below.
"Offset" has the meaning set forth in Section 11.03(B) below.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Parent Shares" has the meaning set forth in Section 2.03(b)(i) below.
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"Parent Shares Value" shall mean $8.50 per Parent Share; provided however,
that if the Parent has successfully consummated a public offering of its shares
of common stock, then it shall mean the average public trading price of each
Parent Share over the five (5) most recent business days.
"Past Due Accounts Receivable" means those accounts receivable of JCR whose
age is more than 120 days from the date of invoice as of the Effective Date.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Encumbrances" with respect to property of a Party shall mean (i)
Security Interests expressly permitted, or consented in writing to by the other
Party; (ii) Purchase Money Liens; (iii) Customarily Permitted Liens; and (iv)
Liens of judgment creditors provided such Liens do not exceed $3,000
individually or $15,000 in the aggregate (other than Liens bonded or insured to
the reasonable satisfaction of the other Party).
"Person" means an individual, a partnership, a limited liability company, a
corporation, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"Pledge Agreement" has the meaning set forth in Section 11.03 below.
"Prohibited Transaction" has the meaning set forth in ERISA Section 406 and
Code Section 4975.
"Purchase Money Liens" shall mean Liens incurred in connection with the
acquisition of any asset; provided that (i) each such Lien shall attach only to
the asset to be acquired, (ii) a description of the asset so acquired is
furnished to the other Party, and (iii) the indebtedness incurred in connection
with such acquisitions shall not individually exceed $3,000 or in the aggregate
exceed $15,000.
"Purchase Price" has the meaning described in Section 2.03 below.
"Registration Rights Agreements" has the meaning set forth in Section
9.01(ix).
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
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"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's and similar
liens, (b) liens for Taxes not yet due and payable or for Taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
Purchase Money Liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Senior Lender" shall mean Texas Commerce Bank, N.A.
"Shareholder" shall mean Glory Johnson, an individual.
"Shareholders' Agreement" shall mean that certain First Amended and
Restated Shareholders' Agreement by and between the Parent and all of the
shareholders of the Parent.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors thereof.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium
windfall profits, environmental (including taxes under Code Section 5(A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
ARTICLE II
----------
THE MERGER; STATUS AND CONVERSION OF SECURITIES
2.01 The Merger. Subject to the terms and conditions of this Agreement,
----------
at the Effective Date, JCR shall be merged with and into LRA-CA in accordance
with this Agreement and the separate existence of JCR shall thereupon cease. The
Merger is intended to be a forward triangular merger and "tax-free
reorganization" pursuant to Section 368(a) of the Code. The Merger shall have
the effects specified in the California Act.
2.02 [Intentionally Omitted]
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2.03 Status and Conversion of Securities. The status of the outstanding
-----------------------------------
capital stock of each of the Constituent Corporations and the manner and basis
of converting the shares of capital stock of each of the Constituent
Corporations into or for shares of capital stock of the Surviving Corporation or
into or for Parent Shares or cash (for fractional shares), as the case may be,
at the Effective Time shall be as follows:
(a) Each share of Common Stock, without par value, of LRA-CA
outstanding as of the Effective Time shall remain one fully paid and non-
assessable share of Common Stock, without par value, of the Surviving
Corporation.
(b) All of the shares of Common Stock of JCR outstanding as of the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted at the Effective Time into (collectively,
the "Purchase Price"):
(i) an aggregate of 46,118,117 shares of the common stock of Parent,
$.01 par value per share (the "Parent Shares") as will constitute an agreed
upon value of $ 392,004 and at the Parent Shares Value;
(ii) a 7% Junior Subordinated Promissory Note in the principal
amount of $78,401 (the "Note") payable to the Shareholder, which Note shall
provide that it is immediately accelerated should the Parent consummate a
public offering of shares of its common stock; and
(iii) cash in the amount of $313,603 payable by wire transfer or
delivery of other immediately available funds to the Shareholder on the
Closing Date in accordance with wiring instructions delivered by the
Shareholder to LRA-CA at or prior to Closing (the "Cash Payment").
2.04 The Closing. The closing of the transactions contemplated by this
-----------
Agreement (the "Closing") shall take place simultaneously at the offices of (i)
Boyer, Ewing & Harris in Houston, Texas, and (ii) JCR in Newport Beach,
California, unless otherwise mutually agreed, commencing on August 19, 1997, at
9:00 a.m. central daylight time, or at such other time or place as the Parties
mutually agree (the "Closing Date").
2.05 Deliveries at the Closing. At the Closing, (i) JCR and the
-------------------------
Shareholder will deliver to the LRA Companies the various certificates,
instruments, and documents referred to in Section 9.01 below, (ii) the LRA
Companies will deliver to JCR and the Shareholder the various certificates,
instruments, and documents referred to in Section 9.02 below, (iii) the
Shareholder will deliver to LRA-CA the stock certificate(s) representing all of
the JCR Shares, endorsed in blank or accompanied by duly executed assignment
documents, and (iv) the LRA Companies will deliver to the Shareholder the Parent
Shares, the Note and the Cash Payment.
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2.06 Exchange of Certificates and Related Matters. (a) At the Closing,
--------------------------------------------
the Shareholder as the sole holder of certificates theretofore representing
outstanding JCR Shares shall surrender the same to LRA-CA, and the Shareholder
shall upon such surrender receive in exchange therefor a certificate or
certificates representing the number of full and fractional shares of Parent
Shares into which the JCR Shares theretofore represented by the certificate or
certificates so surrendered shall have been converted pursuant to the Merger.
(b) After the Effective Time and until surrendered, each certificate
which theretofore represented outstanding JCR Shares shall be deemed for all
corporate purposes, other than the payment of dividends and distributions, to
evidence solely the right to receive the number of full and fractional shares of
Parent Shares into which such JCR Shares are convertible. No dividend or other
distribution, if any, payable to holders of Parent Shares shall be paid to the
holders of any such certificates for JCR Shares until such certificates are
surrendered, but upon surrender of such certificates, all such declared
dividends and distributions, if any, shall be paid to the holder of record of
the full shares of Parent Shares represented by the certificate issued in
exchange therefor, without interest.
(c) As of the Effective Time, the stock transfer books of JCR will
be closed and no further transfers shall be made thereon.
2.07 Determination of Final Net Worth. The Effective Date Balance Sheet
--------------------------------
Report, the Effective Date Accounts Receivable Report and the Effective Date
Accounts Payable Report (collectively, the "Effective Date Financial Reports")
shall be prepared by JCR and JCR's Accountants as promptly as possible after the
Closing, and the Shareholder shall deliver the Effective Date Reports to LRA-CA
and the LRA Companies' Accountants as soon as possible but in no event later
than 30 days after the Closing Date. The LRA Companies' Accountants shall
review the Effective Date Financial Reports (including any corresponding work
papers of JCR's Accountants) and report to JCR's Accountants in writing within
15 days of receipt thereof of any discrepancy. If JCR's Accountants and the LRA
Companies' Accountants cannot resolve such discrepancy within 15 days after
JCR's Accountants receipt of such report, then they shall so notify the Parties,
and the Parties shall attempt to resolve the discrepancy within 15 days of such
notice. If the Parties cannot resolve the discrepancy to their mutual
satisfaction, another independent public accounting firm acceptable to all
Parties shall be retained to review the Effective Date Financial Reports. Such
firm's conclusions as to the carrying values to appear on the Effective Date
Financial Reports for purposes of determining the Final Net Worth of JCR shall
be conclusive. The Parties shall share equally in the expenses of retaining
such accounting firm. The LRA Companies shall pay the expenses of the LRA
Companies' Accountants for their review of the Effective Date Financial Reports,
and the Shareholder shall pay the expenses of JCR's Accountants for their review
of the Effective Date Financial Reports.
2.08 Post-Closing Adjustment of Purchase Price. After the Closing Date,
-----------------------------------------
the Purchase Price set forth in Section 2.03 shall be adjusted as follows: (i)
if the Final Net Worth of JCR as
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finally determined pursuant to Section 2.07 shall be more than the Guaranteed
Net Worth, then (a) the Parent Shares shall be increased by an amount equal to
fifty percent (50%) of the amount of such excess, (b) the Cash Payment shall be
increased by an amount equal to forty percent (40%) of the amount of such
excess, and (c) the principal amount of the Note shall be increased by an amount
equal to ten percent (10%) of the amount of such excess, and (ii) if the Final
Net Worth of JCR as finally determined pursuant to Section 2.07 shall be less
than the Guaranteed Net Worth, then (a) the Parent Shares shall be reduced by an
amount equal to fifty percent (50%) of the amount of such shortfall, (b) the
Cash Payment shall be reduced by an amount equal to forty percent (40%) of the
amount of such shortfall, and (c) the principal amount of the Note shall be
reduced by an amount equal to ten percent (10%) of the amount of such shortfall.
In the event that the Parent Shares should be reduced pursuant to (ii) above,
the Shareholder shall immediately return the aggregate number of Parent Shares
to the Parent as will constitute the value of the reduction. In the event that
the Cash Payment should be reduced pursuant to (ii) above, the Shareholder shall
immediately refund such amount of cash to LRA-CA. In the event that any
principal payments on the Note are made by LRA-CA prior to the determination of
the final principal balance as a result of the determination of the Final Net
Worth, then the amount of any such principal payments shall reduce the amount of
the principal balance of the revised Note. In addition, the Note executed and
delivered by LRA-CA to the Shareholder at the Closing shall be promptly returned
to LRA-CA marked "CANCELLED" upon LRA-CA's delivery of the revised Note to the
Shareholder upon determination of the Final Net Worth.
2.09 Additional Merger Transactions. The Closing of the Merger is
------------------------------
contingent upon the simultaneous merger of LRA-CA with each of Rapidtext, Inc.,
a California corporation, and Medtext, Inc., a California corporation (the
"Additional Merger Transactions"). The Merger shall not be effective unless and
until the Additional Merger Transactions have been effected.
ARTICLE III
-----------
ARTICLES OF INCORPORATION; BY-LAWS;
DIRECTORS AND OFFICERS; VACANCIES
3.01 Articles of Incorporation. The Articles of Incorporation of LRA-CA as
-------------------------
in effect on the date hereof shall be and continue to be the Articles of
Incorporation of the Surviving Corporation until amended, altered or repealed in
the manner provided by law.
3.02 By-Laws. The By-Laws of LRA-CA as in effect on the date hereof shall
-------
be and constitute the By-Laws of the Surviving Corporation until altered,
amended or repealed as provided by law.
3.03 Directors. The Directors serving on the Board of Directors of LRA-CA
---------
on the date hereof shall continue as the Directors of the Surviving Corporation,
to hold office until their successors are elected and shall have duly qualified.
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3.04 Officers. The officers of LRA-CA in office on the date hereof shall
--------
be the officers of the Surviving Corporation, each to hold office in accordance
with the Articles of Incorporation and By-Laws of the Surviving Corporation,
until their successors are elected and shall have qualified.
3.05 Vacancies. If, as of the Effective Time, a vacancy shall exist on the
---------
Board of Directors or in any of the offices of the Surviving Corporation for any
reason, such vacancy may be filled in the manner provided in the By-Laws of the
Surviving Corporation.
ARTICLE IV
----------
SHAREHOLDER APPROVALS; EFFECTIVE TIME
4.01 Shareholder Approvals. (a) The holders of all of the issued and
---------------------
outstanding shares of JCR have consented in writing to JCR's execution, delivery
and performance of this Agreement, and have authorized, adopted and approved the
Merger of JCR into LRA-CA.
(b) Parent, as the sole Shareholder of LRA-CA, has consented in
writing to LRA-CA's execution, delivery and performance of this Agreement and
has authorized, adopted and approved the Merger of JCR into LRA-CA.
(c) If the Merger is not hereafter abandoned as permitted by the
provisions of this Agreement, as soon as practicable after the satisfaction or
waiver of the conditions precedent to consummation of the Merger, appropriate
Articles of Merger setting forth the information required by the California Act
and signed and verified on behalf of the Constituent Corporations (the "Articles
of Merger") shall be delivered to and filed with the Secretary of State of
California in accordance with the California Act.
4.02 Effective Time. The filing of the Articles of Merger shall take
--------------
place as soon as practicable after the Closing or at such other time and place
as the Corporations shall agree. The Merger shall become effective on the date
and at the time specified in the Articles of Merger filed with the Secretary of
State of California (the "Effective Time").
ARTICLE V
---------
CERTAIN EFFECTS OF THE MERGER
5.01 Liabilities and Obligations. At the Effective Time, the separate
---------------------------
existence of JCR shall cease, and JCR shall be merged with and into LRA-CA. All
right, title and interests to all real estate and other property owned by each
of the Constituent Corporations shall be allocated to and vested in the
Surviving Corporation without reversion or impairment, without further act or
deed, and without any transfer or assignment having occurred, but subject to any
existing liens or encumbrances thereon. All liabilities and obligations of each
of the Constituent Corporations shall
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be allocated to the Surviving Corporation, and the Surviving Corporation shall
be the primary obligor therefor and, except as otherwise provided by law or
contract, no other party to the Merger, other than an entity liable thereon at
the Effective Time of the Merger, shall be liable therefor. The Surviving
Corporation shall be substituted in any proceedings pending by or against either
of the Constituent Corporations.
5.02. Further Assurances. From time to time, if, as and when requested by
------------------
the Surviving Corporation, or by its successors or assigns, LRA-CA and JCR shall
execute and deliver or cause to be executed and delivered all such deeds and
other instruments, and shall take or cause to be taken all such further or other
actions, as the Surviving Corporation and its successors and assigns may deem
necessary or desirable in order to vest in and confirm to the Surviving
Corporation, all rights, title and interest to and possession of all of the real
estate and other property referred to in Section 5.01 hereof, and otherwise to
carry out the intents and purposes of this Agreement.
ARTICLE VI
----------
REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDER
As of the execution date hereof, the Shareholder represents and warrants to
each of the LRA Companies that the statements contained in this Article VI are
correct and complete as of the date of this Agreement, except as otherwise
disclosed in that certain Shareholder Disclosure Schedule attached hereto as
Schedule 6.0. Nothing in the Shareholder Disclosure Schedule shall be deemed
- ------------
adequate to disclose an exception to a representation or warranty made herein,
however, unless the Shareholder Disclosure Schedule identifies the exception
with reasonable particularity and describes the relevant facts in reasonable
detail.
6.01 Authorization of Transaction. The Shareholder has full power and
----------------------------
authority to execute and deliver this Agreement and to perform her obligations
hereunder. This Agreement constitutes the valid and legally binding obligation
of the Shareholder, enforceable in accordance with its terms and conditions,
except to the extent that enforcement thereof may be limited by applicable
bankruptcy, reorganization, insolvency or moratorium laws or other laws or
principles of equity effecting the enforcement of creditors' rights. The
Shareholder represents and warrants that she need not give any notice to, make
any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by this Agreement.
6.02 Noncontravention. Neither the execution and the delivery of this
----------------
Agreement by the Shareholder, nor the consummation of the transactions by the
Shareholder as contemplated hereby, will (i) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which the
Shareholder is subject or (ii) conflict with, result in a breach of, constitute
a default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require
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any notice under any agreement, contract, lease, license, instrument, or other
arrangement to which the Shareholder is a party or by which she is bound or to
which any of her assets is subject.
6.03 Brokers' Fees. The Shareholder has no Liability or obligation to pay
-------------
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the LRA Companies could
become liable or obligated.
6.04 Investment. The Shareholder (i) understands that neither the Note
----------
nor the Parent Shares has been registered under the Securities Act, or under any
state securities laws, and are being offered and sold in reliance upon federal
and state exemptions for transactions not involving any public offering, (ii) is
acquiring the Note and the Parent Shares solely for its own account for
investment purposes, and not with a view to the distribution thereof, (iii) is a
sophisticated investor with knowledge and experience in business and financial
matters, (iv) has received certain information specified on Schedule 6.04
-------------
concerning the LRA Companies and has had the opportunity to obtain additional
information as desired in order to evaluate the merits and the risks inherent in
holding the Note and the Parent Shares, (v) is able to bear the economic risk
and lack of liquidity inherent in holding the Note and the Parent Shares, and
(vi) is an Accredited Investor.
6.05 Subject Shares. Shareholder holds of record and owns beneficially
--------------
the number of JCR Shares set forth next to her name in Schedule 7.03, free and
-------------
clear of any restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws, Taxes, Security Interests, options,
warrants, purchase rights, or other contracts or commitments that could require
the Shareholder to sell, transfer, or otherwise dispose of any capital stock of
JCR (other than this Agreement)). The Shareholder is not a party to any voting
trust, proxy, or other agreement or understanding with respect to the voting of
any capital stock of JCR.
6.06 Disclosure to Minority Shareholders. The Shareholder has made full
-----------------------------------
and complete disclosure of the terms and provisions of the Merger to any and all
minority shareholders of JCR.
ARTICLE VII
-----------
REPRESENTATIONS AND WARRANTIES OF JCR
As of the execution date hereof, JCR represents and warrants to each of the
LRA Companies that the statements contained in this Article VII are correct and
complete as of the date of this Agreement, except as otherwise disclosed in that
certain JCR Disclosure Schedule attached hereto as Schedule 7.0. Nothing in the
------------
JCR Disclosure Schedule shall be deemed adequate to disclose an exception to a
representation or warranty made herein, however, unless the JCR Disclosure
Schedule identifies the exception with reasonable particularity and describes
the relevant facts in reasonable detail.
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7.01 Organization, Qualification, and Corporate Power. JCR is a
------------------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of California. JCR is not qualified to do business in any other
jurisdiction, nor does the nature of its business require such qualification.
JCR has full corporate power and authority and all material licenses, permits,
and authorizations necessary to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it. Schedule 7.01 lists the
-------------
directors and officers of JCR. The Shareholder has delivered to the LRA
Companies correct and complete copies of the articles of incorporation and
bylaws of JCR and its Subsidiaries, if any (as amended to date). The minute
books (containing the records of meetings of the stockholders, the board of
directors, and any committees of the board of directors), the stock certificate
books, and the stock record books of JCR are correct and complete in all
material respects. JCR is not in default under or in violation of any provision
of its articles of incorporation or bylaws.
7.02 Authorization of Transaction. JCR has full power and authority to
----------------------------
execute and deliver this Agreement and to perform its obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of JCR,
enforceable in accordance with its terms and conditions, except to the extent
that enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws or other laws or principles of
equity effecting the enforcement of creditors' rights. JCR represents and
warrants that it need not give any notice to, make any filing with, or obtain
any authorization, consent, or approval of any government or governmental agency
in order to consummate the transactions contemplated by this Agreement.
7.03 Capitalization. The entire authorized capital stock, the issued
--------------
and outstanding shares and the treasury shares of JCR are accurately set forth
in Schedule 7.03. All of the issued and outstanding JCR Shares have been duly
-------------
authorized, are validly issued, fully paid, and nonassessable, and are held of
record by its shareholders as set forth in Schedule 7.03. There are no
-------------
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that would require JCR to issue, sell, or otherwise cause to become outstanding
any of its capital stock. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or similar rights with
respect to JCR. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of JCR.
7.04 Noncontravention. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which JCR is subject, (ii) violate any
provision of the articles of incorporation or bylaws of JCR, or (iii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract,
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<PAGE>
lease, license, instrument, or other arrangement to which JCR is a party or by
which it is bound or to which any of its assets is subject (or result in the
imposition of any security interest upon any of its assets). JCR does not need
to give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order for the
Parties to consummate the transactions contemplated by this Agreement.
7.05 Subsidiaries. JCR does not have any ownership interest in any
------------
Subsidiaries. JCR does not control, directly or indirectly, or have any direct
or indirect equity participation in any corporation, partnership, trust, or
other business association which is not a Subsidiary.
7.06 Financial Statements. The Shareholder has previously furnished the
--------------------
LRA Companies with the following financial statements (collectively the
"Financial Statements"): (i) a Balance Sheet Report and an Income Statement
Report for the fiscal years ended April 30, 1996, and April 30, 1997, compiled
by JCR's Accountants; and (ii) Balance Sheet Reports and Income Statement
Reports for the period ended May 31, 1997, prepared by JCR's Accountants, (iii)
an Accounts Receivable Report dated as of June 30, 1997, and (iv) an Accounts
Payable Report dated as of May 31, 1997. The Financial Statements (including
the notes thereto) have been prepared on a cash basis and are consistently
reported throughout the periods covered thereby, present fairly the financial
condition of JCR as of such dates and the results of operations of JCR for such
periods, are correct and complete in all material respects, and are consistent
in all material respects with the books and records of JCR (which books and
records are correct and complete in all material respects).
7.07 Events Subsequent to May 31, 1997. Except as disclosed on Schedule
--------------------------------- --------
7.07, since May 31, 1997, there has not been any material change in the
- ----
business, financial condition, operations, results of operations, or future
prospects of JCR. Without limiting the generality of the foregoing, since that
date:
(i) JCR has not sold, leased, transferred, or assigned any of its
assets, tangible or intangible, other than for a fair consideration in the
Ordinary Course of Business;
(ii) JCR has not entered into any agreement, contract, lease, or
license (or series of related agreements, contracts, lease, and licenses)
either involving more than $3,000 singly or $15,000 in the aggregate or
outside the Ordinary Course of Business;
(iii) JCR has not accelerated, terminated, modified, or canceled any
agreement, contract, lease, or license (or series of related agreements,
contracts, leases, and licenses) involving more than $3,000 singly or
$15,000 in the aggregate to which JCR is a party or by which it is bound;
-16-
<PAGE>
(iv) JCR has not imposed any Security Interest upon any of its
assets, tangible or intangible, except for Permitted Liens;
(v) JCR has not made any capital expenditure (or series of related
capital expenditures) either involving more than $3,000 singly or $15,000
in the aggregate or outside the Ordinary Course of Business;
(vi) JCR has not made any capital investment in, any loan to, or
any acquisition of the securities or assets of, any other Person (or series
or related capital investments, loans, and acquisitions) either involving
more than $3,000 singly or $15,000 in the aggregate;
(vii) JCR has not issued any note, bond, or other debt security or
created, incurred, assumed, or guaranteed any indebtedness for borrowed
money or capitalized lease obligation either involving more than $3,000
singly or $15,000 in the aggregate;
(viii) JCR has not delayed or postponed the payment of accounts
payable and other Liabilities for a period of more than sixty (60) days
after the date of invoice;
(ix) JCR has not canceled, compromised, waived, or released any
right or claim (or series of related rights and claims) either involving
more than $3,000 singly or $15,000 in the aggregate or outside the Ordinary
Course of Business;
(x) there has been no change made or authorized in the articles of
incorporation or bylaws of JCR;
(xi) JCR has not issued, sold, or otherwise disposed of any of its
capital stock, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any
of its capital stock;
(xii) JCR has not have declared, set aside, or paid any dividend or
made any distribution with respect to its capital stock (whether in cash or
in kind) or redeemed, purchased, or otherwise acquired any of its capital
stock;
(xiii) JCR has not experienced any damage, destruction, or loss
(whether or not covered by insurance) to its property valued, individually
or in the aggregate, in excess of (i) $10,000 for all property which, at
the time of such damage or destruction, was subject to or covered by
property, casualty or any other form of insurance, and (ii) $3,000 for all
property which, at the time of such damage or destruction, was not subject
to or covered by property, casualty or any other form of insurance;
-17-
<PAGE>
(xiv) JCR has not made any loan to, or entered into any other
transaction with, any of its directors, officers, and employees;
(xv) JCR has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of
any such existing contract or agreement;
(xvi) JCR has not granted any increase in the base compensation of
any of its directors, officers, and employees outside the Ordinary Course
of Business;
(xvii) JCR has not adopted, amended, modified, or terminated any
bonus, profit-sharing, incentive, severance, or other plan, contract, or
commitment for the benefit of any of its directors, officers, and employees
(or taken any such action with respect to any other Employee Benefit Plan);
(xviii) JCR has not made any other change in employment terms for any
of its directors, officers, and employees outside the Ordinary Course of
Business;
(xix) JCR has not made or pledged to make any charitable or other
capital contribution outside the Ordinary Course of Business;
(xx) there has not been any other adverse occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary
Course of or Business involving JCR or any Subsidiaries which exceeds
$3,000 individually $15,000 in the aggregate; and
(xxi) JCR has not committed to any of the foregoing.
7.08 Undisclosed Liabilities. Except as disclosed on Schedule 7.08, JCR
----------------------- -------------
does not have any Liability (and, to the best of the Shareholder's Knowledge,
there is no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability), except for (i) Liabilities reflected in the then most
current Financial Statements (including any notes thereto) and (ii) Liabilities
which have arisen after May 31, 1997 in the Ordinary Course of Business (none of
which results from, arises, out of, relates to, is in the nature of, or was
caused by any breach of contract, breach of warranty, tort, infringement, or
violation of law).
7.09 Legal Compliance. To the Knowledge of Shareholder, JCR, and its
----------------
predecessors and Affiliates, have complied with all applicable laws (including
rules, regulations, codes, plans, injunctions, judgments, orders, decrees,
rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and, to the Shareholder's Knowledge, no
-18-
<PAGE>
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them alleging any
failure so to comply.
7.10 Tax Matters. Except as disclosed on Schedule 7.10:
----------- -------------
(i) JCR has filed all Tax Returns that it was required to file. All
such Tax Returns were correct and complete in all material respects. All
Taxes shown to be due on the Tax Returns have been paid or accrued for the
Balance Sheet. JCR is not currently the beneficiary of any extension of
time within which to file any Tax Return. No claim has ever been made by a
Tax authority in a jurisdiction where JCR does not file Tax Returns that it
is or may be subject to taxation by that jurisdiction. There are no
Security Interests on the assets of JCR that arose in connection with any
failure (or alleged failure) to pay any Tax.
(ii) JCR has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
creditor, stockholder, or other third party, except for the unlikely event
that Taxes may be incurred in connection with an independent contractor of
JCR being characterized as an employee.
(iii) There is no dispute or claim concerning any Tax Liability of
JCR either (A) claimed or raised by any Tax authority in writing or (B) as
to which the Shareholder and the directors and officers (and employees
responsible for Tax matters) of JCR has Knowledge based upon personal
contact with any agent of such authority. Schedule 7.10 lists all federal,
-------------
state, local, and foreign income Tax Returns filed with respect to JCR for
taxable periods ended on or after March 31, 1997, indicates those Tax
Returns that have been audited, and indicates those Tax Returns that
currently are the subject of an audit. The Shareholder has delivered to
the LRA Companies correct and complete copies of all federal income Tax
Returns, examination reports, and statements of deficiencies assessed
against or agreed to by JCR.
(iv) JCR has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment
or deficiency.
(v) JCR has not made an election under section 341(f) of the Code.
(vi) JCR has made adequate provision for reserves or accruals for
taxes not yet due and payable relating to operations of the Company prior
to the Effective Time.
7.11 Title to Assets. JCR has good and marketable title to, or a valid
---------------
leasehold interest in, the properties and assets used by it, or shown in the
Financial Statements or acquired after the date thereof, free and clear of all
Security Interests, except for properties and assets disposed
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<PAGE>
of in the Ordinary Course of Business since May 31, 1997, and except for
Permitted Encumbrances.
7.12 Real Property. JCR does not own any real property. Schedule 7.12
------------- -------------
lists and describes briefly all real property leased or subleased to JCR. The
Shareholder has delivered to the LRA Companies correct and complete copies of
the leases and subleases listed in Schedule 7.12 (as amended to date). Except as
-------------
disclosed on Schedule 7.12, with respect to each lease and sublease listed in
-------------
Schedule 7.12:
- -------------
(i) The lease or sublease is legal, valid, binding, enforceable,
and in full force and effect;
(ii) The lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby;
(iii) JCR is not in material breach or default of any lease or
sublease, and to the Shareholder's Knowledge, no third party to any such
lease or sublease is in material breach or material default, and to the
Shareholder's Knowledge, no event has occurred which, with notice or lapse
of time, would constitute a material breach or material default or permit
termination, modification, or acceleration thereunder;
(iv) with respect to each sublease, to the Shareholder's Knowledge,
the representations and warranties set forth in subsections (i) through
(iii) above are true and correct with respect to the underlying lease; and
(v) JCR has not assigned, transferred, conveyed, mortgaged, deeded
in trust, or encumbered any interest in the leasehold or subleasehold,
except Customarily Permitted Liens.
7.13 Tangible Assets. JCR owns or leases all buildings, machinery,
---------------
equipment, and other tangible assets necessary for the conduct of its business
as presently conducted. Each such tangible asset is suitable for the purpose
for which it is presently used.
7.14 Inventory. JCR does not carry or maintain any inventory.
---------
7.15 Contracts. Schedule 7.15 lists the following contracts and other
--------- -------------
agreements currently in effect to which any Company is a party:
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<PAGE>
(i) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in
excess of $15,000 per annum;
(ii) any agreement (or group of related agreements) for the
furnishing or receipt of services, the performance of which will extend
over a period of more than one year from the Closing Date or involve
consideration in excess of $15,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, in excess of $15,000 or under
which it has imposed a Security Interest on any of its assets, tangible or
intangible;
(v) any agreement concerning confidentiality or noncompetition;
(vi) any agreement among the Shareholder and her Affiliates (other
than JCR);
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers,
and employees;
(viii) any written agreement for the employment of any individual on
a full-time, part-time, consulting, or other basis providing annual
compensation in excess of $15,000 or providing severance benefits;
(ix) any agreement under which it has advanced or loaned any amount
to any of its directors, officers, and employees outside the Ordinary
Course of Business;
(x) any agreement under which the consequences of a default or
termination would reasonably be expected to have a material adverse effect
on the business, financial condition, operations, results of operations, or
future prospects of JCR; or
(xi) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $15,000.
The Shareholder has delivered to the LRA Companies a correct and complete copy
of each written agreement listed in Schedule 7.15 (as amended to date) and a
-------------
written summary setting forth the terms and conditions of each oral agreement
referred to in Schedule 7.15. With respect to each such agreement: (A) the
-------------
agreement is legal, valid, binding, enforceable, and in full force
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<PAGE>
and effect; (B) JCR is not a party nor to the Shareholder's Knowledge is any
other party in breach or default, and to the Shareholder's Knowledge, no event
has occurred which with notice or lapse of time would constitute a breach or
default, or permit termination, modification, or acceleration, under the
agreement, and (C) JCR has not repudiated any provision of any such agreement
nor to the Shareholder's Knowledge has any other party repudiated any provision
of any such agreement.
7.16 Notes and Accounts Receivable. All notes and accounts receivable of
-----------------------------
JCR are properly recorded on each Accounts Receivable Report delivered to the
LRA Companies, reflected properly on JCR's books and records and are valid
receivables.
7.17 Powers of Attorney. Except as disclosed on Schedule 7.17, there are
------------------ -------------
no outstanding powers of attorney executed on behalf of JCR.
7.18 Insurance. Schedule 7.18 lists each insurance policy (including
--------- -------------
policies providing property, casualty, liability, and workers' compensation
coverage and bond and surety arrangements) to which JCR is currently a party,
copies of which have been furnished to the LRA Companies.
7.19 Litigation. Schedule 7.19 sets forth each instance in which JCR (i)
---------- -------------
is subject to any outstanding injunction, judgment, order, decree, ruling, or
charge or (ii) is a party or, to the Knowledge of the Shareholder, is threatened
to be made a party to any action, suit, proceeding, hearing, or investigation
of, in, or before any court of quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator.
7.20 Certain Business Relationships with JCR. Except as disclosed on
---------------------------------------
Schedule 7.20, neither the Shareholder nor her Affiliates have been involved in
- -------------
any business arrangement or relationship with JCR within the past 12 months, and
neither the Shareholder nor any of her Affiliates owns any asset, tangible or
intangible, which is used in the business of JCR.
7.21 Guaranties. JCR is not a guarantor or otherwise liable for any
----------
Liability or obligation (including indebtedness) of any other Person.
7.22 Employees. To the Shareholder's Knowledge, no executive, key
---------
employee, or group of employees has any plans to terminate employment with JCR.
JCR has not committed any unfair labor practice. The Shareholder does not have
any Knowledge of any organizational effort presently being made or threatened by
or on behalf of any labor union with respect to employees of JCR. Schedule 7.22
-------------
sets forth by number and employment classification the approximate numbers of
employees employed by JCR as of the date of this Agreement, and none of said
employees are subject to union or collective bargaining agreements with JCR.
-22-
<PAGE>
7.23 Employee Benefits.
-----------------
(i) Schedule 7.23 lists each Employee Benefit Plan that JCR maintains
-------------
or to which it contributes.
(A) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all
material respects with the applicable requirements of ERISA, the
Code, and other applicable laws.
(B) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed appropriately with
respect to each such Employee Benefit Plan. The requirements of Part
6 of Subtitle B of Title I of ERISA and of Code Section 4980B have
been met with respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(C) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid
to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each such
Employee Pension Benefit Plan or accrued in accordance with the past
custom and practice of JCR. All premiums or other payments for all
periods ending on or before the Closing Date have been paid with
respect to each such Employee Benefit Plan.
(D) JCR has substantially performed all obligations, whether
arising by operation of law or by contract, required to be performed
by it in connection with such Employee Benefit Plans, and to
Shareholder's Knowledge, there has been no default or violation by
any other party to such Employee Benefit Plans.
(E) The Shareholder has delivered to the LRA Companies correct
and complete copies of the plan documents and summary plan
descriptions, the most recent Form 5500 Annual Report, and all
related trust agreements, insurance contracts, and other funding
agreements which relate to each such Employee Benefit Plan.
(ii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not (A) require
JCR to make a larger contribution to, or pay greater benefits under, any
Employee Benefit Plan than it otherwise would or (B) create or give rise to
any additional vested rights or service credits under any Employee Benefit
Plan.
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<PAGE>
(iii) Each such Employee Benefit Plan has been terminated by JCR in
compliance with all applicable laws on or before the Closing Date.
7.24 Brokers' Fees. Except for T.R. Capital, JCR does not have any
-------------
Liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.
7.25 Operation of Business. To the Shareholder's Knowledge (i) all court
---------------------
reporters that are or have been hired (including independent contractors) by JCR
are qualified to perform the jobs that they are hired to perform and they are
not required by law to obtain any certification to perform their jobs, (ii) all
documents that JCR is or has been required to maintain, store or handle in
connection with conducting its business are or have been maintained, stored or
handled in the manner agreed to between JCR and its clients or in material
conformity with prevailing standards regarding such matters in JCR's industry,
and (iii) JCR performs all aspects and operations of its business at or above
the prevailing standards for JCR's industry.
7.26 Disclosure. The representations and warranties contained in this
----------
Section 7.26 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 7.26 not misleading.
ARTICLE VIII
------------
REPRESENTATIONS AND WARRANTIES OF LRA COMPANIES
The LRA Companies represent and warrant that the statements contained in
this Article VIII are correct and complete as of the date of this Agreement,
except as otherwise disclosed in that certain LRA Companies Disclosure Schedule
attached hereto as Schedule 8.0. Nothing in the LRA Companies Disclosure
------------
Schedule shall be deemed adequate to disclose an exception to a representation
or warranty made herein, however, unless the LRA Companies Disclosure Schedule
identifies the exception with reasonable particularity and describes the
relevant facts in reasonable detail.
8.01 Organization, Qualification, and Corporate Power. Each of the LRA
------------------------------------------------
Companies is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation. Each of the
LRA Companies is duly authorized to conduct business and is in good standing
under the laws of each jurisdiction where such qualification is required. Each
of the LRA Companies and their respective Subsidiaries has full corporate power
and authority and all material licenses, permits, and authorizations necessary
to carry on the businesses in which it is engaged and to own and use the
properties owned and used by it. Schedule 8.01 lists the directors and officers
-------------
of each of the LRA Companies. Each of the LRA Companies has delivered to the
Shareholder correct and complete copies of the charter and
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<PAGE>
bylaws of each of the LRA Companies (as amended to date). The minute books
(containing the records of meetings of the stockholders, the board of directors,
and any committees of the board of directors), the stock certificate books, and
the stock record books of each of the LRA Companies are correct and complete in
all material respects. Neither of the LRA Companies are in default under or in
violation of any provision of its respective charter or bylaws.
8.02 Capitalization. The entire authorized capital stock, the issued and
--------------
outstanding shares and the treasury shares of each of the LRA Companies are
accurately set forth in Schedule 8.02 together with the changes thereto
-------------
contemplated by the acquisition of JCR. All of the issued and outstanding
shares of each of the LRA Companies have been duly authorized, are validly
issued, fully paid, and nonassessable, and are held of record by the respective
parties as set forth in Schedule 8.02. There are no outstanding or authorized
-------------
options, warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could require either of
the LRA Companies to issue, sell, or otherwise cause to become outstanding any
of its capital stock except those set forth in Schedule 8.02. There are no
-------------
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to either of the LRA Companies
except as set forth in Schedule 8.02. There are no voting trusts, proxies, or
--------------
other agreements or understandings with respect to the voting of the capital
stock of either of the LRA Companies.
8.03 Authority. The execution and delivery of this Agreement by each of
---------
the LRA Companies has been duly authorized by each of the LRA Companies' Board
of Directors which constitutes all of the necessary corporate action required in
order for the LRA Companies to consummate the transactions hereunder. The LRA
Companies have the right, power, legal capacity and authority to enter into, and
perform their respective obligations under, this Agreement, and no approvals or
consents of any persons are necessary in connection herewith.
8.04 Noncontravention. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which either of the LRA Companies is subject,
(ii) violate any provision of the charter or bylaws of either of the LRA
Companies, or (iii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
either of the LRA Companies is a party or by which it is bound or to which any
of its assets is subject (or result in the imposition of any Security Interest
upon any of its assets). Neither of the LRA Companies needs to give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
-25-
<PAGE>
8.05 Brokers' Fees. Neither of the LRA Companies has any Liability or
-------------
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement other than to The
GulfStar Group, Inc.
8.06 Financial Statements. The LRA Companies have previously furnished
--------------------
to JCR and The Shareholder true and complete copies of the financial statements
dated as of May 31, 1997 (the foregoing financial statements being referred to
as the "LRA Financial Statements"). The LRA Financial Statements have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods indicated, and fairly present, in
all material respects, the financial position of the LRA Companies as of the
respective dates of the balance sheets included in the LRA Financial Statements
and the results of operations for the respective periods indicated subject to
year end adjustments.
8.07 Consents. No consent, authorization, approval, permit or license
--------
of, or filing with, any governmental or public body or authority, or any lender,
or any other person or entity is required to authorize, or is required in
connection with, the execution, delivery and performance of this Agreement or
the agreements contemplated hereby on the part of either of the LRA Companies.
8.08 Issuance of the Parent Shares. The Parent Shares have been
-----------------------------
reserved for issuance and upon issuance and delivery shall be duly authorized,
validly issued, and non-assessable.
8.09 Litigation. Neither of the LRA Companies is subject to any
----------
pending litigation, or to the best of its knowledge, threatened litigation.
8.10 Material Adverse Changes. There have been no material adverse
------------------------
changes with respect to the business of the LRA Companies since May 31, 1997.
8.11 Undisclosed Liabilities. Except as disclosed on Schedule 8.11
----------------------- -------------
none of the LRA Companies have any Liability (and, to the best of the LRA
Companies' Knowledge, there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability), except for (i) Liabilities reflected
in the then most current Financial Statements (including any notes thereto) and
(ii) Liabilities which have arisen after May 31, 1997 in the Ordinary Course of
Business (none of which results form, arises, out of, relates to, is in the
nature of, or was caused by any breach of contract, breach of warranty, tort,
infringement, or violation of law).
8.12 Disclosure. The representations and warranties contained in this
----------
Article VIII do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Article VIII not misleading.
-26-
<PAGE>
ARTICLE IX
----------
CONDITIONS TO THE MERGER
9.01 Conditions to Obligation of the LRA Companies. The obligation of
---------------------------------------------
the LRA Companies to proceed with the Closing and consummate the transactions to
be performed by each of them in connection with the Closing is subject to
satisfaction of the following conditions (any or all which may be waived in
writing, by the LRA Companies):
(i) the representations and warranties set forth in Articles
VI and VII above shall be true and correct in all material respects at
and as of the Closing Date;
(ii) JCR and the Shareholder shall have performed and complied
with all of their covenants hereunder in all material respects at and
as of the Closing Date;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, (C) affect adversely the right of the LRA-CA to merge JCR
with and into itself, or (D) materially and adversely affect in any
material respect the right of JCR to own its assets and to operate its
business (and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
(iv) JCR and the Shareholder shall have delivered to the LRA
Companies a certificate to the effect that each of the conditions
specified above in 9.01(i)-(iii) is satisfied in all respects;
(v) the LRA Companies shall have received from counsel to JCR
and the Shareholder an opinion in form and substance reasonably
acceptable to all Parties, addressed to the LRA Companies, and dated as
of the Closing Date containing such assumptions and qualifications as
may be reasonably acceptable to the LRA Companies' legal counsel;
(vi) the LRA Companies shall have received the resignations,
effective as of the Closing, of each director and officer of JCR other
than those whom the LRA Companies shall have specified in writing prior
to the Closing;
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<PAGE>
(vii) the LRA Companies shall have received notification from its
Senior Lender that such Senior Lender has approved consummation of the
transactions contemplated by this Agreement under its acquisition line
of credit;
(viii) Shareholder shall have entered into the Johnson Employment
Agreement;
(ix) The Shareholder shall have each entered into a certain
First Amended and Restated Shareholders' Agreement (the "Shareholders'
Agreement") on terms and conditions reasonably satisfactory to it, and a
Registration Rights Agreement which shall grant to the Shareholder
certain piggyback rights with respect to the Parent Shares and shall
provide that, to the extent any greater registration rights are ever
granted to any seller of a company acquired by LRA-CA, the Shareholder
shall be granted the same or equivalent registration rights (the
"Registration Rights Agreement");
(x) all Employee Benefit Plans shall have been terminated by
JCR and the Shareholder and, to the extent that they are eligible
employees will participate in the LRA-CA Employee Benefit Plans to the
extent LRA-CA has implemented substitute Employee Benefit Plans, and
neither the LRA Companies nor JCR shall have any further liability with
respect thereto other than completion of the routine winding up thereof;
(xi) all actions to be taken by the JCR and/or the Shareholder
in connection with consummation of the transactions contemplated hereby
and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to the LRA Companies;
(xii) the Shareholder shall have entered into the Pledge
Agreement;
(xiii) the LRA Companies, the Shareholder and the Senior Lender
shall have entered into a Subordination Agreement; and
(xiiv) the Shareholder shall have executed a Release in form
and substance acceptable to the LRA Companies.
9.02 Conditions to Obligation of JCR and the Shareholder. The
---------------------------------------------------
obligation of JCR and the Shareholder to proceed with Closing and consummate the
transactions to be performed by them in connection with the Closing is subject
to satisfaction of the following conditions (any or all of which may be waived
in writing by JCR and/or the Shareholder):
(i) the representations and warranties set forth in Articles
VIII above shall be true and correct in all material respects at and as
of the Closing Date;
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(ii) the LRA Companies shall have performed and complied with
all of their respective covenants hereunder in all material respects
through the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, (C) affect adversely the right of the Shareholder to own
the Parent Shares, or (D) affect adversely in any material respect the
right of LRA-CA to own its assets and to operate its businesses (and no
such injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(iv) the LRA Companies shall have delivered to JCR and the
Shareholder a certificate to the effect that each of the conditions
specified above in Section 9.02(i)-(iii) is satisfied in all respects;
(v) JCR and the Shareholder shall have obtained the full and
final releases (a) of any guaranty of the Shareholder of the debt of JCR
or any of its Subsidiaries and (b) of any collateral pledged by the
Shareholder securing such debt or guarantees; provided, however, that
the foregoing releases will not require the payment of any additional
consideration in excess of the Purchase Price by LRA-CA;
(vi) the LRA Companies shall have received from Senior Lender
approval to fund this transaction under its acquisition line;
(vii) LRA-CA shall have entered into the Johnson Employment
Agreement;
(viii) JCR and the Shareholder shall have received from
counsel to the LRA Companies an opinion in form and substance acceptable
to JCR and the Shareholder, addressed to JCR and the Shareholder, and
dated as of the Closing Date containing such assumptions and
qualifications as may be reasonably acceptable to the JCR's and the
Shareholder's legal counsel;
(ix) all actions to be taken by JCR and/or the Shareholder in
connection with consummation of the transactions contemplated hereby and
all certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the LRA Companies;
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(x) the LRA Companies shall have entered into the
Shareholder's Agreement, and the Registration Rights Agreement on terms
and conditions reasonably satisfactory to Shareholder;
(xi) Parent and LRA-CA shall have entered into the Pledge
Agreement;
(xii) all actions to be taken by the LRA Companies in
connection with consummation of the transactions contemplated hereby,
and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to JCR and the
Shareholder; and
(xiii) the LRA Companies, the Shareholder and the Senior
Lender shall have entered into a Subordination Agreement.
ARTICLE X
---------
POST CLOSING COVENANTS
10.01 General. In case at any time after the Closing any further action
-------
is necessary or desirable to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other Party reasonably may
request all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Article XI
below).
10.02 Litigation Support. In the event and for so long as any Party
------------------
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand to which the other
Party is not subject (either by virtue of the indemnification provisions
contained in Article XI below or otherwise) in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving any Party, the other Parties will cooperate with him or it and his or
its counsel in the contest or defense, make available their personnel, and
provide such testimony and access to their books and records as shall be
necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party (unless the contesting or defending
Party is entitled to indemnification therefor under Article XI below). The LRA
Companies acknowledge and agree that if Shareholder or any director or officer
of JCR is individually brought into any litigation in connection with JCR, it,
he or she shall be indemnified to the maximum extent that directors and officers
of corporations are permitted to be indemnified under California law both for
all costs of litigation as well as any judgments or settlement amounts paid.
Notwithstanding the foregoing, the Shareholder shall not be entitled to
indemnification to the extent of any of the following:
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(i) suit against Shareholder or any director or officer with
respect to a matter for which such Shareholder, director or officer is
required to indemnify the LRA Companies pursuant to this Agreement; or
(ii) to the extent that Shareholder or any director or officer is
found to have engaged in gross negligence or willful misconduct.
10.03 Confidentiality. The Shareholder will treat and hold as such all
---------------
of the Confidential Information and refrain from using any of the Confidential
Information except in connection with this Agreement and all of the other
agreements executed in connection herewith and except in connection with
handling all of the litigation described on Schedule 7.19. In the event that
-------------
Shareholder is requested or required (by oral question or request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar process) to disclose any Confidential
Information, the Shareholder will notify the LRA Companies promptly of the
request or requirement so that the LRA Companies may seek an appropriate
protective order or waive compliance with the provisions of this Section 10.03.
If, in the absence of a protective order or the receipt of a waiver hereunder,
the Shareholder is, on the advice of counsel, compelled to disclose any
Confidential Information to any tribunal or else stand liable for contempt, the
Shareholder may disclose the Confidential Information to the tribunal; provided,
however, that Shareholder shall use her reasonable best efforts to obtain, at
the reasonable request of the LRA Companies, an order or other assurance that
confidential treatment will be accorded to such portion of the Confidential
Information required to be disclosed as the LRA Companies shall designate;
provided, however that all of the Shareholder's costs including but not limited
to legal fees shall be paid by the LRA Companies. The foregoing provisions
shall not apply to any Confidential Information which is generally available to
the public immediately prior to the time of disclosure.
10.04 Accounts Receivable. Shareholder shall use commercially reasonable
-------------------
efforts to collect the Accounts Receivable in the Ordinary Course of Business.
Shareholder represents and warrants that all Effective Date Accounts Receivable
shall be collectible in their full amounts less a reserve for doubtful accounts
of ten percent (10%) of the total principal amount of Effective Date Accounts
Receivable outstanding within twelve (12) months of the Effective Date. LRA-CA
shall make a good faith effort to collect the Effective Date Accounts
Receivable.
ARTICLE XI
----------
INDEMNIFICATION; REMEDIES
11.01 Survival of Representations and Warranties. All of the
------------------------------------------
representations and warranties of the Parties contained in this Agreement shall
survive the Closing hereunder and continue in full
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<PAGE>
force and effect for two years thereafter except that the representations and
warranties contained in Section 7.10, and Section 7.11 which shall survive for
three years after the Closing.
11.02 Indemnification Provisions.
--------------------------
(i) By the Shareholder. Shareholder shall indemnify, save,
------------------
defend and hold harmless each of the LRA Companies and their respective
shareholders, directors, officers, partners, agents and employees (and in the
event either of the LRA Companies assigns its right, title and interest
hereunder to a corporation, which shall be permitted hereunder, such assignee)
(collectively, the "LRA Indemnified Parties") from and against any and all
costs, lawsuits, losses, Liabilities, deficiencies, claims and expenses,
including interest, penalties, reasonable attorneys' fees and all reasonable
amounts paid in investigation, defense or settlement of any of the foregoing
(collectively referred to herein as "Damages"), incurred in connection with or
arising out of or resulting from or incident to any breach (or in the event any
third party alleges facts that, if true, would mean the Shareholder has
breached), of any covenant, warranty or representation made by Shareholder in or
pursuant to this Agreement or any other agreement delivered pursuant to this
Agreement or in any schedule, certificate, exhibit, or other instrument
furnished or to be furnished by the Shareholder or her Affiliates pursuant to
the terms of this Agreement; provided, however, that the Shareholder shall not
be liable for any such Damages to the extent, if any, such Damages result from
or arise out of a breach or violation of this Agreement by any LRA Indemnified
Parties.
(ii) By the LRA Companies. The LRA Companies shall indemnify,
--------------------
save, defend and hold harmless the Shareholder from and against any and all
Damages incurred in connection with or arising out of or resulting from or
incident to any breach (or in the event any third party alleges facts that, if
true, would mean either of the LRA Companies have breached), of any covenant,
warranty or representation made by either of the LRA Companies in or pursuant to
this Agreement or any other agreement delivered pursuant to this Agreement
contemplated hereby or in any schedule, certificate, exhibit, or other
instrument furnished or to be furnished by either of the LRA Companies under
this Agreement; provided, however, that the LRA Companies shall not be liable
for any such Damages to the extent, if any, such Damages result from or arise
out of a breach or violation of this Agreement by Shareholder.
(iii) Defense of Claims. If any lawsuit or enforcement action is
-----------------
filed against any Party entitled to the benefit of indemnity hereunder, written
notice thereof describing such lawsuit or enforcement action in reasonable
detail and indicating the amount (estimated, if necessary) or good faith
estimate of the reasonably foreseeable estimated amount of Damages (which
estimate shall in no way limit the amount of indemnification the indemnified
Party is entitled to receive hereunder), shall be given to the indemnifying
Party as promptly as practicable (and in any event within ten (10) days, after
the service of the citation or summons) ("Notice of Action"); provided that the
failure of any indemnified Party to give timely notice shall not affect its
rights to indemnification hereunder to the extent that the indemnified Party
demonstrates that the amount the indemnified Party is entitled to recover
exceeds the actual damages to the indemnifying Party caused by such failure to
so notify within ten (10) days; provided further that a Notice of Action must be
sent to the
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indemnifying Party within the applicable survival period as provided in Section
10.1 of this Agreement. The indemnifying Party may elect to compromise or defend
any such asserted liability and to assume all obligations contained in this
Section 11.02 to indemnify the indemnified Party by a delivery of notice of such
election ("Notice of Election") within ten (10) days after delivery of the
Notice of Action. Upon delivery of the Notice of Election, the indemnifying
Party shall be entitled to take control of the defense and investigation of such
lawsuit or action and to employ and engage attorneys of its own choice to handle
and defend the same, at the indemnifying Party's sole cost, risk and expense,
and such indemnified Party shall cooperate in all reasonable respects, at the
indemnifying Party's sole cost, risk and expense, with the indemnifying Party
and such attorneys in the investigation, trial, and defense of such lawsuit or
action and any appeal arising therefrom; provided, however, that the indemnified
Party may, at its own cost, risk and expense, participate in such investigation,
trial and defense of such lawsuit or action and any appeal arising therefrom. If
the Notice of Election is delivered to the indemnified Party, the indemnified
Party shall not pay, settle or compromise such claim without the indemnifying
Party's consent, which consent shall not be unreasonably withheld. If the
indemnifying Party elects not to defend the claim of the indemnified Party or
does not deliver to the indemnified Party a Notice of Election within ten (10)
days after delivery of the Notice of Action, the indemnified Party may, but
shall not be obligated to defend, or the indemnified Party may compromise or
settle (exercising reasonable business judgment) the claim or other matter on
behalf, for the account, and at the risk, of the indemnifying Party.
(iv) Third Party Claims. The provisions of this Section 11.02
------------------
are not limited to matters asserted by the Parties, but cover costs, losses,
liabilities, damages, lawsuits, claims and expenses incurred in connection with
third party claims.
(v) Limitation on Indemnification. Notwithstanding any
-----------------------------
provision of this Agreement except for claims by the LRA Companies against the
Shareholder under Section 10.04 of this Agreement, neither the LRA Companies nor
the Shareholder or any Affiliate of either shall be required to pay an
indemnified Party or any Affiliate thereof any amount with respect to any claim
for Damages under this Section 11.02 until the Damages which the indemnified
Party and its Affiliates suffered under this Agreement aggregate at least
$25,000 (the "Threshold"), at which time and in such event the indemnified Party
or Affiliate shall be entitled to receive payment for the entire amount of
aggregate Damages beginning with the first dollar. Neither Party shall be liable
to indemnify the other Party in an amount in excess of the Purchase Price
excluding any and all amounts due and owing under Section 10.04 of this
Agreement.
11.03 Remedies.
--------
A. Specific Performance. Each of the Parties hereby agrees
--------------------
that the transactions contemplated by this Agreement are unique, and that each
Party shall have, in addition to any other legal or equitable remedy available
to it, the right to enforce this Agreement by decree of specific performance. If
any legal action or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with
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<PAGE>
any of the provisions of this Agreement, the successful or prevailing Party or
Parties shall be entitled to recover reasonable attorneys' fees and other costs
incurred in that action or proceeding in addition to any other remedies to which
it, he or they may be entitled at law or equity. The rights and remedies granted
herein are cumulative and not exclusive of any other right or remedy granted
herein or provided by law.
B. Offset. Any and all Damages incurred by the LRA Companies
------
which permit the LRA Companies to make an indemnification claim against the
Shareholder and to the extent not otherwise prohibited by applicable law, shall
be subject to mandatory offset by the LRA Companies against all amounts due and
owing by the LRA Companies to the Shareholder under this Agreement, the Note, or
any document, instrument, or agreement executed in connection herewith;
provided, however that no offsets shall be permitted against the base salary due
and owing to the Shareholder under the Johnson Employment Agreement. The
foregoing shall constitute the sole remedy of the LRA Companies against the
Shareholder in connection with breaches of the representations, warranties,
covenants and obligations of the Shareholder contained in this Agreement except
to the extent of any remaining unpaid claims to the extent permitted under
Article X of this Agreement if there is not a Note or any Parent Shares
remaining pledged to offset against in which event the LRA Companies may proceed
against the Shareholder but only for any amounts not offset and not exceeding
the Purchase Price. In the event of an offset of any Damages incurred as a
result of any such breach, the LRA Companies shall furnish the Shareholder
notice containing detailed information about the breach, the magnitude of the
Damages that the LRA Companies has or reasonably expects to incur (the act of
offsetting by the LRA Companies shall be referred to as an "Offset"). All
Offsets shall be one-half (1/2) against the Note, and one-half (1/2) against the
Parent Shares. In the event there is not any principal balance remaining due and
owing on the Note, then, any additional Damages shall be Offset against the
Parent Shares. In the event the Parent Shares are no longer pledged to the LRA
Companies, in order to permit the LRA Companies to offset any of their Damages,
then the entire amount of the Offset shall be against the principal balance of
the Note. For purposes hereof, the Parent Shares shall be deemed to have a value
equivalent to the Parent Shares Value. In order to secure the LRA Companies'
Offset rights against the Parent Shares, the LRA Companies and the Shareholder
shall execute that certain Stock Pledge Agreement dated of even date herewith
(the "Pledge Agreement"). The Parent Shares shall have a restrictive legend
typed on the back thereof specifying that the Parent Shares are subject to a
right of Offset as specified in this Agreement. The Shareholder acknowledges and
agrees that but for the right of Offset contained in this Agreement, the LRA
Companies would not have entered into this Agreement or any of the transactions
contemplated herein. If any legal action or other proceeding is brought for the
enforcement of this Agreement, or any document, instrument, or agreement
executed in connection herewith, or because of an alleged dispute, breach,
default or misrepresentation in connection with any of the provisions of this
Agreement or any document, instrument, or agreement executed in connection
herewith, the successful or prevailing Party shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or
proceeding.
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<PAGE>
ARTICLE XII
-----------
GENERAL
12.01 Public Announcements. No Party shall issue any press release or
--------------------
make any public announcement relating to the subject matter of this Agreement
(including the documents referred to herein) without the prior written approval
of all of the Parties; provided, however, that any Party may make any public
disclosure it believes in good faith upon the advise of legal counsel it is
required by applicable law (in which case the disclosing Party will use its best
efforts to advise the other Party prior to making the disclosure).
12.02 No Third-Party Beneficiaries. This Agreement shall not confer any
----------------------------
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
12.03 Entire Agreement. This Agreement (including the documents
----------------
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
12.04 Succession and Assignment. This Agreement shall be binding upon
-------------------------
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of his or its rights, interests, or obligations hereunder without the prior
written approval of the Parties; provided, however, that the LRA Companies may
(i) assign any or all of its rights and interests hereunder (x) to one or more
of its Affiliates, and (y) to one or more financial institutions lending funds
to the LRA Companies for the purpose of financing the merger hereunder and (ii)
designate one or more of its Affiliates to perform its obligations hereunder (in
any or all of which cases the LRA Companies nonetheless shall remain responsible
for the performance of all of their respective obligations hereunder).
12.05 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
12.06 Headings. The section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
12.07 Notices. All notices, requests, demands, claims, and other
-------
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
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<PAGE>
If to Shareholder: Glory Johnson
230 Newport Center Drive
Suite 250
Newport Beach, California 92660
Telephone: (714) 644-7700
Telefax: (714) 644-7706
Copy to: Mr. Donald Segretti
Three Park Plaza, Suite 1735
Irvine, California 92614
Telephone: (714) 851-0990
Telefax: (714) 851-0999
If to LRA-CA: Litigation Resources of America-California, Inc.
1001 Fannin, Suite 650
Houston, Texas 77002-2731
Telephone: (713) 653-7100
Telefax (713) 653-7172
Attn: Mr. Richard O. Looney,
Chief Executive Officer
Copy to: Boyer Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Telephone: (713) 871-2025
Telefax (713) 871-2025
Attn: J. Randolph Ewing
If to Parent: Litigation Resources of America, Inc.
1001 Fannin, Suite 650
Houston, Texas 77002-2731
Telephone: (713) 653-7100
Telefax (713) 653-7172
Attn: Mr. Richard O. Looney,
Chief Executive Officer
Copy to: Boyer Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Telephone: (713) 871-2025
Telefax (713) 871-2024
Attn: J. Randolph Ewing
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<PAGE>
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
12.08 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING
EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE
OF TEXAS OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS
OF ANY JURISDICTION OTHER THAN THE STATE OF CALIFORNIA.
12.09 Amendments and Waivers. No amendments of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by all
of the Parties. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
12.10 Severability. Any term or provision of this Agreement that is
------------
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
12.11 Expenses. Each of the Parties will bear his, her or its own costs
--------
and expenses (including legal fees and expenses) incurred in connection with
this Agreement and the transactions contemplated hereby.
12.12 Construction. The Parties have participated jointly in the
-------------
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or
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<PAGE>
covenant relating to the same subject matter (regardless of the relative levels
of specificity) which the Party has not breached shall not detract from or
mitigate the fact that the Party is in breach of the first representation,
warranty, or covenant.
12.13 Incorporation of Exhibits and Schedules. The Exhibits and
---------------------------------------
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
12.14 Arbitration and Limitation on Claims. Any controversy, dispute or
------------------------------------
claim arising out of, in connection with, or in relation to, the interpretation,
performance or breach of this Agreement, including, without limitation, the
validity, scope and enforceability of this Agreement which cannot first be
settled through ordinary negotiation between the Parties shall be submitted in
good faith to mediation by and in accordance with the Commercial Mediation Rules
of the American Arbitration Association or any successor organization. In the
event that mediation of such controversy, dispute or claim cannot be settled
through the mediation proceeding, the Parties agree that the controversy,
dispute or claim shall be submitted to binding and final arbitration conducted
in Los Angeles, California by and in accordance with the then existing Rules for
Commercial Arbitration of the American Arbitration Association or any successor
organization. Any such arbitration shall be to a three member panel selected
through the rules governing selection and appointment of such panels of the
American Arbitration Association or any successor organization. The award
rendered by the arbitrators may be confirmed, entered and enforced as a judgment
in any court of competent jurisdiction; however, the Parties otherwise waive any
rights to appeal the award except with regard to fraud by the panel. Any such
action must be brought within two years of the date the cause of action accrues.
The arbitrators shall award the Party which substantially prevails in any
arbitration proceeding recovery of that Party's attorneys' fees, the
arbitrators' fees and all costs in connection with the arbitration from the
Party who does not substantially prevail. The Parties' remedies are limited
solely to the specific remedies provided in this Agreement or in the other. The
parties waive any entitlement to punitive damages, consequential damages and
lost profits and will limit any damage claim to actual economic damages
incurred. Nothing in this Section 12.14 shall restrict any Parties' ability to
seek injunctive or other equitable relief in any court of competent jurisdiction
prior to initiating mediation or arbitration. In the event that such injunctive
or equitable relief is sought by any Party, such Party is specifically entitled
to enforce the appropriate provisions of the Agreement in obtaining such relief
in any court of competent jurisdiction and, thereafter, submit the remaining
controversy, dispute or claim to arbitration in accordance with this Section
12.14.
IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of
the date first above written.
LITIGATION RESOURCES OF AMERICA-
ATTEST: CALIFORNIA, INC., a California corporation
By: /s/ G. Kent Kahle By: /s/ Dave Pfleghar
------------------------------ ------------------------------------------
G. Kent Kahle, Asst. Secretary Dave Pfleghar, Chief Financial Officer
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<PAGE>
ATTEST: LITIGATION RESOURCES OF AMERICA,
INC., a Texas corporation
By: /s/ G. Kent Kahle By: /s/ Dave Pfleghar
------------------------------ ------------------------------------------
G. Kent Kahle, Dave Pfleghar, Chief Financial Officer
Assistant Secretary
GOREN OF NEWPORT, INC.,
a California corporation doing business as
JOHNSON COURT REPORTING
By: /s/ Jerry Woods By: /s/ Glory Johnson
------------------------------ ------------------------------------------
Jerry Woods Glory Johnson, President
Secretary
/s/ Glory Johnson
---------------------------------------------
GLORY JOHNSON
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<PAGE>
LIST OF SCHEDULES
<TABLE>
<S> <C>
6.0 Shareholder Disclosure Letter
6.04 Information re: LRA Companies
7.0 JCR Disclosure Letter
7.01 Directors and Officers of JCR
7.03 Capitalization and Shareholder Listing for JCR
7.07 Certain Changes or Events
7.08 Liabilities
7.10 Tax Matters
7.12 Real Property Leases
7.15 JCR Contracts
7.17 Powers of Attorney
7.18 Insurance
7.19 Litigation
7.20 Business Relationships with JCR
7.22 Employees
7.23 Employee Benefit Plans
8.0 LRA Companies Disclosure Letter
8.01 Directors and Officers of LRA Companies
8.02 Capitalization and Shareholders Listing for LRA Companies
8.11 Undisclosed Liabilities
</TABLE>
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<PAGE>
EXHIBIT 10.12
PLAN AND AGREEMENT OF REORGANIZATION AND MERGER
-----------------------------------------------
THIS PLAN AND AGREEMENT OF REORGANIZATION AND MERGER (this "Agreement") is
dated as of August 19, 1997, by and among LITIGATION RESOURCES OF AMERICA --
CALIFORNIA, INC., a California corporation ("LRA-CA"), RAPIDTEXT, INC., a
California corporation ("Rapidtext"), SEAQUESTOR TRUST, a California private
annuity trust (the "Trust"), GLORY JOHNSON, an individual ("Johnson") (the Trust
and Johnson are sometimes hereinafter referred to collectively as the
"Shareholders" or singularly as a "Shareholder"), and LITIGATION RESOURCES OF
AMERICA, INC., a Texas corporation and the parent company of LRA-CA ("Parent").
LRA-CA and Rapidtext are sometimes hereinafter referred to collectively as the
"Constituent Corporations" or individually as a "Constituent Corporation." LRA-
CA and Parent are sometimes hereinafter referred to collectively as the "LRA
Companies" or individually as a "LRA Company." Rapidtext and the LRA Companies
are sometimes hereinafter referred to collectively as the "Corporations" or
individually as a "Corporation." The Corporations and the Shareholders are
sometimes referred to collectively as the "Parties" or individually as a
"Party."
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Board of Directors of each Corporation deems it advisable and
in the best interests of such Corporation and of such Corporation's stockholders
that Rapidtext be merged with and into LRA-CA pursuant to the provisions of the
General Corporation Law of California (the "California Act") and this Agreement,
in a transaction whereby all of the currently issued and outstanding shares of
common stock, without par value, of Rapidtext will be canceled and converted
into the right to receive shares of common stock, $.01 par value, of the Parent,
together with cash and other consideration; and
WHEREAS, the Board of Directors of each Corporation has authorized and
approved the merger of Rapidtext with and into LRA-CA (the "Merger") on the
terms and conditions contained in this Agreement, and the Board of Directors of
each Constituent Corporation has submitted the Merger to the stockholders of
such Constituent Corporation for approval, as required by the California Act,
and such approval of the stockholders has been obtained in accordance with the
requirements of the California Act; and
WHEREAS, the Parties intend that the Merger will constitute a
reorganization under the provisions of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"); and
WHEREAS, the Parties desire to set forth certain representations,
warranties and covenants made by each of them to the others as an inducement to
the execution hereof and the consummation of the Merger;
<PAGE>
NOW THEREFORE, in consideration of the premises and the mutual agreements,
promises and covenants herein contained, the Parties hereby agree that Rapidtext
shall be, at the "Effective Time" of this Agreement (as hereinafter defined in
Section 4.02), merged into LRA-CA, which shall be the surviving corporation
(such corporation in its capacity as such surviving corporation may be
hereinafter referred to as the "Surviving Corporation") and a wholly-owned
subsidiary of Parent, organized and existing under the laws of the State of
California, and the Corporations hereby adopt and agree to the following
covenants, terms and conditions relating to the Merger and the manner of
carrying the same into effect.
ARTICLE I
---------
DEFINITIONS
"Accounts Payable Report" means a report as of a given time period
containing a summary of the outstanding accounts payable of Rapidtext which
report shall reflect such accounts payable on an aged basis and shall set forth
the amounts due and owing by Rapidtext to each of its suppliers, creditors or
court reporters.
"Accounts Receivable" means all amounts due and owing to Rapidtext by each
of its customers.
"Accounts Receivable Report" means a report as of a given time period
containing a summary of the outstanding accounts receivable of Rapidtext, which
report shall reflect such accounts receivable and shall set forth the amounts
due and owing to Rapidtext by each of its customers.
"Accredited Investor" has the meaning set forth in Regulation D promulgated
under the Securities Act.
"Additional Parent Shares Value" means $8.50 per Parent Share; provided,
that if the Parent or its Affiliates have subsequently consummated an
acquisition in which Parent Shares are issued, then the value of each Parent
Share as specified in the most recent such acquisition; and further provided
however, that if the Parent has successfully consummated a public offering of
its shares of common stock, then it shall mean the average public trading price
of each Parent Share over the five (5) most recent business days.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Balance Sheet Report" means the balance sheet of Rapidtext as of a given
date showing the assets, liabilities and equity of Rapidtext prepared by
Rapidtext in accordance with GAAP on a consistent basis as with prior time
periods.
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<PAGE>
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or is reasonably likely to form the
basis for any specified consequences.
"Cash Payment" has the meaning set forth in Section 2.03(b)(iii) below.
"Charges" shall mean all federal, state, county, city, municipal, local,
foreign or other governmental taxes at the time due and payable, levies,
assessments, charges, liens, claims or encumbrances upon or relating to (i) any
of a corporation's employees, payroll, income or gross receipts, (ii) any of a
corporation's ownership or use of any of its assets, or (iii) any other aspect
of a corporation's business.
"Closing" has the meaning set forth in Section 2.04 below.
"Closing Date" has the meaning set forth in Section 2.04 below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the businesses
and affairs of Rapidtext and its Subsidiaries that is not (a) generally known or
available to the public; (b) after the date of this Agreement, generally known
or readily available through no violation of this Agreement; or (c) in or does
not hereafter become a part of the public domain through no violation of this
Agreement.
"Controlled Group" means Rapidtext, its Subsidiaries, and any trade or
business (whether or not incorporated) which together with Rapidtext or any
Subsidiary of Rapidtext would be deemed to be a "single employer" within the
meaning of ERISA Section 4001(b)(1) or subsections (b), (c), (m) or (o) of Code
Section 414.
"Customarily Permitted Liens" shall mean:
(a) Liens for ad valorem taxes, assessments or other governmental
Charges or levies, not yet due and payable;
(b) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other like Liens imposed by law,
created in the ordinary course of business and for amounts not yet due (or
which are being contested in good faith by appropriate proceedings or other
appropriate actions which are sufficient to prevent imminent foreclosure of
such Liens); and
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<PAGE>
(c) easements (including, without limitation, reciprocal easement
agreements and utility agreements), encroachments, variations and other
restrictions, Charges or encumbrances customary to the type of real
property affected and which do not impair the current use, occupancy, value
or the marketability of title of the real property subject thereto.
"Damages" has the meaning set forth in Section 11.02 below.
"EBITDA" shall mean earnings before interest, taxes, depreciation, and
amortization.
"Effective Date' shall mean 12:01 a.m. on the Closing Date.
"Effective Date Accounts Payable Report" means the Accounts Payable Report
for Rapidtext as of the Effective Date.
"Effective Date Accounts Receivable" shall mean the entire amount of
Accounts Receivable for Rapidtext as of the Effective Date.
"Effective Date Accounts Receivable Report" means the Accounts Receivable
Report for Rapidtext as of the Effective Date.
"Effective Date Balance Sheet Report" means the Balance Sheet Report for
Rapidtext as of the close of the Effective Date.
"Effective Time" has the meaning set forth in Section 4.02.
"Employee Benefit Plan" means any (a) Employee Pension Benefit Plan, (b)
Employee Welfare Benefit Plan, or (c) personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement, incentive award plan
or arrangement, vacation policy, severance pay plan, policy or agreement,
deferred compensation agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement, employment agreement and
each other employee benefit plan, agreement, arrangement, program, practice or
understanding which is not described in clause (a) or (b) of this sentence.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Section
3(2), including, but not limited to, employee pension benefit plans, such as
foreign plans, which are not subject to the provisions of ERISA.
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Section
3(1), including, but not limited to, employee welfare benefit plans, such as
foreign plans, which are not subject to the provisions of ERISA.
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<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Final Net Worth" means the Net Worth as of the Effective Date as
determined in accordance with Section 2.07 below.
"Financial Statements" has the meaning set forth in Section 7.06 below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Guaranteed Net Worth" means $96,292.00.
"Guaranty" shall mean that certain Guaranty of Performance to be executed
by Jerry Woods guarantying the obligations of the Trust.
"Income Statement Reports" means a statement of revenues and expenses of
Rapidtext as of a given date prepared by Rapidtext on an accrual basis and on a
consistent basis as with prior time periods.
"IRS" means the United States Internal Revenue Service or such equivalent
successor agency of the United States with the responsibility of assessing
and/or collecting Taxes.
"Johnson Employment Agreement" means that certain Employment Agreement by
and between LRA-CA and Johnson dated of even date herewith.
"Knowledge" means an individual will be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) a prudent individual could be expected to discover or otherwise
become aware of such fact or other matter in the course of conducting
a reasonably comprehensive investigation concerning the existence of
such fact or other matter.
A person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving, or who has at
any time served, as a director, officer, partner, executor, or trustee of such
Person (or in any similar capacity) has, or at any time had, Knowledge of such
fact or other matter.
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<PAGE>
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Liens" means any mortgages, deeds of trust, liens, security interests,
pledges, claims, charges, liabilities, obligations, or other encumbrances.
"LRA Companies' Accountants" shall mean the independent certified
public accounting firm of Coopers & Lybrand located in Houston, Texas.
"LRA Companies' Disclosure Schedule" has the meaning set forth in
Section 8.0 below.
"LRA Financial Statements" has the meaning set forth in Section 8.08
below.
"LRA Indemnified Parties" has the meaning set forth in Section 11.2
below.
"Net Worth" means the dollar amount of equity of Rapidtext as of a
given time period as determined by the Balance Sheet Report.
"Note" has the meaning set forth in Section 2.03(b)(ii) below.
"Notice of Action" has the meaning set forth in Section 11.02(ii)
below.
"Notice of Election" has the meaning set forth in Section 11.02(ii)
below.
"Offset" has the meaning set forth in Section 11.03(B) below.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Parent Shares" has the meaning set forth in Section 2.03(b)(i) below.
"Parent Shares Value" shall mean $8.50 per Parent Share; provided
however, that if the Parent has successfully consummated a public offering of
its shares of common stock, then it shall mean the average public trading price
of each Parent Share over the five (5) most recent business days.
"Past Due Accounts Receivable" means those accounts receivable of
Rapidtext whose age is more than 120 days from the date of invoice as of the
Effective Date.
"PBGC" means the Pension Benefit Guaranty Corporation.
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<PAGE>
"Permitted Encumbrances" with respect to property of a Party shall mean
(i) Security Interests expressly permitted, or consented in writing to by the
other Party; (ii) Purchase Money Liens; (iii) Customarily Permitted Liens; and
(iv) Liens of judgment creditors provided such Liens do not exceed $3,000
individually or $15,000 in the aggregate (other than Liens bonded or insured to
the reasonable satisfaction of the other Party).
"Person" means an individual, a partnership, a limited liability
company, a corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"Pledge Agreement" has the meaning set forth in Section 11.03 below.
"Prohibited Transaction" has the meaning set forth in ERISA Section 406
and Code Section 4975.
"Purchase Money Liens" shall mean Liens incurred in connection with the
acquisition of any asset; provided that (i) each such Lien shall attach only to
the asset to be acquired, (ii) a description of the asset so acquired is
furnished to the other Party, and (iii) the indebtedness incurred in connection
with such acquisitions shall not individually exceed $3,000 or in the aggregate
exceed $15,000.
"Purchase Price" has the meaning described in Section 2.03 below.
"Rapidtext's Accountants" shall mean the independent certified public
accounting firm of Metzleur, Skelton & Whitmore.
"Rapidtext Disclosure Schedule" has the meaning set forth in Section
7.0 below.
"Rapidtext Profits" has the meaning set forth in Section 2.03 below.
"Rapidtext Share" means any share of the issued and outstanding common
stock of Rapidtext, without par value.
"Registration Rights Agreements" has the meaning set forth in Section
9.01(ix).
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
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<PAGE>
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's and
similar liens, (b) liens for Taxes not yet due and payable or for Taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
Purchase Money Liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Senior Lender" shall mean Texas Commerce Bank, N.A.
"Shareholders" shall mean Sequester Trust, a California private annuity
trust and Glory Johnson.
"Shareholders' Agreement" shall mean that certain First Amended and
Restated Shareholders' Agreement by and between the Parent and all of the
Shareholders of the Parent.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors thereof.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium windfall profits, environmental (including taxes under Code Section
5(A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Woods" means Jerry Woods, an individual.
"Woods Employment Agreement" means that certain Employment Agreement by
and between LRA-CA and Woods dated of even date herewith.
ARTICLE II
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THE MERGER; STATUS AND CONVERSION OF SECURITIES
2.01 The Merger. Subject to the terms and conditions of this
----------
Agreement, at the Effective Date, Rapidtext shall be merged with and into LRA-CA
in accordance with this Agreement and the
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<PAGE>
separate existence of Rapidtext shall thereupon cease. The Merger is intended to
be a forward triangular merger and "tax-free reorganization" pursuant to Section
368(a) of the Code. The Merger shall have the effects specified in the
California Act.
2.02 [Omitted Intentionally]
2.03 Status and Conversion of Securities. The status of the outstanding
-----------------------------------
capital stock of each of the Constituent Corporations and the manner and basis
of converting the shares of capital stock of each of the Constituent
Corporations into or for shares of capital stock of the Surviving Corporation or
into or for Parent Shares or cash (for fractional shares), as the case may be,
at the Effective Time shall be as follows:
(a) Each share of Common Stock, without par value, of LRA-CA
outstanding as of the Effective Time shall remain one fully paid and
non-assessable share of Common Stock, without par value, of the Surviving
Corporation.
(b) All of the shares of Common Stock of Rapidtext outstanding
as of the Effective Time shall, by virtue of the Merger and without any action
on the part of the holder thereof, be converted at the Effective Time into
(collectively, the "Purchase Price"):
(i) an aggregate of 35,492 shares of the common stock of
Parent, $.01 par value per share (the "Parent Shares") as will
constitute an agreed upon value of $301,682 and at the Parent Shares
Value of which 22,116.471 shares shall be distributed to the Trust and
13, 375.529 shares shall be distributed to Johnson;
(ii) two 7% Junior Subordinated Promissory Notes in the
aggregate principal amount of $60,336 (collectively the "Note") with
one Note payable to the Trust in the principal amount of $37,598 and
the other Note payable to Johnson in the principal amount of $22,738,
with each such Note providing that it is immediately accelerated should
the Parent consummate a public offering of shares of its common stock;
and
(iii) cash in the amount of $241,346 payable by wire transfer
or delivery of other immediately available funds to the Shareholders on
the Closing Date in accordance with wiring instructions delivered by
the Shareholders to LRA-CA at least three business days prior to
Closing (the "Cash Payment").
In addition, in approximately one (1) year after the Closing Date, the
LRA Companies' Accountants shall determine the amount of EBITDA, if any, of the
Rapidtext division of LRA-CA during the twelve (12) month time period beginning
with the first full month after the Closing Date ("Rapidtext Profits"). To the
extent that the Rapidtext Profits exceed the amount of
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<PAGE>
$98,383, the Shareholders shall be paid and delivered an additional aggregate
amount equal to the amount of such excess, if any, multiplied by six (6) (the
"Earnout") as follows:
(i) Delivery to the Shareholders of an aggregate number of
Parent Shares that when multiplied by the Additional
Parent Shares Value shall equal fifty percent (50%) of
the Earnout;
(ii) Delivery to the Shareholders of a 7% Junior Subordinated
Promissory Note from LRA-CA in the principal amount
equal to ten percent (10%) of the Earnout which shall be
structured in the manner of the Note with a maturity
date of five (5) years after the date of issuance; and
(iii) Delivery to the Shareholders of cash in the amount of
forty percent (40%) of the Earnout.
Notwithstanding anything to the contrary contained herein, the promissory note
issuable under (ii) of the preceding sentence shall not be issued in the event
Parent has previously consummated a public offering of its Parent Shares in
which event LRA-CA shall instead deliver to the Shareholders cash in the amount
of ten percent (10%) of the Earnout in addition to the cash to be delivered to
Shareholders in (iii) of the preceding sentence. In the calculation of the
Earnout, EBITDA will be reduced by management salaries, but EBITDA will not be
reduced by any contractual or discretionary bonus provided to management or by
any corporate management expense paid by LRA-CA to the Parent or any Affiliate.
2.04 The Closing. The closing of the transactions contemplated by this
-----------
Agreement (the "Closing") shall take place simultaneously at the offices of (i)
Boyer, Ewing & Harris in Houston, Texas, and (ii) Rapidtext in Newport Beach,
California, unless otherwise mutually agreed, commencing on August 19, 1997, at
9:00 a.m. central daylight time, or at such other time or place as the Parties
mutually agree (the "Closing Date").
2.05 Deliveries at the Closing. At the Closing, (i) Rapidtext and the
-------------------------
Shareholders will deliver to the LRA Companies the various certificates,
instruments, and documents referred to in Section 9.01 below, (ii) the LRA
Companies will deliver to Rapidtext and the Shareholders the various
certificates, instruments, and documents referred to in Section 9.02 below,
(iii) the Shareholders will deliver to LRA-CA the stock certificates
representing all of the Rapidtext Shares, endorsed in blank or accompanied by
duly executed assignment documents, and (iv) the LRA Companies will deliver to
the Shareholders the Parent Shares, the Note, and the Cash Payment.
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<PAGE>
2.06 Exchange of Certificates and Related Matters. (a) At the Closing,
--------------------------------------------
the Shareholders as the sole holders of certificates theretofore representing
outstanding Rapidtext Shares shall surrender the same to LRA-CA, and such
Shareholders shall upon such surrender receive in exchange therefor a
certificate or certificates representing the number of full and fractional
shares of Parent Shares into which the Rapidtext Shares theretofore represented
by the certificate or certificates so surrendered shall have been converted
pursuant to the Merger.
(b) After the Effective Time and until surrendered, each
certificate which theretofore represented outstanding Rapidtext Shares shall be
deemed for all corporate purposes, other than the payment of dividends and
distributions, to evidence solely the right to receive the number of full and
fractional shares of Parent Shares into which such Rapidtext Shares are
convertible. No dividend or other distribution, if any, payable to holders of
Parent Shares shall be paid to the holders of any such certificates for
Rapidtext Shares until such certificates are surrendered, but upon surrender of
such certificates, all such declared dividends and distributions, if any, shall
be paid to the holder of record of the full shares of Parent Shares represented
by the certificate issued in exchange therefor, without interest.
(c) As of the Effective Time, the stock transfer books of
Rapidtext will be closed and no further transfers shall be made thereon.
2.07 Determination of Final Net Worth. The Effective Date Balance Sheet
--------------------------------
Report, the Effective Date Accounts Receivable Report and the Effective Date
Accounts Payable Report (collectively, the "Effective Date Financial Reports")
shall be prepared by Rapidtext and Rapidtext's Accountants as promptly as
possible after the Closing, and the Shareholders shall deliver the Effective
Date Reports to LRA-CA and the LRA Companies' Accountants as soon as possible
but in no event later than 30 days after the Closing Date. The LRA Companies'
Accountants shall review the Effective Date Financial Reports (including any
corresponding work papers of Rapidtext's Accountants) and report to Rapidtext's
Accountants in writing within 15 days of receipt thereof of any discrepancy. If
Rapidtext's Accountants and the LRA Companies' Accountants cannot resolve such
discrepancy within 15 days after Rapidtext's Accountants receipt of such report,
then they shall so notify the Parties, and the Parties shall attempt to resolve
the discrepancy within 15 days of such notice. If the Parties cannot resolve the
discrepancy to their mutual satisfaction, another independent public accounting
firm acceptable to all Parties shall be retained to review the Effective Date
Financial Reports. Such firm's conclusions as to the carrying values to appear
on the Effective Date Financial Reports for purposes of determining the Final
Net Worth of Rapidtext shall be conclusive. The Parties shall share equally in
the expenses of retaining such accounting firm. The LRA Companies shall pay the
expenses of the LRA Companies' Accountants for their review of the Effective
Date Financial Reports, and the Shareholders shall pay the expenses of
Rapidtext's Accountants for their review of the Effective Date Financial
Reports.
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<PAGE>
2.08 Post-Closing Adjustment of Purchase Price. After the Closing Date,
-----------------------------------------
the Purchase Price set forth in Section 2.03 shall be adjusted as follows: (i)
if the Final Net Worth of Rapidtext as finally determined pursuant to Section
2.07 shall be more than the Guaranteed Net Worth, then (a) the Parent Shares
shall be increased by an amount equal to fifty percent (50%) of the amount of
such excess, (b) the Cash Payment shall be increased by an amount equal to forty
percent (40%) of the amount of such excess, and (c) the principal amount of the
Note shall be increased by an amount equal to ten percent (10%) of the amount of
such excess, and (ii) if the Final Net Worth of Rapidtext as finally determined
pursuant to Section 2.07 shall be less than the Guaranteed Net Worth, then (a)
the Parent Shares shall be reduced by an amount equal to fifty percent (50%) of
the amount of such shortfall, (b) the Cash Payment shall be reduced by an amount
equal to forty percent (40%) of the amount of such shortfall, and (c) the
principal amount of the Note shall be reduced by an amount equal to ten percent
(10%) of the amount of such shortfall. In the event that the Parent Shares
should be reduced pursuant to (ii) above, the Shareholders shall immediately
return the aggregate number of Parent Shares to the Parent as will constitute
the value of the reduction. In the event that the Cash Payment should be reduced
pursuant to (ii) above, the Shareholders shall immediately refund such amount of
cash to LRA-CA. In the event that any principal payments on the Note are made by
LRA-CA prior to the determination of the final principal balance as a result of
the determination of the Final Net Worth, then the amount of any such principal
payments shall reduce the amount of the principal balance of the revised Note.
In addition, the Note executed and delivered by LRA-CA to the Shareholders at
the Closing shall be promptly returned to LRA-CA marked "CANCELLED" upon
LRA-CA's delivery of the revised Note to the Shareholders upon determination of
the Final Net Worth.
2.09 Additional Merger Transactions. The Closing of the Merger is
------------------------------
contingent upon the simultaneous merger of LRA-CA with each of Medtext, Inc., a
California corporation, and Goren of Newport, Inc., a California corporation
doing business as Johnson Court Reporting (the "Additional Merger
Transactions"). The Merger shall not be effective unless and until the
Additional Merger Transactions have been effected.
ARTICLE III
-----------
ARTICLES OF INCORPORATION; BY-LAWS;
DIRECTORS AND OFFICERS; VACANCIES
3.01 Articles of Incorporation. The Articles of Incorporation of LRA-CA
-------------------------
as in effect on the date hereof shall be and continue to be the Articles of
Incorporation of the Surviving Corporation until amended, altered or repealed in
the manner provided by law.
3.02 By-Laws. The By-Laws of LRA-CA as in effect on the date hereof
-------
shall be and constitute the By-Laws of the Surviving Corporation until altered,
amended or repealed as provided by law.
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<PAGE>
3.03 Directors. The Directors serving on the Board of Directors of
---------
LRA-CA on the date hereof shall continue as the Directors of the Surviving
Corporation, to hold office until their successors are elected and shall have
duly qualified.
3.04 Officers. The officers of LRA-CA in office on the date hereof
--------
shall be the officers of the Surviving Corporation, each to hold office in
accordance with the Articles of Incorporation and By-Laws of the Surviving
Corporation, until their successors are elected and shall have qualified.
3.05 Vacancies. If, as of the Effective Time, a vacancy shall exist on
---------
the Board of Directors or in any of the offices of the Surviving Corporation for
any reason, such vacancy may be filled in the manner provided in the By-Laws of
the Surviving Corporation.
ARTICLE IV
----------
SHAREHOLDER APPROVALS; EFFECTIVE TIME
4.01 Shareholders Approvals. (a) The holders of all of the issued and
----------------------
outstanding shares of Rapidtext have consented in writing to Rapidtext's
execution, delivery and performance of this Agreement, and have authorized,
adopted and approved the Merger of Rapidtext into LRA-CA.
(b) Parent, as the sole Shareholders of LRA-CA, has consented
in writing to LRA-CA's execution, delivery and performance of this Agreement and
has authorized, adopted and approved the Merger of Rapidtext into LRA-CA.
(c) If the Merger is not hereafter abandoned as permitted by
the provisions of this Agreement, as soon as practicable after the satisfaction
or waiver of the conditions precedent to consummation of the Merger, appropriate
Articles of Merger setting forth the information required by the California Act
and signed and verified on behalf of the Constituent Corporations (the "Articles
of Merger") shall be delivered to and filed with the Secretary of State of
California in accordance with the California Act.
4.02 Effective Time. The filing of the Articles of Merger shall take
--------------
place as soon as practicable after the Closing or at such other time and place
as the Corporations shall agree. The Merger shall become effective on the date
and at the time specified in the Articles of Merger filed with the Secretary of
State of California (the "Effective Time").
ARTICLE V
---------
CERTAIN EFFECTS OF THE MERGER
5.01 Liabilities and Obligations. At the Effective Time, the separate
---------------------------
existence of Rapidtext shall cease, and Rapidtext shall be merged with and into
LRA-CA. All right, title and interests to all real estate and other property
owned by each of the Constituent Corporations shall be allocated to
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<PAGE>
and vested in the Surviving Corporation without reversion or impairment, without
further act or deed, and without any transfer or assignment having occurred, but
subject to any existing liens or encumbrances thereon. All liabilities and
obligations of each of the Constituent Corporations shall be allocated to the
Surviving Corporation, and the Surviving Corporation shall be the primary
obligor therefor and, except as otherwise provided by law or contract, no other
party to the Merger, other than an entity liable thereon at the Effective Time
of the Merger, shall be liable therefor. The Surviving Corporation shall be
substituted in any proceedings pending by or against either of the Constituent
Corporations.
5.02 Further Assurances. From time to time, if, as and when requested
------------------
by the Surviving Corporation, or by its successors or assigns, LRA-CA and
Rapidtext shall execute and deliver or cause to be executed and delivered all
such deeds and other instruments, and shall take or cause to be taken all such
further or other actions, as the Surviving Corporation and its successors and
assigns may deem necessary or desirable in order to vest in and confirm to the
Surviving Corporation, all rights, title and interest to and possession of all
of the real estate and other property referred to in Section 5.01 hereof, and
otherwise to carry out the intents and purposes of this Agreement.
ARTICLE VI
----------
REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDERS
As of the execution date hereof, each of the Shareholders represents
and warrants to each of the LRA Companies that the statements contained in this
Article VI are correct and complete as of the date of this Agreement, except as
otherwise disclosed in that certain Shareholders Disclosure Schedule attached
hereto as Schedule 6.0. Nothing in the Shareholders Disclosure Schedule shall be
------------
deemed adequate to disclose an exception to a representation or warranty made
herein, however, unless the Shareholders Disclosure Schedule identifies the
exception with reasonable particularity and describes the relevant facts in
reasonable detail.
6.01 Organization, Qualification, and Corporate Power. The Trust is a
------------------------------------------------
private annuity trust duly organized, validly existing, and in good standing
under the laws of California. The Trust is not qualified to do business in any
other jurisdiction, nor does the nature of its business require such
qualification. The Trust has full power and authority and all material licenses,
permits, and authorizations necessary to carry on the businesses in which it is
engaged and to own and use the properties owned and used by it. Schedule 6.01
-------------
lists the trustee and all beneficiaries of the Trust. The Trust has delivered to
the LRA Companies correct and complete copies of the trust agreement and related
documentation of the Trust (as amended to date). The Trust is not in default
under or in violation of any provision of its trust agreement or related
documentation.
6.02 Authorization of Transaction. Each of the Shareholders has full
----------------------------
power and authority to execute and deliver this Agreement and to perform its or
her obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of each of the Shareholders,
-14-
<PAGE>
enforceable in accordance with its terms and conditions, except to the extent
that enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws or other laws or principles of
equity effecting the enforcement of creditors' rights. Each Shareholder
represents and warrants that it need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions contemplated by this
Agreement.
6.03 Noncontravention. Neither the execution and the delivery of this
----------------
Agreement by the Shareholders, nor the consummation of the transactions by the
Shareholders as contemplated hereby, will (i) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which either
Shareholder is subject or (ii) conflict with, result in a breach of, constitute
a default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
either Shareholders is a party or by which it is bound or to which any of its
assets is subject.
6.04 Brokers' Fees. The Shareholders have no Liability or obligation to
-------------
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the LRA Companies could
become liable or obligated.
6.05 Investment. Each of the Shareholders (i) understands that neither
----------
the Note nor the Parent Shares has been registered under the Securities Act, or
under any state securities laws, and are being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public offering,
(ii) is acquiring the Note and the Parent Shares solely for its or her own
account for investment purposes, and not with a view to the distribution
thereof, (iii) is a sophisticated investor with knowledge and experience in
business and financial matters, (iv) has received certain information specified
on Schedule 6.05 concerning the LRA Companies and has had the opportunity to
-------------
obtain additional information as desired in order to evaluate the merits and the
risks inherent in holding the Note and the Parent Shares, (v) is able to bear
the economic risk and lack of liquidity inherent in holding the Note and the
Parent Shares, and (vi) is an Accredited Investor.
6.06 Subject Shares. Each Shareholder holds of record and owns
--------------
beneficially the number of Rapidtext Shares set forth next to its or her name in
Schedule 7.03, free and clear of any restrictions on transfer (other than any
- -------------
restrictions under the Securities Act and state securities laws, Taxes, Security
Interests, options, warrants, purchase rights, or other contracts or commitments
that could require either Shareholder to sell, transfer, or otherwise dispose of
any capital stock of Rapidtext (other than this Agreement)). Neither Shareholder
is a party to any voting trust, proxy, or other agreement or understanding with
respect to the voting of any capital stock of any Company.
-15-
<PAGE>
6.07 Disclosure to Minority Shareholders. The Shareholders have made
-----------------------------------
full and complete disclosure of the terms and provisions of the Merger to any
and all minority shareholders of Rapidtext.
6.08 Guaranty by Woods. Woods shall enter into a certain Guaranty of
-----------------
Performance dated of even date herewith (the "Guaranty"), under which Woods
shall guarantee the full and punctual payment and performance by the Trust of
all of the obligations, duties, covenants, agreements and conditions to be paid
or performed by the Trust hereunder, including without limitation all
indemnification obligations of the Trust set forth in Article XI herein.
ARTICLE VII
-----------
REPRESENTATIONS AND WARRANTIES OF RAPIDTEXT
As of the execution date hereof, Rapidtext represents and warrants to
each of the LRA Companies that the statements contained in this Article VII are
correct and complete as of the date of this Agreement, except as otherwise
disclosed in that certain Rapidtext Disclosure Schedule attached hereto as
Schedule 7.0. Nothing in the Rapidtext Disclosure Schedule shall be deemed
- ------------
adequate to disclose an exception to a representation or warranty made herein,
however, unless the Rapidtext Disclosure Schedule identifies the exception with
reasonable particularity and describes the relevant facts in reasonable detail.
7.01 Organization, Qualification, and Corporate Power. Rapidtext is a
------------------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of California. Rapidtext is not qualified to do business in any other
jurisdiction, nor does the nature of its business require such qualification.
Rapidtext has full corporate power and authority and all material licenses,
permits, and authorizations necessary to carry on the businesses in which it is
engaged and to own and use the properties owned and used by it. Schedule 7.01
-------------
lists the directors and officers of Rapidtext. The Shareholders have delivered
to the LRA Companies correct and complete copies of the articles of
incorporation and bylaws of Rapidtext and its Subsidiaries, if any (as amended
to date). The minute books (containing the records of meetings of the
stockholders, the board of directors, and any committees of the board of
directors), the stock certificate books, and the stock record books of Rapidtext
are correct and complete in all material respects. Rapidtext is not in default
under or in violation of any provision of its articles of incorporation or
bylaws.
7.02 Authorization of Transaction. Rapidtext has full power and
----------------------------
authority to execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement constitutes the valid and legally binding obligation
of Rapidtext, enforceable in accordance with its terms and conditions, except to
the extent that enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws or other laws or principles of
equity effecting the enforcement of creditors' rights. Rapidtext represents and
warrants that it need not give any notice to, make any filing with, or obtain
any authorization, consent, or approval of any
-16-
<PAGE>
government or governmental agency in order to consummate the transactions
contemplated by this Agreement.
7.03 Capitalization. The entire authorized capital stock, the issued
--------------
and outstanding shares and the treasury shares of Rapidtext are accurately set
forth in Schedule 7.03. All of the issued and outstanding Rapidtext Shares have
-------------
been duly authorized, are validly issued, fully paid, and nonassessable, and are
held of record by its shareholders as set forth in Schedule 7.03. There are no
-------------
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that would require Rapidtext to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or similar rights with
respect to Rapidtext. There are no voting trusts, proxies, or other agreements
or understandings with respect to the voting of the capital stock of Rapidtext.
7.04 Noncontravention. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Rapidtext is subject, (ii) violate any
provision of the articles of incorporation or bylaws of Rapidtext, or (iii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which Rapidtext is a party or by which it is
bound or to which any of its assets is subject (or result in the imposition of
any security interest upon any of its assets). Rapidtext does not need to give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
7.05 Subsidiaries. Rapidtext does not have any ownership interest in
------------
any Subsidiaries. Rapidtext does not control, directly or indirectly, or have
any direct or indirect equity participation in any corporation, partnership,
trust, or other business association which is not a Subsidiary.
7.06 Financial Statements. The Shareholders have previously furnished
--------------------
the LRA Companies with the following financial statements (collectively the
"Financial Statements"): (i) a Balance Sheet Report and an Income Statement
Report for the fiscal years ended March 31, 1995, and March 31, 1996, compiled
by Rapidtext's Accountants; and (ii) Balance Sheet Reports and Income Statement
Reports for the period ended May 31, 1997, prepared by Rapidtext's Accountants,
(iii) an Accounts Receivable Report dated as of May 31, 1997, and (iv) an
Accounts Payable Report dated as of May 31, 1997. The Financial Statements
(including the notes thereto) have been prepared on a cash basis and are
consistently reported throughout the periods covered thereby, present fairly the
financial condition of Rapidtext as of such dates and the results of operations
of Rapidtext for such periods, are correct and complete in all material
respects, and
-17-
<PAGE>
are consistent in all material respects with the books and records of Rapidtext
(which books and records are correct and complete in all material respects).
7.07 Events Subsequent to May 31, 1997. Except as disclosed on
---------------------------------
Schedule 7.07, since May 31, 1997, there has not been any material change in the
- -------------
business, financial condition, operations, results of operations, or future
prospects of Rapidtext. Without limiting the generality of the foregoing, since
that date:
(i) Rapidtext has not sold, leased, transferred, or assigned
any of its assets, tangible or intangible, other than for a fair
consideration in the Ordinary Course of Business;
(ii) Rapidtext has not entered into any agreement, contract,
lease, or license (or series of related agreements, contracts, lease,
and licenses) either involving more than $3,000 singly or $15,000 in
the aggregate or outside the Ordinary Course of Business;
(iii) Rapidtext has not accelerated, terminated, modified, or
canceled any agreement, contract, lease, or license (or series of
related agreements, contracts, leases, and licenses) involving more
than $3,000 singly or $15,000 in the aggregate to which Rapidtext is a
party or by which it is bound;
(iv) Rapidtext has not imposed any Security Interest upon any
of its assets, tangible or intangible, except for Permitted Liens;
(v) Rapidtext has not made any capital expenditure (or series
of related capital expenditures) either involving more than $3,000
singly or $15,000 in the aggregate or outside the Ordinary Course of
Business;
(vi) Rapidtext has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of, any other
Person (or series or related capital investments, loans, and
acquisitions) either involving more than $3,000 singly or $15,000 in
the aggregate;
(vii) Rapidtext has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness
for borrowed money or capitalized lease obligation either involving
more than $3,000 singly or $15,000 in the aggregate;
(viii) Rapidtext has not delayed or postponed the payment of
accounts payable and other Liabilities for a period of more than sixty
(60) days after the date of invoice;
-18-
<PAGE>
(ix) Rapidtext has not canceled, compromised, waived, or
released any right or claim (or series of related rights and claims)
either involving more than $3,000 singly or $15,000 in the aggregate or
outside the Ordinary Course of Business;
(x) there has been no change made or authorized in the
articles of incorporation or bylaws of Rapidtext;
(xi) Rapidtext has not issued, sold, or otherwise disposed of
any of its capital stock, or granted any options, warrants, or other
rights to purchase or obtain (including upon conversion, exchange, or
exercise) any of its capital stock;
(xii) Rapidtext has not have declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock
(whether in cash or in kind) or redeemed, purchased, or otherwise
acquired any of its capital stock;
(xiii) Rapidtext has not experienced any damage, destruction,
or loss (whether or not covered by insurance) to its property valued,
individually or in the aggregate, in excess of (i) $10,000 for all
property which, at the time of such damage or destruction, was subject
to or covered by property, casualty or any other form of insurance, and
(ii) $3,000 for all property which, at the time of such damage or
destruction, was not subject to or covered by property, casualty or any
other form of insurance;
(xiv) Rapidtext has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and employees;
(xv) Rapidtext has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms
of any such existing contract or agreement;
(xvi) Rapidtext has not granted any increase in the base
compensation of any of its directors, officers, and employees outside
the Ordinary Course of Business;
(xvii) Rapidtext has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other
plan, contract, or commitment for the benefit of any of its directors,
officers, and employees (or taken any such action with respect to any
other Employee Benefit Plan);
(xviii) Rapidtext has not made any other change in employment
terms for any of its directors, officers, and employees outside the
Ordinary Course of Business;
-19-
<PAGE>
(xix) Rapidtext has not made or pledged to make any charitable
or other capital contribution outside the Ordinary Course of Business;
(xx) there has not been any other adverse occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary
Course of or Business involving Rapidtext or any Subsidiaries which
exceeds $3,000 individually $15,000 in the aggregate; and
(xxi) Rapidtext has not committed to any of the foregoing.
7.08 Undisclosed Liabilities. Except as disclosed on Schedule 7.08,
----------------------- -------------
Rapidtext does not have any Liability (and, to the best of the Shareholders'
Knowledge, there is no Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against any of them
giving rise to any Liability), except for (i) Liabilities reflected in the then
most current Financial Statements (including any notes thereto) and (ii)
Liabilities which have arisen after May 31, 1997 in the Ordinary Course of
Business (none of which results from, arises, out of, relates to, is in the
nature of, or was caused by any breach of contract, breach of warranty, tort,
infringement, or violation of law).
7.09 Legal Compliance. To the Knowledge of Shareholders, Rapidtext,
----------------
and its predecessors and Affiliates, have complied with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and, to the Shareholders' Knowledge, no
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them alleging any
failure so to comply.
7.10 Tax Matters. Except as disclosed on Schedule 7.10:
----------- -------------
(i) Rapidtext has filed all Tax Returns that it was required
to file. All such Tax Returns were correct and complete in all material
respects. All Taxes shown to be due on the Tax Returns have been paid
or accrued for the Balance Sheet. Rapidtext is not currently the
beneficiary of any extension of time within which to file any Tax
Return. No claim has ever been made by a Tax authority in a
jurisdiction where Rapidtext does not file Tax Returns that it is or
may be subject to taxation by that jurisdiction. There are no Security
Interests on the assets of Rapidtext that arose in connection with any
failure (or alleged failure) to pay any Tax.
(ii) Rapidtext has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to
any employee, creditor, stockholder, or other third party, except for
the unlikely event that Taxes may be incurred
-20-
<PAGE>
in connection with an independent contractor of Rapidtext being
characterized as an employee.
(iii) There is no dispute or claim concerning any Tax Liability
of Rapidtext either (A) claimed or raised by any Tax authority in
writing or (B) as to which the Shareholders and the directors and
officers (and employees responsible for Tax matters) of Rapidtext has
Knowledge based upon personal contact with any agent of such authority.
Schedule 7.10 lists all federal, state, local, and foreign income Tax
-------------
Returns filed with respect to Rapidtext for taxable periods ended on or
after March 31, 1997, indicates those Tax Returns that have been
audited, and indicates those Tax Returns that currently are the subject
of an audit. The Shareholders have delivered to the LRA Companies
correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against or
agreed to by Rapidtext.
(iv) Rapidtext has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a
Tax assessment or deficiency.
(v) Rapidtext has not made an election under section 341(f)
of the Code.
(vi) Rapidtext has made adequate provision for reserves or
accruals not yet due and payable relating to operations of the Company
prior to the Effective Time.
7.11 Title to Assets. Rapidtext has good and marketable title to, or
---------------
a valid leasehold interest in, the properties and assets used by it, or shown in
the Financial Statements or acquired after the date thereof, free and clear of
all Security Interests, except for properties and assets disposed of in the
Ordinary Course of Business since May 31, 1997, and except for Permitted
Encumbrances.
7.12 Real Property. Rapidtext does not own any real property.
-------------
Schedule 7.12 lists and describes briefly all real property leased or subleased
- -------------
to Rapidtext. The Shareholders have delivered to the LRA Companies correct and
complete copies of the leases and subleases listed in Schedule 7.12 (as amended
-------------
to date). Except as disclosed on Schedule 7.12, with respect to each lease and
-------------
sublease listed in Schedule 7.12:
-------------
(i) The lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(ii) The lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby;
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<PAGE>
(iii) Rapidtext is not in material breach or default of any
lease or sublease, and to the Shareholders' Knowledge, no third party
to any such lease or sublease is in material breach or material
default, and to the Shareholders' Knowledge, no event has occurred
which, with notice or lapse of time, would constitute a material breach
or material default or permit termination, modification, or
acceleration thereunder;
(iv) with respect to each sublease, to the Shareholders'
Knowledge, the representations and warranties set forth in subsections
(i) through (iii) above are true and correct with respect to the
underlying lease; and
(v) Rapidtext has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the leasehold
or subleasehold, except Customarily Permitted Liens.
7.13 Tangible Assets. Rapidtext owns or leases all buildings,
---------------
machinery, equipment, and other tangible assets necessary for the conduct of its
business as presently conducted. Each such tangible asset is suitable for the
purpose for which it is presently used.
7.14 Inventory. Rapidtext does not carry or maintain any inventory.
---------
7.15 Contracts. Schedule 7.15 lists the following contracts and other
--------- -------------
agreements currently in effect to which any Company is a party:
(i) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease
payments in excess of $15,000 per annum;
(ii) any agreement (or group of related agreements) for the
furnishing or receipt of services, the performance of which will extend
over a period of more than one year from the Closing Date or involve
consideration in excess of $15,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under
which it has created, incurred, assumed, or guaranteed any indebtedness
for borrowed money, or any capitalized lease obligation, in excess of
$15,000 or under which it has imposed a Security Interest on any of its
assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
-22-
<PAGE>
(vi) any agreement among either of the Shareholders and their
Affiliates (other than Rapidtext);
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan
or arrangement for the benefit of its current or former directors,
officers, and employees;
(viii) any written agreement for the employment of any
individual on a full-time, part-time, consulting, or other basis
providing annual compensation in excess of $15,000 or providing
severance benefits;
(ix) any agreement under which it has advanced or loaned any
amount to any of its directors, officers, and employees outside the
Ordinary Course of Business;
(x) any agreement under which the consequences of a default
or termination would reasonably be expected to have a material adverse
effect on the business, financial condition, operations, results of
operations, or future prospects of Rapidtext; or
(xi) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $15,000.
The Shareholders have delivered to the LRA Companies a correct and complete copy
of each written agreement listed in Schedule 7.15 (as amended to date) and a
-------------
written summary setting forth the terms and conditions of each oral agreement
referred to in Schedule 7.15. With respect to each such agreement: (A) the
-------------
agreement is legal, valid, binding, enforceable, and in full force and effect;
(B) Rapidtext is not a party nor to the Shareholders' Knowledge is any other
party in breach or default, and to the Shareholders' Knowledge, no event has
occurred which with notice or lapse of time would constitute a breach or
default, or permit termination, modification, or acceleration, under the
agreement, and (C) Rapidtext has not repudiated any provision of any such
agreement nor to the Shareholders' Knowledge has any other party repudiated any
provision of any such agreement.
7.16 Notes and Accounts Receivable. All notes and accounts receivable
-----------------------------
of Rapidtext are properly recorded on each Accounts Receivable Report delivered
to the LRA Companies, reflected properly on Rapidtext's books and records and
are valid receivables.
7.17 Powers of Attorney. Except as disclosed on Schedule 7.17, there
------------------ -------------
are no outstanding powers of attorney executed on behalf of Rapidtext.
7.18 Insurance. Schedule 7.18 lists each insurance policy (including
---------- -------------
policies providing property, casualty, liability, and workers' compensation
coverage and bond and surety
-23-
<PAGE>
arrangements) to which Rapidtext is currently a party, copies of which have been
furnished to the LRA Companies.
7.19 Litigation. Schedule 7.19 sets forth each instance in which
---------- -------------
Rapidtext (i) is subject to any outstanding injunction, judgment, order, decree,
ruling, or charge or (ii) is a party or, to the Knowledge of the Shareholders,
is threatened to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court of quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator.
7.20 Certain Business Relationships with Rapidtext. Except as
---------------------------------------------
disclosed on Schedule 7.20, neither the Shareholders nor their Affiliates have
-------------
been involved in any business arrangement or relationship with Rapidtext within
the past 12 months, and neither the Shareholders nor any of their Affiliates
owns any asset, tangible or intangible, which is used in the business of
Rapidtext.
7.21 Guaranties. Rapidtext is not a guarantor or otherwise liable for
----------
any Liability or obligation (including indebtedness) of any other Person.
7.22 Employees. To the Shareholders' Knowledge, no executive, key
---------
employee, or group of employees has any plans to terminate employment with
Rapidtext. Rapidtext has not committed any unfair labor practice. The
Shareholders do not have any Knowledge of any organizational effort presently
being made or threatened by or on behalf of any labor union with respect to
employees of Rapidtext. Schedule 7.22 sets forth by number and employment
-------------
classification the approximate numbers of employees employed by Rapidtext as of
the date of this Agreement, and none of said employees are subject to union or
collective bargaining agreements with Rapidtext.
7.23 Employee Benefits.
-----------------
(i) Schedule 7.23 lists each Employee Benefit Plan that
-------------
Rapidtext maintains or to which it contributes.
(A) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form and in
operation in all material respects with the applicable
requirements of ERISA, the Code, and other applicable laws.
(B) All required reports and descriptions (including
Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's, and
Summary Plan Descriptions) have been filed or distributed
appropriately with respect to each such Employee Benefit Plan.
The requirements of Part 6 of Subtitle B of Title I of ERISA and
of
-24-
<PAGE>
Code Section 4980B have been met with respect to each such
Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(C) All contributions (including all employer
contributions and employee salary reduction contributions) which
are due have been paid to each such Employee Benefit Plan which
is an Employee Pension Benefit Plan and all contributions for
any period ending on or before the Closing Date which are not
yet due have been paid to each such Employee Pension Benefit
Plan or accrued in accordance with the past custom and practice
of Rapidtext. All premiums or other payments for all periods
ending on or before the Closing Date have been paid with respect
to each such Employee Benefit Plan.
(D) Rapidtext has substantially performed all
obligations, whether arising by operation of law or by contract,
required to be performed by it in connection with such Employee
Benefit Plans, and to Shareholders' Knowledge, there has been no
default or violation by any other party to such Employee Benefit
Plans.
(E) The Shareholders have delivered to the LRA Companies
correct and complete copies of the plan documents and summary
plan descriptions, the most recent Form 5500 Annual Report, and
all related trust agreements, insurance contracts, and other
funding agreements which relate to each such Employee Benefit
Plan.
(ii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not (A)
require Rapidtext to make a larger contribution to, or pay greater
benefits under, any Employee Benefit Plan than it otherwise would or
(B) create or give rise to any additional vested rights or service
credits under any Employee Benefit Plan.
(iii) Each such Employee Benefit Plan has been terminated by
Rapidtext in compliance with all applicable laws on or before the
Closing Date.
7.24 Brokers' Fees. Except for T.R. Capital, Rapidtext does not have
-------------
any Liability or obligation to pay any fees or commissions to any broker,
finder, or agent with respect to the transactions contemplated by this
Agreement.
7.25 Operation of Business. To the Shareholders' Knowledge (i) all
---------------------
court reporters that are or have been hired (including independent contractors)
by Rapidtext are qualified to perform the jobs that they are hired to perform
and they are not required by law to obtain any certification to perform their
jobs, (ii) all documents that Rapidtext is or has been required to maintain,
store
-25-
<PAGE>
or handle in connection with conducting its business are or have been
maintained, stored or handled in the manner agreed to between Rapidtext and its
clients or in material conformity with prevailing standards regarding such
matters in Rapidtext's industry, and (iii) Rapidtext performs all aspects and
operations of its business at or above the prevailing standards for Rapidtext's
industry.
7.26 Disclosure. The representations and warranties contained in this
----------
Section 7.26 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 7.26 not misleading.
ARTICLE VIII
------------
REPRESENTATIONS AND WARRANTIES OF LRA COMPANIES
The LRA Companies represent and warrant that the statements contained
in this Article VIII are correct and complete as of the date of this Agreement,
except as otherwise disclosed in that certain LRA Companies Disclosure Schedule
attached hereto as Schedule 8.0. Nothing in the LRA Companies Disclosure
------------
Schedule shall be deemed adequate to disclose an exception to a representation
or warranty made herein, however, unless the LRA Companies Disclosure Schedule
identifies the exception with reasonable particularity and describes the
relevant facts in reasonable detail.
8.01 Organization, Qualification, and Corporate Power. Each of the
------------------------------------------------
LRA Companies is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation. Each of the
LRA Companies is duly authorized to conduct business and is in good standing
under the laws of each jurisdiction where such qualification is required. Each
of the LRA Companies and their respective Subsidiaries has full corporate power
and authority and all material licenses, permits, and authorizations necessary
to carry on the businesses in which it is engaged and to own and use the
properties owned and used by it. Schedule 8.01 lists the directors and officers
-------------
of each of the LRA Companies. Each of the LRA Companies has delivered to the
Shareholders correct and complete copies of the charter and bylaws of each of
the LRA Companies (as amended to date). The minute books (containing the records
of meetings of the stockholders, the board of directors, and any committees of
the board of directors), the stock certificate books, and the stock record books
of each of the LRA Companies are correct and complete in all material respects.
Neither of the LRA Companies are in default under or in violation of any
provision of its respective charter or bylaws.
8.02 Capitalization. The entire authorized capital stock, the issued
--------------
and outstanding shares and the treasury shares of each of the LRA Companies are
accurately set forth in Schedule 8.02 together with the changes thereto
-------------
contemplated by the acquisition of Rapidtext. All of the issued and outstanding
shares of each of the LRA Companies have been duly authorized, are validly
issued, fully paid, and nonassessable, and are held of record by the respective
parties as set forth in Schedule 8.02. There are no outstanding or authorized
-------------
options, warrants, purchase
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<PAGE>
rights, subscription rights, conversion rights, exchange rights, or other
contracts or commitments that could require either of the LRA Companies to
issue, sell, or otherwise cause to become outstanding any of its capital stock
except those set forth in Schedule 8.02. There are no outstanding or authorized
-------------
stock appreciation, phantom stock, profit participation, or similar rights with
respect to either of the LRA Companies except as set forth in Schedule 8.02.
-------------
There are no voting trusts, proxies, or other agreements or understandings with
respect to the voting of the capital stock of either of the LRA Companies.
8.03 Authority. The execution and delivery of this Agreement by each
---------
of the LRA Companies has been duly authorized by each of the LRA Companies'
Board of Directors which constitutes all of the necessary corporate action
required in order for the LRA Companies to consummate the transactions
hereunder. The LRA Companies have the right, power, legal capacity and authority
to enter into, and perform their respective obligations under, this Agreement,
and no approvals or consents of any persons are necessary in connection
herewith.
8.04 Noncontravention. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which either of the LRA Companies is subject,
(ii) violate any provision of the charter or bylaws of either of the LRA
Companies, or (iii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
either of the LRA Companies is a party or by which it is bound or to which any
of its assets is subject (or result in the imposition of any Security Interest
upon any of its assets). Neither of the LRA Companies needs to give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
8.05 Brokers' Fees. Neither of the LRA Companies has any Liability or
-------------
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement other than to The
GulfStar Group, Inc.
8.06 Financial Statements. The LRA Companies have previously
--------------------
furnished to Rapidtext and the Shareholders true and complete copies of the
financial statements dated as of May 31, 1997 (the foregoing financial
statements being referred to as the "LRA Financial Statements"). The LRA
Financial Statements have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods indicated, and
fairly present, in all material respects, the financial position of the LRA
Companies as of the respective dates of the balance sheets included in the LRA
Financial Statements and the results of operations for the respective periods
indicated subject to year end adjustments.
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<PAGE>
8.07 Consents. No consent, authorization, approval, permit or license
--------
of, or filing with, any governmental or public body or authority, or any lender,
or any other person or entity is required to authorize, or is required in
connection with, the execution, delivery and performance of this Agreement or
the agreements contemplated hereby on the part of either of the LRA Companies.
8.08 Issuance of the Parent Shares. The Parent Shares have been
-----------------------------
reserved for issuance and, upon issuance and delivery, shall be duly authorized,
validly issued, and non-assessable.
8.09 Litigation. Neither of the LRA Companies is subject to any
----------
pending litigation, or to the best of its knowledge, threatened litigation.
8.10 Material Adverse Changes. There have been no material adverse
------------------------
changes with respect to the business of the LRA Companies since May 31, 1997.
8.11 Undisclosed Liabilities. Except as disclosed on Schedule 8.11
----------------------- -------------
none of the LRA Companies have any Liability (and, to the best of the LRA
Companies' Knowledge, there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability), except for (i) Liabilities reflected
in the then most current Financial Statements (including any notes thereto) and
(ii) Liabilities which have arisen after May 31, 1997 in the Ordinary Course of
Business (none of which results form, arises, out of, relates to, is in the
nature of, or was caused by any breach of contract, breach of warranty, tort,
infringement, or violation of law).
8.12 Disclosure. The representations and warranties contained in this
----------
Article VIII do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Article VIII not misleading.
ARTICLE IX
----------
CONDITIONS TO THE MERGER
9.01 Conditions to Obligation of the LRA Companies. The obligation of
---------------------------------------------
the LRA Companies to proceed with the Closing and consummate the transactions to
be performed by each of them in connection with the Closing is subject to
satisfaction of the following conditions (any or all which may be waived in
writing, by the LRA Companies):
(i) the representations and warranties set forth in Articles
VI and VII above shall be true and correct in all material respects at
and as of the Closing Date;
(ii) Rapidtext and the Shareholders shall have performed and
complied with all of their covenants hereunder in all material respects
at and as of the Closing Date;
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<PAGE>
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, (C) affect adversely the right of the LRA-CA to merge
Rapidtext with and into itself, or (D) materially and adversely affect
in any material respect the right of Rapidtext to own its assets and to
operate its business (and no such injunction, judgment, order, decree,
ruling, or charge shall be in effect);
(iv) Rapidtext and the Shareholders shall have delivered to
the LRA Companies a certificate to the effect that each of the
conditions specified above in 9.01(i)-(iii) is satisfied in all
respects;
(v) the LRA Companies shall have received from counsel to
Rapidtext and the Shareholders an opinion in form and substance
reasonably acceptable to all Parties, addressed to the LRA Companies,
and dated as of the Closing Date containing such assumptions and
qualifications as may be reasonably acceptable to the LRA Companies'
legal counsel;
(vi) the LRA Companies shall have received the resignations,
effective as of the Closing, of each director and officer of Rapidtext
other than those whom the LRA Companies shall have specified in writing
prior to the Closing;
(vii) the LRA Companies shall have received notification from
its Senior Lender that such Senior Lender has approved consummation of
the transactions contemplated by this Agreement under its acquisition
line of credit;
(viii) Johnson shall have entered into the Johnson Employment
Agreement;
(ix) Woods shall have entered into the Woods Employment
Agreement;
(x) Woods shall have entered into the Guaranty;
(xi) The Shareholders shall have each entered into a certain
First Amended and Restated Shareholders' Agreement (the "Shareholders'
Agreement") on terms and conditions reasonably satisfactory to it, and
a Registration Rights Agreement which shall grant to the Shareholders
certain piggyback rights with respect to the Parent Shares and shall
provide that, to the extent any greater registration rights are ever
granted to any seller of a company acquired by LRA-CA, the Shareholders
shall be granted the same or equivalent registration rights (the
"Registration Rights Agreement");
-29-
<PAGE>
(xii) all Employee Benefit Plans shall have been terminated
by Rapidtext and the Shareholders and, to the extent that they are
eligible, employees will participate in the LRA-CA Employee Benefit
Plans to the extent LRA-CA has implemented substitute Employee Benefit
Plans, and neither the LRA Companies nor Rapidtext shall have any
further liability with respect thereto other than completion of the
routine winding up thereof;
(xiii) all actions to be taken by the Rapidtext and/or the
Shareholders in connection with consummation of the transactions
contemplated hereby and all certificates, opinions, instruments, and
other documents required to effect the transactions contemplated hereby
will be reasonably satisfactory in form and substance to the LRA
Companies;
(xiv) the Shareholders shall have entered into the Pledge
Agreement;
(xv) the LRA Companies, the Shareholders and the Senior
Lender shall have entered into a Subordination Agreement; and
(xvi) the Shareholders and Woods shall have executed a
Release in form and substance acceptable to the LRA Companies.
9.02 Conditions to Obligation of Rapidtext and the Shareholders.
----------------------------------------------------------
The obligation of Rapidtext and the Shareholders to proceed with Closing and
consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions (any or all of
which may be waived in writing by Rapidtext and/or the Shareholders):
(i) the representations and warranties set forth in
Articles VIII above shall be true and correct in all material respects
at and as of the Closing Date;
(ii) the LRA Companies shall have performed and complied
with all of their respective covenants hereunder in all material
respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, (C) affect adversely the right of the Shareholders to own
the Parent Shares, or (D) affect adversely in any material respect the
right of LRA-CA to own its assets and to operate its businesses (and no
such injunction, judgment, order, decree, ruling, or charge shall be in
effect);
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<PAGE>
(iv) the LRA Companies shall have delivered to Rapidtext
and the Shareholders a certificate to the effect that each of the
conditions specified above in Section 9.02(i)-(iii) is satisfied in all
respects;
(v) Rapidtext and the Shareholders shall have obtained the
full and final releases (a) of any guaranty of the Shareholders of the
debt of Rapidtext or any of its Subsidiaries and (b) of any collateral
pledged by the Shareholders securing such debt or guarantees; provided,
however, that the foregoing releases will not require the payment of
any additional consideration in excess of the Purchase Price by LRA-CA;
(vi) the LRA Companies shall have received from Senior
Lender approval to fund this transaction under its acquisition line;
(vii) LRA-CA shall have entered into the Woods Employment
Agreement;
(viii) LRA-CA shall have entered into the Johnson Employment
Agreement;
(ix) Rapidtext and the Shareholders shall have received
from counsel to the LRA Companies an opinion in form and substance
acceptable to Rapidtext and the Shareholders, addressed to Rapidtext
and the Shareholders, and dated as of the Closing Date containing such
assumptions and qualifications as may be reasonably acceptable to the
Rapidtext's and the Shareholders's legal counsel;
(x) all actions to be taken by Rapidtext and/or the
Shareholders in connection with consummation of the transactions
contemplated hereby and all certificates, opinions, instruments, and
other documents required to effect the transactions contemplated hereby
will be reasonably satisfactory in form and substance to the LRA
Companies;
(xi) the LRA Companies shall have entered into the
Shareholders' Agreement, and the Registration Rights Agreement on terms
and conditions reasonably satisfactory to Shareholders;
(xii) Parent and LRA-CA shall have entered into the Pledge
Agreement;
(xiii) all actions to be taken by the LRA Companies in
connection with consummation of the transactions contemplated hereby,
and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to Rapidtext and the
Shareholders; and
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<PAGE>
(xiv) the LRA Companies, the Shareholders and the Senior
Lender shall have entered into a Subordination Agreement.
ARTICLE X
---------
POST CLOSING COVENANTS
10.01 General. In case at any time after the Closing any further
-------
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under
Article XI below).
10.02 Litigation Support. In the event and for so long as any Party
------------------
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand to which the other
Party is not subject (either by virtue of the indemnification provisions
contained in Article XI below or otherwise) in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving any Party, the other Parties will cooperate with him or it and his or
its counsel in the contest or defense, make available their personnel, and
provide such testimony and access to their books and records as shall be
necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party (unless the contesting or defending
Party is entitled to indemnification therefor under Article XI below). The LRA
Companies acknowledge and agree that if any Shareholder, any director or officer
of Rapidtext is individually brought into any litigation in connection with
Rapidtext, it, he or she shall be indemnified to the maximum extent that
directors and officers of corporations are permitted to be indemnified under
California law both for all costs of litigation as well as any judgments or
settlement amounts paid. Notwithstanding the foregoing, the Shareholders shall
not be entitled to indemnification to the extent of any of the following:
(i) suit against any Shareholder, director or officer with
respect to a matter for which such Shareholders, director or officer is
required to indemnify the LRA Companies pursuant to this Agreement; or
(ii) to the extent that any Shareholder, director or
officer is found to have engaged in gross negligence or willful
misconduct.
10.03 Confidentiality. The Shareholders will treat and hold as such
---------------
all of the Confidential Information and refrain from using any of the
Confidential Information except in connection with this Agreement and all of the
other agreements executed in connection herewith and except in connection with
handling all of the litigation described on Schedule 7.19. In the
-------------
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<PAGE>
event that Shareholders are requested or required (by oral question or request
for information or documents in any legal proceeding, interrogatory, subpoena,
civil investigative demand, or similar process) to disclose any Confidential
Information, the Shareholders will notify the LRA Companies promptly of the
request or requirement so that the LRA Companies may seek an appropriate
protective order or waive compliance with the provisions of this Section 10.03.
If, in the absence of a protective order or the receipt of a waiver hereunder,
the Shareholders are, on the advice of counsel, compelled to disclose any
Confidential Information to any tribunal or else stand liable for contempt, the
Shareholders may disclose the Confidential Information to the tribunal;
provided, however, that Shareholders shall use their reasonable best efforts to
obtain, at the reasonable request of the LRA Companies, an order or other
assurance that confidential treatment will be accorded to such portion of the
Confidential Information required to be disclosed as the LRA Companies shall
designate; provided, however that all of the Shareholders' costs including but
not limited to legal fees shall be paid by the LRA Companies. The foregoing
provisions shall not apply to any Confidential Information which is generally
available to the public immediately prior to the time of disclosure.
10.04 Accounts Receivable. Johnson and Woods shall use commercially
-------------------
reasonable efforts to collect the Accounts Receivable in the Ordinary Course of
Business. Each Shareholder represents and warrants that all Effective Date
Accounts Receivable shall be collectible in their full amounts less a reserve
for doubtful accounts of ten percent (10%) of the total principal amount of
Effective Date Accounts Receivable outstanding within twelve (12) months of the
Effective Date. LRA-CA shall make a good faith effort to collect the Effective
Date Accounts Receivable.
ARTICLE XI
----------
INDEMNIFICATION; REMEDIES
11.01 Survival of Representations and Warranties. All of the
------------------------------------------
representations and warranties of the Parties contained in this Agreement shall
survive the Closing hereunder and continue in full force and effect for two
years thereafter except that the representations and warranties contained in
Section 7.10, and Section 7.11 which shall survive for three years after the
Closing.
11.02 Indemnification Provisions.
--------------------------
(i) By the Shareholders. Each Shareholder shall indemnify,
-------------------
save, defend and hold harmless each of the LRA Companies and their respective
shareholders, directors, officers, partners, agents and employees (and in the
event either of the LRA Companies assigns its right, title and interest
hereunder to a corporation, which shall be permitted hereunder, such assignee)
(collectively, the "LRA Indemnified Parties") from and against any and all
costs, lawsuits, losses, Liabilities, deficiencies, claims and expenses,
including interest, penalties, reasonable attorneys' fees and all reasonable
amounts paid in investigation, defense or settlement of any of the foregoing
(collectively
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<PAGE>
referred to herein as "Damages"), incurred in connection with or arising out of
or resulting from or incident to any breach (or in the event any third party
alleges facts that, if true, would mean such Shareholder has breached), of any
covenant, warranty or representation made by each Shareholder in or pursuant to
this Agreement or any other agreement delivered pursuant to this Agreement or in
any schedule, certificate, exhibit, or other instrument furnished or to be
furnished by the Shareholders or their Affiliates pursuant to the terms of this
Agreement; provided, however, that the Shareholders shall not be liable for any
such Damages to the extent, if any, such Damages result from or arise out of a
breach or violation of this Agreement by any LRA Indemnified Parties.
(ii) By the LRA Companies. The LRA Companies shall indemnify,
--------------------
save, defend and hold harmless the Shareholders from and against any and all
Damages incurred in connection with or arising out of or resulting from or
incident to any breach (or in the event any third party alleges facts that, if
true, would mean either of the LRA Companies have breached), of any covenant,
warranty or representation made by either of the LRA Companies in or pursuant to
this Agreement or any other agreement delivered pursuant to this Agreement
contemplated hereby or in any schedule, certificate, exhibit, or other
instrument furnished or to be furnished by either of the LRA Companies under
this Agreement; provided, however, that the LRA Companies shall not be liable
for any such Damages to the extent, if any, such Damages result from or arise
out of a breach or violation of this Agreement by either Shareholder.
(iii) Defense of Claims. If any lawsuit or enforcement action
-----------------
is filed against any Party entitled to the benefit of indemnity hereunder,
written notice thereof describing such lawsuit or enforcement action in
reasonable detail and indicating the amount (estimated, if necessary) or good
faith estimate of the reasonably foreseeable estimated amount of Damages (which
estimate shall in no way limit the amount of indemnification the indemnified
Party is entitled to receive hereunder), shall be given to the indemnifying
Party as promptly as practicable (and in any event within ten (10) days, after
the service of the citation or summons) ("Notice of Action"); provided that the
failure of any indemnified Party to give timely notice shall not affect its
rights to indemnification hereunder to the extent that the indemnified Party
demonstrates that the amount the indemnified Party is entitled to recover
exceeds the actual damages to the indemnifying Party caused by such failure to
so notify within ten (10) days; provided further that a Notice of Action must be
sent to the indemnifying Party within the applicable survival period as provided
in Section 10.1 of this Agreement. The indemnifying Party may elect to
compromise or defend any such asserted liability and to assume all obligations
contained in this Section 11.02 to indemnify the indemnified Party by a delivery
of notice of such election ("Notice of Election") within ten (10) days after
delivery of the Notice of Action. Upon delivery of the Notice of Election, the
indemnifying Party shall be entitled to take control of the defense and
investigation of such lawsuit or action and to employ and engage attorneys of
its own choice to handle and defend the same, at the indemnifying Party's sole
cost, risk and expense, and such indemnified Party shall cooperate in all
reasonable respects, at the indemnifying Party's sole cost, risk and expense,
with the indemnifying Party and such attorneys in the investigation, trial, and
defense of such lawsuit or action and any appeal arising therefrom; provided,
however, that the indemnified Party may, at its own cost, risk and expense,
participate in such investigation, trial and defense of such lawsuit or action
and any appeal arising therefrom. If the Notice of Election is
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<PAGE>
delivered to the indemnified Party, the indemnified Party shall not pay, settle
or compromise such claim without the indemnifying Party's consent, which consent
shall not be unreasonably withheld. If the indemnifying Party elects not to
defend the claim of the indemnified Party or does not deliver to the indemnified
Party a Notice of Election within ten (10) days after delivery of the Notice of
Action, the indemnified Party may, but shall not be obligated to defend, or the
indemnified Party may compromise or settle (exercising reasonable business
judgment) the claim or other matter on behalf, for the account, and at the risk,
of the indemnifying Party.
(iv) Third Party Claims. The provisions of this Section 11.02
------------------
are not limited to matters asserted by the Parties, but cover costs, losses,
liabilities, damages, lawsuits, claims and expenses incurred in connection with
third party claims.
(v) Limitation on Indemnification. Notwithstanding any
-----------------------------
provision of this Agreement except for claims by the LRA Companies against the
Shareholders under Section 10.04 of this Agreement, neither the LRA Companies
nor the Shareholders or any Affiliate of either shall be required to pay an
indemnified Party or any Affiliate thereof any amount with respect to any claim
for Damages under this Section 11.02 until the Damages which the indemnified
Party and its Affiliates suffered under this Agreement aggregate at least
$25,000 (the "Threshold"), at which time and in such event the indemnified Party
or Affiliate shall be entitled to receive payment for the entire amount of
aggregate Damages beginning with the first dollar. Neither Party shall be liable
to indemnify the other Party in an amount in excess of the Purchase Price
excluding any and all amounts due and owing under Section 10.04 of this
Agreement.
11.03 Remedies.
--------
A. Specific Performance. Each of the Parties hereby agrees
--------------------
that the transactions contemplated by this Agreement are unique, and that each
Party shall have, in addition to any other legal or equitable remedy available
to it, the right to enforce this Agreement by decree of specific performance. If
any legal action or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing Party or Parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or proceeding
in addition to any other remedies to which it, he or they may be entitled at law
or equity. The rights and remedies granted herein are cumulative and not
exclusive of any other right or remedy granted herein or provided by law.
B. Offset. Any and all Damages incurred by the LRA Companies
------
which permit the LRA Companies to make an indemnification claim against the
Shareholders and to the extent not otherwise prohibited by applicable law, shall
be subject to mandatory offset by the LRA Companies against all amounts due and
owing by the LRA Companies to the Shareholders under this Agreement, the Note,
or any document, instrument, or agreement executed in connection herewith;
provided, however that no offsets shall be permitted against the base salary due
and owing to the Shareholders, respectively, under the Johnson Employment
Agreement and under the Woods
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<PAGE>
Employment Agreement. The foregoing shall constitute the sole remedy of the LRA
Companies against the Shareholders in connection with breaches of the
representations, warranties, covenants and obligations of the Shareholders
contained in this Agreement except to the extent of any remaining unpaid claims
to the extent permitted under Article X of this Agreement if there is not a Note
or any Parent Shares remaining pledged to offset against in which event the LRA
Companies may proceed against the Shareholders but only for any amounts not
offset and not exceeding the Purchase Price. In the event of an offset of any
Damages incurred as a result of any such breach, the LRA Companies shall furnish
the Shareholders notice containing detailed information about the breach, the
magnitude of the Damages that the LRA Companies has or reasonably expects to
incur (the act of offsetting by the LRA Companies shall be referred to as an
"Offset"). All Offsets shall be one-half (1/2) against the Note, and one-half
(1/2) against the Parent Shares. In the event there is not any principal balance
remaining due and owing on the Note, then, any additional Damages shall be
Offset against the Parent Shares. In the event the Parent Shares are no longer
pledged to the LRA Companies, in order to permit the LRA Companies to offset any
of their Damages, than the entire amount of the Offset shall be against the
principal balance of the Note. For purposes hereof, the Parent Shares shall be
deemed to have a value equivalent to the Parent Shares Value. In order to secure
the LRA Companies' Offset rights against the Parent Shares, the LRA Companies
and the Shareholders shall execute that certain Stock Pledge Agreement dated of
even date herewith (the "Pledge Agreement"). The Parent Shares shall have a
restrictive legend typed on the back thereof specifying that the Parent Shares
are subject to a right of Offset as specified in this Agreement. The
Shareholders acknowledge and agree that but for the right of Offset contained in
this Agreement, the LRA Companies would not have entered into this Agreement or
any of the transactions contemplated herein. If any legal action or other
proceeding is brought for the enforcement of this Agreement, or any document,
instrument, or agreement executed in connection herewith, or because of an
alleged dispute, breach, default or misrepresentation in connection with any of
the provisions of this Agreement or any document, instrument, or agreement
executed in connection herewith, the successful or prevailing Party shall be
entitled to recover reasonable attorneys' fees and other costs incurred in that
action or proceeding.
ARTICLE XII
-----------
GENERAL
12.01 Public Announcements. No Party shall issue any press release or
--------------------
make any public announcement relating to the subject matter of this Agreement
(including the documents referred to herein) without the prior written approval
of all of the Parties; provided, however, that any Party may make any public
disclosure it believes in good faith upon the advise of legal counsel it is
required by applicable law (in which case the disclosing Party will use its best
efforts to advise the other Party prior to making the disclosure).
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<PAGE>
12.02 No Third-Party Beneficiaries. This Agreement shall not confer
----------------------------
any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
12.03 Entire Agreement. This Agreement (including the documents
----------------
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
12.04 Succession and Assignment. This Agreement shall be binding upon
-------------------------
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of his or its rights, interests, or obligations hereunder without the prior
written approval of the Parties; provided, however, that the LRA Companies may
(i) assign any or all of its rights and interests hereunder (x) to one or more
of its Affiliates, and (y) to one or more financial institutions lending funds
to the LRA Companies for the purpose of financing the merger hereunder and (ii)
designate one or more of its Affiliates to perform its obligations hereunder (in
any or all of which cases the LRA Companies nonetheless shall remain responsible
for the performance of all of their respective obligations hereunder).
12.05 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
12.06 Headings. The section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
12.07 Notices. All notices, requests, demands, claims, and other
-------
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
<TABLE>
<S> <C>
If to Shareholders: Seaquestor Trust
Jerry Woods
37 Beacon Bay
Newport Beach, California 92660
Attn: Kimberley Woods, Trustee
Telephone: (714) 675-0617
Telefax: (714) 675-9937
Glory Johnson
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
230 Newport Center Drive
Suite 250
Newport Beach, California 92660
Telephone: (714) 644-7700
Telefax: (714) 644-7706
Copy to: Mr. Donald Segretti
Three Park Plaza, Suite 1735
Irvine, California 92614
Telephone: (714) 851-0990
Telefax: (714) 851-0999
If to LRA-CA: Litigation Resources of America-California, Inc.
1001 Fannin, Suite 650
Houston, Texas 77002-2731
Telephone: (713) 653-7100
Telefax (713) 653-7172
Attn: Mr. Richard O. Looney,
Chief Executive Officer
Copy to: Boyer Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Telephone: (713) 871-2025
Telefax (713) 871-2024
Attn: J. Randolph Ewing
If to Parent: Litigation Resources of America, Inc.
1001 Fannin, Suite 650
Houston, Texas 77002-2731
Telephone: (713) 653-7100
Telefax (713) 653-7172
Attn: Mr. Richard O. Looney,
Chief Executive Officer
Copy to: Boyer Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Telephone: (713) 871-2025
Telefax (713) 871-2024
Attn: J. Randolph Ewing
</TABLE>
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<PAGE>
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
12.08 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING
EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE
OF TEXAS OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS
OF ANY JURISDICTION OTHER THAN THE STATE OF CALIFORNIA.
12.09 Amendments and Waivers. No amendments of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by all
of the Parties. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
12.10 Severability. Any term or provision of this Agreement that is
------------
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
12.11 Expenses. Each of the Parties will bear his, her or its own
--------
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby.
12.12 Construction. The Parties have participated jointly in the
------------
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
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<PAGE>
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
12.13 Incorporation of Exhibits and Schedules. The Exhibits and
---------------------------------------
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
12.14. Arbitration and Limitation on Claims. Any controversy, dispute
------------------------------------
or claim arising out of, in connection with, or in relation to, the
interpretation, performance or breach of this Agreement, including, without
limitation, the validity, scope and enforceability of this Agreement which
cannot first be settled through ordinary negotiation between the Parties shall
be submitted in good faith to mediation by and in accordance with the Commercial
Mediation Rules of the American Arbitration Association or any successor
organization. In the event that mediation of such controversy, dispute or claim
cannot be settled through the mediation proceeding, the Parties agree that the
controversy, dispute or claim shall be submitted to binding and final
arbitration conducted in Los Angeles, California by and in accordance with the
then existing Rules for Commercial Arbitration of the American Arbitration
Association or any successor organization. Any such arbitration shall be to a
three member panel selected through the rules governing selection and
appointment of such panels of the American Arbitration Association or any
successor organization. The award rendered by the arbitrators may be confirmed,
entered and enforced as a judgment in any court of competent jurisdiction;
however, the Parties otherwise waive any rights to appeal the award except with
regard to fraud by the panel. Any such action must be brought within two years
of the date the cause of action accrues. The arbitrators shall award the Party
which substantially prevails in any arbitration proceeding recovery of that
Party's attorneys' fees, the arbitrators' fees and all costs in connection with
the arbitration from the Party who does not substantially prevail. The Parties'
remedies are limited solely to the specific remedies provided in this Agreement
or in the other. The parties waive any entitlement to punitive damages,
consequential damages and lost profits and will limit any damage claim to actual
economic damages incurred. Nothing in this Section 12.14 shall restrict any
Parties' ability to seek injunctive or other equitable relief in any court of
competent jurisdiction prior to initiating mediation or arbitration. In the
event that such injunctive or equitable relief is sought by any Party, such
Party is specifically entitled to enforce the appropriate provisions of the
Agreement in obtaining such relief in any court of competent jurisdiction and,
thereafter, submit the remaining controversy, dispute or claim to arbitration in
accordance with this Section 12.14.
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<PAGE>
IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of
the date first above written.
<TABLE>
<S> <C>
LITIGATION RESOURCES OF AMERICA-
ATTEST: CALIFORNIA, INC., a California corporation
By: /s/ G. Kent Kahle By: /s/ Dave Pfleghar
------------------------------------------ ------------------------------------------
G. Kent Kahle, Asst. Secretary Dave Pfleghar, Chief Financial Officer
LITIGATION RESOURCES OF AMERICA,
INC., a Texas corporation
By: /s/ G. Kent Kahle By: /s/ Dave Pfleghar
------------------------------------------ ------------------------------------------
G. Kent Kahle, Asst. Secretary Dave Pfleghar, Chief Financial Officer
RAPIDTEXT, INC.,
a California corporation
By: /s/ Glory Johnson By: /s/ Jerry Woods
------------------------------------------ ------------------------------------------
Glory Johnson, Secretary Jerry Woods, President
SEAQUESTOR TRUST,
a California private annuity trust
By: /s/ Kimberley A. Woods
------------------------------------------
Kimberley A. Woods, Sole Trustee
/s/ Glory Johnson
---------------------------------------------
GLORY JOHNSON
</TABLE>
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<PAGE>
LIST OF SCHEDULES
<TABLE>
<S> <C>
6.0 Shareholders Disclosure Letter
6.01 Trustee and Beneficiaries of Shareholders
6.05 Information re: LRA Companies
7.0 Rapidtext Disclosure Letter
7.01 Directors and Officers of Rapidtext
7.03 Capitalization and Shareholders Listing for Rapidtext
7.07 Certain Changes or Events
7.08 Liabilities
7.10 Tax Matters
7.12 Real Property Leases
7.15 Rapidtext Contracts
7.17 Powers of Attorney
7.18 Insurance
7.19 Litigation
7.20 Business Relationships with Rapidtext
7.22 Employees
7.23 Employee Benefit Plans
8.0 LRA Companies Disclosure Letter
8.01 Directors and Officers of LRA Companies
8.02 Capitalization and Shareholders Listing for LRA Companies
8.11 Undisclosed Liabilities
</TABLE>
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<PAGE>
EXHIBIT 10.13
PLAN AND AGREEMENT OF REORGANIZATION AND MERGER
THIS PLAN AND AGREEMENT OF REORGANIZATION AND MERGER (this "Agreement") is
dated as of August 19, 1997, by and among LITIGATION RESOURCES OF AMERICA --
CALIFORNIA, INC., a California corporation ("LRA-CA"), MEDTEXT, INC., a
California corporation ("Medtext"), SEAQUESTOR TRUST, a California private
annuity trust (the "Shareholder"), and LITIGATION RESOURCES OF AMERICA, INC., a
Texas corporation and the parent company of LRA-CA ("Parent"). LRA-CA and
Medtext are sometimes hereinafter referred to collectively as the "Constituent
Corporations" or individually as a "Constituent Corporation." LRA-CA and Parent
are sometimes hereinafter referred to collectively as the "LRA Companies" or
individually as a "LRA Company." Medtext and the LRA Companies are sometimes
hereinafter referred to collectively as the "Corporations" or individually as a
"Corporation." The Corporations and the Shareholder are sometimes referred to
collectively as the "Parties" or individually as a "Party."
W I T N E S S E T H:
WHEREAS, the Board of Directors of each Corporation deems it advisable and
in the best interests of such Corporation and of such Corporation's stockholders
that Medtext be merged with and into LRA-CA pursuant to the provisions of the
General Corporation Law of California (the "California Act") and this Agreement,
in a transaction whereby all of the currently issued and outstanding shares of
common stock, without par value, of Medtext will be canceled and converted into
the right to receive shares of common stock, $.01 par value, of the Parent,
together with cash and other consideration; and
WHEREAS, the Board of Directors of each Corporation has authorized and
approved the merger of Medtext with and into LRA-CA (the "Merger") on the terms
and conditions contained in this Agreement, and the Board of Directors of each
Constituent Corporation has submitted the Merger to the stockholders of such
Constituent Corporation for approval, as required by the California Act, and
such approval of the stockholders has been obtained in accordance with the
requirements of the California Act; and
WHEREAS, the Parties intend that the Merger will constitute a
reorganization under the provisions of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"); and
WHEREAS, the Parties desire to set forth certain representations,
warranties and covenants made by each of them to the others as an inducement to
the execution hereof and the consummation of the Merger;
NOW THEREFORE, in consideration of the premises and the mutual agreements,
promises and covenants herein contained, the Parties hereby agree that Medtext
shall be, at the "Effective Time" of this Agreement (as hereinafter defined in
Section 4.02), merged into LRA-CA, which shall
<PAGE>
be the surviving corporation (such corporation in its capacity as such surviving
corporation may be hereinafter referred to as the "Surviving Corporation") and a
wholly-owned subsidiary of Parent, organized and existing under the laws of the
State of California, and the Corporations hereby adopt and agree to the
following covenants, terms and conditions relating to the Merger and the manner
of carrying the same into effect.
ARTICLE I
---------
DEFINITIONS
"Accounts Payable Report" means a report as of a given time period
containing a summary of the outstanding accounts payable of Medtext which report
shall reflect such accounts payable on an aged basis and shall set forth the
amounts due and owing by Medtext to each of its suppliers, creditors or court
reporters.
"Accounts Receivable" means all amounts due and owing to Medtext by each of
its customers.
"Accounts Receivable Report" means a report as of a given time period
containing a summary of the outstanding accounts receivable of Medtext, which
report shall reflect such accounts receivable and shall set forth the amounts
due and owing to Medtext by each of its customers.
"Accredited Investor" has the meaning set forth in Regulation D promulgated
under the Securities Act.
"Additional Parent Shares Value" means $8.50 per Parent Share; provided,
that if the Parent or its Affiliates have subsequently consummated an
acquisition in which Parent Shares are issued, then the value of each Parent
Share as specified in the most recent such acquisition; and further provided
however, that if the Parent has successfully consummated a public offering of
its shares of common stock, then it shall mean the average public trading price
of each Parent Share over the five (5) most recent business days.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Balance Sheet Report" means the balance sheet of Medtext as of a given
date showing the assets, liabilities and equity of Medtext prepared by Medtext
in accordance with GAAP on a consistent basis as with prior time periods.
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<PAGE>
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or is reasonably likely to form the
basis for any specified consequences.
"Cash Payment" has the meaning set forth in Section 2.03(b)(iii) below.
"Charges" shall mean all federal, state, county, city, municipal, local,
foreign or other governmental taxes at the time due and payable, levies,
assessments, charges, liens, claims or encumbrances upon or relating to (i) any
of a corporation's employees, payroll, income or gross receipts, (ii) any of a
corporation's ownership or use of any of its assets, or (iii) any other aspect
of a corporation's business.
"Closing" has the meaning set forth in Section 2.04 below.
"Closing Date" has the meaning set forth in Section 2.04 below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the businesses
and affairs of Medtext and its Subsidiaries that is not (a) generally known or
available to the public; (b) after the date of this Agreement, generally known
or readily available through no violation of this Agreement; or (c) in or does
not hereafter become a part of the public domain through no violation of this
Agreement.
"Controlled Group" means Medtext, its Subsidiaries, and any trade or
business (whether or not incorporated) which together with Medtext or any
Subsidiary of Medtext would be deemed to be a "single employer" within the
meaning of ERISA Section 4001(b)(1) or subsections (b), (c), (m) or (o) of Code
Section 414.
"Customarily Permitted Liens" shall mean:
(a) Liens for ad valorem taxes, assessments or other governmental
Charges or levies, not yet due and payable;
(b) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other like Liens imposed by law, created in the
ordinary course of business and for amounts not yet due (or which are being
contested in good faith by appropriate proceedings or other appropriate
actions which are sufficient to prevent imminent foreclosure of such
Liens); and
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<PAGE>
(c) easements (including, without limitation, reciprocal easement
agreements and utility agreements), encroachments, variations and other
restrictions, Charges or encumbrances customary to the type of real
property affected and which do not impair the current use, occupancy, value
or the marketability of title of the real property subject thereto.
"Damages" has the meaning set forth in Section 11.02 below.
"Deferred Purchase Price" has the meaning set forth in Section 2.03(c).
"EBITDA" shall mean earnings before interest, taxes, depreciation, and
amortization.
"Effective Date' shall mean 12:01 a.m. on the Closing Date.
"Effective Date Accounts Payable Report" means the Accounts Payable Report
for Medtext as of the Effective Date.
"Effective Date Accounts Receivable" shall mean the entire amount of
Accounts Receivable for Medtext as of the Effective Date.
"Effective Date Accounts Receivable Report" means the Accounts Receivable
Report for Medtext as of the Effective Date.
"Effective Date Balance Sheet Report" means the Balance Sheet Report for
Medtext as of the close of the Effective Date.
"Effective Time" has the meaning set forth in Section 4.02.
"Employee Benefit Plan" means any (a) Employee Pension Benefit Plan, (b)
Employee Welfare Benefit Plan, or (c) personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement, incentive award plan
or arrangement, vacation policy, severance pay plan, policy or agreement,
deferred compensation agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement, employment agreement and
each other employee benefit plan, agreement, arrangement, program, practice or
understanding which is not described in clause (a) or (b) of this sentence.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Section
3(2), including, but not limited to, employee pension benefit plans, such as
foreign plans, which are not subject to the provisions of ERISA.
-4-
<PAGE>
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Section
3(1), including, but not limited to, employee welfare benefit plans, such as
foreign plans, which are not subject to the provisions of ERISA.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" shall mean the law firm of Boyer, Ewing & Harris
Incorporated.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Final Net Worth" means the Net Worth as of the Effective Date as
determined in accordance with Section 2.07 below.
"Financial Statements" has the meaning set forth in Section 7.06 below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Guaranteed Net Worth" means $191,047.00.
"Guaranty" shall mean that certain Guaranty of Performance to be executed
by Jerry Woods guarantying the obligations of the Trust.
"Income Statement Reports" means a statement of revenues and expenses of
Medtext as of a given date prepared by Medtext on an accrual basis and on a
consistent basis as with prior time periods.
"IRS" means the United States Internal Revenue Service or such equivalent
successor agency of the United States with the responsibility of assessing
and/or collecting Taxes.
"Knowledge" means an individual will be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) a prudent individual could be expected to discover or otherwise
become aware of such fact or other matter in the course of conducting
a reasonably comprehensive investigation concerning the existence of
such fact or other matter.
A person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving, or who has at
any time served, as a director, officer,
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<PAGE>
partner, executor, or trustee of such Person (or in any similar capacity) has,
or at any time had, Knowledge of such fact or other matter.
"Liability" means any liability (whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
"Liens" means any mortgages, deeds of trust, liens, security interests,
pledges, claims, charges, liabilities, obligations, or other encumbrances.
"LRA Companies' Accountants" shall mean the independent certified public
accounting firm of Coopers & Lybrand located in Houston, Texas.
"LRA Companies' Disclosure Schedule" has the meaning set forth in Section
8.0 below.
"LRA Financial Statements" has the meaning set forth in Section 8.08 below.
"LRA Indemnified Parties" has the meaning set forth in Section 11.2 below.
"Medtext's Accountants" shall mean the independent certified public
accounting firm of Metzleur, Skelton & Whitmore.
"Medtext Disclosure Schedule" has the meaning set forth in Section 7.0
below.
"Medtext Profits" has the meaning set forth in Section 2.03 below.
"Medtext Share" means any share of the issued and outstanding common stock
of Medtext, without par value.
"Net Worth" means the dollar amount of equity of Medtext as of a given time
period as determined by the Balance Sheet Report.
"Note" has the meaning set forth in Section 2.03(b)(ii) below.
"Notice of Action" has the meaning set forth in Section 11.02(ii) below.
"Notice of Election" has the meaning set forth in Section 11.02(ii) below.
"Offset" has the meaning set forth in Section 11.03(B) below.
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<PAGE>
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Parent Shares" has the meaning set forth in Section 2.03(b)(i) below.
"Parent Shares Calculation" has the meaing set forth in Section 2.03(c).
"Parent Shares Value" shall mean $8.50 per Parent Share; provided however,
that if the Parent has successfully consummated a public offering of its shares
of common stock, then it shall mean the average public trading price of each
Parent Share over the five (5) most recent business days.
"Past Due Accounts Receivable" means those accounts receivable of Medtext
whose age is more than 120 days from the date of invoice as of the Effective
Date.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Encumbrances" with respect to property of a Party shall mean (i)
Security Interests expressly permitted, or consented in writing to by the other
Party; (ii) Purchase Money Liens; (iii) Customarily Permitted Liens; and (iv)
Liens of judgment creditors provided such Liens do not exceed $3,000
individually or $15,000 in the aggregate (other than Liens bonded or insured to
the reasonable satisfaction of the other Party).
"Person" means an individual, a partnership, a limited liability company, a
corporation, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"Pledge Agreement" has the meaning set forth in Section 11.03 below.
"Prohibited Transaction" has the meaning set forth in ERISA Section 406 and
Code Section 4975.
"Purchase Money Liens" shall mean Liens incurred in connection with the
acquisition of any asset; provided that (i) each such Lien shall attach only to
the asset to be acquired, (ii) a description of the asset so acquired is
furnished to the other Party, and (iii) the indebtedness incurred in connection
with such acquisitions shall not individually exceed $3,000 or in the aggregate
exceed $15,000.
"Purchase Price" has the meaning described in Section 2.03 below.
"Registration Rights Agreements" has the meaning set forth in Section
9.01(ix).
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<PAGE>
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's and similar
liens, (b) liens for Taxes not yet due and payable or for Taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
Purchase Money Liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Senior Lender" shall mean Texas Commerce Bank, N.A.
"Shareholder" shall mean Sequester Trust, a California private annuity
trust.
"Shareholders' Agreement" shall mean that certain First Amended and
Restated Shareholders' Agreement by and between the Parent and all of the
shareholders of the Parent.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors thereof.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium
windfall profits, environmental (including taxes under Code Section 5(A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Woods" means Jerry Woods, an individual.
"Woods Employment Agreement" means that certain Employment Agreement by and
between LRA-CA and Woods dated of even date herewith.
-8-
<PAGE>
ARTICLE II
----------
THE MERGER; STATUS AND CONVERSION OF SECURITIES
2.01 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Date, Medtext shall be merged with and into LRA-CA
in accordance with this Agreement and the separate existence of Medtext shall
thereupon cease. The Merger is intended to be a forward triangular merger and
"tax-free reorganization" pursuant to Section 368(a) of the Code. The Merger
shall have the effects specified in the California Act.
2.02 [Intentionally Omitted]
2.03 Status and Conversion of Securities. The status of the outstanding
capital stock of each of the Constituent Corporations and the manner and basis
of converting the shares of capital stock of each of the Constituent
Corporations into or for shares of capital stock of the Surviving Corporation or
into or for Parent Shares or cash (for fractional shares), as the case may be,
at the Effective Time shall be as follows:
(a) Each share of Common Stock, without par value, of LRA-CA
outstanding as of the Effective Time shall remain one fully paid and non-
assessable share of Common Stock, without par value, of the Surviving
Corporation.
(b) All of the shares of Common Stock of Medtext outstanding as of
the Effective Time shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted at the Effective Time into
(collectively, the "Purchase Price"):
(i) a 7% Junior Subordinated Promissory Note in the principal
amount of $107,023 (the "Note") payable to the Shareholder, which Note shall
provide that it is immediately accelerated should the Parent consummate a public
offering of shares of its common stock;
(ii) cash in the amount of $428,093 payable by wire transfer or
delivery of other immediately available funds to the Shareholder on the Closing
Date in accordance with wiring instructions delivered by the Shareholder to LRA-
CA at least three business days prior to Closing (the "Cash Payment"); and
(iii) an aggregate of 60,865.764 shares of the common stock of
Parent,$.01 par value per share (the "Parent Shares") as will constitute an
agreed upon value of $517,359 and at the Parent Shares Value (the "Deferred
Purchase Price") which shall be delivered to the Escrow Agent at the Closing.
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<PAGE>
(c) In approximately one (1) year after the Closing Date, the LRA
Companies' Accountants shall determine the amount of EBITDA, if any, of the
Medtext division of LRA-CA during the twelve (12) month time period beginning
with the first full month after the Closing Date ("Medtext Profits"). The
Medtext Profits shall then be multiplied by 6.25 with such sum minus the amount
of $560,472 being determined (the "Parent Shares Calculation"). To the extent
that the Parent Shares Calculation equals or exceeds the amount of $517,359, the
entire amount of the Parent Shares shall be deemed owned by the Shareholder and
shall be released by the Escrow Agent and pledged pursuant to the Pledge
Agreement. To the extent that the Parent Shares Calculation is less than
$517,359, the percentage by which the Parent Shares Calculation is less than
$517,359 shall be multiplied by 60,865.764 Parent Shares with the resulting
number constituting the number of Parent Shares being returned to the Parent by
the Escrow Agent, and the balance of Parent Shares being deemed to be owned by
the Shareholder and being released by the Escrow Agent and pledged pursuant to
the Pledge Agreement.
In the calculation of the Medtext Profits, such Medtext Profits will be
reduced by management salaries, but such Medtext Profits will not be reduced by
any contractual or discretionary bonus provided to management or by any
corporate management expense paid by LRA-CA to the Parent or any Affiliate.
2.04 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place simultaneously at the offices of (i)
Boyer, Ewing & Harris in Houston, Texas, and (ii) Medtext in Newport Beach,
California, unless otherwise mutually agreed, commencing on August 19, 1997, at
9:00 a.m. central daylight time, or at such other time or place as the Parties
mutually agree (the "Closing Date").
2.05 Deliveries at the Closing. At the Closing, (i) Medtext and the
Shareholder will deliver to the LRA Companies the various certificates,
instruments, and documents referred to in Section 9.01 below, (ii) the LRA
Companies will deliver to Medtext and the Shareholder the various certificates,
instruments, and documents referred to in Section 9.02 below, (iii) the
Shareholder will deliver to LRA-CA the stock certificate(s) representing all of
the Medtext Shares, endorsed in blank or accompanied by duly executed assignment
documents, and (iv) the LRA Companies will deliver to the Escrow Agent the
Parent Shares, and deliver to the Shareholder the Note and the Cash Payment.
2.06 Exchange of Certificates and Related Matters. (a) At the Closing, the
Shareholder as the sole holder of certificates theretofore representing
outstanding Medtext Shares shall surrender the same to LRA-CA, and the
Shareholder shall upon such surrender receive in exchange therefor the Note and
the Cash Payment.
(b) After the Effective Time and until surrendered, each certificate
which theretofore represented outstanding Medtext Shares shall be deemed for all
corporate purposes, other
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<PAGE>
than the payment of dividends and distributions, to evidence solely the right to
receive the the Note and the Cash Payment.
(c) As of the Effective Time, the stock transfer books of Medtext
will be closed and no further transfers shall be made thereon.
2.07 Determination of Final Net Worth. The Effective Date Balance Sheet
Report, the Effective Date Accounts Receivable Report and the Effective Date
Accounts Payable Report (collectively, the "Effective Date Financial Reports")
shall be prepared by Medtext and Medtext's Accountants as promptly as possible
after the Closing, and the Shareholder shall deliver the Effective Date Reports
to LRA-CA and the LRA Companies' Accountants as soon as possible but in no event
later than 30 days after the Closing Date. The LRA Companies' Accountants shall
review the Effective Date Financial Reports (including any corresponding work
papers of Medtext's Accountants) and report to Medtext's Accountants in writing
within 15 days of receipt thereof of any discrepancy. If Medtext's Accountants
and the LRA Companies' Accountants cannot resolve such discrepancy within 15
days after Medtext's Accountants receipt of such report, then they shall so
notify the Parties, and the Parties shall attempt to resolve the discrepancy
within 15 days of such notice. If the Parties cannot resolve the discrepancy to
their mutual satisfaction, another independent public accounting firm acceptable
to all Parties shall be retained to review the Effective Date Financial Reports.
Such firm's conclusions as to the carrying values to appear on the Effective
Date Financial Reports for purposes of determining the Final Net Worth of
Medtext shall be conclusive. The Parties shall share equally in the expenses of
retaining such accounting firm. The LRA Companies shall pay the expenses of the
LRA Companies' Accountants for their review of the Effective Date Financial
Reports, and the Shareholder shall pay the expenses of Medtext's Accountants for
their review of the Effective Date Financial Reports.
2.08 Post-Closing Adjustment of Purchase Price. After the Closing Date,
the Purchase Price set forth in Section 2.03 shall be adjusted as follows: (i)
if the Final Net Worth of Medtext as finally determined pursuant to Section 2.07
shall be more than the Guaranteed Net Worth, then (a) the Cash Payment shall be
increased by an amount equal to eighty percent (80%) of the amount of such
excess, and (b) the principal amount of the Note shall be increased by an amount
equal to twenty percent (20%) of the amount of such excess, and (ii) if the
Final Net Worth of Medtext as finally determined pursuant to Section 2.07 shall
be less than the Guaranteed Net Worth, then (a) the Cash Payment shall be
reduced by an amount equal to eighty percent (80%) of the amount of such
shortfall, and (b) the principal amount of the Note shall be reduced by an
amount equal to twenty percent (20%) of the amount of such shortfall. In the
event that the Cash Payment should be reduced pursuant to (ii) above, the
Shareholder shall immediately refund such amount of cash to LRA-CA. In the event
that any principal payments on the Note are made by LRA-CA prior to the
determination of the final principal balance as a result of the determination of
the Final Net Worth, then the amount of any such principal payments shall reduce
the amount of the principal balance of the revised Note. In addition, the Note
executed and delivered by
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LRA-CA to the Shareholder at the Closing shall be promptly returned to LRA-CA
marked "CANCELLED" upon LRA-CA's delivery of the revised Note to the Shareholder
upon determination of the Final Net Worth.
2.09 Additional Merger Transactions. The Closing of the Merger is
contingent upon the simultaneous merger of LRA-CA with each of Rapidtext, Inc.,
a California corporation, and Goren of Newport, Inc., a California corporation
doing business as Johnson Court Reporting (the "Additional Merger
Transactions"). The Merger shall not be effective unless and until the
Additional Merger Transactions have been effected.
ARTICLE III
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ARTICLES OF INCORPORATION; BY-LAWS;
DIRECTORS AND OFFICERS; VACANCIES
3.01 Articles of Incorporation. The Articles of Incorporation of LRA-CA as
in effect on the date hereof shall be and continue to be the Articles of
Incorporation of the Surviving Corporation until amended, altered or repealed in
the manner provided by law.
3.02 By-Laws. The By-Laws of LRA-CA as in effect on the date hereof shall
be and constitute the By-Laws of the Surviving Corporation until altered,
amended or repealed as provided by law.
3.03 Directors. The Directors serving on the Board of Directors of LRA-CA
on the date hereof shall continue as the Directors of the Surviving Corporation,
to hold office until their successors are elected and shall have duly qualified.
3.04 Officers. The officers of LRA-CA in office on the date hereof shall
be the officers of the Surviving Corporation, each to hold office in accordance
with the Articles of Incorporation and By-Laws of the Surviving Corporation,
until their successors are elected and shall have qualified.
3.05 Vacancies. If, as of the Effective Time, a vacancy shall exist on the
Board of Directors or in any of the offices of the Surviving Corporation for any
reason, such vacancy may be filled in the manner provided in the By-Laws of the
Surviving Corporation.
ARTICLE IV
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SHAREHOLDER APPROVALS; EFFECTIVE TIME
4.01 Shareholder Approvals. (a) The holders of all of the issued and
outstanding shares of Medtext have consented in writing to Medtext's execution,
delivery and performance of this Agreement, and have authorized, adopted and
approved the Merger of Medtext into LRA-CA.
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(b) Parent, as the sole Shareholder of LRA-CA, has consented in
writing to LRA-CA's execution, delivery and performance of this Agreement and
has authorized, adopted and approved the Merger of Medtext into LRA-CA.
(c) If the Merger is not hereafter abandoned as permitted by the
provisions of this Agreement, as soon as practicable after the satisfaction or
waiver of the conditions precedent to consummation of the Merger, appropriate
Articles of Merger setting forth the information required by the California Act
and signed and verified on behalf of the Constituent Corporations (the "Articles
of Merger") shall be delivered to and filed with the Secretary of State of
California in accordance with the California Act.
4.02 Effective Time. The filing of the Articles of Merger shall take place
as soon as practicable after the Closing or at such other time and place as the
Corporations shall agree. The Merger shall become effective on the date and at
the time specified in the Articles of Merger filed with the Secretary of State
of California (the "Effective Time").
ARTICLE V
---------
CERTAIN EFFECTS OF THE MERGER
5.01 Liabilities and Obligations. At the Effective Time, the separate
existence of Medtext shall cease, and Medtext shall be merged with and into LRA-
CA. All right, title and interests to all real estate and other property owned
by each of the Constituent Corporations shall be allocated to and vested in the
Surviving Corporation without reversion or impairment, without further act or
deed, and without any transfer or assignment having occurred, but subject to any
existing liens or encumbrances thereon. All liabilities and obligations of each
of the Constituent Corporations shall be allocated to the Surviving Corporation,
and the Surviving Corporation shall be the primary obligor therefor and, except
as otherwise provided by law or contract, no other party to the Merger, other
than an entity liable thereon at the Effective Time of the Merger, shall be
liable therefor. The Surviving Corporation shall be substituted in any
proceedings pending by or against either of the Constituent Corporations.
5.02. Further Assurances. From time to time, if, as and when requested
by the Surviving Corporation, or by its successors or assigns, LRA-CA and
Medtext shall execute and deliver or cause to be executed and delivered all such
deeds and other instruments, and shall take or cause to be taken all such
further or other actions, as the Surviving Corporation and its successors and
assigns may deem necessary or desirable in order to vest in and confirm to the
Surviving Corporation, all rights, title and interest to and possession of all
of the real estate and other property referred to in Section 5.01 hereof, and
otherwise to carry out the intents and purposes of this Agreement.
ARTICLE VI
----------
REPRESENTATIONS AND WARRANTIES OF
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THE SHAREHOLDER
As of the execution date hereof, the Shareholder represents and warrants to
each of the LRA Companies that the statements contained in this Article VI are
correct and complete as of the date of this Agreement, except as otherwise
disclosed in that certain Shareholder Disclosure Schedule attached hereto as
Schedule 6.0. Nothing in the Shareholder Disclosure Schedule shall be deemed
adequate to disclose an exception to a representation or warranty made herein,
however, unless the Shareholder Disclosure Schedule identifies the exception
with reasonable particularity and describes the relevant facts in reasonable
detail.
6.01 Organization, Qualification, and Corporate Power. The Shareholder is
a private annuity trust duly organized, validly existing, and in good standing
under the laws of California. The Shareholder is not qualified to do business
in any other jurisdiction, nor does the nature of its business require such
qualification. The Shareholder has full power and authority and all material
licenses, permits, and authorizations necessary to carry on the businesses in
which it is engaged and to own and use the properties owned and used by it.
Schedule 6.01 lists the trustee and all beneficiaries of the Shareholder. The
Shareholder has delivered to the LRA Companies correct and complete copies of
the trust agreement and related documentation of the Shareholder (as amended to
date). The Shareholder is not in default under or in violation of any provision
of its trust agreement or related documentation.
6.02 Authorization of Transaction. The Shareholder has full power and
authority to execute and deliver this Agreement and to perform its or her
obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of the Shareholder, enforceable in accordance with its terms and
conditions, except to the extent that enforcement thereof may be limited by
applicable bankruptcy, reorganization, insolvency or moratorium laws or other
laws or principles of equity effecting the enforcement of creditors' rights.
The Shareholder represents and warrants that it need not give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by this Agreement.
6.03 Noncontravention. Neither the execution and the delivery of this
Agreement by the Shareholder, nor the consummation of the transactions by the
Shareholder as contemplated hereby, will (i) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which the
Shareholder is subject or (ii) conflict with, result in a breach of, constitute
a default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Shareholder is a party or by which it is bound or to which any of its assets
is subject.
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6.04 Brokers' Fees. The Shareholder has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the LRA Companies could
become liable or obligated.
6.05 Investment. The Shareholder (i) understands that neither the Note nor
the Parent Shares has been registered under the Securities Act, or under any
state securities laws, and are being offered and sold in reliance upon federal
and state exemptions for transactions not involving any public offering, (ii) is
acquiring the Note and the Parent Shares, upon the occurrence of the Earnout,
solely for its own account for investment purposes, and not with a view to the
distribution thereof, (iii) is a sophisticated investor with knowledge and
experience in business and financial matters, (iv) has received certain
information specified on Schedule 6.05 concerning the LRA Companies and has had
the opportunity to obtain additional information as desired in order to evaluate
the merits and the risks inherent in holding the Note and the Parent Shares,
upon the occurrence of the Earnout, (v) is able to bear the economic risk and
lack of liquidity inherent in holding the Note and the Parent Shares, upon the
occurrence of the Earnout, and (vi) is an Accredited Investor.
