<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 2, 1997
REGISTRATION NO. 333-36575
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
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
HOUSTON, TEXAS 77002
1001 FANNIN ST., SUITE 650 (713) 653-7100
HOUSTON, TEXAS 77002 (NAME, ADDRESS, INCLDING ZIP CODE, AND
(713) 653-7100 TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
(ADDRESS , INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE
OFFICES)
----------------
Copies to:
W. CLELAND DADE DAN BUSBEE
BRACEWELL & PATTERSON, L.L.P. LOCKE PURNELL RAIN HARRELL (A PROFESSIONAL
711 LOUISIANA STREET, SUITE 2900 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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. [_]
----------------
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.
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<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
[LOGO OF U.S. LEGAL SUPPORT, INC. APPEARS HERE]
COMMON STOCK
All of the 3,500,000 shares of Common Stock offered hereby are being offered
by U.S. Legal Support, Inc. (the "Company"). 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 over-allotment option is exercised, up to 100,000 shares of Common Stock
will be offered by a shareholder, Mr. Richard O. Looney, who serves as
President and Chief Executive Officer of 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 $11.00 and $13.00 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.
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................................... $ $ $
Total (3)......................................... $ $ $
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</TABLE>
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $2,500,000.
(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 NationsBanc Montgomery Securities, Inc. on or about , 1997.
NATIONSBANC MONTGOMERY SECURITIES, INC.
HAMBRECHT & QUIST
J.C. BRADFORD & CO.
, 1997
<PAGE>
LOGO OF U.S. LEGAL SUPPORT, INC. APPEARS HERE
[COLOR MAP OF UNITED STATES WITH COMPANY OFFICE AND NETWORK AFFILIATE
LOCATIONS IDENTIFIED.]
A LEADING PROVIDER OF LEGAL SUPPORT AND STAFFING SERVICES
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. Concurrently with the closing of the Offering made by this
Prospectus, the Company will acquire three legal support businesses and one
staffing business (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 $12.00 per share (the mid-point of the
estimated initial public offering price range) and give effect to the
conversion of all outstanding securities that are convertible into Common Stock
as described herein. See "--The Offering." Unless otherwise indicated, the
information in this Prospectus: (i) gives effect to the Pending Acquisitions;
(ii) assumes no exercise of the Underwriters' over-allotment option; (iii)
gives effect to the 100-for-one stock split effected on December 16, 1996; and
(iv) gives effect to post closing adjustments to consideration paid in the
completed acquisitions.
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 seven states
and the District of Columbia. 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
The Boeing Company, Ford Motor Company, ITT Hartford, CNA and Kemper Insurance,
among others. For the year ended December 31, 1996, the Company had pro forma
revenues of $43.4 million and pro forma operating income of $5.2 million. For
the nine months ended September 30, 1997, the Company had pro forma revenues of
$37.3 million and pro forma operating income of $5.3 million compared with pro
forma revenues of $32.0 million and pro forma operating income of $3.7 million
for the nine months ended September 30, 1996.
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 an increase in the: (i) outsourcing
of legal support services by law firms, corporations and insurance providers,
to companies that specialize in providing such services at a lower cost; (ii)
use of attorneys on a temporary basis by law firms and corporations; (iii)
volume and complexity of litigation; and (iv) 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. Although the legal support and
staffing services industry is undergoing consolidation, currently the 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 businesses lack:
3
<PAGE>
(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; 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) active
pursuit of strategic acquisitions; (ii) establishment of an effective national
marketing program; (iii) capitalization on cross-selling opportunities; and
(iv) development and expansion of new and 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 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.................
7,813,115 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 Convertible Preferred Stock into 183,393
shares of Common Stock; and (iii) $1.8 million principal amount of
Convertible Subordinated Promissory Notes into 225,890 shares of Common
Stock, in each case to be effected concurrently with the Offering. See
"Capitalization" and Notes 7 and 8 of Notes to Consolidated Financial
Statements of U.S. Legal Support, Inc.
(2) Excludes (i) 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 (ii) 131,856 shares of Common Stock issuable
upon exercise of options granted in connection with completed acquisitions.
See "Management," "Capitalization" and "Principal Shareholders."
4
<PAGE>
SUMMARY FINANCIAL DATA (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
------------------------------------
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
--------------------- --------------- ------------ -----------------------
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 $5,886 $14,549 $43,405 $32,024 $37,277
Cost of services........ 5,589 5,763 4,839 3,726 9,287 25,474 18,575 21,261
------ ------ ------ ------ ------- ------- ------- -------
Gross profit............ 2,774 3,341 2,828 2,160 5,262 17,931 13,449 16,016
Selling, general and
administrative
expenses (5)........... 3,043 1,970 2,352 1,310 3,855 10,968 8,420 9,365
Depreciation and
amortization (4)....... 224 231 212 159 332 1,754 1,332 1,337
------ ------ ------ ------ ------- ------- ------- -------
Operating income
(loss)................. (493) 1,140 264 691 1,075 5,209 3,697 5,314
Interest expense........ 185 230 238 178 1,147 880 668 707
------ ------ ------ ------ ------- ------- ------- -------
Income (loss) before
taxes.................. (678) 910 26 513 (72) 4,329 3,029 4,607
Provisions (benefit) for
income taxes........... (183) 327 10 174 11 1,847 1,298 1,928
------ ------ ------ ------ ------- ------- ------- -------
Net income (loss)....... (495) 583 16 339 (83) 2,482 1,731 2,679
Accretion of preferred
stock.................. -- -- -- -- (479) -- -- --
------ ------ ------ ------ ------- ------- ------- -------
Net income (loss)
attributable to common
shareholders........... $ (495) $ 583 $ 16 $ 339 $ (562) $ 2,482 $ 1,731 $ 2,679
====== ====== ====== ====== ======= ======= ======= =======
Net income (loss) per
common share........... $ (.13) $ .31 $ .22 $ .33
======= ======= ======= =======
Weighted average shares
outstanding (6)(7)..... 4,226 8,002 8,002 8,002
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------
ACTUAL PRO FORMA (3) (6)
------- -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash................................................. $559 $1,238
Total assets......................................... 38,720 62,652
Short-term debt...................................... 3,936 75
Long-term debt (net of current maturities)........... 26,339 11,083
Redeemable preferred stock........................... 3,757 --
Total shareholders' equity (deficit)................. $(2,321) $43,940
</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 completed 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 Consolidated
Financial Statements of U.S. Legal Support, Inc. included herein.
(3) Pro forma 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 employment contract
compensation negotiated in connection 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 such
events had occurred on January 1, 1996 (for statement of income data) and
as of September 30, 1997 (for balance sheet data). The Pending Acquisitions
and the conversion of certain outstanding preferred stock and Convertible
Subordinated Promissory Notes described in Note 6 below are contingent
upon, and will close concurrently with, completion of the Offering. 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.
(4) Pro forma depreciation and amortization amounts consist primarily of
amortization of goodwill totaling $1,313,000 and $985,000 for the periods
ended December 31, 1996 and September 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
Consolidated Financial Statements of U.S. Legal Support, Inc.
(5) 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 Looney's shareholder.
(6) Gives effect to: (i) 1,734,564 shares outstanding prior to the Offering;
(ii) 3,500,000 shares issued in the Offering; (iii) 609,268 shares to be
issued in the Pending Acquisitions; (iv) 1,969,283 shares issuable upon
conversion of preferred stock and Convertible Subordinated Promissory
Notes; and (v) 188,187 shares issuable upon exercise of outstanding stock
options in accordance with SEC Staff Accounting Bulletin Topic 4D. See
"Capitalization."
(7) Shares used in calculating net loss per share for the nine months ended
September 30, 1997, include the number of shares, the proceeds from the
sale of which would be necessary to repay the portion of the Company's debt
that funded the distribution to Richard O. Looney in connection with the
reorganization of the Company and Looney & Company.
5
<PAGE>
SUMMARY OF INDIVIDUAL COMPANY REVENUES (1)
(IN THOUSANDS)
After succeeding to the operations of Looney in January 1997, the Company has
acquired 13 businesses and will acquire four others in the Pending
Acquisitions. The following table sets forth a summary of the revenues
attributable to Looney and 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 nine-month periods ended September 30, 1996 and 1997.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------- -----------------
1995 1996 1996 1997
------- ------- -------- --------
<S> <C> <C> <C> <C>
Looney (2).................................... $ 9,104 $ 7,667 $ 5,886 $ 5,641
Klein Bury (3)................................ 7,302 8,526 6,524 6,460
Elaine Dine (4)............................... 3,503 4,658 2,808 5,821
Legal Enterprise.............................. 2,756 3,707 2,711 3,464
Reporting Service (5)......................... 1,906 3,012 2,171 3,067
Jilio (5)..................................... 3,366 4,022 2,772 3,085
Johnson Group (6)............................. 1,714 2,155 1,616 1,702
Ziskind Greene................................ 1,442 1,841 1,593 1,653
Amicus One.................................... 1,642 1,883 1,394 1,544
Kirby Kennedy (5)............................. 1,629 1,866 1,455 1,427
G&G........................................... 1,544 1,517 1,152 1,371
San Francisco Reporting....................... 1,105 1,140 911 946
Block......................................... 1,025 1,317 947 760
Commander Wilson (5).......................... 578 94 84 336
------- ------- -------- --------
Total....................................... $38,616 $43,405 $32,024 $37,277
======= ======= ======== ========
</TABLE>
- --------
(1) See "The Company" for the full names and additional information concerning
the completed acquisitions and the Pending Acquisitions.
(2) The revenues of Looney include from their respective dates of acquisition,
the revenues of: (i) Cindi Rogers & Associates (acquired April 3, 1997);
(ii) Preferred Records, Inc. (acquired July 31, 1997); (iii) Rocca
Reporting Service (acquired August 15, 1997); and (iv) Encore Reporting
(acquired August 28, 1997). The table does not include revenues for these
entities prior to their acquisition since these amounts are immaterial. See
"The Company--Completed Acquisitions."
(3) Revenues for 1995 are for the year ended September 30, 1995.
(4) The revenues for the nine months ended September 30, 1997 include the
revenues of Elaine Dine Temporary Attorneys, L.L.C. Revenues for 1995 and
1996 represent results for the years 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 Goren of
Newport, Inc., 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
Since the combination of Looney and the Company in January 1997, the Company
has acquired 13 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 upgrading its 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 upgrade 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 integrate successfully and
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 would have a material
adverse effect on the Company's results of operations and 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 businesses 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 available 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 would 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
the purchase and implementation of new management information systems. 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 adverse 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 there will continue to be efforts 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 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 manner in which it conducts its business, and could materially and
adversely affect its business and results of operations. See "Business--
Regulation."
ALTERNATIVE DISPUTE RESOLUTION
The high cost of litigation in the United States has resulted in the more
frequent use of alternative dispute resolution practices, such as arbitration
and mediation. The increasing use of such alternative dispute resolution
practices could affect the demand for the Company's legal support and staffing
services; however, the Company is unable to assess the ultimate effect, if
any, that such practices may have on its services.
8
<PAGE>
COMPETITION
The legal support and staffing services industry is highly competitive and
fragmented, and limited barriers to entry exist with respect to each component
of the Company's business. Although the industry is undergoing consolidation,
the principal competition for the Company's court reporting and certified
record retrieval businesses currently consists of numerous local and regional
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 applicable federal
and 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. Approximately 500 court reporters are 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. In October 1997, a bill was introduced in
the U.S. House of Representatives that would amend the Internal Revenue Code
to establish more stringent requirements for the engagement of independent
contractors. The Company is unable to assess the likelihood that this bill or
similar legislation will be enacted. 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 do not continue in their
management roles 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 also may 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 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 represent the best available technology to meet client needs.
See "Business--Legal Support and Staffing Services."
CONTROL BY OFFICERS, DIRECTORS AND SHAREHOLDERS
Upon completion of the Offering, the Company's officers, directors and
current principal shareholders will beneficially own approximately 42.0% 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."
DILUTION
Purchasers of Common Stock in the Offering will experience immediate
dilution in net tangible book value per share of Common Stock of $12.93 from
the initial public offering price per share and may experience further
dilution in that value from issuances of Common Stock in connection with
future acquisitions. See "Dilution."
10
<PAGE>
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 will
be determined through negotiations between the Company and the Underwriters
and may not be indicative of the prices that will 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 7,813,115 shares of
Common Stock outstanding. Of these shares, all of the shares sold in the
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 4,313,115 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
November 15, 1997, there were outstanding options to purchase: (i) 131,856
shares of Common Stock issued in connection with the Completed Acquisitions;
(ii) 158,915 shares of Common Stock granted pursuant to the 1997 Stock
Incentive Plan as of September 30,1997; (iii) 565,109 shares of Common Stock
to be granted pursuant to the 1997 Stock Incentive Plan upon completion of the
Offering; and (iv) 100,000 shares of Common Stock to be granted pursuant to
the Company's Stock Option Plan for Non-Employee Directors upon completion of
the Offering. The Company intends to register the 900,000 shares of Common
Stock reserved for issuance pursuant to the exercise of options granted
pursuant to the Company's 1997 Stock Incentive Plan and pursuant to the
Company's Stock Option Plan for Non-Employee Directors 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 also may
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 as the successor to Looney & Company
("Looney") and to create a leading provider of legal support and staffing
services to law firms, insurance providers and major corporations. Since
combining with Looney in January 1997, the Company has acquired 13 businesses
(together with Looney, the "Completed Acquisitions") and will acquire four
additional businesses concurrently with the Offering in the Pending
Acquisitions. Prior to the combination with Looney & Company in January 1997,
the Company did not conduct any operations.
Looney & Company. Looney ("Looney") provides court reporting and certified
record retrieval services through operations in Houston, Dallas, San Antonio,
Austin, Corpus Christi and Harlingen, Texas. In addition, the Company provides
court reporting services to customers in locations not directly served by the
Company through U.S. Court Reporters, Inc., a referral network with over 130
affiliated court reporting firms located throughout the United States. In
April 1997, the Company acquired Cindi Rogers & Associates, a Houston-based
court reporting company. In July 1997, Looney acquired Preferred Records,
Inc., a Dallas court reporting and certified record retrieval company. In
August 1997, Looney acquired Encore Reporting, a Harlingen-based court
reporting and record retrieval company and the Company acquired Rocca
Reporting Service ("Rocca"), a Chicago, Illinois court reporting company. Mr.
Richard O. Looney, serves as Chairman, President and Chief Executive Officer
of the Company. Headquartered in Houston, Texas, Looney had 1996 revenues of
$7.7 million.
The following is a brief description of each of the Completed Acquisitions
and the Pending Acquisitions.
COMPLETED ACQUISITIONS
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, 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.
12
<PAGE>
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.
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 Los
Angeles, Orange County, San Diego and San Francisco, California. Headquartered
in Los Angeles, California, Ziskind Greene had 1996 revenues of $1.8 million.
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 Completed Acquisitions
consisted of: (i) $21.4 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 Promissory Notes; (v) $1.8
million aggregate principal amount of Convertible Subordinated Promissory
Notes; and (vi) 703,244 shares of Common Stock. 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 Notes 7 and 8 of Notes to
Consolidated Financial Statements of U.S. Legal Support, Inc.
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, Inc. Reporting Service Associates, Inc.
("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. See Note 6 of Notes to Financial Statements of Commander Wilson for a
discussion of bankruptcy proceedings involving Commander Wilson. See
"Management" and "Certain Transactions."
The aggregate purchase price to be paid by the Company in connection with
the Pending Acquisitions, subject to post-closing adjustments, if any, 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 shares of Common Stock
offered hereby are estimated to be approximately $36.6 million ($41.3 million
if the Underwriters' over-allotment option is exercised in full), assuming an
initial offering price of $12.00 per share and after deducting estimated
underwriting discounts and estimated expenses payable by the Company.
The net proceeds of the Offering will be utilized by the Company as follows:
(i) approximately $17.1 million will be used to repay the outstanding
principal and interest under the Company's existing credit agreement with a
commercial bank, which was used to finance the Completed Acquisitions and for
working capital purposes (the "Bank Credit Agreement"); (ii) approximately
$9.5 million will be used to repay the outstanding principal of, and accrued
interest on, the Company's 12% Senior Subordinated Notes due 2005 (the "Senior
Subordinated Notes"), which were issued in January 1997 to obtain funds to
finance the Completed Acquisitions; (iii) $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; (iv) approximately $5.0 million will
be used to repay the outstanding principal balance of, and interest on, the
Company's Subordinated Promissory Notes issued in connection with certain of
the Completed Acquisitions; and (v) the remaining net proceeds of
approximately $4.8 million will be applied to the $16.9 million required to
pay the cash portion of the purchase price in the Pending Acquisitions. The
additional $12.1 million required for the cash portion of the Pending
Acquisitions is expected to be financed through borrowings under a new credit
facility. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
Indebtedness under the Bank Credit Agreement currently bears interest at the
rate of 8.19% per annum and is required to be accelerated upon completion of
the Offering. The Subordinated Promissory Notes become due and payable upon
completion of the Offering and bear interest at rates ranging from 6.0% to 10%
per annum. Approximately $1.6 million of the principal amount of the
Subordinated Promissory Notes is 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," "Certain Transactions" and Notes 3 and 7 of Notes to Consolidated
Financial Statements of U.S. Legal Support, Inc.
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 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 Bank Credit
Agreement, prohibits the payment of dividends. The Company has entered into a
new credit facility with a commercial bank, which will be effective
concurrently with completion of the Offering, and such agreement contains
provisions restricting the payment of dividends. See "Description of Capital
Stock."
14
<PAGE>
CAPITALIZATION
The following table sets forth, as of September 30, 1997: (i) the historical
consolidated capitalization of the Company; and (ii) the historical
consolidated capitalization of the Company, as 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
SEPTEMBER 30,
1997
------------------
ACTUAL PRO FORMA
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt (including current portion of long-term
debt)...................................................... $3,936 $75
======= =======
Long-term debt, excluding current portion:
Bank indebtedness (1)..................................... $12,424 $11,000
Senior Subordinated Notes................................. 9,000 --
Subordinated Promissory Notes............................. 2,694 --
Subordinated Convertible Promissory Notes (2)............. 1,845 --
Subordinated Promissory Notes............................. 2,000 --
Debt discount (3)......................................... (1,707) --
Capital leases and other obligations...................... 83 83
------- -------
Total long-term debt.................................... $26,339 $11,083
------- -------
Redeemable Preferred Stock:
Series A Convertible Preferred Stock, 1,000,000 shares
outstanding (4).......................................... 1,479 --
Series B Convertible Preferred Stock, 2,046,667 shares
outstanding (4).......................................... 2,047 --
Series C Convertible Preferred Stock, 231,250 shares
outstanding (5).......................................... 231 --
Shareholders' equity (deficit):
Preferred Stock, $1.00 par value, 10,000,000 shares
authorized............................................... -- --
Common Stock, $.01 par value, 100,000,000 shares
authorized: 1,734,564 shares outstanding, actual; and
7,813,115 shares, pro forma (6).......................... 17 78
Additional paid-in capital................................ 3,840 51,508
Accumulated deficit....................................... (6,178) (7,646)
------- -------
Total shareholders' equity (deficit).................... (2,321) 43,940
------- -------
Total capitalization........................................ $27,775 $62,652
======= =======
</TABLE>
- --------
(1) Includes borrowings made under the Company's new credit facility to fund a
part of the cash portion of the purchase price of the Pending
Acquisitions. Actual borrowings required for such purposes are estimated
to be approximately $12.1 million.
(2) The Convertible Subordinated Promissory Notes were issued in connection
with certain of the Completed Acquisitions, and will be converted into an
aggregate of 225,867 shares of Common Stock.
(3) See Note 7 of Notes to Consolidated Financial Statements of U.S. Legal
Support, Inc.
(4) The Series A Convertible Preferred Stock will be converted into 1,560,000
shares of Common Stock and the Series B Convertible Preferred Stock will
be converted into an aggregate of 183,393 shares of Common Stock, in each
case, upon completion of the Offering.
(5) The Series C Convertible Preferred Stock will be redeemed for $231,250 out
of the net proceeds of the Offering.
(6) Excludes: (i) 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 (ii) 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 deficit of the Company at September 30, 1997 was
approximately $30.3 million, or $(17.47) per share of Common Stock. Net
tangible book deficit per share represents the Company's total tangible assets
less its total liabilities, divided by 1,734,564 shares of Common Stock
outstanding as of September 30, 1997. 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 consummation of the
Pending Acquisitions, the pro forma net tangible book deficit of the Company
at September 30, 1997 would have been approximately $7.3 million, or $(0.93)
per share. This represents an immediate increase in such net tangible book
value of $16.54 per share to existing shareholders at September 30, 1997,
consisting of $10.54 per share attributable to the conversion of convertible
subordinated debt and preferred stock, $8.11 per share attributable to the
Offering, offset by a decrease of $3.22 per share attributable to the Pending
Acquisitions. This results in immediate dilution of $12.93 per share to
investors purchasing 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.......... $12.00
Net tangible book deficit as of September 30, 1997
[$30.3 million]....................................... $(17.47)
Increase in pro forma net tangible book value attribut-
able to the conversion of convertible subordinated
debt and preferred stock [$4.6 million]............... 10.53
Increase in pro forma net tangible book value attribut-
able to the Offering, net of the extraordinary loss on
debt [$35.1 million].................................. 9.23
Decrease in pro forma net tangible book value per share
attributable to the Pending Acquisitions [$16.7 mil-
lion]................................................. (3.22)
-------
Pro forma net tangible book value per share after the Of-
fering [$7.3 million]................................... (0.93)
-------
Dilution per share to new investors...................... $(12.93)
=======
</TABLE>
The following table presents, after giving effect to the Offering and the
Pending Acquisitions, the difference among existing shareholders, sellers
receiving shares in the Pending Acquisitions 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 PURCHASED TOTAL CONSIDERATION PURCHASE
----------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing common shareholders.. 1,734,564 22% $4,246,000 7% $2.45
Common shareholders upon
conversion of:
Series A Preferred Stock.... 1,560,000 20 1,000,000 2 0.64
Series B Preferred Stock.... 183,393 2 2,046,667 3 11.16
Convertible Subordinated
Promissory Notes........... 225,890 3 1,075,333 2 4.76
Sellers receiving shares in
the Pending Acquisitions..... 609,268 8 6,580,000 12 10.80
New investors................. 3,500,000 45 42,000,000 74 12.00
--------- ----- ----------- -----
Total....................... 7,813,115 100.0% $56,948,000 100.0%
========= ===== =========== =====
</TABLE>
The foregoing tables assume no exercise of outstanding options. As of the
date of this Prospectus, there are 795,880 shares of Common Stock issuable
upon the exercise of stock options at a weighted average exercise price of
$9.16 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 years ended December 31, 1992
and 1993 and as of and for the nine months ended September 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 nine months ended September
30, 1996 and 1997 and the year ended December 31, 1996, were derived from the
pro forma combined 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>
PRO FORMA (2) (3)
----------------------------
NINE MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
------------------------------------ -------------- ------------ ---------------
1992 1993 1994 1995 1996 1996 1997 1996 1996 1997
------ ------ ------ ------ ------ ------ ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Revenues................ $6,706 $7,722 $8,363 $9,104 $7,667 $5,886 $14,549 $43,405 $32,024 $37,277
Cost of services........ 3,802 4,595 5,589 5,763 4,839 3,726 9,287 25,474 18,575 21,261
------ ------ ------ ------ ------ ------ ------- ------- ------- -------
Gross profit............ 2,904 3,127 2,774 3,341 2,828 2,160 5,262 17,931 13,449 16,016
Selling, general and
administrative
expenses (4)........... 2,612 2,824 3,043 1,970 2,352 1,310 3,855 10,968 8,420 9,365
Depreciation and
amortization (5)....... 95 110 224 231 212 159 332 1,754 1,332 1,337
------ ------ ------ ------ ------ ------ ------- ------- ------- -------
Operating income
(loss)................. 197 193 (493) 1,140 264 691 1,075 5,209 3,697 5,314
Interest expense........ 101 181 185 230 238 178 1,147 880 668 707
------ ------ ------ ------ ------ ------ ------- ------- ------- -------
Income (loss) before
taxes.................. 96 12 (678) 910 26 513 (72) 4,329 3,029 4,607
Provisions (benefit) for
income taxes........... -- 35 (183) 327 10 174 11 1,847 1,298 1,928
------ ------ ------ ------ ------ ------ ------- ------- ------- -------
Net income (loss)....... $96 $(23) $(495) $583 $16 $339 (83) $2,482 $1,731 $2,679
====== ====== ====== ====== ====== ====== ======= ======= =======
Accretion of preferred
stock.................. (479)
-------
Net income (loss)
attributable to common
shareholders........... $(562)
=======
Net income (loss) per
common share........... $(.13) $0.31 $0.22 $0.33
======= ======= ======= =======
Weighted average shares
outstanding (6) (7).... 4,226 8,002 8,002 8,002
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------
ACTUAL PRO FORMA (3) (6)
------- -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash................................................. $559 $1,238
Total assets......................................... 38,720 62,252
Short-term debt...................................... 3,936 75
Long-term debt (net of current portion).............. 26,339 11,083
Redeemable preferred stock........................... 3,757 --
Total shareholders' equity (deficit)................. (2,321) 43,940
</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 Completed 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 Unaudited Pro Forma Combined
Financial Statements of U.S. Legal Support, Inc. included herein.
(3) 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 employment contract
compensation negotiated in connection 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 such events had occurred on January 1, 1996 (for statement of income
data) and as of September 30, 1997 (for balance sheet data). The Pending
Acquisitions and the conversion of certain outstanding preferred stock and
Convertible Subordinated Promissory Notes described in Note 6 below, are
contingent upon and will close concurrently with completion of the
Offering. 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.
(4) 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.
(5) Pro forma depreciation and amortization amounts consist primarily of
amortization of goodwill totaling $1,313,000 and $985,000 for the periods
ended December 31, 1996 and September 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
Consolidated Financial Statements of U.S. Legal Support, Inc.
(6) Gives effect to: (i) 1,734,564 shares outstanding prior to the Offering;
(ii) 3,500,000 shares to be issued in the Offering; (iii) 609,268 shares
to be issued in the Pending Acquisitions; (iv) 1,969,283 shares issued
upon conversion of convertible preferred stock and Convertible
Subordinated Promissory Notes; and (v) 188,187 shares issuable upon
exercise of outstanding stock options in accordance with SEC Staff
Accounting Bulletin Topic 4D. See "Capitalization."
(7) Shares used in calculating net loss per share for the nine months ended
September 30, 1997, include the number of shares, the proceeds from the
sale of which would be necessary to repay the portion of the Company's
debt that funded the distribution to Richard O. Looney in connection with
the reorganization of the Company and Looney & Company.
18
<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 corporations, including insurance companies, through 40 offices in
seven states and the District of Columbia. 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 the year ended December 31, 1996, the
Company had pro forma revenues of $43.4 million and pro forma operating income
of $5.2 million. For the nine months ended September 30, 1997, the Company had
pro forma revenues of $37.3 million and pro forma operating income of $5.3
million, compared with pro forma revenues of $32.0 million and pro forma
operating income of $3.7 million for the nine months ended September 30, 1996.
In 1996, the Company derived approximately 64.0% of its pro forma 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 nine months ended September 30, 1997, the Company
derived 60.0% of its pro forma revenues from court reporting, 17.0% from
certified record retrieval, 21.0% from permanent placement and temporary legal
staffing and 2.0% from other services. The Company believes that over the past
several years prices for court reporting and certified record retrieval
services have remained stable or have declined in many markets, while rates
for permanent placement and temporary legal staffing have remained relatively
constant. 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 consolidation among legal support companies continue, the Company
believes that the industry will experience more 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
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
independent 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. 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 the network of
court reporting affiliates will diminish as the Company acquires additional
court reporting businesses, including certain of the network affiliates
located 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 and notices. Certified record retrieval services
generally are used in personal injury and medical malpractice litigation.
Because the number of transcript copies requested by the parties and the
volume of certified records retrieved generally increase as the number of
parties in a lawsuit increases, revenues derived from court reporting and
certified record retrieval services are significantly higher in litigation
involving more than two parties.
19
<PAGE>
The Company's legal staffing recruiters are compensated on a commission
basis. Fees for successful placement of an attorney typically are based upon a
percentage, approximately 25.0% to 30.0% of the attorney's compensation earned
during the year following the placement, of which 40.0% to 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 attorneys placed with
clients on a temporary basis.
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 fluctuates 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 $51.0 million as
goodwill, representing the excess of the fair value of the consideration paid
over the fair value of the assets to be acquired. Approximately 77.0% of the
goodwill is deductible for federal income tax purposes over 15 years. For
financial reporting purposes, goodwill is amortized over periods ranging from
ten to 40 years. The pro forma effect of this amortization expense is expected
to be approximately $1.3 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 January 1, 1995.
The pro forma operating data for the year ended December 31, 1996 and the
nine months ended September 30, 1997 assumes that the Completed Acquisitions
as well as 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.
20
<PAGE>
The following table sets forth certain combined and pro forma operating data
for the indicated periods:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
---------------------------- ----------------------------
1995 1996 1996 1997
------------- ------------- ------------- -------------
COMBINED PRO FORMA PRO FORMA
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................ $38,616 100.0% $43,405 100.0% $32,024 100.0% $37,277 100.0%
Cost of services....... 23,200 60.1 25,474 58.7 18,575 58.0 21,261 57.0
------- ----- ------- ----- ------- ----- ------- -----
Gross profit........... $15,416 39.9 $17,931 41.3 $13,449 42.0 $16,016 43.0
======= =====
Selling, general and
administrative
expenses.............. 10,968 25.3 8,420 26.3 9,365 25.1
Depreciation and
amortization.......... 1,754 4.0 1,332 4.2 1,337 3.6
------- ----- ------- ----- ------- -----
Operating income....... $5,209 12.0 $3,697 11.5 $5,314 14.3
======= ===== ======= ===== ======= =====
</TABLE>
RESULTS OF OPERATIONS--PRO FORMA 1996 AND COMBINED 1995
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Revenue. Revenue increased $5.3 million, or 16.4%, to $37.3 million for the
nine months ended September 30, 1997 from $32.0 million for the nine months
ended September 30, 1996. The increase in revenue was a result of the
following: (i) revenue from court reporting services increased by
approximately $1.6 million, primarily due to higher demand in Pennsylvania,
California and New York; (ii) the Company's permanent legal search services
revenue increased by approximately $2.3 million as the result of several
significant retained searches; and (iii) revenue from certified record
retrieval services in California increased by $754,000 as the result of
several new insurance clients. In addition the start-up of temporary attorney
staffing services contributed approximately $1.0 million to the revenue
increase. Revenue was offset by lower revenue from certified record retrieval
services in Texas.
Gross Profit. Gross profit increased $2.6 million, or 19.1%, to $16.0
million for the nine months ended September 30, 1997 from $13.4 million for
the nine months ended September 30, 1996. The gross profit on court reporting
services increased by approximately $800,000, while the gross profit on
permanent legal placement and temporary staffing services increased by
approximately $1.7 million. The gross margin percentage improved to 43.0%
during the nine months ended September 30, 1997 from 42.0% during the nine
months ended September 30, 1996. The improvement in the gross margin
percentage was primarily the result of an increase in the gross margin
percentage on court reporting services resulting from a reduction in the
percentage of court reporting fees paid to court reporters at one of the
Company's locations, offset by a slight decrease in the gross margin
percentage on permanent legal search and temporary staffing services as the
result of the start-up of temporary attorney staffing services.
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 a combined $38.6 million in 1995. The increase in revenue was a result of
the following: (i) revenue from court reporting services increased by
approximately $3.2 million primarily as the result of higher demand in
Florida, Pennsylvania and California; (ii) the Company's permanent legal
search services revenue increased by approximately $1.1 million as the result
of several significant retained searches; and (iii) revenue from certified
record retrieval services in California increased by $950,000 as the result of
several new insurance clients. The increase in revenue was partially offset by
lower court reporting and certified record retrieval revenue in Texas
resulting from the settlement of a number of large lawsuits in which the
Company had been providing services.
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 profit on court
reporting services increased by approximately $2.0 million while gross profit
on permanent legal placement services increased by approximately $400,000 due
to the higher level of revenue and improved gross margin percentages. The
gross margin percentage improved to 41.3% in 1996 from 39.9%
21
<PAGE>
in 1995. The improvement in the gross margin percentage was primarily the
result of an increase in the gross margin percentage from court reporting
services resulting from a reduction in the percentage of court reporting fees
paid to court reporters at one of the Company's locations. Also, the gross
margin percentage on certified record retrieval services in California
improved as the result of increased volume from new insurance clients.
RESULTS OF OPERATIONS--THE COMPANY AND LOONEY
The Company provides court reporting, certified record retrieval, legal
placement and staffing and related services and derives its revenues from fees
associated with these services. Looney provides court reporting and certified
records retrieval services. The Company acquired Looney in January 1997.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
The Company acquired Klein Bury and eight other businesses during the nine
months ended September 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 nine months ended September 30, 1996.
Revenue. Revenue increased $8.7 million, or 147.2%, to $14.5 million for the
nine months ended September 30, 1997 from $5.9 million for the nine months
ended September 30, 1996. The increase in revenue was primarily the result of
the acquisitions made by the Company during the nine months ended September
30, 1997 which contributed $8.9 million of additional revenue.
Gross Profit. Gross profit increased $3.1 million, or 143.6%, to $5.3
million for the nine months ended September 30, 1997 from $2.2 million for the
nine months ended September 30, 1996. The gross margin percentage decreased by
0.5% to 36.2% for the nine months ended September 30, 1997 from 36.7% for the
nine months ended September 30, 1996. The slight decrease in the gross margin
percentage was primarily the result of higher fees paid to court reporters at
the Company's Florida subsidiary as compared to fees paid by Looney.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $2.5 million, or 194.3%, to $3.9 million for
the nine months ended September 30, 1997 from $1.3 million for the nine months
ended September 30, 1996. Approximately $1.8 million was attributable to
acquisitions and $746,000 was the result of higher expenses related to the
addition of corporate personnel to facilitate anticipated future growth.
Selling, general and administrative expenses as a percentage of revenue was
26.5% for the nine months ended September 30, 1997 as compared to 22.3% for
the nine months ended September 30, 1996 as the result of the additional
corporate office personnel.
Depreciation and Amortization. Depreciation and amortization increased by
$173,000, or 108.8%, to $332,000 for the nine months ended September 30, 1997
from $159,000 for the nine months ended September 30, 1996. The increase was
due to the amortization of goodwill incurred in connection with the 14
acquisitions made during the nine months ended September 30, 1997.
Operating Income. As the result of the foregoing, operating income increased
by $384,000, or 55.5%, to $1.1 million for the nine months ended September 30,
1997 from $691,000 for the comparable period in 1996. The operating margin
percentage decreased 4.3% to 7.4% for the nine months ended September 30, 1997
from 11.7% for the nine months ended September 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.
22
<PAGE>
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 equity interests 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 revenue 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 $231,000 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 $264,000 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 lawsuits.
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 totalling $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 $231,000 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.
RESULTS OF OPERATIONS--KLEIN BURY
Klein Bury provides court reporting services and derives its revenue from
court reporting fees. The Company acquired Klein Bury in January 1997.
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.
23
<PAGE>
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 revenue 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 revenue
from court reporting fees. Reporting Service will be acquired concurrently
with the Offering.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Revenue. Revenue for the nine months ended September 30 1997 increased
$896,000, or 41.3%, to $3.1 million from $2.2 million for the nine months
ended September 30, 1996. The increase in revenue was the result of: (i)
increased demand from existing clients; (ii) more multi-party lawsuits which
result in higher demand for services as well as an increased number of court
reporting transcripts; and (iii) improved pricing of Reporting Service's court
reporting services.
Gross Profit. Gross profit for the nine months ended September 30, 1997
increased $718,000, or 72.4%, to $1.7 million from $992,000 for the nine
months ended September 30, 1996. The gross margin percentage improved by 10.1%
to 55.8% for the nine months ended September 30, 1997 compared with 45.7% at
September 30, 1996. The improvement in gross margin percentage primarily
resulted from (i) increased volume of copies required by parties in multi-
party lawsuits and (ii) cost containment actions taken by Reporting Service
and improved pricing of its services.
Operating Expenses. Operating expenses for the nine months ended September
30, 1997 increased $114,000, or 29.1%, to $505,000 from $391,000 for the nine
months ended September 30, 1996. The increase in operating expenses resulted
from costs attributable to additional administrative personnel and other
expenses attributable to the increased demand for Reporting Service's court
reporting services. Operating expenses as a percentage of sales decreased 1.5%
to 16.5% at September 30, 1997 from 18.0% at September 30, 1996, due to the
impact of higher volume without a corresponding increase in fixed overhead
costs.
Operating Income. As the result of the foregoing, operating income for the
nine months ended September 30, 1997 increased $603,000 or 101.4%, to $1.2
million from $595,000 for the nine months ended September 30, 1996. The
operating margin percentage improved 11.7% to 39.1% for the nine months ended
September 30, 1997 from 27.4% for the nine months ended September 30, 1996.
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.
24
<PAGE>
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 revenue from court
reporting fees. Jilio will be acquired concurrently with the Offering.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Revenue. Revenue for the nine months ended September 30 1997 increased
$313,000, or 11.3%, to $3.1 million from $2.8 million for the nine months
ended September 30, 1996. The increase in revenue was due to an expansion of
Jilio's client base as a result of marketing efforts, the impact of large
multi-party litigation and the offering of new services, including document
depository services, to its clients.
Gross Profit. Gross profit for the nine months ended September 30, 1997
increased $108,000, or 7.7%, to $1.5 million from $1.4 million for the nine
months ended September 30, 1996. The gross margin percentage declined 1.6% to
49.1% for the nine months ended September 30, 1997 from 50.7% for the nine
months ended September 30, 1996. The decrease in the gross margin percentage
was primarily the result of volume pricing discounts related to multi-party
lawsuits and start-up costs related to new document depository services.
Operating Expenses. Operating expenses increased $101,000, or 13.4%, to
$857,000 for the nine months ended September 30, 1997 from $756,000 for the
nine months ended September 30, 1996. Operating expenses as a percentage of
revenue increased 0.5% to 27.8% at September 30, 1997 from 27.3% for the nine
months ended September 30, 1996. The increase in operating expenses and
operating expenses as a percentage of revenue were the result of additional
personnel and increased costs related to the initiation of new document
depository services and complimentary services related to large multi-party
lawsuits.
Operating Income. As the result of the foregoing, operating income for the
nine months ended September 30, 1997 increased $7,000, or 1.0%, to $656,000
from $649,000 for the nine months ended September 30, 1996. Operating margin
percentage declined 2.1% to 21.3% for the nine months ended September 30, 1997
from 23.4% at September 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.
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 revenue increased
slightly from 26.8% in 1996 from 26.5% in 1995.
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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 revenue 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 1996, Elaine Dine created Elaine
Dine Temporaries LLC which provides temporary legal staffing services. Revenue
from temporary staffing services are derived from hourly fees charged to
clients for the number of hours worked by temporary staffing attorneys.
The Company acquired Elaine Dine in September 1997.
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 primarily due to lower health insurance costs and outside
professional fees as compared with 1996. Operating expenses as a percentage of
revenue decreased 11.4% to 24.6% in 1997 from 36.0% in 1996.
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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 revenue 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. The Company acquired Legal
Enterprise in August 1997.
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 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
revenue 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.
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.
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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 Completed Acquisitions 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 price 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. For the nine months ended
September 30, 1997, cash provided by operating activities was $615,000. The
aggregate cash consideration paid to sellers for acquisitions completed
through September 30, 1997 was approximately $21.4 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 $4.8 million of the net
proceeds of the Offering and borrowings of approximately $12.1 million under
the new credit facility described below.
The Company's existing Bank Credit Agreement provides for a $3.3 million
revolving line of credit of which approximately $2.6 million has been utilized
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 November 15, 1997,
the average annual interest rate on borrowings under the credit facilities was
8.19% and such borrowings are secured by substantially all of the assets of
the Company, including the capital 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. See "Use of Proceeds."
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 entered into a credit agreement (the "New Credit
Agreement") with NationsBank of Texas, N.A. ("NationsBank") to provide a new
$40.0 million revolving credit facility upon completion of the Offering. The
amount the Company may borrow under the revolving credit facility will be
subject to limitations based upon the EBITDA of the Company for the preceding
twelve months, adjusted to give effect to all acquisitions completed during
such period or pending as of the date of borrowing. The Company expects that,
immediately upon completion of the Offering, approximately $12.1 million will
be borrowed and approximately $10.0 million will be available for borrowing
under the New Credit Agreement. Management believes, however, that future
acquisitions and cash flows from operations will increase the borrowing
capacity under the New Credit Agreement in 1998. Loans under the New Credit
Agreement will bear interest at rates based, at the Company's option, on
either LIBOR or NationsBank's base rate plus, in each case, an applicable
margin. The applicable margin will be contingent upon the ratio of the
Company's consolidated funded debt to its consolidated EBITDA (the "Debt
Coverage Ratio") and will vary from 1.75% to 2.25% in the case of LIBOR loans
and 0% to .50% in the case of base rate loans. In addition, the Company will
be required to pay to the lenders a quarterly fee with respect to the unused
portion of the credit facility. The unused fee varies depending on the Debt
Coverage Ratio and ranges from .30% to .50%. The New Credit Agreement will
also permit $2.5 million of the amount available for borrowings to be used for
the issuance of letters of credit. A per annum fee based on the applicable
margin for LIBOR loans is payable each quarter with respect to the face amount
of letters of credit outstanding during the applicable quarter.
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Borrowings under the New Credit Agreement will be secured by substantially
all of the assets of the Company and its subsidiaries and by a pledge of the
stock of the subsidiaries. In addition, subsidiaries of the Company will be
required to guarantee the Company's obligations under the New Credit
Agreement. The New Credit Agreement also will require the Company and its
subsidiaries to comply with various affirmative and negative covenants related
to, among other matters: (i) the maintenance of certain financial ratios; (ii)
limitations on the incurrence of indebtedness; (iii) restrictions on liens,
guarantees, dividends and stock redemptions; and (iv) limitations on mergers
and sales of assets. The new revolving credit facility will terminate, and all
borrowings will be required to be repaid on December 31, 2000. The Company
anticipates that bank borrowings and cash from operations 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 nine months ended September 30, 1997, capital
expenditures were approximately $111,000. However, the Company anticipates
that capital expenditures will increase to approximately $150,000 for the
remainder of 1997 and will be approximately $750,000 in 1998. These amounts
include approximately $500,000 expected to be incurred to 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 and corporations, including insurance companies, through 40 offices in
seven states and the District of Columbia. 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 Kemper Insurance Company. For the year ended December 31,
1996, the Company had pro forma revenues of $43.4 million and pro forma
operating income of $5.2 million. For the nine months ended September 30,
1997, the Company had pro forma revenues of $37.3 million and pro forma
operating income of $5.3 million, compared with pro forma revenues of $32.0
million and pro forma operating income of $3.7 million for the nine months
ended September 30, 1996.
Legal support and staffing services are frequently used by the participants
in civil litigation, 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 opportunities by the Company:
[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
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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.
INDUSTRY OVERVIEW
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 an increase in the: (i)
efforts by law firms and corporations, especially insurance providers, to
reduce legal expenses; (ii) outsourcing of legal support services to companies
that specialize in providing such services at a lower cost; (iii) use of
lawyers on a temporary basis by law firms and corporations; (iv) volume and
complexity of litigation; and (v) 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.
Although the legal support and staffing services industry is undergoing
consolidation, currently the 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 in order to identify and implement practices
that best serve the objectives of the Company and its clients ("best
practices"). 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.
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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 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 legal support and staffing 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.
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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 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. These candidates include but are not limited to
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 and an affiliate of one of
the founding shareholders of the Company, 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. Although the Company believes that the systems
currently in place are adequate for the operation of the Company on an
integrated basis, the Company does not believe that the systems currently in
place will be effective for the long-term operation of the Company on a
combined basis. The Company currently is evaluating enhancements to its
management information systems to address the future needs of the combined
businesses and to standardize and centralize accounting and financial
procedures of acquired companies and 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.
33
<PAGE>
Since January 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 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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<PAGE>
. 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 legal 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 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 Company does not maintain malpractice insurance to cover
the performance of services by its temporary attorneys. Instead, the Company
requests that 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. In addition, the Company
believes that malpractice insurance coverage maintained by its clients
typically includes coverage for temporary attorneys who are supervised by
employees of clients.
35
<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 nine months ended September 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 on an exclusive or
"preferred provider" basis. The Company also works closely with its clients to
identify cost-saving opportunities and to develop solutions to the client's
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
36
<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 280 persons and believes that
its relationships with employees are good.
FACILITIES
The Company maintains 40 leased office locations in seven states and the
District of Columbia. 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 P. Tusa.................. 37 Executive Vice President and Chief Financial
Officer
Tony L. Maddocks............... 40 Vice President, Sales and Marketing
James M. Wilson................ 48 Vice President, Legal Staffing
Scott R. Creasman.............. 32 Vice President and Corporate Controller
Michael A. Klein............... 52 Director; President--Klein Bury
Fentress Bracewell............. 76 Director
Robert J. Cresci............... 53 Director
G. Kent Kahle.................. 46 Director
Ronald C. Lassiter............. 65 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 served as its President until October, 1997. Mr. Looney
is an active member of the National Court Reporters Association and the Texas
Court Reporters Association.
David P. Tusa joined the Company in November 1997 as Executive Vice
President and Chief Financial Officer. From August 1994 until August 1997, Mr.
Tusa served as Senior Vice President of Finance and Administration of Serv-
Tech, Inc., a publicly held specialty provider of technology driven industrial
maintenance services. From 1990 until 1994, Mr. Tusa was with CRSS, Inc., a
publicly held diversified engineering and construction services firm, most
recently as Corporate Controller.
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 in
September 1997. Mr. Wilson has been directly involved in the attorney search
and consulting industry since 1986. In 1996, Mr. Wilson formed 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.
Scott R. Creasman joined the Company in November 1997 as Vice President and
Corporate Controller. From October 1996 until August 1997, Mr. Creasman served
as Controller of Brink's Home Security, Inc., a national provider of
residential security services. From 1990 until 1996, Mr. Creasman was with
Texas Eastern Products Pipeline Company, the operator of a publicly held
petroleum products pipeline company, most recently as Controller.
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.
38
<PAGE>
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.
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.
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.
Mr. Ronald C. Lassiter has agreed to serve as a director of the Company
effective upon the closing of the Offering. Since January 1997, Mr. Lassiter
has served as the Chairman and Chief Executive Officer of Daniel Industries, a
manufacturer of fluid measurement and flow control products and services for
the oil and gas industry. From October 1992 until June 1997, Mr. Lassiter
served as Chairman and Chief Executive Officer of Zapata Protein, Inc. Before
joining Zapata Protein, Inc., Mr. Lassiter served as Chairman and Chief
Executive Officer of Zapata Corporation. Mr. Lassiter also serves on the Board
of Directors of Zapata Corporation.
See "Certain Transactions" for a description of the terms of transactions or
other relationships between the Company and certain of its officers and
directors.
BOARD OF DIRECTORS
Directors serve for one-year terms and are elected annually by the Company's
shareholders. Pursuant to the terms of an agreement entered into in connection
with the Company's acquisition of all of the capital stock of Klein Bury, as
long as the Company is indebted to Mr. Klein under the $1.4 million
Subordinated Promissory Note issued in connection with such acquisition, Mr.
Klein is entitled to serve as a director of the Company. 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 Securities Purchase Agreement will
terminate immediately prior to the completion of the Offering.
The Board of Directors has established two standing 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 Audit Committee is composed of Messrs. Kahle (Chair) and Cresci.
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
39
<PAGE>
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.
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 P. Tusa,
$170,000; Tony L. Maddocks, $162,500; James M. Wilson, $150,000; Michael A.
Klein, $175,000; and Scott R. Creasman, $100,000.
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 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 has entered 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. In addition,
Mr. Wilson is entitled to receive: (i) commissions based upon the revenues
generated from national account sales by Mr. Wilson, not to exceed 3% of such
sales and (ii) 10% of any finder's fees or commissions payable by the Company
to a third party in connection with any acquisition in which Mr. Wilson
provides assistance. The agreement expires September 25, 2000. 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 has agreed not to compete with the Company until the later of March 25,
2002, 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
40
<PAGE>
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. In
addition, Mr. Klein is entitled to receive (i) 85% of the amount billed on any
eight depositions per month transcribed by him individually in his capacity as
a court reporter and (ii) a percentage of any non Florida-based revenue
primarily attributable to Mr. Klein's promotional efforts. 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 Stock Incentive Plan is administered by the
Compensation Committee of the Board of Directors, which designates option
recipients, the number and type of options granted and their terms and
conditions, including the 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
158,915 shares of Common Stock had been granted as of September 30, 1997 and
options to purchase an additional 565,109 shares of Common Stock will be
granted upon completion of the Offering 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. The Board of Directors and shareholders have approved the 1997 Stock
Incentive Plan. The Company granted Mr. Looney, Mr. Tusa, Mr. Wilson and Mr.
Creasman options to purchase 200,000, 150,000, 25,000 and 40,000 shares of
Common Stock, respectively, at an exercise price per share equal to the
initial public offering price set forth on the cover of this Prospectus.
Messrs. Looney, Tusa 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 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 non-employee 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 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 $8,438.40, the aggregate par value of the shares
issued. In January 1997, the Company and Looney entered into a business
combination in which the Company acquired the capital stock of Looney for
consideration consisting of $4,087,834 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.
On January 17, 1997, the Company acquired all of the outstanding capital
stock of Klein Bury from Mr. Klein who became a director of the Company upon
consummation of the sale. The purchase price consisted of: (i) $3,850,397 in
cash; (ii) 170,600 shares of Common Stock issued to Mr. Klein; (iii) a
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; and (iv) options to purchase
40,000 shares of Common Stock to affiliates of Klein Bury. 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
120 days 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, the contractual maximum. In addition, since 1993, 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, and provides for 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 into a Registration
Rights Agreement pursuant to which the Company has agreed in certain
circumstances to register the shares of Common Stock issued on conversion of
the Series A Preferred Stock. See Note 8 of Notes to Consolidated Financial
Statements of U.S. Legal Support, Inc. 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) $1,189,169 in cash; (ii) a
Subordinated Promissory Note in the principal amount of $316,458; (iii) a
Convertible Subordinated Promissory Note in the principal amount of $813,748;
and (iv) options to purchase 7,000 shares of Common Stock to an employee of
Legal Enterprise. 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 Subordinated Promissory Note may be accelerated at
any time after the Offering. The Company expects to repay the principal and
accrued interest on the Subordinated Promissory Note with a portion of the
proceeds of the Offering. Concurrently with the Offering, the Convertible
Subordinated Promissory Note will be converted into 95,735 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 completion of the Offering. In addition, Legal Enterprise may receive
additional consideration (the
42
<PAGE>
"Additional Consideration") based on an amount equal to the excess of six times
earnings before taxes, depreciation and amortization of the acquired business
over the initial purchase price, subject to adjustment on February 28, 2000.
Sixty-five percent of the Additional Consideration is payable in cash and
thirty-five percent is payable in shares of Common Stock valued at the average
trading price per share of Common Stock over the first ten business days after
the end of each period in which Additional Consideration is calculated. Interim
payments of the Additional Consideration are to be made every six months until
the aggregate amount of such payments is equal to $934,000. Thereafter, no
additional payments will be made until April 15, 2000, at which time any
Additional Consideration owed is required to be paid to Legal Enterprise.
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 currently outstanding
Common Stock. The purchase price consisted of: (i) $1.6 million in cash; (ii)
116,471 shares of Common Stock; and (iii) a 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 July 1, 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.
On September 17, 1997, the Company acquired all of the outstanding capital
stock of Burton House, Inc, doing business as Ziskind Greene, from Gregg
Ziskind and Susan Ziskind. The purchase price consisted of $1.4 million in cash
and 158,824 shares of Common Stock. In addition, the Ziskinds may receive
additional consideration beginning on January 1, 1998, in the amount of 20% of
the amount by which earnings before taxes, depreciation and amortization of
Burton House, Inc. exceeds threshhold amounts ranging from $150,000 for the
period from the date of the acquisition through December 31, 1997, to $750,000
for the year ended December 31, 2000.
The Company has entered into Registration Rights Agreements with Messrs.
Looney, Maddocks, Klein, Ziskind and Susan Ziskind and 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 entered into an Asset Purchase Agreement
dated September 25, 1997, and on that date Mr. Wilson was appointed Vice
President, Legal Staffing of the Company. Under the Asset Purchase Agreement,
the Company will acquire from Mr. Wilson the assets of Commander Wilson, a sole
proprietorship, in exchange for approximately $1.4 million in cash and 56,250
shares of Common Stock, valued at the initial public offering price. 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 and
reimbursed him for certain expenses. The letter agreement will be terminated
upon completion of the Company's acquisition of Commander Wilson. See Note 6 of
Notes to Financial Statements 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
$475,000 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 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 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.
The fees payable to GulfStar under the Letter Agreement in connection with the
Completed Acquisitions and the Pending Acquisitions will be $480,000, of which
$33,000 has been paid.
Nations Bank of Texas, N.A. has agreed to act as arranger and syndication
agent in connection with the Company's $40.0 million credit facility.
43
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of November 30, 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 or 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 person who is or is
expected to become a director upon completion of the Offering; (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 P. Tusa (2)................................. -- -- --
Tony Maddocks (3)................................. 101,975 5.6 1.3
James M. Wilson (4)............................... -- -- *
Scott P. Creasman (5)............................. -- -- --
Michael A. Klein.................................. 170,600 9.8 2.2
Fentress Bracewell (6)............................ -- -- --
Robert J. Cresci (7).............................. 1,560,000 47.3 19.9
G. Kent Kahle (8)................................. 150,000 8.6 1.9
Ronald C. Lassiter (6)............................ -- -- --
Delaware State Employees' Retirement Fund (9)..... 1,045,200 37.6 13.4
Declaration of Trust for Defined Benefit Plan of
ICI American Holdings Inc. (10)................. 304,200 14.9 3.9
Declaration of Trust for Defined Benefit Plan of
Zeneca Holdings Inc. (11)....................... 210,600 10.8 2.7
GulfStar Investments, Ltd. (12).................. 150,000 8.6 1.9
Gregg M. and Susan L. Ziskind (13)................ 158,824 9.2 2.0
Legal Enterprise, Inc. (14)...................... 95,712 5.2 1.2
Amicus One (15)................................... 116,471 6.7 1.5
All executive officers and directors as a group
(10 persons) (16)................................ 3,009,808 80.8 38.5
</TABLE>
- --------
* Beneficially owns less than 1% of the outstanding shares of Common Stock.
(1) Includes (a) 183,393 shares of Common Stock issuable upon conversion of
the Series B Convertible Preferred Stock; (b) 90,000 shares of Common
Stock held by trusts for the benefit of Mr. Looney's children; and (c)
10,000 shares subject to a three-year option granted by Mr. Looney to an
officer of Gulfstar. 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 12.0% of the outstanding Common Stock after
the Offering.
(2) Excludes 150,000 shares of Common Stock subject to unvested options
granted pursuant to the Company's 1997 Stock Incentive Plan.
(3) Includes 95,735 shares of Common Stock issuable upon conversion of a
Convertible Subordinated Promissory Note held by Legal Enterprise, a
corporation of which Mr. Maddocks is President and a 50% shareholder.
44
<PAGE>
(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.
(5) Excludes 40,000 shares of Common Stock subject to unvested options
granted pursuant to the Company's 1997 Stock Incentive Plan.
(6) 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.
(7) 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.
(8) 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.
(9) 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.
(10) 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.
(11) 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.
(12) The shareholder's address of record is 700 Louisiana Street, Suite 3800,
Houston, Texas 77002.
(13) The shareholder's address of record is 2666 Overland Avenue, Suite 600,
Los Angeles, California 90064.
(14) Represents shares of Common Stock issuable upon conversion of a
Convertible Subordinated Promissory Note. The shareholder's address of
record is 4232-1 Las Virgenes Road, Suite 100, Calabasas, California
91302.
(15) The shareholder's address of record is 20 Vesey Street, 9th Floor, New
York, New York 10007.
(16) Excludes an aggregate of 415,000 shares of Common Stock subject to
unvested options granted pursuant to the Company's 1997 Stock Incentive
Plan and 100,000 shares subject to unvested options granted pursuant to
the Company's Directors' Option Plan.
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 November 15, 1997, the Company had outstanding 1,734,564
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 U.S. Legal Support, Inc. 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 Harris Trust and
Savings Bank, Houston, Texas.
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
Upon completion of the Offering, the Company will have outstanding
approximately 7,813,115 shares of Common Stock (8,238,115 shares if the
Underwriters' over-allotment option is exercised in full). Of these shares,
the 3,500,000 shares (4,025,000 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 4,313,115 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 3,285,080 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 upon expiration of these lock-up agreements, subject
to compliance with Rule 144 promulgated under the Securities Act. In addition,
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 90
days after the completion of the Offering, approximately 2,920,000
"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: (i) 131,856 shares of Common Stock issued in connection with the
Completed Acquisitions; (ii) 158,915 shares of Common Stock granted pursuant
to the 1997 Stock Incentive Plan as of September 30, 1997; (iii) 565,109
shares of Common Stock to be granted pursuant to the 1997 Stock Incentive Plan
upon completion of the Offering; and (iv) 100,000 shares of Common Stock to be
granted pursuant to the Company's Stock Option Plan for Non-Employee Directors
upon completion of the Offering. Options to purchase at least an additional
135,000 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 900,000 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 1,734,564 shares), as well as the 183,393
shares of Common Stock issuable upon conversion of the Series B Preferred
Stock, 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
have certain "piggyback" registration rights and will be entitled, subject to
certain limitations, to include their shares of Common Stock in a registration
of shares of Common Stock by the Company under the Securities Act.
In addition, a Registration Rights Agreement with the holders of the Series
A Convertible Preferred Stock provides that following the Offering, any one or
more of such 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 shares subject to the agreement
and the aggregate market value to be registered must be at least $3.0 million.
The number of shares included in any registration is 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>
NationsBanc Montgomery Securities, Inc..........................
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 525,000 additional shares of Common Stock to cover over-allotments,
if any, at the same price per share as the initial 3,500,000 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 NationsBanc
Montgomery Securities, Inc., 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 NationsBanc Montgomery Securities, Inc., except
for: (i) the issuance of shares of Common Stock upon conversion of debt or
equity securities of the Company or any of its subsidiaries outstanding as of
the date of this Prospectus; (ii) the grant, award, issuance or sale of shares
of Common Stock or options or other rights to purchase or acquire Common Stock
pursuant to the terms of any stock option, stock bonus or other plan or
arrangement referred to in this Prospectus; or (iii) the issuance of shares of
Common Stock, Preferred Stock or any security convertible into or exchangeable
for Common Stock or Preferred Stock in connection with the acquisition of
court reporting, certified record retrieval and legal staffing and placement
businesses and related assets.
50
<PAGE>
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 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 legality 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 U.S. Legal Support, Inc., 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 STATEMENTS:
Basis of Presentation..................................................... F-5
Unaudited Pro Forma Combined Balance Sheet as of September 30, 1997....... F-7
Notes to Unaudited Pro Forma Combined Balance Sheet....................... F-8
Unaudited Pro Forma Combined Statement of Income for the Nine Months Ended
September 30, 1997....................................................... F-10
Unaudited Pro Forma Combined Statement of Income for the Nine Months Ended
September 30, 1996....................................................... F-10
Unaudited Pro Forma Combined Statement of Income for the Year Ended
December 31, 1996........................................................ F-11
Notes to Unaudited Pro Forma Combined Statement of Income ................ F-12
UNAUDITED HISTORICAL FINANCIAL STATEMENTS:
Report of Independent Accountants......................................... F-13
Consolidated Balance Sheet as of September 30, 1997 (Unaudited)........... F-14
Consolidated Statement of Income for the Nine Months Ended September 30,
1997 (Unaudited)......................................................... F-15
Consolidated Statement of Stockholders' Equity for the Nine Months Ended
September 30, 1997 (Unaudited)........................................... F-16
Consolidated Statement of Cash Flows for the Nine Months Ended September
30, 1997 (Unaudited)..................................................... F-17
Notes to Consolidated Financial Statements (Unaudited).................... F-18
LOONEY & COMPANY
Report of Independent Accountants......................................... F-32
Balance Sheet as of December 31, 1995 and 1996............................ F-33
Statement of Operations for the Years Ended December 31, 1994, 1995 and
1996 and for the Nine Months Ended September 30, 1996 (Unaudited)........ F-34
Statement of Stockholder's Equity for the Years Ended December 31, 1994,
1995 and 1996............................................................ F-35
Statement of Cash Flows for the Years Ended December 31, 1994, 1995 and
1996 and for the Nine Months Ended September 30, 1996 (Unaudited)........ F-36
Notes to Financial Statements............................................. F-37
KLEIN, BURY & ASSOCIATES
Report of Independent Accountants......................................... F-42
Balance Sheet as of September 30, 1995 and December 31, 1996.............. F-43
Statement of Income for the Years Ended September 30, 1995 and December
31, 1996................................................................. F-44
Statement of Stockholders' Equity for the Years Ended September 30, 1995
and December 31, 1996.................................................... F-45
Statement of Cash Flows for the Years Ended September 30, 1995 and
December 31, 1996........................................................ F-46
Notes to Financial Statements............................................. F-47
G&G COURT REPORTERS
Report of Independent Accountants......................................... F-50
Balance Sheet as of December 31, 1995 and 1996............................ F-51
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-52
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-53
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-54
Notes to Financial Statements............................................. F-55
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SAN FRANCISCO REPORTING SERVICE
Report of Independent Accountants......................................... F-57
Balance Sheet as of December 31, 1996 and May 14, 1997.................... F-58
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................................ F-59
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..................................................................... F-60
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.... F-61
Notes to Financial Statements............................................. F-62
LEGAL ENTERPRISE, INC.
Report of Independent Accountants......................................... F-65
Balance Sheet as of December 31, 1996 and June 30, 1997 (Unaudited)....... F-66
Statement of Income for the Years Ended December 31, 1995 and 1996 and the
Six Months Ended June 30, 1996 and 1997 (Unaudited)...................... F-67
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-68
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-69
Notes to Financial Statements............................................. F-70
ELAINE P. DINE, INC.
Report of Independent Accountants......................................... F-72
Balance Sheet as of March 31, 1996 and 1997 and June 30, 1997
(Unaudited).............................................................. F-73
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-74
Statement of Stockholder's Equity for the Years Ended March 31, 1996 and
1997 and the Three Months Ended June 30, 1997 (Unaudited)................ F-75
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-76
Notes to Financial Statements............................................. F-77
BURTON HOUSE, INC.
D.B.A. ZISKIND, GREENE, WATANABE & NASON
Report of Independent Accountants......................................... F-79
Balance Sheet as of December 31, 1995 and 1996 and June 30, 1997
(Unaudited).............................................................. F-80
Statement of Operations for the Years Ended December 31, 1995 and 1996 and
the Six Months Ended June 30, 1996 and 1997 (Unaudited).................. F-81
Statement of Stockholder's Deficit for the Years Ended December 31, 1995
and 1996 and the Six Months Ended June 30, 1997 (Unaudited).............. F-82
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-83
Notes to Financial Statements............................................. F-84
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
JILIO & ASSOCIATES
Report of Independent Accountants........................................ F-87
Balance Sheet as of December 31, 1995 and 1996 and September 30, 1997
(Unaudited)............................................................. F-88
Statement of Operations for the Years Ended December 31, 1995 and 1996
and the Nine Months Ended September 30, 1996 and 1997 (Unaudited)....... F-89
Statement of Owner's Equity for the Years Ended December 31, 1995 and
1996 and the Nine Months Ended September 30, 1997 (Unaudited)........... F-90
Statement of Cash Flows for the Years Ended December 31, 1995 and 1996
and the Nine Months Ended September 30, 1996 and 1997 (Unaudited)....... F-91
Notes to Financial Statements............................................ F-92
REPORTING SERVICE ASSOCIATES, INC.
Report of Independent Accountants........................................ F-95
Balance Sheet as of December 31, 1995 and 1996 and September 30, 1997
(Unaudited)............................................................. F-96
Statement of Income for the Years Ended December 31, 1995 and 1996 and
the Nine Months Ended September 30, 1996 and 1997 (Unaudited)........... F-97
Statement of Stockholder's Equity for the Years Ended December 31, 1995
and 1996 and the Nine Months ended September 30, 1996 and 1997
(Unaudited)............................................................. F-98
Statement of Cash Flows for the Years Ended December 31, 1995 and 1996
and the Nine Months Ended September 30, 1996 and 1997 (Unaudited)....... F-99
Notes to Financial Statements............................................ F-100
KIRBY A. KENNEDY & ASSOCIATES
Report of Independent Accountants........................................ F-102
Balance Sheet as of December 31, 1995 and 1996 and September 30, 1997
(Unaudited)............................................................. F-103
Statement of Income for the Years Ended December 31, 1995 and 1996 and
the Nine Months Ended September 30, 1996 and 1997 (Unaudited)........... F-104
Statement of Partners' Capital for the Years Ended December 31, 1995 and
1996 and the Nine Months Ended September 30, 1997 (Unaudited)........... F-105
Statement of Cash Flows for the Years Ended December 31, 1995 and 1996
and the Nine Months Ended September 30, 1996 and 1997 (Unaudited)....... F-106
Notes to Financial Statements............................................ F-107
JOHNSON COURT REPORTING GROUP
Report of Independent Accountants........................................ F-109
Combined Balance Sheet as of December 31, 1995 and 1996 and June 30, 1997
(Unaudited)............................................................. F-110
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-111
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-112
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-113
Notes to Combined Financial Statements................................... F-114
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AMICUS ONE LEGAL SUPPORT SERVICES, INC.
Report of Independent Accountants........................................ F-117
Balance Sheet as of December 31, 1996 and September 5, 1997.............. F-118
Statement of Income for the Year Ended December 31, 1996 and the Period
Ended September 5, 1997................................................. F-119
Statement of Stockholders' Equity for the Year Ended December 31, 1996
and the Period Ended September 5, 1997.................................. F-120
Statement of Cash Flows for the Year Ended December 31, 1996 and the
Period Ended September 5, 1997.......................................... F-121
Notes to Financial Statements............................................ F-122
BLOCK COURT REPORTING, INC.
Report of Independent Accountants........................................ F-125
Balance Sheet as of December 31, 1995 and 1996 and June 30, 1997
(Unaudited)............................................................. F-126
Statement of Operations for the Years Ended December 31, 1995 and 1996
and the Six Months Ended June 30, 1997 and 1996 (Unaudited)............. F-127
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-128
Statement of Cash Flows for the Years Ended December 31, 1995 and 1996
and the Six Months Ended June 30, 1997 and 1996 (Unaudited)............. F-129
Notes to Financial Statements............................................ F-130
COMMANDER WILSON, INC.
Report of Independent Accountants........................................ F-133
Balance Sheet as of December 31, 1995 and 1996 and September 30, 1997
(Unaudited)............................................................. F-134
Statement of Income for the Years Ended December 31, 1995 and 1996 and
the Nine Months Ended September 30, 1996 and 1997 (Unaudited)........... F-135
Statement of Owner's Deficit for the Years Ended December 31, 1995 and
1996 and the Nine Months Ended September 30, 1997 (Unaudited)........... F-136
Statement of Cash Flows for the Years Ended December 31, 1995 and 1996
and the Nine Months Ended September 30, 1996 and 1997 (Unaudited)....... F-137
Notes to Financial Statements............................................ F-138
</TABLE>
F-4
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following Unaudited Pro Forma Combined Balance Sheet as of September 30,
1997 and the Unaudited Pro Forma Combined Statements of Operations for the
year ended December 31, 1996 and the nine months ended September 30, 1997 and
1996 have been prepared to reflect adjustments to the 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 September 30, 1997, and the
Unaudited Pro Forma Combined Statements of Operations for the year ended
December 31, 1996 and the nine months ended September 30, 1997 and 1996
reflect such transactions as if they had occurred as of January 1, 1996.
U.S. Legal Support, Inc., a Texas Corporation ("U.S. Legal") was formed in
October 1996 to continue the business of Looney & Company, a Texas
Corporation, ("Looney") and to create a leading provider of legal support and
staffing services to law firms, insurance providers and major corporations. In
January, U.S. Legal was combined with Looney in a transaction accounted for as
a merger of entities under common control in which Looney became a wholly-
owned subsidiary of U.S. Legal (Looney and U.S. Legal are hereinafter referred
to as the "Company"). Simultaneously, the Company entered into a Securities
Purchase Agreement (the "Securities Purchase Agreement") with three investors
represented by Pecks Management Partners Ltd. pursuant to which the Company
issued 1,000,000 shares of Series A Convertible Preferred Stock (the "Series A
Preferred Stock") and $9.0 million principal amount of 12% Senior Subordinated
Notes (the "Senior Subordinated Notes"). Concurrently, the Company entered
into a Bank Credit Agreement with a commercial bank, which provided for a
revolving credit facility of $4.0 million. The Company amended the Bank Credit
Agreement 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 October 1997, the Company
increased the revolving line of credit to $3.25 million through December 31,
1997.
On the same date as the transactions described above, the Company acquired
all of the outstanding capital stock of Klein, Bury & Associates, Inc. ("Klein
Bury") headquartered in Miami, Florida with offices in various locations
throughout the state of Florida. In May 1997, the Company acquired certain net
assets 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 all of the outstanding capital stock of
Goren of Newport, Inc., Rapidtext, Inc. and Medtext, Inc. (the "Johnson Court
Reporting Group") and acquired certain assets and assumed certain liabilities
of Legal Enterprise, Inc. Both companies are headquartered in California.
In September 1997, the Company acquired the assets and assumed certain
liabilities of Elaine P. Dine, Inc. and acquired all of the outstanding
capital stock of Burton House, Inc. d.b.a. Ziskind Greene Watanabe & Nason
headquartered in New York, New York and Los Angeles, California, respectively.
Additionally, the Company acquired all of the outstanding capital stock of
Block Court Reporting, Inc. and acquired certain assets and assumed certain
liabilities of Amicus One Legal Support Services, Inc. headquartered in
Washington, D.C. and New York, New York respectively.
The Company intends to sell approximately 3,500,000 shares of common stock,
par value $.01 per share (the "Common Stock") (at an assumed initial price of
$12.00 per share) to the public (the "Offering"). The businesses acquired
prior to the Offering ("Completed Acquisitions") were acquired using a
combination of cash, preferred stock, Common Stock and subordinated promissory
notes. Upon completion of the Offering, all of the shares of preferred stock
will be converted into shares of Common Stock, other than 231,250 shares of
Series C Preferred Stock which will be redeemed for $231,250 upon completion
of the Offering. The aggregate consideration paid by the Company for the
Completed Acquisitions consisted of: (i) $21,400,000 in cash, (ii) 2,046,667
shares of Series B Convertible Preferred Stock (the "Series B Preferred
Stock"); (iii) 231,250 shares of Series C Preferred Stock (the "Series C
Preferred Stock"); (iv) $4,979,000 of Subordinated Promissory Notes; and (v)
$1,845,000 Convertible Subordinated Promissory Notes.
F-5
<PAGE>
Additionally, the Company has entered into definitive agreements with respect
to the acquisition of Jilio & Associates, Kirby A. Kennedy & Associates,
Reporting Service Associates, Inc. and Commander Wilson, Inc. (the "Pending
Acquisitions," collectively with the Completed Acquisitions, the
"Acquisitions"). All of the 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 September 30, 1997 gives
effect to: (i) the sale of 3,500,000 shares of Common Stock in the Offering and
the application of the net proceeds therefrom, as described in "Use of
Proceeds"; (ii) the conversion of all outstanding shares of Series A Preferred
Stock and Series B Preferred Stock into shares of Common Stock; (iii) the
conversion of $1,845,000 of Convertible Subordinated Promissory Notes into
shares of Common Stock; (iv) the redemption of 231,250 shares of Series C
Preferred Stock for cash; and (v) the Acquisitions, as if each of such
transactions had occurred as of September 30, 1997. The Unaudited Pro Forma
Combined Statements of Operations for the year ended December 31, 1996, and the
nine months ended September 30, 1996 and 1997, give effect to: (i) the sale of
3,500,000 shares of Common Stock in the Offering and the application of net
proceeds therefrom as described in "Use of Proceeds"; (ii) the conversion of
all outstanding shares of Series A and Series B Preferred Stock into shares of
Common Stock; (iii) the conversion of $1,845,000 principal amount of
Convertible Subordinated Promissory Notes into Common Stock; and (iv) 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 businesses
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 Company is not
aware of any known contingencies that could result in adjustments that would
have a material effect on the unaudited pro forma financial statements. The pro
forma information should be read in conjunction with the Consolidated Financial
Statements of U.S. Legal Support, Inc. 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
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
---------- ------------
PENDING
OFFERING PENDING ACQUISITIONS
COMPANY ADJUSTMENTS AS ACQUISITIONS ADJUSTMENTS PRO
ASSETS (A) (B) ADJUSTED (C) (C)(D) FORMA
------ ---------- ----------- -------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash................... $559 $6,600 $7,159 $103 $(103) $1,238
(5,921)
Accounts receivable.... 6,990 -- 6,990 2,119 (1,458) 7,651
Prepaid expenses and
other current assets.. 189 -- 189 21 (3) 207
Deferred income taxes.. 48 -- 48 -- -- 48
------- ------- ------- ------ ------- -------
Total current
assets.............. 7,786 6,600 14,386 2,243 (7,485) 9,144
Property and equipment,
net.................... 1,153 -- 1,153 109 -- 1,262
Intangibles............. 27,980 -- 27,980 -- 22,973 51,238
285
Other assets............ 1,801 (250) 1,008 -- -- 1,008
(543)
------- ------- ------- ------ ------- -------
Total assets......... $38,720 $5,807 $44,527 $2,352 $15,773 $62,652
======= ======= ======= ====== ======= =======
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT)
--------------------
<S> <C> <C> <C> <C> <C> <C>
Current liabilities:
Accounts payable
Trade.................. $3,689 $ -- $3,689 $395 $(167) $3,917
Affiliates............. 316 -- 316 -- -- 316
Accrued liabilities.... 2,715 -- 2,715 32 285 3,032
Income taxes payable... 34 -- 34 -- -- 34
Deferred income taxes.. -- -- -- -- -- --
Current maturities of
long-term
obligations........... 3,936 (3,861) 75 -- -- 75
Other current
liabilities........... -- -- -- -- -- --
------- ------- ------- ------ ------- -------
Total current
liabilities......... 10,690 (3,861) 6,829 427 118 7,374
Long-term obligations,
net of current
maturities............. 26,339 (26,256) 83 -- 11,000 11,083
Deferred income taxes... 255 -- 255 -- -- 255
Commitments and
contingencies
Redeemable preferred
stock
Series A Convertible
Preferred Stock....... 1,479 (1,479) -- -- -- --
Series B Convertible
Preferred Stock....... 2,047 (2,047) -- -- -- --
Series C Convertible
Preferred Stock....... 231 (231) -- -- -- --
------- ------- ------- ------ ------- -------
Total redeemable
preferred stock..... 3,757 (3,757) -- -- -- --
------- ------- ------- ------ ------- -------
Stockholders' equity
(deficit):
Common stock........... 17 55 72 195 (189) 78
Additional paid-in
capital............... 3,840 41,094 44,934 -- 6,574 51,508
Retained earnings
(deficit)............. (6,178) (1,468) (7,646) 1,730 (1,730) (7,646)
------- ------- ------- ------ ------- -------
Total stockholders'
equity (deficit): (2,321) 39,681 37,360 1,925 4,655 43,940
------- ------- ------- ------ ------- -------
Total liabilities and
stockholders' equity
(deficit)........... $38,720 $5,807 $44,527 $2,352 $15,773 $62,652
======= ======= ======= ====== ======= =======
</TABLE>
F-7
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(A) Represents the September 30, 1997 historical consolidated balance sheet
of the Company.
(B) Represents the issuance of 3,500,000 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $12.00 per
share and the use of proceeds therefrom as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
<S> <C>
Gross proceeds of the Offering.............................. $42,000
Underwriting discounts and commissions...................... (2,940)
Expenses related to the Offering............................ (2,500)
-------
Net proceeds.............................................. 36,560
Repayment of long-term debt, including current portion...... (29,979)
Redemption of 231,250 shares of Series C preferred stock at
$1.00 per share............................................ (231)
Expenses paid at September 30, 1997 related to Offering..... 250
-------
Net increase in cash and cash equivalents................. $6,600
=======
</TABLE>
In addition, upon completion of the Offering, $1,845,000 of Subordinated
Convertible Promissory Notes, the 1,000,000 shares of Series A Preferred Stock
and the 2,046,667 shares of the Series B Preferred Stock will be converted into
shares of Common Stock. The principal amount of Subordinated Convertible
Promissory Notes convert at prices ranging from $7.56 to $8.50 per share. The
1,000,000 shares of Series A Preferred Stock convert into 1,560,000 shares of
common stock. The Series B Preferred Stock converts at 93% of the assumed
initial public offering price and the Company anticipates recording a $154,000
noncash dividend, that reflects the discount from the assumed initial offering
price at which it will convert to Common Stock.
The Offering and the conversion of the Convertible Subordinated Promissory
Notes, Series A Preferred Stock and Series B Preferred Stock 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 $36,525 $36,560
Subordinated Convertible Promissory Notes...... 2 1,061 1,063
Series A Preferred Stock....................... 16 1,463 1,479
Series B Preferred Stock....................... 2 2,045 2,047
--- ------- -------
$55 $41,094 $41,149
=== ======= =======
</TABLE>
The net repayment of long-term obligations is calculated as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
<S> <C>
Other assets............................................... $(543)(a)
Current portion of long-term obligations................... 3,861
Long-term debt, net of current maturities.................. 26,256
Common Stock............................................... (2)
Additional paid-in capital................................. (1,061)
Retained earnings.......................................... 1,468 (b)
-------
Cash paid.................................................. $29,979
=======
</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 extraordinary losses on
the retirement of indebtedness repaid with cash.
F-8
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET--(CONTINUED)
(C) Represents the September 30, 1997 historical combined balance sheets of
businesses 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>
KIRBY REPORTING COMMANDER
TOTAL JILIO KENNEDY SERVICE WILSON
------- ------ ------- --------- ---------
IN THOUSANDS
<S> <C> <C> <C> <C> <C>
Accounts receivables, net......... $661 $ 404 $ 257 $ -- $ --
Prepaid expenses and other current
assets........................... 18 18 -- -- --
Property and equipment............ 109 25 42 42 --
Excess of cost over fair value of
net assets acquired, including
goodwill of $22,933 and covenants
not to compete of $40............ 22,973 7,648 3,442 9,858 2,025
Accounts payable and accrued
liabilities...................... (260) (95) (165) -- --
------- ------ ------ ------ ------
$23,501 $8,000 $3,576 $9,900 $2,025
======= ====== ====== ====== ======
</TABLE>
The adjustments also reflect the elimination of certain assets and
liabilities not acquired or assumed.
The consideration for the Pending Acquisitions will be as follows:
<TABLE>
<CAPTION>
KIRBY REPORTING COMMANDER
TOTAL JILIO KENNEDY SERVICE WILSON
------- ------ ------- --------- ---------
IN THOUSANDS
<S> <C> <C> <C> <C> <C>
Cash (includes $5,921 from Offering
proceeds and $11,000 from new
borrowings)....................... $16,921 $5,600 $2,503 $7,400 $1,418
Issuance of 609,268 shares of
Common Stock...................... 6,580 2,400 1,073 2,500 607
------- ------ ------ ------ ------
$23,501 $8,000 $3,576 $9,900 $2,025
======= ====== ====== ====== ======
</TABLE>
The value of the Common Stock to be issued is based upon 90 percent of the
assumed initial public offering price of $12.00 per share. The excess of cost
over the fair value of the identifiable net assets acquired in the Pending
Acquisitions will be amortized over 40 years.
(D) Includes estimated transaction costs of $285,000.
F-9
<PAGE>
U.S. LEGAL SUPPORT, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------- HISTORICAL
COMPLETED PENDING PENDING
COMPANY ACQUISITIONS OFFERING ACQUISITIONS ACQUISITIONS PRO
(A) (B) ADJUSTMENTS COMBINED ADJUSTMENTS SUBTOTAL (C) ADJUSTMENTS FORMA
------- ------------ ----------- -------- ----------- -------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $14,549 $14,801 $ -- $29,350 $ -- $29,350 $7,927 $ -- $37,277
Cost of services..... 9,287 8,199 -- 17,486 -- 17,486 3,775 -- 21,261
------- ------- ----- ------- ------ ------- ------ ------- -------
Gross profit......... 5,262 6,602 -- 11,864 -- 11,864 4,152 -- 16,016
Selling, general and
administrative
expenses............ 3,855 4,769 (760)(D) 7,864 -- 7,864 1,571 (70)(D) 9,365
Depreciation and
amortization........ 332 161 372 (F) 865 -- 865 35 437 (F) 1,337
------- ------- ----- ------- ------ ------- ------ ------- -------
Operating income..... 1,075 1,672 388 3,135 -- 3,135 2,546 (367) 5,314
Interest expense..... 1,147 47 1,298 (G) 2,492 (2,459)(H) 33 14 660 (G) 707
------- ------- ----- ------- ------ ------- ------ ------- -------
Income (loss) before
income taxes........ (72) 1,625 (910) 643 2,459 3,102 2,532 (1,027) 4,607
Provision for income
taxes............... 11 757 (425)(I) 343 983 (I) 1,326 -- 602 (I) 1,928
------- ------- ----- ------- ------ ------- ------ ------- -------
Net (loss) income.... (83) 868 (485) 300 1,476 1,776 2,532 (1,629) 2,679
Accretion of
preferred stock..... (479) -- -- (479) 479 (K) -- -- -- --
------- ------- ----- ------- ------ ------- ------ ------- -------
Net income (loss)
attributable to
common
shareholders........ $ (562) $ 868 $(485) $ (179) $1,955 $ 1,776 $2,532 $(1,629) $ 2,679
======= ======= ===== ======= ====== ======= ====== ======= =======
Net income (loss) per
share............... $ (0.13) $ .33
======= =======
Weighted average
outstanding shares.. 4,226 8,002(J)
======= =======
</TABLE>
U.S. LEGAL SUPPORT, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------- HISTORICAL
COMPLETED PENDING PENDING
COMPANY ACQUISITIONS OFFERING ACQUISITIONS ACQUISITIONS PRO
(A) (B) ADJUSTMENTS COMBINED ADJUSTMENTS SUBTOTAL (C) ADJUSTMENTS FORMA
------- ------------ ----------- -------- ----------- -------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.............. $5,886 $19,656 $ -- $25,542 $ -- $25,542 $6,482 $ -- $32,024
Cost of services...... 3,726 11,423 -- 15,149 -- 15,149 3,426 -- 18,575
------ ------- ------- ------- ------- ------- ------ ------- -------
Gross profit.......... 2,160 8,233 -- 10,393 -- 10,393 3,056 -- 13,449
Selling, general and
administrative
expenses............. 1,310 6,533 (830)(D) 7,507 -- 7,507 1,348 (435)(D) 8,420
494 (E)
Depreciation and
amortization......... 159 145 548 (F) 852 -- 852 43 437 (F) 1,332
------ ------- ------- ------- ------- ------- ------ ------- -------
Operating income...... 691 1,555 (212) 2,034 -- 2,034 1,665 (2) 3,697
Interest expense...... 177 61 2,253 (G) 2,491 (2,483)(H) 8 16 644 (G) 668
------ ------- ------- ------- ------- ------- ------ ------- -------
Income (loss) before
income taxes......... 514 1,494 (2,465) (457) 2,483 2,026 1,649 (646) 3,029
Provision (benefit)
for income taxes..... 175 102 (374)(I) (97) 993 (I) 896 -- 402 (I) 1,298
------ ------- ------- ------- ------- ------- ------ ------- -------
Net income (loss)..... $ 339 $ 1,392 $(2,091) $ (360) $ 1,490 $ 1,130 $1,649 $(1,048) $ 1,731
====== ======= ======= ======= ======= ======= ====== ======= =======
Net income per share.. $ .22
=======
Weighted average
shares outstanding... 8,002(J)
=======
</TABLE>
F-10
<PAGE>
U.S. LEGAL SUPPORT, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------- HISTORICAL
COMPLETED PENDING PENDING
COMPANY ACQUISITIONS OFFERING ACQUISITIONS ACQUISITIONS PRO
(A) (B) ADJUSTMENTS COMBINED ADJUSTMENTS SUBTOTAL (C) ADJUSTMENTS FORMA
------- ------------ ----------- -------- ----------- -------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.............. $7,667 $26,743 $ -- $34,410 $ -- $34,410 $8,995 $ -- $43,405
Cost of services...... 4,839 15,819 -- 20,658 -- 20,658 4,816 -- 25,474
------ ------- ------- ------- ------ ------- ------ ------- -------
Gross profit.......... 2,828 10,924 -- 13,752 -- 13,752 4,179 -- 17,931
Selling, general and
administrative
expenses............. 2,352 8,846 (2,280)(D) 9,577 -- 9,577 1,971 (580)(D) 10,968
659 (E)
Depreciation and
amortization......... 212 173 730 (F) 1,115 -- 1,115 56 583 (F) 1,754
------ ------- ------- ------- ------ ------- ------ ------- -------
Operating income...... 264 1,905 891 3,060 -- 3,060 2,152 (3) 5,209
Interest expense...... 238 63 3,021 (G) 3,322 (3,322)(H) -- 20 860 (G) 880
------ ------- ------- ------- ------ ------- ------ ------- -------
Income (loss) before
income taxes......... 26 1,842 (2,130) (262) 3,322 3,060 2,132 (863) 4,329
Provision (benefit)
for income taxes..... 10 232 (232)(I) 10 1,329 (I) 1,339 -- 508 (I) 1,847
------ ------- ------- ------- ------ ------- ------ ------- -------
Net income (loss)..... $ 16 $ 1,610 $(1,898) $ (272) $1,993 $ 1,721 $2,132 $(1,371) $ 2,482
====== ======= ======= ======= ====== ======= ====== ======= =======
Net income per share.. $ .31
=======
Weighted average
outstanding shares... 8,002(J)
=======
</TABLE>
F-11
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(A) Represents the historical Consolidated Statement of Operations data of
the Company, which includes the operations of the Completed
Acquisitions from respective dates of acquisition through September 30,
1997.