6.06 Subject Shares. Shareholder holds of record and owns beneficially the
number of Medtext Shares set forth next to its name in Schedule 7.03, free and
clear of any restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws, Taxes, Security Interests, options,
warrants, purchase rights, or other contracts or commitments that could require
the Shareholder to sell, transfer, or otherwise dispose of any capital stock of
Medtext (other than this Agreement)). The Shareholder is not a party to any
voting trust, proxy, or other agreement or understanding with respect to the
voting of any capital stock of Medtext.
6.07 Disclosure to Minority Shareholders. The Shareholder has made full
and complete disclosure of the terms and provisions of the Merger to any and all
minority shareholders of Medtext.
6.08 Guaranty by Woods. Woods shall enter into a certain Guaranty of
Performance dated of even date herewith (the "Guaranty"), under which Woods
shall guarantee the full and punctual payment and performance by the Shareholder
of all of the obligations, duties, covenants, agreements and conditions to be
paid or performed by the Shareholder hereunder, including without limitation all
indemnification obligations of the Shareholder set forth in Article XI herein.
ARTICLE VII
-----------
REPRESENTATIONS AND WARRANTIES OF MEDTEXT
As of the execution date hereof, Medtext represents and warrants to each of
the LRA Companies that the statements contained in this Article VII are correct
and complete as of the date of this Agreement, except as otherwise disclosed in
that certain Medtext Disclosure Schedule
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attached hereto as Schedule 7.0. Nothing in the Medtext Disclosure Schedule
shall be deemed adequate to disclose an exception to a representation or
warranty made herein, however, unless the Medtext Disclosure Schedule identifies
the exception with reasonable particularity and describes the relevant facts in
reasonable detail.
7.01 Organization, Qualification, and Corporate Power. Medtext is a
corporation duly organized, validly existing, and in good standing under the
laws of California. Medtext is not qualified to do business in any other
jurisdiction, nor does the nature of its business require such qualification.
Medtext has full corporate power and authority and all material licenses,
permits, and authorizations necessary to carry on the businesses in which it is
engaged and to own and use the properties owned and used by it. Schedule 7.01
lists the directors and officers of Medtext. The Shareholder has delivered to
the LRA Companies correct and complete copies of the articles of incorporation
and bylaws of Medtext and its Subsidiaries, if any (as amended to date). The
minute books (containing the records of meetings of the stockholders, the board
of directors, and any committees of the board of directors), the stock
certificate books, and the stock record books of Medtext are correct and
complete in all material respects. Medtext is not in default under or in
violation of any provision of its articles of incorporation or bylaws.
7.02 Authorization of Transaction. Medtext has full power and authority to
execute and deliver this Agreement and to perform its obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of Medtext,
enforceable in accordance with its terms and conditions, except to the extent
that enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws or other laws or principles of
equity effecting the enforcement of creditors' rights. Medtext represents and
warrants that it need not give any notice to, make any filing with, or obtain
any authorization, consent, or approval of any government or governmental agency
in order to consummate the transactions contemplated by this Agreement.
7.03 Capitalization. The entire authorized capital stock, the issued and
outstanding shares and the treasury shares of Medtext are accurately set forth
in Schedule 7.03. All of the issued and outstanding Medtext Shares have been
duly authorized, are validly issued, fully paid, and nonassessable, and are held
of record by its shareholders as set forth in Schedule 7.03. There are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that would require Medtext to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or similar rights with
respect to Medtext. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of Medtext.
7.04 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Medtext is subject, (ii) violate any
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provision of the articles of incorporation or bylaws of Medtext, or (iii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which Medtext is a party or by which it is
bound or to which any of its assets is subject (or result in the imposition of
any security interest upon any of its assets). Medtext does not need to give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
7.05 Subsidiaries. Medtext does not have any ownership interest in any
Subsidiaries. Medtext does not control, directly or indirectly, or have any
direct or indirect equity participation in any corporation, partnership, trust,
or other business association which is not a Subsidiary.
7.06 Financial Statements. The Shareholder has previously furnished the
LRA Companies with the following financial statements (collectively the
"Financial Statements"): (i) a Balance Sheet Report and an Income Statement
Report for the fiscal years ended May 31, 1996, and May 31, 1997, compiled by
Medtext's Accountants; and (ii) Balance Sheet Reports and Income Statement
Reports for the period ended May 31, 1997, prepared by Medtext's Accountants,
(iii) an Accounts Receivable Report dated as of May 31, 1997, and (iv) an
Accounts Payable Report dated as of May 31, 1997. The Financial Statements
(including the notes thereto) have been prepared on a cash basis and are
consistently reported throughout the periods covered thereby, present fairly the
financial condition of Medtext as of such dates and the results of operations of
Medtext for such periods, are correct and complete in all material respects, and
are consistent in all material respects with the books and records of Medtext
(which books and records are correct and complete in all material respects).
7.07 Events Subsequent to May 31, 1997. Except as disclosed on Schedule
7.07, since May 31, 1997, there has not been any material change in the
business, financial condition, operations, results of operations, or future
prospects of Medtext. Without limiting the generality of the foregoing, since
that date:
(i) Medtext has not sold, leased, transferred, or assigned any of
its assets, tangible or intangible, other than for a fair consideration in
the Ordinary Course of Business;
(ii) Medtext has not entered into any agreement, contract, lease, or
license (or series of related agreements, contracts, lease, and licenses)
either involving more than $3,000 singly or $15,000 in the aggregate or
outside the Ordinary Course of Business;
(iii) Medtext has not accelerated, terminated, modified, or canceled
any agreement, contract, lease, or license (or series of related
agreements, contracts, leases,
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and licenses) involving more than $3,000 singly or $15,000 in the aggregate
to which Medtext is a party or by which it is bound;
(iv) Medtext has not imposed any Security Interest upon any of its
assets, tangible or intangible, except for Permitted Liens;
(v) Medtext has not made any capital expenditure (or series of
related capital expenditures) either involving more than $3,000 singly or
$15,000 in the aggregate or outside the Ordinary Course of Business;
(vi) Medtext has not made any capital investment in, any loan to,
or any acquisition of the securities or assets of, any other Person (or
series or related capital investments, loans, and acquisitions) either
involving more than $3,000 singly or $15,000 in the aggregate;
(vii) Medtext has not issued any note, bond, or other debt security
or created, incurred, assumed, or guaranteed any indebtedness for borrowed
money or capitalized lease obligation either involving more than $3,000
singly or $15,000 in the aggregate;
(viii) Medtext has not delayed or postponed the payment of accounts
payable and other Liabilities for a period of more than sixty (60) days
after the date of invoice;
(ix) Medtext has not canceled, compromised, waived, or released any
right or claim (or series of related rights and claims) either involving
more than $3,000 singly or $15,000 in the aggregate or outside the Ordinary
Course of Business;
(x) there has been no change made or authorized in the articles of
incorporation or bylaws of Medtext;
(xi) Medtext has not issued, sold, or otherwise disposed of any of
its capital stock, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any
of its capital stock;
(xii) Medtext has not have declared, set aside, or paid any dividend
or made any distribution with respect to its capital stock (whether in cash
or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock;
(xiii) Medtext has not experienced any damage, destruction, or loss
(whether or not covered by insurance) to its property valued, individually
or in the aggregate, in excess of (i) $10,000 for all property which, at
the time of such damage or destruction, was subject to or covered by
property, casualty or any other form of insurance, and (ii) $3,000
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for all property which, at the time of such damage or destruction, was not
subject to or covered by property, casualty or any other form of insurance;
(xiv) Medtext has not made any loan to, or entered into any other
transaction with, any of its directors, officers, and employees;
(xv) Medtext has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of
any such existing contract or agreement;
(xvi) Medtext has not granted any increase in the base compensation
of any of its directors, officers, and employees outside the Ordinary
Course of Business;
(xvii) Medtext has not adopted, amended, modified, or terminated any
bonus, profit-sharing, incentive, severance, or other plan, contract, or
commitment for the benefit of any of its directors, officers, and employees
(or taken any such action with respect to any other Employee Benefit Plan);
(xviii) Medtext has not made any other change in employment terms for
any of its directors, officers, and employees outside the Ordinary Course
of Business;
(xix) Medtext has not made or pledged to make any charitable or
other capital contribution outside the Ordinary Course of Business;
(xx) there has not been any other adverse occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary
Course of or Business involving Medtext or any Subsidiaries which exceeds
$3,000 individually $15,000 in the aggregate; and
(xxi) Medtext has not committed to any of the foregoing.
7.08 Undisclosed Liabilities. Except as disclosed on Schedule 7.08,
Medtext does not have any Liability (and, to the best of the Shareholder's
Knowledge, there is no Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against any of them
giving rise to any Liability), except for (i) Liabilities reflected in the then
most current Financial Statements (including any notes thereto) and (ii)
Liabilities which have arisen after May 31, 1997 in the Ordinary Course of
Business (none of which results from, arises, out of, relates to, is in the
nature of, or was caused by any breach of contract, breach of warranty, tort,
infringement, or violation of law).
7.09 Legal Compliance. To the Knowledge of Shareholder, Medtext, and its
predecessors and Affiliates, have complied with all applicable laws (including
rules, regulations,
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codes, plans, injunctions, judgments, orders, decrees, rulings, and charges
thereunder) of federal, state, local, and foreign governments (and all agencies
thereof), and, to the Shareholder's Knowledge, no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against any of them alleging any failure so to comply.
7.10 Tax Matters. Except as disclosed on Schedule 7.10:
(i) Medtext has filed all Tax Returns that it was required to file.
All such Tax Returns were correct and complete in all material respects.
All Taxes shown to be due on the Tax Returns have been paid or accrued for
the Balance Sheet. Medtext is not currently the beneficiary of any
extension of time within which to file any Tax Return. No claim has ever
been made by a Tax authority in a jurisdiction where Medtext does not file
Tax Returns that it is or may be subject to taxation by that jurisdiction.
There are no Security Interests on the assets of Medtext that arose in
connection with any failure (or alleged failure) to pay any Tax.
(ii) Medtext has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
creditor, stockholder, or other third party, except for the unlikely event
that Taxes may be incurred in connection with an independent contractor of
Medtext being characterized as an employee.
(iii) There is no dispute or claim concerning any Tax Liability of
Medtext either (A) claimed or raised by any Tax authority in writing or (B)
as to which the Shareholder and the directors and officers (and employees
responsible for Tax matters) of Medtext has Knowledge based upon personal
contact with any agent of such authority. Schedule 7.10 lists all federal,
state, local, and foreign income Tax Returns filed with respect to Medtext
for taxable periods ended on or after March 31, 1997, indicates those Tax
Returns that have been audited, and indicates those Tax Returns that
currently are the subject of an audit. The Shareholder has delivered to
the LRA Companies correct and complete copies of all federal income Tax
Returns, examination reports, and statements of deficiencies assessed
against or agreed to by Medtext.
(iv) Medtext has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment
or deficiency.
(v) Medtext has not made an election under section 341(f) of the
Code.
(vi) Medtext has made adequate provision for reserves or accruals
for taxes not yet due and payable relating to operations of the Company
prior to the Effective Time.
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7.11 Title to Assets. Medtext has good and marketable title to, or a valid
leasehold interest in, the properties and assets used by it, or shown in the
Financial Statements or acquired after the date thereof, free and clear of all
Security Interests, except for properties and assets disposed of in the Ordinary
Course of Business since May 31, 1997, and except for Permitted Encumbrances.
7.12 Real Property. Medtext does not own any real property. Schedule 7.12
lists and describes briefly all real property leased or subleased to Medtext.
The Shareholder has delivered to the LRA Companies correct and complete copies
of the leases and subleases listed in Schedule 7.12 (as amended to date). Except
as disclosed on Schedule 7.12, with respect to each lease and sublease listed in
Schedule 7.12:
(i) The lease or sublease is legal, valid, binding, enforceable,
and in full force and effect;
(ii) The lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby;
(iii) Medtext is not in material breach or default of any lease or
sublease, and to the Shareholder's Knowledge, no third party to any such
lease or sublease is in material breach or material default, and to the
Shareholder's Knowledge, no event has occurred which, with notice or lapse
of time, would constitute a material breach or material default or permit
termination, modification, or acceleration thereunder;
(iv) with respect to each sublease, to the Shareholder's Knowledge,
the representations and warranties set forth in subsections (i) through
(iii) above are true and correct with respect to the underlying lease; and
(v) Medtext has not assigned, transferred, conveyed, mortgaged,
deeded in trust, or encumbered any interest in the leasehold or
subleasehold, except Customarily Permitted Liens.
7.13 Tangible Assets. Medtext owns or leases all buildings, machinery,
equipment, and other tangible assets necessary for the conduct of its business
as presently conducted. Each such tangible asset is suitable for the purpose for
which it is presently used.
7.14 Inventory. Medtext does not carry or maintain any inventory.
7.15 Contracts. Schedule 7.15 lists the following contracts and other
agreements currently in effect to which any Company is a party:
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(i) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in
excess of $15,000 per annum;
(ii) any agreement (or group of related agreements) for the
furnishing or receipt of services, the performance of which will extend
over a period of more than one year from the Closing Date or involve
consideration in excess of $15,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, in excess of $15,000 or under
which it has imposed a Security Interest on any of its assets, tangible or
intangible;
(v) any agreement concerning confidentiality or noncompetition;
(vi) any agreement among the Shareholder and its Affiliates (other
than Medtext);
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers,
and employees;
(viii) any written agreement for the employment of any individual on
a full-time, part-time, consulting, or other basis providing annual
compensation in excess of $15,000 or providing severance benefits;
(ix) any agreement under which it has advanced or loaned any amount
to any of its directors, officers, and employees outside the Ordinary
Course of Business;
(x) any agreement under which the consequences of a default or
termination would reasonably be expected to have a material adverse effect
on the business, financial condition, operations, results of operations, or
future prospects of Medtext; or
(xi) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $15,000.
The Shareholder has delivered to the LRA Companies a correct and complete copy
of each written agreement listed in Schedule 7.15 (as amended to date) and a
written summary setting forth the terms and conditions of each oral agreement
referred to in Schedule 7.15. With respect
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to each such agreement: (A) the agreement is legal, valid, binding, enforceable,
and in full force and effect; (B) Medtext is not a party nor to the
Shareholder's Knowledge is any other party in breach or default, and to the
Shareholder's Knowledge, no event has occurred which with notice or lapse of
time would constitute a breach or default, or permit termination, modification,
or acceleration, under the agreement, and (C) Medtext has not repudiated any
provision of any such agreement nor to the Shareholder's Knowledge has any other
party repudiated any provision of any such agreement.
7.16 Notes and Accounts Receivable. All notes and accounts receivable of
Medtext are properly recorded on each Accounts Receivable Report delivered to
the LRA Companies, reflected properly on Medtext's books and records and are
valid receivables.
7.17 Powers of Attorney. Except as disclosed on Schedule 7.17, there
are no outstanding powers of attorney executed on behalf of Medtext.
7.18 Insurance. Schedule 7.18 lists each insurance policy (including
policies providing property, casualty, liability, and workers' compensation
coverage and bond and surety arrangements) to which Medtext is currently a
party, copies of which have been furnished to the LRA Companies.
7.19 Litigation. Schedule 7.19 sets forth each instance in which Medtext
(i) is subject to any outstanding injunction, judgment, order, decree, ruling,
or charge or (ii) is a party or, to the Knowledge of the Shareholder, is
threatened to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court of quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator.
7.20 Certain Business Relationships with Medtext. Except as disclosed on
Schedule 7.20, neither the Shareholder nor its Affiliates have been involved in
any business arrangement or relationship with Medtext within the past 12 months,
and neither the Shareholder nor any of its Affiliates owns any asset, tangible
or intangible, which is used in the business of Medtext.
7.21 Guaranties. Medtext is not a guarantor or otherwise liable for any
Liability or obligation (including indebtedness) of any other Person.
7.22 Employees. To the Shareholder's Knowledge, no executive, key
employee, or group of employees has any plans to terminate employment with
Medtext. Medtext has not committed any unfair labor practice. The Shareholder
does not have any Knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees of
Medtext. Schedule 7.22 sets forth by number and employment classification the
approximate numbers of employees employed by Medtext as of the date of this
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Agreement, and none of said employees are subject to union or collective
bargaining agreements with Medtext.
7.23 Employee Benefits.
(i) Schedule 7.23 lists each Employee Benefit Plan that Medtext
maintains or to which it contributes.
(A) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all
material respects with the applicable requirements of ERISA, the Code,
and other applicable laws.
(B) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed appropriately with
respect to each such Employee Benefit Plan. The requirements of Part
6 of Subtitle B of Title I of ERISA and of Code Section 4980B have
been met with respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(C) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid
to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each such
Employee Pension Benefit Plan or accrued in accordance with the past
custom and practice of Medtext. All premiums or other payments for
all periods ending on or before the Closing Date have been paid with
respect to each such Employee Benefit Plan.
(D) Medtext has substantially performed all obligations, whether
arising by operation of law or by contract, required to be performed
by it in connection with such Employee Benefit Plans, and to
Shareholder's Knowledge, there has been no default or violation by any
other party to such Employee Benefit Plans.
(E) The Shareholder has delivered to the LRA Companies correct
and complete copies of the plan documents and summary plan
descriptions, the most recent Form 5500 Annual Report, and all related
trust agreements, insurance contracts, and other funding agreements
which relate to each such Employee Benefit Plan.
(ii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not (A) require
Medtext to make a larger
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contribution to, or pay greater benefits under, any Employee Benefit Plan
than it otherwise would or (B) create or give rise to any additional vested
rights or service credits under any Employee Benefit Plan.
(iii) Each such Employee Benefit Plan has been terminated by Medtext
in compliance with all applicable laws on or before the Closing Date.
7.24 Brokers' Fees. Except for T.R. Capital, Medtext does not have any
Liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.
7.25 Operation of Business. To the Shareholder's Knowledge (i) all court
reporters that are or have been hired (including independent contractors) by
Medtext are qualified to perform the jobs that they are hired to perform and
they are not required by law to obtain any certification to perform their jobs,
(ii) all documents that Medtext is or has been required to maintain, store or
handle in connection with conducting its business are or have been maintained,
stored or handled in the manner agreed to between Medtext and its clients or in
material conformity with prevailing standards regarding such matters in
Medtext's industry, and (iii) Medtext performs all aspects and operations of its
business at or above the prevailing standards for Medtext's industry.
7.26 Disclosure. The representations and warranties contained in this
Section 7.26 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 7.26 not misleading.
ARTICLE VIII
------------
REPRESENTATIONS AND WARRANTIES OF LRA COMPANIES
The LRA Companies represent and warrant that the statements contained in
this Article VIII are correct and complete as of the date of this Agreement,
except as otherwise disclosed in that certain LRA Companies Disclosure Schedule
attached hereto as Schedule 8.0. Nothing in the LRA Companies Disclosure
Schedule shall be deemed adequate to disclose an exception to a representation
or warranty made herein, however, unless the LRA Companies Disclosure Schedule
identifies the exception with reasonable particularity and describes the
relevant facts in reasonable detail.
8.01 Organization, Qualification, and Corporate Power. Each of the LRA
Companies is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation. Each of the
LRA Companies is duly authorized to conduct business and is in good standing
under the laws of each jurisdiction where such qualification is required. Each
of the LRA Companies and their respective Subsidiaries has full corporate power
and authority and all material licenses, permits, and authorizations necessary
to carry on the businesses in which it is engaged and to own and use the
properties owned and used by it.
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Schedule 8.01 lists the directors and officers of each of the LRA Companies.
Each of the LRA Companies has delivered to the Shareholder correct and complete
copies of the charter and bylaws of each of the LRA Companies (as amended to
date). The minute books (containing the records of meetings of the stockholders,
the board of directors, and any committees of the board of directors), the stock
certificate books, and the stock record books of each of the LRA Companies are
correct and complete in all material respects. Neither of the LRA Companies are
in default under or in violation of any provision of its respective charter or
bylaws.
8.02 Capitalization. The entire authorized capital stock, the issued and
outstanding shares and the treasury shares of each of the LRA Companies are
accurately set forth in Schedule 8.02 together with the changes thereto
contemplated by the acquisition of Medtext. All of the issued and outstanding
shares of each of the LRA Companies have been duly authorized, are validly
issued, fully paid, and nonassessable, and are held of record by the respective
parties as set forth in Schedule 8.02. There are no outstanding or authorized
options, warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could require either of
the LRA Companies to issue, sell, or otherwise cause to become outstanding any
of its capital stock except those set forth in Schedule 8.02. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to either of the LRA Companies
except as set forth in Schedule 8.02. There are no voting trusts, proxies, or
other agreements or understandings with respect to the voting of the capital
stock of either of the LRA Companies.
8.03 Authority. The execution and delivery of this Agreement by each of
the LRA Companies has been duly authorized by each of the LRA Companies' Board
of Directors which constitutes all of the necessary corporate action required in
order for the LRA Companies to consummate the transactions hereunder. The LRA
Companies have the right, power, legal capacity and authority to enter into, and
perform their respective obligations under, this Agreement, and no approvals or
consents of any persons are necessary in connection herewith.
8.04 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which either of the LRA Companies is subject,
(ii) violate any provision of the charter or bylaws of either of the LRA
Companies, or (iii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
either of the LRA Companies is a party or by which it is bound or to which any
of its assets is subject (or result in the imposition of any Security Interest
upon any of its assets). Neither of the LRA Companies needs to give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
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8.05 Brokers' Fees. Neither of the LRA Companies has any Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement other than to The
GulfStar Group, Inc.
8.06 Financial Statements. The LRA Companies have previously furnished to
Medtext and the Shareholder true and complete copies of the documents and
financial statements dated as of May 31, 1997 (the foregoing financial
statements being referred to as the "LRA Financial Statements"). The LRA
Financial Statements have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods indicated, and
fairly present, in all material respects, the financial position of the LRA
Companies as of the respective dates of the balance sheets included in the LRA
Financial Statements and the results of operations for the respective periods
indicated.
8.07 Consents. No consent, authorization, approval, permit or license
of, or filing with, any governmental or public body or authority, or any lender,
or any other person or entity is required to authorize, or is required in
connection with, the execution, delivery and performance of this Agreement or
the agreements contemplated hereby on the part of either of the LRA Companies.
8.08 Issuance of the Parent Shares. The Parent Shares have been reserved
for issuance and upon issuance and delivery in connection with the Earnout,
shall be duly authorized, validly issued, and non-assessable.
8.09 Litigation. Neither of the LRA Companies is subject to any pending
litigation, or to the best of its knowledge, threatened litigation.
8.10 Material Adverse Changes. There have been no material adverse changes
with respect to the business of the LRA Companies since May 31, 1997.
8.11 Undisclosed Liabilities. Except as disclosed on Schedule 8.11 none of
the LRA Companies have any Liability (and, to the best of the LRA Companies'
Knowledge, there is no Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against any of them
giving rise to any Liability), except for (i) Liabilities reflected in the then
most current Financial Statements (including any notes thereto) and (ii)
Liabilities which have arisen after May 31, 1997 in the Ordinary Course of
Business (none of which results form, arises, out of, relates to, is in the
nature of, or was caused by any breach of contract, breach of warranty, tort,
infringement, or violation of law).
8.12 Disclosure. The representations and warranties contained in this
Article VIII do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Article VIII not misleading.
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ARTICLE IX
----------
CONDITIONS TO THE MERGER
9.01 Conditions to Obligation of the LRA Companies. The obligation of the
LRA Companies to proceed with the Closing and consummate the transactions to be
performed by each of them in connection with the Closing is subject to
satisfaction of the following conditions (any or all which may be waived in
writing, by the LRA Companies):
(i) the representations and warranties set forth in Articles VI and
VII above shall be true and correct in all material respects at and as of
the Closing Date;
(ii) Medtext and the Shareholder shall have performed and complied
with all of their covenants hereunder in all material respects at and as of
the Closing Date;
(iii) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation, (C) affect adversely the right of
the LRA-CA to merge Medtext with and into itself, or (D) materially and
adversely affect in any material respect the right of Medtext to own its
assets and to operate its business (and no such injunction, judgment,
order, decree, ruling, or charge shall be in effect);
(iv) Medtext and the Shareholder shall have delivered to the LRA
Companies a certificate to the effect that each of the conditions specified
above in 9.01(i)-(iii) is satisfied in all respects;
(v) the LRA Companies shall have received from counsel to Medtext
and the Shareholder an opinion in form and substance reasonably acceptable
to all Parties, addressed to the LRA Companies, and dated as of the Closing
Date containing such assumptions and qualifications as may be reasonably
acceptable to the LRA Companies' legal counsel;
(vi) the LRA Companies shall have received the resignations,
effective as of the Closing, of each director and officer of Medtext other
than those whom the LRA Companies shall have specified in writing prior to
the Closing;
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(vii) the LRA Companies shall have received notification from its
Senior Lender that such Senior Lender has approved consummation of the
transactions contemplated by this Agreement under its acquisition line of
credit;
(viii) Woods shall have entered into the Woods Employment Agreement;
(ix) Woods shall have entered into the Guaranty;
(x) The Shareholder shall have each entered into a certain First
Amended and Restated Shareholders' Agreement (the "Shareholders'
Agreement") on terms and conditions reasonably satisfactory to it, and a
Registration Rights Agreement which shall grant to the Shareholder certain
piggyback rights with respect to the Parent Shares and shall provide that,
to the extent any greater registration rights are ever granted to any
seller of a company acquired by LRA-CA, the Shareholder shall be granted
the same or equivalent registration rights (the "Registration Rights
Agreement");
(xi) all Employee Benefit Plans shall have been terminated by
Medtext and the Shareholder and, tot he extent that they are eligible,
employees will participate int he LRA-CA Employee Benefit Plans to the
extent LRA-CA has implemented substitute Employee Benefit Plans, and
neither the LRA Companies nor Medtext shall have any further liability with
respect thereto other than completion of the routine winding up thereof;
(xii) all actions to be taken by the Medtext and/or the Shareholder
in connec tion with consummation of the transactions contemplated hereby
and all certificates, opinions, instruments, and other documents required
to effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the LRA Companies;
(xiii) the Shareholder shall have entered into the Escrow Agreement;
(xiv) the Shareholder shall have entered into the Pledge Agreement;
(xv) the LRA Companies, the Shareholder and the Senior Lender shall
have entered into a Subordination Agreement; and
(xvi) the Shareholder and Woods shall have executed a Release in form
and substance acceptable to the LRA Companies.
9.02 Conditions to Obligation of Medtext and the Shareholder. The
obligation of Medtext and the Shareholder to proceed with Closing and consummate
the transactions to be
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performed by them in connection with the Closing is subject to satisfaction of
the following conditions (any or all of which may be waived in writing by
Medtext and/or the Shareholder):
(i) the representations and warranties set forth in Articles VIII
above shall be true and correct in all material respects at and as of the
Closing Date;
(ii) the LRA Companies shall have performed and complied with all of
their respective covenants hereunder in all material respects through the
Closing;
(iii) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation, (C) affect adversely the right of
the Shareholder to own the Parent Shares, or (D) affect adversely in any
material respect the right of LRA-CA to own its assets and to operate its
businesses (and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
(iv) the LRA Companies shall have delivered to Medtext and the
Shareholder a certificate to the effect that each of the conditions
specified above in Section 9.02(i)-(iii) is satisfied in all respects;
(v) Medtext and the Shareholder shall have obtained the full and
final releases (a) of any guaranty of the Shareholder of the debt of
Medtext or any of its Subsidiaries and (b) of any collateral pledged by the
Shareholder securing such debt or guarantees; provided, however, that the
foregoing releases will not require the payment of any additional
consideration in excess of the Purchase Price by LRA-CA;
(vi) the LRA Companies shall have received from Senior Lender
approval to fund this transaction under its acquisition line;
(vii) LRA-CA shall have entered into the Woods Employment Agreement;
(viii) LRA-CA shall have entered into the Johnson Employment
Agreement;
(ix) Medtext and the Shareholder shall have received from counsel to
the LRA Companies an opinion in form and substance acceptable to Medtext
and the Shareholder, addressed to Medtext and the Shareholder, and dated as
of the Closing Date containing such assumptions and qualifications as may
be reasonably acceptable to the Medtext's and the Shareholder's legal
counsel;
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(x) all actions to be taken by Medtext and/or the Shareholder in
connection with consummation of the transactions contemplated hereby and
all certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably satisfactory
in form and substance to the LRA Companies;
(xi) the LRA Companies shall have entered into the Shareholder's
Agreement, and the Registration Rights Agreement on terms and conditions
reasonably satisfactory to Shareholder;
(xii) LRA-CA and Escrow Agent shall have entered into the Escrow
Agreement;
(xiii) Parent and LRA-CA shall have entered into the Pledge
Agreement;
(xiv) all actions to be taken by the LRA Companies in connection with
consummation of the transactions contemplated hereby, and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to Medtext and the Shareholder; and
(xv) the LRA Companies, the Shareholder and the Senior Lender shall
have entered into a Subordination Agreement.
ARTICLE X
---------
POST CLOSING COVENANTS
10.01 General. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under
Article XI below).
10.02 Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand to which the other
Party is not subject (either by virtue of the indemnification provisions
contained in Article XI below or otherwise) in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving any Party, the other Parties will cooperate with him or it and his or
its counsel in the contest or defense, make available their personnel, and
provide such testimony and access to their books and records as shall be
necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party (unless
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the contesting or defending Party is entitled to indemnification therefor under
Article XI below). The LRA Companies acknowledge and agree that if Shareholder
or any director or officer of Medtext is individually brought into any
litigation in connection with Medtext, it, he or she shall be indemnified to the
maximum extent that directors and officers of corporations are permitted to be
indemnified under California law both for all costs of litigation as well as any
judgments or settlement amounts paid. Notwithstanding the foregoing, the
Shareholder shall not be entitled to indemnification to the extent of any of the
following:
(i) suit against Shareholder or any director or officer with
respect to a matter for which such Shareholder, director or officer is
required to indemnify the LRA Companies pursuant to this Agreement; or
(ii) to the extent that Shareholder or any director or officer is
found to have engaged in gross negligence or willful misconduct.
10.03 Confidentiality. The Shareholder will treat and hold as such all
of the Confidential Information and refrain from using any of the Confidential
Information except in connection with this Agreement and all of the other
agreements executed in connection herewith and except in connection with
handling all of the litigation described on Schedule 7.19. In the event that
Shareholder are requested or required (by oral question or request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar process) to disclose any Confidential
Information, the Shareholder will notify the LRA Companies promptly of the
request or requirement so that the LRA Companies may seek an appropriate
protective order or waive compliance with the provisions of this Section 10.03.
If, in the absence of a protective order or the receipt of a waiver hereunder,
the Shareholder is, on the advice of counsel, compelled to disclose any
Confidential Information to any tribunal or else stand liable for contempt, the
Shareholder may disclose the Confidential Information to the tribunal; PROVIDED,
HOWEVER, that Shareholder shall use its reasonable best efforts to obtain, at
the reasonable request of the LRA Companies, an order or other assurance that
confidential treatment will be accorded to such portion of the Confidential
Information required to be disclosed as the LRA Companies shall designate;
provided, however that all of the Shareholder's costs including but not limited
to legal fees shall be paid by the LRA Companies. The foregoing provisions
shall not apply to any Confidential Information which is generally available to
the public immediately prior to the time of disclosure.
10.04 Accounts Receivable. Woods shall use commercially reasonable
efforts to collect the Accounts Receivable in the Ordinary Course of Business.
Shareholder represents and warrants that all Effective Date Accounts Receivable
shall be collectible in their full amounts less a reserve for doubtful accounts
of ten percent (10%) of the total principal amount of Effective Date Accounts
Receivable outstanding within twelve (12) months of the Effective Date. LRA-CA
shall make a good faith effort to collect the Effective Date Accounts
Receivable.
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ARTICLE XI
----------
INDEMNIFICATION; REMEDIES
11.01 Survival of Representations and Warranties. All of the
representations and warranties of the Parties contained in this Agreement shall
survive the Closing hereunder and continue in full force and effect for two
years thereafter except that the representations and warranties contained in
Section 7.10, and Section 7.11 which shall survive for three years after the
Closing.
11.02 Indemnification Provisions.
(i) By the Shareholder. Shareholder shall indemnify, save,
defend and hold harmless each of the LRA Companies and their respective
shareholders, directors, officers, partners, agents and employees (and in the
event either of the LRA Companies assigns its right, title and interest
hereunder to a corporation, which shall be permitted hereunder, such assignee)
(collectively, the "LRA Indemnified Parties") from and against any and all
costs, lawsuits, losses, Liabilities, deficiencies, claims and expenses,
including interest, penalties, reasonable attorneys' fees and all reasonable
amounts paid in investigation, defense or settlement of any of the foregoing
(collectively referred to herein as "Damages"), incurred in connection with or
arising out of or resulting from or incident to any breach (or in the event any
third party alleges facts that, if true, would mean the Shareholder has
breached), of any covenant, warranty or representation made by Shareholder in or
pursuant to this Agreement or any other agreement delivered pursuant to this
Agreement or in any schedule, certificate, exhibit, or other instrument
furnished or to be furnished by the Shareholder or its Affiliates pursuant to
the terms of this Agreement; provided, however, that the Shareholder shall not
be liable for any such Damages to the extent, if any, such Damages result from
or arise out of a breach or violation of this Agreement by any LRA Indemnified
Parties.
(ii) By the LRA Companies. The LRA Companies shall indemnify,
save, defend and hold harmless the Shareholder from and against any and all
Damages incurred in connection with or arising out of or resulting from or
incident to any breach (or in the event any third party alleges facts that, if
true, would mean either of the LRA Companies have breached), of any covenant,
warranty or representation made by either of the LRA Companies in or pursuant to
this Agreement or any other agreement delivered pursuant to this Agreement
contemplated hereby or in any schedule, certificate, exhibit, or other
instrument furnished or to be furnished by either of the LRA Companies under
this Agreement; provided, however, that the LRA Companies shall not be liable
for any such Damages to the extent, if any, such Damages result from or arise
out of a breach or violation of this Agreement by Shareholder.
(iii) Defense of Claims. If any lawsuit or enforcement action is
filed against any Party entitled to the benefit of indemnity hereunder, written
notice thereof describing such lawsuit or enforcement action in reasonable
detail and indicating the amount (estimated, if necessary) or good faith
estimate of the reasonably foreseeable estimated amount of Damages (which
estimate shall in
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no way limit the amount of indemnification the indemnified Party is entitled to
receive hereunder), shall be given to the indemnifying Party as promptly as
practicable (and in any event within ten (10) days, after the service of the
citation or summons) ("Notice of Action"); provided that the failure of any
indemnified Party to give timely notice shall not affect its rights to
indemnification hereunder to the extent that the indemnified Party demonstrates
that the amount the indemnified Party is entitled to recover exceeds the actual
damages to the indemnifying Party caused by such failure to so notify within ten
(10) days; provided further that a Notice of Action must be sent to the
indemnifying Party within the applicable survival period as provided in Section
10.1 of this Agreement. The indemnifying Party may elect to compromise or defend
any such asserted liability and to assume all obligations contained in this
Section 11.02 to indemnify the indemnified Party by a delivery of notice of such
election ("Notice of Election") within ten (10) days after delivery of the
Notice of Action. Upon delivery of the Notice of Election, the indemnifying
Party shall be entitled to take control of the defense and investigation of such
lawsuit or action and to employ and engage attorneys of its own choice to handle
and defend the same, at the indemnifying Party's sole cost, risk and expense,
and such indemnified Party shall cooperate in all reasonable respects, at the
indemnifying Party's sole cost, risk and expense, with the indemnifying Party
and such attorneys in the investigation, trial, and defense of such lawsuit or
action and any appeal arising therefrom; provided, however, that the indemnified
Party may, at its own cost, risk and expense, participate in such investigation,
trial and defense of such lawsuit or action and any appeal arising therefrom. If
the Notice of Election is delivered to the indemnified Party, the indemnified
Party shall not pay, settle or compromise such claim without the indemnifying
Party's consent, which consent shall not be unreasonably withheld. If the
indemnifying Party elects not to defend the claim of the indemnified Party or
does not deliver to the indemnified Party a Notice of Election within ten (10)
days after delivery of the Notice of Action, the indemnified Party may, but
shall not be obligated to defend, or the indemnified Party may compromise or
settle (exercising reasonable business judgment) the claim or other matter on
behalf, for the account, and at the risk, of the indemnifying Party.
(iv) Third Party Claims. The provisions of this Section 11.02 are
not limited to matters asserted by the Parties, but cover costs, losses,
liabilities, damages, lawsuits, claims and expenses incurred in connection with
third party claims.
(v) Limitation on Indemnification. Notwithstanding any provision
of this Agreement except for claims by the LRA Companies against the Shareholder
under Section 10.04 of this Agreement, neither the LRA Companies nor the
Shareholder or any Affiliate of either shall be required to pay an indemnified
Party or any Affiliate thereof any amount with respect to any claim for Damages
under this Section 11.02 until the Damages which the indemnified Party and its
Affiliates suffered under this Agreement aggregate at least [$25,000] (the
"Threshold"), at which time and in such event the indemnified Party or Affiliate
shall be entitled to receive payment for the entire amount of aggregate Damages.
Neither Party shall be liable to indemnify the other Party in an amount in
excess of the Purchase Price excluding any and all amounts due and owing under
Section 10.04 of this Agreement.
11.03 Remedies.
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A. Specific Performance. Each of the Parties hereby agrees that the
transactions contemplated by this Agreement are unique, and that each Party
shall have, in addition to any other legal or equitable remedy available to it,
the right to enforce this Agreement by decree of specific performance. If any
legal action or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing Party or Parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or proceeding
in addition to any other remedies to which it, he or they may be entitled at law
or equity. The rights and remedies granted herein are cumulative and not
exclusive of any other right or remedy granted herein or provided by law.
B. Offset. Any and all Damages incurred by the LRA Companies which
permit the LRA Companies to make an indemnification claim against the
Shareholder and to the extent not otherwise prohibited by applicable law, shall
be subject to mandatory offset by the LRA Companies against all amounts due and
owing by the LRA Companies to the Shareholder under this Agreement, the Note,
or any document, instrument, or agreement executed in connection herewith;
provided, however, that no offsets shall be permitted against the base salary
due and owing to the Shareholder under Woods Employment Agreement. The
foregoing shall constitute the sole remedy of the LRA Companies against the
Shareholder in connection with breaches of the representations, warranties,
covenants and obligations of the Shareholder contained in this Agreement except
to the extent of any remaining unpaid claims to the extent permitted under
Article X of this Agreement if there is not a Note or any Parent Shares pledged
or remaining pledged to offset against in which event the LRA Companies may
proceed against the Shareholder but only for any amounts not offset and not
exceeding the Purchase Price. In the event of an offset of any Damages incurred
as a result of any such breach, the LRA Companies shall furnish the Shareholder
notice containing detailed information about the breach, the magnitude of the
Damages that the LRA Companies has or reasonably expects to incur (the act of
offsetting by the LRA Companies shall be referred to as an "Offset"). All
Offsets shall be one-half ( 1/2) against the Note, and one-half ( 1/2) against
the Parent Shares if Seller has any Parent Shares that are pledged. In the
event there is not any principal balance remaining due and owing on the Note,
then, any additional Damages shall be Offset against the Parent Shares. In the
event the Parent Shares are no longer pledged to the LRA Companies, in order to
permit the LRA Companies to offset any of their Damages, than the entire amount
of the Offset shall be against the principal balance of the Note. For purposes
hereof, the Parent Shares shall be deemed to have a value equivalent to the
Parent Shares Value. In order to secure the LRA Companies' Offset rights
against the Parent Shares, the LRA Companies and the Shareholder shall execute
that certain Stock Pledge Agreement dated of even date herewith (the "Pledge
Agreement"). The Parent Shares shall have a restrictive legend typed on the
back thereof specifying that the Parent Shares are subject to a right of Offset
as specified in this Agreement. The Shareholder acknowledges and agrees that
but for the right of Offset contained in this Agreement, the LRA Companies would
not have entered into this Agreement or any of the transactions contemplated
herein. If any legal action or other proceeding is brought for the enforcement
of this Agreement, or any document, instrument, or agreement executed in
connection herewith, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of
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this Agreement or any document, instrument, or agreement executed in connection
herewith, the successful or prevailing Party shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or
proceeding.
ARTICLE XII
-----------
GENERAL
12.01 Public Announcements. No Party shall issue any press release or
make any public announcement relating to the subject matter of this Agreement
(including the documents referred to herein) without the prior written approval
of all of the Parties; provided, however, that any Party may make any public
disclosure it believes in good faith upon the advise of legal counsel it is
required by applicable law (in which case the disclosing Party will use its best
efforts to advise the other Party prior to making the disclosure).
12.02 No Third-Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
12.03 Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
12.04 Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of his or its rights, interests, or obligations hereunder without the prior
written approval of the Parties; provided, however, that the LRA Companies may
(i) assign any or all of its rights and interests hereunder (x) to one or more
of its Affiliates, and (y) to one or more financial institutions lending funds
to the LRA Companies for the purpose of financing the merger hereunder and (ii)
designate one or more of its Affiliates to perform its obligations hereunder (in
any or all of which cases the LRA Companies nonetheless shall remain responsible
for the performance of all of their respective obligations hereunder).
12.05 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
12.06 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
12.07 Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be
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deemed duly given if (and then two business days after) it is sent by registered
or certified mail, return receipt requested, postage prepaid, and addressed to
the intended recipient as set forth below:
If to Shareholder: Seaquestor Trust
37 Beacon Bay
Newport Beach, California 92660
Attn: Kimberley A. Woods, Trustee
Telephone: (714) 675-0617
Telefax: (714) 675-9937
Copy to: Mr. Donald Segretti
Three Park Plaza, Suite 1735
Irvine, California 92614
Telephone: (714) 851-0990
Telefax: (714) 851-0999
If to LRA-CA: Litigation Resources of America-California, Inc.
1001 Fannin, Suite 650
Houston, Texas 77002-2731
Telephone: (713) 653-7100
Telefax (713) 653-7172
Attn: Mr. Richard O. Looney,
Chief Executive Officer
Copy to: Boyer Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Telephone: (713) 871-2025
Telefax (713) 871-2024
Attn: J. Randolph Ewing
If to Parent: Litigation Resources of America, Inc.
1001 Fannin, Suite 650
Houston, Texas 77002-2731
Telephone: (713) 653-7100
Telefax (713) 653-7172
Attn: Mr. Richard O. Looney,
Chief Executive Officer
Copy to: Boyer Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Telephone: (713) 871-2025
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Telefax (713) 871-2024
Attn: J. Randolph Ewing
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
12.08 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING
EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE
OF TEXAS OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS
OF ANY JURISDICTION OTHER THAN THE STATE OF CALIFORNIA.
12.09 Amendments and Waivers. No amendments of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by all
of the Parties. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
12.10 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
12.11 Expenses. Each of the Parties will bear his, her or its own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby.
12.12 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the
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context requires otherwise. The word "including" shall mean including without
limitation. The Parties intend that each representation, warranty, and covenant
contained herein shall have independent significance. If any Party has breached
any representation, warranty, or covenant contained herein in any respect, the
fact that there exists another representation, warranty, or covenant relating to
the same subject matter (regardless of the relative levels of specificity)
which the Party has not breached shall not detract from or mitigate the fact
that the Party is in breach of the first representation, warranty, or covenant.
12.13 Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
12.14 Arbitration and Limitation on Claims. Any controversy, dispute
or claim arising out of, in connection with, or in relation to, the
interpretation, performance or breach of this Agreement, including, without
limitation, the validity, scope and enforceability of this Agreement which
cannot first be settled through ordinary negotiation between the Parties shall
be submitted in good faith to mediation by and in accordance with the Commercial
Mediation Rules of the American Arbitration Association or any successor
organization. In the event that mediation of such controversy, dispute or claim
cannot be settled through the mediation proceeding, the Parties agree that the
controversy, dispute or claim shall be submitted to binding and final
arbitration conducted in Los Angeles, California by and in accordance with the
then existing Rules for Commercial Arbitration of the American Arbitration
Association or any successor organization. Any such arbitration shall be to a
three member panel selected through the rules governing selection and
appointment of such panels of the American Arbitration Association or any
successor organization. The award rendered by the arbitrators may be confirmed,
entered and enforced as a judgment in any court of competent jurisdiction;
however, the Parties otherwise waive any rights to appeal the award except with
regard to fraud by the panel. Any such action must be brought within two years
of the date the cause of action accrues. The arbitrators shall award the Party
which substantially prevails in any arbitration proceeding recovery of that
Party's attorneys' fees, the arbitrators' fees and all costs in connection with
the arbitration from the Party who does not substantially prevail. The Parties'
remedies are limited solely to the specific remedies provided in this Agreement
or in the other. The parties waive any entitlement to punitive damages,
consequential damages and lost profits and will limit any damage claim to actual
economic damages incurred. Nothing in this Section 12.14 shall restrict any
Parties' ability to seek injunctive or other equitable relief in any court of
competent jurisdiction prior to initiating mediation or arbitration. In the
event that such injunctive or equitable relief is sought by any Party, such
Party is specifically entitled to enforce the appropriate provisions of the
Agreement in obtaining such relief in any court of competent jurisdiction and,
thereafter, submit the remaining controversy, dispute or claim to arbitration in
accordance with this Section 12.14.
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IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of the
date first above written.
ATTEST: LITIGATION RESOURCES OF AMERICA-
CALIFORNIA, INC., a California corporation
By: /s/ G. Kent Kahve By: /s/ Dave Pfleghar
------------------------------ --------------------------------------
G. Kent Kahve, Asst. Secretary Dave Pfleghar, Chief Financial Officer
and Vice President
LITIGATION RESOURCES OF AMERICA,
INC., a Texas corporation
By: /s/ G. Kent Kahve By: /s/ Dave Pfleghar
------------------------------ --------------------------------------
G. Kent Kahve, Asst. Secretary Dave Pfleghar, Chief Financial Officer
and Vice President
MEDTEXT, INC.,
a California corporation
By: /s/ Glory Johnson By: /s/ Jerry Woods
- ---------------------------------- --------------------------------------
Glory Johnson, Secretary Jerry Woods, President
SEAQUESTOR TRUST,
a California private annuity trust
By: /s/ Kimberly A. Woods
--------------------------------------
Kimberley A. Woods, Sole Trustee
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LIST OF SCHEDULES
6.0 Shareholder Disclosure Letter
6.01 Trustee and Beneficiaries of Shareholder
6.05 Information re: LRA Companies
7.0 Medtext Disclosure Letter
7.01 Directors and Officers of Medtext
7.03 Capitalization and Shareholder Listing for Medtext
7.07 Certain Changes or Events
7.08 Liabilities
7.10 Tax Matters
7.12 Real Property Leases
7.15 Medtext Contracts
7.17 Powers of Attorney
7.18 Insurance
7.19 Litigation
7.20 Business Relationships with Medtext
7.22 Employees
7.23 Employee Benefit Plans
8.0 LRA Companies Disclosure Letter
8.01 Directors and Officers of LRA Companies
8.02 Capitalization and Shareholders Listing for LRA Companies
8.11 Undisclosed Liabilities
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EXHIBIT 10.14
AGREEMENT OF PURCHASE AND SALE OF ASSETS
----------------------------------------
This Agreement of Purchase and Sale of Assets (this "Agreement") is entered
into and effective as of August 29, 1997, by and AMONG LITIGATION RESOURCES OF
AMERICA-CALIFORNIA, INC., a California corporation (the "Buyer"), LITIGATION
RESOURCES OF AMERICA, INC., a Texas corporation (the "Parent"), and LEGAL
ENTERPRISE, INC., a California corporation (the "Seller"), joined by TONY L.
MADDOCKS, an individual resident of California and a director, officer and
shareholder of the Seller ("Maddocks") and ALAN SIMON, an individual resident of
California and a director, officer and shareholder of the Seller ("Simon").
Buyer, Parent, Seller, Maddocks and Simon are hereinafter sometimes referred to
collectively as the "Parties" or singularly as a "Party."
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Seller is the owner of various assets associated with the
Business (as hereinafter defined);
WHEREAS, the Buyer desires to purchase all or substantially all of the
Assets (as hereinafter defined) owned by the Seller and used in the Business,
and the Seller desires to sell such Assets to the Buyer;
WHEREAS, in connection with the purchase and sale of the Assets, the Parties
desire to set forth in this Agreement the terms and conditions with respect to
the transfer of such Assets;
NOW, THEREFORE, for and in consideration of the mutual covenants,
agreements, representations and warranties contained in this Agreement, and
other good and valuable consideration, the receipt, adequacy and sufficiency of
which are hereby acknowledged, the Parties hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
-------------------
As used herein, the following terms shall have the following meanings:
ACCOUNTS PAYABLE REPORT. The term "Accounts Payable Report" shall mean a
report prepared as of the time specified which shows accounts payable of the
Business by service provider and age of each account payable.
ACCOUNTS RECEIVABLE. The term "Accounts Receivable" shall mean all
accounts receivable of Seller generated in connection with the operations of the
Business prior to the Effective Date and reflected on the Financial Statements
as of the Effective Date in a manner consistent with Seller's past practices and
the manner in which such information has been provided to Buyer.
<PAGE>
ACCOUNTS RECEIVABLE REPORT. The term "Accounts Receivable Report" shall
mean a report prepared as of the time specified which shows accounts receivable
of the Business by customer and age of each of the Accounts Receivable.
ADDITIONAL PARENT SHARES VALUE. The term "Additional Parent Shares Value"
means $8.50 per Parent Share; provided, that if the Parent or its Affiliates
have subsequently consummated an acquisition in which Parent Shares are issued,
then "Additional Parent Shares Value" means the value of each Parent Share as
specified in the most recent such acquisition; and further provided however,
that if the Parent has successfully consummated a public offering of its shares
of common stock; then "Additional Parent Shares Value" means the average public
trading price of each Parent Share over the five (5) most recent business days.
AFFILIATE. The term "Affiliate" of a person shall mean, with respect to
that person, a person who directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
or is acting as agent on behalf of, or as an officer or director of that person.
As used in the definition of Affiliate, the term "control" (including the terms
"controlling," "controlled by," or "under common control with") means the
possession, direct or indirect, of management and policies of a person whether
through the ownership of voting securities, by contract, through the holding of
a position as a director or officer of such person, or otherwise. As used in
this definition, the term "person" means an individual, a corporation, a
partnership, an association, a joint stock company, a trust, an incorporated
organization, or a government or political subdivision thereof.
ANCILLARY AGREEMENTS. The term "Ancillary Agreements" shall have the
meaning set forth in Section 3.11.
ASSETS. The term "Assets" shall have the meaning set forth in Section 2.1.
ASSUMED LIABILITIES. The term "Assumed Liabilities" shall have the meaning
as contained in Section 2.6.
BALANCE SHEET REPORT. The term "Balance Sheet Report" means the balance
sheet of the Seller as of a given date showing the assets, liabilities and
equity of the Seller, prepared by the Seller in accordance with GAAP on a
consistent basis as with prior time periods and further adjusted to exclude
Excluded Assets and Retained Liabilities.
BILL OF SALE. The term "Bill of Sale" shall have the meaning set forth in
Section 6.2(g).
BOOKS AND RECORDS. The term "Books and Records" shall have the meaning set
forth in Section 2.1(c).
BUSINESS. The term "Business" shall mean the record retrieval and
litigation support business of the Seller as presently conducted.
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BUYER INDEMNIFIED PARTIES. The term "Buyer Indemnified Parties" shall have
the meaning set forth in Section 7.1A.
BUYER OBLIGATIONS. The term "Buyer Obligations" shall have the meaning set
forth in Section 8.2.
CLOSING. The term "Closing" shall mean the consummation of the events and
transactions to take place on the Closing Date.
CLOSING DATE. The term "Closing Date" shall mean August 29, 1997.
CLOSING DATE ACCOUNTS PAYABLE REPORT. The term "Closing Date Accounts
Payable Report" shall mean an Accounts Payable Report prepared as of the
Closing Date.
CLOSING DATE ACCOUNTS RECEIVABLE REPORT. The term "Closing Date Accounts
Receivable Report" shall mean an Accounts Receivable Report prepared as of the
Closing Date.
CLOSING DATE BALANCE SHEET REPORT. The term "Closing Date Balance Sheet
Report" shall mean a Balance Sheet Report prepared as of the Closing Date.
CLOSING DATE INCOME STATEMENT. The term "Closing Date Income Statement"
shall mean an income statement of the Seller, prepared as of the Closing Date.
CLOSING DATE REPORTS. The term "Closing Date Reports" shall have the
meaning set forth in Section 2.4.
CONTRACTS. The term "Contract" shall have the meaning as contained in
Section 2.1(b).
CUSTOMERS. The term "Customers" shall have the meaning as contained in
Section 3.22.
DAMAGES. The term "Damages" shall have the meaning set forth in Section
7.1A.
EFFECTIVE DATE. The term "Effective Date" shall mean 12:01 a.m. on the
"Closing Date."
EMPLOYEE. The term "Employee" shall mean any employee of the Seller who, as
of the Effective Date, is employed or otherwise performs work or provides
services in connection with the operation of the Business, including those, if
any, on disability, sick leave, layoff or leave of absence, who, in accordance
with the Seller's applicable policies, are eligible to return to active status,
but shall not include any independent contractor providing record retrieval and
litigation support services to Seller from time to time.
EMPLOYMENT AGREEMENT. The term "Employment Agreement" shall have the
meaning as contained in Section 6.2(f).
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ERISA. The term "ERISA" shall have the meaning as contained in Section
3.15.
EQUIPMENT. The term "Equipment" shall have the meaning as contained in
Section 2.1(a).
EXCLUDED ASSETS. The term "Excluded Assets" shall have the meaning as
contained in Section 2.2.
FINAL NET WORTH. The term "Final Net Worth" means total assets minus total
liabilities, as reflected on the Closing Date Balance Sheet Report.
GAAP. The term "GAAP" shall mean generally accepted accounting principles
of the Accounting Principles Board of the American Institute of Certified Public
Accountants and the Financial Accounting Standards Board that are applicable
from time to time.
GENERAL INTANGIBLES. The term "General Intangibles" shall have the meaning
contained in Section 2.1(g).
GUARANTEED NET WORTH. The term "Guaranteed Net Worth" shall mean the amount
of Six Hundred Fifty-Four Thousand Two Hundred Eighty-Eight Dollars ($654,288).
INITIAL CASH PURCHASE PRICE. The term "Initial Cash Purchase Price" shall
have the meaning set forth in Section 2.3.
INITIAL PURCHASE PRICE. The term "Initial Purchase Price" shall mean the
consideration payable to the Seller for the Assets as set forth or contemplated
in Section 2.3.
INTELLECTUAL PROPERTY. The term "Intellectual Property" shall have the
meaning as contained in Section 2.1(e).
LEI DIVISION. The term "LEI Division" shall mean the separate operating
division of Buyer established to continue the operations of Seller acquired
under the terms of this Agreement.
LEI DIVISION EBITDA. The term "LEI Division EBITDA" shall mean adjusted
earnings of the LEI Division before interest, taxes, depreciation and
amortization BUT minus 50% of the initial base salary to be paid to Maddocks
pursuant to the Employment Agreement.
NATIONAL RECORD RETRIEVAL EBITDA. The term "National Record Retrieval
EBITDA" means adjusted earnings of the record retrieval business of Parent and
its subsidiaries before interest, taxes, depreciation and amortization,
excluding that of the LEI Division and any record retrieval business conducted
in Texas.
NET WORTH. The term "Net Worth" means the dollar amount of total assets
minus the total liabilities of the Seller as of a given time period as
determined by the Balance Sheet Reports as of such time period.
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NOTE 1. The term "Note 1" shall have the meaning set forth in Section
2.3(a).
NOTE 2. The term "Note 2" shall have the meaning set forth in Section
2.3(a).
NOTICE OF ACTION. The term "Notice of Action" shall have the meaning set
forth in Section 7.1C.
NOTICE OF ELECTION. The term "Notice of Election" shall have the meaning
set forth in Section 7.1C.
OFFSET. The term "Offset" shall have the meaning set forth in Section 8.2.
OFFSET CLAIM. The term "Offset Claim" shall have the meaning set forth in
Section 8.2.
OWNER. The term "Owner" shall mean Seller, the owner of the Business.
PARENT SHARES. The term "Parent Shares" shall mean any of the shares of
common stock of the Parent.
PECKS. The term "Pecks" shall mean Pecks Management Partners Ltd., a New
York limited partnership.
PUBLIC OFFERING. The term "Public Offering" means the sale by the Parent of
any of its securities for cash in an underwritten public offering registered on
the appropriate form with the Securities and Exchange Commission.
PUBLIC OFFERING PRICE. The term "Public Offering Price" shall refer to the
initial share price of the common stock of Parent Shares at the time and on the
date of the initial Public Offering of the Parent Shares by Parent.
REGISTRATION RIGHTS AGREEMENT. The term "Registration Rights Agreement"
shall have the meaning as contained in Section 6.2(l).
RETAINED LIABILITIES. The term "Retained Liabilities" shall have the
meaning contained in Section 7.1B.
SECONDARY CASH PURCHASE PRICE. The term "Secondary Cash Purchase Price"
shall have the meaning set forth in Section 2.3.
SECONDARY PURCHASE PRICE. The term "Secondary Purchase Price" shall have
the meaning set forth in Section 2.3.
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SECONDARY PURCHASE PRICE CALCULATION DATE. The term "Secondary Purchase
Price Calculation Date" shall have the meaning set forth in Section 2.3.
SELLER INDEMNIFIED PARTIES. The term "Seller Indemnified Parties" shall
have the meaning set forth in Section 7.1B.
SELLER INDEMNITORS. The term "Seller Indemnitors" shall have the meaning
set forth in Section 7.1A.
SELLER'S FINANCIAL STATEMENTS. The term "Seller's Financial Statements"
shall mean the internally compiled financial statements of the Seller as more
fully defined in Section 3.15 herein.
SELLER'S NAMES. The term "Seller's Names" shall have the meaning set forth
in Section 2.1(j).
SHAREHOLDERS' AGREEMENT. The term "Shareholders' Agreement" shall have the
meaning set forth in Section 6.8.
STOCK PLEDGE AGREEMENT. The term "Stock Pledge Agreement" shall have the
meaning as contained in Section 6.2(n).
SUBORDINATION AGREEMENTS. The term "Subordination Agreements" shall mean
those certain Subordination Agreements of even date herewith entered into among
Seller and any of the Company, the Parent, Affiliates, and holders of Senior
Indebtedness (as such item is defined in Note 1 or Note 2).
TOTAL VALUE OF SECONDARY SHARES. The term "Total Value of Secondary Shares"
shall have the meaning set forth in Section 2.3.
TRADE PAYABLES. The term "Trade Payables" shall mean all of the accounts
payable of the Business incurred in the ordinary course of business existing as
of the Effective Date, as set forth on the Closing Date Balance Sheet Report.
ARTICLE II
PURCHASE OF ASSETS AND PURCHASE PRICE
-------------------------------------
2.1 SALE OF ASSETS. Subject to the terms and conditions set forth in this
Agreement, the Seller agrees to sell, convey, transfer, assign and deliver to
the Buyer, and the Buyer agrees to purchase from the Seller on the Effective
Date, all assets owned by Seller and used in or derived from the Business (other
than those specifically excluded under Section 2.2 below) including the
following (such assets to be referred to herein as the "Assets"):
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(a) All office equipment, service equipment, supplies, computer
hardware, computer software, data processing equipment, motor vehicles, and
tools (the "Equipment"), including the Equipment described on Schedule
2.1(a);
(b) All contracts, leases, documents, franchises, licenses,
instruments, agreements and other written or oral agreements relating to the
Business of Seller to which Seller is a party or by which Seller or any of
the Assets may be bound as well as all rights, privileges, claims and
options relating to the foregoing (the "Contracts"), including the Contracts
described on Schedule 2.1(b);
(c) All customer and supplier files and databases, customer and
supplier lists, accounting and financial records, invoices, and other books
and records relating principally to the Business (the "Books and Records"),
including the Books and Records described on Schedule 2.1(c);
(d) Employee files for those employees actually hired by Buyer;
(e) All right, title and interest of Seller, in, to and under all
service marks, trademarks, trade and assumed names, principally related to
the Business together with the right to recover for infringement thereon, if
any (the "Intellectual Property"), and other marks and/or names described
on Schedule 2.1(e);
(f) All advertising materials and all other printed or written
materials related to the conduct of the Business;
(g) All of the Seller's general intangibles, claims, rights of set
off, rights of recoupment, goodwill, patents, inventions, trade secrets and
royalty rights and other proprietary intangibles, licenses and sublicenses
granted and obtained with respect thereto, and rights thereunder, which are
used in the Business, and remedies against infringements thereof, and rights
to protection of interests therein under the laws of all jurisdictions (the
"General Intangibles"), including the General Intangibles described on
Schedule 2.1(g);
(h) All goodwill and going concern value and all other intangible
properties related to the Business;
(i) All of Seller's receivables, including Accounts Receivable, notes
receivable, trade receivables, and intercompany receivables relating to the
Business; and
(j) The exclusive right to use the name "Legal Enterprise, Inc.", any
similar name or derivative thereof, and any past or present assumed names
or trade names in connection with Buyer's use of the Purchased Assets (the
"Seller's Names").
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2.2 EXCLUDED ASSETS. Seller is not selling and Buyer is not purchasing any
of the following excluded assets related to the Business ("Excluded Assets"):
(i) cash, and (ii) cash investments, cash deposits, including any and all
leasehold deposits, right to receive cash refunds, and other cash equivalents,
all as more specifically described on Schedule 2.2.
2.3 PURCHASE PRICE. Upon the terms and subject to the conditions contained
herein and as consideration for the sale of the Assets and the performance by
the Seller of various other matters as provided herein, the Buyer shall pay the
Seller the aggregate amount of the following :
(a) At the Closing, the aggregate amount of the following (the
"Initial Purchase Price"):
(i) Subject to the provisions of Section 2.4, a cash sum in the
amount of One Million Two Hundred Thousand and No/100 Dollars
($1,200,000.00) (the "Initial Cash Purchase Price"), paid by the wire
transfer of immediately available funds; and
(ii) Subject to the provisions of Section 2.4, a subordinated
promissory note in substantially the form of EXHIBIT A-1 in the amount
of Three Hundred Nineteen Thousand Three Hundred Forty and No/100
Dollars ($319,340.00) which shall be subordinated as provided therein
( "Note 1"); Note 1 shall bear interest at an annual rate of Six and
Three-Eighths Percent (6.375%), and shall provide for equal monthly
payments of accrued interest and a final payment of principal and all
accrued and unpaid interest on the eighth anniversary of the Closing
Date, subject to certain limitations imposed by the Subordination
Agreements; and
(iii) Subject to the provisions of Section 2.4, a convertible
subordinated promissory note in substantially the form of EXHIBIT A-2
in the amount of Eight Hundred Twenty-One Thousand One Hundred Sixty
and No/100 Dollars ($821,160.00) which shall be subordinated and
convertible into shares of common stock of Parent as provided therein
( "Note 2"); Note 2 shall bear interest at an annual rate of Six and
Three-Eighths Percent (6.375%), and shall provide for equal monthly
payments of accrued interest and a final payment of principal and all
accrued and unpaid interest on the eighth anniversary of the Closing
Date, subject to certain limitations imposed by the Subordination
Agreements.
(b) In addition to the Initial Purchase Price, the Buyer shall pay the
Seller within forty-five (45) days following the end of the 30th month
following the Closing Date (the "Secondary Purchase Price Calculation
Date"), such amount, if any, by which the aggregate amount of six times the
LEI Division EBITDA for the twelve-month period ending on the Secondary
Purchase Price Calculation Date exceeds the Initial Purchase Price, as
adjusted by Section 2.5, payable as follows (the "Secondary Purchase
Price"):
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(i) a cash sum in the amount of (A) Sixty-Five Percent (65%) of
the Secondary Purchase Price if the Public Offering has occurred, or
(B) Fifty Percent (50%) of the Secondary Purchase Price if the Public
Offering has not occurred (the "Secondary Cash Purchase Price"), paid
by the wire transfer of immediately available funds; and
(ii) (A) if the Public Offering has occurred, that certain number
of Parent Shares which, when taken together ("Total Value of Secondary
Shares"), collectively equals in value the difference between the
Secondary Purchase Price minus the Secondary Cash Purchase Price
(i.e., Total Value of Secondary Shares equals the Secondary Purchase
Price minus the Secondary Cash Purchase Price) at a price per Parent
Share equal to the Additional Parent Shares Value on the Secondary
Purchase Price Calculation Date or (B) if the Public Offering has not
occurred, then by increasing Note 1 and Note 2, pro rata in an
aggregate amount equal to the Secondary Purchase Price minus the
Secondary Cash Purchase Price.
Notwithstanding anything to the contrary contained herein, in the event the
LEI Division EBITDA exceeds the National Record Retrieval EBITDA as of the
Secondary Purchase Price Calculation Date, then the Secondary Purchase Price
will be based on the average of the LEI Division EBITDA and the National Record
Retrieval EBITDA; provided, however, (A) upon the recommendation of Buyer's
Chief Executive Officer or (B) at the request of Maddocks, if the Board of
Directors of Buyer determines that the national record retrieval business did
not develop in the manner contemplated by the parties hereto despite the
reasonable best efforts of, and satisfactory performance by, Maddocks, then the
Board of Directors of Buyer , acting in good faith, may elect to adjust the
formula used in connection with the calculation of the Secondary Purchase Price
to take into account a greater percentage of the LEI Division EBITDA.
(c) Interim preliminary calculations of the Secondary Purchase Price
shall be made and paid as follows:
(i) Commencing thirty (30) days after the last day of the sixth
full month following the Closing Date, and on the thirtieth (30th) day
after the last day of every sixth month thereafter until such time as
total interim payments of the Secondary Purchase Price equal $934,000,
the Buyer shall calculate the Secondary Purchase Price as provided in
Section 2.3(b) (except that if the Parent has consummated the Public
Offering, the Additional Parent Shares Value shall be the average
public trading price of each Parent Share over the first ten (10)
business days after the end of each such six-month period) and shall
pay the Seller such amount, if any, by which the amount of six times
the LEI Division EBITDA for the preceding twelve-month period exceeds
the Initial Purchase Price, as adjusted by Section 2.5 (for purposes
of the first six-month period following the Closing Date, all numbers
used to calculate the Secondary Purchase Price shall be those numbers
derived from the preceding six-month period multiplied by two).
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(ii) The amount, if any, by which the interim calculation of the
Secondary Purchase Price exceeds an amount equal to the Initial
Purchase Price plus any prior interim payments made shall be paid as
set forth in Section 2.3(b) above (except that if the Parent has
consummated the Public Offering, the Additional Parent Shares Value
shall be the average public trading price of each Parent Share over
the first ten (10) business days after the end of each such six-month
period).
(iii) At such time as total interim payments of the Secondary
Purchase Price equal or first exceed $934,000, no additional payments
of the Secondary Purchase Price shall be calculated or made until the
Secondary Purchase Price Calculation Date. On the Secondary Purchase
Price Calculation Date, the total amount of any interim payments of
cash, Parent Shares and aggregate increases in the amounts of Note 1
and Note 2 made under this Section 2.3(c) shall be subtracted from the
Secondary Purchase Price and the balance due Seller, if any, paid as
provided in Section 2.3(b) above (except that if the Parent has
consummated the Public Offering, the Additional Parent Shares Value
shall be the average public trading price of each Parent Share over
the first ten (10) business days after the end of each such six-month
period). If according to such calculation Seller has been overpaid,
then Seller shall promptly refund the amount of such overpayment to
Seller by paying the amount of such overpayment in cash, provided
however that at the option of Seller, up to 50% of such overpayment
may be refunded by delivery to Buyer that number of Parent Shares
obtained by dividing fifty percent (50%) of the amount of such
overpayment by the Additional Parent Shares Value over the ten
(10)business day period ending on the forty-fifth (45th) day
following the Secondary Purchase Price Calculation Date.
2.4 DETERMINATION OF FINAL NET WORTH. Each of the Closing Date Balance
Sheet Report, the Closing Date Accounts Receivable Report, the Closing Date
Accounts Payable Report, and the Closing Date Income Statement (collectively,
the "Closing Date Reports") of the Seller shall be prepared by the Seller, as
promptly as possible after the Closing. Seller's accountants shall then review
and certify the Closing Date Reports, and deliver them to Buyer and Buyer's
accountants within 30 days after the Closing Date. The Buyer's accountants
shall review the Closing Date Reports (including any corresponding work papers
of Seller's accountants) and report to the Seller's accountants in writing
within 30 days of receipt thereof of any discrepancy between the Seller's
accountants certification and the Buyer's accountants results of review. If
Seller's accountants and Buyer's accountants cannot resolve such discrepancy
within 30 days after Seller's accountants receipt of such reported discrepancy,
then they shall so notify the Seller and the Buyer, and the Seller and the Buyer
shall attempt to resolve the discrepancy within 15 days of such notice. If the
Seller and the Buyer cannot resolve the discrepancy to their mutual
satisfaction, another independent public accounting firm acceptable to the
Seller and the Buyer shall be retained to review the Closing Date Reports. Such
firm's conclusions as to the carrying values to appear on the Closing Date
Reports for purposes of determining the Final Net Worth of the Seller shall be
conclusive. The Seller and the Buyer shall share equally in the expenses of
retaining such accounting firm. The Buyer shall pay
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the expenses of the Buyer's accountants for their review of the Closing Date
Reports, and the Seller shall pay the expenses of Seller's accountants for their
review of the Closing Date Reports.
2.5 ADJUSTMENT OF PURCHASE PRICE; PAYROLL ADJUSTMENT. After the Closing
Date, the Initial Purchase Price set forth in Section 2.3 shall be adjusted as
follows: If the Final Net Worth as finally determined pursuant to Section 2.4
shall be more than the Guaranteed Net Worth, then each element of the Initial
Purchase Price (cash, principal of Note 1 and principal of Note 2) shall be
increased in proportion to the percentage it represents of the total Initial
Purchase Price paid at Closing. If the Final Net Worth of Seller as finally
determined pursuant to Section 2.4 shall be less than the Guaranteed Net Worth,
then each element of the Initial Purchase Price (cash, principal of Note 1 and
principal of Note 2) shall be decreased in proportion to the percentage it
represents of the total Initial Purchase Price paid at Closing, and Seller shall
promptly return such portion of cash overpayment to Buyer. In addition, the
Parties acknowledge and agree that the Seller has paid or will pay the Seller's
Closing Date payroll (including taxes or other expenses) (collectively, the
"Payroll Amount") as of August 28, and that the Payroll Amount will be reflected
in the Closing Date Reports as an accrued liability. Within five (5) business
days after the Effective Date, Buyer shall pay the Payroll Amount in cash to
Seller. At the time of the adjustment of the Initial Purchase Price pursuant to
this Section 2.5, the Buyer shall pay in cash to Seller the aggregate amount of
the security deposits set forth in Item 2 of Schedule 2.2, entitled Excluded
Assets, subject to offset by any cash amounts owed by Seller to the Buyer as a
result of the adjustment to the Initial Purchase Price.
2.6 Assumption of Liabilities. Upon the terms and subject to the
conditions contained herein, the Buyer agrees that on the Closing Date, it will
not assume any liabilities of Seller except for those liabilities listed as
current liabilities on Seller's Balance Sheet dated May 31, 1997, subject,
however, to adjustments for changes in liabilities occurring in the ordinary
course of Seller's business following May 31, 1997 through the Closing Date, as
determined under Section 2.4 and set forth on the Closing Date Reports ("Assumed
Liabilities"). Buyer specifically excludes and does not assume any liabilities
relating to or arising out of any of Seller's tax obligations, tax claims, tax
charges, tax fines or any related tax liabilities, regardless of the source,
cause or origin of such tax liabilities.
2.7 ALLOCATION OF INITIAL PURCHASE PRICE. For all federal, state and
local tax purposes, the Initial Purchase Price shall be allocated among the
various Assets in the manner indicated in Schedule 2.7 hereto subject to
adjustment pursuant to the Closing Date Reports. None of the Parties shall file
any tax return or report or take any position with any taxing agency or
authority which is inconsistent with the foregoing allocation, except to the
extent mandated by a court of law or the appropriate taxing agency or authority
in a determination binding upon one Party provided that such Party has given
written notice and reasonable opportunity to the other Party to contest and
appeal such determination, at the other Party's expense, on behalf of both
Parties and such determination has nevertheless become final. Within ninety
(90) days after the Closing Date, the Parties shall prepare for filing with the
Internal Revenue Service a Form 8594 in accordance with the foregoing
allocation.
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2.8 TAXES. Seller shall be liable for the payment of all sales and use
taxes arising out of the sale and transfer or removal of the Assets, if any, and
the assumption of the Assumed Liabilities. On or before the Effective Date, the
Seller agrees to furnish to the Buyer certificates from the state taxing
authorities, and any related certificates that the Buyer may reasonably request,
as evidence that all sales and use tax liabilities of the Seller accruing before
the Effective Date have been fully provided for or satisfied. The Buyer shall
not be responsible for any business, occupation, withholding or similar tax, or
any taxes of any kind of the Seller, related to any period before the Effective
Date.
2.9 TITLE TO ASSETS AND RISK OF LOSS. Title to the Assets and risk of loss
or damage to the Assets by casualty (whether or not covered by insurance) will
pass to the Buyer immediately upon completion of the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
The Seller hereby represents and warrants, except as otherwise set
forth on the Schedules attached hereto, that:
3.1 TITLE TO ASSETS. Up until the Effective Date, the Seller has good,
marketable and indefeasible title to the Assets free and clear of restrictions
or conditions to transfer or assignment, mortgages, liens, pledges, charges,
encumbrances, equities, claims, easements, rights-of-way, covenants, conditions
or restrictions, except with respect to those Assets subject to lease and as
otherwise disclosed on Schedule 3.1. The Seller is in possession of all
property leased to it from others. Except for the Excluded Assets, the Assets
constitute all of the material property, whether real, personal, mixed, tangible
or intangible, that are used in the Business by the Seller.
3.2 TAX RETURNS. Within the times and in the manner prescribed by law,
including extensions permitted thereunder, the Seller has filed and will file
all federal, state and local tax returns required by law and has paid and will
pay all taxes, assessments and penalties, if any, due and payable in connection
with the Business through the Effective Date. There are no pending, or to
Seller's knowledge, threatened disputes as to taxes of any nature payable by the
Seller.
3.3 CONTRACTS, LEASES, AND AGREEMENTS. Schedule 2.1(b) lists all of the
material contracts, leases, agreements, and other written or oral arrangements
relating to the Business to which the Seller is a party, or by which the Seller
or the Assets are bound. As of the Effective Date, each of the Contracts is
valid and in full force and effect, and there has not been any default by the
Seller or, to the best of Seller's knowledge, by any other party to any of the
Contracts, or any event that with notice or lapse of time or both, would
constitute a default by the Seller or, to the best of Seller's knowledge, any
other party to any of the Contracts. Except as shall be disclosed in Schedule
2.1(b), each Contract is assignable to the Buyer without the consent of any
other party. The parties hereby acknowledge and agree that Seller will not
obtain any of the requisite consents relating to the items set forth on Schedule
2.1(b), other than the consent of Simon. Seller has not received notice that
any party to any of the Contracts intends to cancel or terminate any of the
Contracts or exercise
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or not exercise any options that they might have under any of the Contracts. In
the event any of the Contracts are, or are later determined to be, non-
assignable, and the other party to any such Contracts refuses to consent to the
assignment of same, then the Seller shall subcontract to the Buyer or its
designee, if the Buyer so desires, the remaining work on such Contracts, and the
Seller shall forward to the Buyer or its designee all proceeds of such Contracts
received by the Seller; provided, however, that Seller shall be reimbursed for
any reasonable out-of-pocket expenses incurred by it.
3.4 EQUIPMENT. All of the Equipment owned or leased by the Seller is
described on Schedule 2.1(a) attached hereto. Except as disclosed on Schedule
2.1(a), none of the Equipment will be, at the Effective Date, held under any
security agreement, conditional sales contract, or other title retention or
security arrangement or is located other than in the possession of the Seller
except for Equipment that is out of Seller's possession at certain job sites
and/or with certain Seller's agent(s). To the best of Seller's knowledge, the
Equipment is in good operating condition and repair, ordinary wear and tear
excepted.
3.5 INVENTORY. Seller does not own any inventory nor does it utilize any
inventory in its Business.
3.6 LICENSES. Schedule 2.1(b) to this Agreement contains a schedule of all
licenses owned by Seller or in which it has any rights or licenses in connection
with the Business, together with a brief description of each. To the best of
Seller's knowledge, Seller has not infringed, and is not now infringing, on any
license belonging to any other person, firm, or corporation. Seller owns or
holds adequate licenses or other rights to use, all licenses necessary for the
Business as now conducted by it except where failure to own or hold such
licenses will not cause a material adverse effect on the Business, and to the
best of Seller's knowledge, that use does not conflict with, infringe on or
otherwise violate any rights of others. Except as set forth on Schedule 2.1(b),
all of such licenses are fully assignable to Buyer. Seller shall use its
reasonable best efforts to transfer title to all such licenses to Buyer. In the
event any of the licenses are non-assignable and/or non-transferrable, Seller
shall sublicense or otherwise grant the use or make available the use of any
such license which Buyer requests until Buyer obtains an assignment or transfer
of such license or a new license in Buyer's own name.
3.7 EMPLOYMENT CONTRACTS. Except as set forth in Schedule 3.7, Seller
does not have any employment contracts and collective bargaining agreements to
which it is a party or by which it is bound relating to any Employee. No
Employees are represented by any labor organization, and, as of the date hereof,
no labor organization or group of Employees has made a written demand to the
Seller for recognition, or filed a petition with the National Labor Relations
Board, or announced its intention to hold an election of a collective bargaining
representative. There is no pending, or to the best knowledge and reasonable
belief of Seller, threatened, labor dispute, strike or work stoppage affecting
or potentially affecting the Business.
3.8 COMPLIANCE WITH LAWS. The Seller has complied with, and is not in
violation of, applicable federal, state or local statutes, laws, and regulations
(including, without limitation, any applicable building or other law, ordinance
or regulation) that affect, or are likely to affect, directly
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or indirectly, any of the Assets or the Business, except where the failure to so
comply would not have a material adverse effect. The Seller has all permits,
licenses, and authorizations necessary to the conduct of the Business in the
manner and in the areas in which the Business is presently conducted, and all
such permits, licenses, or other authorizations are valid and in full force and
effect, except where the failure to possess such permits, licenses or other
authorizations would not have a material adverse effect on the Business. There
are not any uncured violations, known to Seller, of federal, state or municipal
laws, ordinances, orders, regulations or requirements affecting any portion of
the Assets or the Business.
3.9 LITIGATION. Except as disclosed in Schedule 3.9, there is no suit,
action, arbitration or legal, administrative or other proceeding or governmental
investigation pending or, to the best of Seller's knowledge, threatened against
or affecting the Seller, the Assets, or the Business that could result in a
material adverse effect on the Business.
3.10 NO BREACH OR VIOLATION. As of the Effective Date and except as set
forth on Schedule 3.10, the consummation of the transactions contemplated by
this Agreement will not result in or constitute any of the following: (i) a
default or an event that, with notice or lapse of time or both, would be a
default, breach or violation, or give rise to a right of modification,
termination, cancellation or acceleration of any obligation or to a loss of a
benefit under, except for third party consents described in this Agreement or
any schedule prepared and delivered in connection herewith, of any lease,
license, promissory note, conditional sales contract, commitment, indenture,
mortgage, deed of trust, security agreement, concession, franchise, permit or
other agreement, instrument or arrangement by which the Assets, the Business or
the Seller may be affected, or to which the Assets, the Business or the Seller
may be bound, (ii) the creation or imposition of any lien, charge, or
encumbrance on any of the Assets or the Business, or (iii) a breach of any term
or provision of this Agreement, except for breaches and violations that could
not reasonably be expected to have a material adverse effect on the Business.
3.11 AUTHORITY. The Seller has the full right, power, legal capacity and
authority to execute, deliver and perform its obligations under this Agreement
and all agreements ancillary to this Agreement which are part of the underlying
transaction made on the basis of this Agreement and executed in connection
herewith ("Ancillary Agreements"), and no approvals or consents of any other
person or entity, other than the Seller, are necessary in connection herewith.
3.12 PERSONNEL. Schedule 3.12 sets forth a complete and accurate list of
the names, addresses, hire dates, dates of birth and job descriptions of all
Employees employed by Seller in connection with the Business, current rates of
compensation including, if determined, bonuses payable to each following
Closing. At or after Closing, the Seller shall deliver such additional
information as the Buyer shall reasonably request with respect to such
Employees.
3.13 VALID AND BINDING OBLIGATIONS. Upon execution and delivery, each of
this Agreement, the Ancillary Agreements and each document, instrument and
agreement to be executed by the Seller in connection herewith, will constitute
the legal, valid, and binding obligation of the
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Seller, enforceable in accordance with its terms, except as limited by
bankruptcy laws, insolvency laws, and other similar laws affecting the rights of
creditors generally.
3.14 FINANCIAL STATEMENTS. The financial statements of Seller consist of
unaudited financial statements that have been compiled by the independent
certified public accounting firm of Gray Proctor & McMannis for the fiscal years
ended December 31, 1994, 1995 and 1996 and for the five month period ended May
31, 1997 (collectively, the "Seller's Financial Statements"). The Seller's
Financial Statements have been prepared in accordance with GAAP consistently
applied and fairly present in all material respects the financial condition and
results of operations of the Seller as at the dates and for the periods then
ended.
3.15 EMPLOYEE BENEFITS. Except as provided in Schedule 3.15, Seller has
no pension, profit-sharing, bonus, deferred compensation, percentage
compensation, severance pay, retirement, insurance, or other employee benefit
plans, including "employee benefit plans" within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
3.16 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in Schedule
3.16(a) with regard to the Business and the Assets, since May 31, 1997, there
has been no:
(i) material adverse change in the condition, financial or otherwise,
of the Seller, the Assets or the Business;
(ii) waiver of any right of or claim held by the Seller;
(iii) material loss, destruction or damage to any property of the
Seller, whether or not insured;
(iv) material change in the personnel of the Seller or the terms or
conditions of their compensation or employment;
(v) acquisition or disposition of any assets (or any contract or
arrangement therefor), nor any other transaction by the Seller otherwise
than for value and in the ordinary course of business;
(vi) transaction or disbursement of funds or assets by the Seller
except in the ordinary course of business;
(vii) capital expenditure by the Seller exceeding $10,000 except in
the ordinary course of business;
(viii) change in accounting methods or practices (including, without
limitation, any change in depreciation or amortization policies or rates) by
the Seller;
(ix) re-valuation by the Seller of any of its Assets;
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(x) amendment, modification or termination of any Contract or license
to which the Seller is a party, except in the ordinary course of business;
(xi) mortgage, pledge or other encumbrance of any of the Assets;
(xii) any litigation or facts or circumstances that could result in
litigation that, if adversely determined, might reasonably be expected to
have a material adverse effect on Seller, Seller's financial condition,
Seller's prospects, the Business or the Assets;
(xiii) increase in salary or other compensation payable or to become
payable by the Seller to any of its officers, directors or employees, or the
declaration, payment or commitment or obligation of any kind for the
payment, by the Seller, of a bonus or other additional salary or
compensation to any such person;
(xiv) loan by the Seller to any person or entity, or guaranty by the
Seller of any loan;
(xv) other event or condition of any character that has or might
reasonably be expected to have a material adverse effect on the Business,
Assets or financial condition of the Seller; or
(xvi) agreement by the Seller to do any of the things described in
the preceding clauses (i) through (xv).
Except as disclosed in Schedule 3.16(b), there have been no contractual
commitments by Seller to spend more than $25,000 per contractual commitment over
a continuous 12-month period.
3.17 CONSENTS AND APPROVALS. Except as set forth on Schedule 3.17 no
consent, approval or authorization of, or filing or registration with, any
governmental or regulatory authority, or any other person or entity, is required
to be made or obtained by the Seller in connection with the execution, delivery
or performance of this Agreement by Seller or the consummation of the
transactions contemplated hereby by Seller.
3.18 BROKERS. Neither Seller nor any of Seller's Affiliates has employed
any broker, agent, or finder, or incurred any liability for any brokerage fees,
agent's fees, commission or finder's fees in connection with the transactions
contemplated herein.
3.19 SALE OF ASSETS. For purposes of determining whether a sales and use
tax charge is applicable, the sale of the Assets constitutes (i) the sale of
the entire operating assets of a business or of a separate division, branch, or
identifiable segment of a business, and (ii) a sale outside the ordinary course
of Seller's business, and represents an isolated or occasional sale by a seller
who does not regularly engage in such business. The income and expenses of the
Business can be
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separately established from the Books and Records in the same manner as
previously provided to Buyer.
3.20 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Seller nor any
agent of the Seller, nor to Seller's best knowledge, any other person acting on
Seller's behalf, has, directly or indirectly, within the past five years, given
or agreed to give any gift or similar benefit to any customer, supplier,
government employee of the United States or any state or foreign government, or
other person who is or may be in a position to help or hinder the Business which
(1) would subject the Seller to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (2) if not given in the past, would have
an adverse effect on the Business, or (3) if not continued in the future, would
have a material adverse effect on the Business or the Assets, or which would
subject the Seller to suit or penalty in a private or governmental litigation or
proceeding.
3.21 LIENS ON ASSETS. Except as set forth on Schedule 3.21, all liens or
security interests of any third party as to any of the Assets have been removed
on or before the Effective Date, and the Seller has furnished evidence thereof
to Buyer.
3.22 CUSTOMERS. To the best of Seller's knowledge, Schedule 3.22
contains a true and correct list of all customers of the Business within the
last year (the "Customers"). The Seller has no information, nor is the Seller
aware of any facts, indicating that any of the material Customers intend to
cease doing business with the Seller.
3.23 INSURANCE POLICIES. Schedule 3.23 to this Agreement is a description
of all insurance policies held by the Seller concerning the Business and Assets.
The Seller maintains insurance protection on all its Assets and the Business of
such types and in such amounts as, to Seller's best knowledge, are customarily
insured by similar companies in the same industry, covering property damage and
loss by fire, theft, or other casualty.
3.24 INTEREST IN CUSTOMERS, SUPPLIERS AND COMPETITORS. Except as set forth
in Schedule 3.24, neither the Seller, nor any Affiliate, spouse or child of the
Seller, has any direct or indirect interest in any competitor, supplier or
customer of any of them, has any direct or indirect interest in any competitor,
supplier or customer of the Seller, or in any person from whom or to whom the
Seller leases any property, or in any other person with whom the Seller is doing
business.
3.25 ADVERSE INFORMATION. Seller does not have any actual knowledge of any
change contemplated in any applicable laws, ordinances or restrictions, or any
judicial or administrative action ( or any event, fact or circumstance) which
will or could be reasonably expected to, have a material adverse effect on the
Seller or its condition, financial or otherwise, the Assets, or the condition,
value or operation thereof.
3.26 ORGANIZATION. The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of California, has all
necessary powers to own its properties and to operate its business as now owned
and operated by it, and is qualified to do business in the states specified on
Schedule 3.26.
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3.27 CONDITION. All of the Assets are in good operating condition and
repair, ordinary wear and tear excepted, and, as applicable, good working order.
To the knowledge of Seller, the buildings, fixtures, and improvements leased by
the Seller, including but not limited to the plumbing, electrical, air
conditioning, heating and ventilating systems, are in good condition, ordinary
wear and tear excepted, and, as applicable, good working order.
3.28 INTELLECTUAL PROPERTY. All of the Intellectual Property owned by the
Seller is described on Schedule 2.1(e) attached hereto. The Seller is the sole
owner of all of the Intellectual Property, free and clear of any liens,
encumbrances, restrictions, or legal or equitable claims of others. The Seller
has registered all trade names, trademarks, and service marks in all
jurisdictions necessary to evidence and protect its ownership thereof, and to
permit the Seller to conduct its business in the manner in which it is currently
conducted, or otherwise has all rights or licenses necessary to use the same.
The Seller has all patents or patent applications and copyrights registered in
all jurisdictions necessary to evidence and protect the ownership thereof and to
permit the Seller to conduct its business in the manner in which it is currently
conducted, or otherwise has all rights or licenses necessary to use same.
Except as disclosed in this Agreement, all of the patents of the Seller are
valid and in full force and effect and are not subject to any taxes, maintenance
fees, or actions which have not been currently paid. None of the Intellectual
Property infringes upon any patents, trade or assumed names, trademarks, service
marks, or copyrights belonging to any other person or other entity. The Seller
is not a party to any license, agreement, or arrangement, whether as licensor,
licensee, or otherwise, with respect to any of the Intellectual Property. The
Seller does not have a license or a right to use any other patents, service
marks, trademarks, trade and assumed names, trade secrets and royalty rights and
other proprietary intangibles in connection with the Business, other than the
Intellectual Property.
3.29 POWERS OF ATTORNEY. No person or other entity holds a general or
special power of attorney from the Seller.
3.30 NO SEVERANCE PAYMENTS. Except as set forth in Schedule 3.30, the
Seller will not owe a severance payment or similar obligation to any of its
Employees, officers, or directors, as a result of the transactions contemplated
by this Agreement, nor will any of such persons be entitled to an increase in
severance payments or other benefits as a result of the transactions
contemplated hereby, nor in the event of the subsequent termination of their
employment.
3.31 EMPLOYEES. Except as has occurred in the ordinary course of business,
the Seller has not, nor has it agreed to do in any unusual or extraordinary
amount or manner, any of the following acts with respect to its Employees in the
Business: (i) grant any increase in salaries payable or to become payable by it,
(ii) increase benefits, (iii) modify any collective bargaining agreement to
which it is a party or by which it may be bound, or (iv) declare any bonuses for
any of its Employees.
3.32 TAXES. Seller has paid, and shall pay when due, or contest in good
faith, and shall be responsible for paying for, all federal, state, and local
taxes and charges of any kind whatsoever related thereto, which relate to or
arise from the period on or prior to the Closing
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Date, whether such taxes and charges shall be due and payable before or after
the Closing Date. All federal, state and local taxes and charges of any kind
whatsoever relating to the ownership of the Assets shall be prorated as of the
Closing Date.
3.33 HIRING OF EMPLOYEES. As of the Closing Date, Seller shall permit
Buyer to offer employment to all of the Employees. At or prior to Closing,
Seller shall have paid or accrued in the Closing Date Balance Sheet Report all
compensation and benefits to which such Employees are entitled by reason of
their previous employment with the Seller on such date. Seller shall use
Seller's best efforts to assist Buyer in any reasonable manner in the hiring by
Buyer of the Employees that Buyer desires to hire. Buyer shall have the right,
but not the obligation, to offer employment to such Employees that it desires to
hire in its sole discretion. Seller shall be solely responsible and liable for
all severance pay, if any, to the extent that any of the Employees are not
offered employment with Buyer or do not accept an offer of employment. Under no
circumstances shall the Seller or any of Seller's Affiliates be permitted to
employ or offer employment to any of the Employees after the Closing Date,
without the prior written consent of Buyer.
3.34 OPERATIONS OF THE SELLER. Except as disclosed in Schedule 3.34, since
May 31, 1997:
(i) the Seller has used its best efforts to preserve the business
organization of the Seller intact, to keep available to the Business the
Employees, and to preserve its present relationships with suppliers, customers
and others having business relationships with it;
(ii) the Seller has maintained its existing insurance as to the Business and
the Assets, and otherwise maintained and operated the Business in a good and
businesslike manner in accordance with good and prudent business practices;
(iii) the Seller has not entered into any agreement or instrument which
would bind Buyer, the Seller or the Assets after Closing, other than in the
ordinary course of business, or which would be outside the normal scope of
maintaining and operating the Business and the Assets in the ordinary course of
business;
(iv) the Seller has performed all of the Seller's material obligations under
all contracts and commitments applicable to the Seller, the Business, or the
Assets, and has maintained the Seller's books of account and records relating to
the Business in the usual, regular and customary manner;
(v) to the best of Seller's knowledge, the Seller has complied with all
statutes, laws, ordinances and regulations applicable to the Seller, the Assets,
and the conduct of the Business;
(vi) except in the ordinary course of business, neither the Seller nor any
of the shareholders of Seller has removed or disposed of, nor permitted the
removal or disposal of, any assets of the Seller unless such assets were
replaced with an item of at least equal value that is properly suited for its
intended purpose;
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(vii) the Seller has paid all bills and other payments due with respect to
the ownership, use, insurance, operation and maintenance of the Business or the
Assets in the usual, regular and customary manner consistent with its prior
practices, and has taken all action necessary or prudent to prevent liens or
other claims for the same from being filed or asserted against any part of the
Assets; and
(viii) all revenues received by the Seller relating to the Business have
been deposited in the Seller's account relating to the Business.
3.35 FULL DISCLOSURE. This Agreement, the Schedules and Exhibits hereto,
and all other documents and written information furnished by the Seller to the
Buyer pursuant hereto or in connection herewith, are true, complete and correct,
and do not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements made herein and therein not
misleading. To the best of Seller's knowledge, there are no facts or
circumstances relating to the Assets or the Business which adversely affect or
might reasonably be expected to adversely affect the Assets, the Business or the
ability of the Seller to perform this Agreement or any of Seller's obligations
hereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT
--------------------------------------------------
Each of Buyer and Parent represents and warrants, except as otherwise set
forth on the Schedules attached hereto, that:
4.1 ORGANIZATION. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and has
all the necessary corporate powers to own its properties and to carry on its
business as now owned and operated by it. The Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas and has all the necessary corporate powers to own its properties and to
carry on its business as now owned and operated by it.
4.2 AUTHORITY. Each of Buyer and Parent, as applicable, has the right,
power, legal capacity, and authority to execute, deliver and perform this
Agreement and the Ancillary Agreements to which it is a party. The execution,
delivery and performance of this Agreement and any Ancillary Agreements to which
it is a party by Buyer and Parent, as applicable, have been duly authorized by
all necessary corporate action.
4.3 VALID AND BINDING OBLIGATIONS. Upon execution and delivery, each of
this Agreement and the Ancillary Agreements to which it is a party will
constitute the legal, valid, and binding obligation of Buyer or Parent, as
applicable, enforceable in accordance with its terms, except as limited by
bankruptcy laws, insolvency laws, and other similar laws affecting the rights of
creditors generally.
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4.4 BROKERS. Neither Buyer nor any of its respective Affiliates, officers,
directors, or employees, has employed any broker, agent, or finder, or incurred
any liability for any brokerage fees, agent's fees, commissions or finder's fees
in connection with the transactions contemplated herein, except for the fee
payable to The Gulfstar Group, Inc., which fee shall be paid solely by Buyer or
its Affiliates in connection with this transaction.
4.5 CONSENTS AND APPROVALS. Except as set forth on Schedule 4.5,
(a) No consent, approval or authorization of, or filing or
registration with, any governmental or regulatory authority, or any other
person or entity, is required to be made or obtained by Buyer or Parent in
connection with the execution, delivery and performance of this Agreement
and the Ancillary Agreements to which it is a party and the consummation of
the transactions contemplated hereby.
(b) Neither the execution and delivery of this Agreement or the
Ancillary Agreements to which it is a party nor the consummation of the
transactions contemplated hereby or thereby will (i) violate any provision
of the Articles of Incorporation or Bylaws of either Buyer or Parent or (ii)
conflict with, or result (immediately or upon the giving of notice or the
passage of time or both) in any violation of or any default under, or give
rise to a right of modification, termination, cancellation or acceleration
of any obligation or to a loss of a benefit under, any mortgage, indenture,
lease, instrument, permit, concession, franchise, license or other agreement
which either the Buyer or Parent or its properties or assets is a party to,
beneficiary of, or bound by, or violate any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to either the Buyer
or Parent or its properties or assets, other than such conflicts,
violations, or defaults or possible modifications, terminations,
cancellations or accelerations which individually or in the aggregate do not
and will not have a material adverse effect on the Buyer or the Parent.
4.6 FINANCIAL STATEMENTS. Buyer has delivered to Seller the unaudited
consolidated balance sheet, unaudited consolidated income statement, and
unaudited consolidated cash flow statement of Parent for the periods commencing
on January 17, 1997, and ending May 31, 1997, and June 30, 1997, respectively
(the "Parent Financial Statements"). Each of the Parent Financial Statements
(i) fairly represents the financial position of Parent and its consolidated
subsidiaries as of each respective Parent Financial Statement date, and the
results of their operations for the respective periods indicated, and (ii) were
true and correct in all material respects as of the respective dates thereof,
subject to finalization of purchase accounting adjustments in accordance with
GAAP.
4.7 ASSUMED LIABILITIES. Buyer shall assume the Assumed Liabilities as
defined in Section 2.6 herein.
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4.8 ABSENCE OF CERTAIN CHANGES. Since May 31, 1997, there have been no
(a) material adverse changes in the business, financial condition, assets,
operations or prospects of Parent, (b) amendments, modifications or terminations
of any material contract applicable to Parent, (c) any changes in the accounting
methods or practices of Parent, (d) any litigation or facts or circumstances
that could result in litigation that, if adversely determined, might reasonably
be expected to have a material adverse effect on Parent or on its business,
financial condition or prospects, or (e) other event or condition of any
character that has or might reasonably be expected to have a material adverse
effect of the business, financial condition, assets, operations or prospects of
Parent.
4.9 FULL DISCLOSURE. No representation or warranty of the Buyer or Parent
in this Article IV or in any other Article of this Agreement or in the Ancillary
Agreements to which it is a party or any schedule, exhibit, certificate or other
document furnished or to be furnished by the Buyer or Parent to the Seller
pursuant to this Agreement or any Ancillary Agreements to which it is a party,
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary to make the statements made herein
or therein not misleading. To the best of Buyer and Parent's knowledge, there
are no facts or circumstances relating to the business, financial condition,
assets, operations or prospects of Buyer or Parent which adversely affect or
might reasonably be expected to adversely affect the business, financial
condition, assets or operations of Buyer or Parent, or the ability of Buyer or
Parent to perform this Agreement or the Ancillary Agreements to which it is a
party or any of Buyer or Parent's obligations thereunder.
ARTICLE V
COVENANTS OF THE PARTIES
------------------------
Buyer and Seller covenant and agree as follows:
5.1 CONDUCT OF THE BUSINESS. Except as otherwise permitted by this
Agreement or consented to by Buyer in writing, Seller shall conduct the Business
in the ordinary course in substantially the same manner as heretofore, using its
best efforts to preserve intact its present business organization, to keep
available the services of its Employees, and to preserve its relationships with
customers, suppliers and others having business dealings with it.
5.2 CERTAIN CHANGES. Except as otherwise permitted by this Agreement or
consented to by Buyer in writing, Seller shall not: (a) subject any of the
Assets to any lien or encumbrance; (b) dispose of any of the Assets; (c) grant
any increase in compensation or benefits to any Employee, except for periodic
bonuses in the ordinary course consistent with past practices; (d) materially
modify any of the Assumed Liabilities, or (e) with respect to the Business,
perform any act outside the ordinary course of the Business except as otherwise
contemplated by this Agreement.
5.3 NOTICE. Seller will notify Buyer immediately in writing if (i) any of
Seller's representations or warranties set forth in this Agreement are or become
untrue prior to the Closing Date, (ii) Seller fails to fully perform all of the
covenants of Seller set forth in this Agreement, or (iii) there occurs any
material adverse development in the Business or Seller's market position,
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sales, profit trends, labor regulations, litigation or insurance claims or
otherwise of which Seller has knowledge or reasonable belief prior to Closing.
5.4 RECORD RETENTION. From and after the Closing, Buyer shall permit
Seller the right, during normal business hours, to inspect any documents, books,
records or other information pertaining to the Assets for any reason whatsoever.
For a period of three (3) years following the Closing Date, Buyer agrees not to
destroy any files or records which are subject to this Section 5.4 without
giving reasonable notice to the Seller, and within fifteen (15) business days of
receipt of such notice, the Buyer may cause to be delivered to Seller the
records intended to be destroyed, at the Seller's expense.
5.5 BULK SALES. It may not be practicable to comply or attempt to comply
with the procedures of Division 6 of the California Commercial Code (the
"California Bulk Sales Act"). Accordingly, to induce Buyer to waive any
requirements for compliance with any or all of such laws, Seller hereby agrees
that except for the Assumed Liabilities, the indemnity provisions of Article VII
hereof shall apply to any damages of Buyer arising out of or resulting from the
failure of Buyer or Seller to comply with the California Bulk Sales Laws.
5.6 NON-COMPETITION AGREEMENT. The Seller agrees that, for the period
beginning on the Closing Date and continuing for three (3) years following the
Closing Date, neither Maddocks, individually, Simon, individually, nor any of
their Affiliates, shall, either directly or indirectly, individually or
separately, for themselves or as a shareholder of a privately-held company, a
greater than 5% shareholder of a publicly traded company, owner, partner, joint
venturer, promoter, consultant, manager, independent contractor, agent, or in
some similar capacity for any reason whatsoever:
A. Enter into, engage in, or be connected with any business or business
operation or activity which consists in whole or in part of the
Business within the following counties in the state of California:
Ventura, Los Angeles, San Diego, Orange and any other counties
included within a fifty mile radius of the federal courthouses in San
Francisco and Sacramento.
B. Call upon any customer whose account is or was serviced in whole or in
part by the Seller in relation to the Business within twelve (12)
months prior to the date hereof, or the Buyer, with the intent of
selling or attempting to sell to any such customer any services
similar to the services provided by the Buyer; and
C. Intentionally divert, solicit or take away any customer, supplier or
employee of the Buyer, or the patronage of any customer or supplier of
the Buyer, or otherwise interfere with or disturb the relationship
existing between the Buyer and any of its customers, suppliers, or
employees, directly or indirectly.
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In the event the Buyer ceases operation of the Business other than in a
merger, consolidation, or similar transaction, or upon the filing of a
bankruptcy or receivership proceeding against the Buyer, or upon the appointment
of a liquidator for the Buyer, the provisions of this Section 5.6 will not be
applicable to the conduct of Seller subsequent thereto.
Notwithstanding anything to the contrary contained herein, it is understood
and agreed that the foregoing provisions contained in this Section 5.6 shall not
apply to: (i) an individual named in Section 5.6 if that particular individual
executes an Employment Agreement as of the Closing Date with the Buyer or (ii)
any relationship or affiliation now existing or hereafter created between Simon
and FYI or Simon and Florida Medical Records Service and the business conducted
or services rendered thereby. It is mutually understood and agreed that if any
of the provisions relating to the scope, time or territory in this Section 5.6
are more extensive than is enforceable under applicable law or are broader than
necessary to protect the goodwill and legitimate business interests of the
Buyer, then the Parties agree that they will reduce the degree and extent of
such provisions by whatever minimal amount is necessary to bring such provisions
within the ambit of enforceability under applicable law.
The Parties acknowledge that the remedies at law for breach of Seller's
covenants contained in this Section 5.6 are inadequate, and they agree that the
Buyer shall be entitled, at its election, to injunctive relief (without the
necessity of posting bond against such breach or attempted breach), and to
specific performance of such covenants in addition to any other remedies at law
or equity that may be available to the Buyer.
5.7 TERMINATION OF EMPLOYMENT OF SELLER'S EMPLOYEES. Buyer anticipates
extending an offer of employment to substantially all of the employees of the
Seller on substantially the same terms and conditions as the Employees currently
are employed by Seller. Notwithstanding the foregoing, nothing herein shall
imply or guarantee employment of any Employee of Seller by Buyer. If Seller's
Employees desire employment with Buyer, they will be interviewed in conjunction
with the applicants from other sources and given strong consideration for
available positions with Buyer, at the wages, hours, and conditions of
employment established by Buyer prior to hiring any employees. Seller agrees to
use its best efforts to make available the Employees to the Buyer that Buyer
desire to hire for the purpose of operating the Business. Notwithstanding
anything to the contrary contained herein, Buyer agrees that it will offer to
employ substantially all of Seller's employees. Nothing shall prohibit Buyer
from terminating any of Seller's Employees subsequent to their employment by
Buyer.
5.8 ADDITIONAL FINANCIAL STATEMENTS. Seller shall promptly furnish to
Buyer a copy of all unaudited financial statements for each additional month end
period beyond May 31, 1997 as soon as same is regularly prepared by Seller in
the ordinary course of its business. All such additional financial statements
shall be subject to the same representations and warranties as contained in
Section 3.14 of this Agreement. The Parties acknowledge and agree that Buyer
shall be permitted to conduct at its sole cost and expense an audit of Seller
for the fiscal years ended 1994, 1995 and 1996 in connection with any Public
Offering.
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5.9 NAME CHANGE AND REQUALIFICATION DOCUMENTS. At or prior to the
Closing, the Seller will execute, deliver and file, or cause to be executed,
delivered and filed, all necessary or reasonably requested amendments to
Seller's articles of incorporation, and such other documents as may be required
to change Seller's name to a name reasonably acceptable to Seller, Buyer and
Parent. In addition, Seller hereby consents to an Affiliate of Buyer
incorporating or changing its corporate name to "Legal Enterprises, Inc." or any
name substantially similar thereto, or filing such assumed name certificates as
Buyer deems reasonable, necessary or appropriate. In addition, at or prior to
Closing, Seller and its Affiliates shall execute and deliver such assignments,
terminations and cancellations of assumed and trade names as Buyer may request.
Seller shall cooperate with Buyer in connection with all filings relating to the
use of Seller's name or names and with any filings that Buyer may desire to make
in order to effect such name change or otherwise protect such name.
5.10 CONSENTS TO ASSIGNMENTS. Pursuant to Section 3.3, Seller has
represented and warranted that except as disclosed in Schedule 2.1(b), each
Contract is assignable to the Buyer without the consent of any other party. The
parties hereby acknowledge and agree that the Seller has not obtained, and is
not required to obtain, consents to assignment of any of the Contracts (other
than the consent of Simon), provided that Seller, Maddocks and Simon hereby
agree that they will cooperate with Buyer after the Closing in obtaining the
required consents, and will, at Buyer's cost and expense, take such action as
Buyer may reasonably request in order to obtain, or to assist Buyer in
obtaining, such consents.
ARTICLE VI
THE CLOSING
-----------
6.1 CLOSING. Payment of the Purchase Price required to be made by the
Buyer to the Seller and the transfer of the Assets by the Seller and the other
transactions contemplated hereby shall take place on the Closing Date at the
offices of Boyer, Ewing & Harris Incorporated, 9 Greenway Plaza, Suite 3100,
Houston, Texas 77046 or by fax unless the time or location is changed by mutual
agreement of the Parties. At the Closing, (a) the Seller will deliver to the
Buyer the various certificates, instruments, and documents referred to in
Section 6.2 below, (b) the Buyer will deliver to the Seller the various
certificates, instruments, and documents referred to in Section 6.3 below, and
(c) the Buyer will deliver to the Seller the Purchase Price specified in Section
2.3 above.
6.2 CONDITIONS TO OBLIGATIONS OF THE BUYER. The obligation of the Buyer
to proceed with the Closing and consummate the transactions to be performed by
it in connection with the Closing is subject to satisfaction of the following
conditions:
(a) the representations and warranties of Seller hereunder shall be
true and correct in all material respects at and as of the Closing Date;
(b) the Seller shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
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(c) no action, suit, or proceeding shall be pending before any court
or quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (i) prevent
consummation of any of the transactions contemplated by this Agreement, (ii)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, or (iii) affect adversely in any material respect
the rights in and to the Assets (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
(d) the Seller shall have delivered to the Buyer a certificate to the
effect that each of the conditions specified above in Section 6.2(a) -(c) is
satisfied in all respects;
(e) the Buyer shall have received from counsel to the Seller an
opinion in form and substance acceptable to Buyer, addressed to the Buyer,
and dated as of the Closing Date containing such assumptions and
qualifications as may be reasonably acceptable to Buyer's legal counsel;
(f) Maddocks, individually, shall have entered into a separate
Employment Agreement with Buyer in the form attached hereto as EXHIBIT B
(the "Employment Agreement");
(g) The Seller shall have delivered to Buyer instruments of assignment
and transfer or bills of sale signed by Seller as the Buyer shall reasonably
request, including the Bill of Sale in substantially the form attached
hereto as EXHIBIT C (the "Bill of Sale");
(h) Seller shall have delivered to Buyer affidavits or other reliable
evidence reasonably satisfactory to Buyer and its counsel of Seller's
authority to sell the Assets;
(i) Buyer shall have completed its due diligence review of Seller and
the Business and been satisfied with the results;
(j) The Board of Directors and shareholders of Seller shall have
approved the terms of this transaction and Seller shall have delivered a
certificate therefore to Buyer;
(k) The Board of Directors of Buyer shall have approved the terms of
this transaction;
(l) Seller shall have entered into with Parent a Registration Rights
Agreement in a form similar to those previously entered into by similarly
situated shareholders of Parent and reasonably acceptable to Buyer and its
counsel (the "Registration Rights Agreement");
(n) Seller shall have delivered to Buyer a Contingent Stock Pledge
Agreement in substantially the form of EXHIBIT D attached hereto (the "Stock
Pledge Agreement");
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(o) Buyer shall have received approval from its senior lender to fund
the Initial Cash Purchase Price under its acquisition line of credit;
(p) Seller shall have delivered to Buyer all other items required or
requested to be delivered hereunder, including the Subordination Agreements,
such requested items to be reasonably necessary or reasonably appropriate to
facilitate consummation of the transactions contemplated hereby; and
(q) All actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to the Buyer.
The Buyer may waive any condition specified in Section 6.2 if it executes a
writing so stating at or prior to the Closing Date.
6.3 CONDITIONS TO OBLIGATIONS OF THE SELLER. The obligation of the Seller
to proceed with Closing and consummate the transactions to be performed by it in
connection with the Closing is subject to satisfaction of the following
conditions:
(a) the representations and warranties of Buyer and Parent hereunder
shall be true and correct in all material respects at and as of the Closing
Date;
(b) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(c) no action, suit, or proceeding shall be pending before any court
or quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement, or
(B) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
(d) each of Buyer and Parent shall have delivered to the Seller a
certificate to the effect that each of the conditions applicable to it which
are specified above in Section 6.3(a)-(c) is satisfied in all respects;
(e) the Seller shall have received from counsel to the Buyer an
opinion in form and substance acceptable to Seller, addressed to the Seller,
and dated as of the Closing Date containing such assumptions and
qualifications as may be reasonably acceptable to Seller's legal counsel;
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(f) the Buyer shall have paid the Initial Purchase Price required by
Section 2.3, including delivery of Note 1 and Note 2;
(g) the Buyer shall have entered into the Employment Agreement;
(h) Seller shall have completed its due diligence review of Buyer and
Parent and been satisfied with the results;
(i) The Buyer shall have caused Parent to enter into the Registration
Rights Agreement with Seller in a form similar to those previously entered
into by similarly situated shareholders of Parent;
(j) The Board of Directors and shareholders of Seller shall have
approved the terms of this transaction;
(k) The Board of Directors of Buyer shall have approved the terms of
this transaction and Buyer shall have delivered a certificate therefore to
Seller;
(l) The Buyer shall have entered into the Stock Pledge Agreement; and
(m) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby, and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to the Seller.
The Seller may waive any condition specified in this Section 6.3 if Seller
executes a writing so stating at or prior to the Closing.
6.4 INSURANCE AND AD VALOREM TAXES. The Buyer shall be obligated to make
all premium payments necessary to continue the existing insurance on the
Business commencing as of the Effective Date, and Seller shall cooperate with
Buyer in assigning such insurance to Buyer, in pursuing any claims thereunder
and in assigning and delivery to Buyer any proceeds payable thereunder. Buyer
shall refund to Seller any insurance premium payments that have been prepaid.
With regard to ad valorem taxes on the Assets for the 1997 tax year, the Seller
and the Buyer agree that the taxes to be paid shall be prorated as of the
Effective Date.
6.5 FURTHER ASSURANCES. At and after the Closing, each of the Parties
shall take all appropriate action and execute all documents of any kind which
may be reasonably necessary or desirable to carry out the transactions
contemplated hereby. The Seller, at any time at or after the Closing, will
execute, acknowledge and deliver any further bills of sale, assignments and
other assurances, documents and instruments of transfer, reasonably requested by
the Buyer, and will take any other action consistent with the terms of this
Agreement that may reasonably be requested by
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the Buyer, for the purpose of assigning and confirming to the Buyer, all of the
Assets. The Buyer shall notify the Seller promptly, and in no event more than
ten (10) business days after the Buyer's receipt, of any tax inquiries or
notifications thereof which relate to any period prior to the Effective Date,
and the Seller shall prepare and deliver responses to such inquiries as the
Seller deems necessary or appropriate. In addition, the Seller shall make
available the books and records of the Business during reasonable business hours
and take such other actions as are reasonably requested by the Buyer to assist
the Buyer in the operation of the Business.
6.6 CONFIDENTIAL INFORMATION. After the Closing and except as otherwise
specifically permitted in this Agreement, each party to this Agreement agrees,
on behalf of itself and its Affiliates, to use reasonable efforts not to
divulge, communicate, use to the detriment of any other party to this Agreement
or its Affiliates or for the benefit of any other person or persons, any
confidential information or trade secrets of such other party with respect to
the Assets or the Business, including personnel information, secret processes,
know-how, customer lists, formulae, or other technical data; provided, if any
party to this Agreement or any of its Affiliates is compelled to disclose such
information to any tribunal, regulatory or governmental authority or agency or
else stand liable for contempt or suffer other censure and penalty, such party
may so disclose such information without any liability hereunder.
6.7 ASSIGNMENT OF CONTRACTS. On or before the Effective Date, Seller
shall have delivered to Buyer all of the Contracts presently in force and shall
have effected a valid assignment of all of Seller's rights and obligations
thereunder.
6.8 SHAREHOLDERS' AGREEMENT; INVESTMENT REPRESENTATIONS. No Parent Shares
can or will be issued upon conversion of Note 2 until Seller becomes a party to
a Shareholders' Agreement in the form required by the Parent ("Shareholders'
Agreement") and gives appropriate investment representations concerning
knowledge about the investment and acknowledgments of any applicable
restrictions on transferability.
ARTICLE VII
INDEMNIFICATION
---------------
7.1 INDEMNIFICATION.
A. BY THE SELLER AND SELLER'S SHAREHOLDERS. Subject to Section
7.1(E) hereof, the Seller and Maddocks, jointly and severally, and Simon,
severally but not jointly, (collectively herein "Seller Indemnitors") shall
indemnify, save, defend and hold harmless the Buyer and Buyer's shareholders and
the directors, officers, partners, agents and employees of each (collectively,
the "Buyer Indemnified Parties") from and against any and all costs, lawsuits,
losses, liabilities, deficiencies, claims and expenses, including interest,
penalties, attorneys' fees and all amounts paid in investigation, defense or
settlement of any of the foregoing (collectively referred to herein as
"Damages"), (i) incurred in connection with or arising out of or resulting from
or incident to any breach of any covenant, breach of warranty as of the
Effective Date, or the inaccuracy of any representation as of the Effective
Date, made by the Seller in or pursuant to this Agreement or any
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other agreement contemplated hereby or in any schedule, certificate, exhibit, or
other instrument furnished or to be furnished by the Seller or its Affiliates
under this Agreement, or (ii) based upon, arising out of, or otherwise in
respect of any liability or obligation of the Business or relating to the Assets
relating to any period prior to the Effective Date, other than those Damages
based upon or arising out of the Assumed Liabilities; provided, however, that
the Seller shall not be liable for any such Damages to the extent, if any, such
Damages result from or arise out of a breach or violation of this Agreement by
any Buyer Indemnified Parties.
B. BY THE BUYER AND THE PARENT. Subject to Section 7.1(E) hereof,
the Buyer and Parent shall indemnify, save, defend and hold harmless the Seller,
Seller's successors in interest or heirs, Maddocks and Simon (collectively, the
"Seller Indemnified Parties") from and against any and all Damages (i) incurred
in connection with or arising out of or resulting from or incident to any breach
of any covenant , breach of warranty as of the Effective Date, or the inaccuracy
of any representation as of the Effective Date, made by the Buyer and/or Parent
in or pursuant to this Agreement or any other agreement contemplated hereby or
in any schedule, certificate, exhibit, or other instrument furnished or to be
furnished by the Buyer and/or Parent under this Agreement, or (ii) based upon,
arising out of or otherwise in respect of any liability or obligation of the
Business or relating to the Assets (a) relating to any period on and after the
Effective Date, other than those Damages based upon or arising out of the
liabilities other than Assumed Liabilities (the "Retained Liabilities"), or (b)
arising out of facts or circumstances existing on and after the Effective Date,
other than those Damages based upon or arising out of the Retained Liabilities;
provided, however, that neither Buyer nor Parent shall be liable for any such
Damages if such Damages result from or arise out of a breach or violation of
this Agreement by any Seller Indemnified Parties.
C. DEFENSE OF CLAIMS. If any lawsuit or enforcement action is filed
against any Party entitled to the benefit of indemnity hereunder, written notice
thereof describing such lawsuit or enforcement action in reasonable detail and
indicating the amount (estimated, if necessary) or good faith estimate of the
reasonably foreseeable estimated amount of Damages (which estimate shall in no
way limit the amount of indemnification the indemnified Party is entitled to
receive hereunder), shall be given to the indemnifying Party as promptly as
practicable (and in any event within ten (10) days, after the service of the
citation or summons) ("Notice of Action"); provided that the failure of any
indemnified Party to give timely notice shall not affect its rights to
indemnification hereunder to the extent that the indemnified Party demonstrates
that the amount the indemnified Party is entitled to recover exceeds the actual
damages to the indemnifying Party caused by such failure to so notify within ten
(10) days and so long as the indemnifying Party is not materially prejudiced by
the failure to receive such notice. The indemnifying Party may elect to
compromise or defend any such asserted liability and to assume all obligations
contained in this Section 7.1 to indemnify the indemnified Party by a delivery
of notice of such election ("Notice of Election") within ten (10) days after
delivery of the Notice of Action. Upon delivery of the Notice of Election, the
indemnifying Party shall be entitled to take control of the defense and
investigation of such lawsuit or action and to employ and engage attorneys of
its own choice to handle and defend the same, at the indemnifying Party's sole
cost, risk and expense, and such indemnified Party shall cooperate in all
reasonable respects, at the indemnifying Party's sole cost, risk and expense,
except with respect to the fees and expenses of the indemnified Party's
attorney, which shall be borne by
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the indemnified Party, with the indemnifying Party and such attorneys in the
investigation, trial, and defense of such lawsuit or action and any appeal
arising therefrom; provided, however, that the indemnified Party may, at its own
cost, risk and expense, participate in such investigation, trial and defense of
such lawsuit or action and any appeal arising therefrom. If the Notice of
Election is delivered to the indemnified Party, the indemnified Party shall not
pay, settle or compromise such claim without the indemnifying Party's consent,
which consent shall not be unreasonably withheld. If the indemnifying Party
elects not to defend the claim of the indemnified Party or does not deliver to
the indemnified Party a Notice of Election within ten (10) days after delivery
of the Notice of Action, the indemnified Party may, but shall not be obligated
to defend, provided that in no circumstance shall the indemnified Party
compromise or settle the claim or other matter on behalf or for the account of
the indemnifying Party without the consent of the indemnifying Party, which
shall not be unreasonably withheld.
D. THIRD PARTY CLAIMS. The provisions of this Section 7.1 are not
limited to matters asserted by the Parties, but cover Damages incurred in
connection with third party claims. The indemnity hereunder is in addition to
any and all rights and remedies of the Parties in connection herewith.
E. LIMITATION ON INDEMNIFICATION. Notwithstanding the other
provisions of this Section 7.1, Seller Indemnitors shall not be liable to Buyer
Indemnified Parties, and Buyer shall not be liable to Seller Indemnified
Parties, for the first $25,000 in aggregate Damages suffered by such indemnified
Parties; provided, however, that once any such indemnified Parties have suffered
Damages aggregating in excess of $25,000, the indemnifying Party shall
reimburse the indemnified Parties for the full amount of such Damages, including
the $25,000 in Damages initially excluded. In no event shall the aggregate
Damages payable by an indemnifying Party to indemnified Parties exceed one-half
(1/2) of the Purchase Price.
7.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements contained in this
Agreement shall survive the Closing hereunder and continue in full force and
effect for two (2) years thereafter, except that the representations and
warranties contained in Sections 3.1, 3.2 and 3.33 shall survive for a period of
three (3) years after Closing.
ARTICLE VIII
REMEDIES
--------
8.1 SPECIFIC PERFORMANCE; REMEDIES. Each of the Parties hereby agrees that
the transactions contemplated by this Agreement are unique, and that each Party
shall have, in addition to any other legal or equitable remedy available to it,
the right to enforce this Agreement by decree of specific performance. If any
legal action or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing Party or Parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or proceeding
in addition to any other remedies to which it, he or they may be entitled at law
or equity. The rights
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<PAGE>
and remedies granted herein are cumulative and not exclusive of any other right
or remedy granted herein or provided by law.
8.2 OFFSET; REMEDIES. To the extent not otherwise prohibited by applicable
law, (i) all amounts due and owing by the Buyer to the Seller under this
Agreement, Note 1, Note 2, or any document, instrument, or agreement executed in
connection herewith, and (ii) the Parent Shares, if issued, shall be subject to
offset by the Buyer to the extent of any Damages incurred by Buyer that have
triggered an indemnification obligation of Seller under Section 7.1.A. In the
event Buyer elects to offset any such Damages, Buyer shall furnish Seller notice
containing detailed information with respect to such Damages, the specific
obligation of Seller that triggered such Damages and such other information as
may be reasonably appropriate in respect of Seller's consideration of such claim
(an "Offset Claim"). Seller shall have twenty (20) days after receipt of such
information to dispute any such Offset Claim, and shall so notify Buyer of the
basis for such dispute. If the Parties are unable to resolve such dispute
within fifteen (15) days, the Offset Claim shall be submitted to arbitration, as
further described in Section 9.14. If Seller agrees to pay such Offset Claim or
fails to contact Buyer within such twenty (20) day period, and pending final
resolution of any Offset Claim which has been submitted to arbitration, the
offset shall be applied as follows (the act of offsetting by Buyer shall be
referred to as an "Offset"): (a) First against Note 1 until the full amount of
Note 1, both principal and interest, has been repaid, (b) next against Note 2
until the full amount of Note 2, both principal and interest, has been repaid,
and (c) finally, against the Parent Shares. In order to secure the Buyer's
offset rights against the Parent Shares, Buyer and Seller shall execute the
Stock Pledge Agreement. Upon issuance, the Parent Shares shall have a
restrictive legend typed on the back thereof specifying that the Parent Shares
are subject to a right of offset as specified in this Agreement. The Seller
acknowledges and agrees that but for the right of Offset contained in this
Agreement, the Buyer would not have entered into this Agreement or any of the
transactions contemplated herein. Notwithstanding anything contained herein to
the contrary, the offset rights of Buyer hereunder shall terminate in the manner
set forth in Section 7.2.
ARTICLE IX
MISCELLANEOUS
-------------
9.1 FEES. Except as expressly set forth herein to the contrary, each Party
shall be responsible for all costs, fees and expenses (including attorney and
accountant fees and expenses) paid or incurred by such Party in connection with
the preparation, negotiation, execution, delivery and performance of this
Agreement, or otherwise in connection with the transaction contemplated hereby.
9.2 MODIFICATION OF AGREEMENT. This Agreement may be amended or modified
only in writing signed by all of the Parties.
9.3 NOTICES. All notices, consents, demands or other communications
required or permitted to be given pursuant to this Agreement shall be deemed
sufficiently given when delivered personally or telefaxed with receipt of
transmission confirmed during regular business hours during a business day to
the appropriate location described below, or three (3) business days after
posting
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thereof by United States first-class, registered or certified mail, return
receipt requested, with postage and fees prepaid and addressed as follows:
IF TO SELLER: Legal Enterprise, Inc.
Attn: Mr. Tony L. Maddocks, President
4232-1 Las Virgenes Road
Calabasas, California 91302
Phone: 818/878-9227
Fax: 818/878-9851
Copy to: Timothy F. Sylvester
Riordan & McKinzie
300 S. Grand Ave. 29th Floor
Los Angeles, California 90071
Phone: 213/229-8421
Fax: 213/229-8550
IF TO MADDOCKS: Mr. Tony L. Maddocks
178 Magellan Street
Thousand Oaks, California 91360
Phone: 805/492-2702
IF TO SIMON: Mr. Alan Simon
30227 Walford Court
Agoura Hills, California 91301-4627
Phone: 818/597-8331
IF TO BUYER: Litigation Resources of America-California, Inc.
650 First City Tower, 1001 Fannin
Houston, Texas 77002
Phone: 713/653-7100
Fax: 713/653-7172
IF TO PARENT: Litigation Resources of America, Inc.
650 First City Tower, 1001 Fannin
Houston, Texas 77002
Phone: 713/653-7100
Fax: 713/653-7172
Copy to: J. Randolph Ewing
Boyer, Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
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<PAGE>
Houston, Texas 77046
Phone: 713/871-2025
Fax: (713) 871-2024
Any addressee at any time by furnishing notice to the other addressees in the
manner described above may designate additional or different addresses for
subsequent notices or communications.
9.4 SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not invalidate or affect the enforceability of any other
provision of this Agreement.
9.5 ENTIRE AGREEMENT; BINDING EFFECT. This Agreement and any Ancillary
Agreements set forth the entire agreement among the Parties with respect to the
subject matter hereof. This Agreement shall be binding upon and shall inure to
the benefit of the Parties and their respective successors and assigns.
9.6 WAIVER. No delay in the exercise of any right under this Agreement
shall waive such rights. Any waiver, to be enforceable, must be in writing.
9.7 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
9.8 ASSIGNMENT. The Seller shall not assign this Agreement or any interest
herein .
9.9 HEADINGS. Headings in this Agreement are for convenience only and
shall not affect the interpretation of this Agreement.
9.10 SCHEDULES AND EXHIBITS. All Schedules and Exhibits attached to this
Agreement or to be delivered by the Seller, upon review and approval by the
Buyer, are and shall be hereby incorporated in and made a part of this
Agreement. All Schedules to this Agreement must be delivered no later than four
(4) days prior to Closing, in order to provide the Buyer ample time to review
and evaluate the items described therein and disclosed thereby. Although the
Schedules remain subject to the review and approval of the Buyer, no such review
or approval shall constitute a waiver by the Buyer of any breach or default
caused by the inaccuracy or incompleteness of any Schedule, the accuracy and
completeness of the Schedules being the sole responsibility of the Seller.
9.11 RIGHTS AND LIABILITIES OF PARTIES. Nothing in this Agreement, whether
express or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any persons other than the Parties and their
respective successors and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third persons to any
Party to this Agreement, nor shall any provision give any third person any right
of subrogation or action over against any Party to this Agreement.
9.12 SURVIVAL. Subject to Section 7.2, this Agreement, including but not
limited to all covenants, warranties, representations and indemnities contained
herein, shall survive the Closing,
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and the Bill of Sale and all other documents, instruments or agreements relating
to the Assets and the transactions contemplated herein shall not be deemed
merged therein.
9.13 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall have the force and effect of an original, and
all of which shall constitute one and the same agreement.
9.14 ARBITRATION. If a dispute arises out of or relates to this Agreement,
or the breach thereof, and if such dispute cannot be settled through
negotiation, the Parties agree first to try in good faith to settle the dispute
by mediation under the Commercial Mediation Rules of the American Arbitration
Association, before resorting to arbitration, litigation, or some other dispute
resolution procedure as required by this Section 9.14. Failing an adequate
resolution by mediation, any controversy or claim arising out of or relating to
this Agreement or the transactions contemplated hereby, including any
controversy or claim arising out of or relating to the Parties' decision to
enter into this Agreement, shall be settled by binding arbitration. There shall
be one arbitrator to be mutually agreed upon by the Parties involved in the
controversy and to be selected from the National Panel of Commercial Arbitrators
(or successor panel, if any). If within 45 days after service of the demand for
arbitration the Parties are unable to agree upon such an arbitrator who is
willing to serve, then an arbitrator shall be appointed by the American
Arbitration Association in accordance with its rules. Except as specifically
provided in this Section 9.14, the arbitration shall be conducted in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
The arbitrator shall not render an award of punitive damages. Any arbitration
hereunder shall be held in Los Angeles, California. Expenses related to the
arbitration, including counsel fees, shall be borne by the Party incurring such
expenses except to the extent otherwise provided in Section 9.15 herein. The
fees of the arbitrator and of the American Arbitration Association, if any,
shall be divided equally among the Parties involved in the controversy.
Judgment upon the award rendered by the arbitrator (which may, if deemed
appropriate by the arbitrator, include equitable or mandatory relief with
respect to performance of obligations hereunder) may be entered in any court of
competent jurisdiction.
9.15 ATTORNEYS' FEES. If any litigation is instituted to enforce or
interpret the provisions of this Agreement or the transactions described herein,
the prevailing Party in such action shall be entitled to recover its reasonable
attorneys' fees from the other Party hereto.
9.16 DRAFTING. All Parties hereto acknowledge that each Party was actively
involved in the negotiation and drafting of this Agreement and that no law or
rule of construction shall be raised or used in which the provisions of this
Agreement shall be construed in favor or against any Party hereto because one is
deemed to be the author thereof.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement in multiple counterparts effective as of the date first written above.
BUYER:
------
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LITIGATION RESOURCES OF AMERICA-CALIFORNIA, INC., a
California corporation
By: Richard O. Looney
---------------------------------------------------
Richard O. Looney, Chairman and
Chief Executive Officer
SELLER:
-------
LEGAL ENTERPRISE, INC.,
a California corporation
By: Tony L. Maddocks
---------------------------------------------------
Name: Tony L. Maddocks
--------------------------------------------
Title: President, CFO
--------------------------------------------
PARENT:
LITIGATION RESOURCES OF AMERICA, INC.,
a Texas corporation
By: Richard O. Looney
---------------------------------------------------
Richard O. Looney,
President & Chief Executive Officer
MADDOCKS:
---------
Tony L. Maddocks
-------------------------------------------------------
TONY L. MADDOCKS, Individually
SIMON:
------
Alan Simon
-------------------------------------------------------
ALAN SIMON, Individually
Schedules:
- ----------
2.1(a) Equipment
2.1(b) Contracts
2.1(c) Books and Records
2.1(e) Intellectual Property
2.1(g) General Intangibles
2.2 Excluded Assets
2.7 Allocation of Purchase Price
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<PAGE>
3.1 Encumbrances on Assets
3.7 Employment Contracts
3.9 Litigation
3.10 Breaches or Violations
3.12 Personnel
3.15 Employee Benefits
3.16(a) Certain Changes or Events
3.16(b) Certain Commitments
3.17 Consents and Approvals
3.21 Liens
3.22 Customers
3.23 Insurance Policies
3.24 Interest in Customers, Suppliers and Competitors
3.26 Organization
3.30 Severance Payments
3.34 Operations of Seller
4.5 Consents
Exhibits:
- ---------
A-1 Note 1
A-2 Note 2
B Maddocks Employment Agreement
C Bill of Sale
D Contingent Stock Pledge Agreement
Other Agreements:
- -----------------
Registration Rights Agreement
Pecks Subordination Agreement(s)
Texas Commerce Bank Subordination Agreement(s)
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<PAGE>
EXHIBIT 10.15
AGREEMENT OF PURCHASE AND SALE OF ASSETS
----------------------------------------
This Agreement of Purchase and Sale of Assets (this "Agreement") is entered
into and effective as of September 4, 1997 by and among LITIGATION RESOURCES OF
AMERICA-NORTHEAST, INC., a New York corporation (the "Buyer"), LITIGATION
RESOURCES OF AMERICA, INC., a Texas corporation which is the owner of all of the
authorized and issued capital stock of the Buyer (the "Parent"), and AMICUS ONE
LEGAL SUPPORT SERVICES, INC., a New York corporation (the "Seller") and Richard
A. Portas, a resident of New Jersey, individually ("Portas"), Joseph N.
Spinozzi, a resident of New York, individually ("Spinozzi"), Carl Anderson, a
resident of New York, individually ("Anderson") and Howard Breshin, a resident
of New York, individually ("Breshin") (Portas, Spinozzi, Anderson and Breshin
being collectively referred to sometimes as the "Seller's Stockholders").
Buyer, Parent, Seller and the Seller's Stockholders are hereinafter sometimes
referred to collectively as the "Parties" or singularly as a "Party."
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Seller is the owner of various assets associated with the
Business (as hereinafter defined);
WHEREAS, the Buyer and the Parent desire for the Buyer to purchase all of
the Assets (as hereinafter defined) owned by the Seller and used in the
Business, and the Seller desires to sell such Assets to the Buyer;
WHEREAS, in connection with the purchase and sale of the Assets, the Parties
desire to set forth in this Agreement the terms and conditions with respect to
the transfer of such Assets;
NOW, THEREFORE, for and in consideration of the mutual covenants,
agreements, representations and warranties contained in this Agreement, and
other good and valuable consideration, the receipt, adequacy and sufficiency of
which are hereby acknowledged, the Parties hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
-------------------
As used herein, the following terms shall have the following meanings:
ACCOUNTS PAYABLE. The term "Accounts Payable" shall mean all of the
accounts payable of the Business.
ACCOUNTS PAYABLE REPORT. The term "Accounts Payable Report" shall mean a
report prepared as of the time specified which shows the accounts payable of the
Business by service provider and the age of each Account Payable.
<PAGE>
ACCOUNTS RECEIVABLE. The term "Accounts Receivable" shall mean all of the
accounts receivable of the Business.
ACCOUNTS RECEIVABLE REPORT. The term "Accounts Receivable Report" shall
mean a report prepared as of the time specified which shows the Accounts
Receivable of the Business listed separately by customer and with the age of
each Account Receivable.
AFFILIATE. The term "Affiliate" of a person shall mean, with respect to
that person, a person who directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
or is acting as agent on behalf of, or as an officer or director of that person.
As used in the definition of Affiliate, the term "control" (including the terms
"controlling," "controlled by," or "under common control with") means the
possession, direct or indirect, of management and policies of a person whether
through the ownership of voting securities, by contract, through the holding of
a position as a director or officer of such person, or otherwise. As used in
this definition, the term "person" means an individual, a corporation, a
partnership, an association, a joint stock company, a trust, an incorporated
organization, or a government or political subdivision thereof.
ANCILLARY AGREEMENTS. The term "Ancillary Agreements" shall have the
meaning set forth in Section 3.2.
ASSETS. The term "Assets" shall have the meaning set forth in Section 2.1.
ASSUMED LIABILITIES. The term "Assumed Liabilities" shall have the meaning
set forth in Section 2.6.
BALANCE SHEET REPORT. The term "Balance Sheet Report" means the unaudited
cash basis balance sheet of the Seller as of a given date showing the assets,
liabilities and equity of the Seller adjusted to include the Accounts
Receivable, Accounts Payable, Trade Payables, Notes Payable and accrued
liabilities and further adjusted to exclude Excluded Assets and liabilities not
assumed by the Buyer prepared by the Seller on a basis consistent with prior
time periods, except for giving effect to the pro forma adjustments reflected in
the Financial Statements.
BILL OF SALE. The term "Bill of Sale" shall have the meaning set forth in
Section 6.2(g).
BOOKS AND RECORDS. The term "Books and Records" shall have the meaning set
forth in Section 2.1(c).
BUSINESS. The term "Business" shall mean the court reporting and litigation
support business of the Seller as presently conducted.
BUYER INDEMNIFIED PARTIES. The term "Buyer Indemnified Parties" shall have
the meaning set forth in Section 7.1A.
Page 2 of 36
<PAGE>
CASH PURCHASE PRICE. The term "Cash Purchase Price" shall have the meaning
set forth in Section 2.3(i).
CLOSING. The term "Closing" shall mean the consummation of the events and
transactions to take place on the Closing Date.
CLOSING DATE. The term "Closing Date" shall mean September 5, 1997, or such
later date as shall be mutually agreed by and between the Buyer and Seller .
CLOSING DATE ACCOUNTS PAYABLE REPORT. The term "Closing Date Accounts
Payable Report" shall mean an Accounts Payable Report prepared as of the
Closing Date.
CLOSING DATE ACCOUNTS RECEIVABLE REPORT. The term "Closing Date Accounts
Receivable Report" shall mean an Accounts Receivable Report prepared as of the
Closing Date.
CLOSING DATE BALANCE SHEET REPORT. The term "Closing Date Balance Sheet
Report" shall mean a Balance Sheet Report prepared as of the Closing Date.
CLOSING DATE INCOME STATEMENT. The term "Closing Date Income Statement"
shall mean an income statement of the Seller, prepared for the period commencing
January 1, 1997 and ending at the Closing Date, after giving effect to the same
pro forma adjustments, if any, set forth in the Financial Statements.
CLOSING DATE REPORTS. The term "Closing Date Reports" shall have the
meaning set forth in Section 2.4.
COMMON STOCK. The term "Common Stock" shall mean the $.01 par value common
stock of the Parent.
CONTRACTS. The term "Contract" shall have the meaning as contained in
Section 2.1(b).
CUSTOMERS. The term "Customers" shall have the meaning as contained in
Section 3.28.
DAMAGES. The term "Damages" shall have the meaning set forth in Section
7.1A.
EFFECTIVE DATE. The term "Effective Date" shall mean the "Closing Date."
EMPLOYEE. The term "Employee" shall mean any employee of the Seller who, as
of the Effective Date, is employed or otherwise performs work or provides
services in connection with the operation of the Business, including those, if
any, on disability, sick leave, layoff or leave of absence, who, in accordance
with the Seller's applicable policies, are eligible to return to active status,
but shall not include any independent contractor providing court reporting or
litigation support services to Seller from time to time.
Page 3 of 36
<PAGE>
ENVIRONMENTAL, HEALTH & SAFETY LAWS. The term "Environmental, Health &
Safety Laws" shall mean all laws (including rules and regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local, and foreign governments and all agencies thereof
concerning pollution or protection of the environment, public health and safety,
or employee health and safety.
ERISA. The term "ERISA" shall have the meaning as contained in Section
3.20.
EQUIPMENT. The term "Equipment" shall have the meaning as contained in
Section 2.1(a).
EXCLUDED ASSETS. The term "Excluded Assets" shall have the meaning as
contained in Section 2.2.
FINAL NET WORTH. The term "Final Net Worth" means total assets minus total
liabilities, as reflected on the Closing Date Balance Sheet Report.
FINANCIAL STATEMENTS. The term "Financial Statements" shall mean the
Seller's balance sheet income statement and statement of cash flows of the
Seller at and for the period ended June 30, 1997.
GAAP. The term "GAAP" shall mean generally accepted accounting principles
of the Accounting Principles Board of the American Institute of Certified Public
Accountants and the Financial Accounting Standards Board that are applicable
from time to time.
GUARANTEED NET WORTH. The term "Guaranteed Net Worth" shall mean the amount
of $254,901, as such amount may be increased under Section 2.6 upon payment of
the Notes Payable by the Buyer.
INTELLECTUAL PROPERTY. The term "Intellectual Property" shall have the
meaning as contained in Section 2.1(e).
LEASED ASSETS. The term "Leased Assets" shall have the meaning ascribed
thereto in Section 3.6.
NET WORTH. The term "Net Worth" means the dollar amount of total assets
minus the total liabilities of the Seller as of a given time period as
determined by the Balance Sheet Report as of such time period.
NOTE. The term "Note" shall have the meaning set forth in Section 2.3(iii).
NOTES PAYABLE. The term "Notes Payable" shall mean any and all indebtedness
of Seller (i) pursuant to a credit facility dated March 13, 1997 ("WCMA Note,
Loan and Security Agreement") between Seller and Merrill Lynch Financial
Business Services, Inc. in the aggregate original principal amount of $300,000
due March 1998, or (ii) to Citibank.
Page 4 of 36
<PAGE>
NOTICE OF ACTION. The term "Notice of Action" shall have the meaning set
forth in Section 7.1C.
NOTICE OF ELECTION. The term "Notice of Election" shall have the meaning
set forth in Section 7.1C.
ORDINARY COURSE OF BUSINESS. The term "Ordinary Course of Business" shall
mean the ordinary course of Seller's business substantially consistent with
Seller's past custom and practice.
OWNER. The term "Owner" shall mean Amicus One Legal Support Services, Inc.,
the owner of the Business.
PARENT SHARES. The term "Parent Shares" shall mean any of the shares of
common stock of the Parent whether issued at the Closing or issued or issuable
upon conversion of the Note, as contemplated by this Agreement and any of the
Ancillary Agreements, as the context requires.
PUBLIC OFFERING. The term "Public Offering" means the sale by the Parent of
any of its Common Stock for cash in an underwritten public offering registered
on the appropriate form with the Securities and Exchange Commission.
PUBLIC OFFERING PRICE. The term "Public Offering Price" shall refer to the
initial share price of the Common Stock at the time and on the date of the
initial Public Offering of Common Stock by Parent.
PURCHASE PRICE. The term "Purchase Price" shall mean the consideration
payable to the Seller for the Assets as set forth or contemplated in Section
2.3.
REGISTRATION RIGHTS AGREEMENT. The term "Registration Rights Agreement"
shall have the meaning as contained in Section 6.2(j).
SCHEDULE OF ACCRUED LIABILITIES. The term "Schedule of Accrued Liabilities"
shall mean a schedule of accrued liabilities prepared for the period and as of
the date specified, with such pro forma adjustments, if any, as may be
contemplated by this Agreement.
SELLER INDEMNIFIED PARTIES. The term "Seller Indemnified Parties" shall
have the meaning set forth in Section 7.1B.
SHAREHOLDERS' AGREEMENT. The term "Shareholders' Agreement" shall have the
meaning set forth in Section 6.2(j).
SUBORDINATION AGREEMENTS. The term "Subordination Agreements" shall mean
the Subordination Agreements of even date herewith entered into among Seller and
any of the Buyer, the Parent, Affiliates, and holders of Senior Indebtedness (as
such item is defined in Note).
Page 5 of 36
<PAGE>
TRADE PAYABLES. The term "Trade Payables" shall mean all of the Accounts
Payable of the Business incurred in the ordinary course of business.
ARTICLE II
PURCHASE OF ASSETS AND PURCHASE PRICE
-------------------------------------
2.1 SALE OF ASSETS. Subject to the terms and conditions set forth in this
Agreement, the Seller agrees to sell, convey, transfer, assign and deliver to
the Buyer, and the Buyer agrees to purchase and receive from the Seller on the
Effective Date, all assets owned by Seller and used in or derived from the
Business (other than those specifically excluded under Section 2.2 below)
including the following (such assets to be referred to herein as the "Assets"):
(a) All office equipment, supplies, computer hardware, computer software,
data processing equipment, and other equipment (the "Equipment"), including the
Equipment described on Schedule 2.1(a);
(b) All contracts, leases, documents, franchises, licenses, instruments,
agreements and other written or oral agreements relating to the Business of
Seller to which Seller is a party or by which Seller or any of the Assets may be
bound as well as all rights, privileges, claims and options relating to the
foregoing (the "Contracts"), including the material Contracts of the Seller
described on Schedule 2.1(b);
(c) All customer and supplier files and databases, customer and supplier
lists, and copies of accounting and financial records, invoices, and other books
and records relating principally to the Business (the "Books and Records"),
including the Books and Records described on Schedule 2.1(c);
(d) Employee files for those employees actually hired by Buyer;
(e) All right, title and interest of Seller, in, to and under all service
marks, trademarks, trade and assumed names, principally related to the Business
together with the right to recover for infringement thereon, if any (the
"Intellectual Property"), and other marks and/or names described on Schedule
2.1(e) or as described in Section 2.1(j);
(f) All advertising materials and all other printed or written materials
related to the conduct of the Business;
(g) All of the Seller's general intangibles, claims, rights of set off,
rights of recoupment, goodwill, trade secrets and royalty rights and other
proprietary intangibles, licenses and sublicenses granted and obtained with
respect thereto, and rights thereunder, which are used in the Business, and
remedies against infringements thereof, and rights to protection of interests
therein under the laws of all jurisdictions (the "General Intangibles"),
including the General Intangibles described on Schedule 2.1(g);
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(h) All goodwill and going concern value and all other intangible properties
related to the Business;
(i) All of Seller's receivables, including Accounts Receivable, notes
receivable and trade receivables, and intercompany receivables relating to the
Business; and
(j) The exclusive right to use the names "Amicus One Legal Support
Services, Co.," "Cardinal Reporting Co." and "AM Court Reporting, Co.", any
similar name or derivative thereof, and any past or present assumed names or
trade names in connection with Seller's use of the Assets (the "Seller's Names")
in all areas in which the Business is conducted and all other rights with
respect to the Seller's Names in which the Seller has an interest outside such
area, if any, except that Seller may use the aforementioned names in connection
with the winding up of its affairs and liquidation.
2.2 EXCLUDED ASSETS. Seller is not selling and Buyer is not purchasing
any of the following excluded assets related to the Business ("Excluded
Assets"): (i) cash, and (ii) cash investments in securities, cash deposits
(including security deposits for utilities and other security deposits), right
to receive cash refunds, and other cash equivalents, all as more specifically
described on Schedule 2.2.
2.3 PURCHASE PRICE. Upon the terms and subject to the conditions
contained herein and as consideration for the sale of the Assets and the
performance by the Seller of various other matters as provided herein, the Buyer
or the Parent shall pay the Seller, at the Closing, the aggregate amount of the
following (the "Purchase Price"):
(i) Cash in the amount of One Million Six Hundred Thousand Dollars
($1,600,000) (the "Cash Purchase Price"), paid by the wire transfer of
immediately available funds to the account or accounts specified by the Seller;
(ii) 116,471 shares of Common Stock at a deemed issuance price of Eight and
50/100 Dollars ($8.50); and
(iii) Subject to the provisions of Section 2.4, a convertible subordinated
promissory note of the Buyer dated as of the Closing Date in substantially the
form of EXHIBIT A in the amount of Five Hundred and Sixty Thousand Dollars
($560,000) which shall be subordinated to other indebtedness of the Parent and
the Buyer as specified therein, and convertible into Common Stock, as provided
therein ( the "Note"); The Note shall, subject to certain cash flow requirements
and certain limitations imposed by the Subordination Agreements, bear interest
at an annual rate of Six Percent (6%), and provide for equal quarterly payments
of accrued interest for the first year and equal quarterly payments of principal
and accrued interest over a four (4) year period commencing with the fifth
quarterly payment date.
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2.4 DETERMINATION OF FINAL NET WORTH. Each of the Closing Date Balance
Sheet Report, the Closing Date Accounts Receivable Report, the Closing Date
Accounts Payable Report, the Closing Date Schedule of Accrued Liabilities and
the Closing Date Income Statement (collectively, the "Closing Date Reports") of
the Seller shall be compiled by the Seller's accountants, as promptly as
possible after the Closing, and delivered, along with a letter as to the scope
of such compilation, to Buyer and Buyer's accountants within 30 days after the
Closing Date. The Buyer's accountants shall review the Closing Date Reports
(including any corresponding work papers of Seller's accountants) and report to
the Seller's accountants in writing within 30 days of receipt thereof of any
discrepancy as a result of their compilation thereof. If Seller's accountants
and Buyer's accountants cannot resolve such discrepancy within 30 days after
Seller's accountants receipt of such reported discrepancy, then they shall so
notify the Seller and the Buyer. The Seller and the Buyer shall attempt to
resolve the discrepancy within 15 days of such notice. If the Seller and the
Buyer cannot resolve the discrepancy to their mutual satisfaction, another
independent public accounting firm acceptable to the Seller and the Buyer shall
be retained to review the Closing Date Reports. Such firm's conclusions as to
any such discrepancy in the Closing Date Reports for purposes of determining the
Final Net Worth of the Seller shall be conclusive. The Seller and the Buyer
shall share equally in the expenses of retaining such accounting firm. The
Buyer shall pay the expenses of the Buyer's accountants for their review of the
Closing Date Reports, and the Seller shall pay the expenses of Seller's
accountants for their review of the Closing Date Reports.
2.5 ADJUSTMENT OF PURCHASE PRICE. After the Closing Date, the Purchase
Price set forth in Section 2.3 shall be adjusted as follows: (i) if the Final
Net Worth of the Company as finally determined pursuant to Section 2.4 shall be
more than the Guaranteed Net Worth, then the cash portion of the Purchase Price
shall be increased by an amount equal to the amount of such excess, and paid to
Seller by wire transfer promptly upon determination of final net worth and (ii)
if the Final Net Worth of the Company as finally determined pursuant to Section
2.4 shall be less than the Guaranteed Net Worth, then the Note portion of the
Purchase Price and thereafter, if necessary, the Common Stock delivered under
Section 2.3(ii) shall be reduced by an amount equal to the amount of such
shortfall (such Common Stock to be valued at $8.50 per share for purposes of
this Section 2.5 only).
2.6 ASSUMPTION OF LIABILITIES. Upon the terms and subject to the
conditions contained herein, the Buyer agrees that on the Closing Date, it will
not assume any liabilities of Seller except for those liabilities listed as
current liabilities on Seller's Balance Sheet dated June 30, 1997 (including the
notes thereto), subject, however, to adjustments for changes in liabilities
occurring in the ordinary course of Seller's business following June 30, 1997
through the Closing Date, as determined under Section 2.4 and set forth on the
Closing Date Reports ("Assumed Liabilities"). Buyer specifically excludes and
does not assume any liabilities relating to or arising out of any of Seller's
tax obligations, tax claims, tax charges, tax fines or any related tax
liabilities, regardless of the source, cause or origin of such tax liabilities.
At or prior to the Closing, Buyer shall pay by wire transfer of immediately
available funds the full amount due on the note payable to Merrill Lynch
Business Financial Services, Inc. and as soon as practicable thereafter provide
the Seller with evidence of release of all liens with respect thereto. Upon
payment of such Notes Payable, the amount of the Guaranteed Net Worth shall be
increased by all amounts paid with respect thereto.
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2.7 ALLOCATION OF PURCHASE PRICE. For all federal, state and local tax
purposes, the Purchase Price shall be allocated among the various Assets in the
manner indicated in SCHEDULE 2.7 hereto subject to adjustment pursuant to the
Closing Date Reports. None of the Parties shall file any tax return or report
or take any position with any taxing agency or authority which is inconsistent
with the foregoing allocation, except to the extent mandated by a court of law
or the appropriate taxing agency or authority in a determination binding upon
one Party provided that such Party has given written notice and reasonable
opportunity to the other Party, at its expense, to contest and appeal such
determination on behalf of both Parties and such determination has nevertheless
become final. Within ninety (90) days after the Closing Date, the Parties shall
prepare for filing with the Internal Revenue Service a Form 8594 in accordance
with the foregoing allocation.
2.8 TAXES. Seller shall be liable for the payment of all sales and use
taxes arising out of the sale and transfer or removal of the Assets, if any, and
the assumption of the Assumed Liabilities. On or before the Effective Date, the
Seller agrees to furnish to the Buyer certificates from the state taxing
authorities, and any related certificates, that the Buyer may reasonably request
and are reasonably available from the relevant taxing authorities, as evidence
that all sales and use tax liabilities of the Seller accruing before the
Effective Date have been fully provided for or satisfied. The Buyer shall not
be responsible for any business, occupation, withholding or similar tax, or any
taxes of any kind of the Seller, related to any period before the Effective
Date.
2.9 TITLE TO ASSETS AND RISK OF LOSS. Title to the Assets and risk of
loss or damage to the Assets by casualty (whether or not covered by insurance)
will pass to the Buyer immediately upon completion of the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
The Seller hereby represents and warrants, except as otherwise set forth on
the Schedules attached hereto, that:
3.1 ORGANIZATION. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York, has all
necessary corporate powers to own its properties and to operate the Business as
now owned and operated by it, and is not qualified, nor required to be
qualified, to do business in any other state.
3.2 AUTHORITY. Seller has the full right, power, legal capacity and
authority to execute, deliver and perform Seller's obligations under this
Agreement and all agreements ancillary to this Agreement which are part of the
underlying transaction made the basis of this Agreement and executed in
connection herewith, including but not limited to the Exhibits hereto
("Ancillary Agreements"). The execution, delivery and performance of this
Agreement and the Ancillary Agreements by Seller has been duly authorized by the
Board of Directors and all of the stockholders of the Seller.
3.3 CONSENTS AND APPROVALS; NO BREACH OR DEFAULT. Except as set forth on
SCHEDULE 3.3(A), no consent, approval or authorization of, or filing or
registration with, any governmental
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or regulatory authority, or any other person or entity, is required to be made
or obtained by Seller in connection with the execution, delivery or performance
of this Agreement, or the consummation by Seller of the transactions
contemplated hereby. Except as set forth on SCHEDULE 3.3(B), neither the
execution and delivery of this Agreement or the Ancillary Agreements by Seller,
nor the consummation of the transactions contemplated herein by Seller, will (A)
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency or court to which Seller is, or the Assets are, subject, or
(B) conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate, terminate,
modify or cancel, or require any notice under, any material agreement, contract,
lease, license, instrument, promissory note, conditional sales contract,
partnership agreement or other arrangement to which Seller or any of Seller's
Affiliates is a party, or by which Seller is bound, or to which the Assets are
subject, or (C) conflict with or violate the articles of incorporation or by-
laws or other charter document of Seller.
3.4 VALID AND BINDING OBLIGATION. This Agreement, and upon execution by
the proper persons, each of the Ancillary Agreements to be executed by Seller or
any of Seller's Stockholders in connection herewith, will constitute the legal,
valid, and binding obligation of Seller and each of Seller's Stockholders who is
a party thereto, enforceable against Seller or each of such Seller's
Stockholders in accordance with its terms, except as same may be limited by
applicable bankruptcy laws, insolvency laws, or other similar laws affecting the
rights of creditors generally and further subject to the action of a court with
respect to equitable remedies.
3.5 TITLE TO ASSETS. Except as set forth on SCHEDULE 3.5 and the
Financial Statements, Seller has good and marketable title to the Assets, free
and clear of restrictions or conditions to transfer or assignment, or mortgages,
liens, pledges, charges, encumbrances, equities, claims, covenants, except to
the extent of executory obligations expressly set forth in any agreement or
contract with respect to the Leased Assets and Purchased Assets subject to
Seller financing agreements as set forth in the Schedules hereto. Seller shall
deliver to Buyer at Closing good and marketable title to the Assets, free and
clear of restrictions or conditions to transfer or assignment, or mortgages,
liens, pledges, charges, encumbrances, equities, claims, or covenants, except to
the extent of executory obligations expressly set forth in any agreement or
contract with respect to the Leased Assets and Purchased Assets subject to
Seller financing agreements as set forth in the Schedules hereto.
3.6 POSSESSION OF ASSETS; LEASED ASSETS. Seller is in possession of all
of the Assets, and all of the assets leased to Seller from others. All assets
leased to Seller from others, whether real, personal or mixed, are described on
SCHEDULE 3.6 and SCHEDULE 3.14(B) attached hereto (the "Leased Assets"). The
Assets and the Leased Assets constitute all of the material property, whether
real, personal, mixed, tangible, or intangible, that is owned or used in the
Business by Seller, other than the Excluded Assets. Seller does not own legal
or equitable title to any assets or interests in assets except the Assets, the
Leased Assets and the Excluded Assets. Seller shall deliver to Buyer on the
Closing Date, possession of and/or control or dominion over all of the Assets
and the Leased Assets, including without limitation all of Seller's Accounts
Receivable,
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property and equipment, other personal property, contract rights and general
intangibles, client and supplier lists, and assumed and trade names.
3.7 CONDITION. All of the Assets and the Leased Assets are in good
operating condition and repair for their intended use, except for ordinary wear
and tear.
3.8 CONTRACTS AND LEASES. The Contracts include all of the contracts,
leases, documents, instruments, agreements, and other written or oral
arrangements to which Seller is a party or by which Seller or the Assets may be
bound. Except as set forth on SCHEDULE 2.1(B), all of the Contracts are valid
and in full force and effect, and there has not been any default by Seller or,
to the best of Seller's knowledge, any third party to any of said Contracts, or
any event, fact or circumstance which with notice or lapse of time or both,
would constitute a default by Seller or any other party to any of the Contracts.
Seller has not received notice that any party to any of the Contracts intends to
cancel or terminate any of the Contracts or exercise or not exercise any options
that such party might have under any of the Contracts.
3.9 EQUIPMENT. All of the equipment owned by Seller is set forth on
SCHEDULE 3.9.
3.10 ACCOUNTS RECEIVABLE. All of the Accounts Receivable of Seller as set
forth in the books and records of Seller, and all papers and documents relating
thereto, are genuine and in all respects what they purport to be, and each such
Account Receivable is valid and subsisting and is owed by the account debtor
named in such Account Receivable. The amount of each Account Receivable
represented as owing as of the date indicated (i) is the correct amount actually
and unconditionally owing as of the date indicated, (ii) to the best of Seller's
knowledge, is not subject to any set-offs, credits, disputes, defenses,
deductions or countercharges, and (iii) to the best knowledge of Seller, will be
paid in the Ordinary Course of Business, net of allowances as set forth in the
Seller's financial statements. None of the Accounts Receivable has been paid
outside of the Ordinary Course of Business, and neither Seller nor any of its
Affiliates has made any efforts to collect any of the Accounts Receivable
outside of the Ordinary Course of Business.
3.11 INVENTORIES. Seller does not have any raw materials, work in process,
finished goods or other inventory.
3.12 LICENSES. All licenses owned by Seller or in which Seller has any
rights, licenses or sublicenses (collectively, the "Licenses"), together with a
brief description of each, are set forth on SCHEDULE 3.12. To the best of
Seller's knowledge, Seller has not infringed, and is not now infringing, on any
license belonging to any other person or other entity. Seller owns and holds
adequate licenses necessary for the Business as now conducted by it, and that
use does not, and will not, conflict with, infringe on or otherwise violate any
rights of others. Buyer is hereby acquiring, and will continue to enjoy the use
and benefit of, the Licenses.
3.13 INTELLECTUAL PROPERTY. All of the intellectual property (the
"Intellectual Property") of Seller is set forth on SCHEDULE 3.13. The
Intellectual Property constitutes all of the intellectual property necessary to
the lawful conduct of the Business without any infringement or conflict with
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the rights of others, and no adverse claims have been asserted against the
Intellectual Property, Seller or the Business with respect thereto.
3.14 REAL PROPERTY; LEASED REAL PROPERTY. Except as set forth in SCHEDULE
3.14(A) with respect to real property owned by Seller, and SCHEDULE 3.14(B)
with respect to real property leased by Seller (such real property being
hereinafter referred to collectively as the "Real Property"), Seller neither
owns nor leases any real property or improvements or interests therein. Except
for Seller, there are no parties in possession of any portion of the Real
Property as lessees, tenants at will or at sufferance, trespassers or otherwise.
3.15 SUBSIDIARIES. Seller does not own, and has never previously owned,
directly or indirectly, any interest or investment (whether equity or debt) in
any corporation, partnership, business, trust, or other entity.
3.16 INSURANCE. Attached hereto as SCHEDULE 3.16 is a true, complete and
accurate list of all insurance policies maintained by Seller.
3.17 BANKING. The names and addresses of all banks or other financial
institutions in which Seller has an account, deposit or safe deposit box, with
the names of all persons authorized to draw on these accounts or deposits or
having access to these boxes, are set forth on SCHEDULE 3.17 attached hereto.
3.18 POWERS OF ATTORNEY. No person or other entity holds a general or
special power of attorney from Seller.
3.19 PERSONNEL. Attached hereto as SCHEDULE 3.19 (A) is a list of the
names, addresses, hire dates, dates of birth and job descriptions of all
Employees of Seller, stating their rates of compensation including, if
determined, bonuses payable to each. Attached hereto as SCHEDULE 3.19 (B) is a
list of the names, addresses, dates of birth and services provided by all
independent court reporters used by Seller during the preceding one (1) year,
stating their rates and methods of compensation.
3.20 EMPLOYEE BENEFITS. SCHEDULE 3.20 is a true, correct and complete
list of each "employee benefit plan," within the meaning of Section 3(3) of
Employee Retirement Income Security Act of 1974, as amended ("ERISA") has ever
been maintained or sponsored by Seller or any of its Affiliates. Each such
employee benefit plan (and each related trust, insurance contract, or fund) is
in full force and effect, and complies in form and in operation in all respects
with the applicable requirements of ERISA, the Code, and other applicable laws.
Neither Seller nor any other party is in default under any of the plans, there
have been no claims of default, and there are no facts, conditions or
circumstances which if continued, or on notice, will result in a default, under
any plan. None of the plans will, by its terms or under applicable law, become
binding upon or become an obligation of the Buyer. No assets of any plan are
being transferred to Buyer or to any plan of Buyer. Seller does not contribute
to, and has never contributed to, and has never
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been required to contribute to, any multiemployer plan, and Seller does not
have, and has never had, any liability (including withdrawal liability) under
any multiemployer plan.
3.21 EMPLOYMENT AGREEMENTS. SCHEDULE 3.21 is a list of all employment
agreements, consulting agreements, collective bargaining agreements, and
agreements providing for director and officer indemnification or other
agreements or arrangements providing for employee or other remuneration,
severance payments or benefits to which Seller is a party or by which Seller is
bound (collectively, the "Seller Employment Agreements"). Buyer will not have
any duty, liability or obligation with respect to any of the Seller Employment
Agreements. Except as set forth on SCHEDULE 3.21, no Employees are represented
by any labor organization.
3.22 LIABILITIES. Seller does not have any liabilities, obligations or
commitments of any nature, whether accrued, absolute, contingent or otherwise,
and whether due or to become due, except (i) liabilities which are adequately
disclosed or accrued against in the Balance Sheet Reports, and (ii) liabilities
which have been incurred in the Ordinary Course of the Business since June 30,
1997 and in accordance with standard, customary and historical practices and
experiences of Seller, except for giving effect to the pro forma adjustments
reflected in the Seller's Financial Statements. In no event shall the Buyer be
liable for (or have paid any) legal, accounting or other costs or expenses
incurred by Seller in connection with any of the transactions contemplated in
this Agreement. Seller will pay on or before the Closing Date all of such
expenses incurred in connection with the execution and delivery of this
Agreement and the Ancillary Agreements and the performance of the transactions
specified or contemplated therein.
3.23 LITIGATION. Except as set forth on SCHEDULE 3.23, there is no suit,
action, arbitration or legal, administrative or other proceeding or governmental
investigation pending or threatened against or affecting Seller, its Affiliates,
the Assets, the Leased Assets or the Business.
3.24 TAX MATTERS. Seller has filed all tax or information returns that
Seller was required to file, and all such tax returns or reports were correct
and complete in all material respects. All taxes owed by Seller (whether or not
shown on any tax return) which are due and owing have been paid, except for any
such taxes being contested in good faith and for which adequate reserves have
been established. Seller is not the beneficiary of any extension of time within
which to file any tax return, and Seller has not waived any statute of
limitations in respect of taxes or agreed to any extension of time with respect
to a tax assessment or deficiency. Seller has withheld and paid all taxes
required to have been withheld or paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, partner, or other third
party. Neither Seller nor any director or officer (or employee responsible for
tax matters) of Seller has reason to believe that any authority might assess any
additional taxes for any period for which tax returns or reports have been
filed. Except as set forth on SCHEDULE 3.24, there is no dispute or claim
concerning any tax liability of Seller.
3.25 COMPLIANCE WITH LAWS. Seller has complied in all material respects
with, and is not in violation of, applicable material federal, state or local
ordinances, statutes, laws, rules, restrictions and regulations (including,
without limitation, any applicable Environmental, Health
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& Safety Laws) that affects, or is likely to affect, directly or indirectly, the
Business, the Assets, the Leased Assets, the Real Property or the clients,
suppliers or financial prospects of Seller. There are not any uncured material
violations of federal, state or local laws, ordinances, statutes, orders, rules,
restrictions, regulations or requirements affecting any portion of the Business,
the Real Property, the Assets or the Leased Assets, and neither any of the
Assets, the Leased Assets or the Real Property, nor the operation thereof nor
the conduct of the Business, violates in any material respect any applicable
federal, state or municipal laws, ordinances, orders, regulations or
requirements. Seller has not received notice of any past, present or future
event, condition, circumstance, activity, practice, incident, action or plan
which may interfere with or prevent compliance or continued compliance with the
Environmental, Health & Safety Laws or which may give rise to any common law or
legal liability, or otherwise form the basis of any claim, action, demand,
lawsuit, proceeding, hearing, study or investigation, based on, related to, or
alleging any violation of the Environmental Health & Safety Laws.
3.26 FINANCIAL STATEMENTS. The Financial Statements (i) are true,
complete, and correct in all material respects, (ii) fairly and accurately
present the financial position of Seller as of the periods described therein,
and the results of the operations of Seller for the periods indicated, and (iii)
have been prepared consistently and in accordance with the Seller's historical
customs and practices, except for the pro forma adjustments thereto described
therein or otherwise contemplated in this Agreement.
3.27 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
SCHEDULE 3.27 or otherwise set forth in this Agreement, since June 30, 1997.
(A) there has been no: (i) material adverse change in the financial
condition, assets, liabilities, business or prospects of Seller; (ii) material
loss, destruction or damage to any property of Seller, whether or not insured;
(iii) labor trouble, pending or threatened, involving Seller, or change in the
personnel of Seller or the terms or conditions of their employment or other
engagement; nor (iv) other event or condition of any character (excluding
general economic condition affecting the Business) that has or could have a
material adverse effect on the financial condition, business, liabilities,
goodwill or prospects of the Business;
(B) Seller and its Affiliates have used their reasonable best efforts to
preserve the business organization of Seller intact, to maintain the goodwill of
the Business, to keep available to the Business the Employees and the
Independent Contractors, and to preserve the present relationships of Seller
with its suppliers, clients, regulatory authorities and others having business
relationships with it;
(C) Seller has maintained and operated the Business in the Ordinary Course
of Business and in accordance with industry practices and Seller's historical
policies;
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(D) Seller has not issued or sold, nor directly or indirectly redeemed or
acquired, any of its securities;
(E) Seller has not declared, set aside nor paid a dividend or other
distribution, nor made any payment of any type to the holders of any equity
interest in Seller, other than ordinary salary, compensation or expenses which
have been paid in the Ordinary Course of Business and fully disclosed to Buyer;
(F) Seller has neither waived nor released any material right of or
material claim held by it, nor discounted any of its receivables, nor revalued
any of its assets or liabilities;
(G) Seller has not acquired nor disposed of any assets having a value of
$5,000 individually or $15,000 in the aggregate, and has not entered into any
contract, commitment or arrangement therefor, and has not entered into any other
transaction, other than for value in the Ordinary Course of Business and in
accordance with industry practices;
(H) Seller has not changed the salary or other compensation payable or to
become payable by Seller to any of its officers, directors, employees,
independent contractors, agents or other personnel, and has not declared, made
or committed to any kind of payment of a bonus or other additional salary or
compensation to any such person;
(I) Seller has not made a loan to any person or entity, and has not
guarantied any loan, in an amount in excess of $5,000 individually or $15,000 in
the aggregate;
(J) Seller has not amended nor terminated any material contract, agreement,
permit or license to which Seller is a party, or by which Seller or any of the
Assets or Leased Assets are bound;
(K) Seller has maintained all debt and lease instruments, and has not
entered into any new or amended debt or lease instruments;
(L) Seller has not entered into any agreement or instrument which would
constitute an encumbrance, mortgage or pledge of the Assets, or which would bind
Buyer or the Assets after Closing, in an amount in excess of $5,000 individually
or $15,000 in the aggregate;
(M) Seller has provided to Buyer any and all books, records, contracts,
and other documents or data pertaining to the ownership, use, insurance,
operation, renovation and maintenance of the Assets, the Leased Assets and the
Business;
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(N) To the best of Seller's knowledge and belief, Seller has performed
all of Seller's obligations under all contracts and commitments applicable to
Seller, the Assets and the Leased Assets, and has maintained Seller's books of
account and records in the usual, regular and customary manner, except for the
pro forma adjustments contemplated by this Agreement;
(O) Seller has complied with all material statutes, laws, ordinances and
regulations applicable to Seller, the Assets, the Leased Assets and the conduct
of the Business;
(P) Seller has paid all bills and other payments due with respect to the
ownership, use, insurance, operation and maintenance of the Business, the Assets
and the Leased Assets, as and when such bills or other payments were due, and
has taken all action necessary or prudent to prevent liens or other claims for
the same from being filed or asserted against any part of the Assets or the
Leased Assets; provided however, Seller has not made any expenditures outside
the Ordinary Course of Business, nor any capital expenditures, in excess of
$5,000 individually or $15,000 in the aggregate;
(Q) Seller has not made any material changes in its management,
operations, accounting or business practices or methods (including without
limitation, any change in depreciation or amortization policies or rates),
except for the pro forma adjustments contemplated set forth in the Seller's
Financial Statements or otherwise expressly set forth herein, except as set
forth in this Agreement, the Ancillary Agreements or any schedules thereto and
(R) all revenues or cash or other receipts from all sources received by
Seller have been deposited in Seller's account.
3.28 CLIENTS. SCHEDULE 3.28 to this Agreement is a true, complete and
correct list of all clients and customers of Seller ("Customers"), together
with summaries of the sales or services provided to each client during the six
month period ended June 30, 1997. Except as indicated in SCHEDULE 3.28, Seller
does not have any information, nor is it aware of any facts or circumstances,
indicating that any of these clients intend not to do business with Buyer to the
same volume and extent, and on the same terms, as they have historically done
business with Seller.
3.29 INTERESTS IN CLIENTS, SUPPLIERS AND COMPETITORS. No officer,
director or shareholder of Seller (nor any former officer, director or
shareholder), or member of their immediate families, has any direct or indirect
interest in any competitor, supplier or client of Seller, nor any person or
other entity who has done business with Seller in the one year period preceding
the date of this Agreement.
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3.30 CORPORATE DOCUMENTS. Seller has furnished to Buyer for its
examination (i) a true, complete and correct copy of Seller's Articles of
Incorporation and By-laws and all other written agreements between the Seller
and its officers or directors of Seller, all as amended to date; (ii) true,
complete and correct copies of the contents of the minute books of Seller
(including proceedings of audit and other committees), each of which contains
all records for all proceedings, consents, actions and meetings of the
stockholders or directors of Seller since its date of formation.
3.31 BULK SALE WARRANTY FOR SALES TAX PURPOSES. Prior to Closing, Seller
has never sold a substantial or significant part of its assets in any single
transaction or series of transactions. The transaction contemplated herein is
the sale of the entire operating assets of a business, and a sale outside the
ordinary course of Seller's business, and except for sales or use tax that may
arise from the sale of Seller's equipment, no sales tax is due upon or by
reason of the Closing.
3.32 DISCLOSURE. Seller has provided to Buyer actual copies of all
material Contracts, documents concerning all litigation and administrative
proceedings, employee benefit plans, Licenses, insurance policies, lists of
suppliers, clients, employees and independent contractors, and corporate records
relating to Seller or its assets and liabilities, the Business and the Real
Property, and such information covers all material commitments and liabilities
of Seller. In addition, (i) Buyer has been kept fully informed with respect to
all material developments in the business of Seller since the June 30, 1997,
(ii) management of Seller has not made any material business decisions, nor
taken any material actions, since the June 30, 1997 of which Buyer has not been
advised, and (iii) Buyer and its agents have been granted unlimited access to
the books and records of Seller (whether retained electronically, on disc or on
paper).
3.33 FULL DISCLOSURE. This Agreement, the schedules and exhibits hereto,
and all other documents and written information furnished by Seller or its
Affiliates to Buyer or its representatives pursuant hereto or in connection
herewith, are, to the knowledge of Seller, true, complete and correct, and do
not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements made herein and therein not
misleading. There are, to the knowledge of Seller, no facts or circumstances
relating to the Business or Seller's liabilities, prospects, operations or
financial condition, or the Assets, which materially and adversely affect or, so
far as the Seller can now reasonably foresee, will materially and adversely
affect, the Business, Seller or the assets, liabilities, prospects, operations
or financial condition thereof, or the ability of the Seller to perform this
Agreement or the obligations of Seller hereunder. For purposes of the
representations and warranties of the Seller in this Agreement, any disclosure
by Seller in response to any item or schedule provided shall be deemed to be
responsive to the specific disclosure called for by any schedule delivered
pursuant to this Agreement, provided that the facts disclosed in such schedule
would reasonably apprise the Buyer or Parent of the potential applicability of
such facts to another disclosure schedule.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer and Parent jointly and severally represent and warrant, except as
otherwise set forth on the Schedules attached hereto, that:
4.1 ORGANIZATION. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York and has
all the necessary corporate powers to own its properties and to carry on its
business as now owned and operated by it. The Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas and has all the necessary corporate powers to own its properties and to
carry on its business as now owned and operated by it and is not qualified, nor
required to be qualified, to do business in any other state.
4.2 AUTHORITY. Each of Buyer and Parent, as applicable, has the full
right, power, legal capacity, and authority to execute, deliver and perform this
Agreement and the Ancillary Agreements and to deliver and perform Buyer's and
Seller's respective obligations under this Agreement and all agreements
ancillary to this Agreement which are part of the underlying transactions made
the basis of this Agreement executed in connection herewith. The execution,
delivery and performance of this Agreement, the Ancillary Agreements, and each
document or instrument or agreement to be executed by Buyer and Parent in
connection herewith have been duly authorized by the Board of Directors of the
Buyer and Parent, no shareholder approval of either is required. The execution,
delivery and performance of this Agreement and any Ancillary Agreements by Buyer
and Parent, as applicable, have been duly authorized by all necessary corporate
action.
4.3 VALID AND BINDING OBLIGATIONS. Upon execution and delivery, each of
this Agreement and the Ancillary Agreements will constitute the legal, valid,
and binding obligation of Buyer or Parent, as applicable, enforceable in
accordance with its terms, except as limited by bankruptcy laws, insolvency
laws, and other similar laws affecting the rights of creditors generally.
4.4 BROKERS. Except for The GulfStar Group, Inc. neither Buyer, nor
Parent, nor any of their respective Affiliates, officers, directors, or
employees, has employed any broker, agent, or finder, or incurred any liability
for any brokerage fees, agent's fees, commissions or finder's fees in connection
with the transactions contemplated herein. Buyer and Parent agree to pay any
and all of such fees of the GulfStar Group, Inc. or any other broker, agent or
finder.
4.5 CONSENTS AND APPROVALS. No consent, approval or authorization of, or
filing or registration with, any governmental or regulatory authority, or any
other person or entity, is required to be made or obtained by Buyer or Parent in
connection with the execution, delivery and performance of this Agreement and
the Ancillary Agreements and the consummation of the transactions contemplated
hereby.
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4.6 LITIGATION. There is no suit, action, arbitration or legal,
administrative or other proceeding or governmental investigation pending or
threatened against or affecting, Parent or Buyer which could have an effect on
the consummation or performance of the transactions and action contemplated by
this agreement and the Ancillary Agreements.
4.7 FINANCIAL STATEMENTS. The financial statements of Parent delivered
to Seller (i) are true, complete and correct in all material respects, (ii)
fairly and accurately present the financial position of Parent as of the periods
described therein, and the results of the operations of Parent for the periods
indicated, and (iv) have been prepared in accordance with generally accepted
accounting principles and in accordance with Parent's historical custom and
practice.
4.8 PUBLIC OFFERING. Parent has provided to Seller true and accurate
information as to the status of the proposed Public Offering by Parent.
4.9 COMMON STOCK. The Parent Shares to be issued to Buyer pursuant to
Section 2.3 hereof have been duly authorized by proper corporate action and when
issued will be duly and validly issued, fully paid and non-assessable shares of
Common Stock of Parent. Parent has duly reserved for issuance the share of
Common Stock which are issuable upon conversion of the Notes. The shares of
Common Stock issuable upon conversion of the Note will upon conversion of the
Note be duly and validly authorized and issued, fully paid and non-assessable
4.10 FUNDING. Parent has the financing resources to provide for
funding of the operations of the Business after the Effective Date, consistent
with the present and reasonably anticipated future needs of such Business.
4.11 FULL DISCLOSURE. This Agreement, the schedules and exhibits
hereto, and all other documents and written information furnished by Buyer and
Parent or their respective Affiliates to Seller or its representatives pursuant
hereto or in connection herewith, are to the knowledge of the Buyer and Parent
true, complete and correct, and do not include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements made herein and therein not misleading. There are, to the knowledge
of the Buyer and Parent, no facts or circumstances relating to the business of
the Buyer or Parent or their respective liabilities, prospects, operations,
financial condition or assets, which materially and adversely affect or, so far
as the Buyer or Parent can now reasonably foresee, will materially and
adversely affect, the business of the Buyer or Parent or their respective
assets, liabilities, prospects, operations or financial condition thereof, or
the ability of the Seller to perform this Agreement or the obligations of Seller
hereunder. For purposes of the representations and warranties of the Buyer or
Parent in this Agreement, any disclosure by Buyer or Parent in response to any
item or schedule provided shall be deemed to be responsive to the specific
disclosure called for by any schedule delivered pursuant to this Agreement,
provided that the facts disclosed in such schedule would reasonably apprise the
Seller of the potential applicability of such facts to another disclosure
schedule.
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ARTICLE V
COVENANTS OF THE PARTIES
------------------------
Buyer, Parent and Seller covenant and agree as follows:
5.1 CONDUCT OF THE BUSINESS. Except as otherwise permitted by this
Agreement or consented to by Buyer or Parent in writing, Seller shall conduct
the Business in the ordinary course in substantially the same manner as
heretofore, using its best efforts to preserve intact its present business
organization, to keep available the services of its Employees, and to preserve
its relationships with customers, suppliers and others having business dealings
with it.
5.2 CERTAIN CHANGES. Except as otherwise permitted by this Agreement or
consented to by Buyer or Parent in writing, Seller shall not: (a) subject any
of the Assets to any lien or encumbrance; (b) dispose of any of the Assets
except in the ordinary course of business; or (c) grant any increase in
compensation or benefits to any Employee; (d) materially modify any of the
Liabilities, or (e) with respect to the Business, perform any act outside the
ordinary course of the Business except as otherwise contemplated by this
Agreement.
5.3 NOTICE. Seller will notify Buyer as soon as possible in writing if
(i) any of Seller's representations or warranties set forth in this Agreement
are or become untrue in any material respect prior to the Closing Date, (ii)
Seller fails to fully perform all of the covenants of Seller set forth in this
Agreement in any material respect, or (iii) there occurs any material adverse
development in the Business or Seller's market position, sales, profit trends,
labor regulations, litigation or insurance claims or otherwise. Buyer or Parent
will notify Seller as soon as possible in writing if (i) any of Buyer's or
Parent's representations or warranties set forth in this Agreement are or
become untrue in any material respect prior to the Closing Date, (ii) Buyer or
Parent fails to fully perform all of the covenants of Buyer or Parent set forth
in this Agreement in any material respect, or (iii) there occurs any material
adverse development in the business of Parent or Parent's market position,
sales, profit trends, labor regulations, litigation or insurance claims,
financial resources, proposed public offering, or otherwise.
5.4 RECORD RETENTION. From and after the Closing, Seller shall permit
Buyer the right, during normal business hours, to inspect any documents, books,
records or other information pertaining to the Assets.
5.5 BULK SALES. It may not be practicable to comply or attempt to comply
with the procedures of the "Bulk Sales Act" or similar law in any or all of the
states in which the Assets are situated or of any other state which may be
asserted to be applicable to the transactions contemplated hereby. Accordingly,
to induce Buyer to waive any requirements for compliance with any or all of such
laws, Seller hereby agrees that except for the Assumed Liabilities, the
indemnity provisions of Article VII hereof shall apply to any damages of Buyer
arising out of or resulting from the failure of Buyer or Seller to comply with
any such laws or any similar law which may be asserted to be applicable.
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5.6 TERMINATION OF EMPLOYMENT OF SELLER'S EMPLOYEES. Buyer anticipates
extending an offer of employment to substantially all of the employees of the
Seller on substantially the same terms and conditions as the Employees currently
are employed by Seller. Notwithstanding the foregoing, nothing herein shall
imply or guarantee employment of any Employee of Seller by Buyer. If Seller's
Employees desire employment with Buyer, they will be interviewed in conjunction
with the applicants from other sources and given strong consideration for
available positions with Buyer, at the wages, hours, and conditions of
employment established by Buyer prior to hiring any employees. Seller agrees to
use its best efforts to make available the Employees to the Buyer that Buyer
desire to hire for the purpose of operating the Business. Notwithstanding
anything to the contrary contained herein, Buyer agrees that it will offer to
employ substantially all of Seller's employees. Nothing shall prohibit Buyer
from terminating any of Seller's Employees subsequent to their employment by
Buyer.
5.7 INSURANCE. Seller shall assist Buyer in transferring to Buyer any
insurance applicable to the Assets or the Leased Assets which Buyer elects to
maintain in effect.
5.8 CONFIDENTIALITY. Seller will not, and will not permit any of its
Affiliates to, disclose any information of a confidential or proprietary nature
concerning the Assets or the Business to any third parties without Buyer's or
Parent's consent (except to professionals employed or retained by Seller in
connection with the Agreement and the transactions contemplated hereby), and in
no event shall Seller use, or allow any of its Affiliates to use, such
confidential or proprietary information for its or his own benefit or to the
detriment of Buyer or the Business. No public or private announcement shall be
made of the transactions contemplated herein, nor the terms hereof, by Seller or
any of its affiliates, without the prior written approval of Buyer as to
timing, form and content.
5.9 NON-COMPETITION AGREEMENT. The Seller agrees that, for the period
beginning on the Closing Date and continuing for three (3) years following the
Closing Date, neither the Seller or any of its Affiliates, shall, either
directly or indirectly, individually or separately, for themselves or as a
shareholder, owner, partner, joint venturer, promoter, consultant, manager,
independent contractor, agent, or in some similar capacity for any reason
whatsoever:
A. Enter into, engage in, or be connected with any court reporting
business or business operation or activity within Westchester, New York, Kings,
Queens, Bronx, Richmond, Rockland and Nassau Counties in New York and Bergen,
Essex, Union, Middlesex, Morris, Warren, Somerset, Sussex and Passaic Counties
in New Jersey;
B. Call upon any customer whose account is or was serviced in whole or in
part by the Seller in relation to the Business or the Buyer with the intent of
selling or attempting to sell to any such customer any services similar to the
services provided by the Buyer; and
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C. Intentionally divert, solicit or take away any customer, supplier or
employee of the Buyer, or the patronage of any customer or supplier of the
Buyer, or otherwise interfere with or disturb the relationship existing between
the Buyer and any of its customers, suppliers, or employees, directly or
indirectly.
In the event the Buyer ceases operation of the Business other than in a
merger, consolidation, or similar transaction, or upon the filing of a
bankruptcy or receivership proceeding against the Buyer, or upon the appointment
of a liquidator for the Buyer, the provisions of this Section 5.9 will not be
applicable to the conduct of Seller or its affiliates subsequent thereto.
Notwithstanding anything to the contrary contained herein, it is understood
and agreed that the foregoing provisions contained in this Section 5.9 shall not
apply to an individual named in Section 5.9 if that particular individual
executes an Employment Agreement or Consulting Agreement as of the Closing Date
with the Buyer containing noncompete provisions. It is mutually understood and
agreed that if any of the provisions relating to the scope, time or territory in
this Section 5.9 are more extensive than is enforceable under applicable law or
are broader than necessary to protect the goodwill and legitimate business
interests of the Buyer, then the Parties agree that they will reduce the degree
and extent of such provisions by whatever minimal amount is necessary to bring
such provisions within the ambit of enforceability under applicable law. Nothing
contained herein shall prohibit any person from working as a court reporter for
any court or governmental agency.
The Parties acknowledge that the remedies at law for breach of Seller's
covenants contained in this Section 5.9 are inadequate, and they agree that the
Buyer shall be entitled, at its election, to injunctive relief (without the
necessity of posting bond against such breach or attempted breach), and to
specific performance of said covenants in addition to any other remedies at law
or equity that may be available to the Buyer.
ARTICLE VI
THE CLOSING
-----------
6.1 CLOSING. Payment of the Purchase Price required to be made by the
Buyer and Parent to the Seller and the transfer of the Assets by the Seller and
the other transactions contemplated hereby shall take place on the Closing Date
at 10:00 a.m. CST, at the offices of Boyer, Ewing & Harris Incorporated, 9
Greenway Plaza, Suite 3100, Houston, Texas 77046 or by fax unless the time or
location is changed by mutual agreement of the Parties. At the Closing, (a) the
Seller will deliver to the Buyer the various certificates, instruments, and
documents referred to in Section 6.2 below, (b) the Buyer and Parent will
deliver to the Seller the various certificates, instruments, and documents
referred to in Section 6.3 below, and (c) the Buyer will deliver to the Seller
the Purchase Price specified in Section 2.3 above. Post closing adjustments will
be made in accordance with Section 2.5 hereof.
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6.2 CONDITIONS TO OBLIGATIONS OF THE BUYER AND PARENT. The obligation of
the Buyer and Parent to proceed with the Closing and consummate the transactions
to be performed by it in connection with the Closing is subject to satisfaction
of the following conditions:
(a) the representations and warranties of Seller hereunder shall be true
and correct in all material respects at and as of the Closing Date;
(b) the Seller shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing;
(c) no action, suit, or proceeding shall be pending before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (i) prevent consummation of any
of the transactions contemplated by this Agreement, (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (iii) affect adversely in any material respect the rights in
and to the Assets (and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
(d) the Seller shall have delivered to the Buyer a certificate to the
effect that each of the conditions specified above in Section 6.2(a) -(c) is
satisfied in all respects;
(e) the Buyer shall have received from counsel to the Seller an opinion in
form and substance acceptable to Buyer, addressed to the Buyer, and dated as of
the Closing Date containing such assumptions and qualifications as may be
reasonably acceptable to Buyer's legal counsel;
(f) Richard A. Portas shall have individually entered into the separate
consulting agreement set forth as EXHIBITS B ( the "Consulting Agreement"), and
Joseph N. Spinozzi, Carl Anderson and Howard Breshin, shall have each
individually entered into the separate Employment Agreements with Buyer in the
forms attached hereto as EXHIBITS C-1, C-2 AND C-3, respectively (the
"Employment Agreements");
(g) The Seller shall have delivered to Buyer instruments of assignment and
transfer or bills of sale signed by Seller as the Buyer shall reasonably
request, including the Bill of Sale and Assumption Agreement in substantially
the form attached hereto as EXHIBIT D (the "Bill of Sale");
(h) The Seller shall have delivered to the Buyer an Investor
Representation Letter in substantially the form attached hereto as EXHIBIT E
executed
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by the Seller with respect to the acquisition of the Common Stock, the Note and
the Common Stock into which the Note is convertible;
(i) Seller shall have entered into the Subordination Agreements in the form
of EXHIBITS F-1 and F-2.
(j) Seller shall have entered into with Parent an Addendum to
Shareholders' Agreement in the form attached hereto as EXHIBIT G (the
"Shareholder's Agreement") and a Registration Rights Agreement in the form of
EXHIBIT H (the "Registration Rights Agreement");
(k) Seller shall have delivered to Buyer a Stock Pledge Agreement in
substantially the form of EXHIBIT I-1 attached hereto (the "Stock Pledge
Agreement") and an Escrow Agreement in the form of Exhibit I-2 by and between
the Seller, Buyer, Parent and Thomas J. Kovarcik, Esq.;
(l) Buyer shall have completed its due diligence review of Seller and the
Business and been satisfied with the results;
(m) The Board of Directors and shareholders of Seller shall have approved
the terms of this transaction and Seller shall have delivered a certificate
therefore to Buyer;
(n) Seller shall have delivered to Buyer all other items required to
be delivered hereunder or as may be reasonably requested which are reasonably
necessary or would reasonably facilitate consummation of the transactions
contemplated hereby; and
(o) All actions to be taken by the Seller in connection with consummation
of the transactions contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Buyer.
The Buyer may waive any condition specified in Section 6.2 if it executes a
writing so stating at or prior to the Closing Date.
6.3 CONDITIONS TO OBLIGATIONS OF THE SELLER. The obligation of the Seller
to proceed with Closing and consummate the transactions to be performed by it in
connection with the Closing is subject to satisfaction of the following
conditions and compliance with Section 6.6:
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(a) the representations and warranties of Buyer and Parent hereunder shall
be true and correct in all material respects at and as of the Closing Date;
(b) the Buyer and Parent shall have performed and complied with all of
their respective covenants hereunder in all material respects through the
Closing;
(c) no action, suit, or proceeding shall be pending before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (A) prevent consummation of any
of the transactions contemplated by this Agreement, or (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation (and no such injunction, judgment, order, decree, ruling, or charge
shall be in effect);
(d) each of Buyer and Parent shall have delivered to the Seller a
certificate to the effect that each of the conditions applicable to it which are
specified above in Section 6.3(a)-(c) is satisfied in all respects;
(e) the Seller shall have received from counsel to the Buyer and Parent an
opinion in form and substance acceptable to Seller, addressed to the Seller, and
dated as of the Closing Date containing such assumptions and qualifications as
may be reasonably acceptable to Seller's legal counsel;
(f) the Buyer shall have paid the Purchase Price required by Section 2.3;
(g) the Buyer shall have entered into the Consulting Agreement and the
Employment Agreements;
(h) the Buyer shall have caused Parent to enter into the Shareholders'
Agreement and the Registration Rights Agreement with Seller;
(i) The Buyer and Parent shall have executed and delivered to Seller the
Bill of Sale;
(j) Seller shall have completed its due diligence review of Buyer and
Parent and been satisfied with the results;
(k) the Board of Directors and shareholders of Seller shall have approved
the terms of this transaction;
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(l) all actions to be taken by the Buyer in connection with consummation of
the transactions contemplated hereby, and all certificates, opinions,
instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Seller.
The Seller may waive any condition specified in this Section 6.3 if Seller
executes a writing so stating at or prior to the Closing.
6.4 FURTHER ASSURANCES. At and after the Closing, each of the Parties
shall take all appropriate action and execute all documents of any kind which
may be reasonably necessary or desirable to carry out the transactions
contemplated hereby. The Seller, at any time at or after the Closing, will
execute, acknowledge and deliver any further bills of sale, assignments and
other assurances, documents and instruments of transfer, reasonably requested by
the Buyer, and will take any other action consistent with the terms of this
Agreement that may reasonably be requested by the Buyer, for the purpose of
assigning and confirming to the Buyer, all of the Assets. The Buyer shall notify
the Seller promptly, and in no event more than ten (10) business days after the
Buyer's receipt, of any tax inquiries or notifications thereof which relate to
any period prior to the Effective Date, and the Seller shall prepare and deliver
responses to such inquiries as the Seller deems necessary or appropriate. In
addition, the Seller shall make available the books and records of the Business
during reasonable business hours and take such other actions as are reasonably
requested by the Buyer to assist the Buyer in the operation of the Business.
6.5 CONFIDENTIAL INFORMATION. After the Closing and except as otherwise
specifically permitted in this Agreement or reasonably required by the Parent to
conduct its business and pursue the Public Offering, each Party to this
Agreement agrees, on behalf of itself and its Affiliates, to use reasonable
efforts not to divulge, communicate, use to the detriment of any other Party to
this Agreement or its Affiliates or for the benefit of any other person or
persons, any confidential information or trade secrets of such other Party with
respect to the Assets or the Business, including personnel information, secret
processes, know-how, customer lists, formulae, or other technical data;
provided, if any Party to this Agreement or any of its Affiliates is compelled
to disclose such information to any tribunal, regulatory or governmental
authority or agency or else stand liable for contempt or suffer other censure
and penalty, such Party may so disclose such information without any liability
hereunder.
ARTICLE VII
INDEMNIFICATION
---------------
7.1 INDEMNIFICATION.
A. BY THE SELLER AND SELLER'S SHAREHOLDERS. Subject to Section
7.1(E) hereof, the Seller and each of the Seller's Stockholders, individually,
jointly and severally, (collectively
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herein "Seller Indemnitors") shall indemnify, save, defend and hold harmless the
Buyer, Parent and Buyer's and Parent's shareholders and the directors, officers
and financial advisors, investment bankers, attorneys and accountants of each,
together with their respective successors in interest or heirs (collectively,
the "Buyer Indemnified Parties") from and against any and all costs, lawsuits,
losses, liabilities, deficiencies, claims and expenses, including interest,
penalties, attorneys' fees and all amounts paid in investigation, defense or
settlement of any of the foregoing (collectively referred to herein as
"Damages"), (i) incurred in connection with or arising out of or resulting from
or incident to any breach of any covenant, breach of warranty as of the
Effective Date, or the inaccuracy of any representation as of the Effective
Date, made by the Seller in or pursuant to this Agreement or the Ancillary
Agreements, including any schedule, certificate, exhibit, or other instrument
furnished or to be furnished by the Seller or its Affiliates under this
Agreement, or (ii) based upon, arising out of, or otherwise in respect of any
liability or obligation of the Business or relating to the Assets (a) relating
to any period prior to the Effective Date, other than those Damages based upon
or arising out of the Assumed Liabilities, or (b) arising out of facts or
circumstances existing prior to the Effective Date, other than those Damages
based upon or arising out of the Assumed Liabilities; provided, however, that
the Seller and its stockholders shall not be liable for any such Damages to the
extent, if any, such Damages result from or arise out of a breach or violation
of this Agreement by any Buyer Indemnified Parties.
B. BY THE BUYER. Subject to Section 7.1(E) hereof, the Buyer and
Parent, jointly and severally, shall indemnify, save, defend and hold harmless
the Seller, Seller's Stockholders, and financial advisors, investment bankers,
attorneys and accountants of each, together with their respective successors in
interest or heirs (collectively, the "Seller Indemnified Parties") from and
against any and all Damages (i) incurred in connection with or arising out of or
resulting from or incident to any breach of any covenant , breach of warranty as
of the Effective Date, or the inaccuracy of any representation as of the
Effective Date, made by the Buyer or Parent in or pursuant to this Agreement or
the Ancillary Agreements, including any schedule, certificate, exhibit, or other
instrument furnished or to be furnished by the Buyer or Parent under this
Agreement, or (ii) based upon, arising out of or otherwise in respect of any
liability or obligation of the Business or relating to the Assets (a) relating
to any period on and after the Effective Date, other than those Damages based
upon or arising out of the Retained Liabilities, or (b) arising out of facts or
circumstances existing on and after the Effective Date, other than those Damages
based upon or arising out of the Retained Liabilities; provided, however, that
the Buyer and Parent shall not be liable for any such Damages if such Damages
result from or arise out of a breach or violation of this Agreement by any
Seller Indemnified Parties.
C. DEFENSE OF CLAIMS. If any lawsuit or enforcement action is filed
against any Party entitled to the benefit of indemnity hereunder, written notice
thereof describing such lawsuit or enforcement action in reasonable detail and
indicating the amount (estimated, if necessary) or good faith estimate of the
reasonably foreseeable estimated amount of Damages (which estimate shall in no
way limit the amount of indemnification the indemnified Party is entitled to
receive hereunder), shall be given to the indemnifying Party as promptly as
practicable (and in any event within ten (10) days, after the service of the
citation or summons) ("Notice of Action"); provided that
Page 27 of 36
<PAGE>
the failure of any indemnified Party to give timely notice shall not affect its
rights to indemnification hereunder to the extent that the indemnified Party
demonstrates that the amount the indemnified Party is entitled to recover
exceeds the actual damages to the indemnifying Party caused by such failure to
so notify within ten (10) days and so long as the indemnifying Party is not
materially prejudiced by the failure to receive such notice. The indemnifying
Party may elect to compromise or defend any such asserted liability and to
assume all obligations contained in this Section 7.1 to indemnify the
indemnified Party by a delivery of notice of such election ("Notice of
Election") within ten (10) days after delivery of the Notice of Action. Upon
delivery of the Notice of Election, the indemnifying Party shall be entitled to
take control of the defense and investigation of such lawsuit or action and to
employ and engage attorneys of its own choice to handle and defend the same, at
the indemnifying Party's sole cost, risk and expense, and such indemnified Party
shall cooperate in all reasonable respects, at the indemnifying Party's sole
cost, risk and expense, except with respect to the fees and expenses of the
indemnified Party's attorney, which shall be borne by the indemnified Party,
with the indemnifying Party and such attorneys in the investigation, trial, and
defense of such lawsuit or action and any appeal arising therefrom; provided,
however, that the indemnified Party may, at its own cost, risk and expense,
participate in such investigation, trial and defense of such lawsuit or action
and any appeal arising therefrom. If the Notice of Election is delivered to the
indemnified Party, the indemnified Party shall not pay, settle or compromise
such claim without the indemnifying Party's consent, which consent shall not be
unreasonably withheld. If the indemnifying Party elects not to defend the claim
of the indemnified Party or does not deliver to the indemnified Party a Notice
of Election within ten (10) days after delivery of the Notice of Action, the
indemnified Party may, but shall not be obligated to defend, or the indemnified
Party may compromise or settle (exercising reasonable business judgment) the
claim or other matter on behalf, for the account, and at the risk, of the
indemnifying Party.
D. THIRD PARTY CLAIMS. The provisions of this Section 7.1 are not
limited to matters asserted by the Parties, but cover Damages incurred in
connection with third party claims. The indemnity hereunder is in addition to
any and all rights and remedies of the Parties in connection herewith.
E. LIMITATION ON INDEMNIFICATION. Notwithstanding the other
provisions of this Section 7.1, Seller Indemnitors shall not be liable to Buyer
Indemnified Parties, and Buyer shall not be liable to Seller Indemnified
Parties, for the first $40,000 in aggregate Damages suffered by such indemnified
Parties; provided, however, that once any such indemnified Parties have suffered
Damages aggregating in excess of $40,000, the indemnifying Party shall
reimburse the indemnified Parties for the full amount of such Damages, including
the $40,000 in Damages initially excluded. In no event shall the aggregate
Damages payable by an indemnifying Party to indemnified Parties exceed one half
of the Purchase Price, and further provided that any damages payable to Buyer or
Parent shall be made first by reducing the principal amount of the Note and
thereafter reducing the amount of Common Stock set forth in Section 2.3 hereof.
Damages shall be computed net of any insurance recovery.
Page 28 of 36
<PAGE>
7.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements contained in this
Agreement shall survive the Closing hereunder and continue in full force and
effect for two (2) years thereafter, except that the representations and
warranties contained in Sections 3.5 and 3.24 shall survive for the applicable
statute of limitations.
ARTICLE VIII
TERMINATION AND REMEDIES
------------------------
8.1 SPECIFIC PERFORMANCE; REMEDIES. Each of the Parties hereby agrees
that the transactions contemplated by this Agreement are unique, and that each
Party shall have, in addition to any other legal or equitable remedy available
to it, the right to enforce this Agreement by decree of specific performance.
If any legal action or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing Party or Parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or proceeding
in addition to any other remedies to which it, he or they may be entitled at law
or equity. The rights and remedies granted herein are cumulative and not
exclusive of any other right or remedy granted herein or provided by law.
8.2 OFFSET; REMEDIES. Subject to the provisions of Section 7.1(E) hereof,
to the extent not otherwise prohibited by applicable law, all amounts due and
owing by the Buyer or Parent to the Seller under this Agreement, the Note, or
any other document, instrument, or agreement executed or issued in connection
herewith shall be subject to offset by the Buyer or Parent to the extent of any
Damages actually incurred by any breach by the Seller, under this Agreement by
any Party other than the Buyer or the Parent under the Consulting Agreement or
the Employment Agreements, or any document, instrument, or agreement executed in
connection herewith. In the event Buyer elects to offset any Damages incurred
as a result of any such breach, Buyer or Parent shall furnish Seller notice
containing detailed information about the breach, the magnitude of the damages
that Buyer or Parent has or reasonably expects to incur, and whether the offset
is against the Note, the Parent Shares pledged under the Stock Pledge Agreement
or otherwise (the act of offsetting by Buyer shall be referred to as an
"Offset"). The Seller acknowledges and agrees that but for the right of Offset
contained in this Agreement, the Buyer would not have entered into this
Agreement or any of the transactions contemplated herein. If any legal action
or other proceeding is brought for the enforcement of this Agreement, the
Consulting Agreement, the Employment Agreements, or any document, instrument, or
agreement executed in connection herewith, or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions of
this Agreement, the Consulting Agreement, the Employment Agreements, or any
document, instrument, or agreement executed in connection herewith, the
successful or prevailing Party or Parties shall be entitled to recover other
remedies to which it or they may be entitled at law or equity. The rights and
remedies granted herein are cumulative and not exclusive of any other right or
remedy granted herein or provided by law. Buyer or Parent shall not effect an
Offset hereunder without giving Seller at least 10 days advance written notice
of its intent to do so. Seller or its stockholders may contest any
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<PAGE>
offset under the arbitration provisions set forth in Section 9.14 herein.
Notwithstanding any other provisions of this Section 8.2, all rights of offset
with respect to amounts due or owing under the Employment Agreements and the
Consulting Agreement shall expire to the extent not exercised on or prior to the
second anniversary of the Closing.
8.3 TERMINATION. (a) This Agreement may be terminated at any time prior
to the Closing: (i) by the mutual consent of Seller, Parent and Buyer; or (ii)
by Seller, Parent or Buyer, three months after the date hereof, if any of the
conditions precedent to its obligations hereunder have not been fulfilled, other
than as a result of such terminating Party's breach or negligence; or (iii) if
any bona fide action or proceeding shall be pending against either Party on or
before the Closing that could result in an unfavorable judgment, decree or order
that would prevent or make unlawful the carrying out of this Agreement or if any
agency of the federal or of any state government shall have objected at or
before the Closing to this acquisition or to any other action required by or in
connection with this Agreement (which objection could potentially prevent the
consummation of the transactions contemplated by this Agreement).
(b) This Agreement may be terminated by Buyer or Parent at any time
prior to the Closing if Seller shall have failed to comply in any material
respect with its agreements herein and such failure shall be continuing or if
the representations or warranties of Seller herein shall prove to have been
inaccurate in any material respect when made, provided that, Buyer or Parent
shall give Seller a reasonable period of time, but in any event not less than
thirty (30) days to cure any default hereunder, by the payment of compensation
(if the matter is reasonably capable of rectification by that means) or by the
rectification of the matter before the Closing.
(c) This Agreement may be terminated by Seller at any time prior to
the Closing if Buyer or Parent shall have failed to comply in any material
respect with their respective agreements herein and such failure shall be
continuing or if the representations or warranties of Buyer or Seller herein
shall prove to have been inaccurate in any material respect when made, provided
that, Seller shall give Buyer or Parent, as the case may be, a reasonable period
of time, but in any event not less than thirty (30) days, to cure any default
hereunder, by the payment of compensation (if the matter is reasonably capable
of rectification by that means) or by the rectification of the matter before the
Closing.
(d) Nothing in this Section 8.3 shall be deemed to release either
Party from any liability for any breach by such Party of the terms and
provisions of this Agreement; provided, however that such Party shall not be
liable in the event the Agreement is terminated pursuant to Section 8.3(a), or
pursuant to Section 8.3(b) and Section 8.3(c) if the breach is not intentional
and reasonable good faith efforts are made to rectify the breach but it is not
resolved.
(e) For purposes only of determining whether termination of this
Agreement is permissible pursuant to this Section 8.3, neither Seller nor Buyer
or Parent will be deemed to have failed to comply in any material respect with
its agreements herein, nor will any representation or warranty herein be deemed
to be inaccurate in any material respect, unless such failure to comply
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<PAGE>
or inaccuracy could reasonably be expected to result in Damages to the other
Party of in excess of $40,000.
ARTICLE XI
MISCELLANEOUS
-------------
9.1 FEES. Except as expressly set forth herein to the contrary, each
Party shall be responsible for all costs, fees and expenses (including attorney
and accountant fees and expenses) paid or incurred by such Party in connection
with the preparation, negotiation, execution, delivery and performance of this
Agreement, or otherwise in connection with the transaction contemplated hereby.
9.2 MODIFICATION OF AGREEMENT. This Agreement may be amended or modified
only in writing signed by all of the Parties.
9.3 NOTICES. All notices, consents, demands or other communications
required or permitted to be given pursuant to this Agreement shall be deemed
sufficiently given when delivered personally or telefaxed with receipt of
transmission confirmed during regular business hours during a business day to
the appropriate location described below, or three (3) business days after
posting thereof by United States first-class, registered or certified mail,
return receipt requested, with postage and fees prepaid and addressed as
follows:
IF TO SELLER: Richard A. Portas
466 West Shore Trail
Sparta, New Jersey 07871
Joseph N. Spinozzi
31 Farragut Avenue
Hastings on the Hudson, New York 10706
Carl Anderson
31 Britton Ridge Road
Mt. Kisco, New York 10549
Howard Breshin
8 Edson Road
Valley Cottage, New York 10989
With a copy to: Thomas J. Kovarcik, Esq.
237 Park Avenue, 21/st/ Floor
New York, New York 10017
Page 31 of 36
<PAGE>
IF TO BUYER: Litigation Resources of America, Inc.
650 First City Tower, 1001 Fannin
Houston, Texas 77002
Phone: 713/653-7100
Fax: 713/653-7172
With a copy to: John R. Boyer, Jr.
Boyer, Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Phone: (713) 871-2025
Fax: (713) 871-2024
Any addressee at any time by furnishing notice to the other addressees in the
manner described above may designate additional or different addresses for
subsequent notices or communications.
9.4 SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not invalidate or affect the enforceability of any other
provision of this Agreement.
9.5 ENTIRE AGREEMENT; BINDING EFFECT. This Agreement and any Ancillary
Agreements set forth the entire agreement among the Parties with respect to the
subject matter hereof. This Agreement shall be binding upon and shall inure to
the benefit of the Parties and their respective successors and assigns.
9.6 WAIVER. No delay in the exercise of any right under this Agreement
shall waive such rights. Any waiver, to be enforceable, must be in writing.
9.7 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of New York.
9.8 ASSIGNMENT. The Seller shall not assign this Agreement or any
interest herein .
9.9 HEADINGS. Headings in this Agreement are for convenience only and
shall not affect the interpretation of this Agreement.
9.10 SCHEDULES AND EXHIBITS. All Schedules and Exhibits attached to this
Agreement or to be delivered by the Seller, upon review and approval by the
Buyer, are and shall be hereby incorporated in and made a part of this
Agreement. All Schedules to this Agreement must be delivered no later than four
(4) days prior to Closing, in order to provide the Buyer ample time to review
and evaluate the items described therein and disclosed thereby. Although the
Schedules remain subject to the review and approval of the Buyer, no such review
or approval shall constitute a waiver by the Buyer of any breach or default
caused by the inaccuracy or incompleteness of any Schedule, the accuracy and
completeness of the Schedules being the sole responsibility of the Seller.
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<PAGE>
9.11 RIGHTS AND LIABILITIES OF PARTIES. Nothing in this Agreement, whether
express or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any persons other than the Parties and their
respective successors and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third persons to any
Party to this Agreement, nor shall any provision give any third person any right
of subrogation or action over against any Party to this Agreement.
9.12 SURVIVAL. Subject to Section 7.2, this Agreement, including but not
limited to all covenants, warranties, representations and indemnities contained
herein, shall survive the Closing, and the Bill of Sale and all other documents,
instruments or agreements relating to the Assets and the transactions
contemplated herein shall not be deemed merged therein.
9.13 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall have the force and effect of an original, and
all of which shall constitute one and the same agreement.
9.14 ARBITRATION. If a dispute arises out of or relates to this
Agreement, or the breach thereof, and if such dispute cannot be settled through
negotiation, the Parties agree first to try in good faith to settle the dispute
by mediation under the Commercial Mediation Rules of the American Arbitration
Association, before resorting to arbitration, litigation, or some other dispute
resolution procedure as required by this Section 9.14. Failing an adequate
resolution by mediation, any controversy or claim arising out of or relating to
this Agreement or the transactions contemplated hereby, including any
controversy or claim arising out of or relating to the Parties' decision to
enter into this Agreement, shall be settled by binding arbitration. There shall
be one arbitrator to be mutually agreed upon by the Parties involved in the
controversy and to be selected from the National Panel of Commercial Arbitrators
(or successor panel, if any). If within 45 days after service of the demand for
arbitration the Parties are unable to agree upon such an arbitrator who is
willing to serve, then an arbitrator shall be appointed by the American
Arbitration Association in accordance with its rules. Except as specifically
provided in this Section 9.14, the arbitration shall be conducted in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
The arbitrator shall not render an award of punitive damages. Any arbitration
hereunder commenced prior to full payment of the Note or conversion of the Note
into Parent Shares (such event being referred to as the "Note Payment Date"),
shall be held in New York, New York. Any arbitration commenced on or after the
Note Payment Date shall be held in Houston, Texas. Expenses related to the
arbitration, including counsel fees, shall be borne by the Party incurring such
expenses except to the extent otherwise provided in Section 9.15 herein. The
fees of the arbitrator and of the American Arbitration Association, if any,
shall be divided equally among the Parties involved in the controversy.
Judgment upon the award rendered by the arbitrator (which may, if deemed
appropriate by the arbitrator, include equitable or mandatory relief with
respect to performance of obligations hereunder) may be entered in any court of
competent jurisdiction. Nothing in this Section shall restrict any Parties'
ability to seek injunctive or other equitable relief in any court of competent
jurisdiction prior to initiating mediation or arbitration. In the event that
such injunctive or equitable relief is sought by any Party, such Party is
specifically entitled to enforce the appropriate provisions
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<PAGE>
of the Agreement in obtaining such relief in any court of competent jurisdiction
and, thereafter, submit the remaining controversy, dispute or claim to
arbitration in accordance with this Section. Any such proceeding for injunctive
or equitable relief hereunder commenced prior to the Note Payment Date, shall be
held in New York, New York, and any such proceeding commenced on or after the
Note Payment Date shall be held in Houston, Texas.
9.15 ATTORNEYS' FEES. If any litigation is instituted to enforce or
interpret the provisions of this Agreement or the transactions described herein,
the prevailing Party in such action shall be entitled to recover its reasonable
attorneys' fees from the other Party hereto.
9.16 DRAFTING. Both Parties hereto acknowledge that each Party was
actively involved in the negotiation and drafting of this Agreement and that no
law or rule of construction shall be raised or used in which the provisions of
this Agreement shall be construed in favor or against either Party hereto
because one is deemed to be the author thereof.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement in multiple counterparts effective as of the date first written above.
BUYER:
LITIGATION RESOURCES OF
AMERICA-NORTHEAST, INC.,
a New York corporation
By: /s/ Richard O. Looney
----------------------------------------------
Richard O. Looney, Chairman and Chief Executive
Officer
PARENT:
LITIGATION RESOURCES OF AMERICA, INC.,
a Texas corporation
By: /s/ Richard O. Looney
----------------------------------------------
Richard O. Looney, Chairman and Chief Executive
Officer
SELLER:
AMICUS ONE LEGAL SUPPORT SERVICES, INC.,
a New York Corporation
By: /s/ Richard Portas
----------------------------------------------
Richard Portas, President
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<PAGE>
SELLER'S STOCKHOLDERS
/s/ Richard A. Portas
---------------------------------------------
RICHARD A. PORTAS, Individually
/s/ Joseph N. Spinozzi
---------------------------------------------
JOSEPH N. SPINOZZI, Individually
/s/ Carl Anderson
---------------------------------------------
CARL ANDERSON, Individually
/s/ Howard Breshin
---------------------------------------------
HOWARD BRESHIN, Individually
Page 35 of 36
<PAGE>
Schedules
- -----------
2.1(a) - Equipment
2.1(b) - Contracts
2.1(c) - Books and Records
2.1(e) - Intellectual Property
2.1(g) - General Intangibles
2.2 - Excluded Assets
2.7 - Allocation of Purchase Price
3.3(A) - Consents and Approvals
3.3(B) - Breaches or Defaults
3.5 - Exceptions to Title
3.6 - Leased Personal Property
3.9 - Equipment
3.12 - Licenses
3.13 - Intellectual Property
3.14(A) - Owned Real Property
3.14(B) - Leased Real Property
3.16 - Insurance Policies
3.17 - Banking
3.19(A) - Employees
3.19(B) - Independent Contractors
3.20 - Employee Benefit Plans
3.21 - Employment Agreements
3.22 - Liabilities
3.23 - Litigation
3.24 - Tax Matters
3.27 - Certain Changes or Events
3.28 Clients
Exhibits
- --------
A Note
B Portas Consulting Agreement
C-1 Spinozzi Employment Agreement
C-2 Andersen Employment Agreement
C-3 Breshin Employment Agreement
D Bill of Sale and Assumption Agreement
E Investor Representation Letter
F-1 Peck's Subordination Agreement
F-2 Texas Commerce Bank Subordination Agreement
G Shareholder's Agreement
H Registration Rights Agreement
I-1 Stock Pledge Agreement
I-2 Escrow Agreement
Page 36 of 36
<PAGE>
EXHIBIT 10.16
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is entered into effective
as of September 4, 1997 by and among LITIGATION RESOURCES OF AMERICA, INC., a
Texas corporation (the "Parent"), LITIGATION RESOURCES OF AMERICA-NORTHEAST,
INC., a New York corporation (the "Buyer"), and MARTIN H. BLOCK, an individual
("Mr. Block" or "Seller"). Seller is the sole shareholder of BLOCK COURT
REPORTING, INC., a District of Columbia corporation (the "Company"). The
Company is the sole shareholder of Block Tape Transcription Services, Inc., a
District of Columbia corporation ("Block Transcription"). Seller was the sole
shareholder of Block Court Reporting Services, Inc., a District of Columbia
corporation ("Block Predecessor") whose Certificate and Articles of
Incorporation were revoked by Proclamation. Buyer, Parent and Seller may be
hereinafter referred to collectively as the "Parties" and individually as a
"Party."
This Agreement contemplates a transaction in which the Buyer will purchase
from the Seller, and the Seller will sell to the Buyer, all of the outstanding
capital stock of the Company in return for cash and the other consideration set
forth in SECTION 2 (b) below.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. CERTAIN DEFINITIONS.
"Accounts Payable Report" means a report prepared as of the time specified
containing a summary of the outstanding accounts payable of the Company to each
of its suppliers, court reporters or other creditors by creditor and age of
each account payable.
"Accounts Receivable" means all amounts due and owing to the Company by
each of its customers.
"Accounts Receivable Report" means a report prepared as of the time
specified containing a summary of the outstanding Accounts Receivable of the
Company by customer and age of each Account Receivable.
"Accredited Investor" has the meaning set forth in Regulation D promulgated
under the Securities Act.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Balance Sheet Report" means the balance sheet of the Company as of a given
date showing the assets, liabilities and equity of the Company prepared by the
Company in accordance with GAAP on a consistent basis as with prior time
periods.
<PAGE>
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or is reasonably likely to form the
basis for any specified consequences.
"Block Employment Agreement" means that certain Employment Agreement by and
between the Company and Mr. Block.
"Block Finder's Fee Agreement" means that certain Finder's Fee Agreement by
and between the Parent and Mr. Block.
"Block Noncompetition Agreement" means that certain Confidentiality and
Noncompetition Agreement by and between the Buyer and Mr. Block.
"Block Predecessor" means Block Court Reporting Services, Inc. a District
of Columbia corporation.
"Block Transcription" means Block Tape Transcription Services, Inc., a
District of Columbia corporation and a wholly-owned subsidiary of the Company.
"Buyer" shall mean Litigation Resources of America-Northeast, Inc., a New
York corporation.
"Buyer's Accountants" shall mean the independent certified public
accounting firm of Coopers & Lybrand located in Houston, Texas.
"Buyer's Disclosure Schedule" has the meaning set forth in SECTION 4B
below.
"Buyer Financial Statements" has the meaning set forth in SECTION 4B(D)
below.
"Buyer Indemnified Parties" has the meaning set forth in SECTION 7(B)
below.
"Cash Payment" has the meaning set forth in SECTION 2(B) below.
"Charges" shall mean all federal, state, county, city, municipal, local,
foreign or other governmental taxes at the time due and payable, levies,
assessments, charges, liens, claims or encumbrances upon or relating to (i) any
of a corporation's employees, payroll, income or gross receipts, (ii) any of a
corporation's ownership or use of any of its assets, or (iii) any other aspect
of a corporation's business.
"Closing" has the meaning set forth in SECTION 2(C) below.
"Closing Date" has the meaning set forth in SECTION 2(C) below.
"Code" means the Internal Revenue Code of 1986, as amended.
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<PAGE>
"Company" shall mean Block Court Reporting, Inc., a District of Columbia
corporation.
"Company's Accountants" shall mean the independent certified public
accounting firm of Klavsner, Bartko & Dubinsky, P.A.
"Confidential Information" means any information concerning the businesses
and affairs of the Company that is not (a) generally known or available to the
public; (b) after the date of this Agreement, generally known or readily
available through no violation of this Agreement; or (c) in or does not
hereafter become a part of the public domain through no violation of this
Agreement.
"Controlled Group" means the Company and any trade or business (whether or
not incorporated) which together with the Company would be deemed to be a
"single employer" within the meaning of ERISA Section 4001(b)(1) or subsections
(b), (c), (m) or (o) of Code Section 414.
"Customarily Permitted Liens" shall mean:
(a) Liens for ad valorem taxes, assessments or other governmental Charges
or levies, not yet due and payable;
(b) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other like Liens imposed by law, created in the
ordinary course of business and for amounts not yet due (or which are being
contested in good faith by appropriate proceedings or other appropriate actions
which are sufficient to prevent imminent foreclosure of such Liens); and
(c) easements (including, without limitation, reciprocal easement
agreements and utility agreements), encroachments, variations and other
restrictions, Charges or encumbrances customary to the type of real property
affected and which do not impair the current use, occupancy, value or the
marketability of title of the real property subject thereto.
"Damages" has the meaning set forth in SECTION 7(B) below.
"Effective Date" shall mean 12:01 a.m. on the Closing Date.
"Effective Date Accounts Payable Report" means the Accounts Payable Report
for the Company as of the Effective Date.
"Effective Date Accounts Receivable" shall mean the entire amount of
Accounts Receivable for the Company as of the Effective Date.
"Effective Date Accounts Receivable Report" means the Accounts Receivable
Report for the Company as of the Effective Date.
"Effective Date Balance Sheet Report" means the Balance Sheet Report for
the Company as of the close of business on the Effective Date.
-3-
<PAGE>
"Employee Benefit Plan" means any (a) Employee Pension Benefit Plan, (b)
Employee Welfare Benefit Plan, or (c) personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement, incentive award plan
or arrangement, vacation policy, severance pay plan, policy or agreement,
deferred compensation agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement, employment agreement and
each other employee benefit plan, agreement, arrangement, program, practice or
understanding which is not described in clause (a) or (b) of this sentence.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA SECTION
3(2), including, but not limited to, employee pension benefit plans, such as
foreign plans, which are not subject to the provisions of ERISA.
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA SECTION
3(1), including, but not limited to, employee welfare benefit plans, such as
foreign plans, which are not subject to the provisions of ERISA.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Fiduciary" has the meaning set forth in ERISA SECTION 3(21).
"Final Net Worth" means the Net Worth as of the Effective Date as
determined in accordance with SECTION 2(E) below.
"Financial Statements" has the meaning set forth in SECTION 4A(e) below.
"GAAP" means generally accepted accounting principles as in effect from
time to time.
"Guaranteed Net Worth" means $75,000.
"Income Statement Reports" means a statement of revenues and expenses of
the Company as of a specified date prepared by the Company on an accrual basis
and on a basis consistent with prior time periods.
"IRS" means the United States Internal Revenue Service or such equivalent
successor agency of the United States with the responsibility of assessing
and/or collecting Taxes.
"Investor" shall mean Pecks.
"Knowledge" means an individual will be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
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<PAGE>
(b) a prudent individual could be expected to discover or otherwise become
aware of such fact or other matter in the course of conducting a
reasonably comprehensive investigation concerning the existence of
such fact or other matter.
A person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving as a director,
officer, partner, executor, or trustee of such Person (or in any similar
capacity) has Knowledge of such fact or other matter.
"Liability" means any liability (whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
"Liens" means any mortgages, deeds of trust, liens, security interests,
pledges, claims, charges, liabilities, obligations, or other encumbrances.
"Net Worth" means the dollar amount of total assets minus the total
liabilities of the Company as of a given time period as determined by the
Balance Sheet Report as of such time period.
"Note 1" has the meaning set forth in SECTION 2(B)(II) below.
"Note 2" has the meaning set forth in SECTION 2(B)(III) below.
"Notice of Action" has the meaning set forth in SECTION 7(B) below.
"Notice of Election" has the meaning set forth in SECTION 7(B) below.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Parent" has the meaning set forth in the preamble of this Agreement.
"Party" shall mean, individually, the Buyer, the Parent or the Seller.
"Parent Shares" means any of the shares of common stock of the Parent.
"Parties" shall mean, collectively, the Buyer and the Seller.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pecks" shall mean Pecks Management Partners Ltd., a New York limited
partnership.
"Permitted Encumbrances" with respect to property of a Party shall mean (i)
Security Interests expressly permitted, or consented in writing to by the other
Party; (ii) Purchase Money
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Liens; (iii) Customarily Permitted Liens; and (iv) Liens of judgment creditors
provided such Liens do not exceed $3,000 individually or $15,000 in the
aggregate (other than Liens bonded or insured to the reasonable satisfaction of
the other Party).
"Person" means an individual, a partnership, a limited liability company, a
corporation, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"Pledge Agreement" has the meaning set forth in SECTION 5(A) below.
"Prohibited Transaction" has the meaning set forth in ERISA Section 406 and
Code Section 4975.
"Public Offering" means the sale by the Parent of any of its securities for
cash in an underwritten public offering registered on the appropriate form with
the Securities and Exchange Commission.
"Purchase Money Liens" shall mean Liens incurred in connection with the
acquisition of any asset; provided that (i) each such Lien shall attach only to
the asset to be acquired, (ii) a description of the asset so acquired is
furnished to the other Party, and (iii) the indebtedness incurred in connection
with such acquisitions shall not individually exceed $3,000 or in the aggregate
exceed $15,000.
"Purchase Price" has the meaning described in SECTION 2(B) below.
"Registration Rights Agreements" has the meaning set forth in SECTION
7(A)(ix) below.
"Reportable Event" has the meaning set forth in ERISA SECTION 4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's and similar
liens, (b) liens for Taxes not yet due and payable or for Taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
Purchase Money Liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Seller" shall mean Mr. Block.
"Seller's Disclosure Schedule" has the meaning set forth in SECTION 4A
below.
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"Senior Lender" shall mean Texas Commerce Bank, N.A.
"Shareholders' Agreement" shall mean that certain First Amended and
Restated Shareholders' Agreement by and among the Buyer and its shareholders, or
such other form of shareholders' agreement as may be required by Parent.
"Subject Shares" means all of the issued and outstanding capital stock of
the Company, all of which are described in SECTION 4A(b) of the Seller's
Disclosure Schedule.
"Subordination Agreements" means those certain Subordination Agreements of
even date herewith entered into among Seller and any of the Company, the Parent,
Affiliates, and holders of Senior Indebtedness (as such term is defined in
Note 1 or Note 2).
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors thereof.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium
windfall profits, environmental (including taxes under Code Section 5(A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
2. PURCHASE AND SALE OF SUBJECT SHARES.
A. BASIC TRANSACTION. On and subject to the terms and conditions of this
Agreement, the Buyer agrees to purchase from the Seller, and the Seller agrees
to sell to the Buyer, all of the Subject Shares for the consideration specified
below in this SECTION 2.
B. PURCHASE PRICE. The purchase price is One Million, One Hundred
Thousand and No/100 Dollars ($1,100,000.00) to be paid and delivered by the
Buyer to the Seller on the Closing Date, subject to adjustments thereto under
this Agreement, as follows (collectively, the "Purchase Price"):
(i) Subject to the provisions of SECTION 2(F), by wire transfer to
the Gnessin & Waldman Escrow Account for the benefit of Seller, in the
amount of Six Hundred Thousand and No/100 Dollars ($600,000.00) (the "Cash
Payment")
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(ii) Subject to the provisions of SECTION 2(F), a convertible
subordinated promissory note in substantially the form of EXHIBIT A-1 in
the amount of Two Hundred Forty Thousand and No/100 Dollars ($240,000.00),
bearing interest and being due, payable, convertible and subordinated as
provided therein ("Note 1"); and
(iii) Subject to the provisions of SECTION 2(F), a convertible
subordinated promissory note in substantially the form of EXHIBIT A-2 in
the amount of Three Hundred Sixty Thousand and No/100 Dollars
($360,000.00), bearing interest and being due, payable, convertible and
subordinated as provided therein ("Note 2").
C. THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place effective as of the effective date
hereof by Seller delivering to Buyer, and Buyer delivering to Seller, by
overnight courier, the items described in SECTION 2(D) below, except for Seller
delivering the Cash Payment by wire transfer, unless otherwise mutually agreed,
on the effective date hereof (the "Closing Date").
D. DELIVERIES AT THE CLOSING. At the Closing, (i) the Seller will
deliver to the Buyer the various certificates, instruments, and documents
referred to in SECTION 6(A) below, (ii) the Buyer will deliver to the Seller the
various certificates, instruments, and documents referred to in SECTION 6(B)
below, (iii) the Seller will deliver to the Buyer stock certificates
representing all of the Subject Shares, endorsed in blank or accompanied by duly
executed assignment documents, and (iv) the Buyer will deliver to the Seller the
Purchase Price.
E. DETERMINATION OF FINAL NET WORTH. The Effective Date Balance Sheet
Report, the Effective Date Accounts Receivable Report and the Effective Date
Accounts Payable Report (collectively, the "Effective Date Financial Reports")
shall be prepared by the Company and the Company's Accountants as promptly as
possible after the Closing, and the Seller shall deliver the Effective Date
Reports to the Buyer and the Buyer's Accountants as soon as possible but in no
event later than 30 days after the Closing Date. The Buyer's Accountants shall
review the Effective Date Financial Reports (including any corresponding work
papers of Company's Accountants) and report to the Company's Accountants in
writing within 15 days of receipt thereof of any discrepancy. If the Company's
Accountants and the Buyer's Accountants cannot resolve such discrepancy within
15 days after the Company's Accountants receipt of such report, then they shall
so notify the Seller and the Buyer, and the Seller and the Buyer shall attempt
to resolve the discrepancy within 15 days of such notice. If the Seller and the
Buyer cannot resolve the discrepancy to their mutual satisfaction, another
independent public accounting firm acceptable to the Seller and the Buyer shall
be retained to review the Effective Date Financial Reports. Such firm's
conclusions as to any accounting issues relating to the Effective Date Financial
Reports for purposes of determining the Final Net Worth of the Company shall be
conclusive. The Seller and the Buyer shall share equally in the expenses of
retaining such accounting firm. The Buyer shall pay the expenses of the Buyer's
Accountants for their review of the Effective Date Financial Reports, and the
Seller shall pay the expenses of Company's Accountants for their review of the
Effective Date Financial Reports.
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F. POST-CLOSING ADJUSTMENT OF PURCHASE PRICE. After the Closing Date,
the Purchase Price set forth in SECTION 2(B) shall be adjusted as follows: (i)
if the Final Net Worth of the Company as finally determined pursuant to SECTION
2(E) shall be more than the Guaranteed Net Worth, then each element of the
Purchase Price (cash, principal of Note 1 and principal of Note 2) shall be
increased in proportion to the percentage it represents of the total Purchase
Price paid at Closing, and Buyer shall promptly pay to Seller the amount of the
increase of the cash portion of the Purchase Price and execute and deliver to
Seller such modifications of Note 1 and Note 2 as Seller may reasonably request,
and (ii) if the Final Net Worth of the Company as finally determined pursuant to
SECTION 2(E) shall be less than the Guaranteed Net Worth, then each element of
the Purchase Price (cash, principal of Note 1 and principal of Note 2) shall
be decreased in proportion to the percentage it represents of the Purchase Price
paid at Closing, and Seller shall promptly return any portion of cash
overpayment to Buyer, and execute and deliver such modifications of Note 1 and
Note 2 as Buyer may reasonably request.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
A. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller represents
and warrants to the Buyer that the statements contained in this SECTION 3A are
correct and complete as of the date of this Agreement, except as set forth in
the schedules of exceptions attached hereto as SCHEDULE 3A.
(a) AUTHORIZATION OF TRANSACTION. Seller has full power and authority
to execute and deliver this Agreement and to perform his or her obligations
hereunder. This Agreement constitutes the valid and legally binding
obligation of the Seller, enforceable in accordance with its terms and
conditions, except to the extent that enforcement thereof may be limited by
applicable bankruptcy, reorganization, insolvency or moratorium laws or
other laws or principles of equity affecting the enforcement of creditors'
rights. Seller represents and warrants that he need not give any notice
to, make any filing with, or obtain any authorization, consent, or approval
of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement.
(b) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement by the Seller, nor the consummation of the transactions by the
Seller as contemplated hereby, will (i) to Seller's Knowledge violate any
constitution, statute, regulation, rule, charge or other restriction to
which Seller or the Company is subject, (ii) violate any injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which Seller or the Company is
subject, or (iii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right
to accelerate, terminate, modify, or cancel, or require any notice under
any agreement, contract, lease, license, instrument, or other arrangement
to which Seller or the Company is a party or by which he or it is bound or
to which any of his or its assets is subject.
(c) BROKERS' FEES. The Seller has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer or the
Company could become liable or obligated.
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<PAGE>
(d) INVESTMENT. Seller (i) understands that neither Note 1 nor
Note 2 has been registered under the Securities Act, or under any state
securities laws, and same are being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public
offering, (ii) is acquiring Note 1 and Note 2 solely for his or her own
account for investment purposes, and not with a view to the distribution
thereof, (iii) is a sophisticated investor with knowledge and experience in
business and financial matters, (iv) has received such information
concerning the Buyer and the Parent as Seller has requested, and has had
the opportunity to obtain additional information as desired in order to
evaluate the merits and the risks inherent in holding Note 1 and Note 2,
(v) is able to bear the economic risk and lack of liquidity inherent in
holding Note 1 and Note 2, and (vi) is an Accredited Investor.
(e) SUBJECT SHARES. Seller holds of record and owns beneficially the
number of Subject Shares set forth next to his name in SECTION 4A(b) of the
Seller's Disclosure Schedule, free and clear of any restrictions on
transfer (other than any restrictions under the Securities Act and state
securities laws), Taxes, Security Interests, options, warrants, purchase
rights, or other contracts or commitments that could require Seller to
sell, transfer, or otherwise dispose of any capital stock of the Company
(other than this Agreement)). Seller is not a party to any voting trust,
proxy, or other agreement or understanding with respect to the voting of
any of the Subject Shares.
B. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and
warrants to the Seller that the statements contained in this SECTION 3B are
correct and complete as of the date of this Agreement, except as set forth in
the schedule of exceptions attached hereto as SCHEDULE 3B.
(a) ORGANIZATION OF THE BUYER. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of New
York. The Buyer is qualified to do business in each jurisdiction in which
the nature of its business, the ownership of its assets or the lease of its
properties require it to be so qualified.
(b) AUTHORIZATION OF TRANSACTION. The Buyer has full power and
authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder, including
without limitation the issuance of Note 1 and Note 2. The Board of
Directors of the Buyer has duly authorized the execution, delivery and
performance of this Agreement and the other agreements and transactions
contemplated hereby, including, without limitation, the issuance of Note 1
and Note 2, and no other corporate proceedings on the Buyer's part are
necessary to authorize this Agreement or the transactions contemplated
hereby, including, without limitation, the issuance of Note 1 and Note 2.
Upon execution and delivery of this Agreement by the Parties hereto, this
Agreement shall constitute legal, valid and binding obligations of the
Buyer, enforceable against the Buyer in accordance with its terms, except
to the extent that enforcement hereof may be limited by applicable
bankruptcy, reorganization, insolvency or moratorium laws or other laws or
principles of equity affecting the enforcement of creditors' rights.
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<PAGE>
The Buyer represents and warrants that it need not give any notice to, make
any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by this Agreement.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Buyer is subject or
any provision of its charter or bylaws.
(d) BROKERS' FEES. The Buyer has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Seller could
become liable or obligated. Buyer shall pay all fees or commissions
payable to the Gulfstar Group, Inc.
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE PARTIES.
A. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY. Seller
represents and warrants to the Buyer that the statements contained in this
SECTION 4 are correct and complete as of the date of this Agreement, except as
set forth in Seller's Disclosure Schedule attached hereto as SCHEDULE 4A
("Seller's Disclosure Schedule"). Factual matters disclosed in one section of
the Seller's Disclosure Schedule shall be deemed to be disclosed with respect
to all representations and warranties set forth in this SECTION 4 to the extent
but only to the extent that the disclosure is adequate in scope and detail to
alert the Buyer, without further investigation, that such disclosure applies to
other representations and warranties in this SECTION 4.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Except as set
forth in SECTION 4A(a) of the Seller's Disclosure Schedule, each of the
Company, Block Transcription and the Block Predecessor is a corporation
duly organized, validly existing, and in good standing under the laws of
the District of Columbia. The Block Predecessor has not conducted any
business in the preceding eighteen (18) months, and is currently in the
process of dissolution. The Company is not qualified to do business in any
other jurisdiction, and the nature of its business does not require such
qualification. The Company has full corporate power and authority and all
material licenses, permits, and authorizations necessary to carry on the
businesses in which it is engaged and to own and use the properties owned
and used by it. SECTION 4A(a) of the Seller's Disclosure Schedule lists all
of the directors and officers of the Company. The Seller has delivered to
the Buyer correct and complete copies of the articles of incorporation and
bylaws of the Company, as amended to date. The minute book (containing the
records of meetings of the stockholders, the board of directors, and any
committees of the board of directors), the stock certificate books, and the
stock record books of the Company are correct and complete in all material
respects. The Company is not in default under or in violation of any
provision of its articles of incorporation or bylaws.
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<PAGE>
(b) CAPITALIZATION. The entire authorized capital stock, the issued
and outstanding shares and the treasury shares of the Company are
accurately set forth in SECTION 4A(b) of the Seller's Disclosure Schedule.
All of the issued and outstanding Subject Shares have been duly authorized,
are validly issued, fully paid, and nonassessable, and are held of record
by the Seller as set forth in SECTION 4A(b) of the Seller's Disclosure
Schedule. There are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights,
or other contracts or commitments that would require the Company to issue,
sell, or otherwise cause to become outstanding any of its capital stock.
There are no outstanding or authorized stock appreciation, phantom stock,
profit participation, or similar rights with respect to the Company. There
are no voting trusts, proxies, or other agreements or understandings with
respect to the voting of the capital stock of the Company.
(c) NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated
hereby, will (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which the Company is
subject, (ii) violate any provision of the articles of incorporation or
bylaws of the Company, or (iii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which the Company is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any
Security Interest upon any of its assets). The Company does not need to
give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order for
the Parties to consummate the transactions contemplated by this Agreement.
(d) SUBSIDIARIES. The Company does not have any ownership interest in
any Subsidiaries other than Block Transcription. The Company owns all of
the outstanding capital stock of Block Transcription free and clear of any
lien, claim, encumbrance, restriction or transfer, options, warrants,
purchase rights, voting agreements or other agreements of any type. The
Company does not control, directly or indirectly, or have any direct or
indirect equity participation in, any corporation, partnership, trust, or
other business association which is not a Subsidiary. Except as disclosed
in SECTION 4(A)(d) of the Seller's Disclosure Schedule, neither Block
Transcription nor the Block Predecessor has any liabilities in excess of
$2,500 individually nor $7,500 in the aggregate. Except as contemplated in
the following sentence, neither Block Transcription nor the Block
Predecessor has ever disposed of any of its assets other than for
reasonably equivalent value in the Ordinary Course of Business. The Company
has succeeded to all of the assets of the Block Predecessor.
(e) FINANCIAL STATEMENTS. The Seller has previously furnished the
Buyer with the following financial statements (collectively the "Financial
Statements"): (i) Balance Sheet Reports and Income Statement Reports for
the fiscal years ended December 31, 1995
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and December 31, 1996 compiled by Company's Accountants; (ii) Balance Sheet
Reports and Income Statement Reports for the period ended June 30, 1997
prepared by the Company's Accountants, (iii) an Accounts Receivable Report
dated as of June 30, 1997, and (iv) an Accounts Payable Report dated as of
June 30, 1997. The Financial Statements (including the notes thereto) have
been prepared on an accrual basis, have been prepared on a consistent basis
throughout the periods covered thereby, present fairly the financial
condition of the Company as of such dates and the results of operations of
the Company for such periods, are correct and complete in all material
respects, and are consistent in all material respects with the books and
records of the Company (which books and records are correct and complete in
all material respects).
(f) EVENTS SUBSEQUENT TO JUNE 30, 1997. Except as disclosed on
SECTION 4A(f) of the Seller's Disclosure Schedule, since June 30, 1997,
there has not been any material adverse change in the business, financial
condition, operations, results of operations, or future prospects of the
Company. Without limiting the generality of the foregoing, since
June 30, 1997:
(i) the Company has not sold, leased, transferred, or assigned
any of its assets, tangible or intangible, other than for a fair
consideration in the Ordinary Course of Business;
(ii) the Company has not entered into any agreement, contract,
lease, or license (or series of related agreements, contracts, lease,
and licenses) either involving more than $3,000 singly (exclusive of
agreements to perform court reporting or litigation support services
which do not extend beyond the Closing Date) or $15,000 in the
aggregate or outside the Ordinary Course of Business;
(iii) the Company has not accelerated, terminated, modified, or
canceled any agreement, contract, lease, or license (or series of
related agreements, contracts, leases, and licenses) involving more
than $3,000 singly (exclusive of agreements to perform court reporting
or litigation support services which do not extend beyond the Closing
Date) or $15,000 in the aggregate to which the Company is a party or
by which it is bound;
(iv) the Company has not imposed any Security Interest upon any
of its assets, tangible or intangible, except for Permitted
Encumbrances;
(v) the Company has not made any capital expenditure (or series
of related capital expenditures) either involving more than $3,000
singly or $15,000 in the aggregate or outside the Ordinary Course of
Business;
(vi) the Company has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of, any other
Person (or series or related
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capital investments, loans, and acquisitions) either involving more
than $3,000 singly or $15,000 in the aggregate;
(vii) the Company has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness
for borrowed money or capitalized lease obligation either involving
more than $3,000 singly or $15,000 in the aggregate;
(viii) the Company has not delayed or postponed the payment of
accounts payable or other Liabilities for a period of more than sixty
(60) days after the date of invoice;
(ix) the Company has not canceled, compromised, waived, or
released any right or claim (or series of related rights and claims)
either involving more than $3,000 singly or $15,000 in the aggregate
or outside the Ordinary Course of Business;
(x) there has been no change made or authorized in the
articles of incorporation or bylaws of the Company;
(xi) the Company has not issued, sold, or otherwise disposed of
any of its capital stock, or granted any options, warrants, or other
rights to purchase or obtain (including upon conversion, exchange, or
exercise) any of its capital stock;
(xii) the Company has not declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock
(whether in cash or in kind) or redeemed, purchased, or otherwise
acquired any of its capital stock;
(xiii) the Company has not experienced any damage, destruction,
or loss (whether or not covered by insurance) to its property valued,
individually or in the aggregate, in excess of (i) $10,000 for all
property which, at the time of such damage or destruction, was subject
to or covered by property, casualty or any other form of insurance,
and (ii) $3,000 for all property which, at the time of such damage or
destruction, was not subject to or covered by property, casualty or
any other form of insurance;
(xiv) the Company has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and employees;
(xv) the Company has not entered into any employment contract
or collective bargaining agreement, written or oral, or modified the
terms of any such existing contract or agreement;
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(xvi) the Company has not granted any increase in the base
compensation of any of its directors, officers, or employees outside
the Ordinary Course of Business;
(xvii) the Company has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other
plan, contract, or commitment for the benefit of any of its directors,
officers or employees (or taken any such action with respect to any
other Employee Benefit Plan);
(xviii) the Company has not made any other change in the
employment terms of any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xix) the Company has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course
of Business;
(xx) there has not been any adverse occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary
Course of or Business involving the Company which exceeds $3,000
individually or $15,000 in the aggregate; and
(xxi) the Company has not agreed or committed to any of the
foregoing.
(g) UNDISCLOSED LIABILITIES. Except as disclosed on SECTION 4A(g) of
the Seller's Disclosure Schedule, the Company does not have any Liability
(and, to the best of the Seller's Knowledge, there is no Basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against any of them giving rise to any
Liability), except for (i) Liabilities reflected in the then most current
Financial Statements (including any notes thereto) and (ii) Liabilities
which have arisen after June 30, 1997 in the Ordinary Course of Business
(none of which results from, arises, out of, relates to, is in the nature
of, or was caused by any breach of contract, breach of warranty, tort,
infringement, or violation of law).
(h) LEGAL COMPLIANCE. Except as disclosed in SECTION 4A(h) of the
Seller's Disclosure Schedule, to the Knowledge of Seller, the Company,
Block Transcription and the Block Predecessor have substantially complied
with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder)
of federal, state, local, and foreign governments (and all agencies
thereof), and, except as disclosed in SECTION 4A(h) of the Seller's
Disclosure Schedule, to the Seller's Knowledge, no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or
notice has been filed or commenced against the Company, Block Transcription
or the Block Predecessor alleging any failure so to comply.
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(i) TAX MATTERS. Except as disclosed on SECTION 4A(i) of the Seller's
Disclosure Schedule:
(i) The Company has filed all Tax Returns that it was required
to file, and all such Tax Returns were correct and complete in all
material respects. All Taxes shown to be due on the Tax Returns have
been paid or accrued for the Balance Sheet. The Company is not
currently the beneficiary of any extension of time within which to
file any Tax Return. No written claim has ever been delivered to the
Seller or the Company, and to the Knowledge of Seller no other claim
has ever been made by a Tax authority in a jurisdiction where the
Company does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There are no Security Interests on the
assets of the Company that arose in connection with any failure (or
alleged failure) to pay any Tax.
(ii) The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing
to any employee, creditor, stockholder, or other third party.
(iii) There is no dispute or claim concerning any Tax Liability
of the Company either (A) claimed or raised by any Tax authority in
writing to the Company or its agents or (B) as to which the Seller and
the directors and officers (and employees responsible for Tax matters)
of the Company has Knowledge. SECTION 4A(i) of the Seller's
Disclosure Schedule lists all federal, state, local, and foreign
income Tax Returns filed with respect to the Company for taxable
periods ended on or after December 31, 1996, indicates those Tax
Returns that have been audited, and indicates those Tax Returns that
currently are the subject of an audit. The Seller has delivered to
the Buyer correct and complete copies of all federal income Tax
Returns, examination reports, and statements of deficiencies assessed
against or agreed to by the Company.
(iv) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a
Tax assessment or deficiency.
(v) The Company has not made an election under Section 341(f)
of the Code.
(vi) The Company's Financial Statements for the period from
July 1, 1996, through June 30, 1997, include accruals for Taxes not
yet due and payable in appropriate amounts based on the Company's
experience and its historical practices, which accruals are, to the
Knowledge of the Seller, adequate.
(j) TITLE TO ASSETS. The Company has good and marketable title to, or
a valid leasehold interest in, the properties and assets used by it, or
shown in the Financial
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Statements or acquired after the date thereof, free and clear of all
Security Interests, except for properties and assets disposed of in the
Ordinary Course of Business since June 30, 1997, and except for Permitted
Encumbrances.
(k) REAL PROPERTY. The Company does not own any real property.
SECTION 4A(k) of the Seller's Disclosure Schedule lists and describes
briefly all real property leased or subleased to the Company. The Seller
has delivered to the Buyer correct and complete copies of the leases and
subleases listed in SECTION 4A(k) of the Seller's Disclosure Schedule (as
amended to date). Except as disclosed on SECTION 4A(k) of the Seller's
Disclosure Schedule, with respect to each lease and sublease listed in
SECTION 4A(k) of the Seller's Disclosure Schedule:
(i) To the Knowledge of Seller, the lease or sublease is legal,
valid, binding, enforceable, and in full force and effect;
(ii) To the Knowledge of Seller, the lease or sublease will
continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the consummation of the
transactions contemplated hereby;
(iii) The Company is not in material breach or default of any
lease or sublease, and to the Seller's Knowledge, no third party to
any such lease or sublease is in material breach or material default,
and to the Seller's Knowledge, no event has occurred which, with
notice or lapse of time or both, would constitute a material breach or
material default or permit termination, modification, or acceleration
thereunder;
(iv) with respect to each sublease, to the Seller's Knowledge,
the representations and warranties set forth in subsections (i)
through (iii) above are true and correct with respect to the
underlying lease; and
(v) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold, except Customarily Permitted Liens.
(l) TANGIBLE ASSETS. The Company owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct
of its businesses as presently conducted. Each such tangible asset is
suitable for the purpose for which it is presently used.
(m) INVENTORY. The Company does not carry or maintain any inventory.
(n) CONTRACTS. SECTION 4A(n) of the Seller's Disclosure Schedule
lists the following contracts and other agreements currently in effect to
which the Company is a party:
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(i) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease
payments in excess of $15,000 per annum;
(ii) any agreement (or group of related agreements) for the
furnishing or receipt of services, the performance of which will
extend over a period of more than one year from the Closing Date or
involve consideration in excess of $15,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which
it has created, incurred, assumed, or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation, in excess of
$15,000 or under which it has imposed a Security Interest on any of
its assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any agreement with Seller or any Affiliate of Seller
(other than the Company);
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan
or arrangement for the benefit of its current or former directors,
officers, and employees;
(viii) any written agreement for the employment of any
individual on a full-time, part-time, consulting, or other basis
providing annual compensation in excess of $15,000, or providing
severance benefits;
(ix) any agreement under which it has advanced or loaned any
amount to any of its directors, officers or employees outside the
Ordinary Course of Business;
(x) any agreement under which the consequences of a default or
termination would reasonably be expected to result in a $30,000
decrease in the Company's revenues during any 12-month period, or a
$10,000 reduction in the Company's earnings during any 12-month
period; or
(xi) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $15,000.
The Seller has delivered to the Buyer a correct and complete copy of each
written agreement listed in SECTION 4A(n) of the Seller's Disclosure
Schedule (as amended to date) and a written summary setting forth the terms
and conditions of each oral agreement referred to in SECTION 4A(n) of the
Seller's Disclosure Schedule. With respect to each such agreement: (A) to
the Seller's Knowledge, the agreement is legal, valid, binding,
enforceable, and in full
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force and effect; (B) the Company is not , nor to the Seller's Knowledge is
any other party in breach or default, and to the Seller's Knowledge, no
event has occurred which with notice or lapse of time or both would
constitute a breach or default, or permit termination, modification, or
acceleration, under the agreement, and (C) the Company has not repudiated
any provision of any such agreement nor to the Seller's Knowledge has any
other party repudiated any provision of any such agreement.
(o) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable
of the Company are properly recorded on each Accounts Receivable Report
delivered to the Buyer, reflected properly on the Company's books and
records and are properly due and owing.
(p) POWERS OF ATTORNEY. Except as disclosed on SECTION 4A(p) of the
Seller's Disclosure Schedule, there are no outstanding powers of attorney
executed on behalf of the Company.
(q) INSURANCE. SECTION 4A(q) of the Seller's Disclosure Schedule
lists each insurance policy (including policies providing property,
casualty, liability, and workers' compensation coverage and bond and surety
arrangements) to which the Company is currently a party, copies of which
have been furnished to the Buyer.
(r) LITIGATION. SECTION 4A(r) of the Seller's Disclosure Schedule
sets forth each instance in which the Company (i) is subject to any
outstanding injunction, judgment, order, decree, ruling, or charge or (ii)
is a party or, to the Knowledge of the Seller, is threatened to be made a
party to any action, suit, proceeding, hearing, or investigation of, in, or
before any court of quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator.
(s) CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY. Except as
disclosed on SECTION 4A(s) of the Seller's Disclosure Schedule, neither the
Seller nor any of Seller's Affiliates has been involved in any business
arrangement or relationship with the Company within the past 12 months, and
neither the Seller nor any of Seller's Affiliates owns any asset, tangible
or intangible, with a replacement cost of $1,000 individually or $3,000 in
the aggregate, which is used in the business of the Company.
(t) GUARANTIES. The Company is not a guarantor or otherwise liable
for any Liability or obligation (including indebtedness) of any other
Person.
(u) EMPLOYEES. To the Seller's Knowledge, no executive, key employee,
or group of employees has any plans to terminate employment with the
Company. The Company has not committed any unfair labor practice. The
Seller does not have any Knowledge of any organizational effort presently
being made or threatened by or on behalf of any labor union with respect to
employees of the Company. SECTION 4A(u) of the Seller's Disclosure Schedule
sets forth by number and employment classification the approximate numbers
of employees employed by the Company as of the date of this Agreement, and
none
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of said employees are subject to union or collective bargaining agreements
with the Company.
(v) EMPLOYEE BENEFITS.
(i) SECTION 4A(v) of the Seller's Disclosure Schedule lists
each Employee Benefit Plan that the Company maintains or to which it
contributes.
(A) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form and in
operation in all material respects with the applicable
requirements of ERISA and its implementing laws, and the Code.
(B) All required reports and descriptions (including Form
5500 Annual Reports, Summary Annual Reports, PBGC-1's, and
Summary Plan Descriptions) have been filed or distributed
appropriately with respect to each such Employee Benefit Plan.
The requirements of Part 6 of Subtitle B of Title I of ERISA and
of Code Section 4980B have been met with respect to each such
Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(C) All contributions (including all employer
contributions and employee salary reduction contributions) which
are due have been paid to each such Employee Benefit Plan which
is an Employee Pension Benefit Plan and all contributions for any
period ending on or before the Closing Date which are not yet due
have been paid to each such Employee Pension Benefit Plan or
accrued in accordance with the past custom and practice of the
Company. All premiums or other payments for all periods ending on
or before the Closing Date have been paid with respect to each
such Employee Benefit Plan.
(D) The Company has substantially performed all
obligations, whether arising by operation of law or by contract,
required to be performed by it in connection with such Employee
Benefit Plans, and to Seller's Knowledge, there has been no
default or violation by any other party to such Employee Benefit
Plans.
(E) The Seller has delivered to the Buyer correct and
complete copies of the plan documents and summary plan
descriptions, the most recent Form 5500 Annual Report, and all
related trust agreements, insurance contracts, and other funding
agreements which relate to each such Employee Benefit Plan.
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(ii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not (A)
require the Company to make a larger contribution to, or pay greater
benefits under, any Employee Benefit Plan than it otherwise would or
(B) create or give rise to any additional vested rights or service
credits under any Employee Benefit Plan.
(iii) Each such Employee Benefit Plan has been terminated by the
Company in compliance with all applicable laws on or before the
Closing Date.
(w) BROKERS' FEES. The Company does not have any Liability or
obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement.
(x) OPERATION OF BUSINESS. To the Seller's Knowledge (i) all court
reporters that are or have been hired (including independent contractors)
by the Company are qualified to perform the jobs that they are hired to
perform and they are not required by law to obtain any certification to
perform their jobs, (ii) all documents that the Company is or has been
required to maintain, store or handle in connection with conducting its
business are or have been maintained, stored or handled in the manner
agreed to between the Company and its respective clients or in material
conformity with prevailing standards regarding such matters in the
Company's industry, and (iii) the Company performs all aspects and
operations of its business at or above the prevailing standards for the
Company's industry.
(y) DISCLOSURE. To the best knowledge of Seller, the representations
and warranties contained in this SECTION 4A do not contain any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements and information contained in this SECTION
4A not misleading.
B. REPRESENTATIONS AND WARRANTIES CONCERNING THE PARENT. The Parent and
the Buyer jointly and severally represent and warrant to the Seller that the
statements contained in this SECTION 4B are correct and complete as of the date
of this Agreement, except as set forth in the Buyer's Disclosure Schedule
attached hereto as SCHEDULE 4B (the "Buyer's Disclosure Schedule").
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The Parent is a
corporation duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation. The Parent is duly
authorized to conduct business and is in good standing under the laws of
each jurisdiction where such qualification is required. Each of the Parent
and its Subsidiaries has full corporate power and authority and all
material licenses, permits, and authorizations necessary to carry on the
businesses in which it is engaged and to own and use the properties owned
and used by it. SECTION 4B(a) of the Buyer's Disclosure Schedule lists the
directors and officers of the Parent. The Parent has delivered to the
Seller correct and complete copies of the articles of incorporation and
bylaws of the Parent (as amended to date). The minute books (containing the
records of meetings of the stockholders, the board of directors, and any
committees of the board of directors), the
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stock certificate books, and the stock record books of the Parent are
correct and complete in all material respects. The Parent is not in default
under or in violation of any provision of its articles of incorporation or
bylaws.
(b) AUTHORIZATION OF TRANSACTION. The Parent has full power and
authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder, including
without limitation with respect to Note 1 and Note 2. The Board of
Directors of the Parent has duly authorized the execution, delivery and
performance of this Agreement and the other agreements and transactions
contemplated hereby, including, without limitation, with respect to SECTION
6(G) hereof , and no other corporate proceedings on the Parent's part are
necessary to authorize this Agreement or the transactions contemplated
hereby. Upon execution and delivery of this Agreement by the Parties
hereto, this Agreement shall constitute legal, valid and binding
obligations of the Parent, enforceable against the Parent in accordance
with its terms, except to the extent that enforcement hereof may be limited
by applicable bankruptcy, reorganization, insolvency or moratorium laws or
other laws or principles of equity affecting the enforcement of creditors'
rights. The Parent represents and warrants that it need not give any notice
to, make any filing with, or obtain any authorization, consent, or approval
of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement.
(c) CAPITALIZATION. The entire authorized capital stock, the issued
and outstanding shares and the treasury shares of the Parent are
accurately set forth in SECTION 4B(c) of the Buyer's Disclosure Schedule
together with the changes thereto contemplated by the acquisition of the
Company. All of the issued and outstanding shares of the Parent have been
duly authorized, are validly issued, fully paid, and nonassessable, and all
of the Parent Shares to be issued upon conversion of Note 1 or Note 2 will,
upon conversion thereof in accordance with the terms thereof, and issuance
of the Parent Shares, be validly issued, fully paid and nonassessable.
(d) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Parent is subject,
(ii) violate any provision of the articles of incorporation or bylaws of
the Parent, or (iii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right
to accelerate, terminate, modify, or cancel, or require any notice under
any agreement, contract, lease, license, instrument, or other arrangement
to which the Parent is a party or by which it is bound or to which any of
its assets is subject (or result in the imposition of any Security Interest
upon any of its assets). The Parent does not need to give any notice to,
make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
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(e) PARENT FINANCIAL STATEMENTS. Parent has delivered to Seller the
unaudited consolidated balance sheet, unaudited consolidated income
statement, and unaudited consolidated cash flow statement of Parent for the
period commencing January 17, 1997, and ending June 30, 1997 (the "Parent
Financial Statements"). Each of the Parent Financial Statements (i) fairly
represents the financial position of Parent and its consolidated
subsidiaries as of each respective Parent Financial Statement date, and the
results of their operations for the respective periods indicated, and (ii)
were true and correct in all material respects as of the respective dates
thereof, subject to finalization of purchase accounting adjustments in
accordance with GAAP.
(f) LEGAL COMPLIANCE. To the Knowledge of Parent, the Parent has
substantially complied with all applicable laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees,
rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and, to the Parent's Knowledge, no
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against the Buyer or the
Parent alleging any failure so to comply.
(g) TAX MATTERS. Except as disclosed on SECTION 4B(g) of the Buyer's
Disclosure Schedule:
(i) The Parent has filed all Tax Returns that it was required
to file, and all such Tax Returns were correct and complete in all
material respects. All Taxes shown to be due on the Tax Returns have
been paid or accrued for the Balance Sheet. The Parent is not
currently the beneficiary of any extension of time within which to
file any Tax Return. No written claim has ever been made, and to the
Knowledge of Parent no other claim has ever been delivered to the
Parent, by a Tax authority in a jurisdiction where the Parent does not
file Tax Returns that it is or may be subject to taxation by that
jurisdiction. There are no Security Interests on the assets of the
Parent that arose in connection with any failure (or alleged failure)
to pay any Tax.
(ii) The Parent has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, creditor, stockholder, or other third party.
(iii) There is no dispute or claim concerning any Tax Liability
of the Parent either (A) claimed or raised by any Tax authority in
writing to the Parent or its agents or (B) as to which the Parent and
the directors and officers (and employees responsible for Tax matters)
of the Parent has Knowledge. The Parent has not filed any federal,
state, local, or foreign income Tax Returns with respect to the
Parent.
(iv) The Parent has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a
Tax assessment or deficiency.
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(v) The Parent has not made an election under Section 341(f) of
the Code.
(h) LITIGATION. SECTION 4B(h) of the Buyer's Disclosure Schedule sets
forth each instance in which the Parent or the Buyer (i) is subject to any
outstanding injunction, judgment, order, decree, ruling, or charge or (ii)
is a party or, to the Knowledge of the Parent, is threatened to be made a
party to any action, suit, proceeding, hearing, or investigation of, in, or
before any court of quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator.
(i) EMPLOYEE BENEFITS.
(i) SECTION 4B(i) of the Buyer's Disclosure Schedule lists each
Employee Benefit Plan that the Parent maintains or to which it
contributes. Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all
material respects with the applicable requirements of ERISA and its
implementing laws, and the Code. The Company has substantially
performed all obligations, whether arising by operation of law or by
contract, required to be performed by it in connection with such
Employee Benefit Plans, and to Seller's Knowledge, there has been no
default or violation by any other party to such Employee Benefit
Plans.
(j) PARENT'S UNDISCLOSED LIABILITIES. Except as disclosed on SECTION
4B(j) of the Buyer's Disclosure Schedule, the Parent and the Buyer do not
have any Liability (and, to the best of the Parent's Knowledge, there is no
Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against either of them
giving rise to any Liability), except for (i) Liabilities reflected in the
then most current Parent Financial Statements (including any notes thereto)
and (ii) Liabilities which have arisen after June 30, 1997 in the Ordinary
Course of Business (none of which results from, arises, out of, relates to,
is in the nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement, or violation of law).
(k) DISCLOSURE. The representations and warranties contained in this
SECTION 4B do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements and
information contained in this SECTION 4B not misleading.
(l) SECURITIES LAWS. Note 1 and Note 2 have not been issued, and upon
conversion thereof the Parent Stock will not be issued, in violation of the
registration requirements of the federal securities laws.
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5. ITEMS TO BE DELIVERED AT CLOSING.
A. SELLER'S CLOSING DELIVERIES. At Closing, Seller shall deliver or cause
to be delivered to Buyer in form and content reasonably acceptable to the
Parties and their counsel:
(i) The stock certificates representing the Subject Shares,
together with appropriate stock powers or such other instruments of
assignment and transfer or otherwise as Buyer shall reasonably request;
(ii) Two (2) counterparts of the Block Employment Agreement executed
by Mr. Block;
(iii) Two (2) counterparts of the Block Noncompetition Agreement
executed by Mr. Block;
(iv) Two (2) counterparts of the Block Finder's Fee Agreement
executed by Mr. Block;
(v) From counsel to the Seller, an opinion in form and substance
acceptable to Buyer, addressed to the Buyer, and dated as of the Closing
Date containing such opinions, assumptions and qualifications as may be
reasonably acceptable to Buyer's legal counsel;
(vi) Two (2) counterparts of a Registration Rights Agreement
executed by Seller in a form similar to those previously entered into by
similarly situated shareholders of Buyer (the "Registration Rights
Agreement");
(vii) Two (2) counterparts of a Subordination Agreement in form and
content reasonably acceptable to Seller, Buyer and the senior lender for
Buyer, executed by Seller (the "TCB Subordination Agreement");
(viii) Two (2) counterparts of a Subordination Agreement in form and
content reasonably acceptable to Seller, Buyer and the Investor, executed
by the Seller (the "Pecks Subordination Agreement");
(ix) Two (2) counterparts of a Contingent Stock Pledge Agreement
executed by Mr. Block pursuant to which Mr. Block pledges the stock of
Buyer to be issued to Mr. Block under Note 1 and/or Note 2, in order to
secure performance of his obligations hereunder (the "Pledge Agreement");
(x) Investor Representation Letters in form and content reasonably
acceptable to Seller and Buyer, duly executed by the Seller;
(xi) Resignation Letters in form and content reasonably acceptable
to Buyer, duly executed by all of the directors and officers of the
Company, and by Victor A. Block and Richard E. Block;
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(xii) Evidence reasonably acceptable to Buyer of the acquisition of
Block Transcription by the Company;
(xiii) Evidence reasonably acceptable to Buyer that the Certificate
and Articles of Incorporation of Block Predecessor were revoked by
Proclamation;
(xiv) Such consents, waivers, estoppel letters or similar
documentation as Buyer shall request, in Buyer's sole discretion, in
connection with the transfer of the Subject Shares; and
(xv) All other items required to be delivered hereunder or as may be
requested which are necessary or would reasonably facilitate consummation
of the transactions contemplated hereby.
Notwithstanding any provisions in this Agreement to the contrary, and
notwithstanding the fact that the Company and Block Transcription are named
parties to the Subordination Agreements, the Subordination Agreements are to be
executed as of Closing by Seller individually and not on behalf of either the
Company or Block Transcription, and Buyer will, following Closing, cause the
Subordination Agreements to be executed by the Company and Block Transcription.
In addition, Seller will put Buyer into full and peaceful possession and
enjoyment of the Assets and the Leased Assets immediately upon the occurrence of
the Closing.
B. BUYER'S CLOSING DELIVERIES. At Closing, Buyer shall deliver or cause
to be delivered to Seller, or a designated by Buyer and the senior lender for
Buyer;
(i) The Cash Payment;
(ii) Note 1 executed by Buyer;
(iii) Note 2 executed by Buyer;
(iv) Two (2) counterparts of the TCB Subordination Agreement
executed by Buyer and the senior lender for Buyer;
(v) Two (2) counterparts of the Pecks Subordination Agreement
executed by Buyer and the Investor;
(vi) Two (2) counterparts of the Block Noncompetition Agreement
executed by Buyer;
(vii) Two (2) counterparts of the Block Employment Agreement executed
by Buyer;
(viii) Two (2) counterparts of the Block Finder's Fee Agreement
executed by Parent;
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(ix) Two (2) counterparts of the Pledge Agreement executed by Buyer;
(x) Two (2) counterparts of the Registration Rights Agreement
executed by Buyer;
(xi) From counsel to Buyer, an opinion in form and substance
acceptable to Seller, addressed to the Seller, and dated as of the Closing
Date containing such opinions, assumptions and qualifications as may be
reasonably acceptable to Buyer's legal counsel;
(xii) Certified resolutions of the respective Boards of Directors of
Buyer and Parent, authorizing the execution, delivery and performance of
this Agreement and all documents, instruments and agreements contemplated
herein to be executed by the Buyer and Parent, respectively; and
(xiii) All other items required to be delivered hereunder or as may be
requested or which are necessary or would reasonably facilitate
consummation of the transactions contemplated
6. POST-CLOSING COVENANTS. The Parties agree as follows with respect to
the period following the Closing:
A. GENERAL. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party may reasonably
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under SECTION 8 below).
B. LITIGATION SUPPORT. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand to which the other
Party is not subject (either by virtue of the indemnification provisions
contained in SECTION 7 below or otherwise) in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving the Company, the other Party will cooperate with him or it and his or
its counsel in the contest or defense, make available their personnel, and
provide such testimony and access to their books and records as shall be
necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party (unless the contesting or defending
Party is entitled to indemnification therefor under SECTION 8 below). The Buyer
acknowledges and agrees that if Seller is individually brought into any
litigation in connection with the Company, Seller shall be indemnified to the
maximum extent that directors and officers of corporations are permitted to be
indemnified under the laws of the District of Columbia, for all costs of
litigation as well as any judgments or settlement amounts paid. Notwithstanding
the foregoing, Seller shall not be entitled to indemnification to the extent of
any of the following:
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(i) suit against Seller with respect to a matter for which Seller is
required to indemnify the Buyer pursuant to this Agreement; or
(ii) to the extent that Seller is found to have engaged in gross
negligence or willful misconduct.
C. CONFIDENTIALITY. The Seller will treat and hold as such all of the
Confidential Information and refrain from using any of the Confidential
Information except in connection with this Agreement and all of the other
agreements executed in connection herewith and except in connection with
handling all of the litigation described on SECTION 4A(r) of the Seller's
Disclosure Schedule. In the event that Seller is requested or required (by oral
question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar process) to
disclose any Confidential Information, Seller will notify the Buyer promptly of
the request or requirement so that the Buyer may seek an appropriate protective
order or waive compliance with the provisions of this SECTION 6C. If, in the
absence of a protective order or the receipt of a waiver hereunder, Seller is,
on the advice of counsel, compelled to disclose any Confidential Information to
any tribunal or else stand liable for contempt, Seller may disclose the
Confidential Information to the tribunal; PROVIDED, HOWEVER, that Seller shall
use his reasonable best efforts to obtain, at the reasonable request of the
Buyer, an order or other assurance that confidential treatment will be accorded
to such portion of the Confidential Information required to be disclosed as the
Buyer shall designate; provided, however that all of Seller's costs including
but not limited to legal fees shall be paid by the Buyer. The foregoing
provisions shall not apply to any Confidential Information which is generally
available to the public immediately prior to the time of disclosure.
D. ACCOUNTS RECEIVABLE. Seller shall, during the term of his employment
by the Company, use reasonable efforts to assist the Company in collecting the
Accounts Receivable in the Ordinary Course of Business.
E. PARENT'S SHAREHOLDERS' AGREEMENT. Notwithstanding any provision of
this Agreement, Note 1 or Note 2 to the contrary, the Parties hereby acknowledge
and agree that no Parent Shares can or will be issued upon conversion of Note 1
or Note 2 unless and until Seller becomes a party to a Shareholders' Agreement
in the form required by the Parent (the "Shareholders' Agreement") (provided
that this will not be required with respect to any Parent Stock issued after the
Public Offering), gives appropriate investment representations concerning
knowledge about the investment, and acknowledges applicable restrictions on
transferability, in form and content reasonably acceptable to the Parent, and
substantially in the form of the investor representation letter to be executed
by the Seller and delivered at Closing.
F. REMOVAL FROM GUARANTY. The Parties hereby acknowledge and agree that
the Company currently has a line of credit from George Mason Bank in a maximum
principal amount of $25,000, and a term loan with an outstanding principal
amount of $31,250 or less. Buyer will cause the personal guaranty of Seller of
these credit facilities to be terminated at Closing.
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G. FUNDING OF NOTE PAYMENTS. Parent hereby agrees that upon consummation
of any Public Offering resulting in proceeds to the Parent of at least forty
million dollars ($40,000,000), Parent will, subject to the terms and conditions
of the TCB Subordination Agreement, within five (5) business days after the
receirees to issue to Seller any Parent Shares then issuable upon conversion of
Note 2, in accordance with the terms and provisions thereof. Parent and Buyer
hereby acknowledge reliance by Seller upon the covenants and agreements of
Parent in this SECTION 6(G) in entering into the transactions contemplated
herein, and that Seller would not have entered into this Agreement but for the
covenants and agreements of Parent set forth in this SECTION 6G.
H. AUTOMOBILE DEBT. Seller hereby assumes as of the Effective Date, and
hereby agrees to pay and indemnify Buyer and the Company with respect to, all of
the outstanding indebtedness relating to the automobiles transferred to the
Seller on or about the Closing Date.
7. INDEMNIFICATION.
A. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All of the representations and warranties of the Parties contained in this
Agreement shall survive the Closing hereunder and continue in full force and
effect for two years thereafter except that the representations and warranties
contained in SECTION 4A(i), and SECTION 4A(j) which shall survive for three
years after the Closing.
B. INDEMNIFICATION PROVISIONS.
(i) BY THE SELLER. Seller shall indemnify, save, defend and hold
harmless the Buyer and the Buyer's shareholders, directors, officers, partners,
agents and employees (and in the event the Buyer assigns its right, title and
interest hereunder to a corporation, which shall be permitted hereunder, such
assignee) (collectively, the "Buyer Indemnified Parties") from and against any
and all costs, lawsuits, losses, Liabilities, deficiencies, claims and expenses,
including interest, penalties, reasonable attorneys' fees and all reasonable
amounts paid in investigation, defense or settlement of any of the foregoing
(collectively referred to herein as "Damages"), incurred in connection with or
arising out of or resulting from or incident to any breach of (or in the event
any third party alleges facts that, if true, would mean the Seller has breached)
any covenant, warranty or representation made by the Seller in or pursuant to
this Agreement or any other agreement delivered pursuant to this Agreement or in
any schedule, certificate, exhibit, or other instrument furnished or to be
furnished by the Seller or any of Seller's Affiliates pursuant to the terms of
this Agreement; provided, however, that the Seller shall not be liable for any
such Damages to the extent,
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if any, such Damages result from or arise out of a breach or violation of this
Agreement by any Buyer Indemnified Parties.
(ii) BY THE BUYER. The Buyer and Parent, jointly and severally,
shall indemnify, save, defend and hold harmless the Seller and his agents,
assignees and heirs (collectively, the "Seller Indemnified Parties") from and
against any and all Damages incurred in connection with or arising out of or
resulting from or incident to any breach of (or in the event any third party
alleges facts that, if true, would mean the Buyer or Parent has breached), any
covenant, warranty or representation made by the Buyer or Parent in or pursuant
to this Agreement or any other agreement delivered pursuant to this Agreement
contemplated hereby or in any schedule, certificate, exhibit, or other
instrument furnished or to be furnished by the Buyer or Parent under this
Agreement; provided, however, that neither the Buyer nor the Parent shall be
liable for any such Damages to the extent, if any, such Damages result from or
arise out of a breach or violation of this Agreement by the Seller.
(iii) DEFENSE OF CLAIMS. If any lawsuit or enforcement action is filed
against any Party entitled to the benefit of indemnity hereunder, written notice
thereof describing such lawsuit or enforcement action in reasonable detail and
indicating the amount (estimated, if necessary) or good faith estimate of the
reasonably foreseeable estimated amount of Damages (which estimate shall in no
way limit the amount of indemnification the indemnified Party is entitled to
receive hereunder), shall be given to the indemnifying Party as promptly as
practicable (and in any event within ten (10) days after the service of the
citation or summons) ("Notice of Action"); provided that the failure of any
indemnified Party to give timely notice shall not affect its rights to
indemnification hereunder to the extent that the indemnified Party demonstrates
that the amount the indemnified Party is entitled to recover exceeds the actual
damages to the indemnifying Party caused by such failure to so notify within ten
(10) days; provided further that a Notice of Action must be sent to the
indemnifying Party within ten (10) days after the applicable survival period as
provided in SECTION 7(A) of this Agreement. The indemnifying Party may elect to
compromise or defend any such asserted liability and to assume all obligations
contained in this SECTION 7(B) to indemnify the indemnified Party by a delivery
of notice of such election ("Notice of Election") within ten (10) days after
delivery of the Notice of Action. Upon delivery of the Notice of Election, the
indemnifying Party shall be entitled to take control of the defense and
investigation of such lawsuit or action and to employ and engage attorneys of
its own choice to handle and defend the same, at the indemnifying Party's sole
cost, risk and expense, and such indemnified Party shall cooperate in all
reasonable respects, at the indemnifying Party's sole cost, risk and expense,
with the indemnifying Party and such attorneys in the investigation, trial, and
defense of such lawsuit or action and any appeal arising therefrom; provided,
however, that the indemnified Party may, at its own cost, risk and expense,
participate in such investigation, trial and defense of such lawsuit or action
and any appeal arising therefrom. If the Notice of Election is delivered to the
indemnified Party, the indemnified Party shall not pay, settle or compromise
such claim without the indemnifying Party's consent, which consent shall not be
unreasonably withheld. If the indemnifying Party elects not to defend the claim
of the indemnified Party or does not deliver to the indemnified Party a Notice
of Election within ten (10) days after delivery of the Notice of Action, the
indemnified Party may, but shall not be obligated to defend, or the indemnified
Party may compromise or settle (exercising reasonable business
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judgment) the claim or other matter on behalf, for the account, and at the risk,
of the indemnifying Party.
(IV) THIRD PARTY CLAIMS. The provisions of this SECTION 7 are not
limited to matters asserted by the Parties, but cover costs, losses,
liabilities, damages, lawsuits, claims and expenses incurred in connection with
third party claims.
(V) LIMITATION ON CLAIMS. Notwithstanding any provision of this
Agreement neither the Buyer and Parent, collectively, nor the Seller shall be
required to pay the Seller Indemnified Parties collectively, or the Buyer
Indemnified Parties, collectively, respectively, any amount with respect to any
claim for Damages under this SECTION 7(B) or with respect to any claim for
Damages due to a claim of breach or default under this Agreement which is not a
claim for indemnification, until the Damages which the Buyer Indemnified
parties, collectively, or the Seller Indemnified Parties, collectively, as
applicable, suffered under this Agreement (including indemnification and other
claims) aggregate at least $25,000, at which time an in such event the Buyer
Indemnified Parties, collectively, or the Seller Indemnified Parties,
collectively, as applicable, shall be entitled to receive payment for the entire
amount of aggregate Damages to the extent they exceed $25,000. Neither the Buyer
Indemnified Parties, collectively, nor the Seller Indemnified Parties,
collectively, shall be entitled to indemnification or payment of other claims
hereunder in an aggregate amount in excess of the Purchase Price.
8. REMEDIES.
A. SPECIFIC PERFORMANCE. Each of the Parties hereby agrees that the
transactions comtemplated by this Agreement are unique, and that each Party
shall have, in addition to any other legal or equitable remedy available to it,
the right to enforce this Agreement by decree of specific performance. If any
legal action or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing Party or Parties shall be entitled to recover
reasonable attorney' fees and other costs incurred in that action or proceeding
in addition to any other remedies to which it, he or they may be entitled at law
or equity. The rights and remedies granted herein are cumulative and not
exclusive of any other right or remedy granted herein or provided by law.
B. OFFSET. To the extent permitted by applicable law, all amounts due
and owing to Seller or any Affiliate of Seller under this Agreement or any
document, instrument, or agreement executed in connection herewith or therewith,
including without limitation Note 1 and/or Note 2, shall be subject to offset by
the Buyer to the extent of any damages incurred as a result of the breach by
Seller or any Affiliate of Seller of this Agreement or any document, instrument,
or agreement executed by Seller or any Affiliate of a Seller in connection
herewith, upon the earlier to occur of (i) resolution of any disputes by
arbitration or mediation or a final ruling by a trial court in the event of
litigation, or (ii) the expiration of three (3) months after Buyer notifies
Seller of its damages and intent to offset, after which three-month period
payments shall be made into an escrow account on reasonably standard terms
(including indemnification and release of the escrow agent) pending final
resolution of the matters in controversy. All fees and expenses of the
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escrow agent or otherwise arising out of the escrow arrangement, shall be
divided evenly by Seller, on the one hand, and Buyer and Parent, collectively,
on the other. In the event of a conversion of Note 1 and/or Note 2 prior to a
final resolution, only such number of Parent Shares as are reasonably required
to compensate the Buyer Indemnified Parties for their alleged Damages shall be
held in escrow, and in any event, such Parent Shares shall be held subject to
the Pledge Agreement. The Seller acknowledges and agrees that but for the right
of offset contained in this Agreement, the Buyer would not have entered into
this Agreement or any of the transactions comtemplated herein. If any legal
action or other proceeding is brought for the enforcement of this Agreement, or
any document, instrument, or agreement executed in connection herewith, or
because of an alleged dispute, breach, default or misrepresentation in
connection with any of the provisions of this Agreement or any document,
instrument, or agreement executed in connection herewith, the successful or
prevailing Party shall be entitled to recover reasonable attorneys' fees and
other costs incurred in that action or proceeding. For purposes of this SECTION
8(B), if the claimant recovers more than one-half of its alleged Damages, then
it shall be deemed the prevailing Party, and if the claimant recovers one-half
of its alleged Damages or less, then the other Party shall be deemed the
prevailing Party.
9. MISCELLANEOUS.
A. PUBLIC ANNOUNCEMENTS. No Party shall issue any press release or make
any public announcement relating to the subject matter of this Agreement
(including the documents referred to herein) without the prior written approval
of the Buyer and the Seller; provided, however, that any Party may make any
public disclosure it believes in good faith upon the advice of legal counsel it
is required by applicable law (in which case the disclosing Party will use its
best efforts to advise the other Parties prior to making the disclosure).
B. NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
C. ENTIRE AGREEMENT. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understanding, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
D. SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the Buyer and the Seller; provided, however, that the Buyer may (i)
assign any or all of its rights and interests hereunder (x) to one or more of
its Affiliates, and (y) to one or more financial institutions lending funds to
the Buyer for the purpose of financing the purchase of the Subject Shares
hereunder and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
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E. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
F. HEADINGS. The Section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
G. NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claims or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by overnight courier, and addressed to the
intended recipient as set forth below:
If to Mr. Block: Martin H. Block
7014 Vagabond Drive
Falls Church, Virginia 22042
With a copy to: Mr. Alan Gnessin
Gnessin & Waldman
1300 19th Street, N.W., Suite 408
Washington, D.C. 20036
Telephone: (202) 833-1547
Telefax: (202) 452-1605
If to the Buyer: Litigation Resources of America-Northeast, Inc.
1001 Fannin, Suite 650
Houston, Texas 77002-2731
Telephone: (713) 653-7100
Telefax: (713) 673-7172
Attn: Mr. Richard O. Looney, Chief Executive Officer
Copy to: Boyer Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Telephone: (713) 871-2025
Telefax: (713) 871-2024
Attn: David A. Jones, Jr.
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
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H. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT
TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE DISTRICT OF
COLUMBIA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS
OF ANY JURISDICTION OTHER THAN THE STATE OF TEXAS.
I. AMENDMENTS AND WAIVERS. No amendments of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Parties. No waiver by any Party of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
J. SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
K. EXPENSES. Any costs or expenses (including legal or accounting fees
and expenses) to be paid by the Company in connection with this Agreement and
the transactions contemplated herein shall be paid by the Company prior to
Closing, or accrued in the Effective Date Financial Reports.
L. CONSTRUCTION. Any reference to any federal, state, local, or foreign
statute or law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. The word
"including" shall mean including without limitation. The Parties intend that
each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
M. INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
N. ARBITRATION. If a dispute arises out of or relates to this Agreement,
or the breach thereof, and if said dispute cannot be settled through
negotiation, the Parties agree first to try in good faith to settle the dispute
by mediation under the Commercial Mediation Rules of the American Arbitration
Association, before resorting to arbitration, litigation, or some other dispute
resolution procedure as required by this SECTION 9(N). Failing an adequate
resolution by mediation, any controversy or claim arising out of or relating to
this Agreement or the transactions comtemplated hereby, including any
controversy or claim arising out of or relating to the Parties' decision to
enter
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into this Agreement, shall be settled by binding arbitration. There shall be one
arbitrator to be mutually agreed upon by the Parties involved in the controversy
and to be selected from the National Panel of Commercial Arbitrators (or
successor panel, if any). If within 45 days after service of the demand for
arbitration the Parties are unable to agree upon such an arbitrator who is
willing to serve, then an arbitrator shall be appointed by the American
Arbitration Association in accordance with its rules. Except as specifically
provided in this SECTION 9(N), the arbitration shall be conducted in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
The arbitrator shall not render an award of punitive damages. Any arbitration
commenced by Seller hereunder shall be held at the offices of Boyer, Ewing &
Harris in Houston, Texas or such other location in metropolitan Houston, Texas,
as may be selected by Parent. Any arbitration commenced by Buyer or Parent
hereunder shall be held at the offices of Gnessin & Waldman in Washington, D.C.,
or such other location in metropolitan Washington, D.C. or Pittsburgh,
Pennsylvania, as may be selected by Seller. Expenses related to the arbitration,
including counsel fees, shall be borne by the Party incurring such expenses
except to the extent otherwise provided herein. The fees of the arbitrator and
of the American Arbitration Association, if any, shall be divided equally among
the Parties involved in the controversy. Judgment upon the award rendered by the
arbitrator (which may, if deemed appropriate by the arbitrator, include
equitable or mandatory relief with respect to performance of obligations
hereunder) may be entered in any court of competent jurisdiction. The arbitrator
shall award the prevailing Party in any arbitration proceeding recovery of its
attorneys' fees and other costs in connection with the arbitration from the non-
prevailing Party. Injunctive relief can be sought in a court of appropriate
jurisdiction.
O. JURISDICTION AND VENUE. Each Party hereby agrees that venue for any
litigation commenced by the Seller shall be commenced in Houston, Harris County,
Texas, and that venue for any litigation commenced by Buyer or Parent with
respect to the subject matter of this Agreement shall be in Washington, D.C.
Each Party hereby irrevocably submits to personal jurisdiction in Houston,
Harris County, Texas and Washington, D.C., as applicable, for purposes of this
SECTION 9(O). Each Party hereby waives all objections to personal jurisdiction
and venue as described in this SECTION 9(O) for purposes of such litigation.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on as
of the date first above written.
BUYER:
-----
LITIGATION RESOURCES OF
AMERICA-NORTHEAST, INC.
a New York corporation
By: /s/ Richard O. Looney
------------------------------------------
Richard O. Looney, Chief Executive Officer
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SELLER:
------
/s/ Martin H. Block
----------------------------------------------
MARTIN H. BLOCK
PARENT:
------
LITIGATION RESOURCES
OF AMERICA, INC.,
a Texas corporation
By: /s/ Richard O. Looney
------------------------------------------
Richard O. Looney, Chief Executive Officer
SCHEDULES AND EXHIBITS
Schedule 3A - Exceptions to the Seller's Representations and Warranties
Schedule 3B - Exceptions to the Buyer's Representations and Warranties
Schedule 4A - Seller's Disclosure Schedule
Schedule 4B - Buyer's Disclosure Schedule
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EXHIBIT 10.17
AGREEMENT OF PURCHASE AND SALE OF ASSETS
This Agreement of Purchase and Sale of Assets (this "Agreement") is entered
into and effective as of September 8, 1997 by and among LITIGATION RESOURCES OF
AMERICA-MIDWEST, INC., an Illinois corporation (the "Buyer"), LITIGATION
RESOURCES OF AMERICA, INC., a Texas corporation and the parent of Buyer (the
"Parent"), and KIRBY A. KENNEDY & ASSOCIATES, a Minnesota general partnership
(the "Seller") and Kirby A. Kennedy, a resident of Minnesota, individually
("KAK"), and Jeanne M. Kennedy, a resident of Minnesota, individually ("JMK")
(KAK and JMK being collectively referred to sometimes as the "Partners").
Buyer, Parent, Seller and the Partners are hereinafter sometimes referred to
collectively as the "Parties" or singularly as a "Party."
W I T N E S S E T H :
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WHEREAS, the Seller is the owner of various assets associated with the
Business (as hereinafter defined);
WHEREAS, the Buyer desires to purchase all of the Assets (as hereinafter
defined) owned by the Seller and used in the Business (such purchase of the
Assets being sometimes herein referred to as the "Acquisition") , and the Seller
desires to sell such Assets to the Buyer;
WHEREAS, in connection with the purchase and sale of the Assets, the Parties
desire to set forth in this Agreement the terms and conditions with respect to
the transfer of such Assets; and
WHEREAS, the parties understand that the Parent or its Affiliates may enter
into other agreements similar or dissimilar to this Agreement (the "Other
Agreements") for the acquisition by the Parent or such Affiliates of the assets
or stock of other entities (collectively, the "Other Acquired Businesses," and
each of those entities, individually, an "Other Acquired Business"), which Other
Agreements will be among those entities and their equity owners, the Parent and
Affiliates of the Parent;
NOW, THEREFORE, for and in consideration of the mutual covenants,
agreements, representations and warranties contained in this Agreement, and
other good and valuable consideration, the receipt, adequacy and sufficiency of
which are hereby acknowledged, the Parties hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used herein, the following terms shall have the following meanings:
<PAGE>
ACCOUNTS PAYABLE. The term "Accounts Payable" shall mean all of the
accounts payable of the Business existing as of the Effective Date.
ACCOUNTS PAYABLE REPORT. The term "Accounts Payable Report" shall mean a
report prepared as of the time specified which shows accounts payable of the
Business by service provider and age of each Account Payable.
ACCOUNTS RECEIVABLE. The term "Accounts Receivable" shall mean all of the
accounts receivable of the Business existing as of the Effective Date.
ACCOUNTS RECEIVABLE REPORT. The term "Accounts Receivable Report" shall
mean a report prepared as of the time specified which shows Accounts Receivable
of the Business by customer and age of each Account Receivable.
AFFILIATE. The term "Affiliate" of a person shall mean, with respect to
that person, a person who directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
or is acting as agent on behalf of, or as an officer or director of that person.
As used in the definition of Affiliate, the term "control" (including the terms
"controlling," "controlled by," or "under common control with") means the
possession, direct or indirect, of management and policies of a person whether
through the ownership of voting securities, by contract, through the holding of
a position as a director or officer of such person, or otherwise. As used in
this definition, the term "person" means an individual, a corporation, a limited
liability company, a partnership, an association, a joint stock company, a
trust, an incorporated organization, or a government or political subdivision
thereof.
ANCILLARY AGREEMENTS. The term "Ancillary Agreements" shall have the
meaning set forth in Section 3.2.
ASSETS. The term "Assets" shall have the meaning set forth in Section 2.1.
ASSUMED LIABILITIES. The term "Assumed Liabilities" shall have the meaning
as contained in Section 2.6.
BALANCE SHEET REPORT. The term "Balance Sheet Report" means the cash basis
balance sheet of the Seller as of a given date showing the assets, liabilities
and equity of the Seller adjusted to include Accounts Receivable, Accounts
Payable and accrued liabilities and further adjusted to exclude Excluded Assets
and Retained Liabilities, prepared by the Seller on a consistent basis as with
prior time periods.
BILL OF SALE. The term "Bill of Sale" shall have the meaning set forth in
Section 6.3(xi).
BOOKS AND RECORDS. The term "Books and Records" shall have the meaning set
forth in Section 2.1(c).
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BUSINESS. The term "Business" shall mean the court reporting and litigation
support business of the Seller as presently conducted.
BUYER INDEMNIFIED PARTIES. The term "Buyer Indemnified Parties" shall have
the meaning set forth in Section 7.1A.
CAPITAL STOCK means, with respect to: (a) any corporation, any share, or
any depositary receipt or other certificate representing any share, of an equity
ownership interest in that corporation; and (b) any other Entity, any share,
membership or other percentage interest, unit of participation or other
equivalent (however designated) of an equity interest in that Entity.
CASH PURCHASE PRICE. The term "Cash Purchase Price" shall have the meaning
set forth in Section 2.3(a).
CLOSING. The term "Closing" shall have the meaning set forth in
Section 6.1.
CLOSING DATE. The term "Closing Date" shall have the meaning set forth in
Section 6.1.
CLOSING DATE ACCOUNTS PAYABLE REPORT. The term "Closing Date Accounts
Payable Report" shall mean an Accounts Payable Report prepared as of the Closing
Date.
CLOSING DATE ACCOUNTS RECEIVABLE REPORT. The term "Closing Date Accounts
Receivable Report" shall mean an Accounts Receivable Report prepared as of the
Closing Date.
CLOSING DATE BALANCE SHEET REPORT. The term "Closing Date Balance Sheet
Report" shall mean a Balance Sheet Report prepared as of the Closing Date.
CLOSING DATE REPORTS. The term "Closing Date Reports" shall have the
meaning set forth in Section 2.4.
CLOSING MEMORANDUM. The term "Closing Memorandum" shall mean the form of
closing memorandum to be prepared by the Buyer and the Parent and approved by
the Seller (which approval will not be unreasonably withheld) for the Closing
under this Agreement in which are included the forms of certificates of
Partners, opinions of counsel and certain other documents to be delivered at the
Closing as provided herein.
CODE. The term "Code" shall mean the Internal Revenue Code of 1986, as
amended.
CONTRACTS. The term "Contracts" shall have the meaning as contained in
Section 2.1(b).
CUSTOMERS. The term "Customers" shall have the meaning as contained in
Section 3.28.
DAMAGES. The term "Damages" shall have the meaning set forth in
Section 7.1A.
EFFECTIVE DATE. The term "Effective Date" shall mean 12:01 a.m. on the
"Closing Date."
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EMPLOYEE. The term "Employee" shall mean any employee of the Seller who, as
of the Effective Date, is employed or otherwise performs work or provides
services in connection with the operation of the Business, including those, if
any, on disability, sick leave, layoff or leave of absence, who, in accordance
with the Seller's applicable policies, is eligible to return to active status,
but shall not include any independent contractor providing court reporting
services to Seller from time to time.
EMPLOYMENT AGREEMENTS. The term "Employment Agreements" shall have the
meaning ascribed to it in Section 3.20.
ENTITY. The term "Entity" shall mean any sole proprietorship,
corporation, partnership of any kind having a separate legal status, limited
liability company, business trust, unincorporated organization or association,
mutual company, joint stock company or joint venture.
ENVIRONMENTAL, HEALTH & SAFETY LAWS The term "Environmental, Health &
Safety Laws" shall mean all laws (including rules and regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local, and foreign governments and all agencies thereof
concerning pollution or protection of the environment, public health and safety,
or employee health and safety.
EQUIPMENT. The term "Equipment" shall have the meaning as contained in
Section 2.1(a).
ERISA. The term "ERISA" shall have the meaning as contained in
Section 3.20.
EXCHANGE ACT. The term "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
EXCLUDED ASSETS. The term "Excluded Assets" shall have the meaning as
contained in Section 2.2.
EXPIRATION DATE. The term "Expiration Date" shall have the meaning set forth
in the introductory paragraph to Article III.
FINAL NET WORTH. The term "Final Net Worth" means total assets minus total
liabilities, as reflected on the Closing Date Balance Sheet Report.
FINAL PROSPECTUS. The term "Final Prospectus shall mean the prospectus
included in the Registration Statement at the time it becomes effective, except
that if the prospectus first furnished to the Underwriter after the Registration
Statement becomes effective for use in connection with the IPO differs from the
prospectus included in the Registration Statement at the time it becomes
effective (whether or not that prospectus so furnished is required to be filed
with the SEC pursuant to Securities Act Rule 424(b)), the prospectus so first
furnished is the "Final Prospectus."
FINANCIAL STATEMENTS. The term "Financial Statements" shall mean the
balance sheet, income statement and statement of changes of financial position
of the Seller.
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GAAP. The term "GAAP" shall mean generally accepted accounting principles
of the Accounting Principles Board of the American Institute of Certified Public
Accountants and the Financial Accounting Standards Board that are applicable
from time to time.
GOVERNMENTAL APPROVAL. The term "Governmental Approval" shall mean at any
time any authorization, consent, approval, permit, franchise, certificate,
license, implementing order or exemption of, or registration or filing with, any
Governmental Authority, including any certification or licensing of a natural
person to engage in a profession or trade or a specific regulated activity, at
that time.
GOVERNMENTAL AUTHORITY. The term "Governmental Authority" shall mean (a)
any national, state, county, municipal or other government, domestic or foreign,
or any agency, board, bureau, commission, court, department or other
instrumentality of any such government, or (b) any Person having the authority
under any applicable Governmental Requirement to assess and collect Taxes for
its own account.
GOVERNMENTAL REQUIREMENT. The term "Governmental Requirement" shall mean at
any time (a) any law, statute, code, ordinance, order, rule, regulation,
judgment, decree, injunction, writ, edict, award, authorization or other
requirement of any Governmental Authority in effect at that time or (b) any
obligation included in any certificate, certification, franchise, permit or
license issued by any Governmental Authority or resulting from binding
arbitration, including any requirement under common law, at that time.
GUARANTEED NET WORTH. The term "Guaranteed Net Worth" shall mean the amount
of $163,092, less the net book value, as of June 30, 1997, of the Excluded
Assets.
INTELLECTUAL PROPERTY. The term "Intellectual Property" shall have the
meaning as contained in Section 2.1(e).
IPO. The term "IPO" shall mean the first time a registration statement filed
under the Securities Act and respecting a primary offering by the Parent to the
public of Parent Shares is declared effective under the Securities Act and the
shares registered by that registration statement are issued and sold by the
Parent (otherwise than pursuant to the exercise by the Underwriter of any over-
allotment option).
IPO CLOSING. The term "IPO Closing" shall mean the delivery to the
Underwriters of Parent Shares and payment therefor pursuant to the IPO.
IPO CLOSING DATE. The term "IPO Closing Date" shall mean the date on which
the Parent first receives payment for the Parent Shares it sells to the
Underwriter in the IPO.
IPO PRICE. The term "IPO Price" shall mean the price per share of Parent
Shares which is set forth as the "price to public" on the cover page of the
Final Prospectus.
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LEASED ASSETS. The term "Leased Assets" shall have the meaning ascribed
thereto in Section 3.6.
LITIGATION. The term "Litigation" shall mean any action, case, proceeding,
claim, grievance, suit or investigation or other proceeding conducted by or
pending before any Governmental Authority or any arbitration proceeding.
MATERIAL. The term "Material" shall mean, as applied to any Entity or the
Business, material to the business, operations, property or assets, liabilities,
financial condition or results of operations of that Entity and its Subsidiaries
considered as a whole or the Business, as the case may be.
MATERIAL ADVERSE EFFECT. The term "Material Adverse Effect" shall mean, with
respect to the consequences of any fact or circumstance (including the
occurrence or non-occurrence of any event) to the Business, that such fact or
circumstance has caused, is causing or will cause, directly, indirectly or
consequentially, singly or in the aggregate with other facts and circumstances,
Material Damages.
NET WORTH. The term "Net Worth" means the dollar amount of total assets
minus the total liabilities of the Seller as of a given time period as
determined by the Balance Sheet Report as of such time period.
NOTICE OF ACTION. The term "Notice of Action" shall have the meaning set
forth in Section 7.1C.
NOTICE OF ELECTION. The term "Notice of Election" shall have the meaning
set forth in Section 7.1C.
ORDINARY COURSE OF BUSINESS. The term "Ordinary Course of Business" shall
mean the ordinary course of Seller's Business consistent with past custom and
practice (including with respect to quantity and frequency).
PARENT SHARES. The term "Parent Shares" shall mean any of the shares of
common stock of the Parent.
PBGC. The term "PBGC" shall mean the Pension Benefits Guaranty Corporation.
PERSON. The term "Person" shall mean any natural person, Entity, estate,
trust, union or employee organization or Governmental Authority.
PRICING. The term "Pricing" shall have the meaning set forth in Section 6.1.
PUBLIC OFFERING. The term "Public Offering" means the sale by the Parent of
any of its securities for cash in an underwritten public offering registered on
the appropriate form with the Securities and Exchange Commission.
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PUBLIC OFFERING PRICE. The term "Public Offering Price" shall refer to the
price to the public of the Parent Shares pursuant to the initial Public Offering
of the Parent Shares by Parent.
PURCHASE PRICE. The term "Purchase Price" shall mean the consideration
payable to the Seller for the Assets as set forth or contemplated in
Section 2.3.
REGISTRATION RIGHTS AGREEMENT. The term "Registration Rights Agreement"
shall have the meaning set forth in Section 6.2(x).
REGISTRATION STATEMENT. The term "Registration Statement" shall mean the
registration statement, including (a) each preliminary prospectus included
therein prior to the date on which that registration statement is declared
effective under the Securities Act (including any prospectus filed with the SEC
pursuant to Securities Act Rule 424(b)), (b) the Final Prospectus and (c) any
amendments and all supplements and exhibits thereto, filed by the Parent with
the SEC to register shares of the Parent Shares under the Securities Act for
public offering and sale in the IPO.
RETAINED LIABILITIES. The term "Retained Liabilities" shall mean all
liabilities of the Seller other than the Assumed Liabilities.
SCHEDULE OF ACCRUED LIABILITIES. The term "Schedule of Accrued Liabilities"
shall mean a schedule of all accrued liabilities of the Business prepared for
the period and as of the date specified.
SEC. The term "SEC" means the Securities & Exchange Commission or any
successor Governmental Authority.
SECURITIES ACT. The term "Securities Act" shall mean the Securities Act of
1933, as amended.
SELLER INDEMNIFIED PARTIES. The term "Seller Indemnified Parties" shall
have the meaning set forth in Section 7.1B.
STOCK PLEDGE AGREEMENT. The term "Stock Pledge Agreement" shall have the
meaning set forth in Section 6.3(xiii).
SUBSIDIARY. The term "Subsidiary," of any specified Person at any time,
shall mean any Entity a majority of the Capital Stock of which is at that time
owned or controlled, directly or indirectly, by the specified Person.
UNDERWRITER. The term "Underwriter" shall mean collectively (a) the
investment banking firms that prospectively may enter into the Underwriting
Agreement and (b) from and after the IPO Pricing Date, the investment banking
firms party to the Underwriting Agreement.
UNDERWRITING AGREEMENT. The term "Underwriting Agreement" shall mean the
underwriting agreement to be entered into between the Parent and the Underwriter
with respect to the IPO.
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ARTICLE II
PURCHASE OF ASSETS AND PURCHASE PRICE
2.1 SALE OF ASSETS. Subject to the terms and conditions set forth in this
Agreement, the Seller agrees to sell, convey, transfer, assign and deliver to
the Buyer, and the Buyer agrees to purchase from the Seller on the IPO Closing
Date, all assets owned by Seller and used in or derived from the Business (other
than those specifically excluded under Section 2.2 below) including the
following (such assets to be referred to herein as the "Assets"):
(a) All office equipment, service equipment, supplies, computer
hardware, computer software, data processing equipment, and tools (the
"Equipment"), including the Equipment described on SCHEDULE 2.1(A), but
specifically excluding the Excluded Assets;
(b) All contracts, leases, documents, franchises, Licenses,
instruments, agreements and other written or oral agreements relating to
the Business of Seller to which Seller is a party or by which Seller or any
of the Assets may be bound as well as all rights, privileges, claims and
options relating to the foregoing (the "Contracts"), including the
Contracts described on SCHEDULE 2.1(B);
(c) All customer and supplier files and databases, customer and
supplier lists, accounting and financial records, invoices, and other books
and records relating principally to the Business (the "Books and Records"),
including the Books and Records described on SCHEDULE 2.1(C);
(d) Employee files for those Employees actually hired by Buyer;
(e) All right, title and interest of Seller, in, to and under all
service marks, trademarks, trade and assumed names, principally related to
the Business together with the right to recover for infringement thereon,
if any (the "Intellectual Property"), and other marks and/or names
described on SCHEDULE 2.1(E);
(f) All advertising materials and all other printed or written
materials related to the conduct of the Business;
(g) All of the Seller's general intangibles, claims, rights of set
off, rights of recoupment, goodwill, patents, inventions, trade secrets and
royalty rights and other proprietary intangibles, licenses and sublicenses
granted and obtained with respect thereto, and rights thereunder, which are
used in the Business, and remedies against infringements thereof, and
rights to protection of interests therein under the laws of all
jurisdictions (the "General Intangibles"), including the General
Intangibles described on SCHEDULE 2.1(G);
(h) All goodwill and going concern value and all other intangible
properties related to the Business;
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(i) All of Seller's Accounts Receivable, including notes receivable,
trade receivables, and intercompany receivables relating to the Business.
(j) All raw materials, work in process, finished goods, consigned
goods, and other inventories relating to the Business, as more fully
described on SCHEDULE 2.1(J) (the "Inventory"); and
(k) The exclusive right to use the name "Kirby A. Kennedy &
Associates, any similar name or derivative thereof, and any past or present
assumed names or trade names in connection with the Business or Seller's
use of the Assets (the "Seller's Names").
2.2 EXCLUDED ASSETS. Seller is not selling and Buyer is not purchasing
any of the following excluded assets related to the Business ("Excluded
Assets"): (i) cash, (ii) cash investments, cash deposits, right to receive cash
refunds, and other cash equivalents, (iii) motor vehicles used in the Business,
and (iv) assets of any employee benefit plan described on SCHEDULE 3.20, all as
more specifically described on SCHEDULE 2.2.
2.3 PURCHASE PRICE. Upon the terms and subject to the conditions
contained herein and as consideration for the sale of the Assets and the
performance by the Seller of various other matters as provided herein, the Buyer
shall pay or deliver to the Seller, on the IPO Closing Date and as soon as
practicable after the IPO Closing, the aggregate amount $3,575,348, payable by
delivery of the following consideration (collectively the "Purchase Price"):
(a) Subject to the provisions of Section 2.4, a Cash Sum in the amount
of Dollars $2,502,744 (the "Cash Purchase Price"), paid by the wire
transfer of immediately available funds; and
(b) Such number of whole Parent Shares on the IPO Closing Date as,
when multiplied by 90% of the IPO Price, will most nearly approximate, but
not exceed, $1,072,604 and cash in the amount equal to the excess of
$1,072,604 over the product of that number of Parent Shares multiplied by
the IPO Price.
2.4 DETERMINATION OF FINAL NET WORTH. Each of the Closing Date Balance
Sheet Report, the Closing Date Accounts Receivable Report, the Closing Date
Accounts Payable Report, the Closing Date Schedule of Accrued Liabilities and
the Closing Date Income Statement (collectively, the "Closing Date Reports") of
the Seller shall be prepared by the Seller, as promptly as possible after the
Closing. Seller's accountants shall then review and certify the Closing Date
Reports, and deliver them to Buyer and Buyer's accountants within 30 days after
the IPO Closing Date. The Buyer's accountants shall review the Closing Date
Reports (including any corresponding work papers of Seller's accountants) and
report to the Seller's accountants in writing within 30 days of receipt thereof
of any discrepancy between the Seller's accountants certification and the
Buyer's accountants results of review. If Seller's accountants and Buyer's
accountants cannot resolve such discrepancy within 30 days after Seller's
accountants receipt of such reported discrepancy, then they shall so notify the
Seller and the Buyer, and the Seller and the Buyer shall attempt to resolve the
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discrepancy within 15 days of such notice. If the Seller and the Buyer cannot
resolve the discrepancy to their mutual satisfaction, another independent public
accounting firm acceptable to the Seller and the Buyer shall be retained to
review the Closing Date Reports. Such firm's conclusions as to the carrying
values to appear on the Closing Date Reports for purposes of determining the
Final Net Worth of the Seller shall be conclusive. The Seller and the Buyer
shall share equally in the expenses of retaining such independent accounting
firm. The Buyer shall pay the expenses of the Buyer's accountants for their
review of the Closing Date Reports, and the Seller shall pay the expenses of
Seller's accountants for their review of the Closing Date Reports.
2.5 ADJUSTMENT OF PURCHASE PRICE. After the IPO Closing Date, the
Purchase Price set forth in Section 2.3, shall be adjusted as follows: (i) if
the Final Net Worth of the Seller as finally determined pursuant to Section 2.4
shall be more than the Guaranteed Net Worth, then the cash portion of the
Purchase Price shall be increased by the amount of such excess and (ii) if the
Final Net Worth of the Seller as finally determined pursuant to Section 2.4
shall be less than the Guaranteed Net Worth, then the cash portion of the
Purchase Price shall be decreased by the amount of such deficiency. In the event
that the Final Net Worth is more than the Guaranteed Net Worth, the Buyer shall
within 15 days pay the amount of such excess in cash to the Seller. In the
event that the Final Net Worth is less than the Guaranteed Net Worth, the Seller
shall within 15 days refund the amount of such deficiency in cash to Buyer.
2.6 ASSUMPTION OF LIABILITIES. Upon the terms and subject to the
conditions contained herein, the Buyer agrees that on the Closing Date, it will
not assume (i) any liabilities of Seller (except for those liabilities listed as
current liabilities on Seller's Balance Sheet dated June 30, 1997, subject,
however, to adjustments for changes in liabilities occurring in the ordinary
course of Seller's business following June 30, 1997 through the Closing Date, as
determined under Section 2.4 and set forth on the Closing Date Reports ("Assumed
Liabilities")), (ii) any liabilities of Seller associated with the Excluded
Assets, or (iii) any liabilities described on SCHEDULE 3.22. Buyer
specifically excludes and does not assume any liabilities relating to or arising
out of any of Seller's tax obligations, tax claims, tax charges, tax fines or
any related tax liabilities, regardless of the source, cause or origin of such
tax liabilities.
2.7 ALLOCATION OF PURCHASE PRICE. For all federal, state and local tax
purposes, the Purchase Price shall be allocated among the various Assets in the
manner indicated in SCHEDULE 2.7 hereto subject to adjustment pursuant to the
Closing Date Reports; provided, however, that the Purchase Price allocated to
fixed assets shall not exceed their book value. None of the Parties shall file
any tax return or report or take any position with any taxing agency or
authority which is inconsistent with the foregoing allocation, except to the
extent mandated by a court of law or the appropriate taxing agency or authority
in a determination binding upon one Party provided that such Party has given
written notice and reasonable opportunity to the other Party, at its expense, to
contest and appeal such determination on behalf of both Parties and such
determination has nevertheless become final. Within ninety (90) days after the
Closing Date, the Parties shall prepare for filing with the Internal Revenue
Service a Form 8594 in accordance with the foregoing allocation.
2.8 TAXES. Seller shall be liable for the payment of all sales and use
taxes arising out of the sale and transfer or removal of the Assets, if any, and
the assumption of the Assumed Liabilities.
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The Buyer shall not be responsible for any business, occupation, withholding or
similar tax, or any taxes of any kind of the Seller, related to any period
before the Effective Date.
2.9 TITLE TO ASSETS AND RISK OF LOSS. Title to the Assets and risk of
loss or damage to the Assets by casualty (whether or not covered by insurance)
will pass to the Buyer immediately upon completion of the Closing and payment of
the purchase price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller and the Partners jointly and severally represent and warrant that all
of the following representations and warranties in this Article III are true at
the date of this Agreement and shall be true at the time of Closing and the IPO
Closing Date, and that such representations and warranties shall survive the IPO
Closing Date for a period of two years (the last day of such period being the
"Expiration Date"), except that (i) the warranties and representations set forth
in Section 3.24 hereof shall survive until such time as the limitations period
has run for all tax periods ended on or prior to the IPO Closing Date, which
shall be deemed to be the Expiration Date for Section 3.24, and (ii) solely for
purposes of determining whether a claim for indemnification under Section 7.1
hereof has been made on a timely basis, and solely to the extent that in
connection with the IPO, the Seller or the Partners actually incur liability
under the Securities Act, the Exchange Act, or any other federal or state
securities laws, the representations and warranties set forth herein shall
survive until the expiration of any applicable limitations period, which shall
be deemed to be the Expiration Date for such purposes.
3.1 ORGANIZATION. Seller is a partnership duly organized, validly
existing and in good standing under the laws of the State of Minnesota, has all
necessary partnership powers to own its Assets and properties and to operate the
Business as now owned and operated by it, and is not qualified, nor required to
be qualified, to do business in any other state.
3.2 AUTHORITY. Seller has the full right, power, legal capacity and
authority to execute, deliver and perform Seller's obligations under this
Agreement and all agreements ancillary to this Agreement which are part of the
underlying transaction made the basis of this Agreement and executed in
connection herewith, including but not limited to the Exhibits hereto
("Ancillary Agreements"). The sale of the Assets and the execution, delivery
and performance of this Agreement and the Ancillary Agreements by Seller have
been duly authorized by all of the Partners.
3.3 CONSENTS AND APPROVALS; NO BREACH OR DEFAULT. Except as set forth on
SCHEDULE 3.3(A), no consent, approval or authorization of, or filing or
registration with, any Governmental Authority, or any other Person or Entity, is
required to be made or obtained by Seller in connection with the execution,
delivery or performance of this Agreement, or the consummation by Seller of the
transactions contemplated hereby. Except as set forth on SCHEDULE 3.3(B),
neither the execution and delivery of this Agreement or the Ancillary Agreements
by Seller, nor the consummation of the transactions contemplated herein by
Seller, will (a) violate any constitution,
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statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any Governmental Authority to which Seller is, or the
Assets are, subject, or (b) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice under, any
agreement, contract, lease, license, instrument, promissory note, conditional
sales contract, partnership agreement or other arrangement to which Seller or
any of Seller's Affiliates is a party, or by which Seller is bound, or to which
the Assets are subject, or (c) conflict with or violate the articles or
agreement of partnership or other charter documents of Seller.
3.4 VALID AND BINDING OBLIGATION. Upon execution and delivery, this
Agreement and each document, instrument or agreement to be executed by Seller,
or any Partner, in connection herewith, will constitute the legal, valid, and
binding obligation of Seller and/or each Partner which is a party thereto,
enforceable against Seller and/or each such Partner in accordance with its
terms, except as same may be limited by applicable bankruptcy laws, insolvency
laws, or other similar laws affecting the rights of creditors generally.
3.5 TITLE TO ASSETS. Except as set forth on SCHEDULE 3.5(A), Seller has
good, indefeasible and marketable title to the Assets, free and clear of
restrictions or conditions to transfer or assignment, or mortgages, liens,
pledges, charges, encumbrances, equities, claims, easements, rights-of-way,
covenants, conditions or restrictions. Seller shall, subject to the exceptions
set forth on SCHEDULE 3.5(B) deliver to Buyer at Closing good, indefeasible and
marketable title to the Assets, free and clear of restrictions or conditions to
transfer or assignment, or mortgages, liens, pledges, charges, encumbrances,
equities, claims, easements, rights-of-way, covenants, conditions or
restrictions.
3.6 POSSESSION OF ASSETS; LEASED ASSETS. Seller is in possession of all
of the Assets, and all of the assets leased to Seller from others. All assets
leased to Seller from others and used in the Business, whether real, personal or
mixed, are described on SCHEDULE 3.6 and SCHEDULE 3.14(B) attached hereto (the
"Leased Assets"). The Assets and the Leased Assets constitute all of the
property, whether real, personal, mixed, tangible, or intangible, that is owned
or used in the Business by Seller, other than the Excluded Assets. Seller does
not own legal or equitable title to any assets or interests in assets except the
Assets and the Leased Assets. Seller shall deliver to Buyer on the Closing Date,
possession of and/or control or dominion over all of the Assets and the Leased
Assets, including without limitation all of Seller's accounts receivable,
property, plant and equipment, other personal property, contract rights and
general intangibles, Customer and supplier lists, and assumed and trade names.
3.7 CONDITION. All of the Assets and the Leased Assets are in good
operating condition and repair for their intended use, ordinary wear and tear
excepted.
3.8 CONTRACTS AND LEASES. All of the contracts, leases, documents,
instruments, agreements, and other written or oral arrangements to which Seller
is a party or by which Seller or the Assets may be bound are set forth on
SCHEDULE 2.1(B). Except as set forth on SCHEDULE 2.1(B), all of the Contracts
are valid and in full force and effect, and there has not been any
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default by Seller or any third party to any of said Contracts, or any event,
fact or circumstance which with notice or lapse of time or both, would
constitute a default by Seller or any other party to any of the Contracts.
Seller has not received notice that any party to any of the Contracts intends to
cancel or terminate any of the Contracts or exercise or not exercise any options
that such party might have under any of the Contracts.
3.9 EQUIPMENT. All of the equipment owned by Seller is set forth on
SCHEDULE 2.1(A).
3.10 ACCOUNTS RECEIVABLE. All of the Accounts Receivable of Seller as
set forth in the Books and Records of Seller and all papers and documents
relating thereto, are genuine and in all respects what they purport to be, and
each such Account Receivable is valid and subsisting and is owed by the account
debtor named in such Account Receivable. The amount of each Account Receivable
represented as owing as of the date indicated (a) is the correct amount actually
and unconditionally owing as of the date indicated, (b) is not subject to any
set-offs, credits, disputes, defenses, deductions or countercharges, and (c) to
the best knowledge of Seller, will be paid in the Ordinary Course of Business.
None of the Accounts Receivable has been paid outside of the Ordinary Course of
Business, and neither Seller nor any of its Affiliates has made any efforts to
collect any of the Accounts Receivable outside of the Ordinary Course of
Business.
3.11 INVENTORIES. Except as set forth on Schedule 2.1(j), Seller does
not have any raw materials, work in process, finished goods or other inventory.
3.12 LICENSES. All licenses and sublicenses owned by Seller or in which
Seller has any rights (collectively, the "Licenses"), together with a brief
description of each, are set forth on SCHEDULE 2.1(B). Seller has not
infringed, and is not now infringing, on any license belonging to any other
Person or Entity. Seller owns and holds adequate licenses necessary for the
Business as now conducted by it, and that use does not, and will not, conflict
with, infringe on or otherwise violate any rights of others. Buyer is hereby
acquiring, and will continue to enjoy the use and benefit of, the Licenses.
3.13 INTELLECTUAL PROPERTY. All of the Intellectual Property of
Seller is set forth on SCHEDULE 2(E). The Intellectual Property constitutes all
of the intellectual property necessary to the lawful conduct of the Business
without any infringement or conflict with the rights of others, and no adverse
claims have been asserted against the Intellectual Property, Seller or the
Business with respect thereto.
3.14 REAL PROPERTY; LEASED REAL PROPERTY. Except as set forth in
SCHEDULE 3.14(A) with respect to real property owned by Seller, and SCHEDULE
3.14(B) with respect to real property leased by Seller (such real property being
hereinafter referred to collectively as the "Real Property"), Seller neither
owns nor leases any real property or improvements or interests therein. Except
for Seller, there are no parties in possession of any portion of the Real
Property as lessees, tenants at will or at sufferance, trespassers or otherwise.
The heating, electrical, plumbing and other building equipment, as of the
Closing, will be adequate in quantity and quality for normal operations of the
Business, as presently conducted.
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3.15 SUBSIDIARIES. Seller does not own, and has never previously
owned, directly or indirectly, any interest or investment (whether equity or
debt) in any corporation, partnership, business, trust, or other Entity.
3.16 INSURANCE. Attached hereto as SCHEDULE 3.16 is a true, complete and
accurate list of all insurance policies maintained by Seller. The Seller has
maintained and now maintains insurance protection against all liabilities,
claims and risks against which, with respect to the Business and the Assets, it
is customary to insure in the Ordinary Course of Business.
3.17 BANKING. The names and addresses of all banks or other financial
institutions in which Seller has an account, deposit or safe deposit box, with
the names of all Persons authorized to draw on these accounts or deposits or
having access to these boxes, are set forth on SCHEDULE 3.17 attached hereto.
3.18 POWERS OF ATTORNEY. No Person or Entity holds a general or special
power of attorney from Seller.
3.19 PERSONNEL. Attached hereto as SCHEDULE 3.19 (A) is a list of the
names, addresses, hire dates, dates of birth and job descriptions of all
Employees of Seller, stating their rates of compensation including, if
determined, bonuses payable to each. Attached hereto as SCHEDULE 3.19 (B) is a
list of the names, addresses, dates of birth and services provided by all
independent contractors used by Seller during the preceding one (1) year,
stating their rates and methods of compensation.
3.20 EMPLOYEE BENEFITS. SCHEDULE 3.20 is a true, correct and complete list
of each "employee benefit plan," within the meaning of Section 3(3) of Employee
Retirement Income Security Act of 1974, as amended ("ERISA") which has ever been
maintained or sponsored by Seller or any of its Affiliates. Each such employee
benefit plan (and each related trust, insurance contract, or fund) is in full
force and effect, and complies in form and in operation in all respects with the
applicable requirements of ERISA, the Code, and other applicable laws. Neither
Seller nor any other party is in default under any of the plans, there have been
no claims of default, and there are no facts, conditions or circumstances which
if continued, or on notice, will result in a default, under any plan. None of
the plans will, by its terms or under applicable law, become binding upon or
become an obligation of the Buyer. No assets of any plan are being transferred
to Buyer or to any plan of Buyer. Seller does not contribute to, and has never
contributed to, and has never been required to contribute to, any multiemployer
plan, and Seller does not have, and has never had, any liability (including
withdrawal liability) under any multiemployer plan.
3.21 EMPLOYMENT AGREEMENTS. SCHEDULE 3.21 is a list of all employment
agreements, consulting agreements, collective bargaining agreements, and
agreements providing for Partner indemnification or other agreements or
arrangements providing for employee or other remuneration, severance payments or
benefits to which Seller or any of its Affiliates is a party or by which Seller
or any of its Affiliates is bound (collectively, the "Employment Agreements").
Buyer will not have any duty, liability or obligation with respect to any of the
Employment
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Agreements. Except as set forth on SCHEDULE 3.21, no Employees are represented
by any labor organization.
3.22 LIABILITIES. Seller does not have any liabilities, obligations or
commitments of any nature, whether accrued, absolute, contingent or otherwise,
and whether due or to become due, except (a) liabilities which are adequately
disclosed or accrued against in the Balance Sheet Reports, (b) liabilities which
have been incurred in the Ordinary Course of the Business since June 30, 1997,
and in accordance with standard, customary and historical practices and
experiences of Seller, and (c) liabilities expressly set forth, as to the nature
and amount thereof, on SCHEDULE 3.22. Buyer shall not incur any duty, liability
or obligation with respect to any liabilities set forth on SCHEDULE 3.22. In no
event shall the Buyer be liable for (or have paid any) legal, accounting or
other costs or expenses incurred by Seller in connection with any of the
transactions contemplated in this Agreement.
3.23 LITIGATION. Except as set forth on SCHEDULE 3.23, there is no
suit, action, arbitration or legal, administrative or other proceeding or
governmental investigation pending or threatened against or affecting Seller,
its Affiliates, the Assets, the Leased Assets or the Business.
3.24 TAX MATTERS. Seller has filed all tax returns that Seller was
required to file, and all such tax returns were correct and complete in all
respects. All taxes owed by Seller (whether or not shown on any tax return)
have been paid. Seller is not the beneficiary of any extension of time within
which to file any tax return, and Seller has not waived any statute of
limitations in respect of taxes or agreed to any extension of time with respect
to a tax assessment or deficiency. Seller has withheld and paid all taxes
required to have been withheld or paid in connection with amounts paid or owing
to any Employee, independent contractor, creditor, Partner, or other third
party. Neither Seller nor any Partner (or Employee responsible for tax matters)
of Seller has reason to believe that any authority might assess any additional
taxes for any period for which tax returns have been filed. There is no dispute
or claim concerning any tax liability of Seller.
3.25 COMPLIANCE WITH LAWS. Seller has complied with, and is not in
violation of, applicable federal, state or local ordinances, statutes, laws,
rules, restrictions and regulations (including, without limitation, any
applicable Environmental, Health & Safety Laws) that affect, or are likely to
affect, directly or indirectly, the Business, the Assets, the Leased Assets, the
Real Property or the Customers, suppliers or financial prospects of Seller.
There are not any uncured violations of federal, state or local laws,
ordinances, statutes, orders, rules, restrictions, regulations or requirements
affecting any portion of the Business, the Real Property, the Assets or the
Leased Assets, and neither any of the Assets, the Leased Assets or the Real
Property, nor the operation thereof nor the conduct of the Business, violates
any applicable federal, state or municipal laws, ordinances, orders, regulations
or requirements. Seller has not received notice of any past, present or future
event, condition, circumstance, activity, practice, incident, action or plan
which may interfere with or prevent compliance or continued compliance with the
Environmental, Health & Safety Laws or which may give rise to any common law or
legal liability, or otherwise form the basis of any claim, action, demand,
lawsuit, proceeding, hearing,
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study or investigation, based on, related to, or alleging any violation of the
Environmental Health & Safety Laws.
3.26 FINANCIAL STATEMENTS. The Financial Statements (a) are true,
complete, and correct in all material respects, (b) fairly and accurately
present the financial position of Seller as of the periods described therein,
and the results of the operations of Seller for the periods indicated, and (c)
have been prepared consistently and in accordance with the Seller's historical
customs and practices.
3.27 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
SCHEDULE 3.27, since June 30, 1997.
(A) there has been no: (i) material adverse change in the financial
condition, assets, liabilities, business or prospects of Seller; (ii) loss,
destruction or damage to any property of Seller, whether or not insured;
(iii) labor trouble, pending or threatened, involving Seller, or change in
the personnel of Seller or the terms or conditions of their employment or
other engagement; nor (iv) other event or condition of any character that
has or could have a Material Adverse Effect on the Business;
(B) Seller and its Affiliates have used their best efforts to
preserve the business organization of Seller intact, to maintain the
goodwill of the Business, to keep available to the Business the Employees
and the independent contractors, and to preserve the present relationships
of Seller with its suppliers, Customers, regulatory authorities and others
having business relationships with it;
(C) Seller has maintained and operated the Business in the Ordinary
Course of Business and in accordance with industry practices and Seller's
historical policies;
(D) Seller has not issued or sold, nor directly or indirectly
redeemed or acquired, any of its securities;
(E) Seller has not declared, set aside nor paid a dividend or other
distribution, nor made any payment of any type to the holders of any equity
interest in Seller or any of its Affiliates, other than ordinary salary or
expenses which have been paid in the Ordinary Course of Business and fully
disclosed to Buyer;
(F) Seller has neither waived nor released any Material right of or
material claim held by it, nor discounted any of its Accounts Receivable,
nor revalued any of its Assets or liabilities;
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(G) Seller has not acquired nor disposed of any assets having a value
of $5,000 individually or $15,000 in the aggregate, and has not entered
into any contract, commitment or arrangement therefor, and has not entered
into any other transaction, other than for value in the Ordinary Course of
Business and in accordance with industry practices;
(H) Seller has not changed the salary or other compensation payable
or to become payable by Seller to any of its Partners, Employees,
independent contractors, agents or other personnel, and has not declared,
made or committed to any kind of payment of a bonus or other additional
salary or compensation to any such Person;
(I) Seller has not made a loan to any Person or Entity, and has not
guarantied any loan, in an amount in excess of $5,000 individually or
$15,000 in the aggregate;
(J) Seller has not amended nor terminated any material contract,
agreement, permit or license to which Seller is a party, or by which Seller
or any of the Assets or Leased Assets are bound;
(K) Seller has maintained all debt and lease instruments, and has
not entered into any new or amended debt or lease instruments;
(L) Seller has not entered into any agreement or instrument which
would constitute an encumbrance, mortgage or pledge of the Assets, or which
would bind Buyer or the Assets after Closing, in an amount in excess of
$5,000 individually or $15,000 in the aggregate;
(M) Seller has provided to Buyer any and all books, records,
contracts, and other documents or data pertaining to the ownership, use,
insurance, operation, renovation and maintenance of the Assets, the Leased
Assets and the Business;
(N) Seller has performed all of Seller's obligations under all
contracts and commitments applicable to Seller, the Assets and the Leased
Assets, and has maintained Seller's books of account and records in the
usual, regular and customary manner;
(O) Seller has complied with all statutes, laws, ordinances and
regulations applicable to Seller, the Assets, the Leased Assets and the
conduct of the Business;
(P) Seller has paid all bills and other payments due with respect to
the ownership, use, insurance, operation and maintenance of the Business,
the Assets
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and the Leased Assets, as and when such bills or other payments were due,
and has taken all action necessary or prudent to prevent liens or other
claims for the same from being filed or asserted against any part of the
Assets or the Leased Assets; provided however, Seller has not made any
expenditures outside the Ordinary Course of Business, nor any capital
expenditures, in excess of $5,000 individually or $15,000 in the aggregate;
(Q) Seller has not made any material changes in its management,
operations, accounting or business practices or methods (including without
limitation, any change in depreciation or amortization policies or rates);
and
(R) all revenues or cash or other receipts from all sources in all
media received by Seller have been deposited in Seller's account.
3.28 CUSTOMERS. SCHEDULE 3.28 to this Agreement is a true, complete
and correct list of all Customers of Seller, together with summaries of the
services provided to each Customer during the one (1) year preceding the Closing
Date. For purposes of this Section 3.28 "Customer" means a customer or client
of the Seller located in the State of Minnesota during the one year preceding
the Closing Date. Except as indicated in SCHEDULE 3.28, Seller does not have
any information, nor is it aware of any facts or circumstances, indicating that
any of these Customers intend not to do business with Buyer to the same volume
and extent, and on the same terms, as they have historically done business with
Seller.
3.29 INTERESTS IN CUSTOMERS, SUPPLIERS AND COMPETITORS. No Partner or
Affiliate or employee (nor any former partner or Affiliate or employee) of
Seller, nor any relative of any of them, has any direct or indirect interest in
any competitor, supplier or Customer of Seller, nor any Person or Entity who has
done business with Seller in the one (1) year preceding the Closing Date.
3.30 PARTNERSHIP DOCUMENTS. Seller has furnished to Buyer for its
examination (i) a true, complete and correct copy of Seller's Articles or
Agreement of Partnership and all other written agreements between the Partners,
all as amended to date; (ii) true, complete and correct copies of the contents
of the partnership or minute books of Seller (including proceedings of audit and
other committees), each of which contains all records for all proceedings,
consents, actions and meetings of the Partners since its date of formation.
3.31 BULK SALE WARRANTY FOR SALES TAX PURPOSES. Prior to Closing, Seller
has never sold a substantial or significant part of its assets in any single
transaction or series of transactions. The transaction contemplated herein is
the sale of the entire operating assets of a business, and a sale outside the
ordinary course of Seller's business, and therefor no sales tax is due upon the
Closing of the purchase of the Assets.
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3.32 DISCLOSURE. Seller has provided to Buyer actual copies of all
Contracts, documents concerning all litigation and administrative proceedings,
employee benefit plans, Licenses, insurance policies, lists of suppliers,
Customers, Employees and independent contractors, and corporate records relating
to Seller or its assets and liabilities, the Business and the Real Property, and
such information covers all material commitments and liabilities of Seller. In
addition, (a) Buyer has been kept fully informed with respect to all material
developments in the business of Seller since the June 30, 1997, (b) management
of Seller has not made any material business decisions, nor taken any material
actions, since the June 30, 1997 of which Buyer has not been advised, and (c)
Buyer and its agents have been granted unlimited access to the books and records
of Seller (whether retained electronically, on disc or on paper).
3.33 FULL DISCLOSURE. This Agreement, the schedules and exhibits
hereto, and all other documents and written information furnished by Seller or
its Partners to Buyer or its representatives pursuant hereto or in connection
herewith, are true, complete and correct, and do not include any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements made herein and therein not misleading. There are no facts
or circumstances relating to the Business or Seller's liabilities, prospects,
operations or financial condition, or the Assets, which materially and adversely
affect or, so far as the Seller can now reasonably foresee, will materially and
adversely affect, the Business, Seller or the assets, liabilities, prospects,
operations or financial condition thereof, or the ability of the Seller to
perform this Agreement or the obligations of Seller hereunder.
3.34 BROKERS. Except for The GulfStar Group, Inc. none of the Seller,
the Partners nor any of their respective Affiliates has employed any broker,
agent, or finder, or incurred any liability for any brokerage fees, agent's
fees, commissions or finder's fees in connection with the transactions
contemplated herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Parent and Buyer jointly and severally represent and warrant that all
of the following representations and warranties in this Article IV are true at
the date of this Agreement and shall be true at the time of Closing and the IPO
Closing Date, and that such representations and warranties shall survive the IPO
Closing Date until the Expiration Date, except that solely for purposes of
determining whether a claim for indemnification under Section 7.1 hereof has
been made on a timely basis, and solely to the extent that in connection with
the IPO, the Seller actually incurs liability under the Securities Act, the
Exchange Act, or any other federal or state securities laws, the representations
and warranties set forth herein shall survive until the expiration of any
applicable limitations period, which shall be deemed to be the Expiration Date
for such purposes.
4.1 ORGANIZATION. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Illinois and has
all the necessary corporate powers to
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own its properties and to carry on its business as now owned and operated by it.
The Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas and has all the necessary
corporate powers to own its properties and to carry on its business as now owned
and operated by it.
4.2 AUTHORITY. Each of Buyer and Parent, as applicable, has the right,
power, legal capacity, and authority to execute, deliver and perform this
Agreement and the Ancillary Agreements to which it is a party. The execution,
delivery and performance of this Agreement and any Ancillary Agreements by Buyer
and Parent, as applicable, have been duly authorized by all necessary corporate
action.
4.3 CAPITAL STOCK OF PARENT AND BUYER. The respective designations and
numbers of outstanding shares and voting rights of each class of outstanding
capital stock of the Parent and the Buyer are as follows: (i) immediately prior
to the Closing Date and the IPO Date, the authorized capital stock of Parent
will consist of 100,000,000 shares of common stock, $.01 par value per share
("Parent Shares") of which the number of issued and outstanding shares will be
set forth in the Registration Statement, and 10,000,000 shares of preferred
stock, $1.00 par value, of which the number of issued and outstanding shares
will be set forth in the Registration Statement, all of which will be fully paid
and non-assessable except as otherwise set forth in the Registration Statement,
and (ii) as of the date of this Agreement, the authorized capital stock of Buyer
consists of 10,000 shares of common stock, no par value, all of which are issued
and outstanding.
4.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING. Except for
the Other Agreements and except as set forth in the Registration Statement, (i)
no option, warrant, call, conversion right or commitment of any kind exists
which obligates the Parent or the Buyer to issue any of their respective
authorized but unissued capital stock, and (ii) neither the Parent nor the Buyer
has any 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. SCHEDULE 4.4 includes
complete and accurate copies of all stock option or stock purchase plans,
including a list of all outstanding options, warrants or other rights (excluding
the Other Agreements) to acquire Parent Shares.
4.5 COMMON STOCK. At the time of issuance thereof and delivery to the
Seller, the Parent Shares to be delivered to the Seller pursuant to this
Agreement will constitute valid and legally issued Parent Shares, fully paid and
nonassessable, and with the exception of restrictions upon resale (a) set forth
in Section 9.3 hereof and (b) contained in the Stock Pledge Agreement, will be
identical in all substantive respects (which do not include the form of
certificate upon which it is printed or the presence or absence of a CUSIP
number on any such certificate) to the Parent Shares issued and outstanding as
of the date hereof by reason of the provisions of the Texas Business Corporation
Act. Except as provided in the previous sentence, the Parent Shares issued and
delivered to the Seller shall at the time of such issuance and delivery be free
and clear of any liens, claims or encumbrances of any kind or character. The
Parent Shares to be issued to the Seller pursuant to this Agreement will not be
registered under the 1933 Act, except as provided in Registration Rights
Agreement.
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4.6 VALID AND BINDING OBLIGATIONS. Upon execution and delivery, each of
this Agreement and the Ancillary Agreements will constitute the legal, valid,
and binding obligation of Buyer or Parent, as applicable, enforceable in
accordance with its terms, except as limited by bankruptcy laws, insolvency
laws, and other similar laws affecting the rights of creditors generally.
4.7 BROKERS. Except for The GulfStar Group, Inc. neither Buyer nor any of
its respective Affiliates, officers, directors, or employees, has employed any
broker, agent, or finder, or incurred any liability for any brokerage fees,
agent's fees, commissions or finder's fees in connection with the transactions
contemplated herein.
4 .8 CONSENTS AND APPROVALS. No consent, approval or authorization of, or
filing or registration with, any governmental or regulatory authority, or any
other Person or Entity, is required to be made or obtained by Buyer in
connection with the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby.
ARTICLE V
COVENANTS OF THE PARTIES
Buyer and Seller covenant and agree as follows:
5.1 CONDUCT OF THE BUSINESS. Except as otherwise permitted by this
Agreement or consented to by Buyer in writing, Seller shall through the IPO
Closing Date conduct the Business in the ordinary course in substantially the
same manner as heretofore, using its best efforts to preserve intact its present
business organization, to keep available the services of its Employees, and to
preserve its relationships with Customers, suppliers and others having business
dealings with it.
5.2 CERTAIN CHANGES. Except as otherwise permitted by this Agreement or
consented to by Buyer in writing, Seller shall not: (a) subject any of the
Assets to any lien or encumbrance; (b) dispose of any of the Assets; or (c)
grant any increase in compensation or benefits to any Employee; (d) materially
modify any of the liabilities, or (e) with respect to the Business, perform any
act outside the Ordinary Course of Business except as otherwise contemplated by
this Agreement.
5.3 NOTICE. Seller will notify Buyer immediately in writing if (i) any of
Seller's representations or warranties set forth in this Agreement are or become
untrue prior to the IPO Closing Date, (ii) Seller fails to fully perform all of
the covenants of Seller set forth in this Agreement, or (iii) there occurs any
Material adverse development in the Business or Seller's market position, sales,
profit trends, labor regulations, litigation or insurance claims or otherwise.
5.4 RECORDS. From the date of execution of this Agreement until the
Closing, Seller shall permit Buyer the right, during normal business hours, to
inspect any documents, Books and Records or other information pertaining to the
Assets.
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5.5 U.C.C. SEARCHES. Within five (5) days from the date of execution
hereof, Buyer, at Buyer's sole cost and expense, shall deliver to Seller current
searches of all Uniform Commercial Code financing statements filed with the
Office of the Secretary of State of Minnesota and in any other state, or county
in which the Seller has an office, against Seller. Any and all liens, pledges,
mortgages, security interests and encumbrances affecting the Assets, regardless
of whether same are disclosed in such lien searches, shall be released and
discharged by Seller at or prior to Closing.
5.6 BULK SALES. It may not be practicable to comply or attempt to comply
with the procedures of the "Bulk Sales Act" or similar law in any or all of the
states in which the Assets are situated or of any other state which may be
asserted to be applicable to the transactions contemplated hereby. Accordingly,
to induce Buyer to waive any requirements for compliance with any or all of such
laws, Seller hereby agrees that except for the Assumed Liabilities, the
indemnity provisions of Article VII hereof shall apply to any damages of Buyer
arising out of or resulting from the failure of Buyer or Seller to comply with
any such laws or any similar law which may be asserted to be applicable.
5.7 NON-COMPETITION AGREEMENT. The Seller agrees that, for the period
beginning on the Closing Date and continuing for three (3) years following the
Closing Date, neither KAK, individually, JMK, individually, nor any of their
Affiliates, shall, either directly or indirectly, individually or separately,
for themselves or as a shareholder, owner, partner, joint venturer, promoter,
consultant, manager, independent contractor, agent, or in some similar capacity
for any reason whatsoever:
A. Enter into, engage in, or be connected with any business or
business operation or activity which consists in whole or in part of the
Business within the following Counties: Washington, Dakota, Carver,
Hennepin, Ramsey, Anoka and Wright (the "Seven Counties");
B. Call upon any customer whose account is or was serviced in whole
or in part by the Seller in relation to the Business or the Buyer with the
intent of selling or attempting to sell to any such customer any services
similar to the services provided by the Buyer; and
C. Intentionally divert, solicit or take away any customer, supplier
or employee of the Buyer, or the patronage of any customer or supplier of
the Buyer, or otherwise interfere with or disturb the relationship existing
between the Buyer and any of its customers, suppliers, or employees,
directly or indirectly.
In the event the Buyer ceases operation of the Business other than in a
merger, consolidation, sale of assets or similar transaction, or upon the filing
of a bankruptcy or receivership proceeding against the Buyer, or upon the
appointment of a liquidator for the Buyer,
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the provisions of this Section 5.7 will not be applicable to the conduct of
Seller subsequent thereto.
Notwithstanding anything to the contrary contained herein, it is understood
and agreed that the foregoing provisions contained in this Section 5.7 shall not
apply to an individual named in Section 5.7 (i.e., KAK and JMK) if that
particular individual executes a Consulting Agreement as of the Closing Date
with the Buyer. It is mutually understood and agreed that if any of the
provisions relating to the scope, time or territory in this Section 5.7 are more
extensive than is enforceable under applicable law or are broader than necessary
to protect the goodwill and legitimate business interests of the Buyer, then the
Parties agree that they will reduce the degree and extent of such provisions by
whatever minimal amount is necessary to bring such provisions within the ambit
of enforceability under applicable law.
The Parties acknowledge that the remedies at law for breach of Seller's
covenants contained in this Section 5.7 are inadequate, and they agree that the
Buyer shall be entitled, at its election, to injunctive relief (without the
necessity of posting bond against such breach or attempted breach), and to
specific performance of said covenants in addition to any other remedies at law
or equity that may be available to the Buyer.
5.8 TERMINATION OF EMPLOYMENT OF SELLER'S EMPLOYEES. Buyer anticipates
extending an offer of employment to substantially all of the Employees of the
Seller on substantially the same terms and conditions as the Employees currently
are employed by Seller. Notwithstanding the foregoing, nothing herein shall
imply or guarantee employment of any Employee of Seller by Buyer. If Seller's
Employees desire employment with Buyer, they will be interviewed in conjunction
with the applicants from other sources and given strong consideration for
available positions with Buyer, at the wages, hours, and conditions of
employment established by Buyer prior to hiring any Employees. Seller agrees to
use its best efforts to make available the Employees to the Buyer that Buyer
desires to hire for the purpose of operating the Business. Notwithstanding
anything to the contrary contained herein, Buyer agrees that it will offer to
employ substantially all of Seller's Employees. Nothing shall prohibit Buyer
from terminating any of Seller's Employees subsequent to their employment by
Buyer.
5.9 COOPERATION IN CONNECTION WITH THE IPO. The Seller and each Partner
will (a) provide the Parent and the Underwriter with all the Information
concerning Seller and such Partner which is reasonably requested by the Parent
and the Underwriter from time to time in connection with effecting the IPO and
(b) cooperate with the Parent and the Underwriter and their respective
representatives in the preparation and amendment of the Registration Statement
(including the Financial Statements) and in responding to the comments of the
SEC staff, if any, with respect thereto, to the extent that any of the foregoing
concern or reasonably relate to the Seller or any Partner. The Seller and each
Partner agrees promptly to (a) advise the Parent if, at any time during the
period in which a prospectus relating to the IPO is required to be delivered
under the Securities Act, any information contained in the then current
Registration Statement prospectus concerning the
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Seller or such Partner becomes incorrect or incomplete in any material respect
and (b) provide the Parent with the information needed to correct or complete
that information.
5.10 ADDITIONAL FINANCIAL STATEMENTS. Seller shall promptly furnish to
Buyer a copy of all Financial Statements for each additional month end period
beyond June 30, 1997 as soon as same is regularly prepared by Seller in the
Ordinary Course of Business. All such additional Financial Statements shall be
subject to the same representations and warranties as contained in Section 3.26
of this Agreement. The Parties acknowledge and agree that Buyer shall be
permitted to conduct at its sole cost and expense an audit of Seller for the
fiscal years ended 1994, 1995 and 1996 in connection with the IPO. Buyer shall
pay Seller's reasonable costs incurred in preparing such monthly financial
statements.