(B) Represents the combined historical statement of operations data for the
Completed Acquisitions from January 1, 1997 through their respective
dates of acquisition.
(C) Represents the combined historical statements of operations data of the
Pending Acquisitions.
(D) Represents adjustments to reflect the excess of historical compensation
paid to owners of businesses acquired in the Acquisitions over
compensation that would have been payable under the terms of employment
agreements entered into in connection with each acquisition as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------------ ------------
1997 1996 1996
-------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Aggregate owners historical
compensation.......................... $1,776 $ 2,353 $4,310
Less: Aggregate Salary Per Post-
Acquisition Employment Contract....... (946) (1,088) (1,450)
-------- -------- ------
Adjustment........................... $830 $1,265 $2,860
======== ======== ======
</TABLE>
(E) Represents corporate office compensation for personnel-related costs
that would have been necessary to perform administrative functions in
1996.
(F) Represents an increase in amortization of goodwill associated with the
Acquisitions. 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>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED
----------------- DECEMBER 31,
1997 1996 1996
-------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Completed Acquisitions................... $ 372 $ 548 $730
Pending Acquisitions..................... 437 437 583
-------- -------- ------
$ 809 $985 $1,313
======== ======== ======
</TABLE>
(G) Represents (i) an adjustment to accrue interest expense on debt
incurred in connection with the Completed Acquisitions, such expense
computed based on fixed or variable interest rates, as appropriate, at
the time the Company entered into each agreement; and (ii) an
adjustment to reflect the interest expense on debt to be incurred in
connection with the Pending Acquisitions based on pro forma debt of
$11.0 million computed based upon the terms of the New Credit Agreement
which bears interest at 8.00% (LIBOR plus 200 basis points). The effect
on net income of a 1/8% variance of the interest rate would be $8,250
(annual basis).
(H) Represents an adjustment to reduce interest expense on debt that will
be repaid with 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 nine months ended September 30,
1997 and 1996, and 42% for the year ended December 31, 1996,
respectively because of non-deductible portion of the goodwill recorded
in connection with the Acquisitions.
(J) Pro forma earnings per share gives effect to: (i) 1,734,564 shares
outstanding prior to the offering, (ii) 609,268 shares to be issued in
the Pending Acquisitions; (iii) 3,500,000 shares to be issued in the
Offering; and (iv) 1,969,283 shares to be issued upon conversion of
preferred stock and Subordinated Convertible Promissory Notes. Also,
Common Shares, options and warrants issued within one year prior to the
initial public offering have been treated as outstanding for all
periods presented.
(K) Represents adjustment to eliminate accretion of redeemable preferred
stock which will be converted to Common Stock.
F-12
<PAGE>
[Report of Independent Accountants]
F-13
<PAGE>
U.S. LEGAL SUPPORT, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
UNAUDITED PRO
FORMA
SEPTEMBER 30, SEPTEMBER 30,
1997 1997(1)
ASSETS ------------- -------------
<S> <C> <C>
Current assets:
Cash.................................................. $ 558,574 $ 558,574
Accounts receivable, net of allowance of $777,480..... 6,990,522 6,990,522
Prepaid expenses and other current assets............. 188,969 188,969
Deferred income taxes................................. 47,632 47,632
----------- -----------
Total current assets.............................. 7,785,697 7,785,697
Property and equipment, net............................. 1,153,015 1,153,015
Intangibles, net........................................ 27,980,167 27,980,167
Deferred charges........................................ 1,546,526 1,546,526
Other assets............................................ 254,806 254,806
----------- -----------
Total assets............................................ $38,720,211 $38,720,211
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C> <C>
Current liabilities:
Accounts payable...................................... $ 3,689,227 $ 3,689,227
Accounts payable, related parties..................... 315,886 315,886
Accrued liabilities................................... 2,714,558 2,714,558
Income taxes payable.................................. 33,637 33,637
Current maturities of long-term obligations........... 3,935,964 3,935,964
----------- -----------
Total current liabilities......................... 10,689,272 10,689,272
Long-term obligations, net of current maturities........ 26,339,283 25,276,126
Deferred income taxes................................... 255,356 255,356
Redeemable preferred stock:
Series A Convertible Preferred Stock, $1.00 par value,
2,000,000 shares authorized; 1,000,000 shares issued
and outstanding...................................... 1,479,000 --
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.... 231,250 231,250
----------- -----------
Total redeemable preferred stock.................. 3,756,917 231,250
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; 1,734,564 shares issued and outstanding
(3,703,847 pro forma shares issued and outstanding).. 17,346 37,039
Additional paid-in capital............................ 3,840,117 8,409,248
Accumulated deficit................................... (6,178,080) (6,178,080)
----------- -----------
Total stockholders' deficit....................... (2,320,617) 2,268,207
----------- -----------
Total liabilities and stockholders' deficit............. $38,720,211 $38,720,211
=========== ===========
</TABLE>
- --------
(1) 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 Convertible Preferred Stock into 183,393 shares
of Common Stock; and (iii) $1,800,000 principal amount of Convertible
Subordinated Promissory Notes into 225,890 shares of Common Stock.
The accompanying notes are an integral part of the consolidated financial
statements.
F-14
<PAGE>
U.S. LEGAL SUPPORT, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1997
-------------
<S> <C>
Revenues........................................................ $14,549,056
Cost of services................................................ 9,287,213
-----------
Gross profit.................................................... 5,261,843
Selling, general and administrative expenses.................... 3,854,666
Depreciation and amortization................................... 331,896
-----------
Operating income............................................ 1,075,281
Interest expense................................................ 1,147,595
-----------
Loss before income taxes........................................ (72,314)
Provision for income taxes...................................... 11,041
-----------
Net loss........................................................ (83,355)
Accretion of preferred stock.................................... (479,000)
-----------
Net loss attributable to common shareholders.................... $ (562,355)
===========
Net loss per common share....................................... $ (.14)
===========
Weighted average shares outstanding............................. 3,893,000
===========
If the shares necessary to fund the cash portion of the
distribution to Richard O. Looney were outstanding for the
entire period, net loss per common share and weighted average
shares outstanding would have been as follows:
Pro forma net loss per common share........................... $ (.13)
===========
Weighted average shares outstanding........................... 4,226,000
===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-15
<PAGE>
U.S. LEGAL SUPPORT, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
<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................ -- -- -- (6,227,902) (6,227,902)
Issuance of Common
Stock.................. 740,724 7,408 4,319,117 -- 4,326,525
Accretion of Preferred
Stock.................. (479,000) (479,000)
Preferred Stock
Dividend............... -- -- -- (1,825) (1,825)
Net loss................ -- -- -- (83,355) (83,355)
--------- ------- ---------- ----------- -----------
Balance as of September
30, 1997............... 1,734,564 $17,346 $3,840,117 $(6,178,080) $(2,320,617)
========= ======= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-16
<PAGE>
U.S. LEGAL SUPPORT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1997
-------------
<S> <C>
Cash flows from operating activities:
Net loss........................................................ $(83,355)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.................................. 331,896
Amortization of debt issue costs and debt discount............. 166,600
Provision for doubtful accounts................................ 154,467
Deferred taxes................................................. (213,026)
Changes in operating assets and liabilities:
Accounts receivable........................................... (1,186,127)
Prepaid expenses and other current assets..................... (78,069)
Accounts payable and accrued liabilities...................... 2,330,567
Income taxes payable.......................................... (183,730)
Deferred charges and other assets............................. (1,236,783)
-----------
Net cash provided by operating activities.................. 2,440
-----------
Cash flows from investing activities:
Capital expenditures............................................ (110,827)
Acquisitions, net of cash acquired.............................. (20,307,527)
-----------
Net cash used in investing activities...................... (20,418,354)
-----------
Cash flows from financing activities:
Issuance of redeemable preferred stock.......................... 1,000,000
Debt issuance costs............................................. (572,139)
Borrowings under senior credit agreement........................ 16,000,000
Issuance of subordinated debt................................... 9,580,260
Principal payments on long-term obligations..................... (964,578)
Dividends paid ................................................. (1,825)
Distribution to the Looney and Company shareholder.............. (4,087,835)
-----------
Net cash provided by financing activities.................. 20,953,883
-----------
Increase in cash and cash equivalents............................ 537,969
Cash and cash equivalents at beginning of period................. 20,605
-----------
Cash and cash equivalents at end of period....................... $558,574
===========
Supplemental cash flow information:
Cash paid for interest.......................................... $606,888
Cash paid for income taxes...................................... 360,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-17
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
temporary staffing, to law firms, insurance providers and major corporations
throughout the United States. As described in Note 3 to these financial
statements, the merger with Looney was accounted for as a merger of entities
under common control. Accordingly, these financial statements should be read
in conjunction with the historical financial statements of Looney included
elsewhere in this prospectus. The Company operates in one business segment.
The Company, including Looney, has completed the acquisition of 13 companies,
and has entered into definitive agreements to acquire an additional four
businesses. The Company requires additional financing in order to implement
its business strategy. The Company intends to offer and sell 3,500,000 shares
of common stock, par value $.01 per share (the "Common Stock") at an estimated
offering price between $11 and $13 per share. Additionally, 609,268 shares are
expected to be issued in connection with Pending Acquisitions described in
Note 3 and 1,969,283 shares are expected to be issued upon 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 Convertible
Preferred Stock into 183,393 shares of Common Stock; and (iii) $1,800,000
principal amount of Convertible Subordinated Promissory Notes into 225,867
shares of Common Stock (see unaudited pro forma balance sheet).
The Company's operations to date have been financed through the issuance of
redeemable convertible preferred stock, convertible debt, subordinated debt
and bank debt. The proceeds of the planned initial public offering would be
used to repay debt, redeem preferred stock and pay the cash portion of pending
acquisitions (Note 3). Certain convertible debt and convertible preferred
stock is expected to be converted into common stock upon completion of the
initial public offering. The failure to raise additional equity in the planned
initial public offering would require restructuring of its debt and equity
securities. Additionally, without additional equity financing, the Company
would be unable to consummate the pending acquisitions and implement its
business strategy beyond 1997. Unless the Company were able to obtain
financing from other sources or negotiate an extension, the bank could
exercise its rights under the loan agreement giving it additional authority
over the Company's operations and the ability to call the outstanding balance
of the revolving line of credit and term loans (Note 7). Any impediment to the
Company's ability to obtain additional capital could have a material adverse
effect on the Company's business, financial position, results of operations
and cash flows.
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.
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.
F-18
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
Intangibles
Intangibles consist primarily of goodwill, which is amortized on a straight
line basis over the estimated useful life of 10 to 40 years. Accumulated
amortization of goodwill was $150,613 at September 30, 1997. Amounts allocated
to covenants not to compete in the amount of $105,000 are amortized over the
lives of the related contract. Accumulated amortization of such covenants was
$7,750 at September 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.
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 from its court reporting and certified record
retrieval services upon delivery of prepared transcripts and as documents or
records are delivered to customers. With respect to the Company's legal
placement and staffing services, the Company recognizes revenue from its
permanent placement services when candidates accept job offers, and with
respect to its temporary placement services, as services are provided to the
Company's clients. 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.
Under guidelines issued by the Securities and Exchange Commission, common
shares, options and warrants issued within one year prior to a public offering
at prices below the initial offering price are treated as outstanding for all
periods presented (using the Treasury stock method) in computing net earnings
(loss) per share. Pro forma earnings (loss) per share have been presented for
the nine months ended September 30, 1997 to reflect issuance
F-19
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of the number of shares that would have been necessary to fund the cash
portion of the $6,227,902 distribution to Richard O. Looney in January 1997
(at an assumed public offering price of $12.00 per share). Fully diluted
earnings per share is 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, accounts
receivable, accounts 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.
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 September 30, 1997
In a reorganization in January 1997, the Company received 100% of the
outstanding capital stock of Looney & Company ("Looney"), a Texas-based court
reporting and certified records retrieval company. The Company paid Richard
Looney approximately $4,088,000 in cash and issued 2,046,667 shares of the
Company's Series B Convertible Preferred Stock, $1.00 par value (the "Series B
Preferred Stock"). Looney has been deemed to be the accounting acquiror
because the two companies were under common control and prior to their
combination, the Company had no substantive operations. 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.
F-20
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In January 1997, the Company acquired all of the outstanding capital stock
of Klein, Bury and Associates, Inc. ("Klein Bury"), a Florida based court
reporting company. The purchase price consisted of approximately $3,850,000 in
cash; 170,600 shares of the Company's Common Stock; a $1,424,000 promissory
note payable over five years with interest at 10%; options to purchase 40,000
shares of the Company's Common Stock and 50% of amounts collected in respect
of accounts receivable over 120 days past due as of the closing date, up to a
maximum of $500,000. The acquisition was accounted for under the purchase
method of accounting. The results of operations of Klein Bury are included
from the date of the acquisition. The excess of the cost over the fair value
of the assets acquired less liabilities assumed attributed to goodwill is
approximately $5,373,000 and is being amortized over 40 years.
In May 1997, the Company acquired the assets of San Francisco Reporting
Service ("San Francisco Reporting"), a California-based court reporting
company. The purchase price consisted of approximately $545,000 in cash,
30,608 shares of the Company's Common Stock and 231,250 shares of the
Company's Series C Convertible Preferred Stock, $1.00 par value. The
acquisition was accounted for under the purchase method of accounting. The
results of operations of San Francisco Reporting are included from the date of
acquisition. The excess of the cost over the fair value of the assets acquired
less liabilities assumed attributed to goodwill is approximately $811,000 and
is being amortized over 40 years.
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 $1,268,000 in cash and two subordinated promissory
notes in the aggregate amount of $996,000. 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
value of the assets acquired less liabilities assumed attributed to goodwill
is approximately $1,919,000 and is being amortized over 40 years.
In August 1997, the Company acquired by merger Goren of Newport, Inc.,
Rapidtext, Inc. and Medtext, Inc. (the "Johnson Group"), three California-
based companies involved in court reporting, closed captioning, and medical
transcription. The purchase price consisted of approximately $983,000 in cash,
$246,000 in subordinated notes and 142,476 shares of the Company's Common
Stock. The acquisition has been accounted for under the purchase method of
accounting. The results of operations of the Johnson Group are included from
the date of acquisition. The excess of the cost over the fair value of the
assets acquired less liabilities assumed attributed to goodwill is
approximately $2,256,000 and is being amortized over 40 years.
In August 1997, the Company acquired the assets of Legal Enterprise, Inc.,
("Legal Enterprise") a California-based document retrieval and data management
company. The purchase price consisted of approximately $1,200,000 in cash,
$1,140,500 in subordinated notes and options to purchase 7,000 shares of
Company Common Stock. The acquisition has been accounted for under the
purchase method of accounting. The results of operations of Legal Enterprise
are included from the date of acquisition. The excess of the cost over the
fair value of the assets acquired less liabilities assumed attributed to
goodwill is approximately $1,460,000 and is being amortized over 40 years.
In September 1997, the Company acquired the assets of Amicus One Legal
Support Services, Inc. ("Amicus"), a New York-based court reporting company.
The purchase price was approximately $1,886,000 in cash, $560,000 in a
subordinated note and 116,471 shares of the Company's common stock. The
acquisition has been accounted for under the purchase method of accounting.
The results of operations of Amicus are included from the date of acquisition.
The excess of the cost over the fair value of the assets acquired less
liabilities assumed attributed to goodwill is approximately $3,033,000 and is
being amortized over 40 years.
In September 1997, the Company acquired the stock of Block Court Reporting
("Block"), a court reporting company serving Washington, D.C., Northern
Virginia, and Baltimore. The purchase price was approximately
F-21
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$600,000 in cash and $600,000 in subordinated notes. The acquisition has been
accounted for under the purchase method of accounting. The results of
operations of Block are included from date of acquisition. The excess of the
cost over the fair value of the assets acquired less liabilities assumed
attributed to goodwill is approximately $1,018,000 and is being amortized over
40 years.
In September 1997, the Company acquired the stock of Burton House, Inc.
d.b.a. Ziskind, Greene, Watanabe and Nason ("Ziskind Greene"), a California-
based company providing permanent legal search services. The purchase price
was approximately $1,350,000 in cash and 158,824 shares of the Company's
Common Stock. The acquisition has been accounted for under the purchase method
of accounting. The results of operations of Ziskind Greene have been included
from the date of acquisition. The excess of the costs over the fair value of
the assets acquired less liabilities assumed attributed to goodwill is
approximately $2,750,000 and is being amortized over 40 years.
In September 1997, the Company acquired the assets of Elaine P. Dine, Inc.,
("Elaine Dine"), a New York-based company providing permanent legal search and
temporary legal staffing services. The purchase price was approximately
$6,000,000 in cash, $2,000,000 in subordinated notes and 76,471 shares of the
Company's Common Stock and 41,176 options to purchase shares of Company Common
Stock. The acquisition was accounted for under the purchase method of
accounting. The results of operations of Elaine Dine have been included from
the date of acquisition. The excess of the cost over the fair value of the
assets acquired less liabilities assumed attributed to goodwill is
approximately $8,687,000 and is being amortized over 40 years. In addition,
the Company is obligated to pay $500,000 for an estimated tax liability.
The following unaudited pro forma summary presents consolidated results of
operations information as if the aforementioned acquisitions had been
completed at the beginning of the period presented. These results do 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..................................................... $29,350,000
Net income................................................... $300,000
Earnings per common share.................................... $0.07
</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 to the use of proceeds from the Company's proposed initial public offering
(the "Offering").
In addition, with respect to certain of the businesses acquired, the Company
may be obligated to pay cash or common stock in the form of an "earn-out"
payment. In most cases, the earn-out is a function of cash and common stock
based on increases in the businesses' future operating income in excess of
historical levels. With respect to certain of the businesses acquired, the
Company is obligated to pay contingent consideration equal to six times the
amount by which pre-tax earnings exceed a specified amount. Contingent
consideration paid will be recorded as additional goodwill.
Pending Acquisitions (the "Pending Acquisitions")
All of the Pending Acquisitions will be accounted for under the purchase
method of accounting. In addition, the cash consideration to be paid for each
of the Pending Acquisitions is subject to post-closing adjustments.
Upon completion of the Offering, the Company will acquire the assets of
Reporting Service Associates, Inc., 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.
F-22
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Upon completion of the Offering, the Company will acquire the assets of
Jilio & Associates, a Southern California-based court reporting services firm.
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 $2,500,000 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>
SEPTEMBER 30,
USEFUL LIVES 1997
------------ -------------
<S> <C> <C>
Leasehold improvements......................... 5 years $163,764
Furniture, fixtures and equipment.............. 5 to 7 years 2,142,860
----------
2,306,624
Less accumulated depreciation.................. (1,153,609)
----------
$1,153,015
==========
</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 $235,000,
respectively, at September 30, 1997.
5. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Accrued interest............................................ $374,107
Deferred purchase price..................................... 500,000
Payroll..................................................... 574,374
Customer overpayments....................................... 507,150
Stock options............................................... 438,535
Other....................................................... 320,392
----------
$2,714,558
==========
</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.
F-23
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. INCOME TAXES:
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Current..................................................... $ 224,067
Deferred.................................................... (213,026)
---------
$ 11,041
=========
</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 is:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Income tax provision at statutory rate..................... $(24,587)
State tax provision, net of federal income tax benefit..... (2,893)
Nondeductible amortization and other expenses.............. 38,521
--------
$11,041
========
</TABLE>
The components of deferred income tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Deferred tax assets:
Accrued liabilities...................................... $19,000
Allowance for doubtful accounts.......................... 149,920
---------
Deferred tax assets................................... 168,920
---------
Deferred tax liabilities:
Conversion from cash to accrual basis for tax reporting
purposes................................................ (306,867)
Property and equipment................................... (18,387)
Intangibles.............................................. (51,390)
---------
Deferred tax liability................................ (376,644)
---------
Net deferred income taxes............................. $(207,724)
=========
</TABLE>
F-24
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. LONG-TERM DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Bank notes payable:
Revolving line of credit...................................... $2,000,000
Term loans.................................................... 14,000,000
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% discounted to
yield an effective interest rate of 15%, quarterly principal
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......................................... 1,281,701
Subordinated Promissory Notes, interest at rates ranging from 6%
to 7.5% payable beginning August 1997, discounted to yield an
effective interest rate of 15%, principal payments payable
beginning August 1998, maturing in 2002, principal must be
paid, or at the holders' option, converted into common stock at
the issuance price on the closing date of an initial public
offering or a change of control................................ 1,696,873
Convertible Subordinated Promissory Notes, interest at 6.375%
payable monthly, principal due in 2005, discounted to yield an
effective interest rate of 15% convertible at the holders'
option into common stock at conversion prices ranging from
$7.56 to $8.50, automatically converts into common stock on the
closing date of an initial public offering or a change of
control........................................................ 1,844,955
Subordinated Promissory Notes, interest at 6.375% payable
monthly, discounted to yield an effective interest rate of 15%,
principal due in 2005, principal must be repaid at the closing
date of an initial public offering or a change of control...... 2,000,000
Capital lease obligations....................................... 158,911
-----------
Total debt...................................................... 31,982,440
Less discount on debt........................................... 1,707,193
-----------
Long term debt, net of discount................................. 30,275,247
Less current maturities......................................... 3,935,964
-----------
$26,339,283
===========
</TABLE>
Revolving Credit and Term Loan Agreements
The Company's Bank Credit Agreement provided for a revolving line of credit
of $2,000,000, all of which had been fully utilized at September 30, 1997 and
matures on July 10, 1998. The Bank Credit Agreement also provides for an
acquisition line of credit of $14,000,000, all of which had been fully
utilized at September 30, 1997. The acquisition line of credit borrowings have
been made under term loans with maturity dates through May 2000. Borrowings
under this agreement bear interest at the base rate plus 0.75%, or LIBOR plus
2.5%, at the Company's option. At September 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 and the stock of
the subsidiaries. The Bank 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.
In October 1997, the Company amended the Bank Credit Agreement to increase
the revolving line of credit from $2,000,000 to $3,250,000. The additional
borrowings of $1,250,000 mature on December 31, 1997. If the Company is unable
to pay such amount, the bank has the ability to call the outstanding balance
of both the revolving line of credit and the term loans. The revolving credit
and term loans must be repaid within three days of the closing of an initial
public offering of Common Stock or a change of control. Also in October 1997,
the holders of the Senior Subordinated Notes agreed to defer the receipt of
interest payments in the amount of $270,000 until the earlier of January 15,
1998 or the completion of an initial public offering of the Company's Common
Stock.
F-25
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has entered into an agreement with a commercial bank for a new
$40.0 million revolving credit facility which will be effective upon the
closing of the Company's initial public offering (the "New Credit Facility").
The Company expects that, immediately upon completion of the initial public
offering, approximately $12.1 million will have been borrowed and
approximately $10.0 million will be available for additional borrowings under
the New Credit Facility. Management believes, however, that future
acquisitions and cash flows from operations will increase the borrowing
capacity under the New Credit Facility. Loans under the New Credit Facility
will bear interest at rates based, at the Company's option, on either LIBOR or
the base rate plus, in each case, an applicable margin. The applicable margin
will be contingent upon the debt coverage ratio as defined in the New Credit
Facility and will vary from 1.75% to 2.25% in the case of LIBOR loans and 0%
to .50% in the case of base rate loans. In addition, the Company will be
required to pay to the lenders a quarterly fee with respect to the unused
portion of the New Credit Facility. The New Credit Agreement will also have a
$2.5 million sublimit for the issuance of letters of credit.
Borrowings under the New Credit Facility will be secured by substantially
all of the assets of the Company and the stock of the subsidiaries. The New
Credit Facility also will require the Company to comply with various covenants
related to, among other matters: (i) the maintenance of certain financial
ratios, (ii) limitations on the incurrence of indebtedness, (iii) restrictions
on liens, guarantees, dividends and stock redemptions, and (iv) limitations on
mergers and sales of assets. The New Credit Facility will terminate, and all
borrowings will be required to be repaid on December 31, 2000.
Maturities of debt, excluding capital lease obligations of $158,911, are as
follows:
<TABLE>
<S> <C>
1997 (three months)........................................... $ 100,373
1998.......................................................... 4,624,743
1999.......................................................... 3,458,040
2000.......................................................... 9,603,850
2001.......................................................... 3,658,032
2002.......................................................... 3,214,197
Thereafter.................................................... 7,164,294
-----------
$31,823,529
===========
</TABLE>
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 September 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
F-26
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
Securities 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%. For the nine months ended September 30, 1997, the Company has accreted
$479,000 toward the redemption value of the Series A Preferred Stock. 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 September 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 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 September 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
F-27
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
in which aggregate net income before taxes, depreciation, and amortization of
the business represented by SFRS exceeds $160,000. Dividends of $1,825 were
paid on the Series C Preferred Stock in the nine months ended September 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 four years. The Company also leases certain
office and computer equipment under operating leases. Rental expense associated
with these operating leases for the nine months ended September 30, 1997 was
approximately $355,000.
The future minimum rental payments under noncancelable operating leases from
1997 through 2002 are as follows (in thousands):
<TABLE>
<S> <C>
1997 (three months)............................................ $189,746
1998........................................................... 723,699
1999........................................................... 658,839
2000........................................................... 528,387
2001........................................................... 231,121
2002........................................................... 46,832
----------
$2,378,624
==========
</TABLE>
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.
F-28
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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 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. As of September 30, 1997 options to
purchase a total of 158,915 shares of Common Stock had been granted under the
1997 Stock Incentive Plan with exercise prices ranging from $6.41 to $10.20.
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.
The following is a summary of stock option activity for the nine months
ended September 30, 1997:
<TABLE>
<CAPTION>
# OF SHARES OF
UNDERLYING WEIGHTED AVERAGE
OPTIONS EXERCISE PRICES
-------------- ----------------
<S> <C> <C>
Outstanding at beginning of the year.......... -- --
Granted....................................... 158,915 $7.75
Exercised..................................... -- --
Forfeited..................................... -- --
Expired....................................... -- --
Outstanding at end of year.................... 158,915 $7.75
Exercisable at end of year.................... -- --
Weighted average fair value of options
granted...................................... $2.68
</TABLE>
The fair value of each stock option granted is estimated on the date of
grant using The Black-Scholes pricing model with the following assumptions for
grants during the nine months ended September 30, 1997: expected dividend
yield of 0%; risk-free interest rates of 6%; and weighted average expected
life of five years. The minimum value method has been applied, which excludes
expected volatility.
F-29
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Options outstanding as of September 30, 1997 are summarized below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------- -----------------------
WGTD.
AVG. WGTD. WGTD.
REMAINING AVG. AVG.
RANGE OF NUMBER LIFE (IN EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING YEARS) PRICE EXERCISABLE PRICE
- --------------- ----------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$6.41 to $8.50 118,915 9 $6.95 -- --
$10.20 40,000 9 $10.20 -- --
- --------------- ------- --- ------
$6.41 to $10.20 158,915 9 $7.75 -- --
</TABLE>
Had the compensation expense for the 1997 Stock Incentive Plan been
recognized in accordance with SFAS 123, the Company's net loss and net loss
per common share for the nine months ended September 30, 1997 would have been
as follows (in thousands except per share data):
<TABLE>
<CAPTION>
AS
REPORTED PRO FORMA
--------- ---------
<S> <C> <C>
Net loss attributable to common shareholders....... $(562,355) $(588,456)
Net loss per common share.......................... $ (.14) $ (.15)
</TABLE>
The effects of applying SFAS 123 for only 1997 option grants may not be
representative of the pro forma impact in future years.
Other Options
In connection with the acquisitions of Klein Bury, Legal Enterprise and
Elaine Dine, the Company granted non-compensatory stock options as partial
consideration. The fair value of the options granted was determined at the
date of acquisition and accounted for as part of the purchase price.
Additionally, options were granted to employees of Looney in connection with
the combination of Looney and compensation expense of approximately $20,000
was recognized.
Other Options outstanding as of September 30, 1997 are summarized below:
<TABLE>
<CAPTION>
OPTION OPTIONS OPTIONS
GRANTED PRICE EXERCISED OUTSTANDING
------- ------ --------- -----------
<S> <C> <C> <C>
104,336 $.01 12,480 91,856
40,000 $.10 -- 40,000
</TABLE>
11. RELATED PARTY TRANSACTIONS:
To finance the distribution to Richard Looney and the acquisition of Klein
Bury, the Company issued $9,000,000 principal amount of Senior Subordinated
Notes to three investors managed by Pecks Management Partners Ltd. in January
1997. A director of the Company serves as a Managing Partner of Pecks
Management Partners Ltd.
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 was issued 150,000 shares of
Common Stock at a price of $.01 per share, or $1,500, in exchange for services
rendered in connection with the organization of the Company and strategic
planning. The estimated fair value of the shares received by GulfStar was
approximately $60,000, or $.40 per share, based on a January 17, 1997
valuation which considers the combination with Looney. Upon completion of the
initial public offering, such amount will be recorded as a simultaneous
increase and decrease to paid-in capital. If the offering is not successful,
such amount will be charged to expense. GulfStar also received an investment
banking fee aggregating $475,000 in exchange for services in connection with
the placement of $9,000,000 of Senior Subordinated Notes, the placement of the
Series A Preferred Stock, the
F-30
<PAGE>
U.S. LEGAL SUPPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
negotiation of the Bank Credit Agreement and the acquisition of Looney and
Klein Bury in January 1997. Pursuant to the terms of a letter agreement dated
April 24, 1997, between GulfStar and the Company, GulfStar agreed to provide
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
$33,000 under the letter agreement and will be entitled to an additional
$450,000 upon completion of the initial public offering.
12. SUPPLEMENTAL CASH FLOW INFORMATION:
The following represents supplemental noncash investing and financing
activities:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Common control exchange of
shares between Looney and
the Company
Net assets acquired in
connection with
reorganization......... $207,763
Issuance of Series B
Preferred Stock........ 2,046,667
Acquisition of Klein Bury
Net assets acquired, net
of cash................ 510,521
Grant of stock options.. 12,000
Issuance of a note
payable................ 1,424,113
Issuance of Common
Stock.................. 68,240
Acquisition of San
Francisco Reporting
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
Acquisition of Legal
Enterprise
Net assets acquired, net
of cash................ 625,707
Grant of stock options.. 59,500
Issuance of notes
payable................ 1,140,500
Acquisition of Ziskind
Greene
Net assets acquired, net
of cash................ 4,259
Issuance of Common
Stock.................. 1,350,000
Acquisition of Block
Net assets acquired, net
of cash................ (32,494)
Issuance of notes
payable................ 600,000
Acquisition of Elaine Dine
Net assets acquired, net
of cash................ 286,000
Issuance of Common
Stock.................. 650,000
Grant of stock options.. 350,000
Issuance of notes
payable................ 2,000,000
Deferred purchase
price.................. 500,000
Acquisition of Johnson
Group
Net assets acquired, net
of cash................ 199,868
Issuance of Common
Stock.................. 1,211,046
Issuance of notes
payable................ 245,760
Acquisition of Amicus One
Net assets acquired, net
of cash................ 363,029
Issuance of Common
Stock.................. 990,000
Issuance of a note
payable................ 560,000
</TABLE>
F-31
<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-32
<PAGE>
LOONEY & COMPANY
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
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-33
<PAGE>
LOONEY & COMPANY
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
--------------------------------- SEPTEMBER 30,
1994 1995 1996 1996
---------- ---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues...................... $8,362,920 $9,103,728 $7,667,539 $5,886,022
Cost of services.............. 5,589,599 5,763,195 4,838,932 3,725,852
---------- ---------- ---------- ----------
Gross profit.................. 2,773,321 3,340,533 2,828,607 2,160,170
Selling, general and
administrative expenses...... 3,042,999 1,970,310 2,351,669 1,309,628
Depreciation.................. 223,680 230,353 212,277 159,208
---------- ---------- ---------- ----------
Operating income (loss)....... (493,358) 1,139,870 264,661 691,334
Interest expense.............. 184,414 229,969 238,251 177,920
---------- ---------- ---------- ----------
Income (loss) before income
taxes........................ (677,772) 909,901 26,410 513,414
Income tax (benefit) expense.. (182,979) 327,177 10,711 174,550
---------- ---------- ---------- ----------
Net income (loss)............. $ (494,793) $ 582,724 $ 15,699 $ 338,864
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-34
<PAGE>
LOONEY & COMPANY
STATEMENT OF STOCKHOLDER'S EQUITY
<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-35
<PAGE>
LOONEY & COMPANY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------ SEPTEMBER 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 $338,864
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation................... 223,680 230,353 212,277 159,208
Provision for doubtful
accounts...................... 28,566 82,773 80,750 60,037
Deferred income taxes.......... 40,263 75,272 (182,704) (19,639)
Loss on disposal of equipment.. 47,345 -- -- --
Changes in operating assets and
liabilities:
Accounts receivable........... (161,513) (256,538) 706,952 982,208
Other receivables, related
parties...................... -- 34,407 (249,771) (217,235)
Prepaid expenses and other
current assets............... (12,116) (1,199) 10,123 (96,102)
Accounts payable and accrued
liabilities.................. 275,578 (305,706) 76,138 (673,138)
Income taxes payable.......... -- 123,303 (123,303) (33,967)
Other assets.................. 148,305 3,010 23,541 19,226
---------- -------- -------- --------
Net cash provided by
operating activities...... 95,315 568,399 569,702 519,462
---------- -------- -------- --------
Cash flows from investing
activities:
Purchase of property and
equipment...................... (182,331) (7,654) (51,028) (41,180)
---------- -------- -------- --------
Net cash used in investing
activities ............... (182,331) (7,654) (51,028) (41,180)
---------- -------- -------- --------
Cash flows from financing
activities:
Proceeds from borrowings........ 972,517 -- -- --
Principal payments on long-term
obligations.................... (1,013,769) (491,404) (396,093) (280,881)
Other........................... 128,268 (69,341) (101,976) (101,976)
---------- -------- -------- --------
Net cash provided by (used
in) financing
activities................ 87,016 (560,745) (498,069) (382,857)
---------- -------- -------- --------
Increase in cash................. -- -- 20,605 95,425
Cash and cash equivalents at
beginning of period............. -- -- -- --
---------- -------- -------- --------
Cash and cash equivalents at end
of period....................... $ -- $ -- $ 20,605 $ 95,425
========== ======== ======== ========
Cash paid for interest........... $252,906 $229,969 $238,251 --
Cash paid for income taxes....... -- 120,000 297,590 --
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-36
<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 nine months ended September
30, 1996 should be read in conjunction with the interim financial statements
of USLS included elsewhere in this prospectus.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Preparation of Interim Financial Statements
The financial statements for the nine months ended September 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-37
<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-38
<PAGE>
LOONEY & COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. LONG-TERM OBLIGATIONS:
Long-term obligations consisted of the following at December 31:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
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>
YEAR ENDED DECEMBER 31,
----------------------------
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-39
<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>
YEAR ENDED DECEMBER 31,
----------------------------
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:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
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:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
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-40
<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. 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. In January 1997, the Company's stock was
exchanged for stock of USLS as part of a common control combination (see Note
1 of the U.S. Legal Support, Inc. financial statements).
F-41
<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-42
<PAGE>
KLEIN, BURY & ASSOCIATES, INC.
BALANCE SHEET
<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-43
<PAGE>
KLEIN, BURY & ASSOCIATES, INC.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
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-44
<PAGE>
KLEIN, BURY & ASSOCIATES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<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-45
<PAGE>
KLEIN, BURY & ASSOCIATES, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
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 and cash equivalents at beginning of year...... 32 304,586
-------- --------
Cash and cash equivalents at end of year............ $ -- $315,437
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-46
<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-47
<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-48
<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-49
<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-50
<PAGE>
G & G COURT REPORTERS
BALANCE SHEET
<TABLE>
<CAPTION>
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-51
<PAGE>
G & G COURT REPORTERS
STATEMENT OF INCOME
<TABLE>
<CAPTION>
SIX
YEAR ENDED DECEMBER MONTHS JANUARY 1,
31, ENDED THROUGH
--------------------- JUNE 30, MAY 19,
1995 1996 1996 1997
---------- ---------- -------- ----------
(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-52
<PAGE>
G & G COURT REPORTERS
STATEMENT OF OWNER'S EQUITY
<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-53
<PAGE>
G & G COURT REPORTERS
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX JANUARY
YEAR ENDED MONTHS 1,
DECEMBER 31, ENDED THROUGH
------------------ JUNE 30, MAY 19,
1995 1996 1996 1997
-------- -------- -------- --------
(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 and cash equivalents at beginning
of period............................. -- -- -- --
-------- -------- -------- --------
Cash and cash equivalents at end of
period................................ $ -- $ -- $ -- $ --
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-54
<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-55
<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,
----------------
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 totalled 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-56
<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 May 14, 1997,
and the related statements of income, partners' capital and cash flows for the
year ended December 31, 1996 and the period from January 1, 1997 through May
14, 1997. 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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 San Francisco Reporting
Service as of December 31, 1996 and May 14, 1997, and the results of its
operations and its cash flows for the year ended December 31, 1996 and the
period from January 1, 1997 through May 14, 1997 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Houston, Texas
September 19, 1997
F-57
<PAGE>
SAN FRANCISCO REPORTING SERVICE
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, MAY 14,
1996 1997
------------ --------
ASSETS
<S> <C> <C>
Current assets:
Cash.................................................... $ -- $19,309
Accounts receivable, net of allowance of $4,000 at 1996
and 1997............................................... 112,772 197,543
Prepaid expenses and other current assets............... 5,296 8,762
-------- --------
Total current assets.................................. 118,068 225,614
Property and equipment, net............................... 42,939 38,222
-------- --------
Total assets.............................................. $161,007 $263,836
======== ========
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
<S> <C> <C>
Current liabilities:
Note payable to bank.................................... $21,195 $63,425
Accounts payable........................................ 65,703 144,166
Due to related parties.................................. 11,000 --
Cash overdraft.......................................... 28,709 --
Current maturities of capital lease obligation.......... 2,477 2,477
-------- --------
Total current liabilities............................. 129,084 210,068
Capital lease obligation.................................. 3,580 2,586
Commitments and contingencies
Partners' capital......................................... 28,343 51,182
-------- --------
Total liabilities and partners' capital................... $161,007 $263,836
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-58
<PAGE>
SAN FRANCISCO REPORTING SERVICE
STATEMENT OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS PERIOD
YEAR ENDED ENDED ENDED
DECEMBER 31, JUNE 30, MAY 14,
1996 1996 1997
------------ ----------- --------
(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-59
<PAGE>
SAN FRANCISCO REPORTING SERVICE
STATEMENT OF PARTNERS' CAPITAL
<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.......................................................... (6,000)
Net income............................................................. 28,839
-------
Balance as of May 14, 1997............................................. $51,182
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-60
<PAGE>
SAN FRANCISCO REPORTING SERVICE
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, ENDED JUNE MAY 14,
1996 30, 1996 1997
------------ ---------- -------
(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 and cash equivalents at beginning of
period....................................... -- -- --
------- ------- -------
Cash and cash equivalents 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-61
<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,
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-62
<PAGE>
SAN FRANCISCO REPORTING SERVICE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 14,
USEFUL LIVES 1996 1997
------------ ------------ -------
<S> <C> <C> <C>
Furniture, fixtures and equipment.... 5 to 7 years $60,603 $60,603
Less accumulated depreciation........ (17,664) (22,381)
------- -------
$42,939 $38,222
======= =======
</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>
May 15, 1997 through December 31, 1997............................ $1,818
1998.............................................................. 3,116
1999.............................................................. 779
------
5,713
Less: Amount representing interest................................ (650)
------
Present value of net minimum capital lease payments............... 5,063
Less: Current portion............................................. (2,477)
------
Long-term portion................................................. $2,586
======
</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-63
<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>
May 15 through December 31, 1997................................. $17,043
1998............................................................. 36,156
1999............................................................. 37,326
2000............................................................. 28,602
--------
$119,127
========
</TABLE>
Rent expense totaled approximately $30,000 and $14,000 for the year ended
December 31, 1996 and for the period from January 1, 1997 through May 14,
1997, respectively.
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. There were no payments due to
partners at May 14, 1997.
F-64
<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-65
<PAGE>
LEGAL ENTERPRISE, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
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-66
<PAGE>
LEGAL ENTERPRISE, INC.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER SIX MONTHS ENDED JUNE
31, 30,
--------------------- ---------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
(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-67
<PAGE>
LEGAL ENTERPRISE, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<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-68
<PAGE>
LEGAL ENTERPRISE, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEARS ENDED MONTHS ENDED JUNE
DECEMBER 31, 30,
-------------------- ------------------
1995 1996 1996 1997
--------- --------- -------- --------
(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 and cash equivalents at
beginning of period................. 7,574 -- -- 27,958
--------- --------- -------- --------
Cash and cash equivalents 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-69
<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 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-70
<PAGE>
LEGAL ENTERPRISE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
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:
On August 28, 1997, certain of the Company's net assets were sold to U.S.
Legal Support, Inc. Summary financial information pertaining to the Company's
operations from January 1, 1997 through the acquisition date is as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
Revenues............................................................ $3,050,086
Gross profit........................................................ 985,178
Operating income.................................................... 200,399
Income before income taxes.......................................... 180,426
</TABLE>
F-71
<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-72
<PAGE>
ELAINE P. DINE, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
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-73
<PAGE>
ELAINE P. DINE, INC.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEARS ENDED MONTHS ENDED JUNE
MARCH 31, 30,
--------------------- -------------------
1996 1997 1996 1997
---------- ---------- -------- ----------
(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-74
<PAGE>
ELAINE P. DINE, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
<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-75
<PAGE>
ELAINE P. DINE, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEARS ENDED MONTHS ENDED JUNE
MARCH 31, 30,
-------------------- --------------------
1996 1997 1996 1997
--------- --------- --------- ---------
(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-76
<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-77
<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,
------------------
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,
----------------
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:
On September 17, 1997, certain of the Company's net assets were sold to U.S.
Legal Support, Inc. Summary financial information pertaining to the Company's
operations from January 1, 1997 through the acquisition date is as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
Revenues................................... $4,553,763
Gross profit............................... 2,510,436
Operating income........................... 1,057,269
Income before income taxes................. 1,064,258
</TABLE>
F-78
<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-79
<PAGE>
BURTON HOUSE, INC., D.B.A. ZISKIND, GREENE, WATANABE, & NASON
BALANCE SHEET
<TABLE>
<CAPTION>
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-80
<PAGE>
BURTON HOUSE, INC., D.B.A. ZISKIND, GREENE, WATANABE, & NASON
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
---------------------- ---------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
(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-81
<PAGE>
BURTON HOUSE, INC., D.B.A. ZISKIND, GREENE, WATANABE, & NASON
STATEMENT OF STOCKHOLDER'S DEFICIT
<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-82
<PAGE>
BURTON HOUSE, INC., D.B.A. ZISKIND, GREENE, WATANABE, & NASON
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------ -----------------
1995 1996 1996 1997
-------- -------- ------- --------
(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-83
<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-84
<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,
------------------
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,
----------------
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-85
<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,
---------------
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,
-----------------
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,
-----------------
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:
On September 17, 1997, the Company sold certain of its net assets to U.S.
Legal Support, Inc. Summary financial information pertaining to the Company's
operations from January 1, 1997 through the acquisition date is as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
Revenues................................... $1,623,300
Gross profit............................... 690,005
Operating income........................... 223,936
Income before income taxes................. 214,439
</TABLE>
F-86
<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-87
<PAGE>
JILIO & ASSOCIATES
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------- -------------
1995 1996 1997
-------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash....................................... $22,982 $ -- $ --
Accounts receivable, net of allowance of
$41,256, $106,177 and $178,720,
respectively.............................. 601,039 1,101,415 807,778
Prepaid expenses and other current assets.. 10,205 2,808 17,939
-------- ---------- --------
Total current assets..................... 634,226 1,104,223 825,717
Property and equipment, net.................. 61,026 32,688 25,089
-------- ---------- --------
Total assets................................. $695,252 $1,136,911 $850,806
======== ========== ========
LIABILITIES AND OWNER'S EQUITY
Current liabilities:
Cash overdraft............................. $ -- $ 68,088 $ 15,529
Accounts payable........................... 29,367 38,897 34,319
Accrued liabilities........................ 4,572 34,913 31,305
-------- ---------- --------
Total current liabilities................ 33,939 141,898 81,153
Commitments and contingencies
Owner's equity............................... 661,313 995,013 769,653
-------- ---------- --------
Total liabilities and owner's equity......... $695,252 $1,136,911 $850,806
======== ========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-88
<PAGE>
JILIO & ASSOCIATES
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------- ---------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.......................... $3,365,754 $4,022,445 $2,771,986 $3,084,611
Cost of services.................. 1,697,290 1,970,094 1,366,435 1,571,057
---------- ---------- ---------- ----------
Gross profit...................... 1,668,464 2,052,351 1,405,551 1,513,554
Selling, general and
administrative expenses.......... 874,734 1,062,058 742,606 847,846
Depreciation...................... 16,706 17,401 13,506 9,642
---------- ---------- ---------- ----------
Net income.................... $ 777,024 $ 972,892 $ 649,439 $ 656,066
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-89
<PAGE>
JILIO & ASSOCIATES
STATEMENT OF OWNER'S EQUITY
<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)..................................... (881,426)
Net income (unaudited)................................................ 656,066
--------
Balance as of September 30, 1997 (unaudited).......................... $769,653
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-90
<PAGE>
JILIO & ASSOCIATES
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------ ------------------
1995 1996 1996 1997
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................... $777,024 $972,892 $649,439 $656,066
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation....................... 16,706 17,401 13,506 9,642
Provision for doubtful accounts.... 41,256 64,921 44,547 72,543
Loss on disposal of property and
equipment......................... -- 13,428 2,375 --
Changes in operating assets and
liabilities:
Accounts receivable.............. (5,291) (565,297) (368,749) 221,094
Prepaid expenses and other
current assets.................. (5,301) 7,397 2,397 (15,131)
Accounts payable................. (372) 9,530 1,784 (4,578)
Accrued liabilities.............. 4,572 30,341 118,323 (3,608)
-------- -------- -------- --------
Net cash provided by operating
activities.................... 828,594 550,613 463,622 936,028
-------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures................. (20,931) (2,491) (2,493) (2,043)
-------- -------- -------- --------
Net cash used in investing
activities.................... (20,931) (2,491) (2,493) (2,043)
-------- -------- -------- --------
Cash flows from financing activities:
Owner distributions.................. (787,413) (639,192) (507,192) (881,426)
Cash overdraft....................... 68,088 23,081 (52,559)
-------- -------- -------- --------
Net cash used in financing
activities.................... (787,413) (571,104) (484,111) (933,985)
-------- -------- -------- --------
Increase (decrease) in cash............ 20,250 (22,982) (22,982) --
Cash and cash equivalents at beginning
of period............................. 2,732 22,982 22,982 --
-------- -------- -------- --------
Cash and cash equivalents at end of
period................................ $ 22,982 $ -- $ -- $ --
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-91
<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 nine month periods ended September 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-92
<PAGE>
JILIO & ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
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-93
<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 agreed to sell certain of the Company's
net assets to U.S. Legal Support, Inc.
F-94
<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-95
<PAGE>
REPORTING SERVICE ASSOCIATES, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------- -------------
1995 1996 1997
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash......................................... $54,304 $268,118 $29,221
Accounts receivable, net of allowance of
$6,200, $16,000 and $24,000, respectively... 343,050 656,168 1,054,511
Prepaid expenses and other current assets.... -- -- 2,570
-------- -------- ----------
Total current assets....................... 397,354 924,286 1,086,302
Property and equipment, net.................... 22,242 38,782 42,309
-------- -------- ----------
Total assets................................... $419,596 $963,068 $1,128,611
======== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................. $154,633 $198,075 $167,729
Note payable................................. 200,000 200,000 --
-------- -------- ----------
Total current liabilities.................. 354,633 398,075 167,729
-------- -------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock, $10 par value, 100 shares
authorized, issued and outstanding.......... 1,000 1,000 1,000
Retained earnings............................ 63,963 563,993 959,882
-------- -------- ----------
Total stockholder's equity................. 64,963 564,993 960,882
-------- -------- ----------
Total liabilities and stockholder's equity..... $419,596 $963,068 $1,128,611
======== ======== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-96
<PAGE>
REPORTING SERVICE ASSOCIATES, INC.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------- ---------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.......................... $1,905,831 $3,012,153 $2,171,005 $3,067,261
Cost of services.................. 1,156,566 1,682,021 1,179,007 1,356,939
---------- ---------- ---------- ----------
Gross profit...................... 749,265 1,330,132 991,998 1,710,322
Selling, general and
administrative expenses.......... 420,994 578,957 391,437 505,467
Depreciation...................... 3,006 6,965 5,223 6,124
---------- ---------- ---------- ----------
Operating income.............. 325,265 744,210 595,338 1,198,731
Interest expense.................. 19,902 18,922 14,245 14,300
---------- ---------- ---------- ----------
Net income.................... $ 305,363 $ 725,288 $ 581,093 $1,184,431
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-97
<PAGE>
REPORTING SERVICE ASSOCIATES, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
<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)......................... -- 1,184,431 1,184,431
Distributions (Unaudited)...................... -- (788,542) (788,542)
------ --------- ---------
Balance as of September 30, 1997 (Unaudited)... $1,000 $959,882 $960,882
====== ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-98
<PAGE>
REPORTING SERVICE ASSOCIATES, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------ --------------------
1995 1996 1996 1997
-------- -------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income......................... $305,363 $725,288 $581,093 $1,184,431
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation..................... 3,006 6,965 5,223 6,124
Provision for doubtful accounts.. 6,200 9,800 4,800 8,000
Changes in operating assets and
liabilities:
Accounts receivable............ (63,575) (322,918) (272,295) (406,343)
Prepaid expenses and other
current assets................ -- -- -- (2,570)
Accounts payable............... 10,533 43,442 41,619 (30,346)
-------- -------- -------- ----------
Net cash provided by
operating activities........ 261,527 462,577 360,440 759,296
Cash flows from investing activities:
Capital expenditures............... (25,248) (23,505) (19,811) (9,651)
Cash flows from financing activities:
Repayment of note payable.......... -- -- -- (200,000)
Stockholder distributions.......... (272,323) (225,258) (162,567) (788,542)
-------- -------- -------- ----------
Net cash used by financing
activities.................. (272,323) (225,258) (162,567) (988,542)
Increase (decrease) in cash.......... (36,044) 213,814 178,062 (238,897)
Cash and cash equivalents at the
beginning of period................. 90,348 54,304 54,304 268,118
-------- -------- -------- ----------
Cash and cash equivalents at the end
of the period....................... $54,304 $268,118 $232,366 $29,221
======== ======== ======== ==========
Cash paid for interest............... $19,902 $18,922 $14,245 $14,300
======== ======== ======== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-99
<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 nine month periods ended September 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-100
<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,
----------------
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-101
<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-102
<PAGE>
KIRBY A. KENNEDY & ASSOCIATES
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash......................................... $ -- $ -- $74,007
Accounts receivable.......................... 133,372 176,959 257,126
-------- -------- --------
Total current assets....................... 133,372 176,959 331,133
Property and equipment, net.................... 73,896 77,719 41,355
-------- -------- --------
Total assets................................... $207,268 $254,678 $372,488
======== ======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Cash overdraft............................... $21,943 $7,137 $ --
Accounts payable............................. 86,692 127,463 177,549
Accrued liabilities.......................... 294 1,138 1,175
Note payable................................. 23,500 -- --
-------- -------- --------
Total current liabilities.................. 132,429 135,738 178,724
Commitments and contingencies
Partners' capital.............................. 74,839 118,940 193,764
-------- -------- --------
Total liabilities and partners' capital........ $207,268 $254,678 $372,488
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-103
<PAGE>
KIRBY A. KENNEDY & ASSOCIATES
STATEMENT OF INCOME
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------- ---------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues.................. $1,629,448 $1,866,355 $1,455,153 $1,427,674
Cost of services.......... 1,094,237 1,164,405 880,242 846,706
---------- ---------- ---------- ----------
Gross profit.............. 535,211 701,950 574,911 580,968
Selling, general and
administrative expenses.. 191,858 261,025 179,972 181,435
Depreciation.............. 27,563 32,160 24,120 19,270
---------- ---------- ---------- ----------
Operating income...... 315,790 408,765 370,819 380,263
Interest expense.......... 1,412 1,527 1,131 356
---------- ---------- ---------- ----------
Net income............ $ 314,378 $ 407,238 $ 369,688 $ 379,907
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-104
<PAGE>
KIRBY A. KENNEDY & ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL
<TABLE>
<S> <C>
Partners' capi-
tal, January
1, 1995....... $59,859
Distributions.. (299,398)
Net income..... 314,378
--------
Partners' capi-
tal, December
31, 1995...... 74,839
Distributions.. (363,137)
Net income..... 407,238
--------
Partners' capi-
tal, December
31, 1996...... 118,940
Distributions
(Unaudited)... (305,083)
Net income for
the nine
months ended
September 30,
1997 (Unau-
dited)........ 379,907
--------
Partners' capi-
tal, September
30, 1997 (Un-
audited)...... $193,764
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-105
<PAGE>
KIRBY A. KENNEDY & ASSOCIATES
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------ ------------------
1995 1996 1996 1997
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................... $314,378 $407,238 $369,688 $379,907
Adjustments to reconcile net income
to cash provided by operating
activities:
Depreciation....................... 27,563 32,160 24,120 19,270
Changes in operating assets and
liabilities:
Accounts receivable.............. (14,886) (43,587) (10,978) (80,167)
Accounts payable................. (4,567) 40,771 17,635 50,086
Accrued liabilities.............. (6,001) 844 -- 37
-------- -------- -------- --------
Net cash provided by operating
activities.................... 316,487 437,426 400,465 369,133
-------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures................. (27,810) (35,983) (5,472) (3,536)
-------- -------- -------- --------
Net cash used in investing
activities.................... (27,810) (35,983) (5,472) (3,536)
-------- -------- -------- --------
Cash flows from financing activities:
Cash overdraft....................... (12,779) (14,806) (21,943) (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) (261,789) (284,453)
-------- -------- -------- --------
Net cash used in financing
activities.................... (288,677) (401,443) (307,232) (291,590)
-------- -------- -------- --------
Increase in cash....................... -- -- 87,761 74,007
Cash and cash equivalents at beginning
of period............................. -- -- -- --
-------- -------- -------- --------
Cash and cash equivalents at end of
period................................ $ -- $ -- $ 87,761 $ 74,007
======== ======== ======== ========
Cash paid for interest................. $ 1,412 $ 1,527 $ 1,131 $ 356
======== ======== ======== ========
Supplemental schedule of noncash
investing and financing activities:
Distributions of automobiles to
Partners at net book value............ $ -- $ -- $ -- $ 20,630
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-106
<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 nine month periods ended September 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-107
<PAGE>
KIRBY A. KENNEDY & ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
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>
In the third quarter of 1997, automobiles having a book value of $20,630 at
December 31, 1996 were distributed to the partners.
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. SALE OF THE BUSINESS:
In August 1997, the Partnership agreed to sell certain of its net assets to
U.S. Legal Support, Inc.
F-108
<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-109
<PAGE>
JOHNSON COURT REPORTING GROUP
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
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-110
<PAGE>
JOHNSON COURT REPORTING GROUP
COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
--------------------- ---------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
(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 administra-
tive 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-111
<PAGE>
JOHNSON COURT REPORTING GROUP
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
<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-112
<PAGE>
JOHNSON COURT REPORTING GROUP
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS FOR THE SIX
ENDED DECEMBER MONTHS ENDED JUNE
31, 30,
------------------ ------------------
1995 1996 1996 1997
-------- -------- -------- --------
(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 and cash equivalents at beginning
of period............................. 17,946 22,253 22,253 38,905
-------- -------- -------- --------
Cash and cash equivalents 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-113
<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-114
<PAGE>
JOHNSON COURT REPORTING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
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:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
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>
DECEMBER 31,
---------------
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>
DECEMBER 31,
---------------
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-115
<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:
On August 19, 1997, the Company's common stock was acquired by U.S. Legal
Support, Inc. Summary financial information pertaining to the Company's
operations from January 1, 1997 through the acquisition date is as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
Revenues................................... $1,471,072
Gross profit............................... 766,808
Operating income........................... 161,028
Income before income taxes................. 154,482
</TABLE>
F-116
<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 Amicus One Legal Support
Services, Inc. as of December 31, 1996 and September 5, 1997 and the related
statements of income, stockholders' equity and cash flows for the year ended
December 31, 1996 and the period from January 1, 1997 through September 5,
1997. 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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 Amicus One Legal Support
Services, Inc. as of December 31, 1996 and September 5, 1997, and the results
of its operations and its cash flows for the year ended December 31, 1996 and
the period from January 1, 1997 through September 5, 1997 in conformity with
generally accepted accounting principles.
As discussed in Note 1, the financial statements for the year ended December
31, 1996 have been restated.
Coopers & Lybrand l.l.p.
Houston, Texas October 21, 1997
F-117
<PAGE>
AMICUS ONE LEGAL SUPPORT SERVICES, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
COMBINED
PREDECESSORS COMPANY
DECEMBER 31, SEPTEMBER 5,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................... $1,626 $249,058
Accounts receivable, net of allowance of $48,240
and $100,000, respectively........................ 513,608 321,991
Prepaid expenses and other current assets.......... 11,398 1,467
-------- --------
Total current assets............................. 526,632 572,516
Property and equipment, net.......................... 65,334 96,998
Other assets......................................... 34,014 15,032
-------- --------
Total assets......................................... $625,980 $684,546
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations........ $24,400 $253,978
Advance from U.S. Legal Support, Inc. ............. -- 277,043
Accounts payable................................... 30,945 53,988
Accrued liabilities................................ 52,467 33,742
-------- --------
Total current liabilities........................ 107,812 618,751
Long-term obligations................................ 10,423 2,774
Commitments and contingencies
Stockholders' equity:
Common stock....................................... 11,750 49,499
Retained earnings.................................. 495,995 13,522
-------- --------
Total stockholders' equity....................... 507,745 63,021
-------- --------
Total liabilities and stockholders' equity........... $625,980 $684,546
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-118
<PAGE>
AMICUS ONE LEGAL SUPPORT SERVICES, INC.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
COMBINED
COMBINED PREDECESSORS
PREDECESSORS NINE MONTHS COMPANY
YEAR ENDED ENDED PERIOD ENDED
------------ ------------- ------------
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 5,
1996 1996 1997
------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues.............................. $1,882,380 $1,394,243 $1,384,613
Cost of services...................... 890,098 695,302 723,252
---------- ---------- ----------
Gross profit.......................... 992,282 698,941 661,361
Selling, general and administrative
expenses............................. 796,744 562,027 598,918
Depreciation.......................... 39,580 22,323 23,607
---------- ---------- ----------
Operating income.................. 155,958 114,591 38,836
Interest expense...................... 6,613 5,730 12,689
---------- ---------- ----------
Income before income taxes............ 149,345 108,861 26,147
Income taxes.......................... 9,879 244 625
---------- ---------- ----------
Net income........................ $ 139,466 $ 108,617 $ 25,522
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-119
<PAGE>
AMICUS ONE LEGAL SUPPORT SERVICES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDERS'
STOCK EARNINGS EQUITY
------- -------- -------------
<S> <C> <C> <C>
Combined Predecessors:
Balance as of January 1, 1996, as previously
reported..................................... $11,750 $500,354 $512,104
Adjustment to accounts receivable............. -- (109,217) (109,217)
------- -------- --------
Balance as of January 1, 1996, as restated.... 11,750 391,137 402,887
Distributions................................. -- (34,608) (34,608)
Net income.................................... -- 139,466 139,466
------- -------- --------
Balance as of December 31, 1996............... 11,750 495,995 507,745
Company:
Reorganization to form new entity and
distribution of certain net assets to
owners....................................... 37,749 (495,995) (458,246)
Net income.................................... -- 25,522 25,522
Distributions................................. -- (12,000) (12,000)
------- -------- --------
Balance as of September 5, 1997............... $49,499 $ 13,522 $ 63,021
======= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-120
<PAGE>
AMICUS ONE LEGAL SUPPORT SERVICES, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
COMBINED
COMBINED PREDECESSORS
PREDECESSORS NINE MONTHS COMPANY
YEAR ENDED ENDED PERIOD ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 5,
1996 1996 1997
------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................... $139,466 $108,617 $25,522
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation....................... 39,580 22,323 23,607
Provision for doubtful accounts.... 24,152 24,152 90,160
Changes in operating assets and
liabilities:
Accounts receivable.............. (81,766) (30,565) (325,334)
Prepaid expenses and other
current assets.................. 1,661 1,562 (69)
Other assets..................... 17,366 (250) (11,893)
Accounts payable................. 866 26,036 31,678
Accrued liabilities.............. 17,339 14,747 (27,123)
-------- -------- --------
Net cash provided by (used in)
operating activities.......... 158,664 166,622 (193,452)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures................. (85,272) (65,058) (55,271)
Investment in note receivable from
officer............................. -- (4,927) --
-------- -------- --------
Net cash used in investing
activities.................... (85,272) (69,985) (55,271)
-------- -------- --------
Cash flows from financing activities:
Distributions........................ (34,608) (33,928) (12,000)
Proceeds from borrowings............. 820,898
Repayment of borrowings.............. (38,647) (23,789) (311,926)
-------- -------- --------
Net cash (used in) provided by
financing activities.......... (73,255) (57,717) 496,972
-------- -------- --------
Increase in cash....................... 137 38,920 248,249
Cash and cash equivalents at beginning
of period............................. 1,489 1,489 809
-------- -------- --------
Cash and cash equivalents at end of pe-
riod.................................. $ 1,626 $ 40,409 $249,058
======== ======== ========
Cash paid for interest................. $ 6,613 $ 5,730 $ 12,689
======== ======== ========
Cash paid for income taxes............. $ 9,040 $ 244 $ 825
======== ======== ========
Issuance of common stock for non-cash
assets................................ $157,906
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-121
<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 1996 financial
statements have been restated to reflect the write-off of old outstanding
accounts receivable balances at January 1, 1996. 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 September 5, 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 periods ended September 30, 1996 and
January 5, 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 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 several banks. 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-122
<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, SEPTEMBER 5,
USEFUL LIVES 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Furniture and fixtures................... 5 to 7 years $112,812 $142,627
Office equipment and computers........... 5 years 19,274 44,730
-------- --------
132,086 187,357
Less accumulated depreciation............ (66,752) (90,359)
-------- --------
Total................................ $ 65,334 $ 96,998
======== ========
</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>
September 6, 1997 through December 31, 1997......................... $31,612
1998................................................................ 96,221
1999................................................................ 89,719
2000................................................................ 67,144
2001................................................................ 68,838
Thereafter.......................................................... 59,933
--------
$413,467
========
</TABLE>
Rent expense totaled approximately $103,000 and $68,000 for the year ended
December 31, 1996 and the period ended September 5, 1997. Certain rental
agreements provide for additional rent based on the lessors' operating
expenses.
F-123
<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, SEPTEMBER 5,
1996 1997
------------ ------------
<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, collateralized by accounts receivable. The
line has no set maturity date.................... -- 243,677
Capital lease obligations......................... 19,935 13,075
------- --------
34,823 256,752
Less current portion.............................. (24,400) (253,978)
------- --------
$10,423 $2,774
======= ========
</TABLE>
The $300,000 line of credit was repaid in September 1997 with funds advanced
by U.S. Legal Support Inc. (See Note 1).
6. SALE OF NET ASSETS:
On September 6, 1997, the Company's net assets were sold to U.S. Legal
Support, Inc.
F-124
<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-125
<PAGE>
BLOCK COURT REPORTING, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
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-126
<PAGE>
BLOCK COURT REPORTING, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------- ------------------
1995 1996 1996 1997
---------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.......................... $1,024,931 $1,316,782 $693,458 $517,838
Cost of services.................. 496,301 661,838 376,756 262,455
---------- ---------- -------- --------
Gross profit...................... 528,630 654,944 316,702 255,383
Selling, general and
administrative expenses.......... 524,864 740,279 339,110 331,936
---------- ---------- -------- --------
Operating income (loss)....... 3,766 (85,335) (22,408) (76,553)
Interest expense.................. 14,197 13,302 8,833 4,306
---------- ---------- -------- --------
Loss before income taxes.......... (10,431) (98,637) (31,241) (80,859)
Income tax benefit................ (3,575) (34,010) 11,055 (28,133)
---------- ---------- -------- --------
Net loss...................... $ (6,856) $ (64,627) $(20,186) $(52,726)
========== ========== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-127
<PAGE>
BLOCK COURT REPORTING, INC.
STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
<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-128
<PAGE>
BLOCK COURT REPORTING, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS FOR THE SIX
ENDED DECEMBER MONTHS ENDED
31, JUNE 30,
----------------- ------------------
1995 1996 1996 1997
------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $(6,856) $(64,627) $(20,186) $(52,726)
Adjustments to reconcile net income to
net cash (used in) provided by
operating activities:
Depreciation........................ 36,464 35,441 11,271 9,388
Changes in operating assets and
liabilities:
Accounts receivable............... (88,025) (66,632) (16,843) 65,697
Accounts payable.................. 33,555 156,573 152,600 (14,292)
Accrued liabilities............... (56,414) 10,797 9,920 39,099
Deferred income taxes............. 45,910 (31,803) -- (20,181)
Due from shareholder.............. -- -- (48,934) --
Income taxes payable.............. -- -- (30,157) --
Other assets...................... (6,568) -- 37,879 --
------- -------- -------- --------
Net cash (used in) provided by
operating activities........... (41,934) 39,749 95,550 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) (26,554) (20,353)
------- -------- -------- --------
Net cash used in financing
activities..................... (414) (38,891) (26,554) (20,353)
------- -------- -------- --------
Net (decrease) increase in cash......... (63,831) 858 68,996 2,585
Cash and cash equivalents at beginning
of year................................ 64,825 994 994 1,852
------- -------- -------- --------
Cash and cash equivalents at end of
year................................... $ 994 $ 1,852 $ 69,990 $ 4,437
======= ======== ======== ========
Cash paid for interest.................. $14,197 $ 13,302 $ 8,833 $ 4,306
======= ======== ======== ========
Cash paid for income taxes.............. $ 1,000
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-129
<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 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 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-130
<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,
-----------------
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 totalled approximately $97,000.
5. INCOME TAXES:
The benefit for income taxes consisted of the following:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER
31,
------------------
1995 1996
-------- --------
<S> <C> <C>
Current..................................................... $(49,485) $ (2,207)
Deferred.................................................... 45,910 (31,803)
-------- --------
Total................................................... $ (3,575) $(34,010)
======== ========
</TABLE>
F-131
<PAGE>
BLOCK COURT REPORTING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The components of deferred income tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
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. RELATED PARTY TRANSACTIONS:
The Company subleases certain office space to an affiliate for approximately
$2,000 per month.
8. SALE OF THE COMPANY:
On September 5th 1997, the Company's stock was acquired by U.S. Legal
Support, Inc. Summary financial information pertaining to the Company's
operations from January 1, 1997 through the acquisition date is as follows:
<TABLE>
<CAPTION>
(UNUADITED)
<S> <C>
Revenues.................................................... $701,401
Gross profit................................................ 426,178
Operating loss.............................................. (90,940)
Income before income taxes.................................. (93,448)
</TABLE>
F-132
<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-133
<PAGE>
COMMANDER WILSON, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 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 $--
------- ------- ----
Total current liabilities................... 36,000 37,303
Commitments and contingencies
Owner's deficit................................. (34,031) (37,303) --
------- ------- ----
Total liabilities and owner's deficit........... $1,969 $ -- $--
======= ======= ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-134
<PAGE>
COMMANDER WILSON, INC.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS FOR THE NINE
ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------- ----------------
1995 1996 1996 1997
-------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.................................... $577,733 $94,291 $84,291 $335,540
Cost of services............................ 100,570 -- -- --
-------- ------- ------- --------
Gross profit................................ 477,163 94,291 84,291 335,540
Selling, general and administrative
expenses................................... 284,170 68,528 51,021 61,763
-------- ------- ------- --------
Net income.............................. $192,993 $25,763 $33,270 $273,777
======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-135
<PAGE>
COMMANDER WILSON, INC.
STATEMENT OF OWNER'S DEFICIT
<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)............................................... 273,777
Distributions to owner, net (unaudited).............................. (236,474)
--------
Balance on September 30, 1997 (unaudited)............................ $ --
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-136
<PAGE>
COMMANDER WILSON, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS FOR THE NINE MONTHS
ENDED DECEMBER ENDED
31, SEPTEMBER 30,
----------------- ---------------------
1995 1996 1996 1997
-------- ------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income......................... $192,993 $25,763 $33,270 $273,777
Adjustments to reconcile net income
to net cash provided by operating
activities:
Change in operating assets and
liabilities:
Accounts payable............... 41,800 1,303 -- (37,303)
Prepaid expenses............... (1,969) 1,969 1,969 --
-------- ------- --------- ----------
Net cash provided by
operating activities........ 232,824 29,035 35,239 236,474
Cash flows from investing
activities.......................... -- -- -- --
Cash flows from financing activities:
Distributions to owner............. (232,824) (29,035) (35,239) (236,474)
-------- ------- --------- ----------
Net cash used in financing
activities.................. (232,824) (29,035) (35,239) (236,474)
-------- ------- --------- ----------
Change in cash....................... -- -- -- --
Cash and cash equivalents at the
beginning of period................. -- -- -- --
-------- ------- --------- ----------
Cash and cash equivalents at the end
of the period....................... $ -- $ -- $ -- $ --
======== ======= ========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-137
<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 September 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-138
<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 agreed to sell the Company's business to U.S.
Legal Support, Inc.
6. BANKRUPTCY:
In May 1996, the Company's owner filed a voluntary petition for Chapter XIII
bankruptcy relief following the initiation of a lawsuit filed by a former
independent contractor engaged by the Company. The Company's owner has
submitted a Chapter XIII plan which has not yet been confirmed by the
presiding bankruptcy court. The ultimate outcome and the effect, if any, of
this matter on the Company cannot be determined.
F-139
<PAGE>
[Logo of U.S. Legal Support, Inc. appears here]
A leading provider of court reporting,
certified record retrieval and legal
placement and staffing services
Court Reporting
[Photo of court reporter transcribing]
Certified Record Retrieval
[Photo of certified records retrieval]
Legal Placement and Staffing
[Photo of attorney working]
<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.................................................. 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 31
Management............................................................... 39
Certain Transactions..................................................... 43
Principal Shareholders................................................... 45
Description of Capital Stock............................................. 47
Shares Eligible for Future Sale.......................................... 49
Underwriting............................................................. 51
Legal Matters............................................................ 52
Experts.................................................................. 52
Available Information.................................................... 53
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
[LOGO OF U.S. LEGAL SUPPORT APPEARS HERE]
COMMON STOCK
----------------
PROSPECTUS
----------------
NationsBanc
Montgomery
Securities, Inc.
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....... $ 15,950.00
National Association of Securities Dealers, Inc. filing
fee...................................................... 5,732.50
NASDAQ listing fee........................................ 60,000.00
Printing and engraving expenses........................... 300,000.00
Legal fees and expenses................................... 500,000.00
Accounting fees and expenses.............................. 1,250,000.00
Blue sky fees and expenses................................ 7,000.00
Transfer Agent fees....................................... 10,000.00
Miscellaneous............................................. 7,317.50
-------------
TOTAL................................................. $2,150,000.00
=============
</TABLE>
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 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 Subordinated Promissory Note and 13,375.529
shares of Common Stock to Glory Johnson and a $37,598 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 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
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 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
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 Stock to
Gregg M. Ziskind and Susan L. Ziskind. On that date the Company also acquired
all
II-2
<PAGE>
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 Junior
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. The
Company received $124.80 in aggregate consideration upon the exercise of such
options. 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.
2.1+ Stock Purchase Agreement by and between Litigation Resources of
America, Inc. and Richard O. Looney, dated as of January 17, 1997.
2.2+ Stock Purchase Agreement by and between Litigation Resources of
America, Inc. and Michael Klein, dated as of January 17, 1997.
2.3+ 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.
2.4+ 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.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.5+ 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.
2.6+ Letter Agreement by and between Sandra Rocca and Litigation
Resources of America--Midwest, Inc., dated August 15, 1997
2.7+ 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.
2.8+ 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.
2.9+ 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.
2.10+ 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.
2.11+ 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.
2.12+ 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.
2.13+ 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.
2.14+ 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.
2.15+ 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.
2.16+ 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.
2.17+ 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.
2.18+ 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.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
3.1 Articles of Incorporation, as amended, of the Company.
3.2 Bylaws of the Company, as amended.
4.1 Registration Rights Agreement between the Company and Richard O.
Looney, dated
January 17, 1997.
4.2 Registration Rights Agreement between the Company and Michael
Klein, dated
January 17, 1997.
4.3 Registration Rights Agreement between the Company and certain
purchasers, dated
January 17, 1997.
4.4 Form of Registration Rights Agreement among the Company and
certain holders of the Common Stock.
4.5 Securityholders Agreement among Litigation Resources of America,
Inc., the Investors named therein and the Shareholders named
therein, dated January 17, 1997, as amended.
4.6+ Registration Rights Agreement between the Company and Gregg M.
Ziskind and Susan L. Ziskind, dated Septeember 17, 1997.
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+ Employment Agreement by and among the Company, Looney & Company
and Richard O. Looney, dated January 17, 1997, as amended.
10.6+ Employment Agreement by and among the Company, Klein, Bury &
Associates and Michael Klein, dated January 17, 1997, as amended.
10.7+ Employment Agreement by and among the Company, Litigation
Resources of America--California, Inc. and Tony L. Maddocks, dated
August 29, 1997.
10.8+ Employment Agreement dated September 25, 1997 by and among the
Company and James M. Wilson dated September 25, 1997.
10.9+ Letter Agreement dated May 7, 1997 by and between James M. Wilson
d.b.a. Commander Wilson, Inc. and the Company.
10.10+ 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.
10.11+ Letter Agreement dated April 24, 1997 by and between the Company
and The GulfStar Group, Inc.
10.12+ 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.
23.4+ Consent of Ronald C. Lassiter.
24.1 Powers of Attorney (See page II-7).
27 Financial Data Schedule
</TABLE>
- --------
+Filed herewith.
*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 DECEMBER 1, 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 revokes the Power of
Attorney dated September 25, 1997 and constitutes and appoints Richard O.
Looney and David P. Tusa, 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 DECEMBER 1, 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 P. Tusa
------------------------------------
David P. Tusa Executive Vice President and Chief Financial
Officer
(principal financial officer)
/s/ Scott R. Creasman
------------------------------------
Scott R. Creasman Vice President and Corporate Controller
(principal 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>
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>
LOONEY & COMPANY
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
==== ==== ==== ==== ====
U.S. LEGAL SUPPORT, INC.
Nine months ended September
30, 1997
Allowance for uncollectible
accounts................... $223 $154 $(36) $436 $777
==== ==== ==== ==== ====
</TABLE>
- --------
(1) Acquired allowances for uncollectible accounts in acquisitions.
S-2
<PAGE>
EXHIBIT 2.1
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.
<PAGE>
"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.
-2-
<PAGE>
"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.
-3-
<PAGE>
"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.
-4-
<PAGE>
"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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<PAGE>
(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
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A Employment Agreement
B Pledge Agreement
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<PAGE>
EXHIBIT "B"
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (this "Pledge Agreement") is made as of
the ____ day of January, 1997, by RICHARD O. LOONEY, an individual residing in
the State of Texas ("Pledgor"), and LITIGATION RESOURCES OF AMERICA, INC., a
Texas corporation ("Secured Party"). Capitalized terms not defined herein shall
have the same meaning as ascribed to them in that certain Stock Purchase
Agreement dated as of January __, 1997 between Pledgor and Secured Party (the
"Purchase Agreement").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Pledgor and Secured Party have entered into the Purchase
Agreement, pursuant to which Pledgor has sold all of the outstanding capital
stock of Looney & Company, a Texas corporation; and
WHEREAS, Pledgor has certain obligations under the Purchase Agreement,
including, but not limited to, the obligation of Pledgor to indemnify Secured
Party for any breaches of representations and warranties of Pledgor contained in
the Purchase Agreement; and
WHEREAS, Pledgor is the record and beneficial owner of 843,840 shares of
the common stock, $.01 par value, of Secured Party (the "Common Stock"); and
WHEREAS, pursuant to the terms of the Purchase Agreement, Pledgor has been
issued 2,000,000 shares of Series B Convertible Preferred Stock, $1.00 par
value, of Secured Party (the "Preferred Stock") on the terms and conditions
contained in the Purchase Agreement (the Common Stock and the Preferred Stock
may be collectively referred to herein as the "Stock"); and
WHEREAS, the terms of the Purchase Agreement provide for Pledgor to pledge
the Stock to the Secured Party to partially secure the obligations of Pledgor
under the Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties agree as follows:
1. Pledge of Common Stock and Preferred Stock. Pledgor hereby pledges
and grants to Secured Party a security interest in the Stock. Pledgor shall be
required to deliver to Secured Party the certificate or certificates
representing the Stock in order that Secured Party might perfect its security
interest thereto. Pledgor and the Secured Party hereby acknowledge and agree
that the value of the Preferred Stock shall be deemed to have the same value as
the price per share paid by the investors at the Closing; provided, however,
that if the Secured Party has successfully consummated a public offering of its
shares of Common Stock, then it shall mean the average public trading price of
each share of Common Stock over the five (5) most recent business days (the
<PAGE>
"Preferred Stock Agreed Value"). The Pledgor and the Secured Party hereby
acknowledge and agree that the value of the Common Stock shall be deemed to be
$6.41 per share of Common Stock of Secured Party for an aggregate value of
$5,409,014.40, which is the same value as the price per share paid by the
Investors at the Closing; 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 share of Common Stock over the five (5)
most recent business days (the "Common Stock Agreed Value"). Pledgor possesses
all voting rights pertaining to the Stock, so long as an Event of Default, as
hereinafter defined in this Pledge Agreement, has not occurred, or if an Event
of Default has allegedly occurred but is being disputed by the parties hereto,
and Secured Party shall have no voting rights that may be presently or hereafter
attributable to the Stock. In addition, so long as an Event of Default has not
occurred, or if an Event of Default has allegedly occurred but is being
disputed by the parties hereto, then Pledgor shall have the right to receive all
dividends, if any, on the Stock, and Pledgor shall be entitled to receive all
proceeds upon liquidation of the Stock, if any, as well as all other rights with
respect to the Stock except for the right to transfer title thereto.
Notwithstanding the foregoing, if an Event of Default has occurred, then Secured
Party shall have the right to designate a representative or trustee to vote the
Stock, receive all dividends and liquidation proceeds, and to receive all other
rights with respect to the Stock.
2. Representations and Warranties. Pledgor hereby represents, warrants
and covenants to and with Secured Party that:
(a) Pledgor will not, without the written consent of Secured Party,
sell, contract to sell, encumber, or dispose of the Stock or any interest
therein until this Pledge Agreement has been terminated.
(b) No consent of any party is necessary for Pledgor to perform its
obligations hereunder, or if any such consent is required, such consent has
been received prior to the execution of this Pledge Agreement.
3. Events of Default. Each breach or violation by Seller under the
Purchase Agreement that continues after the Secured Party has given thirty (30)
days written notice thereof to Pledgor, shall constitute an Event of Default
("Event of Default") under this Pledge Agreement.
4. Remedies. All remedies first shall be against the Preferred Stock
and any additional remedies thereafter shall be against the Common Stock, as
follows:
(a) if an Event of Default does occur and is continuing, Secured Party
shall be entitled to appoint or designate a trustee who is entitled to
exercise any voting rights that may be attributable to the Stock. In
addition, upon the occurrence of an Event of Default, Secured Party may, at
its option, exercise with reference to the Stock any and all of the rights
and remedies of a secured party under the Uniform Commercial Code as
adopted in the State of Texas and as otherwise granted therein or under any
other applicable law or under any other agreement executed by Pledgor,
including, without limitation, the right and power to sell, at public or
private sale(s), or otherwise dispose of or keep the Stock and any part or
parts
2
<PAGE>
thereof, or interest or interests therein owned by Pledgor, in any
manner authorized or permitted under this Pledge Agreement or under the
Uniform Commercial Code, and to apply the proceeds thereof toward payment
of any costs and expenses and attorneys' fees and legal expenses thereby
incurred by Secured Party, and toward payment of the obligations under the
Purchase Agreement in such order or manner as Secured Party may elect.
Notwithstanding anything to the contrary contained herein, the Secured
Party shall only foreclose on that portion of the Stock that is reasonably
necessary in the reasonable good faith judgment of the Secured Party in
order to satisfy the amount of the claim constituting the Event of Default.
For purposes hereof, the Preferred Stock Agreed Value and the Common Stock
Agreed Value shall be deemed to be the value that the Secured Party is
receiving on the foreclosure of the Preferred Stock and the Common Stock,
respectively, and Secured Party shall not be entitled to foreclose on more
Stock than is necessary to recover all of its damages resulting from the
Event of Default.
(b) Secured Party is hereby granted the right, at its option, after an
Event of Default, to transfer at any time to itself or its nominee the
securities or other property hereby pledged, or any part thereof, and to
thereafter exercise all voting rights with respect to such Stock so
transferred and to receive the proceeds, payments, monies, income or
benefits attributable or accruing thereto and to hold the same as security
for the obligations hereby secured, or at Secured Party's election, to
apply such amounts to the obligations, only if due, and in such order as
Secured Party may elect, or, Secured Party may, at its option, without
transferring such securities or property to its nominee, exercise all
voting rights with respect to the securities pledged hereunder and to vote
all or any part of such securities at any regular or special meeting of
shareholders.
(c) Pledgor hereby agrees to cooperate fully with Secured Party in
order to permit Secured Party to sell, at foreclosure or other private
sale, Pledgor's interest in the Stock pledged hereunder. Specifically,
Pledgor agrees to deliver to Secured Party the certificate or certificates
representing the Stock if Pledgor has possession at that time, to fully
comply with the securities laws of the United States and of the State of
Texas and to take such other action as may be necessary to permit Secured
Party to sell or otherwise transfer the securities pledged hereunder in
compliance with such laws.
5. Termination. This Pledge Agreement shall continue as security for the
payment or satisfaction of the obligations under the Purchase Agreement until
the earliest to occur of: (i) termination of such Purchase Agreement, (ii)
termination of this Pledge Agreement by written notice of the Secured Party to
the Pledgor, or (iii) three (3) years after the date hereof, provided that
Secured Party has not given Pledgor notice of a default by Seller under the
Purchase Agreement which has not been satisfied by Pledgor, or if there is a
default, the pledge shall continue only to the extent of the amount of Preferred
Stock and/or Common Stock based on the Preferred Stock Agreed Value and the
Common Stock Agreed Value, respectively, equal to the amount of damages
reasonably expected to be caused by the Event of Default.
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<PAGE>
6. Release from Pledge. Upon termination of this Pledge Agreement, the
security interest of Secured Party shall automatically terminate and Secured
Party shall thereafter have no interest whatsoever in the Stock. Promptly
thereafter, Secured Party shall deliver the certificate or certificates
representing the Stock to Pledgor if Secured Party has possession of such
certificates at that time.
7. 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 Pledgor: Richard O. Looney
c/o Looney & Company
11717 Forest Glen
Houston, Texas 77024
Telefax:(713) 784-1708
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
Telefax: (713) 238-4999
Copy to: Boyer, Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Telefax: (713) 871-2024
Attn: J. Randolph Ewing
9. Successors. This Pledge Agreement shall be binding upon, and inure to
the benefit of the parties hereto and their successors and assigns. Any
assignee whatsoever will be bound by the obligations of the assigning party
under this Pledge Agreement, and any assignment shall not diminish the liability
or obligation of the assignor under the terms of this Pledge Agreement unless
otherwise agreed.
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<PAGE>
10. Severability. In the event that any one or more of the provisions
contained in this Pledge Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not
affect any other provision of this Pledge Agreement or any such other
instrument.
11. Paragraph Headings. The paragraph headings used herein are
descriptive only and shall have no legal force or effect whatsoever.
12. Gender. Whenever the context so requires, the masculine shall include
the feminine and neuter, and the singular shall include the plural and
conversely.
13. Survival of Warranties. All representations, warranties, and
agreements made by the parties in this Pledge Agreement or in any certificates
delivered pursuant hereto will survive the execution date hereof.
14. Applicable Law. This Pledge Agreement shall be construed and
interpreted in accordance with the laws of the United States of America and the
State of Texas, and is intended to be performed in accordance with and as
permitted by such laws.
15. Definitions. All terms and definitions used herein shall have the
same meaning as in the Purchase Agreement unless otherwise indicated.
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.
17. 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.
18. Arbitration. The arbitration provisions contained in Section 10(n)
of the Purchase Agreement shall govern this Pledge Agreement.
19. Multiple Counterparts. This Agreement may be executed in multiple
counterparts each of which shall be deemed an original and all of which shall
constitute one instrument.
5
<PAGE>
IN WITNESS WHEREOF, this Stock Pledge Agreement has been executed this the
__ day of January, 1997.
PLEDGOR:
___________________________________________
Richard O. Looney
SECURED PARTY:
LITIGATION RESOURCES OF AMERICA, INC.,
a Texas corporation
By:________________________________________
________________________________________
________________________________________
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<PAGE>
EXHIBIT 2.2
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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<PAGE>
"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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<PAGE>
"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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<PAGE>
"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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<PAGE>
"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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<PAGE>
"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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<PAGE>
(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
--------
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
--------
3B.
- --
(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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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.
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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:
/s/ Michael Klein
------------------------
Michael Klein
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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>
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<PAGE>
KLEIN, BURY AND ASSOCIATES, INC.
Subordinated Promissory Note
$1,486,846.00 Houston, Texas January 17, 1997
Klein, Bury and Associates, Inc., a Florida corporation (hereinafter called
the "Company," which term includes any directly or indirectly controlled
subsidiaries or successor entities), for value received, hereby promises to pay
to Michael Klein, an individual residing in the State of Florida (hereinafter
called the "Holder"), or its registered assigns, at 44 W. Flagler Street, Suite
675, Miami, Florida 33130, the principal sum of One Million Four Hundred Eighty
Six Thousand Eight Hundred Forty Six and No/100 Dollars ($1,486,846.00) together
with accrued interest at the rate of ten percent (10%) on the amount of such
principal sum, payable in accordance with the terms set forth below.
THE OBLIGATIONS OF THE COMPANY CONTAINED IN THIS NOTE ARE SUBORDINATED TO
ALL SENIOR INDEBTEDNESS, AS HEREINAFTER DEFINED, NOW OWING OR HEREAFTER EXISTING
OR ARISING, AND SHALL BE ON AN EQUIVALENT BASIS WITH OTHER SUBORDINATED
INDEBTEDNESS, AS HEREINAFTER DEFINED.
ARTICLE I
Definitions
For all purposes of this Note, except as otherwise expressly provided or
unless the context otherwise requires: (i) the terms defined in this Article
have the meanings assigned to them in this Article and include the plural as
well as the singular; (ii) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with generally accepted
accounting principles as promulgated from time to time by the Association of
Independent Certified Public Accountants; and (iii) the words "herein" and
"hereof" and other words of similar import refer to this Note as a whole and not
to any particular Article, Section or other subdivision.
1.1 "Board of Directors" means the board of directors of the Company as
elected from time to time or any duly authorized committee of that board.
1.2 "Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in Houston, Texas are
authorized or obligated by law or executive order to be closed.
1.3 "Change in Control" shall mean a change in control of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act"); provided that, without limitation, such a change in control
shall be deemed to have occurred if (W) any "person" (as such term is used
<PAGE>
in Sections 13(d) and 14(d) of the Exchange Act), other than the Parent or the
Holder, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
40% or more of the combined voting power of the Company's then outstanding
securities, or (X) during any period of two consecutive years during the term of
this Note, individuals who at the beginning of such period constitute the Board
of Directors cease for any reason to constitute at least a majority thereof,
unless the election of each director who was not a director at the beginning of
such period is as a result of the stockholder permitted to designate such
director to fill a position making a change in such designee or if additional
directors are added to the board as a result of an expansion of the board of
directors for purposes of the Company conducting a Public Offering, or (Y)the
Parent consummates a Public Offering, or (Z) all or substantially all of the
assets of the Company are sold.
1.4 "Default" means any event which is, or after notice or passage of
time would be, an Event of Default.
1.5 "Event of Default" has the meaning specified in Section 3.1.
1.6 "Funded Debt" shall mean any and all Indebtedness incurred by Company
or its affiliates in the ordinary course of business or in financing the
purchase by the Company or its affiliates of a court reporting and/or litigation
service business.
1.7 "GAAP" means 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.
1.8 "Indebtedness" of any Person means all indebtedness of such Person,
whether outstanding on the date of this Note or hereafter created, incurred,
assumed or guaranteed, (i) for the principal of, premium on and interest on all
debts of the Person whether outstanding on the date of this Note or thereafter
created for money borrowed by such Person (including capitalized lease
obligations), money borrowed by others (including capitalized lease obligations)
and guaranteed, directly or indirectly, by such Person, or purchase money
indebtedness, or indebtedness secured by property ("Purchase Money
Indebtedness") at the time of the acquisition of such property by such Person,
for the payment of which the Person is directly or contingently liable; (ii) for
all accrued obligations of the Person in respect of any contract, agreement or
instrument imposing an obligation upon the Person to pay over funds; (iii) for
all trade debt of the Person; and (iv) for all deferrals, renewals, extensions
and refundings of, and amendments, modifications and supplements to, any of the
indebtedness referred to in (i), (ii) or (iii) above.
1.9 "Lien" means any mortgage, deed of trust, lien, security interest,
pledge, claim, charge, liability, obligation or other encumbrance.
1.10 "Maturity Date", when used with respect to this Note means February 1,
2002 (or such earlier date upon which this Note becomes due and payable).
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1.11 "Maximum Nonusurious Rate" means the indicated rate ceiling from time
to time in effect as defined by Article 5069-1.04, Vernon's Annotated Civil
Statutes, as amended, which is 18% as of the date of this Note.
1.12 "Note" means this Subordinated Promissory Note.
1.13 "Other Subordinated Indebtedness" means any Indebtedness other than
this Note now or hereinafter due and owing by the Company or an affiliate or to
any Person who is the seller of a court reporting and/or litigation service
business and such seller finances all or part of the purchase price thereof.
1.14 "Parent"means Litigation Resources of America, Inc., a Texas
corporation and the parent corporation of the Company.
1.15 "Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
1.16 "Public Offering" means the sale by the Parent of securities for cash
in an underwritten public offering registered on the appropriate form with the
SEC.
1.17 "SEC" means the United States Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act of 1933,
as amended, or any successor act thereto.
1.18 "Senior Indebtedness" means Funded Debt of the Company or its
affiliates to any Person other than Other Subordinated Indebtedness, whether
direct or indirect, absolute or contingent, now owing or hereafter existing or
arising, or due or to become due, including without limitation, future
indebtedness (principal, interest, fees and expenses, collection costs or
otherwise) and future advances of funds, and all modifications, renewals,
extensions or rearrangements of any of the foregoing.
1.19 "Stock Purchase Agreement" means that certain Stock Purchase Agreement
dated as of January __, 1997 executed by and between the Parent and the Holder.
1.20 "Subordination Agreements" means those certain Subordination
Agreements executed as of even date herewith by and among the Company, the
Parent, the Holder, and the holders of the Senior Indebtedness.
1.21 "Subsidiary" means a corporation or other entity in which more than
50% of the outstanding voting stock or equity interests is owned or controlled,
directly or indirectly, by the Company or any combination of the Company and one
or more other Subsidiaries. For the purposes of this definition, "voting stock"
means stock or other interests which ordinarily has voting power for the
election of directors, and "equity interests" means the right to receive the
profits of the entity, when disbursed, or the assets of the entity upon
liquidation or dissolution.
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ARTICLE II
Payments
2.1 Interest. From the date of this Note through the Maturity Date,
interest shall accrue hereunder on the unpaid outstanding principal sum of this
Note at a rate of ten percent (10%) per annum, calculated on the basis of a 365-
day year or 366-day year as the case may be. All past due payments of
principal, and if permitted by applicable law of interest, shall bear interest
from day to day at a rate of fourteen percent (14%) per annum, all to be
computed from maturity (whether stated or by acceleration) until paid.
2.2 Payment of Principal and Interest. Beginning May 1, 1997, Borrower
shall make twenty (20) equal payments of principal, and accrued interest
commencing on or before the first (1st) day (or if such day is not a Business
Day, the first Business Day thereafter) of each August, November, February and
May, with the last payment being due and payable on February 1, 2002.
Prepayments will be credited first to the accrued but unpaid interest, and then
to installments of unpaid principal in the inverse order of maturity.
ARTICLE III
Remedies
3.1 Events of Default. An "Event of Default" occurs if:
3.1.1 the Company defaults in the performance of any covenant made by
the Company in this Note, and such default remains uncured for a period of 180
days after notice from the Holder; or
3.1.2 the Company defaults in the performance of or breaches any of
the terms, covenants, or conditions contained in any of the documents
evidencing, securing or guaranteeing any Senior Indebtedness, including, but not
limited to, any loan agreements, promissory notes or security agreements and the
applicable grace periods expire unless such default is waived or the holders of
the Senior Indebtedness elect not to declare a default thereunder or the Company
is permitted to make payments under this Note; or
3.1.3 (i) a receiver, liquidator, custodian, or trustee of the
Company, or of any material property thereof is appointed by court order of a
court of competent jurisdiction and such order remains in effect on the 90th day
after its entry; or (ii) a petition is filed, a case is commenced, or relief is
ordered against the Company under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution, or liquidation law of any
jurisdiction, whether now or hereafter in effect, and is not dismissed with 90
days of such filing, commencement, or order; or
3.1.4 the Company: (i) commences a voluntary case or proceeding under
any applicable federal or state bankruptcy, insolvency, reorganization or other
similar law or any other case or proceeding and is adjudicated a bankrupt or
insolvent; (ii) files a petition, answer or consent seeking reorganization or
similar relief under any applicable federal or state law; (iii) makes an
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assignment for the benefit of creditors; or (iv) admits in writing its inability
to pay its debts generally as they become due.
3.2 Acceleration of Maturity. Notwithstanding the provisions of Section
3.1 herein, this Note and all accrued interest shall become immediately due and
payable at the option of the Holder at any time after notice by Holder to Maker
of the occurrence of an Event of Default which is not cured within fifteen (15)
days thereafter. In addition, notwithstanding the provisions of Section 3.1
herein, this Note and all accrued interest shall become immediately due and
payable at the option of the Holder at any time after a Change in Control
occurs. The provisions of this Section 3.2 shall govern notwithstanding any
other agreement or document of the Company or the Parent (with the exception of
the Subordination Agreements).
ARTICLE IV
Covenants
The Company covenants and agrees that, so long as this Note is outstanding:
4.1 Payment of Principal and Accrued Interest. The Company will duly and
punctually pay or cause to be paid the principal sum of this Note, together with
interest accrued thereon from the date hereof to the date of payment, in
accordance with the terms hereof, except to the extent of any limitations
contained in the Stock Purchase Agreement or the Subordination Agreement.
4.2 Limitation on Liens. The Company will not create, incur, assume or
suffer to exist any Lien upon any of its property, assets or revenues, whether
now owned or hereafter acquired, except for:
(a) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that adequate reserves with respect
thereto are maintained on the books of the Company in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business in respect of
obligations which are not overdue for a period of more than 60 days beyond the
Company's customary payment terms or which are being contested in good faith by
appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposits
securing liability to insurance carriers under insurance or self-insurance
arrangements;
(d) deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in the
ordinary course of business not to exceed $1,000,000 in the aggregate at any
given time;
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(e) encumbrances and restrictions on the use of real property which do
not materially impair the use thereof;
(f) any interest or title of (i) a lessor in assets being leased to
the Company or (ii) a seller in assets being purchased by the Company;
(g) Liens granted in connection with Senior Indebtedness; and
(h) Liens granted in connection with Other Subordinated Indebtedness.
ARTICLE V
Miscellaneous
5.1 Collection Fees. If this Note is placed in the hands of an attorney
for collection, and if it is collected through any legal proceedings at law or
in equity or in bankruptcy, receivership or other court proceedings, the Company
hereby undertakes to pay all costs and expenses of collection including, but not
limited to, court costs and the reasonable attorney's fees of Holder.
5.2 Consent to Amendments. This Note 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, if and only if the Company shall obtain the written consent
to such amendment, action or omission to act from the holder of this Note.
5.3 Benefits of Note; No Impairment of Rights of Holder of Senior
Indebtedness. Nothing in this Note, express or implied, shall give to any
Person, other than the Company, Holder, and their successors any benefit or any
legal or equitable right, remedy or claim under or in respect of this Note.
5.4 Successors and Assigns. All covenants and agreements in this Note
contained by or on behalf of the Company and the Holder shall bind and inure to
the benefit of the respective successors and assigns of the Company and the
Holder.
5.5 Restrictions on Transfer. This Note shall not be transferable or
assignable in any manner whatsoever except for transfers occurring as a result
of the death of the Holder pursuant to applicable probate laws.
5.6 Waiver. No failure to exercise and no delay on the part of Holder in
exercising any power or right in connection herewith shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No course of dealing between the Company and Holder shall
operate as a waiver of any right of Holder under this Note. No modification or
waiver of any provision of this Note or any other instrument evidencing,
securing, or guaranteeing this Note nor any consent to any departure therefrom
shall in any event be effective unless the same shall be in writing and signed
by the
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Parties, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given.
5.7 Notice; Address of Parties. Except as otherwise provided, all
communications to the Company or Holder provided for herein or with reference to
this Note shall be deemed to have been sufficiently given or served for all
purposes on the third business day after being sent as certified or registered
mail, postage and charges prepaid also by federal express or another reputable
overnight courier service, to the following addresses: if to the Company:
If to the Company: 650 First City Tower
1001 Fannin
Houston, Texas 77002
Attn: Richard O. Looney
With a Copy to: J. Randolph Ewing
Boyer, Ewing & Harris Incorporated
9 Greenway Plaza, Suite 3100
Houston, Texas 77046
If to Holder Michael Klein
44 W. Flagler Street, Suite 675
Miami, Florida 33130
With a copy to: Daniel H. Aronson
Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel, P.A.
515 East Las Olas Boulevard, Suite 1500
Fort Lauderdale, Florida 33301
Any party at any time by furnishing notice to the other Party in the manner
described above may designate additional or different addresses for subsequent
notices or communications.
5.8 Separability Clause. In case any provision in this Note shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions in such jurisdiction shall not in
any way be affected or impaired thereby; provided, however, such construction
does not destroy the essence of the bargain provided for hereunder.
5.9 Governing Law. This Note shall be governed by, and construed in
accordance with, the internal laws of the State of Texas (without regard to
principles of choice of law).
5.10 Usury. It is the intention of the parties hereto to conform strictly
to the applicable laws of the State of Texas and the United States of America,
and judicial or administrative interpretations or determinations thereof
regarding the contracting for, charging and receiving of interest for the use,
forbearance, and detention of money (referred to as "Applicable Law"). The
Holder shall have no right to claim, to charge or to receive any interest in
excess of the maximum rate of interest, if any, permitted to be charged on that
portion of the amount representing principal
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which is outstanding and unpaid from time to time by Applicable Law.
Determination of the rate of interest for the purpose of determining whether
this Note is usurious under Applicable Law shall be made by amortizing,
prorating, allocating and spreading in equal parts during the period of the
actual time of this Note, all interest or other sums deemed to be interest
(referred to in this Section as "Interest") at any time contracted for, charged
or received from the Company in connection with this Note. Any Interest
contracted for, charged or received in excess of the Maximum Nonusurious Rate
allowed by Applicable Law shall be deemed a result of a mathematical error and a
mistake. If this Note is paid in part prior to the end of the full stated term
of this Note and the Interest received for the actual period of existence of
this Note exceeds the maximum rate allowed by Applicable Law, Holder shall
credit the amount of the excess against any amount owing under this Note or, if
this Note has been paid in full, or in the event that it has been accelerated
prior to maturity, Holder shall refund to the Company the amount of such excess,
and shall not be subject to any of the penalties provided by Applicable Law for
contracting for, charging or receiving Interest in excess of the maximum rate
allowed by Applicable Law. Any such excess which is unpaid shall be canceled.
5.11 Arbitration. The arbitration provisions contained in Section 10(o) of
the Stock Purchase Agreement shall govern this Note.
THIS NOTE AND ALL DOCUMENTS AND INSTRUMENTS EXECUTED IN CONNECTION HEREWITH
OR THEREWITH, REPRESENT THE FINAL AGREEMENT BETWEEN THE COMPANY AND HOLDER AND
MAY NOT BE CONTRADICTED BY EVIDENCING OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS BETWEEN THE COMPANY AND HOLDER. PAYMENT OF THIS NOTE IS SUBJECT
TO THE STOCK PURCHASE AGREEMENT AND THE SUBORDINATION AGREEMENTS.
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IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed on the date first above written.
KLEIN, BURY AND ASSOCIATES, INC.,
a Florida corporation
By: _______________________________________
Richard O. Looney
Chief Executive Officer
STATE OF TEXAS (S)
(S)
COUNTY OF HARRIS (S)
BEFORE ME, the undersigned authority, on this day personally appeared
RICHARD O. LOONEY, Chief Executive Officer of Klein, Bury & Associates, Inc., a
Florida corporation, known to me to be the person whose name is subscribed in
the foregoing instrument, and acknowledged to me that he executed the same for
the purposes and consideration therein expressed, in the capacity therein stated
and as the act and deed of said corporation.
Given under my hand and seal of office on this the ___ day of January,
1997.
My commission expires: _______________
______________________________
Notary Public for the
State of Texas
Printed Name:______________________
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Exhibit "A"
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated effective the ___ day of
January, 1997, is entered into by and among KLEIN, BURY AND ASSOCIATES, INC., a
Florida corporation (the "Company"), MICHAEL KLEIN (the "Employee") and
LITIGATION RESOURCES OF AMERICA, INC., a Texas corporation (the "Buyer"). The
Company, Employee and the Buyer may sometimes hereinafter be referred to
singularly as a "Party" or collectively as the "Parties."
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Employee has been the President and Chief Executive Officer and
sole shareholder of the Company and his knowledge of the affairs of the Company,
particularly the court reporting business in Florida and nationwide, are of
great value to the Company and the Buyer;
WHEREAS, pursuant to the terms of that certain Stock Purchase Agreement
executed and effective of even date herewith by and between Litigation Resources
of America, Inc., a Texas corporation (the "Buyer"), and Employee (the "Purchase
Agreement"), the Buyer has purchased from the Employee, and the Employee has
sold to the Buyer all of the shares of issued and outstanding capital stock of
the Company;
WHEREAS, part of the consideration given to the Employee under the Purchase
Agreement included an agreement by the Company and the Buyer to enter into this
Agreement, as well as the execution of that certain Subordinated Promissory Note
in the principal amount of $1,350,000 executed by the Buyer as of even date
herewith (the "Note"); and
WHEREAS, the Employee would not have entered into the Purchase Agreement
without the Company's execution of this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants, promises
and undertakings hereinafter contained, the Parties hereby undertake and agree
as follows:
1. Employment Term. The Company hereby employs the Employee commencing
on the date hereof (the "Effective Date") for a term of three (3) years, 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 prior to the expiration of the initial term
or any such renewal term. Sections 12 - 26 of this Agreement shall survive the
expiration or termination of this Agreement, except as otherwise provided
herein. 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 Company and
shall report to, and be subject to the general direction and control of, the
Chief Executive Officer ("CEO") and the Board of Directors of the Company (the
"Board"). The Employee shall perform such
<PAGE>
management and administrative duties, consistent with the Employee's position,
as are from time to time assigned to the Employee by the CEO and the Board
including developing national, regional and local customers for the Company and
its affiliates. 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 CEO or Board shall from time to time specify, if
such services are of the nature commonly associated with the position of a
President of a company engaged in activities similar to the activities engaged
in by the Company; provided, however, that Employee shall under no circumstances
be required by the Company to relocate his primary residence, and further
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.
Notwithstanding the foregoing, the duties of Employee shall not include the duty
to act in the capacity of a court reporter. The Employee may, at any time during
the term of this Agreement, provided he has performed the duties required of him
hereunder, perform court reporting services for the Company, in which case
Employee shall be paid an additional amount of compensation as provided in
Section 4(c) hereof.
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 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 ($150,000.00) per year effective as of the date hereof
which shall be payable during the term of this Agreement in accordance
with the payroll policies of the Company in effect from time to time
(but in no event less frequently than monthly); and
(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"); provided, however,
that any Annual Bonus calculated with respect to a fiscal year during
which the Employee was employed for only a part of such year shall be
prorated to account for the number of days during such year in which
Employee was employed by the Company.
(c) Eighty-five percent (85%) of the amount billed by the
Employee in his capacity as a court reporter for the Company, up to a
maximum of eight (8) depositions of his choice per month; provided,
however that in the event the Company has need of his services as a
court reporter due to a shortage of personnel, the Employee will be
entitled to receive compensation for said deposition assignment(s)
that exceed eight (8) per month at
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the Company's then standard rate. The Company shall pay Employee for
all court reporting services performed by Employee for the eight (8)
weeks prior to the execution date hereof at an amount equal to 85% of
the invoiced amount.
(d) Employee shall also be entitled to three percent (3%) of any
non-Florida based revenue earned by the Company or its Affiliates from
a specified client that is primarily attributable to Employee's
promotional efforts (such clients being herein referred to as
"Referred Clients") in the first year that revenues are received by
the Company, measured from the initial date of invoice, and two
percent (2%) of any revenues received by the Company from that
specified Referred Client for all additional years so long as this
Agreement is in effect. In order to facilitate the determination of
those clients that constitute Referred Clients, the Employee shall
submit a list of such clients that he believes constitute Referred
Clients from time to time to the Buyer documenting the efforts of the
Employee in connection therewith. In the event the Company does not
object to any clients on such list within ten (10) business days after
receipt thereof, then such clients shall be deemed to constitute
Referred Clients. In the event Buyer disagrees within such ten (10)
day period, then Buyer and the Employee shall attempt to resolve such
disagreement. If the Buyer and the Employee are not able to resolve
any disagreement concerning Referred Clients, then either Buyer or the
Employee may seek binding arbitration in accordance with Section 24 of
this Agreement. Notwithstanding anything to the contrary, the
obligation of the Company to make such payments shall continue through
August 31, 1999 even in the event of the earlier termination of the
Employee's employment, unless such termination of employment is as a
result of a termination for Cause (as hereinafter defined) or a
voluntary termination of employment by Employee that does not
constitute a Termination with Good Reason (as hereinafter defined).
5. Expenses. During the term of this Agreement, the Company shall
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 (as hereinafter defined), and
approved by the Chief Executive Officer 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. Notwithstanding the preceding sentence, Employee
shall be entitled to an allowance of $40,000.00 per year to expend in any way
that he, in his sole discretion, deems necessary or desirable to promote the
Business so long as such expenditures are fully or partially deductible by the
Company in accordance with federal tax laws. In addition, throughout the term
of this Agreement, the Employee shall be entitled to receive an automobile
allowance 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 Buyer,
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 of Directors of
the Buyer from time to time. Until the Buyer is able to procure its own
insurance coverage, the Company agrees to continue the prior insurance
previously provided to the Employee by the Company. The Buyer and
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Company will use commercially reasonable 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 six (6)
weeks per year, during which time his compensation shall be paid in full.
Unused vacation time shall not accrue from year to year.
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:
(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 except at the direction or approval of
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
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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 said 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
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) Complete control of the Company, including, but not limited to,
its plans, properties, contracts, methods, and policies, shall be established
by the Board of Directors and the Employee shall not, by reason of anything
contained in this Agreement, either express or implied, have any control over
such matters, 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
business 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 work as many hours in any week as the necessities
of 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 Company.
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 affect 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 fifteen (15) days after written notice thereof;
(b) Misappropriating funds or property of the Company;
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(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 other than as provided in or contemplated by this
Agreement or the Purchase Agreement;
(d) Engaging in conduct, even if not in connection with the
performance of his duties hereunder, which results in a material adverse
effect upon the interests of the Company, such as his conviction 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) consecutive days;
(f) Willfully and materially failing to carry out and perform duties
assigned to the Employee in accordance with the terms hereof and failing to
cure such breach within fifteen (15) days after written notice thereof; or
(g) Willfully and materially failing to comply with written
corporate policies of the Company that are promulgated from time to time by
the Company's Board of Directors, and failing to cure such breach within
fifteen (15) days after written notice thereof.
In addition, in the event of the death of the Employee, such
occurrence shall immediately constitute a termination for "Cause".
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
less the amount of actual damages, if any, caused to the Company by such breach.
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
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
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addition, the Employee shall have the right to terminate this Agreement for any
breach of this Agreement by the Company which shall include but not be limited
to materially changing the duties assigned to Employees beyond those
contemplated in paragraph 2 of this Agreement or causing Employee to relocate
his primary residence in violation of paragraph 2 of this Agreement; 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 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. In such
event, the Employee shall be required to furnish the Company notice of the
violation, but the Company shall not be furnished an opportunity to cure. In the
event of a Termination Without Cause or a Termination with Good Reason, 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 of the lesser of: (i) one (1) year from
the date of such termination, or (ii) the remaining term of this Agreement which
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 good will 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, 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 With Good Reason prior to
expiration of the term of the Agreement, or (iii) upon the expiration of the
term of this Agreement, then during Employee's employment under this Agreement,
and for a period of three (3) years after any termination of employment:
(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
Company at the time of such termination, which consists in whole or in part of
the Business of the Company (as defined hereinafter). For purposes of this
Agreement, the "Business of the Company" shall be defined as the current
business of the Company and its Affiliates, including, but not limited to, the
providing of court reporting and litigation support services; 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
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<PAGE>
(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 its respective customers, suppliers or
employees, or court reporters performing services for the company, 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 with Good Reason by the Employee, but only for so long as the
Company is making payments to the Employee as required by Section 11 herein.
Notwithstanding anything to the contrary contained herein, 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.
Notwithstanding anything to the contrary contained herein, the
provisions of this Section 12 shall be null and void if the Company fails to
timely pay the Employee any amounts due and owing to the Employee under this
Agreement; provided, however, that the Employee shall furnish the Company prior
written notice of such breach by the Company and permit the Company fifteen (15)
days to cure such violation and further provide that such breach by the Company
is not as a result of the Employee's breach of this Agreement. Any past due
payments due and owing by the Company to the Employee shall bear interest at the
rate of twelve percent (12%) per annum.
In the event 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 Company, or upon the
appointment of a liquidator for 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 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
as provided in Section 16 of this Agreement), and to specific performance of
said covenants in addition to any other remedies at law or equity that may be
available to the Company.
Notwithstanding any provision in this Agreement, the obligations of
the Employee pursuant to this Section 12 shall terminate immediately upon the
occurrence of: (i) an Event of Default (as that term is defined in the Buyer
Note) under the Buyer Note which is not as a result of
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<PAGE>
exercising its offset rights as granted by the Purchase Agreement and which is
not cured within the time periods provided pursuant to the terms of the Buyer
Note; or (ii) a default of any of the obligations of the Company under this
Agreement, but only fifteen (15) days after the delivery by the Employee to the
Company of a notice detailing such default, during which the Company shall have
an opportunity to cure. Notwithstanding the preceding sentence, in the event
that an Event of Default occurs under the Buyer Note as a result of the
Company's non-payment under the Buyer Note, which remains uncured for one
hundred eighty (180) days, and such payment, if made, would cause the Company to
violate the terms of either of the Subordination Agreements (as such term is
defined in the Buyer Note), then only Section 12(a) of this Section 12 shall
terminate immediately, and the remainder of this Section 12 shall remain in full
force and effect.
13. Business Opportunities. Except for investments by the Employee
in publicly traded entities, or investments in private ventures which do not
compete with 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 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 of Directors 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
for (i) Information already known to the public, or (ii) in connection with any
legal proceeding regarding this Agreement, the Purchase Agreement or the
transactions contemplated thereby. 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, 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:
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<PAGE>
If to Company: Klein, Bury & Associates, Inc.,
Richard O. Looney
Chief Executive Officer
44 W. Flagler St., Suite 675
Miami, Florida 33130
Fax: (713) 653-7171
If to Buyer: Litigation Resources of America, Inc.
650 First City Tower
1001 Fannin
Houston, Texas 77002
Attn: Richard O. Looney, Chief Executive
Officer
Fax: (713) 653-7171
If to Employee: Michael Klein
12350 Vista Lane
Miami, Florida 33156
Fax: (305) 358-1427
Any Party may change its address for notice hereunder by providing written
notice of such change to the other Parties hereto. Any notices to the Company
shall require a copy thereof to be sent to the Buyer, and any notices to the
Buyer shall require a copy to be sent to the Company.
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 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.
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<PAGE>
20. Governing Law. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Florida.
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 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 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 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 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 expenses related to
the arbitration, including counsel fees, except to the extent otherwise provided
in Section 25 herein, and other costs in connection with the arbitration from
the non-prevailing Party.
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<PAGE>
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. 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.
27. 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:
KLEIN, BURY & ASSOCIATES, INC.,
a Florida corporation
By: _________________________________
Richard O. Looney
Chief Executive Officer
THE BUYER:
LITIGATION RESOURCES OF AMERICA, INC.,
a Texas corporation
By: _________________________________
G. Kent Kahle
Chief Executive Officer
THE EMPLOYEE:
_______________________________________
Michael Klein
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SCHEDULE A
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CALCULATION OF ANNUAL BONUS
During each year the accountants regularly employed by the Company
shall determine the amount of Net Profit, if any, of the Company during each
consecutive twelve (12) month time period of January 1 through December 31
("Annual Profits"), commencing with the calendar year 1996 and continuing each
year during the term of this Agreement. Beginning at the end of 1997, 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.
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Exhibit "C"
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (this "Pledge Agreement") is made as of
the ____ day of January, 1997, by MICHAEL KLEIN, an individual residing in the
State of Florida ("Pledgor"), and LITIGATION RESOURCES OF AMERICA, INC., a Texas
corporation ("Secured Party").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Pledgor and Secured Party have entered into a Stock Purchase
Agreement of even date herewith (the "Purchase Agreement"), pursuant to which
Pledgor has sold to Secured Party all of the outstanding capital stock of Klein,
Bury & Associates, Inc., a Florida corporation;
WHEREAS, Pledgor has certain obligations under the Purchase Agreement,
including, but not limited to, the obligation of Pledgor to indemnify Secured
Party for any breaches of representations and warranties of Pledgor contained in
the Purchase Agreement; and
WHEREAS, pursuant to the terms of the Purchase Agreement, the Pledgor shall
be issued 170,600 shares of the common stock, $.01 par value, of Secured Party
(the "Stock") on the terms and conditions contained in the Purchase Agreement;
and
WHEREAS, the terms of the Purchase Agreement provide for the Pledgor to
pledge the Stock to the Secured Party to partially secure the obligations of
Pledgor under the Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties agree as follows (all capitalized terms used herein
and not otherwise defined shall have the meanings set forth in the Purchase
Agreement):
1. Pledge of Stock. Pledgor hereby pledges and grants to Secured Party a
security interest in the Stock. Pledgor shall be required to deliver to Secured
Party the certificate or certificates representing the Stock in order that
Secured Party might perfect its security interest thereto. The Pledgor and the
Secured Party hereby acknowledge and agree that the value of the Stock shall be
deemed to be $6.41 per share of common stock of Secured Party for an aggregate
value of $1,093,546, which is the same value as the price per share paid by the
Investors at the Closing; 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 share of common stock over the five (5)
most recent business days (the "Agreed Value"). Pledgor shall possess all
voting rights pertaining to the Stock, so long as an Event of Default, as
hereinafter defined in this Agreement, has not occurred, or if an Event of
Default has allegedly occurred but is being disputed by the parties hereto, and
Secured Party shall have no voting rights that may be presently or hereafter
attributable to the Stock. In addition, so long as an Event of Default has not
occurred, or if an Event of Default has allegedly occurred but is being disputed
by the parties hereto, then Pledgor shall have the right to receive all
dividends, if any, on the Stock, and Pledgor
<PAGE>
shall be entitled to receive all proceeds upon liquidation of the Stock, if any,
as well as all other rights with respect to the Stock except for the right to
transfer title thereto. Notwithstanding the foregoing, if an Event of Default
has occurred, then Secured Party shall have the right to designate a
representative or trustee to vote the Stock, to receive all dividends and
liquidation proceeds, and to receive all other rights with respect to the Stock.
2. Representations and Warranties. Pledgor hereby represents, warrants
and covenants to and with Secured Party that:
(a) Pledgor will not, without the written consent of Secured Party,
sell, contract to sell, encumber, or dispose of the Stock or any interest
therein until this Pledge Agreement and all obligations under the Purchase
Agreement have been fully satisfied.
(b) No consent of any party is necessary for Pledgor to perform its
obligations hereunder, or if any such consent is required, such consent has
been received prior to the execution of this Pledge Agreement.
3. Events of Default. Each material breach or violation by Seller under
the Purchase Agreement that continues after the Secured Party has given thirty
(30) days written notice thereof to Pledgor, shall constitute an Event of
Default ("Event of Default") under this Pledge Agreement.
4. Remedies.
(a) If an Event of Default does occur and is continuing, Secured Party
shall be entitled to designate a representative or trustee to exercise any
voting rights that may be attributable to the Stock. In addition, upon the
occurrence of an Event of Default, Secured Party may, at its option,
exercise with reference to the Stock any and all of the rights and remedies
of a secured party under the Uniform Commercial Code as adopted in the
State of Texas and as otherwise granted therein or under any other
applicable law or under any other agreement executed by Pledgor, including,
without limitation, the right and power to sell, at public or private
sale(s), or otherwise dispose of or keep the Stock and any part or parts
thereof, or interest or interests therein owned by Pledgor, in any manner
authorized or permitted under this Pledge Agreement or under the Uniform
Commercial Code, and to apply the proceeds thereof toward payment of any
costs and expenses and attorneys' fees and legal expenses thereby incurred
by Secured Party, and toward payment of the obligations under the Purchase
Agreement in such order or manner as Secured Party may elect.
Notwithstanding anything to the contrary contained herein, the Secured
Party shall only foreclose on that portion of the Stock that is reasonably
necessary in the reasonable good faith judgment of the Secured Party in
order to satisfy the amount of the claim constituting the Event of Default.
For purposes hereof, the Agreed Value of the Stock shall be deemed to be
the value that the Secured Party is receiving on the foreclosure of the
Stock and Secured Party shall not be entitled to foreclose on more Stock
than is necessary to recover all of its damages resulting from the Event of
Default. In the event Secured Party elects to sell the Stock at a
foreclosure sale, if the amount received from such sale is less than the
Agreed Value, Pledgor shall not have any liability with respect thereto,
and if the amount
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received from the sale exceeds the Agreed Value, Secured Party shall be
entitled to retain such excess. Notwithstanding anything to the contrary
contained herein, Secured Party's rights to exercise the remedies provided
herein shall be subject to the indemnification provisions contained in
Section 8 of the Purchase Agreement.
(b) Secured Party is hereby granted the right, at its option, after an
Event of Default, to transfer at any time to itself or its nominee the
securities or other property hereby pledged, or any part thereof, and to
thereafter exercise all voting rights with respect to such Stock so
transferred and to receive the proceeds, payments, monies, income or
benefits attributable or accruing thereto and to hold the same as security
for the obligations hereby secured, or at Secured Party's election, to
apply such amounts to the obligations, only if due, and in such order as
Secured Party may elect, or, Secured Party may, at its option, without
transferring such securities or property to its nominee, exercise all
voting rights with respect to the securities pledged hereunder and to vote
all or any part of such securities at any regular or special meeting of
shareholders.
(c) Pledgor hereby agrees to cooperate fully with Secured Party in
order to permit Secured Party to sell, at foreclosure or other private
sale, Pledgor's interest in the Stock pledged hereunder as provided in this
Pledge Agreement. Specifically, Pledgor agrees to deliver to Secured Party
the certificate or certificates representing the Stock if Pledgor has
possession at that time, to fully comply with the securities laws of the
United States and of the State of Texas and to take such other action as
may be necessary to permit Secured Party to sell or otherwise transfer the
securities pledged hereunder in compliance with such laws.
5. Termination. This Pledge Agreement shall continue as security for the
payment or satisfaction of the obligations under the Purchase Agreement until
the earliest to occur of: (i) termination of such Purchase Agreement, (ii)
termination of this Pledge Agreement by written notice of the Secured Party to
the Pledgor, or (iii) three (3) years after the date of this Pledge Agreement,
provided that if there does not exist an Event of Default by the Pledgor under
the Purchase Agreement or if there is an Event of Default, the pledge shall
continue only to the extent of the amount of Stock (based on the Agreed Value)
equal to the amount of damages reasonably expected to be caused by the Event of
Default. Notwithstanding anything to the contrary contained herein, 2/3 of the
shares of Stock that are subject to this Pledge Agreement shall be released from
this Pledge Agreement and returned to the Pledgor, so long as there is not an
Event of Default by the Pledgor under the Purchase Agreement that has not been
cured at the time of such release, on the earlier to occur of: (a) two (2) years
after the date of this Pledge Agreement, or (b) six (6) months after
consummation of a public offering of the Secured Party's common stock, and if
such an Event of Default shall exist, 2/3 of the shares of Stock subject to this
Pledge Agreement shall be released from this Pledge Agreement immediately upon
the cure of such default.
6. Release from Pledge. Upon the termination of this Pledge Agreement,
Secured Party shall immediately release its security interest in the Stock. In
addition, Secured Party shall deliver the certificate or certificates
representing the Stock to Pledgor if Secured Party has possession of such
certificates at that time. Upon such occurrence, the security interest of
Secured Party shall
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<PAGE>
automatically terminate and Secured Party shall thereafter have no interest
whatsoever in the Stock.
7. 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 Pledgor: 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
3850 NationsBank Center
700 Louisiana Street
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
9. Successors. This Pledge Agreement shall be binding upon, and inure to
the benefit of the parties hereto and their successors and assigns. Any
assignee whatsoever will be bound by the obligations of the assigning party
under this Pledge Agreement, and any assignment shall not diminish the liability
or obligation of the assignor under the terms of this Pledge Agreement unless
otherwise agreed.
10. Severability. In the event that any one or more of the provisions
contained in this Pledge Agreement or in any other instrument referred to
herein, shall, for any reason, be held to
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<PAGE>
be invalid, illegal, or unenforceable in any respect, such invalidity,
illegality, or unenforceability shall not affect any other provision of this
Pledge Agreement or any such other instrument.
11. Paragraph Headings. The paragraph headings used herein are
descriptive only and shall have no legal force or effect whatsoever.
12. Gender. Whenever the context so requires, the masculine shall include
the feminine and neuter, and the singular shall include the plural and
conversely.
13. Survival of Warranties. All representations, warranties, and
agreements made by the parties in this Pledge Agreement or in any certificates
delivered pursuant hereto will survive the execution date hereof.
14. Applicable Law. This Pledge Agreement shall be construed and
interpreted in accordance with the laws of the United States of America and the
State of Texas, and is intended to be performed in accordance with and as
permitted by such laws.
15. Definitions. All terms and definitions used herein shall have the
same meaning as in the Purchase Agreement unless otherwise indicated.
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.
17. 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.
18. Arbitration. The arbitration provisions contained in Section 10(o) of
the Purchase Agreement shall govern this Pledge Agreement.
19. Multiple Counterparts. This Agreement may be executed in multiple
counterparts each of which shall be deemed an original and all of which shall
constitute one instrument.
-5-
<PAGE>
IN WITNESS WHEREOF, this Pledge Agreement has been executed this the ___
day of January, 1997.
PLEDGOR:
___________________________________________
Michael Klein
SECURED PARTY:
LITIGATION RESOURCES OF AMERICA, INC.
a Texas corporation
By:________________________________________
G. Kent Kahle
President
-6-
<PAGE>
EXHIBIT 2.3
================================================================================
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 2.4
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.
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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
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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
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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.
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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
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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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(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
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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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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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(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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<PAGE>
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 2.5
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
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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
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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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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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<PAGE>
(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
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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 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
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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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<PAGE>
(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>
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 EFFECTIVE AS OF MAY 14,
1997, BY THE MAKER HEREOF AND PAYEE NAMED HEREIN IN FAVOR OF TEXAS COMMERCE BANK
NATIONAL ASSOCIATION.
G& G COURT REPORTERS
Convertible Subordinated Promissory Note
(Note 1)
$345,750.00 Houston, Texas May 19, 1997
Litigation Resources of America-California, Inc. d/b/a G & G Court
Reporters, a California corporation (hereinafter called the "Company," which
term includes any directly or indirectly controlled subsidiaries or successor
entities), for value received, hereby promises to pay to Peter Giammanco and
Leslie Giammanco, individuals who are husband and wife (referred to in their
individual capacities as the "Giammancos") acting in their capacities as the
Trustees (referred to in their trustee capacities as the "Trustees") of the
GIAMMANCO FAMILY TRUST (the "Trust") established under Declaration of Trust
dated August 21, 1996 governed by the law of the State of California (the Trust
being hereinafter called the "Holder"), or permitted assigns, the principal sum
of THREE HUNDRED FORTY-FIVE THOUSAND SEVEN HUNDRED FIFTY AND NO/100 DOLLARS
($345,750.00) together with accrued interest on the amount of such principal
sum, payable in accordance with the terms set forth below.
THE OBLIGATIONS OF THE COMPANY CONTAINED IN THIS NOTE ARE SUBORDINATED TO
ALL SENIOR INDEBTEDNESS, AS HEREINAFTER DEFINED, NOW OWING OR HEREAFTER EXISTING
OR ARISING, AND SHALL BE ON AN EQUIVALENT BASIS WITH OTHER SUBORDINATED
INDEBTEDNESS, AS HEREINAFTER DEFINED.
ARTICLE I
Definitions
For all purposes of this Note, except as otherwise expressly provided or
unless the context otherwise requires, (i) the terms defined in this Article
have the meanings assigned to them in this Article and include the plural as
well as the singular, (ii) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with 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, and (iii) the words "herein" and
"hereof" and other words of similar import refer to this Note as a whole and not
to any particular Article, Section or other subdivision.
1.1 "Annual Cash Flow" means the Company's net income from operations
before interest, taxes, depreciation and amortization ("Net Income"), calculated
quarterly on a trailing twelve-month basis. For the first three quarterly
computations during the term of this Note, Annual Cash Flow shall be computed
as follows: For the first quarterly computation following the date of this
Note, Net Income for the first calendar quarter following the date of this Note
(the "First
<PAGE>
Calendar Quarter") shall be multiplied by four (4); for the second
quarterly computation following the date of this Note, Net Income for the second
calendar quarter following the date of this Note shall be added to Net Income
for the First Calendar Quarter and the sum (the "Second Quarter Sum") shall be
multiplied by two (2); for the third quarterly computation following the date
of this Note, Net Income for the third calendar quarter following the date of
this Note shall be added to the Second Quarter Sum and the total shall be
divided by .75. If Net Income for a full calendar quarter is not available for
purposes of this calculation, Net Income for the partial quarter shall be
divided by the number of days in the partial quarter and the result shall be
multiplied by 90 to create a full calendar quarter.
1.2 "Board of Directors" means the board of directors of the Company as
elected from time to time or any duly authorized committee of that board.
1.3 "Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in Houston, Texas are
authorized or obligated by law or executive order to be closed.
1.4 "Change in Control" shall mean a change in control of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act"); provided that, without limitation, such a change in control
shall be deemed to have occurred if (W) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than the Parent, either of
the Giammancos or the Holder, is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 40% or more of the combined voting power of the
Company's then outstanding securities other than as a result of the sale by the
Parent of securities in a private transaction, and the Pecks Group of Investors
no longer has the right to elect a majority of the Board of Directors of the
Parent, or (X) during any period of two consecutive years during the term of
this Note, individuals who at the beginning of such period constitute the Board
of Directors cease for any reason to constitute at least a majority thereof,
unless the election of each director who was not a director at the beginning of
such period is as a result of the stockholder permitted to designate such
director to fill a position making a change in such designee or if additional
directors are added to the board as a result of an expansion of the board of
directors for purposes of the Company conducting a Public Offering or for any
other business reason, or (Y) the Parent consummates a Public Offering, or (Z)
all or substantially all of the assets of the Parent are sold.
1.5 "Default" means any event which is, or after notice or passage of
time would be, an Event of Default.
1.6 "G&G Cash Flow" means $311,000.
1.7 "Event of Default" has the meaning specified in Section 3.1.
1.8 "GAAP" means 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.
2
<PAGE>
1.9 "G&G Division" means the separate operating division of the Company
which operates the business known as G&G Court Reporters.
1.10 "Indebtedness" of any Person means all indebtedness of such Person,
whether outstanding on the date of this Note or hereafter created, incurred,
assumed or guaranteed, (i) for the principal of, premium on and interest on all
debts of the Person whether outstanding on the date of this Note or thereafter
created for money borrowed by such Person (including capitalized lease
obligations), money borrowed by others (including capitalized lease obligations)
and guaranteed, directly or indirectly, by such Person, or purchase money
indebtedness, or indebtedness secured by property ("Purchase Money
Indebtedness") at the time of the acquisition of such property by such Person,
for the payment of which the Person is directly or contingently liable, (ii) for
all accrued obligations of the Person in respect of any contract, agreement or
instrument imposing an obligation upon the Person to pay over funds, (iii) for
all trade debt of the Person, and (iv) for all deferrals, renewals, extensions
and refundings of, and amendments, modifications and supplements to, any of the
indebtedness referred to in (i), (ii) or (iii) above.
1.11 "Lien" means any mortgage, deed of trust, lien, security interest,
pledge, claim, charge, liability, obligation or other encumbrance.
1.12 "Maturity Date", when used with respect to this Note means May 19,
2002 (or such other date upon which this Note becomes due and payable).
1.13 "Maximum Nonusurious Rate" means the indicated rate ceiling from time
to time in effect as defined by Article 5069-1.04, Vernon's Annotated Civil
Statutes, as amended.
1.14 "Note" means this Convertible Subordinated Promissory Note.
1.15 "Other Subordinated Indebtedness" means any other Indebtedness now or
hereinafter due and owing by the Company or to any person who is the seller of a
court reporting and/or litigation service business and who finances all or part
of the purchase price thereof.
1.16 "Parent" means Litigation Resources of America, Inc., a Texas
corporation.
1.17 "Parent Stock" means shares of common stock, $.01 par value, of
Parent and any securities for which such stock may be exchanged or into which it
may be converted.
1.18 "Pecks Group of Investors" means those persons defined as "Investors"
who are parties to the Securities Purchase Agreement dated effective January
17, 1997 among the Investors, the Parent and certain subsidiaries of the Parent,
and the permitted assigns of the Investors.
1.19 "Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
1.20 "Public Offering" means the sale by the Parent of securities for cash
in an underwritten public offering registered on the appropriate form with the
SEC.
3
<PAGE>
1.21 "Purchase Agreement" means that certain Agreement of Purchase and
Sale of Assets dated as of May 19, 1997 executed by and among the Company, the
Parent, the Giammancos and the Holder.
1.22 "SEC" means the United States Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act of 1933 or
any successor act thereto.
1.23 "Senior Indebtedness" means any and all indebtedness, liabilities and
obligations of the Company to any Person other than Other Subordinated
Indebtedness that is incurred by the Company or its affiliates in financing the
purchase by it or its affiliates of a court reporting and/or litigation service
business, whether direct or indirect, absolute or contingent, now owing or
hereafter existing or arising, or due or to become due, including without
limitation, future indebtedness (principal, interest, fees and expenses,
collection costs or otherwise) and future advances of funds, and all
modifications, renewals, extensions or rearrangements of any of the foregoing.
1.24 "Subordination Agreements" means those certain Subordination
Agreements executed as of even date herewith by and among the Company, the
Holder, the Giammancos, the holders of the Senior Indebtedness, and the holders
of the Other Subordinated Indebtedness.
1.25 "Subsidiary" means a corporation or other entity in which more than
50% of the outstanding voting stock or equity interests is owned or controlled,
directly or indirectly, by the Company or any combination of the Company and one
or more other Subsidiaries. For the purposes of this definition, "voting stock"
means stock or other interests which ordinarily has voting power for the
election of directors, and equity interests means the right to receive the
profits of the entity, when disbursed, or the assets of the entity upon
liquidation or dissolution.
ARTICLE II
Payments
2.1 Interest. From the date of this Note through the Maturity Date,
interest shall accrue hereunder on the unpaid outstanding principal sum of this
Note at a rate of seven and one-half percent (7.5%) per annum, calculated on the
basis of a 365-day year or 366-day year as the case may be. All past due
payments of principal, and if permitted by applicable law, of interest shall
bear interest from day to day at a rate of fourteen percent (14%) per annum, all
to be computed from maturity (whether stated or by acceleration) until paid.
2.2 Payment of Principal and Interest. Beginning August 1, 1997, the
Company shall make quarterly payments of interest and, in addition, beginning
August 1, 1998, the Company shall make fifteen (15) quarterly payments of
principal, each in the amount of $21,609.38, on or before the first day of each
November, February, May and August (and if the first day is not a Business Day,
the first Business Day thereafter) of each quarter thereafter, with the
sixteenth (16/th/) and final payment of principal and accrued interest being due
and payable on May 19, 2002, subject to the provisions of Section 2.3 below.
Prepayments will be credited first to the accrued but unpaid interest, and then
to installments of unpaid principal in the order of maturity.
2.3 Cash Flow Requirements. Notwithstanding Section 2.2 above, the
Company shall not be required to make a payment due under this Note if the G&G
Division of the Company has not
4
<PAGE>
generated Annual Cash Flow at least equal to the G & G Cash Flow for the period
ended on the last day of the month preceding the month in which the payment is
due. In each such case, the Maturity Date shall be extended for an additional
three-month period until the Note has been paid in full. This Section 2.3 shall
not apply if (i) a Termination Without Cause or a Termination for Good Reason
(as such terms are defined in the Employment Agreement of even date herewith
between the Company and Peter Giammanco) has occurred and Annual Cash Flow for
the twelve-month period immediately preceding the date of termination was at
least equal to the G & G Cash Flow or (ii) if the Parent assumes this Note in
accordance with Section 3.3 hereof.
ARTICLE III
Remedies
3.1 Events of Default. An "Event of Default" occurs if:
3.1 the Company defaults in the performance of any covenant made by
the Company in this Note, and such default remains uncured for a period of 180
days after notice from the Holder; or
3.1 the Company defaults in the performance of or breaches any of the
terms, covenants, or conditions contained in any of the documents evidencing,
securing or guaranteeing any Senior Indebtedness, including, but not limited to,
any loan agreements, promissory notes or security agreements, and the applicable
grace periods expire, unless such default is waived or the holders of the
Senior Indebtedness elect not to declare a default thereunder or the Company is
permitted to make payments under this Note; or
3.1 (i) a receiver, liquidator, custodian, or trustee of the Company,
or of any material property thereof is appointed by court order of a court of
competent jurisdiction and such order remains in effect on the 90th day after
its entry, or (ii) a petition is filed, a case is commenced, or relief is
ordered against the Company under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution, or liquidation law of any
jurisdiction, whether now or hereafter in effect, and is not dismissed with 90
days of such filing, commencement, or order; or
3.1 the Company (i) commences a voluntary case or proceeding under
any applicable federal or state bankruptcy, insolvency, reorganization or other
similar law or any other case or proceeding and is adjudicated a bankrupt or
insolvent, (ii) files a petition, answer or consent seeking reorganization or
similar relief under any applicable federal or state law, (iii) makes an
assignment for the benefit of creditors, or (iv) admits in writing its inability
to pay its debts generally as they become due.
3.2 Acceleration of Maturity. This Note and all accrued interest shall
become immediately due and payable at the option of the Holder at any time after
notice by Holder to the Company of the occurrence of an Event of Default which
is not cured within fifteen (15) days thereafter. In addition, notwithstanding
the provisions of Section 3.1 herein, this Note and all accrued interest shall
at the option of the Holder either become immediately due and payable or
immediately convertible into shares of Parent Stock as hereinafter provided
concurrently with the consummation of the transactions resulting in a Change in
Control, as further set forth in Article V
5
<PAGE>
hereof. The provisions of this Section 3.2 shall govern notwithstanding any
other agreement or document of the Company or the Parent (with the exception of
the Subordination Agreements).
3.3 Sale of Company. If all or substantially all of the stock or assets
of the Company is sold, the Parent shall have the option to either (i) pay this
Note in full or cause this Note to be paid in full or (ii) assume the
obligations of the Company under this Note.
ARTICLE IV
Covenants
The Company covenants and agrees that, so long as this Note is outstanding:
4.1 Payment of Principal and Accrued Interest. The Company will duly and
punctually pay or cause to be paid the principal sum of this Note, together with
interest accrued thereon from the date hereof to the date of payment, in
accordance with the terms hereof, except to the extent of any limitations
contained in the Purchase Agreement or the Subordination Agreements.
4.2 Limitation on Liens. The Company will not create, incur, assume or
suffer to exist any Lien upon any of its property, assets or revenues, whether
now owned or hereafter acquired, except for:
(a) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that adequate reserves with respect
thereto are maintained on the books of the Company in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business in respect of
obligations which are not overdue for a period of more than 90 days beyond the
Company's customary payment terms or which are being contested in good faith by
appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposits
securing liability to insurance carriers under insurance or self-insurance
arrangements;
(d) deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in the
ordinary course of business not to exceed $1,000,000 in the aggregate at any
given time;
(e) encumbrances and restrictions on the use of real property which do
not materially impair the use thereof;
(f) any interest or title of (i) a lessor in assets being leased to
the Company or (ii) a seller in assets being purchased by the Company; and
(g) Liens granted in connection with the Senior Indebtedness.
6
<PAGE>
4.3 No Further Indebtedness. The G&G Division of the Company shall not
incur any additional Indebtedness, except with respect to accounts payable
arising in the ordinary course of business.
ARTICLE V
Conversion
5.1 At the Option of Holder. On the date of and simultaneously with the
closing of the first event following execution of this Note which causes a
Change in Control, the Holder shall have the one-time right to convert all, or
any portion, of the outstanding principal balance of this Note and any accrued
interest due thereon into shares of Parent Stock at a price equal to the
Transaction Price, as hereinafter defined, and otherwise on and subject to the
terms and conditions set forth in this Article V. As used herein, the term
"Transaction Price" shall mean the initial issuance price per share of the
Parent Stock issued in the Public Offering, without giving effect to any
underwriting discounts or commissions, or the value of the Parent Stock
determined at the time of any other transaction giving rise to a Change in
Control. The Company must give the Holder 20 days' prior written notice of the
date of the event (the "Event Date") giving rise to the Change in Control and
the Holder may then exercise such Holder's right to convert all, or any portion,
of the outstanding principal amount of this Note into shares of Parent Stock by
(i) giving written notice at least 10 days prior to the Event Date to the
Company that the Holder elects to convert all or a portion of the outstanding
principal amount of this Note and any accrued interest due thereon into Parent
Stock, (ii) stating in such written notice the denominations in which the Holder
wishes the certificate or certificates for Parent Stock to be issued, and (iii)
surrendering this Note to the Company for notation or cancellation, as
appropriate. If not exercised when it first becomes available, or if exercised
only in part, the right to convert all or the portion of this Note for which
this option has not been exercised as described herein shall not continue and
shall expire at midnight, Houston, Texas time, on the date which is 10 days
prior to the Event Date.
5.2 Accrued Interest; Fractional Shares; Conversion Date. In the event of
any conversion, the Company will, as soon as practicable after surrender of this
Note and compliance by the Holder with the other conditions herein contained,
cause to be issued and delivered to the surrendering Holder certificates for the
number of full shares of Parent Stock to which the Holder shall be entitled as
aforesaid, together with any unpaid interest on the principal amount, if not
converted, accrued through the Event Date. The Holder shall not be entitled to
receive fractional shares of Parent Stock upon conversion or script in lieu
thereof, but the number of shares of Parent Stock to be received by the Holder
upon conversion shall be rounded down to the next whole number and the Holder
shall be entitled to payment for the fractional share in cash at the then
applicable Transaction Price. Such conversion shall be deemed to have been made
as of the Event Date, so that the persons entitled to receive the shares of
Parent Stock upon conversion of the principal amount hereof shall be treated for
all purposes as having been the record holder or holders of such shares of
Parent Stock at such time.
5.3 No Shareholder Rights; Representations and Agreements Upon Issuance.
This Note shall not entitle the Holder to any voting rights or other rights as a
stockholder of the Parent, or to any other rights whatsoever except the rights
herein expressed and such as are set forth, and no dividends shall be payable or
accrue in respect of this Note or the interest represented hereby or the Parent
Stock purchasable hereunder until or unless, and except to the extent that, the
outstanding
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principal amount hereof and any accrued interest due thereon shall be converted.
No shares of Parent Stock can or will be issued upon conversion until the Holder
becomes a party to a Shareholders' Agreement in the form required by the Parent
and gives appropriate investment representations concerning knowledge about the
investment and acknowledgments of any applicable restrictions on
transferability.
ARTICLE VI
Miscellaneous
6.1 Collection Fees. If this Note is placed in the hands of an attorney
for collection, and if it is collected through any legal proceedings at law or
in equity or in bankruptcy, receivership or other court proceedings, the Company
hereby undertakes to pay all costs and expenses of collection including, but not
limited to, court costs and the reasonable attorney's fees of Holder.
6.2 Consent to Amendments. This Note 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, if and only if the Company shall obtain the prior written
consent to such amendment, action or omission to act from the Holder.
6.3 Benefits of Note. Except as set forth in Section 3.3, nothing in this
Note, express or implied, shall give to any Person, other than the Company,
Holder, and their successors any benefit or any legal or equitable right, remedy
or claim under or in respect of this Note.
6.4 Successors and Assigns. All covenants and agreements in this Note
contained by or on behalf of the Company and the Holder shall bind and inure to
the benefit of the respective successors and assigns of the Company and the
Holder.
6.5 Restrictions on Transfer. This Note shall not be transferable or
assignable in any manner whatsoever; provided that this Note may be assigned by
Holder to the Giammancos, the children of the Giammancos or any other trust
created in favor of the children of the Giammancos, so long as the only trustees
under any such trust shall be the Trustees or either of them for so long as this
Note remains outstanding (the only permitted substitution being in the event of
the death or incapacity of both Trustees).
6.6 Waiver; Remedies Cumulative. No failure to exercise and no delay on
the part of Holder in exercising any power or right in connection herewith shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such a right or power, preclude any other or further exercise thereof or the
exercise of any other right or power. No course of dealing between the Company
and Holder shall operate as a waiver of any right of Holder under this Note. No
modification or waiver of any provision of this Note or any other instrument
evidencing, securing, or guaranteeing this Note nor any consent to any departure
therefrom shall in any event be effective unless the same shall be in writing
and signed by the person against whom enforcement thereof is to be sought, and
then such waiver or consent shall be effective only in the specific instance and
for the purpose for which given. All rights and remedies of Holder existing
hereunder are cumulative to and not exclusive of any rights or remedies
otherwise available thereto.
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6.7 Notice; Address of Parties. Except as otherwise provided, all
communications to the Company or Holder provided for herein or with reference to
this Note shall be deemed to have been sufficiently given or served for all
purposes on the third business day after being sent as certified or registered
mail, postage and charges prepaid, or by telefax with confirmed receipt, to the
following addresses: if to the Company, 650 First City Tower, 1001 Fannin,
Houston, Texas 77002, Fax 713/653-7172 or at any other address designated by the
Company in writing to Holder; if to Holder, 15250 Ventura Blvd., Suite 410,
Sherman Oaks, California 91403, Fax 818/995-4248 or at any other address
designated by Holder to the Company in writing.
6.8 Separability Clause. In case any provision in this Note shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions in such jurisdiction shall not in
any way be affected or impaired thereby; provided, however, such construction
does not destroy the essence of the bargain provided for hereunder.
6.9 Governing Law. This Note shall be construed and enforced in
accordance with and governed by the laws of the State of Texas.
6.10 Usury. It is the intention of the parties hereto to conform strictly
to the applicable laws of the State of Texas and the United States of America,
and judicial or administrative interpretations or determinations thereof
regarding the contracting for, charging and receiving of interest for the use,
forbearance, and detention of money (referred to as "Applicable Law"). The
Holder shall have no right to claim, to charge or to receive any interest in
excess of the maximum rate of interest, if any, permitted to be charged on that
portion of the amount representing principal which is outstanding and unpaid
from time to time by Applicable Law. Determination of the rate of interest for
the purpose of determining whether this Note is usurious under Applicable Law
shall be made by amortizing, prorating, allocating and spreading in equal parts
during the period of the actual time of this Note, all interest or other sums
deemed to be interest (referred to in this Section as "Interest") at any time
contracted for, charged or received from the Company in connection with this
Note. Any Interest contracted for, charged or received in excess of the maximum
rate allowed by Applicable Law shall be deemed a result of a mathematical error
and a mistake. If this Note is paid in part prior to the end of the full stated
term of this Note and the Interest received for the actual period of existence
of this Note exceeds the maximum rate allowed by Applicable Law, Holder shall
credit the amount of the excess against any amount owing under this Note or, if
this Note has been paid in full, or in the event that it has been accelerated
prior to maturity, Holder shall refund to the Company the amount of such excess,
and shall not be subject to any of the penalties provided by Applicable Law for
contracting for, charging or receiving Interest in excess of the maximum rate
allowed by Applicable Law. Any such excess which is unpaid shall be canceled.
6.11 Arbitration. The arbitration provisions contained in Section 9.15 of
the Purchase Agreement shall govern this Note.
6.12 No Protest. The Company hereby waives presentment, protest and demand
and notice of protest, demand, dishonor and nonpayment of this Note.
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THIS NOTE, ANY AND ALL ADDITIONAL PROMISSORY NOTES, IF ANY, ISSUED BY THE
COMPANY TO HOLDER AND ALL DOCUMENTS AND INSTRUMENTS EXECUTED IN CONNECTION
HEREWITH OR THEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE COMPANY AND
HOLDER WITH RESPECT TO THE OBLIGATIONS OWED THEREBY TO HOLDER AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE COMPANY AND HOLDER. PAYMENT OF THIS NOTE IS SUBJECT TO
THE PURCHASE AGREEMENT AND THE SUBORDINATION AGREEMENTS.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed on the date first above written.
LITIGATION RESOURCES OF AMERICA-CALIFORNIA, INC.,
A CALIFORNIA CORPORATION
By:_____________________________________________
Name:__________________________________________
Title:__________________________________________
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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 EFFECTIVE AS OF MAY 14,
1997, BY THE MAKER HEREOF AND PAYEE NAMED HEREIN IN FAVOR OF TEXAS COMMERCE BANK
NATIONAL ASSOCIATION.
G& G COURT REPORTERS
Convertible Subordinated Promissory Note
(Note 2)
$691,750.00 Houston, Texas May 19, 1997
Litigation Resources of America-California, Inc. d/b/a G & G Court
Reporters, a California corporation (hereinafter called the "Company," which
term includes any directly or indirectly controlled subsidiaries or successor
entities), for value received, hereby promises to pay to Peter and Leslie
Giammanco, individuals who are husband and wife (referred to in their individual
capacities as the "Giammancos") acting in their capacities as the Trustees
(referred to in their trustee capacities as the "Trustees") of the GIAMMANCO
FAMILY TRUST (the "Trust") established under Declaration of Trust dated August
21, 1996 governed by the law of the State of California (the Trust being
hereinafter called the "Holder"), or permitted assigns, the principal sum of SIX
HUNDRED NINETY-ONE THOUSAND SEVEN HUNDRED FIFTY AND NO/100 DOLLARS ($691,750.00)
together with accrued interest on the amount of such principal sum, payable in
accordance with the terms set forth below.
THE OBLIGATIONS OF THE COMPANY CONTAINED IN THIS NOTE, OTHER THAN THE
OBLIGATIONS TO PAY INTEREST HEREUNDER, ARE SUBORDINATED TO ALL SENIOR
INDEBTEDNESS, AS HEREINAFTER DEFINED, NOW OWING OR HEREAFTER EXISTING OR
ARISING.
ARTICLE I
Definitions
For all purposes of this Note, except as otherwise expressly provided or
unless the context otherwise requires, (i) the terms defined in this Article
have the meanings assigned to them in this Article and include the plural as
well as the singular, (ii) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with 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, and (iii) the words "herein" and
"hereof" and other words of similar import refer to this Note as a whole and not
to any particular Article, Section or other subdivision.
<PAGE>
1.1 "Board of Directors" means the board of directors of the Company as
elected from time to time or any duly authorized committee of that board.
1.2 "Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in Houston, Texas are
authorized or obligated by law or executive order to be closed.
1.3 "Change in Control" shall mean a change in control of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act"); provided that, without limitation, such a change in control
shall be deemed to have occurred if (W) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than the Parent, either of
the Giammancos or the Holder, is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 40% or more of the combined voting power of the
Company's then outstanding securities other than as a result of the sale by the
Parent of securities in a private transaction, and the Pecks Group of Investors
no longer has the right to elect a majority of the Board of Directors of the
Parent, or (X) during any period of two consecutive years during the term of
this Note, individuals who at the beginning of such period constitute the Board
of Directors cease for any reason to constitute at least a majority thereof,
unless the election of each director who was not a director at the beginning of
such period is as a result of the stockholder permitted to designate such
director to fill a position making a change in such designee or if additional
directors are added to the board as a result of an expansion of the board of
directors for purposes of the Company conducting a Public Offering or for any
other business reason, or (Y) the Parent consummates a Public Offering, or (Z)
all or substantially all of the assets of the Parent or the Company are sold.
1.4 "Default" means any event which is, or after notice or passage of
time would be, an Event of Default.
1.5 "Event of Default" has the meaning specified in Section 3.1.
1.6 "GAAP" means 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.
1.7 "Indebtedness" of any Person means all indebtedness of such Person,
whether outstanding on the date of this Note or hereafter created, incurred,
assumed or guaranteed, (i) for the principal of, premium on and interest on all
debts of the Person whether outstanding on the date of this Note or thereafter
created for money borrowed by such Person (including capitalized lease
obligations), money borrowed by others (including capitalized lease obligations)
and guaranteed, directly or indirectly, by such Person, or purchase money
indebtedness, or indebtedness secured by property ("Purchase Money
Indebtedness") at the time of the acquisition of such property by such Person,
for the payment of which the Person is directly or contingently liable, (ii) for
all accrued obligations of the Person in respect of any contract, agreement or
instrument imposing an obligation upon the Person to pay over funds, (iii) for
all trade debt of the Person, and (iv) for all deferrals,
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renewals, extensions and refundings of, and amendments, modifications and
supplements to, any of the indebtedness referred to in (i), (ii) or (iii) above.
1.8 "Lien" means any mortgage, deed of trust, lien, security interest,
pledge, claim, charge, liability, obligation or other encumbrance.
1.9 "Maturity Date", when used with respect to this Note means May 19,
2005 (or such other date upon which this Note becomes due and payable).
1.10 "Maximum Nonusurious Rate" means the indicated rate ceiling from time
to time in effect as defined by Article 5069-1.04, Vernon's Annotated Civil
Statutes, as amended.
1.11 "Note" means this Convertible Subordinated Promissory Note.
1.12 "Other Subordinated Indebtedness" means any other Indebtedness now or
hereinafter due and owing by the Company or to any person who is the seller of a
court reporting and/or litigation service business and who finances all or part
of the purchase price thereof.
1.13 "Parent" means Litigation Resources of America, Inc., a Texas
corporation.
1.14 "Parent Stock" means shares of common stock, $.01 par value, of
Parent and any securities for which such stock may be exchanged or into which it
may be converted.
1.15 "Pecks Group of Investors" means those persons defined as "Investors"
who are parties to the Securities Purchase Agreement dated effective January
17, 1997 among the Investors, the Parent and certain subsidiaries of the Parent,
and the permitted assigns of the Investors.
1.16 "Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
1.17 "Public Offering" means the sale by the Parent of securities for cash
in an underwritten public offering registered on the appropriate form with the
SEC.
1.18 "Purchase Agreement" means that certain Agreement of Purchase and
Sale of Assets dated as of May 19, 1997 executed by and among the Company, the
Parent, the Giammancos, and the Holder.
1.19 "SEC" means the United States Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act of 1933 or
any successor act thereto.
1.20 "Senior Indebtedness" means any and all indebtedness, liabilities and
obligations of the Company to any Person including Other Subordinated
Indebtedness that is incurred by the Company or its affiliates in financing the
purchase by it or its affiliates of a court reporting and/or litigation service
business, whether direct or indirect, absolute or contingent, now owing or
hereafter
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existing or arising, or due or to become due, including without limitation,
future indebtedness (principal, interest, fees and expenses, collection costs or
otherwise) and future advances of funds, and all modifications, renewals,
extensions or rearrangements of any of the foregoing.
1.21 "Subordination Agreements" means those certain Subordination
Agreements executed as of even date herewith by and among the Company, the
Holder, the Giammancos and the holders of the Senior Indebtedness.
1.22 "Subsidiary" means a corporation or other entity in which more than
50% of the outstanding voting stock or equity interests is owned or controlled,
directly or indirectly, by the Company or any combination of the Company and one
or more other Subsidiaries. For the purposes of this definition, "voting stock"
means stock or other interests which ordinarily has voting power for the
election of directors, and equity interests means the right to receive the
profits of the entity, when disbursed, or the assets of the entity upon
liquidation or dissolution.
ARTICLE II
Payments
2.1 Interest. From the date of this Note through the Maturity Date,
interest shall accrue hereunder on the unpaid outstanding principal sum of this
Note at a rate of six and three-eighths percent (6.375%) per annum, calculated
on the basis of a 365-day year or 366-day year as the case may be.
2.2 Payment of Principal and Interest. Beginning June 15, 1997, the
Company shall make monthly payments of interest on the fifteenth day of each
month during the term of this Note (and if the fifteenth day is not a Business
Day, the first Business Day thereafter) with the entire principal amount of this
Note and accrued interest thereon being due and payable on May 19, 2005.
Prepayments of this Note are not permitted without the consent of the Holder in
Holder's sole discretion.
ARTICLE III
Remedies
3.1 Events of Default. An "Event of Default" occurs if:
3.1.1 the Company fails to make when due any payment of interest due
under this Note, and such default remains uncured for a period of 10 days after
notice from the Holder;
3.1.2 the Company fails to make when due the principal payment due
under this Note, and such default remains uncured for a period of 180 days after
notice from the Holder; or
3.1.3 the Company defaults in the performance of any other covenant
made by the Company in this Note, and such default remains uncured for a period
of 180 days after notice from the Holder.
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3.2 No Acceleration of Maturity. Regardless of the occurrence of an
Event of Default (and the expiration of any applicable cure or grace period),
the Holder shall have no right to accelerate the maturity of this Note.
ARTICLE IV
Covenants
The Company covenants and agrees that, so long as this Note is outstanding:
4.1 Payment of Principal and Accrued Interest. The Company will duly and
punctually pay or cause to be paid the principal sum of this Note, together with
interest accrued thereon from the date hereof to the date of payment, in
accordance with the terms hereof, except to the extent of any limitations
contained in the Purchase Agreement or the Subordination Agreements.
ARTICLE V
Conversion
5.1 Conversion Events.
(a) At the Option of Holder. At any time following the date of
execution of this Note through the Maturity Date, the Holder shall have the
right to convert all, but not less than all, of the outstanding principal amount
of this Note into shares of Parent Stock at a price equal to the Conversion
Price, as hereinafter defined, and otherwise on and subject to the terms and
conditions set forth in this Article V. As used herein, the term "Conversion
Price" shall mean $7.56, calculated in accordance with Exhibit A attached
hereto. The Holder may exercise such Holder's right to convert all, but not
less than all, of the outstanding principal amount of this Note into shares of
Parent Stock by (i) giving written notice to the Company that the Holder elects
to convert the outstanding principal amount into Parent Stock, (ii) stating in
such written notice the denominations in which the Holder wishes the certificate
or certificates for Parent Stock to be issued, and (iii) surrendering this Note
to the Company.
(b) Automatic Conversion. On the date of and simultaneously with the
closing (the "Event Date") of the first event which causes a Change in Control,
all of the outstanding principal amount of this Note shall be automatically
converted into shares of Parent Stock at a price equal to the Conversion Price,
and otherwise on and subject to the terms and conditions set forth in this
Article V. The outstanding principal amount of this Note shall be deemed
converted into shares of Parent Stock on the Event Date but shall not be
complete until (i) the Company has given written notice to the Holder, which
notice shall be given at least twenty days prior to the Event Date, that the
outstanding principal amount of this Note has been converted, which notice shall
disclose the Conversion Price, the Event Date and the number of shares of Parent
Stock to be received by the Holder, (ii) the Holder has delivered written
instructions to the Company which states the denominations in which the Holder
wishes the certificate or certificates for Parent Stock to be issued, and (iii)
the Holder has surrendered this Note to the Company.
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<PAGE>
5.2 Accrued Interest; Fractional Shares; Conversion Date. In the event of
any conversion, the Company will, as soon as practicable after surrender of this
Note and compliance by the Holder with the other conditions herein contained,
cause to be issued and delivered to the surrendering Holder certificates for the
number of full shares of Parent Stock to which the Holder shall be entitled as
aforesaid, together with any unpaid interest on the principal amount converted
accrued through the Conversion Date, as hereinafter defined, or Event Date, as
applicable. The Holder shall not be entitled to receive fractional shares of
Parent Stock upon conversion or script in lieu thereof, but the number of shares
of Parent Stock to be received by the Holder upon conversion shall be rounded
down to the next whole number and the Holder shall be entitled to payment for
the fractional share in cash at the Conversion Price. So that the persons
entitled to receive the shares of Parent Stock upon conversion of the principal
amount hereof shall be treated for all purposes as having been the record holder
or holders of such shares of Parent Stock at such time, (i) if conversion takes
place under Section 5.1(a), such conversion shall be deemed to have been made as
of the close of business on the date the notice of conversion is delivered to
the Company in accordance with the notice provisions hereinafter set forth (the
close of business on such date being herein sometimes called the "Conversion
Date"), and (ii) if conversion takes place under Section 5.1(b), such conversion
shall be deemed to have been made as of the close of business on the Event Date.
5.3 No Shareholder Rights; Representations and Agreements Upon Issuance.
This Note shall not entitle the Holder to any voting rights or other rights as a
stockholder of the Parent, or to any other rights whatsoever except the rights
herein expressed and such as are set forth, and no dividends shall be payable or
accrue in respect of this Note or the interest represented hereby or the Parent
Stock purchasable hereunder until or unless, and except to the extent that, the
outstanding principal amount hereof shall be converted. No shares of Parent
Stock can or will be issued upon conversion until the Holder becomes a party to
a Shareholders' Agreement in the form required by the Parent and gives
appropriate investment representations concerning knowledge about the investment
and acknowledgments of any applicable restrictions on transferability.
ARTICLE VI
Miscellaneous
6.1 No Collection Fees. If this Note is placed in the hands of an
attorney for collection, and if it is collected through any legal proceedings at
law or in equity or in bankruptcy, receivership or other court proceedings, the
Company will not pay any costs or expenses of collection including, but not
limited to, court costs and the reasonable attorney's fees of Holder.
6.2 Consent to Amendments. This Note 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, if and only if the Company shall obtain the prior written
consent to such amendment, action or omission to act from the Holder.
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<PAGE>
6.3 Benefits of Note. Nothing in this Note, express or implied, shall
give to any Person, other than the Company, Holder, and their successors any
benefit or any legal or equitable right, remedy or claim under or in respect of
this Note.
6.4 Successors and Assigns. All covenants and agreements in this Note
contained by or on behalf of the Company and the Holder shall bind and inure to
the benefit of the respective successors and assigns of the Company and the
Holder.
6.5 Restrictions on Transfer. This Note shall not be transferable or
assignable in any manner whatsoever; provided that this Note may be assigned by
Holder to the Giammancos, the children of the Giammancos or any other trust
created in favor of the children of the Giammancos so long as the only trustees
under any such trust shall be the Trustees or either of them for so long as this
Note remains outstanding (the only permitted substitution being in the event of
the death or incapacity of both Trustees).
6.6 Waiver; Remedies Exclusive. No failure to exercise and no delay on
the part of Holder in exercising any power or right in connection herewith shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such a right or power, preclude any other or further exercise thereof or the
exercise of any other right or power. No course of dealing between the Company
and Holder shall operate as a waiver of any right of Holder under this Note. No
modification or waiver of any provision of this Note or any other instrument
evidencing, securing, or guaranteeing this Note nor any consent to any departure
therefrom shall in any event be effective unless the same shall be in writing
and signed by the person against whom enforcement thereof is to be sought, and
then such waiver or consent shall be effective only in the specific instance and
for the purpose for which given. All rights and remedies of Holder existing
hereunder are exclusive and not cumulative of any rights or remedies otherwise
available thereto.
6.7 Notice; Address of Parties. Except as otherwise provided, all
communications to the Company or Holder provided for herein or with reference to
this Note shall be deemed to have been sufficiently given or served for all
purposes on the third business day after being sent as certified or registered
mail, postage and charges prepaid, or by telefax with confirmed receipt, to the
following addresses: if to the Company, 650 First City Tower, 1001 Fannin,
Houston, Texas 77002, Fax 713/653-7172 or at any other address designated by the
Company in writing to Holder; if to Holder, 15250 Ventura Blvd., Suite 410,
Sherman Oaks, California 91403, Fax 818/995-4248 or at any other address
designated by Holder to the Company in writing
6.8 Separability Clause. In case any provision in this Note shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions in such jurisdiction shall not in
any way be affected or impaired thereby; provided, however, such construction
does not destroy the essence of the bargain provided for hereunder.
6.9 Governing Law. This Note shall be construed and enforced in
accordance with and governed by the laws of the State of Texas.
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6.10 Usury. It is the intention of the parties hereto to conform strictly
to the applicable laws of the State of Texas and the United States of America,
and judicial or administrative interpretations or determinations thereof
regarding the contracting for, charging and receiving of interest for the use,
forbearance, and detention of money (referred to as "Applicable Law"). The
Holder shall have no right to claim, to charge or to receive any interest in
excess of the maximum rate of interest, if any, permitted to be charged on that
portion of the amount representing principal which is outstanding and unpaid
from time to time by Applicable Law. Determination of the rate of interest for
the purpose of determining whether this Note is usurious under Applicable Law
shall be made by amortizing, prorating, allocating and spreading in equal parts
during the period of the actual time of this Note, all interest or other sums
deemed to be interest (referred to in this Section as "Interest") at any time
contracted for, charged or received from the Company in connection with this
Note. Any Interest contracted for, charged or received in excess of the maximum
rate allowed by Applicable Law shall be deemed a result of a mathematical error
and a mistake. If this Note is paid in part prior to the end of the full stated
term of this Note and the Interest received for the actual period of existence
of this Note exceeds the maximum rate allowed by Applicable Law, Holder shall
credit the amount of the excess against any amount owing under this Note or, if
this Note has been paid in full, or in the event that it has been accelerated
prior to maturity, Holder shall refund to the Company the amount of such excess,
and shall not be subject to any of the penalties provided by Applicable Law for
contracting for, charging or receiving Interest in excess of the maximum rate
allowed by Applicable Law. Any such excess which is unpaid shall be canceled.
6.11 Arbitration. The arbitration provisions contained in Section 9.15 of
the Purchase Agreement shall govern this Note.
6.12 Antidilution Protection. The Company shall, and shall induce Parent
to, grant to Holder any antidilution protection granted to any other holder of
shares of Parent Stock or of securities, options, warrants or other rights to
acquire, or any other securities convertible into, shares of Parent Stock,
except for antidilution protection previously granted or granted in the future
to institutional investors.
THIS NOTE, ANY AND ALL ADDITIONAL PROMISSORY NOTES, IF ANY, ISSUED BY THE
COMPANY TO HOLDER AND ALL DOCUMENTS AND INSTRUMENTS EXECUTED IN CONNECTION
HEREWITH OR THEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE COMPANY AND
HOLDER WITH RESPECT TO THE OBLIGATIONS OWED THEREBY TO HOLDER AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE COMPANY AND HOLDER. PAYMENT OF THIS NOTE IS SUBJECT TO
THE PURCHASE AGREEMENT AND THE SUBORDINATION AGREEMENTS.
8
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IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed on the date first above written.
LITIGATION RESOURCES OF AMERICA-CALIFORNIA, INC.
A CALIFORNIA CORPORATION
By:_____________________________________________
Name:__________________________________________
Title:_________________________________________
Exhibit A--Calculation of Conversion Price
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated effective the 19th day
of May, 1997 (the "Effective Date"), is entered into by and between 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), and PETER GIAMMANCO, an individual residing
in the State of California (the "Employee"). The Company may sometimes
hereinafter be referred to as "Employer." The Employer 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 effective as of May 19, 1997 (the "Purchase Agreement"), by and
among the Company, Peter and Leslie Giammanco doing business as G&G Court
Reporters (the "Giammancos"), 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"), and Litigation Resources of America, Inc.,
a Texas corporation (the "Parent").