5.11 SUPPLEMENTAL INFORMATION. The Seller and each Partner agrees that,
with respect to the representations and warranties of that party contained in
this Agreement, that party will have the continuing obligation through the IPO
Closing to provide the Parent promptly with such additional supplemental
Information (collectively, the "Supplemental Information"), in the form of (a)
amendments to then existing Schedules or (b) additional Schedules, as would be
necessary, in the light of the circumstances, conditions, events and states of
facts then known to the Seller or such Partner, to make each of those
representations and warranties true and correct as of the Closing and on the IPO
Closing Date. For purposes only of determining whether the conditions to the
obligations of the Parent and Buyer which are specified in Section 6.3 have been
satisfied, the Schedules as of the Closing and on the IPO Closing Date shall be
deemed to be the Schedules and the Investor Representation Letter as of the date
hereof as amended or supplemented by the Supplemental Information provided to
the Parent prior to the Effective Date pursuant to this Section 5.11; provided,
however, that if the Supplemental Information so provided discloses the
existence of circumstances, conditions, events or states of facts which, in any
combination thereof, (a) have had a Material Adverse Effect or (b), in the sole
judgment of the Parent (which shall be conclusive for purposes of this Section
5.11 and 8.3(a)(iv), but not for any purpose of Article VII, are having or will
have a Material Adverse Effect, the Parent will be entitled to terminate this
Agreement pursuant to Section 8.3(a)(iv); and provided, further, that if the
Parent is entitled to terminate this Agreement pursuant to Section 8.3(a)(iv),
but elects not to do so, it will be entitled to treat as Buyer Indemnified
Losses (which treatment will not prejudice the right of the Seller or such
Partner to contest Damage claims made by the Parent in respect of those Buyer
Indemnified Losses) all Damages to the Business which are attributable to the
circumstances, conditions, events and state of facts first disclosed herein
after the date hereof in the Supplemental Information. The Parent will provide
the Seller and each Partner with copies of the Registration Statement, including
all pre-effective amendments thereto, promptly after the filing thereof with the
SEC under the Securities Act.
5.12 INSURANCE. Seller shall assist, and shall cause its Affiliates to
assist, Buyer in transferring to Buyer any insurance applicable to the Assets or
the Leased Assets which Buyer elects to maintain in effect.
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5.13 CONFIDENTIALITY. Seller will not, and will not permit any of its
Affiliates to, disclose any information of a confidential or proprietary nature
concerning the Assets or the Business to any third parties, and in no event
shall Seller use, or allow any of its Affiliates to use, such confidential or
proprietary information for its or his own benefit or to the detriment of Buyer
or the Business. No public or private announcement shall be made of the
transactions contemplated herein, nor the terms hereof, by Seller or any of its
Affiliates, without the prior written approval of Buyer as to timing, form and
content.
ARTICLE VI
THE CLOSING
6.1 PRICING. At or prior to Pricing, the Parties shall take all actions
necessary to (a) complete the Acquisition (including the execution and delivery
of this Agreement and the Ancillary Agreements which shall be placed in escrow
under the control of the Parent for release to the Parties on the IPO Date), and
(b) effect the delivery of the Parent Shares referred to in Section 2.3 hereof,
provided however, that such actions shall not include the actual completion of
the Acquisition or the delivery of the Common Stock and funds referred to in
Section 2.3 hereof, each of which actions shall only be taken upon the IPO
Closing Date as herein provided. For purposes of this Article VI, the term
"Pricing" shall mean the date of determination by Parent and the Underwriter of
the public offering price of the Parent Shares in the IPO; the Parties
contemplate that the Pricing shall take place on the Closing Date. The Escrow
Agreement relating to this Agreement and the Ancillary Agreements shall provide
that in the event that there is no IPO Closing Date, and this Agreement
automatically terminates as provided in Section 8.3(b)(ii), the Agreement and
the Ancillary Agreements shall not be delivered to the Parties. The taking of
the actions described in clauses (a) and (b) above (the "Closing") shall take
place on the closing date (the "Closing Date") at the offices of Boyer, Ewing &
Harris Incorporated, 9 Greenway Plaza, Suite 3100, Houston, Texas 77046. On the
IPO Closing Date, all transactions contemplated by this Agreement, including the
delivery of the Parent Shares, the wire transfer of the cash portion of the
Purchase Price which Seller is entitled to receive pursuant to Section 2.3
hereof, and the closing of the IPO shall occur and be completed. Except as
otherwise provided in Section 8.3 hereof, during the period from the Closing
Date to the IPO Closing Date, this Agreement may only be terminated by the
Parties if the Underwriting Agreement is terminated pursuant to the terms
thereof.
6.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. The obligations of the
Seller with respect to actions to be taken on the Closing Date are subject to
the satisfaction or waiver on or prior to the Closing Date of all of the
following conditions other than the conditions set forth in this Section 6.2(i)
and (viii) that cannot be satisfied prior to the IPO Closing Date. The
obligations of the Seller with respect to actions to be taken on the IPO Closing
Date are subject to the satisfaction or waiver on or prior to the IPO Closing
Date of the conditions set forth in this Section 6.2(i) and (viii). As of (a)
the Closing Date if any such conditions have not been satisfied other than the
conditions set forth in this Section 6.2(i) and (viii) that cannot be satisfied
prior to the IPO Closing Date or (b) the IPO Closing Date, if any such
conditions have not been satisfied, the Seller shall have the right to terminate
this Agreement, or in the alternative, waive any condition not so satisfied. Any
act or
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action of the Seller in consummating the Closing on the Closing Date to the
extent set forth in the first sentence of Section 6.1 shall constitute a waiver
of any conditions not so satisfied other than the conditions set forth in this
Section 6.2(i) and (viii) that cannot be satisfied prior to the IPO Closing
Date. However, no such waiver shall be deemed to affect the survival of the
representations and warranties of Parent and Buyer contained in Article IV
hereof.
(i) REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of the Parent and the Buyer contained in
Article IV shall be true and correct in all material respects as of the
Closing Date and the IPO Closing Date as though such representations and
warranties had been made as of that time; all of the terms, covenants and
conditions of this Agreement to be complied with and performed by the
Parent and the Buyer on or before the Closing Date and the IPO Closing Date
shall have been duly complied with and performed in all material respects;
and certificates to the foregoing effect dated the Closing Date and the IPO
Closing Date, respectively, and signed by each of the Parent and the Buyer
shall have been delivered to the Seller.
(ii) NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened
to restrain or prohibit the Acquisition or the IPO and no governmental
agency or body shall have taken any other action or made any request of the
Parent or the Buyer as a result of which the management of the Seller deems
it inadvisable to proceed with the transactions hereunder.
(iii) OPINION OF COUNSEL. The Seller shall have received an opinion
from counsel for the Parent dated the Closing Date, in the form attached as
Exhibit F-1 hereto.
(iv) REGISTRATION STATEMENT. The Registration Statement, as amended
to cover the offering, issuance and sale by Parent of such number of Parent
Shares at the IPO Price (which need not be set forth in the Registration
Statement when it becomes effective under the Securities Act) as shall
yield aggregate cash proceeds to the Parent from that sale (net of
Underwriter's discount or commissions) in at least the amount (the "Minimum
Cash Amount") that is sufficient, when added to the funds, if any,
available from other sources (if any, and as set forth in the Registration
Statement when it becomes effective under the Securities Act)(the "Other
Financing Sources") to enable the Parent to pay or otherwise deliver on the
IPO Closing Date (i) the total cash portion of the Purchase Price then to
be delivered pursuant to Article II; (ii) the total cash portion of the
acquisition consideration then to be delivered pursuant to the Other
Agreements as a result of the consummation of the acquisition transactions
contemplated thereby, and (iii) the total amount of indebtedness of the
Seller, each Other Acquired Business and the Parent which the Registration
Statement discloses at the time it becomes effective under the Securities
Act will be repaid with proceeds received by the Parent from the IPO and
Other Financing Sources.
(v) CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of
the transactions
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contemplated herein shall have been obtained and made and no action or
proceeding shall have been instituted or threatened to restrain or prohibit
the Acquisition.
(vi) GOOD STANDING CERTIFICATES. Parent and the Buyer each shall
have delivered to the Seller certificates, dated as of a date no later than
ten days prior to the Closing Date, duly issued by the Texas and Minnesota
Secretaries of State, respectively, and in each state in which the Parent
and Buyer is authorized to do business, showing that each of the Parent and
the Buyer is in good standing and authorized to do business and that all
state franchise and/or income tax returns and taxes for the Parent and the
Buyer, respectively, for all periods prior to the Closing have been filed
and paid.
(vii) NO MATERIAL ADVERSE CHANGE. No event or circumstance shall
have occurred with respect to the Parent or the Buyer which would
constitute a Material Adverse Effect.
(viii) CLOSING OF IPO. The closing of the sale of the Parent Shares
to the Underwriters in the IPO shall have occurred simultaneously with the
IPO Closing Date hereunder.
(ix) SECRETARY'S CERTIFICATE. The Seller shall have received a
certificate or certificates, dated the Closing Date and signed by the
secretary of each of the Parent and the Buyer, certifying the truth and
correctness of attached copies of the Parent's and the Buyer's respective
resolutions of their boards of directors and, if required, the stockholders
of the Parent and the Buyer approving the Parent's and the Buyer's entering
into this Agreement and the consummation of the transactions contemplated
hereby.
(x) CONSULTING AGREEMENT. The Buyer shall have entered into a
Consulting Agreement with KAK in the form attached as Exhibit A
("Consulting Agreement").
(xi) REGISTRATION RIGHTS AGREEMENT. Parent shall have entered into
the Registration Rights Agreement with the Seller in the form attached as
Exhibit B ("Registration Rights Agreement").
6.3 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARENT AND THE BUYER. The
obligations of the Parent and the Buyer with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions other than the conditions set
forth in this Section 6.3(i) and (vii) that cannot be satisfied prior to the IPO
Closing Date. The obligations of Parent and Buyer with respect to actions to be
taken on the IPO Closing Date are subject to the satisfaction or waiver on or
prior to the IPO Closing Date of all of the following conditions. As of (a) the
Closing Date if any such conditions other than the conditions set forth in this
Section 6.3(i) and (vii) that cannot be satisfied prior to the IPO Closing Date
have not been satisfied or (b) as of the IPO Closing Date, if any such
conditions have not been satisfied, Parent and Buyer shall have the right to
terminate this Agreement, or waive any such
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condition, but no such waiver shall be deemed to affect the survival of the
representations and warranties contained in Article III hereof.
(i) REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATION. All
the representations and warranties of the Seller and the Partners contained
in this Agreement shall be true and correct in all material respects as of
the Closing Date and the IPO Closing Date with the same effect as though
such representations and warranties had been made on and as of such date;
all of the terms, covenants and conditions of this Agreement to be complied
with or performed by the Seller or the Partners on or before the Closing
Date or the IPO Closing Date, as the case may be, shall have been duly
performed or complied with in all Material respects; and the Seller and the
Partners shall have delivered to the Buyer certificates dated the Closing
Date and the IPO Closing Date, respectively, and signed by them to such
effect.
(ii) NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened
to restrain or prohibit the Acquisition or the IPO and no governmental
agency or body shall have taken any other action or made any request of
Parent as a result of which the management of Parent deems it inadvisable
to proceed with the transactions hereunder.
(iii) OPINION OF COUNSEL. Parent shall have received an opinion
from Counsel to the Seller, dated the Closing Date, substantially in the
form attached as Exhibit F-2 hereto.
(iv) REGISTRATION STATEMENT. The Registration Statement, as amended
to cover the offering, issuance and sale by Parent of such number of Parent
Shares at the IPO Price (which need not be set forth in the Registration
Statement when it becomes effective under the Securities Act) as shall
yield aggregate cash proceeds to the Parent from that sale (net of
Underwriter's discount or commissions) in at least the Minimum Cash Amount.
(v) 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; all
consents and approvals of third parties shall have been obtained; and no
action or proceeding shall have been instituted or threatened to restrain
or prohibit the Acquisition.
(vi) NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to the Seller which would constitute a Material
Adverse Effect, and the Seller 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 Seller to conduct its business.
(vii) CLOSING OF IPO. The closing of the sale of the Parent Shares
to the Underwriters in the IPO shall have occurred simultaneously with the
IPO Closing Date hereunder.
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(viii) CERTIFICATE. The Buyer shall have received a certificate or
certificates, dated the Closing Date and signed by the Partners, certifying
the truth and correctness of attached copies of the Seller's partnership
agreement and consent to the consummation of the transactions contemplated
hereby.
(ix) CONSULTING AGREEMENT. KAK shall have entered into the
Consulting Agreement.
(x) REGISTRATION RIGHTS AGREEMENT. Seller shall have entered into
the Registration Rights Agreement.
(xi) BILL OF SALE. Seller shall have delivered to the Buyer
instruments of assignment and transfer or bills of sale signed by the
Seller as the Buyer reasonably requests, including the Bill of Sale
attached as Exhibit C ("Bill of Sale").
(xii) INVESTOR REPRESENTATION LETTER. Seller and each of the
Partners shall have delivered to the Parent at or prior to the signing of
the Registration Statement an Investor Representation Letter in the form
attached as Exhibit D, with respect to the acquisition of the Parent Shares
to be issued to Seller.
(xiii) STOCK PLEDGE AGREEMENT. Seller shall have delivered to Buyer
a Stock Pledge Agreement in the form attached as Exhibit E ("Stock Pledge")
as well as the Parent Shares issuable to the Seller at the Closing
(complete with stock powers executed in blank).
(xiv) SATISFACTION. All actions, proceedings, instruments and
documents required to carry out the transactions contemplated by this
Agreement or incidental hereto and all other related legal matters shall
have been approved by counsel to the Parent.
6.4 FURTHER ASSURANCES. At and after the Closing, each of the Parties
shall take all appropriate action and execute all documents of any kind which
may be reasonably necessary or desirable to carry out the transactions
contemplated hereby. The Seller, at any time at or after the Closing, will
execute, acknowledge and deliver any further bills of sale, assignments and
other assurances, documents and instruments of transfer, reasonably requested by
the Buyer, and will take any other action consistent with the terms of this
Agreement that may reasonably be requested by the Buyer, for the purpose of
assigning and confirming to the Buyer, all of the Assets. The Buyer shall
notify the Seller promptly, and in no event more than ten (10) business days
after the Buyer's receipt, of any tax inquiries or notifications thereof which
relate to any period prior to the Effective Date, and the Seller shall prepare
and deliver responses to such inquiries as the Seller deems necessary or
appropriate. In addition, the Seller shall make available the books and records
of the Business during reasonable business hours and take such other actions as
are reasonably requested by the Buyer to assist the Buyer in the operation of
the Business.
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6.5 CONFIDENTIAL INFORMATION. After the Closing and except as otherwise
specifically permitted in this Agreement, each party to this Agreement agrees,
on behalf of itself and its Affiliates, to use reasonable efforts not to
divulge, communicate, use to the detriment of any other party to this Agreement
or its Affiliates or for the benefit of any other Person or Persons, any
confidential information or trade secrets of such other party with respect to
the Assets or the Business, including personnel information, secret processes,
know-how, customer lists, formulae, or other technical data; provided however,
if any party to this Agreement or any of its Affiliates is compelled to disclose
such information to any tribunal, regulatory or governmental authority or agency
or else stand liable for contempt or suffer other censure and penalty, such
party may so disclose such information without any liability hereunder.
6.6 ASSIGNMENT OF CONTRACTS. On or before the Effective Date, Seller
shall have delivered to Buyer all of the Contracts presently in force and shall
have effected a valid assignment of all of Seller's rights and obligations
thereunder.
ARTICLE VII
INDEMNIFICATION
7.1 INDEMNIFICATION.
A. BY THE SELLER AND THE PARTNERS. Subject to Section 7.1(E)
hereof, the Seller and each of the Partners, individually, jointly and
severally, (collectively herein "Seller Indemnitors") shall indemnify, save,
defend and hold harmless the Parent and Buyer and their respective shareholders,
directors, officers, partners, agents and employees (collectively, the "Buyer
Indemnified Parties") from and against any and all costs, lawsuits, losses,
liabilities, deficiencies, claims and expenses, including interest, penalties,
attorneys' fees and all amounts paid in investigation, defense or settlement of
any of the foregoing (collectively referred to herein as "Damages"), (i)
incurred in connection with or arising out of or resulting from or incident to
any breach of any covenant, breach of warranty as of the Effective Date, or the
inaccuracy of any representation as of the Effective Date, made by the Seller in
or pursuant to this Agreement or the Ancillary Agreements, or any other
agreement contemplated hereby or in any schedule, certificate, exhibit, or other
instrument furnished or to be furnished by the Seller or the Partners under this
Agreement, (ii) based upon, arising out of, or otherwise in respect of any
liability or obligation of the Business or relating to the Assets (a) relating
to any period prior to the Effective Date, other than those Damages based upon
or arising out of the Assumed Liabilities, or (b) arising out of facts or
circumstances existing prior to the Effective Date, other than those Damages
based upon or arising out of the Assumed Liabilities; provided however, that the
Seller Indemnitors shall not be liable for any such Damages to the extent, if
any, such Damages result from or arise out of a breach or violation of this
Agreement by any Buyer Indemnified Parties, and (iii) any liability under the
Securities Act, the Exchange 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 Seller or the
Partners, and provided to Parent or its counsel by the Seller or the Partners,
contained in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising
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out of or based upon any omission or alleged omission to state therein a
Material fact relating to the Seller or the Partners required to be stated
therein or necessary to make the statements therein not misleading, provided
however, that such indemnity shall not inure to the benefit of Parent and Buyer
to the extent such untrue statement (or alleged untrue statement) was made in,
or omission (or alleged omission) occurred in, any preliminary prospectus and
Seller or a Partner provided, in writing, corrected information to Parent and
Parent's counsel for inclusion in the Final Prospectus, and such information was
not included or properly delivered and provided further, that no Partner shall
be liable for any indemnification obligation pursuant to this Section 7.1 to the
extent attributable to a breach of any representation, warranty or agreement
made herein by any other Partner.
B. BY THE BUYER. Subject to Section 7.1(E) hereof, the Parent and
Buyer shall indemnify, save, defend and hold harmless the Seller and the
Partners (collectively, the "Seller Indemnified Parties") from and against any
and all Damages (i) incurred in connection with or arising out of or resulting
from or incident to any breach of any covenant, breach of warranty as of the
Effective Date, or the inaccuracy of any representation as of the Effective
Date, made by the Buyer or Parent in or pursuant to this Agreement, the
Ancillary Agreements, or any other agreement contemplated hereby or in any
schedule, certificate, exhibit, or other instrument furnished or to be furnished
by the Buyer under this Agreement, (ii) based upon, arising out of or otherwise
in respect of any liability or obligation of the Business or relating to the
Assets (a) relating to any period on and after the Effective Date, other than
those Damages based upon or arising out of the Retained Liabilities, or (b)
arising out of facts or circumstances existing on and after the Effective Date,
other than those Damages based upon or arising out of the Retained Liabilities;
provided, however, that the Buyer shall not be liable for any such Damages to
the extent, if any, such Damages result from or arise out of a breach or
violation of this Agreement by any Seller Indemnified Party, (iii) under the
Securities Act, the Exchange 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 Parent, Buyer or any
Other Acquired Business contained 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
Parent or Buyer or any of the Other Acquired Businesses required to be stated
therein or necessary to make the statements therein not misleading.
C. DEFENSE OF CLAIMS. If any lawsuit or enforcement action is filed
against any Party entitled to the benefit of indemnity hereunder, written notice
thereof describing such lawsuit or enforcement action in reasonable detail and
indicating the amount (estimated, if necessary) or good faith estimate of the
reasonably foreseeable estimated amount of Damages (which estimate shall in no
way limit the amount of indemnification the indemnified Party is entitled to
receive hereunder), shall be given to the indemnifying Party as promptly as
practicable (and in any event within ten (10) days, after the service of the
citation or summons) ("Notice of Action"); provided that the failure of any
indemnified Party to give timely notice shall not affect its rights to
indemnification hereunder to the extent that the indemnified Party demonstrates
that the amount the indemnified Party is entitled to recover exceeds the actual
damages to the indemnifying Party caused by such failure to so notify within ten
(10) days and so long as the indemnifying Party is not materially prejudiced by
the failure
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to receive such notice. The indemnifying Party may elect to compromise or defend
any such asserted liability and to assume all obligations contained in this
Section 7.1 to indemnify the indemnified Party by a delivery of notice of such
election ("Notice of Election") within ten (10) days after delivery of the
Notice of Action. Upon delivery of the Notice of Election, the indemnifying
Party shall be entitled to take control of the defense and investigation of such
lawsuit or action and to employ and engage attorneys of its own choice to handle
and defend the same, at the indemnifying Party's sole cost, risk and expense,
and such indemnified Party shall cooperate in all reasonable respects, at the
indemnifying Party's sole cost, risk and expense (except with respect to the
fees and expenses of the indemnified Party's attorney, which shall be borne by
the indemnified Party) with the indemnifying Party and such attorneys in the
investigation, trial, and defense of such lawsuit or action and any appeal
arising therefrom; provided, however, that the indemnified Party may, at its own
cost, risk and expense, participate in such investigation, trial and defense of
such lawsuit or action and any appeal arising therefrom. If the Notice of
Election is delivered to the indemnified Party, the indemnified Party shall not
pay, settle or compromise such claim without the indemnifying Party's consent,
which consent shall not be unreasonably withheld. If the indemnifying Party
elects not to defend the claim of the indemnified Party or does not deliver to
the indemnified Party a Notice of Election within ten (10) days after delivery
of the Notice of Action, the indemnified Party may, but shall not be obligated
to, defend, compromise or settle (exercising reasonable business judgment) the
claim or other matter on behalf, for the account, and at the risk, of the
indemnifying Party.
D. THIRD PARTY CLAIMS. The provisions of this Section 7.1 are not
limited to matters asserted by the Parties, but cover Damages incurred in
connection with third party claims. The indemnity hereunder is in addition to
any and all rights and remedies of the Parties in connection herewith.
E. LIMITATION ON INDEMNIFICATION. Notwithstanding the other
provisions of this Section 7.1, Seller Indemnitors shall not be liable to Buyer
Indemnified Parties, and Parent and Buyer shall not be liable to Seller
Indemnified Parties, for the first $25,000 in aggregate Damages suffered by such
indemnified Parties; provided, however, that once any such indemnified Parties
have suffered Damages aggregating in excess of $25,000, the indemnifying Party
shall reimburse the indemnified Parties for the full amount of such Damages,
including the $25,000 in Damages initially excluded. In no event shall the
aggregate Damages payable by an indemnifying Party to indemnified Parties exceed
the Purchase Price.
7.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements of the Parties made herein
and at the time of the Closing or in writing delivered pursuant to the
provisions of this Agreement shall survive the consummation of the transactions
contemplated hereby and any examination on behalf of the Parties until the
Expiration Date.
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ARTICLE VIII
TERMINATION AND REMEDIES
8.1 SPECIFIC PERFORMANCE; REMEDIES. Each of the Parties hereby agrees
that the transactions contemplated by this Agreement are unique, and that each
Party shall have, in addition to any other legal or equitable remedy available
to it, the right to enforce this Agreement by decree of specific performance.
If any legal action or other proceeding is brought for the enforcement of this
Agreement or because of an alleged dispute, breach, default or misrepresentation
in connection with any of the provisions of this Agreement, the successful or
prevailing Party or Parties shall be entitled to recover reasonable attorneys'
fees and other costs incurred in that action or proceeding in addition to any
other remedies to which it, he or they may be entitled at law or equity. The
rights and remedies granted herein are cumulative and not exclusive of any other
right or remedy granted herein or provided by law.
8.2 OFFSET; REMEDIES. To the extent not otherwise prohibited by
applicable law, all amounts due and owing by the Buyer to the Seller under this
Agreement, the Ancillary Agreements, or any other document, instrument, or
agreement executed in connection herewith shall be subject to offset by the
Buyer to the extent of any Damages incurred by any breach by the Seller, under
this Agreement by KAK under the Consulting Agreement, or any document,
instrument, or agreement executed in connection herewith. In the event Buyer
elects to offset any Damages incurred as a result of any such breach, Buyer
shall furnish Seller notice containing detailed information about the breach,
the magnitude of the damages that Buyer has or reasonably expects to incur, and
whether the offset is against the Parent Shares pledged under the Stock Pledge
Agreement or otherwise (the act of offsetting by Buyer shall be referred to as
an "Offset"). The Seller acknowledges and agrees that but for the right of
Offset contained in this Agreement, the Buyer would not have entered into this
Agreement or any of the transactions contemplated herein. If any legal action
or other proceeding is brought for the enforcement of this Agreement, the
Consulting Agreement, or any document, instrument, or agreement executed in
connection herewith, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the Consulting Agreement, or any document, instrument, or agreement executed in
connection herewith, the successful or prevailing Party or Parties shall be
entitled to recover other remedies to which it or they may be entitled at law or
equity. The rights and remedies granted herein are cumulative and not exclusive
of any other right or remedy granted herein or provided by law. Buyer shall not
effect an Offset hereunder without giving Seller at least 10 days advance
written notice of its intent to do so. Seller agrees that any Offset made that
would otherwise be deducted from the Purchase Price initially paid at the
Closing shall be made against the Parent Shares issuable to the Seller hereunder
and not against the cash portion of the Purchase Price.
8.3 TERMINATION. Termination of This Agreement. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of the Parent and the Seller;
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(ii) by the Seller, on the one hand, or by the Parent, 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 results from the willful
failure of the Party seeking to terminate this Agreement to perform or
materially adhere to any agreement required hereby to be performed or
adhered to by it prior to or at the Closing or thereafter on the IPO
Closing Date;
(iii) by the Seller, on the one hand, or by the Parent, 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; or
(iv) by the Parent if it is entitled to do so as provided in
Section 5.11.
(b) This Agreement may be terminated after the Closing solely:
(i) by the Parent or the Seller if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party hereto
if the IPO is not consummated within ten (10) New York City business days
after the date of the Closing.
8.4 LIABILITIES IN EVENT OF TERMINATION. If this Agreement is
terminated pursuant to Section 8.3, there shall be no liability or obligation on
the part of any Party hereto except to the extent that such liability is based
on the breach by that Party of any of its representations, warranties or
covenants set forth in this Agreement.
ARTICLE IX
COVENANTS OF BUYER AND SELLER AFTER CLOSING
9.1. FINAL NET WORTH ADJUSTMENT. Within 30 days after the IPO Closing
Date, the Buyer and Seller shall adjust the Purchase Price of the Assets as set
forth in Sections 2.4 and 2.5, and the Buyer shall deliver to Seller, or Seller
shall deliver to Buyer, cash equal to the differential between the Guaranteed
Net Worth and the Final Net Worth, if any.
9.2. PREPARATION AND FILING OF TAX RETURNS.
(i) The Seller shall file or cause to be filed all federal income
tax returns of the Seller for all taxable periods that end on or before the
IPO Closing Date, and shall permit the Parent to review all such tax
returns prior to such filings.
(ii) Parent shall file or cause to be filed all separate tax returns
of, or that include, any Other Acquired Business for all taxable periods
ending after the IPO Closing Date.
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(iii) Each Party 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 tax
return, amended tax 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 tax 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 tax returns
pursuant to this Agreement shall bear all costs of filing such tax returns.
9.3 RESTRICTIVE LEGEND. The Seller consents to the imprinting on all
certificates representing Parent Shares issued to it as part of the Purchase
Price of the following legend:
THE SHARES OF COMMON STOCK REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, NOR THE
SECURITIES LAWS OF ANY STATE. SUCH SHARES MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED AT ANY TIME, EXCEPT UPON (1) SUCH
REGISTRATION, OR (2) DELIVERY TO THE ISSUER OF SUCH SHARES OF AN OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO THE ISSUER, THAT REGISTRATION IS NOT
REQUIRED FOR SUCH TRANSFER, OR (3) THE SUBMISSION TO THE ISSUER OF SUCH
SHARES OF OTHER EVIDENCE, REASONABLY ACCEPTABLE TO THE ISSUER, TO THE
EFFECT THAT ANY SUCH SALE, PLEDGE, HYPOTHECATION OR TRANSFER WILL NOT BE IN
VIOLATION OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR OTHER
APPLICABLE SECURITIES LAWS OF ANY STATE, OR ANY RULES OR REGULATIONS
PROMULGATED THEREUNDER.
9.4 PLEDGE OF PARENT SHARES. Seller shall deliver all Parent Shares
acquired from the Buyer as part of the Purchase Price to Buyer to be held
pursuant to the terms of the Stock Pledge Agreement.
9.5 TRANSFER OF PARENT SHARES. Following the Closing, Seller anticipates
transferring the Parent Shares acquired hereunder to KAK and JMK in connection
with the dissolution of the Seller or otherwise. The Buyer and Parent hereby
agree to consent to such transfer and to enter into amendments to the
Registration Rights Agreement and the Stock Pledge Agreement to reflect that KAK
and JMK have become the holders of the Parent Shares previously issued to Seller
hereunder.
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ARTICLE X
MISCELLANEOUS
10.1 FEES. Except as expressly set forth herein to the contrary, each
Party shall be responsible for all costs, fees and expenses (including attorney
and accountant fees and expenses) paid or incurred by such Party in connection
with the preparation, negotiation, execution, delivery and performance of this
Agreement, or otherwise in connection with the transaction contemplated hereby.
10.2 MODIFICATION OF AGREEMENT. This Agreement may be amended or modified
only in writing signed by all of the Parties.
10.3 NOTICES. All notices, consents, demands or other communications
required or permitted to be given pursuant to this Agreement shall be deemed
sufficiently given when delivered personally or telefaxed with receipt of
transmission confirmed during regular business hours during a business day to
the appropriate location described below, or three (3) business days after
posting thereof by United States first-class, registered or certified mail,
return receipt requested, with postage and fees prepaid and addressed as
follows:
IF TO SELLER: Kirby A. Kennedy & Associates
219 Executive Plaza
5200 Wilson Road
Minneapolis, Minnesota 55424
IF TO SELLER'S PARTNERS: Kirby A. Kennedy
219 Executive Plaza
5200 Wilson Road
Minneapolis, Minnesota 55424
Jeanne M. Kennedy
219 Executive Plaza
5200 Wilson Road
Minneapolis, Minnesota 55424
With a copy to: Carlson Estate Planning
Attn: Brian T. Carlson, P.A.
9801 Dupont Avenue South, Suite 380
Bloomington, Minnesota 55431
Phone: 612/884-3200
Fax: 612\884-1648
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IF TO BUYER OR PARENT: Litigation Resources of America-Midwest, Inc.
Litigation Resources of America, Inc.
650 First City Tower, 1001 Fannin
Houston, Texas 77002
Phone: 713/653-7100
Fax: 713/653-7172
With a copy to: John W. Menke
Boyer, Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Phone: 713/871-2025
Fax: (713) 871-2024
Any addressee at any time by furnishing notice to the other addressees in the
manner described above may designate additional or different addresses for
subsequent notices or communications.
10.4 SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not invalidate or affect the enforceability of any other
provision of this Agreement.
10.5 ENTIRE AGREEMENT; BINDING EFFECT. This Agreement and the Ancillary
Agreements set forth the entire agreement among the Parties with respect to the
subject matter hereof. This Agreement shall be binding upon and shall inure to
the benefit of the Parties and their respective successors and assigns.
10.6 WAIVER. No delay in the exercise of any right under this Agreement
shall waive such rights. Any waiver, to be enforceable, must be in writing.
10.7 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
10.8 ASSIGNMENT. The Seller shall not assign this Agreement or any
interest herein .
10.9 HEADINGS. Headings in this Agreement are for convenience only and
shall not affect the interpretation of this Agreement.
10.10 SCHEDULES AND EXHIBITS. All Schedules and Exhibits attached to
this Agreement or to be delivered by the Seller, upon review and approval by the
Buyer, are and shall be hereby incorporated in and made a part of this
Agreement. All Schedules to this Agreement must be delivered no later than four
(4) days prior to Closing, in order to provide the Buyer ample time to review
and evaluate the items described therein and disclosed thereby. Although the
Schedules remain subject to the review and approval of the Buyer, no such review
or approval shall constitute a waiver
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by the Buyer of any breach or default caused by the inaccuracy or incompleteness
of any Schedule, the accuracy and completeness of the Schedules being the sole
responsibility of the Seller.
10.11 RIGHTS AND LIABILITIES OF PARTIES. Nothing in this Agreement,
whether express or implied, is intended to confer any rights or remedies under
or by reason of this Agreement on any Persons other than the Parties, the Buyer
Indemnified Parties and their respective successors and assigns, nor is anything
in this Agreement intended to relieve or discharge the obligation or liability
of any third Persons to any Party to this Agreement, nor shall any provision
give any third Person any right of subrogation or action over against any Party
to this Agreement.
10.12 SURVIVAL. Subject to Section 7.2, this Agreement, including but
not limited to all covenants, warranties, representations and indemnities
contained herein, shall survive the Closing, and the Bill of Sale and all other
documents, instruments or agreements relating to the Assets and the transactions
contemplated herein shall not be deemed merged therein.
10.13 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall have the force and effect of an original, and
all of which shall constitute one and the same agreement.
10.14 ARBITRATION. If a dispute arises out of or relates to this
Agreement or the Ancillary Agreements, or the breach thereof, and if such
dispute cannot be settled through negotiation, the Parties agree first to try in
good faith to settle the dispute by mediation under the Commercial Mediation
Rules of the American Arbitration Association, before resorting to arbitration,
litigation, or some other dispute resolution procedure as required by this
Section 10.14. Failing an adequate resolution by mediation, any controversy or
claim arising out of or relating to this Agreement or the transactions
contemplated hereby, including any controversy or claim arising out of or
relating to the Parties' decision to enter into this Agreement, shall be settled
by binding arbitration. There shall be one arbitrator to be mutually agreed
upon by the Parties involved in the controversy and to be selected from the
National Panel of Commercial Arbitrators (or successor panel, if any). If
within 45 days after service of the demand for arbitration the Parties are
unable to agree upon such an arbitrator who is willing to serve, then an
arbitrator shall be appointed by the American Arbitration Association in
accordance with its rules. Except as specifically provided in this Section
10.14, the arbitration shall be conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The arbitrator shall
not render an award of punitive damages. Any arbitration hereunder shall be
held in Houston, Texas. Expenses related to the arbitration, including counsel
fees, shall be borne by the Party incurring such expenses except to the extent
otherwise provided in Section 10.15 herein. The fees of the arbitrator and of
the American Arbitration Association, if any, shall be divided equally among the
Parties involved in the controversy. Judgment upon the award rendered by the
arbitrator (which may, if deemed appropriate by the arbitrator, include
equitable or mandatory relief with respect to performance of obligations
hereunder) may be entered in any court of competent jurisdiction.
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10.15 ATTORNEYS' FEES. If any litigation is instituted to enforce or
interpret the provisions of this Agreement or the transactions described herein,
the prevailing Party in such action shall be entitled to recover its reasonable
attorneys' fees from the other Party hereto.
10.16 DRAFTING. All Parties hereto acknowledge that each Party was
actively involved in the negotiation and drafting of this Agreement and that no
law or rule of construction shall be raised or used in which the provisions of
this Agreement shall be construed in favor or against any Party hereto because
one is deemed to be the author thereof.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement in multiple counterparts effective as of the date first written above.
BUYER:
LITIGATION RESOURCES OF
AMERICA-MIDWEST, INC.,
an Illinois corporation
/s/ RICHARD O. LOONEY
By: __________________________________
Richard O. Looney,
Chairman and Chief Executive Officer
PARENT:
LITIGATION RESOURCES OF AMERICA, INC.,
a Texas corporation
/s/ RICHARD O. LOONEY
By: __________________________________
Richard O. Looney,
Chairman and Chief Executive Officer
SELLER:
KIRBY A. KENNEDY & ASSOCIATES,
a Minnesota Partnership
/s/ KIRBY A. KENNEDY
By: __________________________________
Kirby A. Kennedy,
General Partner
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SELLER'S PARTNERS
/s/ KIRBY A KENNEDY
__________________________________
Kirby A. Kennedy, Individually
/s/ JEANNE M. KENNEDY
__________________________________
Jeanne M. Kennedy, Individually
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Schedules
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2.1(a) - Equipment
2.1(b) - Contracts
2.1(c) - Books and Records
2.1(e) - Intellectual Property
2.1(g) - General Intangibles
2.1(j) - Inventory
2.2 - Excluded Assets
2.7 - Allocation of Purchase Price
3.3(A) - Consents and Approvals
3.3(B) - Breaches or Defaults
3.5 - Exceptions to Title
3.6 - Leased Personal Property
3.14(A) - Owned Real Property
3.14(B) - Leased Real Property
3.16 - Insurance Policies
3.17 - Banking
3.19(A) - Employees
3.19(B) - Independent Contractors
3.20 - Employee Benefit Plans
3.21 - Employment Agreements
3.22 - Liabilities
3.23 - Litigation
3.27 - Certain Changes or Events
3.28 - Customers
Exhibits
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A Consulting Agreement
B Registration Rights Agreement
C Bill of Sale
D Investor Representation Letter
E Stock Pledge Agreement
F-1 Legal Opinion
F-2 Legal Opinion
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EXHIBIT 10.18
AGREEMENT OF PURCHASE AND SALE OF ASSETS
----------------------------------------
This Agreement of Purchase and Sale of Assets (this "Agreement") is entered
into and effective as of September 15, 1997 by and among LITIGATION RESOURCES OF
AMERICA-CALIFORNIA, INC., a California corporation (the "Buyer"), LITIGATION
RESOURCES OF AMERICA, INC., a Texas corporation and the parent of Buyer (the
"Parent"), and COLLEEN JILIO, a resident of California d.b.a. JILIO & ASSOCIATES
(the "Seller"). Buyer, Parent and Seller are hereinafter sometimes referred to
collectively as the "Parties" or singularly as a "Party."
W I T N E S S E T H :
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WHEREAS, the Seller is the owner of various assets associated with the
Business (as hereinafter defined);
WHEREAS, the Buyer desires to purchase all of the Assets (as hereinafter
defined) owned by the Seller and used in the Business (such purchase of the
Assets being sometimes herein referred to as the "Acquisition"), and the Seller
desires to sell such Assets to the Buyer;
WHEREAS, in connection with the purchase and sale of the Assets, the Parties
desire to set forth in this Agreement the terms and conditions with respect to
the transfer of such Assets; and
WHEREAS, the parties understand that the Parent or its Affiliates may enter
into other agreements similar or dissimilar to this Agreement (the "Other
Agreements") for the acquisition by the Parent or such Affiliates of the assets
or stock of other entities (collectively, the "Other Acquired Businesses," and
each of those entities, individually, an "Other Acquired Business"), which Other
Agreements will be among those entities and their equity owners, the Parent and
Affiliates of the Parent;
NOW, THEREFORE, for and in consideration of the mutual covenants,
agreements, representations and warranties contained in this Agreement, and
other good and valuable consideration, the receipt, adequacy and sufficiency of
which are hereby acknowledged, the Parties hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
-------------------
As used herein, the following terms shall have the following meanings:
ACCOUNTS PAYABLE. The term "Accounts Payable" shall mean all of the
accounts payable of the Business existing as of the Effective Date.
<PAGE>
ACCOUNTS PAYABLE REPORT. The term "Accounts Payable Report" shall mean a
report prepared as of the time specified which shows accounts payable of the
Business by service provider and age of each Account Payable.
ACCOUNTS RECEIVABLE. The term "Accounts Receivable" shall mean all of the
accounts receivable, notes receivable, trade receivables and intercompany
receivables relating to the Business and existing as of the Effective Date.
ACCOUNTS RECEIVABLE REPORT. The term "Accounts Receivable Report" shall
mean a report prepared as of the time specified which shows Accounts Receivable
of the Business by customer and age of each Account Receivable.
ACQUISITION. The term "Acquisition" shall have the meaning set forth in the
preamble hereto.
AFFILIATE. The term "Affiliate" of a person shall mean, with respect to
that person, a person who directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
or is acting as agent on behalf of, or as an officer or director of that person.
As used in the definition of Affiliate, the term "control" (including the terms
"controlling," "controlled by," or "under common control with") means the
possession, direct or indirect, of the ability to affect the management and
policies of a person whether through the ownership of voting securities, by
contract, through the holding of a position as a director or officer of such
person, or otherwise. As used in this definition, the term "person" means an
individual, a corporation, a limited liability company, a partnership, an
association, a joint stock company, a trust, an incorporated organization, or a
Governmental Authority.
AGREEMENT. The term "Agreement" shall have the meaning set forth in the
preamble hereto.
ANCILLARY AGREEMENTS. The term "Ancillary Agreements" shall have the
meaning set forth in Section 3.2.
ASSETS. The term "Assets" shall have the meaning set forth in Section 2.1.
ASSUMED LIABILITIES. The term "Assumed Liabilities" shall have the meaning
set forth in Section 2.6.
BALANCE SHEET REPORT. The term "Balance Sheet Report" means the accrual
basis balance sheet of the Business as of a given date showing the assets,
liabilities and equity of the Business adjusted to include Accounts Receivable,
Accounts Payable and accrued liabilities and further adjusted to exclude
Excluded Assets and Retained Liabilities, prepared by the Seller on a basis
consistent with prior time periods.
BILL OF SALE. The term "Bill of Sale" shall have the meaning set forth in
Section 6.3(xi).
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BOOKS AND RECORDS. The term "Books and Records" shall have the meaning set
forth in Section 2.1(c).
BUSINESS. The term "Business" shall mean the court reporting and litigation
support business of the Seller as presently conducted.
BUYER. The term "Buyer" shall have the meaning set forth in the preamble
hereto.
BUYER INDEMNIFIED PARTIES. The term "Buyer Indemnified Parties" shall have
the meaning set forth in Section 7.1A.
CAPITAL STOCK. The term "Capital Stock" shall mean, with respect to: (a)
any corporation, any share, or any depositary receipt or other certificate
representing any share, of an equity ownership interest in that corporation; and
(b) any other Entity, any share, membership or other percentage interest, unit
of participation or other equivalent (however designated) of an equity interest
in that Entity.
CASH PURCHASE PRICE. The term "Cash Purchase Price" shall have the meaning
set forth in Section 2.3(a).
CLOSING. The term "Closing"shall have the meaning set forth in Section 6.1.
CLOSING DATE. The term "Closing Date" shall have the meaning set forth in
Section 6.1.
CLOSING DATE ACCOUNTS PAYABLE REPORT. The term "Closing Date Accounts
Payable Report" shall mean an Accounts Payable Report prepared as of the
Closing Date.
CLOSING DATE ACCOUNTS RECEIVABLE REPORT. The term "Closing Date Accounts
Receivable Report" shall mean an Accounts Receivable Report prepared as of the
Closing Date.
CLOSING DATE BALANCE SHEET REPORT. The term "Closing Date Balance Sheet
Report" shall mean a Balance Sheet Report prepared as of the Closing Date.
CLOSING DATE INCOME STATEMENT. The term "Closing Date Income Statement"
shall mean an income statement of the Business, prepared as of the Closing Date,
covering the period from the end of the Seller's last fiscal year to the Closing
Date.
CLOSING DATE REPORTS. The term "Closing Date Reports" shall have the
meaning set forth in Section 2.4.
CLOSING MEMORANDUM. The term "Closing Memorandum" shall mean the form of
closing memorandum to be prepared by the Buyer and the Parent and approved by
the Seller (which approval will not be unreasonably withheld) for the Closing
under this Agreement in which are included the forms of officers certificates,
certificates of the Seller, opinions of counsel and certain other documents to
be delivered at the Closing as provided herein.
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CODE. The term "Code" shall mean the Internal Revenue Code of 1986, as
amended.
CONTRACTS. The term "Contracts" shall have the meaning as contained in
Section 2.1(b).
CUSTOMERS. The term "Customers" shall have the meaning as contained in
Section 3.27.
DAMAGES. The term "Damages" shall have the meaning set forth in Section
7.1A.
EFFECTIVE DATE. The term "Effective Date" shall mean 12:01 a.m. on the
"Closing Date."
EMPLOYEE. The term "Employee" shall mean any employee of the Business who,
as of the Effective Date, is employed or otherwise performs work or provides
services in connection with the operation of the Business, including those, if
any, on disability, sick leave, layoff or leave of absence, who, in accordance
with the Seller's applicable policies, are eligible to return to active status,
but shall not include any independent contractor providing court reporting
services to Seller from time to time.
EMPLOYMENT AGREEMENTS. The term "Employment Agreements" shall have the
meaning ascribed to it in Section 3.20.
ENTITY. The term "Entity" shall mean any sole proprietorship, corporation,
partnership of any kind having a separate legal status, limited liability
company, business trust, unincorporated organization or association, mutual
company, joint stock company or joint venture.
ENVIRONMENTAL, HEALTH & SAFETY LAWS The term "Environmental, Health &
Safety Laws" shall mean all laws (including rules and regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local, and foreign Governmental Authorities concerning pollution
or protection of the environment, public health and safety, or employee health
and safety.
EQUIPMENT. The term "Equipment" shall have the meaning as contained in
Section 2.1(a).
ERISA. The term "ERISA" shall have the meaning as contained in Section
3.20.
EXCHANGE ACT. The term "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
EXCLUDED ASSETS. The term "Excluded Assets" shall have the meaning as
contained in Section 2.2.
EXPIRATION DATE. The term "Expiration Date" shall have the meaning set forth
in the introductory paragraph to Article III.
FINAL NET WORTH. The term "Final Net Worth" means total assets minus total
liabilities, as reflected on the Closing Date Balance Sheet Report.
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FINAL PROSPECTUS. The term "Final Prospectus shall mean the prospectus
included in the Registration Statement at the time it becomes effective, except
that if the prospectus first furnished to the Underwriter after the Registration
Statement becomes effective for use in connection with the IPO differs from the
prospectus included in the Registration Statement at the time it becomes
effective (whether or not that prospectus so furnished is required to be filed
with the SEC pursuant to Securities Act Rule 424(b)), the prospectus so first
furnished is the "Final Prospectus."
FINANCIAL STATEMENTS. The term "Financial Statements" shall mean the
balance sheet, income statement and statement of changes of financial position
of the Business.
FUNDED DEBT. The term "Funded Debt" shall mean any obligation for money
borrowed from financial institutions.
GAAP. The term "GAAP" shall mean generally accepted accounting principles
of the Accounting Principles Board of the American Institute of Certified Public
Accountants and the Financial Accounting Standards Board that are applicable
from time to time.
GENERAL INTANGIBLES. The term "General Intangibles" shall have the meaning
set forth in Section 2.1(g).
GOVERNMENTAL APPROVAL. The term "Governmental Approval" shall mean at any
time any authorization, consent, approval, permit, franchise, certificate,
license, implementing order or exemption of, or registration or filing with, any
Governmental Authority, including any certification or licensing of a natural
person to engage in a profession or trade or a specific regulated activity, at
that time.
GOVERNMENTAL AUTHORITY. The term "Governmental Authority" shall mean (a)
any national, state, county, municipal or other government, domestic or foreign,
or any agency, board, bureau, commission, court, department or other
instrumentality of any such government, or (b) any Person having the authority
under any applicable Governmental Requirement to assess and collect Taxes for
its own account.
GOVERNMENTAL REQUIREMENT. The term "Governmental Requirement" shall mean at
any time (a) any law, statute, code, ordinance, order, rule, regulation,
judgment, decree, injunction, writ, edict, award, authorization or other
requirement of any Governmental Authority in effect at that time or (b) any
obligation included in any certificate, certification, franchise, permit or
license issued by any Governmental Authority or resulting from binding
arbitration, including any requirement under common law, at that time.
GUARANTEED NET WORTH. The term "Guaranteed Net Worth" shall mean the amount
of $955,822.
INTELLECTUAL PROPERTY. The term "Intellectual Property" shall have the
meaning as contained in Section 2.1(e).
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INVENTORY. The term "Inventory" shall have the meaning as contained in
Section 2.1(j).
IPO. The term "IPO" shall mean the first time a registration statement filed
under the Securities Act with respect to a primary offering by the Parent to the
public of Parent Shares is declared effective under the Securities Act and the
shares registered by that registration statement are issued and sold by the
Parent (otherwise than pursuant to the exercise by the Underwriter of any over-
allotment option).
IPO CLOSING. The term "IPO Closing" shall mean the delivery to the
Underwriters of Parent Shares against the receipt of payment therefor pursuant
to the IPO.
IPO CLOSING DATE. The term "IPO Closing Date" shall mean the date on which
the Parent first receives payment for the Parent Shares it sells to the
Underwriter in the IPO.
IPO PRICE. The term "IPO Price" shall mean the price per share of Parent
Shares which is set forth as the "price to public" on the cover page of the
Final Prospectus.
LEASED ASSETS. The term "Leased Assets" shall have the meaning ascribed
thereto in Section 3.6.
LICENSES. The term "Licenses" shall have the meaning ascribed thereto in
Section 3.12.
LITIGATION. The term "Litigation" shall mean any action, case, proceeding,
claim, grievance, suit or investigation or other proceeding conducted by or
pending before any Governmental Authority or any arbitration proceeding.
MATERIAL. The term "Material" shall mean, as applied to any Entity or the
Business, material to the business, operations, property or assets, liabilities,
financial condition or results of operations of the Business or that Entity and
its Subsidiaries considered as a whole, as the case may be.
MATERIAL ADVERSE EFFECT. The term "Material Adverse Effect" shall mean, with
respect to the consequences of any fact or circumstance (including the
occurrence or non-occurrence of any event) to the Business, that such fact or
circumstance has caused, is causing or will cause, directly, indirectly or
consequentially, singly or in the aggregate with other facts and circumstances,
any Material Damages.
MINIMUM CASH AMOUNT. The term "Minimum Cash Amount" shall have the meaning
set forth in Section 6.2(iv).
NET WORTH. The term "Net Worth" means the dollar amount of total assets
minus the total liabilities of the Business as of a given time period as
determined by the Balance Sheet Report as of such time period.
NOTES. The term "Notes" shall have the meaning set forth in Section 8.5.
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NOTE ONE. The term "Note One" shall have the meaning set forth in Section
8.5.
NOTE TWO. The term "Note Two" shall have the meaning set forth in Section
8.5.
NOTICE OF ACTION. The term "Notice of Action" shall have the meaning set
forth in Section 7.1C.
NOTICE OF ELECTION. The term "Notice of Election" shall have the meaning
set forth in Section 7.1C.
OFFSET. The term "Offset" shall have the meaning set forth in Section 8.2.
OPTION PRICE. The term "Option Price" shall have the meaning set forth in
Section 8.5.
ORDINARY COURSE OF BUSINESS. The term "Ordinary Course of Business" shall
mean the ordinary course of Seller's Business consistent with past custom and
practice (including with respect to quantity and frequency).
OTHER ACQUIRED BUSINESSES. The term "Other Acquired Businesses" shall have
the meaning set forth in the preamble hereto.
OTHER AGREEMENTS. The term "Other Agreements" shall have the meaning set
forth in the preamble hereto.
OTHER FINANCING SOURCES. The term "Other Financing Sources" shall have the
meaning set forth in Section 6.2(iv).
PARENT. The term "Parent" shall have the meaning set forth in the preamble
hereto.
PARENT SHARES. The term "Parent Shares" shall mean any of the shares of
common stock of the Parent.
PARTY. The terms "Party" and "Parties" shall have the meanings set forth in
the preamble hereto.
PBGC. The term "PBGC" shall mean the Pension Benefits Guaranty Corporation.
PERSON. The term "Person" shall mean any natural person, Entity, estate,
trust, union or employee organization or Governmental Authority.
PRICING. The term "Pricing" shall have the meaning set forth in Section 6.1.
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PUBLIC OFFERING. The term "Public Offering" means the sale by the Parent of
any of its securities for cash in an underwritten public offering registered on
the appropriate form with the Securities and Exchange Commission.
PUBLIC OFFERING PRICE. The term "Public Offering Price" shall refer to the
price to the public of the Parent Shares pursuant to the initial Public Offering
of the Parent Shares by Parent.
PURCHASE PRICE. The term "Purchase Price" shall mean the consideration
payable to the Seller for the Assets as set forth or contemplated in Section
2.3.
REAL PROPERTY. The term "Real Property" shall have the meaning as contained
in Section 3.14.
REGISTRATION RIGHTS AGREEMENT. The term "Registration Rights Agreement"
shall have the meaning set forth in Section 6.2(xi).
REGISTRATION STATEMENT. The term "Registration Statement" shall mean the
registration statement, including (a) each preliminary prospectus included
therein prior to the date on which that registration statement is declared
effective under the Securities Act (including any prospectus filed with the SEC
pursuant to Securities Act Rule 424(b)), (b) the Final Prospectus and (c) any
amendments and all supplements and exhibits thereto, filed by the Parent with
the SEC to register the Parent Shares under the Securities Act for public
offering and sale in the IPO.
RETAINED LIABILITIES. The term "Retained Liabilities" shall mean all
liabilities of the Business other than the Assumed Liabilities.
SCHEDULE OF ACCRUED LIABILITIES. The term "Schedule of Accrued Liabilities"
shall mean a schedule of all accrued liabilities of the Business prepared for
the period and as of the date specified.
SEC. The term "SEC" means the Securities and Exchange Commission or any
successor Governmental Authority.
SECURITIES ACT. The term "Securities Act" shall mean the Securities Act of
1933, as amended.
SELLER. The term "Seller" shall have the meaning set forth in the preamble
hereto.
SELLER EMPLOYMENT AGREEMENT. The term "Seller Employment Agreement" shall
have the meaning ascribed to it in Section 6.2(x).
SELLER'S NAMES. The term "Seller's Names" shall have the meaning set forth
in Section 2.1(k).
STOCK PLEDGE AGREEMENT. The term "Stock Pledge Agreement" shall have the
meaning set forth in Section 6.3(xiii).
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SUBSIDIARY. The term "Subsidiary," of any specified Person at any time,
shall mean any Entity a majority of the Capital Stock of which is at that time
owned or controlled, directly or indirectly, by the specified Person.
SUPPLEMENTAL INFORMATION. The term "Supplemental Information" shall have
the meaning set forth in Section 5.10.
TAXES. The term "Taxes" shall mean any and all local, state or federal
taxes imposed upon the Business or the Seller, including, without limitation,
tax obligations, tax claims, tax charges, tax fines or any related tax
liabilities, regardless of the source, cause or origin of such tax liabilities,
including taxes imposed as a result of the consummation of the Acquisition.
UNDERWRITER. The term "Underwriter" shall mean collectively (a) the
investment banking firms that prospectively may enter into the Underwriting
Agreement and (b) from and after the IPO Pricing Date, the investment banking
firms party to the Underwriting Agreement.
UNDERWRITING AGREEMENT. The term "Underwriting Agreement" shall mean the
underwriting agreement to be entered into between the Parent and the Underwriter
with respect to the IPO.
ARTICLE II
PURCHASE OF ASSETS AND PURCHASE PRICE
-------------------------------------
2.1 SALE OF ASSETS. Subject to the terms and conditions set forth in this
Agreement, the Seller agrees to sell, convey, transfer, assign and deliver to
the Buyer, and the Buyer agrees to purchase from the Seller on the Closing Date,
all assets owned by Seller and used in or derived from the Business (other than
those specifically excluded under Section 2.2 below) including the following
(such assets to be referred to herein as the "Assets"):
(a) All office equipment, furniture, artwork, service equipment, supplies,
computer hardware, computer software, data processing equipment, and tools (the
"Equipment"), including the Equipment described on SCHEDULE 2.1(A);
(b) All contracts, leases, documents, franchises, instruments, Licenses,
agreements and other written or oral agreements relating to the Business of
Seller to which Seller is a party or by which Seller or any of the Assets may be
bound as well as all rights, privileges, claims and options relating to the
foregoing (the "Contracts"), including the Contracts described on SCHEDULE
2.1(B);
(c) All customer and supplier files and databases, customer and supplier
lists, accounting and financial records, invoices, and other books and records
relating principally to the Business (the "Books and Records"), including the
Books and Records described on SCHEDULE 2.1(C);
(d) Employee files for those Employees actually hired by
Buyer;
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(e) All right, title and interest of Seller, in, to and under all service
marks, trademarks, patents, inventions, copyrights, trademarks, trade secrets
and trade and assumed names, principally related to the Business together with
the right to receive royalties with respect thereto or recover for infringement
thereon, if any (the "Intellectual Property"), and other marks and/or names
described on SCHEDULE 2.1(E);
(f) All advertising materials and all other printed or written materials
related to the conduct of the Business;
(g) All of the Seller's general intangibles, claims, rights of set off,
rights of recoupment and other proprietary intangibles, licenses and sublicenses
granted and obtained with respect thereto, and rights thereunder, which are used
in the Business, and remedies against infringements thereof, and rights to
protection of interests therein under the laws of all jurisdictions (the
"General Intangibles"), including the General Intangibles described on SCHEDULE
2.1(G);
(h) All goodwill, going concern value and other intangible properties
related to the Business;
(i) All of Seller's Accounts Receivable, except such portion of Seller's
Accounts Receivable constituting Excluded Assets.
(j) All raw materials, work in process, finished goods, consigned goods,
and other inventories relating to the Business, as more fully described on
SCHEDULE 2.1(J) (the "Inventory");
(k) The exclusive right to use the name "Jilio & Associates", any similar
name or derivative thereof, and any past or present assumed names in connection
with the Business or Seller's use of the Assets (the "Seller's Names"); and
(l) The Real Property described on SCHEDULE 3.14(A), if any.
2.2 EXCLUDED ASSETS. Seller is not selling and Buyer is not purchasing
any of the following excluded assets related to the Business ("Excluded
Assets"): (i) cash, (ii) cash investments, cash deposits, right to receive cash
refunds, and other cash equivalents, (iii) 50% of Seller's Accounts Receivable,
(iv) assets of any employee benefit plan described on SCHEDULE 3.19, or (v)
motor vehicles, all as more specifically described on SCHEDULE 2.2. The Parties
agree that as the Accounts Receivable are collected following the Effective
Date, $.50 of each dollar collected shall be retained by the Buyer and the
remaining $.50 of each dollar collected shall be paid to the Seller.
2.3 PURCHASE PRICE. Upon the terms and subject to the conditions
contained herein and as consideration for the sale of the Assets and the
performance by the Seller of various other matters as provided herein, the Buyer
shall pay or deliver to the Seller, on the IPO Closing Date and as soon as
practicable after the IPO Closing, the aggregate amount $8,000,000, payable by
delivery of the following consideration (collectively the "Purchase Price"):
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(a) Subject to the provisions of Section 2.5, a Cash Sum in the
amount of Dollars ($5,600,000) (the "Cash Purchase Price"), paid by the wire
transfer of immediately available funds; and
(b) Such number of whole Parent Shares on the IPO Closing Date as,
when multiplied by 90% of the IPO Price, will most nearly approximate, but not
exceed, $2,400,000 and cash in the amount equal to the excess of $2,400,000 over
the product of that number of Parent Shares multiplied by 90% of the IPO Price.
2.4 DETERMINATION OF FINAL NET WORTH. Each of the Closing Date Balance
Sheet Report, the Closing Date Accounts Receivable Report, the Closing Date
Accounts Payable Report, the Closing Date Schedule of Accrued Liabilities and
the Closing Date Income Statement (collectively, the "Closing Date Reports") of
the Business shall be prepared by the Seller, as promptly as possible after the
Closing. Seller's accountants shall then review and certify the Closing Date
Reports, and deliver them to Buyer and Buyer's accountants within 30 days after
the IPO Closing Date. The Buyer's accountants shall review the Closing Date
Reports (including any corresponding work papers of Seller's accountants) and
report to the Seller's accountants in writing within 30 days of receipt thereof
of any discrepancy between the Seller's accountants certification and the
Buyer's accountants results of review. If Seller's accountants and Buyer's
accountants cannot resolve such discrepancy within 30 days after Seller's
accountants receipt of such reported discrepancy, then they shall so notify the
Seller and the Buyer, and the Seller and the Buyer shall attempt to resolve the
discrepancy within 15 days of such notice. If the Seller and the Buyer cannot
resolve the discrepancy to their mutual satisfaction, another independent public
accounting firm acceptable to the Seller and the Buyer shall be retained to
review the Closing Date Reports. Such firm's conclusions as to the carrying
values to appear on the Closing Date Reports for purposes of determining the
Final Net Worth of the Business shall be conclusive. The Seller and the Buyer
shall share equally in the expenses of retaining such independent accounting
firm. The Buyer shall pay the expenses of the Buyer's accountants for their
review of the Closing Date Reports, and the Seller shall pay the expenses of
Seller's accountants for their review of the Closing Date Reports.
2.5 ADJUSTMENT OF PURCHASE PRICE. After the IPO Closing Date, the
Purchase Price set forth in Section 2.3, shall be adjusted as follows: (i) if
the Final Net Worth of the Business as finally determined pursuant to Section
2.4 shall be more than the Guaranteed Net Worth, then the cash portion of the
Purchase Price shall be increased by the amount of such excess and (ii) if the
Final Net Worth of the Business as finally determined pursuant to Section 2.4
shall be less than the Guaranteed Net Worth, then the cash portion of the
Purchase Price shall be decreased by the amount of such deficiency. In the event
that the Final Net Worth is more than the Guaranteed Net Worth, the Buyer shall
within 15 days pay the amount of such excess in cash to the Seller. In the
event that the Final Net Worth is less than the Guaranteed Net Worth, the Seller
shall within 15 days refund the amount of such deficiency in cash to Buyer.
2.6 ASSUMPTION OF LIABILITIES. Upon the terms and subject to the
conditions contained herein, the Buyer agrees that on the Closing Date, it will
not assume (i) any liabilities of the Business (except for those liabilities
listed as current liabilities on Seller's Balance Sheet dated July 31, 1997
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(including the Real Property leases listed on SCHEDULE 3.14B) subject, however,
to adjustments for changes in liabilities occurring in the ordinary course of
Seller's business following July 31, 1997 through the Closing Date, as
determined under Section 2.4 and set forth on the Closing Date Reports ("Assumed
Liabilities")), (ii) any liabilities for Taxes or Funded Debt, or (iii) any
liabilities described on SCHEDULE 3.21.
2.7 ALLOCATION OF PURCHASE PRICE. For all federal, state and local tax
purposes, the Purchase Price shall be allocated among the various Assets in the
manner indicated in SCHEDULE 2.7 hereto subject to adjustment pursuant to the
Closing Date Reports. None of the Parties shall file any tax return or report
or take any position with any Governmental Authority which is inconsistent with
the foregoing allocation, except to the extent mandated by a Governmental
Authority in a determination binding upon one Party provided that such Party has
given written notice and reasonable opportunity to the other Party, at its
expense, to contest and appeal such determination on behalf of both Parties and
such determination has nevertheless become final. Within ninety (90) days after
the Closing Date, the Parties shall prepare for filing with the Internal Revenue
Service a Form 8594 in accordance with the foregoing allocation.
2.8 TAXES. Seller shall be liable for the payment of all sales and use
taxes arising out of the sale and transfer or removal of the Assets, if any, and
the assumption of the Assumed Liabilities. On or before the Closing Date, the
Seller agrees to use her best efforts to furnish to the Buyer certificates from
the state taxing authorities, and any related certificates that the Buyer may
reasonably request, as evidence that all sales and use tax liabilities of the
Business accruing before the Effective Date have been fully provided for or
satisfied. The Buyer shall not be responsible for any business, occupation,
withholding or similar tax, or any taxes of any kind of the Business, related to
any period before the Effective Date.
2.9 TITLE TO ASSETS AND RISK OF LOSS. Title to the Assets and risk of
loss or damage to the Assets by casualty (whether or not covered by insurance)
will pass to the Buyer immediately upon completion of the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
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Seller represents and warrants that all of the following representations and
warranties in this Article III are true at the date of this Agreement and shall
be true at the time of Closing and the IPO Closing Date, and that such
representations and warranties shall survive the IPO Closing Date for a period
of two years (the last day of such period being the "Expiration Date"), except
that (i) the warranties and representations set forth in Sections 3.5 and 3.24
hereof shall survive the IPO Closing Date for a period of three years, which
shall be deemed to be the Expiration Date for Sections 3.5 and 3.24, and (ii)
solely for purposes of determining whether a claim for indemnification under
Section 7.1 hereof has been made on a timely basis, and solely to the extent
that in connection with the IPO, the Seller actually incurs liability under the
Securities Act, the Exchange Act, or any other federal or state securities laws,
the representations and warranties set forth herein shall survive until the
expiration of any applicable limitations period, which shall be deemed to be the
Expiration Date for such purposes.
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3.1 SEPARATE PROPERTY. The Business constitutes the separate property
of the Seller and her spouse has no community property interest in any of the
Assets.
3.2 AUTHORITY. Seller has the full right, power, legal capacity and
authority to execute, deliver and perform Seller's obligations under this
Agreement and all agreements ancillary to this Agreement which are part of the
underlying transaction made the basis of this Agreement and executed in
connection herewith, including but not limited to the Exhibits hereto
("Ancillary Agreements").
3.3 CONSENTS AND APPROVALS; NO BREACH OR DEFAULT. Except as set forth on
SCHEDULE 3.3(A), no consent, approval or authorization of, or filing or
registration with, any Person or Entity, is required to be made or obtained by
Seller in connection with the execution, delivery or performance of this
Agreement, or the consummation by Seller of the transactions contemplated
hereby. Except as set forth on SCHEDULE 3.3(B), neither the execution and
delivery of this Agreement or the Ancillary Agreements by Seller, nor the
consummation of the transactions contemplated herein by Seller, will (a) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any Governmental Authority to
which Seller is, or the Assets are, subject, or (b) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify or cancel, or require any
notice under, any agreement, contract, lease, license, instrument, promissory
note, conditional sales contract, partnership agreement or other arrangement to
which Seller or any of Seller's Affiliates is a party, or by which Seller is
bound, or to which the Assets are subject.
3.4 VALID AND BINDING OBLIGATION. Upon execution and delivery, this
Agreement and each document, instrument or agreement to be executed by Seller in
connection herewith, will constitute the legal, valid, and binding obligation of
Seller, enforceable against Seller in accordance with its terms, except as same
may be limited by applicable bankruptcy laws, insolvency laws, or other similar
laws affecting the rights of creditors generally.
3.5 TITLE TO ASSETS. Except as set forth on SCHEDULE 3.5, Seller has
good, indefeasible and marketable title to the Assets, free and clear of
restrictions or conditions to transfer or assignment, or mortgages, liens,
pledges, charges, encumbrances, equities, claims, easements, rights-of-way,
covenants, conditions or restrictions. Seller shall, subject to the exceptions
set forth on SCHEDULE 3.5 deliver to Buyer at Closing good, indefeasible and
marketable title to the Assets, free and clear of restrictions or conditions to
transfer or assignment, or mortgages, liens, pledges, charges, encumbrances,
equities, claims, easements, rights-of-way, covenants, conditions or
restrictions.
3.6 POSSESSION OF ASSETS; LEASED ASSETS. Seller is in possession of all
of the Assets, and all assets leased to the Business from others. All assets
leased to Seller from others and used in the Business, whether real, personal or
mixed, are described on SCHEDULE 3.6 and SCHEDULE 3.14(B) attached hereto (the
"Leased Assets"). The Assets and the Leased Assets constitute all of the
property, whether real, personal, mixed, tangible, or intangible, that is owned
or used in the
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Business by Seller. Seller does not own legal or equitable title to any assets
or interests in assets except the Assets and the Leased Assets. Seller shall
deliver to Buyer on the Closing Date, possession of and/or control or dominion
over all of the Assets and the Leased Assets, including without limitation all
of Seller's accounts receivable, property, plant and equipment, other personal
property, contract rights and general intangibles, customer and supplier lists,
and assumed and trade names.
3.7 CONDITION. To the Knowledge of the Seller, all of the Assets and the
Leased Assets are in good operating condition and repair for their intended use,
ordinary wear and tear excepted.
3.8 CONTRACTS AND LEASES. All of the contracts, leases, documents,
instruments, agreements, and other written or oral arrangements to which Seller
is a party or by which Seller or the Assets may be bound are set forth on
SCHEDULE 2.1(B). Except as set forth on SCHEDULE 2.1(B), to the Knowledge of
the Seller, all of the Contracts are valid and in full force and effect, and
there has not been any default by Seller or any third party to any of said
Contracts, or any event, fact or circumstance which with notice or lapse of time
or both, would constitute a default by Seller or any other party to any of the
Contracts. Seller has not received notice that any party to any of the Contracts
intends to cancel or terminate any of the Contracts or exercise or not exercise
any options that such party might have under any of the Contracts.
3.9 EQUIPMENT. All of the equipment owned by the Business is set forth on
SCHEDULE 2.1(A).
3.10 ACCOUNTS RECEIVABLE. All of the Accounts Receivable of the Business
as set forth in the Books and Records of the Business and all papers and
documents relating thereto, are genuine and in all respects what they purport to
be, and each such Account Receivable is valid and subsisting and is owed by the
account debtor named in such Account Receivable. The amount of each Account
Receivable represented as owing as of the date indicated (a) is the correct
amount actually and unconditionally owing as of the date indicated, (b) is not
subject to any set-offs, credits, disputes, defenses, deductions or
countercharges, and (c) to the best knowledge of Seller, will be paid in the
Ordinary Course of Business. None of the Accounts Receivable has been paid
outside of the Ordinary Course of Business, and neither Seller nor any of her
Affiliates has made any efforts to collect any of the Accounts Receivable
outside of the Ordinary Course of Business.
3.11 INVENTORIES. Except as set forth on SCHEDULE 2.1(J), the Business
does not have any raw materials, work in process, finished goods or other
inventory.
3.12 LICENSES. All licenses and sublicenses owned by Seller or in which
Seller has any rights (collectively, the "Licenses"), together with a brief
description of each, are set forth on SCHEDULE 2.1(B). Seller has not
infringed, and is not now infringing, on any license belonging to any other
Person or Entity. Seller owns and holds adequate licenses necessary for the
Business as now conducted by her, and that use does not, and will not, conflict
with, infringe on or otherwise violate any rights of others. Buyer is hereby
acquiring, and will continue to enjoy the use and benefit of, the Licenses.
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3.13 INTELLECTUAL PROPERTY. All of the Intellectual Property of the
Business is set forth on SCHEDULE 2(E). The Intellectual Property constitutes
all of the intellectual property necessary to the lawful conduct of the Business
without any infringement or conflict with the rights of others, and no adverse
claims have been asserted against the Intellectual Property, Seller or the
Business with respect thereto.
3.14 REAL PROPERTY; LEASED REAL PROPERTY. Except as set forth in SCHEDULE
3.14(A) with respect to real property owned by the Business, and SCHEDULE
3.14(B) with respect to real property leased by the Business (such real property
being hereinafter referred to collectively as the "Real Property"), Seller
neither owns nor leases any real property or improvements or interests therein.
Except for Seller, there are no parties in possession of any portion of the Real
Property as lessees, tenants at will or at sufferance, trespassers or otherwise.
The heating, electrical, plumbing and other building equipment, as of the
Closing, will be adequate in quantity and quality for normal operations of the
Business, as presently conducted.
3.15 INSURANCE. Attached hereto as SCHEDULE 3.15 is a true, complete and
accurate list of all insurance policies maintained by the Business. The Seller
has maintained and now maintains insurance protection against all liabilities,
claims and risks against which, with respect to the Business and the Assets, it
is customary to insure in the Ordinary Course of Business.
3.16 BANKING. The names and addresses of all banks or other financial
institutions in which the Business has an account, deposit or safe deposit box,
with the names of all persons authorized to draw on these accounts or deposits
or having access to these boxes, are set forth on SCHEDULE 3.16 attached hereto.
3.17 POWERS OF ATTORNEY. No Person or Entity holds a general or special
power of attorney from Seller.
3.18 PERSONNEL. Attached hereto as SCHEDULE 3.18 (A) is a list of the
names, addresses, hire dates, dates of birth and job descriptions of all
Employees of Seller, stating their rates of compensation including, if
determined, bonuses payable to each. Attached hereto as SCHEDULE 3.18 (B) is a
list of the names, addresses, dates of birth and services provided by all
independent contractors used by Seller during the preceding one (1) year,
stating their rates and methods of compensation.
3.19 EMPLOYEE BENEFITS. SCHEDULE 3.19 is a true, correct and complete list
of each "employee benefit plan," within the meaning of Section 3(3) of Employee
Retirement Income Security Act of 1974, as amended ("ERISA") which has ever been
maintained or sponsored by Seller or any of her Affiliates. Each such employee
benefit plan (and each related trust, insurance contract, or fund) is in full
force and effect, and complies in form and in operation in all respects with the
applicable requirements of ERISA, the Code, and other applicable laws. Neither
Seller nor any other party is in default under any of the plans, there have been
no claims of default, and there are no facts, conditions or circumstances which
if continued, or on notice, will result in a default, under any plan. None of
the plans will, by its terms or under applicable law, become
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binding upon or become an obligation of the Buyer. No assets of any plan are
being transferred to Buyer or to any plan of Buyer. Seller does not contribute
to, and has never contributed to, and has never been required to contribute to,
any multiemployer plan, and Seller does not have, and has never had, any
liability (including withdrawal liability) under any multiemployer plan.
3.20 EMPLOYMENT AGREEMENTS. SCHEDULE 3.20 is a list of all employment
agreements, consulting agreements, collective bargaining agreements, and other
agreements or arrangements providing for employee or other remuneration,
severance payments or benefits to which Seller or any of her Affiliates is a
party or by which Seller or any of her Affiliates is bound (collectively, the
"Employment Agreements"). Buyer will not have any duty, liability or obligation
with respect to any of the Employment Agreements. Except as set forth on
SCHEDULE 3.20, no Employees are represented by any labor organization.
3.21 LIABILITIES. Seller does not have any liabilities, obligations or
commitments of any nature, whether accrued, absolute, contingent or otherwise,
and whether due or to become due, except (a) liabilities which are adequately
disclosed or accrued against in the Balance Sheet Reports, (b) liabilities which
have been incurred in the Ordinary Course of the Business since July 31, 1997,
and in accordance with standard, customary and historical practices and
experiences of Seller, and (c) liabilities expressly set forth, as to the nature
and amount thereof, on SCHEDULE 3.21. Buyer shall not incur any duty, liability
or obligation with respect to any liabilities set forth on SCHEDULE 3.21. In no
event shall the Buyer be liable for (or have paid any) legal, accounting or
other costs or expenses incurred by Seller in connection with any of the
transactions contemplated in this Agreement.
3.22 LITIGATION. Except as set forth on SCHEDULE 3.22, there is no suit,
action, arbitration or legal, administrative or other proceeding or governmental
investigation pending or, to the Seller's Knowledge, threatened against or
affecting Seller, her Affiliates, the Assets, the Leased Assets or the Business.
3.23 TAX MATTERS. Seller has filed all tax returns that Seller was
required to file, and all such tax returns were correct and complete in all
respects. All Taxes owed by Seller (whether or not shown on any tax return)
have been paid. Seller is not the beneficiary of any extension of time within
which to file any tax return, and Seller has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency. Seller has withheld and paid all Taxes
required to have been withheld or paid in connection with amounts paid or owing
to any Employee, independent contractor, creditor, or other third party. Seller
has no reason to believe that any authority might assess any additional Taxes
for any period for which tax returns have been filed. There is no dispute or
claim concerning any Tax liability of Seller.
3.24 COMPLIANCE WITH LAWS. To the Seller's Knowledge, Seller has complied
with, and is not in violation of, applicable federal, state or local ordinances,
statutes, laws, rules, restrictions and regulations (including, without
limitation, any applicable Environmental, Health & Safety Laws) that affect, or
are likely to affect, directly or indirectly, the Business, the Assets,
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the Leased Assets, the Real Property or the Customers, suppliers or financial
prospects of Seller. There are not any uncured violations of federal, state or
local laws, ordinances, statutes, orders, rules, restrictions, regulations or
requirements affecting any portion of the Business, the Real Property, the
Assets or the Leased Assets, and neither any of the Assets, the Leased Assets or
the Real Property, nor the operation thereof nor the conduct of the Business,
violates any applicable federal, state or municipal laws, ordinances, orders,
regulations or requirements. Seller has not received notice of any past,
present or future event, condition, circumstance, activity, practice, incident,
action or plan which may interfere with or prevent compliance or continued
compliance with the Environmental, Health & Safety Laws or which may give rise
to any common law or legal liability, or otherwise form the basis of any claim,
action, demand, lawsuit, proceeding, hearing, study or investigation, based on,
related to, or alleging any violation of the Environmental Health & Safety Laws.
3.25 FINANCIAL STATEMENTS. The Financial Statements (a) are true,
complete, and correct in all material respects, (b) fairly and accurately
present the financial position of the Business as of the periods described
therein, and the results of the operations of the Business for the periods
indicated, and (c) have been prepared consistently and in accordance with the
Business's historical customs and practices.
3.26 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in SCHEDULE
3.26, since July 31, 1997.
(A) there has been no: (i) material adverse change in the financial
condition, assets, liabilities, business or prospects of the Business; (ii)
loss, destruction or damage to any property of the Business, whether or not
insured; (iii) labor trouble, pending or threatened, involving the Business, or
change in the personnel of the Business or the terms or conditions of their
employment or other engagement; nor (iv) other event or condition of any
character that has or could have a Material Adverse Effect on the Business;
(B) Seller and her Affiliates have used their best efforts to
preserve the business organization of Seller intact, to maintain the goodwill of
the Business, to keep available to the Business the Employees and the
independent contractors, and to preserve the present relationships of Seller
with her suppliers, Customers, regulatory authorities and others having business
relationships with her;
(C) Seller has maintained and operated the Business in the Ordinary
Course of Business and in accordance with industry practices and Seller's
historical policies;
(D) Seller has not made any payment of any type to any Employee or
Affiliate other than ordinary salary or expenses which have been paid in the
Ordinary Course of Business and fully disclosed to Buyer;
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(E) Seller has neither waived nor released any Material right of or
Material claim held by her, nor discounted any of her Accounts Receivable, nor
revalued any of her Assets or liabilities;
(F) Seller has not acquired nor disposed of any assets having a value
of $5,000 individually or $15,000 in the aggregate, and has not entered into any
contract, commitment or arrangement therefor, and has not entered into any other
transaction, other than for value in the Ordinary Course of Business and in
accordance with industry practices;
(G) Seller has not changed the salary or other compensation payable or
to become payable by Seller to the Employees, independent contractors, agents or
other personnel, and has not declared, made or committed to any kind of payment
of a bonus or other additional salary or compensation to any such person;
(H) Seller has not made a loan to any Person or Entity, and has not
guarantied any loan, in an amount in excess of $5,000 individually or $15,000 in
the aggregate;
(I) Seller has not amended nor terminated any material contract,
agreement, permit or license to which Seller is a party, or by which Seller or
any of the Assets or Leased Assets are bound;
(J) Seller has maintained all debt and lease instruments, and has not
entered into any new or amended debt or lease instruments;
(K) Seller has not entered into any agreement or instrument which
would constitute an encumbrance, mortgage or pledge of the Assets, or which
would bind Buyer or the Assets after Closing, in an amount in excess of $5,000
individually or $15,000 in the aggregate;
(L) Seller has provided to Buyer any and all books, records,
contracts, and other documents or data pertaining to the ownership, use,
insurance, operation, renovation and maintenance of the Assets, the Leased
Assets and the Business;
(M) Seller has performed all of Seller's obligations under all
contracts and commitments applicable to the Business, the Assets and the Leased
Assets, and has maintained the Business's books of account and records in the
usual, regular and customary manner;
(N) Seller has complied with all statutes, laws, ordinances and
regulations applicable to the Business, the Assets, the Leased Assets and the
conduct of the Business;
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(O) Seller has paid all bills and other payments due with respect to
the ownership, use, insurance, operation and maintenance of the Business, the
Assets and the Leased Assets, as and when such bills or other payments were due,
and has taken all action necessary or prudent to prevent liens or other claims
for the same from being filed or asserted against any part of the Assets or the
Leased Assets; provided however, Seller has not made any expenditures outside
the Ordinary Course of Business, nor any capital expenditures, in excess of
$5,000 individually or $15,000 in the aggregate;
(P) Seller has not made any material changes in her management,
operations, accounting or business practices or methods (including without
limitation, any change in depreciation or amortization policies or rates); and
(Q) all revenues or cash or other receipts from all sources in all
media received by the Business have been deposited in the Business's account.
3.27 CUSTOMERS. SCHEDULE 3.27 to this Agreement is a true, complete and
correct list of all Customers of Seller, together with summaries of the services
provided to each Customer during the one (1) year preceding the Closing Date.
"Customer" means a customer or client of the Seller during the one year
preceding the Closing Date. Except as indicated in SCHEDULE 3.27, Seller does
not have any information, nor is she aware of any facts or circumstances,
indicating that any of these Customers intend not to do business with Buyer to
the same volume and extent, and on the same terms, as they have historically
done business with Seller.
3.28 INTERESTS IN CUSTOMERS, SUPPLIERS AND COMPETITORS. No Affiliate or
Employee (nor any former Affiliate or Employee) of Seller, nor any relative of
any of them, has any direct or indirect interest in any competitor, supplier or
customer of Seller, nor any Person or Entity who has done business with Seller
in the one (1) year preceding the Closing Date.
3.29 BULK SALE WARRANTY FOR SALES TAX PURPOSES. Prior to Closing, Seller
has never sold a substantial or significant part of her assets in any single
transaction or series of transactions. The transaction contemplated herein is
the sale of the entire operating assets of a business, and a sale outside the
ordinary course of Seller's business, and therefor no sales tax is due upon the
Closing of the Acquisition.
3.30 DISCLOSURE. Seller has provided to Buyer actual copies of all
Contracts, documents concerning all litigation and administrative proceedings,
employee benefit plans, Licenses, insurance policies, lists of suppliers,
Customers, Employees and independent contractors, and corporate records relating
to Seller or her assets and liabilities, the Business and the Real Property, and
such information covers all material commitments and liabilities of Seller. In
addition, (a) Buyer has been kept fully informed with respect to all material
developments in the business of Seller since the July 31, 1997, (b) management
of Seller has not made any material business decisions, nor taken any material
actions, since July 31, 1997 of which Buyer has not been
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advised, and (c) Buyer and its agents have been granted unlimited access to the
books and records of Seller (whether retained electronically, on disc or on
paper).
3.31 FULL DISCLOSURE. This Agreement, the schedules and exhibits hereto,
and all other documents and written information furnished by Seller to Buyer or
its representatives pursuant hereto or in connection herewith, are true,
complete and correct, and do not include any untrue statement of a material fact
or omit to state any material fact necessary to make the statements made
herein and therein not misleading. There are no facts or circumstances relating
to the Business or Seller's liabilities, prospects, operations or financial
condition, or the Assets, which materially and adversely affect or, so far as
the Seller can now reasonably foresee, will materially and adversely affect, the
Business, Seller or the assets, liabilities, prospects, operations or financial
condition thereof, or the ability of the Seller to perform this Agreement or the
obligations of Seller hereunder.
3.33 BROKERS. Except for The GulfStar Group, Inc., neither the Seller
nor her Affiliates, officers, directors, or employees, has employed any broker,
agent, or finder, or incurred any liability for any brokerage fees, agent's
fees, commissions or finder's fees in connection with the transactions
contemplated herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Parent and Buyer jointly and severally represent and warrant that all
of the following representations and warranties in this Article IV are true at
the date of this Agreement and shall be true at the time of Closing and the IPO
Closing Date, and that such representations and warranties shall survive the IPO
Closing Date until the Expiration Date, except that solely for purposes of
determining whether a claim for indemnification under Section 7.1 hereof has
been made on a timely basis, and solely to the extent that in connection with
the IPO, the Seller actually incurs liability under the Securities Act, the
Exchange Act, or any other federal or state securities laws, the representations
and warranties set forth herein shall survive until the expiration of any
applicable limitations period, which shall be deemed to be the Expiration Date
for such purposes.
4.1 ORGANIZATION. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and has
all the necessary corporate powers to own its properties and to carry on its
business as now owned and operated by it. The Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas and has all the necessary corporate powers to own its properties and to
carry on its business as now owned and operated by it.
4.2 AUTHORITY. Each of Buyer and Parent, as applicable, has the right,
power, legal capacity, and authority to execute, deliver and perform this
Agreement and the Ancillary Agreements to which it is a party. The execution,
delivery and performance of this Agreement and any Ancillary
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Agreements by Buyer and Parent, as applicable, have been duly authorized by all
necessary corporate action.
4.3 CAPITAL STOCK OF PARENT AND BUYER. The respective designations and
numbers of outstanding shares and voting rights of each class of outstanding
capital stock of the Parent and the Buyer are as follows: (i) immediately prior
to the Closing Date and the IPO Date, the authorized capital stock of Parent
will consist of 100,000,000 shares of common stock, $.01 par value per share
("Parent Shares") of which the number of issued and outstanding shares will be
set forth in the Registration Statement, and 10,000,000 shares of preferred
stock, $1.00 par value, of which the number of issued and outstanding shares
will be set forth in the Registration Statement, all of which will be fully paid
and non-assessable except as otherwise set forth in the Registration Statement,
and (ii) as of the date of this Agreement, the authorized capital stock of Buyer
consists of 10,000 shares of common stock, no par value, all of which are issued
and outstanding.
4.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING. Except for
the Other Agreements and except as set forth on in the Registration Statement,
(i) no option, warrant, call, conversion right or commitment of any kind exists
which obligates the Parent or the Buyer to issue any of their respective
authorized but unissued capital stock, and (ii) neither the Parent nor the Buyer
has any 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. SCHEDULE 4.4 includes
complete and accurate copies of all stock option or stock purchase plans,
including a list of all outstanding options, warrants or other rights (excluding
the Other Agreements) to acquire Parent Shares.
4.5 COMMON STOCK. At the time of issuance thereof and delivery to the
Seller, the Parent Shares to be delivered to the Seller pursuant to this
Agreement will constitute valid and legally issued Parent Shares, fully paid and
nonassessable, and with the exception of restrictions upon resale (a) set forth
in Section 9.3 hereof and (b) contained in the Stock Pledge Agreement, will be
identical in all substantive respects (which do not include the form of
certificate upon which it is printed or the presence or absence of a CUSIP
number on any such certificate) to the Parent Shares issued and outstanding as
of the date hereof by reason of the provisions of the Texas Business Corporation
Act. Except as provided in the previous sentence, the Parent Shares issued and
delivered to the Seller shall at the time of such issuance and delivery be free
and clear of any liens, claims or encumbrances of any kind or character. The
Parent Shares to be issued to the Seller pursuant to this Agreement will not be
registered under the 1933 Act, except as provided in Registration Rights
Agreement.
4.6 VALID AND BINDING OBLIGATIONS. Upon execution and delivery, each of
this Agreement and the Ancillary Agreements will constitute the legal, valid,
and binding obligation of Buyer or Parent, as applicable, enforceable in
accordance with its terms, except as limited by bankruptcy laws, insolvency
laws, and other similar laws affecting the rights of creditors generally.
4.7 BROKERS. Except for The GulfStar Group, Inc. neither Buyer nor any of
its respective Affiliates, officers, directors, or employees, has employed any
broker, agent, or finder, or incurred
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any liability for any brokerage fees, agent's fees, commissions or finder's fees
in connection with the transactions contemplated herein. Seller shall not be
liable for the fee paid to The GulfStar Group, Inc.
4.8 CONSENTS AND APPROVALS. No consent, approval or authorization of, or
filing or registration with, any Person or Entity, is required to be made or
obtained by Buyer in connection with the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby.
ARTICLE V
COVENANTS OF THE PARTIES
------------------------
Buyer and Seller covenant and agree as follows:
5.1 CONDUCT OF THE BUSINESS. Except as otherwise permitted by this
Agreement or consented to by Buyer in writing, Seller shall through the IPO
Closing Date conduct the Business in the ordinary course in substantially the
same manner as heretofore, using her best efforts to preserve intact her present
business organization, to keep available the services of her Employees, and to
preserve her relationships with Customers, suppliers and others having business
dealings with her.
5.2 CERTAIN CHANGES. Except as otherwise permitted by this Agreement or
consented to by Buyer in writing, Seller shall not: (a) subject any of the
Assets to any lien or encumbrance; (b) dispose of any of the Assets; or (c)
grant any increase in compensation or benefits to any Employee; (d) materially
modify any of the liabilities, or (e) with respect to the Business, perform any
act outside the Ordinary Course of Business except as otherwise contemplated by
this Agreement.
5.3 NOTICE. Seller will notify Buyer immediately in writing if (i) any of
Seller's representations or warranties set forth in this Agreement are or become
untrue prior to the IPO Closing Date, (ii) Seller fails to fully perform all of
the covenants of Seller set forth in this Agreement, or (iii) there occurs any
Material adverse development in the Business or Seller's market position, sales,
profit trends, labor regulations, litigation or insurance claims or otherwise.
5.4 RECORDS. From the date of execution of this Agreement until the
Closing, Seller shall permit Buyer the right, during normal business hours, to
inspect any documents, Books and Records or other information pertaining to the
Assets.
5.5 U.C.C. SEARCHES. Within five (5) days from the date of execution
hereof, Buyer, at Buyer's sole cost and expense, shall deliver to Seller current
searches of all Uniform Commercial Code financing statements filed with the
Office of the Secretary of State of California and in any other state, or
county in which the Seller has an office, against Seller. Any and all liens,
pledges, mortgages, security interests and encumbrances affecting the Assets,
regardless of whether same are disclosed in such lien searches, shall be
released and discharged by Seller at or prior to Closing.
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5.6 BULK SALES. It may not be practicable to comply or attempt to comply
with the procedures of the "Bulk Sales Act" or similar law in any or all of the
states in which the Assets are situated or of any other state which may be
asserted to be applicable to the transactions contemplated hereby. Accordingly,
to induce Buyer to waive any requirements for compliance with any or all of such
laws, Seller hereby agrees that except for the Assumed Liabilities, the
indemnity provisions of Article VII hereof shall apply to any damages of Buyer
arising out of or resulting from the failure of Buyer or Seller to comply with
any such laws or any similar law which may be asserted to be applicable.
5.7 TERMINATION OF EMPLOYMENT OF SELLER'S EMPLOYEES. Buyer anticipates
extending an offer of employment to substantially all of the Employees of the
Seller on substantially the same terms and conditions as the Employees currently
are employed by Seller. Notwithstanding the foregoing, nothing herein shall
imply or guarantee employment of any Employee of Seller by Buyer. If Seller's
Employees desire employment with Buyer, they will be interviewed in conjunction
with the applicants from other sources and given strong consideration for
available positions with Buyer, at the wages, hours, and conditions of
employment established by Buyer prior to hiring any Employees. Seller agrees to
use her best efforts to make available the Employees to the Buyer that Buyer
desires to hire for the purpose of operating the Business. Notwithstanding
anything to the contrary contained herein, Buyer agrees that it will offer to
employ substantially all of Seller's Employees. Nothing shall prohibit Buyer
from terminating any of Seller's Employees subsequent to their employment by
Buyer.
5.8 COOPERATION IN CONNECTION WITH THE IPO. The Seller will (a) provide
the Parent and the Underwriter with all the Information concerning Seller which
is reasonably requested by the Parent and the Underwriter from time to time in
connection with effecting the IPO and (b) cooperate with the Parent and the
Underwriter and their respective representatives in the preparation and
amendment of the Registration Statement (including the Financial Statements) and
in responding to the comments of the SEC staff, if any, with respect thereto, to
the extent that any of the foregoing concern or reasonably relate to the Seller.
The Seller agrees promptly to (a) advise the Parent if, at any time during the
period in which a prospectus relating to the IPO is required to be delivered
under the Securities Act, any information contained in the then current
Registration Statement prospectus concerning the Seller becomes incorrect or
incomplete in any material respect and (b) provide the Parent with the
information needed to correct or complete that information.
5.9 ADDITIONAL FINANCIAL STATEMENTS. Seller shall promptly furnish to
Buyer a copy of all Financial Statements for each additional month-end period
beyond July 31, 1997 as soon as same is regularly prepared by Seller in the
Ordinary Course of Business. All such additional Financial Statements shall be
subject to the same representations and warranties as contained in Section 3.26
of this Agreement. The Parties acknowledge and agree that Buyer shall be
permitted to conduct at its sole cost and expense an audit of Seller for the
fiscal years ended 1994, 1995 and 1996 in connection with the IPO. Buyer shall
pay Seller's reasonable costs incurred in preparing such monthly financial
statements.
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5.10 SUPPLEMENTAL INFORMATION. The Seller agrees that, with respect to the
representations and warranties of that party contained in this Agreement, that
party will have the continuing obligation through the IPO Closing to provide the
Parent promptly with such additional supplemental Information (collectively, the
"Supplemental Information"), in the form of (a) amendments to then existing
Schedules or (b) additional Schedules, as would be necessary, in the light of
the circumstances, conditions, events and states of facts then known to the
Seller, to make each of those representations and warranties true and correct as
of the Closing and on the IPO Closing Date. For purposes only of determining
whether the conditions to the obligations of the Parent and Buyer which are
specified in Section 6.3 have been satisfied, the Schedules as of the Closing
and on the IPO Closing Date shall be deemed to be the Schedules and the Investor
Representation Letter as of the date hereof as amended or supplemented by the
Supplemental Information provided to the Parent prior to the Effective Date
pursuant to this Section 5.10; provided, however, that if the Supplemental
Information so provided discloses the existence of circumstances, conditions,
events or states of facts which, in any combination thereof, (a) have had a
Material Adverse Effect or (b), based upon the advice of the Underwriter, the
Parent has determined (which shall be conclusive for purposes of this Section
5.10 and 8.3(a)(iv), but not for any purpose of Article VII), (i) are having or
will have a Material Adverse Effect, (ii) will materially adversely affect the
Parent's ability to consummate the IPO or (iii) will adversely affect the
pricing of the Parent Shares in the IPO, the Parent will be entitled to
terminate this Agreement pursuant to Section 8.3(a)(iv); and provided, further,
that if the Parent is entitled to terminate this Agreement pursuant to Section
8.3(a)(iv), but elects not to do so, it will be entitled to treat as Buyer
Indemnified Losses (which treatment will not prejudice the right of the Seller
to contest Damage claims made by the Parent in respect of those Buyer
Indemnified Losses) all Damages to the Business which are attributable to the
circumstances, conditions, events and state of facts first disclosed herein
after the date hereof in the Supplemental Information. The Parent will provide
the Seller with copies of the Registration Statement, including all pre-
effective amendments thereto, promptly after the filing thereof with the SEC
under the Securities Act.
5.11 INSURANCE. Seller shall assist, and shall cause her Affiliates to
assist, Buyer in transferring to Buyer any insurance applicable to the Assets or
the Leased Assets which Buyer elects to maintain in effect.
5.12 CONFIDENTIALITY. Seller will not, and will not permit any of her
Affiliates to, disclose any information of a confidential or proprietary nature
concerning the Assets or the Business to any third parties, and in no event
shall Seller use, or allow any of her Affiliates to use, such confidential or
proprietary information for her or his own benefit or to the detriment of Buyer
or the Business. No public or private announcement shall be made of the
transactions contemplated herein, nor the terms hereof, by Seller or any of her
Affiliates, without the prior written approval of Buyer as to timing, form and
content. Except for disclosure required in the Registration Statement or a
public announcement made in connection therewith, no public announcement shall
be made of the transactions contemplated herein, nor the terms hereof, by Parent
or any of its Affiliates, without the prior written approval of Buyer as to form
and content
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ARTICLE VI
THE CLOSING
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6.1 PRICING. At or prior to Pricing, the Parties shall take all actions
necessary to (a) complete the Acquisition (including the execution and delivery
of this Agreement and the Ancillary Agreements which shall be placed in escrow
under the control of the Parent for release to the Parties on the IPO Date), and
(b) effect the delivery of the Parent Shares referred to in Section 2.3 hereof,
provided however, that such actions shall not include the actual completion of
the Acquisition or the delivery of the Common Stock and funds referred to in
Section 2.3 hereof, each of which actions shall only be taken upon the IPO
Closing Date as herein provided. For purposes of this Article VI, the term
"Pricing" shall mean the date of determination by Parent and the Underwriter of
the public offering price of the Parent Shares in the IPO; the Parties
contemplate that the Pricing shall take place on the Closing Date. The escrow
agreement relating to this Agreement and the Ancillary Agreements shall provide
that in the event that there is no IPO Closing Date, and this Agreement
terminates as provided in Section 8.3(b)(ii), the Agreement and the Ancillary
Agreements shall not be delivered to the Parties. The taking of the actions
described in clauses (a) and (b) above (the "Closing") shall take place on the
closing date (the "Closing Date") at the offices of Boyer, Ewing & Harris
Incorporated, 9 Greenway Plaza, Suite 3100, Houston, Texas 77046. On the IPO
Closing Date, all transactions contemplated by this Agreement, including the
delivery of the Parent Shares, the wire transfer of the cash portion of the
Purchase Price which Seller is entitled to receive pursuant to Section 2.3
hereof, and the closing of the IPO shall occur and be completed. Except as
otherwise provided in Section 8.3 hereof, during the period from the Closing
Date to the IPO Closing Date, this Agreement may only be terminated by the
Parties if the Underwriting Agreement is terminated pursuant to the terms
thereof.
6.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. The obligations of the
Seller with respect to actions to be taken on the Closing Date are subject to
the satisfaction or waiver on or prior to the Closing Date of all of the
following conditions other than the conditions set forth in this Section 6.2(i)
and (viii) that cannot be satisfied prior to the IPO Closing Date. The
obligations of the Seller with respect to actions to be taken on the IPO Closing
Date are subject to the satisfaction or waiver on or prior to the IPO Closing
Date of the conditions set forth in this Section 6.2(i) and (viii). As of (a)
the Closing Date if any such conditions have not been satisfied other than the
conditions set forth in this Section 6.2(i) and (viii) that cannot be satisfied
prior to the IPO Closing Date or (b) the IPO Closing Date, if any such
conditions have not been satisfied, the Seller shall have the right to terminate
this Agreement, or in the alternative, waive any condition not so satisfied.
Any act or action of the Seller in consummating the Closing on the Closing Date
to the extent set forth in the first sentence of Section 6.1 shall constitute a
waiver of any conditions not so satisfied other than the conditions set forth in
this Section 6.2(i) and (viii) that cannot be satisfied prior to the IPO Closing
Date. However, no such waiver shall be deemed to affect the survival of the
representations and warranties of Parent and Buyer contained in Article IV
hereof.
(i) REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of the Parent and the Buyer contained in
Article IV shall be
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true and correct in all material respects as of the Closing Date and the
IPO Closing Date as though such representations and warranties had been
made as of that time; all of the terms, covenants and conditions of this
Agreement to be complied with and performed by the Parent and the Buyer on
or before the Closing Date and the IPO Closing Date shall have been duly
complied with and performed in all material respects; and certificates to
the foregoing effect dated the Closing Date and the IPO Closing Date,
respectively, and signed by each of the Parent and the Buyer shall have
been delivered to the Seller.
(ii) NO LITIGATION. No action or proceeding before a Governmental
Authority shall have been instituted or threatened to restrain or prohibit
the Acquisition or the IPO and no Governmental Authority shall have taken
any other action or made any request of the Parent or the Buyer as a result
of which the management of the Seller deems it inadvisable to proceed with
the transactions hereunder.
(iii) OPINION OF COUNSEL. The Seller shall have received an
opinion from counsel for the Parent dated the Closing Date, in the form
attached as Exhibit F-1 hereto.
(iv) REGISTRATION STATEMENT. The Registration Statement, as amended
to cover the offering, issuance and sale by Parent of such number of Parent
Shares at the IPO Price (which need not be set forth in the Registration
Statement when it becomes effective under the Securities Act) as shall
yield aggregate cash proceeds to the Parent from that sale (net of
Underwriter's discount or commissions) in at least the amount (the "Minimum
Cash Amount") that is sufficient, when added to the funds, if any,
available from other sources (if any, and as set forth in the Registration
Statement when it becomes effective under the Securities Act)(the "Other
Financing Sources") to enable the Parent to pay or otherwise deliver on the
IPO Closing Date (i) the total cash portion of the Purchase Price then to
be delivered pursuant to Article II; (ii) the total cash portion of the
acquisition consideration then to be delivered pursuant to the Other
Agreements as a result of the consummation of the acquisition transactions
contemplated thereby, and (iii) the total amount of indebtedness of the
Seller, each Other Acquired Business and the Parent which the Registration
Statement discloses at the time it becomes effective under the Securities
Act will be repaid with proceeds received by the Parent from the IPO and
Other Financing Sources.
(v) 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 no
action or proceeding shall have been instituted or threatened to restrain
or prohibit the Acquisition.
(vi) GOOD STANDING CERTIFICATES. Parent and the Buyer each shall
have delivered to the Seller certificates, dated as of a date no later than
ten days prior to the Closing Date, duly issued by the Texas and California
Secretaries of State, respectively, and in each state in which the Parent
and Buyer is authorized to do business, showing that each of the Parent and
the Buyer 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 the Parent and the Buyer,
respectively, for all periods prior to the Closing have been filed and
paid.
(vii) NO MATERIAL ADVERSE CHANGE. No event or circumstance shall
have occurred with respect to the Parent or the Buyer which would
constitute a Material Adverse Effect.
(viii) CLOSING OF IPO. The closing of the sale of the Parent
Shares to the Underwriters in the IPO shall have occurred simultaneously
with the IPO Closing Date hereunder.
(ix) SECRETARY'S CERTIFICATE. The Seller shall have received a
certificate or certificates, dated the Closing Date and signed by the
secretary of each of the Parent and the Buyer, certifying the truth and
correctness of attached copies of the Parent's and the Buyer's respective
resolutions of their boards of directors and, if required, the stockholders
of the Parent and the Buyer approving the Parent's and the Buyer's entering
into this Agreement and the consummation of the transactions contemplated
hereby.
(x) SELLER EMPLOYMENT AGREEMENT. The Buyer shall have entered into
an employment agreement with the Seller in the form attached as Exhibit A
("Seller Employment Agreement").
(xi) REGISTRATION RIGHTS AGREEMENT. Parent shall have entered into
the Registration Rights Agreement with the Seller in the form attached as
Exhibit B ("Registration Rights Agreement").
6.3 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARENT AND THE BUYER. The
obligations of the Parent and the Buyer with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions other than the conditions set
forth in this Section 6.3(i) and (vii) that cannot be satisfied prior to the IPO
Closing Date. The obligations of Parent and Buyer with respect to actions to be
taken on the IPO Closing Date are subject to the satisfaction or waiver on or
prior to the IPO Closing Date of all of the following conditions. As of (a) the
Closing Date if any such conditions other than the conditions set forth in this
Section 6.3(i) and (vii) that cannot be satisfied prior to the IPO Closing Date
have not been satisfied or (b) as of the IPO Closing Date, if any such
conditions have not been satisfied, Parent and Buyer shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Article III hereof.
(i) REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATION. All
the representations and warranties of the Seller contained in this
Agreement shall be true and correct in all material respects as of the
Closing Date and the IPO Closing Date with the same effect as though such
representations and warranties had been made on and as of such date; all of
the terms, covenants and conditions of this Agreement to be complied with
or
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performed by the Seller on or before the Closing Date or the IPO Closing
Date, as the case may be, shall have been duly performed or complied with
in all Material respects; and the Seller shall have delivered to the Buyer
certificates dated the Closing Date and the IPO Closing Date, respectively,
and signed by them to such effect.
(ii) NO LITIGATION. No action or proceeding before a Governmental
Authority shall have been instituted or threatened to restrain or prohibit
the Acquisition or the IPO and no Governmental Authority shall have taken
any other action or made any request of Parent as a result of which the
management of Parent deems it inadvisable to proceed with the transactions
hereunder.
(iii) OPINION OF COUNSEL. Parent shall have received an opinion
from Counsel to the Seller, dated the Closing Date, substantially in the
form attached as Exhibit F-2 hereto.
(iv) REGISTRATION STATEMENT. The Registration Statement, as
amended to cover the offering, issuance and sale by Parent of such number
of Parent Shares at the IPO Price as shall yield aggregate cash proceeds to
the Parent from that sale (net of Underwriter's discount or commissions) in
at least the Minimum Cash Amount.
(v) 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; all
consents and approvals of third parties shall have been obtained; and no
action or proceeding shall have been instituted or threatened to restrain
or prohibit the Acquisition.
(vi) NO MATERIAL ADVERSE CHANGE. No event or circumstance shall
have occurred with respect to the Seller which would constitute a Material
Adverse Effect, and the Seller shall not have suffered any Material loss or
damages to any of her properties or assets, whether or not covered by
insurance, which change, loss or damage Materially affects or impairs the
ability of the Seller to conduct her business.
(vii) CLOSING OF IPO. The closing of the sale of the Parent Shares
to the Underwriters in the IPO shall have occurred simultaneously with the
IPO Closing Date hereunder.
(viii) SELLER EMPLOYMENT AGREEMENT. The Seller shall have entered
into the Seller Employment Agreement.
(ix) REGISTRATION RIGHTS AGREEMENT. Seller shall have entered into
the Registration Rights Agreement.
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(x) BILL OF SALE. Seller shall have delivered to the Buyer
instruments of assignment and transfer or bills of sale signed by the
Seller as the Buyer reasonably requests, including the Bill of Sale
attached as Exhibit C ("Bill of Sale").
(xi) INVESTOR REPRESENTATION LETTER. Seller shall have delivered
to the Parent at or prior to the signing of the Registration Statement an
Investor Representation Letter in the form attached as Exhibit D, with
respect to the acquisition of the Parent Shares to be issued to Seller.
(xiii) STOCK PLEDGE AGREEMENT. Seller shall have delivered to
Buyer a Stock Pledge Agreement in the form attached as Exhibit E ("Stock
Pledge") as well as the Parent Shares issuable to the Seller at the Closing
(complete with stock powers executed in blank).
(xiv) SATISFACTION. All actions, proceedings, instruments and
documents required to carry out the transactions contemplated by this
Agreement or incidental hereto and all other related legal matters shall
have been approved by counsel to the Parent.
6.4 FURTHER ASSURANCES. At and after the Closing, each of the Parties
shall take all appropriate action and execute all documents of any kind which
may be reasonably necessary or desirable to carry out the transactions
contemplated hereby. The Seller, at any time at or after the Closing, will
execute, acknowledge and deliver any further bills of sale, assignments and
other assurances, documents and instruments of transfer, reasonably requested by
the Buyer, and will take any other action consistent with the terms of this
Agreement that may reasonably be requested by the Buyer, for the purpose of
assigning and confirming to the Buyer, all of the Assets. The Buyer shall
notify the Seller promptly, and in no event more than ten (10) business days
after the Buyer's receipt, of any tax inquiries or notifications thereof which
relate to any period prior to the Effective Date, and the Seller shall prepare
and deliver responses to such inquiries as the Seller deems necessary or
appropriate. In addition, the Seller shall make available the books and records
of the Business during reasonable business hours and take such other actions as
are reasonably requested by the Buyer to assist the Buyer in the operation of
the Business.
6.5 CONFIDENTIAL INFORMATION. After the Closing and except as otherwise
specifically permitted in this Agreement, each party to this Agreement agrees,
on behalf of itself and its Affiliates, to use reasonable efforts not to
divulge, communicate, use to the detriment of any other party to this Agreement
or its Affiliates or for the benefit of any other person or persons, any
confidential information or trade secrets of such other party with respect to
the Assets or the Business, including personnel information, secret processes,
know-how, customer lists, formulae, or other technical data; provided however,
if any party to this Agreement or any of its Affiliates is compelled to disclose
such information to any tribunal, regulatory or Governmental Authority or else
stand liable for contempt or suffer other censure and penalty, such party may so
disclose such information without any liability hereunder.
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6.6 ASSIGNMENT OF CONTRACTS. On or before the Effective Date, Seller
shall have delivered to Buyer all of the Contracts presently in force and shall
have effected a valid assignment of all of Seller's rights and obligations
thereunder.
ARTICLE VII
INDEMNIFICATION
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7.1 INDEMNIFICATION.
A. BY THE SELLER. Subject to Section 7.1(E) hereof, the Seller
shall indemnify, save, defend and hold harmless the Parent and Buyer and their
respective shareholders, directors, officers, partners, agents and employees
(collectively, the "Buyer Indemnified Parties") from and against any and all
costs, lawsuits, losses, liabilities, deficiencies, claims and expenses,
including interest, penalties, attorneys' fees and all amounts paid in
investigation, defense or settlement of any of the foregoing (collectively
referred to herein as "Damages"), (i) incurred in connection with or arising out
of or resulting from or incident to any breach of any covenant, breach of
warranty as of the Effective Date, or the inaccuracy of any representation as of
the Effective Date, made by the Seller in or pursuant to this Agreement or the
Ancillary Agreements, or any other agreement contemplated hereby or in any
schedule, certificate, exhibit, or other instrument furnished or to be furnished
by the Seller under this Agreement, (ii) based upon, arising out of, or
otherwise in respect of any liability or obligation of the Business or relating
to the Assets (a) relating to any period prior to the Effective Date, other than
those Damages based upon or arising out of the Assumed Liabilities, or (b)
arising out of facts or circumstances existing prior to the Effective Date,
other than those Damages based upon or arising out of the Assumed Liabilities;
provided however, that the Seller shall not be liable for any such Damages to
the extent, if any, such Damages result from or arise out of a breach or
violation of this Agreement by any Buyer Indemnified Parties, and (iii) any
liability under the Securities Act, the Exchange 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
Seller, and provided to Parent or its counsel by the Seller, contained 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 to state therein a Material fact relating to the
Seller required to be stated therein or necessary to make the statements therein
not misleading, provided however, that such indemnity shall not inure to the
benefit of Parent and Buyer to the extent such untrue statement (or alleged
untrue statement) was made in, or omission (or alleged omission) occurred in,
any preliminary prospectus and Seller provided, in writing, corrected
information to Parent and Parent's counsel for inclusion in the Final
Prospectus, and such information was not included or properly delivered.
B. BY THE BUYER. Subject to Section 7.1(E) hereof, the Parent and
Buyer shall indemnify, save, defend and hold harmless the Seller from and
against any and all Damages (i) incurred in connection with or arising out of or
resulting from or incident to any breach of any covenant, breach of warranty as
of the Effective Date, or the inaccuracy of any representation as of the
Effective Date, made by the Buyer or Parent in or pursuant to this Agreement,
the Ancillary
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Agreements, or any other agreement contemplated hereby or in any schedule,
certificate, exhibit, or other instrument furnished or to be furnished by the
Buyer under this Agreement, (ii) based upon, arising out of or otherwise in
respect of any liability or obligation of the Business or relating to the Assets
(a) relating to any period on and after the Effective Date, other than those
Damages based upon or arising out of the Retained Liabilities, or (b) arising
out of facts or circumstances existing on and after the Effective Date, other
than those Damages based upon or arising out of the Retained Liabilities;
provided, however, that the Buyer shall not be liable for any such Damages to
the extent, if any, such Damages result from or arise out of a breach or
violation of this Agreement by the Seller , (iii) under the Securities Act, the
Exchange 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 Parent, Buyer or any Other Acquired
Business contained 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 Parent or Buyer or any of the Other
Acquired Businesses required to be stated therein or necessary to make the
statements therein not misleading.
C. DEFENSE OF CLAIMS. If any lawsuit or enforcement action is filed
against any Party entitled to the benefit of indemnity hereunder, written notice
thereof describing such lawsuit or enforcement action in reasonable detail and
indicating the amount (estimated, if necessary) or good faith estimate of the
reasonably foreseeable estimated amount of Damages (which estimate shall in no
way limit the amount of indemnification the indemnified Party is entitled to
receive hereunder), shall be given to the indemnifying Party as promptly as
practicable (and in any event within ten (10) days, after the service of the
citation or summons) ("Notice of Action"); provided that the failure of any
indemnified Party to give timely notice shall not affect its rights to
indemnification hereunder to the extent that the indemnified Party demonstrates
that the amount the indemnified Party is entitled to recover exceeds the actual
damages to the indemnifying Party caused by such failure to so notify within ten
(10) days and so long as the indemnifying Party is not materially prejudiced by
the failure to receive such notice. The indemnifying Party may elect to
compromise or defend any such asserted liability and to assume all obligations
contained in this Section 7.1 to indemnify the indemnified Party by a delivery
of notice of such election ("Notice of Election") within ten (10) days after
delivery of the Notice of Action. Upon delivery of the Notice of Election, the
indemnifying Party shall be entitled to take control of the defense and
investigation of such lawsuit or action and to employ and engage attorneys of
its own choice to handle and defend the same, at the indemnifying Party's sole
cost, risk and expense, and the indemnified Party shall cooperate in all
reasonable respects, at the indemnifying Party's sole cost, risk and expense
(except with respect to the fees and expenses of the indemnified Party's
attorney, which shall be borne by the indemnified Party) with the indemnifying
Party and such attorneys in the investigation, trial, and defense of such
lawsuit or action and any appeal arising therefrom; provided, however, that the
indemnified Party may, at its own cost, risk and expense, participate in such
investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom. If the Notice of Election is delivered to the indemnified
Party, the indemnified Party shall not pay, settle or compromise such claim
without the indemnifying Party's consent, which consent shall not be
unreasonably withheld. If the indemnifying Party elects not to defend the claim
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<PAGE>
of the indemnified Party or does not deliver to the indemnified Party a Notice
of Election within ten (10) days after delivery of the Notice of Action, the
indemnified Party may, but shall not be obligated to, defend, compromise or
settle (exercising reasonable business judgment) the claim or other matter on
behalf, for the account, and at the risk, of the indemnifying Party.
D. THIRD PARTY CLAIMS. The provisions of this Section 7.1 are not
limited to matters asserted by the Parties, but cover Damages incurred in
connection with third party claims. The indemnity hereunder is in addition to
any and all rights and remedies of the Parties in connection herewith.
E. LIMITATION ON INDEMNIFICATION. Notwithstanding the other
provisions of this Section 7.1, Seller shall not be liable to Buyer Indemnified
Parties, and Parent and Buyer shall not be liable to Seller, for the first
$25,000 in aggregate Damages suffered by such indemnified Parties; provided,
however, that once any such indemnified Parties have suffered Damages
aggregating in excess of $25,000, the indemnifying Party shall reimburse the
indemnified Parties for the full amount of such Damages, including the $25,000
in Damages initially excluded. In no event shall the aggregate Damages payable
by an indemnifying Party to indemnified Parties exceed 50% of the Purchase
Price.
7.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements of the Parties made herein
and at the time of the Closing or in writing delivered pursuant to the
provisions of this Agreement shall survive the consummation of the transactions
contemplated hereby and any examination on behalf of the Parties until the
Expiration Date.
ARTICLE VIII
TERMINATION AND REMEDIES
------------------------
8.1 SPECIFIC PERFORMANCE; REMEDIES. Each of the Parties hereby agrees
that the transactions contemplated by this Agreement are unique, and that each
Party shall have, in addition to any other legal or equitable remedy available
to it, the right to enforce this Agreement by decree of specific performance.
If any legal action or other proceeding is brought for the enforcement of this
Agreement or because of an alleged dispute, breach, default or misrepresentation
in connection with any of the provisions of this Agreement, the successful or
prevailing Party or Parties shall be entitled to recover reasonable attorneys'
fees and other costs incurred in that action or proceeding in addition to any
other remedies to which it, he or they may be entitled at law or equity. The
rights and remedies granted herein are cumulative and not exclusive of any other
right or remedy granted herein or provided by law.
8.2 OFFSET; REMEDIES. To the extent not otherwise prohibited by
applicable law, all amounts due and owing by the Buyer to the Seller under this
Agreement, the Ancillary Agreements, or any other document, instrument, or
agreement executed in connection herewith shall be subject to offset by the
Buyer to the extent of any Damages incurred by any breach by the Seller, under
this Agreement or any Ancillary Agreement, or any document, instrument, or
agreement executed in
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connection herewith. In the event Buyer elects to offset any Damages incurred as
a result of any such breach, Buyer shall furnish Seller notice containing
detailed information about the breach, the magnitude of the damages that Buyer
has or reasonably expects to incur, and whether the offset is against the Parent
Shares pledged under the Stock Pledge Agreement or otherwise (the act of
offsetting by Buyer shall be referred to as an "Offset"). The Seller
acknowledges and agrees that but for the right of Offset contained in this
Agreement, the Buyer would not have entered into this Agreement or any of the
transactions contemplated herein. If any legal action or other proceeding is
brought for the enforcement of this Agreement, any Ancillary Agreement, or any
document, instrument, or agreement executed in connection herewith, or because
of an alleged dispute, breach, default or misrepresentation in connection with
any of the provisions of this Agreement, or any Ancillary Agreement, or any
document, instrument, or agreement executed in connection herewith, the
successful or prevailing Party or Parties shall be entitled to recover other
remedies to which it or they may be entitled at law or equity. The rights and
remedies granted herein are cumulative and not exclusive of any other right or
remedy granted herein or provided by law. Buyer shall not effect an Offset
hereunder without giving Seller at least 10 days advance written notice of its
intent to do so. During such 10-day period, Seller shall have the right to cure
any breach giving rise to the Damages which are the subject of the Offset,
provided the events giving rise to such Damages are curable.
8.3 TERMINATION. Termination of This Agreement. (a) This Agreement may be
terminated at any time prior to the Closing solely:
(i) by the mutual written consent of the Parent and the Seller;
(ii) subject to Section 8.5, by the Seller, on the one hand, or by
the Parent, 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 results from the willful failure of the Party seeking to
terminate this Agreement to perform or materially adhere to any agreement
required hereby to be performed or adhered to by it prior to or at the
Closing or thereafter on the IPO Closing Date;
(iii) by the Seller, on the one hand, or by the Parent, 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; or
(iv) by the Parent if it is entitled to do so as provided in Section
5.10.
(b) Subject to Section 8.5, this Agreement may be terminated after
the Closing solely:
(i) by the Parent or the Seller if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
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(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within ten (10) New York City business
days after the date of the Closing.
8.4 LIABILITIES IN EVENT OF TERMINATION. If this Agreement is
terminated pursuant to Section 8.3, there shall be no liability or obligation on
the part of any Party hereto except to the extent that such liability is based
on the breach by that Party of any of its representations, warranties or
covenants set forth in this Agreement.
8.5 SELLER'S OPTION. If the IPO Closing Date has not occurred by
December 31, 1997, and Seller has not breached this Agreement, Seller shall have
the option to terminate this Agreement as set forth in Section 8.3 or require
Buyer or Parent to purchase the Assets for the same Purchase Price as is
provided in Section 2.3 hereof, subject to the adjustments provided in Sections
2.4 and 2.5 (the "Option Price"); provided that the form of payment of the
Option Price shall be as described below. The Option Price would be payable 50%
in cash and 50% in two convertible subordinated notes of Buyer ("Notes"). One
Note ("Note One") would be in an original principal amount equal to 20% of the
Option Price and would bear interest at 7% per annum payable quarterly. The
principal balance of Note One would be payable in 16 quarterly installments, the
first of which would be due on the end of the 15/th/ month following the date of
such Note. Payments of principal and interest on Note One would be subject to
(a) the continued generation by the division of the Buyer established to operate
the Business of EBIT (as defined below) of at least $1,006,200 and (b)
subordination provisions regarding such payments as are required by Parent's
senior lenders (such subordination provisions to be substantially the same as
those executed by Richard Looney). Note One would have default provisions
equivalent to those contained in other such notes issued the subsidiaries of the
Parent in previous transactions and, in the event of an IPO or upon the sale of
the Parent, would, at Seller's option, accelerate or convert into Parent Shares.
Any conversion of Note One would be at the sales price or 90% of the IPO price.
The second Note ("Note Two") would be in an original principal amount equal to
30% of the Option Price and would bear interest at 6% per annum payable
quarterly. The principal balance of Note Two would be payable in full at the
end of the eighth year. Note Two would have default provisions similar to those
contained in similar notes issued by subsidiaries of the Parent and would be
subordinated as required by Parent's senior lenders. Note Two would
automatically convert into Parent Shares upon the occurrence of certain
conditions. EBIT shall be equal to Seller's pre-tax income plus (i) net
interest expense, (ii) one-time expenses and (iii) depreciation and
amortization. In addition to the other conditions contained herein, the
Seller's option will be subject to the additional condition that the Buyer shall
have received notification from Texas Commerce Bank, N.A. that such it has
approved consummation of the transactions contemplated by this Section 8.5 under
the Parent's acquisition line of credit.
ARTICLE IX
COVENANTS OF BUYER AND SELLER AFTER CLOSING
9.1. FINAL NET WORTH ADJUSTMENT. Within 30 days after the IPO Closing
Date, the Buyer and Seller shall adjust the Purchase Price of the Assets as set
forth in Sections 2.4 and 2.5, and the
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Buyer shall deliver to Seller, or Seller shall deliver to Buyer, cash equal to
the differential between the Guaranteed Net Worth and the Final Net Worth, if
any.
9.2. PREPARATION AND FILING OF TAX RETURNS.
(i) The Seller shall file or cause to be filed all federal income
tax returns of the Seller for all taxable periods that end on or before the
IPO Closing Date, and shall permit the Parent to review all such tax
returns prior to such filings.
(ii) Parent shall file or cause to be filed all separate tax returns
of, or that include, any Other Acquired Business for all taxable periods
ending after the IPO Closing Date.
(iii) Each Party 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 tax
return, amended tax 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 tax 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 tax returns pursuant to
this Agreement shall bear all costs of filing such tax returns.
9.3 RESTRICTIVE LEGEND. The Seller consents to the imprinting on all
certificates representing Parent Shares issued to her as part of the Purchase
Price of the following legend:
THE SHARES OF COMMON STOCK REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, NOR THE
SECURITIES LAWS OF ANY STATE. SUCH SHARES MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED AT ANY TIME, EXCEPT UPON (1) SUCH
REGISTRATION, OR (2) DELIVERY TO THE ISSUER OF SUCH SHARES OF AN OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO THE ISSUER, THAT REGISTRATION IS NOT
REQUIRED FOR SUCH TRANSFER, OR (3) THE SUBMISSION TO THE ISSUER OF SUCH
SHARES OF OTHER EVIDENCE, REASONABLY ACCEPTABLE TO THE ISSUER, TO THE
EFFECT THAT ANY SUCH SALE, PLEDGE, HYPOTHECATION OR TRANSFER WILL NOT BE IN
VIOLATION OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR OTHER
APPLICABLE SECURITIES LAWS OF ANY STATE, OR ANY RULES OR REGULATIONS
PROMULGATED THEREUNDER.
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9.4 PLEDGE OF PARENT SHARES. Seller shall deliver all Parent Shares
acquired from the Buyer as part of the Purchase Price to Buyer to be held
pursuant to the terms of the Stock Pledge Agreement.
ARTICLE X
MISCELLANEOUS
-------------
10.1 FEES. Except as expressly set forth herein to the contrary, each
Party shall be responsible for all costs, fees and expenses (including attorney
and accountant fees and expenses) paid or incurred by such Party in connection
with the preparation, negotiation, execution, delivery and performance of this
Agreement, or otherwise in connection with the transaction contemplated hereby.
10.2 MODIFICATION OF AGREEMENT. This Agreement may be amended or modified
only in writing signed by all of the Parties.
10.3 NOTICES. All notices, consents, demands or other communications
required or permitted to be given pursuant to this Agreement shall be deemed
sufficiently given when delivered personally or telefaxed with receipt of
transmission confirmed during regular business hours during a business day to
the appropriate location described below, or three (3) business days after
posting thereof by United States first-class, registered or certified mail,
return receipt requested, with postage and fees prepaid and addressed as
follows:
IF TO SELLER: Jilio & Associates
3090 Bristol, Suite 100
Costa Mesa, California 92626
Attn: Colleen Jilio
IF TO the Seller:
Colleen Jilio
3090 Bristol, Suite 100
Costa Mesa, California 92626
With a copy to: Steve Kane
Charles & Kane
1920 Main Street, Suite 1070
Irvine, California 92614
Fax No. (714) 852-9878
E-Mail [email protected]
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IF TO BUYER OR PARENT: Litigation Resources of America-California, Inc.
Litigation Resources of America, Inc.
650 First City Tower, 1001 Fannin
Houston, Texas 77002
Phone: 713/653-7100
Fax: 713/653-7172
With a copy to: John W. Menke
Boyer, Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Phone: 713/871-2025
Fax: (713) 871-2024
Any addressee at any time by furnishing notice to the other addressees in the
manner described above may designate additional or different addresses for
subsequent notices or communications.
10.4 SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not invalidate or affect the enforceability of any other
provision of this Agreement.
10.5 ENTIRE AGREEMENT; BINDING EFFECT. This Agreement and the Ancillary
Agreements set forth the entire agreement among the Parties with respect to the
subject matter hereof. This Agreement shall be binding upon and shall inure to
the benefit of the Parties and their respective successors and assigns.
10.6 WAIVER. No delay in the exercise of any right under this Agreement
shall waive such rights. Any waiver, to be enforceable, must be in writing.
10.7 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA.
10.8 ASSIGNMENT. The Seller shall not assign this Agreement or any
interest herein.
10.9 HEADINGS. Headings in this Agreement are for convenience only and
shall not affect the interpretation of this Agreement.
10.10 SCHEDULES AND EXHIBITS. All Schedules and Exhibits attached to
this Agreement or to be delivered by the Seller, upon review and approval by the
Buyer, are and shall be hereby incorporated in and made a part of this
Agreement. All Schedules to this Agreement must be delivered no later than four
(4) days prior to Closing, in order to provide the Buyer ample time to review
and evaluate the items described therein and disclosed thereby. Although the
Schedules remain subject to the review and approval of the Buyer, no such review
or approval shall constitute a waiver
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by the Buyer of any breach or default caused by the inaccuracy or incompleteness
of any Schedule, the accuracy and completeness of the Schedules being the sole
responsibility of the Seller.
10.11 RIGHTS AND LIABILITIES OF PARTIES. Nothing in this Agreement,
whether express or implied, is intended to confer any rights or remedies under
or by reason of this Agreement on any persons other than the Parties, the Buyer
Indemnified Parties and their respective successors and assigns, nor is anything
in this Agreement intended to relieve or discharge the obligation or liability
of any third persons to any Party to this Agreement, nor shall any provision
give any third person any right of subrogation or action over against any Party
to this Agreement.
10.12 SURVIVAL. Subject to Section 7.2, this Agreement, including but not
limited to all covenants, warranties, representations and indemnities contained
herein, shall survive the Closing, and the Bill of Sale and all other documents,
instruments or agreements relating to the Assets and the transactions
contemplated herein shall not be deemed merged therein.
10.13 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall have the force and effect of an original, and
all of which shall constitute one and the same agreement.
10.14 ATTORNEYS' FEES. If any litigation is instituted to enforce or
interpret the provisions of this Agreement or the transactions described herein,
the prevailing Party in such action shall be entitled to recover its reasonable
attorneys' fees from the other Party hereto.
10.15 DRAFTING. All Parties hereto acknowledge that each Party was
actively involved in the negotiation and drafting of this Agreement and that no
law or rule of construction shall be raised or used in which the provisions of
this Agreement shall be construed in favor or against any Party hereto because
one is deemed to be the author thereof.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement in multiple counterparts effective as of the date first written above.
BUYER:
------
LITIGATION RESOURCES OF
AMERICA-CALIFORNIA, INC.,
a California corporation
By: /s/ Richard O. Looney
--------------------------------------------------
Richard O. Looney, Chairman and Chief Executive
Officer
PARENT:
-------
LITIGATION RESOURCES OF AMERICA, INC.,
a Texas corporation
By: /s/Richard O. Looney
--------------------------------------------------
Richard O. Looney, Chairman and Chief Executive
Officer
SELLER:
-------
/s/ Colleen Jilio
-----------------------------------------------------
Colleen Jilio
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<PAGE>
<TABLE>
<CAPTION>
Schedules
- -----------
<S> <C> <C>
2.1(a) - Equipment
2.1(b) - Contracts
2.1(c) - Books and Records
2.1(e) - Intellectual Property
2.1(g) - General Intangibles
2.1(j) - Inventory
2.2 - Excluded Assets
2.7 - Allocation of Purchase Price
3.3(A) - Consents and Approvals
3.3(B) - Breaches or Defaults
3.5 - Exceptions to Title
3.6 - Leased Personal Property
3.14(A) - Owned Real Property
3.14(B) - Leased Real Property
3.15 - Insurance Policies
3.16 - Banking
3.18(A) - Employees
3.18(B) - Independent Contractors
3.19 - Employee Benefit Plans
3.20 - Employment Agreement
3.21 - Liabilities
3.22 - Litigation
3.26 - Certain Changes or Events
3.27 - Customers
4.4 - Parent Capitalization
Exhibits
- -----------
A Seller Employment Agreement
B Registration Rights Agreement
C Bill of Sale
D Investor Representation Letter
E Stock Pledge Agreement
F-1 Legal Opinion
F-2 Legal Opinion
</TABLE>
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EXHIBIT 10.19
AGREEMENT OF PURCHASE AND SALE OF ASSETS
----------------------------------------
This Agreement of Purchase and Sale of Assets (this "Agreement") is entered
into and effective as of September 17, 1997, by and between LITIGATION RESOURCES
OF AMERICA-NORTHEAST, INC., a New York corporation (the "Buyer"), LITIGATION
RESOURCES OF AMERICA, INC., a Texas corporation (the "Parent"), ELAINE P. DINE,
INC., a New York corporation ("EPD"), and ELAINE P. DINE TEMPORARY ATTORNEYS,
L.L.C., a New York limited liability company ("EPD Temp") (EPD and EPD Temp may
be hereinafter collectively referred to as the "Sellers" or singularly as a
"Seller"), joined by ELAINE P. SIEGEL, an individual resident of New York and a
director, officer and shareholder of each of the Sellers ("Siegel") and LAURIE
BECKER, an individual resident of New York and a director, officer and
shareholder of each of the Sellers ("Becker"). Buyer, Parent, Sellers, Siegel
and Becker are hereinafter sometimes referred to collectively as the "Parties"
or singularly as a "Party."
W I T N E S S E T H :
WHEREAS, the Sellers are the owners of various assets associated with the
EPD Business and the EPD Temp Business (as hereinafter defined);
WHEREAS, the Buyer desires to purchase all or substantially all of the
Assets (as hereinafter defined) owned by the Sellers and used in the EDP
Business and the EDP Temp Business, and the Sellers desire to sell such Assets
to the Buyer;
WHEREAS, in connection with the purchase and sale of the Assets, the
Parties desire to set forth in this Agreement the terms and conditions with
respect to the transfer of such Assets;
NOW, THEREFORE, for and in consideration of the mutual covenants,
agreements, representations and warranties contained in this Agreement, and
other good and valuable consideration, the receipt, adequacy and sufficiency of
which are hereby acknowledged, the Parties hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
-------------------
As used herein, the following terms shall have the following meanings:
ACCOUNTS PAYABLE. The term "Accounts Payable" shall mean all accounts
payable of each Seller generated in connection with the operations of each
Business prior to the Effective Date and reflected on the Financial Statements
as of the Effective Date in a manner consistent with each Seller's past
practices and the manner in which such information has been provided to Buyer.
<PAGE>
ACCOUNTS RECEIVABLE. The term "Accounts Receivable" shall mean all
accounts receivable of each Seller generated in connection with the operations
of each Business prior to the Effective Date and reflected on the Financial
Statements as of the Effective Date in a manner consistent with each Seller's
past practices and the manner in which such information has been provided to
Buyer as more fully specified on Schedule 3.35.
-------------
ACQUIRED CASH. The term "Acquired Cash" shall have the meaning set forth in
Section 2.1.
ADDITIONAL TAX LIABILITY. The term "Additional Tax Liability shall have the
meaning contained in Section 2.3 of this Agreement.
AFFILIATE. The term "Affiliate" of a person shall mean, with respect to
that person, a person who directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
or is acting as agent on behalf of, or as an officer or director of that person.
As used in the definition of Affiliate, the term "control" (including the terms
"controlling," "controlled by," or "under common control with") means the
possession, direct or indirect, of management and policies of a person whether
through the ownership of voting securities, by contract, through the holding of
a position as a director or officer of such person, or otherwise. As used in
this definition, the term "person" means an individual, a corporation, a
partnership, an association, a joint stock company, a trust, an incorporated
organization, or a government or political subdivision thereof.
ANCILLARY AGREEMENTS. The term "Ancillary Agreements" shall have the
meaning set forth in Section 3.11.
ASSETS. The term "Assets" shall have the meaning set forth in Section 2.1.
ART WORK. The term "Art Work" shall have the meaning as contained in
Section 2.1(l).
ASSUMED LIABILITIES. The term "Assumed Liabilities" shall have the meaning
as contained in Section 2.4.
BALANCE SHEET REPORT. The term "Balance Sheet Report" means the balance
sheet of each of the Sellers as of a given date showing the assets, liabilities
and equity of each Seller, prepared by each Seller in accordance with GAAP on a
consistent basis as with prior time periods and further adjusted to exclude
Excluded Assets and Retained Liabilities.
BECKER EMPLOYMENT AGREEMENT. The term "Becker Employment Agreement" shall
have the meaning as contained in Section 6.2(g).
BILL OF SALE. The term "Bill of Sale" shall have the meaning set forth in
Section 6.2(h).
BOOKS AND RECORDS. The term "Books and Records" shall have the meaning set
forth in Section 2.1(c).
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<PAGE>
BUSINESS OR BUSINESSES. The term "Business" or "Businesses" shall
singularly mean the EPD Business or the EPD Temp Business or collectively mean
the EPD Business and the EPD Temp Business.
BUSINESS AREA. The term "Business Area" shall mean the metropolitan area of
the city of New York, New York, and the States of New Jersey and Connecticut.
BUYER INDEMNIFIED PARTIES. The term "Buyer Indemnified Parties" shall have
the meaning set forth in Section 7.1A.
BUYER OBLIGATIONS. The term "Buyer Obligations" shall have the meaning set
forth in Section 8.2.
CASH PURCHASE PRICE. The term "Cash Purchase Price" shall have the meaning
set forth in Section 2.3.
CLOSING. The term "Closing" shall mean the consummation of the events and
transactions to take place on the Closing Date.
CLOSING DATE. The term "Closing Date" shall mean September 17, 1997.
CLOSING DATE BALANCE SHEET REPORT. The term "Closing Date Balance Sheet
Report" shall mean a Balance Sheet Report prepared as of the Closing Date.
CONTRACTS. The term "Contract" shall have the meaning as contained in
Section 2.1(b).
CUSTOMERS. The term "Customers" shall have the meaning as contained in
Section 3.22.
DAMAGES. The term "Damages" shall have the meaning set forth in Section
7.1A.
EARNOUT. The term "Earnout" shall have the meaning set forth in Section
2.3.
EFFECTIVE DATE. The term "Effective Date" shall mean 12:01 a.m. on the
"Closing Date."
EMPLOYEE. The term "Employee" shall mean any employee of either Seller who,
as of the Effective Date, is employed or otherwise performs work or provides
services in connection with the operation of either Business, including those,
if any, on disability, sick leave, layoff or leave of absence, who, in
accordance with such Seller's applicable policies, are eligible to return to
active status.
EPD BUSINESS. The term "EPD Business" shall mean the business of EPD as
presently conducted consisting of the job placement of attorneys on a permanent
basis.
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EPD TEMP BUSINESS. The term "EPD Temp Business" shall mean the business of
EPD Temp consisting of the placement of attorneys and paralegals for contract
work in a temporary basis.
EPD TEMP DIVISION. The term "EPD Temp Division" shall mean the separate
operating division of Buyer established to conduct the EPD Temp Business
following the Closing.
EPD TEMP BUSINESS DIVISION EBITDA. The term "EPD Temp Division EBITDA"
shall mean the earnings of the EPD Temp Division before interest, taxes,
depreciation and amortization, and without any general corporate overhead
charges of the Buyer or its Affiliates except those directly traceable to the
EPD Temp Division of the Buyer, all as determined in accordance with accrual
basis GAAP consistently applied (it being agreed that revenues with respect to a
placement shall be recognized when an offer is accepted). All revenues produced
by the Buyer, the Parent, or its Affiliates involving the temporary placement of
attorneys and paralegals within the Business Area shall be credited to the EPD
Temp Division of the Buyer; provided, that the Parties shall negotiate in good
faith appropriate adjustments to the foregoing calculation of EPD Temp Division
EBITDA if any temporary placement of attorneys business are acquired by the
Buyer, the Parent or its Affiliates in the Business Area.
EQUIPMENT. The term "Equipment" shall have the meaning as contained in
Section 2.1(a).
ERISA. The term "ERISA" shall have the meaning as contained in Section
3.15.
EXCLUDED ASSETS. The term "Excluded Assets" shall have the meaning as
contained in Section 2.2.
EXCLUDED CASH. The term "Excluded Cash" shall mean all cash of the Sellers
that exists as of the Effective date other than Acquired Cash.
FINAL NET WORKING CAPITAL. The term "Final Net Working Capital" shall have
the meaning as contained in Section 2.5.
GAAP. The term "GAAP" shall mean generally accepted accounting principles
of the Accounting Principles Board of the American Institute of Certified Public
Accountants and the Financial Accounting Standards Board that are applicable
from time to time.
GENERAL INTANGIBLES. The term "General Intangibles" shall have the meaning
contained in Section 2.1(g).
GUARANTEED NET WORKING CAPITAL. The term "Guaranteed Net Working Capital"
shall mean $200,000.
INTELLECTUAL PROPERTY. The term "Intellectual Property" shall have the
meaning as contained in Section 2.1(e).
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IRC. The term "IRC" shall mean the Internal Revenue Code.
NET TRADE ACCOUNTS RECEIVABLE. The term "Net Trade Accounts Receivable"
shall mean those Accounts Receivable listed on Schedule 3.35.
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NET WORKING CAPITAL. The term "Net Working Capital" shall mean Net Working
Capital Assets minus Net Working Capital Liabilities.
NET WORKING CAPITAL ASSETS. The term "Net Working Capital Assets" shall
mean cash plus Net Trade Accounts Receivable; provided, however that the amount
of cash must be at least equal to the amount of Net Trade Accounts Receivable.
NET WORKING CAPITAL LIABILITIES. The term "Net Working Capital
Liabilities" shall mean commissions payable to employees of the Sellers plus
Payroll Taxes Payable.
NOTE. The term "Note" shall have the meaning set forth in Section 2.3(ii).
NOTICE OF ACTION. The term "Notice of Action" shall have the meaning set
forth in Section 7.1C.
NOTICE OF ELECTION. The term "Notice of Election" shall have the meaning
set forth in Section 7.1C.
OFFSET. The term "Offset" shall have the meaning set forth in Section 8.2.
OFFSET CLAIM. The term "Offset Claim" shall have the meaning set forth in
Section 8.2.
OWNER. The term "Owner" shall mean Siegel and Becker, the owners of the
Sellers.
PARENT SHARES. The term "Parent Shares" shall have the meaning as contained
in Section 2.3(iii).
PARENT SHARES VALUE. The term "Parent Shares Value" shall mean $8.50 per
Parent Share; provided however, that if the Parent has successfully consummated
a public offering of its shares of common stock, then it shall mean the average
public trading price of each Parent Share over the five (5) most recent business
days.
PAYROLL TAXES PAYABLE. The term "Payroll Taxes Payable" shall mean any
taxes payable to a governmental entity in connection with the payment of
commissions.
PECKS. The term "Pecks" shall mean Pecks Management Partners Ltd., a New
York limited partnership.
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PUBLIC OFFERING. The term "Public Offering" means the sale by the Parent of
any of its securities for cash in an underwritten public offering registered on
the appropriate form with the Securities and Exchange Commission.
PUBLIC OFFERING PRICE. The term "Public Offering Price" shall refer to the
initial share price of the common stock of Parent Shares at the time and on the
date of the initial Public Offering of the Parent Shares by Parent.
PURCHASE PRICE. The term "Purchase Price" shall mean the consideration
payable to the Seller for the Assets as set forth or contemplated in Section
2.3.
REGISTRATION RIGHTS AGREEMENT. The term "Registration Rights Agreement"
shall have the meaning as contained in Section 6.2(m).
RETAINED LIABILITIES. The term "Retained Liabilities" shall have the
meaning contained in Section 7.1B.
SELLERS INDEMNIFIED PARTIES. The term "Sellers Indemnified Parties" shall
have the meaning set forth in Section 7.1B.
SELLERS INDEMNITORS. The term "Sellers Indemnitors" shall have the meaning
set forth in Section 7.1A.
SELLERS' FINANCIAL STATEMENTS. The term "Sellers' Financial Statements"
shall mean the internally compiled financial statements of the Sellers as more
fully defined in Section 3.15 herein.
SELLERS' NAMES. The term "Sellers' Names" shall have the meaning set forth
in Section 2.1(j).
SHAREHOLDERS' AGREEMENT. The term "Shareholders' Agreement" shall have the
meaning set forth in Section 6.2(j) .
SIEGEL EMPLOYMENT AGREEMENT. The term "Siegel Employment Agreement" shall
have the meaning as contained in Section 6.2(f).
STOCK PLEDGE AGREEMENT. The term "Stock Pledge Agreement" shall have the
meaning as contained in Section 6.2(n).
SUBORDINATION AGREEMENTS. The term "Subordination Agreements" shall mean
those certain Subordination Agreements of even date herewith entered into among
Sellers and any of the Company, the Parent, Affiliates, and holders of Senior
Indebtedness (as such item is defined in the Note).
TRADE PAYABLES. The term "Trade Payables" shall mean all of the accounts
payable of either Business incurred in the ordinary course of business existing
as of the Effective Date, as set forth on the Closing Date Balance Sheet Report.
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ARTICLE II
PURCHASE OF ASSETS AND PURCHASE PRICE
2.1 SALE OF ASSETS. Subject to the terms and conditions set forth in this
Agreement, the Sellers agree to sell, convey, transfer, assign and deliver to
the Buyer, and the Buyer hereby agrees to purchase from the Sellers on the
Effective Date, all assets owned by Sellers and used in or derived from the
Businesses (other than those specifically excluded under Section 2.2 below)
including the following (such assets to be referred to herein as the "Assets"):
(a) All office equipment, service equipment, supplies, computer
hardware, computer software, data processing equipment, motor vehicles, and
tools (the "Equipment"), including the Equipment described on Schedule
--------
2.1(a);
------
(b) All contracts, leases, documents, franchises, licenses,
instruments, agreements and other written or oral agreements relating to
the Business of either Seller to which either Seller is a party or by which
Seller or any of the Assets may be bound as well as all rights, privileges,
claims and options relating to the foregoing (the "Contracts"), including
the Contracts described on Schedule 2.1(b);
---------------
(c) All customer and supplier files and databases, customer and
supplier lists, accounting and financial records, invoices, and other books
and records relating principally to either Business (the "Books and
Records"), including the Books and Records described on Schedule 2.1(c);
---------------
(d) Employee files for those employees actually hired by Buyer;
(e) All right, title and interest of each Seller, in, to and under
all service marks, trademarks, trade and assumed names, principally related
to the Businesses together with the right to recover for infringement
thereon, if any (the "Intellectual Property"), and other marks and/or names
described on Schedule 2.1(e);
---------------
(f) All advertising materials and all other printed or written
materials related to the conduct of either Business;
(g) All of each Seller's general intangibles, claims, rights of set
off, rights of recoupment, goodwill, patents, inventions, trade secrets and
royalty rights and other proprietary intangibles, licenses and sublicenses
granted and obtained with respect thereto, and rights thereunder, which are
used in the Businesses, and remedies against infringements thereof, and
rights to protection of interests therein under the laws of all
jurisdictions (the "General Intangibles"), including the General
Intangibles described on Schedule 2.1(g);
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(h) All goodwill and going concern value and all other intangible
properties related to the Businesses;
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(i) The Net Trade Accounts Receivable;
(j) The exclusive right to use the name "Elaine P. Dine, Inc.",
"Elaine P. Dine Temporary Attorneys, L.L.C.", any similar names or
derivatives thereof, and any past or present assumed names or trade names
in connection with Buyer's use of the Purchased Assets (the "Sellers'
Names");
(k) Such amount of cash such that Net Working Capital as of the
Closing Date is equal to the amount of Two Hundred Thousand Dollars
($200,000) (the "Acquired Cash"); and
(l) All art work listed on Schedule 2.1(l) (the "Art Work").
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2.2 EXCLUDED ASSETS. Sellers are not selling and Buyer is not purchasing
any of the following excluded assets related to the Business ("Excluded
Assets"): (i) deposits related to IRC Section 444, (ii) Excluded Cash, (iii)
those certain commissions more fully described on Schedule 2.2 to be received
------------
by EPD on certain specified placements, (iv) all notes receivable and all
accounts receivable of the Businesses other than those constituting Net Trade
Accounts Receivable, (v) any tax refunds in respect of periods ending on or
prior to the Effective Date, (vi) any art work other than the Art Work, (vii)
insurance to the extent specified in Section 3.23, and (viii) cash investments,
cash deposits, right to receive cash refunds, and other cash equivalents, with
the exception of the Acquired Cash provided for in 2.1(k) above, all as more
specifically described on Schedule 2.2. Notwithstanding anything to the
------------
contrary contained herein, if Buyer receives collections on the Accounts
Receivable other than those constituting Net Trade Accounts Receivable, then
Buyer shall remit any such collections of these Accounts Receivable to Sellers
on a weekly basis and provide an accounting with respect thereto. Should
Sellers or Owners receive payment on any of the Net Trade Accounts Receivable or
any accounts receivable generated by Buyer from its operation of the Business,
Sellers and Owners shall remit such payments on a weekly basis to Buyer together
with providing an accounting with respect thereto.
2.3 PURCHASE PRICE. Upon the terms and subject to the conditions
contained herein and as consideration for the sale of the Assets and the
performance by the Sellers of various other matters as provided herein, the
Buyer shall pay the Sellers the aggregate amount of the following at the Closing
or subsequent to the Closing in the time set forth herein (the "Purchase
Price"):
(i) A cash sum in the amount of Six Million Dollars ($6,000,000)
(the "Cash Purchase Price"), paid by the wire transfer of immediately
available funds; and
(ii) A subordinated promissory note in the amount of Two Million and
No/100 Dollars ($2,000,000.00) which shall be subordinated as provided
therein (the "Note"); The Note shall bear interest at an annual rate of Six
and Three-Eighths Percent (6.375%), and shall provide for equal monthly
payments of accrued interest and a final payment of principal and all
accrued and unpaid interest on the eighth
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anniversary of the Closing Date, subject to certain limitations imposed by
the Subordination Agreements;
(iii) Seventy-Six Thousand Four Hundred Seventy-One (76,471) shares
of the common stock of Parent, $.01 par value per share (the "Parent
Shares"), as will constitute an agreed upon value of Six Hundred Fifty
Thousand and Three and 50/100 Dollars ($650,003.50) at the Parent Shares
Value;
(iv) An amount of cash equal to the amount of the Additional
Tax Liability; and
(v) The Earnout.
The Additional Tax Liability shall be determined as follows. Within
ninety (90) days after the Closing, Sellers shall furnish written evidence to
Buyer of the additional amount (the "Additional Tax Liability") which Sellers
must receive so that, after giving effect to any taxes thereon, the aggregate
amount received by the Owners after the Sellers pay all taxes legally required
to be paid (including income, sales and transfer taxes) in respect of the
Purchase Price and the Owners pay all taxes upon receipt of such amount
following the liquidation of the Sellers is equal to the aggregate amount which
would have been received by the Owners on an after-tax basis if the transactions
contemplated hereby had been structured as a sale of equity in the Sellers by
the Owners for the Purchase Price (exclusive of the Additional Tax Liability)
rather than a sale of assets by the Sellers followed by the liquidation of the
Sellers. Buyer shall review the calculation of such Additional Tax Liability
within thirty (30) days after receipt thereof and notify Sellers of any
discrepancy. If there is a discrepancy, and Buyer and Sellers cannot solve such
discrepancy within thirty (30) days thereafter, then Sellers and Buyers shall
mutually agree on an independent certified public accounting firm acceptable to
both, if any, to review such calculation and make a determination. Such
accounting firm's conclusion as to the Additional Tax Liability shall be
conclusive. Sellers and Buyer shall share equally in the expenses of retaining
such accounting firm unless such accounting firm determines that another
allocation is more equitable. Upon such final determination, Buyer shall within
ten (10) days thereafter, pay the entire amount of such Additional Tax Liability
to Sellers. An example of the calculation of the Additional Tax Liability is
attached as Schedule 2.3.
The Earnout shall be determined as follows. The Buyer and the Buyer's
accountants shall determine EPD Temp Division EBITDA, if any, for the twelve
(12) month time period beginning on October 1, 1997 and ending September 30,
1998 (the "1998 Earnout Period"), and likewise for the next two consecutive
twelve (12) month periods of October 1, 1998 through September 30, 1999 (the
"1999 Earnout Period"), and October 1, 1999 through September 30, 2000 (the
"2000 Earnout Period"). Such determination shall be made within thirty (30)
days after each September 30 date, and the results thereof forwarded to Sellers
together with supporting documentation. Sellers shall review the calculation of
such EPD Temp Division EBITDA within thirty (30) days after receipt thereof and
notify Buyer of any discrepancy. If there is a discrepancy, and Buyer and
Sellers cannot solve such discrepancy within thirty (30) days thereafter, then
Sellers and Buyers shall mutually agree on an
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independent certified public accounting firm acceptable to both, if any, to
review such calculation and make a determination. Such accounting firm's
conclusion as to the EPD Temp Division EBITDA shall be conclusive. Sellers and
Buyer shall share equally in the expenses of retaining such accounting firm
unless such accounting firm determines that another allocation is more
equitable. Upon such final determination, Buyer shall within ten (10) days
thereafter, pay Sellers fifteen percent (15%) of the EPD Temp Division EBITDA
for each of the 1998 Earnout Period and the 1999 Earnout Period, and shall pay
Sellers twenty percent (20%) of the EPD Temp Division EBITDA for the 2000
Earnout Period; provided however, that the Buyer shall pay Sellers thirty-three
percent (33%) of the EPD Temp Division EBITDA for the 1998 Earnout Period if the
Note has not been paid in full prior to the first anniversary after the
Effective Date, and shall pay Sellers twenty-five percent (25%) of the EPD Temp
Division EBITDA for the 1999 Earnout Period if the Note has not been paid in
full prior to the second anniversary after the Effective Date (all of the
foregoing payments being herein referred to as the "Earnout"). The Buyer and the
Parent shall operate its businesses and the businesses of their Affiliates in
good faith so as not to unduly limit Sellers' rights hereunder.
2.4 ASSUMPTION OF LIABILITIES. Upon the terms and subject to the
conditions contained herein, the Buyer agrees that on the Closing Date, it will
not assume any liabilities of either Seller except for the Net Working Capital
Liabilities, and those liabilities that may arise from any of the Contracts
("Assumed Liabilities"). Buyer specifically excludes and does not assume any
liabilities relating to or arising out of the Accounts Payable except to the
extent they constitute Net Working Capital Liabilities, any of either Seller's
tax obligations, tax claims, tax charges, tax fines or any related tax
liabilities, regardless of the source, cause or origin of such tax liabilities.
In addition, Buyer specifically excludes and does not assume any liabilities
relating to or arising out of IRC Section 444, nor does it assume any
liabilities of the Business that are not otherwise specifically assumed or
included in the Net Working Capital Liabilities.
2.5 DETERMINATION OF FINAL NET WORKING CAPITAL. The amount of the
Net Working Capital as of the Closing Date (the "Final Net Working Capital")
shall be prepared by the Seller, as promptly as possible after the Closing upon
a determination of the components of the Net Working Capital Liabilities, and
deducting same from the Net Trade Accounts Receivable and Acquired Cash. Seller
and/or Seller's accountants shall then review and certify their determination of
the Final Net Working Capital, and deliver its calculations thereof with
supporting data to Buyer within fifteen (15) days after the Closing Date. Buyer
and/or the Buyer's accountants shall review the Seller's determination of Final
Net Working Capital (including any corresponding work papers of Seller's
accountants) and report to the Seller in writing within fifteen (15) days of
receipt thereof of any discrepancy between the Seller's calculation of Final Net
Working Capital and the Buyer's calculation of Final Net Working Capital. If
Seller and/or Seller's accountants and Buyer and/or Buyer's accountants cannot
resolve such discrepancy to their mutual satisfaction within thirty (30) days
after Seller's accountants receipt of such reported discrepancy, another
independent public accounting firm acceptable to the Seller and the Buyer shall
be retained to review the work papers and make a determination of the Final Net
Working Capital. Such firm's conclusions as to the carrying values to appear on
the Closing Date Reports for purposes of determining the Final Net Working
Capital of the Seller shall be conclusive. The Seller and the Buyer shall share
equally in the expenses of retaining such accounting firm, unless the accounting
firm determines that another allocation is more
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equitable. The Buyer shall pay the expenses of the Buyer's accountants, if any,
and the Seller shall pay the expenses of Seller's accountants, if any.
2.6 ADJUSTMENT OF PURCHASE PRICE. After the Closing Date, the Purchase
Price set forth in Section 2.3 shall be adjusted as follows: If the Final Net
Working Capital as finally determined pursuant to Section 2.5 shall be more than
the Guaranteed Net Working Capital, then the Buyer shall pay Seller within ten
(10) days thereafter the entire amount of such difference in cash. If the Final
Net Working Capital of Seller as finally determined pursuant to Section 2.5
shall be less than the Guaranteed Net Working Capital, then the Seller shall pay
Buyer within ten (10) days thereafter the entire amount of such difference in
cash. If and to the extent a liability constituting an Assumed Liability is
discharged or extinguished for no consideration by the Buyer, then the Buyer
shall promptly remit the amount so discharged or extinguished to Sellers.
2.7 ALLOCATION OF PURCHASE PRICE. For all federal, state and local tax
purposes, the Purchase Price shall be allocated among the various Assets in the
manner indicated in Schedule 2.7 hereto subject to adjustment pursuant to
the determination of Final Net Working Capital. None of the Parties shall file
any tax return or report or take any position with any taxing agency or
authority which is inconsistent with the foregoing allocation, except to the
extent mandated by a court of law or the appropriate taxing agency or authority
in a determination binding upon one Party provided that such Party has given
written notice and reasonable opportunity to the other Party to contest and
appeal such determination, at the other Party's expense, on behalf of both
Parties and such determination has nevertheless become final. Within ninety (90)
days after the Closing Date, the Parties shall prepare for filing with the
Internal Revenue Service a Form 8594 in accordance with the foregoing
allocation.
2.8 TAXES. Buyer shall be liable for the payment of all sales and use
taxes arising out of the sale and transfer or removal of the Assets, if any, and
the assumption of the Assumed Liabilities. On or before the Effective Date, the
Sellers agree to furnish to the Buyer certificates from the state taxing
authorities, and any related certificates that the Buyer may reasonably request,
as evidence that all sales and use tax liabilities of the Sellers accruing
before the Effective Date have been fully provided for or satisfied. The Buyer
shall not be responsible for any business, occupation, withholding or similar
tax, or any taxes of any kind of the Sellers, related to any period before the
Effective Date. The Buyer shall be responsible for all such taxes for any period
commencing on or after the Effective Date.
2.9 TITLE TO ASSETS AND RISK OF LOSS. Title to the Assets and risk of loss
or damage to the Assets by casualty (whether or not covered by insurance) will
pass to the Buyer immediately upon completion of the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
-----------------------------------------
Each Seller hereby represents and warrants, except as otherwise set
forth on the Schedules attached hereto, that:
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3.1 TITLE TO ASSETS. Up until the Effective Date, the Sellers have good
and indefeasible title to the Assets free and clear of restrictions or
conditions to transfer or assignment, mortgages, liens, pledges, charges,
encumbrances, equities, claims, easements, rights-of-way, covenants, conditions
or restrictions, except with respect to those Assets subject to lease and as
otherwise disclosed on Schedule 3.1. The Sellers are in possession of all
------------
property leased to them from others. Except for the Excluded Assets, the Assets
constitute all of the material property, whether real, personal, mixed, tangible
or intangible, that are used in the Businesses by the Sellers.
3.2 TAX RETURNS. Within the times and in the manner prescribed by law,
including extensions permitted thereunder, the Sellers have filed and will file
all federal, state and local tax returns required by law and has paid and will
pay all taxes, assessments and penalties, if any, due and payable in connection
with the Businesses through the Effective Date. There are no pending, or to
Sellers' knowledge, threatened disputes as to taxes of any nature payable by
either Seller.
3.3 CONTRACTS, LEASES, AND AGREEMENTS. Schedule 2.1(b) lists all of
---------------
the material contracts, leases, agreements, and other written or oral
arrangements relating to the Businesses to which either Seller is a party, or by
which either Seller or the Assets are bound. As of the Effective Date, each of
the Contracts is valid and in full force and effect, and there has not been any
default by either Seller or, to the best of either Seller's knowledge, by any
other party to any of the Contracts, or any event that with notice or lapse of
time or both, would constitute a default by either Seller or, to the best of
either Seller's knowledge, any other party to any of the Contracts. Except as
shall be disclosed in Schedule 2.1(b), each Contract is assignable to the Buyer
without the consent of any other party. The Sellers will use commercially
reasonable efforts to obtain and deliver at Closing all of the requisite
consents relating to the items set forth on Schedule 2.1(b). Neither Seller has
---------------
received notice that any party to any of the Contracts intends to cancel or
terminate any of the Contracts or exercise or not exercise any options that they
might have under any of the Contracts. In the event any of the Contracts are, or
are later determined to be, non-assignable, and the other party to any such
Contracts refuses to consent to the assignment of same, then the applicable
Seller shall subcontract to the Buyer or its designee, if the Buyer so desires,
the remaining work on such Contracts, and the applicable Seller shall forward to
the Buyer or its designee all proceeds of such Contracts received by such
Seller; provided, however, that such Seller shall be reimbursed for any
reasonable out-of-pocket expenses incurred by it.
3.4 EQUIPMENT. All of the material Equipment owned or leased by the
Sellers is described on Schedule 2.1(a) attached hereto. Except as disclosed o n
---------------
Schedule 2.1(a), none of the Equipment will be, at the Effective Date, held
- ---------------
under any security agreement, conditional sales contract, or other title
retention or security arrangement or is located other than in the possession of
the Sellers except for Equipment that is out of Sellers' possession at certain
job sites and/or with certain Sellers' agent(s). To the best of each Seller's
knowledge, the Equipment is in good operating condition and repair, ordinary
wear and tear excepted.
3.5 INVENTORY. Sellers do not own any inventory nor do they utilize any
inventory in their respective Businesses.
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3.6 LICENSES. Schedule 2.1(b) to this Agreement contains a schedule
---------------
of all material licenses owned by Sellers or in which they have any rights or
licenses in connection with the Businesses, together with a brief description of
each. To the best of each Seller's knowledge, neither Seller has infringed, and
is not now infringing, on any license belonging to any other person, firm, or
corporation. Each Seller owns or holds adequate licenses or other rights to use,
all licenses necessary for the Business as now conducted by it except where
failure to own or hold such licenses will not cause a material adverse effect on
the Businesses, taken as a whole, and to the best of each Seller's knowledge,
that use does not conflict with, infringe on or otherwise violate any rights of
others. Except as set forth on Schedule 2.1(b), all of such licenses are fully
assignable to Buyer. Each Seller shall use its reasonable best efforts to
transfer title to all such licenses to Buyer. In the event any of the licenses
are non-assignable and/or non-transferrable, such Seller shall sublicense or
otherwise grant the use or make available the use of any such license which
Buyer requests until Buyer obtains an assignment or transfer of such license or
a new license in Buyer's own name.
3.7 EMPLOYMENT CONTRACTS. Except as set forth in Schedule 3.7, Sellers do
not have any employment contracts and collective bargaining agreements to which
it is a party or by which they are bound relating to any Employee. No Employees
are represented by any labor organization, and, as of the date hereof, no labor
organization or group of Employees has made a written demand to either Seller
for recognition, or filed a petition with the National Labor Relations Board, or
announced its intention to hold an election of a collective bargaining
representative. There is no pending, or to the best knowledge and reasonable
belief of each Seller, threatened, labor dispute, strike or work stoppage
affecting or potentially affecting the Businesses.
3.8 COMPLIANCE WITH LAWS. Each Seller has complied with, and is not in
violation of, applicable federal, state or local statutes, laws, and regulations
(including, without limitation, any applicable building or other law, ordinance
or regulation) that affect, or are likely to affect, directly or indirectly, any
of the Assets or the Businesses, except where the failure to so comply would not
have a material adverse effect on the Businesses, taken as a whole.. Each Seller
has all permits, licenses, and authorizations necessary to the conduct of the
Businesses in the manner and in the areas in which the Business is presently
conducted, and all such permits, licenses, or other authorizations are valid and
in full force and effect, except where the failure to possess such permits,
licenses or other authorizations would not have a material adverse effect on the
Businesses, taken as a whole. There are not any uncured violations, known to
Sellers, of federal, state or municipal laws, ordinances, orders, regulations or
requirements affecting any portion of the Assets or the Businesses which would
have a material adverse effect on the Businesses, taken as a whole.
3.9 LITIGATION. Except as disclosed in Schedule 3.9, there is no suit,
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action, arbitration or legal, administrative or other proceeding or governmental
investigation pending or, to the best of each Seller's knowledge, threatened
against or affecting either Seller, the Assets, or the Businesses that could
result in a material adverse effect on the Businesses, taken as a whole.
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3.10 NO BREACH OR VIOLATION. As of the Effective Date and except as set
forth on Schedule 3.10, the consummation of the transactions contemplated by
this Agreement will not result in or constitute any of the following: (i) a
default or an event that, with notice or lapse of time or both, would be a
default, breach or violation, or give rise to a right of modification,
termination, cancellation or acceleration of any obligation or to a loss of a
benefit under, except for third party consents described in this Agreement or
any schedule prepared and delivered in connection herewith, of any lease,
license, promissory note, conditional sales contract, commitment, indenture,
mortgage, deed of trust, security agreement, concession, franchise, permit or
other agreement, instrument or arrangement by which the Assets, the Businesses
or either Seller may be affected, or to which the Assets, the Businesses or
either Seller may be bound, (ii) the creation or imposition of any lien, charge,
or encumbrance on any of the Assets or the Businesses, or (iii) a breach of any
term or provision of this Agreement, except for breaches and violations that
could not reasonably be expected to have a material adverse effect on the
Businesses, taken as a whole.
3.11 AUTHORITY. Each Seller has the full right, power, legal capacity and
authority to execute, deliver and perform its obligations under this Agreement
and all agreements ancillary to this Agreement which are part of the underlying
transaction made the basis of this Agreement and executed in connection herewith
("Ancillary Agreements"), and no approvals or consents of any other person or
entity, other than the Sellers, are necessary in connection herewith.
3.12 PERSONNEL. Schedule 3.12 sets forth a complete and accurate list of
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the names, addresses, hire dates, dates of birth and job descriptions of all
Employees employed by each Seller in connection with the Businesses, current
rates of compensation including, if determined, bonuses payable to each
following Closing. At or after Closing, each Seller shall deliver such
additional information as the Buyer shall reasonably request with respect to
such Employees.
3.13 VALID AND BINDING OBLIGATIONS. Upon execution and delivery, each
of this Agreement, the Ancillary Agreements and each document, instrument and
agreement to be executed by each Seller in connection herewith, will constitute
the legal, valid, and binding obligation of each Seller, enforceable in
accordance with its terms, except as limited by bankruptcy laws, insolvency
laws, and other similar laws affecting the rights of creditors generally.
3.14 FINANCIAL STATEMENTS. The financial statements of Sellers consist of
unaudited financial statements that have been compiled by the independent
certified public accounting firm of Landau & Company, CPAs PC for the fiscal
years ended March 31, 1996 and 1997 of EDP and the three (3) months ended June
30, 1997 for EPD and as to EDP Temp the six month period ended June 30, 1997
(collectively, the "Sellers' Financial Statements"). The Sellers' Financial
Statements have been prepared in accordance with GAAP in the case of EPD and
with the income tax basis of accounting in the case of EPD Temp consistently
applied and fairly present in all material respects the financial condition and
results of operations of the Sellers as at the dates and for the periods then
ended.
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3.15 EMPLOYEE BENEFITS. Except as provided in Schedule 3.15, Sellers have
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no pension, profit-sharing, bonus, deferred compensation, percentage
compensation, severance pay, retirement, insurance, or other employee benefit
plans, including "employee benefit plans" within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
3.16 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in Schedule
--------
3.16(a) with regard to the Businesses and the Assets, since June 30, 1997,
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there has been no:
(i) material adverse change in the condition, financial or
otherwise, of the Sellers, the Assets or the Businesses;
(ii) waiver of any material right of or claim held by either
Seller;
(iii) material loss, destruction or damage to any property of either
Seller, whether or not insured;
(iv) material change in the personnel of either Seller or the terms
or conditions of their compensation or employment;
(v) acquisition or disposition of any material assets (or any
contract or arrangement therefor), nor any other transaction by the Sellers
otherwise than for value and in the ordinary course of business;
(vi) transaction or disbursement of funds or assets by either
Seller except in the ordinary course of business;
(vii) capital expenditure by either Seller exceeding $15,000 except
in the ordinary course of business;
(viii) change in accounting methods or practices (including, without
limitation, any change in depreciation or amortization policies or rates)
by either Seller;
(ix) re-valuation by either Seller of any of its Assets;
(x) amendment, modification or termination of any Contract or
license to which either Seller is a party, except in the ordinary course of
business;
(xi) mortgage, pledge or other encumbrance of any of the Assets;
(xii) any litigation or facts or circumstances that could result in
litigation that, if adversely determined, might reasonably be expected to
have a material adverse effect on the Sellers, the Sellers' financial
condition, the Sellers' prospects, the Businesses or the Assets;
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(xiii) increase in salary or other compensation payable or to become
payable by either Seller to any of its officers, directors or employees, or
the declaration, payment or commitment or obligation of any kind for the
payment, by either Seller, of a bonus or other additional salary or
compensation to any such person;
(xiv) loan by either Seller to any person or entity, or guaranty by
either Seller of any loan;
(xv) other event or condition of any character that has or might
reasonably be expected to have a material adverse effect on the Businesses,
Assets or financial condition of either Seller; or
(xvi) agreement by either Seller to do any of the things described
in the preceding clauses (i) through (xv).
Except as disclosed in Schedule 3.16(b), there have been no contractual
----------------
commitments by either Seller to spend more than $25,000 per contractual
commitment over a continuous 12-month period.
3.17 CONSENTS AND APPROVALS. Except as set forth on Schedule 3.17, no
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consent, approval or authorization of, or filing or registration with, any
governmental or regulatory authority, or any other person or entity, is required
to be made or obtained by either Seller in connection with the execution,
delivery or performance of this Agreement by Sellers or the consummation of the
transactions contemplated hereby by Sellers.
3.18 BROKERS. Neither of the Sellers nor any of Sellers' Affiliates has
employed any broker, agent, or finder, or incurred any liability for any
brokerage fees, agent's fees, commission or finder's fees in connection with the
transactions contemplated herein, except to the extent such fees or commissions
are borne exclusively by the Sellers or the Owners and do not constitute Assumed
Liabilities .
3.19 SALE OF ASSETS. For purposes of determining whether a sales and use
tax charge is applicable, the sale of the Assets includes the sale of
substantially all tangible property of the Sellers to be sold in bulk to the
Buyer, and intangible assets, as shown in Schedules 2.1(a), 2.1(b), 2.1(c),
2.1(e), 2.1(g) and 2.1(l). For the purpose of determining the amount of sales
tax due, the sale of the Assets includes the sale of substantially all tangible
personal property of the Sellers included in property sold in bulk to the Buyer,
outside the ordinary course of business, and does not include any property
intended for resale or property exempt from sales tax.
3.20 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither Seller nor any agent of
either Seller, nor to either Seller's best knowledge, any other person acting on
either Seller's behalf, has, directly or indirectly, within the past five years,
given or agreed to give any gift or similar benefit to any customer, supplier,
government employee of the United States or any state or foreign government, or
other person who is or may be in a position to help or hinder the Business which
(1)
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would subject such Seller to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (2) if not given in the past, would have
an adverse effect on the Businesses, or (3) if not continued in the future,
would have a material adverse effect on the Businesses or the Assets, or which
would subject the Sellers to suit or penalty in a private or governmental
litigation or proceeding.
3.21 LIENS ON ASSETS. Except as set forth on Schedule 3.21, all liens or
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security interests of any third party as to any of the Assets have been removed
on or before the Effective Date, and the Sellers have furnished evidence thereof
to Buyer.
3.22 CUSTOMERS. To the best of each Seller's knowledge, Schedule 3.22
contains a true and correct list of all material customers of the Businesses
since January 1, 1997 (the "Customers"). Neither Sellers has any information,
nor is either Seller aware of any facts, indicating that any of the material
Customers intend to cease doing business with either Seller.
3.23 INSURANCE POLICIES. Schedule 3.23 to this Agreement is a description
of all insurance policies held by each Seller concerning the Businesses and
Assets. Notwithstanding anything herein to the contrary, none of the Sellers'
insurance will be included in the Assets.