W I T N E S S E T H:
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WHEREAS, Employee has been an employee of the business known as G&G Court
Reporters ("G&G") and his knowledge of the affairs of the business, particularly
the court reporting 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 Employee and others, and the Employee and others have sold to
the Company, all the Assets of G&G; and
WHEREAS, part of the consideration given to 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 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 six (6) years (the "Employment Term"),
unless
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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
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 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 G&G Division
of the Company and shall report to, and be subject to the general direction and
control of, Richard O. Looney or his duly appointed successor (the "Chief
Executive Officer") and the Board of Directors of the Company (the "Board").
The Employee shall perform such management and administrative duties, consistent
with the Employee's position, as are from time to time assigned to the Employee
by the Chief Executive Officer and the Board including developing local,
regional and national customers for the Company and its Affiliates (as 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
Chief Executive Officer or Board shall from time to time specify, if such
services are of the nature commonly associated with the position of a President
of an operating division or 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 G & G;
provided, however, that Employee shall under no circumstances be required by the
Company to relocate his primary residence, and provided further, 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" shall be defined as the current
business of the Company, including, but not limited to, the marketing and
providing of court reporting and litigation support services in the Southern
California area. The term "Company" as used in this Agreement shall be deemed
to include and refer to all such Affiliates. The Employee may, at any time
during the term of this Agreement, perform court reporting services for the
Company, in which case Employee shall be paid an additional amount of
compensation as provided in Section 4(d) hereof.
3. Extent of Service. The Employee shall devote his full business time,
attention and energy to the business of the Employer, 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 Sixty-Six Thousand Dollars ($66,000.00)
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 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 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 Ten Thousand Dollars
($110,000.00) 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 2
has been cured; and
(c) 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") including, without limitation, the first
fiscal year of the Company; provided, however, that any Annual Bonus
calculated with respect to a fiscal year during which the Employee was
employed for only a part of such year shall be prorated to account for the
number of days during such year in which Employee was employed by the Company;
and
(d) an amount of compensation in accordance with the prevailing rate
that the Company pays to its court reporters for any court reporting services
personally performed by the Employee from time to time, in his discretion, for
the Company.
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 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 an 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
and the Parent, including any stock option plan, retirement plan, profit-sharing
plan, group life plan, health or accident insurance or other employee
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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 G&G. The Employer will use 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 use his best reasonable efforts to 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, and 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 or the Company.
(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
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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 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 G&G Division of the
Company, the Employee shall primarily be responsible for making day-to-day
decisions in the ordinary course of business of the Company, subject to
possible review by the Chief Executive Officer and/or the Board. The Company
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.
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<PAGE>
(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 G&G.
(d) The Company agrees that it will not terminate any employee of the
Company without giving prior notification of such termination to the Employee.
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.
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<PAGE>
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 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 not terminate the employment of Employee for any
reason other than those for Cause during the first year of the Employment Term.
After such time, 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," provided that the Employee shall be
furnished thirty (30) days notice of the reason for such termination and an
opportunity to cure within the thirty-day period. Notwithstanding the cure
provisions provided in the preceding sentence, the Employee shall not have the
opportunity to cure the reason for such termination if such reason cannot
reasonably be expected to be cured but the Company shall still furnish notice to
the Employee. 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
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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. In the
event of a Termination Without Cause or a Termination with Good Reason by the
Employee after the end of the first year of the Employment Term, 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 were still employed for a period equal to the lesser of (i) twenty-four
(24) months, or (ii) the remaining term of this Agreement. In the event of a
Termination Without Cause or a Termination By Employee With Good Reason after
the end of the first year of the Employment Term, the amounts referred to in the
preceding sentence 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
Employer 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
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(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.
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 so long
as the Company is making payments to the Employee as required by Section 11
herein.
Notwithstanding anything to the contrary contained herein, (x) 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
and to personally perform court reporting services for the Company, without
violating the provisions contained in this Section 12, (y) the Employee shall be
permitted to personally perform court reporting services only as a sole
practitioner and freelance court reporter for parties other than the Company
("Third Parties") so long as the Employee does not refer court reporting
business to such Third Parties, does not perform such services as an employee of
any Third Parties, does not have management or administrative responsibilities
for any Third Parties and does not solicit or accept court reporting jobs from
Clients (as defined below) of the Company, without violating the provisions of
this Section 12, and (z) the provisions of this Section 12 shall be null and
void if the Company fails to timely pay, subject to a thirty (30) day cure
period after receipt of written notice, the Employee any amounts due and owing
to the Employee under this Agreement, including without limitation, the amounts
due under Section 11. As used herein, the term "Clients" shall mean (i)
Customers (as defined in the Purchase Agreement) who have generated $7,500 or
more in revenues for G&G as reflected on postclosing Schedule 3.23 to the
Purchase Agreement during the period covered by such schedule and (ii) any other
customer of the Business who has generated $7,500 or more in revenues for the
Business during the 12-month period ending with the date of termination of the
Employee's employment with the Company.
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.
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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 (i) 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 (ii) any court reporting services which Employee personally
performs from time to time on behalf of the Company, 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 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:
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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: Peter Giammanco
15250 Ventura Blvd., Suite 410
Sherman Oaks, California 91403
Telefax:(818) 995-4248
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 to receive payments hereunder, it being
understood that such payments and the right thereto are nonassignable and
nontransferable; provided, however in the event of the death of Employee, any
payments that Employee is entitled to receive may be assigned to the
beneficiaries of the Employee's estate.
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.
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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 and any letter agreement
executed of even date herewith constitute the 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 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.
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<PAGE>
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: _______________________________________
Name:_________________________________
Title:__________________________________
THE EMPLOYEE:
_______________________________________
Peter Giammanco
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<PAGE>
SCHEDULE A
CALCULATION OF ANNUAL BONUS
Each year the accountants regularly employed by the Company shall
determine the amount of Net Profit, if any, of the G&G Division of the Company
during each consecutive twelve (12) month time period ending on the last day of
the fiscal year of the Company ("Annual Profits"), 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 $366,000. For purposes of this
calculation, "Net Profit" shall mean earnings before income taxes, interest,
depreciation and amortization.
<PAGE>
BILL OF SALE,
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS BILL OF SALE, ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Bill of
Sale") is entered into effective as of May 19, 1997, among 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"), and LITIGATION RESOURCES OF AMERICA-CALIFORNIA, INC., a California
corporation ("Purchaser"). Purchaser and Seller may be hereinafter sometimes
referred to collectively as the "Parties" or individually as a "Party." All
defined terms not otherwise defined herein shall have the meanings ascribed to
them in that certain Agreement of Purchase and Sale of Assets of even date
herewith (the "Agreement"), executed among Seller, Purchaser and Litigation
Resources of America, Inc., a Texas corporation.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Purchaser has agreed to purchase from Seller, and Seller has
agreed to grant, bargain, sell, convey, transfer, assign and deliver to
Purchaser, the Assets; and
WHEREAS, as partial consideration for the sale and assignment of the
Assets, Purchaser has agreed to assume the Assumed Liabilities, on and subject
to the terms and conditions set forth in the Agreement;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, including the delivery to Seller of the Purchase Price,
the receipt and sufficiency of which are hereby acknowledged, Purchaser and
Seller hereby agree as follows:
1. SALE AND ASSIGNMENT. Seller has granted, bargained, sold, conveyed,
transferred, assigned and delivered, and by these presents does grant, bargain,
sell, convey, transfer, assign and deliver unto Purchaser, its successors and
assigns, the Assets. Seller warrants that Seller is the lawful owner in every
respect of all of the Assets and that the Assets are free and clear of any and
all liens, security agreements, encumbrances, claims, demands, and charges of
every kind and character whatsoever other than as previously disclosed in
writing to Purchaser Seller hereby binds Seller and Seller's successors and
assigns to warrant and defend the title to all of the Assets unto Purchaser and
Purchaser's successors and assigns forever against every person whomsoever
lawfully
<PAGE>
claiming or to claim the Assets or any part thereof. Purchaser hereby
accepts the conveyance, transfer, assignment and delivery of the Assets.
2. ASSUMPTION. Subject to the exceptions and exclusions of Section 2.6 of
the Agreement, and otherwise on and subject to the terms and conditions of the
Agreement, Purchaser hereby assumes and agrees to pay and perform the Assumed
Liabilities.
3. FURTHER ACTIONS. Seller hereby consents and agrees to any lawful
action taken by Purchaser in connection with the enforcement of, or the legal
protection of, the Assets, and confers upon Purchaser full right of substitution
in any and all such actions. Seller further covenants and agrees to execute
such further documents and take such additional actions as may reasonably be
requested by Purchaser to vest in Purchaser any and all of the Assets and
otherwise to effectuate the intent of this Bill of Sale. 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.
4. GOVERNING LAW; JURISDICTION; VENUE; SERVICE. This Agreement shall be
construed and enforced in accordance with and governed by the laws of the State
of Texas, without regard to conflicts of law principles, and the laws of the
United States applicable in Texas. Venue for any litigation between the Parties
hereto with respect to the subject matter of this Agreement shall be Harris
County, Texas. Each Party hereby irrevocably submits to personal jurisdiction
in Texas. Each Party hereby waives all objections to personal jurisdiction in
Texas and venue in Harris 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.
5. MODIFICATION OF AGREEMENT. This Agreement may be amended or modified
only by written instrument signed by all of the Parties.
6. ENTIRE AGREEMENT; BINDING EFFECT. This Agreement, and the documents,
instruments and agreements executed in connection herewith, set forth the entire
agreement and understanding 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.
7. 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 EFFECTIVE as of the date first written above.
2
<PAGE>
PURCHASER:
LITIGATION RESOURCES OF AMERICA-
CALIFORNIA, INC., a California corporation
By:_________________________________________
Name:__________________________
Title:___________________________
SELLER:
GIAMMANCOS:
____________________________________________
PETER GIAMMANCO, Individually
____________________________________________
LESLIE GIAMMANCO, Individually
TRUST:
By:_____________________________________________
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:_____________________________________________
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
3
<PAGE>
CONTINGENT STOCK PLEDGE AGREEMENT
THIS CONTINGENT STOCK PLEDGE AGREEMENT (this "Pledge Agreement") is
made effective as of the 19th day of May, 1997, by PETER GIAMMANCO AND LESLIE
GIAMMANCO, individuals who are husband and wife (referred to in their individual
capacities as the "Giammancos") acting both individually and in their capacities
as the Trustees (referred to in their trustee capacities as the "Trustees") of
the GIAMMANCO FAMILY TRUST (the "Trust") established under Declaration of Trust
dated August 21, 1996 governed by the law of the State of California (the Trust
being hereinafter called the "Pledgor") and LITIGATION RESOURCES OF AMERICA-
CALIFORNIA, INC., a California corporation ("Secured Party").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Pledgor, the Giammancos, Litigation Resources of America, Inc., a
Texas corporation ("Parent"), and Secured Party have entered into an Agreement
of Purchase and Sale of Assets of even date herewith (the "Purchase Agreement"),
pursuant to which Pledgor and the Giammancos have sold to Secured Party
substantially all of the assets involved in the business of Pledgor and the
Giammancos known as G&G Court Reporters ("G&G"); and
WHEREAS, Pledgor and the Giammancos have certain obligations under the
Purchase Agreement, including, but not limited to, the obligation of Pledgor and
the Giammancos to indemnify Secured Party for any breaches of representations
and warranties of Pledgor and the Giammancos contained in the Purchase
Agreement; and
WHEREAS, pursuant to the terms of the Purchase Agreement and Note 1 and
Note 2 (as defined in the Purchase Agreement), the Pledgor has the right to
convert at certain times sums due under Note 1 and Note 2 into shares of the
common stock, $.01 par value (the "Parent Stock"), of Parent, on the terms and
conditions contained in Note 1 and Note 2; and
WHEREAS, the terms of the Purchase Agreement provide for the Pledgor to
pledge the Parent Stock to the Secured Party to partially secure the obligations
of Pledgor and the Giammancos under the Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows (all capitalized terms used herein
and not otherwise defined shall have the meanings set forth in the Purchase
Agreement):
1. Pledge of Parent Stock. Pledgor hereby pledges and grants to Secured
Party a security interest in the Parent Stock, which shall attach immediately
upon each issuance of Parent Stock to all shares of Parent Stock issued to
Pledgor in accordance with Note 1 or Note 2. Immediately upon
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<PAGE>
receipt of any shares of Parent Stock, Pledgor shall be required to deliver to
Secured Party the certificate or certificates representing the Parent Stock in
order that Secured Party might perfect its security interest therein. The
Pledgor and the Secured Party hereby acknowledge and agree that the value of the
Parent Stock shall be deemed to be $7.56 per share of Parent Stock; provided,
however, that if the Parent has successfully consummated a public offering of
its shares of Parent Stock, then it shall mean the average public trading price
of each share of Parent Stock over the five (5) most recent business days
falling prior to the date of delivery by the Secured Party/Buyer to the
Pledgor/Seller of the notice of Offset Claim, as such term is defined in the
Purchase Agreement (the "Agreed Value"). Pledgor shall possess all voting rights
pertaining to the Parent Stock, so long as an Event of Offset, as hereinafter
defined in this Pledge Agreement, has not occurred, or if an Event of Offset has
allegedly occurred but is being disputed by the parties hereto prior to
submission to arbitration in accordance with Section 9.11 of the Purchase
Agreement, and Secured Party shall have no voting rights that may be presently
or hereafter attributable to the Parent Stock. In addition, so long as an Event
of Offset has not occurred, or if an Event of Offset has allegedly occurred but
is being disputed by the parties hereto prior to submission to arbitration in
accordance with Section 9.11 of the Purchase Agreement, then Pledgor shall have
the right to receive all dividends, if any, on the Parent Stock, and Pledgor
shall be entitled to receive all proceeds upon liquidation of the Parent Stock,
if any, as well as all other rights with respect to the Parent Stock except for
the right to transfer title thereto. Notwithstanding the foregoing, if an Event
of Offset has occurred and (i) has been resolved, either by failure to timely
dispute it as required by Section 9.11 of the Purchase Agreement, by agreement
or by arbitration decided in favor of Secured Party (a "Resolved Event of
Offset") or (ii) has been submitted to arbitration in accordance with Section
9.11 of the Purchase Agreement which arbitration is still pending or in process
(a "Continuing Event of Offset"), then Secured Party shall have the right to
designate a representative or trustee to vote those shares of Parent Stock
covered by or subject to the Resolved Event of Offset or Continuing Event of
Offset (the "Offset Shares"), to receive all dividends and liquidation proceeds
with respect to the Offset Shares, and to receive all other rights with respect
to the Offset Shares.
2. Representations and Warranties. Pledgor hereby represents, warrants
and covenants to and with Secured Party that:
(a) Pledgor will not, without the written consent of Secured Party,
sell, contract to sell, encumber, or dispose of the Parent Stock or any
interest therein until this Pledge Agreement and all obligations under the
Purchase Agreement have been fully satisfied.
(b) No consent of any party is necessary for Pledgor to perform its
obligations hereunder, or if any such consent is required, such consent has
been received prior to the execution of this Pledge Agreement.
3. Event of Offset. Each delivery by Secured Party/Buyer to the
Pledgor/Seller of a notice of Offset Claim shall constitute an Event of Offset
("Event of Offset") under this Pledge Agreement.
-2-
<PAGE>
4. Remedies.
(a) Upon the occurrence of a Resolved Event of Offset, Secured Party
may, at its option, exercise with reference to the Parent Stock any and all
of the rights and remedies of a secured party under the Uniform Commercial
Code as adopted in the State of Texas and as otherwise granted therein or
under any other applicable law or under any other agreement executed by
Pledgor, including, without limitation, the right and power to sell, at
public or private sale(s), or otherwise dispose of or keep the Parent Stock
and any part or parts thereof, or interest or interests therein owned by
Pledgor, in any manner authorized or permitted under this Pledge Agreement
or under the Uniform Commercial Code, and to apply the proceeds thereof
toward payment of any costs and expenses and attorneys' fees and legal
expenses thereby incurred by Secured Party, and toward payment of the
obligations under the Purchase Agreement in such order or manner as Secured
Party may elect. Notwithstanding anything to the contrary contained
herein, the Secured Party shall only foreclose on that portion of the
Parent Stock that is reasonably necessary in the reasonable good faith
judgment of the Secured Party in order to satisfy the amount of the claim
constituting the Resolved Event of Offset. For purposes hereof, the Agreed
Value of the Parent Stock shall be deemed to be the value that the Secured
Party is receiving on the foreclosure of the Parent Stock and Secured Party
shall not be entitled to foreclose on more Parent Stock than is necessary
to recover all of its damages resulting from the Resolved Event of Offset.
(b) Secured Party is hereby granted the right, at its option, after a
Continuing Event of Offset, to transfer at any time to itself or its
nominee the securities or other property hereby pledged, or any part
thereof, and to thereafter exercise all voting rights with respect to such
Parent Stock so transferred and to receive the proceeds, payments, monies,
income or benefits attributable or accruing thereto and to hold the same as
security for the obligations hereby secured, or at Secured Party's
election, to apply such amounts to the obligations, only if due, and in
such order as Secured Party may elect or Secured Party may, at its option,
without transferring such securities or property to its nominee, exercise
all voting rights with respect to the securities pledged hereunder and vote
all or any part of such securities at any regular or special meeting of
shareholders.
(c) Pledgor hereby agrees to cooperate fully with Secured Party in
order to permit Secured Party to sell, at foreclosure or other private
sale, Pledgor's interest in the Parent Stock pledged hereunder as provided
in this Pledge Agreement. Specifically, Pledgor agrees to deliver to
Secured Party the certificate or certificates representing the Parent Stock
if Pledgor has possession at that time, to fully comply with the securities
laws of the United States and of the State of Texas and to take such other
action as may be necessary to permit Secured Party to sell or otherwise
transfer the securities pledged hereunder in compliance with such laws.
5. Termination. This Pledge Agreement shall continue as security for the
payment or satisfaction of the obligations under the Purchase Agreement until
the earliest to occur of (i) termination of the Purchase Agreement, (ii)
termination of this Pledge Agreement by written notice
-3-
<PAGE>
of the Secured Party to the Pledgor, or (iii) three (3) years after the date of
this Pledge Agreement, provided that no Continuing Event of Offset exists. If
such a Continuing Event of Offset exists, the pledge shall continue only to the
extent of the amount of Parent Stock (based on the Agreed Value) equal to the
amount of Damages claimed in the Offset Claim or the amount of damages
reasonably expected to be caused by the Event of Offset, as applicable.
Notwithstanding anything to the contrary contained herein, (A) 1/3 of the shares
of Parent Stock then subject to this Pledge Agreement shall be released from
this Pledge Agreement and returned to the Pledgor, so long as there is not a
Continuing Event of Offset pending against Pledgor under the Purchase Agreement,
on the earlier to occur of (I) six (6) months after consummation of a public
offering of Parent Stock or (II) two (2) years after the effective date of this
Pledge Agreement and (B) 1/3 of the shares of Parent Stock then subject to this
Pledge Agreement shall be released from this Pledge Agreement and returned to
the Pledgor, so long as there is not a Continuing Event of Offset pending
against Pledgor under the Purchase Agreement two (2) years after the effective
date of this Pledge Agreement. If a Continuing Event of Offset is pending
against Pledgor under the Purchase Agreement, the action described in the
immediately preceding sentence shall be taken immediately at the time that such
Continuing Event of Offset is resolved, except that the computation of 1/3 of
the shares of Parent Stock then subject to the Pledge Agreement shall be made as
of the time of such resolution.
6. Release from Pledge. Upon the termination of this Pledge Agreement,
Secured Party shall immediately release its security interest in the Parent
Stock. In addition, Secured Party shall deliver the certificate or certificates
representing the Parent Stock to Pledgor if Secured Party has possession of such
certificates at that time. Upon such occurrence, the security interest of
Secured Party shall automatically terminate and Secured Party shall thereafter
have no interest whatsoever in the Parent Stock.
7. 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:
-4-
<PAGE>
If to Pledgor: Peter and Leslie Giammanco, Trustees
The Giammanco Family Trust
15250 Ventura Boulevard, Suite 410
Sherman Oaks, California 91403
Copy to: Timothy F. Sylvester
Riordan & McKinzie
300 S. Grand Ave. 29/th/ Floor
Los Angeles, California 90071
If to the
Secured Party: Litigation Resources of America-California, Inc.
650 First City Tower, 1001 Fannin
Houston, Texas 77002
Attn: President
Copy to: Boyer Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Attn: J. Randolph Ewing
8. Successors. This Pledge Agreement shall be binding upon, and inure to
the benefit of the parties hereto and their successors and assigns. Any
assignee whatsoever will be bound by the obligations of the assigning party
under this Pledge Agreement, and any assignment shall not diminish the liability
or obligation of the assignor under the terms of this Pledge Agreement unless
otherwise agreed.
9. Severability. In the event that any one or more of the provisions
herein, shall, for any reason, be held to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not
affect any other provision of this Pledge Agreement or any such other
instrument.
10. Paragraph Headings. The paragraph headings used herein are
descriptive only and shall have no legal force or effect whatsoever.
11. Gender. Whenever the context so requires, the masculine shall include
the feminine and neuter, and the singular shall include the plural and
conversely.
12. Survival of Warranties. All representations, warranties, and
agreements made by the parties in this Pledge Agreement or in any certificates
delivered pursuant hereto will survive the execution date hereof.
13. Applicable Law. This Pledge Agreement shall be construed and
interpreted in accordance with the laws of the United States of America and the
State of Texas, and is intended to be performed in accordance with and as
permitted by such laws.
-5-
<PAGE>
14. Definitions. All terms and definitions used herein shall have the
same meaning as in the Purchase Agreement unless otherwise indicated.
15. Drafting. The parties hereto acknowledge that each party was actively
involved in the negotiation and drafting of this Pledge Agreement and that no
law or rule of construction shall be raised or used in which the provisions of
this Pledge Agreement shall be construed in favor or against either party hereto
because one is deemed to be the author thereof.
16. Attorneys' Fees. If any litigation is instituted to enforce or
interpret the provisions of this Pledge 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.
17. Arbitration. The arbitration provisions contained in Section 9.15 of
the Purchase Agreement shall govern this Pledge Agreement.
18. Multiple Counterparts. This Pledge Agreement may be executed in
multiple counterparts each of which shall be deemed an original and all of which
shall constitute one instrument.
IN WITNESS WHEREOF, this Pledge Agreement has been executed effective as of
the date first above written.
PLEDGOR:
TRUST:
By:_________________________________________________________
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:_________________________________________________________
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
_______________________________________________________
Peter Giammanco, Individually
_______________________________________________________
Leslie Giammanco, Individually
SECURED PARTY:
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<PAGE>
LITIGATION RESOURCES OF AMERICA-CALIFORNIA, INC., a
California corporation
By:____________________________________________________
Name:__________________________________________________
Title:_________________________________________________
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<PAGE>
EXHIBIT 2.6
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
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<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>
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<PAGE>
EXHIBIT 2.7
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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<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 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.
-4-
<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 $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
-5-
<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, 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.
-6-
<PAGE>
"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.
-7-
<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.
"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]
-8-
<PAGE>
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.
-9-
<PAGE>
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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<PAGE>
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.
-11-
<PAGE>
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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<PAGE>
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
-13-
<PAGE>
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.
-14-
<PAGE>
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,
-15-
<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;
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<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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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.
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<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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<PAGE>
(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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<PAGE>
(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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<PAGE>
(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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<PAGE>
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 2.8
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
-3-
<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.
-4-
<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.
-5-
<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.
-7-
<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
----------
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.
-12-
<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
-13-
<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
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<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;
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<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
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<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
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<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
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<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");
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<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 2.9
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.
-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 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
-3-
<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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"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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"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.
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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, 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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(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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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
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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
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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
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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 2.10
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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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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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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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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THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED, NOR THE SECURITIES LAWS OF ANY STATE. THIS NOTE MAY NOT BE
SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED AT ANY TIME, EXCEPT UPON
(1) SUCH REGISTRATION, OR (2) DELIVERY TO THE ISSUER OF THIS NOTE 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 THIS NOTE 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.
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 EFFECTIVE AS OF AUGUST
29, 1997, BY THE MAKER HEREOF AND PAYEE NAMED HEREIN IN FAVOR OF TEXAS COMMERCE
BANK NATIONAL ASSOCIATION.
LITIGATION RESOURCES OF AMERICA-CALIFORNIA, INC.
D/B/A LEGAL ENTERPRISE, INC.
Subordinated Promissory Note
(Note 1)
$319,340.00 Houston, Texas August 29, 1997
Litigation Resources of America-California, Inc. d/b/a Legal Enterprise,
Inc., a California corporation (hereinafter called the "Company," which term
includes any directly or indirectly controlled subsidiaries or successor
entities), for value received, hereby promises to pay to Legal Enterprise, Inc.,
a California corporation (being hereinafter called the "Holder"), the principal
sum of THREE HUNDRED NINETEEN THOUSAND THREE HUNDRED FORTY AND NO/100 DOLLARS
($319,340.00) together with accrued interest on the amount of such principal
sum, payable in accordance with the terms set forth below.
THE OBLIGATIONS OF THE COMPANY CONTAINED IN THIS NOTE ARE SUBORDINATED TO
ALL SENIOR INDEBTEDNESS, AS HEREINAFTER DEFINED, NOW OWING OR HEREAFTER EXISTING
OR ARISING TO THE EXTENT SET FORTH IN THE SUBORDINATION AGREEMENT DESCRIBED
ABOVE.
<PAGE>
ARTICLE I
Definitions
For all purposes of this Note, except as otherwise expressly provided or
unless the context otherwise requires, (i) the terms defined in this Article
have the meanings assigned to them in this Article and include the plural as
well as the singular, (ii) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with 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, and (iii) the words "herein" and
"hereof" and other words of similar import refer to this Note as a whole and not
to any particular Article, Section or other subdivision.
1.1 "Board of Directors" means the board of directors of the Company as
elected from time to time or any duly authorized committee of that board.
1.2 "Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in Houston, Texas are
authorized or obligated by law or executive order to be closed.
1.3 "Change in Control" shall mean a change in control of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act"); provided that, without limitation, such a change in control
shall be deemed to have occurred if (W) any "person" (as such term is used in
Section 13(d) and 14(d) of the Exchange Act), other than the Parent or Holder,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
40% or more of the combined voting power of the Company's then outstanding
securities other than as a result of the sale by the Parent of securities in a
private transaction, and the Pecks Group of Investors no longer has the right to
elect a majority of the Board of Directors of the Parent, or (X) during any
period of two consecutive years during the term of this Note, individuals who at
the beginning of such period constitute the Board of Directors cease for any
reason to constitute at least a majority thereof, unless the election of each
director who was not a director at the beginning of such period is as a result
of the stockholder permitted to designate such director to fill a position
making a change in such designee or if additional directors are added to the
board as a result of an expansion of the board of directors for purposes of the
Company conducting a Public Offering or for any other business reason, or (Y)
the Parent consummates a Public Offering, or (Z) all or substantially all of the
assets of the Parent or the Company are sold.
1.4 "Default" means any event which is, or after notice or passage of
time would be, an Event of Default.
1.5 "Event of Default" has the meaning specified in Section 3.1.
1.6 "GAAP" means 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.
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1.7 "Indebtedness" of any Person means all indebtedness of such Person,
whether outstanding on the date of this Note or hereafter created, incurred,
assumed or guaranteed, (i) for the principal of, premium on and interest on all
debts of the Person whether outstanding on the date of this Note or thereafter
created for money borrowed by such Person (including capitalized lease
obligations), money borrowed by others (including capitalized lease obligations)
and guaranteed, directly or indirectly, by such Person, or purchase money
indebtedness, or indebtedness secured by property ("Purchase Money
Indebtedness") at the time of the acquisition of such property by such Person,
for the payment of which the Person is directly or contingently liable, (ii) for
all accrued obligations of the Person in respect of any contract, agreement or
instrument imposing an obligation upon the Person to pay over funds, (iii) for
all trade debt of the Person, and (iv) for all deferrals, renewals, extensions
and refundings of, and amendments, modifications and supplements to, any of the
indebtedness referred to in (i), (ii) or (iii) above.
1.8 "Lien" means any mortgage, deed of trust, lien, security interest,
pledge, claim, charge, liability, obligation or other encumbrance.
1.9 "Maturity Date", when used with respect to this Note means August 31,
2005 (or such other date upon which this Note becomes due and payable).
1.10 "Maximum Nonusurious Rate" means the indicated rate ceiling from time
to time in effect as defined by Article 5069-1.04, Vernon's Annotated Civil
Statutes, as amended.
1.11 "Note" means this Subordinated Promissory Note.
1.12 "Other Subordinated Indebtedness" means any other Indebtedness now or
hereinafter due and owing by the Company or to any person who is the seller of a
court reporting and/or litigation service business and who finances all or part
of the purchase price thereof.
1.13 "Parent" means Litigation Resources of America, Inc., a Texas
corporation.
1.14 "Parent Stock" means shares of common stock, $.01 par value, of
Parent and any securities for which such stock may be exchanged or into which it
may be converted.
1.15 "Pecks Group of Investors" means those persons defined as
"Investors" who are parties to the Securities Purchase Agreement dated effective
January 17, 1997 among the Investors, the Parent and certain subsidiaries of the
Parent, and the permitted assigns of the Investors.
1.16 "Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
1.17 "Public Offering" means the sale by the Parent of securities for cash
in an underwritten public offering registered on the appropriate form with the
SEC.
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<PAGE>
1.18 "Purchase Agreement" means that certain Agreement of Purchase and
Sale of Assets dated as of August 29, 1997 executed by and among the Company,
Anthony Maddocks, individually, Alan Simon, individually, and the Holder.
1.19 "SEC" means the United States Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act of 1933 or
any successor act thereto.
1.20 "Senior Indebtedness" means any and all indebtedness, liabilities and
obligations of the Company to any Person including Other Subordinated
Indebtedness that is incurred by the Company or its affiliates in financing the
purchase by it or its affiliates of a court reporting and/or litigation service
business, whether direct or indirect, absolute or contingent, now owing or
hereafter existing or arising, or due or to become due, including without
limitation, future indebtedness (principal, interest, fees and expenses,
collection costs or otherwise) and future advances of funds, and all
modifications, renewals, extensions or rearrangements of any of the foregoing.
1.21 "Subordination Agreements" means those certain Subordination
Agreements executed as of even date herewith by and among the Company, the
Holder, and the holders of the Senior Indebtedness.
1.22 "Subsidiary" means a corporation or other entity in which more than
50% of the outstanding voting stock or equity interests is owned or controlled,
directly or indirectly, by the Company or any combination of the Company and one
or more other Subsidiaries. For the purposes of this definition, "voting stock"
means stock or other interests which ordinarily has voting power for the
election of directors, and equity interests means the right to receive the
profits of the entity, when disbursed, or the assets of the entity upon
liquidation or dissolution.
ARTICLE II
Payments
2.1 Interest. From the date of this Note through the Maturity Date,
interest shall accrue hereunder on the unpaid outstanding principal sum of this
Note at a rate of six and three-eighths percent (6.375%) per annum, calculated
on the basis of a 365-day year or 366-day year as the case may be.
2.2 Payment of Principal and Interest. Beginning September 15, 1997, the
Company shall make monthly payments of interest on the fifteenth day of each
month during the term of this Note (and if the fifteenth day is not a Business
Day, the first Business Day thereafter) with the entire principal amount of this
Note and accrued interest thereon being due and payable on August 31, 2005.
Prepayments of this Note are not permitted without the consent of the Holder in
Holder's sole discretion.
ARTICLE III
Remedies
3.1 Events of Default. An "Event of Default" occurs if:
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<PAGE>
3.1.1 the Company fails to make when due any payment of interest due
under this Note, and such default remains uncured for a period of 10 days after
notice from the Holder;
3.1.2 the Company fails to make when due the principal payment due
under this Note, and such default remains uncured for a period of 180 days after
notice from the Holder; or
3.1.3 the Company defaults in the performance of any other covenant
made by the Company in this Note, and such default remains uncured for a period
of 180 days after notice from the Holder.
3.2 Acceleration of Maturity. Regardless of the occurrence of an Event
of Default (and the expiration of any applicable cure or grace period), the
Holder shall have no right to accelerate the maturity of this Note other than as
set forth in this Section 3.2. Notwithstanding the provisions of the foregoing
sentence, this Note and all accrued interest shall at the option of the Holder
become immediately due and payable on the first Business Day following the date
on which Texas Commerce Bank National Association, or its successors or assigns,
accelerates the maturity of any Senior Indebtedness as the result of the
consummation of a transaction resulting in a Change in Control. The provisions
of this Section 3.2 shall govern notwithstanding any other agreement or document
of the Company or the Parent (with the exception of the Subordination
Agreements).
ARTICLE IV
Covenants
The Company covenants and agrees that, so long as this Note is outstanding:
4.1 Payment of Principal and Accrued Interest. The Company will duly and
punctually pay or cause to be paid the principal sum of this Note, together with
interest accrued thereon from the date hereof to the date of payment, in
accordance with the terms hereof, except to the extent of any limitations
contained in the Purchase Agreement or the Subordination Agreements.
ARTICLE V
Miscellaneous
5.1 No Collection Fees. If this Note is placed in the hands of an
attorney for collection, and if it is collected through any legal proceedings at
law or in equity or in bankruptcy, receivership or other court proceedings, the
Company will not pay any costs or expenses of collection including, but not
limited to, court costs and the reasonable attorney's fees of Holder.
5.2 Consent to Amendments. This Note 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, if and only if the Company shall obtain the prior written
consent to such amendment, action or omission to act from the Holder.
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<PAGE>
5.3 Benefits of Note. Nothing in this Note, express or implied, shall
give to any Person, other than the Company, Holder, and their successors any
benefit or any legal or equitable right, remedy or claim under or in respect of
this Note.
5.4 Successors and Assigns. All covenants and agreements in this Note
contained by or on behalf of the Company and the Holder shall bind and inure to
the benefit of the respective successors and assigns of the Company and the
Holder.
5.5 Restrictions on Transfer. This Note shall not be transferable or
assignable in any manner whatsoever; provided that this Note may, upon ten (10)
days prior written notice to Company, be assigned by Holder to either or both of
the individuals who were shareholders of Holder immediately prior to the Closing
Date.
5.6 Waiver; Remedies Exclusive. No failure to exercise and no delay on
the part of Holder in exercising any power or right in connection herewith shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such a right or power, preclude any other or further exercise thereof or the
exercise of any other right or power. No course of dealing between the Company
and Holder shall operate as a waiver of any right of Holder under this Note. No
modification or waiver of any provision of this Note or any other instrument
evidencing, securing, or guaranteeing this Note nor any consent to any departure
therefrom shall in any event be effective unless the same shall be in writing
and signed by the person against whom enforcement thereof is to be sought, and
then such waiver or consent shall be effective only in the specific instance and
for the purpose for which given. All rights and remedies of Holder existing
hereunder are exclusive and not cumulative of any rights or remedies otherwise
available thereto.
5.7 Notice; Address of Parties. Except as otherwise provided, all
communications to the Company or Holder provided for herein or with reference to
this Note shall be deemed to have been sufficiently given or served for all
purposes on the third business day after being sent as certified or registered
mail, postage and charges prepaid, or by telefax with confirmed receipt, to the
following addresses: if to the Company, 650 First City Tower, 1001 Fannin,
Houston, Texas 77002, Fax 713/653-7172 or at any other address designated by the
Company in writing to Holder; if to Holder, 4232-1 Las Virgenes Road, Calabasas,
California 91302, Fax: 818/878-9851 or at any other address designated by Holder
to the Company in writing.
5.8 Separability Clause. In case any provision in this Note shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions in such jurisdiction shall not in
any way be affected or impaired thereby; provided, however, such construction
does not destroy the essence of the bargain provided for hereunder.
5.9 Governing Law. This Note shall be construed and enforced in
accordance with and governed by the laws of the State of Texas.
5.10 Usury. It is the intention of the parties hereto to conform strictly
to the applicable laws of the State of Texas and the United States of America,
and judicial or administrative interpretations or determinations thereof
regarding the contracting for, charging and receiving of
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<PAGE>
interest for the use, forbearance, and detention of money (referred to as
"Applicable Law"). The Holder shall have no right to claim, to charge or to
receive any interest in excess of the maximum rate of interest, if any,
permitted to be charged on that portion of the amount representing principal
which is outstanding and unpaid from time to time by Applicable Law.
Determination of the rate of interest for the purpose of determining whether
this Note is usurious under Applicable Law shall be made by amortizing,
prorating, allocating and spreading in equal parts during the period of the
actual time of this Note, all interest or other sums deemed to be interest
(referred to in this Section as "Interest") at any time contracted for, charged
or received from the Company in connection with this Note. Any Interest
contracted for, charged or received in excess of the maximum rate allowed by
Applicable Law shall be deemed a result of a mathematical error and a mistake.
If this Note is paid in part prior to the end of the full stated term of this
Note and the Interest received for the actual period of existence of this Note
exceeds the maximum rate allowed by Applicable Law, Holder shall credit the
amount of the excess against any amount owing under this Note or, if this Note
has been paid in full, or in the event that it has been accelerated prior to
maturity, Holder shall refund to the Company the amount of such excess, and
shall not be subject to any of the penalties provided by Applicable Law for
contracting for, charging or receiving Interest in excess of the maximum rate
allowed by Applicable Law. Any such excess which is unpaid shall be canceled.
5.11 Arbitration. The arbitration provisions contained in Section 9.14 of
the Purchase Agreement shall govern this Note.
THIS NOTE, ANY AND ALL ADDITIONAL PROMISSORY NOTES, IF ANY, ISSUED BY THE
COMPANY TO HOLDER AND ALL DOCUMENTS AND INSTRUMENTS EXECUTED IN CONNECTION
HEREWITH OR THEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE COMPANY AND
HOLDER WITH RESPECT TO THE OBLIGATIONS OWED THEREBY TO HOLDER AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE COMPANY AND HOLDER. PAYMENT OF THIS NOTE IS SUBJECT TO
THE PURCHASE AGREEMENT AND THE SUBORDINATION AGREEMENTS.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed on the date first above written.
LITIGATION RESOURCES OF
AMERICA-CALIFORNIA, INC.,
A CALIFORNIA CORPORATION
By:_____________________________________________
Name:___________________________________________
Title:__________________________________________
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<PAGE>
NEITHER THIS NOTE NOR THE SHARES OF COMMON STOCK ISSUABLE HEREUNDER HAVE BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, NOR THE
SECURITIES LAWS OF ANY STATE. NEITHER THIS NOTE NOR SUCH SHARES MAY BE SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED AT ANY TIME, EXCEPT UPON (1) SUCH
REGISTRATION, OR (2) DELIVERY TO THE ISSUER OF THIS NOTE OR 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 THIS NOTE OR
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.
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 EFFECTIVE AS OF AUGUST
29, 1997, BY THE MAKER HEREOF AND PAYEE NAMED HEREIN IN FAVOR OF TEXAS COMMERCE
BANK NATIONAL ASSOCIATION.
LITIGATION RESOURCES OF AMERICA-CALIFORNIA, INC.
D/B/A LEGAL ENTERPRISE, INC.
Convertible Subordinated Promissory Note
(Note 2)
$821,160.00 Houston, Texas August 29, 1997
Litigation Resources of America-California, Inc. d/b/a Legal Enterprise,
Inc., a California corporation (hereinafter called the "Company," which term
includes any directly or indirectly controlled subsidiaries or successor
entities), for value received, hereby promises to pay to Legal Enterprise, Inc.,
a California corporation (being hereinafter called the "Holder"), the principal
sum of EIGHT HUNDRED TWENTY-ONE THOUSAND ONE HUNDRED SIXTY AND NO/100 DOLLARS
($821,160.00) together with accrued interest on the amount of such principal
sum, payable in accordance with the terms set forth below.
THE OBLIGATIONS OF THE COMPANY CONTAINED IN THIS NOTE ARE SUBORDINATED TO
ALL SENIOR INDEBTEDNESS, AS HEREINAFTER DEFINED, NOW OWING OR HEREAFTER EXISTING
OR ARISING TO THE EXTENT SET FORTH IN THE SUBORDINATION AGREEMENT DESCRIBED
ABOVE.
ARTICLE I
Definitions
For all purposes of this Note, except as otherwise expressly provided or
unless the context otherwise requires, (i) the terms defined in this Article
have the meanings assigned to them in this Article and include the plural as
well as the singular, (ii) all accounting terms not otherwise defined
<PAGE>
herein have the meanings assigned to them in accordance with 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, and (iii) the words "herein" and
"hereof" and other words of similar import refer to this Note as a whole and not
to any particular Article, Section or other subdivision.
1.1 "Board of Directors" means the board of directors of the Company as
elected from time to time or any duly authorized committee of that board.
1.2 "Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in Houston, Texas are
authorized or obligated by law or executive order to be closed.
1.3 "Change in Control" shall mean a change in control of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act"); provided that, without limitation, such a change in control
shall be deemed to have occurred if (W) any "person" (as such term is used in
Section 13(d) and 14(d) of the Exchange Act), other than the Parent or Holder,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
40% or more of the combined voting power of the Company's then outstanding
securities other than as a result of the sale by the Parent of securities in a
private transaction, and the Pecks Group of Investors no longer has the right to
elect a majority of the Board of Directors of the Parent, or (X) during any
period of two consecutive years during the term of this Note, individuals who at
the beginning of such period constitute the Board of Directors cease for any
reason to constitute at least a majority thereof, unless the election of each
director who was not a director at the beginning of such period is as a result
of the stockholder permitted to designate such director to fill a position
making a change in such designee or if additional directors are added to the
board as a result of an expansion of the board of directors for purposes of the
Company conducting a Public Offering or for any other business reason, or (Y)
the Parent consummates a Public Offering, or (Z) all or substantially all of the
assets of the Parent or the Company are sold.
1.4 "Default" means any event which is, or after notice or passage of
time would be, an Event of Default.
1.5 "Event of Default" has the meaning specified in Section 3.1.
1.6 "GAAP" means 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.
1.7 "Indebtedness" of any Person means all indebtedness of such Person,
whether outstanding on the date of this Note or hereafter created, incurred,
assumed or guaranteed, (i) for the principal of, premium on and interest on all
debts of the Person whether outstanding on the date of this Note or thereafter
created for money borrowed by such Person (including capitalized lease
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obligations), money borrowed by others (including capitalized lease obligations)
and guaranteed, directly or indirectly, by such Person, or purchase money
indebtedness, or indebtedness secured by property ("Purchase Money
Indebtedness") at the time of the acquisition of such property by such Person,
for the payment of which the Person is directly or contingently liable, (ii) for
all accrued obligations of the Person in respect of any contract, agreement or
instrument imposing an obligation upon the Person to pay over funds, (iii) for
all trade debt of the Person, and (iv) for all deferrals, renewals, extensions
and refundings of, and amendments, modifications and supplements to, any of the
indebtedness referred to in (i), (ii) or (iii) above.
1.8 "Lien" means any mortgage, deed of trust, lien, security interest,
pledge, claim, charge, liability, obligation or other encumbrance.
1.9 "Maturity Date", when used with respect to this Note means August 31,
2005 (or such other date upon which this Note becomes due and payable).
1.10 "Maximum Nonusurious Rate" means the indicated rate ceiling from time
to time in effect as defined by Article 5069-1.04, Vernon's Annotated Civil
Statutes, as amended.
1.11 "Note" means this Convertible Subordinated Promissory Note.
1.12 "Other Subordinated Indebtedness" means any other Indebtedness now or
hereinafter due and owing by the Company or to any person who is the seller of a
court reporting and/or litigation service business and who finances all or part
of the purchase price thereof.
1.13 "Parent" means Litigation Resources of America, Inc., a Texas
corporation.
1.14 "Parent Stock" means shares of common stock, $.01 par value, of
Parent and any securities for which such stock may be exchanged or into which it
may be converted.
1.15 "Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
1.16 "Pecks Group of Investors" means those persons defined as
"Investors" who are parties to the Securities Purchase Agreement dated effective
January 17, 1997 among the Investors, the Parent and certain subsidiaries of the
Parent, and the permitted assigns of the Investors.
1.17 "Public Offering" means the sale by the Parent of securities for cash
in an underwritten public offering registered on the appropriate form with the
SEC.
1.18 "Purchase Agreement" means that certain Agreement of Purchase and
Sale of Assets dated as of August 29, 1997 executed by and among the Company,
Anthony Maddocks, individually, Alan Simon, individually, and the Holder.
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1.19 "SEC" means the United States Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act of 1933 or
any successor act thereto.
1.20 "Senior Indebtedness" means any and all indebtedness, liabilities and
obligations of the Company to any Person including Other Subordinated
Indebtedness that is incurred by the Company or its affiliates in financing the
purchase by it or its affiliates of a court reporting and/or litigation service
business, whether direct or indirect, absolute or contingent, now owing or
hereafter existing or arising, or due or to become due, including without
limitation, future indebtedness (principal, interest, fees and expenses,
collection costs or otherwise) and future advances of funds, and all
modifications, renewals, extensions or rearrangements of any of the foregoing.
1.21 "Subordination Agreements" means those certain Subordination
Agreements executed as of even date herewith by and among the Company, the
Holder, and the holders of the Senior Indebtedness.
1.22 "Subsidiary" means a corporation or other entity in which more than
50% of the outstanding voting stock or equity interests is owned or controlled,
directly or indirectly, by the Company or any combination of the Company and one
or more other Subsidiaries. For the purposes of this definition, "voting stock"
means stock or other interests which ordinarily has voting power for the
election of directors, and equity interests means the right to receive the
profits of the entity, when disbursed, or the assets of the entity upon
liquidation or dissolution.
ARTICLE II
Payments
2.1 Interest. From the date of this Note through the Maturity Date,
interest shall accrue hereunder on the unpaid outstanding principal sum of this
Note at a rate of six and three-eighths percent (6.375%) per annum, calculated
on the basis of a 365-day year or 366-day year as the case may be.
2.2 Payment of Principal and Interest. Beginning September 15, 1997, the
Company shall make monthly payments of interest on the fifteenth day of each
month during the term of this Note (and if the fifteenth day is not a Business
Day, the first Business Day thereafter) with the entire principal amount of this
Note and accrued interest thereon being due and payable on August 31, 2005.
Prepayments of this Note are not permitted without the consent of the Holder in
Holder's sole discretion.
ARTICLE III
Remedies
3.1 Events of Default. An "Event of Default" occurs if:
3.1.1 the Company fails to make when due any payment of interest due
under this Note, and such default remains uncured for a period of 10 days after
notice from the Holder;
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3.1.2 the Company fails to make when due the principal payment due
under this Note, and such default remains uncured for a period of 180 days after
notice from the Holder; or
3.1.3 the Company defaults in the performance of any other covenant
made by the Company in this Note, and such default remains uncured for a period
of 180 days after notice from the Holder.
3.2 No Acceleration of Maturity. Regardless of the occurrence of an
Event of Default (and the expiration of any applicable cure or grace period),
the Holder shall have no right to accelerate the maturity of this Note.
ARTICLE IV
Covenants
The Company covenants and agrees that, so long as this Note is outstanding:
4.1 Payment of Principal and Accrued Interest. The Company will duly and
punctually pay or cause to be paid the principal sum of this Note, together with
interest accrued thereon from the date hereof to the date of payment, in
accordance with the terms hereof, except to the extent of any limitations
contained in the Purchase Agreement or the Subordination Agreements.
ARTICLE V
Conversion
5.1 Conversion Events. On the date of and simultaneously with the closing
(the "Event Date") of the first event which causes a Change in Control, all of
the outstanding principal amount of this Note shall be automatically converted
into shares of Parent Stock at a price equal to $8.50 per share ("Conversion
Price"), and otherwise on and subject to the terms and conditions set forth in
this Article V. The outstanding principal amount of this Note shall be deemed
converted into shares of Parent Stock on the Event Date but shall not be
complete until (i) the Company has given written notice to the Holder, which
notice shall be given at least twenty days prior to the Event Date, that the
outstanding principal amount of this Note has been converted, which notice shall
disclose the Conversion Price, the Event Date and the number of shares of Parent
Stock to be received by the Holder, (ii) the Holder has delivered written
instructions to the Company which states the denominations in which the Holder
wishes the certificate or certificates for Parent Stock to be issued, and (iii)
the Holder has surrendered this Note to the Company.
5.2 Accrued Interest; Fractional Shares; Conversion Date. In the event of
any conversion, the Company will, as soon as practicable after surrender of this
Note and compliance by the Holder with the other conditions herein contained,
cause to be issued and delivered to the surrendering Holder certificates for the
number of full shares of Parent Stock to which the Holder shall be entitled as
aforesaid, together with any unpaid interest on the principal amount converted
accrued through the Event Date. The Holder shall not be entitled to receive
fractional shares of Parent Stock upon conversion or script in lieu thereof, but
the number of shares of Parent Stock to be received by the Holder upon
conversion shall be rounded down to the next whole number and the
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Holder shall be entitled to payment for the fractional share in cash at the
Conversion Price. So that the persons entitled to receive the shares of Parent
Stock upon conversion of the principal amount hereof shall be treated for all
purposes as having been the record holder or holders of such shares of Parent
Stock at such time, conversion shall be deemed to have been made as of the close
of business on the Event Date.
5.3 No Shareholder Rights; Representations and Agreements Upon Issuance.
This Note shall not entitle the Holder to any voting rights or other rights as a
stockholder of the Parent, or to any other rights whatsoever except the rights
herein expressed and such as are set forth, and no dividends shall be payable or
accrue in respect of this Note or the interest represented hereby or the Parent
Stock purchasable hereunder until or unless, and except to the extent that, the
outstanding principal amount hereof shall be converted. No shares of Parent
Stock can or will be issued upon conversion until the Holder becomes a party to
a Shareholders' Agreement in the form required by the Parent and gives
appropriate investment representations concerning knowledge about the investment
and acknowledgments of any applicable restrictions on transferability.
ARTICLE VI
Miscellaneous
6.1 No Collection Fees. If this Note is placed in the hands of an
attorney for collection, and if it is collected through any legal proceedings at
law or in equity or in bankruptcy, receivership or other court proceedings, the
Company will not pay any costs or expenses of collection including, but not
limited to, court costs and the reasonable attorney's fees of Holder.
6.2 Consent to Amendments. This Note 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, if and only if the Company shall obtain the prior written
consent to such amendment, action or omission to act from the Holder.
6.3 Benefits of Note. Nothing in this Note, express or implied, shall
give to any Person, other than the Company, Holder, and their successors any
benefit or any legal or equitable right, remedy or claim under or in respect of
this Note.
6.4 Successors and Assigns. All covenants and agreements in this Note
contained by or on behalf of the Company and the Holder shall bind and inure to
the benefit of the respective successors and assigns of the Company and the
Holder.
6.5 Restrictions on Transfer. This Note shall not be transferable or
assignable in any manner whatsoever; provided that this Note may, upon ten (10)
days prior written notice to Company, be assigned by Holder to either of the
individuals who were shareholders of Holder immediately prior to the Closing
Date.
6.6 Waiver; Remedies Exclusive. No failure to exercise and no delay on
the part of Holder in exercising any power or right in connection herewith shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance
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of steps to enforce such a right or power, preclude any other or further
exercise thereof or the exercise of any other right or power. No course of
dealing between the Company and Holder shall operate as a waiver of any right of
Holder under this Note. No modification or waiver of any provision of this Note
or any other instrument evidencing, securing, or guaranteeing this Note nor any
consent to any departure therefrom shall in any event be effective unless the
same shall be in writing and signed by the person against whom enforcement
thereof is to be sought, and then such waiver or consent shall be effective only
in the specific instance and for the purpose for which given. All rights and
remedies of Holder existing hereunder are exclusive and not cumulative of any
rights or remedies otherwise available thereto.
6.7 Notice; Address of Parties. Except as otherwise provided, all
communications to the Company or Holder provided for herein or with reference to
this Note shall be deemed to have been sufficiently given or served for all
purposes on the third business day after being sent as certified or registered
mail, postage and charges prepaid, or by telefax with confirmed receipt, to the
following addresses: if to the Company, 650 First City Tower, 1001 Fannin,
Houston, Texas 77002, Fax 713/653-7172 or at any other address designated by the
Company in writing to Holder; if to Holder, 4232-1 Las Virgenes Road, Calabasas,
California 91302, Fax: 818/878-9851 or at any other address designated by Holder
to the Company in writing.
6.8 Separability Clause. In case any provision in this Note shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions in such jurisdiction shall not in
any way be affected or impaired thereby; provided, however, such construction
does not destroy the essence of the bargain provided for hereunder.
6.9 Governing Law. This Note shall be construed and enforced in
accordance with and governed by the laws of the State of Texas.
6.10 Usury. It is the intention of the parties hereto to conform strictly
to the applicable laws of the State of Texas and the United States of America,
and judicial or administrative interpretations or determinations thereof
regarding the contracting for, charging and receiving of interest for the use,
forbearance, and detention of money (referred to as "Applicable Law"). The
Holder shall have no right to claim, to charge or to receive any interest in
excess of the maximum rate of interest, if any, permitted to be charged on that
portion of the amount representing principal which is outstanding and unpaid
from time to time by Applicable Law. Determination of the rate of interest for
the purpose of determining whether this Note is usurious under Applicable Law
shall be made by amortizing, prorating, allocating and spreading in equal parts
during the period of the actual time of this Note, all interest or other sums
deemed to be interest (referred to in this Section as "Interest") at any time
contracted for, charged or received from the Company in connection with this
Note. Any Interest contracted for, charged or received in excess of the maximum
rate allowed by Applicable Law shall be deemed a result of a mathematical error
and a mistake. If this Note is paid in part prior to the end of the full stated
term of this Note and the Interest received for the actual period of existence
of this Note exceeds the maximum rate allowed by Applicable Law, Holder shall
credit the amount of the excess against any amount owing under this Note or, if
this Note has been paid in full, or in the event that it has been accelerated
prior to maturity, Holder shall refund to the Company the amount of such excess,
and shall not be subject to any of the penalties provided by
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<PAGE>
Applicable Law for contracting for, charging or receiving Interest in excess of
the maximum rate allowed by Applicable Law. Any such excess which is unpaid
shall be canceled.
6.11 Arbitration. The arbitration provisions contained in Section 9.14 of
the Purchase Agreement shall govern this Note.
6.12 Antidilution Protection. The Company shall, and shall induce Parent
to, grant to Holder any antidilution protection granted to any other holder of
shares of Parent Stock or of securities, options, warrants or other rights to
acquire, or any other securities convertible into, shares of Parent Stock,
except for antidilution protection previously granted or granted in the future
to institutional investors.
THIS NOTE, ANY AND ALL ADDITIONAL PROMISSORY NOTES, IF ANY, ISSUED BY THE
COMPANY TO HOLDER AND ALL DOCUMENTS AND INSTRUMENTS EXECUTED IN CONNECTION
HEREWITH OR THEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE COMPANY AND
HOLDER WITH RESPECT TO THE OBLIGATIONS OWED THEREBY TO HOLDER AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE COMPANY AND HOLDER. PAYMENT OF THIS NOTE IS SUBJECT TO
THE PURCHASE AGREEMENT AND THE SUBORDINATION AGREEMENTS.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed on the date first above written.
LITIGATION RESOURCES OF AMERICA-CALIFORNIA, INC., A
CALIFORNIA CORPORATION
By:___________________________________________
Name:_________________________________________
Title:________________________________________
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<PAGE>
The Parent has executed this Note solely to evidence its agreement to the
potential obligations of the Parent with respect to conversion of the Note into
Parent Common Stock, as set forth in Section 5 of this Agreement.
LITIGATION RESOURCES OF AMERICA, INC.,
A TEXAS CORPORATION
By:___________________________________________
Name:_________________________________________
Title:________________________________________
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BILL OF SALE,
ASSIGNMENT AND ASSUMPTION AGREEMENT
-----------------------------------
THIS BILL OF SALE, ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Bill of
Sale") is entered into effective as of August 29, 1997, among LEGAL ENTERPRISE,
INC., a California corporation (the "Seller"), and LITIGATION RESOURCES OF
AMERICA-CALIFORNIA, INC., a California corporation ("Purchaser"). Purchaser and
Seller may be hereinafter sometimes referred to collectively as the "Parties" or
individually as a "Party." All defined terms not otherwise defined herein shall
have the meanings ascribed to them in that certain Agreement of Purchase and
Sale of Assets of even date herewith (the "Purchase Agreement"), executed among
Seller, Purchaser, Tony L. Maddocks, an individual, Alan Simon, an individual,
and Litigation Resources of America, Inc., a Texas corporation.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Purchaser has agreed to purchase from Seller, and Seller has
agreed to grant, bargain, sell, convey, transfer, assign and deliver to
Purchaser, the Assets; and
WHEREAS, as partial consideration for the sale and assignment of the
Assets, Purchaser has agreed to assume the Assumed Liabilities, on and subject
to the terms and conditions set forth in the Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, including the delivery to Seller of the Initial Purchase
Price, and the covenants of Seller set forth in the Purchase Agreement with
respect to the Secondary Purchase Price the receipt and sufficiency of which are
hereby acknowledged, Purchaser and Seller hereby agree as follows:
1. SALE AND ASSIGNMENT. Seller has granted, bargained, sold, conveyed,
transferred, assigned and delivered, and by these presents does grant, bargain,
sell, convey, transfer, assign and deliver unto Purchaser, its successors and
assigns, the Assets, other than the Excluded Assets, on the terms and conditions
set forth in the Purchase Agreement. Seller warrants that Seller is the lawful
owner in every respect of all of the Assets and that the Assets are free and
clear of any and all liens, security agreements, encumbrances, claims, demands,
and charges of every kind and character whatsoever other than as previously
disclosed in writing to Purchaser. Seller hereby binds Seller and Seller's
successors and assigns to warrant and defend the title to all of the Assets unto
Purchaser and Purchaser's successors and assigns forever against every person
whomsoever lawfully claiming or to claim the Assets or any part thereof.
Purchaser hereby accepts the conveyance, transfer, assignment and delivery of
the Assets. The representations and warranties of Seller set forth in the
Purchase Agreement are hereby incorporated herein by reference.
2. ASSUMPTION. Subject to the exceptions and exclusions of Section 2.6
of the Purchase Agreement, and otherwise on and subject to the terms and
conditions of the Purchase Agreement, Purchaser hereby assumes and agrees to pay
and perform the Assumed Liabilities.
<PAGE>
3. FURTHER ACTIONS. Seller hereby consents and agrees to any lawful
action taken by Purchaser in connection with the enforcement of, or the legal
protection of, the Assets, and confers upon Purchaser full right of substitution
in any and all such actions. Seller further covenants and agrees to execute
such further documents and take such additional actions as may reasonably be
requested by Purchaser to vest in Purchaser title to any and all of the Assets
and otherwise to effectuate the intent of this Bill of Sale. 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 Bill of Sale
and the transactions contemplated hereby.
4. GOVERNING LAW. This Bill of Sale shall be construed and enforced in
accordance with and governed by the laws of the State of Texas, without regard
to conflicts of law principles, and the laws of the United States applicable in
Texas.
5. ARBITRATION. If a dispute arises out of or relates to this Bill of
Sale, 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 5. Failing an adequate
resolution by mediation, any controversy or claim arising out of or relating to
this Bill of Sale or the transactions contemplated hereby, including any
controversy or claim arising out of or relating to the Parties' decision to
enter into this Bill of Sale, 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 5, 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
of the Purchase Agreement. 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.
6. MODIFICATION OF AGREEMENT. This Bill of Sale may be amended or
modified only by written instrument signed by all of the Parties.
7. ENTIRE AGREEMENT; BINDING EFFECT. This Bill of Sale, the Purchase
Agreement and the documents, instruments and agreements executed in connection
herewith and
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therewith, set forth the entire agreement and understanding between the Parties
with respect to the subject matter hereof and thereof. This Bill of Sale shall
be binding upon and shall inure to the benefit of the Parties and their
respective successors and assigns.
8. COUNTERPARTS. This Bill of Sale 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 EFFECTIVE as of the date first written above.
PURCHASER:
LITIGATION RESOURCES OF AMERICA-
CALIFORNIA, INC., a California corporation
By:____________________________________________________
Richard O. Looney,
Chairman and Chief Executive Officer
SELLER:
LEGAL ENTERPRISE, INC., a California corporation
By:__________________________________________
Name: _______________________________________
Title: ________________________________________
3
<PAGE>
CONTINGENT STOCK PLEDGE AGREEMENT
THIS CONTINGENT STOCK PLEDGE AGREEMENT (this "Pledge Agreement") is
made effective as of August 29, 1997, by LEGAL ENTERPRISE, INC., a California
corporation ("Pledgor") and LITIGATION RESOURCES OF AMERICA--CALIFORNIA, INC., a
California corporation ("Secured Party").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Pledgor, Secured Party and certain other parties have entered into
an Agreement of Purchase and Sale of Assets of even date herewith (the "Purchase
Agreement"), pursuant to which Pledgor has sold to Secured Party substantially
all of the assets of Pledgor (the "Business"); and
WHEREAS, Pledgor has certain obligations under the Purchase Agreement,
including, but not limited to, the obligation of Pledgor to indemnify Secured
Party for any breaches of representations and warranties of Pledgor contained in
the Purchase Agreement; and
WHEREAS, pursuant to the terms of the Purchase Agreement and Note 2 (as
defined in the Purchase Agreement) and as consideration for the purchase of the
Business, the Pledgor has the right to convert at a certain time sums due under
Note 2 into shares of the common stock, $.01 par value (the "Parent Stock"), of
Parent (as defined in the Purchase Agreement), on the terms and conditions
contained in Note 2; and
WHEREAS, pursuant to the terms of the Purchase Agreement, the Pledgor may
be issued additional shares of Parent Stock and additional notes convertible
into shares of Parent Stock subsequent to the Closing (as defined in the
Purchase Agreement); and
WHEREAS, the terms of the Purchase Agreement provide for the Pledgor to
pledge all shares of Parent Stock owned by Pledgor, whenever acquired
(hereinafter referred to as "Stock"), to the Secured Party to partially secure
the obligations of Pledgor under the Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, the parties agree as follows (all capitalized terms used
herein and not otherwise defined shall have the meanings set forth in the
Purchase Agreement):
1. Pledge of Stock. Pledgor hereby pledges and grants to Secured Party a
security interest in the Stock, which shall attach immediately upon each
issuance of Stock to all shares of Stock issued to Pledgor in accordance with
the purchase of the Business or under the terms of the Notes (as defined in the
Purchase Agreement). Immediately upon receipt of any shares of Stock, Pledgor
shall be required to deliver to Secured Party the certificate or certificates
representing the Stock in order that Secured Party might perfect its security
interest therein. The Pledgor and the Secured Party hereby acknowledge and
agree that the value of the Stock shall be deemed to be $8.50
<PAGE>
per share of Stock; provided, however, that if the Parent has successfully
consummated a public offering of its shares of Stock, then it shall mean the
average public trading price of each share of Stock over the five (5) most
recent business days falling prior to the date of delivery by the Secured Party
to the Pledgor of the notice of an event requiring an Offset, as such term is
defined in the Purchase Agreement (the "Agreed Value"). Pledgor shall possess
all voting rights pertaining to the Stock, so long as an Event of Offset, as
hereinafter defined, has not occurred, or if an Event of Offset has allegedly
occurred but is being disputed by the parties hereto prior to submission to
arbitration in accordance with Section 9.14 of the Purchase Agreement, and
Secured Party shall have no voting rights that may be presently or hereafter
attributable to the Stock. In addition, so long as an Event of Offset has not
occurred, or if an Event of Offset has allegedly occurred but is being disputed
by the parties hereto prior to submission to arbitration in accordance with
Section 9.14 of the Purchase Agreement, then Pledgor shall have the right to
receive all dividends, if any, on the Stock, and Pledgor shall be entitled to
receive all proceeds upon liquidation of the Stock, if any, as well as all other
rights with respect to the Stock except for the right to transfer title thereto.
Notwithstanding the foregoing, if an Event of Offset has occurred and (i) has
been resolved, either by failure to timely dispute it as required by Section
9.14 of the Purchase Agreement, by agreement or by arbitration decided in favor
of Secured Party (a "Resolved Event of Offset") or (ii) has been submitted to
arbitration in accordance with Section 9.14 of the Purchase Agreement which
arbitration is still pending or in process (a "Continuing Event of Offset"),
then Secured Party shall have the right to designate a representative or trustee
to vote those shares of Stock covered by or subject to the Resolved Event of
Offset or Continuing Event of Offset (the "Offset Shares"), to receive all
dividends and liquidation proceeds with respect to the Offset Shares, and to
receive all other rights with respect to the Offset Shares.
2. Representations and Warranties. Pledgor hereby represents, warrants
and covenants to and with Secured Party that:
(a) Pledgor will not, without the written consent of Secured Party,
sell, contract to sell, encumber, or dispose of the Stock or any interest
therein until this Pledge Agreement and all obligations under the Purchase
Agreement have been fully satisfied.
(b) No consent of any party is necessary for Pledgor to perform its
obligations hereunder, or if any such consent is required, such consent has
been received prior to the execution of this Pledge Agreement.
3. Event of Offset. Each delivery by Secured Party to the Pledgor of a
notice of a claim of Offset shall constitute an Event of Offset ("Event of
Offset") under this Pledge Agreement.
4. Remedies.
(a) Upon the occurrence of a Resolved Event of Offset, Secured Party
may, at its option, exercise with reference to the Stock any and all of the
rights and remedies of a secured party under the Uniform Commercial Code as
adopted in the State of Texas and as
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<PAGE>
otherwise granted therein or under any other applicable law or under any
other agreement executed by Pledgor, including, without limitation, the
right and power to sell, at public or private sale(s), or otherwise dispose
of or keep the Stock and any part or parts thereof, or interest or
interests therein owned by Pledgor, in any manner authorized or permitted
under this Pledge Agreement or under the Uniform Commercial Code, and to
apply the proceeds thereof toward payment of any costs and expenses and
attorneys' fees and legal expenses thereby incurred by Secured Party, and
toward payment of the obligations under the Purchase Agreement in such
order or manner as Secured Party may elect. Notwithstanding anything to the
contrary contained herein, the Secured Party shall only foreclose on that
portion of the Stock that is reasonably necessary in the reasonable good
faith judgment of the Secured Party in order to satisfy the amount of the
claim constituting the Resolved Event of Offset. For purposes hereof, the
Agreed Value of the Stock shall be deemed to be the value that the Secured
Party is receiving on the foreclosure of the Stock and Secured Party shall
not be entitled to foreclose on more Stock than is necessary to recover all
of its damages resulting from the Resolved Event of Offset.
(b) Secured Party is hereby granted the right, at its option, after a
Continuing Event of Offset, to transfer at any time to itself or its
nominee the securities or other property hereby pledged, or any part
thereof, and to thereafter exercise all voting rights with respect to such
Stock so transferred and to receive the proceeds, payments, monies, income
or benefits attributable or accruing thereto and to hold the same as
security for the obligations hereby secured, or at Secured Party's
election, to apply such amounts to the obligations, only if due, and in
such order as Secured Party may elect or Secured Party may, at its option,
without transferring such securities or property to its nominee, exercise
all voting rights with respect to the securities pledged hereunder and vote
all or any part of such securities at any regular or special meeting of
shareholders.
(c) Pledgor hereby agrees to cooperate fully with Secured Party in
order to permit Secured Party to sell, at foreclosure or other private
sale, Pledgor's interest in the Stock pledged hereunder as provided in this
Pledge Agreement. Specifically, Pledgor agrees to deliver to Secured Party
the certificate or certificates representing the Stock if Pledgor has
possession at that time, to fully comply with the securities laws of the
United States and of the State of Texas and to take such other action as
may be necessary to permit Secured Party to sell or otherwise transfer the
securities pledged hereunder in compliance with such laws.
5. Termination. This Pledge Agreement shall continue as security for the
payment or satisfaction of the obligations under the Purchase Agreement until
the earliest to occur of (i) termination of the Purchase Agreement, (ii)
termination of this Pledge Agreement by written notice of the Secured Party to
the Pledgor, or (iii) three (3) years after the date of this Pledge Agreement ,
provided that no Continuing Event of Offset exists. If such a Continuing Event
of Offset exists, the pledge shall continue only to the extent of the amount of
Stock (based on the Agreed Value) equal to the amount of Damages claimed in the
Offset or the amount of damages reasonably expected to be caused by the Event of
Offset, as applicable. Notwithstanding anything to the
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contrary contained herein, so long as there is not a Continuing Event of Offset
pending against Pledgor under the Purchase Agreement, (A) 40% of the shares of
Stock then subject to this Pledge Agreement shall be released from this Pledge
Agreement and returned to the Pledgor on the date of consummation of the initial
public offering of Stock by the Parent (the "IPO"), (B) 20% of the shares of
Stock then subject to this Pledge Agreement shall be released from this Pledge
Agreement and returned to the Pledgor on the date which is six months following
the date of consummation of the IPO, (C) 20% of the shares of Stock then subject
to this Pledge Agreement shall be released from this Pledge Agreement and
returned to the Pledgor two (2) years after the effective date of this Pledge
Agreement and (D) the remaining shares of Stock then subject to this Pledge
Agreement shall be released from this Pledge Agreement and returned to the
Pledgor three (3) years after the effective date of this Pledge Agreement. If a
Continuing Event of Offset is pending against Pledgor under the Purchase
Agreement, the action described in the immediately preceding sentence shall be
taken immediately at the time that such Continuing Event of Offset is resolved,
except that the computation of the number of shares of Stock then subject to the
Pledge Agreement shall be made as of the time of such resolution.
6. Release from Pledge. Upon the termination of this Pledge Agreement,
Secured Party shall immediately release its security interest in the Stock. In
addition, Secured Party shall deliver the certificate or certificates
representing the Stock to Pledgor if Secured Party has possession of such
certificates at that time. Upon such occurrence, the security interest of
Secured Party shall automatically terminate and Secured Party shall thereafter
have no interest whatsoever in the Stock.
7. 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 or by confirmed telefax:
If to Pledgor: T & A, Inc.
f/k/a Legal Enterprise, Inc.
Attn: 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. 29/th/ Floor
Los Angeles, California 90071
Phone: 213/229-8421
Fax: 213/229-8550
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If to the
Secured Party: Litigation Resources of America-California, Inc.
650 First City Tower, 1001 Fannin
Houston, Texas 77002
Attn: President
Phone: 713/653-7100
Fax: 713/653-7172
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
8. Successors. This Pledge Agreement shall be binding upon, and inure to
the benefit of the parties hereto and their successors and assigns. Any
assignee whatsoever will be bound by the obligations of the assigning party
under this Pledge Agreement, and any assignment shall not diminish the liability
or obligation of the assignor under the terms of this Pledge Agreement unless
otherwise agreed.
9. Severability. In the event that any one or more of the provisions
contained in this Pledge Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not
affect any other provision of this Pledge Agreement or any such other
instrument.
10. Paragraph Headings. The paragraph headings used herein are
descriptive only and shall have no legal force or effect whatsoever.
11. Gender. Whenever the context so requires, the masculine shall include
the feminine and neuter, and the singular shall include the plural and
conversely.
12. Survival of Warranties. All representations, warranties, and
agreements made by the parties in this Pledge Agreement or in any certificates
delivered pursuant hereto will survive the execution date hereof.
13. Applicable Law. This Pledge Agreement shall be construed and
interpreted in accordance with the laws of the United States of America and the
State of Texas, and is intended to be performed in accordance with and as
permitted by such laws.
14. Definitions. All terms and definitions used herein shall have the
same meaning as in the Purchase Agreement unless otherwise indicated.
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15. Drafting. The parties hereto acknowledge that each party was actively
involved in the negotiation and drafting of this Pledge Agreement and that no
law or rule of construction shall be raised or used in which the provisions of
this Pledge Agreement shall be construed in favor or against either party hereto
because one is deemed to be the author thereof.
16. Attorneys' Fees. If any litigation is instituted to enforce or
interpret the provisions of this Pledge 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.
17. Arbitration. The arbitration provisions contained in Section 9.14 of
the Purchase Agreement shall govern this Pledge Agreement.
18. Multiple Counterparts. This Pledge Agreement may be executed in
multiple counterparts each of which shall be deemed an original and all of which
shall constitute one instrument.
IN WITNESS WHEREOF, this Pledge Agreement has been executed effective as of
the date first above written.
PLEDGOR:
--------
LEGAL ENTERPRISE, INC., A CALIFORNIA CORPORATION
By: __________________________________________
TONY L. MADDOCKS, PRESIDENT
SECURED PARTY:
--------------
LITIGATION RESOURCES OF AMERICA --
CALIFORNIA, INC., A CALIFORNIA CORPORATION
By:________________________________________________
Name:______________________________________________
Title:_____________________________________________
-6-
<PAGE>
EXHIBIT 2.11
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.
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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.
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<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.
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<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).
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<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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<PAGE>
(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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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
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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
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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
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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.
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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
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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.
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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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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or inaccuracy could reasonably be expected to result in Damages to the other
Party of in excess of $40,000.
ARTICLE XI
MISCELLANEOUS
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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
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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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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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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
Page 34 of 36
<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>
NEITHER THIS NOTE NOR THE SHARES OF COMMON STOCK ISSUABLE HEREUNDER HAVE BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), NOR THE SECURITIES LAWS OF ANY STATE. NEITHER THIS NOTE NOR
SUCH SHARES MAY BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED AT ANY
TIME, EXCEPT UPON (1) SUCH REGISTRATION, OR (2) DELIVERY TO THE ISSUER OF THIS
NOTE OR 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 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 SECURITIES ACT, OR OTHER APPLICABLE SECURITIES LAWS OF ANY
STATE, OR ANY RULES OR REGULATIONS PROMULGATED THEREUNDER.
THE INDEBTEDNESS EVIDENCED BY THIS INSTRUMENT IS SUBORDINATED TO (1) THE SENIOR
DEBT, AS DEFINED IN, PURSUANT TO, AND TO THE EXTENT PROVIDED IN, THE
SUBORDINATION AGREEMENT EFFECTIVE AS OF THE DATE HEREOF BY THE MAKER HEREOF AND
PAYEE NAMED HEREIN IN FAVOR OF TEXAS COMMERCE BANK NATIONAL ASSOCIATION, AND (2)
THE SENIOR SUBORDINATED DEBT, AS DEFINED IN, PURSUANT TO, AND TO THE EXTENT
PROVIDED IN, THE SUBORDINATION AGREEMENT EFFECTIVE AS OF THE DATE HEREOF BY THE
MAKER HEREOF AND PAYEE NAMED HEREIN IN FAVOR OF THE DELAWARE STATE EMPLOYEES'
RETIREMENT FUND, DECLARATION OF TRUST FOR DEFINED BENEFIT PLAN OF ICI AMERICAN
HOLDINGS, INC., AND DECLARATION OF TRUST FOR DEFINED BENEFIT PLAN OF ZENECA
HOLDINGS, INC.
LITIGATION RESOURCES OF AMERICA-NORTHEAST, INC.
Convertible Subordinated Promissory Note
$560,000 Houston, Texas September __, 1997
Litigation Resources of America-Northeast, Inc., a New York corporation
(hereinafter called the "Company," which term includes any directly or
indirectly controlled subsidiaries or successor entities), for value received,
hereby promises to pay to Amicus Legal Support Services, Inc., a New York
corporation (the "Holder"), or permitted assigns, the principal sum of FIVE
HUNDRED AND SIXTY THOUSAND AND NO/100 DOLLARS ($560,000) together with accrued
interest on the amount of such principal sum, payable in accordance with the
terms set forth below.
<PAGE>
THE OBLIGATIONS OF THE COMPANY CONTAINED IN THIS NOTE ARE SUBORDINATED TO
ALL SENIOR INDEBTEDNESS, AS HEREINAFTER DEFINED, NOW OWING OR HEREAFTER EXISTING
OR ARISING, AND SHALL BE ON AN EQUIVALENT BASIS WITH OTHER SUBORDINATED
INDEBTEDNESS, AS HEREINAFTER DEFINED.
ARTICLE I
Definitions
For all purposes of this Note, except as otherwise expressly provided or
unless the context otherwise requires, (i) the terms defined in this Article
have the meanings assigned to them in this Article and include the plural as
well as the singular, (ii) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with 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, and (iii) the words "herein" and
"hereof" and other words of similar import refer to this Note as a whole and not
to any particular Article, Section or other subdivision hereof.
1.1 "Amicus Cash Flow" means $437,000.
1.2 "Amicus Division" means the separate operating division of the Company
which hereafter operates the business conducted using the assets purchased on
the original issue date of this Note under the Purchase Agreement.
1.3 "Annual Cash Flow" means the Company's net income from operations of
the Amicus Division before interest, taxes, debt service, depreciation and
amortization ("Net Income"), calculated quarterly on a trailing twelve-month
basis. For the first three quarterly computations during the term of this Note,
Annual Cash Flow shall be computed as follows: (a) For the first quarterly
computation following the date of this Note, Net Income for the first calendar
quarter following the date of this Note (the "First Calendar Quarter") shall be
multiplied by four (4); (b) for the second quarterly computation following the
date of this Note, Net Income for the second calendar quarter following the date
of this Note shall be added to Net Income for the First Calendar Quarter and
the sum (the "Second Quarter Sum") shall be multiplied by two (2); (c) for the
third quarterly computation following the date of this Note, Net Income for the
third calendar quarter following the date of this Note shall be added to the
Second Quarter Sum (set forth in subdivision "b" hereof), and the total shall be
divided by .75. If Net Income for a full calendar quarter is not available for
purposes of this calculation, Net Income for the partial quarter shall be
divided by the number of days in the partial quarter and the result shall be
multiplied by 90 to create a full calendar quarter.
1.4 "Board of Directors" means the board of directors of the Company as
elected from time to time or any duly authorized committee of that board.
PAGE 2 OF 11
<PAGE>
1.5 "Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in Houston, Texas are
authorized or obligated by law or executive order to be closed.
1.6 "Default" means any event which is, or after notice or passage of
time would be, an Event of Default.
1.7 "Event of Default" has the meaning specified in Section 3.1.
1.8 "GAAP" means 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.
1.9 "Indebtedness" of any Person means all indebtedness of such Person,
whether outstanding on the date of this Note or hereafter created, incurred,
assumed or guaranteed, (i) for the principal of, premium on and interest on all
debts of the Person whether outstanding on the date of this Note or thereafter
created for money borrowed by such Person (including capitalized lease
obligations), money borrowed by others (including capitalized lease obligations)
and guaranteed, directly or indirectly, by such Person, or purchase money
indebtedness, or indebtedness secured by property ("Purchase Money
Indebtedness") at the time of the acquisition of such property by such Person,
for the payment of which the Person is directly or contingently liable, (ii) for
all accrued obligations of the Person in respect of any contract, agreement or
instrument imposing an obligation upon the Person to pay over funds, (iii) for
all trade debt of the Person, and (iv) for all deferrals, renewals, extensions
and refundings of, and amendments, modifications and supplements to, any of the
indebtedness referred to in (i), (ii) or (iii) above.
1.10 "Lien" means any mortgage, deed of trust, lien, security interest,
pledge, claim, charge, liability, obligation or other encumbrance.
1.11 "Maturity Date", when used with respect to this Note means September
5, 2002 (or such other date upon which this Note becomes due and payable).
1.12 "Maximum Nonusurious Rate" means the indicated rate ceiling from time
to time in effect as defined by Article 5069-1.04, Vernon's Annotated Civil
Statutes, as amended.
1.13 "Note" means this Convertible Subordinated Promissory Note.
1.14 "Other Subordinated Indebtedness" means any other Indebtedness now or
hereinafter due and owing by the Company or to any person who is the seller of a
court reporting, litigation service, document reproduction and/or attorney job
placement on a permanent or temporary basis business and who finances all or
part of the purchase price thereof.
PAGE 3 OF 11
<PAGE>
1.15 "Parent" means Litigation Resources of America, Inc., a Texas
corporation.
1.16 "Parent Stock" means shares of common stock, $.01 par value, of
Parent and any securities for which such stock may be exchanged or into which it
may be converted.
1.17 "Pecks Group of Investors" means those persons defined as "Investors"
who are parties to the Securities Purchase Agreement dated effective January
17, 1997 among the Investors, the Parent and certain subsidiaries of the Parent,
and the permitted assigns of the Investors.
1.18 "Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
1.19 "Public Offering" means the closing of the sale by the Parent of
securities for cash in an underwritten public offering registered on the
appropriate form with the SEC.
1.20 "Purchase Agreement" means that certain Agreement of Purchase and
Sale of Assets dated as of September__, 1997 executed by and among the Company,
the Parent, the Holder and all of the stockholders of the Holder.
1.21 "SEC" means the United States Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act of 1933 or
any successor act thereto.
1.22 Senior Indebtedness" means any and all indebtedness, liabilities and
obligations of the Company to any Person including Other Subordinated
Indebtedness that is incurred by the Company or its affiliates in financing the
purchase by it or its affiliates of a court reporting, litigation support
service, document reproduction and/or attorney job placement on a permanent or
temporary basis business, whether direct or indirect, absolute or contingent,
now owing or hereafter existing or arising, or due or to become due, including
without limitation, future indebtedness (principal, interest, fees and expenses,
collection costs or otherwise) and future advances of funds, and all
modifications, renewals, extensions or rearrangements of any of the foregoing.
1.23 "Subordination Agreements" means those certain Subordination
Agreements executed as of even date herewith by and among the Company, Parent,
the Holder, the holders of the Senior Indebtedness, and the holders of the Other
Subordinated Indebtedness.
1.24 "Subsidiary" means a corporation or other entity in which more than
50% of the outstanding voting stock or equity interests is owned or controlled,
directly or indirectly, by the Company or any combination of the Company and one
or more other Subsidiaries. For the purposes of this definition, "voting stock"
means stock or other interests which ordinarily has voting power for the
election of directors, and equity interests means the right to receive the
profits of the entity, when disbursed, or the assets of the entity upon
liquidation or dissolution.
PAGE 4 OF 11
<PAGE>
ARTICLE II
Payments
2.1 Interest. From the date of this Note through the Maturity Date,
interest shall accrue hereunder on the unpaid outstanding principal sum of this
Note at a rate of six percent (6.0%) per annum, calculated on the basis of a
365-day year or 366-day year as the case may be. All past due payments of
principal, and if permitted by applicable law, of interest, shall bear interest
from day to day at a rate of fourteen percent (14%) per annum, all to be
computed from maturity (whether stated or by acceleration) until paid.
2.2 Payment of Principal and Interest. Beginning October 1, 1997, the
Company shall make quarterly payments of interest and, in addition, beginning
October, 1998, the Company shall make fifteen (15) quarterly payments of
principal, each in the amount of $41,333.33, on or before the first day of each
January, April, July and October (and if the first day is not a Business Day,
the first Business Day thereafter) of each quarter thereafter, with the
sixteenth (16/th/) and final payment of principal and accrued interest being due
and payable on July 1, 2002, subject to the provisions of Section 2.3 below.
Prepayments will be credited first to the accrued but unpaid interest, and then
to installments of unpaid principal in the order of maturity. In addition,
this Note and all accrued interest shall at the option of the Holder either
become immediately due and payable or immediately convertible into shares of
Parent Stock as hereinafter provided concurrently with the consummation of a
Public Offering, as further set forth in Article V hereof.
2.3 Cash Flow Requirements. Notwithstanding Section 2.2 above, the
Company shall not be required to make a payment of principal due under this Note
if the Amicus Division of the Company has not generated Annual Cash Flow at
least equal to the Amicus Cash Flow for the period ended on the last day of the
month preceding the month in which the payment is due. In each such case, the
Maturity Date shall be extended for an additional three-month period until the
Note has been paid in full.
ARTICLE III
Remedies
3.1 Events of Default. An "Event of Default" occurs if:
3.1 the Company defaults in the performance of any covenant made by
the Company in this Note, and such default remains uncured for a period of
thirty (30) days after notice from Holder; or
3.1.2. the Company defaults on payments required by this Note or
breaches any of the terms, covenants, or conditions contained in any of the
documents evidencing, securing or guaranteeing any Senior Indebtedness,
including, but not limited to, any loan agreements, promissory notes or security
agreements, and the applicable grace periods expire, unless such default is
waived
PAGE 5 OF 11
<PAGE>
or the holders of the Senior Indebtedness elect not to declare a default
thereunder or the Company is permitted to make payments under this Note; or
3.1.3 (i) a receiver, liquidator, custodian, or trustee of the
Company, or of any material property thereof is appointed by court order of a
court of competent jurisdiction and such order remains in effect on the 90th day
after its entry, or (ii) a petition is filed, a case is commenced, or relief is
ordered against the Company under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution, or liquidation law of any
jurisdiction, whether now or hereafter in effect, and is not dismissed with 90
days of such filing, commencement, or order; or
3.1.4. the Company (i) commences a voluntary case or proceeding under
any applicable federal or state bankruptcy, insolvency, reorganization or other
similar law or any other case or proceeding and is adjudicated a bankrupt or
insolvent, (ii) files a petition, answer or consent seeking reorganization or
similar relief under any applicable federal or state law, (iii) makes an
assignment for the benefit of creditors, or (iv) admits in writing its inability
to pay its debts generally as they become due.
3.2 Acceleration of Maturity. This Note and all accrued interest shall
become immediately due and payable at the option of the Holder at any time after
notice by Holder to the Company of the occurrence of an Event of Default which
is not cured within fifteen (15) days thereafter. The provisions of this Section
3.2 shall govern notwithstanding any other agreement or document of the Company
or the Parent (with the exception of the Subordination Agreements).
3.3 Sale of Company. If all or substantially all of the stock or assets
of the Company is sold, the Parent shall have the option to either (i) pay this
Note in full or cause this Note to be paid in full or (ii) assume the
obligations of the Company under this Note.
ARTICLE IV
Covenants
The Company covenants and agrees that, so long as this Note is outstanding:
4.1 Payment of Principal and Accrued Interest. The Company will duly and
punctually pay or cause to be paid the principal sum of this Note, together with
interest accrued thereon from the date hereof to the date of payment, in
accordance with the terms hereof, except to the extent of any limitations
contained in the Purchase Agreement (including any rights of offset) or the
Subordination Agreements.
4.2 Limitation on Liens. The Company will not create, incur, assume or
suffer to exist any Lien upon any of its property, assets or revenues, whether
now owned or hereafter acquired, except for:
PAGE 6 OF 11
<PAGE>
(a) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that adequate reserves with respect
thereto are maintained on the books of the Company in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business in respect of
obligations which are not overdue for a period of more than 90 days beyond the
Company's customary payment terms or which are being contested in good faith by
appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposits
securing liability to insurance carriers under insurance or self-insurance
arrangements;
(d) deposits by the Parent to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory obligations, surety
and appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business not to exceed $1,000,000 in the
aggregate at any given time;
(e) encumbrances and restrictions on the use of real property which do
not materially impair the use thereof;
(f) any interest or title of (i) a lessor in assets being leased to
the Company or (ii) a seller in assets being purchased by the Company; and
(g) Liens granted in connection with the Senior Indebtedness.
4.3 No Further Indebtedness. The Amicus Division of the Company shall not
incur any additional Indebtedness, except with respect to accounts payable
arising in the ordinary course of business.
ARTICLE V
Conversion
5.1 At the Option of Holder. On the date of and simultaneously with the
closing of the Public Offering, the Holder shall have the one-time right to
convert all, or any portion, of the outstanding principal balance of this Note
and any accrued interest due thereon into shares of Parent Stock at a price
equal to the Transaction Price, as hereinafter defined, and otherwise on and
subject to the terms and conditions set forth in this Article V. As used
herein, the term "Transaction Price" shall mean the initial issuance price per
share of the Parent Stock issued in the Public Offering, without giving effect
to any underwriting discounts or commissions. The Holder exercise such Holder's
right to convert all, or any portion, of the outstanding principal amount of
this Note into shares of Parent Stock by (i) giving written notice on or prior
to September 9, 1997 (the "Election
PAGE 7 OF 11
<PAGE>
Deadline") to the Company that the Holder elects to convert all or a portion of
the outstanding principal amount of this Note and any accrued interest due
thereon into Parent Stock, (ii) stating in such written notice the denominations
in which the Holder wishes the certificate or certificates for Parent Stock to
be issued, and (iii) surrendering this Note to the Company for notation or
cancellation, as appropriate. If not exercised when it first becomes available,
or if exercised only in part, the right to convert all or the portion of this
Note for which this option has not been exercised as described herein shall not
continue and shall expire at midnight, Houston, Texas time, on the date of the
Election Deadline.
5.2 Accrued Interest; Fractional Shares; Conversion Date. In the event of
any conversion, the Company will, as soon as practicable after surrender of this
Note and compliance by the Holder with the other conditions herein contained and
consummation of the Public Offering, cause to be issued and delivered to the
surrendering Holder certificates for the number of full shares of Parent Stock
to which the Holder shall be entitled as aforesaid, together with any unpaid
interest on the principal amount, if not converted, accrued through the date of
closing of the Public Offering. The Holder shall not be entitled to receive
fractional shares of Parent Stock upon conversion or script in lieu thereof, but
the number of shares of Parent Stock to be received by the Holder upon
conversion shall be rounded down to the next whole number and the Holder shall
be entitled to payment for the fractional share in cash at the then applicable
Transaction Price. Such conversion shall be deemed to have been made as of the
date of closing of the Public Offering, so that the persons entitled to receive
the shares of Parent Stock upon conversion of the principal amount hereof shall
be treated for all purposes as having been the record holder or holders of such
shares of Parent Stock at such time.
5.3 No Shareholder Rights; Representations and Agreements Upon Issuance.
This Note shall not entitle the Holder to any voting rights or other rights as a
stockholder of the Parent, or to any other rights whatsoever except the rights
herein expressed and such as are set forth, and no dividends shall be payable or
accrue in respect of this Note or the interest represented hereby or the Parent
Stock purchasable hereunder until or unless, and except to the extent that, the
outstanding principal amount hereof and any accrued interest due thereon shall
be converted. No shares of Parent Stock can or will be issued upon conversion
until the Holder becomes a party to a Shareholders' Agreement in the form
required by the Parent and gives appropriate investment representations
concerning knowledge about the investment and acknowledgments of any applicable
restrictions on transferability.
ARTICLE VI
Miscellaneous
6.1 Collection Fees. If this Note is placed in the hands of an attorney
for collection, and if it is collected through any legal proceedings at law or
in equity or in bankruptcy, receivership or other court proceedings, the Company
hereby undertakes to pay all costs and expenses of collection including, but not
limited to, court costs and the reasonable attorney's fees of Holder.
PAGE 8 OF 11
<PAGE>
6.2 Consent to Amendments. This Note 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, if and only if the Company shall obtain the prior written
consent to such amendment, action or omission to act from the Holder.
6.3 Benefits of Note. Except as set forth in Section 3.3, nothing in this
Note, express or implied, shall give to any Person, other than the Company,
Holder, and their successors any benefit or any legal or equitable right, remedy
or claim under or in respect of this Note.
6.4 Successors and Assigns. All covenants and agreements in this Note
contained by or on behalf of the Company and the Holder shall bind and inure to
the benefit of the respective successors and assigns of the Company and the
Holder.
6.5 Restrictions on Transfer. This Note shall not be transferable or
assignable in any manner whatsoever, except to the Holder's Stockholders
individually or to any entity designated by them as successor(s) in interest of
Amicus One Legal Support Services, Inc. provided such transfer is permissible
under applicable securities laws.
6.6 Waiver; Remedies Cumulative. No failure to exercise and no delay on
the part of Holder in exercising any power or right in connection herewith shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such a right or power, preclude any other or further exercise thereof or the
exercise of any other right or power. No course of dealing between the Company
and Holder shall operate as a waiver of any right of Holder under this Note. No
modification or waiver of any provision of this Note or any other instrument
evidencing, securing, or guaranteeing this Note nor any consent to any departure
therefrom shall in any event be effective unless the same shall be in writing
and signed by the person against whom enforcement thereof is to be sought, and
then such waiver or consent shall be effective only in the specific instance and
for the purpose for which given. All rights and remedies of Holder existing
hereunder are cumulative to and not exclusive of any rights or remedies
otherwise available thereto.
6.7 Notice; Address of Parties. Except as otherwise provided, all
communications to the Company or Holder provided for herein or with reference to
this Note shall be deemed to have been sufficiently given or served for all
purposes on the third business day after being sent as certified or registered
mail, postage and charges prepaid, or by telefax with confirmed receipt, to the
following addresses: if to the Company, 650 First City Tower, 1001 Fannin,
Houston, Texas 77002, Fax 713/653-7172 or at any other address designated by the
Company in writing to Holder; if to Holder, c/o Thomas J. Kovarcik, Esq., 237
Park Avenue, 21/st/ Floor, New York, New York 10017, Fax 212/983-8938 or at any
other address designated by Holder to the Company in writing.
6.8 Separability Clause. In case any provision in this Note shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions
PAGE 9 OF 11
<PAGE>
in such jurisdiction shall not in any way be affected or impaired thereby;
provided, however, such construction does not destroy the essence of the bargain
provided for hereunder.
6.9 Governing Law. This Note shall be construed and enforced in
accordance with and governed by the laws of the State of New York.
6.10 Usury. It is the intention of the parties hereto to conform strictly
to the applicable laws of the State of New York and the United States of
America, and judicial or administrative interpretations or determinations
thereof regarding the contracting for, charging and receiving of interest for
the use, forbearance, and detention of money (referred to as "Applicable Law").
The Holder shall have no right to claim, to charge or to receive any interest in
excess of the maximum rate of interest, if any, permitted to be charged on that
portion of the amount representing principal which is outstanding and unpaid
from time to time by Applicable Law. Determination of the rate of interest for
the purpose of determining whether this Note is usurious under Applicable Law
shall be made by amortizing, prorating, allocating and spreading in equal parts
during the period of the actual time of this Note, all interest or other sums
deemed to be interest (referred to in this Section as "Interest") at any time
contracted for, charged or received from the Company in connection with this
Note. Any Interest contracted for, charged or received in excess of the maximum
rate allowed by Applicable Law shall be deemed a result of a mathematical error
and a mistake. If this Note is paid in part prior to the end of the full stated
term of this Note and the Interest received for the actual period of existence
of this Note exceeds the maximum rate allowed by Applicable Law, Holder shall
credit the amount of the excess against any amount owing under this Note or, if
this Note has been paid in full, or in the event that it has been accelerated
prior to maturity, Holder shall refund to the Company the amount of such excess,
and shall not be subject to any of the penalties provided by Applicable Law for
contracting for, charging or receiving Interest in excess of the maximum rate
allowed by Applicable Law. Any such excess which is unpaid shall be canceled.
6.11 Arbitration. The arbitration provisions contained in Section 9.14 of
the Purchase Agreement shall govern this Note.
6.12 No Protest. The Company hereby waives presentment, protest and demand
and notice of protest, demand, dishonor and nonpayment of this Note.
THIS NOTE, ANY AND ALL ADDITIONAL PROMISSORY NOTES, IF ANY, ISSUED BY THE
COMPANY TO HOLDER AND ALL DOCUMENTS AND INSTRUMENTS EXECUTED IN CONNECTION
HEREWITH OR THEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE COMPANY AND
HOLDER WITH RESPECT TO THE OBLIGATIONS OWED THEREBY TO HOLDER AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE COMPANY AND HOLDER. PAYMENT OF THIS NOTE IS SUBJECT TO
THE PURCHASE AGREEMENT AND THE SUBORDINATION AGREEMENTS.
PAGE 10 OF 11
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed on the date first above written.
LITIGATION RESOURCES OF
AMERICA-NORTHEAST, INC.,
A NEW YORK CORPORATION
By:________________________________
Name:______________________________
Title:_____________________________
PAGE 11 OF 11
<PAGE>
EXHIBIT B
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement"), dated effective the 5/th/ day
of September, 1997 (the "Effective Date"), is entered into by and between
LITIGATION RESOURCES OF AMERICA-NORTHEAST, INC., a New York corporation
(hereinafter called the "Company," which term includes any directly or
indirectly controlled subsidiaries or successor entities), and RICHARD A.
PORTAS, an individual residing in the State of New York (the "Consultant"). The
Company and Consultant 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 5, 1997 (the
"Purchase Agreement"), by and among the Company, Amicus One Legal Support
Services, Inc., a New York corporation ("Seller"), the Consultant and other
stockholders of the Seller, individually, and Litigation Resources of America,
Inc., a Texas corporation (the "Parent").
W I T N E S S E T H:
WHEREAS, Consultant has been an employee, officer and director of the
Seller, which operates a business known as, or conducted under the names,
"Amicus One Legal Support Services Inc.," "Cardinal Reporting Co." and "AM
Court Reporting, Co." (collectively the "Business"), and his knowledge of the
affairs of the Business, particularly its court reporting business in New York,
New York and New Jersey (the "Business Area"), 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; and
WHEREAS, pursuant to the Purchase Agreement the Company and the Consultant
have agreed 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:
<PAGE>
1. Statement of Services. The Company hereby engages Consultant to
perform certain services and to provide certain expertise related to the
Business. The services to be performed by Consultant under this Agreement shall
include, but not be limited to (a) providing management advice to the Company's
General Manager and CEO Richard Looney, (b) working to maintain existing Company
client relationships in the Business Area, (c) working to develop new client
relationships for the Company and its Affiliates, and (d) working to locate new
acquisition opportunities ("Acquisition Candidates") and providing the Company
or Affiliates introductions to principals of such Acquisition Candidates
(collectively, the "Services").
The Services shall be performed by Consultant only at the express request
of the designated representatives of the Company or Parent. Consultant is
authorized to perform the Services at the instruction of, and will report to Mr.
Richard O. Looney, Chief Executive Officer of Parent, or otherwise specified
from time to time by the Board of Directors of the Company.
2. Payment. For the services to be rendered by the Consultant hereunder
during the initial term, the Company shall pay Consultant:
(a) a monthly consulting fee in the amount of $4,200 (the "Base
Compensation"), which shall be paid in a monthly lump sum on the 15th day of
such each month (and, if necessary, prorated for partial months);
(b) a monthly car allowance of $600.00, paid in a monthly lump sum on the
15th day of each month.
(c) in the event that Consultant identifies a business as an Acquisition
Candidate for the Company or any Affiliate, evidenced by the Consultant's
introduction of key principals of such Acquisition Candidate to the Company or
an Affiliate, and such Acquisition Candidate has not been previously brought to
the attention of the Company or any Affiliate, or assists in procuring a
previously identified Acquisition Candidate, which has not signed a letter of
intent with the Company or Parent, to sign such a letter, and the Company or an
Affiliate ultimately acquires such business, the Consultant shall be entitled to
receive, at the closing of such acquisition, a cash payment equal to one quarter
of one percent (.25%) of the aggregate purchase price paid in connection with
such acquisition. For purposes of this Paragraph, the "purchase price" for an
acquisition shall be the aggregate of the amount of all cash, principal amount
of promissory notes and value of stock (as stated in the relevant acquisition
documents) delivered at the closing of such acquisition. In no event shall
Company or any Affiliate be obligated to close any acquisition with regard to
any business identified by the Consultant as an Acquisition Candidate, and no
fee shall be payable hereunder unless and until such acquisition closes.
(d) a cash commission based upon the sales revenues generated from a
National Account (as defined below) identified by the Consultant and originated
by the Company. The
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<PAGE>
amount of the commission payment will be based upon a formula ("Formula") to be
established by the Parent's Board of Directors. The Formula may be amended from
time to time by the Parent's Board of Directors and the Consultant shall be
eligible to receive a cash commission payment 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 the offices of Parent or any Affiliate, in
different geographic regions, renders services. Until notice of a change in the
Formula applicable to the Consultant is given to the Consultant by the Company,
the Formula applicable to the Consultant shall be as set forth on Schedule A.
In certain circumstances, more than one individual may be entitled to
receive a commission based upon sales from a single National Account. In such
circumstances, the commission described above would be shared by the Consultant
and the other individuals on such a basis as is determined to be fair by the
Parent's Board of Directors. All commissions payable hereunder will be paid in
cash within forty-five (45) days of the end of the fiscal year in which they are
earned.
3. Term of Agreement. The term of this Agreement shall commence on the
Effective Date and, unless earlier terminated as provided below, expire one (1)
year thereafter (such initial term being referred to as the "Original Term").
This Agreement shall be automatically renewed for successive additional terms of
one (1) year unless notice of termination is given in writing by either Party to
the other Party at least sixty days prior to the expiration of the initial term
or any such renewal term (such additional term or terms being referred to as a
renewal term of terms).
4. Reports. Consultant shall furnish written quarterly reports to Mr.
Looney on or before the fifteenth (15/th/) day of the month following the end of
the quarter concerning the status of the Services and the results of the
activities of Consultant under the Agreement. Said Report shall be in such form
as agreed upon by the Parties hereto.
5. Expenses. During the term of this Agreement, the Company shall
reimburse the Consultant for all reasonable out-of-pocket expenses for travel
(including parking fees and toll fees), meals, hotel accommodations and similar
items incurred by him in connection with the Business of the Company and
approved by the Company, or incurred in accordance with the travel and
reimbursement policies of the Company, as the same shall be in effect from time
to time.
6. Services.
(a) The Services shall be performed solely by Consultant and Consultant
shall not engage or allow any other entity or person to perform the Services
without the knowledge and express written consent of Mr. Looney. This Agreement
is made with the express understanding that Consultant is an independent
contractor. Nothing contained herein shall be construed or applied to
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<PAGE>
create the relationship of employer and employee or principal and agent between
the Company or any Affiliate and Consultant. Consultant shall have no power or
authority to enter into any contracts or otherwise bind or incur liability on
behalf of the Company.
(b) Consultant will establish a client maintenance and development budget
with the Company's General Manager.
(c) Consultant shall be fully responsible for all state and federal income
taxes, pension benefits, social security taxes, employment, disability, and
other customary insurance and for any other taxes or payments which may be due
and owing by Consultant or which are the result of fees or amounts paid by the
Company under this Agreement, and Consultant shall timely pay, indemnify and
hold harmless the Company from any payment which may be due and owing by
Consultant.
7. Ownership of the Services. The results of all Services performed by
Consultant for the Company, and all information derived from the performance of
such Services, shall be the sole and exclusive property of the Company, and
Consultant shall not disclose such results and information to any third party
without the Company's prior written consent.
8. Business Opportunities. Subject to Section 2 herein, during the term of
this Agreement, the Consultant agrees that with respect to any court reporting
business opportunity in New York or New Jersey which is offered to, or comes to
the attention of, the Consultant, the Company shall have the right to take
advantage of such business opportunity or other business proposal for its own
benefit. The Consultant agrees to promptly deliver notice to the Board or the
Chief Executive Officer in writing of the existence of such opportunity or
proposal and the Consultant may take advantage of such opportunity only if the
Company does not elect to exercise its right to take advantage of such
opportunity.
9. Covenant Not to Compete. The Consultant 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 retain the Consultant 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 Consultant's
skill, ability and value in the Company's business, subject to the provisions of
the next full paragraph of this Section 8, the Consultant agrees that 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 his service as a consultant is so terminated.
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<PAGE>
(a) Consultant will not 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; and
(b) Consultant 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 Consultant as a consultant hereunder, 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) Consultant 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 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
8 shall not be applicable to the conduct of Consultant subsequent thereto.
It is mutually understood and agreed that if any of the provisions relating
to the scope, time or territory in this Section 8 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 Consultant's
covenants contained in this Section 8 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.
10. Confidentiality The information and knowledge divulged to Consultant
by the Company or which Consultant acquires as a result of the performance of
the Services hereunder shall be regarded by Consultant as confidential (the
"Confidential Information"). Consultant agrees that for a period of three (3)
years after the expiration or termination of this Agreement, Consultant will
keep confidential all Confidential Information and will refrain from using,
publishing or revealing
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<PAGE>
such Confidential Information, excepting only information that (a) was known to
Consultant prior to its disclosure by the Company, (b) becomes part of the
public domain without the fault, in whole or in part, of Consultant, (c) is
disclosed to Consultant by a third party in good faith and is not subject to an
obligation of confidentiality, or (d) is specifically released in writing from
confidential status by the Company.
11. Liability.
Consultant shall indemnify and hold harmless the Company, and all
Affiliates and their agents, employees and representatives from all suits,
actions or claims of any character, including, but not limited to, suits,
actions or claims for occupational injury(ies), arising from the performance of
the Services under this Agreement except for the negligent acts of the Company
or any Affiliate. While on the property of the Company, or any Affiliates,
Consultant agrees to comply with all applicable safety requirements.
12. Facilities. Consultant shall be provided reasonable access to
Company facilities and equipment necessary or useful to Consultant in the
fulfillment of his obligations under this Agreement, and for winding up the
affairs of Cardinal Reporting Co., Inc.
13. Termination.
(a) This Agreement shall be in full force and effect for the Term hereof,
provided that the Company reserves the right to terminate this letter agreement
in the event of any breach in any material respects of any terms or conditions
of this Agreement upon at least ten (10) days prior written notice to
Consultant. Upon such termination or expiration, Consultant shall render a
final invoice to the Company reflecting all outstanding fees and any outstanding
reimbursable expenses incurred prior to termination or expiration.
(b) Either party may terminate this Agreement for any reason upon sixty
(60) days written notice.
(c) Upon such termination or expiration of this Agreement, neither Party
shall have any further rights or obligations hereunder, provided that the
obligations of Consultant set forth in paragraphs 6, 7, 8, 9 and 10 hereof shall
expressly survive the termination or expiration of this Agreement, and
Consultant shall also continue to be obligated hereunder for any obligations,
events, actions or inactions that occurred or accrued prior to the termination
or expiration of this Agreement.
14. Notices. All notices, consents, demands or other communications
required or permitted to be given pursuant to this Agreement shall be deemed
sufficiently given when (a) delivered personally with a written receipt
acknowledging delivery, (b) telefaxed with receipt
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<PAGE>
confirmed, or (c) 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-Northeast, Inc.
1001 Fannin, Suite 650
Houston, Texas 77002
Telefax:(713) 653-7172
Attn: Richard O. Looney
If to the Consultant:
Richard A. Portas
466 West Shore Trail
Sparta, New Jersey 07871
Any Party may change its address for notice hereunder by providing written
notice of such change to the other Party hereto.
15. Specific Performance. The Consultant acknowledges that a remedy at
law for any breach or attempted breach of Sections 7, 8, 9 and 10 of this
Agreement will be inadequate, the Consultant 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.
16. 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.
17. Assignment. Neither this Agreement, nor any interest herein, may not
be assigned by the Consultant to any party without the written authorization of
the Company.
18. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Parties hereto, the Consultant's heirs and personal
representatives, and the successors and assigns of the Company.
19. Governing Law. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of New York.
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<PAGE>
20. Prior Agreements. Consultant represents and warrants to the Company
that he has fulfilled all of the terms and conditions of all prior consulting or
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 consulting,
employment or other agreement which would in any respect prevent him from
fulfilling his obligations hereunder or conflict herewith.
21. 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 Consultant 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 Consultant of any of the
duties to the Company.
22. Waiver. Any waiver to be enforceable must be in writing and executed
by the Party against whom the waiver is sought to be enforced.
23. 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 in
accordance with the then existing Rules for Commercial Arbitration of the
American Arbitration Association or any successor organization. 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. 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.
The Parties waive any entitlement to punitive damages, consequential damages and
lost profits and will limit any damage claim to actual economic damages
incurred.
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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 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.
24. 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.
25. 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.
THE COMPANY:
LITIGATION RESOURCES OF AMERICA-
NORTHEAST, INC., a New York corporation
By: _________________________________
Richard O. Looney
Chief Executive Officer
THE CONSULTANT:
______________________________________
Richard A. Portas
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SCHEDULE A
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
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<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated effective the ____ day of
September___, 1997 (the "Effective Date"), is entered into by and between
LITIGATION RESOURCES OF AMERICA-NORTHEAST, INC., a New York corporation
(hereinafter called the "Company," which term includes any directly or
indirectly controlled subsidiaries or successor entities), and JOSEPH N.
SPINOZZI, an individual residing in the State of New York (the "Employee"). The
Company may sometimes hereinafter be referred to as "Employer." The Employer
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__, 1997 (the "Purchase
Agreement"), by and among the Company, Amicus One Legal Support Services, Inc.,
a New York corporation ("Seller"), the Employee and other stockholders of the
Seller, individually, and Litigation Resources of America, Inc., a Texas
corporation (the "Parent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Employee has been an employee, officer and director of the Seller and
its business known as or conducting business under "Amicus One Legal Support
Services Inc.", "Cardinal Reporting Co." and "AM Court Reporting, Inc." (the
"Amicus Business"), and his knowledge of the affairs of the Cardinal Business,
particularly its court reporting business in the New York City Metropolitan
area, 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 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:
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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
unless either party gives at least 90 days prior to the expiration of the
initial term or any such renewal term notice that such party desires to
terminate or renegotiate the terms of any such extension of this Agreement. In
the event that at the expiration of the initial Employment Term, either party
desires to so renegotiate an extension of this Agreement, both parties shall use
their best reasonable efforts to so renegotiate the Agreement, but neither party
shall have any liability if the parties are unable to reach agreement as to such
extension of 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 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 the Company's
operations in New York, New York with the title of General Manager-New York and
shall report to, and be subject to the general direction and control of the
Chief Executive Officer and the Board of Directors of the Company (the "Board").
The Employee shall perform such management and administrative duties, consistent
with the Employee's position, as are from time to time assigned to the Employee
by the 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
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 and the Amicus
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. 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
court reporting and litigation support services in the New York City
Metropolitan area. 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 Employer, 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
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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. As soon a practicable after the expiration of
the first six months following the date of this Agreement and at least annually
thereafter, the Chief Executive Officer of the Company shall provide the
Employee with a written or oral performance review. The parties mutually agree
that is not anticipated that such review will result in any adjustment of
compensation based upon such review.
4. Compensation. As payment for the services to be rendered by the Employee
hereunder during each year of the initial term, the Employee shall be entitled
to receive:
(a) a salary in the amount of Seventy Five Thousand and No/100
Dollars ($75,000) per year effective as of the date hereof, which
shall be payable in at least monthly installments, 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; and
(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") including, without
limitation, the first fiscal year of the Company; provided, however,
that any Annual Bonus calculated with respect to a fiscal year during
which the Employee was employed for only a part of such year shall be
prorated to account for the number of days during such year in which
Employee was employed by the Company.
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 and approved by the Chief Executive
Officer of the Company 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 an automobile allowance in the
amount of $250.00 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, which, at or prior to the
Closing, will include, at least, health insurance. Employer will use
commercially reasonably efforts to assist Employee in procuring health insurance
coverage for any preexisting conditions.
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<PAGE>
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 Chief Executive
Officer of the Company.
(b) The Employee will use his best reasonable efforts to
accurately make, maintain and preserve all records and reports that
the Chief Executive Officer of 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 Chief Executive Officer of the Company.
(d) The Employee will comply in all material respects with 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 reasonably believes 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.
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(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
Chief Executive Officer or Board of Directors of 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 specified above, the Employee
shall primarily be responsible for making day-to-day decisions in the
ordinary course of business 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 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
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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 Amicus Business.
(d) The Company agrees that it will not terminate any employee of
the Company without giving prior notification of such termination to
the Employee.
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 on the Company's Business as a result of
the Employee (any such termination being a termination for "Cause"):
(a) Breaching any 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 consecutive period of
one hundred thirty-five (135) days during any consecutive twelve-
month time period;
(f) Failing to carry out and perform the material 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;
(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 ten (10) days after written notice
thereof; or
(h) The Business failing to achieve quarterly Net Profit, as
defined on Schedule A to this Agreement of $109,125 for each of two
(2) consecutive fiscal quarters.
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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 or the Purchase 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 Employee With Good Reason. 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 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 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 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
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<PAGE>
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 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) 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;
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.
In addition, the foregoing restrictive covenants shall also apply to the
Employee 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
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<PAGE>
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. In addition, in the event that at the
expiration of this Agreement at the end of its schedule term the Company is
unwilling to extend the Agreement, the Employee shall be immediately entitled to
work as a court reporter in the Territory set forth in Section 12 (a) provided
that he continues to comply with Sections 12(b) and 12(c) while he works as a
court reporter and for any court or governmental agency.
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 is 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
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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: Litigation Resources of America-Northeast, Inc.
1001 Fannin, Suite 650
Houston, Texas 77002
Telefax:(713) 653-7172
Attn: Richard O. Looney
If to the Employee: Joseph N. Spinozzi
31 Farragut Avenue
Hastings on the Hudson, New York 10706
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 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.
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<PAGE>
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 New York.
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. 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.
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
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<PAGE>
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 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 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. 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 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.
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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<PAGE>
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-
NORTHEAST, INC., a New York corporation
By: _________________________________
Richard O. Looney
Chief Executive Officer
THE EMPLOYEE:
_______________________________________
Joseph N. Spinozzi
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<PAGE>
SCHEDULE A
CALCULATION OF ANNUAL BONUS
Each year the accountants regularly employed by the Company shall
determine the amount of Net Profit, if any, of the Amicus Division of the
Company during each consecutive twelve (12) month time period ending on the last
day of the fiscal year of the Company ("Annual Profits"), 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 $485,000. For purposes of this
calculation, "Net Profit" shall mean earnings before income taxes, interest,
depreciation and amortization.
<PAGE>
EXHIBIT C-2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), effective the ____ day of
September__, 1997 (the "Effective Date"), is entered into by and between
LITIGATION RESOURCES OF AMERICA-NORTHEAST, INC., a New York corporation
(hereinafter called the "Company," which term includes any directly or
indirectly controlled subsidiaries or successor entities), and CARL ANDERSON, an
individual residing in the State of New York (the "Employee"). The Company may
sometimes hereinafter be referred to as "Employer." The Employer 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___, 1997 (the "Purchase Agreement"), by and
among the Company, Amicus One Legal Support Services, Inc., a New York
corporation ("Seller"), the Employee and other stockholders of the Seller,
individually, and Litigation Resources of America, Inc., a Texas corporation
(the "Parent").
W I T N E S S E T H:
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WHEREAS, Employee has been an employee, officer and director of the Seller and
its business known as or conducting business under "Amicus One Legal Support
Services Inc.", "Cardinal Reporting Co." and "AM Court Reporting, Co." (the
"Amicus Business"), and his knowledge of the affairs of the Amicus Business,
particularly its court reporting business in White Plains, New York and
surrounding areas, 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 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:
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1. Employment Term. The Employer hereby employs the Employee commencing on
the Effective Date for a term of one year (the "Employment Term"), unless sooner
terminated as hereinafter provided. 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 employment and
agrees to perform the services specified herein, all upon the terms and
conditions hereinafter stated.
2. Duties. The Employee shall (i) provide the Company assistance in training
new personnel (whether at the Westchester Office or otherwise) and (ii) assist
in managing the assignment of court reporting jobs by the Westchester office.
The Employee shall report to, and be subject to the general direction and
control of Joseph Spinozzi the General Manager-New York of the Company. The
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 Company, including, but not
limited to, the marketing and providing of court reporting and litigation
support services in the New York Metropolitan area.
3. Extent of Service. The Employee shall be employed on a part-time basis and
shall devote such time, attention and energy to the business of the Employer as
shall be reasonably required to perform his duties under Section 2. Subject to
Sections 12-14, the Employee may engage in any other business activity during
the term of this Agreement, so long as such business activity does not unduly
interfere with the performance of his duties under Section 2.
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
salary in the amount of Five Thousand and No/100 Dollars ($5,000) per year
effective as of the date hereof, which salary 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.
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 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.
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
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<PAGE>
same shall be maintained in effect, as determined by the Board, and subject to
any limitations set forth therein with respect to part-time employees, if any.
7. Vacation. During the term of this Agreement, the Employee shall not be
entitled to any paid vacation time, 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) The Employee will use his best reasonable efforts to
truthfully and accurately make, maintain and preserve all records and
reports that the Company may from time to time request or require.
(b) 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.
(c) 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.
(d) 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.
(e) 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.
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 equipment,
machinery, processes, systems,
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products, contracts, business assets or other things of value
belonging to or which may hereafter be acquired or owned by the
Company.
(b) The Employee 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 Cardinal Business.
(c) The Company agrees that it will not terminate any employee of
the Company without giving prior notification of such termination to
the Employee.
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 ten (10) 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 ten (10) 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 ten (10) days after written notice
thereof.
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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 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; 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 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 to receive from the Company and
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<PAGE>
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 three (3) years after the date
employment is so terminated:
(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,
except that Employee may work as a court reporter for a court or
governmental agency or perform work as a court reporter for the
Company within those counties; 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.
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
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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,
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 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 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
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<PAGE>
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 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-Northeast, Inc.
1001 Fannin, Suite 650
Houston, Texas 77002
Telefax:(713) 653-7172
Attn: Richard O. Looney
If to the Employee: Carl Anderson
31 Britton Ridge Road
Mt. Kisco, New York 10549
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 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.
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<PAGE>
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 New York.
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.
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. 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.
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 commenced
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<PAGE>
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 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. 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 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.
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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<PAGE>
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-
NORTHEAST, INC., a New York corporation
By: _________________________________
Richard O. Looney
Chief Executive Officer
THE EMPLOYEE:
_______________________________________
Carl Anderson
<PAGE>
EXHIBIT C-3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated effective the ____ day of
September, 1997 (the "Effective Date"), is entered into by and between
LITIGATION RESOURCES OF AMERICA-NORTHEAST, INC., a New York corporation
(hereinafter called the "Company," which term includes any directly or
indirectly controlled subsidiaries or successor entities), and HOWARD BRESHIN,
an individual residing in the State of New York (the "Employee"). The Company
may sometimes hereinafter be referred to as "Employer." The Employer 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___, 1997 (the "Purchase
Agreement"), by and among the Company, Amicus One Legal Support Services, Inc.,
a New York corporation ("Seller"), the Employee and other stockholders of the
Seller, individually, and Litigation Resources of America, Inc., a Texas
corporation (the "Parent").
W I T N E S S E T H:
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WHEREAS, Employee has been an employee, officer and director of the Seller and
its business known as or conducting business under "Amicus One Legal Support
Services Inc.", "Cardinal Reporting Co." and "AM Court Reporting, Co." (the
"Amicus Business"), and his knowledge of the affairs of the Amicus Business,
particularly its court reporting business in White Plains, New York and
surrounding areas, 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 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:
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1. Employment Term. The Employer hereby employs the Employee commencing on
the Effective Date for a term of three years (the "Employment Term"), unless
sooner terminated as hereinafter provided. 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
employment and agrees to perform the services specified herein, all upon the
terms and conditions hereinafter stated.
2. Duties. The Employee shall (i) assist in managing the assignment of court
reporting jobs in the Westchester office and (ii) provide the Company assistance
in training new personnel (whether at the Westchester Office or otherwise). The
Employee shall report to, and be subject to the general direction and control of
Joseph Spinozzi the General Manager-New York of the Company. The 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 Company, including, but not limited to,
the marketing and providing of court reporting and litigation support services
in the White Plains, New York Metropolitan area.
3. Extent of Service. The Employee shall be employed on a part-time basis and
shall devote such time, attention and energy to the business of the Employer as
shall be reasonably required to perform his duties under Section 2. Subject to
Sections 12-14, the Employee may engage in any other business activity during
the term of this Agreement, so long as such business activity does not unduly
interfere with the performance of his duties under Section 2.
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
salary in the amount of Seventy Five Hundred and No/100 Dollars ($7,500) per
year effective as of the date hereof, which salary 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.
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 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.
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
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<PAGE>
same shall be maintained in effect, as determined by the Board, and subject to
any limitations set forth therein with respect to part-time employees, if any.
7. Vacation. During the term of this Agreement, the Employee shall not be
entitled to any paid vacation time, 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) The Employee will use his best reasonable efforts to
truthfully and accurately make, maintain and preserve all records and
reports that the Company may from time to time request or require.
(b) 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.
(c) 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.
(d) 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.
(e) 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.
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 equipment,
machinery, processes, systems,
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<PAGE>
products, contracts, business assets or other things of value
belonging to or which may hereafter be acquired or owned by the
Company.
(b) The Employee 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 Cardinal Business.
(c) The Company agrees that it will not terminate any employee of
the Company without giving prior notification of such termination to
the Employee.
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 ten (10) 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 ten (10) 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 ten (10) days after written notice
thereof.
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<PAGE>
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 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; 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 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 to receive from the Company and
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<PAGE>
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 three (3) years after the date
employment is so terminated:
(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,
except that Employee may work as a court reporter for a court or
governmental agency or perform work as a court reporter for the
Company within those counties; 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.
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
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<PAGE>
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,
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 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 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
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<PAGE>
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 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-Northeast, Inc.
1001 Fannin, Suite 650
Houston, Texas 77002
Telefax:(713) 653-7172
Attn: Richard O. Looney
If to the Employee: Howard Breshin
8 Edson Road
Valley Cottage, New York 10989
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 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.
-8-
<PAGE>
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 New York.
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.
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. 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.
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 commenced prior
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<PAGE>
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 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. 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 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.
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.
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<PAGE>
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-
NORTHEAST, INC., a New York corporation
By: _________________________________
Richard O. Looney
Chief Executive Officer
THE EMPLOYEE:
_______________________________________
Howard Breshin
<PAGE>
September 2, 1997
EXHIBIT D
- ---------
BILL OF SALE,
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS BILL OF SALE, ASSIGNMENT AND ASSUMPTION AGREEMENT is entered into
effective as of September__, 1997, between AMICUS ONE LEGAL SUPPORT SERVICES,
INC., a New York corporation, and LITIGATION RESOURCES OF AMERICA-NORTHEAST,
INC., a New York corporation ("Purchaser"). Purchaser and Seller may be
hereinafter sometimes referred to collectively as the "Parties" or individually
as a "Party." All defined terms not otherwise defined herein shall have the
meanings ascribed to them in that certain Agreement of Purchase and Sale of
Assets effective of even date with the effective date hereof, executed by and
between Seller, the stockholders of the Seller, the Purchaser and Litigation
Resources of America, Inc., a Texas corporation (the "Parent") and the parent of
the Buyer (the "Agreement").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Purchaser and Parent have agreed to purchase from Seller, and
Seller has agreed to grant, bargain, sell, convey, transfer, assign and deliver
to Purchaser, the Assets; and
WHEREAS, as partial consideration for the sale and assignment of the
Assets, Purchaser has agreed to assume the Assumed Liabilities, on and subject
to the terms and conditions set forth in the Agreement;
NOW, THEREFORE, in consideration of the payment of Ten Dollars ($10.00) and
other good and valuable consideration, including the delivery to Seller of the
Purchase Price, the receipt and sufficiency of which are hereby acknowledged,
Purchaser and Seller hereby agree as follows:
1. SALE AND ASSIGNMENT. Seller has granted, bargained, sold, conveyed,
transferred, assigned and delivered, and by these presents does grant, bargain,
sell, convey, transfer, assign and deliver unto Purchaser, its successors and
assigns, the Assets.
2. BULK SALES. Purchaser and Seller hereby waive compliance by Seller
with the bulk sales laws of the State of New York. This waiver shall in no
event stop or prevent (i) Purchaser or Seller from asserting as a bar or defense
to any action or proceeding brought under any such law that it is not applicable
to the sale and assignment contemplated hereby, nor (ii) Purchaser from
asserting against Seller any claim for breach or default by Seller or Seller
from asserting against Purchase or Parent any claim for breach or default under
the Agreement, nor (iii) any Purchaser Indemnified Party or Seller Indemnified
Party from asserting any claim for indemnification under the Agreement.
<PAGE>
September 2, 1997
3. ASSUMPTION. Subject to the exceptions and exclusions of Section 2.6 of
the Agreement, and otherwise on and subject to the terms and conditions of the
Agreement, Purchaser hereby assumes and agrees to pay and perform the Assumed
Liabilities.
4. SELLER'S REPRESENTATIONS AND WARRANTIES. Seller has good and
marketable title to the Assets, free and clear of all mortgages, liens, security
interests, pledges, charges, options, claims, restrictions, or encumbrances of
any nature whatsoever, except as set forth in the Agreement, the Ancillary
Agreements or any of the Schedules thereto. Seller further represents and
warrants that (i) Seller has obtained all consents or approvals necessary to
prevent the execution, delivery or performance of the Agreement or this Bill of
Sale, Assignment and Assumption Agreement from being or becoming, with notice or
lapse of time or both, a default under any contract, lease or other agreement
assigned hereby, (ii) there has been no default, and there exists no fact or
circumstance which with notice or lapse of time or both would become a default,
under any such contract, lease or agreement, and (iii) no material contract,
lease or other agreement assigned hereby has been terminated, modified, renewed
or extended, except as previously disclosed in writing to Purchaser. In
addition subject to the limitations set forth in the agreements, all of Seller's
representations and warranties set forth in the Agreement with respect to the
Assets and Assumed Liabilities are incorporated herein by reference, subject to
the limitations set forth in the Agreements.
5. INDEMNIFICATION. Each Party shall indemnify, save, defend, and hold
harmless the other Party and the other Party's directors and officers from and
against any and all Damages 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 in or pursuant to this Bill of Sale,
Assignment and Assumption Agreement, to the extent to which such indemnified
party would be entitled to indemnification under, and on and subject to the
terms and conditions set forth in, the Agreement.
6. 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.
7. GOVERNING LAW; ARBITRATION. This Agreement shall be construed and
enforced in accordance with and governed by the laws of the State of New York,
without regard to conflicts of law principles, and the laws of the United States
applicable in New York. 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
2
<PAGE>
September 2, 1997
agree that the controversy, dispute or claim shall be submitted to binding and
final arbitration 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 reasonable attorneys' fees, the
arbitrators' fees and all costs in connection with the arbitration from the
Party who does not substantially prevail. 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. 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 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.
8. 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.
9. MODIFICATION OF AGREEMENT. This Agreement may be amended or modified
only by written instrument signed by both of the Parties.
10. ENTIRE AGREEMENT; BINDING EFFECT. This Agreement, and the documents,
instruments and agreements executed in connection herewith, set forth the entire
agreement and understanding 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.
3
<PAGE>
September 2, 1997
11. 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 EFFECTIVE as of the date first set forth above.
PURCHASER:
LITIGATION RESOURCES OF AMERICA-NORTHEAST, INC.,
a New York corporation
By:____________________________________________
Richard O. Looney,
President & Chief Executive Officer
SELLER:
AMICUS ONE LEGAL SUPPORT SERVICES, INC.
a New York corporation
By:____________________________________
________, _____President
4
<PAGE>
EXHIBIT E
[FORM OF SELLER'S INVESTOR REPRESENTATION LETTER]
September__, 1997
Litigation Resources of America, Inc.
Litigation Resources of America-Northeast, Inc.
1001 Fannin, Suite 650
Houston, Texas 77002
Attn: Mr. Richard O. Looney, President
Re: Investor Representations
Gentlemen:
The purpose of this letter is to evidence certain representations and
warranties to be made with respect to certain matters relating to the
acquisition by Amicus One Legal Support Services, Inc. (the "Seller") of (i)
shares of common Stock issued by Litigation Resources of America, Inc., a Texas
corporation (the "Company"), having a par value of one-cent ($0.01) per share
(the "Common Stock"); (ii) a Convertible Subordinated Promissory Note in the
aggregate principal amount of $560,000 (the "Convertible Note") issued by the
Company and by Litigation Resources of America-Northeast, Inc. (the
"Purchaser"), for and in partial consideration of the sale of certain of the
assets of the Seller, upon the terms and conditions set forth herein and in that
certain Agreement of Purchase and Sale of Assets (the "Purchase Agreement"),
dated ______, 1997 entered into by and among the Seller, the Company and the
Purchaser and (iii) any shares of Common Stock issued upon conversion of the
Convertible Note ("Conversion Shares").
The Investor hereby represents and warrants to the Company, the
Purchaser , and each of the Company's and the Purchaser's officers, directors,
shareholders, agents, attorneys, employees and representatives as follows:
1. Investment Intent. (i) The Common Stock and the Convertible Note
and any Conversion Shares acquired (collectively the "Securities") are being (or
in the case of Conversion Shares, will be) acquired solely for the account of
the Seller, for investment and not with a view to or for the resale,
distribution, subdivision or fractionalization thereof, (ii) the Seller has no
contract, understanding, undertaking, agreement or arrangement with any person
to sell, transfer or pledge to any person the Securities or any portion thereof
(other than as set forth in the Purchase Agreement or in the Ancillary
Agreements, as defined in the Purchase Agreement, (iii) the Seller has no
present plans to enter into any such contract, undertaking, agreement or
arrangement, (iv) the Seller understands the legal consequences of the foregoing
representations and warranties to mean that the
<PAGE>
Litigation Resources of America, Inc.
September __, 1997
Page 2
Seller must bear the economic risk of the investment in the Securities for an
indefinite period of time, (v) the Investor has such knowledge and experience in
financial and business matters that the Investor is capable of evaluating the
merits and risks of acquiring the Securities, and (vi) the Investor acknowledges
that the acquisition of the Securities by the Seller involves a high degree of
risk which may result in the loss of the total amount of this investment.
2. No General Solicitation. The Securities have been offered to the
Seller without any form of general solicitation or advertising of any type by or
on behalf of the Company or any of its officers, directors, shareholders,
employees, agents, attorneys or representatives.
3. Access to Information. The Seller and its officers and directors
have (i) for a reasonable amount of time had an opportunity to ask questions and
receive answers concerning the terms and conditions of the issuance of the
Securities and the proposed business and affairs of the Company, and is
satisfied with the results thereof, (ii) been given access, if requested, to all
other documents with respect to the Company or this transaction, as well as to
such other information as the Seller or such other persons has requested, and
(iii) relied solely on investigations conducted by the Investor in making the
decision to acquire the Securities or approve the transactions set forth in the
Purchase Agreement.
4. Exemption Status. The Investor understands that the Securities
to be sold hereunder are being issued in reliance upon the exemptions from
registration under the Securities Act of 1933, as amended. The Investor
understands that the undersigned, the Company, the Company's officers,
directors, shareholders, employees, agents, attorneys and representatives are
relying on, among other things, the representations and warranties of the
Investor set forth herein in issuing the Securities to the Seller.
5. Securities Compliance. The Investor understands and agrees that
(i) no sale, distribution, transfer or other disposition of the Securities, or
any portion thereof, can be made by the Seller unless the Securities have been
registered under the Securities Act of 1933, as amended, and applicable
securities laws of any other relevant jurisdiction, or exemptions from such
registration are available, as evidenced by an opinion of counsel, satisfactory
to the Company, with respect to the proposed sale, distribution, transfer or
other disposition, and (ii) an appropriate legend will be endorsed on the
certificates representing the Securities evidencing such restrictions.
6. Accredited Investor Status. The Investor is an "accredited
investor" within the meaning of Rule 501 of Regulation D promulgated under the
Securities Act.
<PAGE>
Litigation Resources of America, Inc.
September __, 1997
Page 3
7. Representations of Entities. If Investor is a corporation,
partnership, trust or other entity, (i) it is authorized and qualified to
purchase and hold the Securities, (ii) it has not been formed for the purpose of
acquiring the Securities, (iii) the person executing this Agreement for and on
behalf of such entity has been duly authorized by such entity to do so, (iv) it
is willing and able to bear the substantial economic risk of an investment in
the Securities and has no need for liquidity with respect thereto, and (v) it is
able to withstand a complete loss of its investment.
8. No Governmental Review. The Investor acknowledges and understands
that no federal or state agency has passed on the fairness of the investment in
the Securities, nor made any recommendation or endorsement of the Securities,
and that there is a significant risk of loss of all or a portion of the Seller's
investment in the Securities.
9. State of Residence and Domicile. The Investor is a corporation
organized and whose principal place of business is in the State of New York.
The Investor acknowledges that the Company and the Company's officers,
directors, stockholders, agents, attorneys and other representatives are relying
on the representations and warranties set forth herein, and would not deliver
the Securities to the Seller but for the execution and delivery of this letter
by the Investor.
Very truly yours,
AMICUS ONE LEGAL SUPPORT SERVICES, INC., a New
York corporation
By:____________________________
Name:__________________________
Title:_________________________
<PAGE>
EXHIBIT F-1
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (this "Agreement") dated as of September__,
1997 made by Litigation Resources of America, Inc., a Texas corporation (THE
"COMPANY"), Litigation Resources of America-Northeast, Inc., a New York
corporation ("NORTHEAST"), and Amicus One Legal Support Services, Inc., a New
York corporation (the "SELLER SUBORDINATED CREDITOR") and the Senior
Subordinated Creditors listed on the signature pages hereto (the "SENIOR
SUBORDINATED CREDITORS").
W I T N E S S E T H:
- - - - - - - - - --
WHEREAS, pursuant to that certain Securities Purchase Agreement dated as of
January 17, 1997 (as amended, supplemented or otherwise modified from time to
time pursuant to the terms thereof, the "SECURITIES PURCHASE AGREEMENT"), by and
among the Company, certain other parties and the Senior Subordinated Seller
Subordinated Creditor, the Senior Subordinated Creditors were issued the
Company's 12% Senior Subordinated Notes due January 17, 2004 in the aggregate
principal amount of $9,000,000 (as amended, supplemented or otherwise modified
from time to time pursuant to the terms thereof, the "SENIOR SUBORDINATED
NOTES"); and
WHEREAS, pursuant to that Agreement of Purchase and Sale of Assets dated as
of September__, 1997 (as amended, supplemented or otherwise modified from time
to time pursuant to the terms thereof, the "ASSET PURCHASE AGREEMENT"), by and
among the Company, Northeast and the Seller Subordinated Creditor and the
stockholders of the Seller Subordinated Creditor, the Seller Subordinated
Creditor will be issued a Convertible Subordinated Promissory Note of Northeast
due September__, 2002 in the original principal amount of $560,000 (as amended,
supplemented or otherwise modified from time to time pursuant to the terms
thereof, the "SELLER SUBORDINATED NOTE"); and
WHEREAS, it is a condition under the Securities Purchase Agreement that the
Company, the Payor and the Seller Subordinated Creditor shall execute and
deliver this Subordination Agreement to the Senior Subordinated Creditors prior
to entering into the transactions contemplated by the Asset Purchase Agreement;
NOW, THEREFORE, in consideration of the benefits accruing to the parties
hereto, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby make the following representations and warranties and hereby
covenant and agree as follows:
-1-
<PAGE>
ARTICLE I
SUBORDINATION
SECTION 1.1. Defined Terms. For purposes of this Subordination
Agreement, the following terms shall have the following meanings:
"COMPANY" shall have the meaning set forth in the preamble.
"DEFAULT NOTICE" shall have the meaning set forth in Section
1.2.B.1(1)(b).
"GUARANTORS" shall mean Northeast and each such other subsidiary of
the Company at any time which shall become a party to the Subsidiary Guarantee
Agreement dated effective January 17, 1997 by and among the Company and the
Guarantors or the Subsidiary Guarantee Agreement dated the date hereof by and
among the Company and one or more Guarantors.
"INTEREST NOTES" shall mean interest notes issued by the Company, in
the sole discretion of the holders of the Senior Subordinated Notes, in lieu of
a cash payment of any or all interest due on the Senior Subordinated Notes for a
specific period of time.
"OBLIGATIONS" shall mean all obligations and liabilities (direct or
indirect, absolute or contingent, due or to become due or now existing or
hereafter incurred), whether for principal, interest, premium, fees, costs, or
expenses or otherwise of the Company and any of the Guarantors under the Senior
Subordinated Notes, including but not limited to those obligations with respect
to the Senior Subordinated Notes arising under the Subsidiary Guarantee
Agreement.
"OTHER SUBORDINATED INDEBTEDNESS" means any indebtedness now or
hereinafter due and owing by the Company or any of the Guarantors to any person
who is the seller of a court reporting and/or litigation service business and
who finances all or part of the purchase price thereof.
"PAYOR" shall have the meaning set forth in the preamble.
"SELLER SUBORDINATED CREDITOR" shall have the meaning set forth in the
preamble.
"SELLER SUBORDINATED DEBT" shall have the meaning set forth in Section
1.2.A
"SELLER SUBORDINATED" shall have the meaning set forth in second
whereas clause.
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<PAGE>
"SENIOR SUBORDINATED CREDITOR" shall mean, collectively, the holder or
holders of the Senior Subordinated Notes, and their respective successors and
assigns, in each case as a holder of Obligations, and Senior Subordinated
Creditor means any one of them.
"SENIOR SUBORDINATED DEBT" shall have the meaning set forth in Section
1.2.A.
"SENIOR SUBORDINATED DEBT LIENS" shall have the meaning set forth in
Section 1.2.G.
"SENIOR SUBORDINATED NOTE" shall have the meaning set forth in the
first whereas clause.
"SUBORDINATION AGREEMENT" shall mean this Subordination Agreement, as
amended, supplemented or otherwise modified from time to time pursuant to the
terms hereof.
"SUBSIDIARY GUARANTEE AGREEMENT" shall mean that certain Subsidiary
Guarantee Agreement dated the date hereof by and among the Company and one or
more Guarantors.
SECTION 1.2. Subordination.
A. Seller Subordinated Debt Subordinate to Senior Subordinated Debt.
All obligations and indebtedness of the Company to the Seller Subordinated
Creditor in respect of the Seller Subordinated Note shall be junior and
subordinate to prior payment in full of the Obligations to the extent and in the
manner provided in this Section 1.2 and the Seller Subordinated Creditor by
acceptance of this Subordination Agreement agrees to be bound by the provisions
of this Section 1.2. The Senior Subordinated Debt shall continue to be senior
and entitled to the benefits of these subordination provisions irrespective of
any amendment, modification or waiver of any term of the Senior Subordinated
Debt or extension or renewal of the Senior Subordinated Debt. For purposes
hereof, indebtedness evidenced by the Senior Subordinated Note, the Interest
Notes and the Subsidiary Guarantee Agreement, including any refinancing,
extension or modification thereof, and any additional indebtedness senior to
Other Subordinated Indebtedness which is created or incurred after the date
hereof shall constitute "SENIOR SUBORDINATED DEBT," and any and all
indebtedness, including the payment of the principal of, and interest on, and
all other amounts owing in respect of the Seller Subordinated Note, including
any refinancing, extension or modification thereof, shall constitute "SELLER
SUBORDINATED DEBT."
B. Suspension of Right to Receive Payments in Respect of the Seller
Subordinated Note.
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B(1). Failure to pay Principal of or Interest on Senior Subordinated
Debt. (a) Upon (i) the maturity of Senior Subordinated Debt by lapse of time,
acceleration or otherwise, (ii) any failure by the Company or a Guarantor to
make any payment of principal or interest when due with respect to Senior
Subordinated Debt following expiration of any applicable grace period, (iii) any
default in the payment by the Company or a Guarantor of any interest or other
amounts due with respect to Senior Subordinated Debt, or (iv) the issuance by
the Company of any Interest Notes (solely to the extent that the Senior
Subordinated Creditor has opted for such issuance because otherwise the Company
would default under the Senior Subordinated Debt) then, unless either (x) with
respect to (i), (ii) or (iii) of paragraph B(l)(a) above, such failure or
default is remedied in a manner reasonably satisfactory to the holders of the
Senior Subordinated Debt or waived in writing by the holders of such Senior
Subordinated Debt, or (y) with respect to (iv) of paragraph B(l)(a) above, all
such Interest Notes are paid off in full, all principal on the Senior
Subordinated Debt and all interest thereon and other amounts due in connection
therewith, shall be paid to the holders of the Senior Subordinated Debt in full,
or such payment duly provided for in cash or in a manner reasonably satisfactory
to the holders of such Senior Subordinated Debt, before any direct or indirect
payment or distribution of any kind or character, whether in cash, property or
securities, shall be paid or delivered with respect to the Seller Subordinated
Debt, and any payment or distribution of any kind or character, whether in cash,
property or securities, which may be payable or delivered with respect to the
Seller Subordinated Debt, shall be paid or delivered directly to the holders of
the Senior Subordinated Debt, ratably, for application in payment thereof,
unless and until all Senior Subordinated Debt shall have been paid in full.
(b) Upon the occurrence of (i) any default or event with respect to
the Senior Subordinated Debt of the types described in clause (i), (ii), (iii)
or (iv) of paragraph B(1)(a) above, or (ii) any other default with respect to
any Senior Subordinated Debt as defined therein or in the instrument under which
it is outstanding which would, with the giving of notice or the passage of time,
or both, automatically accelerate or permit the holders of such Senior
Subordinated Debt to accelerate the maturity thereof upon written notice thereof
given to the Company or any Guarantor by the holders of such Senior Subordinated
Debt or their representatives (a "DEFAULT NOTICE"), then, unless and until
either (x) with respect to (i), (ii) or (iii) of paragraph B(1)(a) above, such
default with respect to Senior Subordinated Debt shall have been remedied in a
manner reasonably satisfactory to the holders of the Senior Subordinated Debt or
waived in writing by the holders of such Senior Subordinated Debt, or (y) with
respect to (iv) of paragraph B(l)(a) above, all such Interest Notes are paid in
full, no direct or indirect payment (in cash, property or securities or by
setoff or otherwise) shall be made by the Company or any of the Guarantors with
respect to the Seller Subordinated Debt.
(c) Upon the occurrence of (i) any default or event with respect to
Senior Subordinated Debt of the types described in clause (i), (ii), (iii) or
(iv) of paragraph B(l)(a) above, or (ii) the giving of any Default Notice,
neither the Company nor any of the Guarantors shall make any direct or indirect
payments, and the Seller Subordinated Creditor shall not receive, ask, demand,
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sue for any payment or otherwise exercise their remedies against the Company or
any of the Guarantors with respect to the Seller Subordinated Debt, unless and
until such default with respect to Senior Subordinated Debt has been remedied in
a manner reasonably satisfactory to the holders of the Senior Subordinated Debt
or waived in writing.
B(2). Acceleration of Payment of Senior Subordinated Debt. If at the
time (i) the Senior Subordinated Debt shall have been declared by the holders
thereof due and payable before its expressed maturity and (ii) such acceleration
shall not have been expressly rescinded in writing by the holders of Senior
Subordinated Debt pursuant to the Securities Purchase Agreement, then 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 Seller
Subordinated Debt shall be paid or delivered directly to the holders of Senior
Subordinated Debt, ratably, for application in payment thereof, unless and until
all Senior Subordinated Debt shall have been paid in full or such acceleration
shall have been rescinded.
B(3). Bankruptcy or Insolvency. In the event of (a) any insolvency,
bankruptcy, liquidation, reorganization, readjustment, composition or other
similar proceedings, or any receivership proceedings in connection therewith,
relative to the Company or any Guarantor, their creditors as such or their
property; (b) any proceedings for liquidation, dissolution or other winding-up
of the Company or Northeast, voluntary or involuntary, whether or not involving
insolvency or bankruptcy proceedings; (c) any assignment of the Company or any
Guarantor for the benefit of creditors; (d) any other marshaling of the assets
of the Company or any Guarantor; or (e) any acceleration of any Senior
Subordinated Debt, then all Senior Subordinated Debt (including any interest
thereon occurring at the legal rate after the commencement of such proceedings),
shall be paid in full before any further payment or distribution, whether in
cash, securities or other property, is made with respect to the Seller
Subordinated Debt. In any of such 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 the Seller Subordinated Debt shall be
paid or delivered directly to the holders of the Senior Subordinated Debt
(including any interest thereon occurring at the legal rate after the
commencement of any such proceeding in addition to interest that would have
accrued thereon but for the commencement of such proceedings), ratably, for
application in payment thereof, unless and until all Senior Subordinated Debt
shall have been paid in full.
C. Rights of Holders of Senior Subordinated Debt Not to Be Impaired.
No right of any present or future holder of any Senior Subordinated Debt to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act by any such holder, or by
any noncompliance by the Company, any Guarantor or the Senior Subordinated
Creditor with the terms and provisions and covenants herein contained,
regardless of any knowledge thereof any such holder of the Senior Subordinated
Debt may have or otherwise be charged with. The provisions of this Section 1.2
are intended to be for the benefit of, and shall be enforceable directly by, any
one or more of the holders from time to time of the Senior Subordinated Debt.
The Senior
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Subordinated Creditor waives notice of or proof of reliance on the Subordination
Agreement and protest, demand for payment and notice of default by the holders
of Senior Subordinated Debt.
D. Company's Obligation Unconditional. The provisions of this Section
1.2 are solely for the purpose of defining the relative rights of the holders of
Senior Subordinated Debt, on the one hand, and the holders of the Seller
Subordinated Debt, on the other hand, against the Company and Northeast and
their properties. Nothing herein shall impair, as between the Company and
Northeast, on the one hand, and the Senior Subordinated Creditors, on the other
hand, the obligation of the Company and Northeast which is unconditional and
absolute, to pay all amounts due with respect to the Seller Subordinated Debt in
accordance with the terms thereof and the provisions hereof and, except as
expressly provided in this Section 1.2, nothing herein shall prevent the Seller
Subordinated Creditor from exercising all remedies otherwise permitted by
applicable law, hereunder or under the Seller Subordinated Note, subject to the
rights under this Section 1.2 of holders of Senior Subordinated Debt to receive
cash, property or securities otherwise payable or deliverable to the Senior
Subordinated Creditors. The failure to make any payment with respect to the
Subordination Agreement by reason of any provision of this Section 1.2 shall not
be construed as preventing the occurrence of a default hereunder.
E. Payments Held in Trust. If the Seller Subordinated Creditor shall
receive any payment or delivery of cash, property or securities in respect of
the Seller Subordinated Note in contravention of any of the provisions of this
Section 1.2 and before all the Senior Subordinated Debt shall have been paid in
full, the Seller Subordinated Creditor will hold any amount so received in trust
for benefit of the holders of Senior Subordinated Debt and will forthwith
deliver and transfer to the holders of Senior Subordinated Debt such payment or
delivery in the form received to be applied in payment or prepayment of Senior
Subordinated Debt; provided, however, that the Seller Subordinated Creditor
shall not be obligated to make an independent determination as to whether a
payment received by it was appropriately made by the Payor.
F. Subrogation. (a) Upon the payment in full of all Senior
Subordinated Debt, the Seller Subordinated Creditor shall be subrogated to the
rights of the holders of Senior Subordinated Debt to receive payments or
distributions of assets of the Payor applicable to Senior Subordinated Debt
until the Seller Subordinated Debt shall have been paid in full. For the purpose
of subrogation, no payments to the holders of Senior Subordinated Debt of any
cash, property or securities that the Seller Subordinated Creditor would be
entitled to receive and retain but for the provisions of this Section 1.2, and
no payment over pursuant to the provisions of this Section 1.2 to holders of
Senior Subordinated Debt by the Seller Subordinated Creditor, shall, as between
the Payor and its creditors (other than the holders of Senior Subordinated
Debt), on the one hand, and the Seller Subordinated Creditor, on the other hand,
be deemed to be a payment by the Payor with respect to the Senior Subordinated
Debt.
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(b) The Seller Subordinated Creditor agrees that if it becomes
subrogated to the rights of the holders of the Senior Subordinated Debt as a
result of a payment or distribution to the holders of the Senior Subordinated
Debt pursuant to these subordination provisions and they obtain payment in cash
or property from the Payor and apply such payment to the Seller Subordinated
Debt, and if any payment by the Payor to holders of the Senior Subordinated Debt
must be disgorged by the holders of the Senior Subordinated Debt as a result of
any action under the United States Bankruptcy Code or other debtor relief law,
the Seller Subordinated Creditor shall disgorge and pay to the holders of the
Senior Subordinated Debt any amount collected by the Seller Subordinated
Creditor in exercising their rights of subrogation that was applied to payment
of the Seller Subordinated Debt.
G. Subordinated Debt Liens. (a) Notwithstanding any defect,
deficiency, error or omission contained in any security instruments hereafter
creating any lien or security interest securing payment of all or any portion of
the Senior Subordinated Debt ("SENIOR SUBORDINATED DEBT LIENS") and
notwithstanding any defect, deficiency, error or omission in the execution,
acknowledgment or filing or recording of same, the Seller Subordinated Creditor
waive and relinquish all rights to contest, question or raise any such defect,
deficiency, error or omission, and further acknowledges, ratifies and confirms
that, as between the Seller Subordinated Creditor and the holders of the Senior
Subordinated Debt, the Senior Subordinated Debt Liens on the property covered
thereby are, or when the security interests creating the Senior Subordinated
Debt Liens are executed will be, valid and perfected security interests and
liens, senior in priority to any and all liens in favor of the Seller
Subordinated Creditor.
(b) The Seller Subordinated Creditor agrees that, notwithstanding any
agreement in any document now or hereafter existing relating to or securing
payment of the Seller Subordinated Debt, so long as any portion of Senior
Subordinated Debt remains unpaid, and upon notice to the Seller Subordinated
Creditor, the holders of Senior Subordinated Debt upon foreclosure of the Senior
Subordinated Debt Liens, may sell any property covered by any of the Senior
Subordinated Debt Liens without the approval of or consent from the Seller
Subordinated Creditor, and any provision in any such document which requires the
consent or approval of the Seller Subordinated Creditor prior to any such sale
is hereby waived and relinquished so long as any part of the Senior Subordinated
Debt remains unpaid, and the interest, if any, of the Seller Subordinated
Creditor in such property so sold shall be deemed to be released without the
necessity of any executed release, termination or other act.
(c) Any holder of Senior Debt may extend, renew, modify or amend the
terms of any security therefor and release, sell or exchange such security and
otherwise deal freely with the Company, any Guarantor or any affiliate to the
same extent as could any person, all without notice to or consent of the Seller
Subordinated Creditor and without affecting the liabilities and obligations of
the Seller Subordinated Creditor pursuant to the provisions hereof.
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(d) The Seller Subordinated Creditor agrees that, notwithstanding any
agreement in any document now or hereafter existing relating to or securing
payment of the Seller Subordinated Debt, so long as any portion of Senior
Subordinated Debt remains unpaid, unless prior approval of or consent is
obtained from the Senior Subordinated Creditors, the Seller Subordinated Debt
will be and remain unsecured.
H. Waiver. The Seller Subordinated Creditor agree that,
notwithstanding any agreement to the contrary, so long as any portion of Senior
Subordinated Debt remains unpaid, any provision in any document now or hereafter
existing which requires the consent or approval of the Seller Subordinated
Creditor prior to the taking of any action by the Senior Subordinated Creditors
is hereby waived and relinquished.
I. Amendment. The provisions in Sections A through I shall not be
amended or modified and no term or provision hereof shall be waived without the
express prior written consent of the holders of Senior Subordinated Debt.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
The Seller Subordinated Creditor hereby represent and warrant to the
holders of the Senior Subordinated Debt that:
SECTION 2.1 Capacity. The Seller Subordinated Creditor is a
corporation duly formed as such under the laws of the State of New York which
has full authority to enter into this Subordination Agreement.
SECTION 2.2. Authorization, Absence of Conflicts. The execution,
delivery and performance by them of this Subordination Agreement (a) will not
(i) violate any law or regulations applicable to the Seller Subordinated
Creditor, (ii) violate or constitute (with due notice or lapse of time or both)
a default under any indenture, agreement, license or other instrument to which
the Seller Subordinated Creditor is a party or by which it or any of its
properties may be bound or affected, (iii) violate any order of any court,
tribunal or governmental agency binding upon them or their properties or (iv)
result in the creation or imposition of any Lien of any nature whatsoever upon
any of its properties or assets and (b) does not require any license, consent or
approval of any governmental agency or regulatory authority.
SECTION 2.3. Binding Obligations. This Subordination Agreement
constitutes a legal, valid and binding obligation of the Seller Subordinated
Creditor, enforceable in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
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reorganization, moratorium or similar laws affecting enforceability of
creditors' rights generally or equitable principles at the time in effect.
ARTICLE III
DEFAULT AND REMEDIES
SECTION 3.1. Exercise of Rights. If an Event of Default shall occur
and be continuing, a majority (by principal amount of the Senior Subordinated
Notes then outstanding) of the Senior Subordinated Creditors shall have the
right, power and authority to do all things they deem necessary or advisable to
enforce the provisions of this Subordination Agreement. A majority (by principal
amount of the Senior Subordinated Notes then outstanding) of the Senior
Subordinated Creditors shall have the right in their sole discretion to
determine which rights, guarantees, liens, security interests or remedies they
shall retain, pursue, release, subordinate, modify or take any other action with
respect thereto, without in any way modifying or affecting any other of them or
any of their rights hereunder.
SECTION 3.2. Expenses. The Company agrees to pay on demand all
reasonable costs and expenses of the Senior Subordinated Creditors (including
without limitation all reasonable fees and disbursements of any counsel to the
Senior Subordinated Creditors), incurred by the Senior Subordinated Creditors in
connection with the enforcement of the Senior Subordinated Creditors' rights
hereunder and the collection of amounts payable hereunder. This agreement to pay
costs is cumulative of, and shall not limit, the Senior Subordinated Creditors
rights to indemnification against all liability, loss or damages pursuant to
paragraph 12B of the Securities Purchase Agreement.
SECTION 3.3. Cumulative Remedies. This Subordination Agreement and the
obligations of the Seller Subordinated Creditor hereunder are in addition to and
not in substitution for any other obligations or security interests now or
hereafter held by the Senior Subordinated Creditors. The remedies herein
provided are cumulative and are not exclusive of any remedy provided by law.
SECTION 3.4. Waivers and Amendments. No failure on the part of the
Senior Subordinated Creditors to exercise, and no delay in exercising, and no
course of dealing with respect to, any right, power or remedy hereunder shall
operate as a waiver thereof or of any default, nor shall any single or partial
exercise by the Senior Subordinated Creditors of any right, power or remedy
hereunder preclude any other or further exercise thereof or the exercise of any
other right, power or remedy of the Senior Subordinated Creditors. No
modification or waiver of any provision of this Subordination Agreement nor
consent to any departure herefrom shall in any event be effective unless the
same shall be in writing and signed by the Senior Subordinated Creditors and
then such waiver or consent shall be effective only in the specific instance and
for the purpose for which given.
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ARTICLE IV
MISCELLANEOUS
SECTION 4.1. Notices. All notices, requests, demands or other
communications related to this Subordination Agreement to or on the Seller
Subordinated Creditor or any Senior Subordinated Creditors shall be in writing
and shall be sent by first class mail, overnight courier or by fax with hard
copy by first class mail or overnight courier, if to the Seller Subordinated
Creditor, to their address set forth on the signature pages hereto and, if to
any Senior Subordinated Creditors, to the respective addresses set forth on
Schedule I, or at such other address or facsimile numbers as any such party may
hereafter specify to the others 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.
SECTION 4.2. Successors and Assigns; Survival. (a) This Subordination
Agreement shall inure to the benefit of and shall be binding upon the respective
successors and assigns of the parties hereto; provided, however, that any such
successor or assignee shall agree to be bound by this Agreement. All covenants,
agreements, representations and warranties made herein by the Seller
Subordinated Creditor shall survive the execution and delivery of this
Subordination Agreement and shall continue in full force and effect until all
Obligations have been paid in full.
(b) Any Senior Subordinated Creditor may assign its rights and powers
under this Subordination Agreement, and, in the event of such assignment, the
assignee of such rights and powers, to the extent of such assignment, shall have
the same rights and remedies as if originally named herein in the place of such
Senior Subordinated Creditor.
SECTION 4.3. Section Headings. Article and Section headings contained
in this Subordination Agreement are for convenience only and shall not affect
the construction of this Subordination Agreement.
SECTION 4.4. Governing Law. This Subordination Agreement shall be
governed by, and construed in accordance with, the laws of the State of New York
without giving effect to the conflicts or choice of law principles thereof.
SECTION 4.5. SUBMISSION TO JURISDICTION. ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS SUBORDINATION 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
SUBORDINATION AGREEMENT, THE SELLER SUBORDINATED CREDITOR HEREBY ACCEPTS FOR
ITSELF AND IN
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RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS. THE SELLER SUBORDINATED CREDITOR 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 SELLER SUBORDINATED CREDITOR AT THEIR ADDRESS SET FORTH
IN SECTION 4.1, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE SENIOR SUBORDINATED CREDITOR TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE SELLER SUBORDINATED CREDITOR IN ANY
OTHER JURISDICTION.
SECTION 4.6 Severability. If any part of this Subordination Agreement
is contrary to, prohibited by or deemed invalid under any applicable law of any
jurisdiction, such provision shall, as to such jurisdiction, be inapplicable and
deemed omitted to the extent so contrary, prohibited or invalid, without
invalidating the remainder hereof or affecting the validity or enforceability of
such provision in any other jurisdiction.
SECTION 4.7. WAIVER OF TRIAL BY JURY. THE SELLER SUBORDINATED CREDITOR
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 SUBORDINATION AGREEMENT OR ANY OTHER AGREEMENT
OR DOCUMENT REFERRED TO HEREIN AND THE SELLER SUBORDINATED CREDITOR AGREE THAT
ANY SUCH DISPUTE SHALL, AT THE OPTION OF ANY SENIOR SUBORDINATED CREDITOR AS THE
CASE MAY BE, BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
SECTION 4.8. Counterparts. This Subordination Agreement may be
executed in several counterparts, each of which shall be an original and all of
which shall constitute but one and the same instrument.
ARTICLE V
TERMINATION
This Agreement shall terminate upon the payment in full of all
Obligations.
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IN WITNESS WHEREOF, the parties hereto have caused this Subordination
Agreement to be duly executed by their duly authorized officers as of the day
and year first above written.
THE COMPANY:
LITIGATION RESOURCES OF AMERICA,
INC., a Texas corporation
By:___________________________
Name:_________________________
Title:________________________
ADDRESS:
Litigation Resources of America, Inc.
650 First City Tower, 1001 Fannin
Houston, Texas 77002
NORTHEAST
LITIGATION RESOURCES OF AMERICA-NORTHEAST,
INC., a New York corporation
By:____________________________
Name:__________________________
Title:_________________________
ADDRESS:
Litigation Resources of America-Northeast, Inc.
650 First City Tower, 1001 Fannin
Houston, Texas 77002
THE SELLER SUBORDINATED CREDITOR:
AMICUS ONE LEGAL SUPPORT SERVICES, INC.,
a New York corporation
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By:____________________________
Name:__________________________
Title:_________________________
ADDRESS:
______________________________
______________________________
New York, New York 100__
SENIOR SUBORDINATED CREDITORS:
DELAWARE STATE EMPLOYEES'
RETIREMENT FUND
By: Pecks Management Partners Ltd.
Its Investment Advisor
By:__________________________________
Name:________________________________
Title:_________________________________
DECLARATION OF TRUST FOR DEFINED
BENEFIT PLAN OF ICI AMERICAN HOLDINGS
INC.
By: Pecks Management Partners Ltd.
Its Investment Advisor
By:__________________________________
Name:________________________________
Title:_________________________________
DECLARATION OF TRUST FOR DEFINED
BENEFIT PLAN OF ZENECA HOLDINGS INC.
By: Pecks Management Partners Ltd.
Its Investment Advisor
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By:_________________________________
Name:_______________________________
Title:______________________________
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Senior Subordinated Creditors:
SCHEDULE I
DELAWARE STATE EMPLOYEES'
RETIREMENT FUND
c/o Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, New York 10020
Facsimile: 212-332-1334
Attn: Robert J. Cresci
DECLARATION OF TRUST
FOR DEFINED BENEFIT
PLAN OF ZENECA HOLDINGS INC.
c/o Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, New York 10020
Facsimile: 212-332-1334
Attn: Robert J. Cresci
DECLARATION OF TRUST
FOR DEFINED BENEFIT
PLAN OF ICI AMERICAN HOLDINGS INC.
c/o Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, New York 10020
Facsimile: 212-332-1334
Attn: Robert J. Cresci
with a copy to, in each case,
WILLKIE FARR & GALLAGHER
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
Facsimile: 212-821-8111
Attn: William J. Grant, Jr.
<PAGE>
EXHIBIT F-2
SELLER DEBT SUBORDINATION AGREEMENT
This Seller Debt Subordination Agreement (the "Agreement") is made and
entered into effective September 4, 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. and BLOCK TAPE TRANSCRIPTION SERVICES, INC. (sometimes herein
collectively called the "Borrowers," and singly called a "Borrower"), and AMICUS
ONE LEGAL SUPPORT SERVICES, INC. (the "Subordinate Creditor"), and TEXAS
COMMERCE BANK NATIONAL ASSOCIATION (the "Senior Creditor").
RECITALS
The Borrowers are indebted to the Senior Creditor pursuant to the terms
of a Third Amended and Restated Credit Agreement (the "Credit Agreement") dated
September 4, 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 Subordinated Creditor, Richard A. Portas, Joseph N.
Spinozzi, Carl Anderson and Howard Breshin have entered into an Agreement of
Purchase and Sale of Assets (the "Amicus Agreement") dated as of September 4,
1997, for the sale by the Subordinated Creditor and the purchase by LRA-NE of
substantially all of the assets (the "Assets") which are owned by the
Subordinated Creditor. Pursuant to the terms of the Amicus Agreement, LRA-NE
will become indebted to the Subordinated Creditor as evidenced by a 6%
convertible subordinated promissory note (the "Note") in the original principal
sum of $560,000.00, to be executed by LRA-NE payable to the order of the
Subordinated Creditor. One or more of the Borrowers may, from time to time,
become further indebted to the Subordinated Creditor 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 the
Subordinated Creditor 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 the Subordinated Creditor whether, (i) created
directly or acquired by assignment or otherwise, (ii) evidenced by a note, open
account, application for letter of credit, or 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 Subordinated Creditor to be evidenced by the
Amicus Agreement. Conditioned on the Subordinated Creditor 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
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Amicus 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
the Subordinated Creditor, 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
Amicus 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 Creditor 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) Expect 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) the
Subordinate Creditor shall not ask, demand, sue for, 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, 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 Creditor and held by the Subordinate Creditor 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 exist no Event of Default of which the
Subordinate Creditor shall have been given notice (or if notice of an
Event of Default shall have been given to the Subordinate Creditor
and the Borrowers shall have cured the Event of Default without the
Senior Creditor accelerating the Senior Debt), LRA-NE may make, and
the Subordinate Creditor may receive and retain for the Subordinate
Creditor's account, scheduled accrued interest payments, as and when
such interest payments accrue on the Note.
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 Creditor shall have been given notice (or if notice of an
Event of Default shall have been given to the Subordinate Creditor
and the Borrowers shall have cured the Event of Default without the
Senior Creditor accelerating the
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<PAGE>
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
Creditor may receive and retain for the Subordinate Creditor's
account, scheduled principal installment payments, as and when such
principal payments are due on the Note 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 quarterly installments to be paid on the Note shall not exceed
$41,333.33 of principal, together with accrued interest thereon,
without the Senior Creditor's prior written consent.
E. LRA-NE and the Subordinate Creditor 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 Creditor 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 Creditor shall cease to have
the right to receive and retain, any payments on the Subordinated
Debt and all such payments received by the Subordinate Creditor
thereafter shall be held in trust for the benefit of the Senior
Creditor pursuant to this Agreement.
3. Furtherance of Subordination.
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, or (iii) upon an assignment for the benefit of
creditors or otherwise 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 Creditor is 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 Creditor would be entitled except
for the provisions of this Agreement, shall be paid by the Person
making 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 name of the Subordinate Creditor 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)
-3-
<PAGE>
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 Creditor 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 interest 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 Creditor may demand, sue for, collect and, after the
Senior Debt is paid in full, including, if necessary, the payment
over by the Subordinate Creditor 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
Creditor may deem necessary or advisable for the exercise or
enforcement of any of the rights or interests of the Subordinate
Creditor.
B. To the fullest extent permitted by law, the Subordinate Creditor
irrevocably agrees that the Subordinate Creditor will not exercise
and the Subordinate Creditor 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 Subordinated Creditor agrees that, in the event
that the Subordinated Creditor exercises any right of setoff in any
Proceeding, the Subordinate Creditor 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 Creditor in
violation of this Agreement on account of the Subordinated Debt
before all Senior Debt is paid in full, or 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 the Subordinate Creditor shall have failed to comply
with any of the provisions of this Agreement applicable to the
Subordinate Creditor. The Subordinate Creditor irrevocably waives
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-
<PAGE>
4. Subordination of Liens. The Subordinate Creditor agrees that the
Subordinate Creditor will not 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 the Subordinate
Creditor 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 Creditor 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 Debt"), the
Subordinate Creditor 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 interest, 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 Creditor agrees that, so
long as any of the Senior Debt shall remain unpaid, the Subordinate Creditor
will not commence, or join with any creditor other than the Senior Creditor in
commencing any Proceeding referred to in Section 3.A.
6. Subrogation. The Subordinate Creditor agrees 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 the
Subordinate Creditor to exercise any right of subrogation in respect thereof and
the Subordinate Creditor shall not 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 Creditor), all
payments or distributions made to the Senior Creditor to which the Subordinate
Creditor 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
Creditor and shall not affect the rights of the Subordinate Creditor against any
other Person.
7. Subordination Legend: Further Assurances.
A. LRA-NE and the Subordinate Creditor 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 4, 1997, by
-5-
<PAGE>
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 Creditor 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 Creditor 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
Creditor 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 Creditor 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,
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 Creditor or any other Person (all of which
are waived by the Subordinate Creditor), 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 Creditor.
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.
6
<PAGE>
12. Waivers. Except as specifically set out herein, the Subordinate
Creditor 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, the Subordinate Creditor 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 Creditor represent and warrant that the
Subordinated Debt represented by the Note, (1) bears interest, and at
all times prior to the payment in full of the Senior Debt, will bear
interest at six (6) per cent per annum, (2) the principal of the Note
is due and payable in sixteen (16) quarterly installments commencing
on October 1, 1998, and continuing on each January 1, April 1, July 1
and October 1 thereafter, and (3) the interest on the Note is due and
payable as it accrues in quarterly installments commencing on October
1, 1997, and continuing on each January 1, April 1, July 1 and
October 1 thereafter.
B. Each of the Borrower respectively represents and warrants that, (1)
the Subordinated Debt now outstanding, true and complete copies of
any instruments evidencing which having 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. The Subordinate Creditor represents and warrants that, (1) the
Subordinate Creditor owns 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 Creditor of this Agreement do not and will not
contravene any law or governmental regulation or any contractual
restriction binding on or affecting the Subordinate Creditor or any
of the Subordinate Creditor's properties, and do not and will not
result in or require the creation of any Lien, security interest or
other charge or encumbrance upon or with respect to any of the
Subordinate Creditor's properties, (3) this Agreement is a legal,
valid and binding obligation of the Subordinate Creditor, enforceable
against the Subordinate Creditor in accordance with its terms, and
(4) to the knowledge of the Subordinate Creditor, 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 the Subordinate Creditor 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 Creditor 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
7
<PAGE>
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 Subordinated Creditor: AMICUS ONE LEGAL SUPPORT SERVICES, INC.
c/o Thomas J. Kovarcik, Esquire
237 Park Avenue, 21st Floor
New York, New York 10017
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.
18. Continuing Agreement: Transfer of Note. All representations,
warranties and covenants made by the Subordinate Creditor 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 Creditor, the
Borrowers and their respective successors and assigns and any subsequent holder
of Subordinated Debt, and (c) inure to the benefit of and be enforceable 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.
8
<PAGE>
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 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
certifications 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 Creditor acknowledges that the Subordinate
Creditor is not a party to and does not and shall not have any rights or
benefits thereunder. The Subordinate Creditor acknowledges that the Subordinate
Creditor has been provided copies of the Loan Documents, that the Subordinate
Creditor has 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.