3.24 INTEREST IN CUSTOMERS, SUPPLIERS AND COMPETITORS. Except as set forth
in Schedule 3.24, neither of the Sellers, nor any Affiliate, spouse or child of
either Seller, has any direct or indirect interest in any competitor, supplier
or customer of any of them, has any direct or indirect interest in any
competitor, supplier or customer of either Seller, or in any person from whom or
to whom either Seller leases any property, or in any other person with whom
either Seller is doing business.
3.25 ADVERSE INFORMATION. Neither Seller has any actual knowledge of any
change contemplated in any applicable laws, ordinances or restrictions, or any
judicial or administrative action (or any event, fact or circumstance) which
will or could be reasonably expected to, have a material adverse effect on the
Sellers or their condition, financial or otherwise, the Assets, or the
condition, value or operation thereof.
3.26 ORGANIZATION. EPD is a corporation duly organized, validly existing
and in good standing under the laws of the State of New York, has all necessary
powers to own its properties and to operate its business as now owned and
operated by it, and is qualified to do business in the states specified on
Schedule 3.26. EPD Temp is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of New York, has all
necessary powers to own its properties and to operate its business as now owned
and operated by it, and is qualified to do business in the states specified on
Schedule 3.26.
3.27 CONDITION. All of the Assets are in good operating condition and
repair, ordinary wear and tear excepted, and, as applicable, good working order.
To the knowledge of each Seller, the buildings, fixtures, and improvements
leased by either Seller, including but not limited
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to the plumbing, electrical, air conditioning, heating and ventilating systems,
are in good condition, ordinary wear and tear excepted, and, as applicable, good
working order.
3.28 INTELLECTUAL PROPERTY. All of the material Intellectual Property
owned by either Seller is described on Schedule 2.1(e) attached hereto. The
applicable Seller is the sole owner of all of the Intellectual Property, free
and clear of any liens, encumbrances, restrictions, or legal or equitable claims
of others. Each Seller has registered all trade names, trademarks, and service
marks in all jurisdictions necessary to evidence and protect its ownership
thereof, and to permit such Seller to conduct its business in the manner in
which it is currently conducted, or otherwise has all rights or licenses
necessary to use the same. Each Seller has all patents or patent applications
and copyrights registered in all jurisdictions necessary to evidence and protect
the ownership thereof and to permit such Seller to conduct its business in the
manner in which it is currently conducted, or otherwise has all rights or
licenses necessary to use same. None of the Intellectual Property infringes upon
any patents, trade or assumed names, trademarks, service marks, or copyrights
belonging to any other person or other entity. Neither Seller is a party to any
license, agreement, or arrangement, whether as licensor, licensee, or otherwise,
with respect to any of the Intellectual Property. Neither Seller has a license
or a right to use any other patents, service marks, trademarks, trade and
assumed names, trade secrets and royalty rights and other proprietary
intangibles in connection with either Business, other than the Intellectual
Property.
3.29 POWERS OF ATTORNEY. No person or other entity holds a general or
special power of attorney from either Seller.
3.30 NO SEVERANCE PAYMENTS. Except as set forth in Schedule 3.30, neither
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Seller will owe a severance payment or similar obligation to any of its
Employees, officers, or directors, as a result of the transactions contemplated
by this Agreement, nor will any of such persons be entitled to an increase in
severance payments or other benefits as a result of the transactions
contemplated hereby, nor in the event of the subsequent termination of their
employment.
3.31 EMPLOYEES. Except as set forth in Schedule 3.31 or as has occurred in
-------------
the ordinary course of business, since June 30, 1997, neither Seller has, nor
has it agreed to do in any unusual or extraordinary amount or manner, any of the
following acts with respect to its Employees in the Businesses: (i) grant any
increase in salaries payable or to become payable by it, (ii) increase benefits,
(iii) modify any collective bargaining agreement to which it is a party or by
which it may be bound, or (iv) declare any bonuses for any of its Employees.
3.32 TAXES. Each Seller has paid, and shall pay when due, or contest in
good faith, and shall be responsible for paying for, all federal, state, and
local taxes and charges of any kind whatsoever related thereto, which relate to
or arise from the period on or prior to the Closing Date, whether such taxes and
charges shall be due and payable before or after the Closing Date. All federal,
state and local taxes and charges of any kind whatsoever relating to the
ownership of the Assets shall be prorated as of the Closing Date.
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3.33 HIRING OF EMPLOYEES. As of the Closing Date, each Seller shall
permit Buyer to offer employment to all of the Employees. At or prior to
Closing, each Seller shall have paid or accrued in the Closing Date Balance
Sheet Report all compensation and benefits to which such Employees are entitled
by reason of their previous employment with such Seller on such date. Each
Seller shall use such Seller's best efforts to assist Buyer in any reasonable
manner in the hiring by Buyer of the Employees that Buyer desires to hire. Each
Seller shall be solely responsible and liable for all severance pay, if any, to
the extent that any of the Employees are not offered employment with Buyer or do
not accept an offer of employment. Under no circumstances shall either Seller,
the Owners or any of either Seller's Affiliates be permitted to employ or offer
employment to any of the Employees after the Closing Date, without the prior
written consent of Buyer, for a period of five (5) years.
3.34 OPERATIONS OF THE SELLER. Except as disclosed in Schedule 3.34,
since June 30, 1997:
(i) each Seller has used commercially reasonable efforts to preserve the
business organization of such Seller intact, to keep available to the Businesses
the Employees, and to preserve its present relationships with suppliers,
customers and others having business relationships with it;
(ii) each Seller has maintained its existing insurance as to the
Businesses and the Assets, and otherwise maintained and operated the Businesses,
in all material respects, in a good and businesslike manner in accordance with
good and prudent business practices;
(iii) neither Seller has entered into any agreement or instrument which
would bind Buyer, either Seller or the Assets after Closing, other than in the
ordinary course of business, or which would be outside the normal scope of
maintaining and operating the Businesses and the Assets in the ordinary course
of business;
(iv) each Seller has performed all of such Seller's material obligations
under all contracts and commitments applicable to such Seller, the Businesses,
or the Assets, and has maintained the Seller's books of account and records
relating to the Businesses in the usual, regular and customary manner;
(v) each Seller has paid all bills and other payments due with respect to
the ownership, use, insurance, operation and maintenance of the Businesses or
the Assets in the usual, regular and customary manner consistent with its prior
practices, and has taken all action necessary or prudent to prevent liens or
other claims for the same from being filed or asserted against any part of the
Assets; and
(vi) all revenues received by either Seller relating to the Businesses
have been deposited in such Seller's account relating to the Businesses.
3.35 NOTES AND ACCOUNTS RECEIVABLE. All notes and Net Trade Accounts
Receivable are listed on Schedule 3.35, are properly recorded on each
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Accounts Receivable Report delivered to the Buyer, reflected properly on the
Sellers' books and records and are valid Accounts. Subject to
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Section 6.8, all Net Trade Accounts Receivable shall be collected by Buyer on or
prior to sixty (60) days after the Closing Date.
3.36 FULL DISCLOSURE. This Agreement, the Schedules and Exhibits hereto,
and all other documents and written information furnished by the Sellers to the
Buyer pursuant hereto or in connection herewith, are true, complete and correct,
and do not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements made herein and therein not
misleading. To the best of each Seller's knowledge, there are no facts or
circumstances relating to the Assets or the Businesses which adversely affect or
might reasonably be expected to adversely affect the Assets, the Businesses or
the ability of each Seller to perform this Agreement or any of each Seller's
obligations hereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT
--------------------------------------------------
Each of Buyer and Parent represents and warrants, except as otherwise set
forth on the Schedules attached hereto, that:
4.1 ORGANIZATION. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York and has
all the necessary corporate powers to own its properties and to carry on its
business as now owned and operated by it. The Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas and has all the necessary corporate powers to own its properties and to
carry on its business as now owned and operated by it.
4.2 AUTHORITY. Each of Buyer and Parent, as applicable, has the right,
power, legal capacity, and authority to execute, deliver and perform this
Agreement and the Ancillary Agreements to which it is a party. The execution,
delivery and performance of this Agreement and any Ancillary Agreements to which
it is a party by Buyer and Parent, as applicable, have been duly authorized by
all necessary corporate action.
4.3 VALID AND BINDING OBLIGATIONS. Upon execution and delivery, each of
this Agreement and the Ancillary Agreements to which it is a party will
constitute the legal, valid, and binding obligation of Buyer or Parent, as
applicable, enforceable in accordance with its terms, except as limited by
bankruptcy laws, insolvency laws, and other similar laws affecting the rights of
creditors generally.
4.4 ISSUANCE OF THE PARENT SHARES. The Parent Shares shall, upon issuance
and delivery, be duly authorized, validly issued, fully paid and non-assessable.
4.5 BROKERS. Neither Buyer nor any of its respective Affiliates,
officers, directors, or employees, has employed any broker, agent, or finder, or
incurred any liability for any brokerage fees, agent's fees, commissions or
finder's fees in connection with the transactions contemplated herein,
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except for the fee payable to The Gulfstar Group, Inc., which fee shall be paid
solely by Buyer or its Affiliates in connection with this transaction.
4.6 CONSENTS AND APPROVALS. Except to the extent they have otherwise
been obtained on or prior to the Closing,
(a) No consent, approval or authorization of, or filing or
registration with, any governmental or regulatory authority, or any other
person or entity, is required to be made or obtained by Buyer or Parent in
connection with the execution, delivery and performance of this Agreement
and the Ancillary Agreements to which it is a party and the consummation of
the transactions contemplated hereby.
(b) Neither the execution and delivery of this Agreement or the
Ancillary Agreements to which it is a party nor the consummation of the
transactions contemplated hereby or thereby will (i) violate any provision
of the Articles of Incorporation or Bylaws of either Buyer or Parent or
(ii) conflict with, or result (immediately or upon the giving of notice or
the passage of time or both) in any violation of or any default under, or
give rise to a right of modification, termination, cancellation or
acceleration of any obligation or to a loss of a benefit under, any
mortgage, indenture, lease, instrument, permit, concession, franchise,
license or other agreement which either the Buyer or Parent or its
properties or assets is a party to, beneficiary of, or bound by, or violate
any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to either the Buyer or Parent or its properties or assets, other
than such conflicts, violations, or defaults or possible modifications,
terminations, cancellations or accelerations which individually or in the
aggregate do not and will not have a material adverse effect on the Buyer
or the Parent, taken as a whole.
4.7 FINANCIAL STATEMENTS. Buyer has delivered to Seller the unaudited
consolidated balance sheet, unaudited consolidated income statement, and
unaudited consolidated cash flow statement of Parent for the six month period
ended June 30, 1997 (the "Parent Financial Statements"). Each of the Parent
Financial Statements (i) fairly represents the financial position of Parent and
its consolidated subsidiaries as of each respective Parent Financial Statements
date, and the results of their operations for the respective periods indicated,
and (ii) were true and correct in all material respects as of the respective
dates thereof, subject to finalization of purchase accounting adjustments in
accordance with GAAP.
4.8 ASSUMED LIABILITIES. Buyer shall assume the Assumed Liabilities as
defined in Section 2.4 herein.
4.9 ABSENCE OF CERTAIN CHANGES. Since June 30, 1997, there have been no
(a) material adverse changes in the business, financial condition, assets,
operations or prospects of Parent, (b)
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amendments, modifications or terminations of any material contract applicable to
Parent, (c) any changes in the accounting methods or practices of Parent, (d)
any litigation or facts or circumstances that could result in litigation that,
if adversely determined, might reasonably be expected to have a material adverse
effect on Parent or on its business, financial condition or prospects, or (e)
other event or condition of any character that has or might reasonably be
expected to have a material adverse effect on the business, financial condition,
assets, operations or prospects of Parent.
4.10 CAPITALIZATION. The entire authorized capital stock, the issued and
outstanding shares and the treasury shares of the Parent is accurately set forth
in Schedule 4.10 together with the changes thereto contemplated by the
-------------
acquisition of the Sellers. All of the issued and outstanding shares of the
Parent have been duly authorized, are validly issued, fully paid, and
nonassessable, and are held of record by the respective parties as set forth in
Schedule 4.10. There are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights, or
other contracts or commitments that could require the Parent to issue, sell, or
otherwise cause to become outstanding any of its capital stock except those set
forth in Schedule 4.10. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or similar rights with
respect to the Parent except as set forth in Schedule 4.10. There are no voting
trusts, proxies, or other agreements or understandings with respect to the
voting of the capital stock of the Parent.
4.11 FULL DISCLOSURE. No representation or warranty of the Buyer or Parent
in this Article IV or in any other Article of this Agreement or in the Ancillary
Agreements to which it is a party or any schedule, exhibit, certificate or other
document furnished or to be furnished by the Buyer or Parent to the Seller
pursuant to this Agreement or any Ancillary Agreements to which it is a party,
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary to make the statements made herein
or therein not misleading. To the best of Buyer and Parent's knowledge, there
are no facts or circumstances relating to the business, financial condition,
assets, operations or prospects of Buyer or Parent which adversely affect or
might reasonably be expected to adversely affect the business, financial
condition, assets or operations of Buyer or Parent, or the ability of Buyer or
Parent to perform this Agreement or the Ancillary Agreements to which it is a
party or any of Buyer or Parent's obligations thereunder.
ARTICLE V
COVENANTS OF THE PARTIES
------------------------
Buyer and Sellers covenant and agree as follows:
5.1 RECORD RETENTION. From and after the Closing, Buyer shall permit
Sellers, the Owners and their representatives the right, during normal business
hours, to inspect any documents, books, records or other information pertaining
to the Assets, the Businesses and/or the operations of the Sellers, the Buyer
and the Buyer's Affiliates to the extent reasonably necessary for any reason
whatsoever including, but not limited to, verification of the Purchase Price and
the Earnout. For a period of three (3) years following the Closing Date, Buyer
agrees
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not to destroy any files or records which are subject to this Section 5.1
without giving reasonable notice to the Sellers, and within fifteen (15)
business days of receipt of such notice, the Buyer may cause to be delivered to
Sellers the records intended to be destroyed, at the Sellers' expense.
5.2 BULK SALES. It may not be practicable to comply or attempt to comply
with the procedures of [Division 6] of the [New York] Commercial Code (the "New
York Bulk Sales Act"). Accordingly, to induce Buyer to waive any requirements
for compliance with any or all of such laws, Sellers hereby agree that except
for the Assumed Liabilities, the indemnity provisions of Article VII hereof
shall apply to any damages of Buyer arising out of or resulting from the failure
of Buyer or Sellers to comply with the New York Bulk Sales Laws, to the extent
if any that such laws are applicable to the transactions contemplated by this
Agreement.
5.3 TERMINATION OF EMPLOYMENT OF EITHER SELLER'S EMPLOYEES. Buyer agrees
that it shall extend an offer of employment to all of the Employees of each
Seller on substantially the same terms and conditions as the Employees currently
are employed by such Seller. Each Seller agrees to use its best efforts to make
available the Employees to the Buyer. Nothing shall prohibit Buyer from
terminating any of either Seller's Employees subsequent to their employment by
Buyer.
5.4 NAME CHANGE AND REQUALIFICATION DOCUMENTS. At or promptly after the
Closing, (i) EPD will execute, deliver and file, or cause to be executed,
delivered and filed, all necessary or reasonably requested amendments to EPD's
articles of incorporation, and such other documents as may be required to change
EPD's name to "EPD Liquidating Company", and (ii) EPD Temp will execute, deliver
and file, or cause to be executed, delivered and filed, all necessary or
reasonably requested amendments to EPD Temp's articles of incorporation, and
such other documents as may be required to change EPD Temp's name to "EPD Temp
Liquidating Company, LLC" In addition, Sellers hereby consent to an Affiliate of
Buyer incorporating or changing its corporate name to "Elaine P. Dine, Inc.",
"Elaine P. Dine Temporary Attorneys, L.L.C.", or any name substantially similar
thereto, or filing such assumed name certificates as Buyer deems reasonable,
necessary or appropriate. In addition, at or prior to Closing, Sellers and its
Affiliates shall execute and deliver such assignments, terminations and
cancellations of assumed and trade names as Buyer may request. Sellers shall
cooperate with Buyer in connection with all filings relating to the use of
Sellers' name or names and with any filings that Buyer may desire to make in
order to effect such name change or otherwise protect such name.
ARTICLE VI
THE CLOSING
6.1 CLOSING. Payment of the Purchase Price required to be made by the
Buyer to the Sellers and the transfer of the Assets by the Sellers and the other
transactions contemplated hereby shall take place on the Closing Date at the
offices of Boyer, Ewing & Harris Incorporated, 9 Greenway Plaza, Suite 3100,
Houston, Texas 77046 or by fax or express delivery unless the time or location
is changed by mutual agreement of the Parties. At the Closing, (a) the Sellers
will deliver
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to the Buyer the various certificates, instruments, and documents referred to in
Section 6.2 below, (b) the Buyer will deliver to the Sellers the various
certificates, instruments, and documents referred to in Section 6.3 below, and
(c) the Buyer will deliver to the Sellers the Purchase Price specified in
Section 2.3 above.
6.2 CONDITIONS TO OBLIGATIONS OF THE BUYER. The obligation of the Buyer to
proceed with the Closing and consummate the transactions to be performed by it
in connection with the Closing is subject to satisfaction of the following
conditions:
(a) the representations and warranties of each Seller hereunder shall
be true and correct in all material respects at and as of the Closing Date;
(b) each Seller shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(c) no action, suit, or proceeding shall be pending before any court
or quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (i) prevent
consummation of any of the transactions contemplated by this Agreement,
(ii) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation, or (iii) affect adversely in any material
respect the rights in and to the Assets (and no such injunction, judgment,
order, decree, ruling, or charge shall be in effect);
(d) the Sellers shall have delivered to the Buyer a certificate to
the effect that each of the conditions specified above in Section 6.2(a) -
(c) is satisfied in all respects;
(e) the Buyer shall have received from counsel to the Sellers an
opinion in form and substance acceptable to Buyer, addressed to the Buyer,
and dated as of the Closing Date containing such assumptions and
qualifications as may be reasonably acceptable to Buyer's legal counsel;
(f) Siegel, individually, shall have entered into a separate
Employment Agreement with Buyer in a form reasonably acceptable to Buyer
(the "Siegel Employment Agreement");
(g) Becker, individually, shall have entered into a separate
Employment Agreement with Buyer in a form acceptable to Buyer (the "Becker
Employment Agreement");
(h) The Sellers shall have delivered to Buyer instruments of
assignment and transfer or bills of sale signed by Sellers as the Buyer
shall reasonably request, including the Bill of Sale in a form reasonably
acceptable to Buyer and its counsel (the "Bill of Sale");
(i) The Sellers shall have delivered to Buyer affidavits or other
reliable evidence reasonably satisfactory to Buyer and its counsel of
Seller's authority to sell the Assets;
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(j) The Sellers shall have each entered into a certain First Amended
and Restated Shareholders' Agreement dated as of May 14, 1997 (the
"Shareholders' Agreement") on terms and conditions reasonably satisfactory
to Buyer and its counsel;
(k) Karin L. Greene shall have entered into an Assumption of
Obligations and a Stock Option Agreement on terms and conditions reasonably
acceptable to the Buyer and its counsel;
(l) Alisa F. Levin shall have entered into an Assumption of
Obligations and a Stock Option Agreement on terms and conditions reasonably
acceptable to the Buyer and its counsel;
(m) Rosemary Moukad shall have entered into an Assumption of
Obligations and a Stock Option Agreement on terms and conditions reasonably
acceptable to the Buyer and its counsel;
(n) Susan Kurz Snyder shall have entered into an Assumption of
Obligations and a Stock Option Agreement on terms and conditions reasonably
acceptable to the Buyer and its counsel;
(o) Zahava Wigdor shall have entered into an Assumption of
Obligations and a Stock Option Agreement on terms and conditions reasonably
acceptable to the Buyer and its counsel;
(p) Each Seller shall have entered into with Parent a Registration
Rights Agreement in a form similar to those previously entered into by
similarly situated shareholders of Parent and reasonably acceptable to
Buyer and its counsel (the "Registration Rights Agreement");
(q) Sellers shall have each entered into a Stock Pledge Agreement in
a form reasonably acceptable to Buyer and its counsel (the "Stock Pledge
Agreement");
(r) Sellers shall have delivered to Buyer all other items required or
requested to be delivered hereunder, including the Subordination
Agreements, such requested items to be reasonably necessary or reasonably
appropriate to facilitate consummation of the transactions contemplated
hereby; and
(s) All actions to be taken by the Sellers in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Buyer.
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The Buyer may waive any condition specified in Section 6.2 if it executes a
writing so stating at or prior to the Closing Date.
6.3 CONDITIONS TO OBLIGATIONS OF THE SELLER. The obligation of the Sellers
to proceed with Closing and consummate the transactions to be performed by it in
connection with the Closing is subject to satisfaction of the following
conditions:
(a) the representations and warranties of Buyer and Parent hereunder
shall be true and correct in all material respects at and as of the Closing
Date;
(b) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(c) no action, suit, or proceeding shall be pending before any court
or quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement, or
(B) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
(d) each of Buyer and Parent shall have delivered to the Sellers a
certificate to the effect that each of the conditions applicable to it
which are specified above in Section 6.3(a)-(c) is satisfied in all
respects;
(e) the Sellers shall have received from counsel to the Buyer an
opinion in form and substance acceptable to Sellers, addressed to the
Sellers, and dated as of the Closing Date containing such assumptions and
qualifications as may be reasonably acceptable to Sellers' legal counsel;
(f) the Buyer shall have paid the Purchase Price required by Section
2.3, including delivery of the Note and issuance by Parent of the Parent
Shares;
(g) the Buyer shall have entered into the Siegel Employment Agreement
in a form reasonably acceptable to Sellers and their legal counsel;
(h) the Buyer shall have entered into the Becker Employment Agreement
in a form reasonably acceptable to Sellers and their legal counsel;
(i) the Buyer shall have entered into the Shareholders' Agreement
with Sellers in a form reasonably acceptable to Sellers and their legal
counsel;
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(j) The Buyer shall have caused Parent to enter into the Registration
Rights Agreement with Sellers in a form similar to those previously entered
into by similarly situated shareholders of Parent;
(k) The Buyer shall have entered into the Stock Pledge Agreement in a
form reasonably acceptable to Sellers and their legal counsel;
(l) Karin L. Greene shall have entered into an Assumption of
Obligations and a Stock Option Agreement on terms and conditions reasonably
acceptable to Sellers and their legal counsel;
(m) Alisa F. Levin shall have entered into an Assumption of
Obligations and a Stock Option Agreement on terms and conditions reasonably
acceptable to the Sellers and their legal counsel;
(n) Rosemary Moukad shall have entered into an Assumption of
Obligations and a Stock Option Agreement on terms and conditions reasonably
acceptable to the Sellers and their legal counsel;
(o) Susan Kurz Snyder shall have entered into an Assumption of
Obligations and a Stock Option Agreement on terms and conditions reasonably
acceptable to the Sellers and their legal counsel;
(p) Zahava Wigdor shall have entered into an Assumption of
Obligations and a Stock Option Agreement on terms and conditions reasonably
acceptable to the Sellers and their legal counsel; and
(q) All actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby, and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Sellers.
The Sellers may waive any condition specified in this Section 6.3 if each Seller
executes a writing so stating at or prior to the Closing.
6.4 INSURANCE, CONTRACTS AND AD VALOREM TAXES. The Buyer shall be
obligated to make all premium payments necessary to continue the existing
insurance on the Businesses commencing as of the Effective Date, and Sellers
shall cooperate with Buyer in: (i) continuing such insurance in effect also
naming Buyer as an additional loss payee for such time as may be reasonably
necessary until Buyer can procure its own insurance which Buyer shall use
commercially reasonable efforts to procure, (ii) pursuing any claims thereunder,
and (iii) in assigning and delivery to Buyer any proceeds payable thereunder.
Buyer shall indemnify and hold harmless Sellers from any Damages (as
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hereinafter defined) as a result of Sellers continuing such insurance in effect
for the Buyer. Buyer shall refund to Sellers any insurance premium payments that
have been prepaid, and any other amounts which have been prepaid, including a
pro rata refund of any amounts in respect of Contracts which cover periods
subsequent to the Effective Date. Sellers shall reimburse Buyer any amounts that
Buyer is required to pay in respect of Contracts which cover periods prior to
Effective Date. With regard to ad valorem taxes on the Assets for the 1997 tax
year, the Sellers and the Buyer agree that the taxes to be paid shall be
prorated as of the Effective Date.
6.5 FURTHER ASSURANCES. At and after the Closing, each of the Parties
shall take all appropriate action and execute all documents of any kind which
may be reasonably necessary or desirable to carry out the transactions
contemplated hereby. The Sellers, at any time at or after the Closing, will
execute, acknowledge and deliver any further bills of sale, assignments and
other assurances, documents and instruments of transfer, reasonably requested by
the Buyer, and will take any other action consistent with the terms of this
Agreement that may reasonably be requested by the Buyer, for the purpose of
assigning and confirming to the Buyer, all of the Assets. The Buyer shall notify
the Sellers promptly, and in no event more than ten (10) business days after the
Buyer's receipt, of any tax inquiries or notifications thereof which relate to
any period prior to the Effective Date, and the Sellers shall prepare and
deliver responses to such inquiries as the Sellers deem necessary or
appropriate. In addition, the Sellers shall make available the books and records
of the Businesses during reasonable business hours and take such other actions
as are reasonably requested by the Buyer to assist the Buyer in the operation of
the Businesses.
6.6 CONFIDENTIAL INFORMATION. After the Closing and except as otherwise
specifically permitted in this Agreement, each party to this Agreement agrees,
on behalf of itself and its Affiliates, to use reasonable efforts not to
divulge, communicate, use to the detriment of any other party to this Agreement
or its Affiliates or for the benefit of any other person or persons, any
confidential information or trade secrets of such other party with respect to
the Assets or the Businesses, including personnel information, secret processes,
know-how, customer lists, formulae, or other technical data; provided, if any
party to this Agreement or any of its Affiliates is compelled to disclose such
information to any tribunal, regulatory or governmental authority or agency or
else stand liable for contempt or suffer other censure and penalty, such party
may so disclose such information without any liability hereunder.
6.7 ASSIGNMENT OF CONTRACTS. On or before the Effective Date, each Seller
shall have delivered to Buyer all of the Contracts presently in force and shall
have used commercially reasonable efforts to effect a valid assignment of all of
each Seller's rights and obligations thereunder.
6.8 ACCOUNTS RECEIVABLE. In the event that Buyer collects any of the
Accounts Receivable other than the Net Trade Accounts Receivable, Buyer shall
promptly remit such collections to Sellers on a weekly basis. In the event that
Sellers collect any of the Net Trade Accounts Receivable, Sellers shall promptly
remit such collections to Buyer on a weekly basis. Buyer shall have the right
after the expiration of sixty (60) days after the Effective Date to furnish
written notice to Sellers as to any Net Trade Accounts Receivable that are
remaining unpaid. Within five (5) days after its receipt of such written notice,
Sellers shall remit to Buyer an amount of cash equal to
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such shortfall in collections by Buyer on the Net Trade Accounts Receivable, at
which time Buyer shall assign all unpaid Net Trade Accounts Receivable to
Sellers. Any collections on such uncollected Net Trade Accounts Receivable
collections that have been assigned to Sellers shall be for the Sellers'
account, and Buyer shall promptly remit such collections it receives to Sellers
on a weekly basis. The provisions of Section 7.1E shall not be applicable to any
shortfall in Net Trade Accounts Receivable Collections.
ARTICLE VII
INDEMNIFICATION
---------------
7.1 INDEMNIFICATION.
A. BY THE SELLERS AND SELLERS' SHAREHOLDERS. Subject to Section
7.1(E) hereof, each Seller and each Owner, jointly and severally, (collectively
herein "Sellers Indemnitors") shall indemnify, save, defend and hold harmless
the Buyer and Buyer's shareholders and the directors, officers, partners, agents
and employees of each (collectively, the "Buyer Indemnified Parties") from and
against any and all costs, lawsuits, losses, liabilities, deficiencies, claims
and expenses, including interest, penalties, attorneys' fees and all amounts
paid in investigation, defense or settlement of any of the foregoing
(collectively referred to herein as "Damages"), (i) incurred in connection with
or arising out of or resulting from or incident to any breach of any covenant,
breach of warranty as of the Effective Date, or the inaccuracy of any
representation as of the Effective Date, made by either Seller in or pursuant to
this Agreement or any other agreement contemplated hereby or in any schedule,
certificate, exhibit, or other instrument furnished or to be furnished by either
Seller or its Affiliates under this Agreement, or (ii) based upon, arising out
of, or otherwise in respect of any liability or obligation of the Business or
relating to the Assets relating to any period prior to the Effective Date, other
than those Damages based upon or arising out of the Assumed Liabilities;
provided, however, that neither Seller shall be liable for any such Damages to
the extent, if any, such Damages result from or arise out of a breach or
violation of this Agreement by any Buyer Indemnified Parties.
B. BY THE BUYER AND THE PARENT. Subject to Section 7.1(E) hereof,
the Buyer and Parent shall indemnify, save, defend and hold harmless each
Seller, each Seller's successors in interest or heirs, Siegel and Becker and
their respective heirs and personal representatives (collectively, the "Sellers
Indemnified Parties") from and against any and all Damages (i) incurred in
connection with or arising out of or resulting from or incident to any breach of
any covenant , breach of warranty as of the Effective Date, or the inaccuracy of
any representation as of the Effective Date, made by the Buyer and/or Parent in
or pursuant to this Agreement or any other agreement contemplated hereby or in
any schedule, certificate, exhibit, or other instrument furnished or to be
furnished by the Buyer and/or Parent under this Agreement, or (ii) based upon,
arising out of or otherwise in respect of any liability or obligation of the
Business or relating to the Assets (a) relating to any period on and after the
Effective Date, other than those Damages based upon or arising out of the
liabilities or obligations of the Businesses occurring on or accruing as of the
Effective Date other than Assumed Liabilities (the "Retained Liabilities"), or
(b) arising out of facts or circumstances existing on and after the Effective
Date, other than those Damages based upon or
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arising out of the Retained Liabilities; provided, however, that neither Buyer
nor Parent shall be liable for any such Damages if such Damages result from or
arise out of a breach or violation of this Agreement by any Sellers Indemnified
Parties.
C. DEFENSE OF CLAIMS. If any lawsuit or enforcement action is filed
against any Party entitled to the benefit of indemnity hereunder, written notice
thereof describing such lawsuit or enforcement action in reasonable detail and
indicating the amount (estimated, if necessary) or good faith estimate of the
reasonably foreseeable estimated amount of Damages (which estimate shall in no
way limit the amount of indemnification the indemnified Party is entitled to
receive hereunder), shall be given to the indemnifying Party as promptly as
practicable (and in any event within ten (10) days, after the service of the
citation or summons) ("Notice of Action"); provided that the failure of any
indemnified Party to give timely notice shall not affect its rights to
indemnification hereunder to the extent that the indemnified Party demonstrates
that the amount the indemnified Party is entitled to recover exceeds the actual
damages to the indemnifying Party caused by such failure to so notify within ten
(10) days and so long as the indemnifying Party is not materially prejudiced by
the failure to receive such notice. The indemnifying Party may elect to
compromise or defend any such asserted liability and to assume all obligations
contained in this Section 7.1 to indemnify the indemnified Party by a delivery
of notice of such election ("Notice of Election") within ten (10) days after
delivery of the Notice of Action. Upon delivery of the Notice of Election, the
indemnifying Party shall be entitled to take control of the defense and
investigation of such lawsuit or action and to employ and engage attorneys of
its own choice to handle and defend the same, at the indemnifying Party's sole
cost, risk and expense, and such indemnified Party shall cooperate in all
reasonable respects, at the indemnifying Party's sole cost, risk and expense,
except with respect to the fees and expenses of the indemnified Party's
attorney, which shall be borne by the indemnified Party, with the indemnifying
Party and such attorneys in the investigation, trial, and defense of such
lawsuit or action and any appeal arising therefrom; provided, however, that the
indemnified Party may, at its own cost, risk and expense, participate in such
investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom. If the Notice of Election is delivered to the indemnified
Party, the indemnified Party shall not pay, settle or compromise such claim
without the indemnifying Party's consent, which consent shall not be
unreasonably withheld. If the indemnifying Party elects not to defend the claim
of the indemnified Party or does not deliver to the indemnified Party a Notice
of Election within ten (10) days after delivery of the Notice of Action, the
indemnified Party may, but shall not be obligated to defend, provided that in no
circumstance shall the indemnified Party compromise or settle the claim or other
matter on behalf or for the account of the indemnifying Party without the
consent of the indemnifying Party, which shall not be unreasonably withheld.
D. THIRD PARTY CLAIMS. The provisions of this Section 7.1 are not
limited to matters asserted by the Parties, but cover Damages incurred in
connection with third party claims. The indemnity hereunder is in addition to
any and all rights and remedies of the Parties in connection herewith.
E. LIMITATION ON INDEMNIFICATION. Notwithstanding the other
provisions of this Section 7.1, Sellers Indemnitors shall not be liable to Buyer
Indemnified Parties, and Buyer and Parent shall not be liable to Sellers
Indemnified Parties, for the first $100,000 in aggregate Damages
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suffered by such indemnified Parties; provided, however, that once any such
indemnified Parties have suffered Damages aggregating in excess of $100,000, the
indemnifying Party shall reimburse the indemnified Parties for the full amount
of such Damages, including only $50,000 of the first $100,000 in Damages
initially excluded. In no event shall the aggregate Damages payable by an
indemnifying Party to indemnified Parties exceed the Purchase Price.
Notwithstanding anything to the contrary contained herein, the provisions of
this Section 7.1E shall not be applicable to any of the provisions contained in
Article II of this Agreement nor to Sections 4.4, 4.10, or 6.8 of this
Agreement.
7.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements contained in this
Agreement shall survive the Closing hereunder and continue in full force and
effect for two (2) years thereafter.
ARTICLE VIII
REMEDIES
--------
8.1 SPECIFIC PERFORMANCE; REMEDIES. Each of the Parties hereby agrees
that the transactions contemplated by this Agreement are unique, and that each
Party shall have, in addition to any other legal or equitable remedy available
to it, the right to enforce this Agreement by decree of specific performance. If
any legal action or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing Party or Parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or proceeding
in addition to any other remedies to which it, he or they may be entitled at law
or equity. The rights and remedies granted herein are cumulative and not
exclusive of any other right or remedy granted herein or provided by law.
8.2 OFFSET; REMEDIES. To the extent not otherwise prohibited by
applicable law, (i) all amounts due and owing by the Buyer to the Sellers under
this Agreement, the Note, the Parent Shares, the Earnout or any document,
instrument, or agreement executed in connection herewith, except for the Siegel
Employment Agreement and the Becker Employment Agreement shall be subject to
offset by the Buyer to the extent of any Damages incurred by Buyer that have
triggered an indemnification obligation of either Seller under Section 7.1.A. In
the event Buyer elects to offset any such Damages, Buyer shall furnish the
applicable Seller notice containing detailed information with respect to such
Damages, the specific obligation of such Seller that triggered such Damages and
such other information as may be reasonably appropriate in respect of such
Seller's consideration of such claim (an "Offset Claim"). The applicable Seller
shall have twenty (20) days after receipt of such information to dispute any
such Offset Claim, and shall so notify Buyer of the basis for such dispute. If
the Parties are unable to resolve such dispute within fifteen (15) days, the
Offset Claim shall be submitted to arbitration, as further described in Section
9.14. If the applicable Seller agrees to pay such Offset Claim or fails to
contact Buyer within such twenty (20) day period, and pending final resolution
of any Offset Claim which has been submitted to arbitration, the offset shall be
applied as follows (the act of offsetting by Buyer shall be referred to as an
"Offset"): (a) First against the Note until the full amount of Note, both
principal and interest, has been repaid, (b) then, against the Earnout; and (c)
then against the Parent Shares. In order to secure the Buyer's offset rights
against
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the Parent Shares, Buyer and Sellers shall execute the Stock Pledge Agreement.
Upon issuance, the Parent Shares shall have a restrictive legend typed on the
back thereof specifying that the Parent Shares are subject to a right of offset
as specified in this Agreement. The Sellers acknowledge and agree that but for
the right of Offset contained in this Agreement, the Buyer would not have
entered into this Agreement or any of the transactions contemplated herein.
Notwithstanding anything contained herein to the contrary, the offset rights of
Buyer hereunder shall terminate in the manner set forth in Section 7.2.
ARTICLE IX
MISCELLANEOUS
9.1 FEES. Except as expressly set forth herein to the contrary, each
Party shall be responsible for all costs, fees and expenses (including attorney
and accountant fees and expenses) paid or incurred by such Party in connection
with the preparation, negotiation, execution, delivery and performance of this
Agreement, or otherwise in connection with the transaction contemplated hereby.
9.2 MODIFICATION OF AGREEMENT. This Agreement may be amended or modified
only in writing signed by all of the Parties.
9.3 NOTICES. All notices, consents, demands or other communications
required or permitted to be given pursuant to this Agreement shall be deemed
sufficiently given when delivered personally or telefaxed with receipt of
transmission confirmed during regular business hours during a business day to
the appropriate location described below, or three (3) business days after
posting thereof by United States first-class, registered or certified mail,
return receipt requested, with postage and fees prepaid and addressed as
follows:
IF TO SELLERS: Elaine P. Dine, Inc.
Attn: Ms. Elaine Siegel, President
115 East 57/th/ Street
New York, New York 10022
Telephone: (212)355-6182
Telefax: (212)755-8486
Elaine P. Dine Temporary Attorneys, L.L.C.
Attn: Ms. Laurie Becker, President
115 East 57/th/ Street
New York, New York 10022
Telephone: (212)355-6182
Telefax: (212)755-6486
IF TO SIEGEL: Ms. Elaine P. Siegel
115 East 57/th/ Street
New York, New York 10022
Telephone: (212)355-6182
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Telefax: (212)755-6486
Copy to: Joseph A. Stern
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004-1980
Telephone: (212) 859-8176
Telefax: (212) 859-8586
IF TO BECKER: Ms. Laurie Becker
320 Central Park West
New York, New York 10025
Telephone: (212) 787-2307
Telefax: (212)787-2408
Copy to: Daniel L. Rabinowitz
546 5/th/ Avenue
New York, New York 10036
Telephone: (212) 768-1666
Telefax: (212) 768-7664
IF TO BUYER: Litigation Resources of America-Northeast, Inc.
1001 Fannin, Suite 650
Houston, Texas 77002
Attn: Chief Executive Officer
Telephone: (713) 653-7100
Telefax: (713) 653-7172
IF TO PARENT: Litigation Resources of America, Inc.
1001 Fannin, Suite 650
Houston, Texas 77002
Telephone: (713) 653-7100
Telefax: (713) 653-7172
Copy to: J. Randolph Ewing
Boyer, Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Telephone: (713) 871-2025
Telefax: (713) 871-2024
Any addressee at any time by furnishing notice to the other addressees in the
manner described above may designate additional or different addresses for
subsequent notices or communications.
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9.4 SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not invalidate or affect the enforceability of any other
provision of this Agreement.
9.5 ENTIRE AGREEMENT; BINDING EFFECT. This Agreement and any Ancillary
Agreements set forth the entire agreement among the Parties with respect to the
subject matter hereof. This Agreement shall be binding upon and shall inure to
the benefit of the Parties and their respective successors and assigns.
9.6 WAIVER. No delay in the exercise of any right under this Agreement
shall waive such rights. Any waiver, to be enforceable, must be in writing.
9.7 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
9.8 ASSIGNMENT. The Sellers shall not assign this Agreement or any
interest herein except to the Owners or their Permitted Transferees (as defined
in the Shareholders Agreement) in which event the Sellers shall remain
secondarily liable. Notwithstanding the preceding sentence, the Sellers may
assign all or part of the Earnout to the Owners and/or to any Employees which at
the time of the assignment are employed by Buyer and any Permitted Transferees
of an Owner or such Employee. Buyer shall not be permitted to assign this
Agreement except in connection with the sale or other transfer of all or
substantially all of the business of the EPD Division of the Company or the EPD
Temp Division of the Company.
9.9 HEADINGS. Headings in this Agreement are for convenience only and
shall not affect the interpretation of this Agreement.
9.10 SCHEDULES AND EXHIBITS. All Schedules and Exhibits attached to this
Agreement or to be delivered by the Sellers, upon review and approval by the
Buyer, are and shall be hereby incorporated in and made a part of this
Agreement. All Schedules to this Agreement must be delivered no later than four
(4) days prior to Closing, in order to provide the Buyer ample time to review
and evaluate the items described therein and disclosed thereby. Although the
Schedules remain subject to the review and approval of the Buyer, no such review
or approval shall constitute a waiver by the Buyer of any breach or default
caused by the inaccuracy or incompleteness of any Schedule, the accuracy and
completeness of the Schedules being the sole responsibility of the Sellers.
9.11 RIGHTS AND LIABILITIES OF PARTIES. Nothing in this Agreement, whether
express or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any persons other than the Parties and their
respective successors and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third persons to any
Party to this Agreement, nor shall any provision give any third person any right
of subrogation or action over against any Party to this Agreement.
9.12 SURVIVAL. Subject to Section 7.2, this Agreement, including but not
limited to all covenants, warranties, representations and indemnities contained
herein, shall survive the Closing,
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and the Bill of Sale and all other documents, instruments or agreements relating
to the Assets and the transactions contemplated herein shall not be deemed
merged therein.
9.13 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall have the force and effect of an original, and
all of which shall constitute one and the same agreement.
9.14 ARBITRATION. If a dispute arises out of or relates to this Agreement,
or the breach thereof, and if such dispute cannot be settled through
negotiation, the Parties agree first to try in good faith to settle the dispute
by mediation under the Commercial Mediation Rules of the American Arbitration
Association, before resorting to arbitration, litigation, or some other dispute
resolution procedure as required by this Section 9.14. Failing an adequate
resolution by mediation, any controversy or claim arising out of or relating to
this Agreement or the transactions contemplated hereby, including any
controversy or claim arising out of or relating to the Parties' decision to
enter into this Agreement, shall be settled by binding arbitration. There shall
be one arbitrator to be mutually agreed upon by the Parties involved in the
controversy and to be selected from the National Panel of Commercial Arbitrators
(or successor panel, if any). If within 45 days after service of the demand for
arbitration the Parties are unable to agree upon such an arbitrator who is
willing to serve, then an arbitrator shall be appointed by the American
Arbitration Association in accordance with its rules. Except as specifically
provided in this Section 9.14, the arbitration shall be conducted in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
The arbitrator shall not render an award of punitive damages. Any arbitration
hereunder shall be held in New York, New York. Expenses related to the
arbitration, including counsel fees, shall be borne by the Party incurring such
expenses, unless the arbitrator determines another allocation is more equitable.
The fees of the arbitrator and of the American Arbitration Association, if any,
shall be divided equally among the Parties involved in the controversy, unless
the arbitrator determines another allocation is more equitable. Judgment upon
the award rendered by the arbitrator (which may, if deemed appropriate by the
arbitrator, include equitable or mandatory relief with respect to performance of
obligations hereunder) may be entered in any court of competent jurisdiction.
Nothing in this Section 9.14 shall restrict any Parties' ability to seek
injunctive or other equitable relief in any court of competent jurisdiction
prior to initiating mediation or arbitration. In the event that such injunctive
or equitable relief is sought by any Party, such Party is specifically entitled
to enforce the appropriate provisions of the Agreement in obtaining such relief
in any court of competent jurisdiction and, thereafter, submit the remaining
controversy, dispute or claim to arbitration in accordance with this Section.
Any proceeding for such injunctive or other equitable relief shall be held in
New York, New York.
9.15 DRAFTING. All Parties hereto acknowledge that each Party was actively
involved in the negotiation and drafting of this Agreement and that no law or
rule of construction shall be raised or used in which the provisions of this
Agreement shall be construed in favor or against any Party hereto because one is
deemed to be the author thereof.
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IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement in multiple counterparts effective as of the date first written above.
BUYER:
------
LITIGATION RESOURCES OF AMERICA-
NORTHEAST, INC., a New York corporation
By: /s/ Richard O. Looney
-----------------------------------------------
Richard O. Looney, Chief Executive Officer
SELLERS:
--------
ELAINE P. DINE, INC., a New York corporation
By: /s/ Elaine P. Siegel
-----------------------------------------------
Elaine P. Siegel
Title:President
ELAINE P. DINE TEMPORARY ATTORNEYS, L.L.C.,
a New York limited liability company
By: /s/ Elaine P. Siegel
-----------------------------------------------
Elaine P. Siegel
Title: President
By: /s/ Laurie Becker
-----------------------------------------------
Laurie Becker
Title: President
PARENT:
LITIGATION RESOURCES OF AMERICA, INC.,
a Texas corporation
By: /s/ Richard O. Looney
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Richard O. Looney, Chief Executive Officer and
President
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SIEGEL:
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/s/ Elaine P. Siegel
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ELAINE P. SIEGEL, Individually
BECKER:
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/s/ Laurie Becker
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LAURIE BECKER, Individually
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Schedules:
2.1(a) Equipment
2.1(b) Contracts
2.1(c) Books and Records
2.1(e) Intellectual Property
2.1(g) General Intangibles
2.1(l) Art Work
2.2 Excluded Assets
2.3 Purchase Price
2.7 Allocation of Purchase Price
3.1 Encumbrances on Assets
3.7 Employment Contracts
3.9 Litigation
3.10 Breaches or Violations
3.12 Personnel
3.15 Employee Benefits
3.16(a) Certain Changes or Events
3.16(b) Certain Commitments
3.17 Consents and Approvals
3.21 Liens
3.22 Customers
3.23 Insurance Policies
3.24 Interest in Customers, Suppliers and Competitors
3.26 Organization
3.30 Severance Payments
3.31 Employees
3.34 Operations of Seller
3.35 Notes and Accounts Receivable
4.9 Capitalization
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EXHIBIT 10.20
STOCK PURCHASE AGREEMENT
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This Stock Purchase Agreement (the "Agreement") is entered into as of
September 17, 1997, by and between LITIGATION RESOURCES OF AMERICA --
CALIFORNIA, INC., a California corporation (the "Buyer"), and a wholly owned
subsidiary of LITIGATION RESOURCES OF AMERICA, INC., a Texas corporation (the
"Parent"), and GREGG M. ZISKIND, an individual ("Ziskind"), and SUSAN L.
ZISKIND, an individual ("SLZ", and together with Ziskind, the "Sellers").
Sellers are the only shareholders of BURTON HOUSE, INC., a California
corporation doing business as ZISKIND, GREENE, WATANABE & NASON (the "Company").
This Agreement contemplates a transaction in which the Buyer will purchase
from the Sellers and the Sellers will sell to the Buyer all of the outstanding
capital stock of the Company in return for cash and the other consideration set
forth in (S) 2(B) below.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. CERTAIN DEFINITIONS.
"Accounts Payable Report" means a report as of a given time period
containing a summary of the outstanding accounts payable of the Company which
report shall reflect such accounts payable on an aged basis and shall set forth
the amounts due and owing by the Company to each of its suppliers, creditors or
employees.
"Accounts Receivable" means all amounts due and owing to the Company by
each of its customers.
"Accounts Receivable Report" means a report as of a given time period
containing a summary of the outstanding Accounts Receivable of the Company,
which report shall reflect such Accounts Receivable on an aged basis and shall
set forth the amounts due and owing to the Company by each of its customers.
"Accredited Investor" has the meaning set forth in Regulation D promulgated
under the Securities Act.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Balance Sheet Report" means the balance sheet of the Company as of a given
date showing the assets, liabilities and equity of the Company prepared by the
Company in accordance
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accordance with the method used to prepare the reference balance sheet provided
to the Parent on a consistent basis as with prior time periods (the "Company's
Past Practice").
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or is reasonably likely to form the
basis for any specified consequences.
"Buyer" shall mean Litigation Resources of America -- California, Inc., a
California corporation.
"Buyer Indemnified Parties" has the meaning set forth in (S) 7(B) below.
"Buyer's Accountants" shall mean the independent certified public
accounting firm of Coopers & Lybrand LLP, located in Houston, Texas.
"Buyer's Disclosure Schedule" has the meaning set forth in (S) 4(B) below.
"Cash Payment" has the meaning set forth in (S) 2(B) below.
"Charges" shall mean all federal, state, county, city, municipal, local,
foreign or other governmental taxes at the time due and payable, levies,
assessments, charges, liens, claims or encumbrances upon or relating to (i) any
of a corporation's employees, payroll, income or gross receipts, (ii) a
corporation's ownership or use of any of its assets, or (iii) any other aspect
of a corporation's business.
"CitiBank Debt" shall mean the Company's line of credit payable to
CitiBank, F.S.B.
"Closing" has the meaning set forth in (S) 2(C) below.
"Closing Date" has the meaning set forth in (S) 2(C) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" shall mean Burton House, Inc., a California corporation doing
business as Ziskind, Greene, Watanabe & Nason.
"Company Financial Statements" has the meaning set forth in (S) 4(A)(e)
below.
"Company's Accountants" shall mean the independent certified public
accounting firm of H. Les Kornblatt or Kornblatt Accounting Corp.
"Confidential Information" means any information concerning the businesses
and affairs of the Company and its Subsidiaries that is not (a) generally known
or available to the public;
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(b) after the date of this Agreement, generally known or readily available
through no violation of this Agreement; or (c) in, or hereafter becomes a part
of, the public domain through no violation of this Agreement.
"Controlled Group" means the Company, its Subsidiaries, and any trade or
business (whether or not incorporated) which together with the Company or any
Subsidiary of the Company would be deemed to be a "single employer" within the
meaning of ERISA Section 4001(b)(1) or subsections (b), (c), (m) or (o) of Code
Section 414.
"Customarily Permitted Liens" shall mean:
(a) Liens for ad valorem taxes, assessments or other governmental Charges
or levies, not yet due and payable;
(b) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other like Liens imposed by law, created in the
Ordinary Course of Business and for amounts not yet due (or which are being
contested in good faith by appropriate proceedings or other appropriate actions
which are sufficient to prevent imminent foreclosure of such Liens); and
(c) easements (including, without limitation, reciprocal easement
agreements and utility agreements), encroachments, variations and other
restrictions, Charges or encumbrances customary to the type of real property
affected and which do not impair the current use, occupancy, value or the
marketability of title of the real property subject thereto.
"Damages" has the meaning set forth in (S)7(B) below.
"EBITDA" shall mean earnings before interest, taxes, depreciation, and
amortization.
"Effective Date" shall mean 12:01 a.m. on the Closing Date.
"Effective Date Accounts Payable Report" means the Accounts Payable Report
for the Company as of the Effective Date.
"Effective Date Accounts Receivable" shall mean the entire amount of
Accounts Receivable for the Company as of the Effective Date.
"Effective Date Accounts Receivable Report" means the Accounts Receivable
Report for the Company as of the Effective Date.
"Effective Date Balance Sheet Report" means the Balance Sheet Report for
the Company as of the Effective Date.
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"Employee Benefit Plan" means any (a) Employee Pension Benefit Plan, (b)
Employee Welfare Benefit Plan, or (c) personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement, incentive award plan
or arrangement, vacation policy, severance pay plan, policy or agreement,
deferred compensation agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement, employment agreement and
each other employee benefit plan, agreement, arrangement, program, practice or
understanding which is not described in clause (a) or (b) of this sentence.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Section
3(2), including, but not limited to, employee pension benefit plans, such as
foreign plans, which are not subject to the provisions of ERISA.
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Section
3(1), including, but not limited to, employee welfare benefit plans, such as
foreign plans, which are not subject to the provisions of ERISA.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Final Net Worth" means the Net Worth as of the Effective Date as
determined in accordance with (S) 2(E) below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Guaranteed Net Worth" means $69,735.
"Income Statement Reports" means a statement of revenues and expenses of
the Company as of a given date prepared by the Company in accordance with the
Company's Past Practice.
"IRS" means the United States Internal Revenue Service or such equivalent
successor agency of the United States with the responsibility of assessing
and/or collecting Taxes.
"Knowledge" means an individual will be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) a prudent individual could be expected to discover or otherwise become
aware of such fact or other matter in the course of conducting a reasonably
comprehensive investigation concerning the existence of such fact or other
matter which
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investigation was necessary in order to make the representations and
warranties contained herein.
A person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving, or who has at
any time served, as a director, officer, partner, executor, or trustee of such
Person (or in any similar capacity) has, or at any time had, Knowledge of such
fact or other matter.
"Liability" means any liability (whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
"Liens" means any mortgages, deeds of trust, liens, security interests,
pledges, claims, charges, liabilities, obligations, or other encumbrances.
"Net Worth" means the dollar amount of equity of the Company as of a given
time period as determined by the Balance Sheet Report.
"Notice of Action" has the meaning set forth in (S) 7(B) below.
"Notice of Election" has the meaning set forth in (S) 7(B) below.
"Offset" has the meaning set forth in (S) 8(B).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Parent" shall mean Litigation Resources of America, Inc., a Texas
corporation and the owner of all of the issued and outstanding shares of common
stock of Buyer.
"Parent Shares" has the meaning set forth in (S) 2(B) below.
"Party" shall mean, individually, the Buyer, the Parent or any Seller.
"Parties" shall mean, collectively, the Buyer, the Parent and the Sellers.
"Parent Financial Statements" has the meaning set forth in (S) 4(B)(g)
below.
"Past Due Accounts Receivable" means those accounts receivable of the
Company whose age is more than 120 days from the date of invoice as of the
Effective Date.
"PBGC" means the Pension Benefit Guaranty Corporation.
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"Permitted Encumbrances" with respect to property of a Party shall mean (i)
Security Interests expressly permitted, or consented in writing to by the other
Party; (ii) Purchase Money Liens; (iii) Customarily Permitted Liens; and (iv)
Liens of judgment creditors provided such Liens do not exceed $5,000
individually or $25,000 in the aggregate (other than Liens bonded or insured to
the reasonable satisfaction of the other Party).
"Person" means an individual, a partnership, a limited liability company, a
corporation, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"Pledge Agreement" has the meaning set forth in (S) 6(A)(xi) below.
"Prohibited Transaction" has the meaning set forth in ERISA Section 406 and
Code Section 4975.
"Purchase Money Liens" shall mean Liens incurred in connection with the
acquisition of any asset; provided that (i) each such Lien shall attach only to
the asset to be acquired, (ii) a description of the asset so acquired is
furnished to the other Party, and (iii) the indebtedness incurred in connection
with such acquisitions shall not individually exceed $5,000 or in the aggregate
exceed $25,000.
"Purchase Price" has the meaning described in (S) 2(B) below.
"Registration Rights Agreement" has the meaning set forth in (S) 6(A)(ix)
below.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any Lien other than (a) mechanic's, materialmen's
and similar Liens, (b) Liens for Taxes not yet due and payable or for Taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
Purchase Money Liens and Liens securing rental payments under capital lease
arrangements, and (d) other Liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Sellers" shall have the meaning set forth in the preamble hereto.
"Sellers' Disclosure Schedule" has the meaning set forth in (S) 4(A) below.
"Senior Lender" shall mean Texas Commerce Bank, N.A.
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"Shareholders' Agreement" shall have the meaning set forth in (S) 6(A)(ix).
"Subject Share" means any share of the common stock of the Company as set
forth in Section 4A(b) of the Sellers' Disclosure Schedule.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors thereof.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium
windfall profits, environmental (including taxes under Code Section 5(A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Ziskind Employment Agreement" shall have the meaning set forth in (S)
6(A)(viii).
2. PURCHASE AND SALE OF SUBJECT SHARES.
A. BASIC TRANSACTION. On and subject to the terms and conditions of this
Agreement, the Buyer agrees to purchase from the Sellers, and the Sellers agree
to sell to the Buyer, all of the Subject Shares for the consideration specified
below in this (S) 2.
B. PURCHASE PRICE. The purchase price is Two Million Seven Hundred
Thousand Dollars ($2,700,000) to be paid and delivered by the Buyer to the
Sellers on the Closing Date, subject to adjustments thereto under this
Agreement, as follows (collectively, the "Purchase Price"):
(i) Delivery to the Sellers of an aggregate of 158,824 shares of
common stock of the Parent, $.01 par value per share (the "Parent Shares")
as will constitute an agreed upon aggregate value of One Million Three
Hundred Fifty Thousand and No/100 Dollars ($1,350,000.00) at a per share
value equal to the Eight and 50/100 Dollars ($8.50); and
(ii) Delivery of cash in the amount of One Million Three Hundred
Fifty Thousand ($1,350,000) payable by wire transfer or delivery of other
immediately available funds to the Sellers on the Closing Date in
accordance with wiring
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instructions delivered by the Sellers to the Buyer at least three business
days prior to Closing (the "Cash Payment").
In addition, as soon as practicable after each applicable year end of the
Company, the Buyer's Accountants shall determine the amount of EBITDA, if any,
of the Company during (i) the time period beginning with the Closing Date
through December 31, 1997 (the "1997 EBITDA"), (ii) the time period beginning
January 1, 1998, through December 31, 1998 (the "1998 EBITDA"), (iii) the time
period beginning January 1, 1999, through December 31, 1999 (the "1999 EBITDA"),
and (iv) the time period beginning January 1, 2000, through December 31, 2000
(the "2000 EBITDA"). To the extent, if any, that the 1997 EBITDA exceeds the
amount of $150,000, the Sellers shall be paid an additional aggregate amount
equal to the amount of such excess multiplied by twenty percent (20%). To the
extent, if any, that the 1998 EBITDA or the 1999 EBITDA exceeds the amount of
$450,000, the Sellers shall be paid an additional aggregate amount equal to the
amount of such excess multiplied by twenty percent (20%). To the extent, if
any, that the 2000 EBITDA exceeds the amount of $450,000 the Sellers shall be
paid an additional aggregate amount equal to the amount of such excess
multiplied by twenty percent (20%), plus to the extent, if any, that the 2000
EBITDA exceeds the amount of $750,000, the Sellers shall be paid an additional
aggregate amount equal to the amount of such excess multiplied by five percent
(5%). The payments, if any, due and owing to the Sellers pursuant to the terms
of this paragraph shall be defined collectively as the "Earnout". Each year's
Earnout, if any, shall be paid to the Sellers by delivery of cash within
approximately ninety (90) days after each fiscal year end of the Company.
EBITDA will be calculated in accordance with the Company's Past Practice and not
be reduced by (i) any salary or contractual or discretionary bonus paid to any
officer, director or employee of the Parent or to any other person hired or
engaged without the consent of Ziskind or (ii) any corporate management expense
or overhead allocated to, accrued or paid by the Company to the Parent or any
Affiliate of the Parent.
C. THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Boyer, Ewing &
Harris in Houston, Texas, unless otherwise mutually agreed, commencing on
September __, 1997 at 9:00 a.m. local time, or at such other time or place as
the Parties mutually agree (the "Closing Date").
D. DELIVERIES AT THE CLOSING. At the Closing, (i) the Sellers will
deliver to the Buyer the various certificates, instruments, and documents
referred to in (S) 6(A) below, (ii) the Buyer will deliver to the Sellers the
various certificates, instruments, and documents referred to in (S) 6(B) below,
(iii) the Sellers will deliver to the Buyer stock certificates representing all
of the Subject Shares, endorsed in blank or accompanied by duly executed
assignment documents, and (iv) the Buyer will deliver to the Sellers the Parent
Shares (subject to the Pledge Agreement) and the Cash Payment.
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E. DETERMINATION OF FINAL NET WORTH. The Effective Date Balance Sheet
Report, the Effective Date Accounts Receivable Report and the Effective Date
Accounts Payable Report (collectively, the "Effective Date Financial Reports")
shall be prepared by the Buyer and the Buyer's Accountants as promptly as
possible after the Closing, and the Buyer shall deliver the Effective Date
Reports to the Seller and the Company's Accountants as soon as possible but in
no event later than 30 days after the Closing Date. The Company's Accountants
shall review the Effective Date Financial Reports (including any corresponding
work papers of Buyer's Accountants) and report to the Buyer's Accountants in
writing within 15 days of receipt thereof of any discrepancy. If the Company's
Accountants and the Buyer's Accountants cannot resolve such discrepancy within
15 days after Buyer's Accountants receipt of such report, then they shall so
notify the Sellers and the Buyer, and the Sellers and the Buyer shall attempt to
resolve the discrepancy within 15 days of such notice. If the Sellers and the
Buyer cannot resolve the discrepancy to their mutual satisfaction, another
independent public accounting firm acceptable to the Sellers and the Buyer shall
be retained to review the Effective Date Financial Reports. The final net worth
of the Company ("Final Net Worth") shall be determined consistent with the
methods used by the Buyer's Accountants in preparing the Company's June 30, 1997
Balance Sheet Reports (e.g., the CitiBank Debt shall be deemed to remain
outstanding and commissions and taxes payable shall be accrued). Such firm's
conclusions as to the carrying values to appear on the Effective Date Financial
Reports for purposes of determining the Final Net Worth shall be conclusive.
The Sellers and the Buyer shall share equally in the expenses of retaining such
independent accounting firm. The Buyer shall pay the expenses of the Buyer's
Accountants for their review of the Effective Date Financial Reports, and the
Sellers shall pay the expenses of Company's Accountants for their review of the
Effective Date Financial Reports.
F. POST-CLOSING ADJUSTMENT OF PURCHASE PRICE. Subject to the last
sentence of this paragraph, after the Closing Date, the Purchase Price set forth
in Section 2(B) shall be adjusted as follows: (i) if the Final Net Worth of the
Company as finally determined pursuant to Section 2(E) shall be more than the
Guaranteed Net Worth, then the Cash Payment shall be increased by the amount of
such excess and (ii) if the Final Net Worth of the Company as finally determined
pursuant to Section 2(E) shall be less than the Guaranteed Net Worth, then the
Cash Payment shall be decreased by the amount of such shortfall. In the event
that the Final Net Worth is more than the Guaranteed Net Worth, the Buyer shall
within 15 days pay such amount of cash to the Sellers. In the event that the
Final Net Worth is less than the Guaranteed Net Worth, the Sellers shall within
15 days refund such amount of cash to Buyer. Notwithstanding the foregoing, any
downward adjustment proposed to be made to the Final Net Worth arising from
facts that should have been, but were not, reflected in the Company Financial
Statements shall be subject to and shall count against the Threshold Amount set
forth in Section 7B(iv) hereof.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
A. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. The Sellers, jointly
and severally, represent and warrant to the Buyer and the Parent that the
statements contained in this
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(S) 3(A) are correct and complete as of the date of this Agreement, except as
set forth in the schedules of exceptions attached hereto as Schedule 3A.
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(A) AUTHORIZATION OF TRANSACTION. Sellers have full power and
authority to execute and deliver this Agreement and to perform their
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Sellers, enforceable in accordance with its terms
and conditions, except to the extent that enforcement thereof may be
limited by applicable bankruptcy, reorganization, insolvency or moratorium
laws or other laws or principles of equity affecting the enforcement of
creditors' rights. Sellers represent and warrant that they need not give
any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency in order to consummate
the transactions contemplated by this Agreement.
(B) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement by the Sellers, nor the consummation of the transactions by the
Sellers as contemplated hereby, will (i) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or
other restriction of any government, governmental agency, or court to which
Sellers are subject or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which Sellers are a party or by which they are bound or to
which any of their assets is subject.
(C) BROKERS' FEES. The Sellers have no Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which the Buyer could
become liable or obligated.
(D) SUBJECT SHARES. Sellers hold of record and own beneficially the
number of Subject Shares set forth next to their names in (S)4A(b) of the
Sellers' Disclosure Schedule, free and clear of any Liens or restrictions
on transfer (other than any restrictions under the Securities Act and state
securities laws (other than this Agreement)). Sellers are not party to any
voting trust, proxy, or other agreement or understanding with respect to
the voting of any capital stock of the Company.
B. REPRESENTATIONS AND WARRANTIES OF THE BUYER AND PARENT. The Buyer and
Parent, jointly and severally, represent and warrant to the Sellers that the
statements contained in this (S) 3(B) are correct and complete as of the date of
this Agreement, except as set forth in the schedule of exceptions attached
hereto as Schedule 3B.
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(A) ORGANIZATION OF THE BUYER. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of
California. The Buyer is qualified to do business in each jurisdiction in
which the nature of its business, the ownership of its assets or the lease
of its properties require it to be so qualified.
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(B) AUTHORIZATION OF TRANSACTION. The Buyer has full power and
authority (including full corporate power and authority) to execute and
deliver this Agreement and the Ancillary Agreements, and to perform its
obligations hereunder and thereunder. The Board of Directors of the Buyer
has duly authorized the execution, delivery and performance of this
Agreement, the Ancillary Agreements and the other agreements and
transactions contemplated hereby and thereby. No other corporate
proceedings on the Buyer's part are necessary to authorize this Agreement,
the Ancillary Agreements or the transactions contemplated hereby. Upon
execution and delivery of this Agreement and the Ancillary Agreements by
the Parties hereto, this Agreement and the Ancillary Agreements shall
constitute legal, valid and binding obligations of the Buyer, enforceable
against the Buyer in accordance with their respective terms, except to the
extent that enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws or other laws or principles
of equity affecting the enforcement of creditors' rights. The Buyer
represents and warrants that it need not give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by this Agreement.
(C) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement or the Ancillary Agreements, nor the consummation of the
transactions contemplated hereby, will violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or
other restriction of any government, governmental agency, or court to which
the Buyer is subject or any provision of its charter or bylaws.
(D) BROKERS' FEES. The Buyer has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Sellers could
become liable or obligated other than to The GulfStar Group, Inc.
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE PARTIES.
A. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY. Sellers
represents and warrants to the Buyer that the statements contained in this (S) 4
are correct and complete as of the date of this Agreement, except as set forth
in Sellers' disclosure schedule attached hereto as Schedule 4A ("Sellers'
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Disclosure Schedule"). Nothing in the Sellers' Disclosure Schedule shall be
deemed adequate to disclose an exception to a representation or warranty made
herein, however, unless the Sellers' Disclosure Schedule identifies the
exception with reasonable particularity and describes the relevant facts in
reasonable detail.
(A) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The Company is
a corporation duly organized, validly existing, and in good standing under
the laws of California. The Company is not qualified to do business in any
other jurisdiction, nor
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does the nature of its business require such qualification. The Company has
full corporate power and authority and all material licenses, permits, and
authorizations necessary to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it. (S) 4A(a) of the
Sellers' Disclosure Schedule lists the directors and officers of the
Company. The Sellers have delivered to the Buyer correct and complete
copies of the articles of incorporation and bylaws of the Company and its
Subsidiaries, if any (as amended to date), as well as the minute book
(containing the records of meetings of the stockholders, the board of
directors, and any committees of the board of directors), the stock
certificate book, and the stock record book of the Company (all of which
are correct and complete in all material respects). The Company is not in
default under or in violation of any provision of its articles of
incorporation or bylaws.
(B) CAPITALIZATION. The entire authorized capital stock, the issued
and outstanding shares and the treasury shares of the Company are
accurately set forth in (S) 4A(b) of the Sellers' Disclosure Schedule. All
of the issued and outstanding Subject Shares have been duly authorized, are
validly issued, fully paid, and nonassessable, and are held of record by
the Sellers as set forth in (S) 4A(b) of the Sellers' Disclosure Schedule.
There are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts
or commitments that would require the Company to issue, sell, or otherwise
cause to become outstanding any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company. There are no
voting trusts, proxies, or other agreements or understandings with respect
to the voting of the capital stock of the Company.
(C) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Company is subject,
(ii) violate any provision of the articles of incorporation or bylaws of
the Company, or (iii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right
to accelerate, terminate, modify, or cancel, or require any notice under
any agreement, contract, lease, license, instrument, or other arrangement
to which the Company is a party or by which it is bound or to which any of
its assets is subject (or result in the imposition of any Security Interest
upon any of its assets). The Company does not need to give any notice to,
make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(D) SUBSIDIARIES. The Company does not have any ownership interest
in any Subsidiaries. The Company does not control, directly or indirectly,
or have any direct
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or indirect equity participation in any corporation, partnership, trust, or
other business association which is not a Subsidiary.
(E) FINANCIAL STATEMENTS. The Sellers have previously furnished the
Buyer with the following financial statements (collectively the "Company
Financial Statements"): (i) a Balance Sheet Report and an Income Statement
Report for the fiscal years ended December 31, 1996, compiled by Buyer's
Accountants; and (ii) Balance Sheet Reports and Income Statement Reports
for the period ended June 30, 1997, prepared by the Buyer's Accountants,
(iii) an Accounts Receivable Report dated as of June 30, 1997, and (iv) an
Accounts Payable Report dated as of June 30, 1997. The Company Financial
Statements have been prepared in accordance with the Company's Past
Practice and: (i) are consistently reported throughout the periods covered
thereby, (ii) present fairly the financial condition of the Company as of
such dates and the results of operations of the Company for such periods,
(iii) are correct and complete in all material respects, and (iv) are
consistent in all material respects with the books and records of the
Company (which books and records are correct and complete in all material
respects).
(F) EVENTS SUBSEQUENT TO JUNE 30, 1997. Except as disclosed on (S)
4A(f) of the Sellers' Disclosure Schedule, since June 30, 1997, there has
not been any material adverse change in the business, financial condition,
operations, results of operations, or future prospects of the Company taken
as a whole. Without limiting the generality of the foregoing, since that
date:
(i) the Company has not sold, leased, transferred, or assigned
any of its assets, tangible or intangible, other than for a fair
consideration in the Ordinary Course of Business;
(ii) the Company has not entered into any agreement, contract,
lease, or license (or series of related agreements, contracts, lease,
and licenses) either involving more than $3,000 singly or $15,000 in
the aggregate or outside the Ordinary Course of Business;
(iii) the Company has not accelerated, terminated, modified, or
canceled any agreement, contract, lease, or license (or series of
related agreements, contracts, leases, and licenses) involving more
than $3,000 singly or $15,000 in the aggregate to which the Company is
a party or by which it is bound;
(iv) the Company has not imposed any Security Interest upon any
of its assets, tangible or intangible, except for Permitted Liens;
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(v) the Company has not made any capital expenditure (or
series of related capital expenditures) either involving more than
$3,000 singly or $15,000 in the aggregate or outside the Ordinary
Course of Business;
(vi) the Company has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of, any other
Person (or series or related capital investments, loans, and
acquisitions) either involving more than $3,000 singly or $15,000 in
the aggregate;
(vii) the Company has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness
for borrowed money or capitalized lease obligation either involving
more than $3,000 singly or $15,000 in the aggregate;
(viii) the Company has not delayed or postponed the payment of
accounts payable and other Liabilities for a period of more than sixty
(60) days after the date of invoice;
(ix) the Company has not canceled, compromised, waived, or
released any right or claim (or series of related rights and claims)
either involving more than $3,000 singly or $15,000 in the aggregate
or outside the Ordinary Course of Business;
(x) there has been no change made or authorized in the
articles of incorporation or bylaws of the Company;
(xi) the Company has not issued, sold, or otherwise disposed of
any of its capital stock, or granted any options, warrants, or other
rights to purchase or obtain (including upon conversion, exchange, or
exercise) any of its capital stock;
(xii) the Company has not declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock
(whether in cash or in kind) or redeemed, purchased, or otherwise
acquired any of its capital stock;
(xiii) the Company has not experienced any damage, destruction,
or loss (whether or not covered by insurance) to its property valued,
individually or in the aggregate, in excess of (i) $10,000 for all
property which, at the time of such damage or destruction, was subject
to or covered by property, casualty or any other form of insurance,
and (ii) $3,000 for all property which, at the time of such damage or
destruction, was not subject to or covered by property, casualty or
any other form of insurance;
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(xiv) the Company has not made any loan to, or entered into
any other transaction with, any of its directors, officers, and
employees;
(xv) the Company has not entered into any employment contract
or collective bargaining agreement, written or oral, or modified the
terms of any such existing contract or agreement;
(xvi) the Company has not granted any increase in the base
compensation of any of its directors, officers, and employees outside
the Ordinary Course of Business;
(xvii) the Company has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other
plan, contract, or commitment for the benefit of any of its directors,
officers, and employees (or taken any such action with respect to any
other Employee Benefit Plan);
(xviii) the Company has not made any other change in employment
terms for any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xix) the Company has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course
of Business;
(xx) there has not been any other adverse occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary
Course of or Business involving the Company or any Subsidiaries which
exceeds $3,000 individually $15,000 in the aggregate; and
(xxi) the Company has not committed to any of the foregoing.
(G) UNDISCLOSED LIABILITIES. Except as disclosed on (S) 4A(g) of the
Sellers' Disclosure Schedule, the Company does not have any Liability (and,
to the best of the Sellers' Knowledge, there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against it giving rise to any Liability), except for (i)
Liabilities reflected in the then most current Company Financial Statements
(including any notes thereto) and (ii) Liabilities which have arisen after
June 30, 1997, in the Ordinary Course of Business (none of which results
from, arises, out of, relates to, is in the nature of, or was caused by any
breach of contract, breach of warranty, tort, infringement, or violation of
law).
(H) LEGAL COMPLIANCE. To the Knowledge of Sellers, the Company, and
its predecessors and Affiliates, have complied with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments,
orders, decrees, rulings, and charges
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thereunder) of federal, state, local, and foreign governments (and all
agencies thereof), and, to the Sellers' Knowledge, no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or
notice has been filed or commenced against any of them alleging any failure
so to comply.
(I) TAX MATTERS. Except as disclosed on (S) 4A(i) of the Sellers'
Disclosure Schedule:
(i) The Company has filed all Tax Returns that it was required
to file. All such Tax Returns were correct and complete in all
material respects. All Taxes shown to be due on the Tax Returns have
been paid or accrued for on the Balance Sheet. The Company is not
currently the beneficiary of any extension of time within which to
file any Tax Return. No claim has ever been made by a Tax authority in
a jurisdiction where the Company does not file Tax Returns that it is
or may be subject to taxation by that jurisdiction. There are no
Security Interests on the assets of the Company that arose in
connection with any failure (or alleged failure) to pay any Tax.
(ii) The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing
to any employee, creditor, stockholder, or other third party, except
for the unlikely event that Taxes may be incurred in connection with
an independent contractor of the Company being characterized as an
employee.
(iii) There is no dispute or claim concerning any Tax Liability
of the Company either (A) claimed or raised by any Tax authority in
writing or (B) as to which the Sellers and the directors and officers
(and employees responsible for Tax matters) of the Company has
Knowledge based upon personal contact with any agent of such
authority. (S) 4A(i) of the Sellers' Disclosure Schedule lists all
federal, state, local, and foreign income Tax Returns filed with
respect to the Company for taxable periods ended on or after December
31, 1996, indicates those Tax Returns that have been audited, and
indicates those Tax Returns that currently are the subject of an
audit. The Sellers have delivered to the Buyer correct and complete
copies of all federal income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by the
Company.
(iv) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a
Tax assessment or deficiency.
(v) The Company has not made an election under section 341(f)
of the Code.
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(J) TITLE TO ASSETS. Except as set forth on (S) 4A(j) of Sellers'
Disclosure Schedule, the Company has good and marketable title to, or a
valid leasehold interest in, the properties and assets used by it, or shown
in the Company Financial Statements or acquired after the date thereof,
free and clear of all Security Interests, except for properties and assets
disposed of in the Ordinary Course of Business since June 30, 1997, and
except for Permitted Encumbrances.
(K) REAL PROPERTY. The Company does not own any real property. (S)
4A(k) of the Sellers' Disclosure Schedule lists and describes briefly all
real property leased or subleased to the Company. The Sellers have
delivered to the Buyer correct and complete copies of the leases and
subleases listed in (S) 4A(k) of the Sellers' Disclosure Schedule (as
amended to date). Except as disclosed on (S) 4A(k) of the Sellers'
Disclosure Schedule, with respect to each lease and sublease listed in (S)
4A(k) of the Sellers' Disclosure Schedule:
(i) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(ii) the lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby;
(iii) the Company is not in material breach or default of any
lease or sublease, and to the Sellers' Knowledge, no third party to
any such lease or sublease is in material breach or material default,
and to the Sellers' Knowledge, no event has occurred which, with
notice or lapse of time, would constitute a material breach or
material default or permit termination, modification, or acceleration
thereunder;
(iv) with respect to each sublease, to the Sellers' Knowledge,
the representations and warranties set forth in subsections (i)
through (iii) above are true and correct with respect to the
underlying lease; and
(v) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold, except Customarily Permitted Liens.
(L) TANGIBLE ASSETS. The Company owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct
of its businesses as presently conducted. Each such tangible asset is
suitable for the purpose for which it is presently used.
(M) INVENTORY. The Company does not carry or maintain any inventory.
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(N) CONTRACTS. (S) 4A(n) of the Sellers' Disclosure Schedule lists
the following contracts and other agreements currently in effect to which
the Company is a party:
(i) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease
payments in excess of $15,000 per annum;
(ii) any agreement (or group of related agreements) for the
furnishing or receipt of services, the performance of which will
extend over a period of more than one year from the Closing Date or
involve consideration in excess of $15,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which
it has created, incurred, assumed, or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation, in excess of
$15,000 or under which it has imposed a Security Interest on any of
its assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any agreement among Sellers and their Affiliates (other
than the Company);
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan
or arrangement for the benefit of its current or former directors,
officers, and employees;
(viii) any written agreement for the employment of any
individual on a full-time, part-time, consulting, or other basis
providing annual compensation in excess of $15,000 or providing
severance benefits;
(ix) any agreement under which it has advanced or loaned any
amount to any of its directors, officers, and employees outside the
Ordinary Course of Business;
(x) any agreement under which the consequences of a default or
termination would reasonably be expected to have a material adverse
effect on the business, financial condition, operations, results of
operations, or future prospects of the Company; or
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<PAGE>
(xi) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $15,000, and
which cannot be terminated without penalty by giving no more than 30
days notice.
The Sellers have delivered to the Buyer a correct and complete copy of each
written agreement listed in (S) 4A(n) of the Sellers' Disclosure Schedule
(as amended to date) and a written summary setting forth the terms and
conditions of each oral agreement referred to in (S) 4A(n) of the Sellers'
Disclosure Schedule. With respect to each such agreement: (A) the
agreement is legal, valid, binding, enforceable, and in full force and
effect; (B) the Company is not, nor to the Sellers' Knowledge is any other
party, in breach or default, and to the Sellers' Knowledge, no event has
occurred which with notice or lapse of time would constitute a breach or
default, or permit termination, modification, or acceleration, under the
agreement, and (C) the Company has not repudiated any provision of any such
agreement nor to the Sellers' Knowledge has any other party repudiated any
provision of any such agreement.
(O) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable
of the Company are properly recorded on each Accounts Receivable Report
delivered to the Buyer, reflected properly on the Company's books and
records and represent legal obligations of the parties billed therefor.
Except as set forth on (S) 4A(o) of Sellers' Disclosure Schedule, the
Sellers have no reason to believe that any of such notes or accounts are
not collectible in the Ordinary Course of Business and have received no
indication from any obligor thereunder that such obligor disputes the
amount of such note or account or does not intend to pay such amount.
(P) POWERS OF ATTORNEY. Except as disclosed on (S) 4A(p) of the
Sellers' Disclosure Schedule, there are no outstanding powers of attorney
executed on behalf of the Company.
(Q) INSURANCE. (S) 4A(q) of the Sellers' Disclosure Schedule lists
each insurance policy (including policies providing property, casualty,
liability, and workers' compensation coverage and bond and surety
arrangements) to which the Company is currently a party, copies of which
have been furnished to the Buyer.
(R) LITIGATION. (S) 4A(r) of the Sellers' Disclosure Schedule sets
forth each instance in which the Company (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party
or, to the Knowledge of the Sellers, is threatened to be made a party to
any action, suit, proceeding, hearing, or investigation of, in, or before
any court of quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator.
(S) CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY. Except as
disclosed on (S) 4A(s) of the Sellers' Disclosure Schedule, neither the
Sellers nor their Affiliates
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have been involved in any business arrangement or relationship with the
Company outside of the Company's Ordinary Course of Business within the
past 12 months, and neither the Sellers nor any of their Affiliates owns
any asset, tangible or intangible, which is used in the business of the
Company.
(T) GUARANTIES. The Company is not a guarantor or otherwise liable
for any Liability or obligation (including indebtedness) of any other
Person.
(U) EMPLOYEES. To the Sellers' Knowledge, no executive, key
employee, or group of employees has any plans to terminate employment with
the Company. The Company has not committed any unfair labor practice. The
Sellers do not have any Knowledge of any organizational effort presently
being made or threatened by or on behalf of any labor union with respect to
employees of the Company. (S) 4A(u) of the Sellers' Disclosure Schedule
sets forth by number and employment classification the approximate numbers
of employees employed by the Company as of the date of this Agreement, and
none of said employees are subject to union or collective bargaining
agreements with the Company.
(V) EMPLOYEE BENEFITS.
(i) (S) 4A(v) of the Sellers' Disclosure Schedule lists each
Employee Benefit Plan that the Company maintains or to which it
contributes.
(A) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in
all material respects with the applicable requirements of ERISA,
the Code, and other applicable laws.
(B) All required reports and descriptions (including Form
5500 Annual Reports, Summary Annual Reports, PBGC-1's, and
Summary Plan Descriptions) have been filed or distributed
appropriately with respect to each such Employee Benefit Plan.
The requirements of Part 6 of Subtitle B of Title I of ERISA and
of Code Section 4980B have been met with respect to each such
Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(C) All contributions (including all employer contributions
and employee salary reduction contributions) which are due have
been paid to each such Employee Benefit Plan which is an Employee
Pension Benefit Plan and all contributions for any period ending
on or before the Closing Date which are not yet due have been
paid to each such Employee Pension Benefit Plan or accrued in
accordance with the past custom and practice of the Company. All
premiums or other payments for all periods ending
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on or before the Closing Date have been paid with respect to each
such Employee Benefit Plan.
(D) The Company has substantially performed all obligations,
whether arising by operation of law or by contract, required to
be performed by it in connection with such Employee Benefit
Plans, and to Sellers' Knowledge, there has been no default or
violation by any other party to such Employee Benefit Plans.
(E) The Sellers have delivered to the Buyer correct and
complete copies of the plan documents and summary plan
descriptions, the most recent Form 5500 Annual Report, and all
related trust agreements, insurance contracts, and other funding
agreements which relate to each such Employee Benefit Plan.
(ii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not (A)
require the Company to make a larger contribution to, or pay greater
benefits under, any Employee Benefit Plan than it otherwise would or
(B) create or give rise to any additional vested rights or service
credits under any Employee Benefit Plan.
(iii) Each such Employee Benefit Plan has been terminated by the
Company in compliance with all applicable laws on or before the
Closing Date.
(W) BROKERS' FEES. The Company does not have any Liability or
obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement.
(X) DISCLOSURE. The representations and warranties contained in this
(S) 4A do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this (S) 4A not misleading.
B. REPRESENTATIONS AND WARRANTIES CONCERNING THE PARENT. The Parent and
the Buyer jointly and severally represent and warrant to the Sellers that the
statements contained in this (S) 4B are correct and complete as of the date of
this Agreement, except as set forth in the Buyer's Disclosure Schedule attached
hereto as Schedule 4B (the "Buyer's Disclosure Schedule"). Nothing in the
-----------
Buyer's Disclosure Schedule shall be deemed adequate to disclose an exception to
a representation or warranty made herein, however, unless the Buyer's Disclosure
Schedule identifies the exception with reasonable particularity and describes
the relevant facts in reasonable detail.
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(A) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The Parent is a
corporation duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation. The Parent is duly
authorized to conduct business and is in good standing under the laws of
each jurisdiction where such qualification is required. Each of the Parent
and its Subsidiaries has full corporate power and authority and all
material licenses, permits, and authorizations necessary to carry on the
businesses in which it is engaged and to own and use the properties owned
and used by it. (S) 4B(a) of the Buyer's Disclosure Schedule lists the
directors and officers of the Parent. The Buyer has delivered to the
Sellers correct and complete copies of the charter and bylaws of the Parent
(as amended to date). The minute books (containing the records of meetings
of the stockholders, the board of directors, and any committees of the
board of directors), the stock certificate books, and the stock record
books of the Parent are correct and complete in all material respects. The
Parent is not in default under or in violation of any provision of its
charter or bylaws.
(B) CAPITALIZATION. The entire authorized capital stock, the issued
and outstanding shares and the treasury shares of the Parent are accurately
set forth in (S) 4B(b) of the Buyer's Disclosure Schedule together with the
changes thereto contemplated by the acquisition of the Company. All of the
issued and outstanding shares of the Parent have been duly authorized, and
are validly issued, fully paid, and nonassessable. There are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or
commitments that could require the Parent to issue, sell, or otherwise
cause to become outstanding any of its capital stock except those set forth
in Schedule (S) 4B(b) of the Buyer's Disclosure Schedule and those relating
to the Parent's pending acquisitions of other businesses. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Parent except as set
forth in Schedule (S) 4B(b) of the Buyer's Disclosure Schedule.
(C) COMMON STOCK. At the time of issuance thereof and delivery to
the Sellers, the Parent Shares to be delivered to the Seller pursuant to
this Agreement will constitute valid and legally issued Parent Shares,
fully paid and nonassessable, and with the exception of restrictions upon
resale contained in the Shareholders' Agreement and the Stock Pledge
Agreement, will be identical in all substantive respects (which do not
include the form of certificate upon which it is printed or the presence or
absence of a CUSIP number on any such certificate) to the Parent Shares
issued and outstanding as of the date hereof by reason of the provisions of
the Texas Business Corporation Act. Except as provided in the previous
sentence, the Parent Shares issued and delivered to the Sellers shall at
the time of such issuance and delivery be free and clear of any liens,
claims or encumbrances of any kind or character. The Parent Shares to be
issued to the Seller pursuant to this Agreement will not be registered
under the 1933 Act, except as provided in Registration Rights Agreement.
(D) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (i)
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violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Parent is subject, (ii) violate
any provision of the charter or bylaws of the Parent, or (iii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract,
lease, license, instrument, or other arrangement to which the Parent is a
party or by which it is bound or to which any of its assets is subject (or
result in the imposition of any Security Interest upon any of its assets).
The Parent does not need to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement.
(E) BROKERS' FEES. The Parent does not have any Liability or
obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement other than
to The Gulfstar Group, Inc.
(F) DISCLOSURE. The representations and warranties contained in this
(S) 4B do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this (S) 4B not misleading.
(G) FINANCIAL STATEMENTS. The Parent previously furnished the
Sellers with the financial statements set forth in Schedule (S) 4B(g) of
the Buyer's Disclosure Schedule (collectively the "Parent Financial
Statements"). The Parent Financial Statements have been prepared in
accordance with GAAP and are consistently reported throughout the periods
covered thereby, present fairly the financial condition of the Parent and
its Subsidiaries as of such dates and the results of operations of the
Parent and its Subsidiaries for such periods, are correct and complete in
all material respects, and are consistent in all material respects with the
books and records of the Parent (which books and records are correct and
complete in all material respects).
(H) UNDISCLOSED LIABILITIES. Except as disclosed on (S) 4B(h) of the
Buyer's Disclosure Schedule, the Parent does not have any Liability (and,
to the best of the Parent's Knowledge, there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against it giving rise to any Liability), except for (i)
Liabilities reflected in the then most current Parent Financial Statements
(including any notes thereto) and (ii) Liabilities which have arisen after
June 30, 1997, in the Ordinary Course of Business (none of which results
from, arises, out of, relates to, is in the nature of, or was caused by any
breach of contract, breach of warranty, tort, infringement, or violation of
law).
(I) EVENTS SUBSEQUENT TO JUNE 30, 1997. Except as disclosed on (S)
4B(i) of the Buyer's Disclosure Schedule, since June 30, 1997, there has
not been any material
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adverse change in the business, financial condition, operations, results of
operations, or future prospects of the Parent and its Subsidiaries taken as
a whole.
5. POST-CLOSING COVENANTS. The Parties agree as follows with respect to
the period following the Closing:
A. GENERAL. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under (S) 7 below).
B. CONFIDENTIALITY. The Sellers will treat and hold as such all of the
Confidential Information and refrain from using any of the Confidential
Information except in connection with this Agreement and all of the other
agreements executed in connection herewith. In the event that Sellers are
requested or required (by oral question or request for information or documents
in any legal proceeding, interrogatory, subpoena, civil investigative demand, or
similar process) to disclose any Confidential Information, Sellers will notify
the Buyer promptly of the request or requirement so that the Buyer may seek an
appropriate protective order or waive compliance with the provisions of this (S)
5B. If, in the absence of a protective order or the receipt of a waiver
hereunder, Sellers are, on the advice of counsel, compelled to disclose any
Confidential Information to any tribunal or else stand liable for contempt,
Sellers may disclose the Confidential Information to the tribunal; PROVIDED,
HOWEVER, that Sellers shall use their reasonable best efforts to obtain, at the
reasonable request of the Buyer, an order or other assurance that confidential
treatment will be accorded to such portion of the Confidential Information
required to be disclosed as the Buyer shall designate; provided, however that
all of such Sellers' costs including but not limited to legal fees shall be paid
by the Buyer. The foregoing provisions shall not apply to any Confidential
Information which is generally available to the public immediately prior to the
time of disclosure.
C. ACCOUNTS RECEIVABLE. Ziskind shall, during the term of his
employment by the Company, use reasonable efforts to collect the Accounts
Receivable in the Ordinary Course of Business.
6. CONDITIONS TO OBLIGATION TO CLOSE.
A. CONDITIONS TO OBLIGATION OF THE BUYER AND THE PARENT. The obligation
of the Buyer and the Parent to proceed with the Closing and consummate the
transactions to be performed by it in connection with the Closing is subject to
satisfaction of the following conditions (any or all which may be waived in
writing by the Buyer and the Parent):
(i) the representations and warranties of the Sellers set forth in (S)
3A and (S) 4A above shall be true and correct in all material respects at
and as of the Closing Date;
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(ii) the Sellers shall have performed and complied with all of their
covenants hereunder in all material respects at and as of the Closing Date;
(iii) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation, (C) affect adversely the right of
the Buyer to own the Subject Shares and to control the Company, or (D)
materially and adversely affect in any material respect the right of the
Company to own its assets and to operate its business (and no such
injunction, judgment, order, decree, ruling, or charge shall be in effect);
(iv) the Sellers shall have delivered to the Buyer a certificate to
the effect that each of the conditions specified above in (S) 6(A)(i)-(iii)
is satisfied in all respects;
(v) the Buyer shall have received from counsel to the Sellers an
opinion substantially in the form of EXHIBIT F-1 hereto and reasonably
acceptable to both the Buyer and the Sellers, addressed to the Buyer and
dated as of the Closing Date, containing such assumptions and
qualifications as may be reasonably acceptable to the Buyer's legal
counsel;
(vi) the Buyer shall have received the resignations, effective as of
the Closing, of each director and officer of the Company other than Ziskind
and those whom the Buyer shall have specified in writing prior to the
Closing;
(vii) the Buyer shall have received notification from its Senior
Lender thatsuch Senior Lender has approved consummation of the transactions
contemplated by this Agreement under its acquisition line of credit;
(viii) Ziskind shall have entered into an Employment Agreement with
the Company (the "Ziskind Employment Agreement") substantially in the form
of EXHIBIT A hereto;
(ix) The Sellers shall have entered into a certain First Amended and
Restated Shareholders' Agreement (the "Shareholders' Agreement")
substantially in the form of EXHIBIT B hereto, and a Registration Rights
Agreement substantially in the form of EXHIBIT C hereto, which shall grant
to Sellers certain piggyback rights with respect to the Parent Shares and
shall provide that, to the extent any greater registration rights are ever
granted to any seller of a company acquired by the Buyer, the Sellers shall
be granted the same or equivalent registration rights (the "Registration
Rights Agreement");
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(x) all Employee Benefit Plans shall have been terminated by the
Sellers to the extent Buyer has implemented substitute Employee Benefit
Plans, and neither the Buyer nor the Company shall have any further
liability with respect thereto other than completion of the routine winding
up thereof ;
(xi) the Sellers shall have entered into the Stock Pledge Agreement
("Pledge Agreement") substantially in the form of EXHIBIT D hereto with the
Buyer;
(xii) the Sellers shall have delivered Investor Representation Letters
substantially in the form of EXHIBIT E hereto to the Parent; and
(xii) all actions to be taken by the Sellers in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Buyer;
B. CONDITIONS TO OBLIGATION OF THE SELLERS. The obligation of the
Sellers to proceed with Closing and consummate the transactions to be performed
by them in connection with the Closing is subject to satisfaction of the
following conditions (any or all of which may be waived in writing by Sellers):
(i) the representations and warranties of the Buyer and the Parent
set forth in (S) 3B and (S) 4B above shall be true and correct in all
material respects at and as of the Closing Date;
(ii) the Buyer and the Parent shall have performed and complied with
all of their covenants hereunder in all material respects through the
Closing;
(iii) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation, (C) affect adversely the right of
the Sellers to own the Parent Shares, or (D) affect adversely in any
material respect the right of the Buyer to own its assets and to operate
its businesses (and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
(iv) the Buyer and the Parent shall have delivered to the Seller
certificates to the effect that each of the conditions specified above in
(S) 6(B)(i)-(iii) is satisfied in all respects;
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(v) the Buyer and the Parent shall have delivered to the Seller
certified resolutions of their respective Boards of Directors, authorizing
the execution, delivery and performance of this Agreement and all
documents, instruments and agreements contemplated herein to be executed by
the Buyer and Parent, respectively;
(vi) the Buyer shall have (a) obtained the full and final releases
of Ziskind's guarantee of the CitiBank Debt or (b) paid in full the
CitiBank Debt;
(vii) the Buyer shall have received from Senior Lender approval to
fund this transaction under its acquisition line;
(viii) the Buyer shall have caused the Company to enter into the
Ziskind Employment Agreement;
(ix) the Sellers shall have received from counsel to the Buyer an
opinion in the form of EXHIBIT F-2 hereto and reasonably acceptable to both
the Buyer and the Sellers, addressed to the Sellers, and dated as of the
Closing Date containing such assumptions and qualifications as may be
reasonably acceptable to the Seller's legal counsel;
(x) the Buyer shall have entered into the Shareholders' Agreement
and the Registration Rights Agreement on terms and conditions reasonably
satisfactory to Sellers;
(xi) the Buyer shall have entered into the Pledge Agreement with the
Seller; and
(xii) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby, and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Seller.
7. INDEMNIFICATION.
A. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All of the representations and warranties of the Parties contained in this
Agreement shall survive the Closing hereunder and continue in full force and
effect for two years thereafter except that the representations and warranties
contained in (S)4 A(i), and (S)4 A(j) which shall survive for three years after
the Closing.
B. INDEMNIFICATION PROVISIONS.
(I) BY THE SELLERS. The Sellers, jointly and severally, shall
indemnify, save, defend and hold harmless the Buyer, Parent and their respective
shareholders, directors, officers, partners, agents and employees (and in the
event the Buyer assigns its right, title and interest
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hereunder to a corporation, which shall be permitted hereunder, such assignee)
(collectively, the "Buyer Indemnified Parties") from and against any and all
costs, lawsuits, losses, Liabilities, deficiencies, claims and expenses,
including interest, penalties, reasonable attorneys' fees and all reasonable
amounts paid in investigation, defense or settlement of any of the foregoing
(collectively referred to herein as "Damages"), incurred in connection with or
arising out of or resulting from or incident to any breach (or in the event any
third party alleges facts that, if true, would mean the Sellers have breached),
of any covenant, warranty or representation made by the Sellers in or pursuant
to this Agreement or any other agreement delivered pursuant to this Agreement or
in any schedule, certificate, exhibit, or other instrument furnished or to be
furnished by the Sellers or their Affiliates pursuant to the terms of this
Agreement; provided, however, that the Sellers shall not be liable for any such
Damages to the extent, if any, such Damages result from or arise out of a breach
or violation of this Agreement by any Buyer Indemnified Parties.
(II) BY THE BUYER AND THE PARENT. The Buyer and the Parent shall
indemnify, save, defend and hold harmless the Sellers from and against any and
all Damages incurred in connection with or arising out of or resulting from or
incident to any breach (or in the event any third party alleges facts that, if
true, would mean the Buyer or the Parent has breached), of any covenant,
warranty or representation made by the Buyer or the Parent in or pursuant to
this Agreement or any other agreement delivered pursuant to this Agreement
contemplated hereby or in any schedule, certificate, exhibit, or other
instrument furnished or to be furnished by the Buyer or the Parent under this
Agreement; provided, however, that the Buyer and the Parent shall not be liable
for any such Damages to the extent, if any, such Damages result from or arise
out of a breach or violation of this Agreement by the Sellers.
(III) DEFENSE OF CLAIMS. If any lawsuit or enforcement action is
filed against any Party entitled to the benefit of indemnity hereunder, written
notice thereof describing such lawsuit or enforcement action in reasonable
detail and indicating the amount (estimated, if necessary) or good faith
estimate of the reasonably foreseeable estimated amount of Damages (which
estimate shall in no way limit the amount of indemnification the indemnified
Party is entitled to receive hereunder), shall be given to the indemnifying
Party as promptly as practicable (and in any event within ten (10) days, after
the service of the citation or summons) ("Notice of Action"); provided that the
failure of any indemnified Party to give timely notice shall not affect its
rights to indemnification hereunder to the extent that the indemnified Party
demonstrates that the amount the indemnified Party is entitled to recover
exceeds the actual damages to the indemnifying Party caused by such failure to
so notify within ten (10) days; provided further that a Notice of Action must be
sent to the indemnifying Party within the applicable survival period as provided
in Section 7(a) of this Agreement. The indemnifying Party may elect to
compromise or defend any such asserted liability and to assume all obligations
contained in this (S) 7(b) to indemnify the indemnified Party by a delivery of
notice of such election ("Notice of Election") within ten (10) days after
delivery of the Notice of Action. Upon delivery of the Notice of Election, the
indemnifying Party shall be entitled to take control of the defense and
investigation of such lawsuit or action and to employ and engage attorneys of
its own choice to handle and
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defend the same, at the indemnifying Party's sole cost, risk and expense, and
such indemnified Party shall cooperate in all reasonable respects, at the
indemnifying Party's sole cost, risk and expense, with the indemnifying Party
and such attorneys in the investigation, trial, and defense of such lawsuit or
action and any appeal arising therefrom; provided, however, that the indemnified
Party may, at its own cost, risk and expense, participate in such investigation,
trial and defense of such lawsuit or action and any appeal arising therefrom. If
the Notice of Election is delivered to the indemnified Party, the indemnified
Party shall not pay, settle or compromise such claim without the indemnifying
Party's consent, which consent shall not be unreasonably withheld. If the
indemnifying Party elects not to defend the claim of the indemnified Party or
does not deliver to the indemnified Party a Notice of Election within ten (10)
days after delivery of the Notice of Action, the indemnified Party may, but
shall not be obligated to, defend, compromise or settle (exercising reasonable
business judgment) the claim or other matter on behalf, for the account, and at
the risk, of the indemnifying Party.
(IV) LIMITATION ON INDEMNIFICATION. Notwithstanding any provision of
this Agreement, neither the Buyer nor the Sellers or any Affiliate of either
shall be required to pay an indemnified Party or any Affiliate thereof any
amount with respect to any claim for Damages under this (S) 7(B) until the
Damages which the indemnified Party and its Affiliates suffered under this
Agreement aggregate at least $25,000 (the "Threshold"), at which time and in
such event the indemnified Party or Affiliate shall be entitled to receive
payment for the entire amount of aggregate Damages to the extent they exceed
$25,000. No Party shall be liable to indemnify the other Parties in an aggregate
amount in excess of $1,350,000 including any and all amounts due and owing under
(S) 8(B) of this Agreement.
8. REMEDIES.
A. SPECIFIC PERFORMANCE. Each of the Parties hereby agrees that the
transactions contemplated by this Agreement are unique, and that each Party
shall have, in addition to any other legal or equitable remedy available to it,
the right to enforce this Agreement by decree of specific performance. If any
legal action or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing Party or Parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or proceeding
in addition to any other remedies to which it, he or they may be entitled at law
or equity. The rights and remedies granted herein are cumulative and not
exclusive of any other right or remedy granted herein or provided by law.
B. OFFSET. Any and all Damages incurred by the Buyer which permit the
Buyer to make an indemnification claim against the Sellers and to the extent not
otherwise prohibited by applicable law, shall be subject to mandatory offset by
the Buyer against all amounts due and owing by the Buyer to the Sellers under
this Agreement or any document, instrument, or agreement executed in connection
herewith. The foregoing shall constitute the sole remedy of Buyer against
Sellers in connection with breaches of the representations, warranties,
covenants
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and obligations of the Sellers contained in this Agreement except to the extent
of any remaining unpaid claims to the extent permitted under (S) 7 of this
Agreement if there are not any Parent Shares remaining pledged to offset against
in which event Buyer may proceed against the Sellers but only for any amounts
not offset and not exceeding $1,350,000, including the amounts recovered against
the pledged Parent Shares. In the event of an offset of any Damages incurred as
a result of any such breach, the Buyer shall furnish the Sellers notice
containing detailed information about the breach, the magnitude of the Damages
that the Buyer has or reasonably expects to incur (the act of offsetting by the
Buyer shall be referred to as an "Offset"). Offsets shall first be against the
Parent Shares. For purposes hereof, the Parent Shares shall be deemed to have a
value equivalent to $8.50 per share; provided, however, that if Parent has
successfully consummated a public offering of the Parent Shares ("Public
Offering"), then the value of the Parent Shares shall be deemed to be the
average public trading price of each Parent Share over the five (5) most recent
business days falling prior to the date of delivery by the Buyer to the Sellers
of the notice of an event requiring an Offset. In order to secure the Buyer's
Offset rights against the Parent Shares, the Buyer and the Sellers shall execute
the Pledge Agreement. The Parent Shares subject to the lien created by the
Pledge Agreement shall have a restrictive legend typed on the back thereof
specifying that the Parent Shares are subject to a right of Offset as specified
in this Agreement. The Sellers acknowledge and agree that but for the right of
Offset contained in this Agreement, the Buyer would not have entered into this
Agreement or any of the transactions contemplated herein. If any legal action or
other proceeding is brought for the enforcement of this Agreement, or any
document, instrument, or agreement executed in connection herewith, or because
of an alleged dispute, breach, default or misrepresentation in connection with
any of the provisions of this Agreement or any document, instrument, or
agreement executed in connection herewith, the successful or prevailing Party
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in that action or proceeding.
9. MISCELLANEOUS.
A. PUBLIC ANNOUNCEMENTS. No Party shall issue any press release or make
any public announcement relating to the subject matter of this Agreement
(including the documents referred to herein) without the prior written approval
of the Parent, the Buyer and the Sellers; provided, however, that any Party may
make any public disclosure it believes in good faith upon the advise of legal
counsel it is required by applicable law (in which case the disclosing Party
will use its best efforts to advise the other Party prior to making the
disclosure).
B. NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties, the Buyer Indemnified
Parties and their respective successors and permitted assigns.
C. ENTIRE AGREEMENT. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
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D. SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the Buyer and the Sellers; provided, however, that the Buyer may (i)
assign any or all of its rights and interests hereunder (x) to one or more of
its Affiliates, and (y) to one or more financial institutions lending funds to
the Buyer for the purpose of financing the purchase of the Subject Shares
hereunder and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
E. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
F. HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
G. NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to Sellers: Gregg M. & Susan L. Ziskind
10442 Cheviot Drive
Los Angeles, California 90064
Telephone: (714) 839-2076
Telefax: (714) 841-2258
Copy to: Richard H. Bruck
Bruck & Perry
Suite 700, 500 Newport Center Drive
Newport Beach, California 92660
Telephone: (714) 719-6000
Telefax: (714) 719-6020
If to the Buyer: Litigation Resources of America-California, Inc.
c/o Litigation Resources of America, Inc.
650 First City Tower, 1001 Fannin
Houston, Texas 77002
Phone: 713/653-7100
Fax: 713/653-7172
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Copy to: John W. Menke
Boyer, Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Phone: 713/871-2025
Fax: (713) 871-2024
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
H. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING
EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE
OF CALIFORNIA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE
LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF CALIFORNIA.
I. AMENDMENTS AND WAIVERS. No amendments of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer, the Parent and the Sellers. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
J. SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
K. EXPENSES. Each of the Parties and the Company will bear his or its
own costs and expenses (including legal fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby.
L. CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute
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or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word "including" shall
mean including without limitation. The Parties intend that each representation,
warranty, and covenant contained herein shall have independent significance. If
any Party has breached any representation, warranty, or covenant contained
herein in any respect, the fact that there exists another representation,
warranty, or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the Party has not breached shall not
detract from or mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant.
M. INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
N. ARBITRATION. If a dispute arises out of or relates to this Agreement,
or the breach thereof, and if said dispute cannot be settled through
negotiation, the Parties agree first to try in good faith to settle the dispute
by mediation under the Commercial Mediation Rules of the American Arbitration
Association, before resorting to arbitration, litigation, or some other dispute
resolution procedure as required by this (S) 9(N). Failing an adequate
resolution by mediation, any controversy or claim arising out of or relating to
this Agreement or the transactions contemplated hereby, including any
controversy or claim arising out of or relating to the Parties' decision to
enter into this Agreement, shall be settled by binding arbitration. There shall
be one arbitrator to be mutually agreed upon by the Parties involved in the
controversy and to be selected from the National Panel of Commercial Arbitrators
(or successor panel, if any). If within 45 days after service of the demand for
arbitration the Parties are unable to agree upon such an arbitrator who is
willing to serve, then an arbitrator shall be appointed by the American
Arbitration Association in accordance with its rules. Except as specifically
provided in this (S) 9(N), the arbitration shall be conducted in accordance with
the Commercial Arbitration Rules of the American Arbitration Association. The
arbitrator shall not render an award of punitive damages. Any arbitration
hereunder shall be held in Orange County, California. Expenses related to the
arbitration, including counsel fees, shall be borne by the Party incurring such
expenses except to the extent otherwise provided herein. The fees of the
arbitrator and of the American Arbitration Association, if any, shall be divided
equally among the Parties involved in the controversy. Judgment upon the award
rendered by the arbitrator (which may, if deemed appropriate by the arbitrator,
include equitable or mandatory relief with respect to performance of obligations
hereunder) may be entered in any court of competent jurisdiction. The
arbitrator shall award the prevailing Party in any arbitration proceeding
recovery of its attorneys' fees and other costs in connection with the
arbitration from the non-prevailing Party.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on as
of the date first above written.
BUYER:
-----
LITIGATION RESOURCES OF AMERICA --
CALIFORNIA, INC.,
a California corporation
By: /s/ Richard O Looney
---------------------------------
Richard O. Looney, President
PARENT
------
LITIGATION RESOURCES OF AMERICA,
INC., a Texas corporation
By: /s/ Richard O Looney
---------------------------------
Richard O. Looney, President
SELLERS:
-------
/s/ Gregg M. Ziskind
____________________________________
GREGG M. ZISKIND
/s/ Susan L. Ziskind
____________________________________
SUSAN L. ZISKIND
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EXHIBIT 10.21
AGREEMENT OF PURCHASE AND SALE OF ASSETS
This Agreement of Purchase and Sale of Assets (this "Agreement") is entered
into and effective as of September 25, 1997 by and among LOONEY & COMPANY, a
Texas corporation (the "Buyer"), U.S. LEGAL SUPPORT, INC., a Texas corporation
and the parent of Buyer (the "Parent"), and JAMES M. WILSON, a resident of
Houston, Texas d.b.a. COMMANDER WILSON INC. (the "Seller"). Buyer, Parent and
Seller are hereinafter sometimes referred to collectively as the "Parties" or
singularly as a "Party."
W I T N E S S E T H :
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WHEREAS, the Seller is the owner of various assets associated with the
Business (as hereinafter defined);
WHEREAS, the Buyer desires to purchase certain of the Assets (as hereinafter
defined) owned by the Seller and used in the Business (such purchase of the
Assets being sometimes herein referred to as the "Acquisition"), and the Seller
desires to sell such Assets to the Buyer;
WHEREAS, in connection with the purchase and sale of the Assets, the Parties
desire to set forth in this Agreement the terms and conditions with respect to
the transfer of such Assets; and
WHEREAS, the parties understand that the Parent or its Affiliates may enter
into other agreements similar or dissimilar to this Agreement (the "Other
Agreements") for the acquisition by the Parent or such Affiliates of the assets
or stock of other entities (collectively, the "Other Acquired Businesses," and
each of those entities, individually, an "Other Acquired Business"), which Other
Agreements will be among those entities and their equity owners, the Parent and
Affiliates of the Parent;
NOW, THEREFORE, for and in consideration of the mutual covenants,
agreements, representations and warranties contained in this Agreement, and
other good and valuable consideration, the receipt, adequacy and sufficiency of
which are hereby acknowledged, the Parties hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used herein, the following terms shall have the following meanings:
ACCOUNTS PAYABLE. The term "Accounts Payable" shall mean all of the
accounts payable of the Business existing as of the Effective Date.
<PAGE>
ACCOUNTS RECEIVABLE. The term "Accounts Receivable" shall mean all of the
accounts receivable, notes receivable, trade receivables and intercompany
receivables relating to the Business and existing as of the Effective Date.
ACQUISITION. The term "Acquisition" shall have the meaning set forth in the
preamble hereto.
AFFILIATE. The term "Affiliate" of a person shall mean, with respect to
that person, a person who directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
or is acting as agent on behalf of, or as an officer or director of that person.
As used in the definition of Affiliate, the term "control" (including the terms
"controlling," "controlled by," or "under common control with") means the
possession, direct or indirect, of the ability to affect the management and
policies of a person whether through the ownership of voting securities, by
contract, through the holding of a position as a director or officer of such
person, or otherwise. As used in this definition, the term "person" means an
individual, a corporation, a limited liability company, a partnership, an
association, a joint stock company, a trust, an incorporated organization, or a
Governmental Authority.
AGREEMENT. The term "Agreement" shall have the meaning set forth in the
preamble hereto.
ANCILLARY AGREEMENTS. The term "Ancillary Agreements" shall have the
meaning set forth in Section 3.2.
ASSETS. The term "Assets" shall have the meaning set forth in Section 2.1.
ASSUMED LIABILITY. The term "Assumed Liability" shall have the meaning set
forth in Section 2.4.
BILL OF SALE. The term "Bill of Sale" shall have the meaning set forth in
Section 6.3(x).
BOOKS AND RECORDS. The term "Books and Records" shall have the meaning set
forth in Section 2.1(c).
BUSINESS. The term "Business" shall mean the legal staffing business of the
Seller as presently conducted.
BUYER. The term "Buyer" shall have the meaning set forth in the preamble
hereto.
BUYER INDEMNIFIED PARTIES. The term "Buyer Indemnified Parties" shall have
the meaning set forth in Section 7.1A.
CAPITAL STOCK. The term "Capital Stock" shall mean, with respect to: (a)
any corporation, any share, or any depositary receipt or other certificate
representing any share, of an equity ownership interest in that corporation; and
(b) any other Entity, any share, membership or other percentage interest, unit
of participation or other equivalent (however designated) of an equity interest
in that Entity.
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CASH PURCHASE PRICE. The term "Cash Purchase Price" shall have the meaning
set forth in Section 2.3(a).
CLOSING. The term "Closing"shall have the meaning set forth in Section 6.1.
CLOSING DATE. The term "Closing Date" shall have the meaning set forth in
Section 6.1.
CLOSING MEMORANDUM. The term "Closing Memorandum" shall mean the form of
closing memorandum to be prepared by the Buyer and the Parent and approved by
the Seller (which approval will not be unreasonably withheld) for the Closing
under this Agreement in which are included the forms of officers certificates,
certificates of the Seller, opinions of counsel and certain other documents to
be delivered at the Closing as provided herein.
CODE. The term "Code" shall mean the Internal Revenue Code of 1986, as
amended.
CONTRACTS. The term "Contracts" shall have the meaning as contained in
Section 2.1(b).
CUSTOMERS. The term "Customers" shall have the meaning as contained in
Section 3.25.
DAMAGES. The term "Damages" shall have the meaning set forth in
Section 7.1A.
EFFECTIVE DATE. The term "Effective Date" shall mean 12:01 a.m. on the
"Closing Date."
EMPLOYEE. The term "Employee" shall mean any employee of the Business who,
as of the Effective Date, is employed or otherwise performs work or provides
services in connection with the operation of the Business, including those, if
any, on disability, sick leave, layoff or leave of absence, who, in accordance
with the Seller's applicable policies, are eligible to return to active status,
but shall not include any independent contractor providing staffing services to
Seller from time to time.
EMPLOYMENT AGREEMENTS. The term "Employment Agreements" shall have the
meaning ascribed to it in Section 3.18.
ENTITY. The term "Entity" shall mean any sole proprietorship, corporation,
partnership of any kind having a separate legal status, limited liability
company, business trust, unincorporated organization or association, mutual
company, joint stock company or joint venture.
ENVIRONMENTAL, HEALTH & SAFETY LAWS. The term "Environmental, Health &
Safety Laws" shall mean all laws (including rules and regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local, and foreign Governmental Authorities concerning pollution
or protection of the environment, public health and safety, or employee health
and safety.
EQUIPMENT. The term "Equipment" shall have the meaning as contained in
Section 2.1(a).
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ERISA. The term "ERISA" shall have the meaning as contained in
Section 3.17.
EXCHANGE ACT. The term "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
EXCLUDED ASSETS. The term "Excluded Assets" shall have the meaning as
contained in Section 2.2.
EXPIRATION DATE. The term "Expiration Date" shall have the meaning set forth
in the introductory paragraph to Article III.
FINAL PROSPECTUS. The term "Final Prospectus shall mean the prospectus
included in the Registration Statement at the time it becomes effective, except
that if the prospectus first furnished to the Underwriter after the Registration
Statement becomes effective for use in connection with the IPO differs from the
prospectus included in the Registration Statement at the time it becomes
effective (whether or not that prospectus so furnished is required to be filed
with the SEC pursuant to Securities Act Rule 424(b)), the prospectus so first
furnished is the "Final Prospectus."
FINANCIAL STATEMENTS. The term "Financial Statements" shall mean the
balance sheet, income statement and statement of changes of financial position
of the Business at and for twelve-month periods ended December 31, 1995 and 1996
and at and for the six-month periods ended June 30, 1996 and 1997, with June 30,
1997, being referred to herein as the "Balance Sheet Date".
GAAP. The term "GAAP" shall mean generally accepted accounting principles
of the Accounting Principles Board of the American Institute of Certified Public
Accountants and the Financial Accounting Standards Board that are applicable
from time to time.
GENERAL INTANGIBLES. The term "General Intangibles" shall have the meaning
set forth in Section 2.1(g).
GOVERNMENTAL APPROVAL. The term "Governmental Approval" shall mean at any
time any authorization, consent, approval, permit, franchise, certificate,
license, implementing order or exemption of, or registration or filing with, any
Governmental Authority, including any certification or licensing of a natural
person to engage in a profession or trade or a specific regulated activity, at
that time.
GOVERNMENTAL AUTHORITY. The term "Governmental Authority" shall mean (a)
any national, state, county, municipal or other government, domestic or foreign,
or any agency, board, bureau, commission, court, department or other
instrumentality of any such government, or (b) any Person having the authority
under any applicable Governmental Requirement to assess and collect Taxes for
its own account.
GOVERNMENTAL REQUIREMENT. The term "Governmental Requirement" shall mean at
any time (a) any law, statute, code, ordinance, order, rule, regulation,
judgment, decree, injunction, writ, edict, award, authorization or other
requirement of any Governmental Authority in effect at that time or
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(b) any obligation included in any certificate, certification, franchise, permit
or license issued by any Governmental Authority or resulting from binding
arbitration, including any requirement under common law, at that time.
INTELLECTUAL PROPERTY. The term "Intellectual Property" shall have the
meaning as contained in Section 2.1(e).
IPO. The term "IPO" shall mean the first time a registration statement filed
under the Securities Act with respect to an underwritten primary offering by the
Parent to the public of Parent Shares is declared effective under the Securities
Act and the shares registered by that registration statement are issued and sold
by the Parent (otherwise than pursuant to the exercise by the Underwriter of any
over-allotment option).
IPO CLOSING. The term "IPO Closing" shall mean the delivery to the Parent of
payment for the Parent Shares it sells to the Underwriter in the IPO.
IPO CLOSING DATE. The term "IPO Closing Date" shall mean the date on which
the Parent first receives payment for the Parent Shares it sells to the
Underwriter in the IPO.
IPO PRICE. The term "IPO Price" shall mean the price per share of Parent
Shares which is set forth as the "price to public" on the cover page of the
Final Prospectus.
LEASED ASSETS. The term "Leased Assets" shall have the meaning ascribed
thereto in Section 3.6.
LICENSES. The term "Licenses" shall have the meaning ascribed thereto in
Section 3.10.
LITIGATION. The term "Litigation" shall mean any action, case, proceeding,
claim, grievance, suit or investigation or other proceeding conducted by or
pending before any Governmental Authority or any arbitration proceeding.
MATERIAL. The term "Material" shall mean, as applied to any Entity or the
Business, material to the business, operations, property or assets, liabilities,
financial condition or results of operations of the Business or that Entity and
its Subsidiaries considered as a whole, as the case may be.
MATERIAL ADVERSE EFFECT. The term "Material Adverse Effect" shall mean, with
respect to the consequences of any fact or circumstance (including the
occurrence or non-occurrence of any event) to the Business, that such fact or
circumstance has caused, is causing or will cause, directly, indirectly or
consequentially, singly or in the aggregate with other facts and circumstances,
any material damages.
MINIMUM CASH AMOUNT. The term "Minimum Cash Amount" shall have the meaning
set forth in Section 6.2(iv).
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NOTICE OF ACTION. The term "Notice of Action" shall have the meaning set
forth in Section 7.1C.
NOTICE OF ELECTION. The term "Notice of Election" shall have the meaning
set forth in Section 7.1C.
OFFSET. The term "Offset" shall have the meaning set forth in Section 8.2.
ORDINARY COURSE OF BUSINESS. The term "Ordinary Course of Business" shall
mean the ordinary course of Seller's Business consistent with past custom and
practice (including with respect to quantity and frequency).
OTHER ACQUIRED BUSINESSES. The term "Other Acquired Businesses" shall have
the meaning set forth in the preamble hereto.
OTHER AGREEMENTS. The term "Other Agreements" shall have the meaning set
forth in the preamble hereto.
OTHER FINANCING SOURCES. The term "Other Financing Sources" shall have the
meaning set forth in Section 6.2(iv).
PARENT. The term "Parent" shall have the meaning set forth in the preamble
hereto.
PARENT SHARES. The term "Parent Shares" shall mean any of the shares of
common stock of the Parent.
PARTY. The terms "Party" and "Parties" shall have the meanings set forth in
the preamble hereto.
PBGC. The term "PBGC" shall mean the Pension Benefits Guaranty Corporation.
PERSON. The term "Person" shall mean any natural person, Entity, estate,
trust, union or employee organization or Governmental Authority.
PRICING. The term "Pricing" shall have the meaning set forth in Section 6.1.
REAL PROPERTY. The term "Real Property" shall have the meaning as contained
in Section 3.12.
REGISTRATION RIGHTS AGREEMENT. The term "Registration Rights Agreement"
shall have the meaning set forth in Section 6.2(xi).
REGISTRATION STATEMENT. The term "Registration Statement" shall mean the
registration statement, including (a) each preliminary prospectus included
therein prior to the date on which that registration statement is declared
effective under the Securities Act (including any prospectus filed
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with the SEC pursuant to Securities Act Rule 424(b)), (b) the Final Prospectus
and (c) any amendments and all supplements and exhibits thereto, filed by the
Parent with the SEC to register the Parent Shares under the Securities Act for
public offering and sale in the IPO.
RETAINED LIABILITIES. The term "Retained Liabilities" shall mean all
liabilities of the Business other than the Assumed Liabilities.
SCHEDULE OF ACCRUED LIABILITIES. The term "Schedule of Accrued Liabilities"
shall mean a schedule of all accrued liabilities of the Business prepared for
the period and as of the date specified.
SEC. The term "SEC" means the Securities and Exchange Commission or any
successor Governmental Authority.
SECURITIES ACT. The term "Securities Act" shall mean the Securities Act of
1933, as amended.
SELLER. The term "Seller" shall have the meaning set forth in the preamble
hereto.
SELLER EMPLOYMENT AGREEMENT. The term "Seller Employment Agreement" shall
have the meaning ascribed to it in Section 6.2(x).
SELLER'S NAMES. The term "Seller's Names" shall have the meaning set forth
in Section 2.1(i).
STOCK PLEDGE AGREEMENT. The term "Stock Pledge Agreement" shall have the
meaning set forth in Section 6.3(xiii).
SUBSIDIARY. The term "Subsidiary," of any specified Person at any time,
shall mean any Entity a majority of the Capital Stock of which is at that time
owned or controlled, directly or indirectly, by the specified Person.
SUPPLEMENTAL INFORMATION. The term "Supplemental Information" shall have
the meaning set forth in Section 5.10.
TAXES. The term "Taxes" shall mean any and all local, state or federal
taxes imposed upon the Business or the Seller, including, without limitation,
tax obligations, tax claims, tax charges, tax fines or any related tax
liabilities, regardless of the source, cause or origin of such tax liabilities,
including taxes imposed as a result of the consummation of the Acquisition.
UNDERWRITER. The term "Underwriter" shall mean collectively (a) the
investment banking firms that prospectively may enter into the Underwriting
Agreement and (b) from and after the IPO Pricing Date, the investment banking
firms party to the Underwriting Agreement.
UNDERWRITING AGREEMENT. The term "Underwriting Agreement" shall mean the
underwriting agreement to be entered into between the Parent and the Underwriter
with respect to the IPO.
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ARTICLE II
PURCHASE OF ASSETS AND PURCHASE PRICE
2.1 SALE OF ASSETS. Subject to the terms and conditions set forth in this
Agreement, the Seller agrees to sell, convey, transfer, assign and deliver to
the Buyer, and the Buyer agrees to purchase from the Seller on the Closing Date,
all assets owned by Seller and used in or derived from the Business (other than
those specifically excluded under Section 2.2 below) including the following
(such assets to be referred to herein as the "Assets"):
(a) All office equipment, furniture, artwork, service equipment,
supplies, computer hardware, computer software, data processing equipment,
and tools (the "Equipment"), including the Equipment described on SCHEDULE
2.1(A);
(b) All contracts, leases, documents, franchises, instruments,
Licenses, agreements and other written or oral agreements relating to the
Business of Seller to which Seller is a party or by which Seller or any of
the Assets may be bound as well as all rights, privileges, claims and
options relating to the foregoing (the "Contracts"), including the Contracts
described on SCHEDULE 2.1(B);
(c) All customer and supplier files and databases, including Seller's
attorney database, customer and supplier lists, accounting and financial
records, invoices, and other books and records relating principally to the
Business (the "Books and Records"), including the Books and Records described on
SCHEDULE 2.1(C);
(d) Employee files for those Employees actually hired by Buyer;
(e) All right, title and interest of Seller, in, to and under all
service marks, trademarks, patents, inventions, copyrights, trademarks,
trade secrets and trade and assumed names, principally related to the
Business together with the right to receive royalties with respect thereto
or recover for infringement thereon, if any (the "Intellectual Property"),
and other marks and/or names described on SCHEDULE 2.1(E);
(f) All advertising materials and all other printed or written
materials related to the conduct of the Business;
(g) All of the Seller's general intangibles, claims, rights of set
off, rights of recoupment and other proprietary intangibles, licenses and
sublicenses granted and obtained with respect thereto, and rights
thereunder, which are used in the Business, and remedies against
infringements thereof, and rights to protection of interests therein under
the laws of all jurisdictions (the "General Intangibles"), including the
General Intangibles described on SCHEDULE 2.1(G);
(h) All goodwill, going concern value and other intangible properties
related to the Business; and
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(i) All of Seller's right to use the name "Commander Wilson Inc.,"
any similar name or derivative thereof, and any present assumed names in
connection with the Business or Seller's use of the Assets (the "Seller's
Names").
2.2 EXCLUDED ASSETS. Seller is not selling and Buyer is not purchasing any
of the following excluded assets related to the Business ("Excluded Assets"):
(i) cash, (ii) cash investments, cash deposits, right to receive cash refunds,
and other cash equivalents, or (iii) Seller's Accounts Receivable, all as more
specifically described on SCHEDULE 2.2.
2.3 PURCHASE PRICE. Upon the terms and subject to the conditions
contained herein and as consideration for the sale of the Assets and the
performance by the Seller of various other matters as provided herein, the Buyer
shall pay or deliver to the Seller, on the IPO Closing Date and as soon as
practicable after the IPO Closing, payable by delivery of the following
consideration (collectively the "Purchase Price"):
(a) cash in the amount of One Million Four Hundred Seventeen Thousand
Five Hundred Dollars ($1,417,500.00) (the "Cash Purchase Price"), paid by
the wire transfer of immediately available funds; and
(b) such number of whole Parent Shares on the IPO Closing Date as,
when multiplied by 90% of the IPO Price, will most nearly approximate, but
not exceed, $607,500.00.
2.4 ASSUMPTION OF LIABILITIES. Upon the terms and subject to the
conditions contained herein, the Buyer agrees that on the Closing Date, it will
not assume any liabilities of the Business except for Seller's liability under
that certain real property lease listed on SCHEDULE 3.12 (the"Assumed
Liability").
2.5 ALLOCATION OF PURCHASE PRICE. For all federal, state and local tax
purposes, the Purchase Price shall be allocated among the various Assets in the
manner agreed to by the parties within 60 days of the Closing; provided,
however, that the Purchase Price allocated to fixed assets shall not exceed
their book value. None of the Parties shall file any tax return or report or
take any position with any Governmental Authority which is inconsistent with the
foregoing allocation, except to the extent mandated by a Governmental Authority
in a determination binding upon one Party provided that such Party has given
written notice and reasonable opportunity to the other Party, at its expense, to
contest and appeal such determination on behalf of both Parties and such
determination has nevertheless become final. Within ninety (90) days after the
Closing Date, the Parties shall prepare for filing with the Internal Revenue
Service a Form 8594 in accordance with the foregoing allocation.
2.6 TAXES. Seller shall be liable for the payment of all sales and use
taxes arising out of the sale and transfer or removal of the Assets, if any, and
the assumption of the Assumed Liability. On or before the Closing Date, the
Seller agrees to use his best efforts to furnish to the Buyer certificates from
the state taxing authorities, and any related certificates that the Buyer may
reasonably request, as evidence that all sales and use tax liabilities of the
Business accruing before
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the Effective Date have been fully provided for or satisfied. The Buyer shall
not be responsible for any business, occupation, withholding or similar tax, or
any taxes of any kind of the Business, related to any period before the
Effective Date.
2.7 TITLE TO ASSETS AND RISK OF LOSS. Title to the Assets and risk of
loss or damage to the Assets by casualty (whether or not covered by insurance)
will pass to the Buyer immediately upon completion of the Closing. Following the
Closing, the Buyer shall own the Business and the Business shall be operated for
the Buyer's account.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants that all of the following representations and
warranties in this Article III are true at the date of this Agreement and shall
be true at the time of Closing and the IPO Closing Date, and that such
representations and warranties shall survive the IPO Closing Date for a period
of two years (the last day of such period being the "Expiration Date"), except
that (i) the warranties and representations set forth in Section 3.21 hereof
shall survive until such time as the limitations period has run for all tax
periods ended on or prior to the IPO Closing Date, which shall be deemed to be
the Expiration Date for Section 3.21, and (ii) solely for purposes of
determining whether a claim for indemnification under Section 7.1 hereof has
been made on a timely basis, and solely to the extent that in connection with
the IPO, the Seller actually incurs liability under the Securities Act, the
Exchange Act, or any other federal or state securities laws, the representations
and warranties set forth herein shall survive until the expiration of any
applicable limitations period, which shall be deemed to be the Expiration Date
for such purposes.
3.1 COMMUNITY PROPERTY. The Business constitutes the sole management
community property of the Seller.
3.2 AUTHORITY. Seller has the full right, power, legal capacity and
authority to execute, deliver and perform Seller's obligations under this
Agreement and all agreements ancillary to this Agreement which are part of the
underlying transaction made the basis of this Agreement and executed in
connection herewith, including but not limited to the Exhibits hereto
("Ancillary Agreements").
3.3 CONSENTS AND APPROVALS; NO BREACH OR DEFAULT. Except as set forth on
SCHEDULE 3.3(A), no consent, approval or authorization of, or filing or
registration with, any Person or Entity, is required to be made or obtained by
Seller in connection with the execution, delivery or performance of this
Agreement, or the consummation by Seller of the transactions contemplated
hereby. Except as set forth on SCHEDULE 3.3(B), neither the execution and
delivery of this Agreement or the Ancillary Agreements by Seller, nor the
consummation of the transactions contemplated herein by Seller, will (a) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any Governmental Authority to
which Seller is, or the Assets are, subject, or (b) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify or cancel, or require any
notice under, any agreement, contract, lease, license, instrument, promissory
note,
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conditional sales contract, partnership agreement or other arrangement to which
Seller or any of Seller's Affiliates is a party, or by which Seller is bound, or
to which the Assets are subject.
3.4 VALID AND BINDING OBLIGATION. Subject to the exception described on
Schedule 3.3(a), upon execution and delivery, this Agreement and each document,
instrument or agreement to be executed by Seller in connection herewith, will
constitute the legal, valid, and binding obligation of Seller, enforceable
against Seller in accordance with its terms, except as same may be limited by
applicable bankruptcy laws, insolvency laws, or other similar laws affecting the
rights of creditors generally.
3.5 TITLE TO ASSETS. Except as set forth on SCHEDULE 3.5, Seller has
good, indefeasible and marketable title to the Assets, free and clear of
restrictions or conditions to transfer or assignment, or mortgages, liens,
pledges, charges, encumbrances, equities, claims, easements, rights-of-way,
covenants, conditions or restrictions. Seller shall, subject to the exceptions
set forth on SCHEDULE 3.5 deliver to Buyer at Closing good, indefeasible and
marketable title to the Assets, free and clear of restrictions or conditions to
transfer or assignment, or mortgages, liens, pledges, charges, encumbrances,
equities, claims, easements, rights-of-way, covenants, conditions or
restrictions.
3.6 POSSESSION OF ASSETS; LEASED ASSETS. Seller is in possession of all
of the Assets, and all assets leased to the Business from others. All assets
leased to Seller from others and used in the Business, whether real, personal or
mixed, are described on SCHEDULE 3.6 and SCHEDULE 3.12 attached hereto (the
"Leased Assets"). The Assets and the Leased Assets constitute all of the
property, whether real, personal, mixed, tangible, or intangible, that is owned
or used in the Business by Seller. Seller does not own legal or equitable title
to any assets or interests in assets except the Assets and the Leased Assets.
Seller shall deliver to Buyer on the Closing Date, possession of and/or control
or dominion over all of the Assets and the Leased Assets.
3.7 CONDITION. All of the Assets and the Leased Assets are in good
operating condition and repair for their intended use, ordinary wear and tear
excepted.
3.8 CONTRACTS AND LEASES. All of the Contracts, leases, documents,
instruments, agreements, and other written or oral arrangements to which Seller
is a party or by which Seller or the Assets may be bound are set forth on
SCHEDULE 2.1(B). Except as set forth on SCHEDULE 2.1(B), all of the Contracts
are valid and in full force and effect, and there has not been any default by
Seller or any third party to any of said Contracts, or any event, fact or
circumstance which with notice or lapse of time or both, would constitute a
default by Seller or any other party to any of the Contracts. Seller has not
received notice that any party to any of the Contracts intends to cancel or
terminate any of the Contracts or exercise or not exercise any options that such
party might have under any of the Contracts.
3.9 EQUIPMENT. All of the equipment owned by the Business is set forth on
SCHEDULE 2.1(A).
3.10 LICENSES. All licenses and sublicenses owned by Seller or in which
Seller has any rights (collectively, the "Licenses"), together with a brief
description of each, are set forth on
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SCHEDULE 2.1(B). Seller has not infringed, and is not now infringing, on any
license belonging to any other Person or Entity. Seller owns and holds adequate
licenses necessary for the Business as now conducted by him, and that use does
not, and will not, conflict with, infringe on or otherwise violate any rights of
others. Buyer is hereby acquiring, and will continue to enjoy the use and
benefit of, the Licenses.
3.11 INTELLECTUAL PROPERTY. All of the Intellectual Property of the
Business is set forth on SCHEDULE 2(E). The Intellectual Property constitutes
all of the intellectual property necessary to the lawful conduct of the Business
without any infringement or conflict with the rights of others, and no adverse
claims have been asserted against the Intellectual Property, Seller or the
Business with respect thereto.
3.12 REAL PROPERTY; LEASED REAL PROPERTY. Except as set forth on SCHEDULE
3.12 with respect to real property leased by the Business (such real property
being hereinafter referred to collectively as the "Real Property"), Seller
neither owns nor leases any real property or improvements or interests therein.
Except for Seller and Seller's spouse, there are no parties in possession of any
portion of the Real Property as lessees, tenants at will or at sufferance,
trespassers or otherwise. The heating, electrical, plumbing and other building
equipment, as of the Closing, will be adequate in quantity and quality for
normal operations of the Business, as presently conducted.
3.13 INSURANCE. Attached hereto as SCHEDULE 3.13 is a true, complete and
accurate list of all insurance policies maintained by the Business. The Seller
has maintained and now maintains insurance protection against all liabilities,
claims and risks against which, with respect to the Business and the Assets, it
is customary to insure in the Ordinary Course of Business.
3.14 BANKING. The names and addresses of all banks or other financial
institutions in which the Business has an account, deposit or safe deposit box,
with the names of all persons authorized to draw on these accounts or deposits
or having access to these boxes, are set forth on SCHEDULE 3.14 attached hereto.
3.15 POWERS OF ATTORNEY. No Person or Entity holds a general or special
power of attorney from Seller.
3.16 PERSONNEL. Attached hereto as SCHEDULE 3.16 (A) is a list of the
names, addresses, hire dates, dates of birth and job descriptions of all
Employees of Seller, stating their rates of compensation including, if
determined, bonuses payable to each. Attached hereto as SCHEDULE 3.16 (B) is a
list of the names, addresses, dates of birth and services provided by all
independent contractors used by Seller during the preceding one (1) year,
stating their rates and methods of compensation.
3.17 EMPLOYEE BENEFITS. SCHEDULE 3.17 is a true, correct and complete list
of each "employee benefit plan," within the meaning of Section 3(3) of Employee
Retirement Income Security Act of 1974, as amended ("ERISA") which has ever been
maintained or sponsored by Seller or any of his Affiliates. Each such employee
benefit plan (and each related trust, insurance contract, or fund) is in full
force and effect, and complies in form and in operation in all respects with the
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applicable requirements of ERISA, the Code, and other applicable laws. Neither
Seller nor any other party is in default under any of the plans, there have been
no claims of default, and there are no facts, conditions or circumstances which
if continued, or on notice, will result in a default, under any plan. None of
the plans will, by its terms or under applicable law, become binding upon or
become an obligation of the Buyer. No assets of any plan are being transferred
to Buyer or to any plan of Buyer. Seller does not contribute to, and has never
contributed to, and has never been required to contribute to, any multiemployer
plan, and Seller does not have, and has never had, any liability (including
withdrawal liability) under any multiemployer plan.
3.18 EMPLOYMENT AGREEMENTS. SCHEDULE 3.18 is a list of all employment
agreements, consulting agreements, collective bargaining agreements, and other
agreements or arrangements providing for employee or other remuneration,
severance payments or benefits to which Seller or any of his Affiliates is a
party or by which Seller or any of his Affiliates is bound (collectively, the
"Employment Agreements"). Buyer will not have any duty, liability or obligation
with respect to any of the Employment Agreements. Except as set forth on
SCHEDULE 3.18, no Employees are represented by any labor organization.
3.19 LIABILITIES. Seller does not have any liabilities, obligations or
commitments of any nature, whether accrued, absolute, contingent or otherwise,
and whether due or to become due, except (a) liabilities which are expressly set
forth on SCHEDULE 3.19, and (b) liabilities which have been incurred in the
Ordinary Course of the Business since the Balance Sheet Date, and in accordance
with standard, customary and historical practices and experiences of Seller.
Buyer shall not incur any duty, liability or obligation with respect to any
liabilities set forth on SCHEDULE 3.19. In no event shall the Buyer be liable
for (or have paid any) legal, accounting or other costs or expenses incurred by
Seller in connection with any of the transactions contemplated in this
Agreement; provided, however, that the Buyer shall pay all costs of the audit
conducted by Coopers & Lybrand LLP as well as the costs of generating monthly
financial statements for the Business as required by the Buyer.
3.20 LITIGATION. Except as set forth on SCHEDULE 3.20, there is no suit,
action, arbitration or legal, administrative or other proceeding or governmental
investigation pending or, threatened against or affecting Seller, his
Affiliates, the Assets, the Leased Assets or the Business.
3.21 TAX MATTERS. Seller has filed all tax returns that Seller was
required to file, and all such tax returns were correct and complete in all
respects. All Taxes owed by Seller (whether or not shown on any tax return)
have been paid. Except for an extension with regard to Seller's federal income
tax return for the year ended December 31, 1996, Seller is not the beneficiary
of any extension of time within which to file any tax return, and Seller has not
waived any statute of limitations in respect of Taxes or agreed to any extension
of time with respect to a Tax assessment or deficiency. Seller has withheld and
paid all Taxes required to have been withheld or paid in connection with amounts
paid or owing to any Employee, independent contractor, creditor, or other third
party. Seller has no reason to believe that any authority might assess any
additional Taxes for any period for which tax returns have been filed. There is
no dispute or claim concerning any Tax liability of Seller.
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3.22 COMPLIANCE WITH LAWS. Seller has complied with, and is not in
violation of, applicable federal, state or local ordinances, statutes, laws,
rules, restrictions and regulations (including, without limitation, any
applicable Environmental, Health & Safety Laws) that affect, or are likely to
affect, directly or indirectly, the Business, the Assets, the Leased Assets, the
Real Property or the Customers, suppliers or financial prospects of Seller.
There are not any uncured violations of federal, state or local laws,
ordinances, statutes, orders, rules, restrictions, regulations or requirements
affecting any portion of the Business, the Real Property, the Assets or the
Leased Assets, and neither any of the Assets, the Leased Assets or the Real
Property, nor the operation thereof nor the conduct of the Business, violates
any applicable federal, state or municipal laws, ordinances, orders, regulations
or requirements. Seller has not received notice of any past, present or future
event, condition, circumstance, activity, practice, incident, action or plan
which may interfere with or prevent compliance or continued compliance with the
Environmental, Health & Safety Laws or which may give rise to any common law or
legal liability, or otherwise form the basis of any claim, action, demand,
lawsuit, proceeding, hearing, study or investigation, based on, related to, or
alleging any violation of the Environmental Health & Safety Laws.
3.23 FINANCIAL STATEMENTS. The Financial Statements (a) are true,
complete, and correct in all material respects, (b) fairly and accurately
present the financial position of the Business as of the periods described
therein, and the results of the operations of the Business for the periods
indicated, and (c) have been prepared consistently and in accordance with the
Business's historical customs and practices.
3.24 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in SCHEDULE
3.24, since the Balance Sheet Date.
(A) there has been no: (i) Material adverse change in the financial
condition, assets, liabilities, business or prospects of the Business; (ii)
loss, destruction or damage to any property of the Business, whether or not
insured; (iii) labor trouble, pending or threatened, involving the Business,
or change in the personnel of the Business or the terms or conditions of
their employment or other engagement; nor (iv) other event or condition of
any character that has or could have a Material Adverse Effect on the
Business;
(B) Seller and his Affiliates have used their best efforts to
maintain the goodwill of the Business and to preserve the present
relationships of Seller with his Customers, regulatory authorities and
others having business relationships with him related to the Business;
(C) Seller has maintained and operated the Business in the Ordinary
Course of Business and in accordance with industry practices and Seller's
historical policies;
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(D) Seller has not made any payment of any type to any Employee or
Affiliate other than ordinary salary or expenses which have been paid in the
Ordinary Course of Business and fully disclosed to Buyer;
(E) Seller has neither waived nor released any Material right of or
Material claim held by him, nor discounted any of his Accounts Receivable,
nor revalued any of his Assets or liabilities, in either case related to the
Business;
(F) Seller has not acquired nor disposed of any assets having a value
of $5,000 individually or $15,000 in the aggregate related to the Business,
and has not entered into any contract, commitment or arrangement therefor,
and has not entered into any other transaction related to the Business,
other than for value in the Ordinary Course of Business and in accordance
with industry practices;
(G) Seller has not changed the salary or other compensation payable
or to become payable by Seller to the Employees, independent contractors,
agents or other personnel, and has not declared, made or committed to any
kind of payment of a bonus or other additional salary or compensation to any
such person;
(H) Seller has not made a loan to any Person or Entity related to the
Business, and has not guarantied any loan, in an amount in excess of $5,000
individually or $15,000 in the aggregate related to the Business;
(I) Seller has not amended nor terminated any material contract,
agreement, permit or license to which Seller is a party, or by which Seller
or any of the Assets or Leased Assets are bound and which is related to the
Business;
(J) Seller has maintained all debt and lease instruments related to
the Business, and has not entered into any new or amended debt or lease
instruments related to the Business;
(K) Seller has not entered into any agreement or instrument which
would constitute an encumbrance, mortgage or pledge of the Assets, or which
would bind Buyer or the Assets after Closing, in an amount in excess of
$5,000 individually or $15,000 in the aggregate;
(L) Seller has provided to Buyer any and all books, records,
contracts, and other documents or data pertaining to the ownership, use,
insurance, operation, renovation and maintenance of the Assets, the Leased
Assets and the Business;
(M) Seller has performed all of Seller's obligations under all
contracts and commitments applicable to the Business, the Assets and the
Leased Assets, and has
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maintained the Business's books of account and records in the usual, regular
and customary manner;
(N) Seller has complied with all statutes, laws, ordinances and
regulations applicable to the Business, the Assets, the Leased Assets and
the conduct of the Business;
(O) Seller has paid all bills and other payments due with respect to
the ownership, use, insurance, operation and maintenance of the Business,
the Assets and the Leased Assets, as and when such bills or other payments
were due, and has taken all action necessary or prudent to prevent liens or
other claims for the same from being filed or asserted against any part of
the Assets or the Leased Assets; provided however, Seller has not made any
expenditures outside the Ordinary Course of Business, nor any capital
expenditures, in excess of $5,000 individually or $15,000 in the aggregate
related to the Business;
(P) Seller has not made any Material changes in the Business's
management, operations, accounting or business practices or methods
(including without limitation, any change in depreciation or amortization
policies or rates); and
(Q) all revenues or cash or other receipts from all sources in all
media received by the Business have been deposited in the Seller's account
in accordance with past practice.
3.25 CUSTOMERS. SCHEDULE 3.25 to this Agreement is a true, complete and
correct list of all Customers of Seller, together with summaries of the services
provided to each Customer during the one (1) year preceding the Closing Date.
"Customer" means a customer or client of the Seller during the one year
preceding the Closing Date. Except as indicated in SCHEDULE 3.25, Seller does
not have any information, nor is he aware of any facts or circumstances,
indicating that any of these Customers intend not to do business with Buyer to
the same volume and extent, and on the same terms, as they have historically
done business with Seller.
3.26 INTERESTS IN CUSTOMERS, SUPPLIERS AND COMPETITORS. No Affiliate or
Employee of Seller, nor any relative of any of them, has any direct or indirect
interest in any competitor, supplier or customer of Seller, nor any Person or
Entity who has done business with Seller in the one (1) year preceding the
Closing Date.
3.27 BULK SALE WARRANTY FOR SALES TAX PURPOSES. Prior to Closing, Seller
has never sold a substantial or significant part of his assets in any single
transaction or series of transactions. The transaction contemplated herein is
the sale of the entire operating assets of a business, and a sale outside the
ordinary course of Seller's business, and therefor no sales tax is due upon the
Closing of the Acquisition.
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3.28 DISCLOSURE. Seller has provided to Buyer actual copies of all Material
Contracts, and has provided Buyer with access to all documents concerning all
litigation and administrative proceedings, insurance policies and Customers, and
such information covers all Material commitments and liabilities of Seller. In
addition, (a) Buyer has been kept fully informed with respect to all Material
developments in the business of Seller since the Balance Sheet Date, (b)
management of Seller has not made any Material business decisions, nor taken any
Material actions, since the Balance Sheet Date of which Buyer has not been
advised, and (c) Buyer and its agents have been granted unlimited access to the
books and records of Seller (whether retained electronically, on disc or on
paper).
3.29 FULL DISCLOSURE. This Agreement, the schedules and exhibits hereto,
and all other documents and written information furnished by Seller to Buyer or
its representatives pursuant hereto or in connection herewith, are true,
complete and correct in all Material respects, and do not include any untrue
statement of a Material fact or omit to state any Material fact necessary to
make the statements made herein and therein not misleading. There are no facts
or circumstances relating to the Business or Seller's liabilities, prospects,
operations or financial condition, or the Assets, which Materially and adversely
affect or, so far as the Seller can now reasonably foresee, will Materially and
adversely affect, the Business, Seller or the assets, liabilities, prospects,
operations or financial condition thereof, or the ability of the Seller to
perform this Agreement or the obligations of Seller hereunder.
3.30 BROKERS. Neither the Seller nor his Affiliates, officers,
directors, or employees, has employed any broker, agent, or finder, or incurred
any liability for any brokerage fees, agent's fees, commissions or finder's fees
in connection with the transactions contemplated herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Parent and Buyer jointly and severally represent and warrant that all
of the following representations and warranties in this Article IV are true at
the date of this Agreement and shall be true at the time of Closing and the IPO
Closing Date, and that such representations and warranties shall survive the IPO
Closing Date until the Expiration Date, except that solely for purposes of
determining whether a claim for indemnification under Section 7.1 hereof has
been made on a timely basis, and solely to the extent that in connection with
the IPO, the Seller actually incurs liability under the Securities Act, the
Exchange Act, or any other federal or state securities laws, the representations
and warranties set forth herein shall survive until the expiration of any
applicable limitations period, which shall be deemed to be the Expiration Date
for such purposes.
4.1 ORGANIZATION. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas and has all
the necessary corporate powers to own its properties and to carry on its
business as now owned and operated by it. The Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
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Texas and has all the necessary corporate powers to own its properties and to
carry on its business as now owned and operated by it.
4.2 AUTHORITY. Each of Buyer and Parent, as applicable, has the right,
power, legal capacity, and authority to execute, deliver and perform this
Agreement and the Ancillary Agreements to which it is a party. The execution,
delivery and performance of this Agreement and any Ancillary Agreements by Buyer
and Parent, as applicable, have been duly authorized by all necessary corporate
action.
4.3 CAPITAL STOCK OF PARENT AND BUYER. The respective designations and
numbers of outstanding shares and voting rights of each class of outstanding
capital stock of the Parent and the Buyer are as follows: (i) immediately prior
to the Closing Date and the IPO Date, the authorized capital stock of Parent
will consist of 100,000,000 shares of common stock, of which the number of
issued and outstanding shares will be set forth in the Registration Statement,
and 10,000,000 shares of preferred stock, $.01 par value, of which no shares
will be issued and outstanding, and a number of shares of restricted voting
common stock, $.01 par value, to be determined by Parent in good faith, all of
which will be issued and outstanding except as otherwise set forth in the
Registration Statement, and (ii) as of the date of this Agreement, the
authorized capital stock of Buyer consists of 10,000 shares of common stock, all
of which shares are issued and outstanding.
4.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING. Except for
the Other Agreements and except as set forth on in the Registration Statement,
(i) no option, warrant, call, conversion right or commitment of any kind exists
which obligates the Parent or the Buyer to issue any of their respective
authorized but unissued capital stock, and (ii) neither the Parent nor the Buyer
has any 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. SCHEDULE 4.4 includes
complete and accurate copies of all stock option or stock purchase plans,
including a list of all outstanding options, warrants or other rights (excluding
the Other Agreements) to acquire Parent Shares.
4.5 COMMON STOCK. At the time of issuance thereof and delivery to the
Seller, the Parent Shares to be delivered to the Seller pursuant to this
Agreement will constitute valid and legally issued Parent Shares, fully paid and
nonassessable, and with the exception of restrictions upon resale (a) set forth
in Sections 9.2 and 9.3 hereof and (b) contained in the Stock Pledge Agreement,
will be identical in all substantive respects (which do not include the form of
certificate upon which it is printed or the presence or absence of a CUSIP
number on any such certificate) to the Parent Shares issued and outstanding as
of the date hereof by reason of the provisions of the Texas Business Corporation
Act. Except as provided in the previous sentence, the Parent Shares issued and
delivered to the Seller shall at the time of such issuance and delivery be free
and clear of any liens, claims or encumbrances of any kind or character. The
Parent Shares to be issued to the Seller pursuant to this Agreement will not be
registered under the 1933 Act, except as provided in Registration Rights
Agreement.
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4.6 VALID AND BINDING OBLIGATIONS. Upon execution and delivery, each of
this Agreement and the Ancillary Agreements will constitute the legal, valid,
and binding obligation of Buyer or Parent, as applicable, enforceable in
accordance with its terms, except as limited by bankruptcy laws, insolvency
laws, and other similar laws affecting the rights of creditors generally.
4.7 BROKERS. Except for The GulfStar Group, Inc. neither Buyer nor any of
its respective Affiliates, officers, directors, or employees, has employed any
broker, agent, or finder, or incurred any liability for any brokerage fees,
agent's fees, commissions or finder's fees in connection with the transactions
contemplated herein. Seller shall not be liable for the fee paid to The
GulfStar Group, Inc.
4.8 CONSENTS AND APPROVALS. Except as expressly contemplated herein, no
consent, approval or authorization of, or filing or registration with, any
Person or Entity, is required to be made or obtained by Buyer or Parent in
connection with the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby.
ARTICLE V
COVENANTS OF THE PARTIES
Buyer and Seller covenant and agree as follows:
5.1 CONDUCT OF THE BUSINESS. Except as otherwise permitted by this
Agreement or consented to by Buyer in writing, Seller shall through the IPO
Closing Date conduct the Business in the ordinary course in substantially the
same manner as heretofore, using his best efforts to preserve his relationships
with Customers and others having business dealings with him.
5.2 CERTAIN CHANGES. Except as otherwise permitted by this Agreement or
consented to by Buyer in writing, Seller shall not: (a) subject any of the
Assets to any lien or encumbrance; (b) dispose of any of the Assets; or (c)
grant any increase in compensation or benefits to any Employee; (d) Materially
modify any of the liabilities, or (e) with respect to the Business, perform any
act outside the Ordinary Course of Business except as otherwise contemplated by
this Agreement.
5.3 NOTICE. Seller will notify Buyer immediately in writing if (i) to
Seller's knowledge any of Seller's representations or warranties set forth in
this Agreement are or become untrue prior to the IPO Closing Date, (ii) Seller
fails to fully perform all of the covenants of Seller set forth in this
Agreement, or (iii) to Seller's knowledge there occurs any Material adverse
development in the Business or Seller's market position, sales, profit trends,
labor regulations, litigation or insurance claims or otherwise.
5.4 RECORDS. From the date of execution of this Agreement until the
Closing, Seller shall permit Buyer the right, during normal business hours, to
inspect any documents, Books and Records or other information pertaining to the
Assets.
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5.5 U.C.C. SEARCHES. Within five (5) days from the date of execution
hereof, Buyer, at Buyer's sole cost and expense, shall deliver to Seller current
searches of all Uniform Commercial Code financing statements filed with the
Office of the Secretary of State of Texas and in any other state, or county in
which the Seller has an office, against Seller. Any and all liens, pledges,
mortgages, security interests and encumbrances affecting the Assets, regardless
of whether same are disclosed in such lien searches, shall be released and
discharged by Seller at or prior to Closing.
5.6 BULK SALES. It may not be practicable to comply or attempt to comply
with the procedures of the "Bulk Sales Act" or similar law in any or all of the
states in which the Assets are situated or of any other state which may be
asserted to be applicable to the transactions contemplated hereby. Accordingly,
to induce Buyer to waive any requirements for compliance with any or all of such
laws, Seller hereby agrees that except for the Assumed Liabilities, the
indemnity provisions of Article VII hereof shall apply to any damages of Buyer
arising out of or resulting from the failure of Buyer or Seller to comply with
any such laws or any similar law which may be asserted to be applicable.
5.7 TERMINATION OF EMPLOYMENT OF SELLER'S EMPLOYEES. Buyer anticipates
extending an offer of employment to substantially all of the Employees of the
Seller on substantially the same terms and conditions as the Employees currently
are employed by Seller. Notwithstanding the foregoing, nothing herein shall
imply or guarantee employment of any Employee of Seller by Buyer. If Seller's
Employees desire employment with Buyer, they will be interviewed in conjunction
with the applicants from other sources and given strong consideration for
available positions with Buyer, at the wages, hours, and conditions of
employment established by Buyer prior to hiring any Employees. Seller agrees to
use his best efforts to make available the Employees to the Buyer that Buyer
desires to hire for the purpose of operating the Business. Notwithstanding
anything to the contrary contained herein, Buyer agrees that it will offer to
employ substantially all of Seller's Employees. Nothing shall prohibit Buyer
from terminating any of Seller's Employees subsequent to their employment by
Buyer.
5.8 COOPERATION IN CONNECTION WITH THE IPO. The Seller will (a) provide
the Parent and the Underwriter with all the Information concerning Seller which
is reasonably requested by the Parent and the Underwriter from time to time in
connection with effecting the IPO and (b) cooperate with the Parent and the
Underwriter and their respective representatives in the preparation and
amendment of the Registration Statement (including the Financial Statements) and
in responding to the comments of the SEC staff, if any, with respect thereto, to
the extent that any of the foregoing concern or reasonably relate to the Seller.
Provided that the Seller is given access to a copy of the Registration
Statement, the Seller agrees promptly to (a) advise the Parent if, at any time
during the period in which a prospectus relating to the IPO is required to be
delivered under the Securities Act, any information contained in the then
current Registration Statement prospectus concerning the Seller becomes
incorrect or incomplete in any Material respect and (b) provide the Parent with
the information needed to correct or complete that information. Seller
acknowledges that he has received a draft of the Registration Statement and has
delivered comments thereon to the Buyer.
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5.9 ADDITIONAL FINANCIAL STATEMENTS. Seller shall promptly furnish to
Buyer a copy of all Financial Statements for each additional month-end period
beyond the Balance Sheet Date as soon as same is regularly prepared by Seller in
the Ordinary Course of Business. All such additional Financial Statements shall
be subject to the same representations and warranties as contained in Section
3.26 of this Agreement. The Parties acknowledge and agree that Buyer shall be
permitted to conduct at its sole cost and expense an audit of Seller for the
fiscal years ended 1994, 1995, 1996 and 1997 in connection with the IPO. Buyer
shall pay Seller's reasonable costs incurred in preparing such monthly financial
statements.
5.10 SUPPLEMENTAL INFORMATION. The Seller agrees that, with respect to the
representations and warranties of that party contained in this Agreement, that
party will have the continuing obligation through the IPO Closing to provide the
Parent promptly with such additional supplemental Information (collectively, the
"Supplemental Information"), in the form of (a) amendments to then existing
Schedules or (b) additional Schedules, as would be necessary, in the light of
the circumstances, conditions, events and states of facts then known to the
Seller, to make each of those representations and warranties true and correct as
of the Closing and on the IPO Closing Date. For purposes only of determining
whether the conditions to the obligations of the Parent and Buyer which are
specified in Section 6.3 have been satisfied, the Schedules as of the Closing
and on the IPO Closing Date shall be deemed to be the Schedules and the Investor
Representation Letter as of the date hereof as amended or supplemented by the
Supplemental Information provided to the Parent prior to the Effective Date
pursuant to this Section 5.10; provided, however, that if the Supplemental
Information so provided discloses the existence of circumstances, conditions,
events or states of facts which, in any combination thereof, (a) have had a
Material Adverse Effect or (b), in the sole judgment of the Parent (which shall
be conclusive for purposes of this Section 5.10 and 8.3(a)(iv), but not for any
purpose of Article VII), are having or will have a Material Adverse Effect, the
Parent will be entitled to terminate this Agreement pursuant to Section
8.3(a)(iv); and provided, further, that if the Parent is entitled to terminate
this Agreement pursuant to Section 8.3(a)(iv), but elects not to do so, it will
be entitled to treat as Buyer Indemnified Losses (which treatment will not
prejudice the right of the Seller to contest Damage claims made by the Parent in
respect of those Buyer Indemnified Losses) all Damages to the Business which are
attributable to the circumstances, conditions, events and state of facts first
disclosed herein after the date hereof in the Supplemental Information. The
Parent will provide the Seller with copies of the Registration Statement,
including all pre-effective amendments thereto, promptly after the filing
thereof with the SEC under the Securities Act.
5.11 INSURANCE. Seller shall assist, and shall cause his Affiliates to
assist, Buyer in transferring to Buyer any insurance applicable to the Assets or
the Leased Assets which Buyer elects to maintain in effect.
5.12 CONFIDENTIALITY. Seller will not, and will not permit any of his
Affiliates to, disclose any information of a confidential or proprietary nature
concerning the Assets or the Business to any third parties, and in no event
shall Seller use, or allow any of his Affiliates to use, such confidential or
proprietary information for his own benefit or to the detriment of Buyer or the
Business provided
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however, if any party is compelled to disclose such information to any tribunal,
regulatory or Governmental Authority or else stand liable for contempt or suffer
other censure and penalty, such party may so disclose such information without
any liability hereunder.. No public or private announcement shall be made of the
transactions contemplated herein, nor the terms hereof, by Seller or any of his
Affiliates, without the prior written approval of Buyer as to timing, form and
content. Except for disclosure required in the Registration Statement or a
public announcement made in connection therewith, no public announcement shall
be made of the transactions contemplated herein, nor the terms hereof, by Parent
or any of its Affiliates, without the prior written approval of Buyer as to form
and content.
ARTICLE VI
THE CLOSING
6.1 PRICING. At or prior to Pricing, the Parties shall take all actions
necessary to (a) complete the Acquisition (including the execution and delivery
of this Agreement and the Ancillary Agreements which shall be placed in escrow
under the control of the Parent for release to the Parties on the IPO Closing
Date), and (b) effect the delivery of the Parent Shares referred to in Section
2.3 hereof, provided however, that such actions shall not include the actual
completion of the Acquisition or the delivery of the Common Stock and funds
referred to in Section 2.3 hereof, each of which actions shall only be taken
upon the IPO Closing Date as herein provided. For purposes of this Article VI,
the term "Pricing" shall mean the date of determination by Parent and the
Underwriter of the public offering price of the Parent Shares in the IPO; the
Parties contemplate that the Pricing shall take place on the Closing Date. The
escrow agreement relating to this Agreement and the Ancillary Agreements shall
provide that in the event that there is no IPO Closing Date, and this Agreement
terminates as provided in Section 8.3(b)(ii), the Agreement and the Ancillary
Agreements shall not be delivered to the Parties. The taking of the actions
described in clauses (a) and (b) above (the "Closing") shall take place on the
closing date (the "Closing Date") at the offices of Boyer, Ewing & Harris
Incorporated, 9 Greenway Plaza, Suite 3100, Houston, Texas 77046. On the IPO
Closing Date, all transactions contemplated by this Agreement, including the
delivery of the Parent Shares, the wire transfer of the cash portion of the
Purchase Price which Seller is entitled to receive pursuant to Section 2.3
hereof, and the closing of the IPO shall occur and be completed. Except as
otherwise provided in Section 8.3 hereof, during the period from the Closing
Date to the IPO Closing Date, this Agreement may only be terminated by the
Parties if the Underwriting Agreement is terminated pursuant to the terms
thereof.
6.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. The obligations of the
Seller with respect to actions to be taken on the Closing Date are subject to
the satisfaction or waiver on or prior to the Closing Date of all of the
following conditions other than the conditions set forth in this Section 6.2(i)
and (viii) that cannot be satisfied prior to the IPO Closing Date. The
obligations of the Seller with respect to actions to be taken on the IPO Closing
Date are subject to the satisfaction or waiver on or prior to the IPO Closing
Date of the conditions set forth in this Section 6.2(i) and (viii). As of (a)
the Closing Date if any such conditions have not been satisfied other than the
conditions set forth in this Section 6.2(i) and (viii) that cannot be satisfied
prior to the IPO Closing
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Date or (b) the IPO Closing Date, if any such conditions have not been
satisfied, the Seller shall have the right to terminate this Agreement, or in
the alternative, waive any condition not so satisfied. Any act or action of the
Seller in consummating the Closing on the Closing Date to the extent set forth
in the first sentence of Section 6.1 shall constitute a waiver of any conditions
not so satisfied other than the conditions set forth in this Section 6.2(i) and
(viii) that cannot be satisfied prior to the IPO Closing Date. However, no such
waiver shall be deemed to affect the survival of the representations and
warranties of Parent and Buyer contained in Article IV hereof.
(i) REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of the Parent and the Buyer contained in
Article IV shall be true and correct in all material respects as of the
Closing Date and the IPO Closing Date as though such representations and
warranties had been made as of that time; all of the terms, covenants and
conditions of this Agreement to be complied with and performed by the
Parent and the Buyer on or before the Closing Date and the IPO Closing Date
shall have been duly complied with and performed in all material respects;
and certificates to the foregoing effect dated the Closing Date and the IPO
Closing Date, respectively, and signed by each of the Parent and the Buyer
shall have been delivered to the Seller.
(ii) NO LITIGATION. No action or proceeding before a Governmental
Authority shall have been instituted or threatened to restrain or prohibit
the Acquisition or the IPO and no Governmental Authority shall have taken
any other action or made any request of the Parent or the Buyer as a result
of which the management of the Seller deems it inadvisable to proceed with
the transactions hereunder.
(iii) OPINION OF COUNSEL. The Seller shall have received an opinion
from counsel for the Parent dated the Closing Date, in the form attached as
Exhibit F-1 hereto.
(iv) REGISTRATION STATEMENT. The Registration Statement, as amended
to cover the offering, issuance and sale by Parent of such number of Parent
Shares at the IPO Price (which need not be set forth in the Registration
Statement when it becomes effective under the Securities Act) as shall
yield aggregate cash proceeds to the Parent from that sale (net of
Underwriter's discount or commissions) in at least the amount (the "Minimum
Cash Amount") that is sufficient, when added to the funds, if any,
available from other sources (if any, and as set forth in the Registration
Statement when it becomes effective under the Securities Act)(the "Other
Financing Sources") to enable the Parent to pay or otherwise deliver on the
IPO Closing Date (i) the total cash portion of the Purchase Price then to
be delivered pursuant to Article II; (ii) the total cash portion of the
acquisition consideration then to be delivered pursuant to the Other
Agreements as a result of the consummation of the acquisition transactions
contemplated thereby, and (iii) the total amount of indebtedness of the
Seller, each Other Acquired Business and the Parent which the Registration
Statement discloses at the time it becomes effective under the Securities
Act will be repaid with proceeds received by the Parent from the IPO and
Other Financing Sources, shall have been declared effective.
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(v) 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 no
action or proceeding shall have been instituted or threatened to restrain
or prohibit the Acquisition.
(vi) GOOD STANDING CERTIFICATES. Parent and the Buyer each shall
have delivered to the Seller certificates, dated as of a date no later than
ten days prior to the Closing Date, duly issued by the Texas Secretary of
State, and in each state in which the Parent and Buyer is authorized to do
business, showing that each of the Parent and the Buyer is in good standing
and authorized to do business and that all state franchise and/or income
tax returns and taxes for the Parent and the Buyer, respectively, for all
periods prior to the Closing have been filed and paid.
(vii) NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to the Parent or the Buyer which would constitute a
Material Adverse Effect.
(viii) CLOSING OF IPO. The closing of the sale of the Parent Shares to
the Underwriters in the IPO shall have occurred simultaneously with the IPO
Closing Date hereunder.
(ix) SECRETARY'S CERTIFICATE. The Seller shall have received a
certificate or certificates, dated the Closing Date and signed by the
secretary of each of the Parent and the Buyer, certifying the truth and
correctness of attached copies of the Parent's and the Buyer's respective
resolutions of their boards of directors and, if required, the stockholders
of the Parent and the Buyer approving the Parent's and the Buyer's entering
into this Agreement and the consummation of the transactions contemplated
hereby.
(x) SELLER EMPLOYMENT AGREEMENT. The Buyer shall have entered into
an employment agreement with the Seller in the form attached as Exhibit A
("Seller Employment Agreement").
(xi) REGISTRATION RIGHTS AGREEMENT. Parent shall have entered into
the Registration Rights Agreement with the Seller in the form attached as
Exhibit B ("Registration Rights Agreement").
6.3 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARENT AND THE BUYER. The
obligations of the Parent and the Buyer with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions other than the conditions set
forth in this Section 6.3(i) and (vii) that cannot be satisfied prior to the IPO
Closing Date. The obligations of Parent and Buyer with respect to actions to be
taken on the IPO Closing Date are subject to the satisfaction or waiver on or
prior to the IPO Closing Date of all of the following conditions. As of (a) the
Closing Date if any such conditions other than the
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conditions set forth in this Section 6.3(i) and (vii) that cannot be satisfied
prior to the IPO Closing Date have not been satisfied or (b) as of the IPO
Closing Date, if any such conditions have not been satisfied, Parent and Buyer
shall have the right to terminate this Agreement, or waive any such condition,
but no such waiver shall be deemed to affect the survival of the representations
and warranties contained in Article III hereof.
(i) REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATION. All
the representations and warranties of the Seller contained in this
Agreement shall be true and correct in all material respects as of the
Closing Date and the IPO Closing Date with the same effect as though such
representations and warranties had been made on and as of such date; all of
the terms, covenants and conditions of this Agreement to be complied with
or performed by the Seller on or before the Closing Date or the IPO Closing
Date, as the case may be, shall have been duly performed or complied with
in all Material respects; and the Seller shall have delivered to the Buyer
certificates dated the Closing Date and the IPO Closing Date, respectively,
and signed by them to such effect.
(ii) NO LITIGATION. No action or proceeding before a Governmental
Authority shall have been instituted or threatened to restrain or prohibit
the Acquisition or the IPO and no Governmental Authority shall have taken
any other action or made any request of Parent as a result of which the
management of Parent deems it inadvisable to proceed with the transactions
hereunder.
(iii) OPINION OF COUNSEL. Parent shall have received an opinion from
Counsel to the Seller, dated the Closing Date, substantially in the form
attached as Exhibit F-2 hereto.
(iv) REGISTRATION STATEMENT. The Registration Statement, as amended
to cover the offering, issuance and sale by Parent of such number of Parent
Shares at the IPO Price as shall yield aggregate cash proceeds to the
Parent from that sale (net of Underwriter's discount or commissions) in at
least the Minimum Cash Amount, shall have been declared effective.
(v) 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; all
consents and approvals of third parties shall have been obtained; and no
action or proceeding shall have been instituted or threatened to restrain
or prohibit the Acquisition.
(vi) NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to the Seller which would constitute a Material
Adverse Effect, and the Seller shall not have suffered any Material loss or
damages to any of his properties or assets, whether or not covered by
insurance, which change, loss or damage Materially affects or impairs the
ability of the Seller to conduct his business.
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(vii) CLOSING OF IPO. The closing of the sale of the Parent Shares
to the Underwriters in the IPO shall have occurred simultaneously with the
IPO Closing Date hereunder.
(viii) SELLER EMPLOYMENT AGREEMENT. The Seller shall have entered
into the Seller Employment Agreement.
(ix) REGISTRATION RIGHTS AGREEMENT. Seller shall have entered into
the Registration Rights Agreement.
(x) BILL OF SALE. Seller shall have delivered to the Buyer
instruments of assignment and transfer or bills of sale signed by the
Seller as the Buyer reasonably requests, including the Bill of Sale
attached as Exhibit C ("Bill of Sale").
(xi) INVESTOR REPRESENTATION LETTER. Seller shall have delivered to
the Parent at or prior to the signing of the Registration Statement an
Investor Representation Letter in the form attached as Exhibit D, with
respect to the acquisition of the Parent Shares to be issued to Seller.
(xii) STOCK PLEDGE AGREEMENT. Seller shall have delivered to Buyer a
Stock Pledge Agreement in the form attached as Exhibit E ("Stock Pledge
Agreement") as well as the Parent Shares issuable to the Seller at the
Closing (complete with stock powers executed in blank).
(xiii) SATISFACTION. All actions, proceedings, instruments and
documents required to carry out the transactions contemplated by this
Agreement or incidental hereto and all other related legal matters shall
have been approved by counsel to the Parent.
(xiv) BANKRUPTCY. The Seller shall have received an order from the
Bankruptcy Court with jurisdiction over the Bankruptcy case ("Bankruptcy")
currently pending against the Seller either (a) permitting the sale of the
Assets hereunder pursuant to the terms hereto or (b) dismissing the
Bankruptcy.