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<PAGE>
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 September __, 1997, to be 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
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
AMICUS ONE LEGAL SUPPORT TEXAS COMMERCE BANK
SERVICES, INC. NATIONAL ASSOCIATION
BY:
- ---------------------------------- ---------------------------------
NAME: CARLOS VALDEZ
TITLE: VICE PRESIDENT
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<PAGE>
EXHIBIT G
EXHIBIT A
ADDENDUM AGREEMENT
TO
SHAREHOLDERS' AGREEMENT
THIS AGREEMENT made this ____ day of September__, 1997, among AMICUS
ONE LEGAL SUPPORT SERVICES, INC., a New York corporation (the "Proposed
Shareholder"), and each of the parties listed on the signature pages hereof (the
"Shareholders");
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, LITIGATION RESOURCES OF AMERICA, INC. (the "Corporation"),
and the Shareholders, who are the holders of all of the issued and outstanding
shares of common stock, $0.01 par value ("Common Stock"), of the Corporation,
are parties to a First Amended and Restated Shareholders' Agreement dated as of
May 14, 1997 (the "Agreement"), pertaining to the ownership and transferability
of shares of Common Stock of the Corporation by the Shareholders and other
matters; and
WHEREAS, the Corporation proposes to issue an aggregate of 116,471
shares of Common Stock of the Corporation to the Proposed Shareholder; and
WHEREAS, the Corporation proposes to also issue a Convertible
Subordinated Promissory Note in the aggregate principal amount of $560,000 (the
"Convertible Note"), convertible under the terms and conditions set forth
therein into shares of Common Stock (the "Conversion Shares");
WHEREAS, Section 13(j) of the Agreement requires the Proposed
Shareholder to execute an Addendum Agreement in substantially the form of this
instrument;
NOW, THEREFORE, in consideration of the premises, the Proposed
Shareholder hereby agrees as follows:
1. The Proposed Shareholder agrees that upon the transfer or issuance
to him of 116,471 shares of Common Stock of the Corporation as contemplated
herein, he will become a Shareholder and will become bound by and will observe
and perform, and such shares, along with all shares hereafter acquired
(including, but not limited to any "Conversion Shares"), will continue to be
subject to, all of the terms and conditions of the Agreement. The Corporation
and the Shareholder agree and understand that it is anticipated that such shares
will eventually be distributed to the shareholders of the Shareholder and that
provided that such shareholders execute an
<PAGE>
Addendum Agreement in substantially the form of this Agreement and such
distribution is permissible under applicable securities laws, such distribution
shall be permitted by the Corporation.
2. The address to which all notices, requests, consents and other
communications under the Agreement shall be sent to the Proposed Shareholder as
provided in Section 11 of the Agreement, is as set forth below.
3. This Addendum Agreement shall be attached to and become part of
the Agreement.
THE CORPORATION:
LITIGATION RESOURCES OF AMERICA, INC.
a Texas corporation
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
THE PROPOSED SHAREHOLDER:
No. of
Shares of
Common
Address Stock Owned Name
- ------- ----------- ----
c/o Thomas J. Kovarcik, Esq. 116,471 AMICUS ONE LEGAL SUPPORT SERVICES,
INC., a New York corporation
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
<PAGE>
EXHIBIT I-1
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (this "Pledge Agreement") is made
effective as of the __th day of September, 1997, by AMICUS ONE LEGAL SUPPORT
SERVICES, INC., a New York corporation (the "Pledgor"), LITIGATION RESOURCES OF
AMERICA, INC., a Texas corporation ("Parent") and LITIGATION RESOURCES OF
AMERICA-NORTHEAST, INC., a New York corporation ("Northeast"). Parent and
Northeast are sometimes referred to herein as "Secured Parties").
W I T N E S S E T H:
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WHEREAS, Pledgor, the Stockholders of the Pledgor (the "Stockholders"),
Parent and Northeast Party have entered into an Agreement of Purchase and Sale
of Assets dated September __, 1997 (the "Purchase Agreement"), pursuant to which
Pledgor has sold to Secured Parties substantially all of the assets involved in
the business of Pledgor; and
WHEREAS, Pledgor and the Stockholders have certain obligations under the
Purchase Agreement, including, but not limited to, the obligation of Pledgor and
the Stockholders to indemnify Secured Parties for any breaches of
representations and warranties of Pledgor or the Stockholders contained in the
Purchase Agreement; and
WHEREAS, pursuant to the terms of the Purchase Agreement the Secured
Parties are obligated to issue at the Closing (as defined in the Purchase
Agreement) certain shares of common stock, $.01 par value (the "Parent Stock")
and the Note (as defined in the Purchase Agreement), and the Pledgor has the
right to convert at certain times sums due under the Note into additional shares
of Parent Stock, on the terms and conditions contained in the Note; and
WHEREAS, the terms of the Purchase Agreement provide for the Pledgor to
pledge the Parent Stock issued at the Closing and issued upon conversion of the
Note to the Secured Parties to secure certain of the obligations of Pledgor
and the Stockholders under the Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows (all capitalized terms used herein
and not otherwise defined shall have the meanings set forth in the Purchase
Agreement):
1. Pledge of Parent Stock. Pledgor hereby pledges and grants to Secured
Parties a security interest in the Parent Stock, which shall attach immediately
upon each issuance of Parent
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Stock whether issued at the Closing or upon conversion of the Note. Pledgor will
deliver to Secured Parties the certificate or certificates representing the
Parent Shares immediately upon the earlier of (i) payment of the Note in full or
conversion of the Note into Parent, or (ii) immediately following the delivery
of notice to the Pledgor/Seller of an Offset Claim which exceeds the unpaid
principal amount of the Note, in order that Secured Parties might perfect their
security interest therein. The Pledgor and the Secured Parties hereby
acknowledge and agree that the value of the Parent Stock shall be deemed to be
$8.50 per share of Parent Stock; provided, however, that if the Parent has
successfully consummated a public offering of its shares of Parent Stock, then
it shall mean the average public trading price of each share of Parent Stock
over the five (5) most recent business days falling prior to the date of
delivery by the Secured Parties/Buyer to the Pledgor/Seller of the notice of
Offset Claim, as such term is defined in the Purchase Agreement (the "Agreed
Value"). Pledgor shall possess all voting rights pertaining to the Parent Stock,
so long as an Event of Offset, as hereinafter defined in this Pledge Agreement,
has not occurred, or if an Event of Offset has allegedly occurred but is being
disputed by the parties hereto prior to submission to arbitration in accordance
with Section 9.14 of the Purchase Agreement, and Secured Parties shall have no
voting rights that may be presently or hereafter attributable to the Parent
Stock. In addition, so long as an Event of Offset has not occurred, or if an
Event of Offset has allegedly occurred but is being disputed by the parties
hereto prior to submission to arbitration in accordance with Section 9.14 of the
Purchase Agreement, then Pledgor shall have the right to receive all dividends,
if any, on the Parent Stock, and Pledgor shall be entitled to receive all
proceeds upon liquidation of the Parent Stock, if any, as well as all other
rights with respect to the Parent Stock except for the right to transfer title
thereto. Notwithstanding the foregoing, if an Event of Offset has occurred and
(i) has been resolved, either by failure to timely dispute it as required by
Section 9.14 of the Purchase Agreement, by agreement or by arbitration decided
in favor of Secured Parties (a "Resolved Event of Offset") or (ii) has been
submitted to arbitration in accordance with Section 9.14 of the Purchase
Agreement which arbitration is still pending or in process (a "Continuing Event
of Offset"), then Secured Parties shall have the right to designate a
representative or trustee to vote those shares of Parent Stock covered by or
subject to the Resolved Event of Offset or Continuing Event of Offset (the
"Offset Shares"), to receive all dividends and liquidation proceeds with respect
to the Offset Shares, and to receive all other rights with respect to the Offset
Shares, to the extent permissible under applicable law.
2. Representations and Warranties. Pledgor hereby represents, warrants
and covenants to and with Secured Parties that:
(a) Pledgor will not, without the written consent of Secured Parties,
sell, contract to sell, encumber, or dispose of the Parent Stock or any
interest therein until this Pledge Agreement and all obligations under the
Purchase Agreement have been fully satisfied.
(b) No consent of any party is necessary for Pledgor to perform its
obligations hereunder, or if any such consent is required, such consent has
been received prior to the execution of this Pledge Agreement.
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3. Event of Offset. Each delivery by Secured Parties/Buyer to the
Pledgor/Seller of a notice of Offset Claim shall constitute an Event of Offset
("Event of Offset") under this Pledge Agreement.
4. Remedies.
(a) Upon the occurrence of a Resolved Event of Offset, Secured Parties
may, at their option, exercise with reference to the Parent Stock any and
all of the rights and remedies of a Secured Parties under the Uniform
Commercial Code as adopted in the State of New York and as otherwise
granted therein or under any other applicable law or under any other
agreement executed by Pledgor, including, without limitation, the right and
power to sell, at public or private sale(s), or otherwise dispose of or
keep the Parent Stock and any part or parts thereof, or interest or
interests therein owned by Pledgor, in any manner authorized or permitted
under this Pledge Agreement or under the Uniform Commercial Code, and to
apply the proceeds thereof toward payment of any costs and expenses and
attorneys' fees and legal expenses thereby incurred by Secured Parties, and
toward payment of the obligations under the Purchase Agreement in such
order or manner as Secured Parties may elect. Notwithstanding anything to
the contrary contained herein, the Secured Parties shall only foreclose on
that portion of the Parent Stock that is reasonably necessary in the
reasonable good faith judgment of the Secured Parties in order to satisfy
the amount of the claim constituting the Resolved Event of Offset. For
purposes hereof, the Agreed Value of the Parent Stock shall be deemed to be
the value that the Secured Parties is receiving on the foreclosure of the
Parent Stock and Secured Parties shall not be entitled to foreclose on more
Parent Stock than is necessary to recover all of its damages resulting from
the Resolved Event of Offset.
(b) Secured Parties are hereby granted the right, at its option, after
a Continuing Event of Offset, to transfer at any time to itself or its
nominee the securities or other property hereby pledged, or any part
thereof, and to thereafter exercise all voting rights with respect to such
Parent Stock so transferred and to receive the proceeds, payments, monies,
income or benefits attributable or accruing thereto and to hold the same as
security for the obligations hereby secured, or at Secured Parties's
election, to apply such amounts to the obligations, only if due, and in
such order as Secured Parties may elect or Secured Parties may, at their
option, without transferring such securities or property to its nominee,
exercise all voting rights with respect to the securities pledged hereunder
and vote all or any part of such securities at any regular or special
meeting of shareholders.
(c) Pledgor hereby agrees to cooperate fully with Secured Parties in
order to permit Secured Parties to sell, at foreclosure or other private
sale, Pledgor's interest in the Parent Stock pledged hereunder as provided
in this Pledge Agreement. Specifically, Pledgor agrees to deliver to
Secured Parties the certificate or certificates representing the Parent
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Stock if Pledgor has possession at that time, to fully comply with the
securities laws of the United States and of the State of Texas or New York,
as applicable, and to take such other action as may be necessary to permit
Secured Parties to sell or otherwise transfer the securities pledged
hereunder in compliance with such laws.
5. Termination. This Pledge Agreement shall continue as security for the
payment or satisfaction of the obligations under the Purchase Agreement until
the earliest to occur of (i) termination of the Purchase Agreement, (ii)
termination of this Pledge Agreement by written notice of the Secured Parties to
the Pledgor, or (iii) three (3) years after the date of this Pledge Agreement,
provided that no Continuing Event of Offset exists which has not been satisfied
by Pledgor, or if there is an Continuing Event of Offset, the pledge shall
continue only to the extent of the amount of Stock based on the Stock Agreed
Value equal to the amount of damages reasonably expected to be caused by the
Continuing Event of Offset; provided however, upon the expiration of six months,
two years and three years after the date of this Pledge Agreement (each a
"Release Date"), the following provisions shall apply: (a) if no Offset Claim or
Continuing Event of Offset exists on such Release Date, the Secured party shall
release one-third (1/3) of the number of shares Stock originally pledged under
this Pledge Agreement from the pledge established hereby, and the remaining
shares of Stock shall remain pledged under the terms and conditions of this
Pledge Agreement; or (b) if an Offset Claim or Continuing Event of Offset
exists, the amount of Damages resulting from such Offset Claim or Continuing
Event of Offset shall be determined, and on the first Release Date, the second
Release Date and the third Release Date, one third (1/3), one half (1/2) and all
of the remaining Stock, respectively, that have not been Offset against shall be
released from the pledge established hereby and delivered to the Pledgor and the
remaining shares of Stock shall remained pledged under the terms and conditions
of this Pledge Agreement.
6. Release from Pledge. Upon the termination of this Pledge Agreement,
Secured Parties shall immediately release their security interest in the Parent
Stock. In addition, Secured Parties shall deliver the certificate or
certificates representing the Parent Stock to Pledgor if Secured Parties has
possession of such certificates at that time. Upon such occurrence, the
security interest of Secured Parties shall automatically terminate and Secured
Parties shall thereafter have no interest whatsoever in the Parent Stock.
7. 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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If to Pledgor: c/o Thomas J. Kovarcik, Esq.
237 Park Avenue
21/st/ Floor
New York, New York 10017
If to the
Secured Parties: Litigation Resources of America-Northeast, Inc.
Litigation Resources of America, Inc.
650 First City Tower, 1001 Fannin
Houston, Texas 77002
Attn: President
Copy to: Boyer Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Attn: John R. Boyer, Jr.
8. Successors. This Pledge Agreement shall be binding upon, and inure to
the benefit of the parties hereto and their successors and assigns. Any
assignee whatsoever will be bound by the obligations of the assigning party
under this Pledge Agreement, and any assignment shall not diminish the liability
or obligation of the assignor under the terms of this Pledge Agreement unless
otherwise agreed.
9. Severability. In the event that any one or more of the provisions
contained in this Pledge Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not
affect any other provision of this Pledge Agreement or any such other
instrument.
10. Paragraph Headings. The paragraph headings used herein are
descriptive only and shall have no legal force or effect whatsoever.
11. Gender. Whenever the context so requires, the masculine shall include
the feminine and neuter, and the singular shall include the plural and
conversely.
12. Survival of Warranties. All representations, warranties, and
agreements made by the parties in this Pledge Agreement or in any certificates
delivered pursuant hereto will survive the execution date hereof.
13. Applicable Law. This Pledge Agreement shall be construed and
interpreted in accordance with the laws of the United States of America and the
New York, and is intended to be performed in accordance with and as permitted by
such laws.
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14. Definitions. All terms and definitions used herein shall have the
same meaning as in the Purchase Agreement unless otherwise indicated.
15. Drafting. The parties hereto acknowledge that each party was actively
involved in the negotiation and drafting of this Pledge Agreement and that no
law or rule of construction shall be raised or used in which the provisions of
this Pledge Agreement shall be construed in favor or against either party hereto
because one is deemed to be the author thereof.
16. Attorneys' Fees. If any litigation is instituted to enforce or
interpret the provisions of this Pledge 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.
17. Arbitration. The arbitration provisions contained in Section 9.14 of
the Purchase Agreement shall govern this Pledge Agreement.
18. Multiple Counterparts. This Pledge Agreement may be executed in
multiple counterparts each of which shall be deemed an original and all of which
shall constitute one instrument.
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<PAGE>
IN WITNESS WHEREOF, this Pledge Agreement has been executed effective as of
the date first above written.
PLEDGOR:
AMICUS ONE LEGAL SUPPORT SERVICES, INC.,
a New York corporation
By:________________________________
Name:___________________________
Title:__________________________
SECURED PARTIES:
LITIGATION RESOURCES OF AMERICA, INC., a Texas
corporation
By:_______________________________________________
Name:_______________________________________
Title:______________________________________
LITIGATION RESOURCES OF AMERICA-NORTHEAST,
INC., a New York corporation
By:_______________________________________________
Name:_______________________________________
Title:______________________________________
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<PAGE>
EXHIBIT I-2
ESCROW AGREEMENT
This Escrow Agreement (the "Agreement") is dated effective as of the
__th day of September __, 1997, by and between 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"), and Thomas
J. Kovarcik, Esq., as escrow Agent (the "Escrow Agent"). All defined terms
contained in this Agreement shall have the meanings ascribed to them in the
Agreement of Purchase and Sale of Assets Purchase Agreement, dated September __,
1997 by and between the Buyer, Parent, Seller and Seller's Stockholders (the
"Purchase Agreement"), or the Pledge Agreement (as such term is defined in the
Purchase Agreement), unless otherwise specifically indicated. Parent, Buyer,
Seller, Seller's Stockholders and Escrow Agent are sometimes hereinafter
referred to collectively as the "Parties" and individually as a "Party".
W I T N E S S E T H:
WHEREAS, pursuant to the terms of the Purchase Agreement Buyer has
purchased from Seller, and Seller has sold to Buyer, the Assets;
WHEREAS, the Pledge Agreement requires that Seller deliver to Secured
Parties the certificate or certificates representing the Parent Shares
(collectively, the "Escrowed Shares") immediately upon the earlier of (i)
payment of the Note in full or conversion of the Note into Parent, or (ii)
immediately following the delivery of notice to the Pledgor/Seller of an Offset
Claim which exceeds the unpaid principal amount of the Note, in order that
Secured Parties might perfect their security interest therein, to secure certain
potential obligations of the Seller to the Secured Parties; and
WHEREAS, the Escrowed Shares would be delivered to the Secured Parties
under the Pledge Agreement, but for their being held in escrow pursuant to this
Agreement;
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties hereby
agree as follows:
<PAGE>
1. Delivery of Escrow Shares. The Escrowed Shares have been delivered to
Escrow Agent, and Escrow Agent acknowledges receipt thereof. The Parties agree
that the Escrow Agent shall hold the Escrow Shares in escrow until delivered to
the Secured Parties or returned to the Seller in accordance with the terms of
this Agreement.
2. Delivery of Escrowed Shares to Secured Parties. Immediately upon the
earlier of (i) payment of the Note in full or conversion of the Note into
Parent, or (ii) delivery of notice to the Pledgor/Seller and to the Escrow Agent
of an Offset Claim which exceeds the unpaid principal amount of the Note, the
Escrow Agent shall deliver the Escrowed Shares to the Secured Parties in order
that Secured Parties might perfect their security interest therein.
3. Termination and Distribution. This Escrow Agreement shall terminate
upon delivery of the Escrowed Shares to the Secured Party or termination of the
Pledge Agreement, whichever shall first occur. In the event that the Pledge
Agreement terminates prior to the delivery of the Escrowed Shares under Section
2, the Escrowed Shares shall be returned to the Seller.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the Parties to be effective as of the date first set forth above.
BUYER:
LITIGATION RESOURCES OF
AMERICA-NORTHEAST , INC.,
a New York corporation
By:
___________________________________________
Richard O. Looney, Chairman and
Chief Executive Officer
PARENT:
LITIGATION RESOURCES OF AMERICA, INC.,
a Texas corporation
By:
___________________________________________
Richard O. Looney, Chairman and
Chief Executive Officer
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SELLER:
AMICUS ONE LEGAL SUPPORT SERVICES, INC.,
a New York Corporation
By:
__________________, __________
SELLER'S STOCKHOLDERS
_____________________________________________
RICHARD A. PORTAS, Individually
_____________________________________________
JOSEPH N. SPINOZZI, Individually
_____________________________________________
CARL ANDERSON, Individually
_____________________________________________
HOWARD BRESHIN, Individually
ESCROW AGENT:
_____________________________________________
THOMAS J. KOVARCIK, ESQ., Individually
3
<PAGE>
EXHIBIT 2.12
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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"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.
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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 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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(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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NEITHER THIS NOTE NOR THE SHARES OF COMMON STOCK ISSUABLE HEREUNDER HAVE BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, NOR THE
SECURITIES LAWS OF ANY STATE. NEITHER THIS NOTE NOR SUCH SHARES MAY BE SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED AT ANY TIME, EXCEPT UPON (A) SUCH
REGISTRATION, OR (B) DELIVERY TO THE ISSUER OF THIS NOTE OR SUCH SHARES OF AN
OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO THE ISSUER, THAT REGISTRATION IS
NOT REQUIRED FOR SUCH TRANSFER, OR (C) THE SUBMISSION TO THE ISSUER OF THIS NOTE
OR 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.
THE INDEBTEDNESS EVIDENCED BY THIS INSTRUMENT IS SUBORDINATED TO (A) THE SENIOR
DEBT, AS DEFINED IN, PURSUANT TO, AND TO THE EXTENT PROVIDED IN, THE
SUBORDINATION AGREEMENT EFFECTIVE AS OF THE DATE HEREOF BY THE MAKER HEREOF AND
PAYEE NAMED HEREIN IN FAVOR OF TEXAS COMMERCE BANK NATIONAL ASSOCIATION, AND (B)
THE SENIOR SUBORDINATED DEBT, AS DEFINED IN, PURSUANT TO, AND TO THE EXTENT
PROVIDED IN, THE SUBORDINATION AGREEMENT EFFECTIVE AS OF THE DATE HEREOF BY THE
MAKER HEREOF AND PAYEE NAMED HEREIN IN FAVOR OF THE DELAWARE STATE EMPLOYEES'
RETIREMENT FUND, DECLARATION OF TRUST FOR DEFINED BENEFIT PLAN OF ICI AMERICAN
HOLDINGS, INC., AND DECLARATION OF TRUST FOR DEFINED BENEFIT PLAN OF ZENECA
HOLDINGS, INC.
THE SHARES OF COMMON STOCK ISSUABLE HEREUNDER HAVE BEEN PLEDGED PURSUANT TO THE
TERMS OF A CONTINGENT STOCK PLEDGE AGREEMENT OF EVEN DATE HEREWITH, EXECUTED BY
THE COMPANY AND THE HOLDER.
LITIGATION RESOURCES OF AMERICA-NORTHEAST, INC.
Convertible Subordinated Promissory Note
(Note 1)
$240,000 Houston, Texas September 4, 1997
Litigation Resources of America-Northeast, Inc., a New York corporation
(the "Company"), for value received, hereby promises to pay to MARTIN H. BLOCK,
an individual (the "Holder"), or permitted assigns, the principal sum of TWO
HUNDRED FORTY THOUSAND AND NO/100 DOLLARS ($240,000.00) together with accrued
interest on the amount of such principal sum, payable in accordance with the
terms set forth below.
THE OBLIGATIONS OF THE COMPANY CONTAINED IN THIS NOTE ARE SUBORDINATED TO
ALL SENIOR INDEBTEDNESS, AS HEREINAFTER DEFINED, NOW OWING OR HEREAFTER EXISTING
OR ARISING TO THE EXTENT SET FORTH IN THE SUBORDINATION AGREEMENTS, AS
HEREINAFTER DEFINED, AND SHALL BE ON AN EQUIVALENT BASIS WITH OTHER SUBORDINATED
INDEBTEDNESS, AS HEREINAFTER DEFINED.
<PAGE>
ARTICLE I
Definitions
For all purposes of this Note, except as otherwise expressly provided or
unless the context otherwise requires, (i) the terms defined in this Article
have the meanings assigned to them in this Article and include the plural as
well as the singular, (ii) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with 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, and (iii) the words "herein" and
"hereof" and other words of similar import refer to this Note as a whole and not
to any particular Article, Section or other subdivision.
1.1 "Annual Cash Flow" means the net income from operations of Block Court
Reporting, Inc. before interest, taxes, depreciation and amortization ("Net
Income"), calculated quarterly on a trailing twelve-month basis. For the first
three quarterly computations during the term of this Note, Annual Cash Flow
shall be computed as follows: For the first quarterly computation following the
date of this Note, Net Income for the first calendar quarter following the date
of this Note (the "First Calendar Quarter") shall be multiplied by four (4);
for the second quarterly computation following the date of this Note, Net Income
for the second calendar quarter following the date of this Note shall be added
to Net Income for the First Calendar Quarter and the sum (the "Second Quarter
Sum") shall be multiplied by two (2); for the third quarterly computation
following the date of this Note, Net Income for the third calendar quarter
following the date of this Note shall be added to the Second Quarter Sum and the
total shall be divided by .75. If Net Income for a full calendar quarter is not
available for purposes of this calculation, Net Income for the partial quarter
shall be divided by the number of days in the partial quarter and the result
shall be multiplied by 90 to create a full calendar quarter.
1.2 "Block Cash Flow" means $178,770.
1.3 "Board of Directors" means the board of directors of the Company as
elected from time to time or any duly authorized committee of that board.
1.4 "Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in Houston, Texas are
authorized or obligated by law or executive order to be closed.
1.5 "Change in Control" shall mean a change in control of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act"); provided that, without limitation, such a change in control
shall be deemed to have occurred if (W) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than the Holder or any
Parent of the Holder becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 40% or more of the combined voting power of the Company's then
outstanding securities other than as a result of the sale by the Parent of
securities in a private transaction, and the Pecks Group of Investors no longer
has the right to elect a majority of the Board of Directors of the Parent, or
(X) during any period of two consecutive years during the term of this Note,
individuals who at the beginning of such period constitute the Board of
Directors cease for any reason to constitute at least a majority thereof, unless
the election of each director who was not a director at the beginning of such
period is as a result of the stockholder permitted to designate such director to
fill a position making a change in such designee or if additional directors are
added to the board as a result of an expansion of the board of directors for
purposes of the Company conducting a Public Offering or for any other business
reason, or (Y) the Parent consummates a Public Offering, or (Z) all or
substantially all of the assets of the Parent are sold.
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1.6 "Default" means any event which is, or after notice or passage of
time would be, an Event of Default.
1.7 "Event of Default" has the meaning specified in Section 3.1.
1.8 "GAAP" means 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.
1.9 "Indebtedness" of any Person means all indebtedness of such Person,
whether outstanding on the date of this Note or hereafter created, incurred,
assumed or guaranteed, (i) for the principal of, premium on and interest on all
debts of the Person whether outstanding on the date of this Note or thereafter
created for money borrowed by such Person (including capitalized lease
obligations), money borrowed by others (including capitalized lease obligations)
and guaranteed, directly or indirectly, by such Person, or purchase money
indebtedness, or indebtedness secured by property ("Purchase Money
Indebtedness") at the time of the acquisition of such property by such Person,
for the payment of which the Person is directly or contingently liable, (ii) for
all accrued obligations of the Person in respect of any contract, agreement or
instrument imposing an obligation upon the Person to pay over funds, (iii) for
all trade debt of the Person, and (iv) for all deferrals, renewals, extensions
and refundings of, and amendments, modifications and supplements to, any of the
indebtedness referred to in (i), (ii) or (iii) above.
1.11 "Lien" means any mortgage, deed of trust, lien, security interest,
pledge, claim, charge, liability, obligation or other encumbrance.
1.12 "Maturity Date", when used with respect to this Note means September
15, 2002 (or such other date upon which this Note becomes due and payable).
1.13 "Note" means this Convertible Subordinated Promissory Note.
1.14 "Other Subordinated Indebtedness" means any other Indebtedness now or
hereinafter due and owing by the Parent or its affiliates, and any preferred
stock issued by the Parent, to any person who is the seller of a court reporting
and/or litigation service business in connection with the financing of all or
part of the purchase price thereof.
1.15 "Parent" means Litigation Resources of America, Inc., a Texas
corporation.
1.16 "Parent Stock" means shares of common stock, $.01 par value, of
Parent and any securities for which such stock may be exchanged or into which it
may be converted.
1.17 "Pecks Group of Investors" means those persons defined as "Investors"
who are parties to the Securities Purchase Agreement dated effective January
17, 1997 among the Investors, the Parent and certain subsidiaries of the Parent,
and the permitted assigns of the Investors.
1.18 "Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
1.19 "Public Offering" means the sale by the Parent of securities for cash
in an underwritten public offering registered on the appropriate form with the
SEC.
1.20 "Purchase Agreement" means that certain Stock Purchase Agreement dated
as of the date hereof, executed by and among the Company, the Parent and the
Holder.
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1.21 "SEC" means the United States Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act of 1933 or
any successor act thereto.
1.22 "Senior Indebtedness" means any and all indebtedness, liabilities and
obligations of the Parent or the Company to any Person other than Other
Subordinated Indebtedness, whether direct or indirect, absolute or contingent,
now owing or hereafter existing or arising, or due or to become due, including
without limitation, future indebtedness (principal, interest, fees and expenses,
collection costs or otherwise) and future advances of funds, and all
modifications, renewals, extensions or rearrangements of any of the foregoing.
1.23 "Subordination Agreements" means those certain Subordination
Agreements executed as of even date herewith by and among the Company, the
Parent, the Holder, and the holders of the Senior Indebtedness.
1.24 "Subsidiary" means a corporation or other entity in which more than
50% of the outstanding voting stock or equity interests is owned or controlled,
directly or indirectly, by the Company or any combination of the Company and one
or more other Subsidiaries. For the purposes of this definition, "voting stock"
means stock or other interests which ordinarily has voting power for the
election of directors, and equity interests means the right to receive the
profits of the entity, when disbursed, or the assets of the entity upon
liquidation or dissolution.
ARTICLE II
Payments
2.1 Interest. From the date of this Note through the Maturity Date,
interest shall accrue hereunder on the unpaid outstanding principal sum of this
Note at a rate of seven percent (7.0%) per annum, calculated on the basis of a
365-day year or 366-day year as the case may be. All past due payments of
principal, and if permitted by applicable law, of interest shall bear interest
from day to day at a rate of fourteen percent (14%) per annum, all to be
computed from maturity (whether stated or by acceleration) until paid.
2.2 Payment of Principal and Interest. Beginning September 15, 1997, the
Company shall make quarterly payments of all accrued and unpaid interest and, in
addition, beginning December 15, 1998, the Company shall make fifteen (15)
quarterly payments of principal, each in the amount of fifteen thousand dollars
($15,000), on or before the 15th day of each December, March, June and
September (and if the first day is not a Business Day, the first Business Day
thereafter) of each quarter thereafter, with the sixteenth (16/th/) and final
payment of principal and accrued interest being due and payable on September 15,
2002, subject to the provisions of Section 2.3 below. Prepayments will be
credited first to the accrued but unpaid interest, and then to installments of
unpaid principal in the order of maturity.
2.3 Cash Flow Requirements. Notwithstanding Section 2.2 above, the
Company shall not be required to make a quarterly payment of principal due under
this Note if Block Court Reporting, Inc. has not generated Annual Cash Flow at
least equal to the Block Cash Flow for the quarter ended on the last day of the
month preceding the month in which the payment is due. In each such case, (i)
the quarterly interest payment shall be deferred until the first regularly
scheduled quarterly payment date which is not excused pursuant to the preceding
sentence, at which time all accrued but unpaid interest shall become due and
payable, and (ii) the Maturity Date shall be extended for an additional three-
month period, at which time the Note shall be paid in full. This Section 2.3
shall not apply if a Termination Without Cause or Termination for Good Reason
(as such terms are defined in the Employment Agreement of even date herewith
between Block Court Reporting, Inc. and Martin H. Block) has occurred, or such
Employment Agreement has expired, and
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Annual Cash Flow for the quarter immediately preceding the date of termination
or expiration was at least equal to the Block Cash Flow.
ARTICLE III
Remedies
3.1 Events of Default. An "Event of Default" occurs if:
3.1.1 the Company defaults in the performance of any covenant made by
the Company in this Note, and such default remains uncured for a period of 180
days after notice from the Holder; or
3.1.2 the Company defaults in the performance of or breaches any of
the terms, covenants, or conditions contained in any of the documents
evidencing, securing or guaranteeing any Senior Indebtedness, including, but not
limited to, any loan agreements, promissory notes or security agreements, and
the applicable grace periods expire, unless such default is waived or the
holders of the Senior Indebtedness elect not to declare a default thereunder or
the Company is permitted to make payments under this Note; or
3.1.3 (i) a receiver, liquidator, custodian, or trustee of the
Company, or of any material property thereof is appointed by court order of a
court of competent jurisdiction and such order remains in effect on the 90th day
after its entry, or (ii) a petition is filed, a case is commenced, or relief is
ordered against the Company under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution, or liquidation law of any
jurisdiction, whether now or hereafter in effect, and is not dismissed with 90
days of such filing, commencement, or order; or
3.1.4 the Company (i) commences a voluntary case or proceeding under
any applicable federal or state bankruptcy, insolvency, reorganization or other
similar law or any other case or proceeding and is adjudicated a bankrupt or
insolvent, (ii) files a petition, answer or consent seeking reorganization or
similar relief under any applicable federal or state law, (iii) makes an
assignment for the benefit of creditors, or (iv) admits in writing its inability
to pay its debts generally as they become due.
3.2 Acceleration of Maturity. This Note and all accrued interest shall
become immediately due and payable at the option of the Holder at any time after
notice by Holder to the Company of the occurrence of an Event of Default which
is not cured within fifteen (15) days thereafter. Notwithstanding the
provisions of Section 3.1 herein, this Note and all accrued interest shall at
the option of the Holder either become immediately (i) due and payable on the
first Business Day following the date on which Texas Commerce Bank National
Association, or its successors or assigns, accelerates the maturity of any
Senior Indebtedness as the result of a transaction resulting in a Change of
Control, or is paid in full (ii) convertible into shares of Parent Stock in
connection with the consummation of the transactions resulting in a Change in
Control, as further set forth in Article V hereof. The provisions of this
Section 3.2 shall govern notwithstanding any other agreement or document of the
Company or the Parent (with the exception of the Subordination Agreements).
3.3 Sale of Company. If all or substantially all of the stock or assets
of the Company is or are sold, the Parent must either (i) pay this Note in full
or cause this Note to be paid in full or (ii) assume the obligations of the
Company under this Note.
ARTICLE IV
Covenants
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The Company covenants and agrees that, so long as this Note is outstanding:
4.1 Payment of Principal and Accrued Interest. The Company will duly and
punctually pay or cause to be paid the principal sum of this Note, together with
interest accrued thereon from the date hereof to the date of payment, in
accordance with the terms hereof, except to the extent of any limitations
contained in the Purchase Agreement or the Subordination Agreements.
4.2 Limitation on Liens. The Company will not create, incur, assume or
suffer to exist any Lien upon any of its property, assets or revenues, whether
now owned or hereafter acquired, except for:
(a) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that adequate reserves with respect
thereto are maintained on the books of the Company in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business in respect of
obligations which are not overdue for a period of more than 90 days beyond the
Company's customary payment terms or which are being contested in good faith by
appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposits
securing liability to insurance carriers under insurance or self-insurance
arrangements;
(d) deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in the
ordinary course of business not to exceed $1,000,000 in the aggregate at any
given time;
(e) encumbrances and restrictions on the use of real property which do
not materially impair the use thereof;
(f) any interest or title of (i) a lessor in assets being leased to
the Company or (ii) a seller in assets being purchased by the Company; and
(g) Liens granted in connection with the Senior Indebtedness.
ARTICLE V
Conversion
5.1.1 Change In Control Other than Public Offering. On the date of and
simultaneously with the closing of the first event following execution of this
Note which causes a Change in Control (other than a Public Offering), the Holder
shall have the one-time right to convert all, or any portion, of the outstanding
principal balance of this Note and any accrued interest due thereon into shares
of Parent Stock at a price equal to the Transaction Price, as hereinafter
defined, and otherwise on and subject to the terms and conditions set forth in
this Article V. As used in this Section 5.1.1, the term "Transaction Price"
shall mean the value of the Parent Stock determined at the time of such
transaction giving rise to a Change in Control. The Company must give the
Holder 20 days' prior written notice of the date of the event (the "Event Date")
giving rise to the Change in Control and the Holder may then exercise such
Holder's right to convert all, or any portion, of the outstanding principal
amount of this Note into shares of Parent Stock by (i) giving written notice at
least 5 days prior to the Event Date to the Company that the Holder elects to
convert all or a portion of the outstanding principal amount of this Note and
any accrued interest due thereon into Parent Stock,
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(ii) stating in such written notice the denominations in which the Holder wishes
the certificate or certificates for Parent Stock to be issued, and (iii)
surrendering this Note to the Company for notation or cancellation, as
appropriate. If not exercised when it first becomes available, or if exercised
only in part, the right to convert all or the portion of this Note for which
this option has not been exercised as described herein shall not continue and
shall expire at midnight, Houston, Texas time, on the date which is 5 days prior
to the Event Date.
5.1.2 Change In Control Upon Public Offering. Parent is currently
proceeding with plans to conduct a Public Offering and, in connection therewith,
currently intends to file a Registration Statement with the Securities and
Exchange Commission on or after September 12, 1997. The Company will keep the
Holder apprised of Parent's progress with respect to the Public Offering, and
will deliver to the Holder drafts of the Registration Statement prior to the
filing thereof. The Holder shall be required to promptly review each new draft
of the Registration Statement and prior to the later of (i) September 9, 1997 or
(ii) forty-eight (48) hours prior to the actual filing of the Registration
Statement, provide to the Company and the Parent written irrevocable notice of
its election to convert all, or any portion, of the outstanding principal
balance of this Note and any accrued interest due thereon (including any
interest which has been withheld pursuant to Section 2.3) into shares of Parent
Stock, at a price equal to the initial issuance price per share of the Parent
Stock issued in the Public Offering, without giving effect to any underwriting
discounts or commissions. In the event the Holder elects to exercise its right
to convert, it shall also state in such notice the denomination in which the
Holder wishes the certificate or certificates for Parent Stock to be issued, and
surrender this Note to the Company for notation or cancellation, as appropriate.
If not exercised prior to the later of (i) September 9, 1997, or (ii) forty-
eight (48) hours prior to the filing of the Registration Statement, or if
exercised only in part, the foregoing right to convert shall terminate with
respect to any principal or interest not converted, and the unpaid principal
balance, together with all accrued but unpaid interest, shall mature and become
due and payable upon consummation of the Public Offering.
5.2 Accrued Interest; Fractional Shares; Conversion Date. In the event of
any conversion, the Company will, as soon as practicable after surrender of this
Note and compliance by the Holder with the other conditions herein contained,
cause to be issued and delivered to the surrendering Holder certificates for the
number of full shares of Parent Stock to which the Holder shall be entitled as
aforesaid, together with any unpaid interest on the principal amount, if not
converted, accrued through the Event Date. The Holder shall not be entitled to
receive fractional shares of Parent Stock upon conversion or script in lieu
thereof, but the number of shares of Parent Stock to be received by the Holder
upon conversion shall be rounded down to the next whole number and the Holder
shall be entitled to payment for the fractional share in cash at the then
applicable Transaction Price. Such conversion shall be deemed to have been made
as of the Event Date, so that the persons entitled to receive the shares of
Parent Stock upon conversion of the principal amount hereof shall be treated for
all purposes as having been the record holder or holders of such shares of
Parent Stock at such time.
5.3 No Shareholder Rights; Representations and Agreements Upon Issuance.
This Note shall not entitle the Holder to any voting rights or other rights as a
stockholder of the Parent, or to any other rights whatsoever except the rights
herein expressed and such as are set forth, and no dividends shall be payable or
accrue in respect of this Note or the interest represented hereby or the Parent
Stock purchasable hereunder until or unless, and except to the extent that, the
outstanding principal amount hereof and any accrued interest due thereon shall
be converted. No shares of Parent Stock can or will be issued upon conversion
until the Holder becomes a party to a Shareholders' Agreement in the form
required by the Parent and gives appropriate investment representations
concerning knowledge about the investment and acknowledgments of any applicable
restrictions on transferability.
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ARTICLE VI
Miscellaneous
6.1 Collection Fees. If this Note is placed in the hands of an attorney
for collection, and if it is collected through any legal proceedings at law or
in equity or in bankruptcy, receivership or other court proceedings, the Company
hereby undertakes to pay all costs and expenses of collection including, but not
limited to, court costs and the reasonable attorney's fees of Holder.
6.2 Consent to Amendments. This Note 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, if and only if the Company shall obtain the prior written
consent to such amendment, action or omission to act from the Holder.
6.3 Benefits of Note. Except as set forth in Section 3.3, nothing in this
Note, express or implied, shall give to any Person, other than the Company,
Holder, and their successors any benefit or any legal or equitable right, remedy
or claim under or in respect of this Note.
6.4 Successors and Assigns. All covenants and agreements in this Note
contained by or on behalf of the Company and the Holder shall bind and inure to
the benefit of the respective successors and assigns of the Company and the
Holder.
6.5 Restrictions on Transfer. This Note shall not be transferable or
assignable in any manner whatsoever except in compliance with federal and state
securities laws, and if applicable, the laws of descent and distribution. In
addition, any transfer or assignment shall be made expressly subject to the
terms and provisions of the Contingent Stock Pledge Agreement and the Stock
Purchase Agreement, and any defenses to payment or offset rights set forth
therein.
6.6 Waiver; Remedies Cumulative. No failure to exercise and no delay on
the part of Holder in exercising any power or right in connection herewith shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such a right or power, preclude any other or further exercise thereof or the
exercise of any other right or power. No course of dealing between the Company
and Holder shall operate as a waiver of any right of Holder under this Note. No
modification or waiver of any provision of this Note or any other instrument
evidencing, securing, or guaranteeing this Note nor any consent to any departure
therefrom shall in any event be effective unless the same shall be in writing
and signed by the person against whom enforcement thereof is to be sought, and
then such waiver or consent shall be effective only in the specific instance and
for the purpose for which given. All rights and remedies of Holder existing
hereunder are cumulative to and not exclusive of any rights or remedies
otherwise available thereto.
6.7 Notice; Address of Parties. Except as otherwise provided, all
communications to the Company or Holder provided for herein or with reference to
this Note shall be deemed to have been sufficiently given or served for all
purposes on the first business day after being sent by overnight courier to the
following addresses: if to the Company, 1001 Fannin, Suite 950 Houston, Texas
77002, Fax 713/653-7172 or at any other address designated by the Company in
writing to Holder; if to Holder, 7014 Vagabond Drive, Falls Church, Virginia
22042, or at any other address designated by Holder to the Company in writing.
6.8 Separability Clause. In case any provision in this Note shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions in such jurisdiction shall not in
any way be affected or impaired thereby; provided, however, such construction
does not destroy the essence of the bargain provided for hereunder.
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6.9 Governing Law. This Note shall be construed and enforced in
accordance with and governed by the laws of the State of New York.
6.10 Arbitration. The arbitration provisions contained in Article 9 of the
Purchase Agreement shall govern this Note.
THIS NOTE, ANY AND ALL ADDITIONAL PROMISSORY NOTES, IF ANY, ISSUED BY THE
COMPANY TO HOLDER, AND ALL DOCUMENTS AND INSTRUMENTS EXECUTED IN CONNECTION
HEREWITH OR THEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE COMPANY AND
HOLDER WITH RESPECT TO THE OBLIGATIONS OWED THEREBY TO HOLDER AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE COMPANY AND HOLDER. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE COMPANY AND THE HOLDER. PAYMENT OF THIS NOTE IS SUBJECT
TO THE PURCHASE AGREEMENT AND THE SUBORDINATION AGREEMENTS.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed on the date first above written.
LITIGATION RESOURCES OF AMERICA-NORTHEAST, INC.,
A NEW YORK CORPORATION
By:_____________________________________________
Name:________________________________________
Title:_______________________________________
The Parent has executed this Note solely to evidence its agreement to
the obligations, potential or actual, of the Parent with respect to (i) payment
or assumption of this Note as set forth in Section 3.3 hereof, (ii) conversion
of this Note into Parent Common Stock, as set forth in Section 3.2 and Article V
hereof, and (iii) the arbitration provisions of Section 6.10 hereof.
LITIGATION RESOURCES OF AMERICA, INC.,
A TEXAS CORPORATION
By:_____________________________________________
Name:________________________________________
Title:_______________________________________
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NEITHER THIS NOTE NOR THE SHARES OF COMMON STOCK ISSUABLE HEREUNDER HAVE BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, NOR THE
SECURITIES LAWS OF ANY STATE. NEITHER THIS NOTE NOR SUCH SHARES MAY BE SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED AT ANY TIME, EXCEPT UPON (A) SUCH
REGISTRATION, OR (B) DELIVERY TO THE ISSUER OF THIS NOTE OR SUCH SHARES OF AN
OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO THE ISSUER, THAT REGISTRATION IS
NOT REQUIRED FOR SUCH TRANSFER, OR (C) THE SUBMISSION TO THE ISSUER OF THIS NOTE
OR 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.
THE INDEBTEDNESS EVIDENCED BY THIS INSTRUMENT IS SUBORDINATED TO (A) THE SENIOR
DEBT, AS DEFINED IN, PURSUANT TO, AND TO THE EXTENT PROVIDED IN, THE
SUBORDINATION AGREEMENT EFFECTIVE AS OF THE DATE HEREOF BY THE MAKER HEREOF AND
PAYEE NAMED HEREIN IN FAVOR OF TEXAS COMMERCE BANK NATIONAL ASSOCIATION, AND (B)
THE SENIOR SUBORDINATED DEBT, AS DEFINED IN, PURSUANT TO, AND TO THE EXTENT
PROVIDED IN, THE SUBORDINATION AGREEMENT EFFECTIVE AS OF THE DATE HEREOF BY THE
MAKER HEREOF AND PAYEE NAMED HEREIN IN FAVOR OF THE DELAWARE STATE EMPLOYEES'
RETIREMENT FUND, DECLARATION OF TRUST FOR DEFINED BENEFIT PLAN OF ICI AMERICAN
HOLDINGS, INC., AND DECLARATION OF TRUST FOR DEFINED BENEFIT PLAN OF ZENECA
HOLDINGS, INC.
THE SHARES OF COMMON STOCK ISSUABLE HEREUNDER HAVE BEEN PLEDGED PURSUANT TO THE
TERMS OF A CONTINGENT STOCK PLEDGE AGREEMENT OF EVEN DATE HEREWITH, EXECUTED BY
THE COMPANY AND THE HOLDER.
LITIGATION RESOURCES OF AMERICA-NORTHEAST, INC.
Convertible Subordinated Promissory Note
(Note 2)
$360,000.00 Houston, Texas September 4, 1997
Litigation Resources of America-Northeast, Inc., a New York corporation
(the "Company), for value received, hereby promises to pay to MARTIN H. BLOCK,
an individual (the "Holder"), the principal sum of THREE HUNDRED SIXTY THOUSAND
AND NO/100 DOLLARS ($360,000.00) together with accrued interest on the amount of
such principal sum, payable in accordance with the terms set forth below.
<PAGE>
THE OBLIGATIONS OF THE COMPANY CONTAINED IN THIS NOTE ARE SUBORDINATED TO
ALL SENIOR INDEBTEDNESS, AS HEREINAFTER DEFINED, NOW OWING OR HEREAFTER EXISTING
OR ARISING TO THE EXTENT SET FORTH IN THE SUBORDINATION AGREEMENTS, AS
HEREINAFTER DEFINED.
ARTICLE I
Definitions
For all purposes of this Note, except as otherwise expressly provided or
unless the context otherwise requires, (i) the terms defined in this Article
have the meanings assigned to them in this Article and include the plural as
well as the singular, (ii) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with 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, and (iii) the words "herein" and
"hereof" and other words of similar import refer to this Note as a whole and not
to any particular Article, Section or other subdivision.
1.1 "Board of Directors" means the board of directors of the Company as
elected from time to time or any duly authorized committee of that board.
1.2 "Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in Houston, Texas are
authorized or obligated by law or executive order to be closed.
1.3 "Change in Control" shall mean a change in control of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act"); provided that, without limitation, such a change in control
shall be deemed to have occurred if (W) any "person" (as such term is used in
Section 13(d) and 14(d) of the Exchange Act), other than the Parent or Holder,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
40% or more of the combined voting power of the Company's then outstanding
securities other than as a result of the sale by the Parent of securities in a
private transaction, and the Pecks Group of Investors no longer has the right to
elect a majority of the Board of Directors of the Parent, or (X) during any
period of two consecutive years during the term of this Note, individuals who at
the beginning of such period constitute the Board of Directors cease for any
reason to constitute at least a majority thereof, unless the election of each
director who was not a director at the beginning of such period is as a result
of the stockholder permitted to designate such director to fill a position
making a change in such designee or if additional directors are added to the
board as a result of an expansion of the board of directors for purposes of the
Company conducting a Public Offering or for any other business reason, or (Y)
the Parent consummates a Public Offering, or (Z) all or substantially all of the
assets of the Parent or the Company are sold.
1.4 "Default" means any event which is, or after notice or passage of
time would be, an Event of Default.
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1.5 "Event of Default" has the meaning specified in Section 3.1.
1.6 "GAAP" means 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.
1.7 "Indebtedness" of any Person means all indebtedness of such Person,
whether outstanding on the date of this Note or hereafter created, incurred,
assumed or guaranteed, (i) for the principal of, premium on and interest on all
debts of the Person whether outstanding on the date of this Note or thereafter
created for money borrowed by such Person (including capitalized lease
obligations), money borrowed by others (including capitalized lease obligations)
and guaranteed, directly or indirectly, by such Person, or purchase money
indebtedness, or indebtedness secured by property ("Purchase Money
Indebtedness") at the time of the acquisition of such property by such Person,
for the payment of which the Person is directly or contingently liable, (ii) for
all accrued obligations of the Person in respect of any contract, agreement or
instrument imposing an obligation upon the Person to pay over funds, (iii) for
all trade debt of the Person, and (iv) for all deferrals, renewals, extensions
and refundings of, and amendments, modifications and supplements to, any of the
indebtedness referred to in (i), (ii) or (iii) above.
1.8 "Lien" means any mortgage, deed of trust, lien, security interest,
pledge, claim, charge, liability, obligation or other encumbrance.
1.9 "Maturity Date" when used with respect to this Note means September
15, 2005 (or such other date upon which this Note becomes due and payable).
1.10 "Note" means this Convertible Subordinated Promissory Note.
1.11 "Other Subordinated Indebtedness" means any other Indebtedness now or
hereinafter due and owing by the Parent or any of its affiliates, and any
preferred stock issued by the Parent, to any person who is the seller of a court
reporting and/or litigation service business in connection with financing all or
part of the purchase price thereof.
1.12 "Parent" means Litigation Resources of America, Inc., a Texas
corporation.
1.13 "Parent Stock" means shares of common stock, $.01 par value, of
Parent and any securities for which such stock may be exchanged or into which it
may be converted.
1.14 "Pecks Group of Investors" means those persons defined as "Investors"
who are parties to the Securities Purchase Agreement dated effective January 17,
1997, among the Investors, the Parent and certain subsidiaries of the Parent,
and the permitted assigns of the Investors.
1.15 "Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
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1.16 "Public Offering" means the sale by the Parent of securities for cash
in an underwritten public offering registered on the appropriate form with the
SEC.
1.17 "Purchase Agreement" means that certain Stock Purchase Agreement
dated as of the date hereof executed by and among the Company, the Parent and
the Holder.
1.18 "SEC" means the United States Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act of 1933 or
any successor act thereto.
1.19 "Senior Indebtedness" means any and all indebtedness, liabilities and
obligations of the Company to any Person including Other Subordinated
Indebtedness that is incurred by the Company or its affiliates in financing the
purchase by it or its affiliates of a court reporting and/or litigation service
business, whether direct or indirect, absolute or contingent, now owing or
hereafter existing or arising, or due or to become due, including without
limitation, future indebtedness (principal, interest, fees and expenses,
collection costs or otherwise) and future advances of funds, and all
modifications, renewals, extensions or rearrangements of any of the foregoing.
1.20 "Subordination Agreements" means those certain Subordination
Agreements executed as of even date herewith by and among the Company, the
Holder, and the holders of the Senior Indebtedness.
1.21 "Subsidiary" means a corporation or other entity in which more than
50% of the outstanding voting stock or equity interests is owned or controlled,
directly or indirectly, by the Company or any combination of the Company and one
or more other Subsidiaries. For the purposes of this definition, "voting stock"
means stock or other interests which ordinarily has voting power for the
election of directors, and equity interests means the right to receive the
profits of the entity, when disbursed, or the assets of the entity upon
liquidation or dissolution.
ARTICLE II
Payments
2.1 Interest. From the date of this Note through the Maturity Date,
interest shall accrue hereunder on the unpaid outstanding principal sum of this
Note at a rate of six and three-eighths percent (6.375%) per annum, calculated
on the basis of a 365-day year or 366-day year as the case may be.
2.2 Payment of Principal and Interest. Beginning September 15, 1997, the
Company shall make monthly payments of interest on the fifteenth day of each
month during the term of this Note (and if the fifteenth day is not a Business
Day, the first Business Day thereafter) with the entire principal amount of this
Note and accrued interest thereon being due and payable on September 15, 2005.
Prepayments of this Note are not permitted without the consent of the Holder in
Holder's sole discretion.
ARTICLE III
Remedies
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3.1 Events of Default. An "Event of Default" occurs if:
3.1.1 the Company fails to make when due any payment of interest due
under this Note, and such default remains uncured for a period of 10 days after
notice from the Holder;
3.1.2 the Company fails to make when due the principal payment due
under this Note, and such default remains uncured for a period of 180 days after
notice from the Holder; or
3.1.3 the Company defaults in the performance of any other covenant
made by the Company in this Note, and such default remains uncured for a period
of 180 days after notice from the Holder.
3.2 NO ACCELERATION OF MATURITY. REGARDLESS OF THE OCCURRENCE OF AN
EVENT OF DEFAULT (AND THE EXPIRATION OF ANY APPLICABLE CURE OR GRACE PERIOD),
THE HOLDER SHALL HAVE NO RIGHT TO ACCELERATE THE MATURITY OF THIS NOTE.
ARTICLE IV
Covenants
The Company covenants and agrees that, so long as this Note is outstanding:
4.1 Payment of Principal and Accrued Interest. The Company will duly and
punctually pay or cause to be paid the principal sum of this Note, together with
interest accrued thereon from the date hereof to the date of payment, in
accordance with the terms hereof, except to the extent of any limitations
contained in the Purchase Agreement or the Subordination Agreements.
ARTICLE V
Conversion
5.1 Conversion Events. On the date of and simultaneously with the closing
(the "Event Date") of the first event which causes a Change in Control, all of
the outstanding principal amount of this Note shall be automatically converted
into shares of Parent Stock at a price equal to $8.50 per share ("Conversion
Price"), and otherwise on and subject to the terms and conditions set forth in
this Article V. The outstanding principal amount of this Note shall be deemed
converted into shares of Parent Stock on the Event Date but shall not be
complete until (i) the Company has given written notice to the Holder, which
notice shall be given at least twenty days prior to the Event Date, that the
outstanding principal amount of this Note has been converted, which notice shall
disclose the Conversion Price, the Event Date and the number of shares of Parent
Stock to be received by the Holder (although failure to give notice shall not
affect the conversion, nor the completion of same, upon performance by Holder of
items (ii), (iii) and (iv) below), (ii) the Holder has delivered written
instructions to the Company which states the denominations in which the Holder
wishes the certificate or certificates for Parent Stock to be issued, (iii) the
Holder has surrendered this Note to the Company, and (iv) the Holder has
delivered to the Parent an executed counterpart of a shareholders' agreement
(upon a Change of Control other than a Public Offering) and an investor
representation letter, in form and content acceptable to Parent.
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5.2 Accrued Interest; Fractional Shares; Conversion Date. In the event of
any conversion, the Company will, as soon as practicable after surrender of this
Note and compliance by the Holder with the other conditions herein contained,
cause to be issued and delivered to the surrendering Holder certificates for the
number of full shares of Parent Stock to which the Holder shall be entitled as
aforesaid, together with any unpaid interest on the principal amount converted
accrued through the Event Date. The Holder shall not be entitled to receive
fractional shares of Parent Stock upon conversion or script in lieu thereof, but
the number of shares of Parent Stock to be received by the Holder upon
conversion shall be rounded down to the next whole number and the Holder shall
be entitled to payment for the fractional share in cash at the Conversion Price.
Such conversion shall be deemed to have been made as of the close of business on
the Event Date, so that the persons entitled to receive the shares of Parent
Stock upon conversion of the principal amount hereof shall be treated for all
purposes as having been the record holder or holders of such shares of Parent
Stock at such time.
5.3 No Shareholder Rights; Representations and Agreements Upon Issuance.
This Note shall not entitle the Holder to any voting rights or other rights as a
stockholder of the Parent, or to any other rights whatsoever except the rights
herein expressed and such as are set forth, and no dividends shall be payable or
accrue in respect of this Note or the interest represented hereby or the Parent
Stock purchasable hereunder until or unless, and except to the extent that, the
outstanding principal amount hereof shall be converted. No shares of Parent
Stock can or will be issued upon conversion until the Holder becomes a party to
a Shareholders' Agreement in the form required by the Parent and gives
appropriate investment representations concerning knowledge about the investment
and acknowledgments of any applicable restrictions on transferability.
ARTICLE VI
Miscellaneous
6.1 No Collection Fees. If this Note is placed in the hands of an
attorney for collection, and if it is collected through any legal proceedings at
law or in equity or in bankruptcy, receivership or other court proceedings, the
Company will not pay any costs or expenses of collection including, but not
limited to, court costs and the reasonable attorney's fees of Holder.
6.2 Consent to Amendments. This Note 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, if and only if the Company shall obtain the prior written
consent to such amendment, action or omission to act from the Holder.
6.3 Benefits of Note. Nothing in this Note, express or implied, shall
give to any Person, other than the Company, Holder, and their successors any
benefit or any legal or equitable right, remedy or claim under or in respect of
this Note.
6.4 Successors and Assigns. All covenants and agreements in this Note
contained by or on behalf of the Company and the Holder shall bind and inure to
the benefit of the respective successors and assigns of the Company and the
Holder.
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6.5 Restrictions on Transfer. This Note shall not be transferable or
assignable in any manner whatsoever except in compliance with federal and state
securities laws, and if applicable, the laws of descent and distribution. In
addition, any transfer or assignment shall be made expressly subject to the
terms and provisions of the Contingent Stock Pledge Agreement and the Stock
Purchase Agreement, and any defenses to payment or offset rights set forth
therein.
6.6 Waiver; Remedies Exclusive. No failure to exercise and no delay on
the part of Holder in exercising any power or right in connection herewith shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such a right or power, preclude any other or further exercise thereof or the
exercise of any other right or power. No course of dealing between the Company
and Holder shall operate as a waiver of any right of Holder under this Note. No
modification or waiver of any provision of this Note or any other instrument
evidencing, securing, or guaranteeing this Note nor any consent to any departure
therefrom shall in any event be effective unless the same shall be in writing
and signed by the person against whom enforcement thereof is to be sought, and
then such waiver or consent shall be effective only in the specific instance and
for the purpose for which given. All rights and remedies of Holder existing
hereunder are exclusive and not cumulative of any rights or remedies otherwise
available thereto.
6.7 Notice; Address of Parties. Except as otherwise provided, all
communications to the Company or Holder provided for herein or with reference to
this Note shall be deemed to have been sufficiently given or served for all
purposes on the first business day after being sent by overnight courier to the
following addresses: if to the Company, 1001 Fannin, Suite 650 Houston, Texas
77002, Fax 713/653-7172 or at any other address designated by the Company in
writing to Holder; if to Holder, 7014 Vagabond Drive, Falls Church, Virginia
22042, or at any other address designated by Holder to the Company in writing.
6.8 Separability Clause. In case any provision in this Note shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions in such jurisdiction shall not in
any way be affected or impaired thereby; provided, however, such construction
does not destroy the essence of the bargain provided for hereunder.
6.9 Governing Law. This Note shall be construed and enforced in
accordance with and governed by the laws of the State of New York.
6.10 Arbitration. The arbitration provisions contained in Article 9 of the
Purchase Agreement shall govern this Note.
6.11 Antidilution Protection. The Company shall, and shall induce Parent
to, grant to Holder any antidilution protection granted to any other holder of
shares of Parent Stock or of securities, options, warrants or other rights to
acquire, or any other securities convertible into, shares of Parent Stock,
except for antidilution protection previously granted or granted in the future
to institutional investors.
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THIS NOTE, ANY AND ALL ADDITIONAL PROMISSORY NOTES, IF ANY, ISSUED BY THE
COMPANY TO HOLDER, AND ALL DOCUMENTS AND INSTRUMENTS EXECUTED IN CONNECTION
HEREWITH OR THEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE COMPANY AND
HOLDER WITH RESPECT TO THE OBLIGATIONS OWED THEREBY TO HOLDER AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE COMPANY AND HOLDER. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE COMPANY AND THE HOLDER. PAYMENT OF THIS NOTE IS SUBJECT
TO THE PURCHASE AGREEMENT AND THE SUBORDINATION AGREEMENTS.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed on the date first above written.
LITIGATION RESOURCES OF AMERICA-NORTHEAST, INC., A NEW
YORK CORPORATION
By: /s/ RICHARD O. LOONEY
_________________________________________
Name:________________________________________
Title:_______________________________________
The Parent has executed this Note solely to evidence its agreement to the
obligations, potential or actual, of the Parent with respect to (i) conversion
of the Note into Parent Common Stock, as set forth in Article V of this Note,
(ii) the arbitration provisions set forth in Section 6.10 hereof, and (iii) the
antidilution provisions set forth in Section 6.11 hereof.
LITIGATION RESOURCES OF AMERICA, INC.,
A TEXAS CORPORATION
By: /s/ RICHARD O. LOONEY
_________________________________________
Name:________________________________________
Title:_______________________________________
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EXHIBIT 2.13
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:
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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 A
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CONSULTING AGREEMENT
--------------------
THIS CONSULTING AGREEMENT (this "Agreement"), dated effective the ____
day of _________, 1997 (the "Effective Date"), is entered into by and between
LITIGATION RESOURCES OF AMERICA-MIDWEST, INC., an Illinois corporation
(hereinafter called the "Company," which term includes any directly or
indirectly controlled subsidiaries or successor entities), and KIRBY A. KENNEDY,
an individual residing in the State of Minnesota (the "Consultant"). The
Company and Consultant 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 8, 1997 (the
"Purchase Agreement"), by and among the Company, Kirby A. Kennedy & Associates,
a Minnesota general partnership ("Seller"), the Consultant, Jeanne M. Kennedy
and Litigation Resources of America, Inc., a Texas corporation (the "Parent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Consultant has been an employee, officer and director of the
Seller and its business known as, or conducted under the name, "Kirby A. Kennedy
& Associates" (the "Business"), and his knowledge of the affairs of the
Business, particularly its court reporting business in the Minnesota counties of
Washington, Dakota, Carver, Hennepin, Ramsey, Anoka and Wright (the "Business
Area"), 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; and
WHEREAS, pursuant to the Purchase Agreement the Company and the
Consultant have agreed 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. Duties. For the Term of this Agreement, the Company shall engage
the services of Consultant, and Consultant shall agree to render consulting
services to the Company, as hereinafter provided:
(a) Consultant shall timely perform and devote its best efforts and
skills to provide reasonable consulting and advisory services as called upon by
the
<PAGE>
Company for the principal purposes of (i) maintaining in the Business Area
existing Company client relationships, (ii) developing in and outside of the
Business Area significant new client relationships for the Company and
Affiliates and (iii) such other similar or related services as shall be
reasonably requested by the Company from time to time. Consultant shall be an
independent contractor as to the services to be provided hereunder and shall
exercise a high level of independence as to the services to be provided and
shall not be required to keep any standard or particular hours or schedule.
Subject to the foregoing, the Consultant shall report to and be responsible to
the Richard O. Looney, the Chief Executive Officer of the Company, or any
successor Chief Executive Officer of the Company.
(b) Consultant shall not have the power to bind or obligate the
Company or any related entity in any manner, except as may be specifically
authorized in writing by the Chief Executive Officer of the Company or by the
Board of Directors of the Company.
Notwithstanding anything in this Agreement to the contrary, nothing in this
Agreement shall be construed as prohibiting Consultant from going into other
businesses for itself or with others during the Term of this Agreement, subject
to the provisions of Sections 8 and 9.
2. Term of Agreement. The term of this Agreement shall commence on
the Effective Date and, unless earlier terminated as provided below, expire two
(2) years thereafter (such period being referred to as the " Term").
3. Compensation. As payment for the services to be rendered by the
Consultant hereunder during the Term, the Consultant shall be entitled to
receive:
(a) an expense allowance, subject to documentation as provided in
Section 4 below, in the amount of $12,000 per annum; provided, however, that if
the Consultant is requested by the Company to make more than the 12 annual
business trips currently anticipated, the amount of such expense allowance shall
be increased to cover the actual costs of such additional trips; and
(b) a performance payment 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 Payment") including, without limitation, the
first fiscal year of the Company; provided, however, that any Annual Payment
calculated with respect to a fiscal year during which the Consultant was
retained for only a part of such year shall be prorated to account for the
number of days during such year in which the Consultant was retained by the
Company.
4. Expenses. Subject to the limitation provided in Section 3(a),
during the Term of this Agreement, the Company shall promptly pay or reimburse
the Consultant for all reasonable out-of-
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<PAGE>
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.
5. Covenants of Consultant. For and in consideration of the
retention of the Consultant herein contemplated and the consideration paid or
promised to be paid by the Company, Consultant does hereby covenant, agree and
promise that during the Term hereof and thereafter to the extent specifically
provided in this Agreement:
(a) Consultant will truthfully and accurately make, maintain and
preserve all records and reports that the Company may from time to time
request or require.
(b) Consultant will fully account for all money, records, goods, wares
and merchandise or other property belonging to the Company of which
Consultant has custody, and will pay over and deliver the same promptly
whenever and however he may be reasonably directed to do so.
(c) Consultant agrees that upon termination of this Agreement 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.
6. Mutual Covenants of the Company and Consultant. For and in
consideration of the retention of the Consultant herein contemplated and the
compensation, covenants, conditions and promises herein recited, the Company and
Consultant do hereby mutually agree that during the Term hereof:
(a) Consultant 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) Complete control of the Company, including (but not limited to)
its plans, properties, contracts, methods, and policies, shall be
established by the Board of Directors and Consultant shall not, by reason
of anything contained in this Agreement, have any control over such
matters, 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
business 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.
-3-
<PAGE>
7. Termination of Agreement. The Company may immediately terminate this
Agreement if the Consultant, does any of the following:
(a) Breaches any provision of this Agreement, including (but not
limited to) the voluntary termination by Consultant;
(b) Misappropriates funds or property of the Company;
(c) Secures 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) Engages in conduct, even if not in connection with the performance
of Consultant's duties hereunder, that would result in serious prejudice to
the interest of the Company; or
(e) Fails to carry out and perform duties assigned to Consultant in
accordance with and consistent with the duties in Section 1 hereof.
Termination for any of the afore described reasons is hereinafter referred
to as termination for "Cause". Prior to the end of the Term hereof, the
Company may discharge the Consultant for Cause and terminate this Agreement
without any further liability hereunder to the Consultant or his spouse or
estate. In the event that the Company terminates the engagement of the
Consultant for any reason other than Cause, such a termination shall be
deemed to be a "Discharge Without Cause." In the event of a Discharge
Without Cause, the Company shall continue to pay to the Consultant all
amounts to which he would be entitled under Section 3 through the scheduled
expiration of the Term hereof.
8. Covenant Not to Compete. The Consultant 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 retain the Consultant 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 Consultant's
skill, ability and value in the Company's business, subject to the provisions of
the next full paragraph of this Section 8, the Consultant agrees that in the
event (i) Consultant is terminated for Cause, or (ii) Consultant leaves the
employ of the Company other than a Discharge without Cause 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 his service as a
consultant is so terminated:
(a) Consultant will not in any capacity or relationship enter into,
engage in, or be connected with any business or business operation or activity
within the following Counties: Washington, Dakota, Carver, Hennepin, Ramsey,
Anoka and
-4-
<PAGE>
Wright, which competes in whole or in part with the Business of the Company; and
(b) Consultant 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 Consultant as a consultant hereunder, 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) Consultant 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
Consultant in the event of a Discharge without Cause 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, sale of assets 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 8 shall not be applicable to the conduct of Consultant subsequent
thereto.
It is mutually understood and agreed that if any of the provisions relating
to the scope, time or territory in this Section 8 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 Consultant's
covenants contained in this Section 8 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.
9. Business Opportunities. Except for passive investments by the
Consultant 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 Consultant outside of the scope of his service as a
consultant hereunder, for as long as the Consultant shall be retained by the
Company and thereafter with respect to any business opportunities learned about
during the time of Consultant's service as a consultant to the Company, the
Consultant agrees that with respect to any future business opportunity or other
new and future business proposal which is offered to, or comes
-5-
<PAGE>
to the attention of, the Consultant 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 Consultant agrees to promptly deliver notice to the Board in
writing of the existence of such opportunity or proposal and the Consultant may
take advantage of such opportunity only if the Company does not elect to
exercise its right to take advantage of such opportunity.
10. Confidential Information. The Consultant acknowledges that in the
course of his service as a consultant to the Company, he will receive certain
trade secrets, know-how, lists of customers, Consultant 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 Consultant 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 Consultant 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
as a consultant hereunder, the Consultant shall surrender to the Company all
papers, documents, writings and other property produced by him or coming into
his possession by or through his service as a consultant hereunder and relating
to the information referred to in this Section 10, which are not general
knowledge in the industry, and the Consultant agrees that all such materials
will at all times remain the property of the Company.
11. Independent Contractor. The Company and the Consultant hereby affirm
and acknowledge their mutual understanding that the Consultant is an independent
contractor to the Company. It is further agreed and acknowledged that the
Consultant shall not be deemed to be an employee or agent of the Company for
any purpose.
12. 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-Midwest, Inc.
1001 Fannin, Suite 650
Houston, Texas 77002
Telefax:(713) 653-7172
Attn: Richard O. Looney
If to the Consultant:
Kirby A. Kennedy
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<PAGE>
219 Executive Plaza
5200 Wilson Road
Minneapolis, Minnesota 55424
Any Party may change its address for notice hereunder by providing written
notice of such change to the other Party hereto.
13. Specific Performance. The Consultant acknowledges that a remedy at
law for any breach or attempted breach of Sections 8, 9 or 10 of this Agreement
will be inadequate, the Consultant 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.
14. 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.
15. Assignment. This Agreement may not be assigned by the Consultant.
Neither the Consultant, 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.
16. Binding Effect. Subject to the provisions of Section 15 of this
Agreement, this Agreement shall be binding upon and inure to the benefit of the
Parties hereto, the Consultant's heirs and personal representatives, and the
successors and assigns of the Company.
17. Governing Law. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Minnesota.
18. Prior Agreements. Consultant represents and warrants to the Company
that he has fulfilled all of the terms and conditions of all prior consulting or
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 consulting,
employment or other agreement which would in any respect prevent him from
fulfilling his obligations hereunder or conflict herewith..
19. 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 Consultant for services
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<PAGE>
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 Consultant of any of the
duties to the Company.
20. Waiver. Any waiver to be enforceable must be in writing and executed
by the Party against whom the waiver is sought to be enforced.
21. 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 Houston, 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. 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 21 shall restrict any party's 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 this 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 21.
22. 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.
23. 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.
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<PAGE>
24. 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-
MIDWEST, INC., an Illinois corporation
By: _________________________________
Richard O. Looney
Chief Executive Officer
THE CONSULTANT:
_______________________________________
Kirby A. Kennedy
<PAGE>
SCHEDULE A
----------
CALCULATION OF ANNUAL BONUS
Each year the accountants regularly employed by the Company shall determine the
amount of Net Profit, if any, of the Division of the Company during each
consecutive twelve (12) month time period ending on the last day of the fiscal
year of the Company ("Annual Profits"), 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 Company shall establish a bonus pool ("Bonus Pool") 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. The Consultant shall be entitled to
make recommendations to the Company's board of directors concerning the
distribution of the Bonus Pool among the employees of the Division. The
Consultant shall be entitled to a bonus equal to no more than 40% of the Bonus
Pool.
<PAGE>
EXHIBIT C
- ---------
BILL OF SALE,
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS BILL OF SALE, ASSIGNMENT AND ASSUMPTION AGREEMENT is entered into
effective as of _______, 1997, between KIRBY A. KENNEDY & ASSOCIATES, a general
partnership organized under the laws of the State of, and LITIGATION RESOURCES
OF AMERICA-MIDWEST, INC., an Illinois corporation ("Purchaser"). Purchaser and
Seller may be hereinafter sometimes referred to collectively as the "Parties" or
individually as a "Party." All defined terms not otherwise defined herein shall
have the meanings ascribed to them in that certain Agreement of Purchase and
Sale of Assets effective of even date with the effective date hereof, executed
by and between Seller, the partners of the Seller, the Purchaser and Litigation
Resources of America, Inc., a Texas corporation and the parent of the Buyer (the
"Agreement").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Purchaser has agreed to purchase from Seller, and Seller has
agreed to grant, bargain, sell, convey, transfer, assign and deliver to
Purchaser, the Assets; and
WHEREAS, as partial consideration for the sale and assignment of the
Assets, Purchaser has agreed to assume the Liabilities, on and subject to the
terms and conditions set forth in the Agreement;
NOW, THEREFORE, in consideration of the payment of Ten Dollars ($10.00) and
other good and valuable consideration, including the delivery to Seller of the
Purchase Price, the receipt and sufficiency of which are hereby acknowledged,
Purchaser and Seller hereby agree as follows:
1. SALE AND ASSIGNMENT. Seller has granted, bargained, sold, conveyed,
transferred, assigned and delivered, and by these presents does grant, bargain,
sell, convey, transfer, assign and deliver unto Purchaser, its successors and
assigns, the Assets.
2. BULK SALES. Purchaser and Seller hereby waive compliance by Seller
with the bulk sales laws of the State of Minnesota. This waiver shall in no
event stop or prevent (i) Purchaser or Seller from asserting as a bar or defense
to any action or proceeding brought under any such law that it is not applicable
to the sale and assignment contemplated hereby, nor (ii) Purchaser from
asserting against Seller any claim for breach or default by Seller under the
Agreement, nor (iii) any Purchaser Indemnified Party from asserting any claim
for indemnification under the Agreement.
3. ASSUMPTION. Subject to the exceptions and exclusions of Section 2.6 of
the Agreement, and otherwise on and subject to the terms and conditions of the
Agreement, Purchaser hereby assumes and agrees to pay and perform the
Liabilities.
<PAGE>
4. SELLER'S REPRESENTATIONS AND WARRANTIES. Seller has good, marketable
and indefeasible title to the Assets, free and clear of all mortgages, liens,
security interests, pledges, charges, options, claims, restrictions, or
encumbrances of any nature whatsoever. Seller further represents and warrants
that (i) Seller has obtained all consents or approvals necessary to prevent the
execution, delivery or performance of the Agreement or this Bill of Sale,
Assignment and Assumption Agreement from being or becoming, with notice or lapse
of time or both, a default under any contract, lease or other agreement assigned
hereby, (ii) there has been no default, and there exists no fact or circumstance
which with notice or lapse of time or both would become a default, under any
such contract, lease or agreement, and (iii) no contract, lease or other
agreement assigned hereby has been terminated, modified, renewed or extended,
except as previously disclosed in writing to Purchaser. In addition, all of
Seller's representations and warranties set forth in the Agreement with respect
to the Assets and Liabilities are incorporated herein by reference.
5. INDEMNIFICATION. Each Party shall indemnify, save, defend, and hold
harmless the other Party and the other Party's directors, officers, agents, and
employees from and against any and all Damages 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 in or pursuant to this
Bill of Sale, Assignment and Assumption Agreement, to the extent to which such
indemnified party would be entitled to indemnification under, and on and subject
to the terms and conditions set forth in, the Agreement.
6. 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.
7. GOVERNING LAW; JURISDICTION; VENUE; SERVICE. This Agreement shall be
construed and enforced in accordance with and governed by the laws of the State
of Minnesota, without regard to conflicts of law principles, and the laws of the
United States applicable in Minnesota. Venue for any litigation between the
Parties hereto with respect to the subject matter of this Agreement shall be in
Minnesota. Each Party hereby irrevocably submits to personal jurisdiction in
Minnesota. Each Party hereby waives all objections to personal jurisdiction in
Minnesota and venue in Minnesota 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. 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.
9. MODIFICATION OF AGREEMENT. This Agreement may be amended or modified
only by written instrument signed by both of the Parties.
2
<PAGE>
10. ENTIRE AGREEMENT; BINDING EFFECT. This Agreement, and the documents,
instruments and agreements executed in connection herewith, set forth the entire
agreement and understanding 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.
11. 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 EFFECTIVE the __th day of ____, 1997.
PURCHASER:
----------
LITIGATION RESOURCES OF AMERICA-MIDWEST, INC.,
an Illinois corporation
By:_____________________________________
Richard O. Looney,
President & Chief Executive Officer
SELLER:
-------
KIRBY A. KENNEDY & ASSOCIATES
a Minnesota General Partnership
By:_____________________________________
________, general partner
3
<PAGE>
EXHIBIT D
- ---------
SELLER'S INVESTOR REPRESENTATION LETTER
September 8, 1997
Litigation Resources of America, Inc.
Litigation Resources of America-Midwest, Inc.
1001 Fannin, Suite 650
Houston, Texas 77002
Attn: Mr. Richard O. Looney, President
Re: Investor Representations
Gentlemen:
The purpose of this letter is to evidence certain representations and
warranties to be made with respect to certain matters relating to the
acquisition by Kirby A. Kennedy & Associates (the "Seller") of shares of Common
Stock issued by Litigation Resources of America, Inc., a Texas corporation (the
"Company"), having a par value of one-cent ($0.01) per share (the "Common
Stock") in consideration of the sale of certain of the assets of the Seller to
Litigation Resources of America-Midwest, Inc. (the "Purchaser"), upon the terms
and conditions set forth herein and in that certain Agreement of Purchase and
Sale of Assets (the "Purchase Agreement"), entered into by and among the Seller,
LRA and the Purchaser. The undersigned Seller or partner of Seller is sometimes
hereinafter referred to as the "Investor."
The Investor hereby represents and warrants to the Company, the
Purchaser , and each of the Company's and the Purchaser's officers, directors,
shareholders, agents, attorneys, employees and representatives as follows:
1. Investment Intent. (i) The Common Stock is being acquired solely
for the account of the Seller, for investment and not with a view to or for the
resale, distribution, subdivision or fractionalization thereof, (ii) the Seller
has no contract, understanding, undertaking, agreement or arrangement with any
person to sell, transfer or pledge to any person the Common Stock (collectively
the "Securities") or any part thereof, (iii) the Seller has no present plans to
enter into any such contract, undertaking, agreement or arrangement, (iv) the
Seller understands the legal consequences of the foregoing representations and
warranties to mean that the Seller must bear the economic risk of the investment
in the Securities for an indefinite period of time, (v) the Investor has such
knowledge and experience in financial and business matters that the Investor is
capable of evaluating the merits and risks of acquiring the Securities, and (vi)
the Investor acknowledges that
<PAGE>
Litigations Resources of America, Inc.
September 8, 1997
Page 2
the acquisition of the Securities by the Seller involves a high degree of risk
which may result in the loss of the total amount of this investment.
2. No General Solicitation. The Securities have been offered to the
Seller without any form of general solicitation or advertising of any type by or
on behalf of the Company or any of its officers, directors, shareholders,
employees, agents, attorneys or representatives.
3. Access to Information. The Seller, and to the extent the
Investor is not the Seller, the Investor, has (i) for a reasonable amount of
time had an opportunity to ask questions and receive answers concerning the
terms and conditions of the issuance of the Securities and the proposed business
and affairs of the Company, and is satisfied with the results thereof, (ii) has
been given access, if requested, to all other documents with respect to the
Company or this transaction, as well as to such other information as the Seller
or the Investor has requested, and (iii) has relied solely on investigations
conducted by the Investor in making the decision to acquire the Securities or
approve the transactions set forth in the Purchase Agreement.
4. Exemption Status. The Investor understands that the Securities
to be sold hereunder are being issued in reliance upon the exemptions from
registration under the Securities Act of 1933, as amended. The Investor
understands that the undersigned, the Company, the Company's officers,
directors, shareholders, employees, agents, attorneys and representatives are
relying on, among other things, the representations and warranties of the
Investor set forth herein in issuing the Securities to the Seller.
5. Securities Compliance. The Investor understands and agrees that
(i) no sale, distribution, transfer or other disposition of the Securities, or
any portion thereof, can be made by the Seller unless the Securities have been
registered under the Securities Act of 1933, as amended, and applicable
securities laws of any other relevant jurisdiction, or exemptions from such
registration are available, as evidenced by an opinion of counsel, satisfactory
to the Company, with respect to the proposed sale, distribution, transfer or
other disposition, and (ii) an appropriate legend will be endorsed on the
Securities evidencing such restrictions.
6. Accredited Investor Status. The Investor is an "accredited
investor" within the meaning of Rule 501 of Regulation D promulgated under the
Securities Act.
7. Representations of Natural Persons. If the Investor is a natural
person, the Investor has reached the age of majority in the state in which the
Investor resides, has adequate means of providing for the Investor's current
financial needs and contingencies, is able to bear the
<PAGE>
Litigations Resources of America, Inc.
September 8, 1997
Page 3
substantial economic risks of an investment in the Securities, has no need for
liquidity in such investment, and is able to withstand a complete loss of such
investment.
8. Representations of Entities. If Investor is a corporation,
partnership, trust or other entity, (i) it is authorized and qualified to
purchase and hold the Securities, (ii) it has not been formed for the purpose of
acquiring the Securities, (iii) the person executing this Agreement for and on
behalf of such entity has been duly authorized by such entity to do so, (iv) it
is willing and able to bear the substantial economic risk of an investment in
the Securities and has no need for liquidity with respect thereto, and (v) it is
able to withstand a complete loss of its investment.
9. No Governmental Review. The Investor acknowledges and understands
that no federal or state agency has passed on the fairness of the investment in
the Securities, nor made any recommendation or endorsement of the Securities,
and that there is a significant risk of loss of all or a portion of the Seller's
investment in the Securities.
10. State of Residence and Domicile. The Investor is either (i) a
permanent resident of the State of Minnesota, or (ii) not a resident or citizen
of the United States.
The Investor acknowledges that the Company and the Company's officers,
directors, agents, attorneys and other representatives are relying on the
representations and warranties set forth herein, and would not deliver the
Securities to the Seller but for the execution and delivery of this letter by
the Investor.
Very truly yours,
Kirby A. Kennedy & Associates
By _________________________
Kirby A. Kennedy, General Partner
<PAGE>
EXHIBIT F-1
FORM OF OPINION OF PARENT'S COUNSEL
Based upon our examination and consideration of the Agreement, the
Ancillary Agreements and upon the foregoing, and in reliance thereon, and
subject to the assumptions, exceptions, qualifications and limitations set forth
herein, we are of the opinion that:
1. Buyer is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Illinois with the corporate
power and authority to own its assets and to transact its businesses as
now being conducted. Buyer is in good standing in all jurisdictions in
which the character of the properties and assets now owned or held by it
or the nature of the businesses now conducted by it requires it to be so
licensed or qualified and where the failure so to qualify would affect
materially and adversely the businesses, financial condition or results
of operations of Buyer.
2. The Parent is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Texas with the corporate
power and authority to own its respective assets and to transact its
respective businesses as now being conducted. The Parent is in good
standing in all jurisdictions in which the character of the properties
and assets now owned or held by it or the nature of the businesses now
conducted by it requires it to be so licensed or qualified and where the
failure so to qualify would affect materially and adversely the
businesses, financial condition or results of operations of the Parent.
3. The Agreement and the Ancillary Agreements to which either Buyer or
Parent are a party which have been delivered to Seller by either have
been duly and validly authorized, executed and delivered and are valid
and binding on either the Buyer or Parent, as applicable, and
enforceable in accordance with their terms, except as limited by
bankruptcy laws, insolvency laws, and other similar laws affecting the
rights of creditors generally.
4. Except for such as have been obtained and delivered to Seller at closing
and except where the failure to obtain such authorization, approval or
consent or to take such action or make such filing would not have a
material adverse effect on Buyer or Parent, as applicable, to our
knowledge no authorization, approval or consent of or declaration or
filing with any governmental authority or regulatory body is necessary
or required of the Buyer or the Parent in connection with the execution
and delivery of the Agreement and the Ancillary Agreements by either and
the performance by either Buyer or Parent of its obligations thereunder.