6.4 FURTHER ASSURANCES. At and after the Closing, each of the Parties
shall take all appropriate action and execute all documents of any kind which
may be reasonably necessary or desirable to carry out the transactions
contemplated hereby. The Seller, at any time at or after the Closing, will
execute, acknowledge and deliver any further bills of sale, assignments and
other assurances, documents and instruments of transfer, reasonably requested by
the Buyer, and will take any other action consistent with the terms of this
Agreement that may reasonably be requested by the Buyer, for the purpose of
assigning and confirming to the Buyer, all of the Assets. The Buyer shall
notify the Seller promptly, and in no event more than ten (10) business days
after the Buyer's receipt, of any tax inquiries or notifications thereof which
relate to any period prior to the Effective Date, and the Seller shall prepare
and deliver responses to such inquiries as the Seller deems
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necessary or appropriate. In addition, the Seller shall make available the books
and records of the Business during reasonable business hours and take such other
actions as are reasonably requested by the Buyer to assist the Buyer in the
operation of the Business.
6.5 CONFIDENTIAL INFORMATION. After the Closing and except as otherwise
specifically permitted in this Agreement, each party to this Agreement agrees,
on behalf of itself and its Affiliates, to use reasonable efforts not to
divulge, communicate, use to the detriment of any other party to this Agreement
or its Affiliates or for the benefit of any other person or persons, any
confidential information or trade secrets of such other party with respect to
the Assets or the Business, including personnel information, secret processes,
know-how, customer lists, formulae, or other technical data; provided however,
if any party to this Agreement or any of its Affiliates is compelled to disclose
such information to any tribunal, regulatory or Governmental Authority or else
stand liable for contempt or suffer other censure and penalty, such party may so
disclose such information without any liability hereunder.
6.6 ASSIGNMENT OF CONTRACTS. On or before the Effective Date, Seller
shall have delivered to Buyer all of the Contracts presently in force and shall
have effected a valid assignment of all of Seller's rights and obligations
thereunder.
ARTICLE VII
INDEMNIFICATION
7.1 INDEMNIFICATION.
A. BY THE SELLER. Subject to Section 7.1(E) hereof, the Seller
shall indemnify, save, defend and hold harmless the Parent and Buyer and their
respective shareholders, directors, officers, partners, agents and employees
(collectively, the "Buyer Indemnified Parties") from and against any and all
costs, lawsuits, losses, liabilities, deficiencies, claims and expenses,
including interest, penalties, attorneys' fees and all amounts paid in
investigation, defense or settlement of any of the foregoing (collectively
referred to herein as "Damages"), (i) incurred in connection with or arising out
of or resulting from or incident to any breach of any covenant, breach of
warranty as of the Effective Date, or the inaccuracy of any representation as of
the Effective Date, made by the Seller in or pursuant to this Agreement or the
Ancillary Agreements, or any other agreement contemplated hereby or in any
schedule, certificate, exhibit, or other instrument furnished or to be furnished
by the Seller under this Agreement, (ii) based upon, arising out of, or
otherwise in respect of any liability or obligation of the Business or relating
to the Assets (a) relating to any period prior to the Effective Date, other than
those Damages based upon or arising out of the Assumed Liabilities, or (b)
arising out of facts or circumstances existing prior to the Effective Date,
other than those Damages based upon or arising out of the Assumed Liabilities;
provided however, that the Seller shall not be liable for any such Damages to
the extent, if any, such Damages result from or arise out of a breach or
violation of this Agreement by any Buyer Indemnified Parties, and (iii) any
liability under the Securities Act, the Exchange 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
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a Material fact relating to the Seller, and provided to Parent or its counsel by
the Seller, contained 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 to state therein a Material fact
relating to the Seller required to be stated therein or necessary to make the
statements therein not misleading, provided however, that such indemnity shall
not inure to the benefit of Parent and Buyer to the extent such untrue statement
(or alleged untrue statement) was made in, or omission (or alleged omission)
occurred in, any preliminary prospectus and Seller provided, in writing,
corrected information to Parent and Parent's counsel for inclusion in the Final
Prospectus, and such information was not included or properly delivered.
B. BY THE BUYER. Subject to Section 7.1(E) hereof, the Parent and
Buyer shall indemnify, save, defend and hold harmless the Seller from and
against any and all Damages (i) incurred in connection with or arising out of or
resulting from or incident to any breach of any covenant, breach of warranty as
of the Effective Date, or the inaccuracy of any representation as of the
Effective Date, made by the Buyer or Parent in or pursuant to this Agreement,
the Ancillary Agreements, or any other agreement contemplated hereby or in any
schedule, certificate, exhibit, or other instrument furnished or to be furnished
by the Buyer under this Agreement, (ii) based upon, arising out of or otherwise
in respect of any liability or obligation of the Business or relating to the
Assets (a) relating to any period on and after the Effective Date, other than
those Damages based upon or arising out of the Retained Liabilities, or (b)
arising out of facts or circumstances existing on and after the Effective Date,
other than those Damages based upon or arising out of the Retained Liabilities;
provided, however, that the Buyer shall not be liable for any such Damages to
the extent, if any, such Damages result from or arise out of a breach or
violation of this Agreement by the Seller, (iii) under the Securities Act, the
Exchange 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 Parent, Buyer or any Other Acquired
Business contained 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 Parent or Buyer or any of the Other
Acquired Businesses required to be stated therein or necessary to make the
statements therein not misleading, or (vi) under the Securities Act, the
Exchange 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 Business contained 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 the Business required to be stated therein or necessary to make
the statements therein not misleading, to the extent such untrue statement (or
alleged untrue statement) was made in, or omission (or alleged omission)
occurred in, any preliminary prospectus and Seller provided, in writing,
corrected information to Parent and Parent's counsel for inclusion in the Final
Prospectus, and such information was not included or properly delivered.
C. DEFENSE OF CLAIMS. If any lawsuit or enforcement action is filed
against any Party entitled to the benefit of indemnity hereunder, written notice
thereof describing such lawsuit
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or enforcement action in reasonable detail and indicating the amount (estimated,
if necessary) or good faith estimate of the reasonably foreseeable estimated
amount of Damages (which estimate shall in no way limit the amount of
indemnification the indemnified Party is entitled to receive hereunder), shall
be given to the indemnifying Party as promptly as practicable (and in any event
within ten (10) days, after the service of the citation or summons) ("Notice of
Action"); provided that the failure of any indemnified Party to give timely
notice shall not affect its rights to indemnification hereunder to the extent
that the indemnified Party demonstrates that the amount the indemnified Party is
entitled to recover exceeds the actual damages to the indemnifying Party caused
by such failure to so notify within ten (10) days and so long as the
indemnifying Party is not materially prejudiced by the failure to receive such
notice. The indemnifying Party may elect to compromise or defend any such
asserted liability and to assume all obligations contained in this Section 7.1
to indemnify the indemnified Party by a delivery of notice of such election
("Notice of Election") within ten (10) days after delivery of the Notice of
Action. Upon delivery of the Notice of Election, the indemnifying Party shall be
entitled to take control of the defense and investigation of such lawsuit or
action and to employ and engage attorneys of its own choice to handle and defend
the same, at the indemnifying Party's sole cost, risk and expense, and the
indemnified Party shall cooperate in all reasonable respects, at the
indemnifying Party's sole cost, risk and expense (except with respect to the
fees and expenses of the indemnified Party's attorney, which shall be borne by
the indemnified Party) with the indemnifying Party and such attorneys in the
investigation, trial, and defense of such lawsuit or action and any appeal
arising therefrom; provided, however, that the indemnified Party may, at its own
cost, risk and expense, participate in such investigation, trial and defense of
such lawsuit or action and any appeal arising therefrom. If the Notice of
Election is delivered to the indemnified Party, the indemnified Party shall not
pay, settle or compromise such claim without the indemnifying Party's consent,
which consent shall not be unreasonably withheld. If the indemnifying Party
elects not to defend the claim of the indemnified Party or does not deliver to
the indemnified Party a Notice of Election within ten (10) days after delivery
of the Notice of Action, the indemnified Party may, but shall not be obligated
to, defend, compromise or settle (exercising reasonable business judgment) the
claim or other matter on behalf, for the account, and at the risk, of the
indemnifying Party.
D. THIRD PARTY CLAIMS. The provisions of this Section 7.1 are not
limited to matters asserted by the Parties, but cover Damages incurred in
connection with third party claims. The indemnity hereunder is in addition to
any and all rights and remedies of the Parties in connection herewith.
E. LIMITATION ON INDEMNIFICATION. Notwithstanding the other
provisions of this Section 7.1, Seller shall not be liable to Buyer Indemnified
Parties, and Parent and Buyer shall not be liable to Seller, for the first
$25,000 in aggregate Damages suffered by such indemnified Parties; provided,
however, that once any such indemnified Parties have suffered Damages
aggregating in excess of $25,000, the indemnifying Party shall reimburse the
indemnified Parties for the full amount of such Damages, including the $25,000
in Damages initially excluded. In no event shall the aggregate Damages payable
by an indemnifying Party to indemnified Parties exceed 100% of the Purchase
Price.
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7.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements of the Parties made herein
and at the time of the Closing or in writing delivered pursuant to the
provisions of this Agreement shall survive the consummation of the transactions
contemplated hereby and any examination on behalf of the Parties until the
Expiration Date as elsewhere provided herein.
ARTICLE VIII
TERMINATION AND REMEDIES
8.1 SPECIFIC PERFORMANCE; REMEDIES. Each of the Parties hereby agrees
that the transactions contemplated by this Agreement are unique, and that each
Party shall have, in addition to any other legal or equitable remedy available
to it, the right to enforce this Agreement by decree of specific performance.
If any legal action or other proceeding is brought for the enforcement of this
Agreement or because of an alleged dispute, breach, default or misrepresentation
in connection with any of the provisions of this Agreement, the successful or
prevailing Party or Parties shall be entitled to recover reasonable attorneys'
fees and other costs incurred in that action or proceeding in addition to any
other remedies to which it, he or they may be entitled at law or equity. The
rights and remedies granted herein are cumulative and not exclusive of any other
right or remedy granted herein or provided by law.
8.2 OFFSET; REMEDIES. To the extent not otherwise prohibited by
applicable law, all amounts due and owing by the Buyer to the Seller under this
Agreement, the Ancillary Agreements, or any other document, instrument, or
agreement executed in connection herewith shall be subject to offset by the
Buyer to the extent of any Damages incurred by any breach by the Seller, under
this Agreement or any Ancillary Agreement, or any document, instrument, or
agreement executed in connection herewith. In the event Buyer elects to offset
any Damages incurred as a result of any such breach, Buyer shall furnish Seller
notice containing detailed information about the breach, the magnitude of the
damages that Buyer has or reasonably expects to incur, and whether the offset is
against the Parent Shares pledged under the Stock Pledge Agreement or otherwise
(the act of offsetting by Buyer shall be referred to as an "Offset"). The
Seller acknowledges and agrees that but for the right of Offset contained in
this Agreement, the Buyer would not have entered into this Agreement or any of
the transactions contemplated herein. If any legal action or other proceeding
is brought for the enforcement of this Agreement, any Ancillary Agreement, or
any document, instrument, or agreement executed in connection herewith, or
because of an alleged dispute, breach, default or misrepresentation in
connection with any of the provisions of this Agreement, or any Ancillary
Agreement, or any document, instrument, or agreement executed in connection
herewith, the successful or prevailing Party or Parties shall be entitled to
recover other remedies to which it or they may be entitled at law or equity.
The rights and remedies granted herein are cumulative and not exclusive of any
other right or remedy granted herein or provided by law. Buyer shall not effect
an Offset hereunder without giving Seller at least 10 days advance written
notice of its intent to do so.
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8.3 TERMINATION. Termination of This Agreement. (a) This Agreement may be
terminated at any time prior to the Closing solely:
(i) by the mutual written consent of the Parent and the Seller;
(ii) by the Seller, on the one hand, or by the Parent, 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 results from the willful
failure of the Party seeking to terminate this Agreement to perform or
materially adhere to any agreement required hereby to be performed or
adhered to by it prior to or at the Closing or thereafter on the IPO
Closing Date;
(iii) by the Seller, on the one hand, or by the Parent, 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; or
(iv) by the Parent if it is entitled to do so as provided in
Section 5.10.
(b) this Agreement may be terminated after the Closing solely:
(i) by the Parent or the Seller if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party hereto
if the IPO is not consummated within ten (10) New York City business days
after the date of the Closing.
8.4 LIABILITIES IN EVENT OF TERMINATION. If this Agreement is
terminated pursuant to Section 8.3, there shall be no liability or obligation on
the part of any Party hereto except to the extent that such liability is based
on the breach by that Party of any of its representations, warranties or
covenants set forth in this Agreement. Notwithstanding the foregoing, if and
only if this Agreement is terminated for any reason, Buyer and Parent will pay
to the Seller $325,000 (the "Contingent Obligation") in payment of the
compensation due Seller pursuant to that certain letter agreement between Buyer
and Parent dated May 7, 1997, a copy of which is attached hereto as Schedule 8.4
("Letter Agreement"), in respect of the Parent's acquisition of Burton House,
Inc., Elaine P. Dine, Inc., and Elaine P. Dine Temporary Attorneys, L.L.C. The
Contingent Obligation shall accrue interest at the rate of 10% from September
16, 1997, until the date such amount is paid in full; provided however, that
interest shall accrue at the rate of 18% and shall become payable monthly
beginning January 1, 1998 and provided further, that the Contingent Obligation,
plus interest thereon, shall be paid no later than May 1, 1998. The Parent
hereby agrees to promptly and completely honor all other obligations under the
Letter Agreement that accrue prior to any termination thereof.
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ARTICLE IX
COVENANTS OF BUYER AND SELLER AFTER CLOSING
9.1. PREPARATION AND FILING OF TAX RETURNS.
(i) The Seller shall file or cause to be filed all federal income
tax returns of the Seller for all taxable periods that end on or before the
IPO Closing Date, and shall permit the Parent to review all such tax
returns prior to such filings.
(ii) Parent shall file or cause to be filed all separate tax returns
of, or that include, any Other Acquired Business for all taxable periods
ending after the IPO Closing Date.
(iii) Each Party 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 tax
return, amended tax 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 tax 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 tax returns pursuant to
this Agreement shall bear all costs of filing such tax returns.
9.2 RESTRICTIVE LEGEND. The Seller consents to the imprinting on all
certificates representing Parent Shares issued to him as part of the Purchase
Price of the following legend:
THE SHARES OF COMMON STOCK REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, NOR THE
SECURITIES LAWS OF ANY STATE. SUCH SHARES MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED AT ANY TIME, EXCEPT UPON (1) SUCH
REGISTRATION, OR (2) DELIVERY TO THE ISSUER OF SUCH SHARES OF AN OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO THE ISSUER, THAT REGISTRATION IS NOT
REQUIRED FOR SUCH TRANSFER, OR (3) THE SUBMISSION TO THE ISSUER OF SUCH
SHARES OF OTHER EVIDENCE, REASONABLY ACCEPTABLE TO THE ISSUER, TO THE
EFFECT THAT ANY SUCH SALE, PLEDGE, HYPOTHECATION OR TRANSFER WILL NOT BE IN
VIOLATION OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR OTHER
APPLICABLE SECURITIES LAWS OF ANY STATE, OR ANY RULES OR REGULATIONS
PROMULGATED THEREUNDER.
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9.3 PLEDGE OF PARENT SHARES. Seller shall deliver all Parent Shares
acquired from the Buyer as part of the Purchase Price to Buyer to be held
pursuant to the terms of the Stock Pledge Agreement.
ARTICLE X
MISCELLANEOUS
10.1 FEES. Except as expressly set forth herein to the contrary, each
Party shall be responsible for all costs, fees and expenses (including attorney
and accountant fees and expenses) paid or incurred by such Party in connection
with the preparation, negotiation, execution, delivery and performance of this
Agreement, or otherwise in connection with the transaction contemplated hereby.
10.2 MODIFICATION OF AGREEMENT. This Agreement may be amended or modified
only in writing signed by all of the Parties.
10.3 NOTICES. All notices, consents, demands or other communications
required or permitted to be given pursuant to this Agreement shall be deemed
sufficiently given when delivered personally or telefaxed with receipt of
transmission confirmed during regular business hours during a business day to
the appropriate location described below, or three (3) business days after
posting thereof by United States first-class, registered or certified mail,
return receipt requested, with postage and fees prepaid and addressed as
follows:
IF TO SELLER: James M. Wilson
2710 Sackett
Houston, Texas 77098
(713) 526-0707
With a copy to: Dunham F. Jewett
Crady, Jewett & McCulley
1400 Two Houston Center
909 Fannin
Houston, Texas 77010
IF TO BUYER OR PARENT: Looney & Company
U.S. Legal Support, Inc.
650 First City Tower, 1001 Fannin
Houston, Texas 77002
Phone: 713/653-7100
Fax: 713/653-7172
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With a copy to: John R. Boyer
Boyer, Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Phone: 713/871-2057
Fax: (713) 871-2024
Any addressee at any time by furnishing notice to the other addressees in the
manner described above may designate additional or different addresses for
subsequent notices or communications.
10.4 SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not invalidate or affect the enforceability of any other
provision of this Agreement.
10.5 ENTIRE AGREEMENT; BINDING EFFECT. This Agreement and the Ancillary
Agreements set forth the entire agreement among the Parties with respect to the
subject matter hereof. This Agreement shall be binding upon and shall inure to
the benefit of the Parties and their respective successors and assigns.
10.6 WAIVER. No delay in the exercise of any right under this Agreement
shall waive such rights. Any waiver, to be enforceable, must be in writing.
10.7 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
10.8 ASSIGNMENT. The Seller shall not assign this Agreement or any
interest herein.
10.9 HEADINGS. Headings in this Agreement are for convenience only and
shall not affect the interpretation of this Agreement.
10.10 SCHEDULES AND EXHIBITS. All Schedules and Exhibits attached to this
Agreement or to be delivered by the Seller, upon review and approval by the
Buyer, are and shall be hereby incorporated in and made a part of this
Agreement. All Schedules to this Agreement must be delivered no later than four
(4) days prior to Closing, in order to provide the Buyer ample time to review
and evaluate the items described therein and disclosed thereby. Although the
Schedules remain subject to the review and approval of the Buyer, no such review
or approval shall constitute a waiver by the Buyer of any breach or default
caused by the inaccuracy or incompleteness of any Schedule, the accuracy and
completeness of the Schedules being the sole responsibility of the Seller.
10.11 RIGHTS AND LIABILITIES OF PARTIES. Nothing in this Agreement,
whether express or implied, is intended to confer any rights or remedies under
or by reason of this Agreement on any persons other than the Parties, the Buyer
Indemnified Parties and their respective successors and assigns, nor is anything
in this Agreement intended to relieve or discharge the obligation or liability
of any third persons to any Party to this Agreement, nor shall any provision
give any third person any right of subrogation or action over against any Party
to this Agreement.
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10.12 SURVIVAL. Subject to Section 7.2, this Agreement, including but not
limited to all covenants, warranties, representations and indemnities contained
herein, shall survive the Closing, and the Bill of Sale and all other documents,
instruments or agreements relating to the Assets and the transactions
contemplated herein shall not be deemed merged therein.
10.13 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall have the force and effect of an original, and
all of which shall constitute one and the same agreement.
10.14 ARBITRATION AND LIMITATION ON CLAIMS. Any controversy, dispute or
claim arising out of, in connection with, or in relation to, the interpretation,
performance or breach of this Agreement, including, without limitation, the
validity, scope and enforceability of this Section which cannot first be settled
through ordinary negotiation between the Parties shall be submitted in good
faith to mediation by and in accordance with the Commercial Mediation Rules of
the American Arbitration Association or any successor organization. In the
event that mediation of such controversy, dispute or claim cannot be settled
through the mediation proceeding, the Parties agree that the controversy,
dispute or claim shall be submitted to binding and final arbitration conducted
in Houston, Harris County, Texas by and in accordance with the then existing
Rules for Commercial Arbitration of the American Arbitration Association or any
successor organization. Any such arbitration shall be to a three member panel
selected through the rules governing selection and appointment of such panels of
the American Arbitration Association or any successor organization. The award
rendered by the arbitrators may be confirmed, entered and enforced as a judgment
in any court of competent jurisdiction; however, the Parties otherwise waive any
rights to appeal the award except with regard to fraud by the panel. Any such
action must be brought within two years of the date the cause of action accrues.
The arbitrators shall award the Party which substantially prevails in any
arbitration proceeding recovery of that Party's attorneys' fees, the
arbitrators' fees and all costs in connection with the arbitration from the
Party who does not substantially prevail. The Parties' remedies are limited
solely to the specific remedies provided in this Agreement or in the other. The
parties waive any entitlement to punitive damages, consequential damages and
lost profits and will limit any damage claim to actual economic damages
incurred. Nothing in this Section 10.14 shall restrict any Parties' ability to
seek injunctive or other equitable relief in any court of competent jurisdiction
prior to initiating mediation or arbitration. In the event that such injunctive
or equitable relief is sought by any Party, such Party is specifically entitled
to enforce the appropriate provisions of the Agreement in obtaining such relief
in any court of competent jurisdiction and, thereafter, submit the remaining
controversy, dispute or claim to arbitration in accordance with this Section
10.14.
10.15 DRAFTING. All Parties hereto acknowledge that each Party was
actively involved in the negotiation and drafting of this Agreement and that no
law or rule of construction shall be raised or used in which the provisions of
this Agreement shall be construed in favor or against any Party hereto because
one is deemed to be the author thereof.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement in multiple counterparts effective as of the date first written above.
BUYER:
LOONEY & COMPANY
a Texas corporation
/s/ RICHARD O. LOONEY
By: _____________________________________
Richard O. Looney, President
PARENT:
U.S. LEGAL SUPPORT, INC.,
a Texas corporation
/s/ RICHARD O. LOONEY
By: _____________________________________
Richard O. Looney,
Chairman and Chief Executive Officer
SELLER:
/s/ JAMES M. WILSON
_________________________________________
James M. Wilson
Lynn M. Wilson, by her execution of this Agreement, acknowledges that she is
fully aware of, understands and agrees to the provisions of this Agreement and
its binding effect upon any interest, community or otherwise, she has in the
Assets, and by such execution she consents to the sale of the Assets on the
terms described herein.
/s/ LYNN M. WILSON
_________________________________________
Lynn M. Wilson
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<PAGE>
Schedules
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2.1(a) - Equipment
2.1(b) - Contracts
2.1(c) - Books and Records
2.1(e) - Intellectual Property
2.1(g) - General Intangibles
2.1(j) - Inventory
2.2 - Excluded Assets
2.7 - Allocation of Purchase Price
3.3(A) - Consents and Approvals
3.3(B) - Breaches or Defaults
3.5 - Exceptions to Title
3.6 - Leased Personal Property
3.12 - Real Property
3.13 - Insurance Policies
3.14 - Banking
3.16(A) - Employees
3.16(B) - Independent Contractors
3.17 - Employee Benefit Plans
3.18 - Employment Agreement
3.19 - Liabilities
3.20 - Litigation
3.24 - Certain Changes or Events
3.25 - Customers
4.4 - Parent Capitalization
Exhibits
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A - Seller Employment Agreement
B - Registration Rights Agreement
C - Bill of Sale
D - Investor Representation Letter
E - Stock Pledge Agreement
F-1 - Legal Opinion
F-2 - Legal Opinion
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EXHIBIT 10.22
AGREEMENT OF PURCHASE AND SALE OF ASSETS
This Agreement of Purchase and Sale of Assets (this "Agreement") is entered
into and effective as of September 25, 1997 by and among LITIGATION RESOURCES
OF AMERICA-NORTHEAST, INC., a New York corporation (the "Buyer"), LITIGATION
RESOURCES OF AMERICA, INC., a Texas corporation and the parent of Buyer (the
"Parent"), REPORTING SERVICES ASSOCIATES, INC., a Pennsylvania corporation
(the "Seller"), and Lee Goldstein, a resident of Florida, individually
("Goldstein") (Goldstein referred to sometimes as the "Stockholder"). Buyer,
Parent, Seller and the Stockholder are hereinafter sometimes referred to
collectively as the "Parties" or singularly as a "Party."
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Seller is the owner of various assets associated with the
Business (as hereinafter defined);
WHEREAS, the Buyer desires to purchase all of the Assets (as hereinafter
defined) owned by the Seller and used in the Business (such purchase of the
Assets being sometimes herein referred to as the "Acquisition"), and the Seller
desires to sell such Assets to the Buyer;
WHEREAS, in connection with the purchase and sale of the Assets, the Parties
desire to set forth in this Agreement the terms and conditions with respect to
the transfer of such Assets; and
WHEREAS, the parties understand that the Parent or its Affiliates may enter
into other agreements similar or dissimilar to this Agreement (the "Other
Agreements") for the acquisition by the Parent or such Affiliates of the assets
or stock of other entities (collectively, the "Other Acquired Businesses," and
each of those entities, individually, an "Other Acquired Business"), which Other
Agreements will be among those entities and their equity owners, the Parent and
Affiliates of the Parent;
NOW, THEREFORE, for and in consideration of the mutual covenants,
agreements, representations and warranties contained in this Agreement, and
other good and valuable consideration, the receipt, adequacy and sufficiency of
which are hereby acknowledged, the Parties hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used herein, the following terms shall have the following meanings:
<PAGE>
ACCOUNTS RECEIVABLE. The term "Accounts Receivable" shall mean all of the
accounts receivable, notes receivable, trade receivables and intercompany
receivables relating to the Business and existing as of the Effective Date.
ACQUISITION. The term "Acquisition" shall have the meaning set forth in the
preamble hereto.
AFFILIATE. The term "Affiliate" of a person shall mean, with respect to
that person, a person who directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
or is acting as agent on behalf of, or as an officer or director of that person.
As used in the definition of Affiliate, the term "control" (including the terms
"controlling," "controlled by," or "under common control with") means the
possession, direct or indirect, of the ability to affect the management and
policies of a person whether through the ownership of voting securities, by
contract, through the holding of a position as a director or officer of such
person, or otherwise. As used in this definition, the term "person" means an
individual, a corporation, a limited liability company, a partnership, an
association, a joint stock company, a trust, an incorporated organization, or a
Governmental Authority.
AGREEMENT. The term "Agreement" shall the meaning set forth in the preamble
hereto.
ANCILLARY AGREEMENTS. The term "Ancillary Agreements" shall have the
meaning set forth in Section 3.2.
ASSETS. The term "Assets" shall have the meaning set forth in Section 2.1.
ASSUMED LIABILITIES. The term "Assumed Liabilities" shall have the meaning
set forth in Section 2.6.
BALANCE SHEET DATE. The term "Balance Sheet Date" shall have the meaning
ascribed to it in Section 2.6.
BILL OF SALE. The term "Bill of Sale" shall have the meaning set forth in
Section 6.3(xiii).
BOOKS AND RECORDS. The term "Books and Records" shall have the meaning set
forth in Section 2.1(c).
BUSINESS. The term "Business" shall mean the court reporting and litigation
support business of the Seller as presently conducted.
BUYER. The term "Buyer" shall have the meaning set forth in the preamble
hereto.
BUYER INDEMNIFIED PARTIES. The term "Buyer Indemnified Parties" shall have
the meaning set forth in Section 7.1A.
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CAPITAL STOCK. The term "Capital Stock" shall mean, with respect to: (a)
any corporation, any share, or any depositary receipt or other certificate
representing any share, of an equity ownership interest in that corporation; and
(b) any other Entity, any share, membership or other percentage interest, unit
of participation or other equivalent (however designated) of an equity interest
in that Entity.
CASH PURCHASE PRICE. The term "Cash Purchase Price" shall have the meaning
set forth in Section 2.3(a).
CLOSING. The term "Closing" shall have the meaning set forth in
Section 6.1.
CLOSING DATE. The term "Closing Date" shall have the meaning set forth in
Section 6.1.
CLOSING MEMORANDUM. The term "Closing Memorandum" shall mean the form of
closing memorandum to be prepared by the Buyer and the Parent and approved by
the Seller (which approval will not be unreasonably withheld) for the Closing
under this Agreement in which are included the forms of officers certificates,
certificates of Stockholder, opinions of counsel and certain other documents to
be delivered at the Closing as provided herein.
CODE. The term "Code" shall mean the Internal Revenue Code of 1986, as
amended.
CONTRACTS. The term "Contracts" shall have the meaning as contained in
Section 2.1(b).
CUSTOMERS. The term "Customers" shall have the meaning as contained in
Section 3.25.
DAMAGES. The term "Damages" shall have the meaning set forth in
Section 7.1A.
EFFECTIVE DATE. The term "Effective Date" shall mean 12:01 a.m. on the
"Closing Date."
EMPLOYEE. The term "Employee" shall mean any employee of the Seller who, as
of the Effective Date, is employed or otherwise performs work or provides
services in connection with the operation of the Business, including those, if
any, on disability, sick leave, layoff or leave of absence, who, in accordance
with the Seller's applicable policies, are eligible to return to active status,
but shall not include any independent contractor providing court reporting
services to Seller from time to time.
EMPLOYMENT AGREEMENT. The term "Employment Agreement" shall have the
meaning ascribed to it in Section 3.18.
ENTITY. The term "Entity" shall mean any sole proprietorship, corporation,
partnership of any kind having a separate legal status, limited liability
company, business trust, unincorporated organization or association, mutual
company, joint stock company or joint venture.
ENVIRONMENTAL, HEALTH & SAFETY LAWS. The term "Environmental, Health &
Safety Laws" shall mean all laws (including rules and regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local, and foreign
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<PAGE>
Governmental Authorities concerning pollution or protection of the environment,
public health and safety, or employee health and safety.
EQUIPMENT. The term "Equipment" shall have the meaning as contained in
Section 2.1(a).
ERISA. The term "ERISA" shall have the meaning as contained in
Section 3.17.
EXCHANGE ACT. The term "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
EXCLUDED ASSETS. The term "Excluded Assets" shall have the meaning as
contained in Section 2.2.
EXPIRATION DATE. The term "Expiration Date" shall have the meaning set forth
in the introductory paragraph to Article III.
FINAL PROSPECTUS. The term "Final Prospectus" shall mean the prospectus
included in the Registration Statement at the time it becomes effective, except
that if the prospectus first furnished to the Underwriter after the Registration
Statement becomes effective for use in connection with the IPO differs from the
prospectus included in the Registration Statement at the time it becomes
effective (whether or not that prospectus so furnished is required to be filed
with the SEC pursuant to Securities Act Rule 424(b)), the prospectus so first
furnished is the "Final Prospectus."
FINANCIAL STATEMENTS. The term "Financial Statements" shall mean the
balance sheet, income statement and statement of changes of financial position
of the Seller.
GAAP. The term "GAAP" shall mean generally accepted accounting principles
of the Accounting Principles Board of the American Institute of Certified Public
Accountants and the Financial Accounting Standards Board that are applicable
from time to time.
GENERAL INTANGIBLES. The term "General Intangibles" shall have the meaning
set forth in Section 2.1(g).
GOLDSTEIN. The term "Goldstein" shall have the meaning ascribed to it in
the preamble hereto.
GOLDSTEIN EMPLOYMENT AGREEMENT. The term "Goldstein Employment Agreement"
shall have the meaning ascribed to it in Section 6.2(x).
GOVERNMENTAL APPROVAL. The term "Governmental Approval" shall mean at any
time any authorization, consent, approval, permit, franchise, certificate,
license, implementing order or exemption of, or registration or filing with, any
Governmental Authority, including any certification or licensing of a natural
person to engage in a profession or trade or a specific regulated activity, at
that time.
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<PAGE>
GOVERNMENTAL AUTHORITY. The term "Governmental Authority" shall mean (a)
any national, state, county, municipal or other government, domestic or foreign,
or any agency, board, bureau, commission, court, department or other
instrumentality of any such government, or (b) any Person having the authority
under any applicable Governmental Requirement to assess and collect Taxes for
its own account.
GOVERNMENTAL REQUIREMENT. The term "Governmental Requirement" shall mean at
any time (a) any law, statute, code, ordinance, order, rule, regulation,
judgment, decree, injunction, writ, edict, award, authorization or other
requirement of any Governmental Authority in effect at that time, or (b) any
obligation included in any certificate, certification, franchise, permit or
license issued by any Governmental Authority or resulting from binding
arbitration, including any requirement under common law, at that time.
GUARANTEE OF PERFORMANCE. The term "Guarantee of Performance" shall have
the meaning set forth in Section 6.3(xv).
INTELLECTUAL PROPERTY. The term "Intellectual Property" shall have the
meaning as contained in Section 2.1(e).
IPO. The term "IPO" shall mean the first time a registration statement filed
under the Securities Act with respect to a primary offering by the Parent to the
public of Parent Shares is declared effective under the Securities Act and the
shares registered by that registration statement are issued and sold by the
Parent (otherwise than pursuant to the exercise by the Underwriter of any over-
allotment option).
IPO CLOSING. The term "IPO Closing" shall mean the delivery to the
Underwriters of Parent Shares against the receipt of payment therefor pursuant
to the IPO.
IPO CLOSING DATE. The term "IPO Closing Date" shall mean the date on which
the Parent first receives payment for the Parent Shares it sells to the
Underwriter in the IPO.
IPO PRICE. The term "IPO Price" shall mean the price per share of Parent
Shares which is set forth as the "price to public" on the cover page of the
Final Prospectus.
LEASED ASSETS. The term "Leased Assets" shall have the meaning ascribed
thereto in Section 3.6.
LITIGATION. The term "Litigation" shall mean any action, case, proceeding,
claim, grievance, suit or investigation or other proceeding conducted by or
pending before any Governmental Authority or any arbitration proceeding.
MATERIAL. The term "Material" shall mean, as applied to any Entity or the
Business, material to the business, operations, property or assets, liabilities,
financial condition or results of operations of the Business or that Entity and
its Subsidiaries considered as a whole, as the case may be.
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<PAGE>
MATERIAL ADVERSE EFFECT. The term "Material Adverse Effect" shall mean, with
respect to the consequences of any fact or circumstance (including the
occurrence or non-occurrence of any event) to the Business, that such fact or
circumstance has caused, is causing or will cause, directly, indirectly or
consequentially, singly or in the aggregate with other facts and circumstances,
any material damages.
MINIMUM CASH AMOUNT. The term "Minimum Cash Amount" shall have the meaning
set forth in Section 6.2(iv).
NOTICE OF ACTION. The term "Notice of Action" shall have the meaning set
forth in Section 7.1C.
NOTICE OF ELECTION. The term "Notice of Election" shall have the meaning
set forth in Section 7.1C.
OFFSET. The term "Offset" shall have the meaning set forth in Section 8.2.
ORDINARY COURSE OF BUSINESS. The term "Ordinary Course of Business" shall
mean the ordinary course of Seller's Business consistent with past custom and
practice (including with respect to quantity and frequency).
OTHER ACQUIRED BUSINESSES. The term "Other Acquired Businesses" shall have
the meaning set forth in the preamble hereto.
OTHER AGREEMENTS. The term "Other Agreements" shall have the meaning set
forth in the preamble hereto.
OTHER FINANCING SOURCES. The term "Other Financing Sources" shall have the
meaning set forth in Section 6.2(iv).
PARENT. The term "Parent" shall have the meaning set forth in the preamble
hereto.
PARENT SHARES. The term "Parent Shares" shall mean any of the shares of
common stock of the Parent.
PARTY. The terms "Party" and "Parties" shall have the meanings set forth in
the preamble hereto.
PBGC. The term "PBGC" shall mean the Pension Benefits Guaranty Corporation.
PERSON. The term "Person" shall mean any natural person, Entity, estate,
trust, union or employee organization or Governmental Authority.
PRICING. The term "Pricing" shall have the meaning set forth in Section 6.1.
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<PAGE>
PURCHASE PRICE. The term "Purchase Price" shall mean the consideration
payable to the Seller for the Assets as set forth or contemplated in
Section 2.3.
REGISTRATION RIGHTS AGREEMENT. The term "Registration Rights Agreement"
shall have the meaning set forth in Section 6.2(xi).
REGISTRATION STATEMENT. The term "Registration Statement" shall mean the
registration statement, including (a) each preliminary prospectus included
therein prior to the date on which that registration statement is declared
effective under the Securities Act (including any prospectus filed with the SEC
pursuant to Securities Act Rule 424(b)), (b) the Final Prospectus and (c) any
amendments and all supplements and exhibits thereto, filed by the Parent with
the SEC to register the Parent Shares under the Securities Act for public
offering and sale in the IPO.
RETAINED LIABILITIES. The term "Retained Liabilities" shall mean all
liabilities of the Seller other than the Assumed Liabilities.
SEC. The term "SEC" means the Securities and Exchange Commission or any
successor Governmental Authority.
SECURITIES ACT. The term "Securities Act" shall mean the Securities Act of
1933, as amended.
SELLER. The term "Seller" shall have the meaning set forth in the preamble
hereto.
SELLER INDEMNIFIED PARTIES. The term "Seller Indemnified Parties" shall
have the meaning set forth in Section 7.1B.
SELLER INDEMNITORS. The term "Seller Indemnitors" shall have the meaning
set forth in Section 7.1A.
SELLER'S NAME. The term "Seller's Name" shall have the meaning set forth in
Section 2.1(i).
SIDE LETTER. The term "Side Letter" shall have the meaning set forth in
Section 9.5.
STOCK PLEDGE AGREEMENT. The term "Stock Pledge Agreement" shall have the
meaning set forth in Section 6.3(xiv).
STOCKHOLDER. The term "Stockholder" shall have the meaning set forth in the
preamble hereto.
SUBSIDIARY. The term "Subsidiary," of any specified Person at any time,
shall mean any Entity a majority of the Capital Stock of which is at that time
owned or controlled, directly or indirectly, by the specified Person.
SUPPLEMENTAL INFORMATION. The term "Supplemental Information" shall have
the meaning set forth in Section 5.11.
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<PAGE>
TAXES. The term "Taxes" shall mean any and all local, state or federal
taxes imposed upon the Business, the Seller or the Stockholder, including,
without limitation, tax obligations, tax claims, tax charges, tax fines or any
related tax liabilities, regardless of the source, cause or origin of such tax
liabilities, including taxes imposed as a result of the consummation of the
Acquisition.
UNDERWRITER. The term "Underwriter" shall mean collectively (a) the
investment banking firms that prospectively may enter into the Underwriting
Agreement, and (b) from and after the IPO Pricing Date, the investment banking
firms party to the Underwriting Agreement.
UNDERWRITING AGREEMENT. The term "Underwriting Agreement" shall mean the
underwriting agreement to be entered into between the Parent and the Underwriter
with respect to the IPO.
ARTICLE II
PURCHASE OF ASSETS AND PURCHASE PRICE
2.1 SALE OF ASSETS. Subject to the terms and conditions set forth in this
Agreement, the Seller agrees to sell, convey, transfer, assign and deliver to
the Buyer, and the Buyer agrees to purchase from the Seller on the Closing Date,
all assets owned by Seller and used in or derived from the Business (other than
those specifically excluded under Section 2.2 below) including the following
(such assets to be referred to herein as the "Assets"):
(a) All office equipment, furniture, artwork, service equipment,
supplies, computer hardware, data processing equipment, tools and supplies
(the "Equipment"), including the Equipment described on SCHEDULE 2.1(A);
(b) All contracts, documents, franchises, instruments, and other
written or oral agreements relating to the Business of Seller to which
Seller is a party or by which Seller or any of the Assets may be bound as
well as all rights, privileges, claims and options relating to the foregoing
(the "Contracts"), including the Contracts described on SCHEDULE 2.1(B);
(c) All customer and supplier files and databases, customer and
supplier lists, accounting and financial records, invoices, and other books
and records relating principally to the Business (the "Books and Records"),
including the Books and Records described on SCHEDULE 2.1(C);
(d) Seller's Employee files for those Employees actually hired by
Buyer;
(e) All right, title and interest of Seller, in, to and under all
service marks, trademarks, trade and assumed names, principally related to
the Business together with the right to recover for infringement thereon, if
any (the "Intellectual Property"), and other marks and/or names described on
SCHEDULE 2.1(E);
(f) All advertising materials and all other printed or written
materials related to the conduct of the Business;
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(g) All of the Seller's general intangibles, claims, rights of set
off, rights of recoupment and other proprietary intangibles, licenses and
sublicenses granted and obtained with respect thereto, and rights
thereunder, which are used in the Business, and remedies against
infringements thereof, and rights to protection of interests therein under
the laws of all jurisdictions (the "General Intangibles"), including the
General Intangibles described on SCHEDULE 2.1(G);
(h) All goodwill, going concern value and other intangible properties
related to the Business;
(i) The exclusive right to use the name "Reporting Services
Associates, Inc.", any similar name or derivative thereof, and any past or
present assumed names in connection with the Business or Seller's use of
the Assets (the "Seller's Name"); and
2.2 EXCLUDED ASSETS. Seller is not selling and Buyer is not purchasing
any of the following excluded assets related to the Business ("Excluded
Assets"): (i) cash, cash deposits, rights to receive cash refunds, and other
cash equivalents, (ii) cash investments, (iii) Accounts Receivable, notes
receivable and trade receivables accrued on or before the IPO Closing Date, all
as more specifically described on SCHEDULE 2.2.
2.3 PURCHASE PRICE. Upon the terms and subject to the conditions
contained herein and as consideration for the sale of the Assets and the
performance by the Seller of various other matters as provided herein, the Buyer
shall pay or deliver to the Seller, on the IPO Closing Date and as soon as
practicable after the IPO Closing, the aggregate amount $9,500,000.00, payable
by delivery of the following consideration (collectively the "Purchase Price"):
(a) Subject to the provisions of Section 2.5, a cash sum in the
amount of Seven Million and No/100 Dollars ($7,000,000) (the "Cash Purchase
Price"), paid by the wire transfer of immediately available funds; and
(b) Such number of whole Parent Shares on the IPO Closing Date as,
when multiplied by 90% of the IPO Price, will most nearly approximate, but
not exceed, $2,500,000.00.
2.4 ASSUMPTION OF LIABILITIES; LEASES. Upon the terms and subject to the
conditions contained herein, the Buyer agrees that on the Closing Date, it will
not assume any liabilities of Seller (except for those liabilities related to
Seller's premise and equipment lease payments as described on Schedule 3.6,)
("Assumed Liabilities").
2.5 ALLOCATION OF PURCHASE PRICE. For all federal, state and local tax
purposes, the Purchase Price shall be allocated among the various Assets in the
manner indicated in SCHEDULE 2.7 hereto. None of the Parties shall file any tax
return or report or take any position with any Governmental Authority which is
inconsistent with the foregoing allocation, except to the extent
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mandated by a Governmental Authority in a determination binding upon one Party
provided that such Party has given written notice and reasonable opportunity to
the other Party, at its expense, to contest and appeal such determination on
behalf of both Parties and such determination has nevertheless become final.
Within ninety (90) days after the Closing Date, the Parties shall prepare for
filing with the Internal Revenue Service a Form 8594 in accordance with the
foregoing allocation.
2.6 TAXES. Seller shall be liable for the payment of all sales and use
taxes arising out of the sale and transfer or removal of the Assets, if any, and
the assumption of the Assumed Liabilities. Within one year from the Closing
Date, the Seller agrees to furnish to the Buyer certificates from the state
taxing authorities, and any related certificates that the Buyer may reasonably
request, as evidence that all sales and use tax liabilities of the Seller
accruing before the Effective Date have been fully provided for or satisfied.
The Buyer shall not be responsible for any business, occupation, withholding or
similar tax, or any taxes of any kind of the Seller, related to any period
before the Effective Date and, in the event that any taxes are found to be due
or owing by Seller within one year of the Closing Date, Seller shall pay all
such amounts and Buyer shall have the right of offset against the Parent Shares
pledged under the Stock Purchase Agreement for such amounts, if any, as provided
in Section 8.2 hereof.
2.7 TITLE TO ASSETS AND RISK OF LOSS. At the Effective Time, title to the
Assets and risk of loss or damage to the Assets by casualty (whether or not
covered by insurance) will pass to the Buyer.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller and the Stockholder jointly and severally represent and warrant that
all of the following representations and warranties in this Article III are true
at the date of this Agreement and shall be true at the time of Closing and the
IPO Closing Date, and that such representations and warranties shall survive the
IPO Closing Date for a period of twelve months (the last day of such period
being the "Expiration Date"), except that (i) the warranties and representations
set forth in Section 3.29 hereof shall survive until such time as the
limitations period has run for all tax periods ended on or prior to the IPO
Closing Date, which shall be deemed to be the Expiration Date for Section 3.29,
and (ii) solely for purposes of determining whether a claim for indemnification
under Section 7.1 hereof has been made on a timely basis, and solely to the
extent that in connection with the IPO, the Seller or the Stockholder actually
incur liability under the Securities Act, the Exchange Act, or any other federal
or state securities laws, the representations and warranties set forth herein
shall survive until the expiration of any applicable limitations period, which
shall be deemed to be the Expiration Date for such purposes.
3.1 TITLE TO ASSETS. The Seller has good, marketable and indefeasible
title to the Assets, free and clear of restrictions or conditions to transfer or
assignment, mortgages, liens, pledges, charges, encumbrances, equities, claims,
easements, rights-of-way, covenants, conditions or restrictions, except with
respect to the Leased Assets as otherwise disclosed on SCHEDULE 2.1(A). The
Seller is in possession of all of the Leased Assets leased to it from others.
Except for the
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Excluded Assets, the Assets constitute all of the material property, whether
real, personal, mixed, tangible or intangible, that are used in the Business by
the Seller.
3.2 CONTRACTS AND AGREEMENTS. SCHEDULE 2.1(B) lists all of the material
contracts, agreements, and other written or oral arrangements relating to the
Business to which the Seller is a party, or by which the Seller or the Assets
are bound. As of the Closing Date, each of the Contracts is valid and in full
force and effect, and there has not been any default by the Seller or, to the
best of Seller's Knowledge, by any other party to any of the Contracts, or any
event that with notice or lapse of time or both, would constitute a default by
the Seller or, to the best of Seller's Knowledge, any other party to any of the
Contracts. Except as shall be disclosed in SCHEDULE 2.1(B), each Contract is
assignable to the Buyer without the consent of any other party. The Seller will
obtain and deliver at Closing all of the requisite consents relating to the
items set forth on SCHEDULE 2.1(B). Seller has not received notice that any
party to any of the Contracts intends to cancel or terminate any of the
Contracts or exercise or not exercise any options that they might have under any
of the Contracts. In the event any of the Contracts are, or are later
determined to be, non-assignable, and the other party to any such Contracts
refuses to consent to the assignment of same, then the Seller shall subcontract
to the Buyer or its designee, if the Buyer so desires, the remaining work on
such Contracts, and the Seller shall forward to the Buyer or its designee all
proceeds of such Contracts received by the Seller provided however, that Seller
shall be reimbursed for any reasonable out-of-pocket expenses incurred by it.
3.3 EQUIPMENT. All of the Equipment owned or leased by the Seller is
described on SCHEDULE 2.1(A) attached hereto. Except as disclosed on SCHEDULE
2.1(A), none of the Equipment will be, at the Effective Time, held under any
security agreement, conditional sales contract, or other title retention or
security arrangement or is located other than in the possession of the Seller
except for Equipment that is out of Seller's possession at certain job sites
and/or with certain of Seller's agents. To the best of Seller's Knowledge, the
Equipment is in good operating condition and repair, ordinary wear and tear
excepted.
3.4 LICENSES. Seller does not own any licenses or have any rights to use
any licenses in connection with the Business. Seller has not infringed, and is
not now infringing, on any license belonging to any other person, firm, or
corporation.
3.5 EMPLOYMENT CONTRACTS. Except as set forth in SCHEDULE 3.5, Seller
does not have any employment contracts and collective bargaining agreements to
which the Seller is a party or by which the Seller is bound relating to any
Employee. No Employees are represented by any labor organization, and, as of the
date hereof, no labor organization or group of Employees has made a written
demand to the Seller for recognition, or filed a petition with the National
Labor Relations Board, or announced its intention to hold an election of a
collective bargaining representative. There is no pending, or to the best
Knowledge and reasonable belief of Seller and Stockholder, threatened, labor
dispute, strike or work stoppage affecting or potentially affecting the
Business.
3.6 COMPLIANCE WITH LAWS. The Seller has complied with, and is not in
violation of, applicable federal, state or local statutes, laws, and regulations
(including, without limitation, any applicable building or other law, ordinance
or regulation) that affect, or are likely to affect, directly
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or indirectly, any of the Assets or the Business. The Seller has all permits,
licenses, and authorizations necessary to the conduct of the Business in the
manner and in the locations in which the Business is presently conducted, and
all such permits, licenses, or other authorizations are valid and in full force
and effect. To the best of Seller's Knowledge, there are not any uncured
violations of federal, state or municipal laws, ordinances, orders, regulations
or requirements affecting any portion of the Assets or the Business.
3.7 LITIGATION. Except as disclosed in SCHEDULE 3.7, there is no suit,
action, arbitration or legal, administrative or other proceeding or governmental
investigation pending or, to the best of Seller's Knowledge, threatened against
or affecting the Seller, its Affiliates, the Stockholder, the Assets, or the
Business that could result in a material adverse effect on the Business.
3.8 CONSENTS AND APPROVALS; NO BREACH OR DEFAULT. Except as set forth on
SCHEDULE 8(A), no consent, approval or authorization of, or filing or
registration with, any Person or Entity, is required to be made or obtained by
Seller in connection with the execution, delivery or performance of this
Agreement, or the consummation by Seller of the transactions contemplated
hereby. Except as set forth on SCHEDULE 3.8(B), neither the execution and
delivery of this Agreement or the Ancillary Agreements by Seller, nor the
consummation of the transactions contemplated herein by Seller, will (a) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any Governmental Authority to
which Seller is, or the Assets are, subject, or (b) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify or cancel, or require any
notice under, any agreement, contract, lease, license, instrument, promissory
note, conditional sales contract, partnership agreement or other arrangement to
which Seller or any of Seller's Affiliates is a party, or by which Seller is
bound, or to which the Assets are subject, or (c) conflict with or violate the
articles of incorporation, bylaws or other charter documents of Seller.
3.9 AUTHORITY. The Seller has the full right, power, legal capacity and
authority to execute, deliver and perform its obligations under this Agreement,
and all agreements ancillary to this Agreement which are part of the underlying
transaction made the basis of this Agreement and executed in connection herewith
including but not limited to the Exhibits hereto ("Ancillary Agreements"). The
sale of the Assets and the execution, delivery and performance of this Agreement
and the Ancillary Agreements by Seller have been duly authorized by the
Stockholder.
3.10 PERSONNEL. SCHEDULE 3.10(A) sets forth a complete and accurate list
of the names, addresses, hire dates, dates of birth and job descriptions of all
Employees employed by Seller in connection with the Business, current rates of
compensation including, if determined, bonuses payable to each following the
Closing.__SCHEDULE 3.10(B) is a complete and accurate list of the names,
addresses, hire dates, dates of birth and services provided by all independent
contractors used by Seller during the preceding one (1) year, stating their
rates and method of compensation.
3.11 VALID AND BINDING OBLIGATIONS. Upon execution and delivery, this
Agreement, the Ancillary Agreements and each document, instrument and agreement
to be executed by the Seller, or the Stockholder in connection herewith, will
constitute the legal, valid, and binding obligation of the Seller, or
Stockholder, enforceable against the Seller and/or Stockholder in accordance
with its
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terms, except as limited by bankruptcy laws, insolvency laws, and other similar
laws affecting the rights of creditors generally.
3.12 FINANCIAL STATEMENTS. The Financial Statements (a) are true, complete,
and correct in all material respects, (b) fairly and accurately present the
financial position of Seller as of the periods described therein, and the
results of the operations of Seller for the periods indicated, and (c) have been
prepared consistently and in accordance with the Seller's historical customs and
practices.
3.13 EMPLOYEE BENEFITS. SCHEDULE 3.13 is a true, correct and complete list
of each "employee benefit plan,' within the meaning of Section 3(3) of Employee
Retirement Income Security Act of 1974, as amended ("ERISA") which has ever been
maintained or sponsored by Seller or any of its Affiliates. Each such employee
benefit plan (and each related trust, insurance contract, or fund) is in full
force and effect, and complies in form and in operation in all respects with the
applicable requirements of ERISA, the Code, and other applicable laws. Neither
Seller, Stockholder nor any Affiliate is in default under any of the plans,
there have been no claims of default, and there are no facts, conditions or
circumstances which if continued, or on notice, will result in a default, under
any plan. None of the plans will, by its terms or under applicable law, become
binding upon or become an obligation of the Buyer. No assets of any plan are
being transferred to Buyer or to any plan of Buyer. Seller does not contribute
to, and has never contributed to, and has never been required to contribute to,
any multiemployer plan, and Seller does not have, and has never had, any
liability (including withdrawal liability) under any multiemployer plan.
3.14 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in SCHEDULE
3.14(A) with regard to the Business and the Assets, since the Balance Sheet
Date, there has been no:
(i) material adverse change in the condition, financial or
otherwise, of the Seller, the Assets or the Business;
(ii) waiver of any right of or claim held by the Seller;
(iii) material loss, destruction or damage to any property of the
Seller, whether or not insured;
(iv) material change in the personnel of the Seller or the terms or
conditions of their compensation or employment;
(v) acquisition or disposition of any assets (or any contract or
arrangement therefor), nor any other transaction by the Seller otherwise
than for value and in the ordinary course of business;
(vi) transaction or disbursement of funds or assets by the Seller
except in the ordinary course of business;
(vii) capital expenditure by the Seller exceeding $10,000 except in
the ordinary course of business;
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(viii) change in accounting methods or practices (including, without
limitation, any change in depreciation or amortization policies or rates) by
the Seller;
(ix) re-valuation by the Seller of any of its Assets;
(x) amendment, modification or termination of any Contract to
which the Seller is a party, except in the ordinary course of business;
(xi) mortgage, pledge or other encumbrance of any of the Assets;
(xii) litigation or facts or circumstances that could result in
litigation that, if adversely determined, might reasonably be expected to
have a material adverse effect on Seller, Seller's financial condition,
Seller's prospects, the Business or the Assets;
(xiii) increase in salary or other compensation payable or to become
payable by the Seller to any of its officers, directors or employees, or the
declaration, payment or commitment or obligation of any kind for the payment, by
the Seller, of a bonus or other additional salary or compensation to any such
person;
(xiv) loan by the Seller to any person or entity, or guaranty by the
Seller of any loan;
(xv) other event or condition of any character that has or might
reasonably be expected to have a material adverse effect on the Business,
the Assets or the financial condition of the Seller; or
(xvi) agreement by the Seller to do any of the things described in
the preceding clauses (i) through (xv).
Except as disclosed in SCHEDULE 3.14(B), there have been no contractual
commitments by Seller to spend more than $25,000 per contractual commitment over
a continuous 12-month period.
3.15 BROKERS. Neither Seller, the Stockholder, nor any of the Seller's or
the Stockholder's Affiliates has employed any broker, agent, or finder, or
incurred any liability for any brokerage fees, agent's fees, commission or
finder's fees in connection with the transactions contemplated herein.
3.16 SALE OF ASSETS. For purposes of determining whether a sales and use
tax charge is applicable, the sale of the Assets constitutes: (i) the sale of
all of the operating assets of a business or of a separate division, branch, or
identifiable segment of a business, and (ii) a sale outside the ordinary course
of Seller's Business, and represents an isolated or occasional sale by a seller
who does not regularly engage in such business. The income and expenses of the
Business can be separately established from the Books and Records in the same
manner as previously provided to Buyer.
3.17 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Seller, the
Stockholder, nor any agent of the Seller, or the Stockholder, nor to Seller's
or the Stockholder's best Knowledge any
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other person acting on Seller's or the Stockholder's behalf, has, directly or
indirectly, within the past five years, given or agreed to give any gift or
similar benefit to any customer, supplier, government employee of the United
States or any state or foreign government, or other person who is or may be in a
position to help or hinder the Business which (1) would subject the Seller to
any damage or penalty in any civil, criminal or governmental litigation or
proceeding, (2) if not given in the past, would have an adverse effect on the
Business, or (3) if not continued in the future, would have a material adverse
effect on the Business or the Assets, or which would subject the Seller to suit
or penalty in a private or governmental litigation or proceeding.
3.18 LIENS ON ASSETS. Except as set forth on SCHEDULE 3.18, all liens or
security interests of any third party as to any of the Assets have been removed
on or before the Closing Date, and the Seller has furnished evidence thereof to
Buyer.
3.19 CUSTOMERS. To the best of Seller's Knowledge, SCHEDULE 3.19 contains a
true and correct list of all customers of the Business within the last year (the
"Customers"). The Seller has no information, nor is the Seller aware of any
facts, indicating that any of the material Customers intend to cease doing
business with the Seller.
3.20 INSURANCE POLICIES. SCHEDULE 3.20 to this Agreement is a description
of all insurance policies held by the Seller concerning the Business and Assets.
The Seller maintains insurance protection on all its Assets and the Business of
such types and in such amounts as are customarily insured by similar companies
in the same industry, covering property damage and loss by fire, theft, or other
casualty.
3.21 INTEREST IN CUSTOMERS, SUPPLIERS AND COMPETITORS. Except as set forth
in SCHEDULE 3.21, neither the Seller, the Stockholder, nor any Affiliate of the
Seller or Stockholder, has any direct or indirect interest in any competitor,
supplier or customer of the Seller, or in any person from whom or to whom the
Seller leases any property, or in any other person with whom the Seller is doing
business.
3.22 ADVERSE INFORMATION. Neither Seller nor Stockholder has any actual
Knowledge of any change contemplated in any applicable laws, ordinances or
restrictions, or any judicial or administrative action, or any event, fact or
circumstance which will, or could be reasonably expected to, have a material
adverse effect on the Seller or its condition, financial or otherwise, the
Assets, or the condition, value or operation thereof.
3.23 ORGANIZATION. The Seller is a Pennsylvania corporation duly
organized, validly existing and in good standing under the laws of the State of
Pennsylvania, has all necessary powers to own the Assets and properties and to
operate the Business as now owned and operated by it, and is qualified to do
business in the State of Pennsylvania.
3.24 CONDITION. All of the Assets are in good operating condition and
repair, ordinary wear and tear excepted, and, as applicable, good working order.
To the best of the Seller's and the Stockholder's Knowledge, the buildings,
fixtures, and improvements leased by the Seller, including but not limited to
the parking areas, roofs, foundations, plumbing, electrical, air conditioning,
heating
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and ventilating systems, doors, building exteriors, landscaping, and interior
areas are in good condition, ordinary wear and tear excepted, and, as
applicable, good working order.
3.25 INTELLECTUAL PROPERTY. All of the Intellectual Property owned by the
Seller is described on SCHEDULE 2.1(E) attached hereto. The Seller is the sole
owner of all of the Intellectual Property, free and clear of any liens,
encumbrances, restrictions, or legal or equitable claims of others. The Seller
has registered all trade names, trademarks, and service marks in all
jurisdictions necessary to evidence and protect its ownership thereof, and to
permit the Seller to conduct its business in the manner in which it is currently
conducted, or otherwise has all rights or licenses necessary to use the same.
The Seller has all patents or patent applications and copyrights registered in
all jurisdictions necessary to evidence and protect the ownership thereof and to
permit the Seller to conduct its business in the manner in which it is currently
conducted, or otherwise has all rights or licenses necessary to use same.
Except as disclosed in this Agreement, all of the patents of the Seller are
valid and in full force and effect and are not subject to any taxes, maintenance
fees, or actions which have not been currently paid. None of the Intellectual
Property infringes upon any patents, trade or assumed names, trademarks, service
marks, or copyrights belonging to any other person or other entity. The Seller
is not a party to any license, agreement, or arrangement, whether as licensor,
licensee, or otherwise, with respect to any of the Intellectual Property. The
Seller does not have a license or a right to use any other patents, service
marks, trademarks, trade and assumed names, trade secrets and royalty rights and
other proprietary intangibles in connection with the Business, other than the
Intellectual Property.
3.26 POWERS OF ATTORNEY. No person or other entity holds a general or
special power of attorney from the Seller.
3.27 NO SEVERANCE PAYMENTS. Except as set forth in SCHEDULE 3.27, the
Seller will not owe a severance payment or similar obligation to any of its
Employees, officers, or directors, as a result of the transactions contemplated
by this Agreement, nor will any of such persons be entitled to an increase in
severance payments or other benefits as a result of the transactions
contemplated hereby, nor in the event of the subsequent termination of their
employment.
3.28 EMPLOYEES. Except as has occurred in the ordinary course of business,
the Seller has not, nor has it agreed to do in any unusual or extraordinary
amount or manner, any of the following acts with respect to its Employees in the
Business: (i) grant any increase in salaries payable or to become payable by it,
(ii) increase benefits, (iii) modify any collective bargaining agreement to
which it is a party or by which it may be bound, or (iv) declared any bonuses
for any of its Employees.
3.29 TAXES. Seller has filed all tax returns that Seller was required to
file, and all such tax returns were correct and complete in all respects. All
Taxes owed by Seller (whether or not shown on any tax return) have been paid.
Seller is not the beneficiary of any extension of time within which to file any
tax return, and Seller has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency. Seller has withheld and paid all Taxes required to have been
withheld or paid in connection with amounts paid or owing to the Stockholder and
any Employee, independent contractor, creditor, or other third party. Neither
Seller, an Employee responsible for Tax matters, nor the Stockholder of Seller
has reason to believe
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that any authority might assess any additional Taxes for any period for which
tax returns have been filed. There is no dispute or claim concerning any Tax
liability of Seller.
3.30 HIRING OF EMPLOYEES. As of the Closing Date, Seller shall permit
Buyer to offer employment to all of the Employees. At or prior to Closing,
Seller shall have paid such Employees all compensation and benefits to which
they are entitled by reason of their previous employment with the Seller on such
date, and Buyer shall have no liability with respect thereto. Seller shall use
Seller's best efforts to assist Buyer in any reasonable manner in the hiring by
Buyer of the Employees that Buyer desires to hire. Buyer shall have the right,
but not the obligation, to offer employment to such Employees that it desires to
hire in its sole discretion. Seller shall be solely responsible and liable for
all severance pay, if any, to the extent that any of the Employees are not
offered employment with Buyer or do not accept an offer of employment. Under no
circumstances shall the Seller or any of Seller's Affiliates be permitted to
employ or offer employment to any of the Employees after the Closing Date,
without the prior written consent of Buyer.
3.31 OPERATIONS OF THE SELLER. Except as disclosed in SCHEDULE 3.31, since
the Balance Sheet Date:
(i) Seller has used its best efforts to preserve the business organization
of the Seller intact, to keep available to the Business the Employees, and to
preserve its present relationships with suppliers, Customers and others having
business relationships with it;
(ii) Seller has maintained its existing insurance as to the Business and
the Assets, and otherwise maintained and operated the Business in a good and
businesslike manner in accordance with good and prudent business practices;
(iii) Seller has not entered into any agreement or instrument which would
constitute an encumbrance of the Assets, which would bind Buyer, the Seller or
the Assets after Closing, other than in the ordinary course of business, or
which would be outside the normal scope of maintaining and operating the
Business and the Assets in the ordinary course of business;
(iv) Seller has performed all of the Seller's material obligations under
all Contracts and commitments applicable to the Seller, the Business, and the
Assets, and has maintained the Seller's Books and Records in the usual, regular
and customary manner;
(v) to the best of Seller's Knowledge, the Seller has complied with all
statutes, laws, ordinances and regulations applicable to the Seller, the Assets,
and the conduct of the Business;
(vi) Seller has not removed or disposed of, nor permitted the removal or
disposal of, any Assets unless such Assets were replaced with an item of at
least equal value that is properly suited for its intended purpose;
(vii) Seller has paid all bills and other payments due with respect to the
ownership, use, insurance, operation and maintenance of the Business and the
Assets in the usual, regular and customary manner consistent with its prior
practices, and has taken all action necessary or prudent
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to prevent liens or other claims for the same from being filed or asserted
against any part of the Assets; and
(viii) all revenues received by the Seller relating to the Business have
been deposited in the Seller's account relating to the Business.
3.32 FULL DISCLOSURE. This Agreement, the Ancillary Agreements and the
Schedules hereto, and all other documents and written information furnished by
the Seller to the Buyer pursuant hereto or in connection herewith, are true,
complete and correct, and do not include any untrue statement of a material fact
or omit to state any material fact necessary to make the statements made herein
and therein not misleading. To the best of Seller's Knowledge, there are no
facts or circumstances relating to the Assets or the Business which adversely
affect or might reasonably be expected to adversely affect the Assets, the
Business (including the prospects or operations thereof), or the ability of the
Seller to perform this Agreement or any of Seller's obligations hereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Parent and Buyer jointly and severally represent and warrant that all of the
following representations and warranties in this Article IV are true at the date
of this Agreement and shall be true at the time of Closing and the IPO Closing
Date, and that such representations and warranties shall survive the IPO Closing
Date until the Expiration Date, except that solely for purposes of determining
whether a claim for indemnification under Section 7.1 hereof has been made on a
timely basis, and solely to the extent that in connection with the IPO, the
Seller actually incurs liability under the Securities Act, the Exchange Act, or
any other federal or state securities laws, the representations and warranties
set forth herein shall survive until the expiration of any applicable
limitations period, which shall be deemed to be the Expiration Date for such
purposes.
4.1 ORGANIZATION. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York and has
all the necessary corporate powers to own its properties and to carry on its
business as now owned and operated by it. The Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas and has all the necessary corporate powers to own its properties and to
carry on its business as now owned and operated by it.
4.2 AUTHORITY. Each of Buyer and Parent, as applicable, has the right,
power, legal capacity, and authority to execute, deliver and perform this
Agreement and the Ancillary Agreements to which it is a party. The execution,
delivery and performance of this Agreement and any Ancillary Agreements by Buyer
and Parent, as applicable, have been duly authorized by all necessary corporate
action.
4.3 CAPITAL STOCK OF PARENT AND BUYER. The respective designations and
numbers of outstanding shares and voting rights of each class of outstanding
capital stock of the Parent and the Buyer are as follows: (i) immediately prior
to the Closing Date and the IPO Date, the authorized capital stock of Parent
will consist of 100,000,000 shares of common stock, of which the number of
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issued and outstanding shares will be set forth in the Registration Statement,
and 10,000,000 shares of preferred stock, $.01 par value, of which no shares
will be issued and outstanding, and a number of shares of restricted voting
common stock, $.01 par value, to be determined by Parent in good faith, all of
which will be issued and outstanding except as otherwise set forth in the
Registration Statement, and (ii) as of the date of this Agreement, the
authorized capital stock of Buyer consists of 10,000 shares of common stock, all
of which shares are issued and outstanding.
4.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING. Except for
the Other Agreements and except as set forth on in the Registration Statement,
(i) no option, warrant, call, conversion right or commitment of any kind exists
which obligates the Parent or the Buyer to issue any of their respective
authorized but unissued capital stock, and (ii) neither the Parent nor the Buyer
has any 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. SCHEDULE 4.4 includes
complete and accurate copies of all stock option or stock purchase plans,
including a list of all outstanding options, warrants or other rights (excluding
the Other Agreements) to acquire Parent Shares.
4.5 COMMON STOCK. At the time of issuance thereof and delivery to the
Seller, the Parent Shares to be delivered to the Seller pursuant to this
Agreement will constitute valid and legally issued Parent Shares, fully paid and
nonassessable, and with the exception of restrictions upon resale (a) set forth
in Section 9.2 hereof and (b) contained in the Stock Pledge Agreement, will be
identical in all substantive respects (which do not include the form of
certificate upon which it is printed or the presence or absence of a CUSIP
number on any such certificate) to the Parent Shares issued and outstanding as
of the date hereof by reason of the provisions of the Texas Business Corporation
Act. Except as provided in the previous sentence, the Parent Shares issued and
delivered to the Seller shall at the time of such issuance and delivery be free
and clear of any liens, claims or encumbrances of any kind or character. The
Parent Shares to be issued to the Seller pursuant to this Agreement will not be
registered under the 1933 Act, except as provided in the Registration Rights
Agreement.
4.6 ASSUMED LIABILITIES. Buyer shall assume the Assumed Liabilities as
defined in Section 2.6 herein.
4.7 ABSENT CERTAIN CHANGES. Since the Balance Sheet Date, there have been
no (a) material adverse changes in the business, financial condition, assets,
operations or prospects of Parent, (b) amendments, modifications or terminations
of any material contract applicable to Parent, (c) any changes in the accounting
methods or practices of Parent or (d) any litigation or facts or circumstances
that could result in litigation that, if adversely determined, might reasonably
be expected to have a material adverse effect on Parent or on its business,
financial condition or prospects.
4.8 LITIGATION. Except as disclosed in Schedule 4.8, there is no suit,
action, arbitration or legal, administrative or other proceeding or governmental
investigation pending or, to the best of the Parent's Knowledge, threatened
against or affecting the Parent or the Buyer that could result in a material
adverse effect on the Business.
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4.9 NO BREACH OR VIOLATION. As of the Effective Time and except as set
forth on Schedule 4.9, the consummation of the transactions contemplated by this
Agreement will not result in or constitute any of the following: (i) a default
or an event that, with notice or lapse of time or both, would be a default,
breach or violation, or give rise to a right of modification, termination,
cancellation or acceleration of any obligation or to a loss of a benefit under,
except for third party consents described in this Agreement or any schedule
prepared and delivered in connection herewith, of any lease, license, promissory
note, conditional sales contract, commitment, indenture, mortgage, deed of
trust, security agreement, concession, franchise, permit or other agreement,
instrument or arrangement by which the Parent or the Buyer may be affected, or
to which the Parent or the Buyer may be bound, (ii) the creation or imposition
of any lien, charge, or encumbrance on any of the assets of the Parent or the
Buyer, or (iii) a breach of any term or provision of this Agreement.
4.10 VALID AND BINDING OBLIGATIONS. Upon execution and delivery, each of
this Agreement and the Ancillary Agreements will constitute the legal, valid,
and binding obligation of Buyer or Parent, as applicable, enforceable in
accordance with its terms, except as limited by bankruptcy laws, insolvency
laws, and other similar laws affecting the rights of creditors generally.
4.11 BROKERS. Except for The GulfStar Group, Inc. neither Buyer nor any of
its respective Affiliates, officers, directors, or employees, has employed any
broker, agent, or finder, or incurred any liability for any brokerage fees,
agent's fees, commissions or finder's fees in connection with the transactions
contemplated herein.
4.12 CONSENTS AND APPROVALS. No consent, approval or authorization of, or
filing or registration with, any Person or Entity, is required to be made or
obtained by Buyer in connection with the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby.
ARTICLE V
COVENANTS OF THE PARTIES
Buyer and Seller covenant and agree as follows:
5.1 CONDUCT OF THE BUSINESS. Except as otherwise permitted by this
Agreement or consented to by Buyer in writing, Seller shall through the IPO
Closing Date conduct the Business in the ordinary course in substantially the
same manner as heretofore, using its best efforts to preserve intact its present
business organization, to keep available the services of its Employees, and to
preserve its relationships with Customers, suppliers and others having business
dealings with it.
5.2 CERTAIN CHANGES. Except as otherwise permitted by this Agreement or
consented to by Buyer in writing, Seller shall not: (a) subject any of the
Assets to any lien or encumbrance; (b) dispose of any of the Assets; or (c)
grant any increase in compensation or benefits to any Employee; (d) materially
modify any of the liabilities, or (e) with respect to the Business, perform any
act outside the Ordinary Course of Business except as otherwise contemplated by
this Agreement.
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5.3 NOTICE. Seller will notify Buyer immediately in writing if (i) any of
Seller's representations or warranties set forth in this Agreement are or become
untrue prior to the IPO Closing Date, (ii) Seller fails to fully perform all of
the covenants of Seller set forth in this Agreement, or (iii) there occurs any
Material adverse development in the Business or Seller's market position, sales,
profit trends, labor regulations, litigation or insurance claims or otherwise.
5.4 RECORDS. From the date of execution of this Agreement until the
Closing, Seller shall permit Buyer the right, during normal business hours, to
inspect any documents, Books and Records or other information pertaining to the
Assets.
5.5 U.C.C. SEARCHES. Within five (5) days from the date of execution
hereof, Buyer, at Buyer's sole cost and expense, shall deliver to Seller current
searches of all Uniform Commercial Code financing statements filed with the
Office of the Secretary of State of Pennsylvania and in any other state, or
county in which the Seller has an office, against Seller. Any and all liens,
pledges, mortgages, security interests and encumbrances affecting the Assets,
regardless of whether same are disclosed in such lien searches, shall be
released and discharged by Seller at or prior to Closing.
5.6 BULK SALES. It may not be practicable to comply or attempt to comply
with the procedures of the "Bulk Sales Act" or similar law in any or all of the
states in which the Assets are situated or of any other state which may be
asserted to be applicable to the transactions contemplated hereby. Accordingly,
to induce Buyer to waive any requirements for compliance with any or all of such
laws, Seller hereby agrees that except for the Assumed Liabilities, the
indemnity provisions of Article VII hereof shall apply to any Damages of Buyer
arising out of or resulting from the failure of Buyer or Seller to comply with
any such laws or any similar law which may be asserted to be applicable.
5.7 NON-COMPETITION AGREEMENT. The Seller agrees that, for the period
beginning on the Closing Date and continuing for five (5) years following the
Closing Date, neither Seller, Lee Goldstein, individually, nor any Affiliates,
shall, either directly or indirectly, individually or separately, for themselves
or as an owner, stockholder, joint venturer, promoter, consultant, manager,
independent contractor, agent, or in some similar capacity for any reason
whatsoever:
A. Enter into, engage in, or be connected with any business or
business operation or activity which consists in whole or in part of the
Business within the following Counties:
(list counties in Pennsylvania);
B. Call upon any customer whose account is or was serviced in whole or
in part by the Seller in relation to the Business or the Buyer with the
intent of selling or attempting to sell to any such customer any services
similar to the services provided by the Buyer; and
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C. Intentionally divert, solicit or take away any customer, supplier
or employee of the Buyer, or the patronage of any customer or supplier of
the Buyer, or otherwise interfere with or disturb the relationship existing
between the Buyer and any of its customers, suppliers, or employees,
directly or indirectly.
In the event the Buyer ceases operation of the Business other than in a
merger, consolidation, sale of assets or similar transaction, or upon the filing
of a bankruptcy or receivership proceeding against the Buyer, or upon the
appointment of a liquidator for the Buyer, the provisions of this Section 5.7
will not be applicable to the conduct of Seller subsequent thereto.
It is mutually understood and agreed that if any of the provisions relating
to the scope, time or territory in this Section 5.7 are more extensive than is
enforceable under applicable law or are broader than necessary to protect the
goodwill and legitimate business interests of the Buyer, then the Parties agree
that they will reduce the degree and extent of such provisions by whatever
minimal amount is necessary to bring such provisions within the ambit of
enforceability under applicable law.
The Parties acknowledge that the remedies at law for breach of Seller's
covenants contained in this Section 5.7 are inadequate, and they agree that the
Buyer shall be entitled, at its election, to injunctive relief (without the
necessity of posting bond against such breach or attempted breach), and to
specific performance of said covenants in addition to any other remedies at law
or equity that may be available to the Buyer.
5.8 TERMINATION OF EMPLOYMENT OF SELLER'S EMPLOYEES. Buyer anticipates
extending an offer of employment to substantially all of the Employees of the
Seller on substantially the same terms and conditions as the Employees currently
are employed by Seller. Notwithstanding the foregoing, nothing herein shall
imply or guarantee employment of any Employee of Seller by Buyer. If Seller's
Employees desire employment with Buyer, they will be interviewed in conjunction
with the applicants from other sources and given strong consideration for
available positions with Buyer, at the wages, hours, and conditions of
employment established by Buyer prior to hiring any Employees. Seller agrees to
use its best efforts to make available the Employees to the Buyer that Buyer
desires to hire for the purpose of operating the Business. Notwithstanding
anything to the contrary contained herein, Buyer agrees that it will offer to
employ substantially all of Seller's Employees. Nothing shall prohibit Buyer
from terminating any of Seller's Employees subsequent to their employment by
Buyer.
5.9 COOPERATION IN CONNECTION WITH THE IPO. The Seller and the Stockholder
will (a) provide the Parent and the Underwriter with all the Information
concerning Seller and the Stockholder which is reasonably requested by the
Parent and the Underwriter from time to time in connection with effecting the
IPO and (b) cooperate with the Parent and the Underwriter and their respective
representatives in the preparation and amendment of the Registration Statement
(including the Financial Statements) and in responding to the comments of the
SEC staff, if any, with respect thereto, to the extent that any of the foregoing
concern or reasonably relate to the Seller or the Stockholder. The Seller and
the Stockholder agree promptly to (a) advise the Parent if, at any time during
the period in which a prospectus relating to the IPO is required to be delivered
under the Securities Act, any information contained in the then current
Registration Statement prospectus
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concerning the Seller or the Stockholder becomes incorrect or incomplete in any
material respect and (b) provide the Parent with the information needed to
correct or complete that information.
5.10 ADDITIONAL FINANCIAL STATEMENTS. Seller shall promptly furnish to
Buyer a copy of all Financial Statements for each additional month-end period
beyond the Balance Sheet Date as soon as same is regularly prepared by Seller in
the Ordinary Course of Business. All such additional Financial Statements shall
be subject to the same representations and warranties as contained in Section
3.23 of this Agreement. The Parties acknowledge and agree that Buyer shall be
permitted to conduct at its sole cost and expense an audit of Seller for the
fiscal years ended 1994, 1995 and 1996 and 1997 (or any portion thereof) in
connection with the IPO. Buyer shall pay Seller's reasonable costs incurred in
preparing such monthly financial statements.
5.11 SUPPLEMENTAL INFORMATION. The Seller and the Stockholder agree that,
with respect to the representations and warranties of that party contained in
this Agreement, that party will have the continuing obligation through the IPO
Closing to provide the Parent promptly with such additional supplemental
Information (collectively, the "Supplemental Information"), in the form of (a)
amendments to then existing Schedules or (b) additional Schedules, as would be
necessary, in the light of the circumstances, conditions, events and states of
facts then known to the Seller or such Stockholder, to make each of those
representations and warranties true and correct as of the Closing and on the IPO
Closing Date. For purposes only of determining whether the conditions to the
obligations of the Parent and Buyer which are specified in Section 6.3 have been
satisfied, the Schedules as of the Closing and on the IPO Closing Date shall be
deemed to be the Schedules and the Investor Representation Letter as of the date
hereof as amended or supplemented by the Supplemental Information provided to
the Parent prior to the Effective Date pursuant to this Section 5.11; provided,
however, that (a) if the Supplemental Information so provided discloses the
existence of circumstances, conditions, events or states of facts which, in any
combination thereof, have had a Material Adverse Effect or, (b) based upon the
advice of the Underwriter the Parent has determined that subsequent events that
were revealed through RSA's submission of Supplemental Information pursuant to
this Section 5.11 (which shall be conclusive for purposes of this Section 5.11
and 8.3(a)(iv), but not for any purpose of Article VII), are having or will have
a Material Adverse Effect, the Parent will be entitled to terminate this
Agreement pursuant to Section 8.3(a)(iv); and provided, further, that if the
Parent is entitled to terminate this Agreement pursuant to Section 8.3(a)(iv),
but elects not to do so, it will be entitled to treat as Buyer Indemnified
Losses (which treatment will not prejudice the right of the Seller or the
Stockholder to contest Damage claims made by the Parent in respect of those
Buyer Indemnified Losses) all Damages to the Business which are attributable to
the circumstances, conditions, events and state of facts first disclosed herein
after the date hereof in the Supplemental Information. The Parent will provide
the Seller and the Stockholder with copies of the Registration Statement,
including all pre-effective amendments thereto, promptly after the filing
thereof with the SEC under the Securities Act.
5.12 INSURANCE. Seller shall assist, and shall cause its Affiliates to
assist, Buyer in transferring to Buyer any insurance applicable to the Assets or
the Leased Assets which Buyer elects to maintain in effect.
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5.13 CONFIDENTIALITY. Seller will not, and will not permit any of its
Affiliates to, disclose any information of a confidential or proprietary nature
concerning the Assets or the Business to any third parties, and in no event
shall Seller use, or allow any of its Affiliates to use, such confidential or
proprietary information for its or his own benefit or to the detriment of Buyer
or the Business. No public or private announcement shall be made of the
transactions contemplated herein, nor the terms hereof, by Seller or any of its
Affiliates, without the prior written approval of Buyer as to timing, form and
content.
ARTICLE VI
THE CLOSING
6.1 PRICING. At or prior to Pricing, the Parties shall take all actions
necessary to (a) complete the Acquisition (including the execution and delivery
of this Agreement and the Ancillary Agreements which shall be placed in escrow
under the control of the Parent for release to the Parties on the IPO Date), and
(b) effect the delivery of the Parent Shares referred to in Section 2.3 hereof,
provided however, that such actions shall not include the actual completion of
the Acquisition or the delivery of the Common Stock and funds referred to in
Section 2.3 hereof, each of which actions shall only be taken upon the IPO
Closing Date as herein provided. For purposes of this Article VI, the term
"Pricing" shall mean the date of determination by Parent and the Underwriter of
the public offering price of the Parent Shares in the IPO; the Parties
contemplate that the Pricing shall take place on the Closing Date. The escrow
agreement relating to this Agreement and the Ancillary Agreements shall provide
that in the event that there is no IPO Closing Date, and this Agreement
terminates as provided in Section 8.3(b)(ii), the Agreement and the Ancillary
Agreements shall not be delivered to the Parties. The taking of the actions
described in clauses (a) and (b) above (the "Closing") shall take place on the
closing date (the "Closing Date") at the offices of Boyer, Ewing & Harris
Incorporated, 9 Greenway Plaza, Suite 3100, Houston, Texas 77046. On the IPO
Closing Date, all transactions contemplated by this Agreement, including the
delivery of the Parent Shares, the wire transfer of the cash portion of the
Purchase Price which Seller is entitled to receive pursuant to Section 2.3
hereof, and the closing of the IPO shall occur and be completed. Except as
otherwise provided in Section 8.3 hereof, during the period from the Closing
Date to the IPO Closing Date, this Agreement may only be terminated by the
Parties if the Underwriting Agreement is terminated pursuant to the terms
thereof.
6.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. The obligations of the
Seller with respect to actions to be taken on the Closing Date are subject to
the satisfaction or waiver on or prior to the Closing Date of all of the
following conditions other than the conditions set forth in this Section 6.2(i)
and (viii) that cannot be satisfied prior to the IPO Closing Date. The
obligations of the Seller with respect to actions to be taken on the IPO Closing
Date are subject to the satisfaction or waiver on or prior to the IPO Closing
Date of the conditions set forth in this Section 6.2(i) and (viii). As of (a)
the Closing Date if any such conditions have not been satisfied other than the
conditions set forth in this Section 6.2(i) and (viii) that cannot be satisfied
prior to the IPO Closing Date or (b) the IPO Closing Date, if any such
conditions have not been satisfied, the Seller shall have the right to terminate
this Agreement, or in the alternative, waive any condition not so satisfied.
Any act or
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action of the Seller in consummating the Closing on the Closing Date to the
extent set forth in the first sentence of Section 6.1 shall constitute a waiver
of any conditions not so satisfied other than the conditions set forth in this
Section 6.2(i) and (viii) that cannot be satisfied prior to the IPO Closing
Date. However, no such waiver shall be deemed to affect the survival of the
representations and warranties of Parent and Buyer contained in Article IV
hereof.
(i) REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of the Parent and the Buyer contained in
Article IV shall be true and correct in all Material respects as of the
Closing Date and the IPO Closing Date as though such representations and
warranties had been made as of that time; all of the terms, covenants and
conditions of this Agreement to be complied with and performed by the Parent
and the Buyer on or before the Closing Date and the IPO Closing Date shall
have been duly complied with and performed in all Material respects; and
certificates to the foregoing effect dated the Closing Date and the IPO
Closing Date, respectively, and signed by each of the Parent and the Buyer
shall have been delivered to the Seller.
(ii) NO LITIGATION. No action or proceeding before a Governmental
Authority shall have been instituted or threatened to restrain or prohibit
the Acquisition or the IPO and no Governmental Authority shall have taken
any other action or made any request of the Parent or the Buyer as a result
of which the management of the Seller deems it inadvisable to proceed with
the transactions hereunder.
(iii) OPINION OF COUNSEL. The Seller shall have received an opinion
from counsel for the Parent dated the Closing Date, in the form attached as
Exhibit G-1 hereto.
(iv) REGISTRATION STATEMENT. The Registration Statement, as amended
to cover the offering, issuance and sale by Parent of such number of Parent
Shares at the IPO Price (which need not be set forth in the Registration
Statement when it becomes effective under the Securities Act) as shall yield
aggregate cash proceeds to the Parent from that sale (net of Underwriter's
discount or commissions) in at least the amount (the "Minimum Cash Amount")
that is sufficient, when added to the funds, if any, available from other
sources (if any, and as set forth in the Registration Statement when it
becomes effective under the Securities Act)(the "Other Financing Sources"),
to enable the Parent to pay or otherwise deliver on the IPO Closing Date (i)
the total cash portion of the Purchase Price then to be delivered pursuant
to Article II; (ii) the total cash portion of the acquisition consideration
then to be delivered pursuant to the Other Agreements as a result of the
consummation of the acquisition transactions contemplated thereby, and (iii)
the total amount of indebtedness of the Seller, each Other Acquired Business
and the Parent which the Registration Statement discloses at the time it
becomes effective under the Securities Act will be repaid with proceeds
received by the Parent from the IPO and Other Financing Sources shall have
been declared effective by the SEC.
(v) CONSENTS AND APPROVALS. All necessary consents of and filings
with any Governmental Authority relating to the consummation of the
transactions contemplated herein
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shall have been obtained and made and no action or proceeding shall have
been instituted or threatened to restrain or prohibit the Acquisition.
(vi) GOOD STANDING CERTIFICATES. Parent and the Buyer each shall
have delivered to the Seller certificates, dated as of a date no later than
ten days prior to the Closing Date, duly issued by the Texas and New York
Secretaries of State, respectively, and in each state in which the Parent
and Buyer is authorized to do business, showing that each of the Parent and
the Buyer is in good standing and authorized to do business and that all
state franchise and/or income tax returns and taxes for the Parent and the
Buyer, respectively, for all periods prior to the Closing have been filed
and paid.
(vii) NO MATERIAL ADVERSE CHANGE. No event or circumstance shall
have occurred with respect to the Parent or the Buyer which would constitute
a Material Adverse Effect.
(viii) CLOSING OF IPO. The closing of the sale of the Parent Shares
to the Underwriters in the IPO shall have occurred simultaneously with the
IPO Closing Date hereunder.
(ix) SECRETARY'S CERTIFICATE. The Seller shall have received a
certificate or certificates, dated the Closing Date and signed by the
secretary of each of the Parent and the Buyer, certifying the truth and
correctness of attached copies of the Parent's and the Buyer's respective
resolutions of their boards of directors and, if required, the stockholders
of the Parent and the Buyer approving the Parent's and the Buyer's entering
into this Agreement and the consummation of the transactions contemplated
hereby.
(x) GOLDSTEIN EMPLOYMENT AGREEMENT. The Buyer shall have entered
into an employment agreement with Goldstein in the form attached as Exhibit
A ("Goldstein Employment Agreement").
(xi) REGISTRATION RIGHTS AGREEMENT. Parent shall have entered into
the Registration Rights Agreement with the Seller in the form attached as
Exhibit B ("Registration Rights Agreement").
(xii) AUDITED FINANCIALS. Parent shall have delivered to Seller a
certified copy of the audited reports, including a signed and certified opinion
letter, prepared by Coopers & Lybrand, L.L.P. for the calendar years 1995, 1996
and for the twelve months ended June 30, 1997 of the operations of Seller's
Business.
6.3 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARENT AND THE BUYER. The
obligations of the Parent and the Buyer with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions other than the conditions set
forth in this Section 6.3(i) and (viii) that cannot be satisfied prior to the
IPO Closing Date. The obligations of Parent and Buyer with respect to actions
to be taken on the IPO Closing Date are subject to the satisfaction or waiver on
or prior to the IPO Closing Date of all of the following conditions. As of (a)
the Closing Date if any such conditions other than the
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conditions set forth in this Section 6.3(i) and (viii) that cannot be satisfied
prior to the IPO Closing Date have not been satisfied or (b) as of the IPO
Closing Date, if any such conditions have not been satisfied, Parent and Buyer
shall have the right to terminate this Agreement, or waive any such condition,
but no such waiver shall be deemed to affect the survival of the representations
and warranties contained in Article III hereof.
(i) REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATION. All
the representations and warranties of the Seller and the Stockholder
contained in this Agreement shall be true and correct in all Material
respects as of the Closing Date and the IPO Closing Date with the same
effect as though such representations and warranties had been made on and as
of such date; all of the terms, covenants and conditions of this Agreement
to be complied with or performed by the Seller or the Stockholder on or
before the Closing Date or the IPO Closing Date, as the case may be, shall
have been duly performed or complied with in all Material respects; and the
Seller and the Stockholder shall have delivered to the Buyer certificates
dated the Closing Date and the IPO Closing Date, respectively, and signed by
them to such effect.
(ii) NO LITIGATION. No action or proceeding before a Governmental
Authority shall have been instituted or threatened to restrain or prohibit
the Acquisition or the IPO and no Governmental Authority shall have taken
any other action or made any request of Parent as a result of which the
management of Parent deems it inadvisable to proceed with the transactions
hereunder.
(iii) OPINION OF COUNSEL. Parent shall have received an opinion
from Counsel to the Seller, dated the Closing Date, substantially in the
form attached as Exhibit G-2 hereto.
(iv) REGISTRATION STATEMENT. The Registration Statement, as amended
to cover the offering, issuance and sale by Parent of such number of Parent
Shares at the IPO Price as shall yield aggregate cash proceeds to the Parent
from that sale (net of Underwriter's discount or commissions) in at least
the Minimum Cash Amount shall have been declared effective by the SEC.
(v) 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; all
consents and approvals of third parties shall have been obtained; and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit the Acquisition.
(vi) GOOD STANDING CERTIFICATES. Subject to Section 2.6, Seller
shall have delivered to the Buyer certificates, dated as of a date no later
than ten days prior to the Closing Date, duly issued by the Pennsylvania
Secretary of State showing that the Seller is in good standing and
authorized to do business and that all state franchise and/or income tax
returns and taxes for the Seller for all periods prior to the Closing have
been filed and paid.
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(vii) NO MATERIAL ADVERSE CHANGE. No event or circumstance shall
have occurred with respect to the Seller which would constitute a Material
Adverse Effect, and the Seller 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 Seller to conduct its business.
(viii) CLOSING OF IPO. The closing of the sale of the Parent Shares
to the Underwriter of the IPO shall have occurred simultaneously with the
IPO Closing Date hereunder.
(ix) CERTIFICATE. The Buyer shall have received a certificate or
certificates, dated the Closing Date and signed by the President and
Secretary of the Seller, certifying the truth and correctness of attached
copies of the Seller's articles of incorporation, bylaws and resolutions
authorizing the consummation of the transactions contemplated hereby.
(x) GOLDSTEIN EMPLOYMENT AGREEMENT. Goldstein shall have entered
into the Goldstein Employment Agreement.
(xi) REGISTRATION RIGHTS AGREEMENT. Seller shall have entered into
the Registration Rights Agreement.
(xii) BILL OF SALE. Seller shall have delivered to the Buyer
instruments of assignment and transfer or bills of sale signed by the Seller
as the Buyer reasonably requests, including the Bill of Sale attached as
Exhibit C ("Bill of Sale").
(xiii) INVESTOR REPRESENTATION LETTER. Seller and each of the
Stockholders shall have delivered to the Parent at or prior to the signing
of the Registration Statement an Investor Representation Letter in the form
attached as Exhibit D, with respect to the acquisition of the Parent Shares
to be issued to Seller.
(xiv) STOCK PLEDGE AGREEMENT. Seller shall have delivered to Buyer
a Stock Pledge Agreement in the form attached as Exhibit E ("Stock Pledge
Agreement") as well as the Parent Shares issuable to the Seller at the
Closing (complete with stock powers executed in blank).
(xv) GUARANTEE. Goldstein, individually, shall have delivered to
Buyer a Guaranty of Performance in the form of Exhibit F.
(xvi) SATISFACTION. All actions, proceedings, instruments and
documents required to carry out the transactions contemplated by this
Agreement or incidental hereto and all other related legal matters shall
have been approved by counsel to the Parent.
6.4 FURTHER ASSURANCES. At and after the Closing, each of the Parties
shall take all appropriate action and execute all documents of any kind which
may be reasonably necessary or desirable to carry out the transactions
contemplated hereby. The Seller, at any time at or after the
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Closing, will execute, acknowledge and deliver any further bills of sale,
assignments and other assurances, documents and instruments of transfer,
reasonably requested by the Buyer, and will take any other action consistent
with the terms of this Agreement that may reasonably be requested by the Buyer,
for the purpose of assigning and confirming to the Buyer, all of the Assets. The
Buyer shall notify the Seller promptly, and in no event more than ten (10)
business days after the Buyer's receipt, of any tax inquiries or notifications
thereof which relate to any period prior to the Effective Date, and the Seller
shall prepare and deliver responses to such inquiries as the Seller deems
necessary or appropriate. In addition, the Seller shall make available the Books
and Records of the Business during reasonable business hours and take such other
actions as are reasonably requested by the Buyer to assist the Buyer in the
operation of the Business.
6.5 CONFIDENTIAL INFORMATION. After the Closing and except as otherwise
specifically permitted in this Agreement or reasonably required by the Parent to
conduct its business and pursue the IPO, each Party to this Agreement agrees, on
behalf of itself and ifs Affiliates, to use reasonably efforts not to divulge,
communicate, use to the detriment of any other Party to this Agreement or its
Affiliates or for the benefit of any other person or persons, any confidential
information or trade secrets of such other Party with respect to the Assets or
the Business, including personnel information, secret processes, know-how,
customer lists, formulae, or other technical data; provided, if any Party to
this Agreement or any of its Affiliates is compelled to disclose such
information to any tribunal, regulatory or governmental authority or agency or
else stand liable for contempt or suffer other censure and penalty, such Party
may so disclose such information without any liability hereunder.
6.6 ASSIGNMENT OF CONTRACTS. On or before the Effective Date, Seller
shall have delivered to Buyer all of the Contracts presently in force and shall
have effected a valid assignment of all of Seller's rights and obligations
thereunder.
ARTICLE VII
INDEMNIFICATION
7.1 INDEMNIFICATION.
A. BY THE SELLER AND THE STOCKHOLDER. Subject to Section 7.1(E)
hereof, the Seller and the Stockholder, individually, jointly and severally,
(collectively herein "Seller Indemnitors") shall indemnify, save, defend and
hold harmless the Parent and Buyer and their respective shareholders, directors,
officers, partners, agents and employees (collectively, the "Buyer Indemnified
Parties") from and against any and all costs, lawsuits, losses, liabilities,
deficiencies, claims and expenses, including interest, penalties, attorneys'
fees and all amounts paid in investigation, defense or settlement of any of the
foregoing (collectively referred to herein as "Damages"), (i) incurred in
connection with or arising out of or resulting from or incident to any breach of
any covenant, breach of warranty as of the Effective Date, or the inaccuracy of
any representation as of the Effective Date, made by the Seller in or pursuant
to this Agreement or the Ancillary Agreements, or any other agreement
contemplated hereby or in any schedule, certificate, exhibit, or other
instrument furnished or to be furnished by the Seller or the Stockholder under
this Agreement, (ii) based upon, arising out of, or otherwise in respect of any
liability or obligation of the
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Business or relating to the Assets (a) relating to any period prior to the
Effective Date, other than those Damages based upon or arising out of the
Assumed Liabilities, or (b) arising out of facts or circumstances existing prior
to the Effective Date, other than those Damages based upon or arising out of the
Assumed Liabilities; provided however, that the Seller Indemnitors shall not be
liable for any such Damages to the extent, if any, such Damages result from or
arise out of a breach or violation of this Agreement by any Buyer Indemnified
Parties, and (iii) any liability under the Securities Act, the Exchange 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 Seller or the Stockholder, and provided to Parent
or its counsel by the Seller or the Stockholder, contained 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 to state therein a Material fact relating to the Seller or the
Stockholder required to be stated therein or necessary to make the statements
therein not misleading, provided however, that such indemnity shall not inure to
the benefit of Parent and Buyer to the extent such untrue statement (or alleged
untrue statement) was made in, or omission (or alleged omission) occurred in,
any preliminary prospectus and Seller or the Stockholder provided, in writing,
corrected information to Parent and Parent's counsel for inclusion in the Final
Prospectus, and such information was not included or properly delivered.
B. BY THE BUYER. Subject to Section 7.1(E) hereof, the Parent and
Buyer shall indemnify, save, defend and hold harmless the Seller and the
Stockholder (collectively, the "Seller Indemnified Parties") from and against
any and all Damages (i) incurred in connection with or arising out of or
resulting from or incident to any breach of any covenant, breach of warranty as
of the Effective Date, or the inaccuracy of any representation as of the
Effective Date, made by the Buyer or Parent in or pursuant to this Agreement,
the Ancillary Agreements, or any other agreement contemplated hereby or in any
schedule, certificate, exhibit, or other instrument furnished or to be furnished
by the Buyer under this Agreement, (ii) based upon, arising out of or otherwise
in respect of any liability or obligation of the Business or relating to the
Assets (a) relating to any period on and after the Effective Date, other than
those Damages based upon or arising out of the Retained Liabilities, or (b)
arising out of facts or circumstances existing on and after the Effective Date,
other than those Damages based upon or arising out of the Retained Liabilities;
provided, however, that the Buyer shall not be liable for any such Damages to
the extent, if any, such Damages result from or arise out of a breach or
violation of this Agreement by any Seller Indemnified Party, (iii) under the
Securities Act, the Exchange 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 Parent, Buyer or any
Other Acquired Business contained 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
Parent or Buyer or any of the Other Acquired Businesses required to be stated
therein or necessary to make the statements therein not misleading.
C. DEFENSE OF CLAIMS. If any lawsuit or enforcement action is filed
against any Party entitled to the benefit of indemnity hereunder, written notice
thereof describing such lawsuit or enforcement action in reasonable detail and
indicating the amount (estimated, if necessary) or good faith estimate of the
reasonably foreseeable estimated amount of Damages (which estimate shall in
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no way limit the amount of indemnification the indemnified Party is entitled to
receive hereunder), shall be given to the indemnifying Party as promptly as
practicable (and in any event within ten (10) days, after the service of the
citation or summons) ("Notice of Action"); provided that the failure of any
indemnified Party to give timely notice and an estimated amount of Damages shall
not affect its rights to indemnification hereunder to the extent that the
indemnified Party demonstrates to the indemnifying Party that the amount of
Damages the indemnified Party is entitled to recover has not increased by its
failure to so notify the indemnifying Party within ten (10) days and so long as
the indemnifying Party is not materially prejudiced by the failure to receive
such notice. The indemnifying Party may elect to compromise or defend any such
asserted liability and to assume all obligations contained in this Section 7.1
to indemnify the indemnified Party by a delivery of notice of such election
("Notice of Election") within ten (10) days after delivery of the Notice of
Action. Upon delivery of the Notice of Election, the indemnifying Party shall be
entitled to take control of the defense and investigation of such lawsuit or
action and to employ and engage attorneys of its own choice to handle and defend
the same, at the indemnifying Party's sole cost, risk and expense, and the
indemnified Party shall cooperate in all reasonable respects, at the
indemnifying Party's sole cost, risk and expense (except with respect to the
fees and expenses of the indemnified Party's attorney, which shall be borne by
the indemnified Party) with the indemnifying Party and such attorneys in the
investigation, trial, and defense of such lawsuit or action and any appeal
arising therefrom; provided, however, that the indemnified Party may, at its own
cost, risk and expense, participate in such investigation, trial and defense of
such lawsuit or action and any appeal arising therefrom. If the Notice of
Election is delivered to the indemnified Party, the indemnified Party shall not
pay, settle or compromise such claim without the indemnifying Party's consent,
which consent shall not be unreasonably withheld. If the indemnifying Party
elects not to defend the claim of the indemnified Party or does not deliver to
the indemnified Party a Notice of Election within ten (10) days after delivery
of the Notice of Action, the indemnified Party may, but shall not be obligated
to, defend, compromise or settle (exercising reasonable business judgment) the
claim or other matter on behalf, for the account, and at the risk, of the
indemnifying Party.
D. THIRD PARTY CLAIMS. The provisions of this Section 7.1 are not
limited to matters asserted by the Parties, but cover Damages incurred in
connection with third party claims. The indemnity hereunder is in addition to
any and all rights and remedies of the Parties in connection herewith.
E. LIMITATION ON INDEMNIFICATION. Notwithstanding the other
provisions of this Section 7.1, Seller Indemnitors shall not be liable to Buyer
Indemnified Parties, and Parent and Buyer shall not be liable to Seller
Indemnified Parties, for the first $25,000 in aggregate Damages suffered by such
indemnified Parties; provided, however, that once any such indemnified Parties
have suffered Damages aggregating in excess of $25,000, the indemnifying Party
shall reimburse the indemnified Parties for the full amount of such Damages,
including the $25,000 in Damages initially excluded. In no event shall the
aggregate Damages payable by an indemnifying Party to indemnified Parties exceed
the Purchase Price.
7.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements of the Parties made herein
and at the time of the Closing or in writing delivered pursuant to the
provisions of this Agreement shall survive the consummation of the
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transactions contemplated hereby and any examination on behalf of the Parties
until the Expiration Date.
ARTICLE VIII
TERMINATION AND REMEDIES
8.1 SPECIFIC PERFORMANCE; REMEDIES. Each of the Parties hereby agrees
that the transactions contemplated by this Agreement are unique, and that each
Party shall have, in addition to any other legal or equitable remedy available
to it, the right to enforce this Agreement by decree of specific performance.
If any legal action or other proceeding is brought for the enforcement of this
Agreement or because of an alleged dispute, breach, default or misrepresentation
in connection with any of the provisions of this Agreement, the successful or
prevailing Party or Parties shall be entitled to recover reasonable attorneys'
fees and other costs incurred in that action or proceeding in addition to any
other remedies to which it, he or they may be entitled at law or equity. The
rights and remedies granted herein are cumulative and not exclusive of any other
right or remedy granted herein or provided by law.
8.2 OFFSET; REMEDIES. To the extent not otherwise prohibited by
applicable law, all amounts due and owing by the Buyer to the Seller or the
Stockholder under this Agreement, the Ancillary Agreements, or any other
document, instrument, or agreement executed in connection herewith shall be
subject to offset by the Buyer to the extent of any Damages incurred by any
breach by the Seller or the Stockholder, under this Agreement or any Ancillary
Agreement, or any document, instrument, or agreement executed in connection
herewith. In the event Buyer elects to offset any Damages incurred as a result
of any such breach, Buyer shall furnish Seller or the Stockholder, as
appropriate, notice containing detailed information about the breach, the
magnitude of the damages that Buyer has or reasonably expects to incur, and
whether the offset is against the Parent Shares pledged under the Stock Pledge
Agreement or otherwise (the act of offsetting by Buyer shall be referred to as
an "Offset"). The Seller and the Stockholder acknowledge and agree that but for
the right of Offset contained in this Agreement, the Buyer would not have
entered into this Agreement or any of the transactions contemplated herein. If
any legal action or other proceeding is brought for the enforcement of this
Agreement, any Ancillary Agreement, or any document, instrument, or agreement
executed in connection herewith, or because of an alleged dispute, breach,
default or misrepresentation in connection with any of the provisions of this
Agreement, or any Ancillary Agreement, or any document, instrument, or agreement
executed in connection herewith, the successful or prevailing Party or Parties
shall be entitled to recover other remedies to which it or they may be entitled
at law or equity. The rights and remedies granted herein are cumulative and not
exclusive of any other right or remedy granted herein or provided by law. Buyer
shall not effect an Offset hereunder without giving Seller or a Stockholder, as
appropriate, at least ten (10) days advance written notice of its intent to do
so.
8.3 TERMINATION. Termination of This Agreement. (a) This Agreement may be
terminated at any time prior to the Closing solely:
(i) by the mutual written consent of the Parent and the Seller;
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(ii) by the Seller, on the one hand, or by the Parent, on the other
hand, if the transactions contemplated by this Agreement to take place at
the Closing shall not have been consummated by January 15, 1998, (subject to
the terms of the Side Letter) unless the failure of such transactions to be
consummated results from the willful failure of the Party seeking to
terminate this Agreement to perform or materially adhere to any agreement
required hereby to be performed or adhered to by it prior to or at the
Closing or thereafter on the IPO Closing Date;
(iii) by the Seller, on the one hand, or by the Parent, 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; or
(iv) by the Parent if it is entitled to do so as provided in
Section 5.11.
(b) this Agreement may be terminated after the Closing solely:
(i) by the Parent or the Seller if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party hereto
if the IPO is not consummated within ten (10) New York City business days
after the date of the Closing.
8.4 LIABILITIES IN EVENT OF TERMINATION. If this Agreement is terminated
pursuant to Section 8.3, there shall be no liability or obligation on the part
of any Party hereto except to the extent that such liability is based on the
breach by that Party of any of its representations, warranties or covenants set
forth in this Agreement.
ARTICLE IX
COVENANTS OF BUYER AND SELLER AFTER CLOSING
9.1. PREPARATION AND FILING OF TAX RETURNS.
(i) The Seller shall file or cause to be filed all federal income
tax returns of the Seller for all taxable periods that end on or before the
IPO Closing Date, and shall permit the Parent to review all such tax returns
prior to such filings.
(ii) Parent shall file or cause to be filed all separate tax returns
of, or that include, any Other Acquired Business for all taxable periods
ending after the IPO Closing Date.
(iii) Each Party 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 tax
return, amended tax 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
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relevant portions of relevant tax 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 tax returns pursuant to this Agreement shall
bear all costs of filing such tax returns.
9.2 RESTRICTIVE LEGEND. The Seller consents to the imprinting on all
certificates representing Parent Shares issued to it as part of the Purchase
Price of the following legend:
THE SHARES OF COMMON STOCK REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, NOR THE SECURITIES
LAWS OF ANY STATE. SUCH SHARES MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED AT ANY TIME, EXCEPT UPON (1) SUCH REGISTRATION, OR (2)
DELIVERY TO THE ISSUER OF SUCH SHARES OF AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO THE ISSUER, THAT REGISTRATION IS NOT REQUIRED FOR SUCH
TRANSFER, OR (3) THE SUBMISSION TO THE ISSUER OF SUCH SHARES OF OTHER
EVIDENCE, REASONABLY ACCEPTABLE TO THE ISSUER, TO THE EFFECT THAT ANY SUCH
SALE, PLEDGE, HYPOTHECATION OR TRANSFER WILL NOT BE IN VIOLATION OF THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR OTHER APPLICABLE
SECURITIES LAWS OF ANY STATE, OR ANY RULES OR REGULATIONS
PROMULGATED THEREUNDER.
9.3 PLEDGE OF PARENT SHARES. Seller shall deliver all Parent Shares
acquired from the Buyer as part of the Purchase Price to Buyer to be held
pursuant to the terms of the Stock Pledge Agreement.
9.4 DELIVERY OF TAX CERTIFICATE. Within one year from the Closing Date,
Seller shall deliver such tax certificate to Buyer as required by Section 2.8 of
this Agreement.
9.5 SIDE LETTER The Side Letter, by and between Parent and Goldstein,
dated September 15, 1997 and attached hereto as Exhibit H, is incorporated
herein and made a part of this Agreement for all purposes (the "Side Letter").
ARTICLE X
MISCELLANEOUS
10.1 FEES. Except as expressly set forth herein to the contrary, each
Party shall be responsible for all costs, fees and expenses (including attorney
and accountant fees and expenses) paid or incurred by such Party in connection
with the preparation, negotiation, execution, delivery and performance of this
Agreement, or otherwise in connection with the transaction contemplated hereby.
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10.2 MODIFICATION OF AGREEMENT. This Agreement may be amended or modified
only in writing signed by all of the Parties.
10.3 NOTICES. All notices, consents, demands or other communications
required or permitted to be given pursuant to this Agreement shall be deemed
sufficiently given when delivered personally or telefaxed with receipt of
transmission confirmed during regular business hours during a business day to
the appropriate location described below, or three (3) business days after
posting thereof by United States first-class, registered or certified mail,
return receipt requested, with postage and fees prepaid and addressed as
follows:
IF TO SELLER OR Lee Goldstein
STOCKHOLDER: Reporting Services Associates
225 South 15th Street, 22nd Floor
Philadelphia, PA 19102
With a copy to: Benjamin S. Ohrenstein
Attorney at Law
354 W. Lancaster Avenue
Haverford, Pennsylvania 19041
IF TO BUYER
OR PARENT: Litigation Resources of America-Northeast, Inc.
Litigation Resources of America, Inc.
650 First City Tower, 1001 Fannin
Houston, Texas 77002
Phone: 713/653-7100
Fax: 713/653-7172
With a copy to: John R. Boyer, Jr.
Boyer, Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Phone: 713/871-2025
Fax: (713) 871-2024
Any addressee at any time by furnishing notice to the other addressees in the
manner described above may designate additional or different addresses for
subsequent notices or communications.
10.4 SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not invalidate or affect the enforceability of any other
provision of this Agreement.
10.5 ENTIRE AGREEMENT; BINDING EFFECT. This Agreement and the Ancillary
Agreements set forth the entire agreement among the Parties with respect to the
subject matter hereof. This Agreement shall be binding upon and shall inure to
the benefit of the Parties and their respective successors and assigns.
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10.6 WAIVER. No delay in the exercise of any right under this Agreement
shall waive such rights. Any waiver, to be enforceable, must be in writing.
10.7 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
10.8 ASSIGNMENT. Neither Seller, nor Parent or Buyer may assign this
Agreement or any interest therein; provided that Seller may assign its rights
hereunder to Lee Goldstein, individually, and Parent and Buyer may assign their
rights hereunder to an Affiliate.
10.9 HEADINGS. Headings in this Agreement are for convenience only and
shall not affect the interpretation of this Agreement.
10.10 SCHEDULES AND EXHIBITS. All Schedules and Exhibits attached to this
Agreement or to be delivered by the Seller, upon review and approval by the
Buyer, are and shall be hereby incorporated in and made a part of this
Agreement. All Schedules to this Agreement must be delivered no later than four
(4) days prior to Closing, in order to provide the Buyer ample time to review
and evaluate the items described therein and disclosed thereby. Although the
Schedules remain subject to the review and approval of the Buyer, no such review
or approval shall constitute a waiver by the Buyer of any breach or default
caused by the inaccuracy or incompleteness of any Schedule, the accuracy and
completeness of the Schedules being the sole responsibility of the Seller.
10.11 RIGHTS AND LIABILITIES OF PARTIES. Nothing in this Agreement, whether
express or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any persons other than the Parties, the Buyer
Indemnified Parties and their respective successors and assigns, nor is anything
in this Agreement intended to relieve or discharge the obligation or liability
of any third persons to any Party to this Agreement, nor shall any provision
give any third person any right of subrogation or action over against any Party
to this Agreement.
10.12 SURVIVAL. Subject to Section 7.2, this Agreement, including but not
limited to all covenants, warranties, representations and indemnities contained
herein, shall survive the Closing, and the Bill of Sale and all other documents,
instruments or agreements relating to the Assets and the transactions
contemplated herein shall not be deemed merged therein.
10.13 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall have the force and effect of an original, and
all of which shall constitute one and the same agreement.
10.14 ARBITRATION AND LIMITATION ON CLAIMS. Any controversy, dispute or
claim arising out of, in connection with, or in relation to, the interpretation,
performance or breach of this Agreement, including, without limitation, the
validity, scope and enforceability of this Section which cannot first be settled
through ordinary negotiation between the Parties shall be submitted in good
faith to mediation by and in accordance with the Commercial Mediation Rules of
the American Arbitration Association or any successor organization. In the
event that mediation of such controversy, dispute or claim cannot be settled
through the mediation proceeding, the Parties agree
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that the controversy, dispute or claim shall be submitted to binding and final
arbitration conducted in Houston, Harris County, Texas by and in accordance with
the then existing Rules for Commercial Arbitration of the American Arbitration
Association or any successor organization. Any such arbitration shall be to a
three member panel selected through the rules governing selection and
appointment of such panels of the American Arbitration Association or any
successor organization. The award rendered by the arbitrators may be confirmed,
entered and enforced as a judgment in any court of competent jurisdiction;
however, the Parties otherwise waive any rights to appeal the award except with
regard to fraud by the panel. Any such action must be brought within two years
of the date the cause of action accrues. The arbitrators shall award the Party
which substantially prevails in any arbitration proceeding recovery of that
Party's attorneys' fees, the arbitrators' fees and all costs in connection with
the arbitration from the Party who does not substantially prevail. The Parties'
remedies are limited solely to the specific remedies provided in this agreement
or in the other. The parties waive any entitlement to punitive damages,
consequential damages and lost profits and will limit any damage claim to actual
economic damages incurred. Nothing in this Section 10.14 shall restrict any
Parties' ability to seek injunctive or other equitable relief in any court of
competent jurisdiction prior to initiating mediation or arbitration. In the
event that such injunctive or equitable relief is sought by any Party, such
Party is specifically entitled to enforce the appropriate provisions of the
Agreement in obtaining such relief in any court of competent jurisdiction and,
thereafter, submit the remaining controversy, dispute or claim to arbitration in
accordance with this Section 10.14.
10.15 DRAFTING. All Parties hereto acknowledge that each Party was actively
involved in the negotiation and drafting of this Agreement and that no law or
rule of construction shall be raised or used in which the provisions of this
Agreement shall be construed in favor or against any Party hereto because one is
deemed to be the author thereof.
10.16 BLUE SKY LAWS.
(a) Section 203(d) and 207(m)(2) of the Pennsylvania Securities Act of
1972, as amended (the "Act") requires that each person who accepts an offer
to purchase securities exempted from registration directly from an issuer,
shall receive written notice of such person's right to withdraw his
acceptance, without incurring any liability to the seller, the underwriter
or any other person, within two business days from the date of receipt by
the issuer of such person's written binding contract of purchase.
(b) By execution of this Agreement, Seller acknowledges that (i) it
has received written notice of its rights under Sections 203 and 207 of the
Act, and (ii) that Seller's right of withdrawal shall continue until the
close of business on the second business day following the execution date of
this Agreement.
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IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement in multiple counterparts effective as of the date first written above.
BUYER:
LITIGATION RESOURCES OF
AMERICA-NORTHEAST, INC.,
a New York corporation
By: /s/ Richard O. Looney
------------------------------------
Richard O. Looney,
Chairman and Chief Executive Officer
PARENT:
LITIGATION RESOURCES OF AMERICA, INC.,
a Texas corporation
By: /s/ Richard O. Looney
------------------------------------
Richard O. Looney,
Chairman and Chief Executive Officer
SELLER:
REPORTING SERVICES ASSOCIATES, INC.
a Pennsylvania corporation
By: /s/ Lee Goldstein
------------------------------------
Lee Goldstein, President
STOCKHOLDER
/s/ Lee Goldstein
----------------------------------------
Lee Goldstein, Individually
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Schedules
- ---------
2.1(a) - Equipment
2.1(b) - Contracts
2.1(c) - Books and Records
2.1(e) - Intellectual Property
2.1(g) - General Intangibles
2.2 - Excluded Assets
2.7 - Allocation of Purchase Price
3.3(a) - Consents and Approvals
3.3(b) - Breaches or Defaults
3.5 - Exceptions to Title
3.6 - Leased Assets
3.13 - Insurance Policies
3.14 - Banking
3.16(a) - Employees
3.16(b) - Independent Contractors
3.17 - Employee Benefit Plans
3.18 - Employment Agreement
3.19 - Liabilities
3.20 - Litigation
3.24 - Certain Changes or Events
3.25 - Customers
Exhibits
- --------
A - Goldstein Employment Agreement
B - Registration Rights Agreement
C - Bill of Sale
D - Investor Representation Letter
E - Stock Pledge Agreement
F - Guaranty
G-1 - Legal Opinion
G-2 - Legal Opinion
H - Side Letter
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EXHIBIT 10.25
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated effective as of August
29, 1997 (the "Effective Date"), is entered into by and among LITIGATION
RESOURCES OF AMERICA-CALIFORNIA, INC., a California corporation (hereinafter
called the "Company," which term includes any directly or indirectly controlled
subsidiaries or successor entities), LITIGATION RESOURCES OF AMERICA, INC., a
Texas corporation and the sole shareholder of the Company ("Parent"), and TONY
L. MADDOCKS, an individual residing in the State of California (the "Employee").
The Company may sometimes hereinafter be referred to as "Employer." The
Employer, the Parent and Employee may sometimes hereinafter be referred to
singularly as a "Party" or collectively as the "Parties." All capitalized terms
not otherwise defined herein shall have the same meaning as contained in that
certain Agreement of Purchase and Sale of Assets executed as of August 29, 1997
(the "Purchase Agreement"), by and between the Company and Legal Enterprise,
Inc., a California corporation ("Seller"), joined by Anthony Maddocks,
individually, and Alan Simon, individually.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Employee has been an employee and owns fifty percent (50%) of the
Seller and its business known as Legal Enterprise, Inc. (the "LEI Business"),
and his knowledge of the affairs of the LEI Business, particularly its record
retrieval and litigation support services business in California, are of great
value to the Company; and
WHEREAS, pursuant to the terms of the Purchase Agreement the Company has
purchased from the Seller, and the Seller has sold to the Company, all or
substantially all of the Assets of the Seller, which required the approval of
one hundred percent (100%) of the shareholders of the Seller; and
WHEREAS, part of the consideration given to the Seller and the Employee
under the Purchase Agreement included an agreement by the Company to enter into
this Agreement; and
WHEREAS, the Parties would not have entered into the Purchase Agreement
without the execution of this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants, promises
and undertakings herein contained and other consideration, the receipt ,
adequacy and sufficiency of which are hereby acknowledged, the Parties hereby
undertake and agree as follows:
1. Employment Term. The Employer hereby employs the Employee
---------------
commencing on the Effective Date for a term of three (3) years (the "Employment
Term"), unless sooner terminated as hereinafter provided. The term of this
Agreement may be renewed or extended for one or more successive additional one
(1) year terms upon mutual agreement of the Parties at least 90 days prior to
the expiration of the initial term or any such renewal term. Unless otherwise
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provided herein, Sections 10 - 26 of this Agreement shall survive the expiration
or termination of this Agreement, for any reason whatsoever. The Employee
accepts such employment and agrees to perform the services specified herein, all
upon the terms and conditions hereinafter stated.
2. Duties. The Employee shall serve as the President of the Legal
------
Enterprise Division of the Company, and the Vice President of Sales and
Marketing for the Parent, as hereinafter defined, and shall report to, and be
subject to the general direction and control of the Chief Executive Officer, the
Chief Operating Officer (the "COO") and the Board of Directors of the Company
(the "Board") or of the Parent, as applicable. The Employee shall perform such
management and administrative duties, consistent with the Employee's positions,
as are from time to time assigned to the Employee by the Chief Executive
Officer, the COO and the Board (or by the Parent, as applicable) including
developing local, regional, and national customers for the Company and its
Affiliates (defined below). The Employee further agrees to use his best efforts
to develop a national record retrieval business for the Parent and all of the
Parent's subsidiaries. The Employee also agrees to perform, without additional
compensation, such other services for the Company, and for any parent,
subsidiary or affiliate corporations of the Company and any partnerships in
which the Company may from time to time have an interest (herein collectively
called "Affiliates"), as the Chief Executive Officer, the COO or Board shall
from time to time specify, if such services are of the nature commonly
associated with the positions of Employee set forth above for a company engaged
in activities similar to the activities engaged in by the Company or the Parent,
and to perform such other activities as are consistent with the Employee's past
responsibilities as an employee of the Seller and the LEI Business; provided,
that Employee shall not be required to engage in any business that is not
reasonably related to the Business of the Company, as hereinafter defined, and
provided further, that Employee shall under no circumstances be required by the
Company or the Parent to relocate his primary residence. For purposes of this
Agreement, the "Business of the Company" or, alternatively, "Business" shall be
defined as the current business of the Company, including, but not limited to,
the marketing and providing of record retrieval and litigation support services
in the California area, as well as the national record retrieval business for
the Parent and its subsidiaries contemplated above. The term "Company" as used
in this Agreement shall be deemed to include and refer to all such Affiliates.
3. Extent of Service. The Employee shall devote his full business
-----------------
time, attention and energy to the business of the Company, and shall not be
engaged in any other business activity during the term of this Agreement. The
foregoing shall not be construed as preventing the Employee from making passive
investments in other businesses or enterprises, if (i) such investments will not
require services on the part of the Employee which would in any material way
impair the performance of his duties under this Agreement, (ii) such other
businesses or enterprises are not engaged in any business competitive with the
business of the Company, and (iii) the Employee has complied with Sections 12
and 13 of this Agreement with respect to each such passive investment.
4. Compensation. As payment for the services to be rendered by the
------------
Employee hereunder during the initial term, the Employee shall be entitled to
receive:
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(a) a salary in the amount of Eighty-Nine Thousand Seven Hundred
Ninety-Five and No/100 Dollars ($89,795.00) which shall be payable monthly
or in accordance with the payroll policies of the Company in effect from
time to time if such policies provide for payment of salary more frequently
than monthly, until the first to occur of (i) the termination of this
Agreement, (ii) the date upon which the Parent consummates an initial
public offering of shares of its common stock (the "IPO Date"), or (iii)
the date upon which there occurs an Event of Default under Section 3.1 of
Note 1 and Section 3.1 of Note 2 (the "Default Date"), and such default
remains uncured for a period of five (5) days; or
(b) a salary in the amount of One Hundred Sixty-Two Thousand Five
Hundred Dollars ($162,500.00) per year effective as of the IPO Date through
the term of this Agreement payable monthly or in accordance with the
payroll policies of the Company in effect from time to time if such
policies provide for payment of salary more frequently than monthly;
provided that, following a Default Date, Employee's salary shall be payable
in an amount equal to the amount set forth in this Section 4(b) until the
Event of Default under Section 3.1 of Note 1 and Section 3.1 of Note 2 has
been cured; and
(c) a bonus (the "Annual Bonus") to be paid by the Parent,
calculated in accordance with Schedule A attached hereto, payable within
----------
ninety (90) days after the end of each Bonus Period (as defined on Schedule
A).
5. Expenses. During the term of this Agreement, the Employer shall
--------
promptly pay or reimburse the Employee for all reasonable out-of-pocket expenses
for travel, meals, hotel accommodations and similar items incurred by him in
connection with the Business of the Company or the Parent and approved by the
Chief Executive Officer, the COO or the Board or incurred in accordance with the
travel and reimbursement policies of the Company or the Parent as the same shall
be in effect from time to time, upon submission by him of an appropriate
statement documenting such expenses. All such expenses shall be allocated in
the books and records of the Company or Parent, as applicable, to the corporate
activities to which they are related. The Company shall also pay the Employee
an automobile allowance in the amount of $760.00 per month, which payment shall
be applied against the payments owed by the Company under the automobile lease
assumed by the Company under the Purchase Agreement.
6. Employee Benefits. During the term of this Agreement, the
-----------------
Employee shall be entitled to participate in all employee benefit plans from
time to time made generally available to the executive employees of the Company
and the Parent, including any stock option plan, retirement plan, profit-sharing
plan, group life plan, health or accident insurance or other employee benefit
plans as the same shall be maintained in effect, as determined by the Board and
the Parent. Until the Company is able to procure its own insurance coverage, the
Company agrees to continue the prior insurance previously provided to the
Employee by Seller. The Employer will use
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commercially reasonably efforts to assist Employee in procuring insurance
coverage for any preexisting conditions.
7. Vacation. During the term of this Agreement, the Employee shall
--------
be entitled to annual vacation time determined in accordance with the vacation
policies of the Company in effect from time to time but not less than four (4)
weeks per year, during which time his compensation shall be paid in full.
Unused vacation time shall not accrue from year to year, unless otherwise
required by law.
8. Covenants of Employee. For and in consideration of the
---------------------
employment herein contemplated and the consideration paid or promised to be paid
by the Company, the Employee does hereby covenant, agree and promise that during
the term hereof and thereafter to the extent specifically provided in this
Agreement:
(a) Except as otherwise specifically permitted by this Agreement,
during the term of this Agreement, Employee will not actively engage,
directly or indirectly, in any other business other than that of
Company, except at the direction or approval of the Company.
(b) The Employee will truthfully use his best reasonable efforts
to accurately make, maintain and preserve all records and reports that
the Company may from time to time request or require.
(c) The Employee will fully account for all money, records or
other property belonging to the Company of which the Employee has
custody, and will pay over and deliver same promptly whenever and
however he may be reasonably directed to do so by the Company.
(d) The Employee will obey all rules, regulations and special
instructions of the Company applicable to him, following receipt of
notice thereof, and will take no action which can reasonably be
expected to undermine or compromise the Company and the Business.
(e) The Employee will make available to the Company any and all
of the information of which he has knowledge relating to the business
of the Company, and will make all suggestions and recommendations
regarding the business operations or business prospects of the Company
or the Parent which he feels will be of mutual benefit to the Parties.
(f) The Employee agrees that upon termination of his employment
hereunder he will immediately surrender and turn over to the Company
all books, records, forms, specifications, formulae, data, processes,
papers and writings related to the Business of the Company and all
other property belonging to the Company,
-4-
<PAGE>
together with all copies of the foregoing, it being understood and
agreed that the same are the sole property of the Company.
(g) The Employee agrees that all ideas, concepts, processes,
discoveries, devices, machines, tools, materials, designs,
improvements, inventions and other things of value relating to the
Business of the Company (hereinafter collectively referred to as
"intangible rights"), whether patentable or not, which are conceived,
made, invented or suggested by him alone or in collaboration with
others during the term of his employment, and whether or not during
regular working hours, shall be promptly disclosed in writing to the
Company and shall be the sole and exclusive property of the Company.
The Employee hereby assigns all of his right, title and interest in
and to all such intangible rights to the Company, and its successors
or assigns. In the event that any of such intangible rights shall be
deemed by the Company to be patentable or otherwise registerable under
any federal, state or foreign law, the Employee further agrees that,
at the expense of the Company, he will execute all documents and do
all things reasonably necessary, advisable or proper to obtain patents
therefor or registration thereof, and to vest in the Company full
title thereto.
9. Mutual Covenants of the Company and the Employee. For and in
------------------------------------------------
consideration of the employment herein contemplated and the compensation,
covenants, conditions and promises herein recited, the Company and the Employee
do hereby mutually agree that during the term hereof:
(a) The Employee shall not, by reason of this Agreement, have any
vested interest in, or right, title or claim to, any land, buildings,
equipment, machinery, processes, systems, products, contracts, goods,
wares, merchandise, business assets or other things of value belonging
to or which may hereafter be acquired or owned by the Company.
(b) In carrying out his duties as President of the Legal
Enterprises Division of the Company, the Employee shall primarily be
responsible for making day-to-day decisions in the ordinary course of
business of the Legal Enterprise Division of the Company, subject to
possible review by the Chief Executive Officer and/or the Board. The
responsibility for the Company's plans, properties, contracts,
methods, and policies shall be vested in the Board and the Company
may, in its sole and absolute discretion, give, sell, assign, transfer
or otherwise dispose of any or all of its assets or businesses in
whole or in part, to any person, firm or corporation, whether or not
such person, firm or corporation is in any manner owned by or
associated with or affiliated with the Company.
(c) The Employee acknowledges that because of the nature of the
position for which he has been employed, the Employee may be called
upon to perform such
-5-
<PAGE>
duties and render such services as are required of him hereunder
irregularly, and agrees to perform to the best of his abilities such
duties as the business may reasonably demand, and acknowledges that
the number of hours per day or per week may vary. Notwithstanding the
foregoing, the Employee shall work in a manner that is consistent with
his prior customary practice on behalf of the Seller and the LEI
Business.
10. Termination of Employment for Cause. The Employer may terminate
-----------------------------------
the employment of the Employee if the Employer suffers or may reasonably be
expected to suffer any material adverse effect as a result of the Employee (any
such termination being a termination for "Cause"):
(a) Breaching any material provision of this Agreement and
failing to cure such breach within thirty (30) days after receipt of
written notice thereof;
(b) Misappropriating funds or property of the Company;
(c) Securing any personal profit not thoroughly disclosed to and
approved by the Company in connection with any transaction entered
into on behalf of the Company;
(d) Engaging in conduct, even if not in connection with the
performance of his duties hereunder, which would reasonably be
expected to result in a material adverse effect to the interest of the
Company if he was retained as an employee, such as his commission of a
felony or a crime of moral turpitude;
(e) Becoming and remaining "Disabled," as hereinafter defined
(either physically, mentally or otherwise) for a period of one hundred
thirty-five (135) days during any consecutive twelve-month time
period;
(f) Failing to carry out and perform the duties assigned to the
Employee in accordance with the terms hereof and failing to cure such
breach within thirty (30) days after written notice thereof; or
(g) Failing to comply with corporate policies of the Company that
are promulgated from time to time and made known to Employee and
failing to cure such breach within thirty (30) days after written
notice thereof.
In the event of the death of the Employee, such occurrence shall
immediately constitute a termination for Cause. Except as provided in item (e)
above, no termination for Cause shall be effective if the Employee is Disabled.
-6-
<PAGE>
In the event the Employee is terminated for Cause because he is
Disabled, the Employee may be permitted to participate in any disability
insurance policy the Company then has in effect.
In the event of termination of his employment for Cause, the Employee
shall be entitled to receive his compensation, as determined in Section 4 of
this Agreement, due or accrued on a pro rata basis to the date of termination.
Any salary or remuneration owed as of the date of termination shall be paid less
the amount of damages, if any, caused to the Company by such breach, but no such
damages offset shall extend beyond any compensation due and owing under this
Agreement.
Notwithstanding the cure provisions provided in Sections 10(a), 10 (f)
and 10(g), the Employee shall not have the opportunity to cure any violation of
these subsections if such violation cannot reasonably be expected to be cured.
In such event, the Company shall be required to furnish the Employee notice of
the violation, but the Employee shall not be furnished an opportunity to cure.
"Disabled" shall mean the continuous inability, whether mental or
physical, of Employee to perform his normal job functions as determined by at
least two of three medical physicians selected as follows: the Employee or his
legal designee shall be entitled to appoint one physician, the Company shall be
entitled to appoint one physician, and such two appointed physicians shall
mutually appoint a third physician. Notwithstanding the foregoing, the
Employee, or his designee, and the Company may mutually agree that he is
"Disabled" within the meaning of this Agreement.
11. Termination By the Company Without Cause or By the Employee With
----------------------------------------------------------------
Good Reason. The Company may terminate the employment of Employee for any
- -----------
reason other than those for Cause, in which event such termination shall be
deemed a "Termination Without Cause." In addition, the Employee shall have the
right to terminate this Agreement for any material breach of this Agreement by
the Company, which shall include but not be limited to materially changing the
duties assigned to Employee beyond those contemplated in Section 2 of this
Agreement or causing Employee to relocate his primary residence in violation of
Section 2 of this Agreement; provided that the Company shall be furnished thirty
(30) days notice of such breach and an opportunity to cure (any such termination
constituting a "Termination By Employee With Good Reason"). Notwithstanding the
cure provisions provided in the preceding sentence, the Employer shall not have
the opportunity to cure any violation of this Agreement if such violation cannot
reasonably be expected to be cured but the Employee shall still furnish notice
to the Company. In the event of a Termination Without Cause or a Termination
with Good Reason by the Employee the Company shall continue making payments to
Employee in an amount equal to the compensation of the Employee, as determined
in Section 4 of this Agreement, as if he was still employed for a period equal
to the lesser of (i) one (1) year, or (ii) the remaining term of this Agreement,
which amount, in the event of a Termination Without Cause or a Termination By
Employee With Good Reason, shall constitute the full and total amount of
liquidated damages that the Employee shall be entitled
-7-
<PAGE>
to receive from the Company and its Affiliates for any contractual or tort
claims arising out of his employment relationship with the Company.
12. Covenant Not to Compete. The Employee recognizes that the
-----------------------
Company has business goodwill and other legitimate business interests which must
be protected in connection with and in addition to the Information (as defined
hereinafter), and therefore, in exchange for access to the Information, the
specialized training and instruction which the Company will provide, the
Company's agreement to employ the Employee on the terms and conditions set forth
herein, the Company's agreement to execute and consummate the Purchase
Agreement, and the promotion and advertisement by the Company of Employee's
skill, ability and value in the Company's business, subject to the provisions of
the next full paragraph of this Section 12, the Employee agrees that in the
event (i) Employee is terminated for Cause, or (ii) Employee leaves the employ
of the Company other than a Termination By Employee With Good Reason prior to
expiration of the term of the Agreement, or (iii) upon the expiration of the
term of this Agreement, then for a period of the latest date of (i) five (5)
years after the date of this Agreement, or (ii) three (3) years after the date
employment is so terminated:
(a) Employee will not in any capacity or relationship enter
into, engage in, or be connected with any business or business
operation or activity within a fifty (50) mile radius of any office
location then operated by the Employer at the time of such
termination, which consists in whole or in part of the Business of the
Company; and
(b) Employee will not call upon any customer whose account is
serviced in whole or in part by the Employer or its Affiliates at the
time of the termination of Employee's employment, with the purpose of
selling or attempting to sell to any such customer any services
included within that offered by the Employer or its Affiliates; and
(c) Employee will not intentionally divert, solicit or take
away any customer, supplier or employee of the Employer or its
Affiliates, or the patronage of any customer or supplier of the
Employer or its Affiliates, or otherwise interfere with or disturb the
relationship existing between the Employer or its Affiliates and any
of their respective customers, suppliers or employees, directly or
indirectly.
Subject to the provisions of the following sentence, the foregoing
restrictive covenants shall also apply to the Employee in the event of his
Termination Without Cause or in the event of Termination With Good Reason by
the Employee. Notwithstanding anything to the contrary contained herein, (a)
the Employee shall be permitted to own up to five percent (5%) of the issued and
outstanding shares of stock of any publicly traded company on a passive basis
without violating the provisions contained in this Section 12 and (b) the
provisions of this Section 12 shall be of no further force or effect if the
Company is in violation of Section 11 of this Agreement as a result of its
failure to timely pay the Employee, in accordance with the terms of this
Agreement, and
-8-
<PAGE>
subject to a thirty (30) day cure period after receipt of written notice, any
amounts due under Section 11.
In the event the Company ceases operation of the Business of the
Company other than in a merger, consolidation, or similar transaction, or upon
the filing of a bankruptcy or receivership proceeding against the Employer, or
upon the appointment of a liquidator for the Company, the provisions of this
Section 12 shall not be applicable to the conduct of Employee subsequent
thereto.
It is mutually understood and agreed that if any of the provisions
relating to the scope, time or territory in this Section 12 are more extensive
than is enforceable under applicable laws or are broader than necessary to
protect the good will and legitimate business interests of the Company, then the
Parties agree that they will reduce the degree and extent of such provisions by
whatever minimal amount is necessary to bring such provisions within the ambit
of enforceability under applicable law.
The Parties acknowledge that the remedies at law for breach of
Employee's covenants contained in this Section 12 are inadequate, and they agree
that the Company shall be entitled, at its election, to injunctive relief
(without the necessity of posting bond against such breach or attempted breach),
and to specific performance of such covenants in addition to any other remedies
at law or equity that may be available to the Company.
13. Business Opportunities. Except for passive investments by the
-----------------------
Employee in publicly traded entities, or investments in private ventures which
do not compete with, or are not in the same business as, the Company and which
come to the attention of the Employee outside of the scope of his employment and
which do not otherwise violate any other provision of this Agreement, for as
long as the Employee shall be employed by the Company and thereafter with
respect to any business opportunities learned about during the time of
Employee's employment by the Company, the Employee agrees that with respect to
any future business opportunity or other new and future business proposal which
is offered to, or comes to the attention of, the Employee and which is in any
way related to, or connected with, the Business of the Company, the Company
shall have the right to take advantage of such business opportunity or other
business proposal for its own benefit. The Employee agrees to promptly deliver
notice to the Board in writing of the existence of such opportunity or proposal
and the Employee may take advantage of such opportunity only if the Employer
does not elect to exercise its right to take advantage of such opportunity.
14. Confidential Information. The Employee acknowledges that in the
------------------------
course of his employment with the Company, he will receive certain trade
secrets, know-how, lists of customers, employee records and other confidential
information and knowledge concerning the Business of the Company (hereinafter
collectively referred to as "Information") which the Company desires to protect.
The Employee understands that such Information is confidential and he agrees
that he will not reveal such Information to anyone outside the Company except
(i) for information already known to the public, now or in the future, or (ii)
in connection with any legal proceeding regarding this Agreement, the Purchase
Agreement or the transactions contemplated thereby or as
-9-
<PAGE>
otherwise required by law or judicial order. The Employee further agrees that
during the term of this Agreement and thereafter he will not use such
Information in competing with the Company. Upon termination of his employment
hereunder, the Employee shall surrender to the Company all papers, documents,
writings and other property produced by him or coming into his possession by or
through his employment hereunder and relating to the information referred to in
this Section 14, which are not general knowledge in the industry, and the
Employee agrees that all such materials will at all times remain the property of
the Company.
15. Notices. All notices, consents, demands or other communications
-------
required or permitted to be given pursuant to this Agreement shall be deemed
sufficiently given when delivered personally with a written receipt
acknowledging delivery or telefaxed with receipt confirmed, or three (3)
business days after the posting thereof by United States first class, registered
or certified mail, return receipt requested, with postage fee prepaid and
addressed as follows:
If to the Company: Litigation Resources of America-California, Inc.
1001 Fannin, Suite 650
Houston, Texas 77002
Telefax:(713) 653-7172
Attn: Richard O. Looney
If to the Employee: Tony L. Maddocks
178 Magellan Street
Thousand Oaks, California 91360
Phone: 805-492-2702
Any Party may change its address for notice hereunder by providing written
notice of such change to the other Party hereto.
16. Specific Performance. The Employee acknowledges that a remedy at
--------------------
law for any breach or attempted breach of Sections 12, 13 or 14 of this
Agreement will be inadequate, the Employee agrees that the Company shall be
entitled to specific performance and injunctive and other equitable relief in
case of any such breach or attempted breach, and further agrees to waive any
requirement for the securing or posting of any bond in excess of $50,000 in
connection with the obtaining of any such injunctive or any other equitable
relief.
17. 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 shall be prohibited by or
invalid under applicable law, such provisions shall be ineffective to the extent
of such provision or invalidity only, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
18. Assignment. This Agreement may not be assigned by the Employee.
----------
Neither the Employee, his spouse nor their estates shall have any right to
encumber or dispose of any right
-10-
<PAGE>
to receive payments hereunder, it being understood that such payments and the
right thereto are nonassignable and nontransferable.
19. Binding Effect. Subject to the provisions of Section 18 of this
--------------
Agreement, this Agreement shall be binding upon and inure to the benefit of the
Parties hereto, the Employee's heirs and personal representatives, and the
successors and assigns of the Company.
20. Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with and governed by the laws of the State of California.
21. Prior Employment Agreements. Employee represents and warrants to
---------------------------
the Company that he has fulfilled all of the terms and conditions of all prior
employment agreements to which he may be or have been a party, and at the time
of execution of this Agreement is not a party to any other employment agreement.
22. Parole Evidence. This Agreement constitutes the sole and
---------------
complete agreement between the Parties hereto with respect to the subject matter
hereof, and no verbal or other statements, inducements or representations have
been made to or relied upon by either Party, and no modification hereof shall be
effective unless in writing signed and executed in the same manner as this
Agreement, provided, however, the amount of compensation to be paid Employee for
services to be performed for Company may be changed from time to time by the
Parties hereto by written agreement without in any other way modifying, changing
or affecting this Agreement and the performance by the Employee of any of the
duties of his employment with the Company.
23. Waiver. Any waiver to be enforceable must be in writing and
------
executed by the Party against whom the waiver is sought to be enforced.
24. Arbitration. If a dispute arises out of or relates to this
-----------
Agreement, or the breach thereof, and if such dispute cannot be settled through
negotiation, the Parties agree first to try in good faith to settle the dispute
by mediation under the Commercial Mediation Rules of the American Arbitration
Association, before resorting to arbitration, litigation, or some other dispute
resolution procedure as required by this Section 24. Failing an adequate
resolution by mediation, any controversy or claim arising out of or relating to
this Agreement or the transactions contemplated hereby, including any
controversy or claim arising out of or relating to the Parties' decision to
enter into this Agreement, shall be settled by binding arbitration. There shall
be one arbitrator to be mutually agreed upon by the Parties involved in the
controversy and to be selected from the National Panel of Commercial Arbitrators
(or successor panel, if any). If within 45 days after service of the demand for
arbitration the Parties are unable to agree upon such an arbitrator who is
willing to serve, then an arbitrator shall be appointed by the American
Arbitration Association in accordance with its rules. Except as specifically
provided in this Section 24, the arbitration shall be conducted in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
The arbitrator shall not render an award of punitive damages. Any arbitration
hereunder shall be held in Los Angeles, California. Expenses related to the
arbitration, including counsel fees, shall be borne
-11-
<PAGE>
by the Party incurring such expenses except to the extent otherwise provided in
Section 25 herein. The fees of the arbitrator and of the American Arbitration
Association, if any, shall be divided equally among the Parties involved in the
controversy. Judgment upon the award rendered by the arbitrator (which may, if
deemed appropriate by the arbitrator, include equitable or mandatory relief with
respect to performance of obligations hereunder) may be entered in any court of
competent jurisdiction. The arbitrator shall award the prevailing Party in any
arbitration proceeding recovery of its attorneys' fees, the arbitrators' fees
and other costs in connection with the arbitration from the non-prevailing
Party.
25. Attorney's Fees. If any litigation is instituted to enforce or
---------------
interpret the provisions of this Agreement or the transactions described herein,
the prevailing Party in such action shall be entitled to recover its reasonable
attorneys' fees and other costs from the other Party hereto.
26. Drafting. All Parties hereto acknowledge that each was actively
--------
involved in the negotiation and drafting of this Agreement and that no law or
rule of construction shall be raised or used in which the provisions of this
Agreement shall be construed in favor or against any Party hereto because one is
deemed to be the author thereof.
27. Multiple Counterparts. This Agreement may be executed in multiple
---------------------
counterparts, each of which shall have the force and effect of an original, and
all of which shall constitute one and the same agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date and year first above written.
THE COMPANY:
LITIGATION RESOURCES OF AMERICA-
CALIFORNIA, INC., a California corporation
By: /s/ Richard O. Looney
--------------------------------------
Richard O. Looney
Chief Executive Officer
THE PARENT:
LITIGATION RESOURCES OF AMERICA, INC.,
a Texas corporation
By:/s/ Richard O. Looney
-----------------------------------------
Richard O. Looney
Chief Executive Officer
-12-
<PAGE>
THE EMPLOYEE:
/s/ Tony L. Maddocks
---------------------------------------
Tony L. Maddocks
Schedule A--Calculation of Annual Bonus
-13-
<PAGE>
SCHEDULE A
----------
CALCULATION OF ANNUAL BONUS
Within ninety (90) days following the end of the period commencing on
the Effective Date and ending December 31, 1997, and during each calendar year
thereafter throughout the original Employment Term (each a "Bonus Period"), if
New National Account Sales (as hereinafter defined) have reached the number set
forth under the column so marked below for such calendar year, then the Parent
shall pay the Employee a bonus in the amount set forth under the column so
marked below. For any partial calendar year (including 1997) the required New
National Account Sales amounts and Bonus Amounts shall be prorated. As used
herein, "New National Account Sales" means revenues resulting from court
reporting and/or record retrieval for (i) corporations (other than law firms
which are corporations) or insurance companies with which neither the Company
nor the Parent nor any Affiliates have a relationship as of the Effective Date
and (ii) corporations (other than law firms which are corporations) or insurance
companies with which the Parent or the Company is currently negotiating or
discussing terms upon which it can provide court reporting or record retrieval
services, and (iii) corporations (other than law firms which are corporations)
or insurance companies which are clients of the Company, Parent or any
Affiliates as of the Effective Date to the extent, but only to the extent, that
revenues are increased for such clients over the revenues of the prior calendar
year as a result of agreements entered into by the national sales team.
Notwithstanding the foregoing or any provision hereof to the contrary, any
revenues resulting from the efforts, relationships or sales activity of Michael
Klein shall be evaluated by the Company on an account-by-account basis, and only
between twenty-five percent (25%) and seventy-five percent (75%) of such
revenues shall be included within the term "New National Account Sales.".
<TABLE>
<CAPTION>
New National Account Sales Bonus Amount
-------------------------- ------------
<S> <C>
$1.5 million $10,000
$3.0 million $20,000
$4.5 million $30,000
$6.0 million $40,000
$7.5 million $60,000
</TABLE>
-14-
<PAGE>
EXHIBIT 10.26
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated effective the 25th day
of September, 1997 (the "Effective Date"), is entered into by and between LOONEY
& COMPANY, a Texas corporation ("Looney"), U.S. Legal Support, Inc., a Texas
corporation ("U.S. Legal", and together with Looney, the "Company"), and JAMES
M. WILSON, an individual residing in the State of Texas (the "Employee").The
Company and Employee may sometimes hereinafter be referred to singularly as a
"Party" or collectively as the "Parties." All capitalized terms not otherwise
defined herein shall have the same meaning as contained in that certain
Agreement of Purchase and Sale of Assets executed as of September 25, 1997 (the
"Purchase Agreement"), by and among the Company and the Employee.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Employee has been an employee, officer and director of the Seller
and his knowledge of the affairs of the Seller, particularly its business of
providing job placement of attorneys and other legal and other professionals,
are of great value to the Company; and
WHEREAS, pursuant to the terms of the Purchase Agreement the Company has
agreed to purchase from the Seller, and the Seller has agreed to sell to the
Company, all or substantially all of the Assets of the Seller; and
WHEREAS, part of the consideration given to the Seller and the Employee
under the Purchase Agreement included an agreement by the Company to enter into
this Agreement; and
WHEREAS, the Parties would not have entered into the Purchase Agreement
without the execution of this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants, promises
and undertakings herein contained and other consideration, the receipt, adequacy
and sufficiency of which are hereby acknowledged, the Parties hereby undertake
and agree as follows:
1. Employment Term. The Company hereby employs the Employee commencing on
the Effective Date for a term of three (3) years (the "Employment Term"), unless
sooner terminated as hereinafter provided. The term of this Agreement may be
renewed or extended for one or more successive additional one (1) year terms
unless either party gives notice at least 90 days prior to the expiration of the
initial term or any such renewal term that such party desires to terminate this
Agreement. Unless otherwise provided herein, Sections 12 - 26 of this Agreement
shall survive the expiration or termination of this Agreement, for any reason
whatsoever. The Employee accepts such
-1-
<PAGE>
employment and agrees to perform the services specified herein, all upon the
terms and conditions hereinafter stated.
2. Duties. The Employee shall serve as the manager of legal staffing for
the Company's operations with the title of Vice President of Legal Placement and
Staffing and shall report to, and be subject to the general direction and
control of the President, Chief Executive Officer and the Board of Directors of
the Company (the "Board"). The Employee shall manage the Company's Texas legal
staffing operations and be responsible for identifying additional legal staffing
acquisitions in addition to performing such management and administrative
duties, consistent with the Employee's position, as are from time to time
assigned to the Employee by the President, Chief Executive Officer and the Board
including developing local, regional, and national customers for the Company and
its Affiliates (defined below). The Employee also agrees to perform, without
additional compensation, such other services for the Company, and for any
parent, subsidiary or affiliate corporations of the Company and any partnerships
in which the Company may from time to time have an interest (herein collectively
called "Affiliates"), as the President, Chief Executive Officer or Board shall
from time to time specify, if such services are of the nature commonly
associated with the position set forth above of a company engaged in activities
similar to the activities engaged in by the Company and to perform such other
activities as are consistent with the Employee's past responsibilities as an
employee of the Seller; provided, that Employee shall not be required to engage
in any business that is not reasonably related to the Business of the Company,
as hereinafter defined. For purposes of this Agreement, the "Business of the
Company" or, alternatively, "Business" shall be defined as the current business
of the Seller, including, but not limited to, the marketing and providing of
legal recruiting and placement services. The term "Company" as used in this
Agreement shall be deemed to include and refer to all such Affiliates.
3. Extent of Service. The Employee shall devote his full business time,
attention and energy to the business of the Company, and shall not be engaged in
any other business activity during the term of this Agreement. The foregoing
shall not be construed as preventing the Employee from making passive
investments in other businesses or enterprises, if (i) such investments will not
require services on the part of the Employee which would in any material way
impair the performance of his duties under this Agreement, (ii) such other
businesses or enterprises are not engaged in any business competitive with the
business of the Company, and (iii) the Employee has complied with Sections 12
and 13 of this Agreement with respect to each such passive investment.
4. Compensation. As payment for the services to be rendered by the
Employee hereunder during the initial term, the Employee shall be entitled to
receive:
(a) a salary in the amount of One Hundred Fifty Thousand and No/100
Dollars ($150,000) per year effective as of the date hereof, which shall be
payable monthly or in accordance with the payroll policies of the Company
in effect from time to time if such policies provide for payment of salary
more frequently than monthly, until termination of this Agreement;
-2-
<PAGE>
(b) a bonus to be calculated in accordance with Schedule A attached
hereto, payable within ninety (90) days after the end of each fiscal year
of the Company (the "Annual Bonus")
(c) commissions based upon the revenues generated from National
Account (as defined below) sales originated by the Employee. The amount of
commissions payable will be based upon a formula ("Formula") to be
established by the Board of Directors of U.S. Legal. The Formula may be
amended from time to time by U.S. Legal's Board of Directors and the
Employee shall be entitled to receive compensation hereunder based upon the
Formula as it exists on the date of the origination of the National
Account. A "National Account" is any account established with an insurance
or "Fortune 500" company pursuant to which two or more of U.S. Legal's
offices in different geographical areas render services pursuant to an
exclusive contact in those areas. Until notice of a change in the Formula
applicable to the Employee is given to the Employee by U.S. Legal's Board
of Directors, the Formula applicable to the Employee shall be as follows:
-------------------------------------------------------------------------
Commission Price Structure of
Percentage of Gross Sales National Account
-------------------------------------------------------------------------
3.00% Market price
-------------------------------------------------------------------------
2.50% Discount of 5% to less than 10% from
market price rate
-------------------------------------------------------------------------
2.00% Discount of 10% to less than 15% from
market price rate
-------------------------------------------------------------------------
1.50% Discount of 15% to less than 20% from
market price rate
-------------------------------------------------------------------------
1.00% Discount of 20% to less than 25% from
market price rate
-------------------------------------------------------------------------
0.50% Discount of 25% or more from
market price rate
-------------------------------------------------------------------------
In certain circumstances, more than one individual may be entitled to
receive commissions based upon sales from a National Account. In such
circumstances, the commissions described above would be shared by the
Employee and the other individual(s) on such a basis as is determined to be
fair by U.S. Legal's Board of Directors. All commissions payable hereunder
will be paid in cash within 45 days of the end of the calendar year in
which they are earned.
-3-
<PAGE>
(d) in the event that the Employee provides assistance to U.S. Legal
in connection with U.S. Legal's acquisition of an acquisition candidate,
the Employee shall be entitled to receive, at the closing of such
acquisition, a cash payment equal to 10% of any finder's fees or
commissions payable to any third party by U.S. Legal or its subsidiary in
connection with such acquisition. The Employee shall identify potential
acquisition candidates by giving written notice to U.S. Legal's management
("Acquisition Notice") prior to expending any efforts to effect any such
acquisition and shall only be entitled to compensation hereunder in the
event that U.S. Legal authorizes the Employee to actively pursue such
acquisition. In no event shall U.S. Legal or any subsidiary be obligated to
close any acquisition with regard to any business identified by the
Employee as an acquisition candidate, and no fee shall be payable hereunder
unless and until such acquisition closes. In the event another individual
employed by U.S. Legal or its subsidiaries claims a commission on any
acquisition candidate identified in an Acquisition Notice (which commission
(if paid) would be duplicative of any commission paid to the Employee
hereunder), the Company agrees to negotiate in good faith with the Employee
regarding a fair and reasonable allocation of such commission between the
Employee and such other individual.
5. Expenses. During the term of this Agreement, the Company shall promptly
pay or reimburse the Employee for all reasonable out-of-pocket expenses for
travel, meals, hotel accommodations and similar items incurred by him in
connection with the Business of the Company and approved by the Board or
incurred in accordance with the travel and reimbursement policies of the Company
as the same shall be in effect from time to time, upon submission by him of an
appropriate statement documenting such expenses. The Company shall also pay the
Employee a non-accountable automobile allowance in the amount of $600.00 per
month.
6. Employee Benefits. During the term of this Agreement, the Employee
shall be entitled to participate in all employee benefit plans from time to time
made generally available to the executive employees of the Company, including
any stock option plan, retirement plan, profit-sharing plan, group life plan,
health or accident insurance or other employee benefit plans as the same shall
be maintained in effect, as determined by the Board.
7. Vacation. During the term of this Agreement, the Employee shall be
entitled to annual vacation time determined in accordance with the vacation
policies of the Company in effect from time to time but not less than four (4)
weeks per year, during which time his compensation shall be paid in full.
Unused vacation time shall not accrue from year to year, unless otherwise
required by law.
8. Covenants of Employee. For and in consideration of the employment
herein contemplated and the consideration paid or promised to be paid by the
Company, the Employee does hereby covenant, agree and promise that during the
term hereof and thereafter to the extent specifically provided in this
Agreement:
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(a) Except as otherwise specifically permitted by this Agreement,
during the term of this Agreement, Employee will not actively engage,
directly or indirectly, in any other business other than that of Company,
except at the direction or approval of the Company.
(b) The Employee will truthfully and accurately make, maintain and
preserve all records and reports that the Company may from time to time
request or require .
(c) The Employee will fully account for all money, records, goods,
wares and merchandise or other property belonging to the Company of which
the Employee has custody, and will pay over and deliver same promptly
whenever and however he may be reasonably directed to do so by the Company.
(d) The Employee will obey all rules, regulations and special
instructions of the Company applicable to him, and will be loyal and
faithful to the Company at all times.
(e) The Employee will make available to the Company any and all of
the information of which he has knowledge relating to the Business of the
Company, and will make all suggestions and recommendations which he feels
will be of mutual benefit to the Parties.
(f) The Employee agrees that upon termination of his employment
hereunder he will immediately surrender and turn over to the Company all
books, records, forms, specifications, formulae, data, processes, papers
and writings related to the Business of the Company and all other property
belonging to the Company, together with all copies of the foregoing, it
being understood and agreed that the same are the sole property of the
Company.
(g) The Employee agrees that all ideas, concepts, processes,
discoveries, devices, machines, tools, materials, designs, improvements,
inventions and other things of value relating to the Business of the
Company (hereinafter collectively referred to as "intangible rights"),
whether patentable or not, which are conceived, made, invented or suggested
by him alone or in collaboration with others during the term of his
employment, and whether or not during regular working hours, shall be
promptly disclosed in writing to the Company and shall be the sole and
exclusive property of the Company. The Employee hereby assigns all of his
right, title and interest in and to all such intangible rights to the
Company, and its successors or assigns. In the event that any of such
intangible rights shall be deemed by the Company to be patentable or
otherwise registerable under any federal, state or foreign law, the
Employee further agrees that, at the expense of the Company, he will
execute
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<PAGE>
all documents and do all things reasonably necessary, advisable or proper
to obtain patents therefor or registration thereof, and to vest in the
Company full title thereto.
9. Mutual Covenants of the Company and the Employee. For and in
consideration of the employment herein contemplated and the compensation,
covenants, conditions and promises herein recited, the Company and the Employee
do hereby mutually agree that during the term hereof:
(a) The Employee shall not, by reason of this Agreement, have any
vested interest in, or right, title or claim to, any land, buildings,
equipment, machinery, processes, systems, products, contracts, goods,
wares, merchandise, business assets or other things of value belonging to
or which may hereafter be acquired or owned by the Company.
(b) In carrying out his duties as specified above, the Employee shall
primarily be responsible for making day-to-day decisions for the Legal
Staffing Division of the Company in the ordinary course of business ,
subject to possible review by the President, Chief Executive Officer and/or
the Board. The responsibility for the Company's plans, properties,
contracts, methods, and policies shall be vested in the Board and the
Company may, in its sole and absolute discretion, give, sell, assign,
transfer or otherwise dispose of any or all of its assets or businesses in
whole or in part, to any person, firm or corporation, whether or not such
person, firm or corporation is in any manner owned by or associated with or
affiliated with the Company.
(c) The Employee acknowledges that because of the nature of the
position for which he has been employed, the Employee may be called upon to
perform such duties and render such services as are required of him
hereunder irregularly, and agrees to perform to the best of his abilities
such duties as the business may reasonably demand, and acknowledges that
the number of hours per day or per week may vary. Notwithstanding the
foregoing, the Employee shall work in a manner that is consistent with his
prior customary practice on behalf of the Seller.
10. Termination of Employment for Cause. The Company may terminate
the employment of the Employee if the Company suffers or may reasonably be
expected to suffer any material adverse effect as a result of the Employee (any
such termination being a termination for "Cause"):
(a) Breaching any material provision of this Agreement and failing to
cure such breach within ten (10) days after receipt of written notice
thereof;
(b) Misappropriating funds or property of the Company;
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<PAGE>
(c) Securing any personal profit not thoroughly disclosed to and
approved by the Company in connection with any transaction entered into on
behalf of the Company;
(d) Engaging in conduct, even if not in connection with the
performance of his duties hereunder, which would reasonably be expected to
result in a material adverse effect to the interest of the Company if he
was retained as an employee, such as his commission of a felony or a crime
of moral turpitude;
(e) Becoming and remaining "Disabled," as hereinafter defined (either
physically, mentally or otherwise) for a period of one hundred thirty-five
(135) days during any consecutive twelve-month time period;
(f) Failing to carry out and perform the duties assigned to the
Employee in accordance with the terms hereof and failing to cure such
breach within ten (10) days after written notice thereof; or
(g) Failing to comply with consistently applied corporate policies of
the Company that are promulgated from time to time and made known to
Employee and failing to cure such breach within ten (10) days after written
notice thereof.
In the event of the death of the Employee, such occurrence shall
immediately constitute a termination for Cause. Except as provided in item (e)
above, no termination for Cause shall be effective if the Employee is Disabled.
In the event the Employee is terminated for Cause because he is Disabled,
the Employee may be permitted to participate in any disability insurance policy
the Company then has in effect.
In the event of termination of his employment for Cause, the Employee shall
be entitled to receive his compensation, as determined in Section 4 of this
Agreement, due or accrued on a pro rata basis to the date of termination. Any
salary or remuneration owed as of the date of termination shall be paid less the
amount of damages, if any, caused to the Company by such breach, but no such
damages offset shall extend beyond any compensation due and owing under this
Agreement.
Notwithstanding the cure provisions provided in Sections 10(a), 10 (f) and
10(g), the Employee shall not have the opportunity to cure any violation of
these subsections if such violation cannot reasonably be expected to be cured.
In such event, the Company shall be required to furnish the Employee notice of
the violation, but the Employee shall not be furnished an opportunity to cure.
"Disabled" shall mean the continuous inability, whether mental or physical,
of Employee to perform his normal job functions as determined by at least two of
three medical physicians selected as follows: the Employee or his legal designee
shall be entitled to appoint one physician, the Company shall be entitled to
appoint one physician, and such two appointed physicians shall mutually
-7-
<PAGE>
appoint a third physician. Notwithstanding the foregoing, the Employee, or his
designee, and the Company may mutually agree that he is "Disabled" within the
meaning of this Agreement.
11. Termination By the Company Without Cause or By the Employee With Good
Reason. The Company may terminate the employment of Employee for any reason
other than those for Cause, in which event such termination shall be deemed a
"Termination Without Cause." In addition, the Employee shall have the right to
terminate this Agreement for any material breach of this Agreement by the
Company, which shall include but not be limited to materially changing the
duties assigned to Employee beyond those contemplated in Section 2 of this
Agreement or requiring the Employee to relocate his primary residence outside of
the Houston, Texas area; provided that the Company shall be furnished ten (10)
days notice of such breach and an opportunity to cure (any such termination
constituting a "Termination By Employee With Good Reason"). Notwithstanding the
cure provisions provided in the preceding sentence, the Company shall not have
the opportunity to cure any violation of this Agreement if such violation cannot
reasonably be expected to be cured, but the Employee shall still furnish notice
to the Company of such violation. In the event of a Termination Without Cause
or a Termination with Good Reason by the Employee, the Company shall continue
making payments to Employee in an amount equal to the compensation of the
Employee, as determined in Section 4 of this Agreement, as if he was still
employed for a period equal to the lesser of (i) one (1) year, or (ii) the
remaining term of this Agreement, which amount, in the event of a Termination
Without Cause or a Termination By Employee With Good Reason, shall constitute
the full and total amount of liquidated damages that the Employee shall be
entitled to receive from the Company and its Affiliates for any contractual or
tort claims arising out of his employment relationship with the Company.
12. Covenant Not to Compete. The Employee recognizes that the Company has
business goodwill and other legitimate business interests which must be
protected in connection with and in addition to the Information (as defined
hereinafter), and therefore, in exchange for access to the Information, the
specialized training and instruction which the Company will provide, the
Company's agreement to employ the Employee on the terms and conditions set forth
herein, the Company's agreement to execute and consummate the Purchase
Agreement, and the promotion and advertisement by the Company of Employee's
skill, ability and value in the Company's business, subject to the provisions of
the next full paragraph of this Section 12, the Employee agrees that (a) from
and after the consummation of the transactions contemplated by the Purchase
Agreement and thereafter during the remaining term of this Agreement, except as
otherwise specifically permitted herein, Employee will not actively engage,
directly or indirectly, in any other business other than that of the Company and
(b) in the event (i) Employee is terminated for Cause, or (ii) Employee leaves
the employ of the Company other than a Termination By Employee With Good Reason
prior to expiration of the term of the Agreement, or (iii) upon the expiration
of the term of this Agreement, then for a period of (i) four and one-half
(4-1/2) years after the date of this Agreement (if such period extends beyond
the date the Employee's service hereunder is terminated),:
(a) Employee will not in any capacity or relationship enter into,
engage in, or be connected with any business or business operation or
activity within a fifty (50)
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<PAGE>
mile radius of any office location then operated by the Company at the time
of such termination, which consists in whole or in part of the Business of
the Company; and
(b) Employee will not call upon any customer whose account is
serviced in whole or in part by the Company or its Affiliates at the time
of the termination of Employee's employment, with the purpose of selling or
attempting to sell to any such customer any services included within that
offered by the Company or its Affiliates; and
(c) Employee will not intentionally divert, solicit or take away any
customer, supplier or employee of the Company or its Affiliates, or the
patronage of any customer or supplier of the Company or its Affiliates, or
otherwise interfere with or disturb the relationship existing between the
Company or its Affiliates and any of their respective customers, suppliers
or employees, directly or indirectly.
In addition, the foregoing restrictive covenants shall also apply to the
Employee in the event of his Termination Without Cause or in the event of
Termination By Employee With Good Reason by the Employee, but only for a period
of one (1) year.
In the event the Company ceases operation of the Business of the Company
other than in a merger, consolidation, or similar transaction, or upon the
filing of a bankruptcy or receivership proceeding against the Company, or upon
the appointment of a liquidator for the Company, the provisions of this Section
12 shall not be applicable to the conduct of Employee subsequent thereto.
It is mutually understood and agreed that if any of the provisions relating
to the scope, time or territory in this Section 12 are more extensive than is
enforceable under applicable laws or are broader than necessary to protect the
good will and legitimate business interests of the Company, then the Parties
agree that they will reduce the degree and extent of such provisions by whatever
minimal amount is necessary to bring such provisions within the ambit of
enforceability under applicable law.
The Parties acknowledge that the remedies at law for breach of Employee's
covenants contained in this Section 12 are inadequate, and they agree that the
Company shall be entitled, at its election, to injunctive relief (without the
necessity of posting bond against such breach or attempted breach), and to
specific performance of such covenants in addition to any other remedies at law
or equity that may be available to the Company.
13. Business Opportunities. Except for passive investments by the Employee
in publicly traded entities, or investments in private ventures which do not
compete with, or are not in the same business as, the Company and which come to
the attention of the Employee outside of the scope of his employment, for as
long as the Employee shall be employed by the Company and thereafter with
respect to any business opportunities learned about during the time of
Employee's employment by the Company, the Employee agrees that with respect to
any future business opportunity or other new and future business proposal which
is offered to, or comes to the attention of, the Employee and which
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<PAGE>
is in any way related to, or connected with, the Business of the Company, the
Company shall have the right to take advantage of such business opportunity or
other business proposal for its own benefit. The Employee agrees to promptly
deliver notice to the Board in writing of the existence of such opportunity or
proposal and the Employee may take advantage of such opportunity only if the
Company does not elect to exercise its right to take advantage of such
opportunity.
14. Confidential Information. The Employee acknowledges that in the
course of his employment with the Company, he will receive certain trade
secrets, know-how, lists of customers, employee records and other confidential
information and knowledge concerning the Business of the Company (hereinafter
collectively referred to as "Information") which the Company desires to protect.
The Employee understands that such Information is confidential and he agrees
that he will not reveal such Information to anyone outside the Company except
(i) for information already known to the public, now or in the future, or (ii)
in connection with any legal proceeding regarding this Agreement, the Purchase
Agreement or the transactions contemplated thereby or as otherwise required by
law or judicial order. The Employee further agrees that during the term of this
Agreement and thereafter he will not use such Information in competing with the
Company. Upon termination of his employment hereunder, the Employee shall
surrender to the Company all papers, documents, writings and other property
produced by him or coming into his possession by or through his employment
hereunder and relating to the information referred to in this Section 14, which
are not general knowledge in the industry, and the Employee agrees that all such
materials will at all times remain the property of the Company.
15. Notices. All notices, consents, demands or other communications
required or permitted to be given pursuant to this Agreement shall be deemed
sufficiently given when delivered personally with a written receipt
acknowledging delivery or telefaxed with receipt confirmed, or three (3)
business days after the posting thereof by United States first class, registered
or certified mail, return receipt requested, with postage fee prepaid and
addressed as follows:
If to the Company: Looney & Company
1001 Fannin, Suite 650
Houston, Texas 77002
Telefax: (713) 653-7172
Attn: Richard O. Looney
If to the Employee: James M. Wilson
2710 Sackett
Houston, Texas 77098
(713) 526-0707
Any Party may change its address for notice hereunder by providing written
notice of such change to the other Party hereto.
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<PAGE>
16. Specific Performance. The Employee acknowledges that a remedy at
law for any breach or attempted breach of Sections 12, 13 or 14 of this
Agreement will be inadequate, the Employee agrees that the Company shall be
entitled to specific performance and injunctive and other equitable relief in
case of any such breach or attempted breach, and further agrees to waive any
requirement for the securing or posting of any bond in connection with the
obtaining of any such injunctive or any other equitable relief.
17. 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 shall be prohibited by or
invalid under applicable law, such provisions shall be ineffective to the extent
of such provision or invalidity only, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
18. Assignment. This Agreement may not be assigned by the Employee.
Neither the Employee, his spouse nor their estates shall have any right to
encumber or dispose of any right to receive payments hereunder, it being
understood that such payments and the right thereto are nonassignable and
nontransferable.
19. Binding Effect. Subject to the provisions of Section 18 of this
Agreement, this Agreement shall be binding upon and inure to the benefit of the
Parties hereto, the Employee's heirs and personal representatives, and the
successors and assigns of the Company.
20. Governing Law. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Texas.
21. Prior Employment Agreements. Employee represents and warrants to
the Company that he has fulfilled all of the terms and conditions of all prior
employment agreements to which he may be or have been a party, and at the time
of execution of this Agreement is not a party to any other employment agreement.
22. Parol Evidence. This Agreement constitutes the sole and complete
agreement between the Parties hereto with respect to the subject matter hereof,
and no verbal or other statements, inducements or representations have been made
to or relied upon by either Party, and no modification hereof shall be effective
unless in writing signed and executed in the same manner as this Agreement,
provided, however, the amount of compensation to be paid Employee for services
to be performed for Company may be changed from time to time by the Parties
hereto by written agreement without in any other way modifying, changing or
affecting this Agreement and the performance by the Employee of any of the
duties of his employment with the Company. Written notification of any
modification of compensation paid or payable to the Employee for his services
shall be conclusively deemed to be a ratification and confirmation of this
Agreement amended by such change in compensation unless the Employee shall
object in writing with ten (10) days after such written notification from the
Company.
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<PAGE>
23. Waiver. Any waiver to be enforceable must be in writing and executed
by the Party against whom the waiver is sought to be enforced.
24. Arbitration. If a dispute arises out of or relates to this Agreement,
or the breach thereof, and if such dispute cannot be settled through
negotiation, the Parties agree first to try in good faith to settle the dispute
by mediation under the Commercial Mediation Rules of the American Arbitration
Association, before resorting to arbitration, litigation, or some other dispute
resolution procedure as required by this Section 24. Failing an adequate
resolution by mediation, any controversy or claim arising out of or relating to
this Agreement or the transactions contemplated hereby, including any
controversy or claim arising out of or relating to the Parties' decision to
enter into this Agreement, shall be settled by binding arbitration. There shall
be one arbitrator to be mutually agreed upon by the Parties involved in the
controversy and to be selected from the National Panel of Commercial Arbitrators
(or successor panel, if any). If within 45 days after service of the demand for
arbitration the Parties are unable to agree upon such an arbitrator who is
willing to serve, then an arbitrator shall be appointed by the American
Arbitration Association in accordance with its rules. Except as specifically
provided in this Section 24, the arbitration shall be conducted in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
The arbitrator shall not render an award of punitive damages. Any arbitration
hereunder shall be held in Houston, Texas. Expenses related to the arbitration,
including counsel fees, shall be borne by the Party incurring such expenses
except to the extent otherwise provided in Section 25 herein. The fees of the
arbitrator and of the American Arbitration Association, if any, shall be divided
equally among the Parties involved in the controversy. Judgment upon the award
rendered by the arbitrator (which may, if deemed appropriate by the arbitrator,
include equitable or mandatory relief with respect to performance of obligations
hereunder) may be entered in any court of competent jurisdiction. The arbitrator
shall award the prevailing Party in any arbitration proceeding recovery of its
attorneys' fees, the arbitrators' fees and other costs in connection with the
arbitration from the non-prevailing Party.
25. Attorney's Fees. If any litigation is instituted to enforce or
interpret the provisions of this Agreement or the transactions described herein,
the prevailing Party in such action shall be entitled to recover its reasonable
attorneys' fees and other costs from the other Party hereto.
26. Drafting. All Parties hereto acknowledge that each was actively
involved in the negotiation and drafting of this Agreement and that no law or
rule of construction shall be raised or used in which the provisions of this
Agreement shall be construed in favor or against any Party hereto because one is
deemed to be the author thereof.
27. Multiple Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall have the force and effect of an original, and
all of which shall constitute one and the same agreement.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date and year first above written.
THE COMPANY:
LOONEY & COMPANY,
a Texas corporation
/s/ RICHARD O. LOONEY
By: _____________________________________
Richard O. Looney
President
U.S. LEGAL SUPPORT, INC.
a Texas corporation
/s/ RICHARD O. LOONEY
By: _____________________________________
Richard O. Looney
President
THE EMPLOYEE:
/s/ JAMES M. WILSON
_________________________________________
James M. Wilson
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<PAGE>
SCHEDULE A
CALCULATION OF ANNUAL AND QUARTERLY BONUS
Each year the accountants regularly employed by the Company shall
determine the amount of Net Profit, if any, of the legal staffing business of
the Company during each consecutive twelve (12) month time period ending on the
last day of the fiscal year of the Company ("Annual Bonus") commencing with the
first fiscal year of the Company and continuing each year during the term of
this Agreement. Beginning with the first fiscal year of the Company, to the
extent that the Annual Profits of the current year exceed the Annual Profits of
the prior year, the Employee shall be paid an annual bonus equal to ten percent
(10%) of the amount of such excess, if any; provided that, for the first fiscal
year of the Company (A)(i) the Annual Profits shall be calculated for each full
month of operations and added together, (ii) the Annual Profits for any partial
month of operations shall be divided by the number of actual days in such month
and multiplied by 30 to create a full month and (iii) the sum of (A)(i) and
(A)(ii) shall be added together, that result divided by the number of full and
partial months of operations and the quotient multiplied by 12 to create the
number representing Annual Profits for the first fiscal year and (B) the Annual
Profits of the prior year shall be deemed to be $_________. For purposes of
this calculation, "Net Profit" shall mean earnings before income taxes,
interest, depreciation and amortization, and shall include overhead incurred
with regard to the Company's legal staffing business but shall exclude overhead
applicable to the Company's general business.
<PAGE>
EXHIBIT 10.27
LITIGATION RESOURCES OF AMERICA, INC.
650 FIRST CITY TOWER
1001 FANNIN
HOUSTON, TEXAS 77002
May 7, 1997
Mr. James M. Wilson
Commander Wilson, Inc.
2710 Sackett Street
Houston, Texas 77098
Dear Mr. Wilson:
This letter contains the proposal of Litigation Resources of America, Inc.
("LRA") to retain Commander Wilson, Inc. ("CWI") to provide certain services to
LRA in connection with its proposed acquisition of one or more legal personnel
placement agencies ("LPP's"). LRA proposes to pay CWI, as of the date of this
letter agreement, a nonrefundable retainer of $50,000 (the "Retainer"), in
consideration of which CWI will assist LRA in locating suitable LPP's as
acquisition candidates and in closing such acquisitions. It is acknowledged
that CWI has already introduced to LRA one such acquisition candidate, the firm
of Gibson, Arnold & Associates, whose sole proprietor is Ms. Yahne Gibson.
It is anticipated that LRA will acquire the business of CWI in conjunction
with, or prior to, the acquisition of any such LLP's, and that LRA will enter
into an employment agreement with you, all pursuant to agreements and documents
containing mutually acceptable terms, in which case LRA will owe CWI nothing
more for its services hereunder. In the event that LRA acquires one or more
LLP's, which have been identified to LRA by CWI and which CWI has assisted in
closing such transaction(s), and does not acquire the business of CWI, and does
not enter into an employment agreement with you, as provided above, LRA will pay
CWI, in addition to the Retainer, a fee equal to $100,000 plus 1.0% of the
transaction value, as applied to any and all such LLP's identified by CWI and
acquired by LRA, provided that the closing of said transactions occur within
twelve months from the time CWI introduces the LLP to LRA. Additionally, LRA
agrees to reimburse CWI for its expenses reasonably incurred in connection with
this assignment, such expenses not to exceed $2,500 without prior approval of
LRA.
If you are in agreement with the foregoing, please so indicate by
executing this letter or counterpart hereof in the space provided below, and
return the same to the undersigned.
Very truly yours,
LITIGATION RESOURCES OF AMERICA, INC.
/s/ Richard O. Looney
_________________________________________
Richard O. Looney
President
Agree to and Accepted by the undersigned
as of the 7th day of May, 1997.
COMMANDER WILSON, INC.
/s/ James M. Wilson
- --------------------------------
Mr. James M. Wilson
Proprietor
<PAGE>
EXHIBIT 10.28
TERMINATION OF LETTER AGREEMENT DATED MAY 7, 1997
This Termination of Letter Agreement Dated May 7, 1997 is made and entered
into this 25th day of September, 1997.
In consideration of the consummation of the transactions (the "Closing")
contemplated under the Agreement of Purchase and Sale of Assets ("Purchase
Agreement") between U.S. Legal Support, Inc. ("USLS") and James M. Wilson d.b.a.
Commander Wilson Incorporated ("Wilson") dated September 25, 1997, and for other
good and valuable consideration, the sufficiency of which is hereby acknowledged
by each of the undersigned, the Letter Agreement dated May 7, 1997 between
Wilson and USLS will, upon receipt by Wilson of the Purchase Price, as such term
is defined in the Purchase Agreement, terminate and any amounts owed by either
party to the other thereunder will be discharged and each party thereto and
hereto will release, acquit and forever discharge the other party from any and
all debts, obligations, claims and duties thereunder.
IN WITNESS WHEREOF, the undersigned have executed and delivered this Termination
of Letter Agreement Dated May 7, 1997 as of the date first written above.
U.S. Legal Support, Inc. f.k.a.
Litigation Resources of America, Inc.
By: /s/ RICHARD O. LOONEY
----------------------
Richard O. Looney
President
James M. Wilson d.b.a.
Commander Wilson, Inc.
By: /s/ JAMES M. WILSON
----------------------
James M. Wilson
<PAGE>
EXHIBIT 10.29
THE GULFSTAR GROUP, INC.
3850 NATIONSBANK CENTER
700 LOUISIANA STREET
HOUSTON, TEXAS 77002-2731
TELEPHONE TELECOPIER
(713) 238-4900 (713) 238-4999
April 24, 1997
CONFIDENTIAL
- ------------
Mr. Richard O. Looney
President
Litigation Resources of America, Inc.
650 First City Tower
1001 Fannin
Houston, Texas 77002
Dear Mr. Looney:
The GulfStar Group, Inc. ("GulfStar") welcomes the opportunity to provide
merger and acquisition advisory services to Litigation Resources of America,
Inc. ("LRA" or the "Company") in its purchase of the stock, assets or business
of companies that provide litigation support services (each such transaction
referred to as an "Acquisition").
Set forth below are (i) the services GulfStar will perform in the course of
this assignment, (ii) the total fees and expenses payable to GulfStar in
exchange for those services and (iii) general terms and conditions of the
engagement.
I. SERVICES TO BE PROVIDED BY GULFSTAR
During the course of the assignment, we will perform the following private
placement services on behalf of the Company:
. GulfStar will assist the Company in determining an appropriate value
and structure for each acquisition.
. We will also assist in the negotiation of the attendant letters of
intent and in the subsequent due diligence process.
. If satisfactory terms are agreed upon, GulfStar will serve as the
Company's financial advisor throughout the process of drafting and
negotiating the necessary definitive purchase agreements.
. If GulfStar is requested to provide other services (e.g. debt placement
services, equity placement services, etc.) such assignments and fees
will be negotiated separately on mutually agreeable terms.
<PAGE>
Mr. Richard O. Looney
April 24, 1997
Page 2 of 4
II. FEE AND EXPENSE ARRANGEMENTS
The professional fees and expense reimbursements payable to GulfStar with
respect to this assignment are set forth below:
. GulfStar shall be paid a merger and acquisition advisory fee equal to
1.0% of the total amount of consideration paid in each Acquisition
("M&A Advisory Fee"). Such fee shall be payable in cash upon the
successful completion of the Acquisition as contemplated herein. For
purposes of calculating the M&A Advisory Fee, consideration is hereby
understood to include cash, stock, long-term debt assumed, earnouts,
contingent payments and seller financing.
. GulfStar shall be reimbursed on a periodic basis for our direct out-of-
pocket expenses reasonably incurred in connection with this
assignment. In connection with the foregoing, GulfStar shall furnish
the Company written documentation of all out-of-pocket expenses that it
has incurred together with such other information that is reasonably
necessary to satisfy then applicable expense deduction reporting
requirements of the Internal Revenue Service.
III. GENERAL TERMS AND CONDITIONS
A. DEFINITION OF LITIGATION RESOURCES OF AMERICA, INC.
The terms "Looney" and the "Company", as employed herein, are
understood to include Litigation Resources of America, Inc. and all of
its subsidiaries, divisions, and affiliated companies.
B. TERMS OF ENGAGEMENT
GulfStar will have the exclusive right, for an initial period of 180
days following the execution date, to serve as LRA's investment banking
representative with respect to the matters set forth herein. Upon
expiration of 180 days, the engagement shall be automatically extended
unless terminated in writing by either GulfStar or Looney. Further, any
entity contacted during the course of this assignment will be deemed to
be an interested party ("Interested Party"). The Interested Parties
will be identified by us in writing upon the earlier of the termination
or successful consummation of this assignment. Should this assignment
be terminated prior to the completion of the transaction(s)
contemplated hereby, and should the Company subsequently complete such
transaction(s) with an Interested Party within a 12 month period
<PAGE>
Mr. Richard O. Looney
April 24, 1997
Page 3 of 4
following such termination, then GulfStar shall be due full
compensation under II with respect to the participation of any
Interested Parties in such transaction(s).
C. INDEMNIFICATION
LRA agrees to indemnify and hold GulfStar (and each of its partners,
officers and employees) harmless against any losses, claims, damages or
liabilities which GulfStar may be subject to in connection with
services performed in its capacity as advisor as described in this
engagement letter and to periodically reimburse GulfStar for any legal
and other expenses reasonably incurred by GulfStar in connection with
investigating or defending any action or claim in connection therewith,
provided however, that LRA shall not be obligated under the foregoing
indemnity agreement with respect to any loss, claim, damage or
liability (or action in connection therewith) to the extent that a
court of competent jurisdiction shall have determined by final judgment
that such loss, claim, damage or liability resulted from the willful
misfeasance or gross neglect of GulfStar, and provided further that if
LRA assumes the defense of GulfStar then LRA shall not be obligated to
pay any legal fees or expenses thereafter incurred by GulfStar, so long
as there are no conflicting legal defenses or interests between LRA and
GulfStar. LRA shall not be liable for any action settled without its
consent. The indemnification and reimbursement provided to GulfStar
hereunder shall be applicable whether or not negligence of GulfStar is
alleged or proven.
D. LACK OF INDEPENDENT VERIFICATION
During the course of this assignment, GulfStar may rely upon the
opinions of experts (including, but not limited to, independent public
accounting firms) with respect to the accuracy or certain data provided
by LRA. GulfStar will make no effort to independently verify the
accuracy of any expert opinions so relied upon.
E. CONFIDENTIALITY
All non-public information supplied to GulfStar by LRA with respect to
the Company will be held in strict confidence, as we understand that
much of this information is treated as highly confidential by you and
is not normally divulged to outside sources.
<PAGE>
Mr. Richard O. Looney
April 24, 1997
Page 4 of 4
F. AMENDMENTS
Both parties agree that this document can be modified or amended only
through the written agreement of GulfStar and LRA.
If the foregoing accurately sets forth your understanding of our agreement,
please so indicate by signing, dating and returning one of the enclosed copies
of this letter, while retaining the other copy for your records.
We are delighted to have the opportunity to assist you in this important
matter and we look forward to working with you in the successful completion of
this assignment.
Sincerely,
THE GULFSTAR GROUP, INC.
By: /s/ Daryl R. Swarts
-----------------------------------
Daryl R. Swarts
Managing Director
ACCEPTED AND AGREED TO:
LITIGATION RESOURCES OF AMERICA, INC.
By: /s/ Richard O. Looney
-----------------------------------
Richard O. Looney
President
Date: April 30, 1997
------------------------------------
<PAGE>
EXHIBIT 10.30
- --------------------------------------------------------------------------------
FOURTH AMDENDED AND RESTATED
CREDIT AGREEMENT
LITIGATION RESOURCES OF AMERICA, INC.,
LOONEY & COMPANY, KLEIN, BURY &
ASSOCIATES, INC.
LITIGATION RESOURCES OF AMERICA-
CALIFORNIA, INC.
LITIGATION RESOURCES OF
AMERICA-MIDWEST, INC.
LITIGATION RESOURCES OF AMERICA-
NORTHEAST, INC.
BLOCK COURT REPORTING, INC.,
BLOCK TAPE TRANSCRIPTION SERVICES, INC.,
and
BURTON HOUSE, INC.
BORROWERS
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION
BANK
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS.............................................. 2
-----------
1.1 Definitions.................................................... 2
-----------
1.2 Other Definitions.............................................. 18
-----------------
ARTICLE II REVOLVING CREDIT LOANS AND LETTERS OF CREDIT............. 19
--------------------------------------------
2.1 Revolving Loan Commitment...................................... 19
-------------------------
2.2 Letters of Credit.............................................. 19
-----------------
2.3 Borrowing Base................................................. 20
--------------
2.4 Borrowing Procedure............................................ 20
-------------------
2.5 Use of Proceeds................................................ 21
---------------
2.6 Required Payments.............................................. 21
-----------------
ARTICLE III TERM LOANS............................................... 21
----------
3.1 Term Loans..................................................... 21
----------
3.2 Borrowing Procedure............................................ 22
-------------------
3.3 Use of Proceeds................................................ 22
---------------
3.4 Conditions Precedent........................................... 22
--------------------
ARTICLE IV NOTES.................................................... 23
-----
4.1 Revolving Credit Note.......................................... 23
---------------------
4.2 Term Notes..................................................... 23
----------
4.3 Interest Rate Options.......................................... 23
---------------------
4.4 Interest Recapture............................................. 26
------------------
4.5 Maximum Interest............................................... 26
----------------
4.6 Payments on the Notes.......................................... 27
---------------------
4.7 Calculation of Interest Rates.................................. 28
-----------------------------
4.8 Prepayments.................................................... 29
-----------
4.9 Manner and Application of Payments............................. 30
----------------------------------
4.10 Renewals of Notes.............................................. 30
-----------------
4.11 Taxes.......................................................... 30
-----
4.12 Facility Fees.................................................. 31
-------------
4.13 Letters of Credit Fees......................................... 31
----------------------
ARTICLE V SPECIAL PROVISIONS FOR ADJUSTED LIBOR RATE LOANS......... 32
------------------------------------------------
5.1 Inadequacy of Libor Pricing.................................... 32
---------------------------
5.2 Illegality..................................................... 32
----------
5.3 Increased Costs for Adjusted Libor Rate Loans.................. 33
---------------------------------------------
5.4 Effect on Interest Options..................................... 33
--------------------------
5.5 Payments Not At End of Interest Period......................... 34
--------------------------------------
ARTICLE VI COLLATERAL FOR LOANS..................................... 34
--------------------
6.1 Collateral for Loans........................................... 34
--------------------
6.2 Further Assurances............................................. 34
------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
6.3 Collateral Documents........................................... 35
--------------------
6.4 Description of Collateral...................................... 35
-------------------------
6.5 Other Loans.................................................... 35
-----------
ARTICLE VII CUSTODY, INSPECTION, COLLECTION
-------------------------------
AND MAINTENANCE OF COLLATERAL........................... 35
-----------------------------
7.1 Disposition.................................................... 35
-----------
7.2 Inspection..................................................... 35
----------
7.3 Authorization.................................................. 35
-------------
7.4 Reports........................................................ 36
-------
7.5 Compliance with Law............................................ 36
-------------------
7.6 Protection..................................................... 36
----------
7.7 Collection..................................................... 36
----------
7.8 Creation of Accounts........................................... 36
--------------------
7.9 Right to Receive............................................... 36
----------------
ARTICLE VIII COVENANTS................................................ 37
---------
8.1 Affirmative Covenants.......................................... 37
---------------------
8.2 Financial Covenants............................................ 40
-------------------
8.3 Other Covenants................................................ 41
-----------------
8.4 ERISA Compliance............................................... 42
------------------
8.5 Indemnity...................................................... 43
ARTICLE IX CONDITIONS PRECEDENT..................................... 44
--------------------
9.1 Initial Advances............................................... 44
----------------
9.2 Subsequent Advances............................................ 46
-------------------
9.3 Conditions Precedent on Acquisitions........................... 46
------------------------------------
ARTICLE X REPRESENTATIONS AND WARRANTIES........................... 47
------------------------------
10.1 Representations and Warranties Concerning Borrowers........... 47
---------------------------------------------------
10.2 Regulatory Matters............................................ 50
------------------
10.3 Representations Regarding Accounts............................ 51
----------------------------------
10.4 Survival of Representations and Warranties.................... 51
------------------------------------------
ARTICLE XI DEFAULTS AND REMEDIES.................................... 52
------------------------------------------------------
11.1 Events of Default............................................. 52
-----------------
11.2 Remedies...................................................... 54
--------
11.3 Material Notices.............................................. 54
----------------
ARTICLE XII MISCELLANEOUS............................................ 55
-------------
12.1 Notices....................................................... 55
-------
12.2 Severability.................................................. 55
------------
12.3 Captions...................................................... 55
--------
12.4 Successors and Assigns........................................ 55
----------------------
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
12.5 Participation................................................ 55
-------------
12.6 Non-liability of Bank........................................ 55
---------------------
12.7 Financing Statements......................................... 56
--------------------
12.8 List of Exhibits and Schedules............................... 56
------------------------------
12.9 Modification................................................. 56
------------
12.10 Waiver....................................................... 56
------
12.11 Governing Law................................................ 56
-------------
12.12 Choice of Forum, Service of Process and Jurisdiction......... 56
----------------------------------------------------
12.13 Waiver of Jury Trial......................................... 57
--------------------
12.14 Agency....................................................... 57
------
12.15 No Third Party Beneficiary................................... 57
--------------------------
12.16 Payment of Expenses.......................................... 57
-------------------
12.17 Conflicts.................................................... 58
---------
12.18 Deceptive Trade Practices Act................................ 58
-----------------------------
12.19 Entirety..................................................... 58
--------
12.20 Multiple Counterparts........................................ 58
---------------------
</TABLE>
-iii-
<PAGE>
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
This Fourth Amended and Restated Credit Agreement (the "Fourth Restated
Agreement") is made and entered into effective September 17, 1997, by and among:
LITIGATION RESOURCES OF AMERICA, INC. ("LRA"), LOONEY & COMPANY ("Looney"),
KLEIN, BURY & ASSOCIATES, INC. ("KBA"), LITIGATION RESOURCES OF AMERICA-
CALIFORNIA, INC. ("LRA-Cal"), LITIGATION RESOURCES OF AMERICA-MIDWEST, INC.,
("LRA-Midwest"), LITIGATION RESOURCES OF AMERICA-NORTHEAST, INC. ("LRA-NE"),
BLOCK COURT REPORTING, INC. ("Block"), BLOCK TAPE TRANSCRIPTION SERVICES,
INC. ("Transcription"), BURTON HOUSE, INC. ("Burton") and the Consolidated
Subsidiaries of LRA which are, from time to time, made a Borrower party
hereto (sometimes herein collectively called the "Borrowers," and singly
called a "Borrower"); and,
TEXAS COMMERCE BANK NATIONAL ASSOCIATION (the "Bank").
RECITALS
--------
LRA, Looney, KBA and the Bank entered into a Credit Agreement (the "Prior
Agreement") dated January 10, 1997, pursuant to the terms of which the Bank
agreed to make loans to LRA, Looney and KBA. LRA formed LRA-Cal as a wholly
owned Consolidated Subsidiary. LRA, Looney, KBA, LRA-Cal and the Bank modified
the terms of the Prior Agreement and entered into an Amended and Restated Credit
Agreement dated effective May 14, 1997 (the "Restated Agreement"), and further
amended the Prior Agreement and the Restated Agreement in Second Amended and
Restated Credit Agreement dated August 18, 1997 (the "Second Restated
Agreement"). LRA formed LRA-Midwest as a wholly owned Consolidated Subsidiary.
LRA formed LRA-NE as a wholly owned Consolidated Subsidiary. LRA-NE acquired
Block which owns all of the outstanding and issued shares of Transcription.
LRA, Looney, KBA, LRA-Cal, LRA-Midwest, LRA-NE, Block, Transcription and the
Bank further amended the Prior Agreement, the Restated Agreement and the Second
Restated Agreement in a Third Amended and Restated Credit Agreement (the "Third
Restated Agreement") dated September 4, 1997, which, with the Prior Agreement,
the Restated Agreement and the Second Restated Agreement are sometimes herein
collectively, the "Prior Credit Agreements".
The Borrowers represent to the Bank that LRA-NE has entered into and will,
effective contemporaneous with the execution of this Fourth Restated Agreement,
consummate the EDP Asset Purchase Agreement. The Borrowers represent to the
Bank that LRA-Cal has entered into and will, effective contemporaneous with the
execution of this Fourth Restated Agreement, consummate the Burton House Stock
Purchase Agreement.
The Borrowers have requested the Bank to further increase the amount of the
Loans to enable the Borrowers to consummate the EDP Asset Purchase Agreement and
the Burton House Stock Purchase Agreement. Conditioned on the terms of this
Fourth Restated Agreement, the Bank is willing to increase the amount of the
Loans and to make the Loans available for the purposes herein set out to the
Borrowers.
In consideration of the premises, for other good, fair and valuable
considerations, the receipt, adequacy and reasonable equivalency of which are
acknowledged, and for other valuable consideration,
-1-
<PAGE>
the Borrowers and the Bank amend and restate the provisions of the Prior Credit
Agreements as set out herein, and the parties agree as set out herein.
ARTICLE I
DEFINITIONS
-----------
1.1 Definitions. For the purposes of this Fourth Restated Agreement, unless
-----------
the context requires otherwise, the following terms shall have the respective
meanings ascribed to them in this Article or in the Sections referred to below:
"Accounts," "Chattel Paper," "Contracts," "Contract Rights," "Documents,"
"Equipment," "General Intangibles," "Goods," and "Instruments" shall have the
meanings ascribed to such terms in the UCC, and shall mean the Accounts, Chattel
Paper, Contracts, Contract Rights, Documents, Equipment, General Intangibles,
Goods, and Instruments of the Borrowers in which the Bank is granted security
interests pursuant to the Loan Documents.
"Adjusted Libor Rate Loans" means all, and "Adjusted Libor Rate Loan" means any,
of the Loans, with respect to any Interest Period, which bears interest at a
rate of interest determined by reference to the Libor Rate for such Interest
Period.
"Adjusted Libor Rate" means, with respect to any Loan based on a Libor Rate for
any Interest Period, an interest rate per annum equal to the product of, (i) the
Libor Rate in effect for such Interest Period plus the Applicable Margin, and
----
(ii) Statutory Reserves.
"Advances" means all, and "Advance" means any, of the disbursements by the Bank
of the sums loaned to the Borrowers pursuant to this Fourth Restated Agreement.
"Affiliate" of any Person means any other Person which, directly or indirectly,
controls or is controlled by or is under common control with such Person and,
without limiting the generality of the foregoing, includes, (i) any Person which
beneficially owns or holds five per cent or more of any class of Voting Shares
of such Person or five per cent or more of the equity interest in such Person,
(ii) any Person of which such Person beneficially owns or holds five per cent or
more of any class of Voting Shares or in which such Person beneficially owns or
holds five per cent or more of the equity interest in such Person and (iii) any
director, officer, member, manager or employee of such Person. For the purposes
of this definition, the term "control" (including, with correlative meanings,
the terms "controlled by" and "under common control with"), as used with respect
to any Person, means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of Voting Shares or by contract or otherwise.
"Agreement" means this Fourth Restated Agreement and the Prior Credit
Agreements, as amended and restated herein, and as it may, from time to time, be
further amended and restated.
"Amicus Asset Purchase Agreement" means the Agreement of Purchase and Sale of
Assets among LRA, LRA-NE, Amicus One Legal Support Services, Inc., Richard A.
Portas, Joseph N. Spinozzi, Carl Anderson and Howard Breshin, pursuant to the
terms of which LRA-NE purchased the assets of Amicus One Legal Support Services,
Inc., a New York corporation, as an Approved Asset Purchase Agreement.
-2-
<PAGE>
"Applicable Margin" means three-fourths (3/4) of one (1) per cent for Base Rate
Loans and for two (2) and one-half (1/2) per cent for Adjusted Libor Rate Loans.
"Application for Letter of Credit" shall have the meaning ascribed to such term
in Section 2.2.
"Approved Asset Purchase Agreement" means an agreement among LRA or a
Consolidated Subsidiary and one or more Sellers in which LRA or the Consolidated
Subsidiary shall be entitled to purchase substantially all of the Assets of a
Qualified Company, or a combination of the foregoing, and in any event, made
pursuant to an Asset Purchase Agreement submitted to and specifically approved
in writing by the Bank prior to consummation.
"Approved Merger" means any merger of a Qualified Company into LRA or a
Consolidated Subsidiary and in which LRA or the Consolidated Subsidiary shall be
the surviving entity, or a combination of the foregoing, and in any event, made
pursuant to a proposed plan of merger submitted to and specifically approved in
writing by the Bank prior to adoption.
"Approved Preferred Stock" means the, (i) Series A Convertible Preferred Stock
of LRA issued to the Investors pursuant to the Securities Purchase Agreement and
a Certificate of the Powers, Designations, Preferences and Rights, and which
must be issued subject to the Subordination Provisions, (ii) Series B
Convertible Preferred Stock of LRA issued pursuant to a Statement of Designation
of the Series B Convertible Preferred Stock, and which must be issued subject to
the Subordination Provisions and a Seller Debt Subordination Agreement or a
Seller Preferred Stock Subordination Agreement, as applicable, (iii) Series C
Convertible Preferred Stock of LRA issued pursuant to a Statement of Designation
of the Series C Convertible Preferred Stock, and which must be issued subject to
the Subordination Provisions and a Seller Debt Subordination Agreement or a
Seller Preferred Stock Subordination Agreement, as applicable, and (iv) such
other preferred stock issue which, prior to adoption, has been submitted to and
approved in writing by the Bank with regard to subordination and containing
subordination provisions (in form and substance satisfactory to the Bank)
substantially to the effect that the holders of the preferred stock agree that
the preferred stock evidenced by any certificate or security rights, any
exchanges therefor or in respect thereof, shall at all times and in all respects
be subordinate and junior in right of payment, lien, and other rights to the
Obligations.
"Asset Purchase Agreements" means all, and "Asset Purchase Agreement" means any,
of the agreements with one or more Sellers pursuant to the terms of which, (i)
LRA will have the right to purchase Assets of a Qualified Company, (ii) a
Consolidated Subsidiary will have the right to purchase Assets of a Qualified
Company, or (iii) a combination of (i) and (ii), and in any event pursuant to an
Approved Asset Purchase Agreement.
"Assets" means all or substantially all of the assets of a Qualified Company.
"Base Rate Loan" means that portion of any Loan which bears interest at a rate
of interest determined by reference to the Base Rate.
"Base Rate" means the variable rate of interest announced from time to time by
the Bank as the prime rate, and thereafter entered in the minutes of the Bank's
Loan and Discount Committee, and used by the Bank as a general reference rate of
interest, but which rate of interest may not be the lowest rate charged by the
Bank on similar loans. Each change in the Base Rate shall become effective
without prior notice to the Borrowers automatically as of the opening of
business on the date of a change in the
-3-
<PAGE>
Base Rate. If the Bank shall, during the term of this Fourth Restated Agreement,
abolish or abandon the practice of announcing or publishing a "prime rate," then
the "prime rate" used during the remaining term of this Fourth Restated
Agreement shall be that interest rate or other general reference rate then in
effect and used by the Bank, which, from time to time, in the judgment of the
Bank, most effectively approximates the initial definition of the "prime rate."
"Block Stock Purchase Agreement" means the Stock Purchase Agreement among LRA,
LRA-NE and Martin H. Block pursuant to the terms of which LRA-NE purchased all
of the outstanding and issued capital stock of Block, as an Approved Stock
Purchase Agreement.
"Board" means the Board of Governors of the Federal Reserve System of the U.S.
"Borrowers" means all of, and "Borrower" means any of, LRA, Looney, KBA, LRA-
Cal, LRA-Midwest, LRA-NE, Block, Transcription, Burton and any other
Consolidated Subsidiary of any of the Borrowers which the Bank may require, at
the time of its acquisition or formation by a Borrower, become a Borrower
hereunder.
"Borrowing Base Certificate" means any of the certificates delivered by the
Borrowers to the Bank calculating the Borrowing Base pursuant to Section 2.3.
"Borrowing Base" means the amount calculated pursuant to Section 2.3 which the
Borrowers shall be entitled to borrow as an Advance.
"Borrowing Date" means the Business Day specified in (i) any Notice of Revolving
Credit Advance, (ii) a Notice of Term Loan Advance, or (iii) the Application for
Letter of Credit, as a date on which the Borrowers request the Bank make an
Advance or issue a Letter of Credit.
"Borrowing" means any amount disbursed by the Bank to or on behalf of any of the
Borrowers under the Loan Documents, whether such amount advanced constitutes an
original disbursement of funds, the continuation of an amount outstanding,
amounts advanced and outstanding under a Letter of Credit (until such payment is
reimbursed in accordance with the applicable Application for Letter of Credit or
the Letter of Credit is returned to the Bank), or a disbursement of funds in
accordance with and to satisfy the Obligations.
"Burton House Stock Purchase Agreement" means the Stock Purchase Agreement dated
September 17, 1997, among LRA, LRA-Cal, Gregg M. Ziskind and Susan L. Ziskind
pursuant to the terms of which LRA-Cal will have the right to purchase all of
the outstanding and issued capital stock of Burton, as an Approved Stock
Purchase Agreement.
"Business Day" means a day on which the Bank is open for business, except for
Saturdays, Sundays and holidays recognized by the Bank.
"Capital Expenditure" means any expenditure by a Person for an asset which will
be used in a year or years subsequent to the year in which the expenditure is
made and which asset is properly classifiable in relevant financial statements
of such Person as equipment, real property, improvements, fixed assets, or a
similar type of capitalized asset in accordance with GAAP.
-4-
<PAGE>
"Capital Lease" means, as of any date, any lease of property, real or personal,
which would be capitalized on a balance sheet of the lessee prepared as of such
date in accordance with GAAP, together with any other lease by such lessee which
is in substance a financing lease, including, without limitation, any lease
under which, (i) such lessee has or will have an option to purchase the property
subject thereto at a nominal amount or at an amount less than a reasonable
estimate of the fair market value of such property as of the date such lease is
entered into, or (ii) the term of the lease approximates or exceeds the expected
useful life of the property leased thereunder.
"Cash Flow" means, for any period, annualized EBITDA using no less than the
three most current months financial data, actual EBITDA as the annualization
basis, less annualized cash income tax expense based on the latest historical
----
income tax payment, unless a quarterly income tax payment for a quarterly period
is unusually high or low, in which event, income tax payments will be estimated
for the Borrower's Fiscal Year.
"Certificate of Compliance" means any of the certificates delivered by the
Borrowers pursuant to Section 8.2.C.
"Change of Control" means if any Person, or group of Persons acting together
shall acquire sufficient stock ownership of any of the Borrowers to permit such
Person or group to elect a majority of the Board of Directors of any Borrower
without the express written consent of the Bank.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Collateral Documents" means all security agreements, guaranty agreements and
any other agreements or documents executed or delivered to secure the repayment
of the Obligations or any part thereof.
"Commitment" means the obligation of the Bank to extend credit to the Borrowers
under this Fourth Restated Agreement in an aggregate principal amount not to
exceed the Total Commitment.
"Consequential Loss" means, with respect to the Borrowers' payment of all or any
portion of an Adjusted Libor Rate Loan on a day other than the last day of the
Interest Period related thereto, any loss, cost or expense incurred by the Bank
as a result of the timing of such payment or in redepositing such principal
amount, including the sum of, (i) the interest which, but for such payment, the
Bank would have earned in respect of such principal amount so paid, for the
remainder of the Interest Period applicable to such sum, reduced, if the Bank is
able to redeposit such principal amount so paid for the balance of such Interest
Period, by the interest earned by the Bank as a result of so redepositing such
principal amount, plus (ii) any expense or penalty incurred by the Bank in
redepositing such principal amount.
"Consolidated Subsidiaries" means Looney, KBA, LRA-Cal, LRA-Midwest, LRA-NE,
Block, Transcription, Burton and any other Qualified Company, the capital stock
of which is owned in its entirety by LRA or a wholly owned direct subsidiary of
LRA, and "Consolidated Subsidiary" means any of them.
"Contract Rate" means the applicable rate of interest on the Loans calculated as
set out in Section 4.3.A.(1) or Section 4.3.B.(1).
-5-
<PAGE>
"Controlled Group" means, (i) the controlled group of corporations as defined in
(S)1563 of the Code, or (ii) the group of trades or businesses under common
control as defined in (S)414(c) of the Code, of which the Borrowers are or may
become a part.
"Conversion Date" shall have the meaning ascribed to such term in Section
4.3.A.(4) or Section 4.3.B.(4), as applicable.
"Debt Service Expense" means, with respect to any Person for any period, the
aggregate of regularly scheduled principal payments of all long-term
Indebtedness (including, without limitation, Subordinated Indebtedness) made or
to be made by such Person during such period in accordance with GAAP.
"Debtor Laws" means all applicable liquidation, conservatorship, bankruptcy,
moratorium, arrangement, receivership, insolvency, reorganization or similar
laws, from time to time in effect, affecting the rights of creditors generally.
"Default" shall have the meaning ascribed to such term in Section 11.1.
"Dividends" means in respect of any corporation, including tax-option
corporations, (i) cash distributions or any other distributions (or the setting
aside of any amounts for any such purpose) on, or in respect of, any class of
capital stock of such corporation, except for distributions made solely in
shares of stock of the same class, and (ii) any and all funds, cash or other
payments made in respect of the redemption, repurchase or acquisition of such
stock and whether by reduction of capital or otherwise, unless such stock shall
be redeemed or acquired through the exchange of such stock with stock of the
same class.
"Dollars" and the symbol "$" shall refer to currency of the U.S.
"EBITDA" shall mean for any fiscal period of LRA and the Consolidated
Subsidiaries, the sum of the following which would be reflected on the
consolidated income statement of LRA and the Consolidated Subsidiaries prepared
in accordance with GAAP, (i) earnings before income taxes, extraordinary events,
and discontinued operations; plus, (ii) Interest Expense (including non-cash
----
interest expense or non-cash amortization expense from discounted debt; plus,
----
(iii) non-cash charges in respect of depreciation and amortization; (iv) non-
cash management compensation related to stock options; and plus, (v) non-
----
capitalized transaction costs realized in the merger of LRA, Looney and KBA.
"EDP Asset Purchase Agreement" means the Agreement of Purchase and Sale of
Assets dated September 17, 1997, among LRA, LRA-NE, Elaine P. Dine, Inc.
("EDP"), a New York corporation, Elaine P. Dine Temporary Attorneys, L.L.C.
("EDP Temp"), a New York limited liability company, Elaine P. Seigel and Laurie
Becker, pursuant to the terms of which LRA-NE will have the right to purchase
the assets of EDP and EDP Temp, as an Approved Asset Purchase Agreement.
"Effective Date of the Prior Agreement" shall mean January 10, 1997.
"Effective Date of the Restated Agreement" shall mean May 14, 1997.
"Effective Date of the Second Restated Agreement" shall mean August 18, 1997.
"Effective Date of the Third Restated Agreement" shall mean September 4, 1997.
-6-
<PAGE>
"Effective Date of this Fourth Restated Agreement" shall mean September 17,
1997.
"Effective Dates of the Prior Credit Agreements" shall mean, respectively, the
effective dates of the execution and delivery of the Prior Credit Agreements.
"Eligible Accounts" means, at the time of any determination thereof, each
Account of LRA and the Consolidated Subsidiaries as to which the following
requirements have been fulfilled to the satisfaction of the Bank.
A. The Borrowers or a Consolidated Subsidiary have lawful and absolute title
to the Account.
B. The Account is a valid, legally enforceable obligation of a Person (the
"Account Debtor") who is obligated under the Ac count for goods or
services previously delivered or rendered to the Person for which payment
of the Account has not been outstanding for more than one hundred twenty
(120) days from invoice date.
C. There has been excluded from the Account any portion that is subject to
any dispute, set off, counterclaim or other claim or defense on the part
of the Account Debtor or any claim on the part of the Account Debtor
denying liability under the Account.
D. The Borrowers or a Consolidated Subsidiary have the full and unqualified
right to assign and grant a security interest in the Account to the Bank
as security for the Obligations.
E. The Account is evidenced by an invoice rendered to the Account Debtor and
the Account is not evidenced by any chattel paper, promissory note, or
other instrument.
F. The Account is subject to a fully perfected first priority security
interest and Lien in favor of the Bank pursuant to the Loan Documents,
prior to the rights of, and enforceable as such, against any other
Person.
G. The Account is not subject to any Lien in favor of any Person other than
the Lien of the Bank pursuant to the Loan Documents.
H. The Account arose from a transaction in the ordinary course of business
of the Borrowers or a Consolidated Subsidiary.
I. An Eligible Account shall not include Accounts from an Account Debtor to
the extent the Accounts from that Account Debtor exceeds fifteen (15) per
cent or more of the Eligible Accounts.
J. The Bank shall have the right, in its judgment, to exclude as an Eligible
Account any Account from an Account Debtor who is obligated to the
Borrowers or a Consolidated Subsidiary if twenty-five (25) per cent or
more of the Accounts of that Account Debtor has been due and payable for
more than one hundred twenty (120) days from the invoice date.
K. No Account Debtor in respect of the Account is, (i) primarily conducting
business in any jurisdiction located outside the U.S., except those
Accounts secured by letters of credit specifically approved by the Bank,
(ii) an Affiliate of the Borrowers or a Consolidated Subsidiary,
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(iii) any Governmental Authority, domestic or foreign, or (iv) the
subject of a proceeding under any Debtor Laws.
L. An Eligible Account shall not include an Account which arises out of a
transaction in which the Borrowers shall have provided any surety or
guaranty bond to the Account Debtor or other Person.
"Employee Plan" means any, and "Employee Plans" means all, employee benefit or
other plans maintained, in whole or in part, for the employees of LRA, the
Consolidated Subsidiaries and/or any ERISA Affiliate, and covered by Title IV of
ERISA, or subject to the minimum funding standards under (S)412 of the Code.
"ERISA Affiliate" means any Person which, together with LRA or any Consolidated
Subsidiary, would be treated as a single employer under the provisions of Title
I or Title IV of ERISA.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended,
together with all regulations issued pursuant thereto.
"Event of Default" shall have the meaning ascribed to such term in Section 11.1.
"Facility Fees" shall have the meaning ascribed to such term in Section 4.12.
"Financial Officer" means, with respect to any Person, the chief financial
officer of such Person.
"Financial Statements" means all, and "Financial Statement" means each, of the
balance sheets, income statements and statements of cash flow and contingent
liabilities of any of the Borrowers.
"Financing Statement" means each UCC-1 financing statement sufficient for
purposes of perfecting the Bank's security interest in the Collateral pursuant
to the UCC.
"Fiscal Year" means the fiscal year of LRA for accounting purposes ending each
December 31.
"Fixed Charge Coverage Ratio" means Cash Flow divided by Fixed Charges.
"Fixed Charges" means, for any fiscal period of LRA and the Consolidated
Subsidiaries, the sum of the following which would be reflected on the
consolidated income statement prepared in accordance with GAAP of LRA and the
Consolidated Subsidiaries, (i) Interest Expense unless deferred to a subsequent
Fiscal Year of the Borrower or converted to equity pursuant to the Securities
Purchase Agreement, (ii) Capital Lease payments, (iii) scheduled payments of
principal on Indebtedness, (iv) non-financed Capital Expenditures, and (v) cash
Dividends or cash disbursements of equity.
"Free Cash Flow" means, with respect to any Person for any period, the amount,
if any, by which Funds Flow From Operations of such Person and its Subsidiaries
for such period exceeds the sum of (i) non-financed Capital Expenditures, plus
----
(ii) Dividends, plus (iii) the Debt Service Expense of such Persons and its
----
Subsidiaries for such period, plus (iv) Capital Lease payments of such Person
----
during such period, plus (v) changes in working capital.
----
"Funded Debt Ratio" means Funded Debt divided by Cash Flow.
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"Funded Debt" means all interest bearing or discounted Indebtedness other than
accounts payable and other similar obligations incurred in the ordinary course
of business by any of the Borrowers and accruals and deferred income tax
liability.
"Funding Account" means the non-interest bearing account established pursuant to
Section 2.4.
"Funds Flow From Operations" means Net Income plus depreciation and
----
amortization.
"G&G Asset Purchase Agreement" means the Approved Asset Purchase Agreement among
LRA, LRA-Cal, Peter Giammanco and Leslie Giammanco, pursuant to the terms of
which LRA-Cal purchased the Assets of G&G Court Reporters, a proprietorship of
Peter Giammanco and Leslie Giammanco.
"GAAP" means those generally accepted accounting principles and practices which
are recognized as such by the American Institute of Certified Public
Accountants acting through its Accounting Principles Board or by the Financial
Accounting Standards Board ("FASB") or through other appropriate boards or
committees thereof and which are consistently applied for all periods after the
Effective Date of the Prior Agreement so as to properly reflect the financial
condition, and the consolidated results of operations and cash flows, of the
Borrowers, except that any accounting principle or practice required to be
changed by the Accounting Principles Board or FASB (or other appropriate board
or committee of the boards) in order to continue as a generally accepted
accounting principle or practice, may be so changed. In the event of a change in
GAAP, the Bank and the Borrowers will thereafter negotiate in good faith to
revise any covenants of this Fourth Restated Agreement affected thereby in
order to make such covenants consistent with GAAP then in effect. If no
agreement is reached, the financial covenants shall be calculated based on GAAP
before any change in GAAP.
"Goren Merger Agreement" means the Plan and Agreement of Reorganization and
Merger among LRA, LRA-Cal, Goren of Newport, Inc. ("Goren"), a California
corporation, and Glory Johnson, pursuant to the terms of which Goren was merged
into LRA-Cal and LRA-Cal is the surviving entity in an Approved Merger.
"Governmental Authority" means any government (or any political sub division or
jurisdiction thereof), court, bureau, agency or other governmental authority
having jurisdiction over any of the Borrowers or their respective business or
property.
"Guaranty" means any contract, agreement or understanding of any Person pursuant
to which such Person guarantees, or in effect guarantees, any Indebtedness of
any other Person (the "Primary Obligor") in any manner, whether directly or
indirectly, including, without limitation, agreements: (i) To purchase such
Indebtedness or any property constituting security therefor; (ii) to advance or
supply funds (a) for the purchase or payment of such Indebtedness, or (b) to
maintain net worth or working capital or other balance sheet conditions, or
otherwise to advance or make available funds for the purchase or payment of such
Indebtedness; (iii) to purchase property, securities or service primarily for
the purpose of assuring the holder of such Indebtedness of the ability of the
Primary Obligor to make payment of the Indebtedness; or, (iv) otherwise to
assure the holder of the Indebtedness of the Primary Obligor against loss in
respect thereof. "Guaranty" shall not include, however, the indorsement of
negotiable instruments or documents for deposit or collection by the Borrowers
in the ordinary course of business.
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"Indebtedness" means, with respect to any Person, all indebtedness, obligations
and liabilities of such Person, including, without limitation: (i) All
liabilities which would be reflected on a balance sheet of such Person prepared
in accordance with GAAP; (ii) all obligations of such Person in respect of any
Guaranty; (iii) all obligations, indebtedness and liabilities secured by any
Lien or any security interest on any property or assets of such Person; and,
(iv) all preferred stock, which is redeemable by the holder of such stock, of
such Person valued at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends, unless the Bank specifically
agrees in writing that any such preferred stock is Approved Preferred Stock and
shall not be categorized as Indebtedness.
"Intangible Assets" means those assets of any Person which would be classified
as intangible assets on a balance sheet of such Person prepared in accordance
with GAAP.
"Interest Expense" means for any fiscal period of LRA and the Consolidated
Subsidiaries, the interest charges paid or accrued during such period (including
imputed interest on Capital Lease obligations, but excluding amortization of
debt discount and expense) on the Indebtedness of LRA and the Consolidated
Subsidiaries.
"Interest Option" shall have the meaning assigned to such term in Section 4.3.
"Interest Payment Date" means, (i) as to any Base Rate Loan, the sixth (6th) day
of each month commencing on the first of such days to occur after such Loan is
made, and (ii) as to any Adjusted Libor Rate Loan in respect of which the
Borrowers have selected an Interest Period of 30, 60, 90 or 180 days, the last
day of each month commencing on the first of such days to occur after such Loan
is made.
"Interest Period" means, with respect to any Loan, the period commencing on the
Borrowing Date and ending on the Term Maturity Date, consistent with the
following provisions. The duration of each Interest Period shall be:
A. In the case of a Base Rate Loan, any period up to the Term Maturity Date;
and,
B. With respect to any Adjusted Libor Rate Loan requested by LRA;
(1) Initially, the period commencing on the Borrowing Date or Conversion
Date with respect to such Adjusted Libor Rate Loan and ending 30, 60, 90
or 180 days thereafter as selected by LRA in a Notice of Revolving Credit
Advance as provided in Section 2.1, an Application for Letter of Credit
as provided in Section 2.2, or a Rollover Notice as provided in Section
4.3.A.(3); and,
(2) Thereafter, each period commencing on the last day of the immediately
preceding Interest Period applicable to such Adjusted Libor Rate Loan and
ending 30, 60, 90 or 180 days thereafter, as selected by LRA in a
Rollover Notice.
C. Each Interest Period shall be as selected by LRA, subject to the Bank's
consent, at the Bank's sole discretion. LRA's choice of Interest Period
is also subject to the following limitations:
(1) No Interest Period shall end on a date after the Term Maturity Date;
and,
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(2) If the last day of an Interest Period would be a day other than a
Business Day, the Interest Period shall end on the next succeeding
Business Day (unless the Interest Period relates to an Adjusted Libor
Rate Loan and the next succeeding Business Day is in a different calendar
month than the day on which the Interest Period would otherwise end, in
which case the Interest Period shall end on the next preceding Business
Day).
"Interest Rate Protection Agreement" means the agreement to be entered into
pursuant to Section 8.1.E.
"Inventory" means, as of any date, for LRA and the Consolidated Subsidiaries,
(i) the inventory which would be reflected on the consolidated balance sheet as
of such date prepared in accordance with GAAP, and (ii) the assets held for sale
or lease, or furnished or to be furnished under service contracts, raw materials
and materials used or consumed by the Borrowers in the Borrowers' business, and
(iii) in all instances inventory in which the Bank is granted security interests
pursuant to the Loan Documents.
"Investment" means any investment in any period, whether by means of share
purchase, loan, advance, extension of credit, capital contribution or
otherwise, in or to a Person, the Guaranty of any Indebtedness of such Person,
or the subordination of any claim against such Person to other Indebtedness of
such Person.
"Investor" means any, and "Investors" means all, of the holders of Approved
Preferred Stock and Subordinated Senior Notes, as defined in and issued pursuant
to the terms of the Securities Purchase Agreement, including, but not limited
to, Delaware State Employees Retirement Fund, Declaration of Trust for Defined
Benefit Plan of Zeneca Holdings Inc., and Declaration of Trust for Defined
Benefit Plan of ICI American Holdings, Inc.
"IPO" means the consummation of the sale or issuance in a public offering of any
debt or equity securities of the Borrowers.
"IRS" means the Internal Revenue Service, Department of the U.S. Treasury, an
agency of the U.S. government.
"KBA Stock Purchase Agreement" means the Stock Purchase Agreement among LRA and
Michael Klein pursuant to the terms of which LRA purchased all of the
outstanding and issued capital stock of KBA as an Approved Stock Purchase
Agreement.
"Legal Enterprise Asset Purchase Agreement" means the Agreement of Purchase and
Sale of Assets among LRA, LRA-Cal, Legal Enterprise, Inc., Tony L. Maddocks and
Alan Simon, pursuant to the terms of which LRA-Cal purchased the Assets of Legal
Enterprise, Inc., a California corporation, as an Approved Asset Purchase
Agreement.
"Letters of Credit" means all, and "Letter of Credit" means any, of the letters
of credit issued by the Bank for the benefit of the Borrowers pursuant to
Section 2.2.
"Libor Rate" means, for each Adjusted Libor Rate Loan, an interest rate per
annum determined by the Bank at or before 10:00 a.m. (Houston, Texas time), or
as soon thereafter as practicable, two Business Days before the first day of
such Interest Period, which determination shall be based upon, (i) the rate per
annum at which deposits of Dollars are offered to the Bank by prime banks in
whatever Eurodollar interbank market may be selected by the Bank in its sole
discretion, at the time of determination and in
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accordance with the usual practice in such market, for delivery on the first day
of such Interest Period in immediately available funds and for a period equal to
such Interest Period and in an amount substantially equal to the amount of the
Adjusted Libor Rate Loan during such Interest Period, and (ii) Statutory
Reserves.
"Lien" means any lien, mortgage, security interest, tax lien, pledge,
encumbrance, conditional sale or title retention arrange ment, or any other
interest in property designed to secure the repayment of Indebtedness, whether
arising by agreement, under any statute or law, or otherwise.
"Loan Documents" means the Prior Credit Agreements, this Fourth Restated
Agreement, the Notes, including any renewals, extensions and modifications
thereof, the Collateral Documents and any agreements or documents executed or
delivered pursuant to the terms of the Prior Credit Agreements or this Fourth
Restated Agreement, and with respect to the Prior Credit Agreements or this
Fourth Restated Agreement, and such other agreements and documents, any
amendments or supplements thereto or modifications thereof.
"Loan Parties" means all of the Borrowers, and "Loan Party" means any of them.
"Loans" means the Revolving Credit Loans and the Term Loans, and the term "Loan"
means any of them.
"Looney Stock Purchase Agreement" means the Stock Purchase Agreement among LRA
and Richard O. Looney pursuant to the terms of which LRA purchased all of the
outstanding and issued capital stock of Looney as an Approved Stock Purchase
Agreement.
"Mandatory Prepayment" means an amount equal to seventy-five (75) per cent of
Free Cash Flow, if any, of LRA and the Consolidated Subsidiaries for each Fiscal
Year.
"Material Adverse Effect" means any material adverse effect on, (i) the
validity, performance, or enforceability of any of the Loan Documents, (ii) the
financial condition or business operations of any of the Borrowers, and/or (iii)
the ability of any of the Borrowers to fulfill the Obligations.
"Maximum Rate" and "Maximum Amount" respectively mean the maximum non-usurious
rate and the maximum non-usurious amount of interest permitted by applicable
laws that, at any time or from time to time, may be contracted for, taken,
reserved, charged or received on the Obligations under the laws which are
presently in effect of the U.S. and the State of Texas and applicable to the
holders of the Notes or, to the extent permitted by law, under such applicable
laws of the U.S. and the State of Texas which may hereafter be in effect and
which allow a higher maximum non-usurious interest rate than applicable laws
now allow.
"Medtext Merger Agreement" means the Plan and Agreement of Reorganization and
Merger among LRA, LRA-Cal, Medtext, Inc. ("Medtext"), a California corporation,
and Seaquestor Trust, pursuant to the terms of which Medtext was merged into
LRA-Cal and LRA-Cal is surviving entity in an Approved Merger.
"Net Income" or "Net Loss" means, with respect to any Person for any period, the
aggregate income (or loss) of such Person for such period which shall be an
amount equal to net revenues and other proper items of income for such Person
less the aggregate for such Person of any and all expenses, and
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less Federal, state and local income taxes, but excluding any extraordinary
gains or losses or any gains or losses from the sale or disposition of assets
other than in the ordinary course of business, all of the foregoing being
computed and calculated in accordance with GAAP.
"Notes" means the Revolving Credit Note and the Term Notes, together with any
renewals, extensions or modifications thereof.
"Notice of Revolving Credit Advance" shall have the meaning ascribed to such
term in Section 2.1.
"Notice of Term Loan Advance" shall have the meaning ascribed to such term in
Section 3.1.
"Obligations" mean:
A. All present and future indebtedness, obligations and liabilities of any
of the Loan Parties to the Bank arising pursuant to any of the Loan
Documents, regardless of whether such indebtedness, obligations and
liabilities are direct, indirect, fixed, contingent, joint, several, or
joint and several;
B. All costs incurred by the Bank to obtain, preserve, perfect and enforce
the Liens and security interests securing payment of such indebtedness,
liabilities and obligations, and to maintain, preserve and collect the
property in which the Bank has been granted a Lien to secure payment of
the Loans, or any part thereof, including but not limited to, taxes,
assessments, insurance premiums, repairs, reasonable attorneys' fees and
legal expenses, rent, storage charges, advertising costs, brokerage fees
and expenses of sale; and,
C. All other Indebtedness of whatever kind or character owing, or which may
hereafter become owing, by any of the Loan Parties to the Bank, whether
the Indebtedness is direct or indirect, primary or secondary, fixed or
contingent, or arises out of or is evidenced by note, deed of trust, open
account, overdraft, indorsement, surety agreement, guaranty, or
otherwise, and it is specifically contemplated that the Borrowers may
hereafter become indebted to the Bank in further sum or sums; and,
D. All renewals, extensions and modifications of the Indebtedness referred
to in the foregoing clauses, or any part thereof.
"PBGC" means the Pension Benefit Guaranty Corporation, and any successor to all
or any of the Pension Benefit Guaranty Corporation's functions under ERISA.
"Pecks" means Pecks Management Partners Ltd., investment advisor to the
Investors.
"Pension Plan" means any Employee Plan which is subject to the provisions of
Title IV of ERISA.
"Permitted Liens" means: (i) Liens granted to the Bank to secure the
Obligations; and, (ii) pledges or deposits made to secure pay ment of worker's
compensation insurance (or to participate in any fund in connection with
worker's compensation insurance), unemployment insurance, pensions or social
security programs; and, (iii) Liens imposed by mandatory provisions of law such
as for materialmen's, mechanics', warehousemen's and other like Liens arising in
the ordinary course of business securing Indebtedness the payment for which is
not yet due, or if same is due, it is being contested in good faith
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and as to which a bond has been provided; and, (iv) Liens for taxes, assessments
and governmental charges or levies imposed upon a Person or upon such Person's
income or profits or property, if the same are not yet due and payable or if the
same are being contested in good faith and as to which adequate cash reserves
have been provided; and, (v) Liens arising from good faith deposits in
connection with tenders, leases, real estate bids or con tracts (other than
contracts involving the borrowing of money), pledges or deposits to secure
public or statutory obligations and deposits to secure (or in lieu of) surety,
stay, appearance or customs bonds and deposits to secure the payment of taxes,
assessments, customs duties or other similar charges; and, (vi) encumbrances
consisting of zoning restrictions, easements, or other restrictions on the use
of real property, provided that such items do not impair the use of such
property for the purposes intended, and none of which is violated by existing or
proposed structures or land use.
"Person" shall include an individual, a corporation, non-profit corporation, a
professional association, a joint venture, a general partnership, a limited
partnership, a limited liability company, a limited liability partnership, a
trust, an unincorporated organization or a government or any agency or
political subdivision thereof.
"Qualified Company" means a corporation whose primary business is to provide
support services to the legal profession.
"Rapidtext Merger Agreement" means the Plan and Agreement of Reorganization and
Merger among LRA, LRA-Cal, Rapidtext, Inc. ("Rapidtext"), a California
corporation, Seaquestor Trust and Glory Johnson, pursuant to the terms of which
Rapidtext was merged into LRA-Cal and LRA-Cal is the surviving entity in an
Approved Merger.
"Regulation D" means Regulation D of the Board, 12 C.F.R. Part 204, or any
successor or other regulation relating to reserve requirements applicable to
member banks of the Federal Reserve System.
"Regulation G", "Regulation U" and "Regulation X" respectively mean Regulation
G, Regulation U and Regulation X promulgated by the Board, 12 C.F.R., Parts 207,
221, or 224, as applicable or any suc cessor or other regulation hereafter
promulgated by the Board to replace the prior Regulation and having
substantially the same function.
"Regulatory Defects" means the failure by any Loan Party to comply with all
laws, statutes, orders, rules and regulations of any Govern mental Authority,
and such failure to comply has a Material Adverse Effect.
"Reportable Event" shall have the meaning ascribed to such term in Title IV of
ERISA.
"Requirements" means, (i) any and all present and future judicial decisions,
statutes, rulings, rules, regulations, orders, permits, certificates or
ordinances of any Governmental Authority in any manner applicable to any of the
Loan Parties, and (ii) any and all contracts, written or oral, of any nature to
which any of the Loan Parties may be bound.
"Responsible Officer" means, with respect to any Person, the chief executive
officer, the president, the chief financial officer or the controller, of such
Person.
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"Revolving Credit Commitment Period" means the period beginning on the Effective
Date of the Prior Agreement and ending on the earlier of, (i) the Revolving
Credit Commitment Termination Date, or (ii) the date on which the obligations of
the Bank to fund Advances hereunder terminates after the occurrence of an Event
of Default.
"Revolving Credit Commitment Termination Date" means July 10, 1998, or if such
date is not a Business Day, then the Business Day preceding such date.
"Revolving Credit Commitment" means $2,000,000.00.
"Revolving Credit Loans" means the aggregate unpaid principal balance of all
Borrowing made under Section 2.1.
"Revolving Credit Note" shall have the meaning ascribed to such term in Section
4.1.
"Revolving Loan Contract Rate" means the rates of interest on the Loans
calculated as set out in Section 4.3.A.
"Rocca Asset Purchase Agreement" means agreement among LRA-Midwest and Sandra
Rocca pursuant to the terms of which LRA-Midwest purchased the assets of Rocca
Reporting Service, a proprietorship, as an Approved Asset Purchase Agreement.
"Securities Purchase Agreement" means the agreement dated January 17, 1997,
among LRA and the Investors pursuant to the terms of which LRA issued
$9,000,000.00 of Indebtedness and $1,000,000.00 of Series A Convertible Stock to
the Investors.
"Security Agreement-Pledge" means each the Security Agreement-Pledge Agreements
executed and delivered pursuant to Section 6.1.B of the Prior Agreements and
each of the Security Agreement-Pledge Agreements executed pursuant to Section
6.1.B of this Fourth Restated Agreement.
"Security Agreement" means each first priority Security Agreement executed and
delivered pursuant to Section 6.1.A of the Prior Agreements and first priority
Security Agreement executed and delivered pursuant to Section 6.1.A of this
Fourth Restated Agreement.
"Seller Debt Subordination Agreement" means each Subordination Agreement which
has heretofore been executed and which will be executed in favor of the Bank
pursuant to Section 9.1.E.
"Seller Preferred Stock Subordination Agreement" means each Subordination
Agreement which has heretofore been executed and which will be executed in favor
of the Bank pursuant to Section 9.1.F.
"Seller" means any, and "Sellers" means all, Persons who have sold or will sell
Stock to LRA or a Consolidated Subsidiary pursuant to an Approved Stock Purchase
Agreement or an Approved Merger or who have sold or will sell Assets to LRA or a
Consolidated Subsidiary and are owed any Indebtedness or are issued Approved
Preferred Stock.
"SF Asset Purchase Agreement" means the Approved Asset Purchase Agreement among
LRA, LRA-Cal, San Francisco Reporting Service, Jay W. Harbidge and Rick Posner
pursuant to the terms of
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which LRA-Cal purchased the Assets of San Francisco Reporting Service, a general
partnership composed of Jay W. Harbidge and Rick Posner as an Approved Asset
Purchase Agreement.
"Solvent" means, with respect to any Person on a particular date, that on such
date, (i) the fair value of the property of such Person is greater than the
total amount of liabilities, including, without limitation, contingent
liabilities net of cash reserves, of such Person, (ii) the present fair salable
value of the assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on the Person's
Indebtedness as they become absolute and matured, (iii) such Person is able to
realize upon the Person's assets and pay the Person's Indebtedness, contingent
obligations and other commitments as they mature in the normal course of
business, (iv) such Person does not intend to, and does not believe that it
will, incur debts or liabilities beyond such Person's ability to pay as such
debts and liabilities mature, and (v) such Person is not engaged in business or
a transaction, and is not about to engage in business or a transaction, for
which such Person's property would constitute unreasonably small capital after
giving due consideration to the prevailing practice in the industry in which
such Person is engaged. In computing the amount of contingent liabilities at
any time, it is intended that such liabilities will be computed at the amount
which, in light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual or
matured liability.
"Statutory Reserves" shall, on any day, mean the difference (expressed as a
decimal) of the number one minus the aggregate of the maximum reserve
percentages (including, without limitation, any basic, marginal, special,
emergency, or supplemental reserves) expressed as a decimal established by the
Board (or any successor governmental body) and any other banking authority to
which the Bank is subject, however with respect to the Libor Rate for
Eurocurrency Liabilities, as defined in Regulation D, such reserve percentages
("Eurodollar Reserve Requirement") shall include, without limitation, those
imposed under Regulation D or under any similar or successor regulation with
respect to Eurocurrency Liabilities or Eurocurrency funding. Adjusted Libor
Rate Loans shall be deemed to constitute Eurocurrency Liabilities and as such
shall be deemed to be subject to such reserve requirements without benefit of or
credit for proration, exceptions or set offs which may be available from time to
time to any bank under Regulation D. Statutory Reserves shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage. Each determination by the Bank of the Eurodollar Reserve Requirement
shall, in the absence of manifest error, be conclusive and binding.
"Stock Purchase Agreements" means all, and "Stock Purchase Agreement" means any,
of the agreements with one or more Sellers pursuant to the terms of which, (i)
LRA will have the right to purchase Stock of a Qualified Company, (ii) LRA or a
Consolidated Subsidiary will have the right to have a Qualified Company merged
into LRA or the Consolidated Subsidiary, or (iii) a combination of (i) and (ii),
and in any event pursuant to an Approved Merger.
"Stock" means all, but not less than all, of the outstanding and issued capital
stock of each Qualified Company acquired by LRA or a Consolidated Subsidiary
pursuant to the terms of an Approved Stock Purchase Agreement.
"Subordinated Indebtedness" means any, (i) (a) Indebtedness which is issued by
LRA to one or more Sellers pursuant to and in connection with a Stock Purchase
Agreement, a Merger Agreement or an Asset Purchase Agreement, or (b) Approved
Preferred Stock issued to a Seller, and in any case, is subject to a Seller Debt
Subordination Agreement or a Seller Preferred Stock Subordination Agreement, and
(ii) (a) Indebtedness issued to an Investor in connection with the Securities
Purchase Agreement, or
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(b) Approved Preferred Stock issued to an Investor in connection with the
Securities Purchase Agreement at such times as Dividends accrue thereon or such
stock is entitled to be redeemed, and in either case, is subject to the
Subordination Provisions.
"Subordination Agreements" means all, and "Subordination Agreement" means any of
the Seller Debt Subordination Agreements or Seller Preferred Stock Subordination
Agreements.
"Subordination Provisions" means the subordination provisions contained in the
Securities Purchase Agreement.
"Term A Committed Sum" means $1,275,000.00.
"Term B Committed Sum" means $475,000.00.
"Term C Committed Sum" means $2,250,000.00.
"Term Commitment Period" means the period beginning on the Effective Date of
this Fourth Restated Agreement and ending on the earlier of, (i) the Term
Commitment Termination Date, or (ii) the date on which the obligations of the
Bank to fund Advances hereunder terminates upon the occurrence of an Event of
Default.
"Term Commitment Termination Date" means July 10, 1998, or, if such date is not
a Business Day, the Business Day preceding such date.
"Term D Committed Sum" means $2,550,000.00.
"Term E Committed Sum" means $7,450,000.00.
"Term Loan Contract Rate" means the rates of interest on the Term Loans
calculated as set out in Section 4.3.B.
"Term Loans" means the aggregate unpaid principal balance of all Borrowing made
under Section 3.1.
"Term Maturity Date" means May 14, 2000.
"Term Note A" shall have the meaning ascribed to such term in Section 4.2.
"Term Note B" shall have the meaning ascribed to such term in Section 4.2.
"Term Note C" shall have the meaning ascribed to such term in Section 4.2.
"Term Note D" shall have the meaning ascribed to such term in Section 4.2.
"Term Note E" shall have the meaning ascribed to such term in Section 4.2.
"Term Notes" means Term Note A, Term Note B, Term Note C, Term Note D and Term
Note E.
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"Title Documents" means any and all warehouse receipts, bills of lading or
similar documents of title relating to goods in which the Borrowers at any time
have an interest, whether now, or at any time or times hereafter, issued to the
Borrowers or the Bank by any Person, and whether covering Inventory or
otherwise.
"Total Commitment" means the sum of the Revolving Credit Commitment, the Term A
Committed Sum, the Term B Committed Sum, the Term C Committed Sum, the Term D
Committed Sum and the Term E Committed Sum.
"Transactions" shall have the meaning ascribed to such term in Section 10.1.J.
"UCC" means the Uniform Commercial Code in effect in the applicable jurisdiction
in which any of the Collateral is located and includes the Texas Business and
Commerce Code Annotated (S)(S)1.101-11.108 (Vernon Supp. 1992), as amended.
"United States" and "U.S." each means the United States of America.
"Voting Shares" of any corporation or limited liability company means shares,
membership certificates or interests of any class or classes, however
designated, having ordinary voting power for the election of at least a majority
of the members of the Board of Directors, or other governing bodies, of such
corporation or limited liability company.
1.2 Other Definitions.
-----------------
A. All terms defined in this Fourth Restated Agreement shall have the above-
defined meanings when used in any of the Loan Documents, certificates,
reports or other documents made or delivered pursuant to this Fourth
Restated Agreement, unless the context therein shall require otherwise.
B. As appropriate, terms used herein and defined in the Prior Credit
Agreements will have the meanings ascribed to them in the Prior Credit
Agreements. To the extent required, references to the Effective Dates of
the Prior Credit Agreements shall be the appropriate dates for performance
of the Transactions. References to Exhibits herein include the Exhibits
to the Prior Credit Agreements.
C. Defined terms used herein in the singular shall import the plural and vice
versa.
D. The words "hereof," "herein," "hereunder" and similar terms when used in
this Fourth Restated Agreement shall refer to this Fourth Restated
Agreement as a whole and not to any particular provision of this Fourth
Restated Agreement.
E. Unless specifically otherwise noted, references to statutes by Popular
Names are reference to the United States Code Annotated, including the
regulations promulgated thereunder, and all amendments thereof.
F. References to any obligations or liabilities of the "Borrowers" or to a
"Borrower" shall refer to the joint and several obligations of such
Persons.
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ARTICLE II
REVOLVING CREDIT LOANS AND LETTERS OF CREDIT
--------------------------------------------
2.1 Revolving Loan Commitment. Subject to the terms and conditions of this
-------------------------
Fourth Restated Agreement, the Bank agrees to lend to the Borrowers on a
revolving basis, in one or more Advances from time to time during the Revolving
Credit Commitment Period, an amount equal to the amounts requested by the
Borrowers in each Notice of Revolving Credit Advance in the form of Exhibit 2.1
to this Fourth Restated Agreement. The Notice of Revolving Credit Advance shall
specify, (i) the aggregate amount of such Borrowing, (ii) the requested
Borrowing Date of such Borrowing, and (iii) the initial Interest Option selected
in accordance with Section 4.3. If the Borrowers shall specify an Adjusted
Libor Rate Loan, the Notice of Revolving Credit Advance shall also specify the
length of the initial Interest Period selected by the Borrowers for such
Borrowing. The Bank shall not be obligated to make Advances, however, (i) in an
amount in excess of the Revolving Credit Commitment, (ii) in an amount of less
than $100,000.00, (iii) and/or if an Event of Default shall exist. Within the
limits of this Article and during the Revolving Credit Commitment Period, the
Borrowers may borrow, repay and re-borrow in accordance with the terms and
conditions of this Fourth Restated Agreement.
2.2 Letters of Credit. Subject to the terms and conditions of this Agreement,
-----------------
the Bank agrees to issue, from time to time, during the Revolving Credit
Commitment Period, Letters of Credit on behalf of KBA in amounts equal to the
amounts requested by LRA in each Application for Letter of Credit. The Bank
shall not be obligated to issue Letters of Credit, however, (i) if the aggregate
amount of outstanding Letters of Credit and the Advances made on the Revolving
Credit Loans are in excess of the lesser of (a) the Borrowing Base, or (b) the
Revolving Credit Commitment, and/or, (ii) if the total amounts of outstanding
Letters of Credit exceed or would exceed $200,000.00.
A. LRA and KBA shall execute and deliver the Bank's then current Application
for Letter of Credit.
B. To induce the Bank to issue and maintain Letters of Credit, the Borrowers
agree to pay or reimburse the Bank on the date when any draft or draw
request is presented under any Letter of Credit, the amount paid or to be
paid by the Bank. If the Borrowers have not reimbursed the Bank for any
drafts or draws paid or to be paid within twenty-four (24) hours following
the Bank's demand for reimbursement, the Bank is irrevocably authorized to
fund the Borrowers' reimbursement obligations as an Advance pursuant to
Section 2.1 if proceeds are available and the proceeds of such Borrowing
shall be in payment of the Borrowers' unpaid reimbursement obligations. If
an Advance cannot be made, then the Borrowers' reimbursement obligation
shall constitute a demand obligation. Borrowers' obligations under this
Section are absolute and unconditional under any and all circumstances and
irrespective of any set off, counterclaim, or defense to payment that the
Borrowers may have at any time against the Bank or any other Person. From
the date that a draw has occurred to the date paid, unpaid reimbursement
amounts shall accrue interest as set out in Section 4.3.A. No Letter of
Credit will be issued with a expiry date beyond the Revolving Credit
Commitment Termination Date, except that one Letter of Credit in an amount
not exceeding $150,000.00 may be issued to KBA's landlord which may be
renewed for two (2) successive one (1) year periods on terms and
conditions acceptable to the Bank.
C. Bank shall notify the Borrowers of the date and amount of any draft or
draw request presented for honor under any Letter of Credit, but failure
to give notice will not affect the Obligations
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of the Borrowers. The Bank shall pay the requested amount upon presentment
of a draft or draw request unless presentment on its face does not comply
with the terms of the applicable Letter of Credit. When making payment,
the Bank may disregard (i) any Default or Event of Default that has
occurred, and (ii) obligations under any other agreement that have or have
not been performed by the beneficiary of the Letter of Credit or any other
Person. The Bank is not responsible for, and the Borrowers' reimbursement
obligations for honored drafts and draws will not be affected by, any
matter or event whatsoever, including, without limitation, the validity or
genuineness of documents or indorsements, even if the documents should in
fact prove to be in any respect invalid, fraudulent, or forged, or any
dispute among Borrowers and the beneficiary of any Letter of Credit, or
any other Person to whom any Letter of Credit may be transferred, or any
claims whatsoever of the Borrowers against any beneficiary of any Letter
of Credit or its transferee.
D. Borrowers acknowledge that each Letter of Credit is deemed issued upon
delivery to the beneficiary or a Borrower. If LRA requests any Letter of
Credit be delivered to the Borrowers rather than the beneficiary, and the
Borrowers subsequently cancel that Letter of Credit, the Borrowers agree
to return the Letter of Credit to the Bank together with the Borrowers'
certification that the Letter of Credit has never been delivered to its
beneficiary. If any Letter of Credit is delivered to its beneficiary under
the Borrowers' instructions, the Borrowers' cancellation shall be
ineffective without the Bank's receipt of the beneficiary's written
consent and the Letter of Credit.
E. Although this Agreement may be referenced in any Letter of Credit, the
terms of an agreement related thereto or other obligation to the
beneficiary of the Letter of Credit, such other agreements or obligations
are not incorporated into this Agreement in any manner.
2.3 Borrowing Base. The aggregate principal amount at any time remaining
--------------
unpaid on the Revolving Credit Loans will not be in excess of the amount arrived
at by the computation provided for in the following borrowing formula (the
"Borrowing Base"), which will be calculated in a Borrowing Base Certificate in
the form of Exhibit 2.3 to this Fourth Restated Agreement. The Borrowing Base
and the computation thereof shall be eighty-five (85) per cent of the aggregate
amount of Eligible Accounts.
2.4 Borrowing Procedure. The Borrowers will maintain a bank account (the
-------------------
"Funding Account") with the Bank into which account all Advances on the
Revolving Credit Loans will be made.
A. Advances on the Revolving Credit Loans shall be made pursuant to a Notice
of Revolving Credit Advance signed by a Responsible Officer of LRA, which
is authorized by all other Borrowers to do so, specifying, (i) the
aggregate amount of the Borrowing, and (ii) the requested date of the
Borrowing. Each Borrowing shall be made on a Business Day not more often
than three (3) times per week and Advances shall be in increments of not
less than $50,000.00. The Bank is entitled to rely and act upon requests
made or purportedly made by a Responsible Officer of LRA. The Borrowers
shall be unconditionally and absolutely estopped from denying, (i) the
authenticity and validity of any such transaction so acted upon by the
Bank once the Bank has made an Advance and has deposited or transferred
such funds as requested in any such Notice of Revolving Credit Advance,
and (ii) the Borrowers' liability and responsibility therefor.
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B. Each Notice of Revolving Credit Advance shall be irrevocable and binding
on the Borrowers. The Borrowers covenant and agree to assume liability for
and to protect, indemnify and save the Bank harmless from any and all
liabilities, obligations, damages, penalties, claims, causes of action,
costs, charges and expenses, including attorneys' fees, which may be
imposed upon, incurred by or asserted against the Bank by reason of any
loss, damage or claim howsoever arising or incurred because of, out of or
in connection with, (i) any action of the Bank pursuant to a Notice of
Revolving Credit Advance or any other request for an Advance under the
Revolving Credit Loans, (ii) the breach of any provisions of this Fourth
Restated Agreement by any Loan Party; or (iii) the transfer of funds
pursuant to (i) and/or (ii) above.
C. If a Notice of Revolving Credit Advance is received by the Bank before
12:00 p.m. (Houston, Texas time) in the manner provided herein, the Bank
will deposit the Advance in immediately available funds in the Funding
Account on the requested Borrowing Date which shall not be earlier than
the Business Day a Borrowing is requested on a Base Rate Loan or the
second Business Day after a Borrowing is requested on an Adjusted Libor
Rate Loan as specified in a Notice of Revolving Credit Advance. If a
Notice of Revolving Credit Advance is received by the Bank after 12:00
p.m. (Houston, Texas time) in the manner provided herein, the Bank will
deposit the Advance in immediately available funds in the Funding Account
on the requested Borrowing Date which shall not be earlier than the first
Business Day after a Borrowing is requested on a Base Rate Loan or the
second Business Day after a Borrowing is requested on an Adjusted Libor
Rate Loan as specified in a Notice of Revolving Credit Advance.
D. If the Bank shall receive an Application for Letter of Credit in the
manner provided herein before 2:00 p.m. (Houston, Texas time) the Bank
shall, on the requested Borrowing Date which shall not be earlier than the
second Business Day after receipt, issue the Letter of Credit as specified
by LRA and deliver same as directed by LRA.
2.5 Use of Proceeds. The proceeds of each Borrowing under the Revolving
---------------
Credit Commitment shall be used for the general corporate purposes (including
those set out in Section 9.3) and working capital of the Borrowers in the
ordinary course of business and for no other purposes.
2.6 Required Payments. If at any time during the term of this Fourth Restated
-----------------
Agreement, the outstanding amount of the Advances made pursuant to Section 2.1
and the amount of Letters of Credit issued pursuant to Section 2.2 shall exceed
the Borrowing Base, the Borrowers will immediately pay to the Bank an amount
equal to the excess, including any unpaid interest on the principal sum paid.
ARTICLE III
TERM LOANS
----------
3.1 Term Loans. The Bank has, as of the respective dates of the Prior
----------
Agreements, advanced to the Borrowers the Term A Committed Sum, the Term B
Committed Sum, the Term C Committed Sum and the Term D Committed Sum. Subject
to the terms and conditions of this Fourth Restated Agreement, the Bank agrees
to lend to the Borrowers, in two (2) Advances during the Term Commitment Period,
up to the Term E Committed Sum as requested by the Borrowers in a Notice of Term
Loan Advance in the form of Exhibit 3.1 to this Fourth Restated Agreement. Each
Notice of Term Loan Advance shall specify, (i) the aggregate amount of such
Borrowing, (ii) the requested Borrowing Date of such Borrowing, and (iii) the
initial Interest Option selected in accordance with Section 4.3. If
the Borrowers shall specify an Adjusted Libor Rate Loan, the Notice of Term Loan
Advance shall also
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specify the length of the initial Interest Period selected by the Borrowers for
such Borrowing. The Bank shall not be obligated to make Term E Loan Advances,
however, (i) in an amount in excess of the Term E Committed Sum, and/or, (ii) if
a Event of Default shall exist.
3.2 Borrowing Procedure. It is contemplated that the Borrowers will request,
-------------------
(i) an Advance of the Term E Committed Sum of up to $6,000,000.00 to pay a
portion of the acquisition price for the Assets being purchased pursuant to the
EDP Asset Purchase Agreement, (ii) an Advance of the Term E Committed Sum of up
to $1,350,000.00 to pay a portion of the acquisition price for the Stock being
acquired pursuant to the Burton House Stock Purchase Agreement, and (iii) an
Advance of the Term E Committed Sum of up to $100,000.00 to pay the Facility
Fees due as of the Effective Date of this Fourth Restated Agreement and
transaction costs incurred by the Borrowers in connection with the purchase of
the Assets of EDP, the stock of Burton and this Fourth Restated Agreement. Upon
the making of a Term Loan Advance, the Borrowers must perfect in the Bank a
valid first priority lien on all Collateral, including the Assets being acquired
and the Assets of the entities whose stock is being acquired.
A. Advances on the Term Loans shall be made pursuant to a Notice of Term Loan
Advance signed by a Responsible Officer of LRA, which is authorized by all
other Borrowers to do so, specifying, (i) the aggregate amount of the
Borrowing, and (ii) the requested Borrowing Date of the Borrowing. The
Bank is entitled to rely and act upon requests made or purportedly made by
a Responsible Officer of the Borrowers. The Borrowers shall be
unconditionally and absolutely estopped from denying, (i) the authenticity
and validity of any such transaction so acted upon by the Bank once the
Bank has made an Advance and has deposited, transferred or paid such funds
as requested in any such Notice of Term Loan Advance, and (ii) the
Borrowers' liability and responsibility therefor.
B. Each Notice of Term Loan Advance shall be irrevocable and binding on the
Borrowers. The Borrowers covenant and agree to assume liability for and to
protect, indemnify and save the Bank harmless from any and all
liabilities, obligations, damages, penalties, claims, causes of action,
costs, charges and expenses, including attorneys' fees, which may be
imposed upon, incurred by or asserted against the Bank by reason of any
loss, damage or claim howsoever arising or incurred because of, out of or
in connection with, (i) any action of the Bank pursuant to a Notice of
Term Loan Advance, (ii) the breach of any provisions of this Fourth
Restated Agreement by the Borrowers, or (iii) the transfer of funds
pursuant to (i) and/or (ii) above.
3.3 Use of Proceeds. Borrowing under the Term E Committed Sum will be used
---------------
solely in connection with the EDP Asset Purchase Agreement, the Burton House
Stock Purchase Agreement, the payment of the Facility Fees to the Bank, for
transactional costs incurred in connection with the foregoing and for no other
purposes. Of the total proceeds of the Borrowing under the Term E Committed
Sum, not more than $6,000,000.00 shall be used to purchase the Assets of EDP and
EDP Temp, and not more than $1,350,000.00 shall be used to pay for the stock of
Burton.
3.4 Conditions Precedent. The Borrowers shall, as conditions precedent to
--------------------
receiving an Advance under the Term Loan provisions hereof, deliver to the Bank,
at the time of any Notice of Term Loan Advance, the following:
A. True and correct final copies of the EDP Asset Purchase Agreement or the
Burton House Stock Purchase Agreement, as applicable, duly executed by
each party thereto, together with
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true and correct final copies of all documents mentioned or described in
each of such agreements, duly executed by the appropriate parties thereto.
B. Duly executed and filed UCC-1 Financing Statements to perfect the Bank's
first priority security interest in the Assets, and a search of the Office
of the Secretary of States of Texas, New York and California reflecting no
other perfected Liens on the Assets.
C. A landlord's lien waiver on specific Equipment, when same is located on
leased real property and when requested by the Bank, and a waiver of lien
executed by any mortgagee of the real property, both being in form and
content satisfactory to the Bank. The Bank will be provided with such
title information as will be reasonably necessary to determine the status
of title to any such real property.
ARTICLE IV
NOTES
-----
4.1 Revolving Credit Note. The Advances made under Section 2.1 by the Bank
---------------------
shall be evidenced by the Revolving Credit Note executed by the Borrowers, which
(i) is dated the Effective Date of this Fourth Restated Agreement, (ii) is in
the amount of the Revolving Credit Commitment, (iii) is payable to the order of
the Bank at the office of the Bank, (iv) bears interest in accordance with
Section 4.3, and (v) is in the form of Exhibit 4.1 to this Fourth Restated
Agreement. Notwithstanding the principal amount of the Revolving Credit Note as
stated on the face thereof, the amount of principal actually owing thereon, at
any given time, shall be the aggregate of all Advances made to the Borrowers
hereunder, less all payments of principal actually received by the Bank. The
records of the Bank evidencing the date and amount of each Advance, as well as
the amount of each payment made by the Borrowers, shall be rebuttably
presumptive evidence of the amounts owing and unpaid on the Revolving Credit
Note. The Borrowers shall repay, and shall pay interest on, the unpaid
principal amount of the Revolving Credit Loans in accordance with the terms of
the Revolving Credit Note and this Fourth Restated Agreement.
4.2 Term Notes. The Advances of the Term A Committed Sum are evidenced by
----------
Term Note A in the amount of $1,275,000.00, executed by the Borrowers pursuant
to this Fourth Restated Agreement. The Advances of the Term B Committed Sum are
evidenced by Term Note B in the amount of $475,000.00, executed by the Borrowers
pursuant to this Fourth Restated Agreement. Advances of the Term C Committed
Sum are evidenced by Term Note C in the amount of $2,250,000.00, executed by the
Borrowers pursuant to this Fourth Restated Agreement. The Advances of the Term
D Committed Sum are evidenced by Term Note D in the amount of $2,550,000.00,
executed by the Borrowers pursuant to this Fourth Restated Agreement. Advances
of the Term E Committed Sum to be made under Section 3.1 by the Bank shall be
evidenced by the Term Note E executed by the Borrowers pursuant to this Fourth
Restated Agreement. The Term Notes shall be in the forms of Exhibit 4.2-a, as to
Term Note A, Exhibit 4.2-b, as to Term Note B, Exhibit 4.2-c, as to Term Note C,
Exhibit 4.2-d, as to Term Note D, and Exhibit 4.2-e, as to Term Note E. The
Borrowers shall repay, and shall pay interest on, the unpaid principal amount of
the Term Loans in accordance with the terms of the Term Notes and Section 4.6.B.
4.3 Interest Rate Options. Subject to the provisions of this Section, LRA
---------------------
shall for the Borrowers shall elect an option (an "Interest Option") of having
all or any portion of the Loans bear interest at rates determined as follows:
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A. LRA shall for the Borrowers elect to have Revolving Credit Loans bear
interest as a Base Rate Loan or an Adjusted Libor Rate Loan. Each Adjusted
Libor Rate Loan shall, however, be in a minimum amount of $100,000.00, or
an integral multiple of $50,000.00 for amounts in excess thereof. Each
change in an Interest Option made pursuant to this Section shall be deemed
both a payment of the Base Rate Loan or the Adjusted Libor Rate Loan from
which such change was made and a Borrowing (notwithstanding that the
unpaid principal amount of the Loan is not thereby changed) as a Base Rate
Loan or an Adjusted Libor Rate Loan into which such change was made on the
date of such change.
(1) Prior to Default, the unpaid principal of the Revolving Credit Loans
shall bear interest from the date of Advance as follows:
(a) If a Base Rate Loan is chosen, at a rate per annum which shall,
from day to day, be an amount equal to the lesser of: (i) The Base
Rate in effect from day to day, plus the Applicable Margin (a
"Contract Rate"); or, (ii) the Maximum Rate; or,
(b) If an Adjusted Libor Rate Loan is chosen, at a rate per annum
which shall, from day to day, be an amount equal to the lesser of: (i)
The Adjusted Libor Rate in effect from day to day, plus the Applicable
Margin (also a "Contract Rate"); or, (ii) the Maximum Rate.
(2) LRA shall, for the Borrowers, in each Notice of Revolving Credit
Advance in which Borrowers shall choose an Adjusted Libor Rate Loan, give
the Bank notice of the Interest Option selected and the Interest Period
therefor with respect to each Borrowing made hereunder.
(3) Prior to the termination of each Interest Period with respect to each
Adjusted Libor Rate Loan, LRA for the Borrowers shall give notice (a
"Rollover Notice") to the Bank of the Interest Option which shall be
applicable to such portion of the Loan upon the expiration of such
Interest Period. The Rollover Notice shall be given to the Bank at least
one (1) Business Day, in the case of a Base Rate selection, or two (2)
Business Days, in the case of an Adjusted Libor Rate selection, prior to
the termination of the Interest Period. If the Borrowers shall specify an
Adjusted Libor Rate, the Rollover Notice shall also specify the length of
the succeeding Interest Period (subject to the provisions of the
definition of such term), selected by the Borrowers with respect to such
portion of the Loan. Each Rollover Notice shall be irrevocable and
effective upon notification thereof to the Bank. If the required Rollover
Notice shall not have been timely received by the Bank in accordance with
the above provisions of this Section prior to the expiration of the then
relevant Interest Period in effect when such Rollover Notice was required
to be given, the Borrowers shall be deemed to have selected the rate set
forth in Section 4.3.A.(1)(a) to be applicable to such portion of the Loan
upon expiration of such Interest Period and the Borrowers shall be deemed
to have given the Bank notice of such selection.
(4) With respect to a Base Rate Loan, the Borrowers shall have the right,
on any Business Day (a "Conversion Date"), to convert such Base Rate Loan
to an Adjusted Libor Rate Loan by giving the Bank a Rollover Notice of
such election at least two (2) Business Days prior to such Conversion
Date.
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B. The Borrowers shall elect to have Term Loans bear interest as a Base Rate
Loan or an Adjusted Libor Rate Loan. Each change in an Interest Option
made pursuant to this Section shall be deemed both a payment of the Base
Rate Loan or the Adjusted Libor Rate Loan from which such change was made
and a Borrowing (notwithstanding that the unpaid principal amount of the
Loan is not thereby changed) as a Base Rate Loan or an Adjusted Libor Rate
Loan into which such change was made on the date of such change.
(1) Prior to Default, the unpaid principal of the Term Loans shall bear
interest from the date of Advance as follows:
(a) If a Base Rate Loan is chosen, at a rate per annum which shall,
from day to day, be an amount equal to the lesser of: (i) The Base
Rate in effect from day to day, plus the Applicable Margin (a
"Contract Rate"); or, (ii) the Maximum Rate; or,
(b) If an Adjusted Libor Rate Loan is chosen, at a rate per annum
which shall, from day to day, be an amount equal to the lesser of: (i)
The Adjusted Libor Rate in effect from day to day, plus the Applicable
Margin (also a "Contract Rate"); or, (ii) the Maximum Rate.
(2) The Borrowers shall, in each Notice of Term Loan Advance, give the
Bank notice of the initial Interest Option selected and the Interest
Period therefor with respect to each Borrowing made hereunder.
(3) Prior to the termination of each Interest Period with respect to each
Adjusted Libor Rate Loan, the Borrowers shall give notice, also a
"Rollover Notice," to the Bank of the Interest Option which shall be
applicable to such portion of the Loan upon the expiration of such
Interest Period. Such Rollover Notice shall be given to the Bank at least
one (1) Business Day, in the case of a Base Rate selection, or two (2)
Business Days, in the case of an Adjusted Libor Rate Loan selection, prior
to the termination of such Interest Period. If the Borrowers shall specify
an Adjusted Libor Rate Loan, such Rollover Notice shall also specify the
length of the succeeding Interest Period (subject to the provisions of the
definitions of such term), selected by the Borrowers with respect to such
portion of the Loan. Each rollover notice shall be irrevocable and
effective upon notification thereof to the Bank. If the required Rollover
Notice shall not have been timely received by the Bank (in accordance with
the above provisions of this Section) prior to the expiration of the then
relevant Interest Period in effect when such Notice was required to be
given, the Borrowers shall be deemed to have selected the rate set forth
in Section 4.3.B.(1)(a) to be applicable to such portion of the Loan upon
expiration of such Interest Period and the Borrowers shall be deemed to
have given the Bank notice of such selection.
(4) With respect to a Base Rate Loan, the Borrowers shall have the right,
on any Business Day, also a "Conversion Date," to convert such Base Rate
Loan to an Adjusted Libor Rate Loan by giving the Bank a Rollover Notice
of such election at least three (3) Business Days, in the case of an
Adjusted Libor Rate Loan selection, prior to such Conversion Date.
C. Not more than ten (10) Adjusted Libor Rate Loans may be outstanding at any
one time.
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D. The Borrower's right to convert all or any portion of the Loans to any
Interest Option is subject to the following:
(1) Accrued interest on a Loan (or portion thereof) being converted or
continued shall be paid by the Borrowers at the time of conversion or
continuation;
(2) If any Adjusted Libor Rate Loan is converted at any time other than
the end of an Interest Period applicable thereto, the Borrowers shall make
such payments associated therewith as are required pursuant to Section
5.5;
(3) Any portion of a Loan required to be paid on any date occurring less
than thirty (30) days after the end of the then current Interest Period
applicable to such Loan, may not be converted into, or continued as, an
Adjusted Libor Rate Loan and shall be automatically converted at the end
of such Interest Period into a Base Rate Loan; and,
(4) No Base Rate Loan may be converted to an Adjusted Libor Rate Loan and
no Adjusted Libor Rate Loan may be continued as such when any Default or
Event of Default has occurred and is continuing, but each such Loan shall
be automatically converted to a Base Rate Loan on the last day of each
applicable Interest Period.
4.4 Interest Recapture. Notwithstanding the terms of Section 4.3.A.(1) or
------------------
Section 4.3.B.(1), if on any Interest Payment Date, the Bank does not receive
interest on the Loans at the applicable Contract Rate because the applicable
Contract Rate exceeds or has exceeded the Maximum Rate, then the Borrowers
shall, upon the demand of the Bank, pay to the Bank, in addition to interest
otherwise required hereunder, on each Interest Payment Date thereafter,
interest at the Maximum Rate until the cumulative interest received by the Bank
equals the interest which would have been received at the applicable Contract
Rate. However, in no event shall the Borrowers be required to pay, for any
appropriate computation period, interest at a rate exceeding the Maximum Rate
effective during such period.
4.5 Maximum Interest. It is the intention of the parties to comply with all
----------------
applicable usury laws. Accordingly, it is agreed that notwithstanding any
provision apparently to the contrary in the Loan Documents, no such provision
shall require the payment or permit the collection of interest in excess of the
Maximum Amount or the Maximum Rate. If any excess of interest in such respect
is provided for, or shall be adjudicated to be so provided for, in the Loan
Documents, then in such event the provisions of this Section shall govern and
control and, (i) no Loan Party liable for the payment of any sums to become due
under the Loan Documents shall be obligated to pay the amount of such interest
to the extent that it is in excess of the Maximum Amount or the Maximum Rate,
and (ii) any such excess which may have been collected shall be first applied as
a credit against the then unpaid principal amount on any of the Notes and the
excess, if any, refunded to the Borrowers or such other Loan Party and the
effective rate of interest shall be automatically reduced to the Maximum Rate.
Without limitation of the foregoing, all calculations of the rate of interest
contracted for, charged or received under the Loan Documents which are made for
the purpose of determining whether such rate exceeds the Maximum Rate, shall be
made, to the extent permitted by applicable usury laws, by amortizing,
prorating, allocating and spreading in equal parts during the period of the full
stated term of the Loans, all interest at any time contracted for, charged or
received by the holder or holders of any of the Notes in connection with the
Loans. The Bank notifies and discloses to the Borrowers that, for purposes of
TEX. REV. CIV. STAT. ANN. Art. 5069-1.04 (Vernon 1989), as it may, from time to
time, be amended, the "applicable rate ceiling" shall be the "indicated rate"
ceiling, from time to time, in effect as limited by
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<PAGE>
Art. 5069-1.04(b). To the extent provided by applicable law, however, the Bank
reserves the right to change the "applicable rate ceiling," from time to time,
by further notice and disclosure to the Borrowers. The "highest non-usurious
rate of interest permitted by applicable law" for purposes of this Fourth
Restated Agreement and the Notes shall not be limited to the applicable rate
ceiling under Art. 5069-1.04 if federal laws or other state laws now or
hereafter in effect and applicable to this Fourth Restated Agreement and the
Notes (and the interest contracted for, charged and collected hereunder or
thereunder) shall permit a higher rate of interest. The Borrowers and the Bank
agree that, except for (S)15.10(b), the provisions of TEX. REV. CIV. STA. ANN.
Art. 5069-15.01 et.seq. Vernon (1987), as amended (regulating certain revolving
-- ---
credit loans and revolving tri-party accounts) shall not apply to the Loan
Documents.
4.6 Payments on the Notes. The Revolving Credit Note and the Term Notes shall
---------------------
be payable as set out below.
A. The unpaid principal amount of the Revolving Credit Note, together with
all accrued but unpaid interest thereon, unpaid Facility Fees and unpaid
Letters of Credit Fees, shall be due and payable on the Revolving Credit
Commitment Termination Date. Interest on the Revolving Credit Note is due
and payable monthly as it accrues, which commenced on the Interest Payment
Date in June, 1997, and continues on each Interest Payment Date
thereafter, and on the Revolving Credit Commitment Termination Date.
B. The unpaid principal amount of the Term Notes shall be due and payable as
follows:
(1) Term Note A is due and payable in lawful money of the U.S. in
consecutive monthly installments. Interest, as it accrues on Term Note A
at the applicable Contract Rate, is due and payable monthly, commencing on
the Interest Payment Date in September 1997, and continuing on each
Interest Payment Date thereafter, and on the Term Maturity Date. The
principal of Term Note A shall be due and payable in monthly installments.
The first of such installments will be in the amount of $21,250.00, and
will commence on the first Interest Payment Date in November 1997, and
will continue on the same day of each consecutive calendar month
thereafter until the Term Maturity Date. One final installment of the
outstanding unpaid principal balance and accrued interest shall be payable
on the Term Maturity Date.
(2) Term Note B is due and payable in lawful money of the U.S. in
consecutive monthly installments. Interest, as it accrues on Term Note B
at the applicable Contract Rate, is due and payable monthly, which
commencing on the Interest Payment Date in September 1997, and continuing
on each Interest Payment Date thereafter, and on the Term Maturity Date.
The principal of Term Note B shall be due and payable in monthly
installments. The first of such principal installments will be in the
amount of $7,916.67, and will commence on the first Interest Payment Date
in December 1997, and will continue on the same day of each consecutive
calendar month thereafter until the Term Maturity Date. One final
installment of the outstanding unpaid principal balance and accrued
interest shall be payable on the Term Maturity Date.
(3) Term Note C is due and payable in lawful money of the U.S. in
consecutive monthly installments. Interest, as it accrues on Term Note C
at the applicable Contract Rate, is due and payable monthly, commencing on
the Interest Payment Date in September 1997, and continuing on each
Interest Payment Date thereafter, and on the Term Maturity Date. The
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<PAGE>
principal of Term Note C shall be due and payable in monthly installments.
The first of such principal installments will be in the amount of
$37,500.00, will commence on the first Interest Payment Date in March
1998, and will continue on the same day of each consecutive calendar month
thereafter until the Term Maturity Date. One final installment of the
outstanding unpaid principal balance and accrued interest shall be payable
on the Term Maturity Date.
(4) Term Note D is due and payable in lawful money of the U.S. in
consecutive monthly installments. Interest, as it accrues on Term Note D
at the applicable Contract Rate, is due and payable monthly, commencing on
the Interest Payment Date in October 1997, and continuing on each Interest
Payment Date thereafter, and on the Term Maturity Date. The principal of
Term Note D shall be due and payable in monthly installments. The first of
such principal installments will be in the amount of $42,500.00, will
commence on the first Interest Payment Date in April 1998, and will
continue on the same day of each consecutive calendar month thereafter
until the Term Maturity Date. One final installment of the outstanding
unpaid principal balance and accrued interest shall be payable on the Term
Maturity Date.
(5) Term Note E is due and payable in lawful money of the U.S. in
consecutive monthly installments. Interest, as it accrues on Term Note E
at the applicable Contract Rate, is due and payable monthly, commencing on
the Interest Payment Date in October 1997, and continuing on each Interest
Payment Date thereafter, and on the Term Maturity Date. The principal of
Term Note E shall be due and payable in monthly installments. The first of
such principal installments will be in the amount of $124,166.67, will
commence on the first Interest Payment Date in April 1998, and will
continue on the same day of each consecutive calendar month thereafter
until the Term Maturity Date. One final installment of the outstanding
unpaid principal balance and accrued interest shall be payable on the Term
Maturity Date.
C. On the Revolving Credit Commitment Termination Date or upon the occurrence
of any Event of Default, the Borrowers shall provide to the Bank cash
collateral in an amount equal to the then-existing outstanding amounts of
Letters of Credit. The Bank agrees to return the cash collateral to the
Borrowers upon the subsequent payment in full of all Obligations or the
cure of the applicable Event of Default.
D. The Borrowers shall make the below enumerated prepayments on the Loans:
(1) Within sixty (60) days of the end of each Fiscal Year of LRA,
commencing with the Fiscal Year ending December 31, 1997, the Borrowers
shall make a prepayment of the Term Loans in an amount equal to the
Mandatory Prepayment for the Fiscal Year then ended, such prepayment to be
applied as set forth in Section 4.8.D.
(2) Within three (3) days of the completion of an IPO, the Borrowers shall
make a mandatory prepayment of the Loans in an amount up to one hundred
(100) per cent of the proceeds received or realized (net of taxes due and
expenses incurred to Persons which are not Affiliates) by the Borrowers as
necessary to pay the Obligations in full.
4.7 Calculation of Interest Rates. Interest on the unpaid principal of the
-----------------------------
Notes shall be calculated on the basis of the actual days elapsed in a year
consisting of three hundred sixty (360) days.
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<PAGE>
4.8 Prepayments. Except as specified in this Section, the Borrowers shall
-----------
have no right to prepay any Loan. The Borrowers may, upon five (5) days' prior
notice to the Bank, make prepayments on the Notes in whole at any time or in
part, from time to time, however, the following provisions shall be applicable.
A. The Borrowers may, on any Business Day, prepay the outstanding principal
amount of any Base Rate Loan, in whole or in part, without premium or
penalty.
B. Each Contract Rate has been determined, in part, based on the Bank's cost
of funds. Therefore, the Borrowers shall pay a prepayment penalty in an
amount equal to the Consequential Loss if the Borrowers shall, in any
manner, prepay any Adjusted Libor Rate Loan. Additionally, the Borrowers
indemnify and agree to hold the Bank harmless against, and reimburse the
Bank on demand for, any loss, cost or expense incurred or sustained by the
Bank (including without limitation any loss, cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds
acquired by the Bank to fund or maintain an Adjusted Libor Rate Loan) as a
result of: (i) Any payment or prepayment, whether required hereunder or
otherwise, of any Adjusted Libor Rate Loan made after the delivery of a
Notice of Revolving Credit Advance, Application for Letter of Credit or
Notice of Term Loan Advance, as applicable, but before the applicable
Borrowing Date if such payment or prepayment prevents the proposed Loan
from becoming fully effective; or, (ii) the failure of any Adjusted Libor
Rate Loan to be made by the Bank due to any action or inaction of the
Borrowers.
C. A certificate of the Bank setting forth any amount or amounts which the
Bank is entitled to receive pursuant to this Section shall be delivered to
the Borrowers and shall be conclusive, if made in good faith, absent
manifest error. The Borrowers shall pay to the Bank the amount shown as
due on any certificate within five (5) days after the receipt of same.
Notwithstanding the foregoing, in no event shall the Bank be permitted to
receive any compensation hereunder constituting interest in excess of the
Maximum Rate or the Maximum Amount. Without prejudice to the survival of
any other obligations of the Borrowers hereunder, the obligations of the
Borrowers under this Section shall survive the payment of the Loans.
D. If no Default shall have occurred, prepayments shall be applied, (i)
first to the discharge of any expenses for which the Bank may be entitled
to receive reimbursement under any agreement with any of the Borrowers,
(ii) next, to the Consequential Loss, (iii) next, to accrued interest on
the Notes, (iv) next, to the reduction of principal, in the in verse order
of maturity, on the portion of the Term Notes which are Base Rate Loans,
(v) next, to the reduction of installments of principal, in the inverse
order of maturity, on the portion of the Term Notes which are Adjusted
Libor Rate Loans, (vi) next, to the reduction of principal on the
Revolving Credit Loans which are Adjusted Libor Rate Loans, and (vii) the
balance remaining, if any, shall be applied to the reduction of principal
on the portion of the Revolving Credit Loans which are Adjusted Libor Rate
Loans. Prepayments shall be applied to the Adjusted Libor Rate Loans as
the Borrowers shall select; provided, however, the Borrowers shall select
Adjusted Libor Rate Loans to be prepaid in a manner designed to minimize
the Consequential Loss resulting from such prepayments.
E. If, however, the Borrowers shall fail to select the Adjusted Libor Rate
Loan to which such prepayments are to be applied, or an Event of Default
has occurred and is continuing at the
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<PAGE>
time of a prepayment, the Bank shall be entitled to apply the prepayment
in any manner the Bank shall deem appropriate.
4.9 Manner and Application of Payments. All payments and prepayments of
----------------------------------
principal of, and interest on, the Notes shall be made by the Borrowers to the
Bank before 2:00 p.m. (Houston, Texas time) in immediately available funds at
the Bank's office. Any payment or prepayment received by the Bank after 2:00
p.m. (Houston, Texas time), shall be deemed to have been received by the Bank on
the next succeeding Business Day.
4.10 Renewals of Notes. All renewals and rearrangements, if any, of any of
-----------------
the Notes shall be deemed to be made pursuant to this Fourth Restated Agreement,
and accordingly, shall be subject to the terms and provisions hereof. Each Loan
Party shall be deemed to have ratified, as of the date of such renewal or
rearrangement, all of the representations, covenants and agreements herein and
in the Loan Documents set forth.
4.11 Taxes.
-----
A. Any and all payments by the Borrowers hereunder or under the Notes shall
be made free and clear of, and without deduction for, any and all present
or future taxes, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto ("Taxes"), excluding taxes
imposed upon the Bank's income, and franchise taxes imposed upon the Bank
by any Governmental Authority. If the Borrowers shall be re quired by law
to deduct any Taxes for which the Borrowers are responsible under the
preceding sentence from or in respect of any sum payable hereunder or
under any of the Notes, (i) the sum payable shall be increased as may be
necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section) the
Bank receives an amount equal to the sum the Bank would have received had
no such deductions been made, (ii) the Borrowers shall make such
deductions, and (iii) the Borrowers shall pay the full amount deducted to
the relevant Governmental Authority or other authority in accordance
with applicable law.
B. The Borrowers shall pay any present or future stamp or documentary
taxes, or any other excise or property taxes, charges or similar levies
which arise from any payment made hereunder or under the Loan Documents
or from the execution, delivery or registration of, or otherwise with
respect to, this Fourth Restated Agreement or the other Loan Documents
("Other Taxes").
C. Each Loan Party indemnifies and agrees to hold the Bank harmless for the
full amount of Taxes and Other Taxes paid by the Bank or any liability,
including penalties and interest, arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted.
D. Within thirty (30) days after the date of the payment of Taxes, the
Borrowers shall furnish to the Bank the original or a certified copy of a
receipt evidencing payment therefor.
E. Without prejudice to the survival of any other agreement, the agreements
and obligations of the Loan Parties contained in this Section shall
survive the payment in full of the Obligations.
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<PAGE>
4.12 Facility Fees. The Borrowers paid to the Bank a fee in the amount of
-------------
$65,500.00, for the granting of the Term A Loans, Term B Loans, Term C Loans and
Term D Loans. The Borrowers also agree to pay to the Bank a fee in the amount
of $74,500.00, for the granting of the Term E Loans which shall be due and
payable on the Effective Date of this Fourth Restated Agreement. If the
Borrowers shall not have completed the IPO and paid the Loans by December 31,
1997, the Borrowers shall pay to the Bank a fee of $40,000.00 which shall be due
and payable on such date. If the Borrowers shall not have completed the IPO and
paid the Loans by June 30, 1998, the Borrowers shall pay to the Bank a fee of
$40,000.00 which shall be due and payable on such date. The Borrowers also
agree to pay to the Bank fees (collectively, with the foregoing fees for the
granting of the Term Loans, "Facility Fees") for the granting of the Revolving
Credit Loans computed at the following rates (each a "Facility Fee Rate") per
annum (based on a 360 day year) on the average daily un-borrowed amount of the
Revolving Credit Commitment in effect during the period for which payment is
made. Commencing as of September 30, 1997, the Facility Fees will be calculated
quarterly, in arrears, on the last day of each March, June, September and
December during the Revolving Credit Commitment Period, and on the Revolving
Credit Commitment Termination Date, and payable within five (5) days of the
Bank's demand therefor on the Borrowers. For the purposes hereof, Facility Fee
Rate means the following margins determined on each March 31, June 30, September
30 and December 31 during the term of the Credit Agreement for the preceding
quarter of the Borrowers commencing on March 31, 1997. Each Facility Fee Rate
is determined as a function of the Funded Debt Ratio of LRA and the Consolidated
Subsidiaries.
<TABLE>
<CAPTION>
Funded Debt Ratio Facility Fee Rate
----------------- -----------------
<S> <C>
Less than 3.50:1.00 0.2500 %
Equal to or greater than 3.50:1.00
but less than 4.50:1.00 0.3750 %
Equal to or greater than 4.50:1.00 0.5000 %
</TABLE>
Until September 30, 1997, the Facility Fee Rate is .5000 % and on such date and
on each June 30, September 30, December 31 and March 31 thereafter, the Funded
Debt Ratio shall be calculated and the Facility Fee Rate determined for the next
ensuing quarter period. Any change in the Facility Fee Rate shall be effective
upon the latter of each March 31, June 30, September 30 and December 31 and the
delivery of the Financial Statements. Once LRA and the Consolidated Subsidiaries
shall have achieved a Funded Debt Ratio less than 4.50:1.00 or equal or less
than 3.50:1.00, as applicable, LRA and the Consolidated Subsidiaries must
maintain the ratio for the next quarterly period. If LRA and the Consolidated
Subsidiaries shall fail to maintain the achieved Funded Debt Ratio as of a March
31, June 30, September 30 and December 31 for the immediately succeeding three
months, the Facility Fee Rate shall be the higher applicable Facility Fee Rate,
as applicable, calculated for the such quarterly period. If LRA shall fail to
deliver any such Financial Statement within the times specified therefor, the
Funded Debt Ratio shall be deemed to be greater than 4.50:1.00 until LRA
delivers such Financial Statement to the Bank.
4.13 Letters of Credit Fees. At the time a Letter of Credit is issued, the
----------------------
Borrowers agree to pay to the Bank fees for the issuing of Letters of Credit:
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<PAGE>
A. In a sum equal to the greater of one (1) per cent per annum of the face
amount of the Letter of Credit, and an annual fee of $350.00 for each year
or part year a Letter of Credit is outstanding.
B. The Borrowers additionally agree to pay promptly upon demand the amount of
any customary fees and expenses the Bank charges for amending letters of
credit, for honoring drafts and draw requests, and taking similar action
in connection with letters of credit.
ARTICLE V
SPECIAL PROVISIONS FOR ADJUSTED LIBOR RATE LOANS
------------------------------------------------
5.1 Inadequacy of Libor Pricing. If with respect to any Interest Period for
---------------------------
any Adjusted Libor Rate Loan:
A. The Bank determines (which determination shall be conclusive) that, by
reason of circumstances affecting the interbank Eurodollar market
generally, deposits in Dollars (in the applicable amounts) are not being
offered to Bank in the interbank Eurodollar market for such Interest
Period; or,
B. The Bank determines in good faith (which determination shall be
conclusive) that, (i) the Adjusted Libor Rate will not adequately and
fairly reflect the cost to the Lender of maintaining or funding such
Adjusted Libor Rate Loan for such Interest Period, or (ii) reasonable
means do not exist for ascertaining the Libor Rate then the Bank shall
give notice thereof to the Borrowers whereupon until the Bank notifies the
Borrowers that the circumstances giving rise to such suspension no longer
exist, (i) the obligation of the Bank to make Adjusted Libor Rate Loans
shall be suspended, and (ii) the Borrowers shall either (a) repay in full
the then outstanding principal amount of the Adjusted Libor Rate Loans,
together with accrued interest thereon on the last day of the then current
Interest Period applicable to such Adjusted Libor Rate Loans, or (b)
convert such Adjusted Libor Rate Loans to Base Rate Loans in accordance
with Section 4.3.A.(3) or Section 4.3.B.(3) on the last day of the then
current Interest Period applicable to each such Adjusted Libor Rate Loan.
5.2 Illegality. If with respect to any Interest Period for any Adjusted
----------
Libor Rate Loan:
A. The Bank determines in good faith (which determination shall be
conclusive) that any change in any applicable law, rule or regulation or
in the interpretation, application or administration thereof makes it
unlawful, or any central bank or other Governmental Authority asserts that
it is unlawful for the Bank to maintain or fund any Loan by means of
Dollar deposits obtained in any Eurodollar interbank market (any of the
above being described as a "Eurodollar Event"), then, at the option of the
Bank, the aggregate principal amount of the Adjusted Libor Rate Loans then
outstanding, which Loans are directly affected by such Eurodollar Event,
shall be prepaid by the Borrowers. Upon the occurrence of any Eurodollar
Event, and at any time thereafter so long as such Eurodollar Event shall
continue, the Bank may exercise the aforesaid option by giving notice
thereof to the Borrowers.
B. Any prepayment of any Adjusted Libor Rate Loan which is required under the
preceding Section shall be made, together with accrued and unpaid interest
and all other amounts payable to the Bank under this Fourth Restated
Agreement with respect to such prepaid Ad-
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<PAGE>
justed Libor Rate Loan on the date stated in the notice to the Borrowers
referred to above, which date ("required prepayment date") shall be not
less than fifteen (15) days from the date of such notice. Upon receipt of
such notice, the Borrowers shall either, (i) prepay in full the then
outstanding principal amount of the Adjusted Libor Rate Loan, together
with accrued interest thereon, or (ii) convert the Adjusted Libor Rate
Loan to another Interest Option on either (a) the last day of the then
current Interest Period applicable to each affected Adjusted Libor Rate
Loan, if the Bank may lawfully continue to maintain and fund such Adjusted
Libor Rate Loan to such day, or (b) immediately if the Bank may not
lawfully continue to fund and maintain such Adjusted Libor Rate Loan to
such day.
5.3 Increased Costs for Adjusted Libor Rate Loans.
---------------------------------------------
A. If any Governmental Authority, central bank or other comparable authority,
shall at any time impose, modify or deem applicable any reserve
(including, without limitation, any imposed by the Board), special deposit
or similar requirement against assets of, deposits with or for the account
of, or credit extended by, the Bank or shall impose on the Bank (or the
interbank Eurodollar market) any other condition affecting the Adjusted
Libor Rate Loans; and, if the result of any of the foregoing is to
increase the cost to the Bank of making or maintaining the Adjusted Libor
Rate Loans, or to reduce the amount of any sum received or receivable by
the Bank under this Fourth Restated Agreement or under the Notes by an
amount deemed by the Bank to be material, then within five (5) days after
demand by the Bank, the Borrowers shall pay to the Bank such additional
amount or amounts as will compensate the Bank for such increased cost or
reduction. A certificate of the Bank claiming compensation under this
Section and setting forth the additional amount or amounts to be paid to
the Bank hereunder shall be conclusive in the absence of manifest error.
If the Bank demands compensation under this Section, then the Borrowers
may at any time, upon at least five (5) Business Days' prior notice to the
Bank, either, (i) repay in full the then outstanding affected Adjusted
Libor Rate Loans, together with accrued interest thereon to the date of
prepayment, or (ii) convert the Adjusted Libor Rate Loans to another
applicable Interest Option in accordance with the provisions of this
Fourth Restated Agreement; provided, however, that the Borrowers shall be
obligated for any Consequential Loss arising pursuant to such actions.
B. If either, (i) the introduction of, or any change in, or in the
interpretation of, any law or regulation, or (ii) compliance with any
guideline or request from any central bank or other Governmental Authority
(whether or not having the force of law) affects or would affect the
amount of capital required or expected to be maintained by the Bank or any
corporation controlling the Bank and the Bank determines that the amount
of such capital is increased by or based upon the existence of the
Advances hereunder or of the Bank's commitment to lend hereunder and other
commitments of this type, then, upon demand by the Bank, the Borrowers
shall pay to the Bank, from time to time as specified by the Bank,
additional amounts sufficient to compensate the Bank in the light of the
circumstances, to the extent that the Bank deter mines such increase in
capital to be allocable to the existence of the Advances hereunder or of
the Bank's agreement to lend hereunder. A certificate as to such amounts
submitted to the Borrowers by the Bank shall be conclusive and binding for
all purposes, absent manifest error.
5.4 Effect on Interest Options. If notice has been given pursuant to Section
--------------------------
5.1 or Section 5.2 requiring a type of Adjusted Libor Rate Loan to be repaid or
converted, then unless and until the Bank
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<PAGE>
notifies the Borrowers that the circumstances giving rise to such repayment no
longer apply requiring such repayment or conversion, Adjusted Libor Rate Loans
shall thereafter be Base Rate Loans. If the Bank notifies the Borrowers that the
circumstances giving rise to such repayment no longer apply, the Borrowers may
thereafter select Loans to be the Adjusted Libor Rate Loans in accordance with
Section 4.3.A or Section 4.3.B.
5.5 Payments Not At End of Interest Period. If the Borrowers make any
--------------------------------------
payment of principal with respect to any Adjusted Libor Rate Loan on any day
other than the last day of the Interest Period applicable to such Adjusted Libor
Rate Loan, the Borrowers shall reimburse the Bank on demand the Consequential
Loss incurred by the Bank as a result of the timing of such payment. A
certificate of the Bank setting forth the basis for the determination of the
amount of Consequential Loss shall be delivered to the Borrowers and shall, in
the absence of manifest error, be conclusive and binding. Any conversion of an
Adjusted Libor Rate Loan to a different Interest Option on any day other than
the last day of the Interest Period for such Adjusted Libor Rate Loan shall be
deemed a payment for purposes of this Section.
ARTICLE VI
COLLATERAL FOR LOANS
--------------------
6.1 Collateral for Loans. The Loans shall be secured by the following
--------------------
property (collectively, the "Collateral") and Liens in the Collateral shall be
created by or in the Collateral Documents, including, but not limited to, those
described as follows:
A. A Security Agreement in the form of Exhibit 6.1.A to this Fourth
Restated Agreement, duly executed by each Borrower and each
Consolidated Subsidiary which is subsequently made a Loan Party
creating a first priority lien, mortgage and security interest in and
upon all present and future Accounts, Inventory, Equipment, furniture,
Goods, Fixtures, General Intangibles, Instruments, margin accounts,
tax refunds, Chattel Paper, drafts, acceptances, Contracts and
Contract Rights, Documents, Title Documents, notes, returned and
repossessed Goods and all other personal property or interests in
personal property, together with all accessions to, substitutions for,
and all replacements, products and proceeds of the foregoing
(including, without limitation, proceeds of insurance policies
insuring any of the foregoing), all books and records (including,
without limitation, customer lists, credit files, computer programs,
printouts and other computer materials and records) pertaining to any
of the foregoing, and all insurance policies insuring any of the
foregoing, whether now owned or hereafter acquired, and wherever
located.
B. Security Agreement-Pledge in the form of Exhibit 6.1.B to this Fourth
Restated Agreement, creating a first priority lien, mortgage and
security interest in and upon all of the outstanding and issued
capital stock of Looney, KBA, LRA-Cal, LRA-Midwest, LRA-NE, Block,
Transcription and Burton.
6.2 Further Assurances. Each Loan Party shall make, execute or endorse,
------------------
and acknowledge and deliver or file or cause the same to be done, all vouchers,
invoices, notices, certifications and additional agreements, undertakings,
conveyances, mortgages, transfers, assignments, Financing Statements or other
assurances, and take any and all such other action, as the Bank may, from time
to time, deem reasonably necessary or proper in connection with any of the Loan
Documents, or for better assuring
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<PAGE>
and confirming unto the Bank all or any part of the security for any of the
Obligations, or for granting to the Bank any security for the Obligations which
the Bank reasonably may request from time to time.
6.3 Collateral Documents. Each of the Collateral Documents will be duly
--------------------
executed by the parties thereto. Each document, including, without limitation,
any Financing Statement, required by the Collateral Documents, under law or
requested by the Bank to be filed, registered or recorded in order to create, in
favor of and for the benefit of the Bank, a perfected first Lien on the
Collateral described therein, shall be properly filed, registered or recorded in
each jurisdiction in which the filing, registration or recordation thereof is so
required or requested. The Bank shall receive an acknowledgment copy, or other
evidence satisfactory to the Bank, of each such filing, registration or
recordation and satisfactory evidence of the payment of any necessary fee, tax
or expense relating thereto.
6.4 Description of Collateral. The Collateral Documents will contain a
-------------------------
description of the Collateral sufficient to grant to the Bank for the benefit of
the Bank perfected Liens therein pursuant to applicable law. Upon the filing of
the UCC-1's, the Bank will have, for the benefit of the Bank, perfected first
priority Liens in all Collateral.
6.5 Other Loans. It is agreed that the Collateral given to secure the
-----------
Loans shall secure all Obligations, regardless of how same may arise and all
collateral given to secure any other obligations of any Loan Party shall
additionally secure the Obligations. Any Default shall constitute an event of
default in all Obligations and the Liens securing the payment of same.
ARTICLE VII
CUSTODY, INSPECTION, COLLECTION
-------------------------------
AND MAINTENANCE OF COLLATERAL
-----------------------------
7.1 Disposition. The Borrowers will safeguard and protect all Collateral
-----------
for the Bank's general account and make no disposition thereof except in the
ordinary course of business.
7.2 Inspection. At all reasonable times during business hours, the Bank
----------
shall have full access to, and the right to examine, check, inspect and make
abstracts and copies from the books, records, audits, correspondence and all
other papers relating to the Collateral. The Bank and the Bank's agents may
enter upon any of the premises of the Borrowers at any time during business
hours and from time to time, for the purpose of inspecting the Collateral and
any and all records pertaining thereto. On an annual basis, the Bank may, at
the Borrowers' expense make field examinations of the Borrowers' books, records,
Title Documents and Inventory. The reasonable costs of the field examinations
will be reimbursed to the Bank on receipt of a statement therefor.
7.3 Authorization. The Borrowers irrevocably authorize and direct all
-------------
accountants and auditors employed by the Borrowers to exhibit and deliver to the
Bank, at any time during the term of this Fourth Restated Agreement when an
Event of Default shall have occurred, copies of any of the Financial Statements,
trial balances or other accounting records of any sort in the accountant's or
auditor's possession of the Borrowers, and to disclose to the Bank any
information they may have concerning the financial status and business
operations. The Borrowers authorize all Governmental Authority to furnish to
the Bank copies of reports or examinations relating to the Borrowers, whether
made by the Borrowers or otherwise.
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<PAGE>
7.4 Reports. The Borrowers will, immediately upon learning thereof, report
-------
to the Bank all matters affecting the value, enforceability or collectibility
of any of the Collateral such as the reclamation, repossession or return to the
Borrowers of goods and claims or disputes asserted by any customer or Account
Debtor if such matter could have a Material Adverse Effect.
7.5 Compliance with Law. The Borrowers shall comply with all actions,
-------------------
rules, regulations and orders of any Governmental Authority applicable to the
Collateral or any part thereof or to the operation of the business of the
Borrowers. The Borrowers may, however, contest or dispute any actions, rules,
regulations, orders and directions of a Governmental Authority in any reasonable
manner, provided the Bank is satisfied that the contest or dispute does not
affect the Bank's Liens or have a Material Adverse Effect.
7.6 Protection. At any time there shall be an Event of Default, the Bank
----------
may take such steps as the Bank deems necessary to protect the Bank's interest
in and to preserve the Collateral, including the hiring of security guards or
the placing of other security protection measures as the Bank may deem
appropriate. The Bank may elect to employ and maintain at any of the Borrowers'
premises a custodian who shall have full authority to do all acts necessary to
protect the Bank's interest in the Collateral. The Borrowers agree to cooperate
fully with all of the Bank's efforts to preserve the Collateral and will take
such actions to preserve the Collateral as the Bank may direct. All of the
Bank's reasonable expenses of preserving the Collateral, including any expenses
relating to the bonding of a custodian, shall be charged to the Borrowers'
account and added to the Revolving Credit Note.
7.7 Collection. Except in the ordinary course of business, the Borrowers
----------
shall not, without the Bank's consent which the Bank may withhold in the Bank's
reasonable business judgment, compromise or adjust any of the Accounts (or
extend the time for payment thereof) or grant any additional discounts,
allowances or credits thereon. The Bank shall not, under any circumstances or
in any event whatsoever, have any liability for any error, omission or delay of
any kind occurring in the settlement, collection or payment of any of the
Accounts or any instrument received in payment thereof, or for any damage
resulting therefrom. At any time after the occurrence of an Event of Default,
the Bank may, without notice to or consent from the Borrowers sue upon or
otherwise collect, extend the time of payment of, or compromise or settle for
cash, credit or otherwise upon any terms, any of the Accounts or any securities,
instruments or insurance applicable thereto and/or release the Account Debtor
thereon.
7.8 Creation of Accounts. Upon the Bank's reasonable request, the
--------------------
Borrowers will upon the creation of Accounts, or at such intervals as the Bank
may require, provide the Bank with, (i) confirmatory assignment schedules, (ii)
copies of customer's invoices, (iii) evidence of shipment or delivery, and (iv)
such further schedules, documents and/or information regarding the Accounts as
the Bank reasonably may require. The Bank shall have the right to confirm and
verify all Accounts and do whatever the Bank reasonably may deem necessary to
protect the Bank's interests. The items to be provided under this Section are to
be in forms satisfactory to the Bank and executed by the Borrowers and delivered
to the Bank, from time to time, solely for the Bank's convenience in maintaining
records of the Collateral. The failure to deliver any of such items to the Bank
shall not affect, terminate, modify or otherwise limit the Bank's Liens.
7.9 Right to Receive. Upon the occurrence of an Event of Default, the Bank
----------------
shall have the right to receive, endorse, assign and/or deliver in the name of
the Bank and the Borrowers, any and all checks, drafts and other instruments for
the payment of money relating to the Accounts. The Borrow-
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<PAGE>
ers waive notice of presentment, protest and of non-payment of any instrument so
endorsed. The Borrowers constitute the Bank or the Bank's designee as the
Borrowers' attorney with power to, (i) endorse the Borrowers' names upon any
notes, acceptances, checks, drafts, money orders or other evidences of payment
or Collateral that may come into the Bank's possession; (ii) send verifications
of Accounts to any customer; (iii) notify the postal authorities to change the
address for delivery of mail addressed to the Borrowers to such address as the
Bank may designate; and, (iv) sign all Financing Statements or any other
documents or instruments deemed necessary or appropriate by the Bank to
preserve, collect, or perfect the Bank's interest in the Collateral and file
same. All acts of the attorney or designee are hereby ratified and approved, and
the attorney or designee shall not be liable for any acts of omission or
commission, or for any error of judgment or mistake of fact or law. This power
is coupled with an interest and is irrevocable while any of the Obligations
remain unpaid.
ARTICLE VIII
COVENANTS
---------
8.1 Affirmative Covenants. Until the fulfillment of all Obligations,
---------------------
unless the Bank shall otherwise consent in writing, each Loan Party will, as
indicated, perform and comply with the following covenants:
A. LRA shall furnish to the Bank:
(1) As soon as possible, but in any event within ninety (90) days
after the end of each Fiscal Year, audited, consolidated Financial
Statements of LRA and the Consolidated Subsidiaries consisting of
statements of income, stockholder's equity and cash flow for such
Fiscal Year and a balance sheet as of the end of such Fiscal Year,
setting forth, in each case, in comparative form, corresponding
figures from the immediately preceding annual audit, accompanied by
supporting schedules required by GAAP, all in reasonable detail and
satisfactory in scope to the Bank, as fairly presenting the financial
position of LRA and the Consolidated Subsidiaries as of the dates
indicated in accordance with GAAP, together with an opinion thereon,
without material qualifications or exceptions certified by independent
certified public accountants selected by LRA and satisfactory to the
Bank, and the consolidating Financial Statements of each Consolidated
Subsidiary;
(2) As soon as possible, but in any event within one hundred twenty
(120) days after the end of each Fiscal Year, the auditors' management
report;
(3) As soon as possible, but in any event within thirty (30) days
after the end of each month, a consolidated aging and listing of all
Accounts, Eligible Accounts and accounts payable for such period
certified as being true and correct by a Financial Officer of LRA;
(4) Within thirty (30) days after the end of each month, consolidated
and consolidating Financial Statements of LRA and the Consolidated
Subsidiaries as of the end of such period and the related statements
of income and stockholders' equity, all in reasonable detail and
setting forth in comparative form the amounts for such period and,
with respect to the statements of income and cash flow, the Fiscal
Year to date, and the amounts for the corresponding periods in the
prior year, prepared in a manner satisfactory to the Bank and
certified by a Financial Officer of LRA as fairly presenting the
consolidated financial position of LRA
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<PAGE>
and the Consolidated Subsidiaries as of the dates indicated, subject
to changes resulting from audit and normal year-end adjustment;
(5) On the Effective Date of this Fourth Restated Agreement and
within thirty (30) days after the end of each month, the Borrowers
will provide the Bank with a Borrowing Base Certificate in the form of
Exhibit 2.3 to this Fourth Restated Agreement, signed by a Financial
Officer of LRA cer tifying that no Events of Default have occurred and
LRA and each other Loan Party are in compliance with the covenants set
out in Section 8.2, calculating the Borrowing Base, and (ii) together
with such payment, if any, as may be necessary to reduce the aggregate
principal amount of the Revolving Credit Note to the amount permitted
under the Borrowing Base and this Fourth Restated Agreement;
(6) As soon as possible, a copy of the federal income tax return of
LRA for the current Fiscal Year then ended, certified as being true
and correct by a Financial Officer of LRA; and,
(7) From time to time, such further information regarding the
business, affairs and financial condition of LRA and the Consolidated
Subsidiaries as the Bank reasonably may request.
B. At such time as LRA shall become a publicly traded company, LRA will
furnish to the Bank, within sixty (60) days after the end of the
first, second and third fiscal quarter, a copy of the Form 10Q filed
with the Securities and Exchange Commission, and within ninety (90)
days of the end of each Fiscal Year, a copy of the Form 10K filed with
the Securities and Ex change Commission, each certified by a Financial
Officer of LRA as being true and correct.
C. LRA will furnish to the Bank, promptly when same is avail able, a copy
of each Financial Statement, report, notice or proxy statement sent by
LRA to stockholders generally and of each regular or periodic report,
registration statement or prospectus filed by LRA with any securities
exchange or the Securities and Exchange Commission, and of any order
issued by any Governmental Authority in any proceeding to which LRA is
a party. At such time as LRA shall become a publicly traded company,
LRA will notify the Bank of changes in the ownership of stock of LRA
by any Insider, as defined in the Securities Act of 1934, of any
single change or aggregate change of ownership of five (5) or more per
cent of the outstanding or issued shares of LRA.
D. The Borrowers shall, promptly upon learning thereof: (i) inform the
Bank, in writing, of any material delay in any Borrower's performance
of a Borrower's obligations to any Ac count Debtor if the effect
thereof would materially affect the collectibility of the Account, or
of any assertion of any claims, set offs or counterclaims by any
Account Debtor; and, (ii) furnish to and inform the Bank of all
material adverse information relating to the financial condition of
any Account Debtor.
E. The Borrowers will, on before January 15, 1998, enter into an Interest
Rate Protection Agreement for no less than $7,000,000.00 for a tenure
and at a spread on the Adjusted Libor Rate, on terms and conditions
and within a party acceptable to the Bank.
F. The Borrowers shall comply with all Requirements of any Governmental
Authority.
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<PAGE>
G. The Borrowers shall act prudently and in accordance with customary
industry standards in managing or operating the Borrowers' assets,
properties, business and investments. The Borrowers shall keep in good
working order and condition, ordinary wear and tear excepted, all of
the Borrowers' assets and properties which are necessary to the
conduct of the Borrowers' business. The Borrowers shall obtain and
maintain at the Borrowers' expense, all governmental licenses,
authorizations, consents, permits and approvals as may be required to
enable the Borrowers to operate the Borrowers' business and to comply
with the Borrowers' obligations hereunder and under the other Loan
Documents if the failure to do so would have a Material Adverse
Effect.
H. The Borrowers will maintain with financially sound, responsible and
reputable insurance companies, insurance against such risks, and in
such amounts (and with co-insurance and deductibles), as are usually
carried by owners of similar businesses and properties in the same
general areas in which the Borrowers operate, and at least in the
amounts and types presently carried by the Borrowers. The Borrowers
will specifically maintain (i) all insurance required by state
statutes for protection of employees against work-related injuries,
(ii) comprehensive general liability coverage in the aggregate of
$750,000.00, and (iii) all other insurance required by applicable law.
All such policies shall be non-cancelable without ten (10) days prior
written notice to the Bank. The Borrowers shall cause the insurance
policies or proper certificates evidencing the same to be delivered to
the Bank. If the Borrowers shall fail to obtain insurance as herein
provided, or to keep the same in force, the Bank may obtain such
insurance and pay the premiums therefor and charge the Borrowers'
account therefor, and such expenses so paid shall be part of the
Obligations.
I. Each of the Borrowers will continue to be a corporation duly
incorporated and existing in good standing under the laws of the state
of its incorporation, and will continue to be duly licensed or
qualified in all jurisdictions wherein the character of the property
owned or leased by it or the nature of the business transacted by it
makes licensing or qualification necessary, and the failure to do so
would have a Material Adverse Effect.
J. Each Loan Party shall pay and discharge all Taxes, assessments and
governmental charges or levies including, but expressly not limited
to, income, excise and ad valorem Taxes, prior to the date on which
penalties or liens attach thereto and become of public record, except
such Taxes, if any, as are being contested in good faith and as to
which adequate reserves have been provided.
K. Each Loan Party will promptly give notice in writing to the Bank of
(i) any IRS audit of the Loan Party, (ii) the filing or commencement
of any action, suit, or administrative proceeding against the Loan
Party, whether at law or in equity or by or before any Governmental
Authority, (iii) violations of any Requirement, or (iv) any Reportable
Event, any of which events (a) is material and is brought by or on
behalf of any Person, or in which injunctive or other equitable relief
is sought, and (b) it is probable (within the meaning of Statement of
Financial Accounting Standards No. 5 promulgated by FASB) that there
will be an adverse determination and which, if adversely determined,
would materially impair the ability of such Person to perform its
obligations under any of the Loan Documents to which it is a party.
L. Each Loan Party will furnish to the Bank immediately upon be coming
aware of the existence of any condition or event which constitutes a
Default or an Event of Default, or which, with
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<PAGE>
notice or lapse of time, would become a Default or an Event of
Default, notice specifying the nature and period of existence thereof
and the action which Loan Party is taking or proposes to take with
respect thereto.
M. Each Loan Party will pay in full all reasonable expenses, including
reasonable legal expenses and attorney's fees, of the Bank which have
been or may be incurred by the Bank in connection with the preparation
of the Loan Documents, the lending hereunder, the collection or
enforcement of the Obligations and the recording and filing and re-
recording and re-filing of any such document.
N. The Borrowers will make full and timely payment of the Obligations
whether now existing or hereafter arising, and duly comply with all
the terms and covenants contained in this Fourth Restated Agreement
(including, without limitation, the Borrowing limitations and
Mandatory Prepayments) and in each of the other Loan Documents, all
at the times and places and in the manner set forth therein.
8.2 Financial Covenants. Until the fulfillment of all Obligations unless
-------------------
the Bank shall otherwise consent in writing, LRA and the Consolidated
Subsidiaries will, on a consolidated basis, maintain the following financial
covenants:
A. Funded Debt Ratio. As of the Effective Date of this Fourth Restated
-----------------
Agreement, LRA and the Consolidated Subsidiaries shall have and shall
maintain for each period consisting of four (4) consecutive fiscal
quarters through June 30, 1998, a Funded Debt Ratio not exceeding
6.20:1.00. Thereafter, LRA and the Consolidated Subsidiaries shall
maintain for each period consisting of four (4) consecutive fiscal
quarters a Funded Debt Ratio not exceeding the amounts set out for
such periods:
<TABLE>
<CAPTION>
Period Ratios
------ ------
<S> <C>
July 1, 1998 through September 30, 1998 5.50:1.00
October 1, 1998 through December 31, 1998 5.00:1.00
January 1, 1999 through June 30, 1999 4.50:1.00
After June 30, 1999 4.00:1.00
</TABLE>
B. Fixed Charge Coverage Ratio. On the Effective Date of this Fourth
---------------------------
Restated Agreement, and for each period consisting of four (4)
consecutive fiscal quarters through June 30, 1998, a Fixed Charge
Coverage Ratio of at least 1.00:1.00. Thereafter, LRA and the
Consolidated Subsidiaries shall maintain for each period consisting of
four (4) consecutive fiscal quarters a Fixed Charge Coverage Ratio of
at least the following amounts set out for such periods:
<TABLE>
<CAPTION>
Period Ratios
------ ------
<S> <C>
July 1, 1998 through December 31, 1998 1.10:1.00
January 1, 1999 through June 30, 1999 1.15:1.00
July 1, 1999 through December 31, 1999 1.20:1.00
After December 31, 1999 1.25:1.00
</TABLE>
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<PAGE>
C. Certificate of Compliance. On the Effective Date of this Fourth
-------------------------
Restated Agreement and thirty (30) days after the end of each month,
the Borrowers will provide to the Bank a Certificate of Compliance in
the form of Exhibit 8.2.C to this Fourth Restated Agreement, signed by
a Financial Officer of the Borrowers, (i) calculating or stating the
financial covenants set out in Section 8.2.A and Section 8.2.B, (ii)
certifying that no Events of Default have occurred, and (iii) that the
Borrowers and the Consolidated Subsidiaries are in compliance with the
covenants set out in this Section.
8.3 Other Covenants. Until the fulfillment of all Obligations, unless the
---------------
Bank shall otherwise consent in writing, LRA and the Consolidated Subsidiaries,
respectively as indicated, will perform and comply with the following covenants:
A. LRA and the Consolidated Subsidiaries will not create, incur, assume
or suffer to exist Indebtedness, except (i) the Loans; (ii) current
accounts payable and other current obligations (other than for
borrowed money) arising out of transactions in the ordinary course of
business; (iii) subject to Section 8.3.E, Indebtedness incurred in
connection with the acquisi tion of equipment or other assets; (iv)
Subordinated Indebtedness; and, (v) long term deferred taxes.
B. LRA and the Consolidated Subsidiaries will not execute a Guaranty
(except in favor of the Bank and the Investors with respect to the
Subsidiary Guarantee Agreements as defined in and issued pursuant to
the Securities Purchase Agreement), or create, incur, assume or suffer
to exist any Lien, except a Permitted Lien.
C. LRA and the Consolidated Subsidiaries will not assume, guarantee,
endorse or otherwise become liable upon, or agree to purchase or
otherwise furnish funds for the payment of the obligations of any
Person, firm or corporation other than Borrowers hereunder or as
permitted under Section 8.3.B, or agree to complete, or make available
funds for the completion of, any facility not owned by Borrowers,
except endorsements of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business,
except in favor of Bank.
D. Except as permitted herein or in a Subordination Agreement, LRA and
the Consolidated Subsidiaries will not pay any principal or interest
on any Subordinated Indebtedness or pay Dividends on any preferred
stock, including the Approved Preferred Stock. As long as the
Borrowers are in compliance with the Borrowers' covenants set out in
Section 7.2, no Event of Default shall have occurred under any of the
Loan Documents, including any Subordination Agreement and the
Securities Purchase Agreement, and any such payment shall not cause a
Default, LRA will have the right to pay (i) interest as it accrues on
Subordinated Indebtedness, (ii) accrued Dividends on Approved
Preferred Stock, and (iii) accruing installments of principal of
Subordinated Indebtedness due and owing to a Seller. As long as the
Borrowers are in compliance with the Borrowers' covenants set out in
Section 7.2, no Event of Default shall have occurred under any of the
Loan Documents, including any Subordination Agreement and the
Securities Purchase Agreement, and any such payment shall not cause a
Default, the Consolidated Subsidiaries will have the right to pay
Dividends to LRA.
E. Except pursuant to an Approved Asset Purchase Agreement or an Approved
Merger, LRA and the Consolidated Subsidiaries will not expend or enter
into the commitment to expend,
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<PAGE>
whether by Capital Lease or Capital Expenditure, an amount in the
aggregate exceeding $300,000.00, on a consolidated basis, in any year
during the term hereof.
F. Except as permitted in Section 8.3.D, LRA and the Consolidated
Subsidiaries will not pay any Dividends, make any distribution on
LRA's or the Consolidated Subsidiaries' capital stock or purchase or
retire any capital stock, dissolve or liquidate. Except pursuant to an
Approved Merger or an Approved Asset Purchase Agreement, LRA and the
Consolidated Subsidiaries will not become a party to any merger or
consolidation, or purchase, lease or otherwise ac quire all or
substantially all of the assets or capital stock of any Person. LRA
and the Consolidated Subsidiaries will not sell, transfer, lease or
otherwise dispose of all or any substantial part of LRA's or a
Consolidated Subsidiary's respective properties, assets or business.
G. Neither LRA nor a Consolidated Subsidiary will amend their respective
organizational documents, including but not limited to, Articles or
Certificate of Incorporation and bylaws.
H. Neither LRA nor a Consolidated Subsidiary will change its respective
name, Fiscal Year or method of accounting except as required by GAAP.
A Loan Party may change its name if the Bank has been given sixty (60)
days prior notice of such name change and there shall have been taken
such action as the Bank deems necessary to continue the perfection of
the Liens securing payment of the Obligations.
I. LRA and the Consolidated Subsidiaries will not enter into any
transaction with any Affiliates other than transactions in the
ordinary course of business and upon fair and reasonable terms not
materially less favorable than could be obtained in an arm's-length
transaction with a Person that was not an Affiliate.
J. Neither LRA nor a Consolidated Subsidiary will engage in any other
line of business or business venture other than those presently
engaged or those which are directly related thereto, or change any
method of operation or manner of doing business in any material
respect if any such change any method of operation or manner of doing
business would have a Material Adverse Effect.
K. None of the Borrowers will use proceeds of any Loan to acquire any
security in any transaction which is subject to (S)13 or (S)14 of the
Securities Exchange Act of 1934, including particularly (but without
limitation) (S)13(d) and (S)14(d) thereof.
L. Neither LRA nor a Consolidated Subsidiary will sell, assign, convey,
exchange, lease or otherwise dispose of any of its respective
properties, rights, assets or business, whether now owned or hereafter
acquired, except in the ordinary course of business and for a fair
consideration.
8.4 ERISA Compliance. LRA and the Consolidated Subsidiaries shall, and
----------------
shall cause each ERISA Affiliate to:
A. At all times, make prompt payment of all contributions required under
all Employee Plans and required to meet the minimum funding standard
set forth in ERISA with respect to all Employee Plans;
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<PAGE>
B. With respect to any Pension Plan, not permit to exist any material
"accumulated funding deficiency" (within the meaning of (S)302 of
ERISA and (S)412 of the Code), whether or not waived, with respect
thereto;
C. Not engage in any transaction in connection with which LRA or any
ERISA Affiliate could be subject to either a material civil penalty
assessed pursuant to the provisions of (S)502 of ERISA or a material
tax imposed under the provisions of (S)4975 of the Code;
D. Not terminate any Pension Plan in a "distress termination" under
(S)4041 of ERISA, or take any other action which could result in a
material liability of LRA or any ERISA Affiliate to the PBGC;
E. Not adopt an amendment to any Pension Plan requiring the provision of
security under (S)307 of ERISA or (S)40(a)(29) of the Code;
F. Within thirty (30) days after the filing thereof, furnish to the Bank
each annual report/return (Form 5500 Series), as well as all schedules
and attachments required to be filed with the Department of Labor
and/or the IRS pursuant to ERISA, and the regulations promulgated
thereunder, in connection with each Employee Plan for each Employee
Plan year;
G. Notify the Bank immediately of any fact, including, but not limited
to, any Reportable Event arising in connection with any Employee Plan,
which might constitute grounds for termina tion thereof by the PBGC or
for the appointment by the appropriate U.S. District Court of a
trustee to administer an Employee Plan, together with a statement, if
requested by the Bank, as to the reason therefor and the action, if
any, proposed to be taken with respect thereto; and,
H. Furnish to the Bank, upon request, such additional information
concerning any Employee Plan as may be reasonably requested.
8.5 Indemnity. EACH LOAN PARTY, JOINTLY AND SEVERALLY, INDEMNIFY AND SHALL
---------
SAVE, AND HOLD THE BANK AND THE BANK'S DIRECTORS, OFFICERS, ATTORNEYS, AND
EMPLOYEES (INDIVIDUALLY, AN "INDEMNITEE" AND COLLECTIVELY, THE "INDEMNITEES")
HARMLESS FROM AND AGAINST THE FOLLOWING (EACH A "CLAIM"): (I) ANY AND ALL
CLAIMS, DEMANDS, ACTIONS, OR CAUSES OF ACTION THAT ARE ASSERTED AGAINST ANY
INDEMNITEE BY ANY PERSON IF THE CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION
DIRECTLY OR INDIRECTLY RELATES TO A CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION
THAT THE PERSON ASSERTS OR MAY ASSERT AGAINST A LOAN PARTY (II) ANY AND ALL
CLAIMS, DEMANDS, ACTIONS OR CAUSES OF ACTION THAT ARE ASSERTED AGAINST ANY
INDEMNITEE IF THE CLAIM, DEMAND, ACTION OR CAUSE OF ACTION DIRECTLY OR
INDIRECTLY RELATES TO THE COMMITMENT, THE USE OF PROCEEDS OF THE LOANS, OR THE
RELATIONSHIP OF A LOAN PARTY AND THE BANK UNDER THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED PURSUANT TO THIS AGREEMENT; (III) ANY ADMINISTRATIVE OR
INVESTIGATIVE PROCEEDING BY ANY GOVERNMENTAL AUTHORITY DIRECTLY OR INDIRECTLY
RELATED TO A CLAIM, DEMAND, ACTION OR CAUSE OF ACTION DESCRIBED IN CLAUSES (I)
OR (II) ABOVE; AND, (IV) ANY AND ALL LIABILITIES, LOSSES, REASONABLE COSTS OR
EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES AND DISBURSEMENTS) THAT ANY
INDEMNITEE SUFFERS OR INCURS AS A RESULT OF ANY OF THE FOREGOING. IF ANY CLAIM
IS ASSERTED AGAINST ANY INDEMNITEE, THE INDEMNITEE SHALL PROMPTLY NOTIFY THE
BORROWERS, BUT THE FAILURE TO SO PROMPTLY NOTIFY THE BORROWERS SHALL NOT AFFECT
THE LOAN PARTIES' OBLIGATIONS UNDER
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<PAGE>
THIS SECTION UNLESS SUCH FAILURE MATERIALLY PREJUDICES THE LOAN PARTIES' RIGHT
TO PARTICIPATE IN THE CONTEST OF THE CLAIM. THE OBLIGATIONS AND LIABILITIES OF
THE LOAN PARTIES TO ANY INDEMNITEE UNDER THIS SECTION SHALL SURVIVE THE
EXPIRATION OR TERMINATION OF THIS AGREEMENT AND THE REPAYMENT OF THE
OBLIGATIONS.
ARTICLE IX
CONDITIONS PRECEDENT
--------------------
9.1 Initial Advances. The obligation of the Bank to make initial
----------------
Advances on the Term C Loans and the continuation of the other Loans is subject
to the conditions precedent that, on or before the date of the Advance, the Bank
shall have received the following:
A. As to the Revolving Credit Loans:
(1) The duly executed Revolving Credit Note.
(2) A duly executed Notice of Revolving Credit Advance.
(3) The duly executed Application for Letter of Credit, if the
Advance requested is for a Letter of Credit.
B. As to the Term Loans:
(1) The duly executed Term Notes.
(2) A duly executed Notice of Term Loan Advance.
C. Each of the Collateral Documents duly executed by the parties thereto.
Each document, including, without limitation, any Financing Statement,
required by the Collateral Documents, under law or requested by the
Bank to be filed, registered or recorded in order to create, in favor
of the Bank, a perfected first priority Lien on the Collateral
described therein shall have been properly filed, registered or
recorded in each jurisdiction in which the filing, registration or
recordation thereof is so required or requested, the Bank shall have
received an acknowledgment copy, or other evidence satisfactory to the
Bank, of each such filing, registration or recordation and
satisfactory evidence of the payment of any necessary fee, tax or
expense relating thereto. The Bank shall have received the possession
of any Collateral for which possession is required to perfect a Lien.
D. A search of uniform commercial code records of each appropriate
jurisdiction wherein Burton, EDP or EDP Temp does business, including
searches under all assumed or business names under which any of them
operates, reflecting that there are no financing statements filed of
record.
E. A Seller Debt Subordination Agreement in the form of Exhibit 9.1.E to
the Restated Agreement, duly executed by each Seller who holds
Subordinated Indebtedness.
F. A Seller Preferred Stock Subordination Agreement in the form of
Exhibit 9.1.F to the Restated Agreement, duly executed by each Seller
who holds Approved Preferred Stock.
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<PAGE>
G. A Seller Debt Subordination Agreement in the form of Exhibit 9.1.G to
this Fourth Restated Agreement, duly executed by each Seller who holds
Subordinated Indebtedness pursuant to the EDP Asset Purchase
Agreement.
H. A true and correct copy of the final, duly executed copy of the EDP
Asset Purchase Agreement and true and correct copies of all final
documentation with respect thereto, together with evidence
satisfactory to the Agent that LRA-NE shall have successfully
completed the acquisition of all of the assets of EDP and EDP Temp
free and clear of any Liens and that no more than $9,000,000.00 at the
closing thereof was paid therefor, subject to such amount being
adjusted after the closing thereof based on the Additional Tax
Liability and other Earnout provisions contained in the EDP Asset
Purchase Agreement.
I. A true and correct copy of the final, duly executed copy of the Burton
House Stock Purchase Agreement and true and correct copies of all
final documentation with respect thereto, together with evidence
satisfactory to the Agent that LRA-Cal shall have successfully
completed the purchase of the Burton Stock, that no Liens are
outstanding on any of the Assets of Burton and that no more than
$2,800,602.07 was paid for the stock of Burton.
J. An Officers Certificate in the form of Exhibit 9.1.J certified by a
Responsible Officer of each of the Borrowers stating that, (i) no
litigation is pending or threatened which would have a Material
Adverse Effect; (ii) no investigation or proceeding before any
Governmental Authority is continuing or threatened against the
Borrowers, or any officer, director or Affiliate of the Borrowers with
respect to this Fourth Restated Agreement, the Loan Documents or any
of the Transactions which could have a Material Adverse Effect; (iii)
the final copy of the EDP Asset Purchase Agreement and the Burton
House Stock Purchase Agreement provided to the Bank fully state and
are the final agreements among parties thereto, there being no
unwritten or other agreements among the parties; and, (iv) to the best
knowledge and belief of such Persons, after reasonable and due
investigation and re view of matters pertinent to the subject matter
of such certificate (a) all of the representations and warranties
contained herein and the other Loan Documents are true and correct as
of the date of the Advance, and (b) no event has oc curred and is
continuing, or would result from the Advance which constitutes a
Default or an Event of Default. The Bank shall also receive either a
summary and analysis of all litigation in which any of the Borrowers
is involved or an opinion of counsel, in form and substance acceptable
to the Bank, to the effect that no litigation in which the respective
Borrower is involved would, in the event of an adverse determination,
have a Material Adverse Effect.
K. Resolutions of each of the Borrowers approving the execution, delivery
and performance of this Fourth Restated Agreement, the other Loan
Documents and the transactions contemplated herein and therein, duly
adopted by the respective Borrower's board of directors and
accompanied by a certificate of the secretary of the respective
Borrower stating that the resolutions are true and correct, have not
been altered or repealed and are in full force and effect. Each
resolution shall certify the name of each officer authorized to sign
the Loan Documents to be executed by the respective Borrower and the
other documents or certificates to be delivered pursuant to the Loan
Documents, together with the true signature of each such officer. The
Bank may conclusively rely on the certificates until the Bank receives
a further certificate canceling or amending the prior certificate and
submitting the name and signature of each officer named in such
further certificate.
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L. Evidence satisfactory to the Bank that the insurance policies required
by this Fourth Restated Agreement and the Collateral Documents are in
force and effect, the originals of all such policies, where required,
and receipts showing that the premiums therefor have been paid.
M. Favorable opinions of legal counsel for each Loan Party in form and
substance satisfactory to the Bank.
N. Such other information and documents as reasonably may be required by
the Bank and the Bank's counsel.
9.2 Subsequent Advances. The obligation of the Bank to make any subsequent
-------------------
Advance under this Fourth Restated Agreement shall be subject to the following
additional conditions precedent:
A. As of the date of the making of such Advance, there shall not exist
any Default or Event of Default.
B. Each Loan Party shall have performed and complied with all agreements
and conditions contained herein and in each of the Loan Documents
which are required to be performed or complied with before or on the
date of such Advance.
C. As of the date of making such Advance, no change that would cause a
Material Adverse Effect shall have occurred.
D. In the case of any Borrowing, the Bank shall have received an
appropriate Notice of Revolving Credit Advance, Application for Letter
of Credit or Notice of Term Loan Advance dated as of the date of a
Borrowing signed by LRA.
E. The representations and warranties contained in each of the Loan
Documents shall be true in all respects on the date of making of such
Advance, with the same force and effect as though made on and as of
that date.
9.3 Conditions Precedent on Acquisitions. As conditions precedent to
------------------------------------
receiving an Advance under the provisions hereof for the purposes of acquiring a
Qualified Company, in addition to the provisions of Section 9.2, Borrowers shall
deliver or cause to be delivered to the Bank, the following:
A. With respect to any company proposed to be acquired, financial
statements for three (3) preceding years and the most recent prepared,
current to date tax returns, aging of accounts receivable and accounts
payable, corporate organization information, audits, if available, and
such other documents and information reasonably required by the Bank
in connection with its due diligence reviews;
B. Such other matters as the Bank shall reasonably require in connection
with the making of the Loans and the perfection of Liens in favor of
the Bank; and,
C. A Seller Debt Subordination Agreement in the form of Exhibit 9.1.E to
the Restated Agreement or a Seller Preferred Stock Subordination
Agreement in the form of Exhibit 9.1.F to the Restated Agreement, as
applicable, duly executed by each Seller which is issued Indebtedness
pursuant to and in connection with a Purchase Agreement entered into
subsequent to the Effective Date.
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D. A determination of the Financial Covenants will be made at the time
the Bank approves acquisition of an Approved Company.
ARTICLE X
REPRESENTATIONS AND WARRANTIES
------------------------------
10.1 Representations and Warranties Concerning Borrowers. Each of the Loan
---------------------------------------------------
Parties represents and warrants the following matters concerning the Borrowers.
A. LRA is a corporation duly incorporated and existing in good standing
under the laws of the State of Texas. LRA is duly licensed or
qualified in all jurisdictions wherein the character of the property
owned or leased by LRA or the nature of the business transacted by LRA
makes licensing or qualification necessary by foreign corporations and
where failure to become so licensed or qualified would have a Material
Adverse Effect.
B. Looney is a corporation duly incorporated and existing in good
standing under the laws of the State of Texas. Looney is duly licensed
or qualified in all jurisdictions wherein the character of the
property owned or leased by Looney or the nature of the business
transacted by Looney makes licensing or qualification necessary by
foreign corporations and where failure to become so licensed or
qualified would have a Material Adverse Effect.
C. KBA is a corporation duly incorporated and existing in good standing
under the laws of the State of Florida. KBA is duly licensed or
qualified in all jurisdictions wherein the character of the property
owned or leased by KBA or the nature of the business transacted by KBA
makes licensing or qualification necessary by foreign corporations and
where failure to become so licensed or qualified would have a Material
Adverse Effect.
D. LRA-Cal is a corporation duly incorporated and existing in good
standing under the laws of the State of California. LRA-Cal is duly
licensed or qualified in all jurisdictions wherein the character of
the property owned or leased by LRA-Cal or the nature of the business
transacted by LRA-Cal makes licensing or qualification necessary by
foreign corporations and where failure to become so licensed or
qualified would have a Material Adverse Effect.
E. LRA-Midwest is a corporation duly incorporated and existing in good
standing under the laws of the State of Illinois. LRA-Midwest is duly
licensed or qualified in all jurisdictions wherein the character of
the property owned or leased by LRA-Midwest or the nature of the
business transacted by LRA-Midwest makes licensing or qualification
necessary by foreign corporations and where failure to become so
licensed or qualified would have a Material Adverse Effect.
F. LRA-NE is a corporation duly incorporated and existing in good
standing under the laws of the State of New York. LRA-NE is duly
licensed or qualified in all jurisdictions wherein the character of
the property owned or leased by LRA-NE or the nature of the business
transacted by LRA-NE makes licensing or qualification necessary by
foreign corporations and where failure to become so licensed or
qualified would have a Material Adverse Effect.
G. Block is a corporation duly incorporated and existing in good standing
under the laws of the District of Columbia. Block is duly licensed or
qualified in all jurisdictions wherein the character of the property
owned or leased by Block or the nature of the business transacted
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by Block makes licensing or qualification necessary by foreign
corporations and where failure to become so licensed or qualified
would have a Material Adverse Effect.
H. Transcription is a corporation duly incorporated and existing in good
standing under the laws of the District of Columbia. Transcription is
duly licensed or qualified in all jurisdictions wherein the character
of the property owned or leased by Transcription or the nature of the
business transacted by Transcription makes licensing or qualification
necessary by foreign corporations and where failure to become so
licensed or qualified would have a Material Adverse Effect.
I. Burton is a corporation duly incorporated and existing in good
standing under the laws of the State of California. Burton is duly
licensed or qualified in all jurisdictions wherein the character of
the property owned or leased by Burton or the nature of the business
transacted by Burton makes licensing or qualification necessary by
foreign corporations and where failure to become so licensed or
qualified would have a Material Adverse Effect.
J. The execution of the Loan Documents and the performance of the
Obligations thereunder by the Borrowers (collectively, the
"Transactions") have been duly authorized by all necessary corporate
action. Such actions will not, (i) violate any provision of law, any
Borrower's Articles or Certificate of Incorporation or any Borrower's
bylaws, or (ii) result in the breach of or constitute a default under
any other agreement or instrument to which a Borrower is a party
except as set out in Schedule 10.1.J. No consent of any Borrower's
shareholders or any holder of Indebtedness of a Borrower is required
as a condition to the validity of this Fourth Restated Agreement.
K. The Loan Documents, when duly executed and delivered in ac cordance
with this Fourth Restated Agreement, will constitute legal, valid and
binding obligations of the Borrowers in accordance with their
respective terms.
L. LRA has furnished to the Bank a consolidated balance sheet and
statements of income as of February 28, 1997. Each of the Consolidated
Subsidiaries have furnished to the Bank a current balance sheets, and
current statements of income. Each of the Financial Statements are
true and correct and, for Looney and KBA, have been prepared in
accordance with GAAP throughout the periods involved. There have been
no changes in the condition, financial or otherwise, of any Borrower
since the date of such Financial Statements which would have a
Material Adverse Effect.
M. Except as disclosed in the Financial Statements referenced in Section
10.1.L, none of the Borrowers has any, (i) Investment in any other
Person, or (ii) agreements in effect providing for or relating to
extensions of credit in respect of which the respective Borrower is or
may become directly or contingently obligated.
N. There is no material fact that any of the Borrowers have failed to
disclose to the Bank which could have a Material Adverse Effect.
Neither the Financial Statements referenced in Section 10.1.L, nor any
certificate or statement delivered herewith or heretofore by any of
the Borrowers to the Bank in connection with negotiations of the Loan
Documents, contains any untrue statement of a material fact or omits
to state any material fact necessary to keep the statements contained
herein or therein from being misleading.
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<PAGE>
O. Each Borrower has good title to the assets pledged or given as
Collateral to secure the Loans as of the date that such pledge or lien
is created, free and clear of all Liens except the Permitted Liens.
P. Set forth in Schedule 10.1.P hereto is a complete and accurate list
of all shareholders of LRA as of the Effective Date of this Fourth
Restated Agreement and the number of shares of each class of capital
stock owned by each. LRA's authorized capital stock consists of
100,000,000 shares of Common Stock, $0.01 par value, of which there
are 1,697,231 shares issued and outstanding (including treasury
shares) and 10,000,000 shares of preferred stock, $1.00 par value, of
which there are 3,277,917 shares issued and outstanding (including
treasury shares). Except as set out in Schedule 10.1.P, there are no
outstanding warrants or options to purchase any of the capital stock
of LRA. All of the outstanding capital stock of LRA has been validly
issued, is fully paid and non-assessable and is owned by the
shareholders free and clear of all Liens. LRA is the sole shareholder
of Looney, KBA and LRA-Cal. There are no outstanding warrants or
options to purchase any of the capital stock of Looney, KBA or LRA-
Cal. All of the outstanding capital stock of Looney, KBA and LRA-Cal,
respectively, has been validly issued, is fully paid and non-
assessable and is owned by LRA free and clear of all Liens.
Q. Each of the Borrowers is and, after consummation of this Fourth
Restated Agreement and after giving effect to all Indebtedness
incurred and the Liens in connection herewith, will be Solvent.
R. Except as disclosed in writing to the Bank, none of the Borrowers is a
party to a transaction with any Affiliate. All such transactions are
in the ordinary course of business and upon fair and reasonable terms
not materially less favorable than could be obtained in an arm's-
length transaction with a Person that was not an Affiliate.
S. Except as set out in Schedule 10.1.J, none of the Borrowers is in
default in any material respect under any contract, lease, loan
agreement, indenture, mortgage, security agreement or other material
agreement or obligation to which it is a party or by which any of its
property is bound.
T. Neither the business nor the property of any of the Borrowers are
affected by any fire, explosion, accident, strike, lockout or other
labor dispute, drought, storm, hail, earthquake, embargo, act of God
or other casualty (whether or not covered by insurance), which could
have a Material Adverse Effect.
U. The copies of the EDP Asset Purchase Agreement and the Burton House
Stock Purchase Agreement provided to the Bank fully state and are the
agreements among the parties thereto, there being no unwritten or
other agreements among the parties.
V. During the preceding five (5) years, none of the Borrowers has been
known as any other name or used any fictitious, assumed or trade
names except as disclosed in writing to the Bank. The principal
office, chief executive office and principal place of business of each
Borrower are at the address set out in Section 12.1. Each Borrower
maintains its principal records and books at such address.
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10.2 Regulatory Matters. Each of the Loan Parties represents and warrants
------------------
that as of the Effective Date of this Fourth Restated Agreement, no Regulatory
Defects exist, and specifically the following matters.
A. The proceeds of the Loans will be used by the Borrowers solely for the
purposes herein set out and for no other purpose whatsoever. None of
such proceeds will be used for the purpose of purchasing or carrying
any "margin stock" as defined in Regulation U, Regulation X, or
Regulation G, or for the purpose of reducing or retiring any
Indebtedness which was originally incurred to purchase or carry a
"margin stock" or for any other purpose which might constitute this
transaction a "purpose credit" within the meaning of such Regulation
U, Regulation X, or Regulation G. None of the Borrowers is engaged in
the business of extending credit for the purpose of purchasing or
carrying margin stocks. Neither the Borrowers nor any Person acting on
behalf of the Borrowers has taken or will take any action which might
cause the Notes or any of the other Loan Documents, including this
Fourth Restated Agreement, to violate Regulation U, Regulation X, or
Regulation G or any other regulations of the board of governors of the
Federal Reserve System or to violate (S)8 of the Securities Exchange
Act of 1934 or any rule or regulation thereunder, in each case as now
in effect or as the same may hereafter be in effect.
B. None of the Borrowers or any Person having "control" (as that term is
defined in 12 U.S.C. (S)375(b)(5) or in regulations promulgated
pursuant thereto) of any of the Borrowers, is an "executive officer,"
"director," or "principal shareholder" (as those terms are defined in
12 U.S.C. (S)375(b) or in regula tions promulgated pursuant thereto)
of the Bank, of a bank holding company of which the Bank is a
subsidiary, or of any subsidiary of a bank holding company of which
the Bank is a subsidiary, or of any bank at which the Bank maintains a
"correspondent account" (as such term is defined in such statute or
regulations), or of any bank which maintains a correspondent account
with the Bank.
C. There are no suits or proceedings pending, or to the knowledge of any
of the Borrowers, threatened, in any court or before any Governmental
Authority against or affecting any of the Borrowers which, if
adversely determined, would have a Material Adverse Effect.
D. Each Borrower has filed all U.S. tax returns and all state and foreign
tax returns which are required to be filed. The returns properly
reflect the U.S. income tax, foreign tax and/or state taxes of the
respective Borrower for the period covered thereby. Each Borrower has
paid, or made provisions for the payment of, all taxes which have
become due pursuant to the returns or pursuant to any assessment
received by the respective Borrower, except such taxes, if any, as are
being contested in good faith and as to which, adequate reserves have
been provided. No Federal income tax returns of any of the Borrowers
have been audited by the IRS except for the 1989 income tax return of
Looney, the results of which have been disclosed in writing to the
Bank. None of the Borrowers has, as of the Effective Date of this
Fourth Restated Agreement, requested or been granted any extension of
time to file any Federal, state, local or foreign tax return. None of
the Borrowers is a party to or has any obligation under any tax
sharing agreement.
E. (i) No Reportable Event has occurred and is continuing with respect to
any Employee Plan; (ii) PBGC has not instituted proceedings to
terminate any Employee Plan; (iii) neither the Borrowers, any member
of the Controlled Group, nor any duly-appointed administrator of an
Employee Plan have (a) incurred any liability to PBGC with respect to
any Employee Plan
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other than for premiums not yet due or payable, or (b) instituted or
intends to institute proceedings to terminate any Employee Plan under
(S)4041 or (S)4041A of ERISA or withdraw from any Multi-Employer Plan
(as that term is defined in (S)3(37) of ERISA); and, (iv) each
Employee Plan has been maintained and funded in all material respects
in accordance with its terms and with all provisions of ERISA
applicable thereto.
F. None of the Borrowers is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the
Investment Company Act of 1940, the Interstate Commerce Act (as any of
the preceding acts have been amended), or any other law (other than
Regulation X) which regulates the incurring by the Borrowers of
Indebtedness, including but not limited to laws relating to common
contract carriers or the sale of electricity, gas, steam, water, or
other public utility services.
G. The Borrowers have complied with, and will continue to comply with,
the provisions of the Fair Labor Standards Act of 1938, 29 U.S.C.
(S)(S)200 et.seq., as amended from time to time (the "FLSA"),
-- ---
including specifically, but without limitation, 29 U.S.C. (S)215(a).
This representation and warranty, and each reconfirmation thereof,
shall constitute assurance from the Borrowers, given as of the
Effective Date of this Fourth Restated Agreement and as of the date of
each re-confirmation, that the Borrowers have complied with the
requirements of the FLSA, in general, and 29 U.S.C. (S)215(a)(1),
thereof, in particular.
H. None of the Borrowers has been accused of being in violation of Title
IX, of the Organized Crime Control Act of 1970, entitled "Racketeer
Influenced and Corrupt Organizations" (RICO), 18 U.S.C. (S)(S)1961
et.seq.
-- ---
10.3 Representations Regarding Accounts. The Borrowers make the following
----------------------------------
representations and warranties which shall be deemed to be incorporated by
reference in each Notice of Revolving Credit Advance and shall be deemed
repeated and confirmed with respect to each item of Collateral as it is created
or otherwise acquired by the Borrowers.
A. Each Account Debtor named in an Eligible Account or on an invoice, to
the best of the Borrowers' knowledge, is Solvent and will continue to
be fully able to pay in full when due all Accounts on which the
Account Debtor is obligated.
B. Each Eligible Account shall be a good and valid account representing
an undisputed bona fide indebtedness incurred by the Account Debtor
therein named, for a fixed sum as set forth in the invoice relating
thereto with respect to an absolute sale and delivery upon the
satisfied terms of goods sold by the Borrowers, or work, labor and/or
services therefor rendered by a Borrower.
C. No Eligible Account is or shall be subject to any defense, set off,
counterclaim, discount or allowances except as may be stated in the
copy of the invoice delivered to the Bank.
D. No note, trade acceptance, draft or other instrument or chattel paper
has been or will be received with respect to merchandise giving rise
to any Eligible Account unless the same is assigned and delivered to
the Bank.
10.4 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties by the Borrowers shall survive delivery of the Loan Documents. Any
investigation at any time made by or on
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behalf of the Bank shall not diminish the Bank's right to rely on the
representations and warranties made by the Borrowers.
ARTICLE XI
DEFAULTS AND REMEDIES
---------------------
11.1 Events of Default. The Borrowers shall be in Default hereunder if any
-----------------
one of the following shall occur:
A. If any installment of principal or interest on any Note shall not be
paid within five (5) days of when due and payable, or if there shall
occur a failure to pay, when due, any Obligations owed to the Bank.
B. If any representation, statement, warranty or certification made by
any Loan Party in the Loan Documents, or furnished to the Bank in
connection with the Loans, shall prove to have been incorrect in any
material respect at the time of making or issuance thereof.
C. If there shall occur any one of the following events (each an "Event
of Default"), and if the event shall continue uncured after ten (10)
days from the earlier to occur of, (i) the date such event becomes
known to any Financial Officer or Responsible Officer of any of the
Borrowers, or (ii) the date the Bank shall have given notice to LRA
that such event has occurred; provided, however, the Bank shall not be
required to give notice of any such failure or event:
(1) If any of the Borrowers shall fail to comply with any of the
covenants and agreements set forth in Section 8.1 (other than Section
8.1.H); and/or,
(2) Both the following events shall occur: (i) Either (a) process
shall have been instituted to terminate, or a notice of termination
shall have been filed with respect to, any Employee Plan (other than a
Multi-Employer Plan as that term is defined in (S)3(37) of ERISA) by
the Borrowers, any ERISA Affiliate, any subsidiary, any member of the
Controlled Group, PBGC or any representative of any thereof, or any
such Employee Plan shall be terminated in any such case under (S)4041
or (S)4042 of ERISA, or (b) a Reportable Event, the occurrence of
which would cause the imposition of a lien under (S)4068 of ERISA,
shall have occurred with respect to any Employee Plan (other than a
Multi-Employer Plan as that term is defined in (S)3(37) of ERISA) and
be continuing for a period of sixty (60) days; and, (ii) the sum of
the estimated liability to PBGC under (S)4062 of ERISA and the
currently payable obligations of the Borrowers or any ERISA Affiliate
to fund liabilities (in excess of amounts required to be paid to
satisfy the minimum funding standard of (S)412 of the Code) under the
Employee Plan or Employee Plans subject to such event shall exceed ten
(10) per cent of tangible net worth at such time; and/or,
(3) Any or all of the following events shall occur with respect to any
Multi-Employer Plan (as that term is defined in (S)3(37) of ERISA) to
which the Borrowers or any ERISA Affiliate contributes or contributed
on behalf of its employees: (i) the Borrowers or any ERISA Affiliate
incurs a withdrawal liability under (S)4201 of ERISA; (ii) any such
plan is "in reorganization" as that term is defined in (S)4241 of
ERISA; or, (iii) any such Employee Plan is terminated under (S)4041A
of ERISA and the Bank determines in good faith that the aggregate
liability likely to be incurred by the Borrowers or any ERISA
Affiliate, as a result of all or
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any of the events specified in subsections (i), (ii) and (iii) above
occurring, shall have a Material Adverse Effect.