<PAGE>
5. The execution and delivery of the Agreement and the Ancillary
Agreements to which it is a party by each of the Buyer and the Parent
and the performance of its obligations thereunder do not to our
knowledge (i) violate any provision of any existing law or regulation
applicable to each or (ii) violate any order, judgment, award or
decree of any court, arbitrator or governmental authority applicable
to each or (iii) violate the charter or bylaws of, or any securities
issued by, each or (iv) violate any mortgage, indenture, lease,
contract or other agreement known to us to which either is a party or
by which either the Buyer or Parent or any of their assets is bound.
6. To our knowledge, neither the Buyer nor the Parent is in default under
any material order, judgment, award or decree of any court, arbitrator
or governmental authority binding upon or affecting it or by which its
assets may be bound or affected, and to our knowledge, no such order,
judgment, award or decree materially adversely affects the ability of
the Buyer or the Parent to carry on its respective business as now
conducted or perform its respective obligations under the Agreement or
the Ancillary Agreements.
7. To our knowledge, except as disclosed in the Agreement and the Ancillary
Agreements and the schedules thereto, no litigation, investigation or
administrative proceeding of or before any court, arbitrator or
governmental authority is pending or threatened against the Buyer or
Parent or their assets (a) with respect to the Agreement, the Ancillary
Agreements or the transactions contemplated thereby, or (b) that, if
adversely determined, would have a material adverse effect on the
business or financial condition of Buyer or Parent or their assets.
<PAGE>
EXHIBIT E
- ---------
STOCK PLEDGE AGREEMENT
----------------------
THIS STOCK PLEDGE AGREEMENT (this "Pledge Agreement") is made as of the
__th day of ______, 1997, by KIRBY A. KENNEDY & ASSOCIATES, a Minnesota general
partnership whose address is 219 Executive Plaza, 5200 Wilson Road, Minneapolis,
Minnesota 55424 ("Pledgor"), and LITIGATION RESOURCES OF AMERICA-MIDWEST, INC.,
an Illinois corporation ("Secured Party"). Capitalized terms not defined herein
shall have the meanings ascribed to them in that certain Agreement of Purchase
and Sale of Assets dated as of September 8, 1997, executed by, among others,
Pledgor, as seller ("Seller") and Secured Party, as purchaser (the "Purchase
Agreement").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Seller and Secured Party have entered into the Purchase Agreement,
pursuant to which Seller has sold the Assets to Secured Party; and
WHEREAS, Seller has certain obligations under the Purchase Agreement,
including, but not limited to, the obligation of Seller to indemnify Secured
Party for any breaches of representations and warranties of Seller contained in
the Purchase Agreement, and certain other matters; and
WHEREAS, pursuant to the terms of the Purchase Agreement, Pledgor has or
will become the record and beneficial owner of _______ shares of the common
stock, $.01 par value, issued by Litigation Resources of America, Inc., a Texas
corporation ("LRA-Texas") and standing in the name of Pledgor on the books of
LRA-Texas, evidenced by Stock Certificate(s) No(s)._____, dated _______, 1997
(the "Stock");
WHEREAS, the terms of the Purchase Agreement provide for Pledgor to pledge
the Stock to the Secured Party to partially secure the obligations of Seller to
Secured Party under the Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and in order to induce the Secured Party to enter into the
Purchase Agreement, Pledgor and Secured Party agree as follows:
1. Pledge of Stock. In order to secure the full and punctual payment and
performance by Seller of all of the obligations, duties, covenants, agreements
and conditions provided in the Purchase Agreement to be paid or performed by
Seller thereunder(collectively the "Obligations"), Pledgor hereby pledges and
grants to Secured Party a security interest in the Stock and all of the products
and proceeds thereof. Upon the execution hereof, Pledgor shall deliver to
Secured Party the certificates representing the Stock, together with appropriate
Irrevocable Stock Powers, in order that Secured Party might perfect its security
interest therein.
<PAGE>
2. Agreed Value of Stock. Pledgor and Secured Party hereby acknowledge
and agree that (i) the value of each share of the Stock shall be deemed to be
the average public trading price of each share of Stock over the five (5) most
recent business days preceding the date as of which the value of the Stock is to
be determined on the principal securities market upon which such Stock is listed
or traded.
3. Representations, Warranties and Covenants of Pledgor. Pledgor hereby
represents, warrants and covenants to and with Secured Party that:
A. Ownership; No Encumbrances. Except for the security interest (and
pledges and assignments as applicable) granted hereby, Pledgor is the owner of
the Stock free and clear from all charges, liens, security interests, adverse
claims and encumbrances of any and every nature whatsoever.
B. Authority. Pledgor has full right and authority to execute and
perform this Agreement and to create the security interest (and pledges and
assignments as applicable) created by this Agreement. The execution and
performance by Pledgor of this Agreement will not violate any provision of law,
any order of court or governmental agency, or any indenture or other agreement
to which Pledgor is a party, or by which Pledgor or any of Pledgor's property is
bound, or be in conflict with, result in a breach of or constitute (with due
notice and/or lapse of time) a default under any such indenture or other
agreement, or result in the creation or imposition of any charge, lien, security
interest, claim or encumbrance of any and every nature whatsoever upon the
Stock, except as contemplated by this Agreement.
C. No Encumbrances; No Transfer. Pledgor agrees not to suffer or permit
any charge, lien, security interest, adverse claim or encumbrance of any nature
whatsoever against the Stock or any part thereof. Pledgor shall not, without
the prior written consent of Secured Party, sell, assign, transfer, encumber,
hypothecate or dispose of the Stock, or any part thereof, or interest therein,
or offer to do any of the foregoing, prior to the termination of this Agreement
in accordance with the terms of Section 5 hereof.
D. Dividends and Proceeds. Any and all payments, dividends, other
distributions (including stock redemption proceeds), or other securities in
respect of or in exchange for the Stock, whether by way of dividends, stock
dividends, recapitalizations, mergers, consolidations, stock splits,
conversions, redemptions, liquidations, combinations or exchanges of shares or
otherwise, received by Pledgor shall be held by Pledgor in trust for Secured
Party and Pledgor shall immediately deliver same to Secured Party to be held as
part of the Stock. Pledgor may retain ordinary cash dividends unless and until
Secured Party requests that same be paid and delivered to Secured Party (which
Secured Party may request after an Event of Default, as hereinafter defined).
E. Collections. Secured Party shall have the right at any time and from
time to time (after an Event of Default, as hereinafter defined), to notify and
direct LRA-Texas to make all payments, dividends, and distributions regarding
the Stock directly to Secured Party. Secured Party shall have the authority to
demand of LRA-Texas and to receive and receipt for, any and all
-2-
<PAGE>
payments, dividends, and other distributions payable in respect thereof,
regardless of the medium in which paid and whether they are ordinary or
extraordinary. LRA-Texas shall be fully protected in relying on the written
statement of Secured Party that it then holds a security interest which entitles
it to receive such payment, and the receipt by Secured Party for such payment
shall be full acquittance therefor to LRA-Texas.
F. Voting Rights. Upon an Event of Default, as hereinafter defined,
Secured Party shall have the right, at its discretion, to transfer to or
register in the name of Secured Party or any nominee of Secured Party any of the
Stock, and/or to exercise any or all voting rights as to any or all of the
Stock. For such purposes, Pledgor hereby names, constitutes and appoints
Secured Party as Pledgor's proxy in the Pledgor's name, place and stead to vote
any and all of the Stock, as such proxy may elect, for and in the name, place
and stead of Pledgor, as to all matters coming before shareholders, such proxy
to be irrevocable and deemed coupled with an interest. The rights, powers and
authority of said proxy shall remain in full force and effect, and shall not be
rescinded, revoked, terminated, amended or otherwise modified, until all
Obligations have been fully satisfied.
G. No Duty. Secured Party shall never be liable for its failure to give
notice to Pledgor of default in the payment of or upon the Stock. Secured Party
shall have no duty to fix or preserve rights against other parties and shall
never be liable for its failure to use diligence to collect any amount payable
in respect to the Stock, but shall be liable only to account to Pledgor for what
Secured Party may actually collect or receive thereon. Without limiting the
foregoing, it is specifically understood and agreed that Secured Party shall
have no responsibility for ascertaining any maturities, calls, conversions,
exchanges, offers, tenders, redemptions, or similar matters relating to any of
the Stock or for informing Pledgor with respect to any of such matters
(irrespective of whether Secured Party actually has, or may be deemed to have,
knowledge thereof). The foregoing provisions of this paragraph shall be fully
applicable to all securities or similar property held in pledge hereunder,
irrespective of whether Secured Party may have exercised any right to have such
securities or similar property registered in its name or in the name of a
nominee.
H. Further Assurances. Pledgor agrees to execute such stock powers,
endorse such instruments, or execute such additional pledge agreements or other
documents as may be required by the Secured Party in order effectively to grant
to Secured Party the security interest in (and pledges and assignments of) the
Stock and to enforce and exercise Secured Party's rights regarding same.
I. Securities Laws. Pledgor hereby agrees to cooperate fully with
Secured Party in order to permit Secured Party to sell, at foreclosure or other
private sale, the Stock pledged hereunder. Specifically, Pledgor agrees to
fully comply with the securities laws of the United States and of the State of
Texas and to take such action as may be necessary to permit Secured Party to
sell or otherwise transfer the securities pledged hereunder in compliance with
such laws. Without limiting the foregoing, Pledgor, at its own expense, upon
request by Secured Party, agrees to effect and obtain such registrations,
filings, statements, rulings, consents and other matters as Secured Party may
request.
-3-
<PAGE>
J. Power of Attorney. Pledgor hereby makes, constitutes, and appoints
Secured Party or its nominee, Pledgor's true and lawful attorney in fact and in
its name, place and stead, and on its behalf, and for its use and benefit to
complete, execute and file with the United States Securities and Exchange
Commission one or more notices of proposed sale of securities pursuant to Rule
144 under the Securities Act of 1933 and/or any similar filings or notices with
any applicable state agencies, and said attorney in fact shall have full power
and authority to do, take and perform all and every act and thing whatsoever
requisite, proper or necessary to be done, in the exercise of the rights and
powers herein granted, as fully to all intents and purposes as Pledgor might or
could do if personally present. This power shall be irrevocable and deemed
coupled with an interest. The rights, powers and authority of said attorney in
fact herein granted shall commence and be in full force and effect from the date
of this agreement, and such rights, powers and authority shall remain in full
force and effect, and this power of attorney shall not be rescinded, revoked,
terminated, amended or otherwise modified, until this Agreement has been
terminated in accordance with Section 5 hereof.
K. Private Sales. The Securities Act of 1933, as amended, and other laws
or regulations may provide legal restrictions or limitations affecting Secured
Party in any attempts to dispose of certain portions of the Stock and/or enforce
its rights and remedies hereunder. For these reasons Secured Party is hereby
authorized by Pledgor, but not obligated, in the event of any default hereunder,
to sell all or any part of the Stock at private sale, subject to investment
letter or in any other manner which will not require the Stock, or any part
thereof, to be registered in accordance with the Securities Act of 1933, as
amended, or the rules and regulations promulgated thereunder, or any other law
or regulation. Secured Party is also hereby authorized by Pledgor, but not
obligated, to take such actions, give such notices, obtain such rulings and
consents, and do such other things as Secured Party may deem appropriate in the
event of a sale or disposition of any of the Stock. Pledgor clearly understands
that Secured Party may in its discretion approach a restricted number of
potential purchasers and that a sale under such circumstances may yield a lower
price for the Stock or any part or parts thereof than would otherwise be
obtainable if same were registered and sold in the open market, and Pledgor
agrees that such private sales shall constitute a commercially reasonable method
of disposing of the Stock.
4. Events of Default. The Pledgor shall be in default hereunder upon the
happening of any of the following events or conditions (each, an "Event of
Default"): (i) the failure of Pledgor to promptly pay when due any obligation of
Seller to any of the Indemnified Parties under the Purchase Agreement, or to
Secured Party hereunder; (ii) any representation or warranty made by Kirby A.
Kennedy or Jeanne M. Kennedy to Secured Party in the Purchase Agreement proves
incorrect (iii) any representation or warranty made by Seller to Secured Party
in the Purchase Agreement proves incorrect as of the date of the Purchase
Agreement; (iv) any representation or warranty made by Pledgor to Secured Party
hereunder proves incorrect as of the date hereof; (v) default occurs in the
observance or performance of, or Pledgor fails to provide adequate evidence of
the performance of, any provision of the Purchase Agreement or of this
Agreement; or (vi) the filing of a petition in bankruptcy by or against, or the
application for appointment of a receiver or any other legal custodian for any
part of the property of, or any assignment for the benefit of creditors by, or
the commencement of any proceedings under any bankruptcy, rearrangement,
reorganization, insolvency
-4-
<PAGE>
or similar laws for the relief of debtors by or against, Pledgor, Kirby A.
Kennedy or Jeanne M. Kennedy.
5. Remedies. Upon any Event of Default, Secured Party shall have all of
the rights and remedies provided for in this Agreement and in any other
agreements executed by Pledgor, the rights and remedies in the Uniform
Commercial Code, and any and all other rights and remedies available at law or
in equity, all of which shall be deemed cumulative, including without limitation
the following:
(a) if an Event of Default does occur and is continuing, Secured Party
shall be entitled to appoint or designate a trustee who is entitled to
exercise any voting rights that may be attributable to the Stock, and shall
have the right and power to sell, at public or private sale(s), or
otherwise dispose of or keep the Stock and any part or parts thereof, or
interest or interests therein owned by Pledgor, in any manner authorized or
permitted under this Pledge Agreement or under the Uniform Commercial Code,
and to apply the proceeds thereof toward payment of any costs and expenses
and attorneys' fees and legal expenses thereby incurred by Secured Party,
and toward payment of the Obligations in such order or manner as Secured
Party may elect. Notwithstanding anything to the contrary contained
herein, the Secured Party shall only foreclose on that portion of the Stock
that is reasonably necessary in the reasonable good faith judgment of the
Secured Party in order to satisfy the amount of the claim constituting the
Event of Default. For purposes hereof, the Stock Agreed Value shall be
deemed to be the value that the Secured Party is receiving on the
foreclosure of the Stock and Secured Party shall not be entitled to
foreclose on more Stock than is necessary to recover all of its damages
resulting from the Event of Default. Pledgor, Kirby A. Kennedy and Jeanne
M. Kennedy shall remain liable for any deficiency.
(b) Secured Party is hereby granted the right, at its option, after an
Event of Default, to transfer at any time to itself or its nominee the
securities or other property hereby pledged, or any part thereof, and to
thereafter exercise all voting rights with respect to such Stock so
transferred and to receive the proceeds, payments, monies, income or
benefits attributable or accruing thereto and to hold the same as security
for the obligations hereby secured, or at Secured Party's election, to
apply such amounts to the obligations, only if due, and in such order as
Secured Party may elect, or, Secured Party may, at its option, without
transferring such securities or property to its nominee, exercise all
voting rights with respect to the securities pledged hereunder and to vote
all or any part of such securities at any regular or special meeting of
shareholders.
(c) Pledgor hereby agrees to cooperate fully with Secured Party in
order to permit Secured Party to sell, at foreclosure or other private
sale, Pledgor's interest in the Stock pledged hereunder. Specifically,
Pledgor agrees to deliver to Secured Party the certificate or certificates
representing the Stock if Pledgor has possession at that time, to fully
comply with the securities laws of the United States and of the State of
Texas and to take such other
-5-
<PAGE>
action as may be necessary to permit Secured Party to sell or otherwise
transfer the securities pledged hereunder in compliance with such laws.
6. Termination. This Pledge Agreement shall continue as security for the
payment or satisfaction of the Obligations until the earliest to occur of: (i)
termination of this Pledge Agreement by written notice of the Secured Party to
the Pledgor, or (ii) three (3) years after the date hereof, provided that
Secured Party has not given Pledgor notice of an Event of Default which has not
been satisfied by Pledgor, or if there is an Event of Default, the pledge shall
continue only to the extent of the amount of Stock based on the Stock Agreed
Value equal to the amount of damages reasonably expected to be caused by the
Event of Default; provided however, upon the expiration of six months, two years
and three years after the date of this Pledge Agreement (each a "Release
Date"), the following provisions shall apply: (a) if no Offset Claim or Event of
Default exists on such Release Date, the Secured party shall release one-third
(1/3) of the number of shares Stock originally pledged under this Pledge
Agreement from the pledge established hereby, and the remaining shares of Stock
shall remain pledged under the terms and conditions of this Pledge Agreement; or
(b) if an Offset Claim or Event of Default exists, the amount of Damages
resulting from such Offset Claim or Event of Default shall be determined, and on
the first Release Date, the second Release Date and the third Release Date, one
third (1/3), one half (1/2) and all of the remaining Stock, respectively, that
have not been Offset against shall be released from the pledge established
hereby and delivered to the Pledgor and the remaining shares of Stock shall
remained pledged under the terms and conditions of this Pledge Agreement.
7. Release from Pledge. Upon termination of this Pledge Agreement, the
security interest of Secured Party shall automatically terminate and Secured
Party shall thereafter have no interest whatsoever in the Stock. Promptly
thereafter, Secured Party shall deliver the certificate or certificates
representing the Stock to Pledgor if Secured Party has possession of such
certificates at that time.
8. 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:
-6-
<PAGE>
If to Pledgor: Kirby A. Kennedy & Associates
219 Executive Plaza
5200 Wilson Road
Minneapolis, Minnesota 55424
If to the Buyer: Litigation Resources of America-Midwest, Inc.
1001 Fannin, Suite 650
Houston, Texas 77002
Attn: Mr. Richard O. Looney
Copy to: Boyer, Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Telefax: (713) 871-2024
Attn: J. Randolph Ewing
9. Successors. This Pledge Agreement shall be binding upon, and inure to
the benefit of the parties hereto and their successors and assigns. Any
assignee whatsoever will be bound by the obligations of the assigning party
under this Pledge Agreement, and any assignment shall not diminish the liability
or obligation of the assignor under the terms of this Pledge Agreement unless
otherwise agreed.
10. Severability. In the event that any one or more of the provisions
contained in this Pledge Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not
affect any other provision of this Pledge Agreement or any such other
instrument.
11. Paragraph Headings. The paragraph headings used herein are
descriptive only and shall have no legal force or effect whatsoever.
12. Gender. Whenever the context so requires, the masculine shall include
the feminine and neuter, and the singular shall include the plural and
conversely.
13. Survival of Warranties. All representations, warranties, and
agreements made by the parties in this Pledge Agreement or in any certificates
delivered pursuant hereto will survive the execution date hereof.
14. Applicable Law. This Pledge Agreement shall be construed and
interpreted in accordance with the laws of the United States of America and the
State of Texas, and is intended to be performed in accordance with and as
permitted by such laws.
15. Definitions. All terms and definitions used herein shall have the
same meaning as in the Purchase Agreement unless otherwise indicated.
-7-
<PAGE>
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.
17. 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.
18. Multiple Counterparts. This Agreement may be executed in multiple
counterparts each of which shall be deemed an original and all of which shall
constitute one instrument.
IN WITNESS WHEREOF, this Stock Pledge Agreement has been executed effective
the __th day of _____, 1997.
PLEDGOR:
KIRBY A. KENNEDY & ASSOCIATES
_____________________________________,
Kirby A. Kennedy, General Partner
SECURED PARTY:
LITIGATION RESOURCES OF AMERICA-MIDWEST, INC.,
an Illinois corporation
By:________________________________________
Richard O. Looney, President
-8-
<PAGE>
EXHIBIT F-2
FORM OF OPINION OF SELLER'S COUNSEL
Based upon our examination and consideration of the Agreement, the
Ancillary Agreements and upon the foregoing, and in reliance thereon, and
subject to the assumptions, exceptions, qualifications and limitations set forth
herein, we are of the opinion that:
1. The Seller is a sole proprietorship, duly organized, validly existing
and in good standing under the laws of the State of California, and has
all necessary power and authority and all material licenses, permits and
authorizations necessary to own and use the properties owned and used by
it and to operate its business as now owned and operated by it. The
Seller is not qualified to do business in any other jurisdiction, nor
does the nature of its business nor the location of any of its employees
or assets require such qualification.
2. Seller has good and indefeasible title to the Assets, free and clear of
restrictions or conditions to transfer or assignment, or mortgages,
liens, pledges, charges or encumbrances of record, or arising under
applicable law. The Business constitutes the separate property of the
Seller and Seller's spouse has no community property interest in the
Business or any of the Assets. The Agreement and Ancillary Agreements
are in form and content sufficient to vest in the Buyer title to the
Assets and, upon execution and delivery to the Buyer, will cause all
right, title and interest in and to the Assets to vest in the Buyer.
3. Seller has the full right, power, legal capacity and authority to
execute, deliver and perform Seller's obligations under the Agreement
and the Ancillary Agreements, and the execution, delivery and
performance of the Agreement and the Ancillary Agreements by Seller have
been duly and validly authorized by Seller.
4. The Agreement and each Ancillary Agreement has been duly executed and
delivered by the Seller, is binding on Seller and enforceable against
Seller in accordance with its terms, except as limited by bankruptcy
laws, insolvency laws, and other similar laws affecting the rights of
creditors generally.
5. Except for such as have been obtained and provided to Buyer, Seller
represents and warrants that it need not give any notice to, make any
filing with, or obtain any authorization, consent or approval, or make
any declaration or filing with any government or governmental agency or
regulatory body or other third party in connection with the execution
and delivery of the Agreement and the Ancillary Agreements or the
performance by the Seller of Seller's obligations thereunder.
<PAGE>
6. The execution and delivery of the Agreement and the Ancillary Agreements
by the Seller, and the performance of Seller's obligations thereunder
(a) do not violate any provision of (i) any existing law or regulation
applicable to the Seller, the Business or the Assets or (ii) to our
knowledge, any order, judgment, award or decree of any court, arbitrator
or governmental authority applicable to the Seller, or (iii) to our
knowledge, except as disclosed in the Agreement and the schedules
thereto, any mortgage, indenture, lease, contract or other agreement,
instrument or undertaking to which the Seller is a party or by which the
Seller, the Business or the Assets are bound, and (b) will not result
in, or require, the creation or imposition of any lien on the Assets or
any portion of the Business.
7. To our knowledge, the Seller is not in default under any order,
judgment, award or decree of any court, arbitrator or governmental
authority binding upon or affecting it or by which the Business or any
of the Assets may be bound or affected, and no such order, judgment,
award or decree materially adversely affects the ability of the Seller
to carry on its business as now conducted or the ability of the Seller
to perform its obligations under the Agreement or the Ancillary
Agreements.
8. To our knowledge, except as disclosed in the Agreement and the Ancillary
Agreements and the schedules thereto, no litigation, investigation or
administrative proceeding of or before any court, arbitrator or
governmental authority is pending or threatened against the Seller, the
Business or the Assets (a) with respect to the Agreement, the Ancillary
Agreements or the transactions contemplated thereby, or (b) that, if
adversely determined, would have a material adverse effect on the
business or financial condition of the Seller, the Business or the
Assets.
<PAGE>
EXHIBIT 2.14
AGREEMENT OF PURCHASE AND SALE OF ASSETS
----------------------------------------
This Agreement of Purchase and Sale of Assets (this "Agreement") is entered
into and effective as of 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.
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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
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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
----------------------------------------
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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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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<PAGE>
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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<PAGE>
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 A
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated effective the ____ day
of _________, 1997 (the "Effective Date"), is entered into by and between
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), and COLLEEN JILIO, an
individual residing in the State of California (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 __, 1997 (the "Purchase
Agreement"), by and among Employee, the Company and LITIGATION RESOURCES OF
AMERICA , INC., a Texas corporation and the parent company of the Company
("Parent") and certain other parties.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Employee has been the sole owner of her own business d.b.a Jilio &
Associates ("Business") and her knowledge of the affairs of the Business are of
great value to the Company, which acquired the Business pursuant to the Purchase
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 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 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
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 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 Division (as
defined on Exhibit A) of the Company and shall report to, and be subject to the
general direction and control of the Chief Executive Officer and the Board of
Directors of the Company (the "Board"). The Employee shall perform such
management and administrative duties, consistent with the Employee's position,
as are from time to time assigned to the Employee by the Chief Executive Officer
and the
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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 Chief Executive Officer or Board shall
from time to time specify, if such services are of the nature commonly
associated with the position of president of a division 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 Company; 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 Company, including, but not limited to, the court
reporting business in the Orange County, California area. 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 her 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 her 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 aggregate amount of One Hundred Thousand Dollars
($150,000.00) 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 the date of termination of Employee's
employment under this Agreement;
(b) a bonus to be calculated in accordance with Schedule A attached hereto,
payable within ninety (90) days after the end of each combined fiscal year of
the Company (the "Annual Bonus") including, without limitation, the first
fiscal year end after the Effective Date hereof; provided, however, that any
Annual Bonus calculated with respect to a fiscal year during which the
Employee was employed for only a part of such year shall be prorated to
account for the number of days during such year in which Employee was employed
by the Company;
(c) in the event that the Employee identifies a business as an acquisition
candidate for Parent or any of its subsidiaries, such acquisition candidate
has not been previously brought to the attention of Parent and Parent or any
of its subsidiaries ultimately
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<PAGE>
acquires such business, the Employee shall be entitled to receive, at the
closing of such acquisition, a cash payment equal to one percent (1%) of the
total consideration paid by the Parent or any subsidiary in connection with
such acquisition. In no event shall Parent 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; and
(d) commissions based upon the revenues generated from National Account
(as defined below) sales originated by her or employees of the Parent or its
subsidiaries who report to her. The amount of commissions payable will be
based upon a formula ("Formula") to be established by the Board of Directors
of the Parent. The Formula may be amended from time to time by the Parent'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 the
Parent's offices in different geographical areas render services. Until
notice of a change in the Formula applicable to the Employee is given to the
Employee by the Parent'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 shares by the Employee
and the other individual(s) on such a basis as is determined to be
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fair by the Parent'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.
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 her 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 her of an
appropriate statement documenting such expenses. The Company shall also pay
the Employee an automobile allowance in the amount of $750.00 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 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. In the event that the Parent
adopts a stock option plan, the Employee shall be eligible to participate as a
key employee under such plan. If the Parent grants stock options to any of its
officers under such a plan and the Employee is also granted stock options, the
stock options granted to the Employee shall be on the same terms as those
granted to the officers.
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 her compensation shall be paid in full.
Unused vacation time shall not accrue from year to year.
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 use her best reasonable efforts to 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 she may be reasonably directed to do so by the Company.
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<PAGE>
(d) The Employee will obey all rules, regulations and special instructions
of the Company applicable to her, 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 she has knowledge relating to the business of the
Company, and will make all suggestions and recommendations which she feels
will be of mutual benefit to the Parties.
(f) The Employee agrees that upon termination of her employment hereunder
she 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 her alone or in
collaboration with others during the term of her 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 her 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, she 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 her duties as President of the Division, the Employee
shall primarily be responsible for making day-to-day decisions in the ordinary
course of business 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,
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<PAGE>
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 she has been employed, the Employee may be called upon to perform
such duties and render such services as are required of her hereunder
irregularly, and agrees to perform to the best of her 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 her prior customary practice on
behalf of the Company.
(d) The Company agrees that it will not terminate any employee of the
Company without giving prior notification of such termination to the Employee.
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 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
her duties hereunder, which would reasonably be expected to result in a
material adverse effect to the interest of the Company if she were retained as
an employee, such as her 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
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<PAGE>
(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.
In the event the Employee is terminated for Cause because she 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 her employment for Cause, the Employee shall
be entitled to receive her 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 her normal job functions as determined by at least two of
three medical physicians selected as follows: the Employee or her 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 her designee, and the Company may mutually agree that she 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 her primary residence (or to spend an
inordinate number of days) outside of the area set forth in Section 2 of this
Agreement (it being understood that the Employee may be required to periodically
travel outside of such area to oversee businesses whose Net Profits are included
in her bonus calculation); 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 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
-7-
<PAGE>
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 she 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 her 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 agreement by the Company 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 Company
or any Affiliate, 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 her 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 from such date of termination.
-8-
<PAGE>
In the event the Company ceases operation of the Business of the Company
(other than in a merger, consolidation, sale of assets 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 her 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 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 her employment with the Company, she 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 she agrees
that she 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 she will not use such Information in competing with the
Company. Upon termination of her employment hereunder, the Employee shall
surrender to the Company all papers,
-9-
<PAGE>
documents, writings and other property produced by her or coming into her
possession by or through her 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.
c/o Litigation Resources of America, Inc.
1001 Fannin, Suite 650
Houston, Texas 77002
Telefax:(713) 653-7172
Attn: Richard O. Looney
If to the Employee: Mrs. Colleen Jilio
3090 Bristol, Suite 100
Costa Mesa, California 92626
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 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, her 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.
-10-
<PAGE>
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 she has fulfilled all of the terms and conditions of all prior
employment agreements to which she 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 her employment with the Company. Written notification of any
modification of compensation paid or payable to the Employee for her 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 thirty (30) days after such written notification from 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. 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.
25. 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.
-11-
<PAGE>
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: _________________________________
Richard O. Looney
Chief Executive Officer
THE EMPLOYEE:
_______________________________________
COLLEEN JILIO
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<PAGE>
SCHEDULE A
----------
CALCULATION OF ANNUAL BONUS
The Business will be operated as a separate division (the "Division")
of the Company. Except as expressly provided below, the Division will not
include the Acquired Businesses.
(a) Each year the accountants regularly employed by the Company shall
determine the aggregate amount of Net Profit, if any, of the Division during
each consecutive twelve (12) month time period ending on the last day of the
fiscal year of the Company ("Annual Profits"), and continuing each year during
the term of this Agreement. Beginning with the first fiscal year end of the
Company subsequent to the Effective Date hereof, to the extent that the Annual
Profits of the Division for the current year exceed the Annual Profits of the
Division for 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, however, that
if the Annual Profits for the Division for the current year are less than the
Annual Profits for the prior year, then such amount shall offset any positive
increase in Annual Profits attributable to the Division for purposes of
determining the payment of a bonus to Employee hereunder in the following year;
and further provided that for the first fiscal year and last fiscal year of the
Employment Term 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 $1,118,000. For
purposes of this calculation, "Net Profit" shall mean the Division's pre-tax
income plus (i) net interest expense, (ii) one-time expenses and (iii)
depreciation and amortization. In addition, the Parent currently anticipates
acquiring or establishing additional court reporting businesses ("Acquired
Businesses") in (i) Orange County, (ii) California south of Orange County,
including San Diego or (iii) Las Vegas, Nevada (collectively, the "Territory").
In the event the Parent acquires or establishes an Acquired Business within the
Territory which Acquired Business has annual revenues of $2,500,000 or less in
the 12-month period immediately prior to its acquisition (a "Qualifying
Business"), the Employee shall be appointed to manage or oversee the operations
of such Qualifying Business. For purposes of calculating the bonus payable
hereunder, the Net Profit of the Division shall be increased by any increase in
the Net Profit of each Qualifying Business, accruing from the date an Acquired
Business becomes a Qualifying Business, less any bonuses paid to other employees
of or consultants to the Qualifying Business arising as a result of such
increase in Net Profit. In addition, the Company acknowledges that the Employee
is currently formulating a plan to establish court reporting businesses in other
areas, to be owned, directly or indirectly by the Parent. If such plans are
approved by the Parent and such offices are opened, for purposes of calculating
the bonus payable hereunder, the Net Profit of the Division shall be increased
by any Net Profit from such offices.
<PAGE>
EXHIBIT C
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BILL OF SALE,
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS BILL OF SALE, ASSIGNMENT AND ASSUMPTION AGREEMENT is entered into
effective as of _______, 1997, between COLLEEN JILIO, an individual ("Seller"),
and LITIGATION RESOURCES OF AMERICA -- CALIFORNIA, INC., a California
corporation ("Buyer"). Buyer and Seller may be hereinafter sometimes referred
to collectively as the "Parties" or individually as a "Party." All defined
terms not otherwise defined herein shall have the meanings ascribed to them in
that certain Agreement of Purchase and Sale of Assets effective of September __,
1997, executed by and between Seller, the Buyer and Litigation Resources of
America, Inc., a Texas corporation and the parent of the Buyer (the
"Agreement").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Buyer has agreed to purchase from Seller, and Seller has agreed to
grant, bargain, sell, convey, transfer, assign and deliver to Buyer, the Assets;
and
WHEREAS, as partial consideration for the sale and assignment of the
Assets, Buyer has agreed to assume the Assumed Liabilities, on and subject to
the terms and conditions set forth in the Agreement;
NOW, THEREFORE, in consideration of the payment of Ten Dollars ($10.00) and
other good and valuable consideration, including the delivery to Seller of the
Purchase Price, the receipt and sufficiency of which are hereby acknowledged,
Buyer and Seller hereby agree as follows:
1. SALE AND ASSIGNMENT. Seller has granted, bargained, sold, conveyed,
transferred, assigned and delivered, and by these presents does grant, bargain,
sell, convey, transfer, assign and deliver unto Buyer, its successors and
assigns, the Assets.
2. BULK SALES. Buyer and Seller hereby waive compliance by Seller with
the bulk sales laws of the State of California. This waiver shall in no event
stop or prevent (i) Buyer or Seller from asserting as a bar or defense to any
action or proceeding brought under any such law that it is not applicable to the
sale and assignment contemplated hereby, nor (ii) Buyer from asserting against
Seller any claim for breach or default by Seller under the Agreement, nor (iii)
any Buyer Indemnified Party from asserting any claim for indemnification under
the Agreement.
3. ASSUMPTION. Subject to the exceptions and exclusions of Section 2.6 of
the Agreement, and otherwise on and subject to the terms and conditions of the
Agreement, Buyer hereby assumes and agrees to pay and perform the Assumed
Liabilities.
4. SELLER'S REPRESENTATIONS AND WARRANTIES. Except as otherwise described
in the Agreement, Seller has good, marketable and indefeasible title to the
Assets, free and clear of all
<PAGE>
mortgages, liens, security interests, pledges, charges, options, claims,
restrictions, or encumbrances of any nature whatsoever. Except as otherwise
described in the Agreement, Seller further represents and warrants that (i)
Seller has obtained all consents or approvals necessary to prevent the
execution, delivery or performance of the Agreement or this Bill of Sale,
Assignment and Assumption Agreement from being or becoming, with notice or lapse
of time or both, a default under any contract, lease or other agreement assigned
hereby, (ii) there has been no default, and there exists no fact or circumstance
which with notice or lapse of time or both would become a default, under any
such contract, lease or agreement, and (iii) no contract, lease or other
agreement assigned hereby has been terminated, modified, renewed or extended,
except as previously disclosed in writing to Buyer. In addition, all of
Seller's representations and warranties set forth in the Agreement with respect
to the Assets and Liabilities are incorporated herein by reference.
5. INDEMNIFICATION. Each Party shall indemnify, save, defend, and hold
harmless the other Party and the other Party's directors, officers, agents, and
employees from and against any and all Damages 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 in or pursuant to this
Bill of Sale, Assignment and Assumption Agreement, to the extent to which such
indemnified party would be entitled to indemnification under, and on and subject
to the terms and conditions set forth in, the Agreement.
6. 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.
7. GOVERNING LAW; JURISDICTION; VENUE; SERVICE. This Agreement shall be
construed and enforced in accordance with and governed by the laws of the State
of Texas, without regard to conflicts of law principles, and the laws of the
United States applicable in Texas. Venue for any litigation between the Parties
hereto with respect to the subject matter of this Agreement shall be in Houston,
Texas. Each Party hereby irrevocably submits to personal jurisdiction in Texas.
Each Party hereby waives all objections to personal jurisdiction in Texas and
venue in Houston, Texas 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. 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.
9. MODIFICATION OF AGREEMENT. This Agreement may be amended or modified
only by written instrument signed by both of the Parties.
2
<PAGE>
10. ENTIRE AGREEMENT; BINDING EFFECT. This Agreement, and the documents,
instruments and agreements executed in connection herewith, set forth the entire
agreement and understanding 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.
11. 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 EFFECTIVE the ____ day of ____, 1997.
BUYER:
------
LITIGATION RESOURCES OF AMERICA --
CALIFORNIA, INC.
a California corporation
By:_____________________________________________
Richard O. Looney,
President & Chief Executive Officer
SELLER:
-------
____________________________________
Colleen Jilio
3
<PAGE>
EXHIBIT D
- ---------
SELLER'S INVESTOR REPRESENTATION LETTER
September 15, 1997
Litigation Resources of America, Inc.
Litigation Resources of America -- California, Inc.
1001 Fannin, Suite 650
Houston, Texas 77002
Attn: Mr. Richard O. Looney, President
Re: Investor Representations
Gentlemen:
The purpose of this letter is to evidence certain representations and
warranties to be made with respect to certain matters relating to the
acquisition by Colleen Jilio, an individual (the "Investor"), of shares of
Common Stock issued by Litigation Resources of America, Inc., a Texas
corporation (the "Company"), having a par value of one-cent ($0.01) per share
(the "Common Stock"), for and in partial consideration of the sale of certain of
the assets of the Investor to Litigation Resources of America -- California,
Inc., a California corporation ("Buyer"), upon the terms and conditions set
forth herein and in that certain Agreement of Purchase and Sale of Assets (the
"Purchase Agreement"), entered into by and among the Investor, the Company, and
the Buyer.
The Investor hereby represents and warrants to the Company, the Buyer
, and each of the Company's and the Buyer's officers, directors, shareholders,
agents, attorneys, employees and representatives as follows:
1. Investment Intent. (i) The Common Stock is being acquired solely
for the account of the Investor, for investment and not with a view to or for
the resale, distribution, subdivision or fractionalization thereof, (ii) the
Investor has no contract, understanding, undertaking, agreement or arrangement
with any person to sell, transfer or pledge to any person the Common Stock or
any part thereof, (iii) the Investor has no present plans to enter into any such
contract, undertaking, agreement or arrangement, (iv) the Investor understands
the legal consequences of the foregoing representations and warranties to mean
that the Investor must bear the economic risk of the investment in the Common
Stock for an indefinite period of time, (v) the Investor has such knowledge and
experience in financial and business matters that the Investor is capable of
evaluating the merits and risks of acquiring the Common Stock, and (vi) the
Investor acknowledges that the acquisition of the Common Stock by the Investor
involves a high degree of risk which may result in the loss of the total amount
of this investment.
<PAGE>
Litigations Resources of America, Inc.
Litigation Resources of America -- California, Inc.
September 15, 1997
Page 2
2. No General Solicitation. The Common Stock has been offered to
the Investor without any form of general solicitation or advertising of any type
by or on behalf of the Company or any of its officers, directors, shareholders,
employees, agents, attorneys or representatives.
3. Access to Information. The Investor has (i) for a reasonable
amount of time had an opportunity to ask questions and receive answers
concerning the terms and conditions of the issuance of the Common Stock and the
proposed business and affairs of the Company, and is satisfied with the results
thereof, (ii) has been given access, if requested, to all other documents with
respect to the Company or this transaction, as well as to such other information
as the Investor has requested, and (iii) has relied solely on investigations
conducted by the Investor in making the decision to acquire the Common Stock or
approve the transactions set forth in the Purchase Agreement.
4. Exemption Status. The Investor understands that the Common Stock
to be sold hereunder are being issued in reliance upon the exemptions from
registration under the Securities Act of 1933, as amended. The Investor
understands that the undersigned, the Company, the Company's officers,
directors, shareholders, employees, agents, attorneys and representatives are
relying on, among other things, the representations and warranties of the
Investor set forth herein in issuing the Common Stock to the Investor.
5. Securities Compliance. The Investor understands and agrees that
(i) no sale, distribution, transfer or other disposition of the Common Stock, or
any portion thereof, can be made by the Investor unless the Common Stock has
been registered under the Securities Act of 1933, as amended, and applicable
securities laws of any other relevant jurisdiction, or exemptions from such
registration are available, as evidenced by an opinion of counsel, satisfactory
to the Company, with respect to the proposed sale, distribution, transfer or
other disposition, and (ii) an appropriate legend will be endorsed on the Common
Stock evidencing such restrictions.
6. Accredited Investor Status. The Investor is an "accredited
investor" within the meaning of Rule 501 of Regulation D promulgated under the
Securities Act.
7. Representations of Natural Persons. If the Investor is a natural
person, the Investor has reached the age of majority in the state in which the
Investor resides, has adequate means of providing for the Investor's current
financial needs and contingencies, is able to bear the substantial economic
risks of an investment in the Common Stock, has no need for liquidity in such
investment, and is able to withstand a complete loss of such investment.
<PAGE>
Litigations Resources of America, Inc.
Litigation Resources of America -- California, Inc.
September 15, 1997
Page 3
8. Representations of Entities. If Investor is a corporation,
partnership, trust or other entity, (i) it is authorized and qualified to
purchase and hold the Common Stock, (ii) it has not been formed for the purpose
of acquiring the Common Stock, (iii) the person executing this Agreement for and
on behalf of such entity has been duly authorized by such entity to do so, (iv)
it is willing and able to bear the substantial economic risk of an investment in
the Common Stock and has no need for liquidity with respect thereto, and (v) it
is able to withstand a complete loss of its investment.
9. No Governmental Review. The Investor acknowledges and understands
that no federal or state agency has passed on the fairness of the investment in
the Common Stock, nor made any recommendation or endorsement of the Common
Stock, and that there is a significant risk of loss of all or a portion of the
Investor's investment in the Common Stock.
10. State of Residence and Domicile. The Investor is either (i) a
permanent resident of the State of California, or (ii) not a resident or citizen
of the United States.
The Investor acknowledges that the Company and the Company's officers,
directors, agents, attorneys and other representatives are relying on the
representations and warranties set forth herein, and would not deliver the
Common Stock to the Investor but for the execution and delivery of this letter
by the Investor.
Very truly yours,
Colleen Jilio
<PAGE>
EXHIBIT E
STOCK PLEDGE AGREEMENT
----------------------
THIS STOCK PLEDGE AGREEMENT (this "Pledge Agreement") is made
effective as of the ___ day of _____________, 1997, by COLLEEN JILIO, an
individual ("Pledgor"), and LITIGATION RESOURCES OF AMERICA -- CALIFORNIA, INC.,
a California corporation ("Secured Party"). All capitalized terms contained
herein without definition shall have the respective meanings given to them in
that certain Agreement of Purchase and Sale of Assets dated September __, 1997
(the "Purchase Agreement") by and among the Pledgor, Secured Party, and
Litigation Resources of America, Inc., a Texas corporation and the parent
company of the Secured Party (the "Parent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Pledgor has agreed to sell substantially all of its assets to
Secured Party upon the terms and conditions contained in the Purchase Agreement;
and
WHEREAS, Pledgor has certain obligations under the Purchase Agreement,
including, but not limited to, the obligation of Pledgor to indemnify Secured
Party for any breaches of representations and warranties of Pledgor contained in
the Purchase Agreement; and
WHEREAS, pursuant to the terms of the Purchase Agreement and as partial
consideration for the purchase of the common stock of the Company by the Secured
Party, the Pledgor has been issued shares of common stock, $.01 par value per
share (the "Common Stock"), of the Parent; and
WHEREAS, the terms of the Purchase Agreement provide for the Pledgor to
pledge a portion of the shares of Common Stock to the Secured Party in order to
secure the obligations of Pledgor under the Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
1. Pledge of Common Stock. Pledgor hereby pledges and grants to Secured
Party a security interest in the _______ shares (the "Shares") of the Common
Stock issued pursuant to the Purchase Agreement (which constitute 50% of the
shares of Common Stock issued to her pursuant to the Agreement), which shall
attach immediately upon the issuance of such Shares to Pledgor in accordance
with the terms of the Purchase Agreement. Immediately upon receipt of the
Shares, Pledgor shall be required to deliver to Secured Party the certificate or
certificates representing the Shares in order that Secured Party might perfect
its security interest therein. The Pledgor and the Secured Party hereby
acknowledge and agree that the value of the Common Stock ("Agreed Value") shall
be deemed to be (i) the IPO Price if shares are being surrendered hereunder in
order to effect an adjustment in the Purchase Price pursuant to Section 2.5 of
the Purchase Agreement and (ii) if shares are being surrendered hereunder for
any other reason, the average public trading price of each
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<PAGE>
share of Common Stock over the five (5) most recent business days falling prior
to the date of delivery by the Secured Party to the Pledgor of the notice of an
event requiring an Offset, as such term is defined in the Purchase Agreement.
Pledgor shall possess all voting rights pertaining to the Shares, so long as an
Event of Offset, as hereinafter defined, has not occurred, or if an Event of
Offset has allegedly occurred but is being disputed by the parties hereto, and
Secured Party shall have no voting rights that may be presently or hereafter
attributable to the Shares. In addition, so long as an Event of Offset has not
occurred, or if an Event of Offset has allegedly occurred but is being disputed
by the parties hereto, then Pledgor shall have the right to receive all
dividends, if any, on the Shares, and Pledgor shall be entitled to receive all
proceeds upon liquidation of the Shares, if any, as well as all other rights
with respect to the Shares except for the right to transfer title thereto.
Notwithstanding the foregoing, if an Event of Offset has occurred and (i) has
been resolved, by agreement or otherwise (a "Resolved Event of Offset") or (ii)
is the subject of litigation, which litigation is still pending or in process (a
"Continuing Event of Offset"), then Secured Party shall have the right to
designate a representative or trustee to vote those shares of Common Stock
covered by or subject to the Resolved Event of Offset or Continuing Event of
Offset (the "Offset Shares"), to receive all dividends and liquidation proceeds
with respect to the Offset Shares, and to receive all other rights with respect
to the Offset Shares.
2. Representations and Warranties. Pledgor hereby represents, warrants
and covenants to and with Secured Party that:
(a) Pledgor will not, without the written consent of Secured Party,
sell, contract to sell, encumber, or dispose of any Shares remaining
subject to the security interest created by this Pledge Agreement.
(b) No consent of any party is necessary for the Pledgor to perform
its obligations hereunder, or if any such consent is required, such consent
has been received prior to the execution of this Pledge Agreement.
3. Event of Offset. Each delivery by Secured Party to the Pledgor of a
notice of a claim of offset shall constitute an Event of Offset ("Event of
Offset") under this Pledge Agreement.
4. Remedies.
(a) Upon the occurrence of a Resolved Event of Offset, Secured Party
may, at its option, exercise with reference to the Shares any and all of
the rights and remedies of a secured party under the Uniform Commercial
Code as adopted in the State of Texas and as otherwise granted therein or
under any other applicable law or under any other agreement executed by
Pledgor, including, without limitation, the right and power to sell, at
public or private sale(s), or otherwise dispose of or keep the Shares and
any part or parts thereof, or interest or interests therein owned by
Pledgor, in any manner authorized or permitted under this Pledge Agreement
or under the Uniform Commercial Code, and to apply the proceeds thereof
toward payment of any costs and expenses and attorneys' fees and legal
expenses thereby incurred by Secured Party, and toward payment of the
obligations under the Purchase Agreement in such order or manner as Secured
Party may elect. Notwithstanding anything
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<PAGE>
to the contrary contained herein, the Secured Party shall only foreclose on
that portion of the Shares that is reasonably necessary in the reasonable
good faith judgment of the Secured Party in order to satisfy the amount of
the claim constituting the Resolved Event of Offset. For purposes hereof,
the Agreed Value of the Shares shall be deemed to be the value that the
Secured Party is receiving on the foreclosure of the Shares and Secured
Party shall not be entitled to foreclose on more Shares than is necessary
to recover all of its damages resulting from the Resolved Event of Offset.
(b) Secured Party is hereby granted the right, at its option, after a
Continuing Event of Offset, to transfer at any time to itself or its
nominee the securities or other property hereby pledged, or any part
thereof, and to thereafter exercise all voting rights with respect to such
Shares so transferred and to receive the proceeds, payments, monies, income
or benefits attributable or accruing thereto and to hold the same as
security for the obligations hereby secured, or at Secured Party's
election, to apply such amounts to the obligations, only if due, and in
such order as Secured Party may elect or Secured Party may, at its option,
without transferring such securities or property to its nominee, exercise
all voting rights with respect to the securities pledged hereunder and vote
all or any part of such securities at any regular or special meeting of
shareholders.
(c) Pledgor hereby agrees to cooperate fully with Secured Party in
order to permit Secured Party to sell, at foreclosure or other private
sale, Pledgor's interest in the Shares pledged hereunder as provided in
this Pledge Agreement. Specifically, Pledgor agrees to deliver to Secured
Party the certificate or certificates representing the Shares if Pledgor
has possession at that time, to fully comply with the securities laws of
the United States and of the State of Texas and to take such other action
as may be necessary to permit Secured Party to sell or otherwise transfer
the securities pledged hereunder in compliance with such laws.
5. Termination. This Pledge Agreement shall continue as security for the
payment or satisfaction of the obligations under the Purchase Agreement until
the earliest to occur of: (i) termination of this Pledge Agreement by written
notice of the Secured Party to the Pledgor, (ii) the date upon which none of the
representations and warranties of Pledgor contained in the Purchase Agreement
survive and all covenants and obligations of Pledgor under said Purchase
Agreement have been fully and properly performed or (ii) three (3) years after
the date hereof, provided that Secured Party has not given Pledgor notice of an
Event of Offset which has not been satisfied by Pledgor, or if there is an Event
of Offset, the pledge shall continue only to the extent of the number of Shares
based on the Agreed Value equal to the amount of damages reasonably expected to
be caused by the Event of Offset; provided however, upon the expiration of six
months, two years and three years after the date of this Pledge Agreement (each
a "Release Date"), the following provisions shall apply: (x) if no Event of
Offset exists on such Release Date, the Secured Party shall release one-third
(1/3) of the number of Shares initially pledged hereunder from the pledge
established hereby, and the remaining shares of Shares shall remain pledged
under the terms and conditions of this Pledge Agreement; or (y) if an Event of
Offset exists, the amount of Damages resulting from such Event of Offset shall
be determined, and on the first Release Date, the second Release Date and the
third Release Date, one third (1/3), one half (1/2) and all of the remaining
Shares, respectively, that have not been Offset against shall be released from
the pledge established hereby and delivered
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<PAGE>
to the Pledgor and the remaining Shares shall remain pledged under the terms and
conditions of this Pledge Agreement.
6. Release from Pledge. Upon the termination of this Pledge Agreement,
Secured Party shall immediately release its security interest in the Shares. In
addition, Secured Party shall deliver the certificate or certificates
representing the Shares to Pledgor if Secured Party has possession of such
certificates at that time. Upon such occurrence, the security interest of
Secured Party shall automatically terminate and Secured Party shall thereafter
have no interest whatsoever in the Shares.
7. 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 Pledgor: Colleen Jilio
3090 Bristol, Suite 100
Costa Mesa, California 92626
With a copy to: Stephen M. Kane
Charles & Kane LLP
1920 Main Street, Suite 1070
Irvine, California 92614
Fax No. (714) 852-9878
E-Mail [email protected]
If to the
Secured Party: Litigation Resources of America -- California, Inc.
c/o Litigation Resources of America, Inc.
650 First City Tower, 1001 Fannin
Houston, Texas 77002
Attn: President
Copy to: Boyer Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Attn: John W. Menke
8. Successors. This Pledge Agreement shall be binding upon, and inure to
the benefit of the parties hereto and their successors and assigns. Any
assignee whatsoever will be bound by the obligations of the assigning party
under this Pledge Agreement, and any assignment shall not diminish the liability
or obligation of the assignor under the terms of this Pledge Agreement unless
otherwise agreed.
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<PAGE>
9. Severability. In the event that any one or more of the provisions
contained in this Pledge Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not
affect any other provision of this Pledge Agreement or any such other
instrument.
10. Paragraph Headings. The paragraph headings used herein are
descriptive only and shall have no legal force or effect whatsoever.
11. Gender. Whenever the context so requires, the masculine shall include
the feminine and neuter, and the singular shall include the plural and
conversely.
12. Survival of Warranties. All representations, warranties, and
agreements made by the parties in this Pledge Agreement or in any certificates
delivered pursuant hereto will survive the execution date hereof.
13. Applicable Law. This Pledge Agreement shall be construed and
interpreted in accordance with the laws of the United States of America and the
State of Texas, and is intended to be performed in accordance with and as
permitted by such laws.
14. Definitions. All terms and definitions used herein shall have the
same meaning as in the Purchase Agreement unless otherwise indicated.
15. Drafting. The parties hereto acknowledge that each party was actively
involved in the negotiation and drafting of this Pledge Agreement and that no
law or rule of construction shall be raised or used in which the provisions of
this Pledge Agreement shall be construed in favor or against either party hereto
because one is deemed to be the author thereof.
16. Attorneys' Fees. If any litigation is instituted to enforce or
interpret the provisions of this Pledge 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.
17. Multiple Counterparts. This Pledge Agreement may be executed in
multiple counterparts each of which shall be deemed an original and all of which
shall constitute one instrument.
18. Substitution of Collateral. Upon the request of the Pledgor to
substitute collateral for the Shares pledged hereunder, the Secured Party will
negotiate in good faith to accept such substituted collateral pursuant to a
security agreement appropriate to adequately perfect a security interest therein
in favor of Secured Party, such substituted collateral to be in form, substance
and amount reasonably acceptable to the Secured Party.
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<PAGE>
IN WITNESS WHEREOF, this Pledge Agreement has been executed effective as of
the date first above written.
PLEDGOR:
________________________________________
COLLEEN JILIO
SECURED PARTY:
LITIGATION RESOURCES OF AMERICA --
CALIFORNIA, INC.
By:_____________________________________
Richard O. Looney, President
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<PAGE>
EXHIBIT F-1
FORM OF OPINION OF BUYER'S COUNSEL
Based upon our examination and consideration of the Agreement, the
Ancillary Agreements, and subject to the assumptions, exceptions, qualifications
and limitations set forth herein, we are of the opinion that:
1. Buyer is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of California with the corporate
power and authority to own its assets and to transact its businesses
as now being conducted. Buyer is in good standing in all jurisdictions
in which the character of the properties and assets now owned or held
by it or the nature of the businesses now conducted by it requires it
to be so licensed or qualified and where the failure so to qualify
would affect materially and adversely the business, financial
condition or results of operations of Buyer.
2. The Parent is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Texas with the corporate
power and authority to own its assets and to transact its business as
now being conducted. The Parent is in good standing in all
jurisdictions in which the character of the properties and assets now
owned or held by it or the nature of the business now conducted by it
requires it to be so licensed or qualified and where the failure so to
qualify would affect materially and adversely the business, financial
condition or results of operations of the Parent.
3. The Agreement and Ancillary Agreements to which either Buyer or Parent
are a party have been duly and validly authorized, executed and
delivered and are valid and binding on either the Buyer or Parent, as
applicable, and enforceable in accordance with their terms, except as
limited by bankruptcy laws, insolvency laws, and other similar laws
affecting the rights of creditors generally.
4. Except for such as have been obtained and delivered to Seller at
closing and except where the failure to obtain such authorization,
approval or consent or to take such action or make such filing would
not have a material adverse effect on Buyer or Parent, as applicable,
to our knowledge no authorization, approval or consent of or
declaration or filing with any governmental authority or regulatory
body is necessary or required of the Buyer or the Parent in connection
with the execution and delivery of the Agreement and the Ancillary
Agreements by either and the performance by either Buyer or Parent of
its obligations thereunder.
5. The execution and delivery of the Agreement and the Ancillary
Agreements to which it is a party by each of the Buyer and the Parent
and the performance of its obligations thereunder do not to our
knowledge (i) violate any provision of any existing law or regulation
applicable to each or (ii) violate any order, judgment,
<PAGE>
award or decree of any court, arbitrator or governmental authority
applicable to each or (iii) violate the charter or bylaws of, or any
securities issued by, each or (iv) violate any mortgage, indenture,
lease, contract or other agreement known to us to which either is a
party or by which either the Buyer or Parent or any of their assets is
bound.
6. To our knowledge, neither the Buyer nor the Parent is in default under
any material order, judgment, award or decree of any court, arbitrator
or governmental authority binding upon or affecting it or by which its
assets may be bound or affected, and to our knowledge, no such order,
judgment, award or decree materially adversely affects the ability of
the Buyer or the Parent to carry on its respective business as now
conducted or perform its respective obligations under the Agreement or
the Ancillary Agreements.
7. To our knowledge, except as disclosed in the Agreement and the
Ancillary Agreements and the schedules thereto, no litigation,
investigation or administrative proceeding of or before any court,
arbitrator or governmental authority is pending or threatened against
the Buyer or Parent or their assets (a) with respect to the Agreement,
the Ancillary Agreements or the transactions contemplated thereby, or
(b) that, if adversely determined, would have a material adverse
effect on the business or financial condition of Buyer or Parent or
their assets.
<PAGE>
EXHIBIT F-2
FORM OF OPINION OF SELLER'S COUNSEL
Based upon our examination and consideration of the Agreement and the
Ancillary Agreements, and subject to the assumptions, exceptions, qualifications
and limitations set forth herein, we are of the opinion that:
1. The Seller has all material licenses, permits and authorizations
necessary to own and use the properties owned and used by her and to
operate the Business as now owned and operated by her.
2. To our knowledge and except as otherwise disclosed in the Agreement,
Seller has good and indefeasible title to the Assets, free and clear of
restrictions or conditions to transfer or assignment, or mortgages,
liens, pledges, charges or encumbrances of record, or arising under
applicable law. The Business constitutes the separate property of the
Seller and Seller's spouse has no community property interest in the
Business or any of the Assets. The Agreement and Ancillary Agreements
are in form and content sufficient to vest in the Buyer title to the
Assets and, upon execution and delivery to the Buyer, will cause all
right, title and interest in and to the Assets to vest in the Buyer.
3. Seller has the full right, power and legal capacity to execute, deliver
and perform Seller's obligations under the Agreement and the Ancillary
Agreements.
4. The Agreement and each Ancillary Agreement has been duly executed and
delivered by the Seller, is binding on Seller and enforceable against
Seller in accordance with its terms, except as limited by bankruptcy
laws, insolvency laws, and other similar laws affecting the rights of
creditors generally.
5. Except for such as have been obtained and provided to Buyer, Seller
need not give any notice to, make any filing with, or obtain any
authorization, consent or approval, or make any declaration or filing
with any government or governmental agency or regulatory body or other
third party in connection with the execution and delivery of the
Agreement and the Ancillary Agreements or the performance by the Seller
of Seller's obligations thereunder.
6. The execution and delivery of the Agreement and the Ancillary
Agreements by the Seller, and the performance of Seller's obligations
thereunder (a) do not violate any provision of (i) any existing law or
regulation applicable to the Seller, the Business or the Assets or (ii)
to our knowledge, any order, judgment, award or decree of any court,
arbitrator or governmental authority applicable to the Seller, or (iii)
to our knowledge, except as disclosed in the Agreement and the
schedules thereto, any
<PAGE>
mortgage, indenture, lease, contract or other agreement, instrument or
undertaking to which the Seller is a party or by which the Seller, the
Business or the Assets are bound, and (b) will not result in, or
require, the creation or imposition of any lien on the Assets or any
portion of the Business.
7. To our knowledge, the Seller is not in default under any order,
judgment, award or decree of any court, arbitrator or governmental
authority binding upon or affecting her or by which the Business or any
of the Assets may be bound or affected, and no such order, judgment,
award or decree materially adversely affects the ability of the Seller
to carry on her business as now conducted or the ability of the Seller
to perform her obligations under the Agreement or the Ancillary
Agreements.
8. To our knowledge, except as disclosed in the Agreement and the
schedules thereto, no litigation, investigation or administrative
proceeding of or before any court, arbitrator or governmental authority
is pending or threatened against the Seller, the Business or the Assets
(a) with respect to the Agreement or the transactions contemplated
thereby, or (b) that, if adversely determined, would have a material
adverse effect on the business or financial condition of the Seller,
the Business or the Assets.
<PAGE>
EXHIBIT 2.15
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 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.
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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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<PAGE>
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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<PAGE>
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.
-------------
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);
---------------
(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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<PAGE>
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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<PAGE>
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,
------------
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
-------------
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
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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
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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
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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 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
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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
-----------------------------------------------
Richard O. Looney, Chief Executive Officer and
President
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SIEGEL:
-------
/s/ Elaine P. Siegel
--------------------------------------------------
ELAINE P. SIEGEL, Individually
BECKER:
-------
/s/ Laurie Becker
--------------------------------------------------
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 2.16
STOCK PURCHASE AGREEMENT
------------------------
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
<PAGE>
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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<PAGE>
(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'
-----------
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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<PAGE>
(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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<PAGE>
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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<PAGE>
(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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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 A
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated effective the 17th day
of September, 1997 (the "Effective Date"), is entered into by and between BURTON
HOUSE, INC., a California corporation doing business as ZISKIND, GREENE,
WATANABE & NASON (hereinafter called the "Company," which term includes any
directly or indirectly controlled subsidiaries or successor entities), and GREGG
M. ZISKIND, an individual residing in the State of California (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 Stock
Purchase Agreement executed as of September 17, 1997 (the "Purchase Agreement"),
by and among Employee, Litigation Resources of America-California, Inc., a
California corporation and the parent company of the Company ("LRA-CA"), and
Litigation Resources of America, Inc., a Texas corporation and the parent
company of LRA-CA ("LRA").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Employee has been a shareholder, director, officer, and employee
of the Company, and his knowledge of the affairs of the business, particularly
the legal recruiting and placement business in California, are of great value to
the Company; and
WHEREAS, pursuant to the terms of the Purchase Agreement, LRA-CA has
purchased from the Employee, and the Employee has sold to LRA-CA, all the issued
and outstanding common stock of the Company; and
WHEREAS, part of the consideration given to the Employee under the Purchase
Agreement included an agreement by LRA-CA that the Company would enter into this
Agreement; and
WHEREAS, a condition precedent to the closing of the Purchase Agreement was
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 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 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
provided herein, Sections 12, 13, 14, 16, 17, 22, 24 and 25 of this Agreement
shall survive the expiration or termination of this Agreement, for any reason
whatsoever. The Employee accepts such employment
<PAGE>
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 Company and
shall report to, and be subject to the general direction and control of the
Chief Executive Officer and the Board of Directors of the Company (the "Board").
The Employee shall perform such management and administrative duties, consistent
with the Employee's position and his position with the Company prior to the date
hereto, as are from time to time reasonably assigned to the Employee by the
Chief Executive Officer and the Board. 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 or Board shall
from time to time specify, if such services are of the nature commonly
associated with the position of president of a company engaged in activities
similar to the legal recruitment and placement 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 Company; 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 Company, including, but not
limited to, the marketing and providing of legal recruiting and placement
services in the California counties of Los Angeles and Orange. The term
"Company" as used in this Agreement shall be deemed to include and refer to all
such Affiliates.
3. Extent of Service. Except for the provision of a limited amount of
services (which shall not exceed 10% of his business time on a monthly basis) to
Legal Recruitment Network, Inc., d/b/a Employer Net ("LRN"), an "on-line"
placement service currently partially owned by the Employee, 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 (other than LRN) 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 aggregate amount of One Hundred Thousand Dollars
($100,000.00) 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 the date of termination of Employee's
employment under this Agreement;
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<PAGE>
(b) 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 LRA. The Formula may be amended from time to
time by LRA'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 LRA's offices in different geographical areas render services.
Until notice of a change in the Formula applicable to the Employee is given to
the Employee by LRA'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 shares by the Employee
and the other individual(s) on such a basis as is determined to be fair by
LRA'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.
(c) in the event that the Employee provides assistance to LRA in connection
with LRA'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 LRA
or its subsidiary in connection with such acquisition. The Employee shall
identify potential acquisition candidates by giving written notice to LRA'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
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<PAGE>
LRA authorizes the Employee to actively pursue such acquisition. In no event
shall LRA 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 LRA 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.
(d) with regard the following placements: Kelley/Schwartz;
Richards/Thorson; Bronson/Langberg; Ginsberb/Theodora; Arter/Hill; and
Kaye/Pilmer, the Company shall pay the Employee in accordance with its usual
practice a commission equal to any additional amounts collected (net of other
commissions payable out of such amount) in excess of the accounts receivable
reflected on the books of the Company on the date hereof with regard to each
such placement.
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 and the Employee
have budgeted $800.00 per month for promotional and entertainment expenses of
the Employee expected to be incurred by the Employee in the conduct of his
duties hereunder. The Company agrees to reimburse the Employee for all such
expenses subject to the documentation requirements set forth above. 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.
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) The Employee will use his best reasonable efforts to truthfully and
accurately make, maintain and preserve all records and reports that the
Company may from time to time request or require.
(b) 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.
(c) 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.
(d) Upon request, 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.
(e) 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.
(f) 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.
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(b) In carrying out his duties as President of the Company, the Employee
shall primarily be responsible for making day-to-day decisions in the ordinary
course of business 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 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.
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;
(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 were 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
consistent with the terms hereof and failing to cure such breach within ten
(10) days after written notice thereof;
(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;
or
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<PAGE>
(h) dying.
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 alleged 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 outside of the
area set forth in Section 2 of this Agreement; 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. 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.
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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 agreement by LRA-CA 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) during
the 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 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 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 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 (i)
within Orange and Los Angeles Counties which competes with the Business of the
Company or (ii) which is in competition with the Business and is located
within 50 miles of any office operated by LRA or any Affiliate of LRA which is
also engaged in the Business; 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 engaged in the Business; and
(c) Employee will not intentionally divert, solicit or take away any
customer, supplier or employee of the Company or its Affiliates engaged in the
Business, or the patronage of any customer or supplier of the Company or its
Affiliates engaged in the Business, 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 from such date of termination.
In the event the Company ceases operation of the Business of the Company
(other than in a merger, consolidation, sale of assets 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.
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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 is in any
way related to, or connected with, the Business of the Company within the
aforementioned time periods, 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 (except for Information which is
generally known in the industry) 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.
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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: Burton House, Inc.
c/o Litigation Resources of America, Inc.
1001 Fannin, Suite 650
Houston, Texas 77002
Telefax:(713) 653-7172
Attn: Richard O. Looney
If to the Employee: Mr. Gregg M. Ziskind
10442 Cheviot Drive
Los Angeles, California 90064
Telephone: (714) 839-2076
Telefax: (714) 841-2258
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 connection with the obtaining of any such
injunctive or any other equitable relief. Without limiting the Company's right
to otherwise enforce the provisions of this Agreement through specific
performance and injunctive and other relief, the Company agrees not to seek
monetary damages from the Employee arising either (a) out of acts or omissions
by the Employee which cause damages to a third party for which damages the
Company has become liable unless such acts or omissions constituted grossly
negligent, willful or intentional acts or omissions of the Employee or (b)
solely because the Employee leaves the employ of the Company other than pursuant
to a Termination By Employee With Good Reason prior to expiration of the term of
the Agreement.
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
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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. 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.
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 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 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
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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.
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 24 shall restrict any party's 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 this 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 24.
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:
BURTON HOUSE, INC.,
a California corporation doing business as
ZISKIND, GREENE, WATANABE & NASON
By: _________________________________
Richard O. Looney
Chief Executive Officer
THE EMPLOYEE:
_______________________________________
GREGG M. ZISKIND
<PAGE>
EXHIBIT D
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STOCK PLEDGE AGREEMENT
----------------------
THIS STOCK PLEDGE AGREEMENT (this "Pledge Agreement") is made
effective as of the 17th day of September, 1997, by GREGG M. ZISKIND AND SUSAN
L. ZISKIND (collectively, the "Pledgor"), and LITIGATION RESOURCES OF AMERICA--
CALIFORNIA, INC., a California corporation ("Secured Party"). All capitalized
terms contained herein without definition shall have the respective meanings
given to them in that certain Stock Purchase Agreement dated as of September 17,
1997 (the "Purchase Agreement") by and among the Pledgor, Secured Party and
Litigation Resources of America, Inc., a Texas corporation and the parent
company of the Secured Party (the "Parent").
W I T N E S S E T H:
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WHEREAS, pursuant to the Purchase Agreement the Pledgor has agreed to sell
all of the issued and outstanding common stock of Burton House, Inc., a
California corporation doing business as Ziskind, Greene, Watanabe & Nason (the
"Company"), to Secured Party upon the terms and conditions contained in the
Purchase Agreement; and
WHEREAS, Pledgor has certain obligations under the Purchase Agreement,
including, but not limited to, the obligation of Pledgor to indemnify Secured
Party for any breaches of representations and warranties of Pledgor contained in
the Purchase Agreement; and
WHEREAS, pursuant to the terms of the Purchase Agreement and as partial
consideration for the purchase of the common stock of the Company by the Secured
Party, the Pledgor has been issued shares of common stock , $.01 par value per
share, of the Parent (the "Common Stock"); and
WHEREAS, the terms of the Purchase Agreement provide for the Pledgor to
pledge a portion of the shares of Common Stock to the Secured Party in order to
secure the obligations of Pledgor under the Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
1. Pledge of Common Stock. Pledgor hereby pledges and grants to Secured
Party a security interest in 41,764 shares (the "Shares") of the Common Stock
issued pursuant to the Purchase Agreement, which shall attach immediately upon
the issuance of such Shares to Pledgor in accordance with the terms of the
Purchase Agreement. Immediately upon receipt of the Shares, Pledgor shall be
required to deliver to Secured Party the certificate or certificates
representing the Shares in order that Secured Party might perfect its security
interest therein. The Pledgor and the Secured Party hereby acknowledge and
agree that the value of the Shares shall be deemed to be $8.50 per share of
Common Stock; provided, however, that if Parent has successfully consummated
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a Public Offering, as such term is defined in the Purchase Agreement, of its
shares of Common Stock, then it shall mean the average public trading price of
each share of Common Stock over the five (5) most recent business days falling
prior to the date of delivery by the Secured Party to the Pledgor of the notice
of an event requiring an Offset, as such term is defined in the Purchase
Agreement (the "Agreed Value"). Pledgor shall possess all voting rights
pertaining to the Shares, so long as an Event of Offset, as hereinafter defined,
has not occurred, or if an Event of Offset has allegedly occurred but is being
disputed by the parties hereto prior to submission to arbitration in accordance
with Section 9(N) of the Purchase Agreement and Section 17 hereof, and Secured
Party shall have no voting rights that may be presently or hereafter
attributable to the Shares. In addition, so long as an Event of Offset has not
occurred, or if an Event of Offset has allegedly occurred but is being disputed
by the parties hereto prior to submission to arbitration in accordance with
Section 9(N) of the Purchase Agreement, then Pledgor shall have the right to
receive all dividends, if any, on the Shares, and Pledgor shall be entitled to
receive all proceeds upon liquidation of the Shares, if any, as well as all
other rights with respect to the Shares except for the right to transfer title
thereto. Notwithstanding the foregoing, if an Event of Offset has occurred and
(i) has been resolved, either by failure to timely dispute it as required by
Section 9(N) of the Purchase Agreement, by agreement or by arbitration decided
in favor of Secured Party (a "Resolved Event of Offset") or (ii) has been
submitted to arbitration in accordance with Section 9(N) of the Purchase
Agreement which arbitration is still pending or in process (a "Continuing Event
of Offset"), then Secured Party shall have the right to designate a
representative or trustee to vote those shares of Shares covered by or subject
to the Resolved Event of Offset or Continuing Event of Offset (the "Offset
Shares"), to receive all dividends and liquidation proceeds with respect to the
Offset Shares, and to receive all other rights with respect to the Offset
Shares.
2. Representations and Warranties. Pledgor hereby represents, warrants
and covenants to and with Secured Party that:
(a) Pledgor will not, without the written consent of Secured Party,
sell, contract to sell, encumber, or dispose of the Shares or any interest
therein until this Pledge Agreement and all obligations under the Purchase
Agreement have been fully satisfied.
(b) No consent of any party is necessary for the Pledgor to perform
his obligations hereunder, or if any such consent is required, such consent
has been received prior to the execution of this Pledge Agreement.
3. Event of Offset. Each delivery by Secured Party to the Pledgor of a
notice of a claim of offset pursuant to Section 8(b) of the Purchase Agreement
shall constitute an Event of Offset ("Event of Offset") under this Pledge
Agreement.
4. Remedies.
(a) Upon the occurrence of a Resolved Event of Offset, Secured Party
may, at its option, exercise with reference to the Shares any and all of
the rights and remedies of a secured party under the Uniform Commercial
Code as adopted in the State of California and as otherwise granted therein
or under any other applicable law or under any other agreement
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<PAGE>
executed by Pledgor, including, without limitation, the right and power to
sell, at public or private sale(s), or otherwise dispose of or keep the
Shares and any part or parts thereof, or interest or interests therein
owned by Pledgor, in any manner authorized or permitted under this Pledge
Agreement or under the Uniform Commercial Code, and to apply the proceeds
thereof toward payment of any costs and expenses and attorneys' fees and
legal expenses thereby incurred by Secured Party, and toward payment of the
obligations under the Purchase Agreement in such order or manner as Secured
Party may elect. Notwithstanding anything to the contrary contained herein,
the Secured Party shall only foreclose on that portion of the Shares that
is reasonably necessary in the reasonable good faith judgment of the
Secured Party in order to satisfy the amount of the claim constituting the
Resolved Event of Offset. For purposes hereof, the Agreed Value of the
Shares shall be deemed to be the value that the Secured Party is receiving
on the foreclosure of the Shares and Secured Party shall not be entitled to
foreclose on more Shares than is necessary to recover all damages resulting
from the Resolved Event of Offset to which Secured Party is entitled
hereunder.
(b) Secured Party is hereby granted the right, at its option, after a
Continuing Event of Offset, to transfer at any time to itself or its
nominee the securities or other property hereby pledged, or any part
thereof, and to thereafter exercise all voting rights with respect to such
Shares so transferred and to receive the proceeds, payments, monies, income
or benefits attributable or accruing thereto and to hold the same as
security for the obligations hereby secured, or at Secured Party's
election, to apply such amounts to the obligations, only if due, and in
such order as Secured Party may elect or Secured Party may, at its option,
without transferring such securities or property to its nominee, exercise
all voting rights with respect to the securities pledged hereunder and vote
all or any part of such securities at any regular or special meeting of
shareholders.
(c) Pledgor hereby agrees to cooperate fully with Secured Party in
order to permit Secured Party to sell, at foreclosure or other private
sale, Pledgor's interest in the Shares pledged hereunder as provided in
this Pledge Agreement. Specifically, Pledgor agrees to deliver to Secured
Party the certificate or certificates representing the Shares if Pledgor
has possession at that time, to fully comply with the securities laws of
the United States and of the State of California and to take such other
action as may be necessary to permit Secured Party to sell or otherwise
transfer the securities pledged hereunder in compliance with such laws.
(d) Prior to the exercise by Secured Party of any of its remedies
hereunder resulting in a sale or transfer of Shares, Pledgor may elect to
pay the full amount of any Resolved Event of Offset in cash. Upon the
receipt of any such full cash payment, Secured Party shall not be entitled
to pursue any other remedy with respect to such Resolved Event of Offset.
5. Termination. This Pledge Agreement shall continue as security for the
payment or satisfaction of the obligations under the Purchase Agreement until
the earliest to occur of: (i) termination of this Pledge Agreement as provided
in Section 19 below, (ii) the date upon which none of the representations and
warranties of Pledgor contained in the Purchase Agreement survive and
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<PAGE>
all covenants and obligations of Pledgor under said Purchase Agreement have been
fully and properly performed with respect thereto or (ii) three (3) years after
the date hereof, provided that Secured Party has not given Pledgor notice of an
Event of Offset which has not been satisfied by Pledgor, or if there is an Event
of Offset, the pledge shall continue only to the extent of the number of Shares
based on the Agreed Value equal to the amount of damages reasonably expected by
Secured Party to be caused by the Event of Offset; provided however, (a) upon
the closing of an initial public offering of the Common Stock by the Parent
("IPO"), in the event the number of Shares pledged pursuant hereto multiplied by
the price to public ("Price to Public") of the shares of Common Stock in the IPO
exceeds the amount of $355,000, Secured Party shall, within 15 days, release
from the pledge evidenced hereby such integral number of Shares determined by
subtracting from (i) the original number of Shares pledged hereunder (ii) the
number of shares determined by dividing $355,000 by the Price to Public, and the
remaining shares of Shares shall remain pledged under the terms and conditions
of this Pledge Agreement and (b) upon the expiration of six months, two years
and three years after the date of this Pledge Agreement (each a "Release Date"),
the following provisions shall apply: (x) if no Event of Offset exists on such
Release Date or such Event of Offset has been otherwise resolved, the Secured
Party shall release one-third (1/3) of the number of Shares pledged hereunder
following any release pursuant to (a) above from the pledge established hereby,
and the remaining shares of Shares shall remain pledged under the terms and
conditions of this Pledge Agreement; or (y) if an Event of Offset exists, the
amount of Damages resulting from such Event of Offset shall be determined, and
on the first Release Date, the second Release Date and the third Release Date,
one third (1/3), one half (1/2) and all of the remaining Shares, respectively,
that have not been Offset against shall be released from the pledge established
hereby and delivered to the Pledgor and the remaining shares of Shares shall
remained pledged under the terms and conditions of this Pledge Agreement.
6. Release from Pledge. Upon the termination of this Pledge Agreement,
Secured Party shall immediately release its security interest in the Shares. In
addition, Secured Party shall deliver the certificate or certificates
representing the Shares to Pledgor if Secured Party has possession of such
certificates at that time. Upon such occurrence, the security interest of
Secured Party shall automatically terminate and Secured Party shall thereafter
have no interest whatsoever in the Shares.
7. 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 Pledgor: Gregg M. & Susan L. Ziskind
10442 Cheviot Drive
Los Angeles, California 90064
Telephone: (714) 839-2076
Telefax: (714) 841-2258
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<PAGE>
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
Secured Party: Litigation Resources of America-California, Inc.
c/o Litigation Resources of America, Inc.
650 First City Tower, 1001 Fannin
Houston, Texas 77002
Attn: President
Copy to: Boyer Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Attn: John W. Menke
8. Successors. This Pledge Agreement shall be binding upon, and inure to
the benefit of the parties hereto and their successors and assigns. Any
assignee whatsoever will be bound by the obligations of the assigning party
under this Pledge Agreement, and any assignment shall not diminish the liability
or obligation of the assignor under the terms of this Pledge Agreement unless
otherwise agreed.
9. Severability. In the event that any one or more of the provisions
contained in this Pledge Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not
affect any other provision of this Pledge Agreement or any such other
instrument.
10. Paragraph Headings. The paragraph headings used herein are
descriptive only and shall have no legal force or effect whatsoever.
11. Gender. Whenever the context so requires, the masculine shall include
the feminine and neuter, and the singular shall include the plural and
conversely.
12. Survival of Warranties. All representations, warranties, and
agreements made by the parties in this Pledge Agreement or in any certificates
delivered pursuant hereto will survive the execution date hereof.
13. Applicable Law. This Pledge Agreement shall be construed and
interpreted in accordance with the laws of the State of California, and is
intended to be performed in accordance with and as permitted by such laws.
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<PAGE>
14. Definitions. All terms and definitions used herein shall have the
same meaning as in the Purchase Agreement unless otherwise indicated.
15. Drafting. The parties hereto acknowledge that each party was actively
involved in the negotiation and drafting of this Pledge Agreement and that no
law or rule of construction shall be raised or used in which the provisions of
this Pledge Agreement shall be construed in favor or against either party hereto
because one is deemed to be the author thereof.
16. Attorneys' Fees. If any litigation is instituted to enforce or
interpret the provisions of this Pledge 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.
17. Arbitration. The arbitration provisions contained in Section 9(N) of
the Purchase Agreement shall govern this Pledge Agreement.
18. Multiple Counterparts. This Pledge Agreement may be executed in
multiple counterparts each of which shall be deemed an original and all of which
shall constitute one instrument.
19. Substitution of Collateral. Upon the request of the Pledgor to
substitute collateral for the Shares pledged hereunder, the Secured Party will
negotiate in good faith to accept such substituted collateral pursuant to a
security agreement appropriate to adequately perfect a security interest therein
in favor of Secured Party, such substituted collateral to be in form, substance
and amount reasonably acceptable to the Secured Party. Upon the receipt of such
substituted collateral and executed security agreement as provided in the
previous sentence, the Secured Party shall release the Shares from the lien
created hereby and, if such substituted collateral is given in full substitution
for the Shares pledged hereunder, terminate this Pledge Agreement.
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<PAGE>
IN WITNESS WHEREOF, this Pledge Agreement has been executed effective as of
the date first above written.
PLEDGOR:
_____________________________________________
GREGG M. ZISKIND
_____________________________________________
SUSAN L. ZISKIND
SECURED PARTY:
LITIGATION RESOURCES OF AMERICA --
CALIFORNIA, INC., A CALIFORNIA CORPORATION
By:_____________________________________
Richard O. Looney, President
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<PAGE>
EXHIBIT E
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INVESTOR'S INVESTOR REPRESENTATION LETTER
September 17, 1997
Litigation Resources of America, Inc.
Litigation Resources of America -- California, Inc.
1001 Fannin, Suite 650
Houston, Texas 77002
Attn: Mr. Richard O. Looney, President
Re: Investor Representations
Gentlemen:
The purpose of this letter is to evidence certain representations and
warranties to be made with respect to certain matters relating to the
acquisition by Gregg M. Ziskind and Susan L. Ziskind (collectively, the
"Investor") of shares of Common Stock issued by Litigation Resources of America,
Inc., a Texas corporation (the "Company"), having a par value of one-cent
($0.01) per share (the "Common Stock"), for and in partial consideration of the
sale of all of the outstanding capital stock of Burton House, Inc., a California
corporation doing business as Ziskind, Greene, Watanabe & Nason ("Burton
House"), to Litigation Resources of America -- California, Inc., a California
corporation ("Buyer"), upon the terms and conditions set forth herein and in
that certain Stock Purchase Agreement (the "Purchase Agreement"), entered into
by and among the shareholders of Burton House, the Company, and the Buyer.
The Investor hereby represents and warrants to the Company, the
Buyer, and each of the Company's and the Buyer's officers, directors,
shareholders, agents, attorneys, employees and representatives as follows:
1. Investment Intent. (i) The Common Stock is being acquired solely
for the account of the Investor, for investment and not with a view to or for
the resale, distribution, subdivision or fractionalization thereof, (ii) the
Investor has no contract, understanding, undertaking, agreement or arrangement
with any person to sell, transfer or pledge to any person the Common Stock or
any part thereof, (iii) the Investor has no present plans to enter into any such
contract, undertaking, agreement or arrangement, (iv) the Investor understands
the legal consequences of the foregoing representations and warranties to mean
that the Investor must bear the economic risk of the investment in the Common
Stock for an indefinite period of time, (v) the Investor has such knowledge and
experience in financial and business matters that the Investor is capable of
evaluating the merits and risks of acquiring the Common Stock, and (vi) the
Investor acknowledges that the
<PAGE>
Litigation Resources of America, Inc.
Litigation Resources of America -- California, Inc.
September ___, 1997
Page 2
acquisition of the Common Stock by the Investor involves a high degree of risk
which may result in the loss of the total amount of this investment.
2. No General Solicitation. The Common Stock has been offered to
the Investor without any form of general solicitation or advertising of any type
by or on behalf of the Company or any of its officers, directors, shareholders,
employees, agents, attorneys or representatives.
3. Access to Information. The Investor has (i) for a reasonable
amount of time had an opportunity to ask questions and receive answers
concerning the terms and conditions of the issuance of the Common Stock and the
proposed business and affairs of the Company, and is satisfied with the results
thereof, (ii) has been given access, if requested, to all other documents with
respect to the Company or this transaction, as well as to such other information
as the Investor has requested, and (iii) has relied solely on investigations
conducted by the Investor in making the decision to acquire the Common Stock or
approve the transactions set forth in the Purchase Agreement.
4. Exemption Status. The Investor understands that the Common Stock
to be sold hereunder are being issued in reliance upon the exemptions from
registration under the Securities Act of 1933, as amended. The Investor
understands that the undersigned, the Company, the Company's officers,
directors, shareholders, employees, agents, attorneys and representatives are
relying on, among other things, the representations and warranties of the
Investor set forth herein in issuing the Common Stock to the Investor.