D. If any event shall occur which would constitute a Default under
Section 8.1.H, Section 8.2, Section 8.3 or Section 8.5.
E. If there shall occur any change in the condition of any Loan Party
which, in the reasonable opinion of the Bank, has a Material Adverse
Effect in the aggregate on all of the Borrowers.
F. If the Borrowers shall not complete an IPO by December 31, 1998, from
which the Borrowers derive not less than $35,000,000.00 in gross
proceeds available to the Borrowers.
G. If any of the Loan Documents shall cease to be legal, valid and
binding agreements enforceable against the Loan Party executing same
in accordance with the respective terms thereof or shall in any manner
be terminated or become or be declared ineffective or inoperative or
shall in any manner whatsoever cease to give or provide the Liens,
security interests, rights, titles, interests, remedies, powers or
privileges intended to be created thereby.
H. If there shall occur a failure by any Loan Party in the obser vance or
performance of any other provision of the Loan Docu ments. The
provisions of this Fourth Restated Agreement shall control in the
event that any provision of any other Loan Document is in conflict
with the provisions of any other instrument executed pursuant hereto
and all of such provisions in such other instruments shall be deemed
to be cumulative of the provisions hereof to the extent such provi
sions are not inconsistent herewith.
I. If there shall occur a failure beyond any period of grace, if any, by
any Loan Party in the payment, when due, of any Indebtedness owed to
any Person in excess of the aggregate amount of $10,000.00.
J. If, (i) there shall be any change in the ownership of the Voting
Shares of any of the Consolidated Subsidiaries from LRA, (ii) any
other Change of Control of any of the Consolidated Subsidiaries, or
(iii) prior to the shares of LRA being registered to be traded on a
publicly traded stock exchange or publicly traded through the National
Association of Securities Dealers, there shall be any Change of
Control of LRA.
K. If any Loan Party shall:
(1) Apply for, consent to or acquiesce in the appointment of a
receiver, trustee or liquidator of such Person, or of such Person's
property; and/or,
(2) Admit in writing such Person's inability to pay debts as they
mature; and/or,
(3) Make a general assignment for the benefit of creditors; and/or,
(4) Be adjudicated to be bankrupt or insolvent by any court having
jurisdiction; and/or,
(5) File a voluntary petition in bankruptcy or a petition or answer
seeking reorganization, composition, readjustment, an arrangement or
similar relief with creditors under any present or future Debtor Laws
or file an answer admitting the material allegations of a petition
filed
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<PAGE>
against such Person in bankruptcy, reorganization or insolvency
proceeding, or corporate action shall be taken for the purpose of
effecting any of the foregoing; and/or,
(6) Have a receiver or trustee or assignee in bankruptcy or insolvency
appointed for such Person or such Person's property without such
Person's application or consent.
L. If an involuntary petition or complaint shall be filed against any
Loan Party seeking bankruptcy or reorganization of such Person or the
appointment of a receiver, custodian, trustee, intervenor or
liquidator of such Person, or of all or substantially all of such
Person's assets, and such petition or complaint shall not have been
dismissed within sixty (60) days of the filing thereof; or, if an
order, order for relief, judgment or decree shall be entered by any
court of competent jurisdiction or other competent authority approving
a petition or complaint seeking reorganization of such Person or
appointing a receiver, custodian, trustee, intervenor or liquidator of
such Person, or of all or substantially all of such Person's assets.
M. If the Bank is served with, or becomes subject to, a court order,
injunction or other process or decree restraining or seeking to
restrain the Bank from paying any amount under any Letter of Credit
and (i) either (a) a drawing has occurred under the Letter of Credit
for which the Borrowers have refused to reimburse the Bank for
payment, or (b) the expiration date of the Letter of Credit has
occurred but the right of any beneficiary thereunder to draw under the
Letter of Credit has been extended past the expiration date in
connection with the pendency of the related court action or
proceeding, and (ii) the Borrowers have failed to deposit with the
Bank cash collateral in an amount equal to the Bank's obligations
under the Letter of Credit.
11.2 Remedies. Upon the occurrence of an Event of Default, and in any such
--------
event, the obligation of the Bank to extend credit to the Borrowers pursuant
hereto shall immediately terminate. If a Default shall occur, the Bank may, at
the Bank's option, without notice to any Loan Party, declare the principal of
and interest accrued on the Obligations to be forthwith due and payable,
whereupon the same shall become due and payable without any presentment, demand,
protest, notice of protest, notice of intent to accelerate the maturity of the
Obligations, notice of acceleration of the maturity of the Obligations or notice
of any kind, all of which are hereby waived, and thereafter, the Bank may
exercise all remedies available to the Bank as provided in any of the Loan
Documents and at law or in equity. None of the provisions contained in any of
the Loan Documents shall, or shall be deemed to, give the Bank the right to
exercise control over the assets, including, without limitation, real property,
affairs, or management of any Loan Party. The rights of the Bank are limited to
the exercise the remedies provided in this Fourth Restated Agreement and the
other Loan Documents.
11.3 Material Notices. Each Loan Party shall promptly notify the Bank of,
----------------
(i) any change in such Person's financial condition or business which would have
a Material Adverse Effect, (ii) any default under any agreement, contract or
other instrument of which such Person is a party or by which any of such
Person's properties are bound, or any acceleration of the maturity of any
Indebtedness, any of which would have a Material Adverse Effect, (iii) any claim
against or affecting the Loan Party or any of the Loan Party's property which
would have a Material Adverse Effect, and (iv) the commencement of, and any
determination in, any litigation with any third party or any proceeding before
any Governmental Authority affecting the Loan Party which would have a Material
Adverse Effect.
-54-
<PAGE>
ARTICLE XII
MISCELLANEOUS
-------------
12.1 Notices. Any notice required or permitted to be given hereunder shall
-------
be in writing, shall be addressed to the parties hereto at the respective
addresses set out below, which may be changed by the giving of written notice to
that effect pursuant hereto, and shall be deemed effectively given if, (i)
delivered personally, or (ii) upon being deposited with the U.S. Postal Service,
postage prepaid, certified mail, return receipt requested:
If to any of the Borrowers: LITIGATION RESOURCES OF AMERICA, INC.
1001 Fannin, Suite 650
Houston, Texas 77002
If to the Bank: TEXAS COMMERCE BANK NATIONAL ASSOCIATION
712 Main Street
P.O. Box 2558
Houston, Texas 77252-2558
12.2 Severability. In the event any one or more of the provisions
------------
contained in the Loan Documents should be held to be in valid, illegal or
unenforceable in any respect, the validity, enforceability and legality of the
remaining provisions contained in the Loan Documents shall not in any manner be
affected thereby and shall be enforceable in accordance with their terms.
12.3 Captions. The captions, headings, and arrangements used in this
--------
Fourth Restated Agreement are for convenience only and do not in any manner
affect, limit, amplify, or modify the terms and provisions hereof.
12.4 Successors and Assigns. This Fourth Restated Agreement shall be
----------------------
binding upon the Borrowers, any ERISA Affiliate and the Bank and shall inure to
the benefit of the Borrowers, any ERISA Affiliate and the Bank and the
successors and assigns of the Bank. If the Bank shall assign all or any portion
of any of the Notes and the Loan Documents to any Person, the Bank shall give
written notice thereof to LRA. None of the Borrowers may, without the prior
consent of the Bank, assign any rights, powers, duties or obligations hereunder.
12.5 Participation. The Borrowers recognize and agree that the Bank may,
-------------
from time to time, assign to one or more banks or other entities all or any part
of, or may grant a participation to one or more banks or other entities, in or
to all or any part of, the Loans, the Notes and the Bank's rights in respect of
the Loan Documents. If the Bank shall participate any part of the Obligations,
the Bank shall give written notice thereof to LRA. None of the Borrowers shall
have any obligation for any costs incurred by the Bank in the participation of
the Loans.
12.6 Non-liability of Bank. The relationship among the Borrowers and the
---------------------
Bank is, and shall at all times remain, solely that of debtors and creditor.
The Bank does not undertake or assume any responsibility or duty to any Person
to review, inspect, super vise, pass judgment upon, or inform any Person of any
matter in connection with any phase of such Person's business, operations, or
condition, financial or otherwise. Each Person shall rely entirely upon such
Person's own judgment with respect to such matters. Any review, inspection,
supervision, exercise of judgment, or information supplied to any Person by the
Bank in connection with any such matter is for the protection of the Bank, and
no Person is entitled to rely thereon.
-55-
<PAGE>
12.7 Financing Statements. Any carbon, photographic or other reproduction
--------------------
of any Financing Statement signed by any Loan Party is sufficient as a financing
statement for all purposes, including, without limitation, filing in any state
pursuant to the provisions of the UCC.
12.8 List of Exhibits and Schedules. The following Exhibits and Schedules
------------------------------
are attached hereto and made a part hereof for all purposes:
Exhibit 2.1 Notice of Revolving Credit Advance
Exhibit 2.3 Borrowing Base Certificate
Exhibit 3.1 Notice of Term Loan Advance
Exhibit 4.1 Revolving Credit Note
Exhibit 4.2-a Term Note A
Exhibit 4.2-b Term Note B
Exhibit 4.2-c Term Note C
Exhibit 4.2-d Term Note D
Exhibit 4.2-e Term Note E
Exhibit 6.1.A Security Agreement
Exhibit 6.1.B Security Agreement-Pledge
Exhibit 8.2.C Certificate of Compliance
Exhibit 9.1.G Seller Debt Subordination-EDP
Exhibit 9.1.J Officers Certificate
Schedule 10.1.J Agreements in Default
Schedule 10.1.P Shareholders of LRA
12.9 Modification. All modifications, consents, amendments or waivers of
------------
any provision of any Loan Document, or consent to any departure by any of the
Borrowers therefrom, shall be effective only if the same shall be in writing and
agreed to by the Bank and then shall be effective only in the specific instance
and for the purpose for which given.
12.10 Waiver. The acceptance by the Bank of any partial payment on the
------
Obligations shall not be deemed to be a waiver of any Event of Default then
existing. No waiver by the Bank of any Event of Default shall be deemed to be a
waiver of any other then existing or subsequent Event of Default, or Default. No
delay or omission by the Bank in exercising any right under the Loan Documents
shall impair that right or be construed as a waiver thereof or any acquiescence
therein, or shall any single or partial exercise of any right preclude other or
further exercise thereof or the exercise of any other right under the Loan
Documents or otherwise. The rights of the Bank hereunder and under the Loan
Documents shall be in addition to all other rights provided by law.
12.11 Governing Law. THIS AGREEMENT AND THE LOAN DOCUMENTS HAVE BEEN
-------------
PREPARED, ARE BEING EXECUTED AND DELIVERED, AND ARE INTENDED TO BE PERFORMED IN
THE STATE OF TEXAS, AND THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS, WITHOUT
GIVING EFFECT TO THE CONFLICTS-OF-LAW RULES AND PRINCIPLES OF THE STATE OF
TEXAS, AND THE APPLICABLE LAWS OF THE U.S. SHALL GOVERN THE VALIDITY,
CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND ALL OF THE
LOAN DOCUMENTS.
12.12 Choice of Forum, Service of Process and Jurisdiction. Any suit,
----------------------------------------------------
action or proceeding against any of the Borrowers with respect to the Loan
Documents, or the enforcement of any judgment entered by any court in respect
thereof, shall be brought in the courts of the State of Texas, Harris
-56-
<PAGE>
County, Texas, or in the U.S. courts located in Southern District of Texas as
the Bank, in the Bank's sole discretion, may elect. The Bank and the Borrowers
submit to the non-exclusive jurisdiction of such courts for the purpose of any
such suit, action or proceeding.
A. The Bank and the Borrowers waive, in connection with any such suit,
action or proceeding, any objection, including, without limitation,
any objection to the laying of venue or based on the grounds of forum
non conveniens, which it may now or hereafter have to the bringing of
any such action or proceeding in such respective jurisdictions.
B. The Bank and the Borrowers consent to the service of process of any of
the aforementioned courts in any such action or proceeding by the
mailing of copies thereof by registered or certified mail, postage
prepaid, to each such Person, as the case may be, at its address set
forth in Section 12.1.
C. Nothing herein shall affect the right of any party to serve process in
any other manner permitted by law.
12.13 Waiver of Jury Trial. Each party hereto hereby waives any right it
--------------------
may have to a trial by jury in respect of any legal proceeding directly or
indirectly arising out of, under or in connection with or relating to any of the
Loan Documents or the Transactions. Except as prohibited by law, each party
hereto hereby waives any right it may have to claim or recover in any litigation
referred to in this Section any special, exemplary, punitive or consequential
damages or any damages other than, or in addition to, actual damages. Each party
hereto, (i) certifies that no representative, agent or attorney of the Bank has
represented, expressly or otherwise, that the Bank would not, in the event of
litigation, seek to enforce the foregoing waivers, and (ii) acknowledges that it
has been induced to enter into this Fourth Restated Agreement and the other Loan
Documents, as applicable, by, among other things, the mutual waivers and
certifications herein.
12.14 Agency. Nothing herein contained shall be construed to constitute
------
any Loan Party as the Bank's agent for any purpose whatsoever.
12.15 No Third Party Beneficiary. The parties do not intend for this
--------------------------
Fourth Restated Agreement to inure to the benefit of any third party, or for
this Fourth Restated Agreement to be construed to make or render the Bank liable
to any mechanic, materialman, supplier, contractor, subcontractor, purchaser or
lessee of any property owned by any Loan Party for debts or claims accruing to
any such Persons against any Loan Party. The Bank does not, by anything herein
or in any of the other Loan Documents, assume any Indebtedness of any Loan Party
under any contract or agreement assigned to the Bank, and the Bank shall not be
responsible in any manner for the performance by any Loan Party of any of the
terms and conditions thereof.
12.16 Payment of Expenses. The Borrowers shall pay all reasonable
-------------------
expenses, charges, costs and fees provided for in this Fourth Restated Agreement
or relating to the Loans or the Collateral, including fees, charges, and taxes
in connection with recording or filing any of the Loan Documents, title
insurance premiums and charges, fees of any consultants, fees and expenses of
the Bank's counsel (which attorneys may be employees of the Bank), fees and
expenses of the Bank's special counsel, which may include fees billed for law
clerks, paralegals and other persons not admitted to the Bar but performing
services under the supervision of an attorney, printing, photocopying and
duplicating expenses, air freight charges, escrow fees, costs of surveys,
premiums of insurance policies and surety bonds and fees for any appraisal,
market or feasibility study required by the Bank. All such expenses, charges,
-57-
<PAGE>
costs and fees shall be the Borrowers' obligations regardless of whether or not
the Borrowers have requested and met the conditions for the Loans. This
obligation on the part of the Borrowers shall survive the execution and delivery
of the Loan Documents and the repayment of the Obligations. The Borrowers
authorize the Bank, in its discretion, after notice to the Borrowers and the
expiration of a reasonable period, to pay such expenses, charges, costs and fees
at any time by a disbursement of the Loans.
12.17 Conflicts. If there shall exist any conflict among this Fourth
---------
Restated Agreement and any of the other Loan Documents, the provisions of this
Fourth Restated Agreement shall control.
12.18 Deceptive Trade Practices Act. The Borrowers are each a "business
-----------------------------
consumer" as defined under the Deceptive Trade Practices-Consumer Protection
Act, Subchapter E of Chapter 17 of the Texas Business and Commerce Code, a law
that gives consumers special rights and protections. The Borrowers acknowledge
that the Deceptive Trade Practices-Consumer Protection Act is not applicable to
the Transactions.
12.19 Entirety. The Loan Documents embody the entire agreement among the
--------
parties and, except as expressly set out herein, supersede all prior agreements
and understandings, if any, relating to the subject matter hereof and thereof.
Except as expressly provided herein or the Loan Documents (other than this
Fourth Restated Agreement), nothing in this Fourth Restated Agreement or in the
other Loan Documents, expressed or implied, is intended to confer upon any
party, other than the parties hereto, any rights, remedies, obligations or
liabilities under or by reason of this Fourth Restated Agreement or the other
Loan Documents. Notwithstanding the foregoing provisions, this Fourth Restated
Agreement amends, modifies, supplements and extends the provisions of the prior
Credit Agreement. The Borrowers and the Bank agree that the Loan Documents, as
amended pursuant hereto and hereby, shall continue to be legal, valid, binding
and enforceable in accordance with their respective terms. The Borrowers agree
with the Bank that the extension of the Obligations pursuant to this First
Amendment not constitute a novation or discharge of the prior Obligations
described in the prior Credit Agreement, and all Liens, security interests,
claims, conveyances, rights, and privileges described, granted, or made to or
for the benefit of the Bank by the Borrowers, any of them, shall be carried
forward and shall continue in full force and effect to secure the payment of all
Obligations under the Loan Documents, as amended hereby. Any and all other
agreements to pay, secure or guarantee payment of the Obligations by the
Borrowers, or any of them, shall remain in full force and effect and shall be
carried forward to secure payment of the Obligations, as they have been modified
pursuant hereto.
12.20 Multiple Counterparts. This Fourth Restated Agreement may be
---------------------
executed in any number of counterparts, all of which taken together shall
constitute one and the same agreement, and any of the parties hereto may execute
this Fourth Restated Agreement by signing any such counterpart.
A CREDIT AGREEMENT IN WHICH THE AMOUNT INVOLVED EXCEEDS $50,000 IN VALUE IS NOT
ENFORCEABLE UNLESS THE AGREEMENT IS IN WRITING AND SIGNED BY THE PARTY TO BE
BOUND OR BY THAT PARTY'S AUTHORIZED REPRESENTATIVE. THE RIGHTS AND OBLIGATIONS
OF THE LOAN PARTIES AND THE BANK SHALL BE DETERMINED SOLELY FROM WRITTEN
AGREEMENTS, DOCUMENTS, AND INSTRUMENTS. ANY PRIOR ORAL AGREEMENTS AMONG THE
PARTIES ARE SUPERSEDED BY AND MERGED INTO THESE WRITINGS. THIS AGREEMENT AND THE
OTHER WRITTEN LOAN DOCUMENTS (AS SAME MAY, FROM TIME TO TIME, BE AMENDED IN
WRITING) EXECUTED BY THE LOAN PARTIES OR THE BANK REPRESENT THE FINAL AGREEMENT
AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. THIS PARAGRAPH IS INCLUDED IN THIS
-58-
<PAGE>
AGREEMENT UNDER (S)26.02 oF THE TEXAS BUSINESS AND COMMERCE CODE, AS AMENDED
FROM TIME TO TIME.
In witness whereof, the parties have duly executed this Fourth Restated
Agreement on the day and year hereinabove first set forth.
LITIGATION RESOURCES LOONEY & COMPANY
OF AMERICA, INC.
BY:/s/ Dave Pfleghar BY:/s/ Dave Pfleghar
--------------------------- -------------------------------
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
KLEIN, BURY & ASSOCIATES, INC. LITIGATION RESOURCES OF
AMERICA-CALIFORNIA, INC.
BY:/s/ Dave Pfleghar BY:/s/ Dave Pfleghar
--------------------------- -------------------------------
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
LITIGATION RESOURCES OF LITIGATION RESOURCES OF
AMERICA-MIDWEST, INC. AMERICA-NORTHEAST, INC.
BY:/s/ Dave Pfleghar BY:/s/ Dave Pfleghar
--------------------------- -------------------------------
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
BLOCK COURT REPORTING, INC. BLOCK TAPE TRANSCRIPTION
SERVICES, INC.
BY:/s/ Dave Pfleghar BY:/s/ Dave Pfleghar
--------------------------- -------------------------------
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
BURTON HOUSE, INC. TEXAS COMMERCE BANK
NATIONAL ASSOCIATION
BY:/s/ Dave Pfleghar BY:/s/ Dave Pfleghar
--------------------------- -------------------------------
DAVE PFLEGHAR CARLOS VALDEZ, JR., VICE PRESIDENT
CHIEF FINANCIAL OFFICER
-59-
<PAGE>
Exhibit 2.1
Notice of Revolving Credit Advance
<PAGE>
NOTICE OF REVOLVING CREDIT ADVANCE
____________________, 199_
Section 2.1
Texas Commerce Bank National Association
712 Main Street
P.O. Box 2558
Houston, Texas 77252-2558
RE: Fourth Amended and Restated Credit Agreement (the "Fourth Restated
Agreement") dated September 15, 1997, by and among LITIGATION RESOURCES
OF AMERICA, INC. et. al. (the "Borrowers") and Texas Commerce Bank
-- --
National Association (the "Bank")
Gentlemen:
Pursuant to the terms of the Fourth Restated Agreement, Borrowers give Bank
this Notice of Revolving Credit Advance. The amount of the Borrowing requested
is $_________________________, and the requested date of the Borrowing is
__________________. There is attached to this Notice of Revolving Credit Advance
a Borrowing Base Certificate accurately calculating the amount permissible under
the Borrowing Base.
The Interest Rate Option Selected is:
[_] Base Rate Loan
[_] Adjusted Libor Rate Loan
The requested Interest Rate Period is: _______________________________
The Borrowers have performed or complied with all of the Borrowers'
covenants and agreements required under the Fourth Restated Agreement and under
the Loan Documents, as defined in the Fourth Restated Agreement. To the best of
the undersigned's knowledge, after reasonable investigation, no Default and, no
condition or event which, with the giving of notice or lapse of time, or both,
would become an Event of Default, has occurred or, if occurred, is continuing,
as the terms "Default" and "Event of Default" are defined in the Fourth Restated
Agreement. The representations and warranties contained in the Fourth Restated
Agreement and the Loan Documents are true and correct in all material respects.
The undersigned certifies to the foregoing matters to induce Bank to make
the requested Advance on the Loans.
Sincerely,
LITIGATION RESOURCES OF AMERICA, INC.
BY:__________________________________
NAME:________________________________
TITLE:_______________________________
<PAGE>
Exhibit 2.3
Borrowing Base Certificate
<PAGE>
BORROWING BASE CERTIFICATE
SECTION 2.2
Period beginning:__________________________ and ending ____________________ (the
"Current Period"). Fourth Amended and Restated Credit Agreement (the "Fourth
Restated Agreement") dated September 17, 1997, by and among LITIGATION RESOURCES
OF AMERICA, INC., et.al. (collectively, the "Borrowers") and Texas Commerce Bank
National Association (the "Bank").
<TABLE>
<S> <C> <C>
1. Total Accounts as of the end of the Current Period: $_____________________
2. Less: Ineligible Accounts as of the end of the Current Period
A. Accounts more than 120 days from invoice date (_______________________)
B. Foreign accounts not secured by letter of
credit issued by a bank satisfactory to the Bank (_______________________)
C. Government accounts (_______________________)
D. Affiliate accounts (_______________________)
E. Accounts from Account Debtor to the extent the Accounts from
that Account Debtor exceeds 15% or more of the
Eligible Accounts and are not otherwise approved by Bank (_______________________)
F. Accounts subject to dispute or setoff (_______________________)
G. Accounts subject to other liens (_______________________)
H. Other ineligible Accounts (_______________________)
3. Total Ineligible Accounts for Current Period
(sum of Lines 2.A through and inclusive of Line 2.H) (_______________________)
4. Total Eligible Accounts for Current Period
(Line 1 minus Line 3)
5. Multiplied by Account Advance Factor 85%
6. Total Borrowing Base as of the end of Current Period $_____________________
7. Less:
A. Aggregate principal amount outstanding under the
Revolving Credit Note as of the date hereof (_______________________)
8. Equals total outstanding amounts $_____________________
9. Amount Available for Borrowing subject to the terms of the Fourth Restated Agreement, if positive
or amount to be repaid, if negative (Not to exceed $4,000,000.00) $_____________________
--
</TABLE>
-1-
<PAGE>
The undersigned hereby certifies that the above information and
computations are true and correct as of the date hereof, and are not misleading.
No Default or Event of Default, which, with the passage of time or otherwise,
would become a Default under the Fourth Restated Agreement, has occurred and is
continuing.
LITIGATION RESOURCES OF AMERICA, INC.
By: ___________________________
Name: ___________________________
Title: ___________________________
Date: ___________________________
-2-
<PAGE>
Exhibit 3.1
Notice of Term Loan Advance
<PAGE>
NOTICE OF TERM LOAN ADVANCE
___________________, 199_
Texas Commerce Bank National Association
712 Main Street
P.O. Box 2558
Houston, Texas 77252-2558
RE: Fourth Amended and Restated Credit Agreement (the "Fourth Restated
Agreement") dated September 17, 1997, by and among LITIGATION RESOURCES OF
AMERICA, INC., et. al., (collectively, the "Borrowers") and Texas Commerce
-- --
Bank National Association (the "Bank")
Gentlemen:
Pursuant to Section 3.1 of the Fourth Restated Agreement, the Borrowers
give the Bank this Notice of Term Loan Advance on Term Note E. The requested
Borrowing Date is __________.
The first two below Advances are to be made in accordance with the wire transfer
instructions attached and the last mentioned Advance is to be deposited into the
Funding Account:
[_] In the amount of $_________(not to exceed $1,350,000.00) to Gregg M.
Ziskind and Susan L. Ziskind to purchase the stock of Burton House
pursuant to the Burton House Stock Purchase Agreement.
[_] In the amount of $________(not to exceed $6,000,000.00) to Elaine P.
Dine, Inc. and Elaine P. Dine Temporary Attorneys, L.L.C. to purchase
the Assets pursuant to the EDP Asset Purchase Agreement.
[_] In the amount of $________(not to exceed $100,000.00) to pay the
Facility Fee and transaction costs.
There is attached to this Notice of Term Loan Advance the following:
1. A true and correct final copy of the [BURTON HOUSE STOCK PURCHASE
AGREEMENT OR THE EDP ASSET PURCHASE AGREEMENT, AS APPLICABLE], duly
--
executed by each party thereto, together with true and correct final
copies of all documents mentioned or described therein, duly executed
by the appropriate party(s) thereto.
2. Duly executed and filed UCC-1 Financing Statements to perfect the
Bank's first priority security interest in the Collateral, and a
search of the Office of the Secretary of State of New York and the
Office of the Secretary of State of California [AND ANY OTHER
APPROPRIATE JURISDICTION, reflecting no other perfected Liens on the
Collateral.
The Interest Rate Option Selected is:
<PAGE>
Texas Commerce Bank National Association
______________________
Page 2
[_] Base Rate Loan
[_] Adjusted Libor Rate Loan
The requested Interest Rate Period is: _______________________
Borrowers have performed or complied with all of the Borrower's covenants
and agreements required under the Fourth Restated Agreement and under the Loan
Documents, as defined in the Fourth Restated Agreement. To the best of the
undersigned's knowledge, after reasonable investigation, no Default and, no
condition or event which, with the giving of notice or lapse of time, or both,
would become an Event of Default, has occurred or, if occurred, is continuing,
as the terms "Default" and "Event of Default" are defined in the Fourth Restated
Agreement. The representations and warranties contained in the Fourth Restated
Agreement and the Loan Documents are true and correct in all material respects.
The undersigned certifies to the foregoing matters to induce Bank to make
the requested Advance on the Loans.
Sincerely,
LITIGATION RESOURCES OF AMERICA, INC.
BY:___________________________________
NAME:_________________________________
TITLE:________________________________
<PAGE>
Exhibit 4.1
Revolving Credit Note
<PAGE>
REVOLVING CREDIT NOTE
$2,000,000.00 September 17, 1997
-1-
This note is the Revolving Credit Note issued pursuant to the terms of a
Fourth Amended and Restated Credit Agreement (the "Fourth Restated Agreement")
of even date herewith by and among Litigation Resources of America, Inc., Looney
& Company, Klein, Bury & Associates, Inc., Litigation Resources of America-
California, Inc., Litigation Resources of America-Midwest, Inc., Litigation
Resources of America-Northeast, Inc., Block Court Reporting, Inc., Block Tape
Transcription Services, Inc., and Burton House Inc. (collectively, the
"Makers"), and Texas Commerce Bank National Association (the "Payee"). All
capitalized terms used herein shall have the meanings ascribed to them in the
Fourth Restated Agreement unless the context hereof requires otherwise.
For value received, after date, in the manner, on the dates and in the
amounts herein stipulated, the Makers, jointly and severally, promise to pay to
the order of the Payee at 712 Main Street, Houston, Harris County, Texas, or at
such other place in Houston, Harris County, Texas, designated in writing by the
Payee or other holder hereof:
1. The lesser of the principal amount outstanding hereon or the sum of
Two Million Dollars ($2,000,000.00) in lawful money of the U.S., which
shall be due and payable on the Revolving Commitment Termination Date;
and,
2. Interest from the date hereof on the principal amount outstanding
hereunder from time to time, at the lesser of (a) the Revolving Credit
Contract Rate, or (b) the Maximum Rate; and, interest shall be due and
payable monthly as it accrues on the outstanding balance of principal
from time to time, with the first installment of accrued interest to
be due and payable on September 6, 1997, and like installments of
interest shall become due and payable on the same day of each
consecutive calendar month thereafter, on Base Rate Loans, or the last
day of a month and the last day of an Interest Period during the
Commitment Period, on Adjusted Libor Rate Loans, and on the Commitment
Termination Date, at which time all accrued but unpaid interest shall
be due and payable; and,
3. Notwithstanding the foregoing, if at any time the Contract Rate shall
exceed the Maximum Rate and thereafter, the Contract Rate shall become
less than the Maximum Rate, the rate of interest payable hereunder
shall, at the option of the Payee, be the Maximum Rate until the
cumulative interest received by the Payee or other holder hereof
equals the interest which would have been received at the Contract
Rate; and,
4. All past due principal and interest shall bear interest at the Maximum
Rate from maturity until paid.
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
<PAGE>
REVOLVING CREDIT NOTE
$2,000,000.00 September 17, 1997
-2-
5. This note may be prepaid pursuant to the terms of the Fourth Restated
Agreement.
Pursuant to the terms of the Fourth Restated Agreement, the Payee will,
from time to time, make Advances on the note and, from time to time, the Makers
will borrower, repay and reborrow hereunder, provided, however, no more than
$2,000,000.00 of principal shall ever be outstanding at any one time.
THIS NOTE SHALL BE PAYABLE IN FULL ON JULY 10, 1998. ON THE COMMITMENT
TERMINATION DATE, THE MAKERS MUST REPAY THE ENTIRE UNPAID PRINCIPAL BALANCE AND
ALL ACCRUED INTEREST ON THIS NOTE THEN DUE AND PAYABLE. THE PAYEE SHALL BE UNDER
NO OBLIGATION TO REFINANCE THIS NOTE AT THAT TIME. THE MAKERS SHALL THEREFORE BE
REQUIRED TO MAKE PAYMENT OUT OF OTHER ASSETS THE MAKERS MAY OWN, OR THE MAKERS
SHALL HAVE TO FIND A LENDER WILLING TO LEND THE MAKERS SUCH AMOUNTS AT
PREVAILING MARKET RATES, WHICH MAY BE CONSIDERABLY HIGHER THAN THE INTEREST RATE
ON THIS NOTE.
It is agreed that if there is a Default under the provisions in Fourth
Restated Agreement, then, in any such event, at the option of the holder hereof,
at any time thereafter, without notice, the unpaid principal of this note and,
all accrued interest, shall at once become due and payable and shall bear
interest at the Maximum Rate from the date of such Default or event. Failure to
exercise any of the options shall not constitute a waiver on the part of holder
hereof of the right to exercise the same at any other time.
It is agreed that if this note be placed in the hands of an attorney for
collection, for the purposes of being sued upon or established in any manner in
any court; then in any of such events, the Makers, all endorsers and guarantors
hereof, promise to pay the Payee's or other holder's reasonable attorneys' fees
and costs of collection, which sums shall become a part of the principal hereof.
The Loan Documents are intended to be performed in accordance with, and
only to the extent permitted by, all applicable Requirements. This note is
subject to the provisions set out in the Fourth Restated Agreement relating to
the payment of interest at the Maximum Rate and to payment or collection of
interest in excess of the Maximum Amount, all of which provisions are
incorporated herein for all purposes.
This note and the maximum rate of nonusurious interest applicable to the
loan evidenced hereby shall be governed by the laws of the U.S. and the State of
Texas in effect on the date of the loan evidenced hereby, and, to the extent
allowed by law, as now or as may hereafter be in effect, but in any event Tex.
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
<PAGE>
REVOLVING CREDIT NOTE
$2,000,000.00 September 17, 1997
-3-
Rev. Civ. Stat. Ann. Art. 5069 Ch. 15 (which regulates certain revolving credit
loan accounts and revolving triparty accounts) shall not apply to the loan
evidenced hereby.
It is further agreed that any funds at any time in the possession of any
holder hereof which belong to the Makers, any endorser or guarantor hereof, and
any deposits or other sums at any time credited by or due from any holder to any
of such parties shall be held and treated as security for the payment of this
note, and the holder hereof, at the holder's option may, at any time without
notice, and without liability, apply such funds or deposits or any sums credited
by or due from the holder against any sums owing, whether due or not, under this
note and in any manner and in any order of preference which the holder, in the
holder's discretion, chooses.
The Makers, all endorsers and guarantors hereof, and all other persons who
may become liable for all or any part of the obligations represented by this
note, shall be considered as principals as to the making of this note and shall
have joint and several liability. Except as may be set out in the Fourth
Restated Agreement, the Makers, all endorsers and guarantors, severally waive
presentment for payment, protest, notice of protest, and of nonpayment, notices
of intention to accelerate the maturity and notice of acceleration, as to this
note and as to each, every and all installments hereof, and consent to the
renewal or extension of the time of payment hereof and to the release of all or
any part of the security herefor or any person liable hereon upon the terms
deemed by the holder hereof, in the holder's sole discretion, to be adequate.
Any renewal or extension or release of any of such security or person, may be
made without notice to any of such parties and without affecting their
liability.
THE LOAN DOCUMENTS, INCLUDING THIS NOTE, HAVE BEEN PREPARED, ARE BEING
EXECUTED AND DELIVERED, AND ARE INTENDED TO BE PERFORMED IN THE STATE OF TEXAS,
AND THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE
CONFLICTS-OF-LAW RULES AND PRINCIPLES OF THE STATE OF TEXAS, AND THE APPLICABLE
LAWS OF THE U.S. SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND
INTERPRETATION OF THIS NOTE, AND THE LOAN DOCUMENTS.
The payment of this note is secured by the Fourth Restated Agreement and
the other Loan Documents described therein. This note shall become due and
payable, at the option of the holder hereof, on the occurrence of a Default
under the Fourth Restated Agreement or any other Loan Document.
THE WRITTEN CREDIT AGREEMENT, THE LOAN DOCUMENTS DESCRIBED THEREIN AND THIS NOTE
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR,
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
<PAGE>
REVOLVING CREDIT NOTE
$2,000,000.00 September 17, 1997
-4-
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
LITIGATION RESOURCES LOONEY & COMPANY
OF AMERICA, INC.
BY:______________________________ BY:_____________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
KLEIN, BURY & ASSOCIATES, INC. LITIGATION RESOURCES OF
AMERICA-CALIFORNIA, INC.
BY:______________________________ BY:_____________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
LITIGATION RESOURCES OF LITIGATION RESOURCES OF
AMERICA-MIDWEST, INC. AMERICA-NORTHEAST, INC.
BY:______________________________ BY:_____________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
BLOCK COURT REPORTING, INC. BLOCK TAPE TRANSCRIPTION
SERVICES, INC.
BY:______________________________ BY:_____________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
BURTON HOUSE, INC.
BY:______________________________
DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER
<PAGE>
Exhibit 4.2-a
Term Note A
<PAGE>
TERM NOTE A
$1,275,000.00 September 17, 1997
-1-
This note is the Term Note A issued pursuant to the terms of a Fourth
Amended and Restated Credit Agreement (the "Fourth Restated Agreement") dated of
even date herewith by and among Litigation Resources of America, Inc., Looney &
Company, Klein, Bury & Associates, Inc., Litigation Resources of America-
California, Inc., Litigation Resources of America-Midwest, Inc., Litigation
Resources of America-Northeast, Inc., Block Court Reporting, Inc., Block Tape
Transcription Services, Inc., and Burton House Inc. (collectively, the
"Makers"), and Texas Commerce Bank National Association (the "Payee"). All
capitalized terms used herein shall have the meanings ascribed to them in the
Fourth Restated Agreement unless the context hereof requires otherwise.
For value received, after date, without grace and in the manner, on the
dates and in the amounts herein stipulated, the Makers, jointly and severally,
promise to pay to the order of the Payee at 712 Main Street, Houston, Harris
County, Texas, or at such other place in Houston, Harris County, Texas,
designated in writing by the Payee or other holder hereof:
1. The principal sum of One Million Two Hundred Seventy-five Thousand and
No/100 ($1,275,000.00) in lawful money of the U.S., which shall be due
and payable monthly in thirty (30) consecutive installments of
$21,250.00, commencing on the first Interest Payment Date in November
1997, and continuing on the same day of each month thereafter, and in
one final installment on the Term Maturity Date, when the balance of
all principal hereon shall be payable in full; and,
2. Interest from the date hereof on the principal amount outstanding
hereunder from time to time, at the lesser of (a) the applicable Term
Loan Contract Rate, or, (b) the Maximum Rate; and, interest shall be
due and payable monthly as it accrues on the outstanding balance of
principal from time to time, with the first installment of accrued
interest to be due and payable on the first Interest Payment Date
after the date hereof and like installments of interest shall become
due and payable on the same day of each consecutive calendar month
thereafter until the Term Maturity Date, at which time all accrued but
unpaid interest shall be due and payable; and,
3. Notwithstanding the foregoing, if at any time the Term Loan Contract
Rate shall exceed the Maximum Rate and thereafter, the Term Loan
Contract Rate shall become less than the Maximum Rate, the rate of
interest payable hereunder shall, at the option of the Payee, be the
Maximum Rate until the cumulative interest received by the Payee or
other holder hereof equals the interest which would have been received
at the Term Loan Contract Rate; and,
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
<PAGE>
TERM NOTE A
$1,275,000.00 September 17, 1997
-2-
4. All past due principal and interest shall bear interest at the Maximum
Rate from maturity until paid.
5. This note may be prepaid pursuant to the terms of the Fourth Restated
Agreement.
THIS NOTE SHALL BE PAYABLE IN FULL NOT LATER THAN MAY 14, 2000. ON THE TERM
MATURITY DATE, THE MAKERS MUST REPAY THE ENTIRE UNPAID PRINCIPAL BALANCE AND ALL
ACCRUED INTEREST ON THIS NOTE THEN DUE AND PAYABLE. THE PAYEE SHALL BE UNDER NO
OBLIGATION TO REFINANCE THIS NOTE AT THAT TIME. THE MAKERS SHALL THEREFORE BE
REQUIRED TO MAKE PAYMENT OUT OF OTHER ASSETS THE MAKERS MAY OWN, OR THE MAKERS
SHALL HAVE TO FIND A LENDER WILLING TO LEND THE MAKERS SUCH AMOUNTS AT
PREVAILING MARKET RATES, WHICH MAY BE CONSIDERABLY HIGHER THAN THE INTEREST RATE
ON THIS NOTE.
It is agreed that if there is a Default under the provisions in the Fourth
Restated Agreement, then, in any such event, as the option of the holder hereof,
at any time thereafter, without notice, the unpaid principal of this note and,
all accrued interest, shall at once become due and payable and shall bear
interest at the Maximum Rate from the date of such Default or event. Failure to
exercise any of the options shall not constitute a waiver on the part of holder
hereof of the right to exercise the same at any other time.
It is agreed that if this note be placed in the hands of an attorney for
collection, for the purposes of being sued upon or established in any manner in
any court, then in any of such events, the Makers, all endorsers and guarantors
hereof, promise to pay the Payee's or other holder's reasonable attorneys' fees
and costs of collection, which sums shall become a part of the principal hereof.
The Loan Documents are intended to be performed in accordance with, and
only to the extent permitted by, all applicable Requirements. This note is
subject to the provisions set out in the Fourth Restated Agreement relating to
the payment of interest at the payment of interest at the Maximum Rate and to
payment or collection of interest in excess of the Maximum Amount, all of which
provisions are incorporated herein for all purposes.
This note and the maximum rate of nonusurious interest applicable to the
loan evidenced hereby shall be governed by the laws of the U.S. and the State of
Texas in effect on the date of the loan evidenced hereby, and, to the extent
allowed by law, as now or as may hereafter be in effect, but in any event Tex.
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
<PAGE>
TERM NOTE A
$1,275,000.00 September 17, 1997
-3-
Rev. Civ. Stat. Ann. Art. 5069 Ch. 15 (which regulates certain revolving credit
loan accounts and revolving triparty accounts) shall not apply to the loan
evidenced hereby.
It is further agreed that any funds at any time in the possession of any
holder hereof which belong to the Makers, any endorser or guarantor hereof, and
any deposits or other sums at any time credited by or due from any holder hereof
to any of such parties shall be held and treated as security for the payment of
this note, and the holder hereof, at the holder's option may, at any time
without notice, and without liability, apply such funds or deposits or any sums
credited by or due from the holder against any sums owing, whether due or not,
under this note and in any manner and in any order of preference which the
holder, in the holder's discretion, chooses.
The Makers, all endorsers and guarantors hereof, and all other persons who
may become liable for all or any part of the obligations represented by this
note, shall be considered as principals as to the making of this note and shall
have joint and several liability. Except as may be set out in the Fourth
Restated Agreement, the Makers, all endorsers and guarantors, severally waive
presentment for payment, protest, notice of protest, and of nonpayment, notices
of intention to accelerate the maturity and notice of acceleration, as to this
note and as to each, every and all installments hereof, and consent to the
renewal or extension of the time of payment hereof and to the release of all or
any part of the security herefor or any person liable hereon upon the terms
deemed by the holder hereof, in the holder's sole discretion, to be adequate.
Any renewal or extension or release of any of such security or person, may be
made without notice to any of such parties and without affecting their
liability.
THE LOAN DOCUMENTS, INCLUDING THIS NOTE, HAVE BEEN PREPARED, ARE BEING
EXECUTED AND DELIVERED, AND ARE INTENDED TO BE PERFORMED IN THE STATE OF TEXAS,
AND THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE
CONFLICTS-OF-LAW RULES AND PRINCIPLES OF THE STATE OF TEXAS, AND THE APPLICABLE
LAWS OF THE U.S. SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND
INTERPRETATION OF THIS NOTE, AND THE LOAN DOCUMENTS.
The payment of this note is secured by the Fourth Restated Agreement and
the other Loan Documents described therein. This note shall become due and
payable, at the option of the holder hereof, on the occurrence of a Default
under the Fourth Restated Agreement or any other Loan Document.
THE WRITTEN CREDIT AGREEMENT, THE LOAN DOCUMENTS DESCRIBED THEREIN AND THIS NOTE
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
<PAGE>
TERM NOTE A
$1,275,000.00 September 17, 1997
-4-
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
LITIGATION RESOURCES LOONEY & COMPANY
OF AMERICA, INC.
BY: ______________________________ BY: _______________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
KLEIN, BURY & ASSOCIATES, INC. LITIGATION RESOURCES OF
AMERICA-CALIFORNIA, INC.
BY: _______________________________ BY: _______________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
LITIGATION RESOURCES OF LITIGATION RESOURCES OF
AMERICA-MIDWEST, INC. AMERICA-NORTHEAST, INC.
BY: _______________________________ BY: _______________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
BLOCK COURT REPORTING, INC. BLOCK TAPE TRANSCRIPTION
SERVICES, INC.
BY: _______________________________ BY: _______________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
BURTON HOUSE, INC.
BY: _______________________________
DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER
<PAGE>
Exhibit 4.2-b
Term Note B
<PAGE>
TERM NOTE B
$475,000.00 September 17, 1997
-1-
This note is the Term Note B issued pursuant to the terms of a Fourth
Amended and Restated Credit Agreement (the "Fourth Restated Agreement") dated of
even date herewith by and among Litigation Resources of America, Inc., Looney &
Company, Klein, Bury & Associates, Inc., Litigation Resources of
America-California, Inc., Litigation Resources of America-Midwest, Inc.,
Litigation Resources of America-NE, Inc., Block Court Reporting, Inc., Block
Tape Transcription Services, Inc. and Burton House Inc. (collectively, the
"Makers"), and Texas Commerce Bank National Association (the "Payee"). All
capitalized terms used herein shall have the meanings ascribed to them in the
Fourth Restated Agreement unless the context hereof requires otherwise.
For value received, after date, without grace and in the manner, on the
dates and in the amounts herein stipulated, the Makers, jointly and severally,
promise to pay to the order of the Payee at 712 Main Street, Houston, Harris
County, Texas, or at such other place in Houston, Harris County, Texas,
designated in writing by the Payee or other holder hereof:
1. The principal sum of Four hundred Seventy-five Thousand and No/100
($475,000.00) in lawful money of the U.S., which shall be due and
payable monthly in consecutive installments of $7,916.67, commencing
on the first Interest Payment Date in December 1997, and continuing on
the same day of each month thereafter, and in one final installment on
the Term Maturity Date, when the balance of all principal hereon shall
be payable in full; and,
2. Interest from the date hereof on the principal amount outstanding
hereunder from time to time, at the lesser of (a) the applicable Term
Loan Contract Rate, or, (b) the Maximum Rate; and, interest shall be
due and payable monthly as it accrues on the outstanding balance of
principal from time to time, with the first installment of accrued
interest to be due and payable on the first Interest Payment Date
after the date hereof and like installments of interest shall become
due and payable on the same day of each consecutive calendar month
thereafter until the Term Maturity Date, at which time all accrued but
unpaid interest shall be due and payable; and,
3. Notwithstanding the foregoing, if at any time the Term Loan Contract
Rate shall exceed the Maximum Rate and thereafter, the Term Loan
Contract Rate shall become less than the Maximum Rate, the rate of
interest payable hereunder shall, at the option of the Payee, be the
Maximum Rate until the cumulative interest received by the Payee or
other holder hereof equals the interest which would have been received
at the Term Loan Contract Rate; and,
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
<PAGE>
TERM NOTE B
$475,000.00 September 17, 1997
-2-
4. All past due principal and interest shall bear interest at the Maximum
Rate from maturity until paid.
5. This note may be prepaid pursuant to the terms of the Fourth Restated
Agreement.
THIS NOTE SHALL BE PAYABLE IN FULL NOT LATER THAN MAY 14, 2000. ON THE TERM
MATURITY DATE, THE MAKERS MUST REPAY THE ENTIRE UNPAID PRINCIPAL BALANCE AND ALL
ACCRUED INTEREST ON THIS NOTE THEN DUE AND PAYABLE. THE PAYEE SHALL BE UNDER NO
OBLIGATION TO REFINANCE THIS NOTE AT THAT TIME. THE MAKERS SHALL THEREFORE BE
REQUIRED TO MAKE PAYMENT OUT OF OTHER ASSETS THE MAKERS MAY OWN, OR THE MAKERS
SHALL HAVE TO FIND A LENDER WILLING TO LEND THE MAKERS SUCH AMOUNTS AT
PREVAILING MARKET RATES, WHICH MAY BE CONSIDERABLY HIGHER THAN THE INTEREST RATE
ON THIS NOTE.
It is agreed that if there is a Default under the provisions in the Fourth
Restated Agreement, then, in any such event, at the option of the holder hereof,
at any time thereafter, without notice, the unpaid principal of this note and,
all accrued interest, shall at once become due and payable and shall bear
interest at the Maximum Rate from the date of such Default or event. Failure to
exercise any of the options shall not constitute a waiver on the part of holder
hereof of the right to exercise the same at any other time.
It is agreed that if this note be placed in the hands of an attorney for
collection, for the purposes of being sued upon or established in any manner in
any court, then in any of such events, the Makers, all endorsers and guarantors
hereof, promise to pay the Payee's or other holder's reasonable attorneys' fees
and costs of collection, which sums shall become a part of the principal hereof.
The Loan Documents are intended to be performed in accordance with, and
only to the extent permitted by, all applicable Requirements. This note is
subject to the provisions set out in the Fourth Restated Agreement relating to
the payment of interest at the Maximum Rate and to payment or collection of
interest in excess of the Maximum Amount, all of which provisions are
incorporated herein for all purposes.
This note and the maximum rate of nonusurious interest applicable to the
loan evidenced hereby shall be governed by the laws of the U.S. and the State of
Texas in effect on the date of the loan evidenced hereby, and, to the extent
allowed by law, as now or as may hereafter be in effect, but in any event Tex.
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
<PAGE>
TERM NOTE B
$475,000.00 September 17, 1997
-3-
Rev. Civ. Stat. Ann. Art. 5069 Ch. 15 (which regulates certain revolving credit
loan accounts and revolving triparty accounts) shall not apply to the loan
evidenced hereby.
It is further agreed that any funds at any time in the possession of any
holder hereof which belong to the Makers, any endorser or guarantor hereof, and
any deposits or other sums at any time credited by or due from any holder hereof
to any of such parties shall be held and treated as security for the payment of
this note, and the holder hereof, at the holder's option may, at any time
without notice, and without liability, apply such funds or deposits or any sums
credited by or due from the holder against any sums owing, whether due or not,
under this note and in any manner and in any order of preference which the
holder, in the holder's discretion, chooses.
The Makers, all endorsers and guarantors hereof, and all other persons who
may become liable for all or any part of the obligations represented by this
note, shall be considered as principals as to the making of this note and shall
have joint and several liability. Except as may be set out in the Fourth
Restated Agreement, the Makers, all endorsers and guarantors, severally waive
presentment for payment, protest, notice of protest, and of nonpayment, notices
of intention to accelerate the maturity and notice of acceleration, as to this
note and as to each, every and all installments hereof, and consent to the
renewal or extension of the time of payment hereof and to the release of all or
any part of the security herefor or any person liable hereon upon the terms
deemed by the holder hereof, in the holder's sole discretion, to be adequate.
Any renewal or extension or release of any of such security or person, may be
made without notice to any of such parties and without affecting their
liability.
THE LOAN DOCUMENTS, INCLUDING THIS NOTE, HAVE BEEN PREPARED, ARE BEING
EXECUTED AND DELIVERED, AND ARE INTENDED TO BE PERFORMED IN THE STATE OF TEXAS,
AND THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE
CONFLICTS-OF-LAW RULES AND PRINCIPLES OF THE STATE OF TEXAS, AND THE APPLICABLE
LAWS OF THE U.S. SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND
INTERPRETATION OF THIS NOTE, AND THE LOAN DOCUMENTS.
The payment of this note is secured by the Fourth Restated Agreement and
the other Loan Documents described therein. This note shall become due and
payable, at the option of the holder hereof, on the occurrence of a Default
under the Fourth Restated Agreement or any other Loan Document.
THE WRITTEN CREDIT AGREEMENT, THE LOAN DOCUMENTS DESCRIBED THEREIN AND THIS NOTE
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
<PAGE>
TERM NOTE B
$475,000.00 September 17, 1997
-4-
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
LITIGATION RESOURCES LOONEY & COMPANY
OF AMERICA, INC.
BY: ______________________________ BY: _______________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
KLEIN, BURY & ASSOCIATES, INC. LITIGATION RESOURCES OF
AMERICA-CALIFORNIA, INC.
BY: _______________________________ BY: _______________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
LITIGATION RESOURCES OF LITIGATION RESOURCES OF
AMERICA-MIDWEST, INC. AMERICA-NORTHEAST, INC.
BY: _______________________________ BY: _______________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
BLOCK COURT REPORTING, INC. BLOCK TAPE TRANSCRIPTION
SERVICES, INC.
BY: _______________________________ BY: _______________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
BURTON HOUSE, INC.
BY: _______________________________
DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER
<PAGE>
Exhibit 4.2-c
Term Note C
<PAGE>
TERM NOTE C
$2,250,000.00 September 17, 1997
-1-
This note is the Term Note C issued pursuant to the terms of a Fourth
Amended and Restated Credit Agreement (the "Fourth Restated Agreement") dated of
even date herewith by and among Litigation Resources of America, Inc., Looney &
Company, Klein, Bury & Associates, Inc., Litigation Resources of
America-California, Inc., Litigation Resources of America-Midwest, Inc.,
Litigation Resources of America-NE, Inc., Block Court Reporting, Inc., Block
Tape Transcription Services, Inc. and Burton House, Inc. (collectively,
the "Makers"), and Texas Commerce Bank National Association (the "Payee"). All
capitalized terms used herein shall have the meanings ascribed to them in the
Fourth Restated Agreement unless the context hereof requires otherwise.
For value received, after date, without grace and in the manner, on the
dates and in the amounts herein stipulated, the Makers, jointly and severally,
promise to pay to the order of the Payee at 712 Main Street, Houston, Harris
County, Texas, or at such other place in Houston, Harris County, Texas,
designated in writing by the Payee or other holder hereof:
1. The principal sum of Two Million Two Hundred Fifty Thousand and No/100
($2,250,000.00) in lawful money of the U.S., which shall be due and
payable monthly in consecutive installments of $37,500.00, commencing
on the first Interest Payment Date in March 1998, and continuing on
the same day of each month thereafter, and in one final installment on
the Term Maturity Date, when the entire unpaid balance of principal of
this note shall be payable in full; and,
2. Interest from the date hereof on the principal amount outstanding
hereunder from time to time, at the lesser of (a) the applicable Term
Loan Contract Rate, or, (b) the Maximum Rate; and, interest shall be
due and payable monthly as it accrues on the outstanding balance of
principal from time to time, with the first installment of accrued
interest to be due and payable on the first Interest Payment Date
after the date hereof and like installments of interest shall become
due and payable on the same day of each consecutive calendar month
thereafter until the Term Maturity Date, at which time all accrued but
unpaid interest shall be due and payable; and,
3. Notwithstanding the foregoing, if at any time the Term Loan Contract
Rate shall exceed the Maximum Rate and thereafter, the Term Loan
Contract Rate shall become less than the Maximum Rate, the rate of
interest payable hereunder shall, at the option of the Payee, be the
Maximum Rate until the cumulative interest received by the Payee or
other holder hereof equals the interest which would have been received
at the Term Loan Contract Rate; and,
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
<PAGE>
TERM NOTE C
$2,250,000.00 September 17, 1997
-2-
4. All past due principal and interest shall bear interest at the Maximum
Rate from maturity until paid.
5. This note may be prepaid pursuant to the terms of the Fourth Restated
Agreement.
THIS NOTE SHALL BE PAYABLE IN FULL NOT LATER THAN MAY 14, 2000. ON THE TERM
MATURITY DATE, THE MAKERS MUST REPAY THE ENTIRE UNPAID PRINCIPAL BALANCE AND ALL
ACCRUED INTEREST ON THIS NOTE THEN DUE AND PAYABLE. THE PAYEE SHALL BE UNDER NO
OBLIGATION TO REFINANCE THIS NOTE AT THAT TIME. THE MAKERS SHALL THEREFORE BE
REQUIRED TO MAKE PAYMENT OUT OF OTHER ASSETS THE MAKERS MAY OWN, OR THE MAKERS
SHALL HAVE TO FIND A LENDER WILLING TO LEND THE MAKERS SUCH AMOUNTS AT
PREVAILING MARKET RATES, WHICH MAY BE CONSIDERABLY HIGHER THAN THE INTEREST RATE
ON THIS NOTE.
It is agreed that if there is a Default under the provisions in the Fourth
Restated Agreement, then, in any such event, as the option of the holder hereof,
at any time thereafter, without notice, the unpaid principal of this note and,
all accrued interest, shall at once become due and payable and shall bear
interest at the Maximum Rate from the date of such Default or event. Failure to
exercise any of the options shall not constitute a waiver on the part of holder
hereof of the right to exercise the same at any other time.
It is agreed that if this note be placed in the hands of an attorney for
collection, for the purposes of being sued upon or established in any manner in
any court, then in any of such events, the Makers, all endorsers and guarantors
hereof, promise to pay the Payee's or other holder's reasonable attorneys' fees
and costs of collection, which sums shall become a part of the principal hereof.
The Loan Documents are intended to be performed in accordance with, and
only to the extent permitted by, all applicable Requirements. This note is
subject to the provisions set out in the Fourth Restated Agreement relating to
the payment of interest at the Maximum Rate and to payment or collection of
interest in excess of the Maximum Amount, all of which provisions are
incorporated herein for all purposes.
This note and the maximum rate of nonusurious interest applicable to the
loan evidenced hereby shall be governed by the laws of the U.S. and the State of
Texas in effect on the date of the loan evidenced hereby, and, to the extent
allowed by law, as now or as may hereafter be in effect, but in any event Tex.
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
<PAGE>
TERM NOTE C
$2,250,000.00 September 17, 1997
-3-
Rev. Civ. Stat. Ann. Art. 5069 Ch. 15 (which regulates certain revolving credit
loan accounts and revolving triparty accounts) shall not apply to the loan
evidenced hereby.
It is further agreed that any funds at any time in the possession of any
holder hereof which belong to the Makers, any endorser or guarantor hereof, and
any deposits or other sums at any time credited by or due from any holder hereof
to any of such parties shall be held and treated as security for the payment of
this note, and the holder hereof, at the holder's option may, at any time
without notice, and without liability, apply such funds or deposits or any sums
credited by or due from the holder against any sums owing, whether due or not,
under this note and in any manner and in any order of preference which the
holder, in the holder's discretion, chooses.
The Makers, all endorsers and guarantors hereof, and all other persons who
may become liable for all or any part of the obligations represented by this
note, shall be considered as principals as to the making of this note and shall
have joint and several liability. Except as may be set out in the Fourth
Restated Agreement, the Makers, all endorsers and guarantors, severally waive
presentment for payment, protest, notice of protest, and of nonpayment, notices
of intention to accelerate the maturity and notice of acceleration, as to this
note and as to each, every and all installments hereof, and consent to the
renewal or extension of the time of payment hereof and to the release of all or
any part of the security herefor or any person liable hereon upon the terms
deemed by the holder hereof, in the holder's sole discretion, to be adequate.
Any renewal or extension or release of any of such security or person, may be
made without notice to any of such parties and without affecting their
liability.
THE LOAN DOCUMENTS, INCLUDING THIS NOTE, HAVE BEEN PREPARED, ARE BEING
EXECUTED AND DELIVERED, AND ARE INTENDED TO BE PERFORMED IN THE STATE OF TEXAS,
AND THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE
CONFLICTS-OF-LAW RULES AND PRINCIPLES OF THE STATE OF TEXAS, AND THE APPLICABLE
LAWS OF THE U.S. SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND
INTERPRETATION OF THIS NOTE, AND THE LOAN DOCUMENTS.
The payment of this note is secured by the Fourth Restated Agreement and
the other Loan Documents described therein. This note shall become due and
payable, at the option of the holder hereof, on the occurrence of a Default
under the Fourth Restated Agreement or any other Loan Document.
THE WRITTEN CREDIT AGREEMENT, THE LOAN DOCUMENTS DESCRIBED THEREIN AND THIS
NOTE REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVI-
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
<PAGE>
TERM NOTE C
$2,250,000.00 September 17, 1997
-4-
DENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES,
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
LITIGATION RESOURCES LOONEY & COMPANY
OF AMERICA, INC.
BY:_____________________________ BY:_____________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
KLEIN, BURY & ASSOCIATES, INC. LITIGATION RESOURCES OF
AMERICA-CALIFORNIA, INC.
BY:_____________________________ BY:_____________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
LITIGATION RESOURCES OF LITIGATION RESOURCES OF
AMERICA-MIDWEST, INC. AMERICA-NORTHEAST, INC.
BY:_____________________________ BY:_____________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
BLOCK COURT REPORTING, INC. BLOCK TAPE TRANSCRIPTION
SERVICES, INC.
BY:_____________________________ BY:_____________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
BURTON HOUSE, INC.
BY:_____________________________
DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER
<PAGE>
Exhibit 4.2-d
Term Note D
<PAGE>
TERM NOTE D
$2,550,000.00 September 17, 1997
-1-
This note is the Term Note D issued pursuant to the terms of a Fourth
Amended and Restated Credit Agreement (the "Fourth Restated Agreement") dated of
even date herewith by and among Litigation Resources of America, Inc., Looney &
Company, Klein, Bury & Associates, Inc., Litigation Resources of
America-California, Inc., Litigation Resources of America-Midwest, Inc.,
Litigation Resources of America-NE, Inc., Block Court Reporting, Inc., Block
Tape Transcription Services, Inc. and Burton House, Inc. (collectively,
the "Makers"), and Texas Commerce Bank National Association (the "Payee"). All
capitalized terms used herein shall have the meanings ascribed to them in the
Fourth Restated Agreement unless the context hereof requires otherwise.
For value received, after date, without grace and in the manner, on the
dates and in the amounts herein stipulated, the Makers, jointly and severally,
promise to pay to the order of the Payee at 712 Main Street, Houston, Harris
County, Texas, or at such other place in Houston, Harris County, Texas,
designated in writing by the Payee or other holder hereof:
1. The principal sum of Two Million Five Hundred Fifty Thousand and
No/100 ($2,550,000.00) in lawful money of the U.S., which shall be due
and payable monthly in consecutive installments of $42,500.00,
commencing on the first Interest Payment Date in April 1998, and
continuing on the same day of each month thereafter, and in one final
installment on the Term Maturity Date, when the entire unpaid balance
of principal of this note shall be payable in full; and,
2. Interest from the date hereof on the principal amount outstanding
hereunder from time to time, at the lesser of (a) the applicable Term
Loan Contract Rate, or, (b) the Maximum Rate; and, interest shall be
due and payable monthly as it accrues on the outstanding balance of
principal from time to time, with the first installment of accrued
interest to be due and payable on the first Interest Payment Date
after the date hereof and like installments of interest shall become
due and payable on the same day of each consecutive calendar month
thereafter until the Term Maturity Date, at which time all accrued but
unpaid interest shall be due and payable; and,
3. Notwithstanding the foregoing, if at any time the Term Loan Contract
Rate shall exceed the Maximum Rate and thereafter, the Term Loan
Contract Rate shall become less than the Maximum Rate, the rate of
interest payable hereunder shall, at the option of the Payee, be the
Maximum Rate until the cumulative interest received by the Payee or
other holder hereof equals the interest which would have been received
at the Term Loan Contract Rate; and,
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
<PAGE>
TERM NOTE D
$2,550,000.00 September 17, 1997
-2-
4. All past due principal and interest shall bear interest at the Maximum
Rate from maturity until paid.
5. This note may be prepaid pursuant to the terms of the Fourth Restated
Agreement.
THIS NOTE SHALL BE PAYABLE IN FULL NOT LATER THAN MAY 14, 2000. ON THE TERM
MATURITY DATE, THE MAKERS MUST REPAY THE ENTIRE UNPAID PRINCIPAL BALANCE AND ALL
ACCRUED INTEREST ON THIS NOTE THEN DUE AND PAYABLE. THE PAYEE SHALL BE UNDER NO
OBLIGATION TO REFINANCE THIS NOTE AT THAT TIME. THE MAKERS SHALL THEREFORE BE
REQUIRED TO MAKE PAYMENT OUT OF OTHER ASSETS THE MAKERS MAY OWN, OR THE MAKERS
SHALL HAVE TO FIND A LENDER WILLING TO LEND THE MAKERS SUCH AMOUNTS AT
PREVAILING MARKET RATES, WHICH MAY BE CONSIDERABLY HIGHER THAN THE INTEREST RATE
ON THIS NOTE.
It is agreed that if there is a Default under the provisions in the Fourth
Restated Agreement, then, in any such event, at the option of the holder hereof,
at any time thereafter, without notice, the unpaid principal of this note and,
all accrued interest, shall at once become due and payable and shall bear
interest at the Maximum Rate from the date of such Default or event. Failure to
exercise any of the options shall not constitute a waiver on the part of holder
hereof of the right to exercise the same at any other time.
It is agreed that if this note be placed in the hands of an attorney for
collection, for the purposes of being sued upon or established in any manner in
any court, then in any of such events, the Makers, all endorsers and guarantors
hereof, promise to pay the Payee's or other holder's reasonable attorneys' fees
and costs of collection, which sums shall become a part of the principal hereof.
The Loan Documents are intended to be performed in accordance with, and
only to the extent permitted by, all applicable Requirements. This note is
subject to the provisions set out in the Fourth Restated Agreement relating to
the payment of interest at the Maximum Rate and to payment or collection of
interest in excess of the Maximum Amount, all of which provisions are
incorporated herein for all purposes.
This note and the maximum rate of nonusurious interest applicable to the
loan evidenced hereby shall be governed by the laws of the U.S. and the State of
Texas in effect on the date of the loan evidenced hereby, and, to the extent
allowed by law, as now or as may hereafter be in effect, but in any event Tex.
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
<PAGE>
TERM NOTE D
$2,550,000.00 September 17, 1997
-3-
Rev. Civ. Stat. Ann. Art. 5069 Ch. 15 (which regulates certain revolving credit
loan accounts and revolving triparty accounts) shall not apply to the loan
evidenced hereby.
It is further agreed that any funds at any time in the possession of any
holder hereof which belong to the Makers, any endorser or guarantor hereof, and
any deposits or other sums at any time credited by or due from any holder hereof
to any of such parties shall be held and treated as security for the payment of
this note, and the holder hereof, at the holder's option may, at any time
without notice, and without liability, apply such funds or deposits or any sums
credited by or due from the holder against any sums owing, whether due or not,
under this note and in any manner and in any order of preference which the
holder, in the holder's discretion, chooses.
The Makers, all endorsers and guarantors hereof, and all other persons who
may become liable for all or any part of the obligations represented by this
note, shall be considered as principals as to the making of this note and shall
have joint and several liability. Except as may be set out in the Fourth
Restated Agreement, the Makers, all endorsers and guarantors, severally waive
presentment for payment, protest, notice of protest, and of nonpayment, notices
of intention to accelerate the maturity and notice of acceleration, as to this
note and as to each, every and all installments hereof, and consent to the
renewal or extension of the time of payment hereof and to the release of all or
any part of the security herefor or any person liable hereon upon the terms
deemed by the holder hereof, in the holder's sole discretion, to be adequate.
Any renewal or extension or release of any of such security or person, may be
made without notice to any of such parties and without affecting their
liability.
THE LOAN DOCUMENTS, INCLUDING THIS NOTE, HAVE BEEN PREPARED, ARE BEING
EXECUTED AND DELIVERED, AND ARE INTENDED TO BE PERFORMED IN THE STATE OF TEXAS,
AND THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE
CONFLICTS-OF-LAW RULES AND PRINCIPLES OF THE STATE OF TEXAS, AND THE APPLICABLE
LAWS OF THE U.S. SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND
INTERPRETATION OF THIS NOTE, AND THE LOAN DOCUMENTS.
The payment of this note is secured by the Fourth Restated Agreement and
the other Loan Documents described therein. This note shall become due and
payable, at the option of the holder hereof, on the occurrence of a Default
under the Fourth Restated Agreement or any other Loan Document.
THE WRITTEN CREDIT AGREEMENT, THE LOAN DOCUMENTS DESCRIBED THEREIN AND THIS
NOTE REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVI-
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
<PAGE>
TERM NOTE D
$2,550,000.00 September 17, 1997
-4-
DENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES,
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
LITIGATION RESOURCES LOONEY & COMPANY
OF AMERICA, INC.
BY:_____________________________ BY:_____________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
KLEIN, BURY & ASSOCIATES, INC. LITIGATION RESOURCES OF
AMERICA-CALIFORNIA, INC.
BY:_____________________________ BY:_____________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
LITIGATION RESOURCES OF LITIGATION RESOURCES OF
AMERICA-MIDWEST, INC. AMERICA-NORTHEAST, INC.
BY:_____________________________ BY:_____________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
BLOCK COURT REPORTING, INC. BLOCK TAPE TRANSCRIPTION
SERVICES, INC.
BY:_____________________________ BY:_____________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
BURTON HOUSE, INC.
BY:_____________________________
DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER
<PAGE>
Exhibit 4.2-e
Term Note E
<PAGE>
TERM NOTE E
$7,450,000.00 September 17, 1997
-1-
This note is the Term Note E issued pursuant to the terms of a Fourth
Amended and Restated Credit Agreement (the "Fourth Restated Agreement") dated of
even date herewith by and among Litigation Resources of America, Inc., Looney &
Company, Klein, Bury & Associates, Inc., Litigation Resources of America-NE,
Inc., Block Court Reporting, Inc., Block Tape Transcription Services, Inc. and
Burton House, Inc. (collectively, the "Makers"), and Texas Commerce Bank
National Association (the "Payee"). All capitalized terms used herein shall have
the meanings ascribed to them in the Fourth Restated Agreement unless the
context hereof requires otherwise.
For value received, after date, without grace and in the manner, on the
dates and in the amounts herein stipulated, the Makers, jointly and severally,
promise to pay to the order of the Payee at 712 Main Street, Houston, Harris
County, Texas, or at such other place in Houston, Harris County, Texas,
designated in writing by the Payee or other holder hereof:
1. The principal sum of Seven Million Four Hundred Fifty Thousand and
No/100 ($7,450,000.00) in lawful money of the U.S., which shall be due
and payable monthly in consecutive installments of $124,166.67,
commencing on the first Interest Payment Date in April 1998, and
continuing on the same day of each month thereafter, and in one final
installment on the Term Maturity Date, when the entire unpaid balance
of principal of this note shall be payable in full; and
2. Interest from the date hereof on the principal amount outstanding
hereunder from time to time, at the lesser of (a) the applicable Term
Loan Contract Rate, or, (b) the Maximum Rate; and, interest shall be
due and payable monthly as it accrues on the outstanding balance of
principal from time to time, with the first installment of accrued
interest to be due and payable on the first Interest Payment Date
after the date hereof and like installments of interest shall become
due and payable on the same day of each consecutive calendar month
thereafter until the Term Maturity Date, at which time all accrued but
unpaid interest shall be due and payable; and,
3. Notwithstanding the foregoing, if at any time the Term Loan Contract
Rate shall exceed the Maximum Rate and thereafter, the Term Loan
Contract Rate shall become less than the Maximum Rate, the rate of
interest payable hereunder shall, at the option of the Payee, be the
Maximum Rate until the cumulative interest received by the Payee or
other holder hereof equals the interest which would have been received
at the Term Loan Contract Rate; and,
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
<PAGE>
TERM NOTE E
$7,450,000.00 September 17, 1997
-2-
4. All past due principal and interest shall bear interest at the Maximum
Rate from maturity until paid.
5. This note may be prepaid pursuant to the terms of the Fourth Restated
Agreement.
THIS NOTE SHALL BE PAYABLE IN FULL NOT LATER THAN MAY 14, 2000. ON THE TERM
MATURITY DATE, THE MAKERS MUST REPAY THE ENTIRE UNPAID PRINCIPAL BALANCE AND ALL
ACCRUED INTEREST ON THIS NOTE THEN DUE AND PAYABLE. THE PAYEE SHALL BE UNDER NO
OBLIGATION TO REFINANCE THIS NOTE AT THAT TIME. THE MAKERS SHALL THEREFORE BE
REQUIRED TO MAKE PAYMENT OUT OF OTHER ASSETS THE MAKERS MAY OWN, OR THE MAKERS
SHALL HAVE TO FIND A LENDER WILLING TO LEND THE MAKERS SUCH AMOUNTS AT
PREVAILING MARKET RATES, WHICH MAY BE CONSIDERABLY HIGHER THAN THE INTEREST RATE
ON THIS NOTE.
It is agreed that if there is a Default under the provisions in Fourth
Restated Agreement, then, in any such event, at the option of the holder hereof,
at any time thereafter, without notice, the unpaid principal of this note and,
all accrued interest, shall at once become due and payable and shall bear
interest at the Maximum Rate from the date of such Default or event. Failure to
exercise any of the options shall not constitute a waiver on the part of holder
of the right to exercise the same at any other time.
It is agreed that if this note be placed in the hands of an attorney for
collection, for the purposes of being sued upon or established in any manner in
any court, then in any of such events, the Makers, all endorsers and guarantors
hereof, promise to pay the Payee's or other holder's reasonable attorneys' fees
and costs of collection, which sums shall become a part of the principal hereof.
The Loan Documents are intended to be performed in accordance with, and
only to the extent permitted by, all applicable Requirements. This note is
subject to the provisions set out in the Fourth Restated Agreement relating to
the payment of interest at the Maximum Rate and to payment or collection of
interest in excess of the Maximum Amount, all of which provisions are
incorporated herein for all purposes.
This note and the maximum rate of nonusurious interest applicable to the
loan evidenced hereby shall be governed by the laws of the U.S. and the State of
Texas in effect on the date of the loan evidenced hereby, and, to the extent
allowed by law, as now or as may hereafter be in effect, but in any event Tex.
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
<PAGE>
TERM NOTE E
$7,450,000.00 September 17, 1997
-3-
Rev. Civ. Stat. Ann. Art. 5069 Ch. 15 (which regulates certain revolving credit
loan accounts and revolving triparty accounts) shall not apply to the loan
evidenced hereby.
It is further agreed that any funds at any time in the possession of any
holder hereof which belong to the Makers, any endorser or guarantor hereof, and
any deposits or other sums at any time credited by or due from any holder hereof
to any of such parties shall be held and treated as security for the payment of
this note, and the holder hereof, at the holder's option may, at any time
without notice, and without liability, apply such funds or deposits or any sums
credited by or due from the holder against any sums owing, whether due or not,
under this note and in any manner and in any order of preference which the
holder, in the holder's discretion, chooses.
The Makers, all endorsers and guarantors hereof, and all other persons who
may become liable for all or any part of the obligations represented by this
note, shall be considered as principals as to the making of this note and shall
have joint and several liability. Except as may be set out in the Fourth
Restated Agreement, the Makers, all endorsers and guarantors, severally waive
presentment for payment, protest, notice of protest, and of nonpayment, notices
of intention to accelerate the maturity and notice of acceleration, as to this
note and as to each, every and all installments hereof, and consent to the
renewal or extension of the time of payment hereof and to the release of all or
any part of the security herefor or any person liable hereon upon the terms
deemed by the holder hereof, in the holder's sole discretion, to be adequate.
Any renewal or extension or release of any of such security or person, may be
made without notice to any of such parties and without affecting their
liability.
THE LOAN DOCUMENTS, INCLUDING THIS NOTE, HAVE BEEN PREPARED, ARE BEING
EXECUTED AND DELIVERED, AND ARE INTENDED TO BE PERFORMED IN THE STATE OF TEXAS,
AND THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE
CONFLICTS-OF-LAW RULES AND PRINCIPLES OF THE STATE OF TEXAS, AND THE APPLICABLE
LAWS OF THE U.S. SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND
INTERPRETATION OF THIS NOTE, AND THE LOAN DOCUMENTS.
The payment of this note is secured by the Fourth Restated Agreement and
the other Loan Documents described therein. This note shall become due and
payable, at the option of the holder hereof, on the occurrence of a Default
under the Fourth Restated Agreement or any other Loan Document.
THE WRITTEN CREDIT AGREEMENT, THE LOAN DOCUMENTS DESCRIBED THEREIN AND THIS
NOTE REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
_________________________ _________________________ _________________________
Signed for Identification Signed for Identification Signed for Identification
<PAGE>
TERM NOTE E
$7,450,000.00 September 17, 1997
-4-
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO WRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
LITIGATION RESOURCES LOONEY & COMPANY
OF AMERICA, INC.
BY:___________________________ BY:____________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
KLEIN, BURY & ASSOCIATES, INC. LITIGATION RESOURCES OF
AMERICA-CALIFORNIA, INC.
BY:___________________________ BY:___________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
LITIGATION RESOURCES OF LITIGATION RESOURCES OF
AMERICA-MIDWEST, INC. AMERICA-NORTHEAST, INC.
BY:___________________________ BY:___________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
BLOCK COURT REPORTING, INC. BLOCK TAPE TRANSCRIPTION
SERVICES, INC.
BY:___________________________ BY:___________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
BURTON HOUSE, INC.
BY:___________________________
DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER
<PAGE>
Exhibit 6.1.A
Security Agreement
<PAGE>
SECURITY AGREEMENT
This Security Agreement (the "Security Agreement") is executed and
delivered effective September 17, 1997, by BURTON HOUSE, INC. (the "Debtor"),
whose address is 1001 Fannin, Suite 650, Houston, Harris County, Texas 77002, in
favor of TEXAS COMMERCE BANK NATIONAL ASSOCIATION (the "Secured Party") whose
address is 712 Main Street, P.O. Box 2558, Houston, Texas 77252-2558, pursuant
to the terms of a Fourth Amended and Restated Credit Agreement (the "Fourth
Restated Agreement"), dated September 17, 1997, by and among LITIGATION
RESOURCES OF AMERICA, INC., LOONEY & COMPANY, KLEIN, BURY & ASSOCIATES, INC.,
LITIGATION RESOURCES OF AMERICA-CALIFORNIA, INC., LITIGATION RESOURCES OF
AMERICA-MIDWEST, INC., LITIGATION RESOURCES OF AMERICA-NORTHEAST, INC., BLOCK
COURT REPORTING, INC., BLOCK TAPE TRANSCRIPTION SERVICES, INC. and the Debtor
(collectively, the "Borrowers") and the Secured Party. Under and pursuant to the
terms of the Third Restated Agreement, the Secured Party has agreed to make
Loans to the Borrowers. All capitalized terms used herein shall have the same
meanings ascribed to them in the Third Restated Agreement unless otherwise
specifically defined in this Security Agreement.
ARTICLE I
SECURITY INTERESTS
------------------
In consideration of the premises, for value received, for other good, fair
and valuable considerations, the receipt, adequacy and reasonable equivalency
of which are acknowledged, and for other valuable consideration, the Debtor
grants to the Secured Party the security interests (the "Security Interests")
herein set forth and agrees with the Secured Party as set out herein. The
Secured Party has and shall continue to have Security Interests in the following
property of the Debtor (collectively, the "Collateral").
1.1 Accounts. All presently existing or hereafter acquired or created
--------
accounts, accounts receivable, contract rights, notes, drafts, acceptances,
chattel paper, leases and writings evidencing a monetary obligation or a
security interest in or a lease of goods, all rights to receive the payment of
money or other considerations under present or future contracts (including
without limitation, all rights to receive payments under presently existing or
hereafter acquired or created letters of credit) or by virtue of merchandise
sold or leased, services rendered, loans and advances made or other
considerations given, whether or not earned by performance and whether or not
evidenced by or set forth in or arising out of any present or future chattel
paper, note, draft, lease, acceptance, writing, bond, insurance policy,
instrument, document or general intangible, and all extensions and renewals of
any thereof, all rights under or arising out of present or future contracts,
agreements or general intangibles, including all payments under licensing
agreements or arrangements, all right, title and interest in merchandise which
gave rise to any or all of the foregoing, including all goods, all claims or
causes of action now existing or hereafter arising in connection with or under
any agreement or document or, by operation of law or otherwise, all collateral
security of any kind (including real property mortgages) given by any Person
with respect to any of the foregoing, including in any event, all accounts,
instruments and chattel paper within the meaning of the UCC in effect in any
applicable jurisdiction (any and all of the foregoing being the "Accounts").
-1-
<PAGE>
1.2 Inventory. All of Debtor's inventory in all of its forms, wherever
---------
located, now or hereafter existing and whether acquired by purchase, merger or
otherwise and all raw materials and work in process therefor, all finished goods
thereof and all materials used or consumed in the manufacture, packing,
shipping, advertising, selling, leasing or production thereof, including in any
event all inventory within the meaning of the UCC, goods in which the Debtor has
an interest in mass or a joint or other interest or right of any kind and goods
which are returned to or repossessed by the Debtor, and all accessions thereto
and products and proceeds thereof (any and all inventory, accessions and
products being the "Inventory"), and the Debtor warrants, covenants and agrees
that the Debtor owns, free and clear of any liens or encumbrances, all real
property on which Inventory is or be will located, or the Debtor will obtain
subordination agreements from the owners of all such real property.
1.3 Equipment. All equipment, machinery, chattels, tools, parts, machine
---------
tools, furniture, furnishings, fixtures and supplies of every nature, presently
existing or hereafter acquired or created and wherever located, all accessions,
additions, substitutions and improvements thereto and all replacements, products
and proceeds of the foregoing (including, without limitation, proceeds of
insurance policies insuring any of the foregoing) and all parts and equipment
which may be attached to or which are necessary for the operation and use of the
personal property, whether or not the same shall be deemed to be affixed to real
property, and all rights under or arising out of present or future contracts
relating to the foregoing and in any event, all equipment within the meaning of
the UCC.
1.4 General Intangibles. All general intangibles of every nature, whether
-------------------
presently existing or hereafter acquired or created, including without
limitation all books, correspondence, credit files, records, computer programs,
computer tapes, cards and other papers and documents in the possession or
control of the Debtor, claims (including without limitation all claims for
income tax and other refunds), choses in action, judgment, patents, trademarks,
licensing agreements, royalty payments, copyrights, service names, service
marks, logos, goodwill, all amounts received as an award in or settlement of a
suit in damages, deposit accounts, interests in joint ventures or general or
limited partnerships and in any event, all general intangibles within the
meaning of the UCC.
1.5 Contract Rights. All rights now owned or hereafter acquired or
---------------
created, to payment under contracts not yet earned by performance and not
evidenced by an Account.
1.6 Documents. All documents, instruments and chattel paper of every
---------
nature, whether now existing or hereafter acquired or created, and in any event
all documents within the meaning of the UCC.
1.7 Deposits. Any and all money, property, accounts, securities,
--------
documents, chattel paper, claims, demands, instruments, items or deposits of the
Debtor, now held or hereafter coming within the Secured Party's custody or
control, including, by way of example and not of limitation, all certificates of
deposit and other depository accounts, whether same have matured or the exercise
of the Secured Party's rights results in loss of interest or other penalty on
the deposits.
1.8 Proceeds. The proceeds, in cash or otherwise, of the Collateral
--------
described in the foregoing clauses, including, without limitation, the proceeds
of any sale or other disposition of the Collateral and all insurance proceeds of
any kind (whether or not the Secured Party is the loss payee under the
applicable insurance policy) paid at any time in connection with the Collateral,
all liens (whether
-2-
<PAGE>
possessory, contractual, statutory or otherwise) with respect to the Collateral,
and all rights, remedies and claims (whether in the nature of indemnities,
warranties, guaranties or otherwise), of the Debtor with respect to the
Collateral, in any case whether now existing or hereafter at any time or from
time to time arising.
1.9 Indebtedness Secured. The Security Interests are granted to secure
--------------------
the Obligations defined in the Third Restated Agreement and the following:
A. All funds hereafter advanced by the Secured Party to or for the
benefit of any of the Borrowers or to or for the benefit of the Debtor
as contemplated by any covenant or provision contained in this
Security Agreement, regardless of whether such indebtedness,
obligations and liabilities are direct, indirect, fixed, contingent,
joint, several, or joint and several; and,
B. All reasonable costs incurred by the Secured Party, including, but
expressly not limited to, attorneys' fees, court costs and other
similar costs, to obtain, preserve, perfect and enforce the Security
Interests, and costs incurred to maintain, preserve, collect and sell
the Collateral, or any part thereof, including but not limited to,
taxes, assessments, insurance premiums, repairs, rent, storage
charges, advertising costs, brokerage fees and expenses of sale; and,
C. All renewals, extensions and modifications of the Obligations, or any
part thereof; and,
D. Any judgment entered by a court of competent jurisdiction enforcing or
requiring payment any of the items described above.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
2.1 Owner of Collateral. Except for the Security Interests, the Debtor
-------------------
is, and as to the Collateral acquired after the date hereof which is included
within the Security Interests, the Debtor will be, the owner of the Collateral
free from all adverse claims, security interests and encumbrances except for
Permitted Liens.
2.2 Other Liens. There is no financing statement now on file in any
-----------
public office covering any part of the Collateral, and so long as any amount
remains unpaid on the Obligations, the Debtor will not execute and there will
not be on file in any public office, any financing statement or statements
except the Financing Statements filed or to be filed in respect to the Security
Interests.
2.3 Accuracy of Statements. Subject to any limitation stated therein or
----------------------
in connection therewith, all information furnished to the Secured Party
concerning the Collateral and proceeds thereof, or otherwise for the purpose of
obtaining credit or an extension of credit, is or will be at the time the same
is furnished, accurate and correct in all material respects.
2.4 Use of Collateral. The Collateral will be used by the Debtor for
-----------------
business use.
-3-
<PAGE>
2.5 Place of Business. The address of the Debtor designated at the
-----------------
beginning of this Security Agreement is Debtor's principal place of business and
chief executive office.
ARTICLE III
PROVISIONS REGARDING ACCOUNTS
-----------------------------
The following provisions shall apply to all Accounts included within the
Collateral:
3.1 Receipt of Accounts. Upon the occurrence of an Event of Default, the
-------------------
Secured Party shall have the right in the Secured Party's name or in the name of
the Debtor to demand, collect, receive, receipt for, sue for, compound and give
acquittal for, any and all amounts due or to become due on the Accounts and to
endorse the name of the Debtor on all instruments given in payment or part
payment thereof. The Secured Party may, in the Secured Party's reasonable
business judgment, file any claim or take any other action or proceeding which
the Secured Party deems necessary or appropriate to protect, preserve and
realize upon the Security Interests. In order to assure collection of the
Accounts, the Secured Party may notify the post office authorities to change the
address for delivery of mail addressed to the Debtor to the address as the
Secured Party may designate, and to open and dispose of the mail and receive the
collections of the Accounts included in the Security Interests.
3.2 Further Assurances. The Debtor will, from time to time, execute
------------------
further instruments and do such further acts as the Secured Party may reasonably
require by way of further assurance to the Secured Party including, but not
limited to, an assignment or other form of identification in forms required by
the Secured Party of all Accounts, together with other evidence of the existence
and identity of the Accounts. The Debtor will mark Debtor's books and records to
reflect the assignment of the Accounts which are included within the Security
Interests.
ARTICLE IV
COVENANTS
---------
4.1 Location of Collateral. All tangible Collateral will be located at
----------------------
Debtor's principal place of business. Except as herein provided, the Debtor will
not remove the Collateral from above location without the written consent of the
Secured Party. The Debtor agrees to notify the Secured Party promptly of any
change in Debtor's principal place of business and chief executive office.
4.2 Landlord's Lien. The Debtor covenants and agrees that the Debtor
---------------
owns, free and clear of any liens or encumbrances, all real property on which
any tangible Collateral is or be will located or, to the extent the tangible
Collateral is or will be located on real property owned by others, the Debtor
will furnish to the Secured Party a landlord's lien waiver of all liens with
respect to any Collateral covered by this Security Agreement, the landlord's
lien waiver to be in the form acceptable to the Secured Party.
4.3 Financing Statements. The Debtor agrees to execute and deliver all
--------------------
Financing Statements, or amendments thereof or supplements thereto, or other
instruments as the Secured Party may from time to time require in order to
comply with the UCC (or other applicable state law of the jurisdiction where any
of the Collateral is located) and to preserve and protect the Security
Interests. The Debtor authorizes the Secured Party to file, in jurisdictions
where this authorization will be given effect, a
-4-
<PAGE>
Financing Statement signed only by the Secured Party covering the Collateral. It
is further stipulated in this regard that the Secured Party may also at any time
or times sign any counterpart of this Security Agreement signed by the Debtor
and file same as a Financing Statement if the Secured Party shall elect to do
so.
4.4 Expenses. The Debtor will pay to the Secured Party, on demand, all
--------
reasonable expenses and expenditures, including reasonable attorney's fees and
legal expenses, incurred or paid by the Secured Party in exercising or
protecting the Security Interests, and the Secured Party's rights and remedies
under this Security Agreement. The Debtor agrees to pay interest on such amounts
at the Maximum Rate.
4.5 Curing of Default. Upon the occurrence of an Event of Default, the
-----------------
Secured Party may, at the Secured Party's option, but without obligation to the
Debtor, discharge taxes, liens or security interests or other encumbrances at
any time levied or placed upon the Collateral, and may place and pay for
insurance thereon, or pay for the repair, improvement, maintenance and
preservation of the Collateral and pay any filing or recording fees necessary
to preserve and protect the Security Interests. The Debtor agrees to reimburse
the Secured Party on demand for any payment made or any reasonable expense
incurred by the Secured Party pursuant to the foregoing authorization, and the
amount shall constitute additional Obligations which shall be secured by and
entitled to the benefits of this Security Agreement. The Debtor agrees to pay
interest on the amounts at the Maximum Rate from the date same are incurred by
the Secured Party until paid by the Debtor.
ARTICLE V
DEFAULT AND REMEDIES
--------------------
5.1 Default. The Debtor shall be in default under this Security Agreement
-------
upon the occurrence of any of the events or conditions defined as a Default in
the Third Restated Agreement. The Debtor shall also be in default under this
Security Agreement if the Debtor shall fail to perform any of Debtor's covenants
or agreements set out in this Security Agreement or if there shall occur a
breach of any representation or warranty contained herein.
5.2 Remedies. Upon the occurrence of a Default, and at any time
--------
thereafter, the Secured Party, may, at the Secured Party's option, without
demand, notice of intention to accelerate, notice of acceleration, notice of
nonpayment, presentment, protest, notice of dishonor, or any other notice
whatsoever to the Debtor, declare the Obligations immediately due and payable.
The Secured Party shall thereupon have the rights and remedies of a secured
party under the UCC, as otherwise granted herein and/or in any other agreement
executed by the Debtor, all of which rights and remedies shall be cumulative,
including, without limitation, the right to sell, lease or otherwise dispose of
any or all of the Collateral and to apply the proceeds thereof toward payment of
any reasonable costs and expenses and attorney's fees and legal expenses thereby
incurred by the Secured Party and toward payment of the Obligations in the order
or manner as the Secured Party may elect. The Secured Party shall have the right
to take immediate possession of the Collateral, with or without process of law,
and for that purpose the Secured Party may enter upon any premises on which the
Collateral or any part thereof may be situated and remove the same therefrom.
The Secured Party may require the Debtor to assemble the Collateral and make the
Collateral available to the Secured Party at a place to be designated by the
Secured Party which is reasonably convenient to both parties. Unless the
Collateral is perishable or threatens to decline speedily in value or is of a
type customarily sold on a
-5-
<PAGE>
recognized market, the Secured Party will send the Debtor reasonable notice of
the time and place of any public sale thereof or of the time after which any
private sale or other disposition thereof is to be made. The requirement of
sending a reasonable notice shall be met if the notice is mailed, postage
prepaid, to the Debtor at the address designated at the beginning of this
Security Agreement at least ten (10) days before the time of the sale or
disposition. Costs of legal expenses, plus interest thereon at the Maximum Rate,
shall constitute a part of the Obligations which shall be due on demand and
which shall be secured by and entitled to the benefits of this Security
Agreement. If the proceeds of any sale or other lawful disposition by the
Secured Party of the Collateral following the retaking are insufficient to pay
expenses of retaking, repairing, holding, preparing the Collateral for sale,
selling the Collateral and the like, to satisfy the Obligations, then the Debtor
agrees to pay any deficiency. The Debtor shall be entitled to any surplus if one
results after lawful application of the proceeds.
5.3 Waiver of Default. The Secured Party may remedy any Default and may
-----------------
waive any Default without waiving the Default remedied or without waiving any
other prior or subsequent Event of Default or Default.
5.4 Cumulative Remedies. The remedies of the Secured Party hereunder are
-------------------
cumulative, and the exercise of any one or more of the remedies provided herein
shall not be construed as a waiver of any of the other remedies of the Secured
Party.
ARTICLE VI
MISCELLANEOUS
-------------
6.1 Financing Statement. Any carbon, photographic or other reproduction
-------------------
of any Financing Statement signed by the Debtor is sufficient as a Financing
Statement for all purposes, including, without limitation, filing in any state
as may be permitted by the provisions of the UCC.
6.2 Dealing with the Collateral. The Secured Party may, at the Secured
---------------------------
Party's option, after any Default, demand, sue for, collect or make any
compromise or settlement the Secured Party deems necessary with reference to the
Collateral. The Secured Party shall not be obligated to take any steps necessary
to preserve any rights in the Collateral against prior parties, all which shall
solely be the responsibility of the Debtor.
6.3 Waiver. No delay or omission on the part of the Secured Party in
------
exercising any rights hereunder shall operate as a waiver of any such right or
any other right. A waiver on any one or more occasions shall not be construed as
a bar to or waiver of any right or remedy on any future occasion.
6.4 Compliance With Usury Law. The Loan Documents are intended to be
-------------------------
performed in accordance with, and only to the extent permitted by, all
applicable Requirements. This Security Agreement is subject to the provisions
set out in the Third Restated Agreement relating to the payment of interest at
the Maximum Rate and to payment or collection of interest in excess of the
Maximum Amount, all of which provisions are incorporated herein for all
purposes.
6.5 Binding Effect. All rights of the Secured Party hereunder shall inure
--------------
to the benefit of the Secured Party and the Secured Party's successors and
assigns. All obligations of the Debtor shall bind Debtor's heirs, executors,
administrators, successors and/or assigns.
-6-
<PAGE>
6.6 Termination. The Security Interests and all the terms and provisions
-----------
hereof shall be deemed a continuing security agreement and shall continue in
full force and effect, and all the terms and provisions hereof shall remain
effective as between the parties, until the full and final payment of all
Obligations without the right of any Person to set aside or contest the payment
pursuant to any Debtor Laws.
6.7 Prior Agreements. This Security Agreement and the Security Interests
----------------
are in addition to, and not in substitution, novation or discharge of, any and
all prior or contemporaneous security agreements and security interests in favor
of the Secured Party or assigned to the Secured Party by others. All rights,
powers and remedies of the Secured Party in all such security agreements are
cumulative, but in the event of actual conflict in terms and conditions, the
terms and conditions of this Security Agreement shall govern and control.
6.8 Severability. In the event any one or more of the provisions
------------
contained in the Loan Documents, including this Security Agreement, should be
held to be invalid, illegal or unenforceable in any respect, the validity,
enforceability and legality of the remaining provisions contained in the Loan
Documents shall not in any manner be affected thereby and shall be enforceable
in accordance with their terms.
6.9 Applicable Law. THE LOAN DOCUMENTS, INCLUDING THIS SECURITY
--------------
AGREEMENT, HAVE BEEN PREPARED, ARE BEING EXECUTED AND DELIVERED, AND ARE
INTENDED TO BE PERFORMED IN THE STATE OF TEXAS, AND THE SUBSTANTIVE LAWS OF THE
STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE CONFLICTS-OF-LAW RULES AND
PRINCIPLES OF THE STATE OF TEXAS, AND THE APPLICABLE LAWS OF THE U.S. SHALL
GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS
SECURITY AGREEMENT AND THE LOAN DOCUMENTS.
6.10 Choice of Forum, Service of Process and Jurisdiction. Any suit, action
----------------------------------------------------
or proceeding against the Debtor with respect to the Loan Documents, or any
judgement entered by any court in respect thereof, shall be brought in the
courts of the State of Texas, County of Harris, or in the U.S. courts located in
the State of Texas as the Secured Party, in the Secured Party's sole discretion,
may elect and the Debtor submits to the non-exclusive jurisdiction of such
courts for the purpose of any such suit, action or proceeding. The Debtor
irrevocably consents to the service of process in any suit, action or proceeding
in the court by the mailing thereof by the Secured Party by registered or
certified mail, postage prepaid, to the Debtor at the address herein.
6.11 Captions. The captions, headings, and arrangements used in this
--------
Security Agreement are for convenience only and do not in any manner affect,
limit, amplify, or modify the terms and provisions hereof.
6.12 Modification. All modifications, consents, amendments or waivers of
------------
any provison of this Security Agreement, or consent to any departure by the
Debtor herefrom, shall be effective only if the same shall be in writing and
agreed to by the Secured Party and then shall be effective only in the specific
instance and for the purpose for which given.
6.13 Agency. Nothing herein contained shall be construed to constitute the
------
Debtor as the Secured Party's agent for any purpose whatsoever. The Secured
Party shall not be responsible or
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<PAGE>
liable for any damage, loss or destruction of any part of the property
encumbered by the Collateral Documents wherever the same may be located and
regardless of the cause thereof.
6.14 Non-liability of Secured Party. The relationship among the Debtor and
------------------------------
the Secured Party is, and shall at all times remain, solely that of debtor and
creditor. The Secured Party does not undertake or assume any responsibility or
duty to the Debtor to review, inspect, supervise, pass judgment upon, or inform
any Person of any matter in connection with any phase of such Person's
business, operations, or condition, financial or otherwise. Each Person shall
rely entirely upon such Person's own judgment with respect to such matters. Any
review, inspection, supervision, exercise of judgment, or information supplied
to any Person by the Secured Party in connection with any such matter is for the
protection of the Secured Party, and neither the Debtor nor any other Person is
entitled to rely thereon.
6.15 Entirety. The Loan Documents embody the entire agreement between the
--------
parties and supersede all prior agreements and understandings, if any, relating
to the subject matter hereof and thereof.
THE WRITTEN CREDIT AGREEMENT, THE LOAN DOCUMENTS DESCRIBED THEREIN AND THIS
INSTRUMENT REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
Executed effective the day and year first above written.
BURTON HOUSE, INC.
BY:________________________________
DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER
"DEBTOR"
-8-
<PAGE>
Exhibit 6.1.B
Security Agreement-Pledge
<PAGE>
SECURITY AGREEMENT-PLEDGE
This Security Agreement-Pledge (the "Security Agreement") is executed and
delivered effective September 15, 1997, by LITIGATION RESOURCES OF
AMERICA-CALIFORNIA, INC. (the "Debtor"), whose address is 1001 Fannin, Suite
650, Houston, Texas 77002-2731, in favor of TEXAS COMMERCE BANK NATIONAL
ASSOCIATION (the "Secured Party") whose address is 712 Main Street, P.O. Box
2558, Houston, Texas 77252-2558, pursuant to the terms of a Fourth Amended and
Restated Credit Agreement (the "Credit Agreement"), dated September 15, 1997, by
and among LITIGATION RESOURCES OF AMERICA, INC., LOONEY & COMPANY, KLEIN, BURY &
ASSOCIATES, INC., LITIGATION RESOURCES OF AMERICA-CALIFORNIA, INC., LITIGATION
RESOURCES OF AMERICA-MIDWEST, INC., BLOCK COURT REPORTING, INC., BLOCK TAPE
TRANSCRIPTION SERVICES, INC, and BURTION HOUSE, INC. (collectively, the
"Borrowers") and the Secured Party. Under and pursuant to the terms of the
Credit Agreement, the Secured Party has agreed to make Loans to the Borrowers.
All capitalized terms used herein shall have the same meanings ascribed to them
in the Credit Agreement unless otherwise specifically defined in this Security
Agreement.
ARTICLE I
SECURITY INTERESTS
------------------
In consideration of the premises, for value received, for other good, fair
and valuable considerations, the receipt, adequacy and reasonable equivalency of
which are acknowledged, and for other valuable consideration, the Debtor grants
to the Secured Party the security interests (the "Security Interests") herein
set forth and agrees with the Secured Party as set out herein. The Secured Party
has and shall continue to have Security Interests in the following property of
the Debtor (collectively, the "Collateral").
1.1 Stock. _________ shares of BURTON HOUSE, INC. (the "Stock"), together
-----
with all monies, income, proceeds and benefits attributable or accruing to the
Stock, including, but not limited to, all stock rights, rights to subscribe,
liquidating dividends, stock dividends, dividends paid in stock, security
entitlements, investment properties, new security and other properties or
benefits to which the Debtor is or may hereafter become entitled to receive on
account of the Stock. In the event that the Debtor shall receive any of the
foregoing, the Debtor shall hold same in trust for the Secured Party and will
immediately deliver same to the Secured Party to be held hereunder in the same
manner as the Stock is held hereunder. The Debtor agrees to execute such stock
powers, endorse such instruments, Financing Statements and/or execute such
additional pledge agreements or other documents as may be required by the
Secured Party in order to effectively grant to or perfect in the Secured Party
the Security Interests in the Collateral.
1.2 Deposits. Any and all money, property, accounts, securities,
--------
documents, chattel paper, claims, demands, instruments, items or deposits of the
Debtor, now held or hereafter coming within the Secured Party's custody or
control, including, by way of example and not of limitation, all certificates of
deposit and other depository accounts, whether same have matured or the exercise
of the Secured Party's rights results in loss of interest or other penalty on
the deposits.
-1-
<PAGE>
1.3 Other Collateral. Any and all securities and other properties
----------------
heretofore, now or hereafter delivered to the Secured Party, or in the Secured
Party's possession, shall also secure all Obligations and shall be held and
construed to be a part of the Collateral hereunder to the same extent as fully
described herein.
1.4 Proceeds. The proceeds, in cash or otherwise, of the Collateral
--------
described in the foregoing clauses, including, without limitation, the proceeds
of any sale or other disposition of the Collateral and all insurance proceeds of
any kind (whether or not the Secured Party is the loss payee under the
applicable insurance policy) paid at any time in connection with the Collateral,
all liens (whether possessory, contractual, statutory or otherwise) with respect
to the Collateral, and all rights, remedies and claims (whether in the nature of
indemnities, warranties, guaranties or otherwise), of the Debtor with respect to
the Collateral, in any case whether now existing or hereafter at any time or
from time to time arising.
1.5 Indebtedness Secured. The Security Interests are granted to secure the
--------------------
Obligations defined in the Credit Agreement and the following:
A. All funds hereafter advanced by the Secured Party to or for the
benefit of the Debtor as contemplated by any covenant or provision
contained in this Security Agreement, regardless of whether such
indebtedness, obligations and liabilities are direct, indirect, fixed,
contingent, joint, several, or joint and several; and,
B. All costs incurred by the Secured Party, including, but expressly not
limited to, attorneys' fees, court costs and other similar costs, to
obtain, preserve, perfect and enforce the Security Interests, and
costs incurred to maintain, preserve, collect and sell the Collateral,
or any part thereof, including but not limited to, taxes, assessments,
advertising costs, brokerage fees and expenses of sale; and,
C. All renewals, extensions and modifications of the Obligations, or any
part thereof; and,
D. Any judgment entered by a court of competent jurisdiction enforcing or
requiring payment any of the items described above.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
2.1 Ownership. Except for the Security Interests, the Debtor is and as to
---------
the Collateral acquired after the date hereof which is included within the
Security Interests, the Debtor will be, the owner of the Collateral free from
all adverse claims, security interests and encumbrances.
2.2 Other Liens. There is no financing statement now on file in any public
-----------
office covering any part of the Collateral, and so long as any amount remains
unpaid on the Obligations, the Debtor will not execute and there will not be on
file in any public office, any financing statement or statements except the
Financing Statements filed or to be filed in respect to the Security Interests.
2.3 Accuracy of Statements. Subject to any limitation stated therein or in
----------------------
connection therewith, all information furnished to Secured Party concerning the
Collateral and proceeds thereof, or
-2-
<PAGE>
otherwise for the purpose of obtaining credit or an extension of credit, is or
will be at the time the same is furnished, accurate and correct in all material
respects.
2.4 Place of Business. The address of the Debtor designated at the
-----------------
beginning of this Security Agreement is Debtor's principal place of business and
chief executive office.
ARTICLE III
COVENANTS
---------
3.1 Financing Statements. The Debtor agrees to execute and deliver all
--------------------
Financing Statements, or amendments thereof or supplements thereto, or other
instruments as the Secured Party may from time to time require in order to
comply with the UCC (or other applicable state law of the jurisdiction where any
of the Collaterial is located) and to preserve and protect the Security
Interests. The Debtor authorizes the Secured Party to file, in jurisdictions
where this authorization will be given effect, a Financing Statement signed only
by the Secured Party covering the Collateral. It is further stipulated in this
regard that the Secured Party may also at any time or times sign any counterpart
of this Security Agreement signed by the Debtor and file same as a Financing
Statement if the Secured Party shall elect to do so.
3.2 Expenses. The Debtor will pay to the Secured Party, on demand, all
--------
expenses and expenditures, including reasonable attorney's fees and legal
expenses, incurred or paid by the Secured Party in exercising or protecting the
Security Interests, and the Secured Party's rights and remedies under this
Security Agreement. The Debtor agrees to pay interest on such amounts at the
Maximum Rate.
3.3 Curing of Default. The Secured Party may, at the Secured Party's
-----------------
option, whether before or after Default, but without obligation to the Debtor,
discharge taxes, liens or security interests or other encumbrances at any time
levied or placed upon the Collateral, and pay any filing or recording fees
necessary to preserve and protect the Security Interests. The Debtor agrees to
reimburse the Secured Party on demand for any payment made or any expense
incurred by the Secured Party pursuant to the foregoing authorization, and the
amount shall constitute additional Obligations which shall be secured by and
entitled to the benefits of this Security Agreement. The Debtor agrees to pay
interest on the amounts at the Maximum Rate from the date same are incurred by
the Secured Party until paid by the Debtor.
3.4 Endorsement. The Secured Party shall have the power to endorse, and is
-----------
hereby appointed the Debtor's agent for the purpose of endorsing in the name of
the Debtor, any instrument or document constituting Collateral or which may be
received in payment of or on account of the Collateral.
ARTICLE IV
EVENTS OF DEFAULT AND REMEDIES
------------------------------
4.1 Events of Default. The Debtor shall be in default under this Security
-----------------
Agreement upon the occurrence of any of the following events or conditions:
-3-
<PAGE>
A. The occurrence of any of the events or conditions defined as a Default
in the Credit Agreement; and/or,
B. If the Debtor shall fail to perform any of the Debtor's covenants or
agreements set out in this Security Agreement or if there shall occur
a breach of any representation or warranty contained herein; and/or,
C. There shall occur any deterioration or impairment of the Collateral or
any part thereof, or any decline or depreciation in the market price
thereof (whether actual or reasonably anticipated) which, in the
judgment of the Secured Party, causes the Collateral to become or be
unsatisfactory as to value or character; and/or,
D. There shall occur a levy of any attachment, execution, garnishment or
other process against the Debtor or any of the Collateral in
connection with any tax lien, debt, judgment, garnishment, assessment
or obligation of the Debtor.
4.2 Remedies. Upon the occurrence of an Event of Default, and at any time
--------
thereafter, the Secured Party, may, at the Secured Party's option, without
demand, notice of intention to accelerate, notice of acceleration, notice of
nonpayment, presentment, protest, notice of dishonor, or any other notice
whatsoever to the Debtor, declare the Obligations immediately due and payable.
The Secured Party shall thereupon have the rights and remedies of a secured
party under the UCC, as otherwise granted herein and/or in any other agreement
executed by the Debtor, all of which rights and remedies shall be cumulative,
including, without limitation, the right to sell at public or private sale or
sales, or otherwise dispose of or utilize the Collateral and any part or parts
thereof in any manner authorized or permitted under this Security Agreement or
under the UCC. The Secured Party shall be authorized to apply the proceeds
thereof toward payment of costs, expenses and attorney's fees and legal expenses
thereby incurred by the Secured Party and toward payment of the Obligations in
the order or manner as the Secured Party may elect. The Debtor waives any notice
of sale or other disposition of the Collateral and any other rights or remedies
of the Debtor or formalities prescribed by law relative to sale or disposition
of the Collateral or the exercise of any other right or remedy of the Secured
Party existing after Default. To the extent any such notice is required and
cannot be waived, the Debtor agrees that if such notice is given in the manner
set out in the Credit Agreement at least ten (10) days before the time of the
sale or disposition, such notice shall be deemed reasonable and shall fully
satisfy any requirement for giving of notice. Costs of legal expenses, plus
interest thereon at the Maximum Rate, shall constitute a part of the Obligations
which shall be due on demand and which shall be secured by and entitled to the
benefits of this Security Agreement. If the proceeds of any sale or other lawful
disposition by the Secured Party of the Collateral following the retaking are
insufficient to pay expenses of retaking, repairing, holding, preparing the
Collateral for sale, selling the Collateral and the like, to satisfy the
Obligations, then the Debtor agrees to pay any deficiency. The Debtor shall be
entitled to any surplus if one results after lawful application of the proceeds.
The Secured Party is granted the right, at the Secured Party's option, either
before or after Default, to transfer the Collateral at any time to the Secured
Party or the Secured Party's nominee.
4.3 Waiver of Default. The Secured Party may remedy any Default and may
-----------------
waive any Default without waiving the Default remedied or without waiving any
other prior or subsequent Event of Default or Default.
-4-
<PAGE>
4.4 Cumulative Remedies. The rights and remedies of the Secured Party
-------------------
hereunder are cumulative, and the exercise of any one or more of the remedies
provided herein shall not be construed as a waiver of any of the other remedies
of the Secured Party.
ARTICLE V
MISCELLANEOUS
-------------
5.1 Financing Statement. Any carbon, photographic or other reproduction
-------------------
of any Financing Statement signed by the Debtor is sufficient as a Financing
Statement for all purposes, including, without limitation, filing in any state
as may be permitted by the provisions of the UCC.
5.2 Dealing with the Collateral. The Secured Party may, at the Secured
---------------------------
Party's option, whether or not the Obligations are due, demand, sue for, collect
or make any compromise or settlement the Secured Party deems necessary with
reference to the Collateral. The Secured Party shall not be obligated to take
any steps necessary to preserve any rights in the Collateral against prior
parties, all which shall be the responsibility of the Debtor.
5.3 Waiver. No delay or omission on the part of the Secured Party in
------
exercising any rights hereunder shall operate as a waiver of any such right or
any other right. A waiver on any one or more occasions shall not be construed as
a bar to or waiver of any right or remedy on any future occasion. The Security
Interests shall in no manner be affected by any indulgence, extension or change
in the form, evidence, maturity, rate of interest or otherwise of any of the
Obligations. The Security Interests shall in no manner be affected by failure of
presentment, notice, protest, suit or indulgence on any of the Obligations.
Neither the failure to perfect the Security Interests or lien in any Collateral,
nor any release of any Person liable for the payment of any of the Obligations
shall affect or impair this pledge, and the Security Interests shall continue in
full force and effect in accordance with the terms hereof until all of the
Obligations have been fully paid.
5.4 Compliance With Usury Law. The Loan Documents are intended to be
-------------------------
performed in accordance with, and only to the extent permitted by, all
applicable Requirements. This Security Agreement is subject to the provisions
set out in the Credit Agreement relating to the payment of interest at the
Maximum Rate and to payment or collection of interest in excess of the Maximum
Amount, all of which provisions are incorporated herein for all purposes.
5.5 Binding Effect. All rights of the Secured Party hereunder shall
--------------
inure to the benefit of the Secured Party and the Secured Party's successors and
assigns. All obligations of the Debtor shall bind Debtor's heirs, executors,
administrators, successors and/or assigns.
5.6 Termination. The Security Interests and all the terms and provisions
-----------
hereof shall be deemed a continuing security agreement and shall continue in
full force and effect, and all the terms and provisions hereof shall remain
effective as between the parties, until the full and final payment of all
Obligations without any the right of any Person to set aside or contest the
payment pursuant to any Debtor Laws.
5.7 Prior Agreements. This Security Agreement and the Security Interests
----------------
are in addition to, and not in substitution, novation or discharge of, any and
all prior or contemporaneous security agreements and security interests in favor
of the Secured Party or assigned to the Secured Party by others.
-5-
<PAGE>
All rights, powers and remedies of the Secured Party in all such security
agreements are cumulative, but in the event of conflict in terms and conditions,
the terms and conditions of this Security Agreement shall govern and control.
5.8 Severability. In the event any one or more of the provisions
------------
contained in the Loan Documents, including this Security Agreement, should be
held to be invalid, illegal or unenforceable in any respect, the validity,
enforceability and legality of the remaining provisions contained in the Loan
Documents or this Security Agreement shall not in any way be affected thereby
and shall be enforceable in accordance with their terms.
5.9 Applicable Law. THE LOAN DOCUMENTS, INCLUDING THIS SECURITY
--------------
AGREEMENT, HAVE BEEN PREPARED, ARE BEING EXECUTED AND DELIVERED, AND ARE
INTENDED TO BE PERFORMED IN THE STATE OF TEXAS, AND THE SUBSTANTIVE LAWS OF THE
STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE CONFLICTS-OF-LAW RULES AND
PRINCIPLES OF THE STATE OF TEXAS, AND THE APPLICABLE LAWS OF THE U.S. SHALL
GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS
SECURITY AGREEMENT AND THE LOAN DOCUMENTS.
5.10 Choice of Forum. Service of Process and Jurisdiction. Any suit,
----------------------------------------------------
action or proceeding against the Debtor with respect to the Loan Documents, or
any judgment entered by any court in respect thereof, shall be brought in the
courts of the State of Texas, County of Harris, or in the United States courts
located in the State of Texas as the Secured Party, in the Secured Party's sole
discretion, may elect and the Debtor submits to the non-exclusive jurisdiction
of such courts for the purpose of any such suit, action or proceeding. The
Debtor irrevocably consents to the service of process in any suit, action or
proceeding in the court by the mailing thereof by the Secured Party by
registered or certified mail, postage prepaid, to the Debtor at the address
herein.
5.11 Captions. The captions, headings, and arrangements used in this
--------
Security Agreement are for convenience only and do not in any manner affect,
limit, amplify, or modify the terms and provisions hereof.
5.12 Modification. All modifications, consents, amendments or waivers of
------------
any provision of this Security Agreement, or consent to any departure by the
Debtor herefrom, shall be effective only if the same shall be in writing and
agreed to by the Secured Party and then shall be effective only in the specific
instance and for the purpose for which given.
5.13 Agency. Nothing herein contained shall be construed to constitute the
------
Debtor as the Secured Party's agent for any purpose whatsoever. The Secured
Party shall not be responsible or liable for any damage, loss or destruction of
any part of the property encumbered by the Collateral Documents wherever the
same may be located and regardless of the cause thereof.
5.14 Non-liability of Secured Party. The relationship among the Debtor and
------------------------------
the Secured Party is, and shall at all times remain, solely that of debtor and
creditor. The Secured Party does not undertake or assume any responsibility or
duty to the Debtor to review, inspect, supervise, pass judgment upon, or inform
any Person of any matter in connection with any phase of such Person's business,
operations, or condition, financial or otherwise. Each Person shall rely
entirely upon such Person's own judgment with respect to such matters. Any
review, inspection, supervision, exercise of judgment, or information supplied
to any Person by the Secured Party in connection with any such
-6-
<PAGE>
matter is for the protection of the Secured Party, and neither the Debtor or any
other Person is entitled to rely thereon.
5.15 Entirety. The Loan Documents embody the entire agreement between the
--------
parties and supersede all prior agreements and understandings, if any, relating
to the subject matter hereof and thereof.
THE WRITTEN CREDIT AGREEMENT, THE LOAN DOCUMENTS DESCRIBED THEREIN AND THIS
INSTRUMENT REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
Executed effective the day and year first above written.
LITIGATION RESOURCES OF AMERICA
-CALIFORNIA, INC.
BY:_______________________________
DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER
"DEBTOR"
-7-
<PAGE>
Exhibit 8.2.C
Certificate of Compliance
<PAGE>
____________, 199_
Certificate of Compliance
Texas Commerce Bank National Association
712 Main Street
P.O. Box 2558
Houston, Texas 77252-2558
Gentlemen:
This certificate is delivered pursuant to a Fourth Amended and Restated
Credit Agreement (the "Fourth Restated Agreement") dated September 17, 1997, by
and among LITIGATION RESOURCES OF AMERICA, INC., et.al. (collectively, the
-- --
"Borrowers") and Texas Commerce Bank National Association (the "Bank").
Capitalized terms used herein and not otherwise defined herein shall have the
meaning set forth in the Credit Agreement.
In connection with this Certificate the undersigned certifies that:
1. The attached consolidated Financial Statements of the Borrowers were
prepared in conformity with GAAP and fairly present the financial position of
Borrowers as of the dates thereof and the results of Borrowers' operations for
the period covered thereby.
2. As of the end of the period covered by the Financial Statements,
Borrowers' consolidated:
Requirement
-----------
A. Funded Debt is: $ _________________
B. Cash Flow is: $ _________________
C. Ratio of A to B is: :1.00 ______ :1.00
-----------------
(Section 7.2.A)
D. Fixed Charges are: $ _________________
E. Fixed Charge Coverage
Ratio is: :1.00 ______ :1.00
-----------------
(Section 7.2.B)
F. Capital Expenditures
to date are: $ _________________ No more than
$300,000.00
3. A review of the activities of each Loan Party during the period
covered by the attached Financial Statements has been made under my supervision
and with a view to determining whether,
<PAGE>
Texas Commerce Bank National Association
___________________, 199_
Page 2
during such period, each Loan Party has kept, observed, performed and fulfilled
all of its obligations under the Credit Agreement.
4. Check either A or B below, as applicable:
------
[_] A. To the best of the undersigned's knowledge, each Loan Party has kept,
observed, performed and fulfilled each and every material obligation
under the Credit Agreement during the period covered by the attached
Financial Statements.
[_] B. To the best of the undersigned's knowledge, each Loan Party has kept,
observed, performed, and fulfilled each and every one of its
obligations under the Credit Agreement during the period covered by
the attached Financial Statements except for the following matters:
[DESCRIBE ALL SUCH DEFAULTS, SPECIFYING THE NATURE, DURATION AND
STATUS THEREOF AND WHAT ACTION BORROWERS HAVE TAKEN OR PROPOSE TO TAKE
WITH RESPECT THERETO].
5. There is a Borrowing Base report attached to this Certificate
accurately calculating the amounts permissible under the Borrowing Base.
LITIGATION RESOURCES OF AMERICA, INC.
BY:____________________________________
PRINTED NAME:__________________________
TITLE:_________________________________
<PAGE>
Exhibit 9.1.G
Seller Debt Subordination Agreement-EDP
<PAGE>
SELLER DEBT SUBORDINATION AGREEMENT
This Seller Debt Subordination Agreement (the "Agreement") is made and
entered into September 17, 1997, by and among LITIGATION RESOURCES OF AMERICA,
INC., LOONEY & COMPANY, KLEIN, BURY & ASSOCIATES, INC., LITIGATION RESOURCES OF
AMERICA-CALIFORNIA, INC., LITIGATION RESOURCES OF AMERICA-MIDWEST, INC.,
LITIGATION RESOURCES OF AMERICA-NORTHEAST, INC. ("LRA-NE"), BLOCK COURT
REPORTING, INC., BLOCK TAPE TRANSCRIPTION SERVICES, INC., BURTON HOUSE, INC.
(sometimes herein collectively called the "Borrowers," and singly called a
"Borrower"), and ELAINE P. DINE, INC. ("EPD, INC."), a New York corporation, and
ELAINE P. DINE TEMPORARY ATTORNEYS, L.L.C. ("EPD, LLC"), a New York limited
liability company, (collectively, the "Subordinate Creditors"), and TEXAS
COMMERCE BANK NATIONAL ASSOCIATION (the "Senior Creditor").
RECITALS
--------
The Borrowers are indebted to the Senior Creditor pursuant to the terms of
a Fourth Amended and Restated Credit Agreement (the "Credit Agreement") dated
September 17, 1997, among the Borrowers and the Senior Creditor, and may become
further indebted to the Senior Creditor. All Indebtedness, liabilities and
obligations of any of the Borrowers under the Credit Agreement or any other
document or instrument evidencing, securing, guaranteeing or in any manner
pertaining to the Loans (collectively, the "Loan Documents"), and all other
Indebtedness owing by any of the Borrowers to the Senior Creditor howsoever
evidenced (such documents evidencing, securing, guaranteeing, or pertaining to
such other Indebtedness are also included within the definition of the "Loan
Documents"), whether now or hereafter existing for principal or interest
(including without limitation interest accruing after the commencement of any
proceeding referred to in Section 3), or for fees, expenses or otherwise, are
herein called the "Senior Debt". All terms used in this Agreement shall, unless
otherwise herein specifically given another meaning, have the meanings ascribed
to them in the Credit Agreement.
LRA, LRA-NE, the Subordinate Creditors, Elaine P. Seigel and Laurie Becker
have entered into an Agreement of Purchase and Sale of Assets (the "EDP Asset
Purchase Agreement") dated as of September 17, 1997, for the sale by the
Subordinate Creditors and the purchase by LRA-NE of substantially all of the
assets (the "Assets") which are owned by the Subordinate Creditors. Pursuant to
the terms of the EDP Asset Purchase Agreement, LRA-NE will become indebted to
EPD, INC. as evidenced by a 6.375% subordinated promissory note in the original
principal sum of $1,340,740.00, to be executed by LRA-NE payable to the order of
EPD, INC. and LRA-NE will become indebted to EPD, LLC as evidenced by a 6.375%
subordinated promissory note in the original principal sum of $659,260.00, to be
executed by LRA-NE payable to the order of EPD, LLC (collectively, the foregoing
notes being the "Notes"). One or more of the Borrowers may, from time to time,
become further indebted to the Subordinate Creditors for other or further
Indebtedness, liabilities or obligations. All such Indebtedness now owing, and
all other Indebtedness, liabilities or obligations any of the Borrowers to
either of the Subordinate Creditors hereafter existing, are herein called the
"Subordinated Debt." The foregoing term includes, but is not limited to, all
obligations of any of the Borrowers owing to either of the Subordinate Creditors
whether, (i) created directly or acquired by assignment or otherwise, (ii)
evidenced by a note, open account, application for letter of credit, or
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<PAGE>
otherwise, (iii) absolute or contingent, (iv) joint, several or independent, (v)
arising by operation of law, or (vi) otherwise.
LRA-NE has requested that the Senior Creditor consent to the sale and
purchase transaction with the Subordinate Creditors to be evidenced by the EDP
Asset Purchase Agreement. Conditioned on the Subordinate Creditors and the
Borrowers executing and delivering this Agreement to the Senior Creditor and the
acquisition of all of the Assets, the Senior Creditor is willing to consent to
the EDP Asset Purchase Agreement, the sale and purchase transaction to occur
pursuant thereto and to the continuation of the Loans to the Borrowers pursuant
to the Credit Agreement. It is expressly understood and agreed by the parties
that this Agreement relates to and includes all Indebtedness of any of the
Borrowers to either of the Subordinate Creditors, whether presently existing or
to exist in the future.
AGREEMENT
---------
In consideration of the premises, for other good, fair and valuable
considerations, the receipt, adequacy and reasonable equivalency of which are
acknowledged, and as an inducement to the Senior Creditor to consent to the EDP
Asset Purchase Agreement and the sale and purchase transaction to occur pursuant
thereto, and to continue financial accommodations to the Borrowers, it is agreed
among the parties as follows:
1. Subordination. The Borrowers and the Subordinate Creditors agree that
-------------
the payment of or in respect of the Subordinated Debt owing or to become owing
in the future is and shall be expressly subordinated to the prior payment in
full of all Senior Debt to the extent and in the manner hereinafter set forth.
2. Payments on the Subordinated Debt. Except as herein provided, no
---------------------------------
payments shall be made on the Subordinated Debt.
A. (1) Except as permitted in Section 2.B, Section 2.C or Section
3.A.(5), or unless and until all Senior Debt has been paid in full and
no commitment is in existence to advance or create the Senior Debt, no
payment shall be made by any of the Borrowers, directly or indirectly,
in respect of or on the Subordinated Debt, and (2) neither of the
Subordinate Creditors shall ask, demand, sue for, take any action to
enforce, take or receive, directly or indirectly, in cash or other
property, by sale, setoff for in any other manner whatsoever, any
amounts owing in respect of the Subordinated Debt. In the event that
notwithstanding the provisions of the preceding sentence of this
Section, any of the Borrowers shall make any payment on account of or
in respect of the Subordinated Debt in violation of this Agreement,
such payment shall be segregated from other funds and property of the
Subordinate Creditors and held by the Subordinate Creditors in trust
for the benefit of, and shall be promptly paid over and delivered to
the Senior Creditor, with any necessary endorsement, for the payment
of all Senior Debt remaining unpaid to the extent necessary to pay all
Senior Debt or held as collateral in the case of non-cash property for
the payment of the Senior Debt.
B. Notwithstanding anything to the contrary contained in Section 2.A, so
long as there shall not exist a Proceeding, as below defined, LRA-NE
may make, and the Subordinate Creditors may receive and retain for the
Subordinate Creditor's respective account, scheduled accrued
-2-
<PAGE>
interest payments, at the interest rate stated above, as and when such
interest payments accrue on the Notes. If there shall occur a
Proceeding, the provisions of Section 3 shall apply and override the
provisions of this Section 2.B and the Subordinate Creditors shall be
entitled to receive and retain accrued interest payments only as set
out in Section 3.
C. Notwithstanding anything to the contrary contained in Section 2.A, so
long as, (a) there shall exist no Event of Default of which the
Subordinate Creditors shall have been given notice (or if notice of an
Event of Default shall have been given to the Subordinate Creditors
and the Borrowers shall have cured the Event of Default without the
Senior Creditor accelerating the Senior Debt), (b) there shall not
have occurred any default under the terms hereof, (c) the Borrowers
are in compliance with the Borrowers' covenants set out in the Credit
Agreement, and (d) any such payment shall not cause a Default, LRA-NE
may make, and the Subordinate Creditors may receive and retain for the
Subordinate Creditor's respective account, the principal instalment
payments, as and when such principal payments are due on the Notes and
pay the entire balance of the Subordinated Debt from the proceeds from
one or more equity offerings, or offerings of Subordinated Debt.
D. The monthly installments to be paid on the Notes shall not exceed
$10,625.00 in the aggregate of accrued interest thereon, without the
Senior Creditor's prior written consent.
E. LRA-NE and the Subordinate Creditors shall maintain records with
respect to such payments and upon the occurrence of a Default or of an
Event of Default of which the Subordinate Creditors shall have been
given notice and, during the continuance of any uncured Event of
Default, no Borrower or any guarantor of the Senior Debt shall have
the right to make, and the Subordinate Creditors shall cease to have
the right to receive and retain, any payments on the Subordinated Debt
and all such payments received by the Subordinate Creditors thereafter
shall be held in trust for the benefit of the Senior Creditor pursuant
to this Agreement.
3. Distributions Pending a Proceeding.
----------------------------------
A. Upon any distribution of all or any of the assets of any of the
Borrowers, (whether in {i} connection with the dissolution, winding
up, liquidation, arrangement, reorganization, adjustment, protection,
relief or composition of any of the Borrowers or the Indebtedness of
any of the Borrowers, {ii} any bankruptcy, insolvency, arrangement,
reorganization, receivership, relief or similar proceedings of any of
the Borrowers {collectively, the foregoing being "Proceedings," or
individually, a "Proceeding"}) the following provisions shall apply:
(1) The Senior Creditor shall first be entitled to receive payment in
full of the principal thereof, premium, if any, and interest,
including post-petition interest due on the Senior Debt, before the
Subordinate Creditors are entitled to receive any payment on account
of or in respect of the Subordinated Debt.
(2) Any payment, Dividend or distribution of assets of any of the
Borrowers of any kind or character, whether in cash, property or
securities to which the Subordinate Creditors would be entitled except
for the provisions of this Agreement, shall be paid by the Person
making
-3-
<PAGE>
such payment or distribution, whether a trustee in bankruptcy, a receiver
or liquidating trustee or other trustee or agent, directly to the Senior
Creditor to the extent necessary to make payment in full of all Senior Debt
remaining unpaid.
(3) In any Proceeding, the Senior Creditor is irrevocably authorized and
empowered (in the names of the Subordinate Creditors or otherwise), but
shall not have the obligation, to demand, sue for, collect and receive
every payment or distribution referred to in Section 3.A.(1) and Section
3.A.(2) and give acquittance therefor and to file claims and proofs of
claim and take such other action (including, without limitation, voting the
Subordinated Debt or enforcing any security interest or other Lien securing
payment of the Subordinated Debt) as the Senior Creditor may deem necessary
or advisable for the exercise or enforcement of any of the rights or
interests of the Senior Creditor hereunder.
(4) In any Proceeding, the Subordinate Creditors shall duly and promptly
take such action to the extent, and only to the extent, as the Senior
Creditor may expressly request, (a) to collect the Subordinated Debt for
the account of the Senior Creditor and to file appropriate claims or proofs
of claim in respect of the Subordinated Debt, (b) to execute and deliver to
the Senior Creditor such powers of attorney, assignments, or other
instruments as the Senior Creditor may request in order to enable the
Senior Creditor to enforce any and all claims with respect to, and any
security interests and Liens securing payment of, the Subordinated Debt,
and (c) to collect and receive any and all payments or distributions which
may be payable or deliverable upon or with respect to the Subordinated
Debt.
(5) If, and to the extent, the Senior Creditor shall not elect or shall
fail to take the actions authorized in Section 3.A.(3), the Subordinate
Creditors may demand, sue for, collect and, after the Senior Debt is paid
in full, including, if necessary, the payment over by the Subordinate
Creditors to the Senior Creditor of amounts due on the Senior Debt, receive
every payment or distribution referred to in Section 3.A.(1) and Section
3.A.(2) and give acquittance therefor and to file claims and proofs of
claim and take such other action (including, without limitation, voting the
Subordinated Debt or enforcing any security interest or other Lien securing
payment of the Subordinated Debt) as the Subordinate Creditors may deem
necessary or advisable for the exercise or enforcement of any of the rights
or interests of the Subordinate Creditors.
B. To the fullest extent permitted by law, the Subordinate Creditors
irrevocably agree that neither of the Subordinate Creditors will exercise
and each of the Subordinate Creditors waives, any right of setoff,
including, without limitation, any right of setoff under (S) 553 of the
Bankruptcy Code. If the foregoing waiver is adjudicated unenforceable by a
court, then the Subordinate Creditors agree that, in the event that either
of the Subordinate Creditors exercises any right of setoff in any
Proceeding, the Subordinate Creditors will pay directly to the Senior
Creditor an amount equal to the amount of the Subordinated Debt which was
so setoff for application to the Senior Debt until all Senior Debt shall
have been paid in full.
C. In the event that, notwithstanding the foregoing provisions of this Section
3, any payment or distribution of assets of any of the Borrowers of any
kind or character, whether in cash, property or securities, shall be
received by the Subordinate Creditors in violation of this Agreement on
account of the Subordinated Debt before all Senior Debt is paid in full, or
-4-
<PAGE>
effective provision shall have been made for its payment, such payment
or distribution shall be received and held in trust for and shall be
paid over to the Senior Creditor for application to the payment of the
Senior Debt until all Senior Debt shall have been paid in full.
D. The Senior Creditor is authorized to demand specific performance of
this Agreement, whether or not the Borrowers shall have complied with
any of the provisions hereof applicable to any of the Borrowers at any
time when either of the Subordinate Creditors shall have failed to
comply with any of the provisions of this Agreement applicable to the
Subordinate Creditors. The Subordinate Creditors irrevocably waive any
defense based on the adequacy of a remedy at law, which might be
asserted as a bar to such relief of specific performance.
4. Subordination of Liens. The Subordinate Creditors agree that neither
----------------------
of the Subordinate Creditors will hold any Lien or security interest in any real
or personal property as security for any of the Subordinated Debt unless the
Senior Creditor has given the Senior Creditor's prior written consent to the
creation thereof. All such Liens and security interest (including if either of
the Subordinate Creditors shall acquire any Lien or security interest in the
future as security for the Subordinated Debt regardless of whether such Lien or
security interest is permitted or prohibited by this Agreement or the Loan
Documents) will be held by the Subordinate Creditors in accordance with the
terms of this Agreement for the benefit of the Senior Creditor and shall enforce
such Lien or security interest in accordance with the written instructions of
the Senior Creditor. Any cash or other property received in violation of this
Agreement on account of any Lien or security interest securing the Subordinated
Debt shall be delivered to the Senior Creditor and, in the case of cash, applied
to, or, in the case of other property, held as collateral for, the Senior Debt.
To the extent that any Subordinated Debt is now or hereafter secured by a Lien
or security interest (a "Subordinate Lien") against any real or personal
property that is also subject to a Lien or security interest securing the Senior
Debt (a "Senior Lien"), the Subordinate Creditors agree that such Subordinate
Lien shall be second, junior and subordinate to such Senior Lien and such Senior
Lien shall be first and prior to such Subordinate Lien. It is agreed that the
priorities specified in the preceding sentence are applicable irrespective of
the time or order of attachment or perfection of Liens and security interests,
or the time or order of filing of Liens and security interests, or the time or
order of filing of financing statements, or the giving or failure to give notice
of the acquisition or expected acquisition of purchase money or other security
interests.
5. Commencement of Proceedings. The Subordinate Creditors agree that, so
---------------------------
long as any of the Senior Debt shall remain unpaid, neither of the Subordinate
Creditors will commence nor join with any creditor other than the Senior
Creditor in commencing any Proceeding referred to in Section 3.A.
6. Subrogation. The Subordinate Creditors agree that until indefeasible
-----------
payment in full of the Senior Debt shall have occurred without the right of any
Person to set aside or contest the payment thereof and no commitment is in
existence to advance or create Senior Debt, no payment or distribution to the
Senior Creditor pursuant to the provisions of this Agreement shall entitle
either of the Subordinate Creditors to exercise any right of subrogation in
respect thereof and neither of the Subordinate Creditors shall be subrogated to
the rights of the Senior Creditor to receive payments or distributions of assets
of the any of the Borrowers made on the Senior Debt. As among the Borrowers and
all other creditors (other than the Senior Creditor and the Subordinate
Creditors), all payments or distributions made to the Senior Creditor to which
either of the Subordinate Creditors
-5-
<PAGE>
would otherwise be entitled except for the terms of this Agreement shall be
deemed to be a payment by the Borrowers to or on account of Subordinated Debt
and not payment with respect to the Senior Debt. It is expressly understood that
this Agreement is intended solely to be for the purposes of defining the rights
among the Senior Creditor and the Subordinate Creditors and shall not affect the
rights of the Subordinate Creditors against any other Person.
7. Subordination Legend: Further Assurances.
----------------------------------------
A. LRA-NE and the Subordinate Creditors will cause each instrument
evidencing Subordinated Debt to be endorsed with the following legend:
"The indebtedness evidenced by this instrument is subordinated to the
Senior Debt (as defined in the Subordination Agreement below referred
to) pursuant to, and to the extent provided in, the Subordination
Agreement dated effective as of September 17, 1997, by the maker
hereof and payee named herein in favor of Texas Commerce Bank National
Association referred to in such Subordination Agreement."
B. The Borrowers and the Subordinate Creditors each will further mark
their respective books of account in such a manner as shall be
effective to give proper notice of the effect of this Agreement and
will, in the case of any Subordinated Debt which is not evidenced by
any instrument, upon the Senior Creditor's reasonable request, cause
such Subordinated Debt to be evidenced by an appropriate instrument or
instruments endorsed with the above legend. The Borrowers and the
Subordinate Creditors each will, at their respective expense and at
any time and, from time to time, promptly execute and deliver all
further instruments and documents, and take all further actions that
may be necessary or desirable, or that the Senior Creditor may
reasonably request, in order to protect any right or interest granted
or purported to be granted hereby or to enable the Senior Creditor to
exercise and enforce the Senior Creditor's rights and remedies
hereunder.
8. Changes or Dispositions of Subordinated Debt. The Subordinate
--------------------------------------------
Creditors shall not, (a) cancel or otherwise discharge any of the Subordinated
Debt or subordinate any of the Subordinated Debt to any Indebtedness of any of
the Borrowers other than the Senior Debt, (b) sell, assign, pledge, encumber or
otherwise dispose of any of the Subordinated Debt (and any attempted action in
violation of this Section shall be void), or (c) permit the terms of any of the
Subordinated Debt to be changed in such a manner as to have an adverse effect
upon the rights or interests of the Senior Creditor.
9. Agreement by the Borrowers. The Borrowers agree that none of the
--------------------------
Borrowers will make any payment of any of the Subordinated Debt, or take any
other action in contravention of the provisions of this Agreement.
10. Senior Debt Not Affected. All rights and interests of the Senior
------------------------
Creditor hereunder, and all agreements and obligations of the Borrowers and the
Subordinate Creditors under this Agreement, shall remain in full force and
effect irrespective of, (a) any lack of validity or enforceability of all or any
portion of this Agreement, (b) any change in the amount of interest rate
accruing on, time, manner or place of payment of, or in any other term of, all
or any of the Senior Debt, or any amendment or waiver of any consent to
departure from any of the Loan Documents, including, without limitation, changes
in the terms of disbursement of the Loan proceeds or repayment thereof,
-6-
<PAGE>
modifications, extensions or renewals of payment dates, changes in interest rate
or the advancement of additional funds by the Senior Creditor in the Senior
Creditor's discretion, (c) any exchange, release or non-perfection of any
collateral or any release or amendment or waiver of or consent to departure from
any guaranty for all or any of the Senior Debt, (d) lack of the reservation of
any rights against the Subordinate Creditors or any other Person (all of which
are waived by the Subordinate Creditors), or (e) any other circumstance in
respect of this Agreement which might otherwise constitute a defense available
to, or a discharge of, any of the Borrowers of or in respect of the Senior Debt
or the Subordinate Creditors.
11. Reinstatement. This Agreement shall continue to be effective or be
-------------
reinstated, as the case may be, if at any time any payment of any of the Senior
Debt is rescinded or must otherwise be returned by the Senior Creditor upon the
insolvency, the bankruptcy or reorganization of any of the Borrowers or
otherwise, all as though such payment had not been made.
12. Waivers. Except as specifically set out herein, each of the
-------
Subordinate Creditors waives promptness, diligence, notice of acceptance, notice
of intention to accelerate, notice of acceleration and any other notice with
respect to any of the Senior Debt and this Agreement and any requirement that
the Senior Creditor protect, secure, perfect or insure any security interest or
Lien or any property subject thereto or exhaust any right or take any action
against any of the Borrowers or any other Person or any Collateral. Except as
specifically set out herein, each of the Subordinate Creditors waives any right
or benefit of any notice of any action, event or circumstance relating to the
Senior Debt, including, but not limited to, the incurring, modification,
default, exercise of remedies, compromise or release of or with respect to the
Senior Debt.
13. Representations and Warranties.
------------------------------
A. LRA-NE and the Subordinate Creditors represent and warrant that the
Subordinated Debt represented by the Notes, (1) bears interest, and at
all times prior to the payment in full of the Senior Debt, will bear
interest at six and three hundred seventy-five thousandths (6.375) per
cent per annum, (2) the principal of the respective Notes is due and
payable on September 15, 2005, and (3) the interest on the Notes is
due and payable monthly as it accrues commencing on October 17, 1997,
and continuing on the fifteen (15) day of each month thereafter.
B. Each of the Borrowers respectively represents and warrants that, (1)
the Subordinated Debt now outstanding, true and complete copies of any
instruments evidencing which have been furnished to the Senior
Creditor, has not been amended or otherwise modified and constitutes
the legal, valid and binding obligation of the Borrowers enforceable
against the Borrowers in accordance with its terms, and (2) there
exists no default in respect of any such Subordinated Debt.
C. Each of the Subordinate Creditors represents and warrants that, (1)
the Subordinate Creditors own the Subordinated Debt now outstanding
free and clear of any Lien, security interest, charge or encumbrance
or any rights of others, (2) the execution, delivery and performance
by the Subordinate Creditors of this Agreement do not and will not
contravene any law or governmental regulation or any contractual
restriction binding on or affecting either of the Subordinate
Creditors or either of the Subordinate Creditors' properties, and do
not and will
-7-
<PAGE>
not result in or require the creation of any Lien, security interest
or other charge or encumbrance upon or with respect to either of the
Subordinate Creditors' properties, (3) this Agreement is a legal,
valid and binding obligation of each of the Subordinate Creditors,
enforceable against the Subordinate Creditor in accordance with its
terms, and (4) to the knowledge of the Subordinate Creditors, there
exists no default in respect of any Subordinated Debt.
14. Amendments. No amendment or waiver of any provision of this Agreement
----------
nor consent to any departure by either of the Subordinate Creditors or any of
the Borrowers therefrom shall in any event be effective unless the same shall be
in writing and signed by the Senior Creditor, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
15. Expenses. The Borrowers and the Subordinate Creditors jointly and
--------
severally agree to pay, upon demand, to the Senior Creditor the amount of any
and all reasonable expenses, including the reasonable fees and expenses of the
Senior Creditor's counsel, which the Senior Creditor may incur in connection
with the exercise or enforcement of any of the rights or interests of the
holders of the Senior Debt hereunder.
16. Notices. Any notice required or permitted to be given hereunder shall
-------
be in writing, shall be addressed to the parties hereto at the respective
addresses set out below, which may be changed by the giving of written notice to
that effect pursuant hereto, and shall be deemed effectively given if (i)
delivered personally, or (ii) upon being deposited with the U.S. Postal Service,
postage prepaid, certified mail, return receipt requested;
If to any of the Borrowers: LITIGATION RESOURCES OF AMERICA, INC.
1001 Fannin, Suite 650
Houston, Texas 77002
If to the Subordinate Creditors: ELAINE P. DINE, INC.
115 East 57th Street
New York, New York 10022
ELAINE P. DINE TEMPORARY ATTORNEYS, L.L.C.
115 East 57th Street
New York, New York 10022
IF to the Senior Creditor: TEXAS COMMERCE BANK NATIONAL ASSOCIATION
712 Main Street
P.O. Box 2558
Houston, Texas 77252-2558
17. No Waiver, Remedies. No failure on the part of the Senior Creditor to
-------------------
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof, or shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
-8-
<PAGE>
18. Continuing Agreement; Transfer of Notes. All representations,
---------------------------------------
warranties and covenants made by either of the Subordinate Creditors or any of
the Borrowers or on behalf of any of the Borrowers shall be considered to have
been relied upon by the Senior Creditor and shall survive execution and delivery
of the Loan Documents regardless of any investigation by or on behalf of the
Senior Creditor or any discovery of any thereof. This Agreement is a continuing
agreement and shall, (a) remain in full force and effect until the Senior Debt
shall have been paid in full, (b) be binding upon the Subordinate Creditors, the
Borrowers and their respective successors and assigns and any subsequent holder
of Subordinated Debt, and (c) inure to the benefit of and be enforced by the
Senior Creditor and the Senior Creditor's successors, transferees and assigns of
the Senior Debt. Without limiting the generality of the foregoing, the Senior
Creditor may assign or otherwise transfer the evidence of any Senior Debt held
by the Senior Creditor to any other Person, and such other Person shall
thereupon become vested with all the rights in respect thereof granted to the
Senior Creditor herein or otherwise.
19. Governing Law. THIS AGREEMENT HAS BEEN PREPARED, IS BEING EXECUTED AND
-------------
DELIVERED, AND IS INTENDED TO BE PERFORMED IN THE STATE OF TEXAS, AND THE
SUBSTANTIVE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE
CONFLICTS-OF-LAW RULES AND PRINCIPLES OF THE STATE OF TEXAS, AND THE APPLICABLE
LAWS OF THE U.S. SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND
INTERPRETATION OF THIS AGREEMENT.
20. Venue. Any suit, action or proceeding with respect to the
-----
interpretation or enforcement of this Agreement, or the enforcement of any
judgment entered by any court in respect thereof, shall be brought in the courts
of the State of Texas, Harris County, Texas, or in the U.S. courts located in
Southern District of Texas as the Senior Creditor, in the Senior Creditor's sole
discretion, may elect. The parties submit to the non-exclusive jurisdiction of
such courts for the purpose of any such suit, action or proceeding.
A. Each of the parties waives, in connection with any such suit, action
or proceeding, any objection, including, without limitation, any
objection to the laying of venue or based on the grounds of forum non
conveniens, which it may now or hereafter have to the bringing of any
such action or proceeding in such respective jurisdictions.
B. Each of the parties consents to the service of process of any of the
aforementioned courts in any such action or proceeding by the mailing
of copies thereof by registered or certified mail, postage prepaid, to
each such Person, as the case may be, at its address set forth in
Section 16.
C. Nothing herein shall affect the right of any party to serve process in
any other manner permitted by law.
21. Jury Trial. Each party waives any right it may have to a trial by jury
----------
in respect of any legal proceeding directly or indirectly arising out of, under
or in connection with or relating to this Agreement. Except as prohibited by
law, each party hereto waives any right it may have to claim or recover in any
litigation referred to in this Section any special, indirect, exemplary,
punitive or consequential damages or any damages other than, or in addition to,
actual damages, whether such claim is based on contract, tort, duty imposed or
implied by law or otherwise. Each party hereto, (a) certifies that no
representative, agent or attorney of the Senior Creditor has represented,
expressly or
-9-
<PAGE>
otherwise, that the Senior Creditor would not, in the event of litigation, seek
to enforce the foregoing waivers, and (b) acknowledges and agrees that it has
been induced to enter into this Agreement and the other Loan Documents, as
applicable, by, among other things, the mutual waivers and certificates herein.
22. Separate Agreements. The parties acknowledge and agree that this
-------------------
Agreement is independent and distinct from the Loan Documents, including the
Credit Agreement. The Subordinate Creditors acknowledge that neither of the
Subordinate Creditors is a party to the Credit Agreement and does not and shall
not have any rights or benefits thereunder. The Subordinate Creditors
respectively agree that the terms and provisions hereof shall apply to each of
them and to their individually held Subordinate Debt separately, The Subordinate
Creditors acknowledge that the Subordinate Creditors have been provided copies
of the Loan Documents, that the Subordinate Creditors have had the opportunity
to review the Loan Documents with legal counsel and that this Agreement to be
construed and interpreted as if jointly prepared by the parties.
23. Counterparts. This Agreement may be separately executed in any number
------------
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Agreement.
24. Section Headings. Headings are for convenience only and shall be
----------------
given no substantive meaning or significance in construing this Agreement.
25. Entire Agreement. THIS AGREEMENT EMBODIES THE ENTIRE AGREEMENT AND
----------------
UNDERSTANDING BY AND AMONG THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF
AND SUPERSEDES ALL PRIOR AGREEMENTS, CONSENTS AND UNDERSTANDINGS RELATING TO
SUCH SUBJECT MATTER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
Executed effective as of the date first above written.
LITIGATION RESOURCES OF LOONEY & COMPANY
AMERICA, INC.
BY:_____________________________ BY:____________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
KLEIN, BURY & ASSOCIATES, INC. LITIGATION RESOURCES OF
AMERICA-CALIFORNIA, INC.
BY:_____________________________ BY:____________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
(SIGNATURES TO SELLER DEBT SUBORDINATION AGREEMENT
CONTINUE ON NEXT PAGE)
-10-
<PAGE>
(CONTINUED SIGNATURES TO SELLER DEBT SUBORDINATION AGREEMENT)
LITIGATION RESOURCES OF LITIGATION RESOURCES OF
AMERICA-MIDWEST, INC. AMERICA-NORTHEAST, INC.
BY:_____________________________ BY:_____________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
BLOCK COURT REPORTING, INC. BLOCK TAPE TRANSCRIPTION
SERVICES, INC.
BY:_____________________________ BY:_____________________________
DAVE PFLEGHAR DAVE PFLEGHAR
CHIEF FINANCIAL OFFICER CHIEF FINANCIAL OFFICER
BURTON HOUSE, INC. ELAINE P. DINE, INC.
BY:_____________________________ BY:_____________________________
DAVE PFLEGHAR NAME:___________________________
CHIEF FINANCIAL OFFICER TITLE:__________________________
ELAINE P. DINE TEXAS-COMMERCE BANK
TEMPORARY ATTORNEYS, L.L.C. NATIONAL ASSOCIATION
________________________________ BY:_____________________________
NAME:___________________________ CARLOS VALDEZ, JR.
TITLE:__________________________ VICE PRESIDENT
-11-
<PAGE>
Exhibit 9.1.J
Officers Certificate
<PAGE>
OFFICERS CERTIFICATE
Before me, the undersigned authority, on this day personally appeared DAVE
PFLEGHAR who, after being be me duly sworn, upon oath, stated:
"I am the duly elected and serving Chief Financial Officer of LITIGATION
RESOURCES OF AMERICA, INC. ("LRA"), the duly elected and serving Chief Financial
Officer of LOONEY & COMPANY ("Looney"), the duly elected and serving Chief
Financial Officer of Klein, Bury & Associates, Inc. ("KBA"), the duly elected
and serving Chief Financial Officer of LITIGATION RESOURCES OF
AMERICA-CALIFORNIA, INC. ("LRA-Cal"), the duly elected and serving Chief
Financial Officer of LITIGATION RESOURCES OF AMERICA-MIDWEST, INC.,
("LRA-Midwest"), the duly elected and serving Chief Financial Officer of
LITIGATION RESOURCES OF AMERICA-NORTHEAST, INC. ("LRA-NE"), the duly elected and
serving Chief Financial Officer of BLOCK COURT REPORTING, INC. ("Block"), and
the duly elected and serving Chief Financial Officer of and BLOCK TAPE
TRANSCRIPTION SERVICES, INC. ("Transcription"), the duly elected and serving
Chief Financial Officer of BURTON HOUSE, INC. ("Burton") and have personal
knowledge of all facts sworn to in this certificate.
"LRA is a corporation duly organized and existing in good standing under
the laws of the State of Texas, and LRA is duly licensed or qualified as a
foreign corporation in all jurisdictions wherein the character of the property
owned or leased by LRA or the nature of the business transacted by LRA makes
licensing or qualification necessary by foreign corporations.
"Looney is a corporation duly organized and existing in good standing under
the laws of the State of Texas, and Looney is duly licensed or qualified as a
foreign corporation in all jurisdictions wherein the character of the property
owned or leased by Looney or the nature of the business transacted by Looney
makes licensing or qualification necessary by foreign corporations.
"KBA is a corporation duly organized and existing in good standing under
the laws of the State of Florida, and KBA is duly licensed or qualified as a
foreign corporation in all jurisdictions wherein the character of the property
owned or leased by KBA or the nature of the business transacted by KBA makes
licensing or qualification necessary by foreign corporations.
"LRA-Cal is a corporation duly organized and existing in good standing
under the laws of the State of California, and LRA-Cal is duly licensed or
qualified as a foreign corporation in all jurisdictions wherein the character of
the property owned or leased by LRA-Cal or the nature of the business transacted
by LRA-Cal makes licensing or qualification necessary by foreign corporations.
"LRA-Midwest is a corporation duly organized and existing in good standing
under the laws of the State of Illinois, and LRA-Midwest is duly licensed or
qualified as a foreign corporation in all jurisdictions wherein the character of
the property owned or leased by LRA-Midwest or the nature of the business
transacted by LRA-Midwest makes licensing or qualification necessary by foreign
corporations.
-1-
<PAGE>
"LRA-NE is a corporation duly organized and existing in good standing under
the laws of the State of New York, and LRA-NE is duly licensed or qualified as a
foreign corporation in all jurisdictions wherein the character of the property
owned or leased by LRA-NE or the nature of the business transacted by LRA-NE
makes licensing or qualification necessary by foreign corporations.
"Block is a corporation duly organized and existing in good standing under
the laws of the District of Columbia, and Block is duly licensed or qualified as
a foreign corporation in all jurisdictions wherein the character of the property
owned or leased by Block or the nature of the business transacted by Block
makes licensing or qualification necessary by foreign corporations.
"Transcription is a corporation duly organized and existing in good
standing under the laws of the District of Columbia, and Transcription is duly
licensed or qualified as a foreign corporation in all jurisdictions wherein the
character of the property owned or leased by Transcription or the nature of the
business transacted by Transcription makes licensing or qualification necessary
by foreign corporations.
"Burton is a corporation duly organized and existing in good standing under
the laws of the State of California, and Burton is duly licensed or qualified
as a foreign corporation in all jurisdictions wherein the character of the
property owned or leased by Burton or the nature of the business transacted by
Burton makes licensing or qualification necessary by foreign corporations.
"The Articles of Incorporation of LRA are in full force and effect and no
proceeding is pending, planned or threatened for LRA's dissolution or annulment.
All license fees, and franchise and income taxes due and payable by LRA have
been paid in full.
"The Articles of Incorporation of Looney are in full force and effect and
no proceeding is pending, planned or threatened for Looney's dissolution or
annulment. All license fees, and franchise and income taxes due and payable by
Looney have been paid in full.
"The Articles of Incorporation of KBA are in full force and effect and no
proceeding is pending, planned or threatened for KBA's dissolution or annulment.
All license fees, and franchise and income taxes due and payable by KBA have
been paid in full.
"The Articles of Incorporation of LRA-Cal are in full force and effect and
no proceeding is pending, planned or threatened for LRA-Cal's dissolution or
annulment. All license fees, and franchise and income taxes due and payable by
LRA-Cal have been paid in full.
"The Articles of Incorporation of LRA-Midwest are in full force and effect
and no proceeding is pending, planned or threatened for LRA-Midwest's
dissolution or annulment. All license fees, and franchise and income taxes due
and payable by LRA-Midwest have been paid in full.
-2-
<PAGE>
"The Articles of Incorporation of LRA-NE are in full force and effect and
no proceeding is pending, planned or threatened for LRA-NE's dissolution or
annulment. All license fees, and franchise and income taxes due and payable by
LRA-NE have been paid in full.
"The Articles of Incorporation of Block are in full force and effect and no
proceeding is pending, planned or threatened for Block's dissolution or
annulment. All license fees, and franchise and income taxes due and payable by
Block have been paid in full.
"The Articles of Incorporation of Transcription are in full force and
effect and no proceeding is pending, planned or threatened for Transcription's
dissolution or annulment. All license fees, and franchise and income taxes due
and payable by Transcription have been paid in full.
"The Articles of Incorporation of Burton are in full force and effect and
no proceeding is pending, planned or threatened for Burton's dissolution or
annulment. All license fees, and franchise and income taxes due and payable by
Burton have been paid in full.
"All of the funds to be derived by LRA, Looney, KBA, LRA-Cal, LRA-Midwest,
LRA-NE, Block, Transcription and Burton (collectively, the "Borrowers") from
loans (the "Loans") in the amount of $15,975,000.00 made pursuant to the terms
of a Fourth Amended and Restated Credit Agreement (the "Fourth Restated
Agreement"), dated September 15, 1997, by and among the Borrowers and TEXAS
COMMERCE BANK NATIONAL ASSOCIATION (the "Bank"), are to be used solely for the
purposes set out in the Fourth Restated Agreement and for no other purposes.
"Each of the Borrowers has performed or complied with its covenants and
agreements required under the Fourth Restated Agreement and under the Loan
Documents, as defined in the Fourth Restated Agreement.
"The copies of the EPD Asset Purchase Agreement and the Burton House Stock
Purchase Agreement (collectively, the "Purchase Agreements") provided to the
Bank as of the execution date hereof fully state and are the final agreements
among parties thereto and there are no unwritten or other agreements among the
parties. Each of the parties to the Purchase Agreements have performed their
respective obligations thereunder.
"To the knowledge of the undersigned, the borrowing under and pursuant to
the terms of the Fourth Restated Agreement will not contravene any provision of
law or regulation applicable to the Borrowers.
"To the best knowledge and belief of the undersigned, after reasonable and
due investigation and review of the matters pertinent to the subject hereof, (i)
all of the representations and warranties contained herein and the other Loan
Documents are true and correct in all material respects, and (ii) no Event of
Default and no condition or event which, with the giving of notice or lapse of
time, or both, would become an Event of Default, has occurred or, if occurred,
is continuing, as the term "Events of Default" is defined in the Fourth Restated
Agreement.
-3-
<PAGE>
"There is not pending or threatened (i) any litigation in which any of the
Borrowers is involved which would, in the event of an adverse determination,
have a Material Adverse Effect, or (ii) any investigation or proceeding before
any Governmental Authority against any of the Borrowers or a Consolidated
Subsidiary of LRA, or any officer, director or Affiliate of any such parties
with respect to the Loan Documents or any of the transactions contemplated
thereby which could have a Material Adverse Effect.
"Each of the Borrowers is solvent with saleable assets of a value that
exceeds the amount of its liabilities, each is currently able, and it is
anticipated that each will continue to be able at all times subsequent, to meet
all debts as they mature, and each has adequate capital to conduct its business
in which it is engaged.
"This certificate is made to induce the Bank to make the Loans to the
Borrowers and to induce any participant lender to participate in the Loans."
_______________________________________
DAVE PFLEGHAR
STATE OF TEXAS
COUNTY OF HARRIS
Before me, an officer duly authorized in the State of Texas to take
acknowledgements, on September _____, 1997, personally appeared DAVE PFLEGHAR,
known to me to be the person whose name is subscribed to the foregoing
instrument, and who swore to me that the statements contained therein are true
and correct and who acknowledged to me that the instrument was executed for the
purposes and considerations therein expressed.
Given under my hand and seal of office on September _________, 1997.
_________________________________________
Notary Public in and for
the State of Texas
My commission expires:
_________________________________________
Printed Name of Notary Public
____________________
-4-
<PAGE>
Schedule 10.1.J
Agreements in Default
NONE
<PAGE>
Schedule 10.1.P
Shareholders of LRA
<PAGE>
Schedule 10.1(P)
CAPITALIZATION
LITIGATION RESOURCES OF AMERICA
ANALYSIS OF OUTSTANDING SECURITIES
AS OF SEPTEMBER 17, 1997
COMMON STOCK
- ------------
<TABLE>
<CAPTION>
NUMBER
SHAREHOLDER OF SHARES(A)
- ----------- ------------
<S> <C>
Richard O. Looney 843,840
GulfStar Group 150,000
Michael Klein 170,600
Cindi Rogers 5,000
Rick Posner 15,304
Jay Harbidge 15,304
Seaquestor Trust 82,982(B)
Glory Johnson 59,494
Jan Coldren 2,941
Amicus One Legal Support Services, Inc. 116,471
Gregg M. and Susan L. Ziskind 158,824
Elaine P. Dine, Inc. 51,264
Elaine P. Dine Temp, L.L.C. 25,207
---------
1,697,231
=========
</TABLE>
(A) Excludes 25,000 shares to be purchased by DWP @ $0.1 per share
(B) Includes 60,866 shares held in escrow, the number of shares to be released
from escrow will depend on the level of MedText earnings for the 12 months
following closing.
1
<PAGE>
NOMINAL COST EMPLOYEE STOCK OPTIONS
- -----------------------------------
<TABLE>
<CAPTION>
NUMBER OPTION
OPTIONEE OF SHARES (A) PRICE
- ---------------- ------------- ------
<S> <C> <C>
Larry Long 24,960 $0.01
Scott Rice 18,720 $0.01
Tony Maddocks 6,240 $0.01
Alan Simon 6,240 $0.01
Richard L. Matsumoto 7,000 $0.01
Richard Bury 17,500 $0.10
Gary Reif 12,500 $0.10
Richard Applebaum 5,000 $0.10
Nancy Hirsh 5,000 $0.10
Karin L. Greene 11,764 $0.01
Rosemary Moukad 8,824 $0.01
Susan Kurz Snyder 8,824 $0.01
Alisa F. Levin 8,824 $0.01
Zahava Wigdor 2,940 $0.01
-------
144,336
=======
</TABLE>
OTHER EMPLOYEE STOCK OPTIONS
- ----------------------------
<TABLE>
<CAPTION>
NUMBER OPTION
OPTIONEE OF SHARES (B) PRICE
- ---------------- ------------- ------
<S> <C> <C>
Mike Saltman 15,000 $6.41
Cindi Rogers 2,500 $7.05
Richard Bury 12,500 $7.05
Gary Reif 7,500 $7.05
Richard Applebaum 5,000 $7.05
Nancy Hirsh 5,000 $7.05
Matthew Bowers 3,300 $7.56
Sandra Rocca 14,444 $8.50
------
65,244
======
</TABLE>
2
<PAGE>
(B) Does not include (i) Options for 25,351 to be issued to Looney & Company
Employees @ $6.41 per share, (ii) Options for 50,000 shares to be issued to
DWP (25,000 Shares @ $6.41 and 25,000 shares @ the IPO Price), (iii)
Options for 10,000 shares to be issued to the Corp. Controller @ $________
per share, (iv) Options for 40,000 shares to be issued to Legal Enterprise
Employees @ $10.20 per share, (v) Options for 14,000 shares to be issued to
various "local managers" @ the IPO Price, (vi) additional options to be
issued to certain officers and directors at various prices, nor (vii)
options for 20,000 shares to be issued to Elaine P. Dine Employees at the
IPO price.
3
<PAGE>
LITIGATION RESOURCE OF AMERICA, INC.
SCHEDULE OF PREFERRED STOCK
<TABLE>
<CAPTION>
Issue Dividend
Date Description Amount Rate Payment/Conversion Terms
- ---- ----------- ------ ---- ------------------------
<S> <C> <C> <C> <C>
Convertible Preferred Stock
- ---------------------------
1/17/97 Series A Convertible Preferred Stock 1,000,000 (A) Convertible into 1,560,000
shares of common stock
($0.64 per share), redeemable
at "Market Price" in the
event of a change in control,
or redeemable in three annual
installments at "Market Price"
if no liquid market has devel-
oped for the common stock
by 1/17/2003.
Redeemable Preferred Stock
- --------------------------
1/17/97 Series B Convertible Preferred Stock 2,046,667 0% Convertible @93% of IPO
price or redeemable in con-
nection with a "Qualified
Public Offering" or redeem-
able over 20 quarter after
a "Qualified Public Offering"
5/14/97 Series C Convertible Preferred Stock 231,250 6% Quarterly dividend payments
beginning 30 days after
6/30/97, convertible into
Common Stock at IPO price or
redeemable in connection with
a "Qualified Public Offering
at holder's option, or
redeemable over 16 quarters
beginning 6/30/98. Dividend
payments subject to SFRS
achieving adequate aggregate
net income
(A) participates in dividends on an equal basis with the Common Stock.
</TABLE>
4
<PAGE>
U.S. LEGAL SUPPORT, INC.
EXHIBIT 11.1--COMPUTATION OF HISTORICAL AND SAB NO. 55 EARNINGS PER SHARE
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL SAB NO. 55
---------- ---------- ----------
SIX SIX SIX
MONTHS MONTHS MONTHS
ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30,
1996 1997 1997
---------- ---------- ----------
<S> <C> <C> <C>
PRIMARY:
Weighted average common shares outstanding.. 1,187 1,187 1,187
Assumed conversion of preferred stock issued
within one year of initial public
offering................................... 1,743 1,743 1,743
Net effect of dilutive stock options and
convertible debt........................... 132 132 132
Assumed issuance of stock to fund
distribution to owner...................... -- -- 333
------ ------ ------
Total primary shares...................... 3,062 3,062 3,395
====== ====== ======
Net income.................................. $ 228 $ 26 $ 26
====== ====== ======
Net income per share........................ $ 0.07 $ 0.01 $ 0.01
====== ====== ======
FULLY DILUTED:
Weighted average common shares outstanding.. 1,187 1,187 1,187
Assumed conversion of preferred stock issued
within one year of initial public
offering................................... 1,743 1,743 1,743
Net effect of dilutive stock options and
convertible debt........................... 132 132 132
Assumed issuance of stock to fund
distribution to owner...................... -- -- 333
------ ------ ------
Total fully diluted shares................ 3,062 3,062 3,395
====== ====== ======
Net income.................................. $ 228 $ 26 $ 26
====== ====== ======
Net income per share........................ $ 0.07 $ 0.01 $ 0.01
====== ====== ======
</TABLE>
<PAGE>
U.S. LEGAL SUPPORT, INC.
EXHIBIT 11.2--COMPUTATION OF PRO FORMA EARNINGS PER SHARE
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1996 JUNE 30, 1997
----------------- ------------- -------------
<S> <C> <C> <C>
PRIMARY:
Weighted average common shares
outstanding................... 2,344 2,344 2,344
Assumed conversion of preferred
stock issued within one year
of initial public offering.... 1,743 1,743 1,743
Net effect of dilutive stock
options, convertible debt, and
warrants--based on the
treasury stock method using
average market price.......... 415 415 415
Shares issued in initial public
offering...................... 3,500 3,500 3,500
Less excess shares issued in
initial public offering....... -- -- --
------- ------ ------
Total primary shares......... 8,002 8,002 8,002
======= ====== ======
Pro forma net income........... $ 2,574 $1,007 $1,594
======= ====== ======
Pro forma net income per
share......................... $ 0.33 $ 0.13 $ 0.20
======= ====== ======
FULLY DILUTED:
Weighted average common shares
outstanding................... 2,344 2,344 2,344
Assumed conversion of preferred
stock issued within one year
of initial public offering.... 1,743 1,743 1,743
Net effect of dilutive stock
options and warrants--based on
the treasury stock method
using the year-end market
price, if higher than average
market price.................. 415 415 415
Shares issued in initial public
offering...................... 3,500 3,500 3,500
Less excess shares issued in
initial public offering....... -- -- --
------- ------ ------
Total fully diluted shares... 8,002 8,002 8,002
======= ====== ======
Pro forma net income........... $ 2,574 $1,007 $1,594
======= ====== ======
Pro forma net income per
share......................... $ 0.33 $ 0.13 $ 0.20
======= ====== ======
</TABLE>
<PAGE>
EXHIBIT 21.1
Subsidiary State of Incorporation
---------- ----------------------
Klein, Bury and Associates, Inc. Florida
Looney & Company Texas
Litigation Resources of America--Northeast, Inc. New York
Litigation Resources of America--Midwest, Inc. Illinois
Litigation Resources of America--California, Inc. California
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File
No. 333- ) (i) of our report dated September 5, 1997, on our audits of the
financial statements and financial statement schedule of Looney & Company,
(ii) of our report dated August 15, 1997 of our audits of the financial
statements of Klein, Bury & Associates, (iii) of our report dated September 4,
1997, of our audits of the financial statements of G&G Court Reporters, (iv)
of our report dated September 19, 1997, of our audit of the financial
statements of San Francisco Reporting Service, (v) of our report dated
September 5, 1997, of our audits of the financial statements of Legal
Enterprise, Inc., (vi) of our report dated August 29, 1997, of our audits of
the financial statements of Elaine P. Dine, Inc., (vii) of our report dated
September 5, 1997, of our audits of the financial statements of Burton House,
Inc. d.b.a. Ziskind, Greene, Watanabe, & Nason, (viii) of our report dated
September 5, 1997 of our audits of the financial statements of Jilio &
Associates, (ix) of our report dated August 29, 1997, except as to the
information presented in Notes 4 and 6, for which the date is September 12,
1997, of our audits of the financial statements of Reporting Service
Associates, Inc., (x) of our report dated August 29, 1997, of our audits of
the financial statements of Kirby A. Kennedy & Associates, (xi) of our report
dated September 19, 1997 of our audits of the financial statements of Johnson
Court Reporting Group, (xii) of our report dated September 17, 1997, of our
audit of the financial statements of Amicus One Legal Support Services, Inc.,
(xiii) of our report dated September 17, 1997 of our audits of the financial
statements of Block Court Reporting, Inc., and (xiv) of our report dated
September 22, 1997, of our audits of the financial statements of Commander
Wilson, Inc. We also consent to the references to our firm under the caption
"Experts."
COOPERS & LYBRAND L.L.P.
Houston, Texas
September 26, 1997
<PAGE>
EXHIBIT 23.3
September 25, 1997
Board of Directors
U.S. Legal Support, Inc.
1001 Fannin, Suite 650
Houston, Texas 77002
Gentlemen:
It is my understanding that the Prospectus forming a part of the
Registration Statement on Form S-1 which U.S. Legal Support, Inc. (the
"Company") is filing with the Securities and Exchange Commission in connection
with the proposed initial public offering of shares of Common Stock of the
Company, will state that I will become a director of the Company upon completion
of the public offering. I hereby consent to such statement, to such use of my
name and to the filing of this letter as an exhibit to the Registration
Statement.
Very truly yours,
/s/ Fentress Bracewell
------------------------
Fentress Bracewell
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 4,774,143
<ALLOWANCES> 621,359
<INVENTORY> 0
<CURRENT-ASSETS> 4,383,026
<PP&E> 1,659,157
<DEPRECIATION> 1,121,426
<TOTAL-ASSETS> 14,113,236
<CURRENT-LIABILITIES> 4,040,995
<BONDS> 13,173,273
3,277,917
0
<COMMON> 12,250
<OTHER-SE> (5,789,671)
<TOTAL-LIABILITY-AND-EQUITY> 14,113,236
<SALES> 8,754,198
<TOTAL-REVENUES> 8,754,198
<CGS> 0
<TOTAL-COSTS> 5,665,109
<OTHER-EXPENSES> 2,301,434
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,823
<INCOME-PRETAX> 78,823
<INCOME-TAX> 53,000
<INCOME-CONTINUING> 25,823
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,823
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