5. Securities Compliance. The Investor understands and agrees that
(i) no sale, distribution, transfer or other disposition of the Common Stock, or
any portion thereof, can be made by the Investor unless the Common Stock has
been registered under the Securities Act of 1933, as amended, and applicable
securities laws of any other relevant jurisdiction, or exemptions from such
registration are available, as evidenced by an opinion of counsel, satisfactory
to the Company, with respect to the proposed sale, distribution, transfer or
other disposition, and (ii) an appropriate legend will be endorsed on the Common
Stock evidencing such restrictions.
6. Accredited Investor Status. The Investor is an "accredited
investor" within the meaning of Rule 501 of Regulation D promulgated under the
Securities Act.
7. Representations of Natural Persons. If the Investor is a natural
person, the Investor has reached the age of majority in the state in which the
Investor resides, has adequate means of providing for the Investor's current
financial needs and contingencies, is able to bear the
<PAGE>
Litigation Resources of America, Inc.
Litigation Resources of America -- California, Inc.
September ___, 1997
Page 3
substantial economic risks of an investment in the Common Stock, has no need for
liquidity in such investment, and is able to withstand a complete loss of such
investment.
8. Representations of Entities. If Investor is a corporation,
partnership, trust or other entity, (i) it is authorized and qualified to
purchase and hold the Common Stock, (ii) it has not been formed for the purpose
of acquiring the Common Stock, (iii) the person executing this Agreement for and
on behalf of such entity has been duly authorized by such entity to do so, (iv)
it is willing and able to bear the substantial economic risk of an investment in
the Common Stock and has no need for liquidity with respect thereto, and (v) it
is able to withstand a complete loss of its investment.
9. No Governmental Review. The Investor acknowledges and understands
that no federal or state agency has passed on the fairness of the investment in
the Common Stock, nor made any recommendation or endorsement of the Common
Stock, and that there is a significant risk of loss of all or a portion of the
Investor's investment in the Common Stock.
10. State of Residence and Domicile. The Investor is either (i) a
permanent resident of the State of California, or (ii) not a resident or citizen
of the United States.
The Investor acknowledges that the Company and the Company's officers,
directors, agents, attorneys and other representatives are relying on the
representations and warranties set forth herein, and would not deliver the
Common Stock to the Investor but for the execution and delivery of this letter
by the Investor.
Very truly yours,
Gregg M. Ziskind
Susan L. Ziskind
<PAGE>
EXHIBIT F-1
FORM OF OPINION OF SELLERS' COUNSEL
Based upon our examination and consideration of the Agreement, the
Employment Agreement, the Stock Pledge Agreement, the Registration Rights
Agreement and the Shareholders' Agreement (collectively, the "Transaction
Documents"), and in reliance thereon, and subject to the assumptions,
exceptions, qualifications and limitations set forth herein, we are of the
opinion that:
1. The Company is a California corporation, duly organized, validly
existing and in good standing under the laws of the State of
California, and has all necessary power and authority and all material
licenses, permits and authorizations necessary to own and use the
properties owned and used by it and to operate its business as now
owned and operated by it. The Company is not qualified to do business
in any other jurisdiction, nor does the nature of its business nor the
location of any of its employees or assets require such qualification.
All of the outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid and
nonassessable and were not issued in violation of the preemptive
rights of any Person.
2. Sellers have the full right, power and legal capacity to execute,
deliver and perform their obligations under the Transaction Documents.
Each such Transaction Document has been duly executed and delivered by
the appropriate Seller, and is binding on each Seller and enforceable
against each Seller in accordance with its terms, except as limited by
bankruptcy laws, insolvency laws, and other similar laws affecting the
rights of creditors generally.
3. Except for such as have been obtained and provided to Buyer, neither
the Company nor Sellers needs to give any notice to, make any filing
with, or obtain any authorization, consent or approval, or make any
declaration or filing with any government or governmental agency or
regulatory body or other third party in connection with the execution
and delivery of the Transaction Documents or the performance by
Sellers of their obligations thereunder.
4. The execution and the delivery of the Transaction Documents by the
Sellers, and the consummation of the transactions by the Sellers as
contemplated hereby, will not (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 or the Company are 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
<PAGE>
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 the
Company's assets).
5. To our knowledge, neither the Sellers nor the Company is in default
under any order, judgment, award or decree of any court, arbitrator or
governmental authority binding upon or affecting them or by which
their businesses or any of their assets may be bound or affected, and
no such order, judgment, award or decree materially adversely affects
the ability of the Company to carry on its businesses as now conducted
or the ability of either Seller to perform its obligations under the
Transaction Documents.
6. To our knowledge, except as disclosed in the Agreement and the
schedules thereto, no litigation, investigation or administrative
proceeding of or before any court, arbitrator or governmental
authority is pending or threatened against the Company or either
Seller, or against the Company's business or assets (a) with respect
to the Transaction Documents or the transactions contemplated thereby,
or (b) that, if adversely determined, would have a material adverse
effect on the business or financial condition of the Company or either
Seller, or on the Company's business or assets.
<PAGE>
EXHIBIT F-2
FORM OF OPINION OF BUYER'S COUNSEL
Based upon our examination and consideration of the Agreement, the
Employment Agreement, the Stock Pledge Agreement, the Registration Rights
Agreement and the Shareholders' Agreement (collectively, the "Transaction
Documents"), and in reliance thereon, and subject to the assumptions,
exceptions, qualifications and limitations set forth herein, we are of the
opinion that:
1. Buyer is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of California with the corporate
power and authority to own its assets and to transact its businesses
as now being conducted. Buyer is in good standing in all jurisdictions
in which the character of the properties and assets now owned or held
by it or the nature of the businesses now conducted by it requires it
to be so licensed or qualified and where the failure so to qualify
would affect materially and adversely the business, financial
condition or results of operations of Buyer.
2. The Parent is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Texas with the corporate
power and authority to own its assets and to transact its business as
now being conducted. The Parent is in good standing in all
jurisdictions in which the character of the properties and assets now
owned or held by it or the nature of the business now conducted by it
requires it to be so licensed or qualified and where the failure so to
qualify would affect materially and adversely the business, financial
condition or results of operations of the Parent.
3. The Transaction Documents to which either Buyer or Parent are a party
have been duly and validly authorized, executed and delivered and are
valid and binding on either the Buyer or Parent, as applicable, and
enforceable in accordance with their terms, except as limited by
bankruptcy laws, insolvency laws, and other similar laws affecting the
rights of creditors generally.
4. All of the outstanding Parent Shareshave been duly authorized validly
issued and, to our knowledge, are fully paid and nonassessable. The
Parent Shares to be issued to the Sellers pursuant to the Agreement
have been duly authorized and, when issued to the Sellers in
accordance with the terms of the Agreement will be validly issued,
fully paid and nonassessable, subject to the terms of the Stock Pledge
Agreement and Section 8B of the Agreement.
5. Except for such as have been obtained and delivered to Sellers at
closing and except where the failure to obtain such authorization,
approval or consent or to take such action or make such filing would
not have a material adverse effect on Buyer or Parent, as applicable,
to our knowledge no authorization, approval or consent of or
<PAGE>
declaration or filing with any governmental authority or regulatory
body is necessary or required of the Buyer or the Parent in connection
with the execution and delivery of the Transaction Documents by either
and the performance by either Buyer or Parent of its obligations
thereunder.
6. The execution and delivery of the Transaction Documents to which it is
a party by each of the Buyer and the Parent and the performance of its
obligations thereunder do not to our knowledge (i) violate any
provision of any existing law or regulation applicable to each or (ii)
violate any order, judgment, award or decree of any court, arbitrator
or governmental authority applicable to each or (iii) violate the
charter or bylaws of, or any securities issued by, each or (iv)
violate any mortgage, indenture, lease, contract or other agreement
known to us to which either is a party or by which either the Buyer or
Parent or any of their assets is bound.
7. To our knowledge, neither the Buyer nor the Parent is in default under
any material order, judgment, award or decree of any court, arbitrator
or governmental authority binding upon or affecting it or by which its
assets may be bound or affected, and to our knowledge, no such order,
judgment, award or decree materially adversely affects the ability of
the Buyer or the Parent to carry on its respective business as now
conducted or perform its respective obligations under the Transaction
Documents.
8. To our knowledge, except as disclosed in the Transaction Documents and
the schedules thereto, no litigation, investigation or administrative
proceeding of or before any court, arbitrator or governmental
authority is pending or threatened against the Buyer or Parent or
their assets (a) with respect to the Transaction Documents or the
transactions contemplated thereby, or (b) that, if adversely
determined, would have a material adverse effect on the business or
financial condition of Buyer or Parent or their assets.
<PAGE>
EXHIBIT 2.17
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 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 :
- - - - - - - - - -
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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<PAGE>
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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<PAGE>
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
-4-
<PAGE>
(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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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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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
- --------
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 2.18
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 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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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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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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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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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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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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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated effective the ____ day of
October, 1997 (the "Effective Date"), is entered into by and between LITIGATION
RESOURCES OF AMERICA-NORTHEAST, INC., a New York corporation (hereinafter called
the "Company," which term includes any directly or indirectly controlled
subsidiaries or successor entities), and Lee Goldstein, an individual residing
in the State of Florida (the "Employee"). The Company may sometimes hereinafter
be referred to as "Employer." The Employer 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 24, 1997 (the "Purchase Agreement"), by and
among the Company, Reporting Services Associates, Inc. a Pennsylvania
corporation ("Seller"), the Employee, individually, and Litigation Resources of
America, Inc., a Texas corporation (the "Parent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Employee has been and employee and the Owner of the Seller and its
business known as Reporting Services Associates, Inc. (the "RSA Business"), and
his knowledge of the affairs of the RSA Business, particularly its court
reporting business in Philadelphia, Pennsylvania, 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 at
least a majority 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
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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 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 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 RSA Division of
the Company and as Northeast Regional Vice President, and shall report to, and
be subject to the general direction and control of the Chief Executive Officer
and the Board of Directors of the Company (the "Board"). The Employee shall
perform such management and administrative duties, consistent with the
Employee's position, as are from time to time reasonably assigned to the
Employee by the 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 Chief Executive Officer or Board shall from time to
time reasonably specify, if such services are of the nature commonly associated
with the positions of Division President and of Regional Vice President 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 and the RSA
Business; provided, that Employee shall not be required to engage in any
business that is not reasonably related to the Business of the Company. 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 court reporting and
litigation support services in the Philadelphia, Pennsylvania area. 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 Employer, 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 Seventy-Five Thousand and
No/100 Dollars ($175,000.00)(representing One Hundred Thousand and No/100
Dollars ($100,000.00) for services rendered as a Division President and
Seventy-Five Thousand and No/100 Dollars ($75,000.00) for services rendered as
a Regional Vice
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President) 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 the termination of this Agreement;
(b) a monthly car allowance in the amount of Six Hundred and No/100
Dollars ($600.00), which shall be payable in accordance with the payroll
policies of the Company;
(c) a bonus consisting of two components 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")
including, without limitation, the first fiscal year of the Company; provided
however, that any Annual Bonus calculated with respect to a fiscal year during
which the Employee was employed for only a part of such year shall be prorated
to account for the number of days during such year in which Employee was
employed by the Company; and
(d) a commission payment to be calculated in accordance with Schedule
B attached hereto, based upon the revenues generated from National Account (as
herein defined) sales originated by the Employee. The amount of commissions
payable will be based upon a formula ("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 the Company's offices render services. Until notice of a change in
the Formula applicable to the Employee is given to the Employee by the
Company, the Formula applicable to the Employee shall be as set forth on
Schedule B; and
(e) In the event that the Employee identifies a business as an
acquisition candidate for the Company or any of its subsidiaries, and such
acquisition candidate has not been previously brought to the attention of the
Company, and the Company or any of its subsidiaries ultimately acquires such
business, the Employee shall be entitled to receive, at the closing of such
acquisition, a cash payment equal to 10% of the investment banking fee paid to
The Gulfstar Group, Inc. or such other investment banking firm by the Company
or its subsidiary in connection with such acquisition. In no event shall the
Company 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 is completed.
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 and approved by the Board or
incurred in accordance with the travel and reimbursement policies of
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the Company as the same shall be in effect from time to time, upon submission by
him of an appropriate statement documenting such expenses.
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. 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 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 use his best reasonable efforts to 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
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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 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 RSA Division and
Northeast Regional Vice President of the Company, the Employee shall primarily
be responsible for making day-to-day decisions in the ordinary course of
business 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
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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 and the RSA Business.
(d) The Company agrees that it will not terminate any employee of the
Company without giving prior notification of such termination to the Employee.
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 ten (10) 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 ten (10) days after written notice thereof; or
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(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 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 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 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 Employer shall not have
the opportunity to cure any violation of this Agreement if such violation cannot
reasonably be expected to be cured
-7-
<PAGE>
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, but at a salary level equal
to the Division President portion of Employee's compensation only, as set forth
in Section 4 of this Agreement, 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 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, except in the event of Termination Without Cause or
in the event of Termination By Employee With Good Reason By Employee:
(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.
-8-
<PAGE>
The foregoing restrictive covenants shall 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 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,
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
-9-
<PAGE>
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: Litigation Resources of America-
Northeast, Inc.
1001 Fannin, Suite 650
Houston, Texas 77002
Telefax:(713) 653-7172
Attn: Richard O. Looney
If to the Employee: Lee Goldstein
Reporting Services Associates
225 South 15/th/ Street, 22/nd/ Floor
Philadelphia, PA 19102
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 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.
-10-
<PAGE>
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.
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. 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 an successor
organization. Any such arbitration shall be to a three
-11-
<PAGE>
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.
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 24 shall restrict the Company's ability to
seek injunctive or other equitable relief in any court of competent jurisdiction
prior to initiating mediation or arbitration for any violation by the Employee
of Sections 12, 13, 14 or 16 of this Agreement. In the event that such
injunctive or equitable relief is sought by the Company, the Company is
specifically entitled to enforce the provisions of these Sections 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 24.
25. 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.
26. 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.
-12-
<PAGE>
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-
NORTHEAST, INC., a New York corporation
By: _________________________________
Richard O. Looney
Chief Executive Officer
THE EMPLOYEE:
_______________________________________
Lee Goldstein
Schedule A--Calculation of Annual Bonus
Schedule B--Calculation of Commissions
-13-
<PAGE>
SCHEDULE A
----------
CALCULATION OF ANNUAL BONUS
Each year the accountants regularly employed by the Company shall
determine the amount of EBIT Profit, if any, of (i) the RSA Division and (ii)
the Northeast Region of the Company (being that region of the Company which Lee
Goldstein, as RVP, is responsible for managing) during each consecutive twelve
(12) month time period ending on the last day of the fiscal year of the Company
("respectively the "Annual RSA EBIT Profits" and the "Annual Northeast Region
EBIT Profits"), 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, (x) to the extent that the Annual RSA EBIT
Profits for the current year exceed the Annual RSA EBIT Profits for the prior
year, the Employee shall be paid an annual bonus equal to ten percent (10%) of
the amount of such excess, if any ("Bonus Component 1"), and (y) to the extent
that the Annual Northeast Region EBIT Profits for the current year exceed the
Annual EBIT Profits for the prior year, the Employee shall be paid an annual
bonus equal to ten percent (10%) of the amount of such excess, if any ("Bonus
Component 2"); provided that for the first fiscal year of the Company (A)(i) the
Bonus Components 1 and 2, respectively shall be calculated for each full month
of operations and added together, (ii) the Bonus Components 1 and 2 respectively
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 Bonus Components 1 and 2 for the first fiscal
year and (B) the Annual Northeast Region EBIT Profits for the prior year shall
be deemed to be $_________ [NET WORTH ON __________ BALANCE SHEET] and the
Annual RSA EBIT Profits for the prior year shall be deemed to be $____________.
For purposes of this calculation, EBIT Profits for each of the RSA Divisions in
the Northeast Region shall mean their gross earnings before income taxes,
interest, depreciation and amortization, but excluding the effects of any
acquisitions and after deductions for all annual bonuses to be paid to the
managers in the Northeast Region.
-14-
<PAGE>
SCHEDULE B
----------
<TABLE>
<CAPTION>
Commission Price Structure of
Percentage of Gross Sales National Account
<S> <C>
3.00% Market price
2.50% Discount of 5% to 10% from market price
rate
2.00% Discount of 10% to 15% from market price
rate
1.50% Discount of 15% to 20% from market price
rate
1.00% Discount of 20% to 25% from market price
rate
0.50% Discount of 25% or more from market price
rate
</TABLE>
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 shares by the Employee
and the other individuals on such a basis as is determined to be fair by the
Company's Board of Directors. All commissions payable hereunder will be paid in
cash within 45 days of the end of the fiscal year of the Company in which they
are earned.
-15-
<PAGE>
EXHIBIT C DRAFT OF SEPTEMBER 22, 1997
BILL OF SALE,
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS BILL OF SALE, ASSIGNMENT AND ASSUMPTION AGREEMENT (this Bill of Sale")
is entered into effective as of September___, 1997, among REPORTING SERVICES
ASSOCIATES, INC., a Pennsylvania corporation ("Seller"), and LITIGATION
RESOURCES OF AMERICA-NORTHEAST, INC., a New York corporation ("Purchaser").
Purchaser and Seller may be hereinafter sometimes referred to collectively as
the "Parties" or individually as a "Party." All defined terms not otherwise
defined herein shall have the meanings ascribed to them in that certain
Agreement of Purchase and Sale of Assets of even date herewith (the
"Agreement"), executed among Seller, Purchaser and Litigation Resources of
America, Inc., a Texas corporation.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Purchaser has agreed to purchase from Seller, and Seller has
agreed to grant, bargain, sell, convey, transfer, assign and deliver to
Purchaser, the Assets (but not the Excluded Assets); and
WHEREAS, as partial consideration for the sale and assignment of the
Assets, Purchaser has agreed to assume the Assumed Liabilities, on and subject
to the terms and conditions set forth in the Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, including the delivery to Seller of the Purchase Price,
the receipt and sufficiency of which are hereby acknowledged, Purchaser and
Seller hereby agree as follows:
1. SALE AND ASSIGNMENT. Seller has granted, bargained, sold, conveyed,
transferred, assigned and delivered, and by these presents does grant, bargain,
sell, convey, transfer, assign and deliver unto Purchaser, its successors and
assigns, the Assets. Seller warrants that Seller is the lawful owner in every
respect of all of the Assets and that the Assets are free and clear of any and
all liens, security agreements, encumbrances, claims, demands, and charges of
every kind and character whatsoever other than as previously disclosed in
writing to Purchaser. Seller hereby binds Seller and Seller's successors and
assigns to warrant and defend the title to all of the Assets unto Purchaser and
Purchaser's successors and assigns forever against every person whomsoever
lawfully claiming or to claim the Assets or any part thereof. Purchaser hereby
accepts the conveyance, transfer, assignment and delivery of the Assets.
<PAGE>
2. ASSUMPTION. Subject to the exceptions and exclusions of Section 2.6 of
the Agreement, and otherwise on and subject to the terms and conditions of the
Agreement, Purchaser hereby assumes and agrees to pay and perform the Assumed
Liabilities.
3. FURTHER ACTIONS. Seller hereby consents and agrees to any lawful
action taken by Purchaser in connection with the enforcement of, or the legal
protection of, the Assets, and confers upon Purchaser full right of substitution
in any and all such actions. Seller further covenants and agrees to execute
such further documents and take such additional actions as may reasonably be
requested by Purchaser to vest in Purchaser any and all of the Assets and
otherwise to effectuate the intent of this Bill of Sale. 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.
4. GOVERNING LAW; JURISDICTION; VENUE; SERVICE. This Agreement shall be
construed and enforced in accordance with and governed by the laws of the State
of Texas, without regard to conflicts of law principles, and the laws of the
United States applicable in Texas. Venue for any litigation between the Parties
hereto with respect to the subject matter of this Agreement shall be Harris
County, Texas. Each Party hereby irrevocably submits to personal jurisdiction
in Texas. Each Party hereby waives all objections to personal jurisdiction in
Texas and venue in Harris 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.
5. MODIFICATION OF AGREEMENT. This Agreement may be amended or modified
only by written instrument signed by all of the Parties.
6. ENTIRE AGREEMENT; BINDING EFFECT. This Agreement, and the documents,
instruments and agreements executed in connection herewith, set forth the entire
agreement and understanding 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.
7. 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 EFFECTIVE as of the date first written above.
2
<PAGE>
PURCHASER:
----------
LITIGATION RESOURCES OF AMERICA-NORTHEAST, INC., a New
York corporation
By:___________________________________________________
Richard O. Looney, President
SELLER:
-------
REPORTING SERVICES ASSOCIATES:
By:___________________________________________________
Lee Goldstein, President
A:\BILL OF SALE1.WPD
3
<PAGE>
EXHIBIT D DRAFT OF SEPTEMBER 22, 1997
---------------------------
[FORM OF SELLER'S INVESTOR REPRESENTATION LETTER]
_________ ___, 1997
Litigation Resources of America, Inc.
Litigation Resources of America -- Northeast, Inc.
1001 Fannin, Suite 650
Houston, Texas 77002
Attn: Mr. Richard O. Looney, President
Re: Investor Representations
Gentlemen:
The purpose of this letter is to evidence certain representations and
warranties to be made with respect to certain matters relating to the
acquisition by Reporting Services Associates, Inc., a Pennsylvania corporation
and/or its sole shareholder, Lee Goldstein, an individual rediding in the State
of Florida (the "Seller") of shares of Common Stock issued by Litigation
Resources of America, Inc., a Texas corporation (the "Company"), having a par
value of one-cent ($0.01) per share (the "Common Stock"), for and in partial
consideration of the sale of certain of the assets of the Seller to Litigation
Resources of America -- Northeast, Inc., a New York corporation ("Buyer"), upon
the terms and conditions set forth herein and in that certain Agreement of
Purchase and Sale of Assets (the "Purchase Agreement"), entered into by and
among the Seller, the sole shareholder of the Seller, the Company, and the
Buyer. The undersigned Seller or shareholder of Seller is sometimes hereinafter
referred to as the "Investor."
The Investor hereby represents and warrants to the Company, the Buyer,
and each of the Company's and the Buyer's officers, directors, shareholders,
agents, attorneys, employees and representatives as follows:
1. Investment Intent. (i) The Common Stock is being acquired solely
for the account of the Seller, for investment and not with a view to or for the
resale, distribution, subdivision or fractionalization thereof, (ii) the Seller
has no contract, understanding, undertaking, agreement or arrangement with any
person to sell, transfer or pledge to any person the Common Stock or any part
thereof, (iii) the Seller has no present plans to enter into any such contract,
undertaking, agreement or arrangement, (iv) the Seller understands the legal
consequences of the foregoing representations and warranties to mean that the
Seller must bear the economic risk of the investment in the Common Stock for an
indefinite period of time, (v) the Investor has such knowledge and experience in
financial and business matters that the Investor is capable of evaluating the
merits and
<PAGE>
Litigations Resources of America, Inc.
Litigations Resources of America -- Northeast, Inc.
__________________ ____, 1997
Page 2
risks of acquiring the Common Stock, and (vi) the Investor acknowledges that the
acquisition of the Common Stock by the Seller involves a high degree of risk
which may result in the loss of the total amount of this investment.
2. No General Solicitation. The Common Stock has been offered to
the Seller without any form of general solicitation or advertising of any type
by or on behalf of the Company or any of its officers, directors, shareholders,
employees, agents, attorneys or representatives.
3. Access to Information. The Seller, and to the extent the
Investor is not the Seller, the Investor, has (i) for a reasonable amount of
time had an opportunity to ask questions and receive answers concerning the
terms and conditions of the issuance of the Common Stock and the proposed
business and affairs of the Company, and is satisfied with the results thereof,
(ii) has been given access, if requested, to all other documents with respect to
the Company or this transaction, as well as to such other information as the
Seller or the Investor has requested, and (iii) has relied solely on
investigations conducted by the Investor in making the decision to acquire the
Common Stock or approve the transactions set forth in the Purchase Agreement.
4. Exemption Status. The Investor understands that the Common Stock
to be sold hereunder are being issued in reliance upon the exemptions from
registration under the Securities Act of 1933, as amended. The Investor
understands that the undersigned, the Company, the Company's officers,
directors, shareholders, employees, agents, attorneys and representatives are
relying on, among other things, the representations and warranties of the
Investor set forth herein in issuing the Common Stock to the Seller.
5. Securities Compliance. The Investor understands and agrees that
(i) no sale, distribution, transfer or other disposition of the Common Stock, or
any portion thereof, can be made by the Seller unless the Common Stock has been
registered under the Securities Act of 1933, as amended, and applicable
securities laws of any other relevant jurisdiction, or exemptions from such
registration are available, as evidenced by an opinion of counsel, satisfactory
to the Company, with respect to the proposed sale, distribution, transfer or
other disposition, and (ii) an appropriate legend will be endorsed on the Common
Stock evidencing such restrictions.
6. Accredited Investor Status. The Investor is an "accredited
investor" within the meaning of Rule 501 of Regulation D promulgated under the
Securities Act.
7. Representations of Natural Persons. If the Investor is a natural
person, the Investor has reached the age of majority in the state in which the
Investor resides, has adequate
<PAGE>
Litigations Resources of America, Inc.
Litigations Resources of America -- Northeast, Inc.
__________________ ____, 1997
Page 3
means of providing for the Investor's current financial needs and contingencies,
is able to bear the substantial economic risks of an investment in the Common
Stock, has no need for liquidity in such investment, and is able to withstand a
complete loss of such investment.
8. Representations of Entities. If Investor is a corporation,
partnership, trust or other entity, (i) it is authorized and qualified to
purchase and hold the Common Stock, (ii) it has not been formed for the purpose
of acquiring the Common Stock, (iii) the person executing this Agreement for and
on behalf of such entity has been duly authorized by such entity to do so, (iv)
it is willing and able to bear the substantial economic risk of an investment in
the Common Stock and has no need for liquidity with respect thereto, and (v) it
is able to withstand a complete loss of its investment.
9. No Governmental Review. The Investor
acknowledges and understands that no federal or state agency has passed on the
fairness of the investment in the Common Stock, nor made any recommendation or
endorsement of the Common Stock, and that there is a significant risk of loss of
all or a portion of the Seller's investment in the Common Stock.
10. State of Residence and Domicile. The Investor
is either (i) a permanent resident of the State of Florida, or (ii) not a
resident or citizen of the United States.
The Investor acknowledges that the Company and the Company's officers,
directors, agents, attorneys and other representatives are relying on the
representations and warranties set forth herein, and would not deliver the
Common Stock to the Seller but for the execution and delivery of this letter by
the Investor.
Very truly yours,
<PAGE>
EXHIBIT E DRAFT AS OF NOVEMBER 6, 1997
----------------------------
STOCK PLEDGE AGREEMENT
----------------------
THIS STOCK PLEDGE AGREEMENT (this "Pledge Agreement") is made
effective as of the ___ day of _____________, 1997, by REPORTING SERVICES
ASSOCIATES, a Pennsylvania corporation ("Pledgor"), and LITIGATION RESOURCES OF
AMERICA -- NORTHEAST, INC., a New York corporation ("Secured Party"). All
capitalized terms contained herein without definition shall have the respective
meanings given to them in that certain Agreement of Purchase and Sale of Assets
dated of even date herewith (the "Purchase Agreement") by and among the Pledgor,
Secured Party, Litigation Resources of America, Inc., a Texas corporation and
the parent company of the Secured Party (the "Parent"), and the stockholder of
the Pledgor.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Pledgor has agreed to sell substantially all of its assets to
Secured Party upon the terms and conditions contained in the Purchase Agreement;
and
WHEREAS, Pledgor has certain obligations under the Purchase Agreement,
including, but not limited to, the obligation of Pledgor to indemnify Secured
Party for any breaches of representations and warranties of Pledgor contained in
the Purchase Agreement; and
WHEREAS, pursuant to the terms of the Purchase Agreement and as partial
consideration for the purchase of the stock of the Company by the Secured Party,
the Pledgor has been issued an aggregate of ________ shares of common stock,
$.01 par value per share (the "Stock"), of Parent; and
WHEREAS, the terms of the Purchase Agreement provide for the Pledgor to
pledge the Stock, whether now owned or hereinafter acquired, to the Secured
Party to partially secure the obligations of Pledgor under the Purchase
Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
1. Pledge of Stock. Pledgor hereby pledges and grants to Secured Party a
security interest in the Stock, which shall attach immediately upon each
issuance of Stock to all shares of Stock issued to Pledgor in accordance with
the terms of the Purchase Agreement. Immediately upon receipt of any shares of
Stock, Pledgor shall be required to deliver to Secured Party the certificate or
certificates representing the Stock in order that Secured Party might perfect
its security interest therein. The Pledgor and the Secured Party hereby
acknowledge and agree that the value of the Stock ("Agreed Value") shall be
deemed to be (i) the IPO Price if shares are being surrendered hereunder in
order to effect an adjustment in the Purchase Price and (ii) if shares are being
surrendered hereunder for any other reason, the average public trading price of
each share of Stock
-1-
<PAGE>
over the five (5) most recent business days falling prior to the date of
delivery by the Secured Party to the Pledgor of the notice of an event requiring
an Offset, as such term is defined in the Purchase Agreement. Pledgor shall
possess all voting rights pertaining to the Stock, so long as an Event of
Offset, as hereinafter defined, has not occurred, or if an Event of Offset has
allegedly occurred but is being disputed by the parties hereto prior to
submission to arbitration in accordance with Section 10.14 of the Purchase
Agreement, and Secured Party shall have no voting rights that may be presently
or hereafter attributable to the Stock. In addition, so long as an Event of
Offset has not occurred, or if an Event of Offset has allegedly occurred but is
being disputed by the parties hereto prior to submission to arbitration in
accordance with Section 10.14 of the Purchase Agreement, then Pledgor shall have
the right to receive all dividends, if any, on the Stock, and Pledgor shall be
entitled to receive all proceeds upon liquidation of the Stock, if any, as well
as all other rights with respect to the Stock except for the right to transfer
title thereto. Notwithstanding the foregoing, if an Event of Offset has occurred
and (i) has been resolved, either by failure to timely dispute it as required by
Section 10.14 of the Purchase Agreement, by agreement or by arbitration decided
in favor of Secured Party (a "Resolved Event of Offset") or (ii) has been
submitted to arbitration in accordance with Section 10.14 of the Purchase
Agreement which arbitration is still pending or in process (a "Continuing Event
of Offset"), then Secured Party shall have the right to designate a
representative or trustee to vote those shares of Stock covered by or subject to
the Resolved Event of Offset or Continuing Event of Offset (the "Offset
Shares"), to receive all dividends and liquidation proceeds with respect to the
Offset Shares, and to receive all other rights with respect to the Offset
Shares.
2. Representations and Warranties. Pledgor hereby represents, warrants
and covenants to and with Secured Party that:
(a) Pledgor will not, without the written consent of Secured Party,
sell, contract to sell, encumber, or dispose of the Stock or any interest
therein until this Pledge Agreement and all obligations under the Purchase
Agreement have been fully satisfied.
(b) No consent of any party is necessary for the Pledgor to perform
its obligations hereunder, or if any such consent is required, such consent
has been received prior to the execution of this Pledge Agreement.
3. Event of Offset. Each delivery by Secured Party to the Pledgor of a
notice of a claim of offset shall constitute an Event of Offset ("Event of
Offset") under this Pledge Agreement.
4. Remedies.
(a) Upon the occurrence of a Resolved Event of Offset, Secured Party
may, at its option, exercise with reference to the Stock any and all of the
rights and remedies of a secured party under the Uniform Commercial Code as
adopted in the State of Texas and as otherwise granted therein or under any
other applicable law or under any other agreement executed by Pledgor,
including, without limitation, the right and power to sell, at public or
private sale(s), or otherwise dispose of or keep the Stock and any part or
parts thereof, or interest or interests therein owned by Pledgor, in any
manner authorized or permitted under
-2-
<PAGE>
this Pledge Agreement or under the Uniform Commercial Code, and to apply
the proceeds thereof toward payment of any costs and expenses and
attorneys' fees and legal expenses thereby incurred by Secured Party, and
toward payment of the obligations under the Purchase Agreement in such
order or manner as Secured Party may elect. Notwithstanding anything to the
contrary contained herein, the Secured Party shall only foreclose on that
portion of the Stock that is reasonably necessary in the reasonable good
faith judgment of the Secured Party in order to satisfy the amount of the
claim constituting the Resolved Event of Offset. For purposes hereof, the
Agreed Value of the Stock shall be deemed to be the value that the Secured
Party is receiving on the foreclosure of the Stock and Secured Party shall
not be entitled to foreclose on more Stock than is necessary to recover all
of its damages resulting from the Resolved Event of Offset.
(b) Secured Party is hereby granted the right, at its option, after a
Continuing Event of Offset, to transfer at any time to itself or its
nominee the securities or other property hereby pledged, or any part
thereof, and to thereafter exercise all voting rights with respect to such
Stock so transferred and to receive the proceeds, payments, monies, income
or benefits attributable or accruing thereto and to hold the same as
security for the obligations hereby secured, or at Secured Party's
election, to apply such amounts to the obligations, only if due, and in
such order as Secured Party may elect or Secured Party may, at its option,
without transferring such securities or property to its nominee, exercise
all voting rights with respect to the securities pledged hereunder and vote
all or any part of such securities at any regular or special meeting of
shareholders.
(c) Pledgor hereby agrees to cooperate fully with Secured Party in
order to permit Secured Party to sell, at foreclosure or other private
sale, Pledgor's interest in the Stock pledged hereunder as provided in this
Pledge Agreement. Specifically, Pledgor agrees to deliver to Secured Party
the certificate or certificates representing the Stock if Pledgor has
possession at that time, to fully comply with the securities laws of the
United States and of the State of Texas and to take such other action as
may be necessary to permit Secured Party to sell or otherwise transfer the
securities pledged hereunder in compliance with such laws.
5. Termination. This Pledge Agreement shall continue as security for the
payment or satisfaction of the obligations under the Purchase Agreement until
the earliest to occur of (i) termination of this Pledge Agreement by written
notice of the Secured Party to the Pledgor or (ii) the date upon which none of
the representations and warranties of Pledgor contained in the Purchase
Agreement survive and all covenants and obligations of Pledgor under said
Purchase Agreement have been fully and properly performed, or (iii) three (3)
years after the date hereof, provided that Secured Party has not given Pledgor
notice of an Event of Offset which has not been satisfied by Pledgor, or if
there is an Event of Offset, the pledge shall continue only to the extent of the
number of Shares based on the Agreed Value equal to the amount of damages
reasonably expected to be caused by the Event of Offset; provided however, upon
the expiration of one year and three years after the date of this Pledge
Agreement (each a Release Date), the following provisions shall apply: (x) if no
Event of Offset exists on such Release Date, the Secured Party shall release
one-half (1/2) of the number of Shares initially pledged hereunder from the
pledge established hereunder, and the remaining Shares shall remain pledged
under the terms and conditions of this Pledge Agreement;
-3-
<PAGE>
or (y) if an Event of Offset exists, the amount of Damages resulting from such
Event of Offset shall be determined, and on the first and second Release Date,
one-half and all of the remaining Shares, respectively, that have not been
Offset against shall be released from the pledge established hereby and
delivered to the Pledgor and the remaining Shares shall remain pledged under the
terms and conditions of this Pledge Agreement. . If such a Continuing Event of
Offset exists, the pledge shall continue only to the extent of the amount of
Stock (based on the Agreed Value) equal to the amount of Damages claimed in the
Offset Claim or the amount of damages reasonably expected to be caused by the
Event of Offset, as applicable.
6. Release from Pledge. Upon the termination of this Pledge Agreement,
Secured Party shall immediately release its security interest in the Stock. In
addition, Secured Party shall deliver the certificate or certificates
representing the Stock to Pledgor if Secured Party has possession of such
certificates at that time. Upon such occurrence, the security interest of
Secured Party shall automatically terminate and Secured Party shall thereafter
have no interest whatsoever in the Stock.
7. 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 Pledgor: Reporting Services Associates, Inc.
225 South 15/th/ Street
Philadelphia, PA. 19102
Telephone: (215) 735-2332
Telefax: (215) 735-1695
Attn. Lee Goldstein
Copy to: Benjamin S. Ohrenstein
354 West Lancaster Avenue
Suite 212
Haverford, PA. 19041
Telephone: (610) 649-1268
Telefax: (610) 642-6553
If to the
Secured Party: Litigation Resources of America-Northeast, Inc.
c/o Litigation Resources of America, Inc.
650 First City Tower, 1001 Fannin
Houston, Texas 77002
Attn: President
Copy to: Boyer Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
-4-
<PAGE>
Houston, Texas 77046
Attn: John R. Boyer
8. Successors. This Pledge Agreement shall be binding upon, and inure to
the benefit of the parties hereto and their successors and assigns. Any
assignee whatsoever will be bound by the obligations of the assigning party
under this Pledge Agreement, and any assignment shall not diminish the liability
or obligation of the assignor under the terms of this Pledge Agreement unless
otherwise agreed.
9. Severability. In the event that any one or more of the provisions
contained in this Pledge Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not
affect any other provision of this Pledge Agreement or any such other
instrument.
10. Paragraph Headings. The paragraph headings used herein are
descriptive only and shall have no legal force or effect whatsoever.
11. Gender. Whenever the context so requires, the masculine shall include
the feminine and neuter, and the singular shall include the plural and
conversely.
12. Survival of Warranties. All representations, warranties, and
agreements made by the parties in this Pledge Agreement or in any certificates
delivered pursuant hereto will survive the execution date hereof.
13. Applicable Law. This Pledge Agreement shall be construed and
interpreted in accordance with the laws of the United States of America and the
State of Texas, and is intended to be performed in accordance with and as
permitted by such laws.
14. Definitions. All terms and definitions used herein shall have the
same meaning as in the Purchase Agreement unless otherwise indicated.
15. Drafting. The parties hereto acknowledge that each party was actively
involved in the negotiation and drafting of this Pledge Agreement and that no
law or rule of construction shall be raised or used in which the provisions of
this Pledge Agreement shall be construed in favor or against either party hereto
because one is deemed to be the author thereof.
16. Attorneys' Fees. If any litigation is instituted to enforce or
interpret the provisions of this Pledge 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.
17. Arbitration. The arbitration provisions contained in Section 10.14 of
the Purchase Agreement shall govern this Pledge Agreement.
-5-
<PAGE>
18. Multiple Counterparts. This Pledge Agreement may be executed in
multiple counterparts each of which shall be deemed an original and all of which
shall constitute one instrument.
-6-
<PAGE>
IN WITNESS WHEREOF, this Pledge Agreement has been executed effective as of
the date first above written.
PLEDGOR:
REPORTING SERVICES ASSOCIATES, INC.
By:________________________________________
Lee Goldstein, President
SECURED PARTY:
LITIGATION RESOURCES OF AMERICA -- NORTHEAST, INC.
By:_____________________________________
Richard O. Looney, President
-7-
<PAGE>
EXHIBIT F DRAFT OF SEPTEMBER 25, 1997
---------------------------
GUARANTY OF PERFORMANCE
-----------------------
THIS GUARANTY OF PERFORMANCE (the "Guaranty") is executed effective the ___
day of __________, 1997, by Lee Goldstein, an individual (the "Guarantor"),
pursuant to the terms of that certain Agreement of Purchase and Sale of Assets
(the "Agreement") entered into effective as of the even date herewith, by and
among Litigation Resources of America -- Northeast, Inc., a New York corporation
("Buyer"), Reporting Services Associates, Inc., a Pennsylvania corporation
("Seller"), Lee Goldstein, an individual ("Goldstein"), and Litigation
Resources of America, Inc., a Texas corporation and the parent company of Buyer
("Parent") (Buyer and the Parent are sometimes hereinafter referred to
collectively as the "LRA Companies"). All defined terms contained herein shall
have the meanings ascribed thereto in the Agreement.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to the terms of the Agreement, Buyer shall purchase
substantially all of the Assets of Seller, upon the terms and conditions
contained in the Agreement; and
WHEREAS, Goldstein is the sole shareholder of Seller; and
WHEREAS, Guarantor acknowledges that he is receiving numerous and
substantial benefits from the consummation of the transactions contemplated in
the Agreement, and that he is willing to execute this Guaranty for and in
consideration of such benefits, and in order to induce the LRA Companies to
enter into the Agreement and consummate the transactions contemplated therein;
and
WHEREAS, the LRA Companies would not have executed and consummated the
transactions described in the Agreement but for the agreement of Guarantor to
execute and deliver to the LRA Companies this Guaranty;
NOW, THEREFORE, for and in consideration of the terms and conditions
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by Guarantor, and in order to
induce the LRA Companies to enter into the Agreement and consummate the
transactions contemplated therein, the Guarantor hereby covenants and agrees as
follows:
1. Guarantor hereby absolutely, unconditionally and irrevocably
guarantees the full and punctual payment and performance by the Seller of all of
the obligations, duties, covenants, agreements and conditions provided in the
Agreement to be paid or performed by the Seller thereunder, including without
limitation all indemnification obligations of the Seller set forth in Article
VII of the Agreement.
2. This Guaranty is unconditional and the liability of Guarantor shall be
primary and absolute, in the same manner as if Guarantor were named in and had
signed the Agreement individually as the Seller thereunder. Guarantor agrees
that neither bankruptcy, insolvency, lack of
<PAGE>
capacity nor any other disability or impediment against enforcement of the
liability of the Seller shall in any manner impair or affect Guarantor's
liabilities and obligations hereunder.
3. It shall not be necessary or required in order to maintain and enforce
Guarantor's liability hereunder that demand be made upon the Seller or that
action be commenced or prosecuted against the Seller or that any effort be made
to enforce the liability or responsibility of the Seller for performance of the
Seller's obligations or duties under or in connection with the Agreement, and it
shall not be required that the Seller or any other party liable on the Agreement
be joined in any action brought against Guarantor for enforcement of Guarantor's
liability and responsibility under this Guaranty, or that judgment have
theretofore been obtained against the Seller or any other party liable therefor
or in connection with any such claim.
4. Guarantor agrees that no waiver by the LRA Companies or forbearance or
delay by the LRA Companies in asserting or enforcing any rights or remedies of
either of the LRA Companies or with respect to the Seller or any other party who
may be or become responsible for performance of any of Seller's obligations or
duties shall in any wise affect, impair, or release Guarantor's liability
hereunder.
5. Guarantor expressly waives and agrees that no notice of default by the
Seller or other notice or demand need be given by the LRA Companies to Guarantor
as a condition of maintaining or enforcing Guarantor's liabilities and
obligations under this Guaranty. Likewise, Guarantor agrees that the LRA
Companies' release or subordination of, or failure or delay to enforce or seek
to realize upon, any security now or hereafter held or acquired by the LRA
Companies for performance of any of the obligations or duties of the Seller
under or in connection with the Agreement, or any other action which either of
the LRA Companies may take or fail to take with respect to or against the
Seller, shall not impair, affect, or release Guarantor's liability hereunder.
6. In the event default is made in the prompt payment of amounts due, or
performance of obligations due, under this Guaranty, and the same is placed in
the hands of an attorney for collection or enforcement, or suit is brought on
same, and the same is collected or enforced through any judicial proceeding
whatsoever, then Guarantor agrees and promises to pay all of the attorneys' and
collection fees, costs and expenses incurred by the LRA Companies in enforcing
their rights hereunder.
7. The obligations of Guarantor shall continue in full force and effect
against Guarantor until all of the obligations guaranteed hereunder have been
paid in full, and fully and finally performed. This Guaranty covers any and all
of such obligations, whether presently outstanding or arising subsequent to the
date hereof. This Guaranty is valid and binding upon and enforceable against
Guarantor and the successors and assigns of Guarantor.
8. All rights of the LRA Companies hereunder or otherwise arising under
any documents executed in connection with or as security for the obligations
guaranteed hereby, are separate and cumulative and may be pursued separately,
successively, or concurrently.
2
<PAGE>
9. Notwithstanding any provision of this Guaranty to the contrary, the
liability of Guarantor hereunder shall not exceed the liability which Guarantor
would have under the Agreement if it had signed the Agreement as the Seller
thereunder.
10. This instrument may be amended or modified only by written instrument
signed by Guarantor and the LRA Companies.
11. This instrument sets forth the entire agreement and understanding
between Guarantor and the LRA Companies with respect to the subject matter
hereof, and 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.
THE UNDERSIGNED ACKNOWLEDGES THAT THE EXECUTION OF THIS GUARANTY RESULTS IN
LIABILITY ON THE PART OF THE UNDERSIGNED FOR THE REPAYMENT OF THE DEBTS AND
THE PERFORMANCE OF THE OBLIGATIONS HEREIN DESCRIBED, AND COULD RESULT IN
THE ATTACHMENT OF THE UNDERSIGNED'S ASSETS. THE UNDERSIGNED ACKNOWLEDGES
HAVING RECEIVED THE ADVICE OF LEGAL COUNSEL PRIOR TO EXECUTION OF THIS
DOCUMENT.
IN WITNESS WHEREOF, the undersigned has executed this Guaranty of
Performance effective as of ______________, 1997.
____________________________________
3
<PAGE>
REPORTING SERVICES ASSOCIATES, INC.
225 South 15th Street--22nd Floor
Philadelphia, Pennsylvania 19102
September 15, 1997
VIA FACSIMILE ONLY
Mr. Richard Looney
Chief Executive Officer
Litigation Resources of America, Inc.
1001 Fannin
Suite 650
Houston, Texas 77002
Dear Mr. Looney:
In furtherance of our conversations of earlier today we have agreed to
revise to some extent the two (2) letters which I faxed to you on September 12,
1997. This letter is intended to replace both of those letters, and neither of
those letters shall now be considered viable or of any effect.
A copy of this letter, when executed by you, on behalf of Litigation
Resources of America, Inc. ("LRA"), shall be considered a legally binding
agreement between LRA and Reporting Services Associates, Inc. ("RSA").
This will confirm that the following accurately sets forth the terms and
provisions of the agreement which you and I have negotiated the past few days on
behalf of LRA and RSA:
--In view of the failure of LRA and RSA to execute a Purchase
Agreement and/or other agreements and related instruments prior to
September 1, 1997 as contemplated by the letter of intent dated July 16,
1997 between LRA and RSA, RSA is no longer required to deal exclusively
with LRA regarding the sale of its assets, and that said letter of intent
has been terminated.
--Notwithstanding the termination of the aforesaid letter of intent
and provided that all of the terms and provisions set forth herein are
satisfied (it being agreed that time is of the essence as to the
satisfaction of all such terms and conditions), RSA agrees that as of the
execution date of this letter, it, RSA, again will exclusively deal with
LRA in good faith negotiations regarding the sale of its assets or its
business through the period or periods of time hereinafter.
<PAGE>
Page Two
Mr. Richard Looney
September 15, 1997
--Upon the execution by LRA and RSA of a mutually acceptable definitive
purchase agreement as defined hereinbelow. LRA will pay RSA the sum of Four
Hundred Thousand Dollars ($400,000.00) in cash, or the acceptable equivalent to
RSA. If the closing of the transaction does not take place by the close of
business on January 15, 1998, then RSA, at its option, may elect to extend the
termination date of the said period of time to March 31, 1998; it may do so,
provided that on or before January 15, 1998 it notifies LRA in writing of its
election to do so and, provided further, that within 72 hours of receipt of said
written notice, LRA pays RSA the additional sum of Eighty Seven Thousand Five
Hundred Dollars ($87,500.00) in cash, or the acceptable equivalent to RSA. In
the event the IPO contemplated by the purchase agreement as defined hereinbelow
has not come to fruition by January 15, 1998 and in the further event RSA does
not exercise its option to extend the termination date to March 31, 1998, it,
RSA, shall repay LRA the sum of Two Hundred Thousand Dollars ($200,000.00) on or
before January 16, 1998.
--On or before Noon (C.D.S.T.), Wednesday, September 17, 1997 LRA and
RSA shall execute a mutually acceptable definitive purchase agreement ("Purchase
Agreement") for the sale of RSA's assets or its business and all other
appropriate related agreements and instruments in form and terms similar to
those documents which have been negotiated to date pursuant to the
aforementioned terminated letter of intent dated July 16, 1997, except that no
payments of cash thereunder shall be made to RSA at the time of execution of the
Purchase Agreement but, rather, said payments shall be promptly made to RSA from
the proceeds of the IPO contemplated by the Purchase Agreement, and the payments
to RSA shall consist of cash in the sum of Seven Million Dollars ($7,000,000.00)
and stock with an aggregate value of Two Million Five Hundred Thousand Dollars
($2,500,000.00) at 90% of the IPO price. The payments to RSA pursuant to the
Purchase Agreement shall not be reduced or offset by any payments to RSA for
its agreement to deal exclusively with LRA as set forth hereinabove.
--Lee R. Goldstein, on behalf of RSA, shall have the right and
opportunity to meet with the representatives of LRA, its underwriters,
accountants, and other individuals who are involved in preparing for its IPO,
and to continue to meet with them, observe their preparations, and review their
work products at any and all times during Monday, September 15, 1997 and
Tuesday, September 16, 1997.
<PAGE>
EXHIBIT 4.6
================================================================================
REGISTRATION RIGHTS AGREEMENT
DATED AS OF SEPTEMBER 17, 1997
BY AND AMONG
LITIGATION RESOURCES OF AMERICA, INC.,
and
GREGG M. ZISKIND & SUSAN L. ZISKIND
================================================================================
<PAGE>
EXHIBIT 4.6
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is entered into
and made as of September 17, 1997, by and among LITIGATION RESOURCES OF AMERICA,
INC., a Texas corporation having its headquarters at 650 First City Tower, 1001
Fannin, Houston, Texas 77002 (the "Company"), and GREGG ZISKIND and SUSAN L.
ZISKIND (the "Shareholders").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Sellers have been issued 158,824 shares of Common Stock, as
such term is hereinafter defined, (the "Common Shares") of the Company in
connection with that certain Stock Purchase Agreement executed as of even date
herewith by and between the Sellers, the Company and Litigation Resources of
America-California, Inc., a California corporation and a wholly owned subsidiary
of the Company (the "Purchase Agreement");
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"), (x) Registration Rights Agreement dated September 4, 1997, by and
between the Company and Amicus One Support Services, Inc., the Company has
granted certain piggyback rights to Amicus One Support Services, Inc. (the
"Amicus One Registration Rights Agreement, and
<PAGE>
(xi) Registration Rights Agreement dated September 17, 1997, by and between the
Company and Elaine P. Dine, Inc. ("EPD"), and Elaine P. Dine Temporary
Attorneys, L.L.C., ("EPD Temp"), the Company has granted certain piggyback
rights to EPD and EPD Temp (the "Elaine Dine Registration Rights Agreement;
WHEREAS, the Company has agreed to grant certain piggyback
registration rights to Shareholder 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 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.
-2-
<PAGE>
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, 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, the Amicus One Registration Rights
Agreement, and the Elaine Dine Registration Rights Agreement, collectively.
RECORDS - Section 3.1.
REGISTRABLE SECURITIES - any (i) Common Shares, and (ii) 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.
REQUESTED SECURITIES - Section 2.1.
RESTRICTION - Section 2.2.
SELLER REGISTRATION RIGHTS - Section 3.3.
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SECTION 2. REGISTRATION RIGHTS.
2.1 PIGGYBACK REGISTRATION.
(a) If at any time or from time to time after the closing of the IPO and
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
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
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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 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 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
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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 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;
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(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 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
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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 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
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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 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
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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 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
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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 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
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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 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.
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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 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.
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: John W. Menke
Phone: 713/871-2025
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<PAGE>
Fax: (713) 871-2024
(ii) If to the Holder, to: Gregg M. & Susan L. Ziskind
10442 Cheviot Drive
Los Angeles, California 90064
Telephone: (714) 839-2076
Telefax: (714) 841-2258
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.
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.
-14-
<PAGE>
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.
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, 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.
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<PAGE>
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.
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<PAGE>
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: _____________________________________
Name:________________________________
Title:_________________________________
SHAREHOLDER:
____________________________
GREGG M. ZISKIND
____________________________
SUSAN L. ZISKIND
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<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated effective the
17 day of January, 1997 (the "Effective Date"), is entered into by and among
LITIGATION RESOURCES OF AMERICA, INC., a Texas corporation ("Buyer"), LOONEY &
COMPANY, a Texas corporation (the "Company"), and RICHARD O. LOONEY, an
individual residing in the State of Texas (the "Employee"). The Company and
Buyer may sometimes hereinafter be referred to collectively as "Employers" or
singularly as "Employer." The Employers and Employee may sometimes hereinafter
be referred to singularly as a "Party" or collectively as the "Parties."
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Employee has been the President and Chief Executive
Officer and sole shareholder of the Company and his knowledge of the affairs of
the Company, particularly the court reporting business in Texas and nationwide,
are of great value to the Employers;
WHEREAS, pursuant to the terms of that certain Stock Purchase
Agreement executed effective as of the Effective Date by and between Buyer and
the Employee (the "Purchase Agreement"), Buyer has purchased from the Employee,
and the Employee has sold to the Buyer all of the shares of issued and
outstanding capital stock of the Company;
WHEREAS, part of the consideration given to the Employee under the
Purchase Agreement included an agreement by the Employers to enter into this
Agreement; and
WHEREAS, the Employee would not have entered into the Purchase
Agreement without the Employers' execution of this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants,
promises and undertakings hereinafter contained, the Parties hereby undertake
and agree as follows:
1. Employment Term. The Employers hereby employ the Employee
---------------
commencing on the date hereof (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 prior to the
expiration of the initial term or any such renewal term. 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 employment and agrees to perform the services specified herein, all
upon the terms and conditions hereinafter stated.
<PAGE>
2. Duties. The Employee shall serve as the Chief Executive
------
Officer ("CEO") and President of each of the Employers, and shall report to, and
be subject to the general direction and control of, the Board of Directors of
the Company and the Board of Directors of the Buyer (collectively, the
"Boards"). 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 Boards including developing national, regional and local
customers for the Employers and its Affiliates, and agreeing to serve as the
Chief Executive Officer and President of each of the Employers and such other
Affiliates of the Employers as the Boards may from time to time designate. The
Employee also agrees to perform, without additional compensation, such other
services for the Employers, and for any parent, subsidiary or affiliate
corporations of the Employers and any partnerships in which the Employers may
from time to time have an interest (herein collectively called "Affiliates"), as
the Boards shall from time to time specify, if such services are of the nature
commonly associated with the position of a CEO and a President of a company
engaged in activities similar to the activities engaged in by the Employers;
provided, however, that Employee shall under no circumstances be required by the
Company to relocate his primary residence, and further provided, that Employee
shall not be required to engage in any business that is not reasonably related
to the Business of the Employers, as hereinafter defined. Notwithstanding the
foregoing, the duties of Employee shall not include the duty to act in the
capacity of a court reporter.
3. Extent of Service. The Employee shall devote his full
-----------------
business time, attention and energy to the business of the Employers, 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 Two Hundred Thousand and No/100
Dollars ($200,000.00) per year effective as of the date hereof which
shall be payable during the term of this Agreement in accordance with
the payroll policies of the Employers in effect from time to time (but
in no event less frequently than monthly); and
(b) a bonus as specified in Schedule A.
5. Expenses. During the term of this Agreement, the Employers
--------
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 Employers as hereinafter defined, and
approved by the Boards or incurred in accordance with the travel and
reimbursement policies of the Employers as the same shall be in effect from time
to time,
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<PAGE>
upon submission by him of an appropriate statement documenting such expenses.
The Employers shall also pay the Employee an automobile allowance in the amount
of $750.00 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
Employers, 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 Boards.
Until the Buyer is able to procure its own insurance coverage, the Employers
agree to continue the prior insurance previously provided to the Employee by the
Company. The Employers will use 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 Employers 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.
8. Covenants of Employee. For and in consideration of the
---------------------
employment herein contemplated and the consideration paid or promised to be paid
by the Employers, 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 Employers, except at the direction or approval
of the Employers.
(b) The Employee will use his best reasonable efforts to
truthfully and accurately make, maintain and preserve all records
and reports that the Employers 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
Employers 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 Employers.
(d) The Employee will obey all rules, regulations and special
instructions of the Employers applicable to him, and will be loyal
and faithful to the Employers at all times.
(e) The Employee will make available to the Employers any and
all of the information of which he has knowledge relating to the
business of the Employers,
-3-
<PAGE>
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 Employers all books, records, forms, specifications,
formulae, data, processes, papers and writings related to the
business of the Employers and all other property belonging to the
Employers, together with all copies of the foregoing, it being
understood and agreed that the same are the sole property of the
Employers.
(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 Employers (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 Employers and shall be the sole and
exclusive property of the Employers. The Employee hereby assigns
all of his right, title and interest in and to all such intangible
rights to the Employers, and its successors or assigns. In the
event that any of said intangible rights shall be deemed by the
Employers to be patentable or otherwise registerable under any
federal, state or foreign law, the Employee further agrees that,
at the expense of the Employers, 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
Employers full title thereto.
9. Mutual Covenants of the Employers and the Employee. For and
--------------------------------------------------
in consideration of the employment herein contemplated and the compensation,
covenants, conditions and promises herein recited, the Employers 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 Employers.
(b) In carrying out his duties as CEO and President of each
of the Employers, the Employee shall primarily be responsible for
making day to day decisions in the ordinary course of business of
the Employers, subject to possible review by the Boards. The
Employers' plans, properties, contracts, methods, and policies,
shall be vested in the Boards and the Employers may, in their sole
and absolute discretion, give, sell, assign, transfer or otherwise
dispose of any or all of
-4-
<PAGE>
their 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 Employers.
(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 Employers.
10. Termination of Employment for Cause. The Employers may
-----------------------------------
terminate the employment of the Employee if the Employers suffer 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 written
note thereof;
(b) Misappropriating funds or property of either of the
Employers;
(c) Securing any personal profit not thoroughly disclosed to
and approved by the Employers in connection with any transaction
entered into on behalf of the Employers;
(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 Employers 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 corporate policies of either of
the Employers 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.
-5-
<PAGE>
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 Employers then have 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 Employers 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 Employers 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 Employers 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 Employers may mutually agree that he is "Disabled"
within the meaning of this Agreement.
11. Termination By the Employers Without Cause or By the Employee
-------------------------------------------------------------
With Good Reason. The Employers 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 breach of this Agreement by the
Employers which shall include but not be limited to materially changing the
duties assigned to Employee beyond those contemplated in paragraph 2 of this
Agreement or causing Employee to relocate his primary residence in violation of
paragraph 2 of this Agreement; provided that the Employers 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
Employers 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 Employers. In the event of a Termination
Without Cause or a Termination with Good Reason by the Employee the Employers
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
-6-
<PAGE>
period of the lesser of: (i) one (1) year , or (ii) the remaining term of this
Agreement which, 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
Employers and its Affiliates for any contractual or tort claims arising out of
his employment relationship with the Employers.
12. Covenant Not to Compete. The Employee recognizes that the
-----------------------
Employers have 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 Employers will provide, the
Employers' agreement to employ the Employee on the terms and conditions set
forth herein, the Employers' agreement to execute and consummate the Purchase
Agreement, and the promotion and advertisement by the Employers of Employee's
skill, ability and value in the Employers' 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 Employers 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 Employers at the time of such
termination, which consists in whole or in part of the Business of
the Employers (as defined hereinafter). For purposes of this
Agreement, the "Business of the Employers" shall be defined as the
current business of the Employers and their Affiliates, including,
but not limited to, the providing of court reporting and
litigation support services; and
(b) Employee will not call upon any customer whose account
is serviced in whole or in part by the Employers or their
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
Employers or their Affiliates; and
(c) Employee will not intentionally divert, solicit or take
away any customer, supplier or employee of the Employers or their
Affiliates, or the patronage of any customer or supplier of the
Employers or their Affiliates, or otherwise interfere with or
disturb the relationship existing between the Employers or their
Affiliates and any of their respective customers, suppliers or
employees, directly or indirectly.
-7-
<PAGE>
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 so long
as the Employers are making payments to the Employee as required by Section 11
herein.
In the event the Employers cease operation of the Business of the
Employers other than in a merger, consolidation, or similar transaction, or upon
the filing of a bankruptcy or receivership proceeding against the Employers, or
upon the appointment of a liquidator for the Employers, 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 Employers, 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 Employers shall be entitled, at their 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 Employers.
Notwithstanding any provision in this Agreement, the obligations
of the Employee pursuant to this Section 12 shall terminate immediately upon the
occurrence of (i) an event of default in making payments, if any, under the
terms of the Buyer Preferred Shares, as such term is defined in the Purchase
Agreement, which does not constitute exercise of the offset rights by the Buyer
as permitted by the Purchase Agreement and which is not cured within any
applicable time periods , or (ii) a default of any of the obligations of the
Employers under this Agreement, but only after fifteen (15) days after the
delivery by Employee to the Employers of a notice detailing such default, during
which the Employers shall have an opportunity to cure.
13. Business Opportunities. Except for investments by the
-----------------------
Employee in publicly traded corporations, or investments in private ventures
which do not compete with the Employers 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 Employers and thereafter with respect to any business
opportunities learned about during the time of Employee's employment by the
Employers, 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 Employers, the Employers 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
Boards in writing of the existence of such
-8-
<PAGE>
opportunity or proposal and the Employee may take advantage of such opportunity
only if the Employers do 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 Employers, he will receive certain
trade secrets, know-how, lists of customers, employee records and other
confidential information and knowledge concerning the Business of the Employers
(hereinafter collectively referred to as "Information") which the Employers
desire to protect. The Employee understands that such Information is
confidential and he agrees that he will not reveal such Information to anyone
outside the Employers except for (i) 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 Employers. Upon termination of his employment
hereunder, the Employee shall surrender to the Employers 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 Employers.
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, 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:
If to the Company: Looney & Company
1001 Fannin, Suite 650
Houston, Texas 77002
Telefax:(713) 653-7172
Attn: Chairman of the Board
Copy to: Litigation Resources of America, Inc.
3850 Nationsbank Center
700 Louisiana Street
Houston, Texas 77002-2731
Attn: G. Kent Kahle
Telefax: (713) 238-4999
-9-
<PAGE>
If to the Buyer: Litigation Resources of America, Inc.
3850 Nationsbank Center
700 Louisiana Street
Houston, Texas 77002-2731
Attn: G. Kent Kahle
Telefax: (713) 238-4999
Copy to: Looney & Company
1001 Fannin, Suite 650
Houston, Texas 77002
Telefax:(713) 653-7172
Attn: Chairman of the Board
If to the Employee: Richard O. Looney
11717 Forest Glen
Houston, Texas 77024
Telefax:(713) 784-1708
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 Employers 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 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; provided, however in the event of the death of Employee, any
payments that Employee is entitled to receive may be assigned to the
beneficiaries of the Employee's estate.
-10-
<PAGE>
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 Employers.
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 Employers 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 Employers 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 Employers. 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
Employers.
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 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 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
-11-
<PAGE>
in Harris County, 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.
-12-
<PAGE>
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
By: [ILLEGIBLE SIGNATURE APPEARS HERE]
----------------------------------
President
----------------------------------
----------------------------------
THE BUYER:
LITIGATION RESOURCES OF AMERICA, INC.,
a Texas corporation
By: /s/ G. Kent Kahle
----------------------------------
G. Kent Kahle
President
THE EMPLOYEE:
/s/ Richard O. Looney
-------------------------------------
Richard O. Looney
-13-
<PAGE>
SCHEDULE A
----------
CALCULATION OF ANNUAL BONUS
During each fiscal year, the accountants regularly employed by the
Buyer shall determine the amount of net pre-tax profits (excluding the
amortization of any debt discount), if any, of the Buyer during each consecutive
twelve (12) month time period of October 1 through September 30 ("Annual Pre-Tax
Profits"), with the first year commencing on the Effective Date through
September 30, 1997 and the last year commencing on October 1, 1999 and ending on
January 17, 2000. All partial years shall be determined on a pro rata basis.
The Board of Directors shall in good faith determine an annual budget for the
pre-tax income of the Buyer (excluding the amortization of any debt discount)
(the "Budgeted Pre-Tax Profits"). At the end of six (6) months into a fiscal
year (except for the years of 1997 and 2000), the Pre-Tax Profits for such six
(6) month period (the "Semi-Annual Pre-Tax Profits") shall be determined and if
the Semi-Annual Pre-Tax Profits earned through such date are seventy-five
percent (75%) or more one-half (1/2) of the Budgeted Pre-Tax Profits, then a
bonus pool of nine and one/tenth (9.1%) of the amount of such Semi-Annual Pre-
Tax Profits earned through such date, if any, shall be set aside (the "Semi-
Annual Bonus Pool"). Employee shall be paid an amount equal to or greater than
seventy-five percent (75%) of Semi-Annual Bonus Pool. In the event the Annual
Pre-Tax Profits for a particular fiscal year are seventy-five percent (75%) or
more of the Budgeted Pre-Tax Profits for that complete year, then a bonus pool
of nine and one/tenth (9.1%) of the amount of such Annual Pre-Tax Profits, if
any, shall be set aside (the "Annual Bonus Pool"). Employee shall then be paid
an amount equal to or greater than seventy-five percent (75%) of such Annual
Bonus Pool less the amount, if any, paid Employee out of the Semi-Annual Bonus
Pool. For the first time period of the Effective Date through September 30,
1997, there shall be one calculation and one payment, as well as the last time
period of October 1, 1999 through January 17, 2000, with all determinations
being made on a pro rata basis. All bonus payments shall be made within thirty
(30) days after the end of each semi-annual time period or other applicable time
period for which they are calculated. Notwithstanding anything to the contrary
contained herein, if the Buyer has more than two salaried executive officers
that are participants in the Semi-Annual Bonus Pool or the Annual Bonus Pool,
then he shall be paid a bonus of at least fifty percent (50%) instead of at
least seventy-five percent (75%) of the Semi-Annual Bonus Pool or the Annual
Bonus Pool, if any. Notwithstanding anything to the contrary contained herein,
under no circumstances shall Employee be paid an amount under the Semi-Annual
Bonus Pool and/or the Annual Bonus Pool that when combined with his base salary
under paragraph 4 exceeds an aggregate amount of $300,000 on an annualized
basis, or a pro-rata lesser amount of $300,000 if less than a full year of Semi-
Annual Bonus Pool payments and/or Annual Bonus Pool Payments are made.
-14-
<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated effective the 17th
day of January, 1997, is entered into by and among KLEIN, BURY AND ASSOCIATES,
INC., a Florida corporation (the "Company"), MICHAEL KLEIN (the "Employee") and
LITIGATION RESOURCES OF AMERICA, INC., a Texas corporation (the "Buyer"). The
Company, Employee and the Buyer may sometimes hereinafter be referred to
singularly as a "Party" or collectively as the "Parties."
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Employee has been the President and Chief Executive Officer
and sole shareholder of the Company and his knowledge of the affairs of the
Company, particularly the court reporting business in Florida and nationwide,
are of great value to the Company and the Buyer;
WHEREAS, pursuant to the terms of that certain Stock Purchase
Agreement executed and effective of even date herewith by and between Litigation
Resources of America, Inc., a Texas corporation (the "Buyer"), and Employee (the
"Purchase Agreement"), the Buyer has purchased from the Employee, and the
Employee has sold to the Buyer all of the shares of issued and outstanding
capital stock of the Company;
WHEREAS, part of the consideration given to the Employee under the
Purchase Agreement included an agreement by the Company and the Buyer to enter
into this Agreement, as well as the execution of that certain Subordinated
Promissory Note in the principal amount of $1,350,000 executed by the Buyer as
of even date herewith (the "Note"); and
WHEREAS, the Employee would not have entered into the Purchase
Agreement without the Company's execution of this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants,
promises and undertakings hereinafter contained, the Parties hereby undertake
and agree as follows:
1. Employment Term. The Company hereby employs the Employee
---------------
commencing on the date hereof (the "Effective Date") for a term of three (3)
years, 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 prior to the expiration of
the initial term or any such renewal term. Sections 12 - 26 of this Agreement
shall survive the expiration or termination of this Agreement, except as
otherwise provided herein. 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
------
Company and shall report to, and be subject to the general direction and control
of, the Chief Executive Officer ("CEO") and the Board of Directors of the
Company (the "Board"). The Employee shall perform such
<PAGE>
management and administrative duties, consistent with the Employee's position,
as are from time to time assigned to the Employee by the CEO and the Board
including developing national, regional and local customers for the Company and
its affiliates. 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 CEO or Board shall from time to time specify, if
such services are of the nature commonly associated with the position of a
President of a company engaged in activities similar to the activities engaged
in by the Company; provided, however, that Employee shall under no circumstances
be required by the Company to relocate his primary residence, and further
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.
Notwithstanding the foregoing, the duties of Employee shall not include the duty
to act in the capacity of a court reporter. The Employee may, at any time during
the term of this Agreement, provided he has performed the duties required of him
hereunder, perform court reporting services for the Company, in which case
Employee shall be paid an additional amount of compensation as provided in
Section 4(c) hereof.
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 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 ($150,000.00) per year effective as of the date hereof which shall
be payable during the term of this Agreement in accordance with the payroll
policies of the Company in effect from time to time (but in no event less
frequently than monthly); and
(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"); provided, however, that any Annual
Bonus calculated with respect to a fiscal year during which the Employee
was employed for only a part of such year shall be prorated to account for
the number of days during such year in which Employee was employed by the
Company.
(c) Eighty-five percent (85%) of the amount billed by the Employee
in his capacity as a court reporter for the Company, up to a maximum of
eight (8) depositions
-2-
<PAGE>
of his choice per month; provided, however that in the event the Company
has need of his services as a court reporter due to a shortage of
personnel, the Employee will be entitled to receive compensation for said
deposition assignment(s) that exceed eight (8) per month at the Company's
then standard rate. The Company shall pay Employee for all court reporting
services performed by Employee for the eight (8) weeks prior to the
execution date hereof at an amount equal to 85% of the invoiced amount.
(d) Employee shall also be entitled to three percent (3%) of any
non-Florida based revenue earned by the Company or its Affiliates from a
specified client that is primarily attributable to Employee's promotional
efforts (such clients being herein referred to as "Referred Clients") in
the first year that revenues are received by the Company, measured from the
initial date of invoice, and two percent (2%) of any revenues received by
the Company from that specified Referred Client for all additional years so
long as this Agreement is in effect. In order to facilitate the
determination of those clients that constitute Referred Clients, the
Employee shall submit a list of such clients that he believes constitute
Referred Clients from time to time to the Buyer documenting the efforts of
the Employee in connection therewith. In the event the Company does not
object to any clients on such list within ten (10) business days after
receipt thereof, then such clients shall be deemed to constitute Referred
Clients. In the event Buyer disagrees within such ten (10) day period, then
Buyer and the Employee shall attempt to resolve such disagreement. If the
Buyer and the Employee are not able to resolve any disagreement concerning
Referred Clients, then either Buyer or the Employee may seek binding
arbitration in accordance with Section 24 of this Agreement.
Notwithstanding anything to the contrary, the obligation of the Company to
make such payments shall continue through August 31, 1999 even in the event
of the earlier termination of the Employee's employment, unless such
termination of employment is as a result of a termination for Cause (as
hereinafter defined) or a voluntary termination of employment by Employee
that does not constitute a Termination with Good Reason (as hereinafter
defined).
5. Expenses. During the term of this Agreement, the Company shall
--------
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 (as hereinafter defined), and
approved by the Chief Executive Officer 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. Notwithstanding the preceding sentence, Employee
shall be entitled to an allowance of $40,000.00 per year to expend in any way
that he, in his sole discretion, deems necessary or desirable to promote the
Business so long as such expenditures are fully or partially deductible by the
Company in accordance with federal tax laws. In addition, throughout the term
of this Agreement, the Employee shall be entitled to receive an automobile
allowance 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
-3-
<PAGE>
to the executive employees of the Buyer, 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 of Directors of the Buyer from time to time.
Until the Buyer is able to procure its own insurance coverage, the Company
agrees to continue the prior insurance previously provided to the Employee by
the Company. The Buyer and Company will use commercially reasonable 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 six (6)
weeks per year, during which time his compensation shall be paid in full.
Unused vacation time shall not accrue from year to year.
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:
(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 except
at the direction or approval of 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,
-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 said 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 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) Complete control of the Company, including, but not
limited to, its plans, properties, contracts, methods, and policies,
shall be established by the Board of Directors and the Employee shall
not, by reason of anything contained in this Agreement, either express
or implied, have any control over such matters, 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 business 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 work as many
hours in any week as the necessities of the business may reasonably
demand, and acknowledges that the number of hours per day or per week
-5-
<PAGE>
may vary. Notwithstanding the foregoing, the Employee shall work in a
manner that is consistent with his prior customary practice on behalf
of the Company.
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 affect 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 fifteen (15) days after 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 other than as provided in or
contemplated by this Agreement or the Purchase Agreement;
(d) Engaging in conduct, even if not in connection with the
performance of his duties hereunder, which results in a material
adverse effect upon the interests of the Company, such as his
conviction 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) consecutive days;
(f) Willfully and materially failing to carry out and perform
duties assigned to the Employee in accordance with the terms hereof
and failing to cure such breach within fifteen (15) days after written
notice thereof; or
(g) Willfully and materially failing to comply with written
corporate policies of the Company that are promulgated from time to
time by the Company's Board of Directors, and failing to cure such
breach within fifteen (15) days after written notice thereof.
In addition, in the event of the death of the Employee, such
occurrence shall immediately constitute a termination for "Cause".
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
less the amount of actual damages, if any, caused to the Company by such breach.
-6-
<PAGE>
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
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 breach of this Agreement by the
Company which shall include but not be limited to materially changing the duties
assigned to Employees beyond those contemplated in paragraph 2 of this Agreement
or causing Employee to relocate his primary residence in violation of paragraph
2 of this Agreement; 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 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. In such event, the Employee shall be
required to furnish the Company notice of the violation, but the Company shall
not be furnished an opportunity to cure. In the event of a Termination Without
Cause or a Termination with Good Reason, 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 of the lesser of: (i) one (1) year from the date of such termination, or
(ii) the remaining term of this Agreement which 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 good will 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, 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 With Good Reason prior to
expiration of the term
-7-
<PAGE>
of the Agreement, or (iii) upon the expiration of the term of this Agreement,
then during Employee's employment under this Agreement, and for a period of
three (3) years after any termination of employment:
(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 Company at the time of such termination,
which consists in whole or in part of the Business of the Company (as
defined hereinafter). For purposes of this Agreement, the "Business of
the Company" shall be defined as the current business of the Company
and its Affiliates, including, but not limited to, the providing of
court reporting and litigation support services; 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
its respective customers, suppliers or employees, or court reporters
performing services for the company, 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 with Good Reason by the Employee, but only for so long as the
Company is making payments to the Employee as required by Section 11 herein.
Notwithstanding anything to the contrary contained herein, 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.
Notwithstanding anything to the contrary contained herein, the
provisions of this Section 12 shall be null and void if the Company fails to
timely pay the Employee any amounts due and owing to the Employee under this
Agreement; provided, however, that the Employee shall furnish the Company prior
written notice of such breach by the Company and permit the Company fifteen (15)
days to cure such violation and further provide that such breach by the Company
is not as a result of the Employee's breach of this Agreement. Any past due
payments due and owing by the Company to the Employee shall bear interest at the
rate of twelve percent (12%) per annum.
-8-
<PAGE>
In the event 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 Company, or upon the
appointment of a liquidator for 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 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
as provided in Section 16 of this Agreement), and to specific performance of
said covenants in addition to any other remedies at law or equity that may be
available to the Company.
Notwithstanding any provision in this Agreement, the obligations of
the Employee pursuant to this Section 12 shall terminate immediately upon the
occurrence of: (i) an Event of Default (as that term is defined in the Buyer
Note) under the Buyer Note which is not as a result of exercising its offset
rights as granted by the Purchase Agreement and which is not cured within the
time periods provided pursuant to the terms of the Buyer Note; or (ii) a default
of any of the obligations of the Company under this Agreement, but only fifteen
(15) days after the delivery by the Employee to the Company of a notice
detailing such default, during which the Company shall have an opportunity to
cure. Notwithstanding the preceding sentence, in the event that an Event of
Default occurs under the Buyer Note as a result of the Company's non-payment
under the Buyer Note, which remains uncured for one hundred eighty (180) days,
and such payment, if made, would cause the Company to violate the terms of
either of the Subordination Agreements (as such term is defined in the Buyer
Note), then only Section 12(a) of this Section 12 shall terminate immediately,
and the remainder of this Section 12 shall remain in full force and effect.
13. Business Opportunities. Except for investments by the Employee
-----------------------
in publicly traded entities, or investments in private ventures which do not
compete with 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 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 of Directors in writing of the existence
of
-9-
<PAGE>
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
for (i) Information already known to the public, or (ii) in connection with any
legal proceeding regarding this Agreement, the Purchase Agreement or the
transactions contemplated thereby. 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, 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:
If to Company: Klein, Bury & Associates, Inc.,
Richard O. Looney
Chief Executive Officer
44 W. Flagler St., Suite 675
Miami, Florida 33130
Fax: (713) 653-7171
If to Buyer: Litigation Resources of America, Inc.
650 First City Tower
1001 Fannin
Houston, Texas 77002
Attn: Richard O. Looney,
Chief Executive Officer
Fax: (713) 653-7171
If to Employee: Michael Klein
12350 Vista Lane
Miami, Florida 33156
Fax: (305) 358-1427
-10-
<PAGE>
Any Party may change its address for notice hereunder by providing written
notice of such change to the other Parties hereto. Any notices to the Company
shall require a copy thereof to be sent to the Buyer, and any notices to the
Buyer shall require a copy to be sent to the Company.
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 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 Florida.
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.
-11-
<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 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 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 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 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 expenses related to
the arbitration, including counsel fees, except to the extent otherwise provided
in Section 25 herein, 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. 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.
27. 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.
-12-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date and year first above written.
THE COMPANY:
KLEIN, BURY & ASSOCIATES, INC.,
a Florida corporation
By: /s/ Richard O. Looney
-------------------------------------
Richard O. Looney
Chief Executive Officer
THE BUYER:
LITIGATION RESOURCES OF AMERICA, INC.,
a Texas corporation
By: /s/ G. Kent Kahle
-------------------------------------
G. Kent Kahle
Chief Executive Officer
THE EMPLOYEE:
/s/ Michael Klein
------------------------------------------
Michael Klein
-13-
<PAGE>
SCHEDULE A
----------
CALCULATION OF ANNUAL BONUS
During each year the accountants regularly employed by the Company
shall determine the amount of Net Profit, if any, of the Company during each
consecutive twelve (12) month time period of January 1 through December 31
("Annual Profits"), commencing with the calendar year 1996 and continuing each
year during the term of this Agreement. Beginning at the end of 1997, 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.
-14-
<PAGE>
EXHIBIT 10.7
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
-1-
<PAGE>
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:
-2-
<PAGE>
(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
-3-
<PAGE>
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 10.8
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:
-4-
<PAGE>
(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
-5-
<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;
-6-
<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)
-8-
<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
-9-
<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.
-10-
<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.
-11-
<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.
-12-
<PAGE>
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
-13-
<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 10.9
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 10.10
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 10.11
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 10.12
- --------------------------------------------------------------------------------
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>
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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>
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<TABLE>
<S> <C>
12.5 Participation................................................ 55
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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
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</TABLE>
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<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,
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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.
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<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,
-7-
<PAGE>
(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.
-8-
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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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<PAGE>
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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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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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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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.
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<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.
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<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
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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
-7-
<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"
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<PAGE>
Exhibit 8.2.C
Certificate of Compliance
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____________, 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
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A. Funded Debt is: $ _________________
B. Cash Flow is: $ _________________
C. Ratio of A to B is: :1.00 ______ :1.00
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(Section 7.2.A)
D. Fixed Charges are: $ _________________
E. Fixed Charge Coverage
Ratio is: :1.00 ______ :1.00
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(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,
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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:
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[_] 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:_________________________________
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Exhibit 9.1.G
Seller Debt Subordination Agreement-EDP
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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
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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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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
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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
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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
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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
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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.
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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
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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
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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
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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
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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
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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
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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.
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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
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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
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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,
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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
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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
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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
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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
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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
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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
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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
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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.
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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
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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
NINE NINE NINE
MONTHS MONTHS MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1997
<S> <C> <C> <C>
PRIMARY:
Weighted average common shares
outstanding....................... 1,735 1,735 1,735
Assumed conversion of preferred
stock issued within one year of
initial public offering........... 1,743 1,743 1,743
Assumed conversion of convertible
subordinated promissory notes..... 227 227 227
Net effect of dilutive stock
options:
Options granted at prices below
assumed initial public offering
price............................ 278 278 278
Shares assumed repurchased at
assumed initial public offering
price............................ (90) (90) (90)
Assumed issuance of stock to fund
distribution to owner............. -- -- 333
------ ------ ------
Total primary shares............. 3,893 3,893 4,226
====== ====== ======
Net income (loss).................. $ 339 $ (83) $ (83)
Accretion of preferred stock....... -- (479) (479)
------ ------ ------
Net loss attributable to common
shareholders...................... -- $ (562) $ (562)
------ ------ ------
Net income (loss) per share........ $ 0.09 $(0.14) $(0.13)
====== ====== ======
FULLY DILUTED:
Weighted average common shares
outstanding....................... 1,735 1,735 1,735
Assumed conversion of preferred
stock issued within one year of
initial public offering........... 1,743 1,743 1,743
Assumed conversion of convertible
subordinated promissory notes..... 227 227 227
Net effect of dilutive stock
options:
Options granted at prices below
assumed initial public offering
price............................ 278 278 278
Shares assumed repurchased at
assumed initial public offering
price............................ (90) (90) (90)
Assumed issuance of stock to fund
distribution to owner............. -- -- 333
------ ------ ------
Total fully diluted shares....... 3,893 3,893 4,226
====== ====== ======
Net income (loss).................. $ 339 $ (83) $ (83)
====== ====== ======
Accretion of preferred stock....... -- (479) (479)
Net loss attributable to common
shareholders...................... -- $ (562) $ (562)
====== ====== ======
Net income (loss) per share........ $ 0.09 $(0.14) $(0.13)
====== ====== ======
</TABLE>
<PAGE>
U.S. LEGAL SUPPORT, INC.
EXHIBIT 11.2--COMPUTATION OF PRO FORMA EARNINGS PER SHARE
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1996 SEPTEMBER 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
Assumed conversion of
convertible
subordinated
promissory notes..... 227 227 227
Net effect of dilutive
stock options:
Options granted at
prices below assumed
initial public
offering price...... 278 278 278
Shares assumed
repurchased at
assumed initial
public offering
price............... (90) (90) (90)
Shares issued in
initial public
offering............. 3,500 3,500 3,500
------- ------ ------
Total primary
shares............. 8,002 8,002 8,002
======= ====== ======
Pro forma net income.. $ 2,482 $1,731 $2,679
======= ====== ======
Pro forma net income
per share............ $ 0.31 $ 0.22 $ 0.33
======= ====== ======
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
Assumed conversion of
convertible
subordinated
promissory notes..... 227 227 227
Net effect of dilutive
stock options:
Options granted at
prices below assumed
initial public
offering price...... 278 278 278
Shares assumed
repurchased at
assumed initial
public offering
price............... (90) (90) (90)
Shares issued in
initial public
offering............. 3,500 3,500 3,500
------- ------ ------
Total fully diluted
shares............. 8,002 8,002 8,002
======= ====== ======
Pro forma net income.. $ 2,482 $1,731 $2,679
======= ====== ======
Pro forma net income
per share............ $ 0.31 $ 0.22 $ 0.33
======= ====== ======
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File
No. 333-36575) (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 audits 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 October 21, 1997, of our
audits of the financial statements of Amicus One Legal Support Services, Inc.,
(xiii) of our report dated September 19, 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
November 5, 1997
<PAGE>
November 6, 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/ Ronald C. Lassiter
-------------------------------------
Ronald C. Lassiter
